Johan Norberg's Excellent Defense Of Milton Friedman

Click here to read it

Delaying Obamacare's Individual Mandate And The Death Spiral: Evidence From New York And Washington

See This Is What a Health Insurance Death Spiral Looks Like by Peter Suderman of Reason. Excerpt:

"Delaying the individual mandate might seem like an obvious response to the ongoing failure of the federal exchange system. But it’s a rather drastic step. And, in isolation, a potentially problematic one.

That’s because the premiums that health insurers calculated for the exchanges this year were determined based on the assumption that the penalty for remaining uninsured would be in effect, and would encourage people to buy into the market.

If you change the enrollment requirements—by, for example, ditching the mandate—while leaving the law’s preexisting condition rules in place, health plan participation will likely be lower. The result, as one insurance official told NPR yesterday, is that insurers will want to change their premiums. And in this case, “change” means “raise.”

That’s where the real trouble starts. Insurers raising prices as a result of lower than anticipated enrollment is an early step toward an insurance death spiral, in which premiums spike and enrollment figures drop until the only participants who remain in the market are very people paying very high premiums. We know because we’ve seen it before—in New York, Washington, and handful of other states that enacted preexisting condition regulations similar to Obamacare’s but without an individual mandate.

New York state’s guaranteed issue and community rating rules—the two regulations that limit how insurers can charge based on health history and require them to sell policies to all comers—took effect in 1994. At the time, there were about 752,000 policyholders in the state’s individual market, or about 4.7 percent of the non-Medicare population. But by 2009, according to a Manhattan Institute report by Stephen Parente and Tarren Bragdon, the state’s individual market had practically disappeared, leaving just 34,000 participants, or about 0.2 percent of the non-elderly population. Individual insurance premiums, meanwhile, were among the highest in the nation—about $388 on average in 2007, compared with just $151 in California, another big Democratic-leaning state. In New York City, the annualized premium cost for individuals was more than $9,300 and more than $26,400 for a family."

Change Is Obamacare's Only Certainty

Interesting post by Megan McArdle. One issue involves what are some very high marginal tax rates. Excerpt:

"And I suspect we’re not done with the emergency fixes.

To see why, consider a fictional middle-class family. Call them the Petersons. Mom, Dad, two swell kids. Dad has his own landscaping business, and Mom works part time as a massage therapist. Together, they pulled in $90,000 in family income in 2013, and that’s about what they expect to get in 2014, so that’s what they put into the system when they go to buy health insurance. They’re pleasantly surprised to find that they can get a Silver plan for $688 a month. That’s a lot of money, to be sure, but it comes with a substantial subsidy and they’re happy to get it.

Over the year, Mom picks up another regular massage client, and Dad gets a few more landscaping jobs than he had last year, and at the end of the year, good news: Their family income is now $95,000! The recession is over for this family.

Or is it just beginning? When their family income passed $94,000, the Petersons moved from just under 400 percent of the federal poverty line to just over. Which means that they no longer qualify for subsidies on their health insurance, and the Internal Revenue Service would like that $8,500 back, please.

Note that this means that by making an extra $5,000, the Petersons have cost themselves $8,500, for an effective marginal tax rate of 170 percent. For people who start out with incomes closer to 400 percent of the poverty line, the marginal tax rates can be even more extreme.

In future years, small-business owners will manage their income more carefully in order to avoid popping the subsidy cap. But in 2014, many people just won’t know. They’ll find out in spring 2015, and shortly thereafter we’ll find out, when they contact a local television station.

How many people are we talking about? They’re hardly the majority. But they will be a very telegenic minority, and it’s hard to see the administration sticking to their guns and demanding that these folks pay back so much money. Indeed, it’s hard to see the Department of Health and Human Services letting the situation get to that point without some more creative emergency rule making."

Education and the World's Poor -- Entrepreneurship Not Aid is the Solution

Great post by Peter Boettke of "Coordination Problem." Here it is:

"Economists and political economists since the founding of our discipline have been vexed by the question as to why some countries are rich while other countries languish in poverty.  As I like to point out to student audiences, the book that synthesized knowledge and established the discipline was Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations, and over the past few years perhaps the top book readership and wide critical discussion wise in the field was Daron Acemoglu and James Robinson's Why Nations Fail, and one of the most respected economists around is Esther Duflo and her approach to studying poverty and policies directed at the alleviation of poverty throughout the world.  In short, we are still grappling with Adam Smith's problems and puzzles that he identified back in 1776.  It is the question that drives us.

Unfortunately, the discussion seems to cycle between an emphasis on the extent of the market, or the capacity of the state; on the accumulation of physical capital, or improvements in human capital; on the good fortune of geographic location, or the path dependency of history --- OR, some interaction between these various factors.  This is all well and good, and the discussion is certainly lively, but progress does appear elusive.  Instead, there appears to be some iron law of intellectucal cycling when it comes to answering the fundamental questions of economic growth and development.

One of the constants is educational opportunities for the individuals (particularly children) in the developing world.  Cut off from educational access, and the prospects for living a life out of poverty are bleak.  But for the vast majority of thinkers this implies greater state intervention and budgeting to provide educational access to its citizens -- particularly the most vulnerable of those.  If the region under investigation lacks the governmental capacity to provide schooling for its young, then a case is made for international aid to support public schools for the poor. This is that conventional presumption.

Pauline Dixon challenges this conventional wisdom in International Aid and Private Schools for the Poor (Elgar, 2013).  Based on extensive field work, Dixon demonstrates how educational entrepreneurs are providing low cost and superior quality educational opportunities to the most vulnerable of populations in the poorest regions of the world, whereas the public school options are failing the children due to misaligned incentives and lack of knowledge that results from being immune from the competitive process. Her work should be widely read by anyone interested in these questions.

The Times Literary Supplement has just released their annual issue with the Best Books for 2013, and Pauline's book have received this honor.  Congratulations to Pauline for this richly deserved honor."

Christmas shopping 1958 vs. 2012 illustrates the ‘miracle of the marketplace’ which delivers better and cheaper goods

Great post by Mark Perry of "Carpe Diem." Consumers have to work much less time to buy many goods than in the past. Here it is:

"This was posted last year on CD, and I haven’t had time to do an update for 2013, but thought I would re-post it again for those who might have missed it last year.

One way to illustrate your good fortune of being a holiday shopper today is to measure the cost of consumer goods by the number of hours it takes working at the average hourly wage to earn enough income to purchase typical consumer products at their retail prices, and then compare the “time cost” of goods from the past to today’s “time cost” for similar items. (Don Boudreaux has been featuring some similar comparisons in a series on Café Hayek titled “Cataloging Our Progress,” which inspired this post.)


For example, the retail price of an automatic Kenmore two-slice toaster advertised in the 1958 Sears Christmas Catalog (available here online, and pictured below on the left) was $12.95, or 6.54 hours of work at the average hourly manufacturing wage of $1.98 in 1958 (wage data here). Today you can buy a comparable Kenmore two-slice toaster for $25.99, and the “time cost” would be only 1.35 hours of work at the current average hourly wage of $19.19, for a reduction of almost 80 percent since 1958 in the amount of work hours required to earn the income necessary to purchase a standard toaster. Additionally, the Sears website today features more than 100 different toasters, compared to the Sears catalog in 1958, which only featured a few different models.


Next, consider television sets, a fairly common holiday gift. In 1958, American holiday shoppers paid $269.95 for Sears’s “best 24-inch console TV” (see photo above), or 136.34 hours of work at the average hourly wage then. Today you can purchase a Sansui 26-inch LCD high-definition TV (see picture above) on the Sears website for $249.98 (or choose from the several hundred other TVs available), which would be a “time cost” today of only 13.03 hours of work at today’s hourly wage of $19.19, for a 90 percent reduction in the cost of today’s HDTV compared to the 1958 model.



Finally, consider the equipment with the “best stereo sound” that Sears had to offer in 1958, which was advertised for sale in its Christmas catalog for $84.95 (see picture above), boasting that “You’ll be amazed at the ‘living sound’ you’ll hear on this newest development in portable phonographs. Four tubes per rectifier. Hear every note, every shading of tone.”

I don’t think anybody today would be too amazed at the sound quality of that 1958 “state-of-the-art” stereo equipment playing 45 and LP records of the day. And certainly nobody would trade his or her iPod for that system, especially considering that the time cost of today’s iPod is only 12.25 hours of work at today’s average hourly wage (to earn $234.99 for a classic iPod), which is more than 71 percent cheaper in time cost than Sears’s best stereo equipment in 1958 (42.9 hours of work at $1.98 per hour).

Putting it all together, a typical American consumer in 1958 would have had to work for 185 hours (more than a month) at the average hourly wage of $1.98 to earn enough pre-tax income ($368) to purchase a toaster, a TV and a stereo system. Today’s consumer working at the average wage of $19.19 would only have to work 26.6 hours (a little more than three days) to earn enough income ($511) to purchase a toaster, TV and iPod. In other words: 4.64 weeks of work in 1958 vs. less than 3.5 days in 2012 for those three consumer products, and one could argue that today’s products (especially the iPod) are far superior to their 1958 counterparts.

If you’re not convinced that today’s consumers are better off than at any time in history, spend some time browsing the old Sears, Wards, and J.C. Penney’s Christmas catalogs available here back to the 1930s, convert those old retail prices into their “time cost” equivalent using that year’s prevailing hourly wage, and you’ll quickly see that there has never been a better time to be a holiday shopper and consumer than right now. For that, you can thank the “miracle of the marketplace,” which brings us better and cheaper consumer goods all the time."

More Immigration Means More Jobs for Americans

Immigrants are 13% of the U.S. population, but they make up nearly 20% of the owners of small businesses

Click here to read this WSJ article, 12-30-13. By John Dearie and Courtney Geduldig. Mr. Dearie, executive vice president at the Financial Services Forum, and Ms. Geduldig, vice president of global regulatory affairs at Standard & Poor's, are co-authors of "Where the Jobs Are: Entrepreneurship and the Soul of the American Economy" ( Wiley, 2013). Excerpts:

"more than 40% of Fortune 500 companies were founded by immigrants or a child of immigrants. Immigrants also launch half of the nation's top startups..."

"startups account for virtually all net new job creation."

"Immigrants were involved in more than 75% of the nearly 1,500 patents awarded at the nation's top 10 research universities in 2011.."

"Foreign-born innovators contributed to 87% of the patents filed in semiconductor-device manufacturing, 84% in information technology, 83% in pulse or digital communications, and 79% in pharmaceutical drugs or drug compounds."

"immigrants with advanced degrees from U.S. universities working in science and technology fields. According to a study by the American Enterprise Institute, between 2000 and 2007 each group of 100 foreign-born workers with such backgrounds was associated with 262 additional American jobs."

"Rob Lilleness, president and chief executive of software developer Medio Systems in Seattle, Wash., explained how immigration restrictions often force new companies to outsource jobs to people abroad with math and science backgrounds. "We have to look at India, or Argentina, or Vietnam, or China because there's not enough H-1B visas," he said."

Some Negative Downsides From The Endangered Species Act

See The Endangered Species Act Turns 40—Hold the Applause: The badly administered law has had a limited effect on wildlife while inflicting great social and economic costs by Damien Schiff And Julie MacDonald, WSJ, 12-28-13. Mr. Schiff is a principal attorney with Pacific Legal Foundation. Ms. MacDonald is a former deputy assistant secretary for Fish and Wildlife and Parks at the U.S. Interior Department. Excerpts:

"...has brought about the recovery of only a fraction—less than 2%—of the approximately 2,100 species listed as endangered or threatened since 1973. Meanwhile, the law has endangered the economic health of many communities..."

"Originally, it was only when an animal or plant was labeled "endangered"—on the verge of disappearing—that landowners were hit with heavy regulations.... But the Carter administration extended these restrictions to species that are "threatened"—in trouble but not facing extinction."

"Ask the people of Cedar City, in southwest Utah, where Endangered Species Act regulations have given the Utah prairie dog the run of the town since it was listed in 1973. The rabbit-size rodent is now listed as "threatened," even though there are 40,000 in the region. In most cases, residents can't take measures to control the burgeoning prairie-dog population; they can't even try to relocate the animals to federal property."

"One reason the Endangered Species Act has spun out of control is that the federal agencies that decide whether to list a species—the National Oceanic and Atmospheric Administration and the U.S. Fish and Wildlife Service—no longer base decisions on what the law calls for: data. Instead, they invent squishy standards like "best professional judgment." 

In eastern Colorado and southeastern Wyoming, the controversy over a rodent called the Preble's meadow jumping mouse shows how a regulatory mountain can rise from an evidentiary molehill. Federal officials listed the mouse as "threatened" in 1998, claiming that it was biologically separate from similar mice elsewhere. But they relied on a 1954 study that examined the skulls of just three Preble's mice." 

"DNA research over the next three years concluded that the mouse wasn't a "distinct subspecies""

"The cost of the Preble's "threatened" listing for landowners and local jurisdictions is $17 million yearly, according to estimates from the Fish and Wildlife Service. Developers have to set aside a portion of their property for Preble's habita."

"Some of the most damaging Endangered Species regulations stem from federal "biological opinions" issued by U.S. Fish and Wildlife or NOAA staff. In recent years, for instance, irrigation has been dramatically reduced in the San Joaquin Valley, California's agricultural heartland, because a "biop" claimed that irrigation harmed a tiny fish, the delta smelt. 

To protect the smelt, the U.S. Fish and Wildlife Service ordered severe restriction on water deliveries by government water projects. In 2009, at the height of the resulting man-made drought, hundreds of thousands of acres went fallow, and unemployment in some communities touched 40%."

Plastic Bag Bans, E. Coli And Salmonella

See Living the California Nanny-State Life: Are you into reusable bags, recycling, fluorescent bulbs and going by the rules? I know just the place for you by Andy Kessler, WSJ 12-28-13. Excerpt:

"Many shoppers have resorted to reusable bags—never mind that a 2011 study by the University of Arizona found E. coli bacteria in 8% of reusable bags, and lots of salmonella too. Perhaps California should pass ordinances requiring bag-washing; a survey of people who shop with reusable bags found that only 3% ever do."

Ugly Climate Models

The Intergovernmental Panel on Climate Change can't explain the last 15 years.

By Ronald Bailey of Reason magazine. Excerpts:

"As evidence that the models "reproduce the general features" of actual temperature trends, the new report provides a handy graph comparing projections made in the panel's previous report with three different temperature records. The report says "the trend in globally-averaged surface temperatures falls within the range of the previous IPCC projections."

But is that so? Most temperature records show that since 1998 the models and observed average global temperatures have parted ways. The temperatures in the models continue to rise, while the real climate has refused to warm up much during the last 15 years.

The IPCC report acknowledges that almost all of the "historical simulations do not reproduce the observed recent warming hiatus." Not to worry, it assures us; 15-year pauses just happen, and you can't really expect the models to simulate such random natural fluctuations in the climate. Once this little slow-down passes, the report maintains, "It is more likely than not that internal climate variability in the near-term will enhance and not counteract the surface warming expected to arise from the increasing anthropogenic forcing" (emphasis in original). In other words, when the warm-up resumes temperatures will soar.

John Christy, a climatologist at the University of Alabama in Huntsville, has come to a different conclusion. Christy compared the outputs for the tropical troposphere of 73 models used by the IPCC in its latest report with satellite and weather balloon temperature trends since 1979. "The tropics is so important," Christy explains in an email message, "because that is where models show the clearest and most distinct signal of greenhouse warming-so that is where the comparison should be made (rather than say for temperatures in North Dakota). Plus, the key cloud and water vapor feedback processes occur in the tropics."

When it comes to simulating the atmospheric temperature trends of the last 35 years, Christy found, all of the IPCC models are running hotter than the actual climate. The IPCC report admits that "most, though not all, of [the climate models] overestimate the observed warming trend in the tropical troposphere during the satellite period 1979-2012." To defend himself against any accusations of cherry-picking his data, Christy notes that his "comparisons start in 1979, so these are 35-year time series comparisons"-rather longer than the 15-year periods whose importance the IPCC downplays."

"The IPCC report obliquely refers to an August study in the journal Nature Climate Change finding that the observed rate of warming during the last 20 years was half of what a representative sample of the models relied upon by the IPCC projected. Looking at just the last 15 years, the models were four times hotter than the actual trend in the average global temperature.

But the IPCC is confident that warming will soon resume at a pretty fast clip. Back in 2007, other modelers were similarly confident about their forecasts for future warming. At the U.N.'s annual climate change conference in Bali, the U.K.'s Hadley Centre predicted that between 2004 and 2014 the global average temperature would rise by around 0.3 degree Celsius. Instead, the Nature Climate Change article reports, the trend during the last 15 years has amounted to an increase of just 0.05 degree Celsius per decade-one-sixth the Hadley Centre's predicted rise.

The Hadley Centre also predicted that half of the years after 2009 would be hotter than the record year at the time, 1998. So far, judging from the Hadley Centre's latest data, which were adjusted upward last year, only one year after 2009 has been hotter than 1998, and then only by 0.02 degree.

The IPCC now reports that the observed global mean surface temperature increased at a rate of 0.12 degree Celsius per decade from 1951 to 2012, for a total increase of about 0.72 degree during that period. At that rate, the global average temperature by the end of this century will be more than one degree higher than it is now. An increase of just one degree more is unlikely to be catastrophic."

Does Paul Krugman Realize That He Just Emasculated the Case for Minimum-Wage Legislation?

Interesting letter to the editor of the NY Times by Don Boudreaux.

"Paul Krugman today unintentionally undermines the case for the minimum wage.  He does so by writing that ”When the economy is strong, workers are empowered.  They can leave if they’re unhappy with the way they’re being treated and know that they can quickly find a new job if they are let go.  When the economy is weak, however, workers have a very weak hand, and employers are in a position to work them harder, pay them less, or both” (“The Fear Economy,” Dec. 27).

In other words, when the economy is strong, competition among employers ensures that they pay and treat workers well.  In economists’ jargon, employers have none of the “monopsony power” that is necessary for minimum-wage legislation to work.  Yet even when the economy is weak and employers enjoy monopsony power, employers’ ability to work their employees harder means that a higher minimum wage can be offset by worsened working conditions.  In economists’ jargon, the existence of monopsony power is a necessary but not a sufficient condition for minimum-wage legislation to improve the well-being of low-skilled workers.

To recognize, as Mr. Krugman does, that employers can change how hard they work their employees is to recognize just how weak is the case for a higher minimum wage – a case built on the naïve assumption that the one and only response that employees experience from a higher minimum wage is to be paid that higher wage.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030"

Obama Officials In 2010: 93 Million Americans Will Be Unable To Keep Their Health Plans Under Obamacare

From Forbes, 10-31-2013, by Avik Roy. Excerpt:

"It turns out that in an obscure report buried in a June 2010 edition of the Federal Register, administration officials predicted massive disruption of the private insurance market.

On Tuesday, White House spokesman Jay Carney attempted to minimize the disruption issue, arguing that it only affected people who buy insurance on their own. “That’s the universe we’re talking about, 5 percent of the population,” said Carney. “In some of the coverage of this issue in the last several days, you would think that you were talking about 75 percent or 80 percent or 60 percent of the American population.” (5 percent of the population happens to be 15 million people, no small number, but let’s leave that aside.)

By “coverage of this issue,” Carney was referring to two articles. The first, by Chad Terhune of the Los Angeles Times, described a number of Californians who are seeing their existing plans terminated and replaced with much more expensive ones. “I was all for Obamacare until I found out I was paying for it,” said one.

The second article, by Lisa Myers and Hanna Rappleye of NBC News, unearthed the aforementioned commentary in the Federal Register, and cited “four sources deeply involved in the Affordable Care Act” as saying that “50 to 75 percent” of people who buy coverage on their own are likely to receive cancellation notices due to Obamacare.

Mid-range estimate: 51% of employer-sponsored plans will get canceled

But Carney’s dismissal of the media’s concerns was wrong, on several fronts. Contrary to the reporting of NBC, the administration’s commentary in the Federal Register did not only refer to the individual market, but also the market for employer-sponsored health insurance.

Section 1251 of the Affordable Care Act contains what’s called a “grandfather” provision that, in theory, allows people to keep their existing plans if they like them. But subsequent regulations from the Obama administration interpreted that provision so narrowly as to prevent most plans from gaining this protection.

“The Departments’ mid-range estimate is that 66 percent of small employer plans and 45 percent of large employer plans will relinquish their grandfather status by the end of 2013,” wrote the administration on page 34,552 of the Register. All in all, more than half of employer-sponsored plans will lose their “grandfather status” and become illegal. According to the Congressional Budget Office, 156 million Americans—more than half the population—was covered by employer-sponsored insurance in 2013.

Another 25 million people, according to the CBO, have “nongroup and other” forms of insurance; that is to say, they participate in the market for individually-purchased insurance. In this market, the administration projected that “40 to 67 percent” of individually-purchased plans would lose their Obamacare-sanctioned “grandfather status” and become illegal, solely due to the fact that there is a high turnover of participants and insurance arrangements in this market. (Plans purchased after March 23, 2010 do not benefit from the “grandfather” clause.) The real turnover rate would be higher, because plans can lose their grandfather status for a number of other reasons.

How many people are exposed to these problems? 60 percent of Americans have private-sector health insurance—precisely the number that Jay Carney dismissed. As to the number of people facing cancellations, 51 percent of the employer-based market plus 53.5 percent of the non-group market (the middle of the administration’s range) amounts to 93 million Americans.

Will these canceled plans be replaced with better coverage?

President Obama’s famous promise that “you could keep your plan” was not some naïve error or accident. He, and his allies, knew that previous Democratic attempts at health reform had failed because Americans were happy with the coverage they had, and opposed efforts to change the existing system.

Now, supporters of the law are offering a different argument. “We didn’t really mean it when we said you could keep your plan,” they say, “but it doesn’t matter, because the coverage you’re going to get under Obamacare will be better than the coverage you had before.”

But that’s not true. Obamacare forces insurers to offer services that most Americans don’t need, don’t want, and won’t use, for a higher price."

ObamaCare's Troubles Are Only Beginning

Be prepared for eligibility, payment and information protection debacles—and longer waits for care.

Click here to read this article by Michael J. Boskin. From the 12-16-2013 WSJ. Mr. Boskin, an economics professor at Stanford University and senior fellow at the Hoover Institution, was chairman of the Council of Economic Advisers under President George H.W. Bush. Excerpts:

"The "sticker shock" that many buyers of new, ACA-compliant health plans have experienced—with premiums 30% higher, or more, than their previous coverage—has only begun. The costs borne by individuals will be even more obvious next year as more people start having to pay higher deductibles and copays. 

If, as many predict, too few healthy young people sign up for insurance that is overpriced in order to subsidize older, sicker people, the insurance market will unravel in a "death spiral"

"The "I can't keep my doctor" shock will also hit more and more people in coming months. To keep prices to consumers as low as possible...insurance companies in many cases are offering plans that have very restrictive networks."

"millions must choose among unfamiliar physicians and hospitals, or paying more for preferred providers"

"the far more complex back-office side of the website—where the information in their application is checked against government databases to determine the premium subsidies and prices they will be charged, and where the applications are forwarded to insurance companies—is still under construction."

"There will be longer waits for hospital visits, doctors' appointments and specialist treatment, as more people crowd fewer providers."

"25% expansion of Medicaid under ObamaCare will exert pressure on state Medicaid spending"

"The "Cadillac tax" on health plans to help pay for ObamaCare starts four years from this Jan. 1. It will fall heavily on unions whose plans are expensive due to generous health benefits"

"Businesses of all sizes that currently provide health care will have to offer ObamaCare's expensive, mandated benefits, or drop their plans and—except the smallest firms—pay a fine"

"ObamaCare will lead to more part-time workers in some industries, as hours are cut back to conform to arbitrary definitions in the law of what constitutes full-time employment. Many small businesses will be cautious about hiring more than 50 full-time employees, which would subject them to the law's employer insurance mandate."

"On the supply side, medicine will become a far less attractive career for talented young people."

"many practices are closed to Medicaid recipients, some also to Medicare."

"The repeated assertions by the law's supporters that nobody but the rich would be worse off was based on a beyond-implausible claim that one could expand by millions the number of people with health insurance, lower health-care costs without rationing, and improve quality. The reality is that any squeezing of insurance-company profits, or reduction in uncompensated emergency-room care amounts to a tiny fraction of the trillions of dollars extracted from those people overpaying for insurance, or redistributed from taxpayers"

"A good start would be sliding-scale subsidies to help people buy a low-cost catastrophic plan, purchasable across state lines, equalized tax treatment of those buying insurance on their own with those on employer plans, and expanded high-risk pools."

My Response To Michael Gerson & The Pope On Capitalism

I wrote an op-ed for the San Antonio Express-News but it looks like it will not get printed. Here is the link to Gerson's article Worshipping at the altar of consumption. Now my response which is followed by a comment I left at this link.

I was surprised and disappointed by Michael Gerson's column calling for more government intervention into the economy ("Pope's theme hails from compassion, not Marxism," Dec. 11).

Although Gerson claims to be a defender of market economics, he (and the Pope) both seem to think that all suffering by the poor is the result of too much capitalism (or not enough government social programs).

Gerson refers to a "deified market." The reality is much different. The highest marginal tax rate in the U. S. is 35%. In 1986 it was 28%.

Spending by federal regulatory agencies is about nine times higher today than in 1970, adjusted for inflation. We add thousands of pages of new regulations every year.

Today, about 30% of jobs in the U. S. require a license. In the 1950s, it was about 5%. So the reality is that government intervenes more and more in our economy. Higher taxes and more regulations don't happen if we deify the market.

Then Gerson condemns ideologies "that would deny to governments an active role in humanizing free markets." In the U. S. we have many government programs like welfare, food stamps, unemployment insurance, social security, etc.

He also refers to the "dark side" of markets. But neither Gerson nor the Pope seem to recognize a dark side of government intervention. Research by Morris Kleiner of the University of Minnesota shows that occupational license requirements hurt employment.

Some economists, although not all, think that minimum wage laws can hurt the poor (Martin Feldstein, Christina Romer, Gary Becker, & Greg Mankiw, for example, all highly respected).

When the U. S. subsidizes our own sugar producers or puts up tariffs, this hurts poor farmers in third world countries.

Capitalism seems to serve the poor well. The poorest 10% of the population in the most capitalist countries have incomes about nine times higher than in the least capitalist countries. Life expectancy is much higher while infant mortality is much lower. Child labor rates are much lower, too.

From 1949-1961, as Charles Murray has pointed out, the poverty rate in the U. S. was cut in half, a time when we had few government programs.

Robert Rector of the Heritage Foundation reported in 2011 that 75% of poor households had air conditioning while 92% had microwave ovens. These are products that once even the rich could not buy. And it is capitalism that brought products like these, and many others, to the masses, with the ownership rates constantly increasing.

Economists Bruce Meyer and  James Sullivan showed that "median income and consumption both rose by more than 50 percent in real terms between 1980 and 2009." They also pointed out that the quality of housing for the middle 20% greatly improved.

Economists Christian Broda, Ephraim Leibtag, and David Weinstein reported in 2009 that the "real wages of low-wage U.S. workers (the bottom 10%) have risen substantially over the last 30 years" due to corrections to the Consumer Price Index.

The eminent economic historian Deirdre McCloskey has said that what propelled the world toward more economic growth (whose importance Gerson and the Pope seem to minimize) was a new dignity accorded the entrepreneurs and innovators.

This happened, according to her, in "Holland in 1600, England in 1700, the English colonies and Scotland in 1750, and on and on." This led to increased production which greatly reduced poverty.

Now we have so many negative attitudes towards capitalism and the market. TV shows and movies rarely portray business favorably. So it was sad to see the Pope add more fuel to this fire.

*****************

Economist Hernando de Soto shows how hard it is for the poor in third world countries to be part of capitalism and start their own businesses. The government gets in their way, big time. Maybe if markets were freer these poor people would be better off.

http://online.wsj.com/news/articles/SB10001424052748704358704576118683913032882?cb=logged0.10966325840669244

The key question to be asked is why most Egyptians choose to remain outside the legal economy? The answer is that, as in most developing countries, Egypt's legal institutions fail the majority of the people. Due to burdensome, discriminatory and just plain bad laws, it is impossible for most people to legalize their property and businesses, no matter how well intentioned they might be.

The examples are legion. To open a small bakery, our investigators found, would take more than 500 days. To get legal title to a vacant piece of land would take more than 10 years of dealing with red tape. To do business in Egypt, an aspiring poor entrepreneur would have to deal with 56 government agencies and repetitive government inspections.

All this helps explain who so many ordinary Egyptians have been "smoldering" for decades. Despite hard work and savings, they can do little to improve their lives.

How to Keep Workers Unemployed

Another 99 weeks of jobless insurance won't create more jobs.

Click here to read this WSJ editorial, 12-12-2013. Excerpts:

"In Indiana and the Virgin Islands, the tax will rise next year to 1.8%, or $84 more per worker. In 12 other states the tax rises to 1.2%, or $63 more per worker. This may not seem too burdensome, but it comes on top of state unemployment-insurance taxes that can exceed $3,000 per worker in states like Minnesota, according to the Tax Foundation. The tax is "experience rated" by the feds, meaning that firms in industries with high labor turnover rates—such as hospitality, restaurants, construction and trucking—pay a higher tax. 

Some economists believe the unemployment insurance tax is too low to discourage firms from hiring. But if that is the case, why did Mr. Obama enact a payroll tax holiday in 2011 and 2012 as incentive to increase hiring? If lower payroll taxes increase employment, then higher payroll taxes must curtail it. Economist Casey Mulligan of the University of Chicago has found that payroll taxes have a "persistent negative impact" on hiring and real GDP. 

Alan Krueger, President Obama's former chief economist, coauthored a 2008 study reviewing the amount of time that unemployed individuals in different states and countries spent looking for a new job and found, among other things, that "job search is inversely related to the generosity of unemployment benefits." Other studies have found that laid-off workers ineligible for unemployment benefits spend more time looking for a new job than those who get checks.

Some smart states have begun to resist Uncle Sam's not-so-free unemployment benefits and loans. While the feds have financed longer unemployment benefits, states in return have had to agree not to cut recipients' weekly payments. North Carolina, for example, was criticized as heartless for scaling back benefits earlier this year. But by doing so Raleigh avoided a payroll tax hike."

Obama's Misguided Obsession With Inequality

He uses statistics that ignore taxes and transfer payments. Faster growth is what the poor really need.

Click here to read this article by Robert E. Grady, WSJ, 12-23-2012. Mr. Grady, a managing director at the private-equity firm Cheyenne Capital Fund, is the chief economic adviser to New Jersey Gov. Chris Christie and chairman of the New Jersey State Investment Council. Excerpts:

"...the assumptions behind his defining challenge are misleading."

"Virtually all of the data cited by the left to decry the supposed explosion of income inequality, as Lee Ohanian and Kip Hagopian point out in their seminal paper, "The Mismeasure of Inequality" (Policy Review, 2011), use a Census Bureau definition of "money income" that excludes taxes, transfer payments like Medicaid, Medicare, nutrition assistance, the Earned Income Tax Credit, and even costly employee benefits such as health insurance. 

Thus the data that is conventionally used to calculate the so-called Gini coefficient—the most commonly used measure of income inequality—ignore America's highly progressive income tax system and the panoply of benefits and transfer payments. According to Messrs. Ohanian and Hagopian, once the effect of taxes and transfer payments is taken into account, "inequality actually declined 1.8% during the 16-year period between 1993 and 2009, when the Gini coefficient dropped from .395 to .388."

"In his speech, Mr. Obama cited a recent study from economists at Columbia University that found that already enacted benefits and tax programs have reduced America's effective poverty rate by 40% since 1967—to 16% from 26%. But he ignores all this when he claims that inequality is increasing."

"The Congressional Budget Office released a study that came to a similar conclusion in October 2011."

"family income, including benefits, on average experienced a 62% gain above inflation from 1979 to 2007. It also showed that all five quintiles of the income distribution spectrum experienced real gains in family income. 

The CBO study contradicts Mr. Obama's claims in the 2008 presidential campaign and early in his first term that the middle class was "falling behind."

"there was "considerable income mobility" in the decades 1987-1996 and 1996-2005. For example, roughly half of those in the bottom income quintile in 1996 had moved to a higher quintile by 2005. The "median incomes of those initially in the lowest income groups increased more in percentage terms than the median incomes of those in the higher income groups" in that decade, while the real incomes of two-thirds of all taxpayers experienced an increase. 

Here is the bottom line: In periods of high economic growth, such as the 1980s and 1990s, the vast majority of Americans gain, and have the opportunity to gain"

"Consider the Census Bureau data, which measure only money income."

"It fell, in real terms, by 5.7% from 1974-1982, when slow growth and high inflation ravaged the average family. Tellingly, in this period, real income fell for the bottom four quintiles, but held steady for the top 20%.

From 1983 to 2007, however, median family income grew substantially—by 21.6% above inflation—and real income grew for all five quintiles."

"Yet a recent analysis by BCA Research shows a sharp drop in real spending by the government on nondefense infrastructure since the president took office. When a Democratic Congress passed the president's massive $800 billion stimulus bill, seven-eighths of the total went to transfer payments like Medicaid, food stamps and sending a check to millions of Americans who do not pay income taxes"

Volcker Rule Overshoots Wall Street to Hit Utah

Great post by John Berlau of the Competitive Enterprise Institute

"You might think after the disastrous debut of HealthCare.gov and thousands of insurance cancellations, those who call themselves progressives might just have a little humility about grandiose government schemes with vague terms and objectives.

Not so, if judged by the adulatory greeting by liberal activists and the establishment media of this month’s implementation of a pie-in-the-sky provision of the Dodd-Frank financial “reform,” a law that has often been referred to by experts as “Obamacare for banks.”

Like Obamacare, Dodd-Frank was a 2,500-plus page law rammed through the Democrat-controlled Congress in 2010. And like the bureaucrat-written rules implementing Obamacare, the regulations implementing the law are pretty lengthy as well.

Joint regulations issued last week to implement Dodd-Frank’s so-called Volcker Rule were almost 1000 pages, nearly half as long as the law itself. “Changing the Ways of Wall Street” was how a New York Times news piece characterized the rule when it was released last week.

Yet this week, even the NYT was compelled to report on the regulation hitting a bank that was about as far away from Wall Street as once could get. “Volcker Rule Quickly Hits Utah Bank,” reads the headline of an NYT article describing how the Volcker Rule forced Salt Lake City-based Zions Bancorporation to divest a long-held debt security and take a loss of $387 million by doing so. As Bloomberg notes in its piece on the shocking hit to the bank’s balance sheet, this “cost is more than Zions earned for any calendar year since 2007.”

In the meantime, the new rules could sharply also reduce sharply the stream of initial public offerings that have been propelling the stock-market upsurge. And just as regulatory impediments to smaller IPOs were relaxed modestly with the bipartisan Jumpstart Our Business Startups (JOBS) Act signed by President Obama last year, the Volcker rule will likely erect new barriers to market making by Main Street banks underwriting the offerings of these smaller firms.

Even as written in the Dodd-Frank financial “reform” statute, the Volcker Rule was a solution in search of a problem, or in search of a factor that was not even a minor cause of the financial crisis. The provision, often referred to a “Glass-Steagall lite” – after the 1930s law that was repealed by President Clinton in 1999 – maintains Glass-Steagall’s false dichotomy of inherently “risky” trading and inherently “safe” lending.

And it doesn’t ban or restrict trading based on level of risk, but on whether the trading is ”proprietary.” Most discouragingly, in the statute and in today’s edict, the Volcker Rule contains explicit exemptions for trading in risky government-backed securities, such as municipal bonds and foreign sovereign debt.

There is no evidence that proprietary trading — a bank trading for its own portfolio — is more dangerous than executing trades for customers. In the leadup to the financial crisis, banks traded mortgage-backed securities for themselves and for their customers, but at bottom the instruments were dangerous due to the underlying mortgage loans — loans encouraged by governmental entities such as Fannie Mae and Freddie Mac and by mandates such as the Community Reinvestment Act.

Moreover, even the rule’s architect, former Federal Reserve Chairman Paul Volcker, concedes that banks must do some incidental trading for their own portfolios to carry out other functions. This type of trading includes buying shares to “make markets” for companies they take public and to hedge the risk of ordinary loans such as mortgages.

But in practice, it’s very difficult to tell which type of trading is “proprietary.” As former Sen. Ted Kaufman, D-Del., who (wrongly) advocates bringing back Glass-Steagall, wrote in Forbes just after the rules were released:

“Who’s to know what’s a hedge, what’s market making (trading on behalf of clients), and what’s trading for the bank’s own account? The paper trails can be inconclusive. Like angels on pins, there is never going to be an answer.”

And IPOs, particularly for smaller companies, are likely to take a hit. In order to underwrite a stock market offering, banks have to engage in “market making.” They “make” a liquid market for the stock by buying shares in the company to generate demand. But the new rule, according to various interpretations (that will be further revised as the new language is examined), puts many new burdens on this traditional practice.

According to The Wall Street Journal, “the rule … will require banks to provide ‘demonstrable analysis of historical customer demand’ for financial assets they buy and sell on behalf of clients.” But how does a bank show “historical customer demand” for a company that has never gone public before?!

This could have the biggest impact on smaller IPOs, in which banks can’t easily measure “historical demand” and would have to likely buy more shares to create more demand than they would for a larger firm. Some banks may look at the compliance costs, and simply not underwrite smaller IPOs, harming innovation by entrepreneurs and wealth-building by ordinary investors.

This could also slow the growth of IPOs underwritten by non-Wall Street banks. In recent years, and since the modest regulatory relief from some Dodd-Frank and Sarbanes-Oxley provisions from the JOBS Act, regional banks such as Atlanta-based SunTrust and Cleveland-based Key Bank, have increased their sponsorship of new companies going public.

And in further showing that the Volcker Rule and its implementation is not focused on preventing risk, the new rules contain explicit and blanket trading exemptions for municipal bonds and foreign-based sovereign debt. And exemptions for banks to buy and sell securities in Fannie and Freddie, the two proximate causes of the crisis, were already in the Dodd-Frank statute.

This creates the most perverse set of incentives imaginable for financial management. A bank can speculate at will on the debt of risky governments from Greece to Detroit. Yet if it helps a job-creating new business go public, its ability to reap profit by retaining shares would be limited severely.

Mike Konczal, fellow at the progressive Roosevelt Institute think tank, concedes in the Washington Post that “there are real questions and gray areas” in the Volcker Rule, but argues “what’s not to like” in “rebuilding the core banking sector to be boring.”

Here’s another idea. How about dismantling statist policies like Obamacare the Volcker Rule to rebuild government to be boring?! For as the folks of Utah and other places far from Wall Street can once again attest, it is Big Government that is the biggest threat to financial stability."

Obamacare Initiates Self-Destruction Sequence

Interesting post from Megan McCardle.

"On Wednesday, Politico’s Carrie Budoff Brown reported that the administration was saying fewer than 500,000 people had actually lost insurance due to Obamacare-induced cancellations. This struck me as a strange leak: Half a million is a lot less than many people (including me) have been estimating, but it is still not a small number, and the administration has tended to sit on negative information until the last possible moment.

Yesterday, we had a more official announcement from the administration: Anyone who has had their policies cancelled will be exempt from the individual mandate next year. The administration is also allowing those people to buy catastrophic plans, even if they’re over 30.

What to make of these two statements? On the one hand, the administration is trying to minimize the number of people who have been affected by cancellations, and on the other hand, it is unveiling a fix to the problem of cancellations. And these are not minor changes.

As Seth Chandler points out, Healthcare.gov doesn’t even let you see catastrophic plans if you’re more than 30 years old. Is now the time to be making technical changes to the website?

As Avik Roy points out, catastrophic plans aren’t that much cheaper than the so-called bronze plans. They’re also not eligible for subsidies. This is unlikely to be much help to folks who lost insurance; all it does is introduce some much-unneeded complexity to Healthcare.gov.

As Aaron Carroll points out, insurers calculated their premiums for this year on the expectation that the relatively healthy folks who were already buying insurance would be buying policies on the exchange. The insurers are not happy about this latest change, and Carroll predicts that they will ask the administration to push more money to them through the “risk corridors.” I think he’s right.

As Ezra Klein points out, this seriously undermines the political viability of the individual mandate: “But this puts the administration on some very difficult-to-defend ground. Normally, the individual mandate applies to anyone who can purchase qualifying insurance for less than 8 percent of their income. Either that threshold is right or it's wrong. But it's hard to argue that it's right for the currently uninsured but wrong for people whose plans were canceled … Put more simply, Republicans will immediately begin calling for the uninsured to get this same exemption. What will the Obama administration say in response? Why are people whose plans were canceled more deserving of help than people who couldn't afford a plan in the first place?”

Arnold Kling put it more pithily: “Obama Repeals Obamacare.”

I’d ask this: What do you do for an encore? Will the administration force these folks to buy insurance next year? Or will they keep allowing special exceptions rather than take the political heat for changing health insurance that people liked?

I’m not sure the administration is thinking that far ahead. The White House is focused on winning the news cycle, day by day, not the kind of detached technocratic policymaking that they, and the law’s other supporters, hoped this law would embody. Does your fix create problems later, cause costs to spiral or people to drop out of the insurance market, or lead to political pressure to expand the fixes in ways that critically undermine the law? Well, that’s preferable to sudden death right now.

However incoherent these fixes may seem, they send two messages, loud and clear. The first is that although liberal pundits may think that the law is a done deal, impossible to repeal, the administration does not believe that. The willingness to take large risks with the program’s stability indicates that the administration thinks it has a huge amount to lose -- that the White House is in a battle for the program’s very existence, not a few marginal House and Senate seats.

And the second is that enrollment probably isn’t what the administration was hoping. I don’t know that we’ll start Jan. 1 with fewer people insured than we had a year ago, but this certainly shouldn’t make us optimistic. It’s not like people who lost their insurance due to Obamacare, and now can’t afford to replace their policy, are going to be happy that they’re exempted from the mandate; they’re still going to be pretty mad. This is at best, damage control. Which suggests that the administration is expecting a fair amount of damage."

Food-Stamp Myths

Click here to read this great post by Michael Tanner of Cato. Excerpts:

"The massive increase in food-stamp spending was caused by the recession, so cuts are insensitive to economic reality. The food-stamp program certainly has exploded in the weak economic years since 2009, from 33.5 million beneficiaries at a cost of $53.6 billion a year to 47.7 million beneficiaries at a cost of $82.9 billion. Much of that increase was indeed due to the recession and increased unemployment. But the growth in food stamps actually started long before the recession began — under George W. Bush, in fact. President Bush nearly doubled both the program’s cost and the number of recipients.

In addition, studies show that the increase in food stamps was much greater during this recession than in previous ones, suggesting that at least some of the increase was due to policy decisions rather than economic conditions.

The CBO projects that long after the recovery solidifies and unemployment declines, both costs and participation will remain at much higher levels.

Food stamps keep Americans from going hungry. It’s hard to imagine that the government could spend almost $83 billion per year without having some impact on hunger in America. Yet there is little real evidence that it does. The Government Accountability Office (GAO) found that “the literature is inconclusive regarding whether SNAP alleviates hunger and malnutrition for low-income households.” Similarly, a study for the U.S. Department of Agriculture found that for nearly all vitamins, minerals, and macronutrients assessed, the dietary intake among SNAP participants was comparable to that of nonparticipants in similar situations.

Food stamps are just a temporary safety net, not a form of dependency. No one wants to deny children, the elderly, or the disabled some temporary assistance to help them get through hard times. But the evidence suggests that for many recipients food stamps are becoming not a temporary safety net but a way of life.

Nearly 56 percent of SNAP households are on the program for five years or longer. And roughly 4.5 million recipients are able-bodied adults. In 2011, the most recent year for which data is available, only 27.7 percent of nonelderly adult participants were employed, while just another 28 percent reported that they were looking for work. Importantly, one of the largest “cuts” that Republicans have proposed is simply to restore the program’s work requirements.

The Republican proposals would slash benefits. The proposed Republican cuts would reduce food-stamp spending over the next ten years relative to the projected budget by just 5 percent. Even after the cuts were fully phased in, spending would remain higher than it was in 2010. Slashing this is not.

But more importantly, most proposed cuts don’t actually reduce benefits. For example, as noted above, one Republican proposal would simply restore work requirements. Some worry that recipients might not be able to find jobs. Fair enough. But recipients could also satisfy those requirements through job training or job-search programs or by participating in volunteer and charitable activities. That doesn’t seem all that onerous.

A second Republican proposal would eliminate so-called “categorical eligibility,” which makes people eligible for food stamps if they participate in other welfare programs. Republicans would target food stamps to the truly needy by restoring the programs income and asset tests. How cruel."

Did Austerity Hurt Or Help The British Economy?

See Sumner on Krugman on the UK by Tyler Cowen of "Marginal Revolutin."

"Scott writes:

Krugman also ignores the fact that his own graph shows fiscal policy in Britain getting more contractionary in 2013, and yet growth picked up sharply!

Read the whole thing.  I also would note that the demand-side secular stagnation meme also seems to be gone or at least shelved in the cupboard, as today Krugman wrote: “Economies do tend to grow unless they keep being hit by adverse shocks.”   The reallocation of labor from previous cuts in government spending is now seen unambiguously a good thing, whereas the previous argument was that in a liquidity trap such positive supply shocks could very well push economies into an even worse position.  Most of all, British price inflation has continued at a robust rate and that is because of British monetary policy, again no sign of very low short rates being a “liquidity trap” in this regard.  The UK labor market experience also seems to support Bryan Caplan’s repeated claims that real wage cuts really can put people back to work.
And here is a remark on timing:

I find it astonishing that Krugman and Wren-Lewis, having done post after post in 2012 describing how the UK does have real fiscal austerity in 2012, are suddenly happy to now argue that a relaxation of fiscal austerity in 2012 is the “reason” for GDP recovery in… erm, 2013.

Don’t let the emotionally laden talk of “Three Stooges” or “deeply stupid,” or continuing problems in the UK economy, distract your attention from the fact that this one really has not gone in the directions which the Old Keynesians had been predicting."

Scott writes:

Krugman also ignores the fact that his own graph shows fiscal policy in Britain getting more contractionary in 2013, and yet growth picked up sharply!

Read the whole thing.  I also would note that the demand-side secular stagnation meme also seems to be gone or at least shelved in the cupboard, as today Krugman wrote: “Economies do tend to grow unless they keep being hit by adverse shocks.”   The reallocation of labor from previous cuts in government spending is now seen unambiguously a good thing, whereas the previous argument was that in a liquidity trap such positive supply shocks could very well push economies into an even worse position.  Most of all, British price inflation has continued at a robust rate and that is because of British monetary policy, again no sign of very low short rates being a “liquidity trap” in this regard.  The UK labor market experience also seems to support Bryan Caplan’s repeated claims that real wage cuts really can put people back to work.
And here is a remark on timing:

I find it astonishing that Krugman and Wren-Lewis, having done post after post in 2012 describing how the UK does have real fiscal austerity in 2012, are suddenly happy to now argue that a relaxation of fiscal austerity in 2012 is the “reason” for GDP recovery in… erm, 2013.

Don’t let the emotionally laden talk of “Three Stooges” or “deeply stupid,” or continuing problems in the UK economy, distract your attention from the fact that this one really has not gone in the directions which the Old Keynesians had been predicting.
- See more at: http://marginalrevolution.com/marginalrevolution/2013/12/sumner-on-krugman-on-the-uk.html#sthash.cuzpN1BQ.dpuf

Scott writes:

Krugman also ignores the fact that his own graph shows fiscal policy in Britain getting more contractionary in 2013, and yet growth picked up sharply!

Read the whole thing.  I also would note that the demand-side secular stagnation meme also seems to be gone or at least shelved in the cupboard, as today Krugman wrote: “Economies do tend to grow unless they keep being hit by adverse shocks.”   The reallocation of labor from previous cuts in government spending is now seen unambiguously a good thing, whereas the previous argument was that in a liquidity trap such positive supply shocks could very well push economies into an even worse position.  Most of all, British price inflation has continued at a robust rate and that is because of British monetary policy, again no sign of very low short rates being a “liquidity trap” in this regard.  The UK labor market experience also seems to support Bryan Caplan’s repeated claims that real wage cuts really can put people back to work.
And here is a remark on timing:

I find it astonishing that Krugman and Wren-Lewis, having done post after post in 2012 describing how the UK does have real fiscal austerity in 2012, are suddenly happy to now argue that a relaxation of fiscal austerity in 2012 is the “reason” for GDP recovery in… erm, 2013.

Don’t let the emotionally laden talk of “Three Stooges” or “deeply stupid,” or continuing problems in the UK economy, distract your attention from the fact that this one really has not gone in the directions which the Old Keynesians had been predicting.
- See more at: http://marginalrevolution.com/marginalrevolution/2013/12/sumner-on-krugman-on-the-uk.html#sthash.cuzpN1BQ.dpuf

Scott writes:

Krugman also ignores the fact that his own graph shows fiscal policy in Britain getting more contractionary in 2013, and yet growth picked up sharply!

Read the whole thing.  I also would note that the demand-side secular stagnation meme also seems to be gone or at least shelved in the cupboard, as today Krugman wrote: “Economies do tend to grow unless they keep being hit by adverse shocks.”   The reallocation of labor from previous cuts in government spending is now seen unambiguously a good thing, whereas the previous argument was that in a liquidity trap such positive supply shocks could very well push economies into an even worse position.  Most of all, British price inflation has continued at a robust rate and that is because of British monetary policy, again no sign of very low short rates being a “liquidity trap” in this regard.  The UK labor market experience also seems to support Bryan Caplan’s repeated claims that real wage cuts really can put people back to work.
And here is a remark on timing:

I find it astonishing that Krugman and Wren-Lewis, having done post after post in 2012 describing how the UK does have real fiscal austerity in 2012, are suddenly happy to now argue that a relaxation of fiscal austerity in 2012 is the “reason” for GDP recovery in… erm, 2013.

Don’t let the emotionally laden talk of “Three Stooges” or “deeply stupid,” or continuing problems in the UK economy, distract your attention from the fact that this one really has not gone in the directions which the Old Keynesians had been predicting.
- See more at: http://marginalrevolution.com/marginalrevolution/2013/12/sumner-on-krugman-on-the-uk.html#sthash.cuzpN1BQ.dpuf