The medical device industry is pushing hard to repeal a tax imposed as part of the Affordable Care Act (ACA). The NYT had an article on its massive bipartisan lobbying effort. While the piece notes in passing that, “the White House argues that demand for new devices will offset the economic impact of the tax,” the piece doesn’t explain what this means.
The marginal cost of producing most medical devices is very low relative to their price. The companies are in effect collecting a big premium because of their patent monopolies. The ACA meant that they would sell many more devices and therefore collect a much higher dividend from their patents, even though the amount spent on research had not changed.
To see the logic here, imagine that it costs a medical company nothing to produce a scanner that it will sell for $1 million apiece. (Again, the high price is allowing it to recover development costs.) Before the ACA it would have expected to sell 1000 scanners, netting it $1 billion. After the ACA the company can expect to sell 1100 scanners, netting it $1.1 billion.
The tax is intended to recoup this additional $100 million. While the tax hit will not be exactly offsetting to the increased profit to the industry in every case, on average this will be the case. In other words, the White House is not making a bizarre argument, they are presenting the facts. The industry is trying to pocket extra profits as a dividend from the ACA and does not want the government to tax back part, or all, of this dividend.
The medical device industry is pushing hard to repeal a tax imposed as part of the Affordable Care Act (ACA). The NYT had an article on its massive bipartisan lobbying effort. While the piece notes in passing that, “the White House argues that demand for new devices will offset the economic impact of the tax,” the piece doesn’t explain what this means.
The marginal cost of producing most medical devices is very low relative to their price. The companies are in effect collecting a big premium because of their patent monopolies. The ACA meant that they would sell many more devices and therefore collect a much higher dividend from their patents, even though the amount spent on research had not changed.
To see the logic here, imagine that it costs a medical company nothing to produce a scanner that it will sell for $1 million apiece. (Again, the high price is allowing it to recover development costs.) Before the ACA it would have expected to sell 1000 scanners, netting it $1 billion. After the ACA the company can expect to sell 1100 scanners, netting it $1.1 billion.
The tax is intended to recoup this additional $100 million. While the tax hit will not be exactly offsetting to the increased profit to the industry in every case, on average this will be the case. In other words, the White House is not making a bizarre argument, they are presenting the facts. The industry is trying to pocket extra profits as a dividend from the ACA and does not want the government to tax back part, or all, of this dividend.
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The Washington Post has a piece puzzling over the fact that:
“Builders started work on 27.7 percent more homes in February than they did a year earlier. Yet the number of construction jobs in the United States was only 2.9 percent higher, year-over-year.”
The Post turned to analysts at Goldman Sachs who concluded that the answer was labor hoarding. They make a case that firms are changing the length of the workweek to meet the increased demand for labor rather than adding more workers. This one doesn’t fly.
First, residential construction is a comparatively low-paying sector with casual labor relations. This is not General Motors with union contracts that make layoffs difficult. In other words, it is not a sector where we would expect to see a lot of labor hoarding.
The data on hours shown in the piece also do not support the labor hoarding story. While the average workweek has increased by roughly 3 hours since the trough of the downturn in 2009, it is up by only about 0.5 hours since 2011, which means that it would be equivalent to an increase in employment of less than 2 percent. That will not fill much of the gap identified in the piece.
So, what’s the real story? First, total construction is up by much less than residential construction. The Commerce Department reported that total nominal construction was 7.1 percent higher in January of 2013 than January of 2012. In real terms this would be a rise of around 5.0 percent, not too different from the increase in employment.
The other big issue is that many of the workers employed in residential construction are undocumented and may not show up in the payroll data. In fact, there was a sharp decline in residential construction in 2006 and 2007 even as employment in construction was still growing. From its peak in 2005 to the end of 2007 housing starts fell by almost 40 percent, while construction employment was little changed. Given this history, there is no reason to expect a big upturn in employment in response to the relatively small rise in starts that we have seen in the last year.
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The Washington Post has a piece puzzling over the fact that:
“Builders started work on 27.7 percent more homes in February than they did a year earlier. Yet the number of construction jobs in the United States was only 2.9 percent higher, year-over-year.”
The Post turned to analysts at Goldman Sachs who concluded that the answer was labor hoarding. They make a case that firms are changing the length of the workweek to meet the increased demand for labor rather than adding more workers. This one doesn’t fly.
First, residential construction is a comparatively low-paying sector with casual labor relations. This is not General Motors with union contracts that make layoffs difficult. In other words, it is not a sector where we would expect to see a lot of labor hoarding.
The data on hours shown in the piece also do not support the labor hoarding story. While the average workweek has increased by roughly 3 hours since the trough of the downturn in 2009, it is up by only about 0.5 hours since 2011, which means that it would be equivalent to an increase in employment of less than 2 percent. That will not fill much of the gap identified in the piece.
So, what’s the real story? First, total construction is up by much less than residential construction. The Commerce Department reported that total nominal construction was 7.1 percent higher in January of 2013 than January of 2012. In real terms this would be a rise of around 5.0 percent, not too different from the increase in employment.
The other big issue is that many of the workers employed in residential construction are undocumented and may not show up in the payroll data. In fact, there was a sharp decline in residential construction in 2006 and 2007 even as employment in construction was still growing. From its peak in 2005 to the end of 2007 housing starts fell by almost 40 percent, while construction employment was little changed. Given this history, there is no reason to expect a big upturn in employment in response to the relatively small rise in starts that we have seen in the last year.
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A Morning Edition piece on the housing market blamed difficulties in the housing market in part on people being unable to get mortgages because of inaccurate appraisals. In fact, this should not on average reduce sales. While some sales will be prevented by an appraisal that wrongly comes in too low, some sales will go through that should not because an inaccurate appraisal comes in too high. Unless there is some reason there is a low side bias to the appraisals, inaccuracy by itself should not affect total sales.
A Morning Edition piece on the housing market blamed difficulties in the housing market in part on people being unable to get mortgages because of inaccurate appraisals. In fact, this should not on average reduce sales. While some sales will be prevented by an appraisal that wrongly comes in too low, some sales will go through that should not because an inaccurate appraisal comes in too high. Unless there is some reason there is a low side bias to the appraisals, inaccuracy by itself should not affect total sales.
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Business news stories and op-ed columns are filled with comments about the economy picking up steam. The case is less obvious to those of us who look at the data. February’s reported job growth of 236,000 wasn’t bad, but it was not quite as good as the 271,000 job gain reported last February or the 311,000 new jobs reported for January of 2012. It pays to step back and look at the big picture. Most forecasts show growth under 2.0 percent in 2012. We have little reason at this point to assume that these forecasts are overly pessimistic.
Business news stories and op-ed columns are filled with comments about the economy picking up steam. The case is less obvious to those of us who look at the data. February’s reported job growth of 236,000 wasn’t bad, but it was not quite as good as the 271,000 job gain reported last February or the 311,000 new jobs reported for January of 2012. It pays to step back and look at the big picture. Most forecasts show growth under 2.0 percent in 2012. We have little reason at this point to assume that these forecasts are overly pessimistic.
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That could have been the title of a Washington Post editorial that criticizes the budget produced by Senate Democrats because it doesn’t address the possibility that we will have a rising debt to GDP ratio in 2023. After all, millions of lives are being ruined by the high unemployment that resulted from the ineptitude of the people that the Post views as experts on the economy. The Post is completely unconcerned about this crisis. Instead it is very upset that Senate Democrats are not worried about projections for 2023 and beyond of a rising debt to GDP ratio.
It is worth remembering that back in 2000 there was a major debate in Washington over the date at which the federal government would pay off the national debt. The Washington Post was a major actor in this debate.
Btw, the Post has this classic included in its list of ways to deal with Social Security:
“a more realistic inflation adjustment.”
Of course the Washington Post does not have a clue as to whether its preferred price index better reflects the rate of inflation seen by Social Security beneficiaries. All it knows is that it will show a lower rate of inflation and therefore cut benefits. You’ve gotta love these folks.
That could have been the title of a Washington Post editorial that criticizes the budget produced by Senate Democrats because it doesn’t address the possibility that we will have a rising debt to GDP ratio in 2023. After all, millions of lives are being ruined by the high unemployment that resulted from the ineptitude of the people that the Post views as experts on the economy. The Post is completely unconcerned about this crisis. Instead it is very upset that Senate Democrats are not worried about projections for 2023 and beyond of a rising debt to GDP ratio.
It is worth remembering that back in 2000 there was a major debate in Washington over the date at which the federal government would pay off the national debt. The Washington Post was a major actor in this debate.
Btw, the Post has this classic included in its list of ways to deal with Social Security:
“a more realistic inflation adjustment.”
Of course the Washington Post does not have a clue as to whether its preferred price index better reflects the rate of inflation seen by Social Security beneficiaries. All it knows is that it will show a lower rate of inflation and therefore cut benefits. You’ve gotta love these folks.
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The NYT had an interesting piece on new research from the Urban Institute showing that young people are faring very poorly in the economy. In presenting the list of problems facing young workers it included the collapse of the housing bubble.
In fact this was great news for young people in terms of their ability to buy homes. (The impact on the economy was of course devastating.) Since the overwhelming majority of young workers were not homeowners prior to the collapse of the bubble, the drop in prices means that they can buy a home for close to 30 percent less than what they would have paid 6 or 7 years ago. This is effectively a transfer of tens of thousands of dollars from older generations to the young. This is very good news for them.
The NYT had an interesting piece on new research from the Urban Institute showing that young people are faring very poorly in the economy. In presenting the list of problems facing young workers it included the collapse of the housing bubble.
In fact this was great news for young people in terms of their ability to buy homes. (The impact on the economy was of course devastating.) Since the overwhelming majority of young workers were not homeowners prior to the collapse of the bubble, the drop in prices means that they can buy a home for close to 30 percent less than what they would have paid 6 or 7 years ago. This is effectively a transfer of tens of thousands of dollars from older generations to the young. This is very good news for them.
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