Beat the Press is Dean Baker's commentary on economic reporting. Dean Baker is co-director of the Center for Economic and Policy Research (CEPR).
Regular readers of the NYT and other leading outlets might well get that impression. The one-sided nature of the discussion of these deals (invariably dubbed "free" trade agreements, because no one can be opposed to freedom) is hard for careful readers to miss.
We got yet another example with a column warning that Donald Trump may kill the bourbon boom with his trade policy. The piece uses the example of bourbon to tell us all the ways in which Trump's decision to pull back from the Trans-Pacific Partnership and other trade deals can harm people in the United States and be bad for the world generally.
Starting at the basics, it tells us:
"Take Vietnam, a TPP member that increased American spirits imports by 173.9 percent between 2015 and 2016, to $45.9 million, making it the category’s fastest-growing importer. Under the trade deal, the country is expected to drastically increase its American whiskey consumption.
"Without American membership in the TPP, a 12-nation pact that created zero tariffs for American products, Vietnam’s 45 percent duty on bourbon and other distilled spirits will no longer be phased out, putting those expectations on ice."
There are several points worth noting here. First, apparently, our whiskey exports to Vietnam appear to be doing just fine even with the 45 percent tariff. Perhaps U.S. whiskey is considered a luxury in Vietnam and the people who buy it are not that concerned about the price. I have no idea whether that is the case, but is possible that the reduction or elimination of the tariff may not affect sales very much.
The second point is that the implicit assumption in this story is that the people in Vietnam have no interest in getting cheaper whiskey. The piece assumes that they will continue to impose a 45 percent tax on the whiskey they buy from the United States for the indefinite future. This is, of course, possible, but it's also possible that Vietnamese with access to textbooks on public finance, or who like U.S. whiskey, will push their government to reduce the 45 percent tax with or without a trade deal.
Finally, we should be asking how people in the United States feel about paying more for their whiskey. After all, there is a limited amount of whiskey that U.S. distilleries can produce, at least in the short-term. If Vietnam and other countries will buy more, then there is less left for us whiskey drinkers back in the United States.Add a comment
Folks who passed their intro econ class know that it is net exports (exports minus imports) that affect output and employment. Not exports alone. Nonetheless, we find people like Washington Post columnist Robert Samuelson telling readers that Trump's decision to pull out of the Trans-Pacific Partnership (TPP) might undermine his agenda because "being outside these agreements [a TPP without the U.S. and European Union-Japan trade deal) would weaken U.S. exports."
Since it is not exports that matter for output and employment, but net exports, it is not clear that Trump should be worried. The United States International Trade Commission (USITC) projected that the TPP would lead to a net loss of manufacturing jobs, meaning that it would increase imports more than exports. Since Trump made increasing manufacturing employment a centerpiece of his campaign, it doesn't seem unreasonable that he would oppose a deal that is projected to reduce manufacturing employment.
It is also important to realize that the USITC projections rule out the possibility that some of the countries in the agreement may deliberately keep down the value of their currency to increase their trade surpluses, as they have done in the past. The TPP would reduce the ability of the United States to take measures to punish such behavior.
It is also worth noting that contrary to what Samuelson implies, the U.S. is generally helped, not hurt, when our trading partners remove barriers between them. If an EU-Japan trade deal actually leads to stronger growth for both sides, these countries will be better trading partners for the United States. (It is possible that the increased protectionism in the pact, associated with longer and stronger patent and copyright and related protections may do more to slow growth than the liberalization measures do to increase it.)Add a comment
The NYT is again spreading the absurd myth that Paul Ryan and other Republicans want a free market in health care. While it is very helpful to the Republicans to imply that they are trying to advance some grand principle, as opposed to just giving money to rich people, it is a lie on a par with climate denialism.
There are no government-granted patent monopolies in a free market. As a result of these government granted monopolies, we will pay more than $440 billion for prescription drugs this year. These drugs would likely cost less than $80 billion in a free market. The difference of more than $360 billion a year is a bit less than 2 percent of GDP more than seven times as much money as is at stake in the Republicans proposed Medicaid cuts. (Those cuts cover a decade, this is a single year figure.)
The same story applies to medical equipment. MRIs are cheap without patent protection.
It is possible to argue for the merits of government granted monopolies (I argue against them in chapter 5 of Rigged [it's free]), but it is not possible to deny that these monopolies are a government policy, not the free market. Paul Ryan has never indicated any opposition to government granted patent monopolies.
Similarly, we pay our doctors twice as much as their counterparts in other rich countries, costing us more than $80 billion a year in higher health care costs. This is due to the protectionist barriers enjoyed by our doctors, which protect them from both foreign and domestic competition. (This is covered in chapter 7 of Rigged.) Paul Ryan has never indicated a desire to remove the protectionist barriers that allow many doctors to reach the top one percent of income earners.
The government also privileges insurance contracts in many ways compared with other contracts. For example, with insurance contracts not disclosing relevant information can often void the contract. By contrast, with most contracts, the parties to the contract are responsible for learning relevant information themselves. Ryan has not indicated any desire to reverse this privileged position for insurance contracts.
It is very generous of the NYT to pretend that the Republicans are motivated by some sort of principle in their efforts to repeal the ACA, but the claim is absurd on its face. It does not deserve to be treated seriously, the repeal is about giving more money to rich people, end of story.Add a comment
If the Fed is really targeting 2.0 percent inflation, it is hard to understand why it would be considering further interest rate hikes. Inflation has been slowing in recent months, to a rate of just 1.4 percent in the core personal consumption expenditure deflator. The June jobs report gave more evidence that wage growth is slowing as well. The figure below shows the annualized rate of inflation taking the average hourly wage for the last three months (April, May, and June), compared with the average for the prior three months (January, February, and March).
Source: Bureau of Labor Statistics.
As can be seen, there was some acceleration in wage growth by this measure in the first half of 2016, with a peak of just over 3.0 percent in May. Since then the general direction has been downward. The most recent data puts the annualized rate of wage growth by this measure at just over 2.0 percent. We all know the story that wage growth is supposed to accelerate in a tight labor market, but maybe the data are trying to tell us that the labor market just isn't very tight.Add a comment
Yes, that is what he said. You can read about it in the NYT. The annualized rate of wage growth in the last three months compared with the prior three months was just 2.0 percent. So, if there is a problem with getting qualified workers it seems to be primarily in the human resources department.Add a comment
In order to reduce speculation in its housing market, the city of Vancouver imposed a vacant property tax. People would be assessed an additional tax if a house or apartment was left vacant for a long period of time. (Yes, this is one of my pet ideas, so it makes my day to see Vancouver moving ahead with the vacancy tax.)
In addition to reducing speculation it might be expected that the tax would reduce rents by making more units available. But CBC says it ain't so, there will be more supply but no change in prices. Interesting how things work up north.Add a comment
The magic word shows up yet again in an NYT piece on a trade agreement being negotiated between Japan and the European Union. While the deal clearly includes some moves towards trade liberalization, which are discussed in the piece, it likely also includes measures for stronger and longer protections for patents, copyrights, and other forms of intellectual property. These protectionist measures may well outweigh the liberalizing effect of reductions in tariffs and other conventional barriers to trade.
If that is the case, it is clearly wrong to call the deal a "free" trade agreement, since it on net would be increasing protectionism. I don't happen to know the balance in this pact, but I suspect the NYT doesn't either. In that case, it would be at least as informative to readers to simply call the deal a "trade agreement" and save a word.Add a comment
An NYT piece on the growth of oil exports may have given readers a misleading impression of the state of the U.S. oil industry. The piece was headlined, "oil exports, illegal for decades, now fuel a Texas port boom." It told readers:
"Oil exports grew slowly through most of 2016, but this year there has been a surge reaching 1.3 million barrels a day — roughly 15 percent of domestic production — which even at today’s depressed prices is worth more than $1.5 billion a month."
It is worth noting that the rise in oil exports has been accompanied by a rise in oil imports. According to the Energy Information Agency, imports of crude and petroleum products bottomed out at 9.2 million barrels a day in 2014. By 2016, imports had risen by more than 900,000 barrels a day to 10.1 million.
By allowing exports of oil, some oil that would have otherwise been consumed domestically is instead being exported. This oil is being replaced by oil from other countries. While this opening of trade increases efficiency, if we ignore the environmental costs associated with more transportation of oil and petroleum products, it means somewhat higher prices for domestic consumers.
The oil that is being imported almost certainly costs more than the domestically produced oil that is now being exported instead of sold domestically. It would have been helpful to note this fact in the article.Add a comment
Lower tariff barriers generally benefit consumers in the form of lower prices. If they don't increase overall unemployment, they will lead to gains for the economy as a whole. However, there will almost always be specific industries that are losers. This is why it is a bit strange to read in a NYT article on a prospective trade deal between the European Union (EU) and Japan:
"Among other things, the pact would eliminate a 10 percent duty that the E.U. imposes on Japanese car imports, while removing obstacles that European automakers face in Japan. That would be particularly significant for luxury carmakers like BMW, Mercedes and Toyota’s Lexus brand, said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen in Germany who focuses on the auto industry.
"Those vehicles suffer the most from high import duties. 'It could be a chance for the high-value, premium vehicles,' Mr. Dudenhöffer said. American brands like Cadillac or Lincoln 'won’t have the same advantage and will be in a worse position,' he said."
The existing tariffs give the sellers in these markets the opportunity to charge a premium over the tariff-free price. This premium will be lost when the tariffs go away. It is possible that either EU car makers or Japanese car makers will gain enough market share that it will offset the loss of this premium, but it is highly unlikely that both would gain enough market share to offset the loss of the premium. The lower price will undoubtedly lead to some increase in sales and there is the possibility of gaining share at the expense of U.S. car makers and other third country sellers, but these gains would have to be extraordinary to make both sets of manufacturers as winners.
To make the arithmetic simple, suppose a 10 percent tariff is passed on fully to higher prices. Suppose the profit would be 5 percent of the sales price in the absence of the tariff. This means that the tariff makes the profit 15 percent of the sales price. (I'm rounding here.) The loss of tariff protection in this story would then cause the per car profit to fall by two-thirds, meaning that unless sales triple, the company ends up a net loser.
The real world story is more complicated. The tariff is not completely passed on in higher prices and some of the benefits of the higher prices are shared with workers in the form of higher wages. But unless a company in a protected industry has a very large gain in market share, it is unlikely to be a benefit from ending the protection.Add a comment
Donald Trump is apparently considering imposing some tariffs on some imports from our trading partners. This prospect has many folks, including Paul Krugman, terrified. I don’t share his fear.
Before getting into any substance, I should be clear. I have no idea what Trump may be planning by way of tariffs. During the campaign, he threatened to put a 35 percent tariff on imports from Mexico and 45 percent tariffs on imports from China. These tariffs would, in fact, be scary. They would certainly create large disruptions of the type Krugman talks about. It would also be almost certain that they would lead to a trade war with both countries retaliating.
I should also say that tariffs are not my preferred way of dealing with the country’s trade deficit, which I do consider a problem. Anyone who thinks secular stagnation (i.e. not enough demand in the economy) is a problem should believe the trade deficit is a problem. If the trade deficit were 1.0 percent of GDP rather than 3.0 percent of GDP, we would have been approaching full employment many years ago.
But the normal mechanism for reducing a trade deficit is an adjustment in currency values. This means that the currency of the country (the United States) with the deficit falls and the country with the surplus (much of the rest of the world) rises. When the dollar falls in value relative to other currencies, U.S. made goods and services become more competitive internationally. That will lead to more U.S. exports, and fewer imports, bringing trade closer to balance.
This adjustment in currency values has not taken place primarily because foreign governments have bought up massive amounts of dollars. This is partly as a reserve currency to protect themselves against financial crises. (It is a failure of the International Monetary Fund that large amounts of reserves are considered necessary for this purpose.)Add a comment
In her column on "Five Myths About Health Insurance," health economics professor Alexis Pozen pushes a common myth. As part of myth number five, Pozen tells readers;
"Although firms may boast about offering generous health-care benefits, the costs of coverage are largely borne by employees, in the form of lower wages than a competitive market would otherwise support. That helps explain why inflation-adjusted wages have remained flat, even while productivity has increased — it’s all going to cover rising health-care costs."
While there is some truth to this story in prior decades (only some, since payments for insurance largely came at the expense of pensions), benefit growth has actually trailed wage growth in the recovery, as shown below.
Since benefits have not kept pace with wage growth over the last five years, we should be expecting wages to rise somewhat faster than productivity since we are seeing a shift in compensation from benefits to wages.Add a comment
That's the question millions are asking after reading an NYT article on the state of the U.S. aluminum industry. The article notes that an increasing share of aluminum is imported, mostly from Iceland and other countries with low-cost electricity. (The industry uses huge amounts of electricity.) However, it also points out that China is getting a growing share of the market and the industry claims that the Chinese firms are subsidized by the government. The industry and steelworkers union are arguing for offsetting tariffs.
The piece then presents a comment from an executive at the Molson Coors Brewing:
"If there are duties on aluminum coming to this country, it will obviously get passed on to us and the customer ... Our prices will go up."
The piece doesn't give any sense of how much beer prices to consumers would rise from the tariffs being considered. While it would take a bit of homework to calculate the prospective increase from a tariff, suppose that tariffs on Chinese aluminum raised the price of aluminum by 10 percent. This is almost certainly too high a figure, since Chinese aluminum only accounts for 5 percent of U.S. consumption, according to the article.
Suppose that the cost of the aluminum accounts for 10 percent of the price of a can of beer in the store. This is also almost certainly far too high since the current cost of aluminum is less than a dollar a pound. If you can get twenty cans out of a pound of aluminum that would make the cost per can less than five cents.
In this scenario, tariffs would raise the price of a can of beer by 1.0 percent. It's a safe bet that the beer drinking public would rather not pay 1.0 percent more for their beer, but most would probably not be terrified by this prospect.Add a comment
Dentists are apparently among the group of workers who lack the skills necessary to compete in the modern economy, who then turn to the government to protect their jobs and wages. This is in effect the story told in this Washington Post news article about the power of the American Dental Association (ADA).
The piece focuses on the ADA's efforts to block other professionals from doing work that is now done by dentists. While the piece doesn't mention this fact, the ADA also blocks foreign-trained dentists from practicing in the United States. Dentists cannot practice in the United States unless they have a degree from a U.S. dental school. (Since 2011, graduates of Canadian dental schools have also been allowed to practice here.)
As a result of this protectionism, the pay of dentists averages $200,000 a year, roughly twice as much as their pay in other wealthy countries. This costs the country $20 billion a year (roughly equal to the TANF budget) in higher dental expenses.
It's striking that the protectionism for dentists gets so little attention relative to much less costly forms of protectionism, like tariffs for steel, cars, or other items. Perhaps it has something to do with the people reporting on the topic identifying with the beneficiaries. I discuss this in chapter 7 of Rigged: How Globalization and the Rules of the Modern Economy Have Been Structured to Make the Rich Richer (it's free).Add a comment
I'm not sure which it is since I never met the guy, but it really is tiresome to see people try to pass off as a serious argument on health care something that anyone with any knowledge on the topic knows to be false. In a column touting the virtues of health savings accounts, so that we can all do comparison shopping for our colonoscopies, Stephens pronounced Obamacare a failure.
He notes the high rate increases in the last two years for insurance plans offered on the exchanges (ignoring the fact that the costs were originally below projections, so that premiums are now roughly in line with the projections from before the plan was passed). He then tells readers:
"Same deal for employer-sponsored plans. 'While Sen. Obama promised during his campaign in 2008 that the average family would see health insurance premiums drop by $2,500 per year, the average family premium for employer-sponsored coverage has risen by $3,671,' noted Maureen Buff and Timothy Terrell in the Journal of American Physicians and Surgeons. That was back in 2014, and premiums continue to rise."
Okay Obama's $2,500 drop in premium number was relative to a growing baseline. This was completely obvious at the time and was apparent to anyone who spend two seconds looking at the projections. Health care costs had been rising 6 to 7 percent annually for decades. Obama was not saying that his plan would reverse this pattern and actually cause costs to decline. He was talking about costs relative to the baseline projection of growth. (Costs actually have dropped relative to baseline projections even more than Obama projected, although it is debatable how much the Affordable Care Act is responsible.)
Everyone following the debate fully understood that Obama was making his claim relative to a baseline of rising cost growth, since it would have been completely absurd for him to claim he would actually cause premiums to fall in nominal terms. If Stephens is unaware of this fact, his level of ignorance on health care is truly astounding. Alternatively he could just be lying, deliberately misrepresenting Obama's promises to score a cheap political point.
Either way, it doesn't speak well for Stephens. I know the NYT has an affirmative action policy for conservatives, but this is ridiculous.Add a comment
There has probably never been a National Bureau of Economic Research working paper that produced as much glee in the media as last week's report showing that Seattle's minimum wage law may have led to a net loss in wages for low wage workers. According to the analysis, there was a reduction in average hours worked among those in the low wage labor market that more than offset the gain in wages. The result was a net loss in wages for exactly the group of people the law was intended to benefit.
This finding was quickly picked up in every major news outlet. While some, notably the New York Times, reported the finding with appropriate cautions, others (e.g. here, here, here, here, and here) were nearly gleeful at the idea that workers in Seattle were losing their jobs. Most of the reporting ignored the fact that the same week a team of researchers from Berkeley produced an analysis using a very similar methodology that found no statistically significant impact on employment.
There are important differences in the studies. The Berkeley study follows much prior research and only looks at the restaurant industry, a major employer of low wage workers. The University of Washington NBER paper looked at all workers getting paid less than $19 an hour. It also had two additional quarters of data. However, the Washington study also excluded the roughly 40 percent of the workforce that worked at multi-site employers (think Starbucks and McDonald's).
In other words, it it not obvious that the Washington study is the "better" analysis. The Berkeley team has produced much of the cutting edge research on the minimum wage over the last fifteen years. I doubt that many of the reporters touting the Washington study would be able to explain why it is a better analysis of the impact of Seattle's minimum wage hikes.Add a comment
That seems to be the case in an article on the recent drop in fertility rates that warns:
"If the trend (lower fertility) continues — and experts disagree on whether it will — the country could face economic and cultural turmoil."
That is more than a bit hard to see. If we do see a sustained drop in the fertility rate it will mean that eventually we will have higher rates of retirees to workers, assume no offsetting increase in immigration or an increase in labor force participation by either the prime-age population (ages 25 to 54) or older potential workers.
However, the economic implications of this rise in the ratio of retirees to workers are very modest. According to the Social Security Trustees Report, the impact of a sustained fall in the fertility rate would increase Social Security's projected shortfall over the next 75 years by an amount equal to 0.36 percent of payroll over this period. This is equal roughly 0.12 percent of projected GDP. There are other costs, such as Medicare, that would also increase with a larger ratio of retirees to workers; however, this would be offset in part by reduced spending on education and health care for the young.
By comparison, the increase in military spending associated with the wars in Iraq and Afghanistan was close to 2.0 percentage points of GDP. While these wars have prompted some opposition and protest, it has not led to economic turmoil. It is difficult to see why an increase in spending that is perhaps one-tenth as large would be expected to cause economic turmoil.
It is also worth noting that plausible changes in productivity growth swamp the impact of even large changes in fertility rates. If the country, had sustained the rate of productivity growth it experienced from 1995 to 2005 (also from 1947 to 1973) over the last twelve years, it would have the equivalent effect on workers' take-home pay as reducing the Social Security tax by 10 percentage points. If the rate of productivity can be boosted by just 0.1 percentage point, it would swamp the long-term impact of a lower fertility rate on workers' living standards. And, this is before even taking into the account the benefits of reduced stress on infrastructure and the environment.
In short, we should worry if people don't have children because they don't think they can afford them. We need not worry about running out of people.Add a comment
Just kidding, we know that newspapers don't make a point of running stories on incompetent bosses. Instead we have Obama administration car czar Steve Rattner telling us in a NYT column that manufacturers are not hiring because they can't get qualified workers. His evidence is data from the Bureau of Labor Statistics' Job Openings and Labor Turnover Survey which shows a rise in job openings reported in manufacturing, but little increase in hires. Rattner says that this is because firms can't find qualified workers.
The problem with this explanation is that employers are not acting like they have a shortage of workers. As Rattner himself points out, the real hourly wage in manufacturing has risen by just 0.8 percent over the last decade. (This is cumulative, not an annual rate.) If firms really were trying to hire people but couldn't find qualified workers then they would be offering higher wages to attract workers from their competitors. We don't see this happening.
The other way that employers would respond to a lack of qualified workers is by working their existing workforce more hours. This doesn't seem to be happening either as the graph below shows.
Average Weekly Hours: Manufacturing Workers
Source: Bureau of Labor Statistics.
While average hours are high, they are no higher than they were in 2013 and down from the peaks hit in 2014, periods when the labor market was considerably weaker by all measures. This picture is not consistent with an industry desperate for qualified workers.
Another item that needs correcting in Rattner's piece is the claim that college-educated workers are doing well in the current economy. His column includes a chart that shows the wages of college-educated workers (including those with advanced degrees) have increased by 10.7 percent since 1979. (This is actually a growth rate of just 0.3 percent annually — not very impressive.) Since 2000, the median wage of workers with just a college degree has fallen by 1.5 percent. So, even college grads have not shared in the gains from growth in this century.Add a comment
I suppose that is their natural state. After all, they completely missed the housing bubble and then somehow expected the economy would bounce right back even though there was nothing to replace the demand generated by the bubble. Anyhow, at least according to this NYT article, they are very confused about the course of technology.
There are two big issues that the piece implies the bankers are missing. First, contrary to the concern of massive job displacement by robots, productivity growth has actually been very slow in recent years. It has averaged just over 1.0 percent annually over the last decade. This compares to a 3.0 percent annual rate in the long post-war Golden Age from 1947 to 1973 and again from 1995 to 2005.
It is also worth noting that these periods of rapid job displacement due to technology were also periods of low unemployment and rapid wage growth. (The 2001 recession, following the collapse of the stock bubble, put an end to the late 1990s wage growth.) There is no reason to blame weak wage growth and high unemployment on rapid productivity growth. If there is a weak labor market the problem is with macroeconomic policy that is leading to insufficient demand. (Bizarrely, this piece never once mentions trade deficits, which are a major drain on demand.)
The other big issue missing here is attributing distribution effects to technology. The ownership of technology is determined by policy, specifically rules on patents and copyrights, it is not determined by the technology. If we are seeing an upward redistribution associated with trends in technology, it would indicate that patents and copyrights are too long and too strong.
That would be a strong argument for making these forms of protection shorter and weaker (policy has been going in the other direction). There is no indication this topic even came up at the meetings. This suggests the central bankers are once again very confused about the economy.Add a comment
Thomas Friedman, who is legendary for his boldly stated wrong assertions, got into the game again making absurd claims about the Trans-Pacific Partnership (TPP) and the great loss the U.S. suffers from it going down. Friedman tells readers:
"It was not only the largest free-trade agreement in history, it was the best ever for U.S. workers, closing loopholes Nafta had left open. TPP included restrictions on foreign state-owned enterprises that dumped subsidized products into our markets, intellectual property protections for rising U.S. technologies — like free access for all cloud computing services — but also anti-human-trafficking provisions that prohibited turning guest workers into slave labor, a ban on trafficking in endangered wildlife parts, a requirement that signatories permit their workers to form independent trade unions to collectively bargain and the elimination of all child labor practices — all to level the playing field with American workers."
This is of course wrong. First, and most importantly, all the provisions on items like human trafficking, child labor, and trading in endangered wildlife depended on action by the administration. In other words, if the TPP had been approved by Congress last year we would be dependent on the Trump administration to enforce these parts of the agreement. Even the most egregious violations could go completely unsanctioned, if the Trump administration opted not to press them. Given the past history with both Democratic and Republican administrations, this would be a very safe bet.
In contrast, the provisions on items like violations of the patent and copyright provisions or the investment rules can be directly enforced by the companies affected. The TPP created a special extra-judicial process, the investor-state dispute settlement system, which would determine if an investor's rights under the agreement had been violated.Add a comment
Realizing the unpopularity of their health care plan, the Republicans are now playing games with the word "cut," to deny that their proposal would lead to large cuts in Medicaid spending over the next decade and beyond. The NYT ran a piece that ostensibly was intended to clarify the issue, but likely left readers more confused than they had been previously. The piece tells readers:
"At issue is whether the funding changes should be compared to the increases that would occur under current law, the Affordable Care Act, or whether the focus should be on the modest annual increases that would happen under the Republican bill.
"The White House says that Republicans are being victimized by a broken budgeting system that unfairly casts their fiscal restraint as callous cutting."
The baseline for spending against which the Republican proposal is being measured is a baseline that assumes current levels of services and eligibility requirements are left in place. This can perhaps best be explained by a comparison with Social Security.
Under the law, workers are entitled to Social Security benefits based on their work history and their age. With a growing population of people receiving Social Security benefits and new retirees typically collecting higher benefits than earlier retirees (due to higher average wages), and an inflation adjustment for those already receiving Social Security, benefit payments rise each year.
By standard budgetary practice, if the Republicans were to reduce the benefit schedule or not give the annual cost of living adjustment, it would be called a "cut" in benefits even if total Social Security payments stayed the same or rose somewhat. It is a cut because people would be getting less than is promised under the current law.
In the case of Medicaid, the Congressional Budget Office (CBO) uses the best information available to project the eligible population and also the cost of providing services to this population. This is the baseline that the Republicans are working from with their health care plan. They are proposing to spend roughly $800 billion less over the 10-year budget horizon than the baseline spending level projected by CBO. This is equal to approximately 17.0 percent of projected spending over this period and 25.6 percent of spending in 2026, the last year for which CBO made projections for the Republican plan. (The reduction from baseline is even larger after the end of the 10-year horizon.)
This means that unless the Republicans have some way to reduce the cost of services that they have not told anyone about (e.g. paying drug companies and medical equipment companies less for their products or doctors less for their services), Medicaid will not be able to provide the services offered under current law. Given the size of the reductions relative to the baseline, by year 10 this will likely mean hugely reducing the number of people getting coverage and quite likely throwing people out of nursing homes.
This is the meaning of "cuts." This is, in fact, a rather simple point and not a question of semantics. The Republicans do not have a plan for Medicaid to provide the level of services promised under current law, they are proposing to radically reduce the level of services. This is not ambiguous, just like it is not ambiguous that President Obama was not born in Kenya.Add a comment
The New York Times reported this afternoon that Senate Republicans have now altered their health care bill to include a provision that would penalize people who opt not to buy insurance. According to the article, people who go more than two months without insurance will have to wait six months for a new policy to take effect after they buy it.
This is an entirely reasonable change since it prevents the obvious problem that many people would have opted to game the system without a provision like this. As I and others pointed out, it would be a pretty low-risk proposition for healthy people, especially older ones who faced high premiums, to go without insurance and then buy insurance only if they developed a serious illness.
This would likely make the system unstable since it would mean that the pool of people in the system were less healthy than average, and therefore have higher health care expenses. This would raise costs and premium prices, leading more people to drop out. Eventually, only very unhealthy people would look to buy insurance, which would be extremely expensive.
For this reason, the penalty makes sense. What doesn't make sense is that the Republicans are just adding the provision now. This problem of adverse selection (only less healthy people buy insurance) is not a new discovery. It has been known to people writing about insurance for more than half a century. So how could the Republicans spend all this time hashing out a bill and only now realize that they have a problem?
This is yet another piece of evidence (as if more was needed) that this is not an effort to provide better insurance to the public, it is about giving tax cuts to rich people. The insurance aspect is a sidebar, sort of like when you buy cheese at the store and you need it wrapped in something. You don't really care what the cheese is wrapped in, you care about the cheese.
In the same vein, the Republicans don't really care what the insurance looks like, they care about the tax cuts for rich people. If they did care about the insurance, the penalty for going uninsured would not be a last minute addition.Add a comment