The Washington Post warned readers that health care costs were about to start rising sharply again in an article reporting new projections from the Centers for Medicare and Medicaid Service (CMS). While there is definitely a risk that these projections may be right, and health care will impose a considerably larger burden on the economy over the next decade than it does now, it is worth noting that the projections from CMS have not proven especially accurate in the past.
For example, in 2007 it projected that health care spending would rise as a share of GDP from 16.3 percent in 2007 to 18.8 percent in 2015, the most recent year for which data are available. According to CMS, spending in 2015 was just 17.8 percent of GDP, a full percentage point less than had been projected.
It is also worth noting that we pay roughly twice as much for physicians, drugs, and other items used in providing health care than other wealthy countries. If we become less protectionist over the next decade then we might expect prices in the United States to fall towards world levels, which would dampen the pace of health care cost growth.
The Washington Post warned readers that health care costs were about to start rising sharply again in an article reporting new projections from the Centers for Medicare and Medicaid Service (CMS). While there is definitely a risk that these projections may be right, and health care will impose a considerably larger burden on the economy over the next decade than it does now, it is worth noting that the projections from CMS have not proven especially accurate in the past.
For example, in 2007 it projected that health care spending would rise as a share of GDP from 16.3 percent in 2007 to 18.8 percent in 2015, the most recent year for which data are available. According to CMS, spending in 2015 was just 17.8 percent of GDP, a full percentage point less than had been projected.
It is also worth noting that we pay roughly twice as much for physicians, drugs, and other items used in providing health care than other wealthy countries. If we become less protectionist over the next decade then we might expect prices in the United States to fall towards world levels, which would dampen the pace of health care cost growth.
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Hey, no one said Speaker Ryan wasn’t a smart guy. (Actually, many people have, but whatever.) Anyhow, the Republicans have published an outline of their proposal for an Obamacare replacement. It seems designed to ensure that tens of millions of people lose their health insurance coverage.
The basic story is that the plan is designed to fragment the market by both allowing a wider range of insurance policies and also by promoting health savings accounts in which people can place money tax free. (Oh yes, and the financial industry can make lots of money on fees.) This will mean that almost anyone in good health will get catastrophic policies that cover large expenses, but leave most normal expenses to the patient. Since most people are relatively healthy, this would be a good deal for most of the population.
The numbers on this are striking. The Centers for Medicare and Medicaid Services projects that health care costs in 2017 will average $10,800 this year. The average for cost for the ten percent of most expensive patients is $54,000. The average cost for the least expensive 50 percent is just $700. (These figures include seniors who are covered by Medicare. The skewing would be a bit less if the over 65 age group were pulled out of the calculation.)
Since most people have very little by way of health care spending, it would make sense for them to use the tax credit proposed in the Republican plan to buy a catastrophic plan, that may have a deductible of $10,000 or $12,000 or more. This plan would cost little and allow them to put most of the credit in a health savings account.
This means that the only people who would be interested in buying conventional insurance policies would be people with high medical expenses. Insurers will price these policies to reflect the anticipated costs. This means that they would have to cost tens of thousands of dollars per person. Most of these people will not be able to afford these plans. The credit proposed by the Republicans (which is likely to be around $2,500 from the description in the plan), will not go far towards meeting the cost of policies for these people.
So, the Republicans deserve credit for devising a plan to reduce the cost of insurance for healthy people. It just means that tens of millions of people who actually need insurance won’t be able to get it.
Hey, no one said Speaker Ryan wasn’t a smart guy. (Actually, many people have, but whatever.) Anyhow, the Republicans have published an outline of their proposal for an Obamacare replacement. It seems designed to ensure that tens of millions of people lose their health insurance coverage.
The basic story is that the plan is designed to fragment the market by both allowing a wider range of insurance policies and also by promoting health savings accounts in which people can place money tax free. (Oh yes, and the financial industry can make lots of money on fees.) This will mean that almost anyone in good health will get catastrophic policies that cover large expenses, but leave most normal expenses to the patient. Since most people are relatively healthy, this would be a good deal for most of the population.
The numbers on this are striking. The Centers for Medicare and Medicaid Services projects that health care costs in 2017 will average $10,800 this year. The average for cost for the ten percent of most expensive patients is $54,000. The average cost for the least expensive 50 percent is just $700. (These figures include seniors who are covered by Medicare. The skewing would be a bit less if the over 65 age group were pulled out of the calculation.)
Since most people have very little by way of health care spending, it would make sense for them to use the tax credit proposed in the Republican plan to buy a catastrophic plan, that may have a deductible of $10,000 or $12,000 or more. This plan would cost little and allow them to put most of the credit in a health savings account.
This means that the only people who would be interested in buying conventional insurance policies would be people with high medical expenses. Insurers will price these policies to reflect the anticipated costs. This means that they would have to cost tens of thousands of dollars per person. Most of these people will not be able to afford these plans. The credit proposed by the Republicans (which is likely to be around $2,500 from the description in the plan), will not go far towards meeting the cost of policies for these people.
So, the Republicans deserve credit for devising a plan to reduce the cost of insurance for healthy people. It just means that tens of millions of people who actually need insurance won’t be able to get it.
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Of course China could argue this, it would be really stupid, but nothing prohibits countries from making stupid arguments if they want to push their agenda. In this vein, the Wall Street Journal told readers that if the U.S. took actions against China and other countries for deliberately depressing the value of their currencies by buying dollars they:
“…could argue that Federal Reserve policies that weaken the dollar qualify as subsidies.”
Obviously they could make this argument, but it makes little sense. There is a clear difference between central bank policies designed to affect the domestic economy and policies that are designed first and foremost to affect the value of the currency. It really is not hard for people to understand the distinction between a central bank buying its own country’s bonds and a central bank buying the bonds and assets of other countries. This is about as sharp and clear a distinction as imaginable.
Central bank policy will affect will the value of the currency, but so will other policies. For example, a large reduction in government spending would be expected to reduce output and lower interest rates. Other countries could with equally good grounds contest this cut in government spending as an unfair subsidy.
This is a clear case where the Wall Street Journal does not like a policy and is inventing reasons for its readers to go along with its view.
Of course China could argue this, it would be really stupid, but nothing prohibits countries from making stupid arguments if they want to push their agenda. In this vein, the Wall Street Journal told readers that if the U.S. took actions against China and other countries for deliberately depressing the value of their currencies by buying dollars they:
“…could argue that Federal Reserve policies that weaken the dollar qualify as subsidies.”
Obviously they could make this argument, but it makes little sense. There is a clear difference between central bank policies designed to affect the domestic economy and policies that are designed first and foremost to affect the value of the currency. It really is not hard for people to understand the distinction between a central bank buying its own country’s bonds and a central bank buying the bonds and assets of other countries. This is about as sharp and clear a distinction as imaginable.
Central bank policy will affect will the value of the currency, but so will other policies. For example, a large reduction in government spending would be expected to reduce output and lower interest rates. Other countries could with equally good grounds contest this cut in government spending as an unfair subsidy.
This is a clear case where the Wall Street Journal does not like a policy and is inventing reasons for its readers to go along with its view.
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Donald Trump has used his podium on several occasions to harangue companies about moving jobs overseas. This is probably not an effective way to conduct economic policy, but Justin Wolfers misled NYT readers in claiming:
“Research shows that efforts to boost employment by making it difficult or costly to fire workers have backfired. The prospect of a costly and lengthy legal battle for laid-off employees makes it less appealing to hire new workers. The result has been that higher firing costs have led to to weaker productivity, sclerotic labor markets and higher unemployment.”
Actually, more recent research results, including more recent work from the OECD (the source to which he links), show that there is no necessary link between restrictions on firing and unemployment. While excessive restrictions on firing can undoubtedly hurt employment and growth, there is no reason to assume that moderate amounts of severance pay, or other disincentives to dismiss workers, will discourage investment and hiring.
A requirement to give longer term workers severance pay when dismissed does change the incentives facing an employer. In this situation they have more incentive to retrain workers to ensure that they are as productive as possible. They may also opt to invest more in existing facilities rather than move overseas in order to avoid severance pay.
Donald Trump has used his podium on several occasions to harangue companies about moving jobs overseas. This is probably not an effective way to conduct economic policy, but Justin Wolfers misled NYT readers in claiming:
“Research shows that efforts to boost employment by making it difficult or costly to fire workers have backfired. The prospect of a costly and lengthy legal battle for laid-off employees makes it less appealing to hire new workers. The result has been that higher firing costs have led to to weaker productivity, sclerotic labor markets and higher unemployment.”
Actually, more recent research results, including more recent work from the OECD (the source to which he links), show that there is no necessary link between restrictions on firing and unemployment. While excessive restrictions on firing can undoubtedly hurt employment and growth, there is no reason to assume that moderate amounts of severance pay, or other disincentives to dismiss workers, will discourage investment and hiring.
A requirement to give longer term workers severance pay when dismissed does change the incentives facing an employer. In this situation they have more incentive to retrain workers to ensure that they are as productive as possible. They may also opt to invest more in existing facilities rather than move overseas in order to avoid severance pay.
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The NYT had an interesting piece giving profiles of several young people who are struggling to find full time jobs in Europe. All of the people profiled have college degrees, several have considerably more education.
While the article notes that the situation faced by these young people is the result of the weak economy following the crash in 2008, it would have been helpful to point out that this weakness is the result of policy choices by Europe’s leaders. They have deliberately decided to run low budget deficits in spite of the fact that most of the continent is operating well below its potential. Long-term interest rates are very low and inflation remains below the European Central Bank’s 2.0 percent target, which itself is absurdly low.
In short, the plight of these young people and tens of millions of others should be seen as the fruit of the economic policy pursued by dogmatic leaders across Europe. It is not something that just happened.
The NYT had an interesting piece giving profiles of several young people who are struggling to find full time jobs in Europe. All of the people profiled have college degrees, several have considerably more education.
While the article notes that the situation faced by these young people is the result of the weak economy following the crash in 2008, it would have been helpful to point out that this weakness is the result of policy choices by Europe’s leaders. They have deliberately decided to run low budget deficits in spite of the fact that most of the continent is operating well below its potential. Long-term interest rates are very low and inflation remains below the European Central Bank’s 2.0 percent target, which itself is absurdly low.
In short, the plight of these young people and tens of millions of others should be seen as the fruit of the economic policy pursued by dogmatic leaders across Europe. It is not something that just happened.
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It really is hard to understand, the potential gains are enormous. If we got the pay of our doctors down to the levels in other wealthy countries it could save us close to $100 billion a year. Our doctors average more than $250,000 (that’s after paying for malpractice insurance and other expenses), with doctors in places like Germany and Canada getting about half of this amount.
The barriers may not be as large in other highly paid professions (we prohibit foreign doctors from practicing here unless they complete a U.S. residency program), but the economy would benefit enormously from exposing all the highly paid professions to international competition. It is bizarre that this topic never gets raises even in pieces like this one in the NYT touting the virtues of immigration.
(We can deal with the problem of brain drain from developing countries, by compensating them for the doctors and other professionals that come here. Even if we paid them enough to allow them to train two or three doctors for every one that came here, the U.S. would still be way ahead.)
It really is hard to understand, the potential gains are enormous. If we got the pay of our doctors down to the levels in other wealthy countries it could save us close to $100 billion a year. Our doctors average more than $250,000 (that’s after paying for malpractice insurance and other expenses), with doctors in places like Germany and Canada getting about half of this amount.
The barriers may not be as large in other highly paid professions (we prohibit foreign doctors from practicing here unless they complete a U.S. residency program), but the economy would benefit enormously from exposing all the highly paid professions to international competition. It is bizarre that this topic never gets raises even in pieces like this one in the NYT touting the virtues of immigration.
(We can deal with the problem of brain drain from developing countries, by compensating them for the doctors and other professionals that come here. Even if we paid them enough to allow them to train two or three doctors for every one that came here, the U.S. would still be way ahead.)
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The NYT ran a piece discussing the possibility that we are substantially undercounting growth because we aren’t incorporating the benefits of many things we can now get for free, like information over the Internet. There are many interesting issues here, although it is difficult to believe the uncounted benefits add much to growth. We also have uncounted costs, like paying for the cell phone and Internet service that you need now to stay in communication with friends and family. We also have to pay for all sorts of on-line security, which we didn’t have to do before we were on-line. (The payments for antivirus software and other security measures add to GDP and growth.)
Regardless of the validity of the claims for under-measured growth, there is an important logical point. If we are undercounting growth, then we are getting richer faster than the official data show. Harvard economist Martin Feldstein is cited in the piece saying that he thinks we are undercounting GDP growth by 2 percentage points annually. This means that we have to add this figure to current growth rates.
In the case of wage growth, if Feldstein is correct, then average (not median) real wages can be expected to grow 3.5 percentage points annually for the next two decades, rather than 1.5 percent growth rate projected by the Social Security trustees. This means that in two decades real wages will have nearly doubled and three decades they will be 180 percent higher than they are today.
This would mean a great deal in terms of economic policy. We have many people running around Washington warning about how our kids will face crushing tax burden if we don’t reduce our deficits and debt. Suppose that Martin Feldstein is correct and we actually are understating growth by 2.0 percentage points annually. And suppose the deficit fearmongers are right and in two decades we have to raise taxes on our kids.
If we raised Social Security taxes by five full percentage points (way more than any projections indicate would be necessary) their after-tax earnings would still be on average almost 90 percent higher than what workers receive today. In thirty years, their after tax wages would be more than 160 percent higher.
As I said, I don’t think it’s plausible that we could be understating growth by anything close to the 2.0 percent claimed by Feldstein. However, if we are, then our kids will be incredibly rich relative to today’s workers. It would be rather silly for us to waste our time worrying about deficits or debts out of a concern for generational equity. (It is silly anyhow, since debt and deficits have almost nothing to do with generational equity, but that is another story.)
The NYT ran a piece discussing the possibility that we are substantially undercounting growth because we aren’t incorporating the benefits of many things we can now get for free, like information over the Internet. There are many interesting issues here, although it is difficult to believe the uncounted benefits add much to growth. We also have uncounted costs, like paying for the cell phone and Internet service that you need now to stay in communication with friends and family. We also have to pay for all sorts of on-line security, which we didn’t have to do before we were on-line. (The payments for antivirus software and other security measures add to GDP and growth.)
Regardless of the validity of the claims for under-measured growth, there is an important logical point. If we are undercounting growth, then we are getting richer faster than the official data show. Harvard economist Martin Feldstein is cited in the piece saying that he thinks we are undercounting GDP growth by 2 percentage points annually. This means that we have to add this figure to current growth rates.
In the case of wage growth, if Feldstein is correct, then average (not median) real wages can be expected to grow 3.5 percentage points annually for the next two decades, rather than 1.5 percent growth rate projected by the Social Security trustees. This means that in two decades real wages will have nearly doubled and three decades they will be 180 percent higher than they are today.
This would mean a great deal in terms of economic policy. We have many people running around Washington warning about how our kids will face crushing tax burden if we don’t reduce our deficits and debt. Suppose that Martin Feldstein is correct and we actually are understating growth by 2.0 percentage points annually. And suppose the deficit fearmongers are right and in two decades we have to raise taxes on our kids.
If we raised Social Security taxes by five full percentage points (way more than any projections indicate would be necessary) their after-tax earnings would still be on average almost 90 percent higher than what workers receive today. In thirty years, their after tax wages would be more than 160 percent higher.
As I said, I don’t think it’s plausible that we could be understating growth by anything close to the 2.0 percent claimed by Feldstein. However, if we are, then our kids will be incredibly rich relative to today’s workers. It would be rather silly for us to waste our time worrying about deficits or debts out of a concern for generational equity. (It is silly anyhow, since debt and deficits have almost nothing to do with generational equity, but that is another story.)
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