Does income inequality increase mortality?

Great post from Greg Mankiw. It only looks that way on the surface. The effect seems to go away if you control for race.

"In his recent Times column, Paul Krugman writes:

Rising inequality has obvious economic costs: stagnant wages despite rising productivity, rising debt that makes us more vulnerable to financial crisis. It also has big social and human costs. There is, for example, strong evidence that high inequality leads to worse health and higher mortality.

The links are from the online version of Paul's column.  I followed the second link to an interesting article by Angus Deaton.  Angus writes the following (emphasis added):

Darren Lubotsky and I ⁷ have investigated the relationship between income inequality, race, and mortality at both the state and metropolitan statistical area level. In both the state and the city data, mortality is positively and significantly correlated with almost any measure of income inequality. Because whites have higher incomes and lower mortality rates than blacks, places where the population has a large fraction of blacks are also places where both mortality and income inequality are relatively high. However, the relationship is robust to controlling for average income (or poverty rates) and also holds, albeit less strongly, for black and white mortality separately. Nevertheless, it turns out that race is indeed the crucial omitted variable. In states, cities, and counties with a higher fraction of African-Americans, white incomes are higher and black incomes are lower, so that income inequality (through its interracial component) is higher in places with a high fraction black. It is also true that both white and black mortality rates are higher in places with a higher fraction black and that, once we control for the fraction black, income inequality has no effect on mortality rates, a result that has been replicated by Victor Fuchs, Mark McClellan, and Jonathan Skinner⁹ using the Medicare records data. This result is consistent with the lack of any relationship between income inequality and mortality across Canadian or Australian provinces, where race does not have the same salience. Our finding is robust; it holds for a wide range of inequality measures; it holds for men and women separately; it holds when we control for average education; and it holds once we abandon age-adjusted mortality and look at mortality at specific ages. None of this tells us why the correlation exists, and what it is about cities with substantial black populations that causes both whites and blacks to die sooner.

In a review of the literature on inequality and health, I note that Wilkinson's original evidence, which was (and in many quarters is still) widely accepted showed a negative cross-country relationship between life expectancy and income inequality, not only in levels but also, and more impressively, in changes. But subsequent work has shown that these findings were the result of the use of unreliable and outdated information on income inequality, and that they do not appear if recent, high quality data are used. There are now also a large number of individual level studies exploring the health consequences of ambient income inequality and none of these provide any convincing evidence that inequality is a health hazard. Indeed, the only robust correlations appear to be those among U.S. cities and states (discussed above) which, as we have seen, vanish once we control for racial composition. I suggest that inequality may indeed be important for health, but that income inequality is less important than other dimensions, such as political or gender inequality.¹⁰

Is Angus's article really support for Paul's claim?  It seems to me that it is more the opposite."

How much income inequality is explained by varying parental resources?

Great post from Greg Mankiw. It looks like not much.

"When people think about inequality of incomes, a key issue is inequality of opportunity. Some people are born to rich parents who can afford private schools, summer camp, SAT tutors, etc., while others have poorer parents who cannot easily afford such things. One might wonder how much of the income inequality we observe can be explained by differences in the resources that people get because of varying parental incomes.

Let me suggest a rough calculation that gives an approximate answer.

The recent paper by Chetty et al. finds that the regression of kids’ income rank on parents’ income rank has a coefficient of 0.3. (See Figure 1.) That implies an R2 for the regression of 0.09. In other words, 91 percent of the variance is unexplained by parents’ income.

I would be willing venture a guess, based on adoption studies, that a lot of that 9 percent is genetics rather than environment. That is, talented parents have talented kids partly because of good genes. Conservatively, let’s say half is genetics. That leaves only 4.5 percent of the variance attributed directly to parents’ income.

Now, if you let me play a bit fast and loose with the difference between income and income rank, these numbers suggest the following: If we had some perfect policy invention (such as universal super-duper pre-school) that completely neutralized the effect of parent’s income, we would reduce the variance of kids' income to .955 of what it now is. This implies that the standard deviation of income would fall to 0.977 of what it now is.

The bottom line: Even a highly successful policy intervention that neutralized the effects of differing parental incomes would reduce the gap between rich and poor by only about 2 percent.

This conclusion does not mean such a policy intervention is not worth doing. Evaluating the policy would require a cost-benefit analysis. But the calculations above do suggest that all the money the affluent spend on private schools, etc., explains only a tiny fraction of the income inequality that we observe.
----
Addendum: A few readers seem confused about how to infer an R2 from a coefficient.  The key is that the left and right hand side variables in the regression have the same variance.  In this case, the R2 is the square of the coefficient.  This conclusion is a standard result for AR(1) models, which is what we have here, as applied to generational data.  (Also, a few readers are confused when they look at the paper's Figure 1. The points plotted are not the raw data but binned averages, so you cannot see the R2 in the plot.)"

How Much Marriage Affects Inequality

See On Assortative Mating by Greg Mankiw.

"A new working paper concludes:

"Data from the United States Census Bureau suggests there has been a rise in assortative mating....[I]f matching in 2005 between husbands and wives had been random, instead of the pattern observed in the data, then the Gini coefficient would have fallen from the observed 0.43 to 0.34, so that income inequality would be smaller""

Are the minimum wage and EITC complements? And if so, when?

Interesting post by Tyler Cowen of Marginal Revolution.

"In response to Greg Mankiw’s recent NYT piece, I’ve been hearing the argument again that the minimum wage and wage subsidies are complements. According to this view, if you have only wage subsidies, employers will lower what they offer to the workers and capture too much of the value of the subsidy. A higher minimum wage is supposed to prevent this from happening and thus ensure that workers capture more of the gains.

Even if you accept every premise of this argument, I am not sure how it is supposed to apply today, at least within a Keynesian framework. For the Keynesians, the employment problem today is almost purely one of demand, not labor supply. To spur more hiring, we therefore should wish the employers to capture more of the surplus. A belief in hysteresis makes it all the more compelling simply to get potential workers into a job as soon as possible.

So a higher minimum wage and wage subsidies might be complements at some time period, but they should not be effective complements today. Furthermore, if demand problems are going to be with us for a long time (not my view), a higher minimum wage and wage subsidies might not be complements anytime soon."

Are recessions a good time to boost the minimum wage?

Interesting post by Tyler Cowen of Marginal Revolution.

 "One empirical regularity is that many minimum wage boosts come during recessions or downturns, as many of you pointed out here. Yet I take this repeated pattern to be an argument for having a low, zero, or quite “fettered” minimum wage.
 

Let’s think through the economics. One of the main pro-minimum wage arguments — arguably the #1 argument — cites labor market monopsony. Let’s say you have a monopsonistic employer who holds back on bidding for more labor, out of fear that hiring more labor raises the price paid on all labor units of a certain quality (by assumption, there is no perfect price discrimination here). The minimum wage can get you out of this trap. By forcing the higher wage on all workers in any case, the employer now doesn’t hesitate to hire more of them because the “fear of bidding up the price of labor” effect is gone or diminished. And that is how, in some situations, a higher minimum wage can boost employment.

Now let’s say the economy is in a demand-driven downturn, which creates a surplus in the labor market. Now, to get more workers, the monopsonist firm does not have to raise the wage and it can get more workers at the prevailing wage. But employers just don’t want more workers, because of demand-side constraints. So employers could in fact hire more workers without pushing up wage rates at all, once again that is for all units of labor of a particular quality. Yes there is still monopsony, but the potential wage effects of hiring more labor are muted by the labor surplus. And that means boosting the minimum wage won’t create the beneficial hiring effects which operate in the more traditional monopsony scenario, explained in the paragraph directly above.

In other words, if you think we are now seeing a slow labor market for demand-side reasons, you should be skeptical of the monopsony argument for minimum wage hikes, at least for the time being.

By the way, demand-side problems often wreck the notion that the EITC and minimum wage are complements.

The bottom line is that a lot of the arguments for a higher minimum wage are inconsistent with or in tension with a demand-driven labor market slowdown. And I don’t exactly see the world rushing to point this out.

Here is my earlier argument that slow labor markets are the worst times to boost minimum wages. Here is my earlier post drawing a parallel between minimum wages (government-enforced sticky wages) and privately-enforced sticky wages. Here is an excerpt from that post:

I know many economists who will argue: “let’s raise the state-imposed minimum wage. Employers will respond by creating higher-productivity jobs, or by paying more, and few jobs will be lost.” I do not know many Keynesians who will argue: “In light of the worker-imposed minimum wage, employers will respond by creating higher-productivity jobs, or by paying more, and few jobs will be lost.”

 Addendum: By the way, here are some graphs and regressions about the minimum wage and recessions, from Kevin Erdmann. I think he is attempting the impossible, but you still might find it instructive to look at some of the pictures."

Great post by Tyler Cown of Marginal Revolution.

Income inequality is not as extreme as many citizens think

by Tyler Cowen on January 23, 2014 at 3:58 am in Data Source, Economics | Permalink

Here is a recent Gallup poll of interest, suggesting many people are unhappy with the level of income inequality.  Alternatively, here is a new paper to warm Bryan Caplan’s heart, by John R. Chambers, Lawton K. Swan, and Martin Heesacker, entitled “Better Off Than We Know: Distorted Perceptions of Incomes and Income Inequality in America”:

Three studies examined Americans’ perceptions of incomes and income inequality using a variety of criterion measures. Contrary to recent findings indicating that Americans underestimate wealth inequality, we found that Americans not only overestimated the rise of income inequality over time, but also underestimated average incomes. Thus, economic conditions in America are more favorable than people seem to realize. Furthermore, ideological differences emerged in two of these studies, such that political liberals overestimated the rise of inequality more than political conservatives. Implications of these findings for public policy debates and ideological disagreements are discussed.

There is this bit:

Most participants (76%) incorrectly selected the higher value ($681,649) as the cutoff for the top 1% of earners, magnifying the level of income it takes to qualify as a “1 percenter.”

There are different measures, but I think of 380k as the relevant cut-off point for the top one percent.  Here is a useful Atlantic write-up of the piece.  I cannot find an ungated version, can you?
I thank Veronique de Rugy and Scott Winship for relevant pointers.

- See more at: http://marginalrevolution.com/marginalrevolution/2014/01/income-inequality-is-not-as-extreme-as-many-citizens-think.html#sthash.ljVpcMiU.dpuf

Income inequality is not as extreme as many citizens think

by Tyler Cowen on January 23, 2014 at 3:58 am in Data Source, Economics | Permalink

Here is a recent Gallup poll of interest, suggesting many people are unhappy with the level of income inequality.  Alternatively, here is a new paper to warm Bryan Caplan’s heart, by John R. Chambers, Lawton K. Swan, and Martin Heesacker, entitled “Better Off Than We Know: Distorted Perceptions of Incomes and Income Inequality in America”:

Three studies examined Americans’ perceptions of incomes and income inequality using a variety of criterion measures. Contrary to recent findings indicating that Americans underestimate wealth inequality, we found that Americans not only overestimated the rise of income inequality over time, but also underestimated average incomes. Thus, economic conditions in America are more favorable than people seem to realize. Furthermore, ideological differences emerged in two of these studies, such that political liberals overestimated the rise of inequality more than political conservatives. Implications of these findings for public policy debates and ideological disagreements are discussed.

There is this bit:

Most participants (76%) incorrectly selected the higher value ($681,649) as the cutoff for the top 1% of earners, magnifying the level of income it takes to qualify as a “1 percenter.”

There are different measures, but I think of 380k as the relevant cut-off point for the top one percent.  Here is a useful Atlantic write-up of the piece.  I cannot find an ungated version, can you?
I thank Veronique de Rugy and Scott Winship for relevant pointers.

- See more at: http://marginalrevolution.com/marginalrevolution/2014/01/income-inequality-is-not-as-extreme-as-many-citizens-think.html#sthash.ljVpcMiU.dpuf

"Here is a recent Gallup poll of interest, suggesting many people are unhappy with the level of income inequality.  Alternatively, here is a new paper to warm Bryan Caplan’s heart, by John R. Chambers, Lawton K. Swan, and Martin Heesacker, entitled “Better Off Than We Know: Distorted Perceptions of Incomes and Income Inequality in America”:

Three studies examined Americans’ perceptions of incomes and income inequality using a variety of criterion measures. Contrary to recent findings indicating that Americans underestimate wealth inequality, we found that Americans not only overestimated the rise of income inequality over time, but also underestimated average incomes. Thus, economic conditions in America are more favorable than people seem to realize. Furthermore, ideological differences emerged in two of these studies, such that political liberals overestimated the rise of inequality more than political conservatives. Implications of these findings for public policy debates and ideological disagreements are discussed.

There is this bit:

Most participants (76%) incorrectly selected the higher value ($681,649) as the cutoff for the top 1% of earners, magnifying the level of income it takes to qualify as a “1 percenter.”

There are different measures, but I think of 380k as the relevant cut-off point for the top one percent.  Here is a useful Atlantic write-up of the piece.  I cannot find an ungated version, can you?

I thank Veronique de Rugy and Scott Winship for relevant pointers."

Open Letter to a Business Owner Who Supports Raising the Minimum Wage

Great post by Don Boudreaux of Cafe Hayek.

"Ms. Gina Schaefer,
Washington, DC

Dear Ms. Schaefer:

You’re identified in a mass e-mail, sent by “Business for a Fair Minimum Wage,” as “co-owner of nine ACE Hardware stores in Washington DC and Maryland.”  And you also signed a petition calling for a higher minimum wage – a stance that you justify with the following argument:

“We have nearly 200 employees and our starting wage for sales associates is $10 an hour.  That helps us attract and retain employees who deliver the great service that draws large numbers of customers to our stores and enables us to stay competitive. Increasing the minimum wage will help promote a healthy, dedicated workforce and keep more dollars circulating in our local economy.”

Your statement raises many questions.  For example: if all employers would be better able to “stay competitive” by paying all of their workers wages above the current minimum, why do they not already do so?  After all, you now pay such higher wages.  Why do you suppose that your particular business plan will work equally well for other firms?  Asked differently, why do you presume that other business owners are so inept that they’re leaving easy money on the table?

If history is any guide, you – a business owner who supports a higher minimum wage – actually presume no such ineptness on the part of your competitors.  Your support for raising the minimum wage is almost surely driven by your wish to increase your profitability by throttling your competitors.  Quite likely, your rivals now profitably use business plans that rely more heavily than does your plan upon the use of low-skilled workers.  Because your workers already earn wages at or above the proposed higher minimum, your costs will be unaffected by a hike in the minimum wage.  Your competitors, however, won’t be so lucky.  When their costs are forcibly raised, they’ll be less able to compete effectively with you for customers.  Some rivals will exit the industry while others scale down their operations.

Your enhanced profitability, in other words, will be extracted from the hides not only of your hapless competitors but also from the many low-skilled workers whose employment prospects will shrink – and all while you wear a cloak of faux altruism that, sadly, fools the gullible into thinking that you’re a friend of the poor.

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"

Teen employment and the minimum wage over 60 years

Great post by Mark Perry of "Carpe Diem."

"


Marginal Revolution, Cafe Hayek and the Coyote Blog are all featuring the chart above and the blog post about the
minimum wage lawgovernment-mandated wage that guarantees reduced employment opportunities for teenagers by Kevin Erdmann on his Idiosyncratic Whisk blog.

About the seven minimum wage increases that occurred in 1954, 1961, 1967, 1974, 1990 and 2007, Kevin writes that:

In every episode, except 1996 (which is the smallest hike relative to average wages), there was a distinct decline in the trend of teen employment, over the period of time covering from a few months before the initial hike until a few months after the follow-up hike.

Note that the black lines in the chart above are the trends in teenage employment established before an increase in the minimum wage and the red lines are the trends in teenage employment after a hike in the minimum wage.

Kevin ends his post by asking:

Is there any other issue where the data conforms so strongly to basic economic intuition, and yet is widely written off as a coincidence?"

We should welcome increases in income inequality that result from revolutionary, breakthrough technologies like fracking

Great post from Mark Perry of "Carpe Diem."

"In his recent book “The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters,” author Gregory Zuckerman offers these insights about why the shale revolution could have only happened in America:

Foreign nations lack perhaps the key element behind the US energy revolution: an entrepreneurial culture and ample incentives for the years of trial and error necessary for shale breakthroughs. George Mitchell, Harold Hamm, Mark Papa, and other headstrong wildcatters persevered because they knew they could gain both fame and remarkable fortune finding economic ways to tap shale. Comparable prizes don’t always exist in other countries, where governments can play a larger role in society.

There are a few things the United States seems to do better than anyone else, such as create computer apps, drones and rap stars. Fracking, so far, has been another area where there’s a distinct American advantage.

For all of the criticism the country has fielded for losing its edge in innovation, surging American energy production is a reminder of the deep pools of ingenuity, risk taking, and entrepreneurship that remain in the country. Many smaller American towns are experiencing a rebirth, with some young people in the energy business enjoying six-figure salaries, suggesting an underlying resilience in a country still recovering from the deep economic downturn.

The successes of the architects of the shale era are attributable to creativity, bravado, and a strong desire to get really wealthy. It doesn’t get more American than that. Indeed, while the huge rewards promised in the market-driven American economy have led to an unfortunate income divide, they also provide incentive for remarkable achievement.

MP: In a previous CD post, I took minor issue with Zuckerman’s term “an unfortunate income divide.” Upon reflection, I think it would really be more accurate to say “an inevitable and highly desirable income divide.” It is only because of the huge financial rewards that potentially result from a market-driven American economy that we get the innovation, risk-taking and entrepreneurship that will necessarily result in both breakthrough technologies and greater income inequality in the long run. The shale revolution has created thousands of millionaires and in the process increased income inequality in America. But everybody has been made a little better off with lower and more stable energy prices thanks to shale oil and gas, and millions of Americans are much better off thanks to the shale prosperity that has spread jobs, royalty payments and wealth across the country.

An increase in income or wealth inequality is a small price to pay for The Great American Energy Boom that did bestow massive wealth on a small group of petropreneurs, but also delivered a little bit of greater wealth to all of us. We should all welcome the increased income/wealth inequality that will result from future revolutionary, breakthrough technologies like hydraulic fracturing and horizontal drilling."

Resolved: Obamacare Is Now Beyond Rescue

Megan McArdle took part in a debate about Obamacare. Click here to read her account. Excerpts:

"In a nutshell, Obamacare has so far fallen dramatically short of what was expected -- technically, and in almost every other way. Enrollment is below expectations: According to the data we have so far, more than half of the much-touted Medicaid expansion came from people who were already eligible before the health-care law passed, and this weekend, the Wall Street Journal reported that the overwhelming majority of people buying insurance through the exchanges seem to be folks who already had insurance. Coverage is less generous than many people expected, with narrower provider networks and higher deductibles. The promised $2,500 that the average family was told they could save on premiums has predictably failed to materialize. And of course, we now know that if you like your doctor and plan, there is no reason to think you can keep them. Which is one reason the law has not gotten any more popular since it passed."

"Obamacare’s exchange facility was conceived as a “three-legged stool”: guaranteed issue, community rating, mandate. Guaranteed issue means that an insurer can’t refuse to sell you a policy. And community rating means that they can’t agree to sell you a policy -- for a million dollars. The problem is that if you set things up this way, it makes a lot of sense to wait to buy insurance until you get sick, at which point premiums start spiraling into the stratosphere and coverage drops. Enter the mandate: You can’t wait. You have to buy when you’re healthy or pay a fine.

There are actually other legs -- the subsidies, in particular, are needed so that you’re not ordering people to buy a product they can’t afford. But it doesn’t really matter how many legs the stool has; what matters is that it needs all of them. Take one away, and the whole thing is in danger of collapsing.

Unfortunately, whenever someone has voiced discontent with the way things are going, the administration has taken a hacksaw to another leg. For example, some folks who had policies they liked before were being forced to drop them and buy new policies they didn’t like so much. That caused an outcry, followed by an emergency grandfathering rule. Other major emergency fixes include:

· A one-year delay of the employer mandate (which our own Ezra Klein has shown is critical to both coverage expansion and cost control). It seems unclear that this will ever go into effect, as the regulatory difficulties of tracking compliance are enormous, and enforcing it will trigger unpopular changes in working hours and other conditions for many workers.

· Numerous extensions of enrollment and payment deadlines, even though these have led to consumer confusion.

· Changes in the rules governing the “risk corridor” programs that cover excess losses at insurers, with more potentially in the works. This buys peace with the insurers, but is going to be incredibly politically difficult for the administration to defend when the costs become clear.

Why does this put the law beyond rescue?

First, let’s define what we mean by “beyond rescue.” Is Obamacare going to be repealed in its entirety? No. Some of the provisions, such as letting parents keep their kids on their insurance until they’re 26 years old, have no chance of being repealed. Others, such as the Medicaid expansion, will almost certainly stand in some form, though I could see Medicaid being block-granted and then slowly whittled away under another administration. The fate of other pieces, such as the cost-control procedures and the exchanges, is still too cloudy to predict.

By “beyond rescue,” I mean that the original vision of the law will not be fulfilled -- the cost-controlling, delivery-system-improving, health-enhancing, deficit-reducing, highly popular, tightly integrated (and smoothly functioning) system for ensuring that everyone who wants coverage can get it.

The law still lacks the political legitimacy to survive in the long term. And in a bid to increase that legitimacy, the administration has set two very dangerous precedents: It has convinced voters that no unpopular provisions should ever be allowed to take effect, and it has asserted an executive right to rewrite the law, which Republicans can just as easily use to unravel this tangled web altogether.

Many of the commentators I’ve read seem to think that the worst is over, as far as unpopular surprises. In fact, the worst is yet to come. Here’s what’s ahead:

· 2014: Small-business policy cancellations. This year, the small-business market is going to get hit with the policy cancellations that roiled the individual market last year. Some firms will get better deals, but others will find that their coverage is being canceled in favor of more expensive policies that don’t cover as many of the doctors or procedures that they want. This is going to be a rolling problem throughout the year.

· Summer 2014: Insurers get a sizable chunk of money from the government to cover any excess losses. When the costs are published, this is going to be wildly unpopular: The administration has spent three years saying that Obamacare was the antidote to abuses by Big, Bad Insurance Companies, and suddenly it’s a mechanism to funnel taxpayer money to them?

· Fall 2014: New premiums are announced.

· 2014 and onward: Medicare reimbursement cuts eat into hospital margins, triggering a lot of lobbying and sad ads about how Beloved Local Hospital may have to close.

· Spring 2015: The Internal Revenue Service starts collecting individual mandate penalties: 1 percent of income in the first year. That’s going to be a nasty shock to folks who thought the penalty was just $95. I, like many other analysts, expect the administration to announce a temporary delay sometime after April 1, 2014.

· Spring 2015: The IRS demands that people whose income was higher than they projected pay back their excess subsidies. This could be thousands of dollars.

· Spring 2015: Cuts to Medicare Advantage, which the administration punted on in 2013, are scheduled to go into effect. This will reduce benefits currently enjoyed by millions of seniors, which is why they didn’t let them go into effect this year.

· Fall 2015: This is when expert Bob Laszewski says insurers will begin exiting the market if the exchange policies aren’t profitable.

· Fall 2017: Companies and unions start learning whether their plans will get hit by the “Cadillac tax,” a stiff excise tax on expensive policies that will hit plans with generous benefits or an older and sicker employee base. Expect a lot of companies and unions to radically decrease benefits and increase cost-sharing as a result.

· January 2018: The temporary risk-adjustment plans, which the administration is relying on to keep insurers in the marketplaces even if their customer pool is older and sicker than projected, run out. Now if insurers take losses, they just lose the money.

· Fall 2018: Buyers find out that subsidy growth is capped for next year’s premiums; instead of simply being pegged to the price of the second-cheapest silver plan, whatever that cost is, their growth is fixed. This will show up in higher premiums for families -- and, potentially, in an adverse-selection death spiral.

Each of these is likely to trigger either public outcry or providers leaving the market (leading to public outcry). Policy analysts can say that this is unfortunate but necessary -- that you can’t make an omelet without breaking eggs. Fair enough, but the administration has been manifestly unwilling to tell the eggs that. Instead, it’s emergency administrative fixes for everyone. And we sure can’t count on Republicans to save Obamacare by tackling the egg lobby.

Instead, I expect that the administration is going to issue “temporary” administrative fixes for most of the law’s unpopular bits -- just as it has so far. That’s not going to get any easier as midterms and then a presidential election creep closer. And then Republicans will make the “temporary” fixes permanent. And by the time everyone’s done “fixing” the original grand vision, not much of it will be left. This is why I argued that Obamacare, the vision, is now beyond rescue. And a surprising number of Upper West Siders apparently agreed with me."

Where Have All the Uninsured Gone?

Great post by Megan McArdle.

"My last column referred in passing to a surprising fact that came out of last weekend's Wall Street Journal: Somewhere between 65 percent to 90 percent of the 2.2 million folks who bought insurance on the exchanges through late December seem to be people who already had insurance. Some came to the exchanges when their policies got canceled; others came, voluntarily or not, from the employer market. But various sources suggest that the number of previously uninsured people who have so far bought policies on the exchanges is somewhere south of 750,000.

To put that number in perspective, the Congressional Budget Office projected that the exchanges would sign up 7 million people in the first year, roughly 2 million of them transitioning from other insurance plans and 5 million of them previously uninsured. If the Journal’s numbers are right, then by the end of December, the exchanges had signed up at least 1.45 million previously insured folks out of the 2 million who were projected to enroll by the end of May -- roughly 75 percent of the projected total. But at most, they’ve signed up 15 percent of the uninsured that they were expecting to enroll. You’d expect the early numbers to be somewhat weighted toward the previously insured, who probably want to maintain continuous coverage. Still, this is a fairly wild skew, and it leaves us with a burning question: Where are the uninsured? Did hardly any of them want coverage beginning Jan. 1?

U.S. Census figures say that 45 million people go without insurance every year in this country. To be sure, some of those are undocumented immigrants, who are unlikely to show up at a government-run exchange; others are legal residents who may not be eligible for subsidies. But where are the rest? We just created a giant new entitlement to take care of these people. Why aren’t they showing up to take advantage of it?

One answer is that some have gone to Medicaid. The administration says that states signed up 4 million Medicaid patients by Dec. 1. But as Sean Trende has pointed out, there is less there than meets the eye; states sign up millions of people for Medicaid every month. So far, the administration has not been able to ascertain how many of the new signups represent folks who became eligible because of the Patient Protection and Affordable Care Act, or even whether these are new signups, rather than renewals of previous Medicaid coverage.

Still, we don’t have the December numbers yet; if they show the same sort of spike that the private exchanges have, we may have had a sizable bump in coverage in December that we don’t yet know about. But unless the spike was truly amazing, that still leaves us looking for tens of millions of uninsured people. Where are they? And what are they waiting for?

Maybe they were buying insurance directly from the insurance companies. But industry expert Bob Laszewski seems to say no, that’s not the case: “This is consistent with anecdotal reports from insurers I have talked to that are seeing very little net growth in their overall individual and small group markets as of January 1.”

That leaves us with two possibilities: First, would-be applicants may simply be waiting until March. They’ve gone without insurance a long time; why not wait a few more months and save on premiums?

The second possibility is more troubling: There may be something seriously wrong with our understanding of who the uninsured are, and what they are willing and able to buy in the way of insurance. I don’t know exactly what the fault may be in our understanding. But if the numbers stay this low, I’d say we need to reassess the state of our knowledge about the uninsured -- and the vast program we created to cover them."

Daniel J. Ikenson Attacks Free Trade Myths In The Washington Post

Click here to read his post at Cato.

"A Washington Post editorial today pushes back against the argument that a Trans-Pacific Partnership agreement would exacerbate income inequality. Amen, I suppose. But in making its case, the editorial burns the village to save it by conceding as fact certain destructive myths that undergird broad skepticism about trade and unify its opponents.

“All else being equal,” the editorial reads, “firms move where labor is cheapest.”  Presumably, by “all else being equal,” the editorial board means: if the quality of the factors of production were the same; if skill sets were identical; if workers were endowed with the same capital; if all production locations had equal access to ports and rail; if the proximity of large markets and other nodes in the supply chain were the same; if institutions supporting the rule of law were comparably rigorous or lax; if the risks of asset expropriation were the same; if regulations and taxes were identical; and so on, the final determinant in the production location decision would be the cost of labor. Fair enough. That untestable premise may be correct.

But back in reality, none of those conditions is equal. And what do we see? We see investment flowing (sometimes in the form of “firms mov[ing],” but more often in the form of firms supplementing domestic activities) to rich countries, not poor. In this recent study, I reported statistics from the Bureau of Economic Analysis revealing that:

Nearly three quarters of the $5.2 trillion stock of U.S.-owned direct investment abroad is concentrated in Europe, Canada, Japan, Australia, and Singapore. Contrary to persistent rumors, only 1.3 percent of the value of U.S.-outward FDI [foreign direct investment] was in China at the end of 2011.

Meanwhile, the United States (not China or Mexico) is the world’s #1 destination for FDI:

With a stock valued at $3.9 trillion, the United States is the top single-country destination for the world’s FDI outflows. There are plenty of reasons for that being the case, including the facts that the United States is the world’s largest market and has a sound legal system and a relatively transparent business environment. More than $4 out of every $5 of that stock (84.2%) is owned by Europeans, Canadians, and Japanese, with the U.S. manufacturing sector accounting for a full third of its value, making it the primary destination for inward FDI.

Are BASF, Michelin, BMW, Siemens, Airbus, InBev, Honda, Kia, Ikea, Shuanghui (recent Chinese purchaser of Smithfield Hams) and thousands of other foreign-headquartered companies invested here because labor is cheapest in the United States? They are here because firms conduct value-added activities wherever it makes the most sense to do so, given all of the considerations and restrictions that affect costs. For so many reasons, the United States is still the top destination for investment in manufacturing and most services industries. 

So stop. Just stop.

The editorial also indulges the most persistent myth of all, that increasing exports while minimizing imports is the purpose of trade agreements. As I’ve written on countless occasions in numerous different ways, increased imports are the real benefits of trade. Our exports are what we use to pay for our imports. If you prefer paying less for your products at the grocery store, you should prefer exporting less for the products you import. And for those concerned about income inequality—the editorial’s presumed audience—it is worth understanding that import competition increases choices and reduces prices, which means imports increase real incomes. 

The editorial concedes that imports from Vietnam may increase under the TPP (“suppose [the bilateral deficit] were to double”), but that the deficit “would still be tiny relative to the overall U.S. trade balance.” Instead of apologizing and rationalizing, as though this development were a cost, why not point out how lower-income Americans, in particular, would experience a lower cost of living because trade would reduce the cost of their clothing and footwear?

We need to do better a job explaining how trade does not lend itself to sports metaphors. Exports are not our “points.” Imports are not “their” points. The trade account is not a scoreboard. It is not Team America against the world. Trade is about mutually beneficial exchange between individuals in different political jurisdictions, and to the extent that those kinds of transactions are subject to the whims of politicians, more and more resources will be diverted from economic to political ends.

Though it may have had good intentions, the Washington Post should know better than to perpetuate simplistic myths spun by well-compensated K Street consultants on behalf of the business, labor, and environmental interests that benefit financially from restrictions on trade and investment."

How well does a minimum wage boost target the poor?

Great post from Tyler Cowen.

"There has been a recent kerfluffle over the Sabia and Burkhauser paper (ungated here) suggesting that minimum wage increases do not very much help the American poor.  Sabia and Burkhauser report facts such as this:

Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households…Of those who will gain, 63.2% are second or third earners living in households with incomes three times the poverty line, well above 50,233, the income of the median household in 2007.

That’s what I call not very well targeted toward helping the poor.  To the best of my knowledge, these numbers have not been refuted or even questioned.

There has been a significant campaign lately to elevate this Arindrajit Dube piece (pdf) into a rebuttal of Sabia and Burkhauser.  I’ve now read through it, and while it is pretty dense, I don’t see that it supplies any such effective rebuttal (it is however a valuable paper, and survey paper, in its own right).

Here is an excerpt from the Dube paper:

An additional contribution of the paper is to apply the recentered influence function (RIF) regression approach of Firpo, Fortin and Lemieux (2009) to estimate unconditional quantile partial effects (UQPEs) of minimum wages on the equivalized family income distribution.

 Dube also writes:

The elasticity of the poverty rate with respect to the minimum wage ranges between -0.12 and -0.37 across specifications with alternative forms of time-varying controls and lagged effects; most of these estimates are statistically significant at conventional levels.

Dube in fact counts up twelve papers on the side of “minimum wage hikes can make a reasonably-sized dent in poverty.”

Now, I don’t intend this as any kind of snide, anti-theory, or anti-technique comment, but when there is a clash between simple, validated observations and complicated regressions, no matter how state of the art the latter may be, I don’t always side with the regressions.

One interpretation of the Dube results is:

a) although a minimum wage hike applies only to some members of a community, its morale or network effects spread its benefits much more widely, or,

b) through some kind of chain link effect, a minimum wage hike pushes up the entire distribution of wages for lower-income workers

Alternatively, I would try

c) the public choice critique of econometrics is correct, these minimum wage hikes are all endogenous to complex factors, and no one has a properly specified model.  We are seeing correlations rather than causation, despite all attempts to adjust for confounding variables.

So far I am voting for c).  And there is a very simple story to tell here, namely that states which are good at fighting poverty, through whatever means, also tend to have higher minimum wages for political economy reasons.  It seems unlikely that controls are going to pick up that effect fully.

Or try another model, more tongue in cheek but instructive nonetheless.  If government is quite benevolent and omniscient, and has always done exactly the right thing in the past, we will see in the data that the minimum hikes of the past are at least somewhat effective in fighting poverty.  At the same time, the remaining options on possible minimum wage hikes will not help at all.

Dube’s paper, econometrically speaking, is a clear advance over Sabia and Burkhauser.  But Dube pays little heed to integrating econometric results with common sense facts and observations about the economy.  As Bryan Caplan has stated, the knowledge and judicious invocation of simple facts about the economy is one of the most underrated skills in professional economics.

I also get a bit nervous when the number of studies on one side of a question is counted and weighed up against common facts.  Some of these pieces are simply measuring the same correlation in (somewhat) differing ways, and the number of them says more about the publication process than anything else.  These pieces also are not all in what I would call great journals.  Maybe that is an unfair metric of judgment — I am writing this on a blog, after all.   Nonetheless I looked at the list of cited sources and pulled out the two clumps with what appeared to be the highest academic pedigree, in terms of both economist and outlet.

The first clump is a group of papers by David Neumark, with co-authors.  I find that Neumark does not himself think that minimum wage hikes do much if anything to help poverty, and he has a good claim at being the world’s number one expert on the economics of minimum wages.  In fairness to Dube, he does have some good (although I would not say decisive) criticisms of one of Neumark’s papers pushing this line.

The second source is a paper by Autor, Manning, and Smith, an NBER working paper.  They write “…the implied effect of the minimum wage on the actual wage distribution is smaller than the effect of the minimum wage on the measured wage distribution.”

Of course that hardly settles it.

You might call this one a draw, but then we return to the question of where the burden of proof lies.  I’m still stuck on, to repeat the above quotation, this:

Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households…Of those who will gain, 63.2% are second or third earners living in households with incomes three times the poverty line, well above 50,233, the income of the median household in 2007.

From where I stand, that hasn’t yet been knocked down."

There has been a recent kerfluffle over the Sabia and Burkhauser paper (ungated here) suggesting that minimum wage increases do not very much help the American poor.  Sabia and Burkhauser report facts such as this:

Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households…Of those who will gain, 63.2% are second or third earners living in households with incomes three times the poverty line, well above 50,233, the income of the median household in 2007.

That’s what I call not very well targeted toward helping the poor.  To the best of my knowledge, these numbers have not been refuted or even questioned.
There has been a significant campaign lately to elevate this Arindrajit Dube piece (pdf) into a rebuttal of Sabia and Burkhauser.  I’ve now read through it, and while it is pretty dense, I don’t see that it supplies any such effective rebuttal (it is however a valuable paper, and survey paper, in its own right).
Here is an excerpt from the Dube paper:

An additional contribution of the paper is to apply the recentered influence function (RIF) regression approach of Firpo, Fortin and Lemieux (2009) to estimate unconditional quantile partial effects (UQPEs) of minimum wages on the equivalized family income distribution.

Dube also writes:

The elasticity of the poverty rate with respect to the minimum wage ranges between -0.12 and -0.37 across specifications with alternative forms of time-varying controls and lagged effects; most of these estimates are statistically significant at conventional levels.

Dube in fact counts up twelve papers on the side of “minimum wage hikes can make a reasonably-sized dent in poverty.”
Now, I don’t intend this as any kind of snide, anti-theory, or anti-technique comment, but when there is a clash between simple, validated observations and complicated regressions, no matter how state of the art the latter may be, I don’t always side with the regressions.
One interpretation of the Dube results is:
a) although a minimum wage hike applies only to some members of a community, its morale or network effects spread its benefits much more widely, or,
b) through some kind of chain link effect, a minimum wage hike pushes up the entire distribution of wages for lower-income workers
Alternatively, I would try
c) the public choice critique of econometrics is correct, these minimum wage hikes are all endogenous to complex factors, and no one has a properly specified model.  We are seeing correlations rather than causation, despite all attempts to adjust for confounding variables.
So far I am voting for c).  And there is a very simple story to tell here, namely that states which are good at fighting poverty, through whatever means, also tend to have higher minimum wages for political economy reasons.  It seems unlikely that controls are going to pick up that effect fully.
Or try another model, more tongue in cheek but instructive nonetheless.  If government is quite benevolent and omniscient, and has always done exactly the right thing in the past, we will see in the data that the minimum hikes of the past are at least somewhat effective in fighting poverty.  At the same time, the remaining options on possible minimum wage hikes will not help at all.
Dube’s paper, econometrically speaking, is a clear advance over Sabia and Burkhauser.  But Dube pays little heed to integrating econometric results with common sense facts and observations about the economy.  As Bryan Caplan has stated, the knowledge and judicious invocation of simple facts about the economy is one of the most underrated skills in professional economics.
I also get a bit nervous when the number of studies on one side of a question is counted and weighed up against common facts.  Some of these pieces are simply measuring the same correlation in (somewhat) differing ways, and the number of them says more about the publication process than anything else.  These pieces also are not all in what I would call great journals.  Maybe that is an unfair metric of judgment — I am writing this on a blog, after all.   Nonetheless I looked at the list of cited sources and pulled out the two clumps with what appeared to be the highest academic pedigree, in terms of both economist and outlet.
The first clump is a group of papers by David Neumark, with co-authors.  I find that Neumark does not himself think that minimum wage hikes do much if anything to help poverty, and he has a good claim at being the world’s number one expert on the economics of minimum wages.  In fairness to Dube, he does have some good (although I would not say decisive) criticisms of one of Neumark’s papers pushing this line.
The second source is a paper by Autor, Manning, and Smith, an NBER working paper.  They write “…the implied effect of the minimum wage on the actual wage distribution is smaller than the effect of the minimum wage on the measured wage distribution.”
Of course that hardly settles it.
You might call this one a draw, but then we return to the question of where the burden of proof lies.  I’m still stuck on, to repeat the above quotation, this:

Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households…Of those who will gain, 63.2% are second or third earners living in households with incomes three times the poverty line, well above 50,233, the income of the median household in 2007.

From where I stand, that hasn’t yet been knocked down.

- See more at: http://marginalrevolution.com/marginalrevolution/2014/01/how-well-does-a-minimum-wage-boost-target-the-poor.html#sthash.i0hHhO0N.dpuf

There has been a recent kerfluffle over the Sabia and Burkhauser paper (ungated here) suggesting that minimum wage increases do not very much help the American poor.  Sabia and Burkhauser report facts such as this:

Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households…Of those who will gain, 63.2% are second or third earners living in households with incomes three times the poverty line, well above 50,233, the income of the median household in 2007.

That’s what I call not very well targeted toward helping the poor.  To the best of my knowledge, these numbers have not been refuted or even questioned.
There has been a significant campaign lately to elevate this Arindrajit Dube piece (pdf) into a rebuttal of Sabia and Burkhauser.  I’ve now read through it, and while it is pretty dense, I don’t see that it supplies any such effective rebuttal (it is however a valuable paper, and survey paper, in its own right).
Here is an excerpt from the Dube paper:

An additional contribution of the paper is to apply the recentered influence function (RIF) regression approach of Firpo, Fortin and Lemieux (2009) to estimate unconditional quantile partial effects (UQPEs) of minimum wages on the equivalized family income distribution.

Dube also writes:

The elasticity of the poverty rate with respect to the minimum wage ranges between -0.12 and -0.37 across specifications with alternative forms of time-varying controls and lagged effects; most of these estimates are statistically significant at conventional levels.

Dube in fact counts up twelve papers on the side of “minimum wage hikes can make a reasonably-sized dent in poverty.”
Now, I don’t intend this as any kind of snide, anti-theory, or anti-technique comment, but when there is a clash between simple, validated observations and complicated regressions, no matter how state of the art the latter may be, I don’t always side with the regressions.
One interpretation of the Dube results is:
a) although a minimum wage hike applies only to some members of a community, its morale or network effects spread its benefits much more widely, or,
b) through some kind of chain link effect, a minimum wage hike pushes up the entire distribution of wages for lower-income workers
Alternatively, I would try
c) the public choice critique of econometrics is correct, these minimum wage hikes are all endogenous to complex factors, and no one has a properly specified model.  We are seeing correlations rather than causation, despite all attempts to adjust for confounding variables.
So far I am voting for c).  And there is a very simple story to tell here, namely that states which are good at fighting poverty, through whatever means, also tend to have higher minimum wages for political economy reasons.  It seems unlikely that controls are going to pick up that effect fully.
Or try another model, more tongue in cheek but instructive nonetheless.  If government is quite benevolent and omniscient, and has always done exactly the right thing in the past, we will see in the data that the minimum hikes of the past are at least somewhat effective in fighting poverty.  At the same time, the remaining options on possible minimum wage hikes will not help at all.
Dube’s paper, econometrically speaking, is a clear advance over Sabia and Burkhauser.  But Dube pays little heed to integrating econometric results with common sense facts and observations about the economy.  As Bryan Caplan has stated, the knowledge and judicious invocation of simple facts about the economy is one of the most underrated skills in professional economics.
I also get a bit nervous when the number of studies on one side of a question is counted and weighed up against common facts.  Some of these pieces are simply measuring the same correlation in (somewhat) differing ways, and the number of them says more about the publication process than anything else.  These pieces also are not all in what I would call great journals.  Maybe that is an unfair metric of judgment — I am writing this on a blog, after all.   Nonetheless I looked at the list of cited sources and pulled out the two clumps with what appeared to be the highest academic pedigree, in terms of both economist and outlet.
The first clump is a group of papers by David Neumark, with co-authors.  I find that Neumark does not himself think that minimum wage hikes do much if anything to help poverty, and he has a good claim at being the world’s number one expert on the economics of minimum wages.  In fairness to Dube, he does have some good (although I would not say decisive) criticisms of one of Neumark’s papers pushing this line.
The second source is a paper by Autor, Manning, and Smith, an NBER working paper.  They write “…the implied effect of the minimum wage on the actual wage distribution is smaller than the effect of the minimum wage on the measured wage distribution.”
Of course that hardly settles it.
You might call this one a draw, but then we return to the question of where the burden of proof lies.  I’m still stuck on, to repeat the above quotation, this:

Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households…Of those who will gain, 63.2% are second or third earners living in households with incomes three times the poverty line, well above 50,233, the income of the median household in 2007.

From where I stand, that hasn’t yet been knocked down.

- See more at: http://marginalrevolution.com/marginalrevolution/2014/01/how-well-does-a-minimum-wage-boost-target-the-poor.html#sthash.i0hHhO0N.dpuf

There has been a recent kerfluffle over the Sabia and Burkhauser paper (ungated here) suggesting that minimum wage increases do not very much help the American poor.  Sabia and Burkhauser report facts such as this:

Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households…Of those who will gain, 63.2% are second or third earners living in households with incomes three times the poverty line, well above 50,233, the income of the median household in 2007.

That’s what I call not very well targeted toward helping the poor.  To the best of my knowledge, these numbers have not been refuted or even questioned.
There has been a significant campaign lately to elevate this Arindrajit Dube piece (pdf) into a rebuttal of Sabia and Burkhauser.  I’ve now read through it, and while it is pretty dense, I don’t see that it supplies any such effective rebuttal (it is however a valuable paper, and survey paper, in its own right).
Here is an excerpt from the Dube paper:

An additional contribution of the paper is to apply the recentered influence function (RIF) regression approach of Firpo, Fortin and Lemieux (2009) to estimate unconditional quantile partial effects (UQPEs) of minimum wages on the equivalized family income distribution.

Dube also writes:

The elasticity of the poverty rate with respect to the minimum wage ranges between -0.12 and -0.37 across specifications with alternative forms of time-varying controls and lagged effects; most of these estimates are statistically significant at conventional levels.

Dube in fact counts up twelve papers on the side of “minimum wage hikes can make a reasonably-sized dent in poverty.”
Now, I don’t intend this as any kind of snide, anti-theory, or anti-technique comment, but when there is a clash between simple, validated observations and complicated regressions, no matter how state of the art the latter may be, I don’t always side with the regressions.
One interpretation of the Dube results is:
a) although a minimum wage hike applies only to some members of a community, its morale or network effects spread its benefits much more widely, or,
b) through some kind of chain link effect, a minimum wage hike pushes up the entire distribution of wages for lower-income workers
Alternatively, I would try
c) the public choice critique of econometrics is correct, these minimum wage hikes are all endogenous to complex factors, and no one has a properly specified model.  We are seeing correlations rather than causation, despite all attempts to adjust for confounding variables.
So far I am voting for c).  And there is a very simple story to tell here, namely that states which are good at fighting poverty, through whatever means, also tend to have higher minimum wages for political economy reasons.  It seems unlikely that controls are going to pick up that effect fully.
Or try another model, more tongue in cheek but instructive nonetheless.  If government is quite benevolent and omniscient, and has always done exactly the right thing in the past, we will see in the data that the minimum hikes of the past are at least somewhat effective in fighting poverty.  At the same time, the remaining options on possible minimum wage hikes will not help at all.
Dube’s paper, econometrically speaking, is a clear advance over Sabia and Burkhauser.  But Dube pays little heed to integrating econometric results with common sense facts and observations about the economy.  As Bryan Caplan has stated, the knowledge and judicious invocation of simple facts about the economy is one of the most underrated skills in professional economics.
I also get a bit nervous when the number of studies on one side of a question is counted and weighed up against common facts.  Some of these pieces are simply measuring the same correlation in (somewhat) differing ways, and the number of them says more about the publication process than anything else.  These pieces also are not all in what I would call great journals.  Maybe that is an unfair metric of judgment — I am writing this on a blog, after all.   Nonetheless I looked at the list of cited sources and pulled out the two clumps with what appeared to be the highest academic pedigree, in terms of both economist and outlet.
The first clump is a group of papers by David Neumark, with co-authors.  I find that Neumark does not himself think that minimum wage hikes do much if anything to help poverty, and he has a good claim at being the world’s number one expert on the economics of minimum wages.  In fairness to Dube, he does have some good (although I would not say decisive) criticisms of one of Neumark’s papers pushing this line.
The second source is a paper by Autor, Manning, and Smith, an NBER working paper.  They write “…the implied effect of the minimum wage on the actual wage distribution is smaller than the effect of the minimum wage on the measured wage distribution.”
Of course that hardly settles it.
You might call this one a draw, but then we return to the question of where the burden of proof lies.  I’m still stuck on, to repeat the above quotation, this:

Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households…Of those who will gain, 63.2% are second or third earners living in households with incomes three times the poverty line, well above 50,233, the income of the median household in 2007.

From where I stand, that hasn’t yet been knocked down.

- See more at: http://marginalrevolution.com/marginalrevolution/2014/01/how-well-does-a-minimum-wage-boost-target-the-poor.html#sthash.i0hHhO0N.dpuf

It Isn't Right to Say ObamaCare Is Reducing Costs Now

Jason Furman's attributing annual declines in the rate of increase of health-care spending to the passage of ObamaCare is politically motivated wishful thinking, not economic analysis.

Letters to the editor, WSJ, 1-17-14.

"The op-ed by the White House Council of Economic Advisers Chairman Jason Furman ("ObamaCare is Slowing Health Inflation," Jan. 7) attributing annual declines in the rate of increase of health-care spending to the passage of ObamaCare is politically motivated wishful thinking, not economic analysis. 

Mr. Furman discusses a study published by the Office of the Actuary at the Centers for Medicare and Medicaid Services reporting slow growth in national health-care spending for the fourth consecutive year in 2012, but he fails to mention that the CMS authors attributed the slowdown to the recession. The study reports that the passage of ObamaCare in 2010 had only "a minimal impact" on health-care costs.

The slowing of growth in health-care costs began in 2008-09, immediately after the recession and well before ObamaCare was passed. Most ObamaCare provisions only come online in 2014. How could it have lowered costs for four years starting in 2009? A careful reading of Mr. Furman's article reveals that he discusses predictions of future savings we should expect from ObamaCare provisions (e.g., projected benefits of Accountable Care Organizations) rather than anything that has already occurred.

Health-care costs are likely to rise as more people gain insurance and as people use their new coverage. The results of the Oregon Medicaid experiment are instructive and discouraging. As compared with the control group, the group that gained Medicaid coverage reported higher utilization of services and much higher medical expenditures but little or no improvement in health outcomes.

Joel M. Zinberg, M.D., F.A.C.S. 

New York

 

The slowing increase in the cost of health care is due to rising costs to the consumer. Nearly every health plan we see has increased its out-of-pocket costs for patients. When patients have increased costs, they become much more efficient consumers of health care. I see this effect every day in my practice. People don't ask for the extra test with low yield when they have money in the game. 

Let's hope the chairman of the White House Council of Economic Advisers understands this concept. 

Neal Lintecum, M.D.

Lawrence, Kan."

Exchanges See Little Progress on Uninsured

Early Estimates Suggest That Majority of Sign-Ups Already Had Health Plans

Click here to read the WSJ article, 1-18-14. Excerpts:

"Early signals suggest the majority of the 2.2 million people who sought to enroll in private insurance through new marketplaces through Dec. 28 were previously covered elsewhere"

"at least two-thirds of those consumers previously bought their own coverage or were enrolled in employer-backed plans"

"the tally of newly insured consumers is falling short of their expectations"

"Only 11% of consumers who bought new coverage under the law were previously uninsured, according to a McKinsey & Co. survey"

"One reason for people declining to purchase plans was affordability."

"Another common problem was technical challenges in buying the plans"

Cash for kidneys will solve the organ shortage, save money spent on dialysis, and then we’ll wonder why it took so long

Great post by Mark Perry of "Carpe Diem."  Here is a link to the WSJ article.

It also said "n 2012, almost 4,500 persons died while waiting for kidney transplants" and "In 2012, 95,000 American men, women and children were on the waiting list for new kidneys, the most commonly transplanted organ. Yet only about 16,500 kidney transplant operations were performed that year" kidney exchanges account for only 3% of all donations. And the average annual cost of dialysis is $80,000.

"

Economists Gary Becker and Julio Elias make the case in today’s WSJ that a market for organs and donor compensation of about $15,000 would eliminate the growing kidney shortage.  As the chart above shows, the kidney waiting list has nearly doubled from 50,000 in 2001 to almost 99,000 today, while the number of annual kidney transplant operations has increased only slightly from 14,279 in 2001 to fewer than 17,000 in 2013. Over the last eight years, kidney transplants have remained stuck at slightly below 17,000 per year, while the kidney waiting list has swelled by almost 30,000.  Therefore, there an additional 30,000 patients today (99,000) than in 2006 (69,600) competing for the same number of transplants. And that’s why, as Becker and Elias point out, the average waiting time for a kidney has increased to 4.5 years from 2.9 years a decade ago. The authors argue that “Paying donors for their organs would finally eliminate the supply-demand gap.”

Isn’t donor compensation immoral? No, according to Becker and Elias (emphasis added:

The idea of paying organ donors has met with strong opposition from some (but not all) transplant surgeons and other doctors, as well as various academics, political leaders and others. Critics have claimed that paying for organs would be ineffective, that payment would be immoral because it involves the sale of body parts and that the main donors would be the desperate poor, who could come to regret their decision. In short, critics believe that monetary payments for organs would be repugnant.

Whether paying donors is immoral because it involves the sale of organs is a much more subjective matter, but we question this assertion, given the very serious problems with the present system. Any claim about the supposed immorality of organ sales should be weighed against the morality of preventing thousands of deaths each year and improving the quality of life of those waiting for organs. How can paying for organs to increase their supply be more immoral than the injustice of the present system?

Wouldn’t donor compensation exploit the poor? No, according to the authors:

 Though the poor would be more likely to sell their kidneys and other organs, they also suffer more than others from the current scarcity. Today, the rich often don’t wait as long as others for organs since some of them go to countries such as India, where they can arrange for transplants in the underground medical sector, and others (such as the late Steve Jobs) manage to jump the queue by having residence in several states or other means. The sale of organs would make them more available to the poor, and Medicaid could help pay for the added cost of transplant surgery.

How would donor compensation affect altruism (the current system that bans donor compensation and forces the price of a kidney to be $0.00, and actually negative when considering the donor’s time off work, etc.)?:

The altruistic giving of organs might decline with an open market, since the incentive to give organs to a relative, friend or anyone else would be weaker when organs are readily available to buy. On the other hand, the altruistic giving of money to those in need of organs could increase to help them pay for the cost of organ transplants.

How would donor compensation affect the price of kidney transplant operations and the cost of dialysis?

Paying for organs would lead to more transplants—and thereby, perhaps, to a large increase in the overall medical costs of transplantation. But it would save the cost of dialysis for people waiting for kidney transplants and other costs to individuals waiting for other organs. More important, it would prevent thousands of deaths and improve the quality of life among those who now must wait years before getting the organs they need.

What’s the bottom line (emphasis added)?

Initially, a market in the purchase and sale of organs would seem strange, and many might continue to consider that market “repugnant.” Over time, however, the sale of organs would grow to be accepted, just as the voluntary military now has widespread support.
Eventually, the advantages of allowing payment for organs would become obvious. At that point, people will wonder why it took so long to adopt such an obvious and sensible solution to the shortage of organs for transplant.