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WaPo's Factchecker Grades Obama Harshly on Obamacare Print
Sunday, 09 November 2014 09:39

Washington Post Fact Checker gave President Obama three Pinocchios for claiming in a press conference that the Affordable Care Act was responsible for the slowdown in health care costs overall and the slowdown in Medicare costs in particular. This seems more than a bit harsh.

First, there are some clear misstatements, Obama referred to savings on Medicare and Medicaid, even though he just said "Medicare." Also, he was referring to projected savings in 2020, even though his comments implied that these were the savings that we are seeing today. However these were off the cuff comments in a press conference, as Kessler notes. In prepared speeches Obama has presented these number accurately.

However Kessler's main complaint is that Obama seems to be implying that the ACA is responsible for the slowdown in health care cost growth when at most it was an important contributor. The point is reasonable, but the question is whether this is a three Pinocchio misrepresentation.

After all, the vast majority of health economists do believe that the ACA has been an important factor in slowing cost growth. The main competing explanation is the recession. That is a plausible explanation for slowing growth in 2008, 2009, and possibly even 2010, but it really is not plausible in more recent years. People may put off care when they lose their jobs, which would explain a one-time reduction in cost growth. However this can't explain continued slow growth. After all, we don't think more people are putting off care in 2014 than in 2010.

Furthermore, health care cost growth has continued to undercut projections even in more recent years when the projections were made with the full knowledge of the recession. In this respect, it is worth noting Kessler's reference to a projection that health care costs in 2014 would rise 5.6 percent from their 2013 level. In the first three quarters of 2014, spending on health care services (roughly 90 percent of spending) is up by 2.8 percent from 2013 levels. Plausible projections of fourth quarter spending are likely to push the year over year increase slightly above 3.0 percent, but this is still well below the growth rate that was projected last year.

It is fair to call President Obama on the carpet for claiming the ACA did more to contain costs than is actually the case, but can anyone doubt that if health care costs had risen more rapidly than in the past that the ACA would get the blame in the public mind, even if other factors were clearly more important? In the context of modern politics, President Obama's claims about the cost-savings from the ACA seem like relatively minor exaggerations, not a three Pinocchio offense.

 
The Size of Detroit Workers Pension Cuts Print
Saturday, 08 November 2014 09:55

The articles reporting on the cuts to Detroit city workers pensions resulting from its bankruptcy have not generally conveyed the true size of the cuts to readers. The pieces usually note an immediate cut of 4.5 percent to pensions and then point out that the agreement ends the cost of living adjustment to pension.

This latter provision is likely to prove far more important. If the workers' contracts had provided for full indexation, and we assume that inflation averages 2.0 percent in the years ahead, a worker who lives on their pension for twenty years will see a cumulative cut in benefits of around 15 percent as a result of the ending of the cost of living adjustment (COLA). In the twentieth year their pension will be one-third less than in the current year. If they collect their pension for thirty years their pension will be cut by more than 45 percent as a result of the ending of the COLA.

Their sacrifice will be far larger than that demanded of the executives of Wall Street banks, which were effectively bankrupt during the financial crisis.  

 
Washington Post Misrepresents Issues in Obamacare Supreme Court Case Print
Saturday, 08 November 2014 08:21

The Washington Post fundamentally misrepresented the issues in a front page piece on the decision by the Supreme Court to hear a case contesting whether people in the federal exchanges created by the Affordable Care Act (ACA) qualify for subsidies. The case stems from awkward wording in one part of the law that describes subsidies going to people in the exchanges created by the states. The opponents of the law argue this means that people enrolled in the exchanges created by the federal government are not eligible for subsidies.

While the piece points out that supporters say that the subsidies are an essential part of the ACA, it should have also pointed out that other parts of the law are clearly written as though subsidies would be paid out to be people in the exchanges created by the federal government. Their point is that when the law is read as a whole there is no ambiguity that subsidies are supposed to go to people in the federal exchanges.

In this respect it is also worth noting that when the Congressional Budget Office and other independent observers tried to project the cost of the ACA they all assumed that people in the federal exchanges would be getting subsidies. It seems that no one had any confusion about the intent of the law in this respect.

The Post should have clearly presented the legal argument of the supporters of the ACA.

 
Will Ending Tipping Increase Saving? Print
Friday, 07 November 2014 05:49

Catherine Rampell has a nice piece in the Post outlining some of the problems with having workers rely on tips for much of their pay. She comments in passing that because people may underestimate the cost of eating at restaurants they may eat out more often, which would provide a boost to the economy by creating more demand.

If this was really true, then the saving cultists who want people to save more money should all be pushing for an end to tipping. (In an economy where we are faced with inadequate demand, which is certainly true today, less demand would slow growth.) As a practical matter, if people spent less on restaurants it would probably mean for the most part that they spent more on something else, but if this line can get the saving gang to oppose tipping, it's fine by me. 

 
More Editorializing About the Budget in the NYT's News Section Print
Thursday, 06 November 2014 15:03

The NYT is pushing so hard for budget cuts that it is prepared to ignore journalistic standards to make its case. An article about the possibilities for collaboration between President Obama and the Republican Congress included a number of assertions that were just opinion or inventions.

The piece begins by telling readers:

"After years of clashes and a grudging truce, fiscal and economic policy was brought back to center stage by the wave of Republican electoral victories on Tuesday, with both President Obama and the new congressional leadership expressing hope that deals can be reached to simplify the tax code, promote trade and eliminate the budget deficit."

It's not clear where President Obama said that he wanted to "eliminate the budget deficit." He didn't say anything like this in his press conference. Since this would imply throwing millions of people out of work and slowing growth (sorry folks, elections can't change the laws of economics any more than they can change the law of gravity), it's not clear why he would want to eliminate the budget deficit.

When the piece reported that the Republican leadership is:

"considering turning to a parliamentary procedure called reconciliation to cut costs of entitlement programs like Medicare,"

it would have been useful to remind readers that Medicare costs have already fallen sharply relative to recent projections. In fact, the current projections for costs are far below the targets of deficit cutters from earlier in the decade.

The piece also later told readers:

"Fiscal rectitude and tax overhaul are matters that unite all wings of the Republican coalition, from the Tea Party right to the Big Business center. They also have strong adherents among good-government advocates in the Democratic Party’s center left."

It apparently is defining "fiscal rectitude" as throwing people out of work and slower economic growth. This is a NYT definition, not the standard usage of the term.

In the same vein, at one point it tells readers that the national debt, "continues to grow though the annual deficit has receded," implying that this is for some reason a problem. (It isn't for any economic reason.)

This is not the only place where the piece invents its own language. It refers to the trade deals currently being negotiated, the Trans-Atlantic Trade and Investment Pact and the Trans-Pacific Partnership, as "free trade" agreements.  These are not free trade agreements. A major goal of these deals is to increase the strength of patent and copyright protection, especially on prescription drugs. This is 180 degrees at odds with free trade. The paper could increase accuracy and save space by omitting the word "free."

 

Thanks to Robert Salzberg for calling this piece to my attention.

 

Note: Typos corrected, thanks folks.

 

 

 
Minimum Wage Tracks Productivity: Fair Deal on the Minimum Wage Print
Thursday, 06 November 2014 07:34

Charles Lane expresses his pain at the fact that the minimum wage remains hugely popular with large segments of the population. He tells readers:

"It works as a tax on business, whose benefits often accrue to middle-class teenagers, and whose costs — fewer jobs and higher prices — are partly borne by needier intended beneficiaries."

Imagine that, a policy that might have some consequences we don't like -- sort of like any policy that actually exists in the real world. Thankfully, unlike the Earned Income Tax Credit (EITC), which gains enormous popularity among conservatives when the minimum wage is discussed, the minimum wage doesn't lower the wages of large groups of workers and act as a subsidy to low wage employers. And, the EITC also must be paid for, and the usual way we pay for government spending is through taxes. So the EITC also works like a tax, since it will be paid for with taxes. Such is life.(Btw, as folks familiar with the research know, the jobs consequences are minimal and mostly mean people spending more time between jobs since there is high turnover in these jobs.)

Anyhow, Lane wants politicians to stop raising the minimum wage so he proposes indexing it to the rate of inflation. The idea of indexation is good, but Lane has the wrong target. Back in the good old days, when we had 4.0 percent growth and 3.0 percent unemployment, the minimum wage rose in step with productivity. If it had continued to rise in step with productivity since its peak level in 1968 it would be more than $17 an hour today.

Raising the minimum wage in step with productivity makes good economic sense. After all, why shouldn't workers at the bottom of income distribution share in the gains of economic growth. The alternative is an ever-growing gap between minimum wage workers and everyone else. That may be Charles Lane's dream, but that probably is not the world envisioned by most supporters of the minimum wage.

 
Dana Milbank Doesn't Remember the 2006 Election Print
Thursday, 06 November 2014 05:44

It's too bad that the Post's political columnist Dana Milbank does not have a very good memory. He devoted his column to complaining that President Obama didn't offer any change in course yesterday, unlike President Bush after the Republicans lost Congress in 2006. Milbank points out that Obama offered no changes in policy or even in the structure of his cabinet, unlike Bush who dumped Donald Rumsfeld as Defense secretary. 

There is an obvious difference between 2006 and 2014. It was clear in 2006 that the war in Iraq was the main issue contributing to the Republican defeat. Therefore it was reasonable for Bush to offer some change in this policy. What issue would Milbank highlight as causing the Democrats' defeat in 2014 that would warrant a change in course?

Should Obama abandon the push for a higher minimum wage, even though initiatives on this issue won overwhelmingly even in red states? Should he propose repeal of the Affordable Care Act, a position that even Republicans have abandoned? Should he do another push for cuts to Medicare and Social Security, in spite of the fact that most of the Democrats who had pushed cuts got handed their heads on Tuesday? How about getting into a full-fledged land war against ISIS? Perhaps a quarantine on health care workers across the country just in case one of them treated someone with Ebola?

The reality is that the Republicans didn't win by pushing any issues that appeal in a big way to the public, therefore there is nothing that Obama could take away from their victory to bring his administration more in line with public opinion. Certainly if he could advance policies that would do more to bring the economy to full employment and to reverse the upward redistribution of income over the last three decades it would likely garner popular support. However this would almost certainly mean working against the Republicans elected this week rather than with them.

 

 
"Trade" Deals Have Little to Do With Trade Print
Wednesday, 05 November 2014 16:27

The folks at the NYT apparently haven't been reading much about the Trans-Atlantic Trade and Investment Pact (TTIP) or the Trans-Pacific Partnership (TPP), including what appears in the pages of the NYT. If they had done their homework, the paper wouldn't be telling readers:

"This is one area [trade] where the Obama administration and Republicans should be able to find common ground. Republicans are enthusiastic advocates of increased trade, and the president is eager to get the added authority to negotiate new trade deals and win approval of a trade agreement with nations on the Pacific Rim.

"The main obstacle could be Democrats, many of whom are skeptical of trade deals that officials warn could cost American jobs. But a significant segment of Democrats back trade expansion, and a deal could probably be found if congressional Republicans and the White House both press for it."

In fact, the TTIP and TPP (the two main deals currently being negotiated) will do almost nothing to increase trade and quite possibly could reduce it. As Paul Krugman (an economist and columnist for the New York Times) has pointed out, these deals do very little to reduce formal trade barriers, since these are already very low.

Both deals are primarily about imposing a business-friendly regulatory structure on the signatories to the agreements. One aspect of this regulatory structure is creating a quasi-judiciary system, investor-state dispute settlement councils, which would operate outside the existing legal structure of the countries in the agreements. The agreements, which are being negotiated in secrecy, also will have provisions on the environment, health and safety regulation, and copyright and patent protection. All of these provisions will supersede existing domestic law and regulation.

The increases in patent and copyright protection in these deals (yes, that is "protection" as in the opposite of free trade) will raise the price of prescription drugs and other items. These higher prices will reduce purchasing power and slow growth. They will likely lower, not raise, the amount of trade. This means that if Republicans are actually enthusiastic about increased trade, they probably would oppose both the TPP and TTIP.

On a different topic, in discussing Republican plans to change the Affordable Care Act, the piece told readers:

"At the same time, a bipartisan group of lawmakers has also called for returning the health law’s definition of full-time work to 40 hours from 30, arguing that the lower limit is forcing too many people out of work because of employers’ efforts to comply with the law."

It is worth noting that there is zero evidence for this assertion. The provision described here requires that firms with more than fifty employees either provide insurance for their workers or pay a fine. For a worker to be covered by this provision, they have to be employed for more than 30 hours per week. There is no evidence that firms that don't provide insurance and employ more than 50 people have reduced hiring relative to other firms.

Also, this provision has been suspended so that it actually has not taken effect yet. In the first half of 2013, when employers would have thought the provision applied, since it had not yet been suspended, they did not expand the share of the workforce working just under 30 hours to avoid having to pay the penalty. There was a very modest increase in the share of the workforce working 25-29 hours, but this was due to a reduction in the share working fewer hours.

In short, the claim that the ACA has cost jobs is just something Republican politicians say, like evolution may not be true, it is not a claim that bears a relationship to the real world. The NYT should have clarified this point for its readers.

 
If Shareholders Stopped Letting CEOs Rip Them Off It Would Reduce Inequality Print
Wednesday, 05 November 2014 05:45

Eduardo Porter has an interesting discussion of inequality, based in large part on the views of M.I.T. Professor Robert Solow. Solow views it as unlikely that it will be possible politically any time soon to have tax and transfer policies that do much to lesson inequality. However he does hold out the hope that changes in corporate practices could lessen before tax inequality.

This is an extremely important point. There is considerable research showing that CEOs and other top management essentially ripoff shareholders, taking advantage of their insider power to give themselves pay that has little to do with their productivity, measured as the return they give to shareholders. (Lucian Bebchuk has a good summary of the issues.) If shareholders can better gain control of their companies, they might cut pay by 50 percent or more, bringing CEO pay in the United States in line with pay in other wealthy countries.

Since CEOs are among the very top earners in the U.S. economy, reductions in their pay will have a substantial impact on wage inequality. In addition, there is likely to be a spillover effect. If the CEOs of major companies earned $3-4 million, instead of $10-$20 million, then the pay of top management in places like universities, non-profit hospitals, and private charities might be similarly reduced. The lower pay of top executives in these institutions would also free up money for higher pay for those at the middle and bottom of the wage ladder.

The key to reducing CEO pay is to create a well-working system of corporate governance where shareholders can actually impose a check on top management. This is a soluble problem, as demonstrated by the fact that other countries have been able to rein in CEO pay.

 
Ending Experience Rating for Small Business is a Big Deal Print
Wednesday, 05 November 2014 05:32

The NYT had a piece discussing the extent to which small businesses are continuing to offer health care insurance to their workers through the exchanges created by the Affordable Care Act (ACA). Incredibly, the article never mentioned the prohibition on experience rating.

While many states had regulations that limited experience rating, prior to the ACA many small firms would see huge increases in premiums if one of their employees developed a serious illness. The ACA requires that insurers can only adjust rates in accordance with the age composition of the workforce, they cannot charge higher rates to a company because one or more of its employees has a serious illness. This will make insurance considerably more affordable for many businesses.

It would not be surprising if the ACA did cause fewer small businesses to offer insurance. The main purpose of the ACA was to create a well-working individual insurance market so that people who did not have insurance through an employer would be able to get affordable insurance through the exchanges. Insofar as the ACA succeeds, there is less reason for a small business to go through the effort of arranging its own insurance. This is not obviously a bad thing, since employers are not necessarily well-positioned to determine the best insurance for their workers.  

 
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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