That’s a cheap shot, but an editor at the NYT was clearly asleep at the wheel when they allowed a graph into the paper showing that the relative price of televisions had fallen by somewhere around 110 percent since 2005. (Actually the base year doesn’t look right either, since these look like much longer trends in prices.) The graph appears alongside a mostly good article about how the living standards of the low-income families have not kept pace with the rest of the population.
The article is at least imprecise when it tells readers:
“The same global economic trends that have helped drive down the price of most goods also have limited the well-paying industrial jobs once available to a huge swath of working Americans. And the cost of many services crucial to escaping poverty — including education, health care and child care — has soared.”
The factors that have destroyed well-paying industrial jobs were conscious policy, not abstract global trends. The United States has trade policies that were explicitly designed to put our manufacturing workers in direct competition with low-paid workers in places like Mexico, China, and Vietnam. This had the predictable effect of driving down their wages.
We could have put in place a trade policy that made it as easy as possible for smart kids in the developing world to train to U.S. standards and work as doctors, lawyers, dentists and other highly paid professionals in the United States.This would have driven down the pay of these professionals and made items like health care much cheaper in the United States. This was a policy decision, not a global economic trend.
This decision was aggravated by the high dollar policy pursued by the Clinton administration. That led to the soaring trade deficit at the end of the 1990s and into the last decade. This deficit has cost the country millions of relatively high-paying manufacturing jobs.
There is also a policy to run a high unemployment budget. Congress has decided to run budgets that leave millions of people out of work rather than spending enough money to bring the economy close to full employment. As Jared Bernstein and I show in our book, lower rates of unemployment would hugely benefit lower paid workers, not only by increasing their likelihood of finding a job, but also increasing their hours and wages.
In short, the low income of the poor is largely a result of deliberate policy decisions that have made them poorer, not global economic trends.
Correction:
I may have missed this the first time, but the chart indicates it is showing percentage point changes relative to a 23 percent overall increase in prices over the period from 2005-2013. This means that an item showing a 10 percentage point drop on this chart would have seen its price increase by 20.7 percent, 2.3 percentage points less than the 23 percent overall price rise. If this is correct, then a 110 percentage point decline in television prices would mean that their prices had fallen by 2.3 percent since 2005.
This may not be the most useful way to convey information. Imagine if the rate of inflation over this period had been near zero, as was the case in Japan. It would have been more standard just to show the percentage change in real prices for each item.
That’s a cheap shot, but an editor at the NYT was clearly asleep at the wheel when they allowed a graph into the paper showing that the relative price of televisions had fallen by somewhere around 110 percent since 2005. (Actually the base year doesn’t look right either, since these look like much longer trends in prices.) The graph appears alongside a mostly good article about how the living standards of the low-income families have not kept pace with the rest of the population.
The article is at least imprecise when it tells readers:
“The same global economic trends that have helped drive down the price of most goods also have limited the well-paying industrial jobs once available to a huge swath of working Americans. And the cost of many services crucial to escaping poverty — including education, health care and child care — has soared.”
The factors that have destroyed well-paying industrial jobs were conscious policy, not abstract global trends. The United States has trade policies that were explicitly designed to put our manufacturing workers in direct competition with low-paid workers in places like Mexico, China, and Vietnam. This had the predictable effect of driving down their wages.
We could have put in place a trade policy that made it as easy as possible for smart kids in the developing world to train to U.S. standards and work as doctors, lawyers, dentists and other highly paid professionals in the United States.This would have driven down the pay of these professionals and made items like health care much cheaper in the United States. This was a policy decision, not a global economic trend.
This decision was aggravated by the high dollar policy pursued by the Clinton administration. That led to the soaring trade deficit at the end of the 1990s and into the last decade. This deficit has cost the country millions of relatively high-paying manufacturing jobs.
There is also a policy to run a high unemployment budget. Congress has decided to run budgets that leave millions of people out of work rather than spending enough money to bring the economy close to full employment. As Jared Bernstein and I show in our book, lower rates of unemployment would hugely benefit lower paid workers, not only by increasing their likelihood of finding a job, but also increasing their hours and wages.
In short, the low income of the poor is largely a result of deliberate policy decisions that have made them poorer, not global economic trends.
Correction:
I may have missed this the first time, but the chart indicates it is showing percentage point changes relative to a 23 percent overall increase in prices over the period from 2005-2013. This means that an item showing a 10 percentage point drop on this chart would have seen its price increase by 20.7 percent, 2.3 percentage points less than the 23 percent overall price rise. If this is correct, then a 110 percentage point decline in television prices would mean that their prices had fallen by 2.3 percent since 2005.
This may not be the most useful way to convey information. Imagine if the rate of inflation over this period had been near zero, as was the case in Japan. It would have been more standard just to show the percentage change in real prices for each item.
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That sounds pretty scary since the last time we had one it cost us almost 9 million jobs, wiped out the wealth of a large portion of the middle class, and led to a recession from which we still have not recovered almost seven years later. Thankfully Samuelson doesn’t have much of a case.
First off, the last bust was so severe because we had a serious housing bubble that was driving the economy. House prices were more than 70 percent above their trend level creating more than $8 trillion in bubble generated housing equity. The record high prices led to a construction boom, with residential construction reaching a record high share of GDP. In addition, the wealth effect from the bubble equity led to a record high share of consumption in GDP as the saving rate fell to near zero.
When the bubble burst construction fell from record highs to record lows. The boom led to enormous overbuilding and the vacancy rate reached new records. At the same time, consumption fell sharply as the housing wealth that had been driving it disappeared. This was the basis for the recession and seven years later we still do not have any source of demand that can replace the demand generated by the housing bubble.
Now Samuelson warns us of another housing bust. Really?
Samuelson doesn’t even argue that housing construction will fall from its level of 2013, which at 920,000 was less than half of the bubble peak. He doesn’t say prices will fall at all. (They’re currently around 10 percent above trend levels.) Where’s the bust?
The story, insofar as there is one, is that housing will not be driving the economy in 2014. It’s not clear why anyone would have expected it to be driving the economy. Existing home sales in 2013 were at or somewhat above trend levels. In the mid-1990s, before the bubble started driving the market, existing home sales averaged around 3.5 million a year. If this is adjusted upward by 20 percent for population growth in the last two decades we get 4.2 million, a rate that is substantially below the recent pace.
This simple arithmetic makes far more sense than Samuelson’s explanation that prices are too low for sellers but too high for buyers. In other words, we are seeing roughly the amount of home sales that we should expect to see in a normal economy.
Housing construction is still somewhat below normal levels but this is easily explained by the fact that vacancy rates are still extraordinarily high, although down from the recession peaks. Furthermore, the new normal is likely lower than the old normal for simple demographic reasons. With the baby boomers in their 50s and 60s, they are likely to be moving down the ladder in terms of house size rather than up.
The share of health care spending in GDP is about 6 percentage points higher than it was two decades ago. That has to come from somewhere. In other words, housing is likely to be a somewhat smaller share of the economy going forward than it was even before the bubble.
So the only surprise here is that anyone could have expected housing to play a large role in the recovery in 2014. Any serious analysis of the data would not lead to this conclusion.
That sounds pretty scary since the last time we had one it cost us almost 9 million jobs, wiped out the wealth of a large portion of the middle class, and led to a recession from which we still have not recovered almost seven years later. Thankfully Samuelson doesn’t have much of a case.
First off, the last bust was so severe because we had a serious housing bubble that was driving the economy. House prices were more than 70 percent above their trend level creating more than $8 trillion in bubble generated housing equity. The record high prices led to a construction boom, with residential construction reaching a record high share of GDP. In addition, the wealth effect from the bubble equity led to a record high share of consumption in GDP as the saving rate fell to near zero.
When the bubble burst construction fell from record highs to record lows. The boom led to enormous overbuilding and the vacancy rate reached new records. At the same time, consumption fell sharply as the housing wealth that had been driving it disappeared. This was the basis for the recession and seven years later we still do not have any source of demand that can replace the demand generated by the housing bubble.
Now Samuelson warns us of another housing bust. Really?
Samuelson doesn’t even argue that housing construction will fall from its level of 2013, which at 920,000 was less than half of the bubble peak. He doesn’t say prices will fall at all. (They’re currently around 10 percent above trend levels.) Where’s the bust?
The story, insofar as there is one, is that housing will not be driving the economy in 2014. It’s not clear why anyone would have expected it to be driving the economy. Existing home sales in 2013 were at or somewhat above trend levels. In the mid-1990s, before the bubble started driving the market, existing home sales averaged around 3.5 million a year. If this is adjusted upward by 20 percent for population growth in the last two decades we get 4.2 million, a rate that is substantially below the recent pace.
This simple arithmetic makes far more sense than Samuelson’s explanation that prices are too low for sellers but too high for buyers. In other words, we are seeing roughly the amount of home sales that we should expect to see in a normal economy.
Housing construction is still somewhat below normal levels but this is easily explained by the fact that vacancy rates are still extraordinarily high, although down from the recession peaks. Furthermore, the new normal is likely lower than the old normal for simple demographic reasons. With the baby boomers in their 50s and 60s, they are likely to be moving down the ladder in terms of house size rather than up.
The share of health care spending in GDP is about 6 percentage points higher than it was two decades ago. That has to come from somewhere. In other words, housing is likely to be a somewhat smaller share of the economy going forward than it was even before the bubble.
So the only surprise here is that anyone could have expected housing to play a large role in the recovery in 2014. Any serious analysis of the data would not lead to this conclusion.
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Incredibly, the NYT article on Bill Clinton’s economic legacy left out the most important facts. The value of the dollar began to rise after Robert Rubin became Treasury Secretary and openly espoused a high dollar policy. He put muscle behind this policy with his handling of the bailout from the East Asian financial crisis which caused the dollar to soar against the currencies of our trading partners. (Lloyd Bentsen, Clinton’s first Treasury Secretary, allowed the dollar to fall. This was supposed to allow an increase in net exports to fill the gap in demand created by Clinton’s deficit reduction package.)
The high dollar led to a fall in exports, as our goods became more expensive to people in other countries. It also led to a surge in imports, which became very cheap. As a result, the trade deficit rose to almost 4 percent of GDP ($680 billion a year in today’s economy) and eventually peaked at almost 6 percent of GDP ($1,020 billion in today’s economy) in 2005. Currently the deficit is around $500 billion or 3.0 percent of GDP.
This trade deficit corresponds to income that is generated in the United States but is creating demand elsewhere rather than in the United States. It is very difficult to find ways to replace this demand, especially in a political environment where people like Bill Clinton tout the virtues of deficit reduction.
The trade deficit is by far the main cause of the “secular stagnation” that many economists, most notably former Clinton Treasury Secretary Larry Summers, have been worrying about in recent years. It certainly should have been discussed in any article on the Clinton legacy.
Incredibly, the NYT article on Bill Clinton’s economic legacy left out the most important facts. The value of the dollar began to rise after Robert Rubin became Treasury Secretary and openly espoused a high dollar policy. He put muscle behind this policy with his handling of the bailout from the East Asian financial crisis which caused the dollar to soar against the currencies of our trading partners. (Lloyd Bentsen, Clinton’s first Treasury Secretary, allowed the dollar to fall. This was supposed to allow an increase in net exports to fill the gap in demand created by Clinton’s deficit reduction package.)
The high dollar led to a fall in exports, as our goods became more expensive to people in other countries. It also led to a surge in imports, which became very cheap. As a result, the trade deficit rose to almost 4 percent of GDP ($680 billion a year in today’s economy) and eventually peaked at almost 6 percent of GDP ($1,020 billion in today’s economy) in 2005. Currently the deficit is around $500 billion or 3.0 percent of GDP.
This trade deficit corresponds to income that is generated in the United States but is creating demand elsewhere rather than in the United States. It is very difficult to find ways to replace this demand, especially in a political environment where people like Bill Clinton tout the virtues of deficit reduction.
The trade deficit is by far the main cause of the “secular stagnation” that many economists, most notably former Clinton Treasury Secretary Larry Summers, have been worrying about in recent years. It certainly should have been discussed in any article on the Clinton legacy.
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That’s sort of the story that Neil Irwin relayed in the NYT’s Upshot section based on a new study from McKinsey Global Institute. The point is that the United States is increasingly dependent on exports of “knowledge-intensive goods and services.”
This can be very problematic, since the knowledge is often easily separable from the actual goods and services. For example, the knowledge on how to produce the latest cancer drug is separable from the drug itself. The same applies to the knowledge needed to produce the latest iPhone or other nifty device.
In order for the United States to get paid for its knowledge-intensive goods and services it needs to impose rules, like patents and copyrights, that make it illegal to separate the knowledge from the goods and services. This is very problematic for fans of the market, since these government restrictions lead to prices that are far higher than would exist in a free market.
In the context of international trade, we are asking developing countries to charge their citizens these high prices so that they can send the money back to the United States. This may not be a viable long-run strategy. It both transfers money from the poor to the rich and leads to enormous economic inefficiency. And, in the case of prescription drugs, the higher prices will cost lives.
Note: Correction made, should have been “inefficient.”
That’s sort of the story that Neil Irwin relayed in the NYT’s Upshot section based on a new study from McKinsey Global Institute. The point is that the United States is increasingly dependent on exports of “knowledge-intensive goods and services.”
This can be very problematic, since the knowledge is often easily separable from the actual goods and services. For example, the knowledge on how to produce the latest cancer drug is separable from the drug itself. The same applies to the knowledge needed to produce the latest iPhone or other nifty device.
In order for the United States to get paid for its knowledge-intensive goods and services it needs to impose rules, like patents and copyrights, that make it illegal to separate the knowledge from the goods and services. This is very problematic for fans of the market, since these government restrictions lead to prices that are far higher than would exist in a free market.
In the context of international trade, we are asking developing countries to charge their citizens these high prices so that they can send the money back to the United States. This may not be a viable long-run strategy. It both transfers money from the poor to the rich and leads to enormous economic inefficiency. And, in the case of prescription drugs, the higher prices will cost lives.
Note: Correction made, should have been “inefficient.”
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It seems the folks at the NYT are having a hard time accepting that the United States has been surpassed by China as the world’s largest economy. That is the implication of the latest measures of purchasing power parity (ppp) GDP from the World Bank. (If one adds in the GDP of Hong Kong and Macao, which are both under China’s control, its GDP is already larger than that of the United States.)
Rather than accept the standard measure economic output among economists, the NYT found one to deride the ppp measures. At great length it presented the views of Louis Kuijs, the chief China economist for the Royal Bank of Scotland. Mr. Kuijs noted the large revisions in the 2005 PPP measures that lowered China’s GDP by around 20 percent and then the most recent numbers that increased the measure by roughly the same amount.
The article quotes Mr. Kuijs:
“Having observed these huge changes in estimates, I’ve become a bit wary of these estimates. .. The market can be wrong but at least it’s a pretty objective measurement, and nobody can quibble about whether it was that number or whether it was 10 percent higher.”
Actually the market measure can be 10 percent higher both because GDP is not measured perfectly (even the U.S. often has large revisions to its measure) and more importantly because currency prices fluctuate by large amounts. If China stopped deliberately propping up the dollar against its currency and then its currency rose by 20 percent, then Mr. Kuijs’ measure would show that China’s economy has just grown by 20 percent relative to the size of the U.S. economy.
Since most economists do not consider this a plausible story, they do not rely on exchange rate GDP for making international comparisons. Relying on exchange rate GDPs would also yield absurdities like China was exporting more than 9 percent of its GDP to the United States in 2007 (exports were $321.4 billion, China’s exchange rate GDP was $3,494.2 billion). Mr. Kuijs might think that makes sense, but it’s not likely the NYT could find many other economists who do.
To drive home its absurd case that we should rely on exchange rate GDP rather PPP GDP the article concludes by telling us about ordinary Chinese:
“Do ordinary Chinese appreciate that they pay so much less for the same product? Does it make them feel as if they’ve finally reclaimed the title as top economy after two centuries of British and American dominance?
“‘If China’s economy has surpassed the U.S.A., why do I have to get up every morning at 4 a.m.?’ Ms. Lu asked. ‘In a few years, I will be 50 years old. If China’s economy has surpassed the U.S.A., it certainly hasn’t had anything to do with me.'”
China has four times the population of the United States. This means that if the average Chinese person has a living standard that is just one fourth as high as the average person in the United States then its GDP is as high as ours. The PPP data show that China’s workers are much poorer than people in the United States. It is amazing that the NYT apparently did not recognize this fact.
It seems the folks at the NYT are having a hard time accepting that the United States has been surpassed by China as the world’s largest economy. That is the implication of the latest measures of purchasing power parity (ppp) GDP from the World Bank. (If one adds in the GDP of Hong Kong and Macao, which are both under China’s control, its GDP is already larger than that of the United States.)
Rather than accept the standard measure economic output among economists, the NYT found one to deride the ppp measures. At great length it presented the views of Louis Kuijs, the chief China economist for the Royal Bank of Scotland. Mr. Kuijs noted the large revisions in the 2005 PPP measures that lowered China’s GDP by around 20 percent and then the most recent numbers that increased the measure by roughly the same amount.
The article quotes Mr. Kuijs:
“Having observed these huge changes in estimates, I’ve become a bit wary of these estimates. .. The market can be wrong but at least it’s a pretty objective measurement, and nobody can quibble about whether it was that number or whether it was 10 percent higher.”
Actually the market measure can be 10 percent higher both because GDP is not measured perfectly (even the U.S. often has large revisions to its measure) and more importantly because currency prices fluctuate by large amounts. If China stopped deliberately propping up the dollar against its currency and then its currency rose by 20 percent, then Mr. Kuijs’ measure would show that China’s economy has just grown by 20 percent relative to the size of the U.S. economy.
Since most economists do not consider this a plausible story, they do not rely on exchange rate GDP for making international comparisons. Relying on exchange rate GDPs would also yield absurdities like China was exporting more than 9 percent of its GDP to the United States in 2007 (exports were $321.4 billion, China’s exchange rate GDP was $3,494.2 billion). Mr. Kuijs might think that makes sense, but it’s not likely the NYT could find many other economists who do.
To drive home its absurd case that we should rely on exchange rate GDP rather PPP GDP the article concludes by telling us about ordinary Chinese:
“Do ordinary Chinese appreciate that they pay so much less for the same product? Does it make them feel as if they’ve finally reclaimed the title as top economy after two centuries of British and American dominance?
“‘If China’s economy has surpassed the U.S.A., why do I have to get up every morning at 4 a.m.?’ Ms. Lu asked. ‘In a few years, I will be 50 years old. If China’s economy has surpassed the U.S.A., it certainly hasn’t had anything to do with me.'”
China has four times the population of the United States. This means that if the average Chinese person has a living standard that is just one fourth as high as the average person in the United States then its GDP is as high as ours. The PPP data show that China’s workers are much poorer than people in the United States. It is amazing that the NYT apparently did not recognize this fact.
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People reading the front page of the NYT yesterday saw the headline, “One Therapist, $4 Million in 2012 Medicare Billing.” That sounds like some pretty serious fraud, since $4 million would be pretty high annual pay for a physical therapist.
Those who read all the way through the piece would find that this was money paid to a therapist who has several offices and claims to employ a total of 24 therapists. This still sounds like a lot of money ($167,000 per therapist), but certainly a very different story than was conveyed by the headline.
Medicare fraud is a really serious problem and the NYT is right to go after it. But this headline seriously misrepresented the nature of the issues in this article. There may well have been improper payments made to this therapist, but there is an enormous difference between what is implied by the headline and likely size of any improper payments, assuming that he did in fact employ 24 therapists.
People reading the front page of the NYT yesterday saw the headline, “One Therapist, $4 Million in 2012 Medicare Billing.” That sounds like some pretty serious fraud, since $4 million would be pretty high annual pay for a physical therapist.
Those who read all the way through the piece would find that this was money paid to a therapist who has several offices and claims to employ a total of 24 therapists. This still sounds like a lot of money ($167,000 per therapist), but certainly a very different story than was conveyed by the headline.
Medicare fraud is a really serious problem and the NYT is right to go after it. But this headline seriously misrepresented the nature of the issues in this article. There may well have been improper payments made to this therapist, but there is an enormous difference between what is implied by the headline and likely size of any improper payments, assuming that he did in fact employ 24 therapists.
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The NYT had an article reporting the large share of job growth that has taken place in low wage industries. This is readily explained by the fact that the economy is not creating many jobs. When the good jobs are available people do not work at low-paying jobs. However Congress and the president have to decided to run fiscal and trade policies that slow growth and limit job creation. As a result many people who would have decent paying jobs in an economy that was near potential GDP instead have to look for work in fast-food restaurants and other low-paying jobs.
This basic point can be seen in the simple correlation of state unemployment rates and the share of new jobs in restaurants as shown below.
Source: Bureau of Labor Statistics and author’s calculations.
In other words, people who are unhappy about bad jobs should be yelling at their political leaders to get over their stupid budget deficit fetish, since we know that we could create lots of good jobs tomorrow by spending more money on infrastructure, education, and other good things. They should also yell at their political leaders to take an intro economics class so that they will realize the trade deficit is costing us more than 5 million jobs. And, the only thing we need to do to get the trade deficit down is to lower the value of the dollar.
Unfortunately the simple facts of economics — straight from any intro textbook — are considered too far out to enter the political debate.
Note: link added.
The NYT had an article reporting the large share of job growth that has taken place in low wage industries. This is readily explained by the fact that the economy is not creating many jobs. When the good jobs are available people do not work at low-paying jobs. However Congress and the president have to decided to run fiscal and trade policies that slow growth and limit job creation. As a result many people who would have decent paying jobs in an economy that was near potential GDP instead have to look for work in fast-food restaurants and other low-paying jobs.
This basic point can be seen in the simple correlation of state unemployment rates and the share of new jobs in restaurants as shown below.
Source: Bureau of Labor Statistics and author’s calculations.
In other words, people who are unhappy about bad jobs should be yelling at their political leaders to get over their stupid budget deficit fetish, since we know that we could create lots of good jobs tomorrow by spending more money on infrastructure, education, and other good things. They should also yell at their political leaders to take an intro economics class so that they will realize the trade deficit is costing us more than 5 million jobs. And, the only thing we need to do to get the trade deficit down is to lower the value of the dollar.
Unfortunately the simple facts of economics — straight from any intro textbook — are considered too far out to enter the political debate.
Note: link added.
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The Washington Post had an interesting front page article on how efforts to roll back renewable energy requirements are encountering stiff resistance even in heavily Republican states. The resistance is coming largely from businesses who are profiting from producing wind or solar energy. It’s striking that having a relatively small number of businesses who have profits on the line can apparently have a major influence on the political process.
The Washington Post had an interesting front page article on how efforts to roll back renewable energy requirements are encountering stiff resistance even in heavily Republican states. The resistance is coming largely from businesses who are profiting from producing wind or solar energy. It’s striking that having a relatively small number of businesses who have profits on the line can apparently have a major influence on the political process.
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Glenn Kessler, the Washington Post’s fact checker, gave the Obama administration two Pinocchios for claiming that 35 percent of the people who enrolled in the exchanges were under age 35. This was close to the administration’s original target of 40 percent for people between the ages of 18-34. Kessler pointed out that the administration was able to get the figure up from a widely reported 28 percent share being between the ages of 18-34 to the 35 percent number by adding children under the age of 18. As Kessler rightly points out, this was deceptive since we should be looking at a different target if we include children. On this basis he awarded the White House two Pinocchios.
There is little grounds for disputing Kessler here, the Obama administration was being deliberately deceptive. The question is the significance of the issue. Kessler says the issue is important because:
“The ‘young invincibles’ are considered a key to the health law’s success, since they are healthier and won’t require as much health care as older Americans. If the proportion of young and old enrollees was out of whack, insurance companies might feel compelled to boost premiums, which some feared would lead to a cycle of even fewer younger adults and higher premiums.”
In fact, the young invincible story is actually mostly wrong. The difference in premiums by age group largely corresponds to the difference in average expenses. An analysis by the Kaiser Family Foundation showed that even an extreme skewing by age (young people sign up in half of their proportion of the uninsured) would raise costs by less than two percent.
It matters much more for the finances of the system whether there is a skewing by health status than by age. In fact a healthy 60-year old is much more valuable to the system than a healthy 30-year old since they will pay roughly three times the premium. Anyhow, Kessler is right in calling out the White House for its deception on these numbers, however he is wrong about their significance.
Glenn Kessler, the Washington Post’s fact checker, gave the Obama administration two Pinocchios for claiming that 35 percent of the people who enrolled in the exchanges were under age 35. This was close to the administration’s original target of 40 percent for people between the ages of 18-34. Kessler pointed out that the administration was able to get the figure up from a widely reported 28 percent share being between the ages of 18-34 to the 35 percent number by adding children under the age of 18. As Kessler rightly points out, this was deceptive since we should be looking at a different target if we include children. On this basis he awarded the White House two Pinocchios.
There is little grounds for disputing Kessler here, the Obama administration was being deliberately deceptive. The question is the significance of the issue. Kessler says the issue is important because:
“The ‘young invincibles’ are considered a key to the health law’s success, since they are healthier and won’t require as much health care as older Americans. If the proportion of young and old enrollees was out of whack, insurance companies might feel compelled to boost premiums, which some feared would lead to a cycle of even fewer younger adults and higher premiums.”
In fact, the young invincible story is actually mostly wrong. The difference in premiums by age group largely corresponds to the difference in average expenses. An analysis by the Kaiser Family Foundation showed that even an extreme skewing by age (young people sign up in half of their proportion of the uninsured) would raise costs by less than two percent.
It matters much more for the finances of the system whether there is a skewing by health status than by age. In fact a healthy 60-year old is much more valuable to the system than a healthy 30-year old since they will pay roughly three times the premium. Anyhow, Kessler is right in calling out the White House for its deception on these numbers, however he is wrong about their significance.
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