Republicans' "Market-Oriented" Health Care Reforms Won't Work, Part 1

This has been a week of Republicans saying they have actual ideas for replacing Obamacare, rather than just repealing it. The centerpiece has been an article by Karl Rove in the Wall Street Journal (paywalled) detailing all the swell ideas Republicans have. In addition, a non-blogger friend points me to an earlier analysis based ultimately on a group called Docs 4 Patient Care that sounds essentially identical to Rove's article.

Before I get back to Rove, let's talk first about the  earlier analysis, which highlights two supposed alternatives: selling alternatives across state lines, thereby increasing competition in the health insurance market; and tort reform. These sound like great ideas in theory, but in practice both are deeply flawed. Today I'll take on selling insurance across state lines, while my next post will go on to tort reform and beyond.

Selling insurance across state lines: Aaron Carroll points out that this is a funny point for people so frequently protective of "states' rights" to be making. That's because the essence of this proposal is to end states' current right to regulate their insurance market. He predicts, on the basis of what happened in the credit card industry, pointing to this piece at Salon, that insurance companies would only sell policies from states with the weakest consumer protections. This race-to-the-bottom dynamic is one we see in in my work on competition for investment, and I'm quite sure Carroll is right. Moreover, he points out that some insurance companies do sell policies in many states; they just have to make sure they comply with each state's regulations.

But there's another reason to doubt that increasing competition in the insurance industry will reduce health care spending. We have data! We live in the industrialized world's biggest experiment in market-oriented health care and, rather than being cheaper, it's the most expensive in the world by far. Here are the figures for per-capita health care expenditures from the Organization for Economic Cooperation and Development's great online database, OECD StatExtracts (stats.oecd.org):

Top 5 Countries in Per-Capita Health Care Spending, 2011

United States     8174.9
Switzerland       5642.6
Norway             5458.0
Netherlands       4737.0
Germany           4346.2

Data are in U.S. dollars at purchasing power parity
Source: OECD StatExtracts, then select Data by Theme, then Health, then Health Expenditure and Financing, then Main Indicators, then Health Expenditure Since 2000, then in the table change the Unit to "PPPPER: /capita, US$ purchasing power parity."

To top it all off, in a post yesterday, Aaron Carroll (h/t Paul Krugman) reports that Singapore has just reformed its health care system to look a whole lot like...Obamacare, individual mandate, no discrimination for pre-existing conditions, subsidies, and all.

The bottom line is that competition does not work in the health care area; simplistic economic models are not enough to understand the unique economics of health. America's long experiment with a market model has been a stunning failure costing over $2500 per person per year more than the next most expensive country.

Next up: Tort reform.

Cross-posted at Angry Bear.

Annals of Austerity FAIL, Eurozone Redux

July 31 saw the latest release of European Union unemployment numbers, and Monday's gross domestic product figures brought no joy, especially for Greece. As Think Progress reports, Greek unemployment hit a new record of 27.6 % in May, while Spain's June unemployment figure was 26.3%, according to Eurostat. As the world's biggest experiment in austerity, the European Union continues to prove a failure. Below is the Eurostat figure for unemployment in member states for June, including new (as of July 1) member Croatia, designated HR (click for larger image).

Source: Eurostat

As reported at first at Reuters, Greece's gross domestic product has fallen by 23% since January 2008. Anyway you slice it, that's a depression, not a recession. Despite austerity, the Greek economy has gotten sicker and sicker.

But, wait! you say. What about Ireland? Its unemployment rate has dropped an estimated 1.5 percentage points from its January 2012 peak of 15.1% to just 13.6% in June 2013. Isn't austerity finally paying off there?

If only that were so. What actually is happening is that Ireland has returned to its historical solution of substantial out-migration to reduce the number of unemployed workers that show up in the official data. And yes, the numbers are way more than enough to wipe out the apparent 1.5 point drop.

According to the Central Statistics Office Ireland (Table 5), emigration has surged from 72,000 in 2009, the last year of net in-migration, to 87,100 in 2012, when net out-migration was 34,400. If you look at net emigration of those 15-64, the closest we can get with the data to prime working age, the situation is even somewhat worse. Over 2010-2012, net out-migration in that age group has totaled 90,700.

I calculate the potential effect on the unemployment rate as follows. Ireland only compiles official unemployment data quarterly, and makes monthly estimates in between. So the last official unemployment rate was 13.7% for the first quarter of this year. According to the CSO, there were 292,000 unemployed then. Dividing by 0.137, we get a labor force of 2,131,387, subject to rounding error. Now add 90,700 to both numerator and denominator, and the maximum potential unemployment rate, if all of those people were in the labor force and unemployed, is 382,700/2,222,087 or 17.2%.

Now, certainly some of the 15-24 year olds would not be in the labor force, though many will. Even if we restrict ourselves to the 25-44 age group, net out-migration for 2010-2012 comes to 36,000, which would bring the unemployment rate back to 15.1%, equal to the worst month since the recession began.

We can see, then, that austerity is sinking all boats. Greece has passed Spain in unemployment and is producing barely 3/4 what it did in 2008. Ireland's reduction in unemployment is a mirage based on emigration. The same is true in Latvia and Lithuania, by the way, which the Irish Times reports have lost 7.6% and 10.1% of their population between 2007 and 2012. As the paper notes, "If Spain and Italy had lost the same proportion, it would have been 11 million."

Yet the drumbeat for austerity continues. The sequester goes on. And millions suffer needlessly.

Cross-posted at Angry Bear as "Austerity Sinks All Boats."

Post on State and Local Subsidies at AlterNet

I've written a piece for AlterNet that gives an overview of the issues at play with state and local subsidies, from the opportunity cost (less spending on infrastructure, education, and health) to the price tag to the major efficiency, equity, and environmental issues involved. Naturally, I discuss possible solutions, too.

Of course, the material will be familiar to regular readers, but it is a good one-stop look at the problem. You can find it here.

Basics: Let's Debase the Dollar!

A lot of people, especially conservatives, complain about the so-called debasement of the U.S. dollar. For example, Craig R. Smith, who is apparently important enough to be interviewed by "FOX News, CNN, CNBC, ABC, NBC, CBS, PBS, CBN, TBN, Time, The Wall Street Journal, The New York Times, and Newsweek," wrote a book last year that claims the value of the dollar has fallen by 98% in the 100 years since the income tax and Federal Reserve were established in 1913. He predicts terrible economic calamity will be the result of this debasement. Smith is not alone in this view; evidently Rep. Paul Ryan shares it, too (h/t Paul Krugman).

Mind you, this is a slight overstatement according to Bureau of Labor Statistics (BLS) inflation data (www.bls.gov, series CUUR0000SA0, set date range for 1913 to 2013). This shows that the Consumer Price Index has increased from 9.8 in January 1913 to 233.5 in June 2013, which implies a decline in the dollar's purchasing power of only 96%. To put it another way, according to the BLS, today's dollar is worth 4 1913 cents, while Smith says it only worth half as much, 2 1913 cents. Either way, sounds pretty awful, right?

Of course not. This is another example of something I wrote almost two years ago: "When someone tries to get you to focus on only one part of a complicated picture, it's a safe assumption they are trying to mislead you." The most obvious omission of the "debasement lobby" is the fact that pay levels have risen a lot since 1913. A single dollar does not buy as much as it did in 1913, but people get paid a whole lot more dollars per hour/week/year than they did, then, too!

What actually matters is not how much the dollar is worth, but the ratio of what people get paid to what the dollar is worth. If your dollars earned rise faster than the value of the dollar falls, that is the very definition of rising real wages! And the Lord knows I'm well aware of falling real wages for the majority of workers since 1972; a post I did on that subject is my second-most read of all time.

Ultimately, what the debasement lobby is mad about is inflation. Smith claims that "real everyday price inflation is running at 7 percent or more per year..." Krugman has been doing yeoman's work on this issue. We should note that the BLS has been calculating the consumer price index since 1919 and probably knows a little bit about what it's doing. If you want to doubt its validity anyway, Krugman points us to MIT's Billion Prices Project, which comes up with results very similar to those of the BLS.

So high inflation is not the problem we face. Low inflation is. With inflation so low, people get no relief from their debts, and have to reduce their debt as much as possible. When that happens, they buy fewer goods and services, so unemployment gets worse, and it's already bad enough at 7.4% in July. Government could offset weak private spending with jobs programs, but Republicans have made it clear that they aren't going to pass any jobs bills, so that route is shut off for now.

As a result, millions of people are needlessly unemployed, still at near-record levels of long-term unemployment, and states like North Carolina are cutting unemployment benefits sharply. Shameful.

Let's debase the dollar!

Cross-posted at Angry Bear.

Subsidy Megadeals Out of Control Since Great Recession

The recent Good Jobs First report Megadeals is the most detailed compilation to date of the largest economic development incentive packages ever given by state and local governments. Defined as incentive packages of $75 million or more in nominal value, these deals have multiplied in both number and value in recent years as governments compete for a smaller pool of large investments.

Starting with Pennsylvania’s 1976 $100 million deal for Volkswagen, the report details 240 megadeals through May 2013. The total cumulative amount of the deals comes to $64 billion. The report uncovers many deals of which I had been unaware, including a new number one subsidy of $5.6 billion for Alcoa in 2007 consisting of discounted electricity from the New York Power Authority, a state agency.

Consistent with reports I have made on several occasions, but with a better database of incentive packages, Megadeals finds more and bigger deals than before the Great Recession. To be exact, since 2008 the number of such deals has doubled from about 10 per year (in the previous 10 years) to about 20 per year, with the average total of such deals doubling to about $5 billion per year over the same period.

As Good Jobs First reported earlier this year in The Job Creation Shell Game, the number of significant investment projects as reported by Conway Data (publisher of Site Selection magazine) has fallen from a 1999 peak of over 12,000 per year to less than 6,000 per year in every year since 2005. This means that states and local governments are desperate to land the few projects that are available and therefore they are willing to pay more for them. Note that Conway Data reports projects meeting any one of three criteria: fifty new jobs, $1 million in investment, or facility size of at least 20,000 square feet. In particular, $1 million in investment is a low threshold.

One thing we should realize is that while megadeals generate the most press coverage for obvious reasons, they are only the tip of the iceberg of total state and local investment incentives. The reason, of course, is that there are so many more smaller deals that collectively account for large amounts of money. The smaller ones receive little or no media coverage, which makes it hard to track them.

My only real criticism of the report is that I believe it would be more accurate to calculate present values for the subsidies that are given, rather than reporting only nominal values. Companies themselves will calculate the present value of an incentive package, and the European Commission does so as well in its supervision of EU subsidy rules. It should be more widely done in reporting in this country. $3.2 billion over 20 years (Boeing in Washington state) is not the same thing as $3.2 billion in cash; by my calculations, it is about $1.98 billion, as I first published in Investment Incentives and the Global Competition for Capital. Similarly, the $5.6 billion nominal subsidy for Alcoa comes to $3.22 billion present value, by my calculations. This is still more than 50% bigger than the Boeing incentive package and easily the largest single subsidy in U.S. history.

In addition, I think it is a tossup whether to count Nike’s 2012 deal with Oregon for 30 more years of single sales factor (SSF) as a subsidy. SSF is already law in Oregon; Nike’s bargain only guarantees that it will not change. Still, Nike obviously thought it was important enough to bargain for, and it is possible to estimate the company’s savings relative to the pre-SSF apportionment formula, so its inclusion is certainly justifiable.

Besides the great report, you can download a spreadsheet with all the data and sources at the link above.

Disclosure: Good Jobs First shared its megadeals database with me in conjunction with a paper I gave in May, and I exchanged notes with authors Phil Mattera and Kasia Tarczynska as I prepared the paper and they finalized the report.

Cross-posted at Angry Bear.

Out of Africa

Sitting in Heathrow on my way back from research and vacation in South Africa.

The research is the beginning of a project on investment incentives for renewable energy in South Africa, in cooperation with the South African Institute of International Affairs and the International Institute for Sustainable Development. As South Africa tries to reach universal electrification, its commitments under the Kyoto Protocol (p. viii) enable it to access funds from the Global Environmental Facility and foreign private donors. As a result, it is one of the most active countries for renewable energy projects, particularly wind and solar. In fact, it was one of the top 10 recipients of renewable energy foreign direct investment in 2011.

On a more personal level, since I played my tiny part in anti-apartheid solidarity actions in the 1970s and 1980s, I visited several of the most important anti-apartheid sites, which the country is actively promoting for tourism, such as Constitution Hill in Johannesburg (formerly a prison that housed Mahatma Gandhi and numerous other anti-apartheid activists, now the site of the country's Constitutional Court), Soweto, and Robben Island.While I risked little more than disciplinary probation at college, it was sobering to see the places where fighting for basic justice could cost you your life.

Next week I'll post my long-delayed review of the great Good Jobs First report, Megadeals.

U.S. Median Wealth Only 27th in World

As I discussed last week, U.S. median wealth per adult is lower than many other countries. To be exact, it comes in at #27 for 2012, at $38,786 per adult. This is more than 1/4 lower than had been reported by Credit Suisse's Global Wealth Databook for 2011. I contacted one of the authors, Professor James Davies of the University of Western Ontario, to find out the reason for the big change for the United States as well as the even bigger change for Denmark.

Professor Davies was kind enough to lay out the technical issues for me. First, of all, data for mean wealth is more reliable than median wealth. For rich countries like the United States, there is usually household balance sheet information which provides high-quality information on total wealth and, when combined with population data, wealth per adult.

Wealth distribution data is more difficult to estimate accurately, although it is known to be more unequally distributed than income for every country, as the 2012 Databook reports. The reason Denmark had such a sharp increase in its estimated median wealth is that its wealth distribution survey information was becomingly increasingly questionable, so the authors changed to a different estimation method that is not comparable with previous figures.

Finally, Professor Davies said it was unlikely that U.S. wealth per adult dropped by 1/4 in one year, but that the new lower estimate is more accurate. The research team is still working on ways to make distribution estimates more accurate, such that year-to-year changes will be more meaningful. As he wrote to me, "We haven't emphasized year-to-year changes in the shape of the wealth distributions since we are still improving our approach to that and making changes each year."

That leaves the United States still with low levels of median wealth for rich countries. as Les Leopold reported on Alternet.  In total, it trails 20 OECD countries and six non-OECD countries.

These low levels of wealth contribute, of course, to the coming retirement crisis as Americans have low levels of savings to supplement Social Security, while almost half of private sector workers have no retirement plan of any type.  A solution to the crisis will require a tremendous push politically, but otherwise millions of Americans will be condemned to poverty in their old age.

Here is the list of the top 27 countries by median wealth per adult.

Country                        Median Wealth
                                     Per Adult

1. Australia                   $193,653
2. Luxembourg              $153,967
3. Japan                        $141,410
4. Italy                          $123,710
5. Belgium                    $119,937
6. United Kingdom         $115,245
7. Iceland                      $ 95,685
8. Singapore                  $ 95,542 (non-OECD)
9. Switzerland                $ 87,137
10. Denmark                  $ 87,121
11. Austria                     $ 81,649
12. Canada                    $ 81,610
13. France                     $ 81,274
14. Norway                    $ 79,376
15. Finland                    $ 73,487
16. New Zealand            $ 63,000
17. Netherlands              $ 61,880
18. Ireland                      $ 60,953
19. Qatar                       $ 57,027 (non-OECD)
20. Spain                      $ 53,292
21. United Arab Emir.     $ 47,998 (non-OECD)
22. Taiwan                     $ 45,451 (non-OECD)
23. Germany                 $ 42,222
24. Sweden                   $ 41,367
25. Cyprus                     $ 40,535 (non-OECD)
26. Kuwait                     $ 40,346 (non-OECD)
27. United States           $ 38,786

Cross-posted at Angry Bear.