Douglas Holtz-Eakin on the health care bill

He writes,

the CBO is required to compare the BCRA with current law. For Medicaid, that means it must assume that the financially unsustainable entitlement will continue to swell to cover about 5 million more people, accounting for the bulk of the remaining 7 million uninsured. Not likely. For the individual ACA markets, it means the CBO assumes that enrollment rises by 30 percent over the next 10 years — a sharp contrast to the reality of insurer after insurer walking away.

Some remarks:

1. I have not been following the health care bill at all. Of all the commentators on it, I trust Holtz-Eakin the most. He is for the bill.

2. If the Republicans do not fix Obamacare, then the Democrats will. That means single-payer. That is another reason to be in favor of the bill.

3. My longstanding analysis of health care remains: as individuals, we wish for unlimited access to medical services without having to pay for them. But the more people who are granted our wish, the more that health care spending will soar. What we need is not more people to be granted our wish, but fewer people granted our wish. But pity the politician who runs on the platform of granting fewer people their wish.

4. The libertarian approach to health care is to have people make their own decisions and trade-offs about health care. The bleeding-heart libertarian approach is to give poor people and people with chronic conditions subsidies, but still let individuals make their own decisions and trade-offs. I am not convinced that there are many Americans who want to make choices and trade-offs when it comes to health care. When it comes down to it, they would rather have government make those decisions for them.

5. The CBO’s role in this has been a disgrace. The model that they use to predict consumer insurance choices way over-states the sensitivity to mandates, so it over-estimated how many people would choose Obamacare and it over-estimates how many people will “lose” (i.e., choose not to obtain) insurance without the mandate. The CBO should not be in the business of making this sort of forecast in the first place. The CBO should not be “scoring” the effects of policy, such as the effect of the stimulus on employment. The CBO should be restricted to making budget forecasts and nothing else. When it tries to forecast any other policy impacts, it ends up harming the decision-making process. Holtz-Eakin, a former CBO director, might not agree with me on this point.

Posted in Economics of Health Care | 1 Comment

Martin Gurri on Post-Truth

He writes,

For liberals, “post-truth” is the only possible explanation for Donald Trump’s somersault to the presidency. At some point, liberals believe, fake news metastasized into false consciousness: hence Trump. For conservatives and libertarians, the phrase aptly describes an information environment dominated by the liberal news media and entertainment industry.

Read the whole essay. I interpret one of the main points to be that the bond of trust between elites and the public has been broken, so that there is no longer a shared truth concerning the interpretation of events. I interpret his conclusion as being that we need to discover a new elite, one which has credibility. Easier said than done, to say the least.

Posted in Politics | Leave a comment

Russ Roberts on The Three Languages of Politics

He sketches the main ideas of the book, and then he uses the three-axes model to discuss the blind spots of each tribe. For example,

Liberals first. In their eagerness to empathize with the victim, they can turn the victim into an object rather than an independent actor. Poor people are so oppressed in the liberal view, they don’t just have limited agency to choose and live life in meaningful ways. They have no agency. They are simply objects manipulated by powerful people around them.

Indeed. I would say that the oppressor-oppressed axis attaches too little agency to the individuals in the oppressed categories. Also, it attaches too much agency to the individuals put into the oppressor category. Progressives prefer to explain market outcomes as deliberate exploitation rather than the operation of supply and demand.

I would say that conservatives have a blind spot when abandoning tradition can enhance civilization rather than threaten it. Think of abandoning the tradition of Jim Crow in the South.

Concerning libertarians, Roberts writes,

We often romanticize the power of economic freedom. We struggle to imagine that some people are poorly served by markets, that some transactions involve exploitation of ignorance and that the self-regulation of markets can fail. In our zeal to de-romanticize government, we often ignore the good that government does especially in cases where freedom might perform badly. Our worst mistake is to defend the freedom of business to do what it will in situations where government has hampered or destroyed the feedback loops of profit and loss that make economic freedom successful.

I get what he is driving at with the last sentence–the problem sometimes called crony capitalism–but it comes across as more of a humble-brag than a blind spot.

What might I see is the libertarian blind spot? Perhaps it is the tendency to view coercion as a binary phenomenon. We speak as if you either are coerced by the government or you make a free choice. Perhaps it is more reasonable to think in terms of a continuum. There are many government policies that people do not experience as horribly coercive. Traffic regulations are one obvious example. There are market situations where people do not sense that they have free choice–remember the guy who got thrown off a plane by the airline? And what if a gay couple could not find any convenient baker willing to bake them a wedding cake?

Posted in Three-Axes Model | 30 Comments

Teleological political theory

Timothy Taylor writes,

It can be hard for group with weak hierarchies to make decisions. Group members need to find a balance between making their own contributions in some areas but acquiescing to the group in others. To make this work, it takes a skilled political leadership with a combination of policy-related and hands-on managerial skills, together with group members who see themselves as acting in the context of a broader whole, not just as grandstanding individuals. The US political system seems lacking in these areas.

He is discussing Alan Blinder’s latest thoughts on political economy.

I think that Taylor (probably Blinder, also) starts with what I might call a teleological political theory. That is, the political process is trying to achieve some end. When you think of the desired end result as, say, the greater foodgood, then you wonder what sorts of individuals and reforms will best achieve that end.

An alternative perspective, which comes automatically to someone familiar with public choice theory or Austrian economics, is that markets and political processes produce outcomes on the basis of behavior. Behavior in turn is governed by incentives and cultural norms. Neither market processes nor political processes can be understood in teleological terms. You have to try to understand them as they are.

I think that the belief that we would have better political outcomes if we had “skilled political leadership with a combination of policy-related and hands-on managerial skills” is naive and dangerous.

Posted in public choice, Timothy Taylor is my Favorite Blogger | 10 Comments

The left, the market, and economists

In a recent exchange with Don Boudreaux, Bryan Caplan writes,

The heart of the left is being anti-market.

From the standpoint of the oppressor-oppressed axis, it may make sense to be anti-market. If you look at market outcomes, you see some people do much better than others. It is natural to assume that those doing well are oppressors and those doing not as well are oppressed.

As an economist, I look at the market as impersonal. It is a process. As a process, it has many virtues.
Competition helps to regulate exploitation. The profit motive spurs innovation that helps people in general. You know the drill.

Bryan is among those who believe that teaching people economics can help them to understand the process perspective and to see the market in less personal terms. Hence, if you confront people on the left with economics, their leftism will soften. That indeed has happened to many economists. Vernon Smith and Deirdre McClosky are two prominent ex-socialists.

Unfortunately, I think that going forward we are going to see the opposite effect of confronting leftists with economists. That is, I think that the academic economics will be converted to an oppressor-oppressed view of markets. Not that I think that such a view is more justified now than in the past. Rather, I think that the leftism in academia is stronger than in the past. See my recent essay. As I have pointed out in previous posts, we are already seeing much more focus in academic economics on anti-market perspectives that align with the oppressor-oppressed framing.

Posted in Economic education and methods, Three-Axes Model | 12 Comments

On the state of economics

I have a long essay on the scientific status of economics in National Affairs. A few excerpts from the conclusion:

In the end, can we really have effective theory in economics? If by effective theory we mean theory that is verifiable and reliable for prediction and control, the answer is likely no. Instead, economics deals in speculative interpretations and must continue to do so.

Young economists who employ pluralistic methods to study problems are admired rather than marginalized, as they were in 1980. But economists who question the wisdom of interventionist economic policies seem headed toward the fringes of the profession.

This is my essay in which I say that academic economics is on the road to sociology.

Posted in Economic education and methods, links to my essays | 7 Comments

Education Realist on Hansonian education reform

He or she comments,

Harmful interventions:
Ending tracking
De-emphasizing demonstrated test scores on difficult tests in favor of grades.
Increased legal protections for discipline disasters.

…Costly interventions:
Special education now gives additional money to 1 out of 8 kids and we see nothing for it. …We spend billions on “English language instruction” …ELL from the 60s on was designed on the expectation that ELL kids would be illegal immigrants from across the border.

Now that I think of it, it is easy to imagine a lot of Hansonian practices cropping up in education. There is no equivalent of the FDA process for screening out bad or ineffective protocols. New curricula and practices are introduced faster than they can be evaluated. It is classic case of what statistical process control guru W. Edwards Deming would term “tampering.”

Posted in Economics of Education | 22 Comments

What to Study?

Scott H. Young writes,

Assuming you were to fulfill that high-minded goal of education, how would you do it?

I find it doubtful that the traditional university curriculum would be the best way to do that. Probably the best way wouldn’t involve an institution at all, but be something you undertook on your own.

He proposes a curriculum in terms of 10 years. I have converted it into percentages:

30 percent immersion in foreign cultures
10 percent philosophy
5 percent religion
5 percent world history
20 percent math and sciences
10 percent art
5 percent music
5 percent meditation
5 percent economics and psychology
5 percent practical skills (carpentry, sewing, etc.)

My comments:

1. A lot depends on what you assume somebody knows when they leave high school. 3

2. A lot also depends on what you take to be the goal. Let us suppose that the goal is to learn in a well-rounded way.

3. Off the top of my head, some tweaks:

10 percent philosophy
15 percent math and sciences (emphasize statistics and biology, not so much advanced math or advanced physics)
5 percent world history
15 percent human culture (including economics, politics, sociology, and psychology)
10 percent arts and literature (art, music, dance, literature)
10 percent personal fitness (sports, exercise, meditation)
10 percent practical skills (include cooking, computer programming)
25 percent immersion in foreign cultures

4. Learning is social. Who are you spending time with? That is a major issue. I think that Tyler Cowen, who provided the pointer, would agree.

Posted in Economics of Education, Tyler Cowen is my Favorite Blogger | 26 Comments

Housing Finance Today

Ike Brannon writes,

The private market for mortgage-backed securities all but dried up in the aftermath of the Great Recession, so Fannie and Freddie are the only games in town. If they won’t buy a mortgage–or if there is any possibility that it could declare ex post that mortgage it purchased did not, in fact, meet its exceedingly strict standards and could be returned–a home loan will simply not be made in most instances.

Prior to 2008, politicians saw lenders as making type II errors, meaning that they did not lend to borrowers who probably would repay their loans. So they imposed “affordable housing goals” on lenders.

After 2008, politicians saw lenders as making type I errors, meaning that they made loans that borrowers did not repay. So they extracted “settlements” from big banks that were involved in lending prior to the crisis. And they made it known that Freddie and Fannie could force lenders to repurchase any loans that go bad, unless the underwriting file is pristine.

So now, the situation is what it is. It’s dangerous to make a loan with any chance of default. Brannon thinks that GSE reform will solve the problem. My guess is that what we have now, while not optimal, is better than what we would actually end up with if there were “reform.”

I also think that the reluctance to make loans that might default is due to more than just the possibility that Freddie and Fannie will make you buy back the loans. You have to somehow convince banks that they won’t be shaken down by attorneys general any time there is an opportunity.

Fundamentally, I would like to see a mortgage market free from political interference. I just don’t think we will ever see that.

Posted in Housing and housing finance | 8 Comments

How to Handle the payments system

The commenter suggests,

simply nationalize the “deposits taking and transaction processing” function of the banking industry? Everyone gets a zero-service-fee fully electronic (no paper checks) account at the Federal Reserve

Picture this as a retail version of the Fed Funds market. To simplify, I would not have any interest on Fed Funds.

Let’s say that I keep most of my liquid assets with a money market fund. But when I want to add to my Fed Funds, I sell money market fund shares and the money market fund transfers Fed Funds out of its account and into my account. When I want to buy things, I send money from my Fed Funds account to the Fed Funds account of the seller. Maybe I use a debit card to execute the transaction. Maybe I use my phone.

The idea is that this insulates the payment processing system from the solvency of financial institutions. These Fed Funds accounts would not be vulnerable to runs.

There would still be financial institutions doing bank-like things, including holding long-term risky assets and issuing short-term riskless (supposedly) liabilities. They could still get in trouble. And the government probably would still want to regulate them, in order to steer credit toward its preferred uses, including financing its own debt.

But it is an interesting thought-experiment.

Posted in financial markets, Monetary Economics | 23 Comments