We Are Not Entitled to Our Own Facts

Contrarianism is running rampant. Go to a local bookstore and you will note countless “what you know just ain’t so”-type arguments. I am beginning to wonder if this type of trend downplays serious analysis and leaves us open to any argument regardless of whether it is blatantly incorrect. A case in point is a recent op-ed in the New York Times entitled, “Why Chavez Was Re-Elected.”

The op-ed purports that Chavez was re-elected because his policies have been successful. According to the op-ed:

Since the Chávez government got control over the national oil industry, poverty has been cut by half, and extreme poverty by 70 percent. College enrollment has more than doubled, millions of people have access to health care for the first time and the number of people eligible for public pensions has quadrupled.

According to survey evidence by the World Bank, poverty has fallen in Venezuela. However, it is important to put this in context. The earliest data that we have available on poverty from the World Bank is from 2002 and according to the survey the poverty rate was around 60%. It has come down appreciably since. However, this statistic and the corresponding claims in the op-ed ignore what is driving these measured changes and the long-run implications thereof.

Throughout Chavez’s tenure, he has seized thousands of businesses and imposed controls on foreign exchange as well as strict price controls. Any improvement in economic statistics in this type of regime is meaningless. The reason is because Venezuela is experiencing extractive growth. We know from economic theory and historical experience that extractive growth cannot last. (We need only look to the last 15 or so years of research by Daron Acemoglu and James Robinson to understand this conclusion.) The improvement in the statistics that the author highlights are merely the result of the fact that Chavez has seized control of the oil companies and uses revenues to finance social programs. Extractive growth, however, deters foreign direct investment and it reduces the incentives to innovate and re-invest in existing businesses. More broadly, higher risks of expropriation lead to lower income per capita. Meanwhile, according to Bloomberg, price controls have created shortages in “everything from electricity to sugar and beef.”

The author, however, seems to believe that Chavez and others like him have discussed some alternative to “neoliberalism” to foster growth. This view is misplaced. Where so-called neo-liberalism has tried and purportedly failed is in countries that have insufficiently inclusive societal institutions. Yet the author seems to accept correlation as causation in these cases.

If this is where the op-ed ended, I would conclude that the author’s assertions were misguided, but would be content to agree to disagree. However, the author’s claims only become more dubious as the op-ed proceeds. For example, he argues:

Not surprisingly, the leftist leaders have seen Venezuela as part of a team that has brought more democracy, national sovereignty and economic and social progress to the region. Yes, democracy: even the much-maligned Venezuela is recognized by many scholars to be more democratic than it was in the pre-Chávez era.

I’m not sure what I am to make of such a dubious statement. Chavez controls the voter rolls. There have been no external audits of the election. In addition, according to this piece in the Wall Street Journal, there are 10,000 voters who are registered between the ages of 111 and 129. Perhaps Chavez has also improved longevity!

Markets and migration also tell a different story. Since 2000, approximately 120,000 Venezuelans have migrated to the United States. To put that in perspective, that represents a 125% increase in the number of Venezuelans in the United States. In addition, Chavez’s victory was met with a sharp decline in the price of Venezuelan bonds, which had previously rallied on the prospect of his defeat.

Curiously, there was also no mention of lawlessness, violence, and kidnappings under the current regime. One Venezuelan criminologist says that there have been over 155,000 murders in Venezuela during Chavez’s tenure. Gangs rule the streets of Caracas and many crimes go unsolved. This is evident in news reports, but I also know this from talking to Venezuelans who have left.

The op-ed seemingly seems impervious to facts as well:

After recovering from a recession that began in 2009, the Venezuelan economy has been growing for two-and-a-half years now and inflation has fallen sharply while growth has accelerated.

According to the World Bank, inflation has been very high. Over the last three years, consumer price have risen by 27.1%, 28.2%, and 26.1%, respectively. When measured by the GDP deflator, inflation has been even worse. Over the last five years, annual inflation by this metric has been 15.4%, 30.1%, 7.8%, 45.9%, 28.1%, respectively. And this is in the context of a regime of strict price controls and therefore there might be reason to believe that these number understate the actual inflation rate. To put this in perspective, Bloomberg reports that out of all of the countries that they track, only Iran and Belarus have higher rates of inflation than Venezuela.

Venezuela is not prospering and Chavez has not discovered an alternative path toward economic growth and prosperity. The Chavez regime is an extractive regime. There are no incentives for long-run growth, inflation is high, lawlessness is rampant, and there are serious reasons to doubt the validity of the election process. This is the reality. And all of this is contrary to the recent New York Times op-ed.

On Administrative Costs in Health Insurance

In a recent post, Garett Jones asks, “Will ACA’s cost-cutters outcut private insurers?” The post was inspired by a new paper in the New England Journal of Medicine presents an argument in favor of the ACA. I would like to offer some corresponding comments.

One thing that the paper emphasizes is the role of administrative costs. One argument often made in favor of a single payer system is that there are lower administrative costs with one insurer. This is thought to be true of both the insurers and the providers who would only have to negotiate payment rates with one insurer rather than many. Typically, single payer advocates use this to argue that more administrative costs imply that there is a waste of resources. Nonetheless, there are important reasons to question these claims.

First, the game is rigged. Estimates of administrative costs for government-provided insurance never include any estimate of the deadweight loss from taxation that would result from switching individuals on private insurance plans to a public plan.

Second, and substantially more important, is that this argument treats the problem as static rather than dynamic. Insurance companies have an incentive to reduce these costs. If these firms innovate in eliminating some of these costs, these innovations will also leak over into other areas of the economy. To the extent to which insurance companies are marginalized, such innovations will be less likely, which can potentially reduce the benefits of positive externalities that result from innovation.

Third, there seems to be either a misunderstanding or a lack of curiosity with respect to the issue of administrative costs on the insurer side. For example, if the government exhibits economies of scale and the private sector doesn’t then the government can provide the service more efficiently. However, the observation of lower administrative costs on the part of the government does NOT imply greater efficiency. Suppose that administrative costs are predominantly variable costs (the more claims, the higher the cost). It is possible that each individual firm’s variable cost curve lies below the government’s variable cost curve, but that the sum of the variable costs of all private firms is above that of the government. Since we are generally looking at aggregate costs of the private sector versus the public sector, this is consistent with the observation that administrative costs in the private sector are above the public sector, but does not imply any gain in efficiency by switching to the government.

Finally, on the provider sign, the claim is that providers are wasting resources by negotiating with multiple insurers. But, this argument begs the question. Why don’t providers simply negotiate rates multilaterally with insurers? Why do they choose to negotiate individually with insurers with different characteristics like size? To the extent that we believe that health care providers are profit-seeking, why wouldn’t they explore other arrangements? The observation that providers voluntarily choose to negotiate different rates with different insurers suggests not that these negotiations are a waste of resources, but rather that they are beneficial. Thus, in this instance, “waste of resources” seems to imply “not using resources the way we want them to.”

Question of the Day

If it was so obvious that this recovery would be slow, then the Administration’s forecasts should have reflected it. Were they saying at the time, “normally, the economy bounces back quickly after deep recessions, but it’s destined to be slow this time, because recoveries from housing “bubbles” and financial crises are always slow?”

That is John Cochrane. His answer by the way is: “No, as it turns out.” The whole post is worth reading.

Monetary Policy, Level Targeting, and Political Coalitions

In a recent post Nick Rowe writes: “Who else can we get on our side? What sort of coalition could be built to support politically a commitment by central banks to a higher level-path of NGDP?”

The longer the process goes on, the more that I think that the policy battle is lost for level targeters for the time being, but not necessarily the future. The problem that those who want a NGDP level target or even a price level target face is that there is uncertainty about the policy — some warranted and some not — coupled with the fact that there is no precedent for such policy actions. Think of Fed policy under Paul Volcker. Would his policy have been possible without both the monetarist counter-revolution and the experience of the Great Inflation in the 1970s? I think not (although this is more conjecture than hard fact).

The Keynesian consensus prior to the late 1970s was that there was a particular rate of inflation associated with a particular level of unemployment. Higher inflation was a necessary trade-off to ensure lower unemployment. And if unionization or monopolization became stronger the curve would shift up and we would have to tolerate higher inflation in the face of the same level of unemployment. Even Arthur Burns, which I detail in my paper on the Great Moderation but can be understood in more detail by reading his diary, came to the view that incomes policies were necessary to restrain inflation. Think of how remarkably backward this period was. The Fed chairman didn’t think he had any responsibility for inflation! But a large portion of the discipline was with him. The policy regime was only able to change because (1) incomes policies were clearly failing, and (2) the monetarist counter-revolution offered the prescription.

Milton Friedman was arguing that inflation was a monetary phenomenon as far back as 1963 — and perhaps sooner — based careful and thorough research on a century of U.S. history. However, the United States experienced a decade of high rates of inflation before the policy regime was able to not only move away from disastrous policies, but also employ the type of monetary policies (at least publicly) that monetarists had recommended — low, stable rates of money growth.

The problem that those who want level targeting face is that (1) the theoretical underpinnings are not as clear as say the monetarist prescription for inflation, (2) there is very little evidence — good or bad — with respect to level-targeting, and (3) a failure — or perceived failure — of the policy.

With regards to point (1), consider a simple example. There are two idea of a Phillips curve. The first is the New Keynesian view in which

where is inflation is expected inflation and is the output gap.

A monetarist, or expectation-augmented Phillips curve, is

Couple these ideas with an IS equation. In the NK model, higher short-term expected inflation raises output and inflation. In the monetarist version, an increase in inflation expectations increases output through the IS equation and reduces output through the expectations-augmented Phillips curve. Output could actually fall in the second scenario if is greater than the interest elasticity in the IS equation. Even if it doesn’t, an increase in short-run expectations of inflation would predominantly cause an increase in inflation rather than output. This brings me to my next point.

With regards to point (2), Scott Sumner and David Beckworth like to point to the devaluation of gold. Even as someone would would support an NGDP level target, I am skeptical that this provides evidence that the current Federal Reserve could necessarily achieve this goal. In this case of the devaluation of gold, the balance of payments will see to it that there is a necessary adjustment in the price level. That is Commodity Money 101. In the present context, there is no automatic mechanism and the Fed is hindered by the fact that they have already doubled the size of their balance sheet. Suppose that the Fed announced that they would buy as many assets as necessary to achieve an NGDP level target. This would mean that the Fed would have to commit to unlimited asset purchases until they reach their goal, which might bring them under political pressure and test their resolve. In addition, if inflation began to rise rapidly (rising from say 2% to 6%), this might also put the Fed under political pressure and test their resolve.

In addition, the Fed has a great deal invested in the credibility that they have achieved from stabilizing inflation around 2% for the past 20 years. Jim Bullard catches a lot of flak by those who favor additional easing. However, of all the Fed presidents who are skeptical of additional easing, he is the most clear on why he opposes such action. Bullard clearly sees the Fed’s main objective as that of inflation targeting — not price level targeting. In all his speeches he has praised quantitative easing for allowing the Fed to maintain a rate of inflation consistent with their 2% goal. He doesn’t oppose easing because he is a dunce (as some of these critics would have you believe), he opposes easing because he thinks that the Fed has achieved its objective. Do not discount this view within the Federal Reserve itself.

Thus, if level targeters want to achieve some level of acceptance and shape monetary policy, they need to provide evidence for its success (and within contemporary monetary regimes) and a more solid theoretical underpinning for why level targeting is preferable. Change takes time. Level targeters are almost certainly not going to be successful in the present. There are few political coalitions that rally around uncertain policy prescriptions. However, if they can take the steps I just described, they might be able to have an effect on policy in the future.

Economics and Politics, Part 2

My views don’t fit neatly into the left-right political spectrum boxes. This is both a gift and a curse. The gift is that I am not blinded by party biases. (I have my own biases, thank you!) The curse is that I observe others, on both sides of the left-right divide, suggest that the other side is littered with extremists. The latest example comes from Mark Thoma, who has a new column at the Fiscal Times that begins:

The upcoming presidential election gives voters a choice between two very different philosophies of government. For Democrats, an activist government is necessary to keep markets functioning, and to smooth economic fluctuations. Without government oversight, markets would be captured by monopoly power, consumers would be at the mercy of unscrupulous producers, there would be distortions from adverse selection, information asymmetries, moral hazard problems, and so on. In addition, if government does not take action when a recession hits, the downturn will be much worse and much longer than necessary.

For Republicans, however, activism is exactly the wrong approach to take. They believe that the key to making markets work and smoothing economic fluctuations is for the government to get out of the way and let the private sector work its magic. In general, markets react faster, incorporate more information, and regulate commercial behavior better than humans will ever be able to do.

There are several problems with these opening paragraphs, some economic and some factual. First, let’s deal with the economics. Thoma suggests that Democrats think that government intervention is necessary to ensure the smooth functioning of markets. I’m not in the business of understanding what Democrats think, so I will take him at his word as this seems a reasonable characterization. So why do Democrats think that government needs to intervene? Because markets suffer from adverse selection, moral hazard, information asymmetries, etc.

What is curious is that Thoma then suggests that in an economic downturn we need government intervention because of these information frictions. Really? I don’t see this as the argument for fiscal stimulus. The arguments that I see are that the government can fill the output gap, so to speak, or that the multiplier from fiscal stimulus is greater than one, or that deficit spending is self-financing (the irony of that last statement being uttered critics of supply-side economics makes my head spin). Regardless, it is not clear why fiscal stimulus follows from information frictions. (Perhaps there is a coordination failure argument here?)

But let’s get back to the information frictions. Do the existence of such informational frictions necessarily imply that we need government intervention? The answer is no. Asymmetric information is everywhere. It’s hard to think of markets where asymmetric information doesn’t play a role. Of course, to leave it at that would be unfair. In some cases the effects of asymmetric information is more important than in others. But let’s consider one of the most obvious cases of imperfect information. Suppose that individuals cannot perfectly and credibly commit to future actions. Two individuals meet to trade. One is a buyer. One is a seller. The buyer wants to give the seller an IOU in exchange for goods — i.e. he wants credit. In the absence of perfect commitment and without access to the trading history of the buyer, no seller will extend credit. This is why we need money. Governments, you might point out, can step in and provide fiat currency. However, the historical emergence of commodity money would seem to suggest that there are non-government solutions. Now, of course, fiat and commodity money have their trade-offs, but it is not obvious that fiat money is preferable — although it has the potential to be.

In addition, government policies can actually create information frictions and moral hazard. Thus, the existence of information frictions is not prima facia evidence that government intervention is necessary. Thoma admits this, but then goes back into attack mode:

Government isn’t perfect, but neither is the private sector (see the bulldozed waste from the housing bubble), and on net it’s helpful for the government to take action when relatively severe market failures are present. Traditionally, those who take a more hands off approach do not deny that all markets fail to some degree – no market is perfectly competitive. But for the most part they do not see these failures as having large consequences, and even when they do, government intervention is rarely the solution. In many, if not most cases, that just makes things worse.

In the modern Republican Party, these views have been taken to the extreme so that government is rarely, if ever, supported.

I don’t know, it seems to me that the Republican Party quite likes government intervention. It was George W. Bush who bailed out the automakers, ushered in TARP, gave (the always ineffective) tax rebates in early 2008, expanded Medicare, conducted nation building exercises in Iraq and Afganistan, etc.

Thoma continues:

Who will build bridges, provide sewage systems, national defense, roads, airports, water systems, and so on if not the government?

And here we get to the true source of debate. I agree. Let’s build bridges and roads and rebuild some infrastructure. We can finance these at historically low interest rates. But who is proposing doing that? The Democrats? Not likely. Supposedly President Obama wanted more infrastructure type projects in the stimulus package, but it ended up mostly being a transfer payment to the states.

Thoma concludes:

There was a time when extremists were not the main voice of the Republican Party, a time when we had some chance of dealing with important issues.

This is the meme on the left, but I don’t buy it. Mitt Romney is the presidential nominee — a moderate Republican from Massachusetts. Marco Rubio, his likely running mate, was called a “centrist” by the New Yorker (The New Yorker!).

I’m not trying to defend Republicans. However, the theme that I see on the left is that President Obama is an innocent victim of obstructionist Republicans. As an outside observer, I see obstructionism on both sides. The respective parties have drawn their lines in the sand and neither will budge. It’s also not clear to me that if either or both sides did budge, we would get anything akin to optimal policy. (Compromise is sometimes good — see Bill Clinton and the Republicans in his second term. However, it is sometimes bad — see No Child Left Behind.)

Finally, I think that it is misleading to suggest that only fiscal stimulus could have and can solve our economic problems. The view of the discipline prior to the recession was that monetary policy was effective and fiscal policy was irrelevant. I happen to agree with Thoma that infrastructure spending would be a good idea at historically low interest rates. However, my support comes from the view that the marginal benefit of these projects would outweigh the marginal cost. If the economy gets a boost from these projects, all the better. However, to suggest that the slow recovery of the economy is because of the Republican Party is opposed to government intervention is far from obvious and overly partisan — especially from someone who is usually more thoughtful on economic issues.

Money and Elections

I have noticed that there is concern, notably from my friends who are left-of-center, that the Citizens United decision will ruin the political process. Jeffrey Toobin has an excellent article in the New Yorker about the actual process through which the decision came to be. Toobin laments the decision as conservative judicial activism on the Supreme Court. Perhaps. However, I’ve noticed that among those who fit neatly into either the categories “left” and “right” an activist court ruling seems to be defined by whether or not they agree with the decision. Others, such as John Cassidy have suggested that the situation in Wisconsin highlights what is some sort of new class war in the U.S. that pits billionaires against union workers. Although he doesn’t explicitly mention it, it seems that the Citizens United case looms large. Finally, the New York Times ran a series of posts asking whether or not the upcoming presidential election can be won without Wall Street. The role of Super PACs and therefore the Citizens United decision again play an important role.

Despite the outcry about Citizens United, it isn’t necessarily clear that we should be concerned. However, as someone who isn’t (a) a political scientist or (b) familiar with the literature on the matter, I cannot say for certain whether the court decision will have any consequence in terms of election results. Nonetheless, there are some unanswered questions (at least that I haven’t seen answered) that would seemingly give some indication of whether or not one should be concerned about the effect of the Citizens United decision. I would like to discuss each of these questions in turn and hopefully those with knowledge on these issues can enlighten me either in the comments or through email.

1. Does causation run from campaign money to victories or does it run from probable victory to campaign money? This seems to be one of most important questions to answer? Essentially, it is important to know whether increased funding for a particular campaign actually increases the probability that the candidate wins the election. An alternative hypothesis is that campaign contributions come from two places: (1) diehard ideological supporters and (2) donors who are “on the bandwagon,” giving to the candidate they think might be the winner. If this latter hypothesis is true, then campaign spending isn’t causal and therefore we shouldn’t be particularly concerned with how much money is raised.

2. Even if the money raised by the campaign isn’t causal, this doesn’t mean there isn’t cause for concern. It might be the case that the candidates feel an obligation to “repay” their large donors. What evidence is there to support this idea? Again, this is a causation question. Suppose pro-choice groups give money to Obama and pro-life groups give money to Romney. One candidate wins the election. The one that wins signs into law something that the corresponding group supports. Is this because they gave the candidate money? Or, did they give the candidate money because they knew that the candidate would pass favorable legislation?

3. If campaign contributions have a causal effect on the probability of victory or create a system of “repayment”, this still doesn’t tell us about the marginal effect of the Citizens United decision. In other words, how much additional campaign funding is (will be) acquired as a result of this decision. The answer is not as simple as one might think. We have campaign finance laws, but these laws are broken. We know how many are charged and convicted with crimes related to campaign finance, but we don’t know how much of this type of behavior is not discovered. In other words, how much of the additional funding that candidates receive would have been given illegally anyway?

Also, note that if contributions have no causal effect, this question is irrelevant.

4. My left-of-center friends seem to think that the Citizens United decision will direct money from corporations and wealthy individuals toward Republican candidates. Perhaps I am blinded by the fact that I do not fit neatly into one particular ideological category, but is there any evidence that this is correct? Surely there are wealthy individuals who support Democrats. Hollywood, for example, seems disproportionately in favor of the Democratic Party.

There are many more questions that I could ask, but this seems like a good starting point. Hopefully those who know more than I do can offer some enlightenment.

Economics and Politics

I repeatedly hear claims that solving the current global economic problems merely requires political will. If it wasn’t for the Republican obstructionists or the pigheaded Germans, the problems could (would?) be solved. What I find frustrating about this narrative is its simultaneous simplicity and certainty about the necessary policy prescriptions. Isn’t it possible that so-called Republican obstructionism is the result of a belief on the part of Republicans that the policies they are supposedly obstructing would be ineffective or deleterious? Isn’t it possible that the German leadership is opposed to many suggested policy prescriptions because they believe that many of these proposals simply kick the can down the road and leave them holding the bag? (Isn’t it possible to squeeze countless metaphors into one sentence?!)

The point that I am making is not that the Republicans or the Germans are correct, but rather that it is not certain that they are incorrect. And in the case of Germany, it would seem that they have little to gain and much to lose by helping troubled Eurozone members. Many forget that from the German perspective the ECB’s monetary policy is close to optimal. As such, Germany is likely to be the most insulated from a European economic slowdown — at least according to New Keynesian-style logic. If it makes economic sense for the German leadership to take the position that it does, how can we fault them? Perhaps one could argue that they should care about their fellow Europeans, but that is philosophical and something that is beyond the scope of economics.

In the U.S., what types of policies have been prevented by political obstructionism that would have helped? What evidence is there that these policies would have helped? Is there a competing narrative that can explain the same outcome?

Frequent readers know that I think that monetary policy in the U.S. has been suboptimal. There are “political will” narratives here as well. Those who think that monetary policy has been tight think that the Fed lacks the political will to do what is correct right now. Many of those who think that monetary policy is going to create higher rates of inflation in the near future think that the Fed will lack the political will to bring down inflation when it starts to rise.

A much simpler story is that the Fed is an inflation targeter, with a not-so-implicit-anymore target of 2%. Under this narrative, the past rate of inflation is irrelevant. What matters is preventing the inflation rate from being consistently below target. When I look at the data and when I read speeches by folks like Jim Bullard, this seems entirely more plausible than the political will narrative.

In addition, if the political will narrative is correct, then aren’t these arguments really arguments against the Federal Reserve itself rather than merely policy? In other words, if there is an optimal policy that the Federal Reserve refuses to pursue because of political risks such as diminished credibility, then why have a monetary authority in the first place?

The political will narrative is easy to adopt and probably has some psychological appeal as well. If the POTUS isn’t signing into law policies that you believe would help or if the central bank isn’t following the policy that you believe would be optimal, it is perhaps easiest to think that they simply lack the political will to get things done. Whether policy has been optimal also depends on the objective. If the Fed’s objective is 2% inflation, then they have done a remarkable job. If the Fed’s objective is a trend path for the price level or nominal GDP, then they have done a substantially less than remarkable job. Perhaps it is political will that explains the policy path that has been chosen, but it is possible that there are alternative and entirely valid explanations of such a path.

Insiders Versus Outsiders

The Wall Street Journal reports:

So robust is the recovery in the U.S. auto industry that virtually all the union workers who were laid off by Detroit auto makers during the crisis years can have their jobs back, if they want them.

Even General Motors Co.’s Lordstown, Ohio, complex, long known for its money-losing small cars and its bad labor climate, is running 24 hours a day, with more than 4,000 workers churning out hot-selling Chevy Cruze compacts.

But here in Moraine, the GM assembly plant closed for good. Despite being one of GM’s most productive and cooperative factories, Moraine was closed following the company’s 2007 labor pact with the United Auto Workers union. Under a deal struck by the UAW during GM’s bankruptcy two years later, Moraine’s 2,500 laid-off workers were barred from transferring to other plants, locking them out of the industry’s rebound.

The trouble with Moraine: Its workers weren’t in the UAW.

[…]

Moraine’s workers got nothing in the bankruptcy deal. Their plant, which had closed months earlier, was ultimately sold to a developer. The workers were barred from transfers to UAW plants, as were thousands of others who had worked for Delphi Corp., GM’s former parts arm.

How Moraine’s interests diverged from the UAW’s is rooted in the plant’s history. A former appliance factory, it was converted to a pickup truck plant in 1981 after GM sold its Frigidaire brand. At the time, workers there elected to stick with their existing union, the International Union of Electrical Workers, rather than join the UAW. Over time, they generally accepted contracts negotiated by the UAW.

Through much of the 1990s, vehicles built at Moraine—models like the Chevy TrailBlazer and GMC Envoy—were big sellers and contributors to GM’s profits. In 2007, the plant won recognition as the nation’s most efficient midsize-SUV plant from the Harbour Report, a measure of manufacturing productivity.

“Moraine was always a good plant. The IUE was always a good union,” says Art Schwartz, former general director of labor for GM and now president of Michigan-based Labor & Economic Associates. “It’s a shame what happened to them.”

When GM began spiraling downward in 2007, as soaring fuel prices pummeled truck and SUV sales, IUE leaders decided to break ranks with the UAW and offer concessions to keep GM and Moraine afloat.

The IUE agreed to a two-tier wage system—long opposed by the UAW—in which new hires earn half as much as longtime workers. It also agreed to let the company unload its retiree health obligations into a union-run trust fund.

But as the crisis deepened, and GM and the UAW began negotiating a way out, Moraine’s workers had no seat at the table.

In the fall of 2007, GM promised work to dozens of UAW-represented plants in exchange for concessions on wages and health care, including some of the very changes offered by the IUE. By the time GM doled out enough work to satisfy the UAW, there was nothing left for Moraine.

The reference in the title is to this theory of the labor market.

Health Care and Health Insurance Are Not the Same

Jeffrey Toobin writing in the New Yorker:

The main argument that opponents of the health-care law have come up with is that the mandate regulates economic inactivity—i.e., not buying insurance—and the Commerce Clause allows only the regulation of economic activity. In the first appellate review of the law, last summer, the Sixth Circuit demolished that argument. The court pointed out that there are two unique characteristics of the market for health care: “(1) virtually everyone requires health care services at some unpredictable point; and (2) individuals receive health care services regardless of ability to pay.” Thus, there was no such thing as “inactivity” in the health-care market; everyone participates, even if he or she chooses not to buy insurance.

I don’t understand this argument. Health care is not health insurance. There is no inactivity in the health care market, but there is inactivity in the health insurance market. The law mandates health insurance purchases, not health care purchases. This does not seem to be a valid comparison.

Also, Ezra Klein writes regarding Paul Ryan’s budget plan:

It’s Medicaid and other health spending, which includes the Affordable Care Act, where Ryan really brings down the hammer: That category falls by 1.25 percent of GDP. So Ryan’s cuts to health care for the poor are almost twice the size of his cuts to health care for the old.

The plan cuts government-provided health insurance to the poor, not health care to the poor. The distinction is important because there is evidence that in some cases being uninsured is comparable to being on Medicare (see here, here, and here).

Politics

Everything that is wrong with politics can be found here.