Matt Yglesias

Endgame

Ton visage sur mon magazine:

— Important new developments in sports bra science.

— “The Boom Not the Slump — The Right Time for Austerity”.

— Good advice.

— Bimodal distribution of lawyers’ compensation.

— Nenad Krstic arrested on charges of too-few vowels.

Malajube, “Montréal -40º C”

It Takes a Congress

Something to add to the growing “what’s Obama done wrong” literature and the “what’s wrong with the ‘what’s Obama don’t wrong’ literature” literature is that too often these discussions seem to me to forget that the United States Congress is composed of free and equal human beings who are responsible for their own actions. For example, it may or may not be the case that a different approach on the part of Barack Obama or his staff would have caused Ben Nelson to do different things low these past several months, but it’s absolutely certain that had Nelson wanted to do different things that different things would have happened.

Given that to err is human, I think we can take it for granted that some errors existed in the White House’s approach to legislative negotiations. But it’s also clear that members have their own volition. A skeptical Blanche Lincoln could have responded to the $800 billion stimulus request by asking Barack Obama “what does Christina Romer think? will this really fill the output gap?” Vulnerable House members could have challenged Rahm Emannuel “if things turn out to be worse than you guys expect, we’re all going to lose in the midterms—wouldn’t it be more prudent to build in provisions for additional stimulus if necessary?” The members who insisted on exempting auto dealerships from the jurisdiction of the Consumer Financial Protection Bureau could have said “you know what, Michael Barr is right, this doesn’t make any sense; we should do the right thing and tell the dealers to stop whining.”

Which is just to say that in a lot of respects members of congress seem to me to benefit from the soft bigotry of low expectations. Nobody really expects them to do the right thing or to ask smart questions or to listen to experts rather than engage in random acts of political posturing. So when they do bad stuff, we blame the White House for not doing a better job of preventing them from doing bad stuff. And fair enough—dealing with congress is an important part of the job. But you also do need to blame the people who are doing the bad deeds.

Rawls and the Open Economy

Via Mark Thoma, Daniel Little offers a short but sweet account of how far contemporary America falls short of the Rawlsian ideal of a “property owning democracy.”

Consider immigration. Immigration exacerbates inequality among the native born, but makes most Americans better off, and of course makes immigrants better-off. Best possible policy response, according to me and according to Rawls, is to let immigrants come and do redistributive taxation. But what’s second-best? According to me, you let the immigrants in anyway. After all, most people benefit and the interests of the immigrants themselves are very relevant here—they’re much poorer than anyone in America. According to Rawls, however, for some reason the interests of Mexicans don’t count unless Mexico falls beneath some kind of threshold of humanitarian subsistence. That doesn’t make sense to me.

Of course I’m not the first person to disagree with Rawls on this point about the interests of foreigners and global aspects of international justice. But I think that the people who think about these things on a philosophical level are sometimes not paying attention to the interplay of foreign and domestic aspects of international policy. Or then think about the interplay of these concerns with intergenerational ones.

I think that if we look at the world as a whole over the past 30 years, we see a clear reduction in inequality of living standards thanks to economic growth in China and India and increased political liberty in Latin America and Eastern Europe. The big dark cloud is that we also see a frightening—and growing—risk of environmental disaster.

A Free Market in Legal Services

MB writes in to ask what I think of bar exams, and the answer is: not much. More generally, I think we ought to have a much freer market in legal services. As Dean Baker memorably put it “The ‘free-trade’ crew want to have a single set of standards for all forms of merchandise traded all over the world, but it has apparently escaped their attention that a lawyer from New York can’t practice across the river in New Jersey.”

It hasn’t escaped my attention! I just think we shouldn’t cling to this as a hypocrisy talking point. If someone in New Jersey wants to hire a New York lawyer to represent him in some matter, that should be between them. If a bunch of New Jersey lawyers want to form a membership organization called the New Jersey Bar Association and give people a test that you need to pass in order to call yourself a New Jersey Bar Association Certified Lawyer more power to them. But for them to get the project off the ground, they’d have to do something to turn the test into some kind of reliable indicator of quality. If you look at actual behavior of law firms, they don’t seem to indicate current bar exams in this light—you don’t need to pass the bar to get hired by a major firm out of law school. Similarly, I get that New Jersey and New York have different laws. But New York has different laws in 2010 than it had in 1990 and yet there’s no requirement that you need to retake the bar exam to check if you’ve been up to speed.

In general the failure to re-test incumbents is a good sign point that you’re looking at an arbitrary barrier to entry rather than a real indicator of quality. I’m not sure how big a deal this particular brand of licensing abuse actually is since I don’t get the sense that inadequate supply of lawyers is driving any particularly pressing social problems. A lot of lower-end legal services does, however, seem like it would be amenable to outsourcing to foreign clerical workers and I understand that there’s already a trend in this direction.

Stuck In Zero

André Meier at the IMF has a working paper (PDF) called “Still Minding the Gap—Inflation Dynamics during Episodes of Persistent Large Output Gaps” that examines what happens to prices during big recessions. Gavyn Davies offers a summary:

As the standard theory would predict, inflation fell in virtually all of these episodes. Interestingly, Meier finds that the extent of the decline in inflation is proportional to the rate of inflation in the year before the deep recession starts. This implies that countries which start out with a very high rate of inflation (e.g. the UK from 1980-83) see the biggest drop in inflation when a deep recession occurs. As a rough rule of thumb, the inflation rate seems to drop by about one fifth of the original rate for every year that the episode lasts, with much of the improvement coming in the first couple of years.

Since many developed economies, including the US, embarked on their present deep recessions with inflation at around 2-2.5 per cent, this rule of thumb would indicate that inflation should be dropping at about 0.5 per cent per annum, which is almost exactly what has been happening. So far, then, so bad.

But the really interesting thing is that this rate of decline in inflation appears to peter out altogether as inflation itself approaches zero. Admittedly, there are only two such episodes in the database – Japan in 2001-03 and Sweden in 1992-94. But they are nonetheless important, because we do not have much else to cling on to. These episodes of downward rigidity in inflation are probably explained by the fact that price and wage setters are extremely reluctant actually to cut prices or nominal wages in absolute terms, so a really massive shock (perhaps even bigger than the recent credit crunch) is needed to force the overall inflation rate below zero.

So probably not actual deflation, instead inflation rates stuck at around zero because “[t]here will be times when higher commodity prices, or declining exchange rates, will lead to temporary increases in inflation, counter to the dominant deflationary trend.” A huge negative shock—like a major Iran-related disruption in energy supplies—would change that, but mostly things will be flat. Davies observes that “in this netherland of zero inflation, many of the adverse dynamics of debt deflation (identified by Irving Fisher in the 1930s) will be working away, insidiously, under the surface.”

I would only add that if this comes to pass it will be more a political problem than an economic one. Central bankers may simply redefine their mission as “avoiding deflation” and congratulate themselves if the price level goes up 0-1 most quarters, while falling occasionally in response to negative shocks. They’ll chalk the resulting high unemployment up to “structural factors” and business groups and rich people will insist that only unpopular right-wing ideas can ameliorate the structural issues that are forcing unemployment up. The two percent inflation of the 1990s and 2000s will be redefined as “too high” just as today we’ve redefined the fine-at-the-time four percent inflation of the 1980s as “too high.”

The Higher Ed Racket

The Obama administration’s view on how to expand access to higher education in the United States is pretty simple, provide more money but demand more accountability. Funds spent helping young people learn valuable skills are money well-spent, but funds spent on pointless churning are pure waste. Alec MacGillis has a great piece in the Post about how this plays out, including a revealing quote:

“Higher education is an interest group like any other, and what it wants is a lot of money from the taxpayer and no oversight of how that money is spent,” said Kevin Carey of the think tank Education Sector. “And they’ve been very successful getting it for a long time.”

Sarah Flanagan, a lobbyist for the National Association of Independent Colleges and Universities (NAICU), said the provisions crossed the line. They “put out national incentives and fund states and get states to get colleges to increase performance. That’s not how colleges operate,” she said.

And it’s true, that’s not how they operate and that’s the problem. I would add special kudos to the Post for running this piece because, as MacGillis notes at the end, one company that really, really, really, really doesn’t like the administration’s effort to not let poor-performing for-profit colleges soak up endless quantities of taxpayer cash is the Washington Post Company, whose Kaplan University group is among the worst-performing major players in the field.

Obama’s Porkilicious Taqiyya

Obama at Ben's Chili Bowl with DC Mayor Adrian Fenty

Steve M at No More Mr Nice Blog falls for the White House spin hook, line, and sinker:

Anyone remember when candidate Barack Obama was getting grief for going to Philadelphia and sampling expensive Spanish ham? Doesn’t sound like something a secret Muslim would eat — nor is the honey-baked ham the Obamas served along with the turkey last Thanksgiving. The half-smoke he got at Ben’s Chili Bowl a couple of weeks before Inauguration Day is a sausage that’s half-pork, half-beef. Oh, and the beer at that beer summit didn’t quite comport with the teachings of the Koran, did it? But all that was just weaving a web of deceit, right?

I’ll admit that for a long time my own views were along these lines. After all, the very first time I met State Senator (and US Senate candidate) Barack Obama we were at a hotel in Boston (I believe it was the Westin Copley Place) on line at a breakfast buffet fighting for the tongs to grab some bacon. But then I learned all about taqiyya which proves that counter-evidence to the “secret Muslim” thesis only demonstrates how far the conspiracy goes.

Lobbying and Policy Change

The current issue of Miller-McCune features a great Melinda Burns writeup of the moderately counterintuitive findings in the award-winning recent book Lobbying and Policy Change: Who Wins, Who Loses, and Why by Frank R. Baumgartner, Jeffrey M. Berry, Marie Hojnacki, David C. Kimball, and Beth L. Leech. I’m not 100 percent sure what the best way to characterize their findings is. I’ve heard it glossed as showing that lobbying “doesn’t matter” or doesn’t matter “as much as you think” but I’m not sure that’s quite right. I’d say it’s something more like “the policy agenda in Washington is dominated by issues that have substantial lobbies on both sides, and relative strength of the lobbies doesn’t determine the outcome; also the outcome is usually that nothing changes.”

Here’s how Burns puts it:

The real outcome of most lobbying — in fact, its greatest success — is the achievement of nothing, the maintenance of the status quo. “Sixty percent of the time, nothing happens,” says Frank Baumgartner, one author of the book and a political science professor at the University of North Carolina at Chapel Hill. “What we see is gridlock and successful stalemating of proposals, with occasional breakthroughs. We see a pattern of no change, no change and no change — and then some huge reform.”

But those large reforms — such as health care for 32 million uninsured Americans under President Barack Obama, the scheduled phase-out of the estate tax under President George W. Bush, and the normalization of trade relations with China under President Bill Clinton — are far more often linked to a change in who inhabits the White House than to campaign contributions or K Street hires.

On the one hand, this punctures some insidery illusions about change happening as a result of an awesome duel between skilled lobbyists and advocates with the better policy change ninja winning the day. At the same time, I think he does help explain the ways in which interest group strength do shape policy outcomes in decisive ways. It’s not possible to reform the health insurance system without arousing some powerful opposition. Consequently, to get it done it had to be done in such a way as to induce some other powerful lobbies—in the case of the Affordable Care Act, mostly pharmaceutical firms and labor unions—to line up in favor of change. But once you have strong lobbies on both sides, it’s not like you win by having more or better lobbyists: “across the board for the 98 issues, the side with more lobbyists, more PAC donations, bigger organizational budgets and more members won only half the time.”

There’s a lot you could say about this, but the main upshot is that reforms aimed at curbing the power of lobbyists or what have you seem to be somewhat barking up the wrong tree. More important than disempowering the most powerful actors is to find ways to try to empower the powerless. If you don’t have any lobbyists, donations, members, or organization at all then you’ve got a real problem. And the other is simply that the system’s overwhelming feature is its massive tilt toward the status quo—something I don’t like, that others do like, and that it might be possible to change.

Carbon Pricing is Not Primarily About Car Ownership

Ezra Klein posts this chart and observes that people are “overestimating the importance of appliances, and the centrality of cars doesn’t bode well for pricing carbon.”

This is a very widespread mistake. For reasons I don’t quite understand, but that I have possibly contributed to by writing lots of blog posts about walkable urbanism because I’m interested in it personally, people have gotten in it their heads that automobiles are the primary issue in carbon emissions. In reality, oil is not that carbon-intensive compared to coal-fired electricity and transportation is not that big a consumer of energy:

What’s more, a fair share of “transportation” is the transportation of goods rather than the transportation of people. If you look at per capita carbon emissions you’ll see that California is one of the very lowest-emission states in the union, notwithstanding its famous automobile orientation. That’s because mild weather plus relatively clean electricity equals low emissions. Heating and cooling poorly insulated single-family homes is extremely energy intensive. Indeed, in some ways the biggest contribution of walkable urbanism to low emissions is probably that urban homes tend to be smaller and multi-family homes are better insulated. What’s more, from a technical standpoint it’d be very straightforward for the current US vehicle fleet to become more fuel efficient, whereas it’s not at all straightforward to overhaul the whole electricity-generation system.

I think there are a lot of problems with the central role automobile ownership plays in American life, but it really shouldn’t be a major impediment to reasonable carbon pricing.

After Foreclosure

As Christian Weller’s latest economic snapshot makes clear, the foreclosure situation remains abysmal:

Among other things, this raises the issue of where former homeowners are going to live post-losing their homes. Since America still has a high ratio of houses to households, in principle someone should buy up the housing stock and rent it out. But Barbara Kiviat wonders how feasible this is (that’s via Annie Lowrey):

According to government data, 89% of single-family detached houses are owner-occupied. Meanwhile, 83% of apartments are rented. There is a certain logic to this. An apartment building provides an economy of scale for a landlord that a suburban housing development doesn’t.

It’s true that this is in part driven by the “certain logic” but I think it’s also the case that public policy has, for decades, focused heavily on subsidizing ownership of single-family detached homes. Under the circumstances, it should come as no surprise that large firms aren’t particularly interested in becoming landlords of such homes. Instead, insofar as single-family homes are rented out it’s usually on a small-scale semi-amateur basis, and amateurs don’t have the capacity to realize any economies of scale. I think that on a level playing field you’d find that the basic direction of this tilt would be the same, but the scale would be smaller.

This means the question for policy is whether we want to try to credibly signal that homeownership is going to settle at a permanently lower rate and it makes sense to start investing in some kind of suburban rental outfit, or do we want to signal that this is a temporary phenomenon in which case that’ll look like a bad investment. If we do the former, at least this one aspect of the housing crisis would be closer to a resolution.

Pain Caucus

National Review takes on the similar trajectories between Barack Obama’s approval ratings over the past two years and Ronald Reagan’s. They concede that in both cases economic fundamentals are important drivers, but:

Both arguments miss the important ways in which the recessions the two men inherited are similar and the important ways in which their approaches differed. Both men faced seemingly intractable economic problems with no easy solution, but Reagan understood that curing the nation’s debilitating inflation was going to involve a good deal of short-term economic pain and political unpopularity, and he was prepared to endure that. By contrast, Obama has done everything in his power to avoid painful corrections — at great cost to future taxpayers. It is increasingly evident that his policies have merely put off these corrections or dragged them out, and that we have not avoided them at all. Reagan’s willingness to accept painful and unpopular but necessary economic adjustments — and Obama’s lack of the same fortitude — is the essence of what separates the two men.

I think this highlights the extent to which political commentators like to substitute cheap moralism for real thinking about economic issues. But these are just different situations. When Reagan took office, we had double-digit inflation. We needed to bring that down. The means deployed to break the back of inflation were painful, but at the end we had the rate down to about 4 percent. And good for us. But we weren’t suffering a pre-recession inflation problem, and we didn’t deliberately engineer the current recession to solve it.

Given our current situation, there’s good reason to believe that a four percent inflation rate would be a good idea—at least until the price level catches up to its long-term trend. But in 2010 it’s for some reason considered outrageously left-wing and dangerous to suggest that we return to the inflation rate we had after Reagan and Volcker whipped inflation. One major impediment to taking necessary action is the the tendency to cry “structure” amidst inflation and, like National Review, urge pain on the country. But while structural reform is always welcome (I can bore you some day with my thoughts on occupational licensing), it’s neither necessary nor sufficient to help an economy mired in inadequate demand.

People Should Talk on the Record!

Earlier this week, the Treasury Department invited some bloggers—myself among them—to meet briefly with Secretary Geithner and I guess some other officials. But due to a security snafu, I wasn’t able to get into the building and hence didn’t make it to the meeting. Felix Salmon was there and offers an interesting writeup, but by the ground rules of the conversation he wasn’t able to quote anyone or cite specific names. Mike Allen was also there and, given the ground rules, likewise offered a writeup that didn’t feature specific names or quotes. Instead he did a loose paraphrase characterized as a “mind-meld” but that Tim Fernholz and other more policy-minded people who were there said was substantially inaccurate.

Brad DeLong glosses this as part of why “Friends Don’t Let Friends Read Politico.” And certainly it is a case study in why you can’t go run and panic after reading a thinly sourced item in a traffic-hungry publication. But part of the issue here, it seems to me, is that DC officialdom ought to realize that its obsession with off the recordy-ness has some serious downsides. Treasury did two meetings this week, one that was with professional blogger types and one that was more with professional economists who also blog, and most of the attendees seem to have come away quite impressed. If that’s the case, wouldn’t people able to listen to a recording of the full session likely also be impressed? And wouldn’t it be easier to clear up misconceptions that Allen’s writeup may have created?

Structural shifts in the media industry away from the “three TV networks and a bunch of local newspaper monopolies” model have shifted the balance of power away from journalists and toward flacks. Consequently, if people want to hold off the record briefings with “senior officials” plenty of writers are going to show up. But merely because people can get away with that kind of thing doesn’t necessarily make it a good idea.

Health Message Fail

I think people generally overrate the importance of “messaging” in political outcomes, but Ben Smith’s reporting on some recent health care strategizing reveals what looks to be a truly important failure:

The presentation concedes that groups typically supportive of Democratic causes — people under 40, non-college educated women, and Hispanic voters — have not been won over by the plan. Indeed, it stresses repeatedly, many are unaware that the legislation has passed, an astonishing shortcoming in the White House’s all-out communications effort.

Obviously if the people who are predisposed to take a favorable view of your controversial initiatives don’t even know the initiatives have happened then it’s going to be hard to secure majority approval of your conduct. Delaying implementation of the main aspects of the Affordable Care Act to 2014 is going to make this difficult to overcome.

Things People Believe

Adrian Arroyo observed yesterday that writing about odd American beliefs about politics would benefit from some context. According to Gallup, lots of Americans believe lots of weird stuff:

What’s more, that’s not just a group of overlapping people. Instead “A special analysis of the data shows that 73% of Americans believe in at least one of the 10 items listed above, while 27% believe in none of them. A Gallup survey in 2001 provided similar results — 76% professed belief in at least one of the 10 items.” I’ll admit that I’m a lot more open to the view that Barack Obama is secretly a Muslim than to the view that the spirits of dead people can return in certain situations.

Endgame

Here we go again:

— Fenty vs Gray, the real debate.

— Belief in haunted houses is surprisingly widespread.

— You can’t believe what you read in Politico.

— Presidential power is complicated.

Elastica, “Car Song”. Ironically in the video they seem to be driving around an incredibly dense, transit-oriented Japanese city.

Four Reasons for a Mistake

In response to my post on Howard Dean’s wise February 2003 speech about Iraq a few correspondents have asked me to revisit my own war thinking in 2002. I’m not a huge fan of this kind of exercise because I think it shades into excuse-making, but in retrospect you can think of four strands of argumentation:

1. Erroneous views of foreign policy in general: At the time, I adhered to the school of thought (popular at the time) which held that one major problem in the world was that the US government was unduly constrained in the use of force abroad by domestic politics. More forceful intervention in Haiti, Rwanda, Bosnia, and Kosovo had all been called for. This led to a general predisposition in favor of military adventurism.

2. Elite signaling: When Hillary Clinton, Tom Daschle, Dick Gephardt, John Kerry, Joe Biden, John Edwards, etc. told me they thought invading Iraq was a good idea I took them very seriously. I knew that Carl Levin & Nancy Pelosi were on the other side, but the bulk of the leading Democratic voices on national security and foreign policy issues were in favor of the war. So was Tony Blair. These were credible people whose views I took seriously.

3. Misreading the politics: It seemed to me that the political consequences to George W Bush of invading Iraq to disrupt a nuclear weapons program and then discovering that there was no such program would be disastrous. Presidents do have access to secret intelligence, and it seemed nutty to me to suggest that the administration would be engaged in a massive, easily-debunked-after-the fact lie. Similarly, I didn’t take all the democracy-talk very seriously but the “better than Saddam” humanitarian standard is a low bar and I figured Bush wouldn’t be doing this unless he said some reasonable plan for extricating our forces and stabilizing the situation.

4. Kenneth Pollack: The formal case for war that I found compelling was Kenneth Pollack’s “The Threatening Storm: The Case for Invading Iraq.” I discuss this book in some detail in my own book, but to make a long story short its argumentative structure is badly flawed. Roughly speaking he says “if we invade Iraq and a pony shows up, that will be better than the alternatives, therefore invading Iraq is better than trying to muddle through.” Which is great, except we’re missing the pony! This problem is what Robert Farley’s Jedi Principle is about.

So that’s that. You can, however, always get more psychological. I was 21 years old and kind of a jerk. Being for the war was a way to simultaneously be a free-thinking dissident in the context of a college campus and also be on the side of the country’s power elite. My observation is that this kind of fake-dissident posture is one that always has a lot of appeal to people. The point is that this wasn’t really a series of erroneous judgments about Iraq, it was a series of erroneous judgments about how to think about the world and who deserves to be taken seriously and under which circumstances.

Anyways, one thing that’s always puzzled me is why other war supporters were so slow to turn against it. As I intimated in this morning post, notwithstanding any of the above considerations it was clear to me that something was badly amiss as soon as Bush/Blair/Aznar pulled the plug on the inspections process. By a couple of months later, it seemed pretty clear that there was no scary WMD program and also that there was no real plan for what to do. But it seems to have taken all the way until 2005-2006 for “this was a mistake” to become a conventional view even though no really important new information became available during the interim.

Lilly Allen and Macroeconomic Stabilization

Rather than trying to understand the current dynamics of monetary policy with a drought management metaphor, perhaps we could turn to the musical stylings of Ms Lily Allen:

Allen, speaking for the American people, is in a conflicted mood. “I want to be rich and I want lots of money,” she says, ignoring the fact that holding her savings as money rather than investing in higher-risk higher-yield assets is undermining the goal of wealth accumulation. Worse, she’s also spurred by instincts toward rapacious consumerism: “I want loads of clothes and fuckloads of diamonds.” Were she to achieve her aspiration of clothes-and-jewelry purchases, the economy would get moving again via employment in the relevant manufacturing and retail sectors. But in the real world, Allen is liquidity-constrained and her desire to stockpile cash prevents her from engaging in stimulative consumption. Once upon a time this wasn’t a big issue, as she sings there’s the debt option: “it doesn’t matter cause I’m packing plastic / and that’s what makes my life so fucking fantastic.”

Today, though, she’s “being taken over by the fear.” Prudent people have become concerned about the future and are attempted to transform as much of their income as possible into safe, highly liquid assets. This is causing a general glut of goods and services. What’s more, “the fear” affecting wealth holders is preventing the less-prudent from securing credit to finance their consumption or investment activities—that kind of lending, after all, is neither safe nor highly liquid. As a knock-on consequences of this, the inflation rate has been dropping and the price level is well below its expected destination. Due to money illusion, this is confusing people who “don’t know what’s right and what’s real anymore” distracted as they are by nominal prices.

The developed world’s population has not, however suddenly become lazy or indolent (”I’m not a saint and I’m not a sinner”), the problem is that elites have betrayed the population by failing to respond adequately to the rise of the fear. The excess desire for money can be met by printing additional money. The excess aversion to risk can be met with guarantees. Unfortunately, both congress and the Federal Reserve are themselves afflicted by the fear. Hence our current predicament.

The Decline of Private Health Insurance

I’m not very interested in the underlying dispute between Scott Winship and Mike Konczal, but I did think this Winship chart about health insurance was interesting:

I emailed Winship to ask him what this data looks like if we examine the under-65 crowd. To the eyeball, at least, the big story on this chart seems to be the creation of Medicare and then the aging of the population pushing a larger share of people into Medicare-eligibility. The answer turns out to be a bit interesting. Look at private insurance among working age people:

This decline in private health insurance coverage has, however, been entirely offset by an increase in the number of working age people on Medicaid, which stood at 13 percent in 2008. Among the under-18 set, private insurance is even rarer and public coverage even more common, since children are both poorer-than-average and politically easier to cover. In terms of causation, my understanding is that this is a blend of Medicaid “crowding out” private coverage and Medicaid filling a gap in private insurance’s affordability. The Affordable Care Act is going to continue this trend by substantially expanding Medicaid coverage.

Licensing and Health Care

I’ve been writing about barbers, but at the end of the day a the more important instances of license-driven cartelization occur in the health care sector. When we talk about health care in the United States, I think it should be uncontroversial to say that we have a cost-growth problem. And as Adam Ozimek observers, one reason is that high-wage occupations are using licensing rules to stifle competition from cheaper alternatives. If you’re a good boy like me and go to the dentist regularly to get your teeth cleaned, you’ve probably noticed that the dentist doesn’t actually clean your teeth. A dental hygenist does. So why don’t the hygenists band together and cut out the dentist? Well, they frequently can’t:

For instance, many states have regulations preventing dental hygienists from practicing without the supervision of a dentist. Dentists have an average of six years more schooling than a hygienists, who on average have 2.6 years of post high-school education. In addition, dentists make on average $100 an hour, and are 80% male, whereas hygiensts are 97% female and make around $37 an hour. Kleiner and Park find that these regulations transfer $1.5 billion dollars a year from hygiensts to dentists. This is a highly regressive transfer to a male dominated, higher educated, higher paid job from a female dominated, lower educated, lower paid job. In a very similar vein with likely similar impacts, many states restrict the ability of nurses to practice without the supervision of doctors. In fact these regulations are currently growing as regulators rush to restrict the number nurses working in retail health clinics in a variety of ways to prevent them from competing with doctors.

Not only does forcing hygenists to be “supervised” by a dentist raise the price of routine tooth-cleaning, it also raises the price of dental health services that really do require a dentist’s skill and training since it induces dentists to spend a share of each day shaking hands with patients who don’t need their expertise. This creates artificial scarcity in the supply of high-end dental services.

The bigger issue—though harder to estimate—is the way that these rules stifle potentially enormous gains from organizational innovation. Imagine a world in which in order to make clothes you needed a license from the State Board of Tailors, and the tailor lobby manages to persuade the state to extend the tailor’s monopoly by saying that to sell clothing you need to be under the supervision of a tailor. This set of rules doesn’t just reduce competition in the fields of clothing manufacturing and retailing. It prevents the technological and organizational innovations that have brought us mass-produced clothing, and retail chains. The cartel would justify its existence in the name of high-quality and consumer protection. And it’s even true that if we all went to work in handmade shirts and bespoke suits that we’d be wearing higher-quality clothing. But the impact on overall living standards would be devastating. There’s no H&M or Ikea of the health care sector, and there never will be without some relaxation of the rules governing who’s allowed to be a provider of health care services.

I’m perhaps more sensitive to this than most since I’m a first-generation political blogger and I can only imagine what the Massachusetts Board of Journalism would have done to me if it was illegal to provide news media services without a license back in 2002. But the potential social cost to letting professional groups insulate themselves from disruptive innovation is incalculable.

Yes, More Efficient Government Helps Taxpayers

(cc photo by rollingrck)

One of the most unfortunate trends in American politics is the tendency of the conservative and libertarian types who are ideologically predisposed to be aware of the problems with public sector programs to be totally uninterested in actually making the public sector work better. Thus you get things like Tad DeHaven from the Cato Institute launching an on attack on public sector leaders who try to make the public sector more efficient that condemns recommendations of a “pie-in-the-sky ‘good government’ variety,” ignoring considerable evidence that good government is a key driver of prosperity.

DeHaven even winds up advancing the odd assertion that “[m]aking government ‘more efficient’ is all well and good, but if the “savings” just get plowed into other programs – as has been the case in Indiana – then taxpayers aren’t any better off.” That’s nuts. Consider a state that spends money on different programs that are supposed to reduce the level of crime. The state has prisons. The state has police officers. The state has parole officers. And within those broad fields of endeavor, different kinds of things are happening. It matters a great deal to taxpayers whether resources are being allocated efficiently inside that system. If it turns out that the marginal dollar spent on police salaries is less valuable than the marginal dollar spent on literacy education programs for prisoners, then cutting the size of the police force and expanding literacy education will reduce crime, thus benefitting taxpayers. Alternatively, if it turns out that reducing spending on prison and increasing the number of police officers will reduce crime, that would also benefit taxpayers.

You could go on like this. If we’re considering two transportation proposals, and one costs 20 percent more but is much more useful than agreeing to the net increase in spending is probably the more beneficial choice for taxpayers.

Debates about the overall size and costliness of the public are inevitable and healthy. But what’s not healthy is to have a politics that’s completely dominated by this question to the exclusion of all others. There’s a huge difference between dollars spent on useful infrastructure and dollars spent on pointless boondoggles. There’s a big difference between dollars spent on schools that help kids learn and schools that don’t. There’s a big difference between paying the salary of a barber cartel enforcer and paying the salary of a regulator who’s preventing deadly oil spills. This stuff matters enormously, but if our overall political conversation insists on ignoring it we’re bound to get it wrong.

A Reason, Not an Excuse

Let me commend Ezra Klein’s post pointing out that an awful lot of “if only Obama had done blah blah” type commentary seems to suffer from a bad case of the post hoc, ergo propter hoc fallacy. He’s done a bunch of stuff. He’s less popular than he used to be. Congressional Democrats are going to lose tons of seats. Therefore, had he not done this stuff he’d be more popular and congressional Democrats would hold more seats. Realistically, Democrats are going to lose seats in the midterms because (a) it’s a midterm and the party in power almost always loses seats and (b) they have a giant majority, and the system has a tendency toward equilibrium*:

As for Obama, the comparative evidence is overwhelming that his popularity has dipped because (a) post-inauguration honeymoons are always unsustainable and (b) recessions always make incumbents unpopular.

Klein:

Obama’s current approval rating of 44 percent beats Clinton, Carter and Reagan. All of them were between 39 percent and 41 percent at this point in their presidencies. And all of them were former governors who accomplished less legislatively** than Obama has at this point in his presidency.

A serious treatment of “Obama should have done blah blah and then he’d be more popular” has start with the idea doing blah blah blah would have worked substantively to boost the economy.*** Which is to say you need to talk about policy, not about political strategy.**** When people put this idea forward, it sometimes comes across as an excuse and I should say that I don’t mean it that way. I think there are things the administration could have done to improve the economy. That starts with the fact that I know the administration has been less persuasive vis-à-vis congress in terms of recovery measures than the administration wishes it had been. Blame for this falls primarily on the members themselves on the rules of the Senate, but neither the president nor his staff can be fully exempt from the blame. The administration also decided for bad political reasons to shift its rhetorical emphasis to fiscal consolidation way too quickly. It dithered inexplicably in nominating people to Federal Reserve Board of Governors vacancies and failed to press congress to confirm them once nominated. Elements of the American Recovery and Reinvestment Act deliberately shortchanged short-term macroeconomic impact in order to advance long-term policy objectives***** in a manner that history will show ultimately undermined the administration’s ability to pursue its long-term policy objectives.

And one could go on. Unfortunately, a laundry list of policy items along these lines wouldn’t make for a very good magazine article since it would lack a kind of narrative arc and explanatory parsimony that makes for a better feature. Footnotes below the fold!

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Barack Obama, Barbering Deregulator

Mike Konczal points out that State Senator Barack Obama was not blind to the perils of overly aggressive barber licensing regimes:

Ms. Barber and Anthony Burton participated on a panel with State Senator Barack Obama and State Representative Constance Howard to discuss the federally funded Going Home program and several new laws that were passed by the state lawmakers. The lawmakers introduced to the audience several bills that had been passed, including one that would change some of the expungement laws in the State of Illinois and one bill that would allow formerly incarcerated individuals to seek regulatory licenses in several fields including barbering, nail technicians, cosmetology and dead animal removal. Under this bill, the formerly incarcerated individual would have the opportunity to seek a license once they have served their time in prison and have been given a certificate of good standing by the State of Illinois. NLEN also set up a booth at the Town Hall meeting to highlight its program and accomplishments.

The problem here is that when you set up these boards, they have incentives to think up any kind of halfway plausible reason to bar people from entering the field. Since being a felon sounds bad, and nobody but leftwing State Senators from Hyde Park wants to spend time standing up for the interests of ex-cons, making rules barring felons from your profession seems like an obvious move. But society suffers quite a lot from rules that make it more difficult for former criminals to integrate themselves into the legitimate economy. It’d be really nice to be able to say to a guy in prison “as long as you’re in here all day every day, we’re going to teach you to use hair clippers so if you feel like doing legal work for a living when you get out you can go be a barber.”

Meanwhile, I note that in Massachusetts unlicensed fortune tellers are subject to a $100 fine even though any fortune teller worth his salt is going to be able to see the future and avoid getting caught.

I think the whole issue will strike some people as silly, but unless you expect manufacturing sector productivity to stop increasing the future is going to involve a larger-and-larger share of the population working in these personal service fields.

Today in Lists

Not only did we learn this week that Harvard is the awesomest college in America, Newsweek decided that semi-arbitrary ordinal ranking of colleges is small time and decided to rank countries. Finland comes out as number one, followed by Switzerland. Coincidentally—or perhaps not—those fine countries were the locations of two of my favorite junkets. So listen up world leaders, the key to national success is to give me a free trip to your country.

Rounding out the top ten are Sweden, Australia, Luxembourg, Norway, Canada, the Netherlands, Japan, and Denmark. The United States comes in at #11 but since Luxembourg is hardly a country I think we should grant ourselves top ten status. At any rate, you obviously shouldn’t take this kind of exercise too seriously. But what you see across a wide range of methodological approaches to quality of life is usually that the Anglophone and “small northern european” blocs of countries come out the best. And I do think there’s something telling in that about the success of broadly speaking “liberal” policies of both the higher and lower tax varieties as opposed to the more corporatist approaches you see on the continent.

CBO’s Economic Projections

After another bad jobs number what more can way say than “Welcome to the Recovery”? Meanwhile, the latest Congressional Budget Office projections will probably attract attention for what they say about the budget, but the budget is largely driven by the economy so it’s worth looking at the macroeconomic projections:

Now as you can see with my trusty Paintbrush Trend Estimator chart below, we’re currently operating well below the trend rate of Nominal GDP growth:

So in 2011 are we going to start closing that gap with NGDP growth of 6.5 percent? 8 percent? Nope. According to CBO, in 2010 we’ll see 3.8 percent NGDP growth and the gap will get bigger. Then in 2011, we’ll see 3.1 percent NGDP growth and the gap will get even bigger. Then from 2012-2014 we’ll return to the trend rate with an average of 5.6 percent NGDP growth and then catch up to the trend level . . . never.

Or you can just look at the inflation numbers. Whether measured by CPI or core CPE, they project that we’ll undershoot the 2% target this year, undershoot it again next year, then undershoot it on average for three more years, and then start doing some very very modest catching up in the 2015-2020 level. All this during an extended period of elevated unemployment. This is monetary policy malpractice. I think it’s an open question how much better things would be with more appropriate monetary management, but the range is from “a little better” to “much better” and those are both good options.

Howard Dean Flashback

At this point in time, Howard Dean isn’t an incredibly powerful figure on the American political scene, so I’m not going to join in on the two minute hate currently being directly his way for his dumb stance on Park51. Instead, as Operation Iraqi Freedom comes to its official close, it’s worth remembering some of the stuff that made him an important person in recent political history in the first place.

Consider, for example, his February 2003 foreign policy address at Drake University:

My question is, why not use our information to help the UN disarm Iraq without war?

Secretary Powell’s recent presentation at the UN showed the extent to which we have Iraq under an audio and visual microscope. Given that, I was impressed not by the vastness of evidence presented by the Secretary, but rather by its sketchiness. He said there would be no smoking gun, and there was none.

At the same time, it seems to me we are in possession of information that would be very helpful to UN inspectors. For example, if we know Iraqi scientists are being detained at an Iraqi guesthouse, why not surround the building and knock on the door?

If we think a facility is being used for biological weapons, why not send the inspectors to check it out?

And if we believe terrorists – especially if they are terrorists linked to al Qaeda – have set up a poison and explosives training center in Northern Iraq, outside Saddam Hussein’s control, why haven’t we verified that information and destroyed that camp?

The events of February and March 2003 have sort of gone down the memory hole, but speaking as someone who spent the majority of the pre-invasion year supporting the Bush administration’s policy, what happened during those months was fairly shocking. Faced with the threat of invasion, Saddam Hussein was largely knuckling under to demands for inspections. The UN weapons inspectors were saying they found instances of Iraqi non-compliance with UN resolutions, but could not find evidence of active weapons programs. The US government insisted that it had such evidence. But instead of sharing everything we allegedly had with UNMOVIC and the IAEA so they could check it out, the governments of the US, UK, Spain, Australia, and a few others (Poland!) insisted on leaping ahead into a war. This should have changed people’s minds, exactly along the line of argument advanced by Dean, but most of the country’s elite—including the leaders of the Democratic Party—just sort of hummed along.