Wednesday, March 27, 2013

Breaking News: Insurance Costs Money, Scandal Ensues.

At first glance, this chart may induce panic:
You're shocked and appalled at how we were lied to about the costs of Obamacare, right? Well you shouldn't be, honestly. And I'm a little disappointed that the generally careful David Frum bought into this. Anyway, the data that Heritage used is in fact from the Congressional Budget Office, but what they've left out is the fact that the nine to ten year window used to "score" or estimate the costs of the Affordable Care Act has shifted into the future along with the newer estimates. 

So why is that important? Well, the Affordable Care Act goes into full effect in 2014, when everyone will be required, per the individual mandate, to purchase insurance. For an explanation of the mandate, see here. Anyway, some people will get subsidies or tax credits to purchase insurance, others will use Medicaid, etc. Naturally all of this costs money.  Now, when the first cost estimate came out, it covered the period between 2010 and 2019 and was around $898 billion dollars. You'll note that between 2010 and 2014 when the mandate goes into effect, there are four years in that estimate where there's no Medicaid expansion or tax credits or subsidies. 

In the latest February 2013 estimate, the 2013-2023 costs were put at around $1.6 trillion. Now the reason this shouldn't be surprising or scandalous to anyone is that the estimate window now includes three additional years of insurance coverage (not to mention an additional year in the scoring window). So of course the costs are going to be higher--insurance costs money!

If you look at the yearly cost estimates of the program where there's some overlap in the CBO reports, say, 2014 to 2019, and compare the 2010 and 2013 cost estimates for each year, you'll find something interesting, so here's a chart I threw together (the units on the Y-axis are in billions of dollars):



Those estimates look pretty consistent to me, within a margin of error. So where's the scandal here? Where's the cover-up of the true costs by the Obama Administration or the CBO? Because I don't see one.

Monday, March 25, 2013

The False Populism of Gold Buggery


One of the most puzzling things about modern gold bugs is the fact that so much of their rhetoric is made out to be populist, with fiat money being a tool benefiting only the rich and well-connected. The way that they view the narrative of American--and indeed global--economic history seems to be one in which the gold standard lay at the heart of America's economic growth in the 19th and 20th centuries. That is, until FDR and his elitist bankster cronies took us off the gold standard in 1933 for their own selfish motives. Here are a few snippets from Ron Paul's own website:
"Who benefits from inflation? Only those who are at the top of the pyramid and receive all that new money directly from the source. As you might have guessed by now, the source is the Federal Reserve."
"If our money were backed by gold and silver, people couldn’t just sit in some fancy building and push a button to create new money."
"As you can see, inflation and fiat money are very seductive and beneficial to those at the top, and very dangerous to everyone else and the nation as a whole." 
At this point, you might be wondering, "Wasn't FDR utterly despised by most wealthy people?" Well, yes. He was. He once said, "They [the wealthy and well-connected]  are unanimous in their hate for me--and I welcome their hatred." It hardly seems sensible, then, to think that he took us off the gold standard to benefit those who hated him the most.

That's precisely why this retelling of history isn't true. Roosevelt took us off the gold standard to help ordinary people--most of whom were mired in debt. To understand how inflation helps debtors, a quick lesson may be in order:

When a central bank creates money, it creates, in effect, inflation. On a gold standard, the ability of a central bank to create money is restrained, so deflation is much more severe during depressions and other shocks to aggregate demand since the central bank can't print money to counteract falls in prices.

Imagine that you've just taken out a mortgage on your house for $100,000 and that your annual income is $50,000. Now imagine that, for the sake of argument, prices for whatever reason double in the economy--an exaggerated inflation, but just go with it for now. Your income would double to $100,000, BUT your mortgage would stay the same because it's locked in contractually. So now it takes you one year of income to pay it off instead of two. This is what inflation does to those with debts--it helps them out at the expense of creditors.

To someone with $10,000 in savings, a doubling of prices means that your savings--which would stay the same in dollars--could buy half as much stuff. If we reversed the situation to be deflation instead of inflation, those with debts would suffer, since their salaries would fall, while their mortgages would stay fixed, making it more difficult to pay down debts. Those with savings would benefit, since prices fell by half. Simply put, inflation hurts savers and helps debtors, and vice versa for deflation.

And that's part of the reason why FDR took us off the gold standard. It wasn't because he wanted to hand out free money to rich people. It was because there were a lot more people with debt that exceeded their savings than the other way around during the Great Depression, and fighting deflation would help them (and the broader economy) out--and most people agree that it did.

It was also why William Jennings Bryan gave his famed "Cross of Gold" speech in 1896, declaring that "you shall not crucify mankind upon a cross of gold." Indeed, the populist movement in the late 19th century--which was basically made up of a bunch of indebted farmers--was largely focused on bimetallism, or the idea that gold AND silver should both be considered money. In effect, they wanted to do the modern equivalent of printing more money! The populists of the 19th century were no more in favor of a gold standard than I am! Ironically enough for the gold bugs' historical narrative, the big banks actually fought the populists and bimetallism tooth and nail and ultimately prevailed.The gold standard was kept in place, and a lot of people lost out because of it. Hardly what you'd call populist.

All of this brings me back to my initial point about the false populism behind modern gold bug rhetoric. Much has been made during the Great Recession of the consumer debt overhang--simply put, the average American has a lot of debt on their books, mostly from mortgages. Excessive consumer debt is a bad thing, to be sure, but returning to a gold standard today would be no more populist and no more helpful to the average American than it was during the 1890s or the 1930s.

Monday, March 11, 2013

Budget Battles, A Thought Experiment


I don't usually like to delve into hypothetical scenarios and the like, but this is a thought experiment that I've mulled over in the wake of the election and the GOP's position on the budget. I'm glad that a post by Greg Sargent today does a good job of reading my mind explaining it, but here's my own truncated version of what Greg had to say, with a few different details. Let's say that, instead of taking a pretty severe beating in the 2012 election, the Republican Party scored a big win. Mitt Romney was sworn in as our 45th President with the same margin of victory that Barack Obama won by in November. The Republicans hold their majority in the House and the Democrats remain in control of the Senate. I think that we can all agree that this would be, by and large, equivalent to the political landscape in Washington right now, except reversed. 

Along with such an electoral victory comes a validation of the GOP's economic platform--at least in the short run. That platform of course being (an impossible plan) to cut taxes that was reminiscent of those in 2001 and 2003 and deficit reduction along the lines of Paul Ryan's budget blueprint. 

Now imagine that the Democrats, after being so badly beaten in an election and having their economic message so rejected by voters, insisted upon balancing the budget through only tax hikes. And then they complain that President Romney was being unreasonable by proposing a mix of tax hikes and spending cuts, with Democratic leadership saying that the recent fiscal cliff deal, in which $600 billion in federal spending had been cut, meant that "the spending issue is finished, over, completed" in spite of the fact that the ratio of previous tax hikes to spending cuts remained heavily skewed towards taxes. And to top it all off, they make the claim that "the American people are in no mood to cut spending." 

Um, what about the recent election in which the American people clearly were in the mood for exactly that? Didn't count, I suppose. 

You'll notice that what I've just done was reverse the roles of Democrats and Republicans in the current budget debate (not to mention changing a key word in that quote). If you thought that was an untenable and ridiculous position for the Democrats to take, well then you ought to take a look at the current GOP position on the budget, which consists of only spending cuts and still for some reason repeals Obamacare.  

Isn't this what elections are for? If I'm not mistaken, in our most recent one, the American people roundly rejected the GOP's economic vision, supported Obamacare, and was in favor of both spending cuts and tax hikes to reduce the deficit? Look, I realize that political reality necessitates that the Democrats compromise with the House GOP on the budget, but the fact of the matter is that Obama has offered them a lot of what they want. It's the Republicans who aren't doing their part here. It takes two to compromise, and so far all the GOP has managed to do is to propose plans based on an approach that voters rejected last November.