Grasping Reality on TypePad, by Brad DeLong

In 1961, Nicholas Kaldor used his list of six "stylized" facts both to summarize the patterns that economists had discovered in national income accounts and to shape the growth models that they were developing to explain them. Redoing this exercise today, nearly fifty years later, shows how much progress we have made. In contrast to Kaldor's facts, which revolved around a single state variable, physical capital, our six updated facts force consideration of four far more interesting variables: ideas, institutions, population, and human capital. Dynamic models have uncovered subtle interactions between these variables and generated important insights about such big questions as: Why has growth accelerated? Why are there gains from trade?

American households have received a triple dose of bad news since the beginning of the current recession: The greatest collapse in asset values since the Great Depression, a sharp tightening in credit availability, and a large increase in unemployment risk. We present measures of the size of these shocks and discuss what a benchmark theory says about their immediate and ultimate consequences. We then provide a forecast based on a simple empirical model that captures the effects of wealth shocks and unemployment fears. Our short-term forecast calls for somewhat weaker spending, and somewhat higher saving rates, than the Consensus survey of macroeconomic forecasters. Over the longer term, our best guess is that the personal saving rate will eventually approach the levels that preceded period of financial liberalization that began in the late 1970s.

To date, the Massachusetts reform has had positive impacts on insurance coverage and access to medical care.... While the program has seen rapid enrollment, it has also seen higher than anticipated costs. Some of the cost problems are short term and should not be surprising for a major new initiative. But Massachusetts also faces a long-term cost problem. Massachusetts’ overall health care spending is higher than the national average and has grown more rapidly. We believe much of Massachusetts’ high spending growth is due to problems in the hospital/physician market. The market is highly concentrated with several academic medical centers, most notably the Partners’ Health System, being the dominant providers in local markets. While these academic medical centers typically have excellent reputations, they are also high-cost. Efforts by insurers to negotiate with the leading academic centers have proven difficult, if not impossible...

If you take a picture of the moon and claim that the resulting photograph is proof that the moon’s a stationary object and then someone shows you a video of it moving across the night sky, you cannot claim that your interpretation of the event depicted in the photograph is still valid. What you are effectively claiming is that the photograph is a photograph, i.e. that it is a still image captured from a moving tableau. This is not a matter of interpretation, but a description of the medium; to claim otherwise is to deny the very reality to which the photograph pertains . . .

Brad DeLong points out that everything Peggy Noonan says about Sarah Palin could also have been said about Ronald Reagan. But he’s going too far back. Ms. Noonan praised George W. Bush for exactly the qualities she disses in S

News flash: This has been happening to people forever, at least if you count women as people. Back when George Washington was writing out his "Rules of Civility and Decent Behavior in Company and Conversation", which Brooks cites as an example of the Dignity Code, Thomas Jefferson was hitting on Sally Hemings. A professor whose class I was enrolled in once grabbed my breasts at a party. Every woman I know has stories like this. Maybe being groped in a public setting is a novel experience for straight guys; not being a straight guy, I wouldn't know. But if it is, that isn't because no one ever groped anyone in a public setting before.... [W]hy did David Brooks write this column? Is it (a) because none of his female friends and relations ever told him about the existence of sexual harassment? Or (b) because he doesn't think that public groping violates the Dignity Code when you do it to women, because for some reason women just don't count?

Consider mortgages, the source of so many problems in the financial crisis. Once upon a time, choosing a mortgage was easy. Nearly all mortgages were of the 30-year, fixed-rate variety, required a 20-percent down payment and were devoid of tricky features like balloon payments, teaser rates and prepayment penalties. Sensible regulation was easy in this environment. Congress passed what’s known as the Truth in Lending Act, which required lenders to report interest rates in a uniform way, using the now-ubiquitous annual percentage rate. Picking the best mortgage was no more complicated that finding the lowest A.P.R. Fast forward to 2008, and the world of mortgage shopping had become a much more complicated place. Borrowers were quoted low initial “teaser” rates that would jump later to some higher level, depending on market interest rates at the time, and there were prepayment penalties for paying off the loans early. For such mortgages, an A.P.R. was no longer an adequate measure...

The most likely scenario is that California’s feuding politicians eventually reach a deal to close the $26bn budget gap. But even then there would be ramifications. The state’s economy is already weak; unemployment is 11.5 per cent and the multiplier effects of $26bn in geographically concentrated spending cuts and tax increases could be high. Moreover, as KBW highlights in a research note, cutbacks at the state level will put additional pressure on highly stretched counties and municipalities. Like the state, these entities have little latitude to raise revenues. State-level fiscal consolidation could easily lead to a rash of defaults at the local level, which could roil the market for municipal debt nationally. If this happened, the federal government might have to support the municipal bond market, possibly through a guarantee scheme with risk-based pricing. Alternatively, it could decide the best antidote to state fiscal contraction is further federal stimulus...

So what needs to happen if Indians are to enjoy an affluent lifestyle? The answer, suggests the report, is that India must sustain growth at close to 10 per cent a year over a generation. This is not inconceivable: China has managed that, from a lower base, over three decades. But it is a massive task, particularly for so huge, diverse and complex a country. Extraordinary change would have to occur, inside India and in India’s relationships with the world. For this to be conceivable, at least four things would have to happen: the world must remain peaceful; the world economy must remain open; India must avoid the stagnation into which many middle-income countries have fallen; and, finally, the resource and environmental implications of its rise to affluence must be managed. Moreover, India itself must overcome three big challenges: maintaining... social cohesion; creating a competitive and innovative economy; and playing a role... commensurate with the country's size...

These and a number of other criticisms are off base. The law – officially the American Recovery and Reinvestment Act – is working as intended and, without it, the economy and the job prospects for many Americans would be worse. The $787 billion in new spending and tax cuts was supposed to slow the economy’s downward spiral and then help it recover over time from what will be the nation’s deepest recession in decades, if not since the Great Depression of the 1930s. The law was designed to save and create more than 3.5 million jobs over the next two years, according to the Obama Administration, and to help states close their budget shortfalls so they could avoid even greater spending cuts and larger tax increases than they are already enacting to meet their balanced budget requirements.

Last week the budget office scored the full proposed legislation from the Senate committee on Health, Education, Labor and Pensions (HELP). And the news — which got far less play in the media than the downbeat earlier analysis — was very, very good. Yes, we can reform health care. Let me start by pointing out something serious health economists have known all along: on general principles, universal health insurance should be eminently affordable. After all, every other advanced country offers universal coverage, while spending much less on health care than we do. For example, the French health care system covers everyone, offers excellent care and costs barely more than half as much per person as our system.

In the course of a few dozen lengthy interviews, not once did I encounter an interview subject who wanted to trade places with an American. And it was easy enough to see why. People in these countries were getting precisely what most Americans say they want: Timely, quality care. Physicians felt free to practice medicine the way they wanted; companies got to concentrate on their lines of business, rather than develop expertise in managing health benefits. But, in contrast with the US, everybody had insurance. The papers weren’t filled with stories of people going bankrupt or skipping medical care because they couldn’t afford to pay their bills. And they did all this while paying substantially less, overall, than we do...

Look, comparing your domestic political rivals to Nazis is a time-honored tradition. But confusing the Nazis and Germany’s Social Democrats is a scandal. The Social Democrats were the main source of opposition to Hitler at a time when the Communists were bizarrely maintaining that there was no difference between the two and the mainstream parties of the center-right decided that it made sense to form a tactical alliance with Hitler. Social Democrats stand for a generous welfare state and active labor market policies. Nazis try to conquer the world and send people to the gas chamber. Jonah Goldberg aside, this is not a subtle distinction.

Now that Sen. Coburn (R-OK) has said he will not answer any questions about his conversations with Sen. Ensign (R-NV) because he was acting as his physician (and spiritual counselor), TPM Reader DE reminds us that Dr. Coburn is an OB/Gyn. A deeper scandal than we'd ever imagined

We've known for a while that Sen. Ensign (R-NV) gave a 'severance' payment of at least $25,000 to his ex-mistress and her husband. Now it turns out it was $96,000. But it gets better. Ensign's lawyer is pointing out that he didn't pay any money -- his parents paid them off.

Yes, I know that's pretty bold billing.... In one of the more surreal episodes in this whole drama, while folks from 'The Family', including Sen. Coburn (R-OK), were trying to get Ensign to end his relationship with the girlfriend and write her and her husband a big check. So Ensign agrees to do this. But the members of his fellowship had so little trust he could follow through that they had him write out a letter to the mistress that he was ending the relationship and then drove him to the local Fedex office to make sure he actually dropped the letter in the box. So he does that. But then after he shakes them loos he calls the mistress to tell her his friends made him write the letter and to ignore it. It makes having his parents pay the couple off sound far less out of character...

The governor's claim that his in-home supportive services (IHSS) "reform" to combat fraud will reap 25% in program savings is inconsistent with the findings of a statewide audit released by his own administration in 2008 according to Assemblymember Noreen Evans (D-Santa Rosa), Chair of the Assembly Budget Committee. "It's disappointing to see the governor making up 'facts' to suit his agenda," said Evans.  "According to his own administration, just 1% of IHSS cases involve fraud.  The governor should not try to criminalize seniors and the disabled in order to close our budget gap."

One issue with a lot of health care commentary (Michael Kinsley’s correctly maligned column for example) is that the concept of “cost” is somewhat ambiguous.... [A]n initiative that raises $90 billion in tax revenue, reduces private health expenditures by $100 billion, and then provides equivalent services for $90 billion... costs ninety billion dollars... [or] saves $10 billion.... If we cut $1 billion worth of regular pediatric care for poor children, that will “save money.” But that’s not the same as cutting $1 billion worth of unnecessary treatments for senior citizens.... The latter would be a genuine saving; the former would just be denying useful services to people.... If you have a system that has a high fiscal cost because it’s providing a lot of genuinely valuable services to people then the thing to do is to pony up the necessary tax revenue...

Palin won’t go gently into the good night.... She is not just the party’s biggest star and most charismatic television performer; she is its only star.... [S]he stands for a genuine movement: a dwindling white nonurban America that is aflame with grievances and awash in self-pity.... Palin gives this movement a major party brand and political plausibility that its open-throated media auxiliary, exemplified by Glenn Beck, cannot. She loves the spotlight, can raise millions of dollars and has no discernible reason to go fishing now except for self-promotional photo ops. The essence of Palinism is emotional, not ideological.... That resentment is in part about race.... Her convention speech’s signature line was a deftly coded putdown of her presumably shiftless big-city opponent: “I guess a small-town mayor is sort of like a community organizer, except that you have actual responsibilities.” (Funny how this... has been forgotten... now that she has abandoned her... responsibilities...)

(Attention conservation notice: 1,200 words on a great introduction to the last 75 years of economics. As I mention below, I expected that this would be Yet Another Behavioral-Econ Summary, or yet another round of head-shaking I-told-you-sos about the economic collaprse of 2008. Thankfully, it is neither. It is just a great read.)

uestion: who said this in 1990? “For about 15 years, the United States runs current account deficits, so that more than 6 percent of U.S. assets are owned by foreigners in 2010. High saving for the subsequent 15 years results incurrent account surpluses and reduces foreign capital ownership to 3.5 percent. Past 2020, however, with the rapid increase in the number of elderly, the United States again runs current account deficits, so that in the steady state almost 9 percent of U.S. assets are owned by foreigners.” Answer, among others the current director of the US president’s National Economic Council, Larry Summers...

Thus, Professor Lazear must believe the recession will be over soon, and -- more importantly -- that we will revert to potential GDP in short order. He's certainly free make that prediction. But when considering his record on predictions...