Grasping Reality on TypePad, by Brad DeLong

1)Henry J. Aaron: Health-reform legislation would accomplish more than critics admit:

Robert J. Samuelson has argued that extending health insurance to 25 million to 35 million uninsured Americans is undesirable unless and until health spending is controlled.... The House-passed bill and the one before the Senate would offset the spending necessary to extend coverage with other spending cuts and tax increases. These bills would reduce the deficit slightly over the first 10 years and more later. Samuelson disparages the budget cuts because Congress has not always enforced promised spending reductions. Congress has, however, repeatedly stuck with promised cuts in health-care spending... [that are] gradual. In contrast, Congress has refused to enforce poorly designed, meat-ax cuts in physicians' fees. Those cuts were so draconian that thousands of physicians were likely to have stopped serving Medicare patients. The poor design is regrettable. The failure to enforce a bad policy is not. In his column this week, Samuelson cited a Center for American Progress study and seemed to accept its estimates. But according to that study, the bills under consideration would shave more than $1 trillion from national health-care spending and use half that money to extend coverage. Yet Samuelson says that isn't good enough.... It is easy to write about the need to transform health care and the evils of the fee-for-service system. But vague commentary does not help transform a $2.6 trillion industry -- an entity as large as the economy of Britain...

2) Scott Sumner finds Ben Bernanke Infuriating: If Not Now, When?:

[I]f the Fed really wanted to anchor [inflaiton] expectations they would announce an explicit target....  But the Fed refuses to set any explicit target.... [T]he real problem is the very low inflation since mid-2008, and the low expected inflation over the next two years.  These low inflation expectations are consistent with an economy suffering from a severe demand shortfall in the near term.... How would setting such a target “cause the public to lose confidence in the central bank’s willingness to resist further upward shifts in inflation, and so undermine the effectiveness of monetary policy going forward.”  That makes no sense at all.... If the optimal rate of inflation is exactly the same as the current expected rate (which is implied by his answer) then is the Fed is implicitly claiming that additional AD would be unwelcome in an economy with 10% unemployment, an economy where this year’s NGDP will fall at the fastest rate since 1938.  Does the Fed really want to say that additional AD would be unwelcome?  They can’t have it both ways.  If we need additional AD, then we need higher inflation expectations. I found this answer infuriating because he danced around all the important issues....  If you are serious about inflation targeting and have a symmetrical response function, then by necessity there will be times when you wish inflation to be a bit higher.  And if this is not such a time, a year when we have experienced the first deflation since 1955, then will there ever be a time when the Fed tries to boost inflation expectations?  If not now, when?...

3) Matt Steinglass: Liberals go off on a mandate:

You cannot have universal health insurance without a mandate. Every country in the world that has a universal health-insurance system either requires its citizens to buy health insurance, or includes its citizens in a default insurance programme automatically and taxes them for it (which is effectively the same thing). The reasons for this are simple.... If you don't oblige everyone to buy health insurance, then many young and healthy people will bet on not needing insurance, and will decline to buy it. That shrinks the remaining pool such that it is made up of older, sicker people with higher medical costs, and thus premiums will rise. That in turn will cause more healthy people to leave the system. This is the phenomenon of "adverse selection".... One would think that at this late date in the health-reform narrative, everyone would have grasped this point. One way to read the strange new opposition to the mandate is as a reminder that a substantial segment of the new, energised leftist segment of the Democratic Party began the decade as centrists or libertarians, and were pushed left (in some cases far left) during the Bush administration. Mr Dean, Mr Moulitsas and Mr Olbermann all fit that bill.... Mr Olbermann, for example, is angry that working-class Americans will be obliged to buy health insurance that could cost up to 17% of their incomes. Mr Olbermann is right; that figure is too high. But there is plenty of time before 2013 to ensure that no one ends up paying such extortionate premiums.... I remember what it felt like to move to the Netherlands and be told that I would have to buy health insurance, or I'd be kicked out of the country. For an American, it certainly felt... different. Then I encountered the other difference: I signed up for a plan, and found my premium cost me a quarter what I'd been paying in America. That was the result of decades of constituent pressure on politicians to get health-insurance costs down. Mr Olbermann and Mr Moulitsas are still thinking like free-market consumers of health insurance: they don't like it, so they want out. Of Albert Hirschman's trio of options for consumers in failing organisations, "Exit, Voice, and Loyalty", they're choosing "exit". When you move to universal health insurance, you have to get used to choosing "voice": if you don't like it, you fix it. And if they want their side to continue winning any elections, they should probably get used to "loyalty", too.

4) Paul Krugman: The Curse of Montagu Norman:

Right now, real interest rates are too high... the economy is clearly operating far below capacity due to insufficient demand. The cost of that insufficient demand is enormous.... While real interest rates are too high, however, the short-term nominal rate is as low as it can go. So there are only two ways real rates can be reduced. Either the Fed has to buy long-term assets, driving down the wedge between short and long rates — the Gagnon proposal, which comes out of Ben Bernanke’s own work — or it needs to raise expected inflation. Or it could and probably should do both. But it is, in fact, doing neither. Why? Because of fear that the Fed would lose credibility as a staunch inflation-fighter. Future economic historians will, I believe, see this as fundamentally absurd — as absurd as the inflation fears that paralyzed the Bank of England in the early 1930s even as the world went into a deflationary spiral.... [A]s far as I can see nobody is even trying to assess these alleged tradeoffs seriously. Instead, the notion of an unchanging inflation target — not to be revised even in the face of the worst slump since the Depression — has acquired a sort of mystical force; it has become identified with the notion of Civilization, in much the way that a previous generation assigned mystic significance to the gold standard. Ben Bernanke, we’re told, is a great admirer of Liaquat Ahamed’s Lords of Finance; so am I. All the more irony, then, that Ben has, without realizing it, turned into Montagu Norman...

5) Bruce Bartlett: Not Another Budget Commission!:

[O]ne would expect that the Peterson-Pew report would really lay it on the line, tell it like it is and put forward a serious, detailed plan for cutting the deficit that left no sacred cow unscarred. Sadly, it did none of these things. Its big recommendation is to stabilize the public debt at 60% of the gross domestic product by 2018. I was unable to find a single, solitary deficit reduction proposal anywhere in the report—not $1 of spending that should be cut nor $1 of revenues that should be raised. The whole report consists of nothing but hand-wringing and platitudes about the seriousness of the deficit problem, and how important it is that someone address it one of these days. To be fair, the Peterson-Pew Commission did post on its Web site an illustrative list of possible spending cuts and revenue increases that would achieve its goal of merely stabilizing the debt/GDP ratio. However, they are all rather vague--eliminating outdated programs, reforming contracting, broadening the tax base and the like--and none was officially endorsed by the commission or included in its official report...

6) Mark Thoma: The Fed Can Help, But Fiscal Policy Is The Key To Job Creation:

There is much more to be gained much more quickly by implementing a jobs package using fiscal policy measures than by attacking the problem with quantitative easing alone. As I said, perhaps monetary policy could help, I’ve been in favor of a portfolio approach to policy from the start, but why have people suddenly stopped talking about a jobs package, stopped putting pressure on congress to do something? Just as the voices for another stimulus package began to grow louder and get some attention and political traction, the voices stopped and suddenly turned to the Fed, as though the Fed could solve the employment problem with a wave of its magic QE wand. It can’t. Given enough time it can perhaps be part of the solution, so I’m not saying that people shouldn’t try to get the Fed to change course. But I am going to continue to focus mainly on fiscal policy because I think it will do the most good. I don’t want to give congress the easy out of pointing their fingers at the Fed and saying it’s their fault, not ours, but the way is being paved for congress to do just that...

7) Paul Samuelson Talks to Conor Clarke:

My book... for the first time brought home... the gist of the Keynesian macroeconomic system.... And my book came along and swept the field, and set a pattern.... I came to the University of Chicago on the morning of January 2, 1932.... I couldn't reconcile what I was being taught at the university of Chicago -- the lectures and the books I was being assigned -- with what I knew to be true out in the streets.... I applauded when the major members of the Chicago faculty... came out with a petition to have a deficit-financed spending without taxation... Franklin Roosevelt... experimented and made a lot of mistakes... by good luck or good advice got the system moving.... [W]hen the 1970s came... the quadrupling of OPEC oil prices overnight, a rash of bad harvests, and the terrible price/wage control system contrived by Arthur Burns and Nixon.... Keynesianism, if it was thought to promise perpetual prosperity, became disparaged. When the king dies you need a new king.... Milton Friedman... a solid MV = PQ doctrine from which he deviated very little all his life. By the way, he's about as smart a guy as you'll meet. He's as persuasive as you hope not to meet.... The craze that really succeeded the Keynesian policy craze was not the monetarist, Friedman view, but the [Robert] Lucas and [Thomas] Sargent new-classical view. And this particular group just said, in effect, that the system will self regulate because the market is all a big rational system. Those guys were useless at Federal Reserve meetings.... If they had wisdom, they were silent. My profession was not well prepared to act. And this brings us to Alan Greenspan.... But the trouble is that he had been an Ayn Rander. You can take the boy out of the cult but you can't take the cult out of the boy. He actually had instruction, probably pinned on the wall: 'Nothing from this office should go forth which discredits the capitalist system. Greed is good.' However, unlike someone like Milton, Greenspan was quite streetwise. But he was overconfident that he could handle anything that arose.... But now Greenspan admits he was wrong. Because we had, instead of three standard deviations storm, a six standard deviation storm. Well, we did have something unprecedented.... Self regulation never worked as far as macroeconomic events -- whether we're talking about post-Napoleonic War business cycles or the big south sea bubble back in Isaac Newton's time, up to today's time...

8) Paul van de Water: Loss of Medicare Buy-In Not the Major Setback Some Assume:

A recent proposal to allow people aged 55 to 64 to “buy in” to Medicare would have done relatively little to increase competition in the market for health insurance, and health reformers should not greatly mourn its removal.... The pending health reform legislation would create a system of health insurance marketplaces.... Plans would not be allowed to turn people away, charge higher rates because of their health status, or deny coverage for pre-existing conditions.... Low-income people would receive a tax credit.... Medicare has been a great success and is highly popular.... In the absence of broader reforms to extend coverage to the uninsured, allowing older people to purchase (or “buy into”) Medicare coverage has much to recommend it as an incremental improvement.... In the context of comprehensive health reform, however, as one option within the exchange, a Medicare buy-in loses much of its attraction.... Medicare likely would cost more for people aged 55 to 64 than other plans offered in the exchanges because it would cover only people age 55 and over — its risk pool would not include younger people, who tend to be healthier and less costly. Medicare’s lower administrative expenses and lower payment rates to health care providers would offset some, but probably not all, of the higher costs...

9) STUPIDEST THING I HAVE READ TODAY: Michael D. Tanner: Five Health Reform Whoppers:

[I'm not going to reproduce any of it here: the Cato Institute should be very ashamed of what it is turning into.]

10) FROM THE ARCHIVES: J. Bradford DeLong (July 25, 2006): The Invisible College:

I am greedy. I want more. I would like a larger college, an invisible college, of more people to talk to, pointing me to more interesting things. People whose views and opinions I can react to, and who will react to my reasoned and well-thought-out opinions, and to my unreasoned and off-the-cuff ones as well. It would be really nice to have Paul Krugman three doors down, so I could bump into him occasionally and ask, "Hey, Paul, what do you think of..." Aggressive younger people interested in public policy and public finance would be excellent. Berkeley is deficient in not having enough right-wingers; a healthy college has a well-diversified intellectual portfolio. The political scientists are too far away to run into by accident — somebody like Dan Drezner would be nice to have around (even if he does get incidence wrong sometimes). Over the past three years, with the arrival of Web logging, I have been able to add such people to those I bump into — in a virtual sense — every week. My invisible college is paradise squared, for an academic at least. Plus, Web logging is an excellent procrastination tool...