The Congressional Budget Office (CBO) came out with their 2014-2024 Budget Outlook today. Although the entire document makes for a good read, I was most interested in the findings surrounding the Affordable Care Act (ACA), or what is more accurately labeled as Obamacare. I know there are those who like to think of Obamacare as the greatest innovation in the American health care industry, and would like to claim that it provides more accessible and affordable healthcare, although that is just another broken promise amongst broken Obamacare promises. For proponents, the price tag is worth the effort, which is why they are to look at the report as good news. However, when looking at the CBO report, I can only reaffirm what I can describe is my animus towards a further governmental intervention into an essential sector of the economy. What did the CBO report that I found perturbing?
For one, there is an issue with cost projections. Obama promised that Obamacare would not add a dime to our deficits, and also promised that Obamacare would not cost over $900B. Medicaid spending is expected to accelerate in 2014 because of the ACA (p. 13). Assuming no changes are made, the insurance exchanges are expected to increase spending by $18B this year alone (ibid). Spending for the combination of Medicaid and other health care programs is going to double, "largely because the ACA is expanding eligibility for Medicaid and providing subsidies for health insurance purchased through exchanges (p. 57)." Because of the ACA (those are the CBO's words, not mine), the percent of GDP that is to be spent on healthcare will increase from 5.1 percent of the GDP to 6.1 percent by 2024 (p. 16). What is the current projected grand total of Obamacare? $1.487T (Table B-1), which is nearly $600B more than he had promised.
Aside from cost, there is an issue with the labor participation rate, which has an effect on the employment rate. One of the provisions in Obamacare is to mandate that employers with over fifty employees have to either provide health insurance or pay a fine. Intuitively speaking, providing healthcare to employees, much like one's wage (see minimum wage argument), is a cost of labor. If the cost of each labor unit increases enough, the employer will be incentivized to reduce costs elsewhere, and that would include decreasing the amount of workers (p. 124). There were those who thought that the idea that Obamacare would cause higher unemployment was hogwash. Truth be told, this was one of those "wait and see" moments because we were waiting to have [preliminary] numbers come in. We've waited, and now what we're seeing isn't pretty. The ACA will further depress the labor force participation rate than the retiring Baby Boomers (p. 38), which means that the laws surrounding the ACA create a negative effect on employment. How much of an effect will that be? The CBO estimates that from 2017 to 2024 (p. 117), the number of hours worked will be reduced by 1.5-2 percent as a result of the ACA. Back in 2011, the CBO initially projected that the ACA would only cause 800,000 unemployed as a result of this bill (CBO, 2011, p. 31). However, the new projections put the full-time equivalent (FTE) decrease at 2.5 million by 2024 (CBO, 2014, p. 117), which is triple the initial estimation! Furthermore, the CBO estimates a reduction of roughly one percent in aggregate labor compensation over the period of 2017-2024 (ibid). Although employment is supposed to increase from 2017 to 2024, thanks to Obamacare, it will increase less than it would have otherwise.
There is also the matter of the number of the uninsured in this country. Obama promised universal healthcare, but once again, the CBO is still projecting that 31 million will be uninsured (Table B-2), which is a long ways away from the goal. Furthermore, Obama won't be able to keep his promise of "if you like your healthcare plan, you can keep it" because an estimated 12 million will lose their insurance because of Obamacare (ibid). And more bad news for Obamacare: there will be 2 million less insured this year because of implementation issues (Table B-4).
For those who were worried about taxes beforehand, you certainly have a right to be. One tax implemented is an excise tax on healthcare insurers (p. 88). The CBO is projecting a whole slew of other excise taxes [that will amount to $130B], three quarters of which will come from the ACA (ibid). The fines under Obamacare, which are not being called "taxes," even in spite of the Supreme Court ruling the individual mandate's justification under the Taxation Clause, will total to $27B in 2014 in rise substantially because of the ACA (p. 89). It's no surprise here that the Obamacare taxes will distort work incentives or create other economic distortions (p. 118, 122). Also, you have to love how the CBO calls the insurance subsidies an implicit tax on work (p. 120).
The only silver lining is that risk corridor program is supposed to save money (p. 114-115). Risk corridors notwithstanding, the numbers do not look promising. Granted, the CBO keeps emphasizing the uncertainty of its projections (p. 22) because a lot needs to unfold before we know the full effects of Obamacare. I agree: we're going to have to wait and see. Knowing that these projections have a propensity for getting worse as time passes, I can only surmise that Obamacare is going to have a larger, negative impact on the economy than any of us can foresee.
Tuesday, February 4, 2014
Monday, February 3, 2014
Universal Preschool Is a Grade-A Debacle
Mayor Bill de Blasio is picking up Michael Bloomberg's mantle of paternalistic governing. Last week, de Blasio went to Albany to try to convince Governor Cuomo to increase personal income taxes on the rich to fund a universal pre-K education program for the city of New York (see NYC Office of the Mayor's report here). With all the policy problems in New York, why is de Blasio advocating for universal preschool?
According to the report, "high-quality pre-K is among the most effective ways to reduce economic inequality (p. 2)." To put this in economic parlance, education is a positive consumption externality. Looking at the graph below, there is a certain amount of a good, e.g., education, that is consumed in the private, unregulated market. When it comes to positive externalities, there is an underconsumption in comparison to the socially optimal level of output. To compensate for this insufficient amount of education, the traditional response has been the government intervening in attempts to increase the amount of education, thereby increasing the output to the marginal social benefit.
We also have to remember that not all preschools produce the same results. According to a University of Virginia study (Pianta et al, 2009, p. 50), the gains in the average preschool are nowhere near the gains in high-quality preschools in which the achievement gap is not closed nowhere near as proponents would like to think. I still have some skepticism about whether preschool doesn't come with deleterious effects. According to a Stanford study (Loeb et al, 2006), those who spend many hours in preschool have stunted social and emotional development. Similar, negative results can be shown from a Quebecois study (Baker et al, 2005). Regimenting and regulating a child's time like this has the ability to erode a child's cognitive skills, so at the very least, we should recognize that preschool comes with marginal diminishing utility. Also, I can argue that such factors as the frequency with which one talks to their parents, the diet parents feed their child, and overall involvement in a child's life do more for a child's social development than preschool education. Too much institutionalized time severs time from one's parents, which can also cause developmental issues.
For the sake of this argument, let's assume that preschool can be beneficial, provided that it is done so in moderation. Should we allow the government to be actively involved in this endeavor? Aside from running a national demonstration project that utilizes randomized design, we can look at precedent to determine efficacy. The beauty here is that I don't even have to say "Hey, look at the government's dismal handling of K-12 education" because the federal government has been involved in early education programming since 1965. Head Start was started by the Johnson administration, and ever since, it has been a complete failure. Even by the admission of the United States Department Health and Human Services, the bureaucratic agency that handles Head Start, "the benefits of access to Head Start at age 4 are largely absent by the 1st grade for the program population as a whole (p. xxxviiii)." What good is a preschool program like Head Start if it has no lasting effects? How does that help the poor? Maybe a "cookie cutter" approach doesn't work. Perhaps providing the states with block grants and putting universal preschool on the state level would work better……or not.
The issue of fade-out is not solely confined to the Head Start program. Tennessee also used random experimental design in its universal preschool program, but also shows no lasting, long-term effects (Assessing the Impact of Tennessee's Pre-Kindergarten Program, p. 34), and actually show that the effects have largely diminished by the second grade (p. 6). This is important because the Tennessee program is a "gold standard" in the sense that Tennessee met nine out of the ten benchmarks for NIEER's education standards.
Additionally, we should take a look at the Georgia and Oklahoma cases because those program have been around the longest in America. Those who point to Oklahoma as a success do so on the basis of regression discontinuity design (RDD), which compares the scores of those who just completed the program with age-adjusted scores of students who just began the program. RDD does nothing to answer the question of whether government intervention adds value to preschool. Also, RDD is a flawed methodology because it is not a truly randomized experiment because the parents of the so-called control group are already cognizant of the fact that their children will soon enter government schooling. Even so, looking at test scores, Oklahoma has not made gains in reading scores on the National Assessment of Educational Progress. In the Oklahoma case, there is no persistence of the early gains made (Hill et al, 2012), and the same can be said about Georgia (Henry et al, 2005), especially since the costs of Georgia's program outweigh the benefits (Fitzpatrick, 2008, p. 31). With Georgia and Oklahoma, any success in academic achievement is marginal and is limited to certain sub-groups. Those over at Oxford (Merrell and Tymms, 2011) found that Sure Start, England's equivalent of Head Start, showed that preschool education had no lasting effects on children.
I think we should ask ourselves with this fade out effect takes place at around the third grade level. Perhaps it's the Matthew effect. Perhaps it is the disarray of the K-12 education system. Finland starts formal education at age seven, and it is touted as a great success in education, so perhaps instead of blaming the problem on there not being enough preschool education, we should reflect on the state of the the K-12 education system and how mismanaged it has become.
According to the report, "high-quality pre-K is among the most effective ways to reduce economic inequality (p. 2)." To put this in economic parlance, education is a positive consumption externality. Looking at the graph below, there is a certain amount of a good, e.g., education, that is consumed in the private, unregulated market. When it comes to positive externalities, there is an underconsumption in comparison to the socially optimal level of output. To compensate for this insufficient amount of education, the traditional response has been the government intervening in attempts to increase the amount of education, thereby increasing the output to the marginal social benefit.
After all, who doesn't like a more educated, more productive populace that not only decreases the need for long-term social spending, but also contributes to the continuation and progress of a democratic society? For being a developed nation, I'm often surprised at the quality of education in this country, and thusly would like to see more educated citizens. Perhaps there is a valid point in saying that universal preschool is an investment in the future of New York City (p. 3). Perhaps the investment being made is a bad one. Two questions I would like to answer here in order to get a better idea of just how good of investment universal preschool are the following:
- Is preschool the investment in human capital that everyone thinks it is?
- Even if preschool is a proper investment in human capital, should the government run a universal preschool program?
We also have to remember that not all preschools produce the same results. According to a University of Virginia study (Pianta et al, 2009, p. 50), the gains in the average preschool are nowhere near the gains in high-quality preschools in which the achievement gap is not closed nowhere near as proponents would like to think. I still have some skepticism about whether preschool doesn't come with deleterious effects. According to a Stanford study (Loeb et al, 2006), those who spend many hours in preschool have stunted social and emotional development. Similar, negative results can be shown from a Quebecois study (Baker et al, 2005). Regimenting and regulating a child's time like this has the ability to erode a child's cognitive skills, so at the very least, we should recognize that preschool comes with marginal diminishing utility. Also, I can argue that such factors as the frequency with which one talks to their parents, the diet parents feed their child, and overall involvement in a child's life do more for a child's social development than preschool education. Too much institutionalized time severs time from one's parents, which can also cause developmental issues.
For the sake of this argument, let's assume that preschool can be beneficial, provided that it is done so in moderation. Should we allow the government to be actively involved in this endeavor? Aside from running a national demonstration project that utilizes randomized design, we can look at precedent to determine efficacy. The beauty here is that I don't even have to say "Hey, look at the government's dismal handling of K-12 education" because the federal government has been involved in early education programming since 1965. Head Start was started by the Johnson administration, and ever since, it has been a complete failure. Even by the admission of the United States Department Health and Human Services, the bureaucratic agency that handles Head Start, "the benefits of access to Head Start at age 4 are largely absent by the 1st grade for the program population as a whole (p. xxxviiii)." What good is a preschool program like Head Start if it has no lasting effects? How does that help the poor? Maybe a "cookie cutter" approach doesn't work. Perhaps providing the states with block grants and putting universal preschool on the state level would work better……or not.
The issue of fade-out is not solely confined to the Head Start program. Tennessee also used random experimental design in its universal preschool program, but also shows no lasting, long-term effects (Assessing the Impact of Tennessee's Pre-Kindergarten Program, p. 34), and actually show that the effects have largely diminished by the second grade (p. 6). This is important because the Tennessee program is a "gold standard" in the sense that Tennessee met nine out of the ten benchmarks for NIEER's education standards.
Additionally, we should take a look at the Georgia and Oklahoma cases because those program have been around the longest in America. Those who point to Oklahoma as a success do so on the basis of regression discontinuity design (RDD), which compares the scores of those who just completed the program with age-adjusted scores of students who just began the program. RDD does nothing to answer the question of whether government intervention adds value to preschool. Also, RDD is a flawed methodology because it is not a truly randomized experiment because the parents of the so-called control group are already cognizant of the fact that their children will soon enter government schooling. Even so, looking at test scores, Oklahoma has not made gains in reading scores on the National Assessment of Educational Progress. In the Oklahoma case, there is no persistence of the early gains made (Hill et al, 2012), and the same can be said about Georgia (Henry et al, 2005), especially since the costs of Georgia's program outweigh the benefits (Fitzpatrick, 2008, p. 31). With Georgia and Oklahoma, any success in academic achievement is marginal and is limited to certain sub-groups. Those over at Oxford (Merrell and Tymms, 2011) found that Sure Start, England's equivalent of Head Start, showed that preschool education had no lasting effects on children.
I think we should ask ourselves with this fade out effect takes place at around the third grade level. Perhaps it's the Matthew effect. Perhaps it is the disarray of the K-12 education system. Finland starts formal education at age seven, and it is touted as a great success in education, so perhaps instead of blaming the problem on there not being enough preschool education, we should reflect on the state of the the K-12 education system and how mismanaged it has become.
Here are some policy alternatives: we could create school vouchers for preschoolers to better target economically disadvantaged children, reform and revamp K-12 education so perhaps the benefits of preschool education have more staying power, eliminate ineffective or duplicative programs so we can stop the crowding out effect, an early education tax credit to incentivize quality education, or figure out ways to increase parental involvement in their children's lives because education begins at home. Whatever the policy alternative, before investing into a program that will cost $98.4B over the next decade if done on the federal level (don't forget that de Blasio hasn't put a price tag on his pet project of statewide universal preschool), maybe, just maybe, we need to ask ourselves whether the government should be expanding a program with what on a good day can be classified as dubious success.
Friday, January 31, 2014
Harvard Study Suggests That Single-Parent Households, and Not Income Inequality, Cause Income Immobility
Income inequality has become a cause célèbre for many on the Left these days. Oxfam has even jumped on the income inequality bandwagon and declared war on income inequality. In the United States, we're coming up on the midterm election season, which seems like an opportune time to pursue the issue of income inequality. The income inequality narrative goes like this: There is a huge relationship between income inequality and income mobility. Because of that, we should do something about income inequality to prevent further income immobility.
Forgetting that "correlation doesn't equal causation" for a moment, a friend of mine was kind enough to send me a couple of recently published Harvard studies on the matter. These studies are an improvement in discerning the issue of income inequality because instead of using small surveys, these studies use larger sets of data consisting of millions of tax records. The first one was a longitudinal study entitled Is the United States still a land of opportunity? Recent trends in intergenerational mobility (Chetty et al, 2014a). I find its conclusion to be remarkable, which was that "rank-based measures of social mobility have remained remarkably stable over the second half of the twentieth century in the United States (p. 10)." Over the past forty years, income inequality increased while income mobility stayed the same. As a matter of fact, it may even be improving (p. 7). In spite of what the Great Gatsby Curve has to say, income inequality does not cause income immobility, which makes sense because much like income immobility, income inequality is an outcome of given policies and [market and societal] forces, not the cause of societal woes. Not only that, the results of this study show that it is not any more difficult to climb the income ladder than it has been in the past four decades. The days in which we use "income inequality" and "income immobility" interchangeably with a serious face are over.
But wait, it gets better. If income inequality doesn't cause income immobility, then we have to ask ourselves what does. This where the Harvard University longitudinal study of Where is the Land of Opportunity? The geography of intergenerational mobility in the United States (Chetty et al, 2014b) comes into play. This study looked at five main factors associated with income mobility: residential segregation, income inequality, primary schools, social capital, and family stability (p. 4). Given the heavy rhetoric about income inequality, I was expecting income inequality to be the culprit of income immobility. However, in spite of some geographical variants (Figure VI), income inequality is a comparatively weak factor. Although the authors were careful to state (p. 5) that these factors should not be interpreted as causal detriments (no surprise there….that can be said about any study. Can we say "endogeneity problem?") and there is possibly a correlation between the various factors (p. 45), they nevertheless concluded (Table IX) that "the strongest and most robust predictor is the fraction of children with single parents (p. 46)" and that "children of married parents also have higher rates of upward mobility if they live in communities with fewer single parents (p. 4)."
At the very least, these studies quash the Left's assertion of "income inequality leads to income immobility." At the most, it affirms that conservatives were correct in saying that we should legitimately be worried about family structure and making sure that couples get married before having children. There is validity to advocating for married couples, particularly if children are involved. If one is to raise children, two parents are more able to bring in income than one parent. Plus, a two-parent household is better equipped to devote time and effort to childrearing. This is not to say that there aren't single parents who can raise children better than a married couple. There are obviously children who were successfully raised by single-parent households. It is to say, however, that a child will statistically fare better with a home that has two parents than a home with a single parent. Even non-conservative policy analysts believe in the importance of a two-parent home.
Whether family structure is the primary or sole factor in income immobility, it is safe to say that a fixation on income inequality is not going to solve our problems. We should find policies that make life better for as many people as possible, so how about a "war on economic immobility" instead? At least that way, we can better focus on causes of income immobility and root problems related to poverty.
Forgetting that "correlation doesn't equal causation" for a moment, a friend of mine was kind enough to send me a couple of recently published Harvard studies on the matter. These studies are an improvement in discerning the issue of income inequality because instead of using small surveys, these studies use larger sets of data consisting of millions of tax records. The first one was a longitudinal study entitled Is the United States still a land of opportunity? Recent trends in intergenerational mobility (Chetty et al, 2014a). I find its conclusion to be remarkable, which was that "rank-based measures of social mobility have remained remarkably stable over the second half of the twentieth century in the United States (p. 10)." Over the past forty years, income inequality increased while income mobility stayed the same. As a matter of fact, it may even be improving (p. 7). In spite of what the Great Gatsby Curve has to say, income inequality does not cause income immobility, which makes sense because much like income immobility, income inequality is an outcome of given policies and [market and societal] forces, not the cause of societal woes. Not only that, the results of this study show that it is not any more difficult to climb the income ladder than it has been in the past four decades. The days in which we use "income inequality" and "income immobility" interchangeably with a serious face are over.
But wait, it gets better. If income inequality doesn't cause income immobility, then we have to ask ourselves what does. This where the Harvard University longitudinal study of Where is the Land of Opportunity? The geography of intergenerational mobility in the United States (Chetty et al, 2014b) comes into play. This study looked at five main factors associated with income mobility: residential segregation, income inequality, primary schools, social capital, and family stability (p. 4). Given the heavy rhetoric about income inequality, I was expecting income inequality to be the culprit of income immobility. However, in spite of some geographical variants (Figure VI), income inequality is a comparatively weak factor. Although the authors were careful to state (p. 5) that these factors should not be interpreted as causal detriments (no surprise there….that can be said about any study. Can we say "endogeneity problem?") and there is possibly a correlation between the various factors (p. 45), they nevertheless concluded (Table IX) that "the strongest and most robust predictor is the fraction of children with single parents (p. 46)" and that "children of married parents also have higher rates of upward mobility if they live in communities with fewer single parents (p. 4)."
At the very least, these studies quash the Left's assertion of "income inequality leads to income immobility." At the most, it affirms that conservatives were correct in saying that we should legitimately be worried about family structure and making sure that couples get married before having children. There is validity to advocating for married couples, particularly if children are involved. If one is to raise children, two parents are more able to bring in income than one parent. Plus, a two-parent household is better equipped to devote time and effort to childrearing. This is not to say that there aren't single parents who can raise children better than a married couple. There are obviously children who were successfully raised by single-parent households. It is to say, however, that a child will statistically fare better with a home that has two parents than a home with a single parent. Even non-conservative policy analysts believe in the importance of a two-parent home.
Whether family structure is the primary or sole factor in income immobility, it is safe to say that a fixation on income inequality is not going to solve our problems. We should find policies that make life better for as many people as possible, so how about a "war on economic immobility" instead? At least that way, we can better focus on causes of income immobility and root problems related to poverty.
Thursday, January 30, 2014
Parsha Terumah: Why External Piety and Holiness Aren't Enough
The Tabernacle (משכן) was the portable apparatus in which G-d dwelled from the time when the Jewish people began the Exodus to the point when they settled the land of Israel. When building המשכן, G-d wanted the Israelites to give towards the construction of המשכן as their hearts moved them (Exodus 25:2), that is to say to give voluntarily. המשכן was not simply a place where "G-d could dwell therein." It was also meant to be a physical representation of human spirituality in which one expresses genuine and authentic love for G-d and the life He has provided us. That being said, I am intrigued by the construction of the ark itself:
וצפית אתו זהב טהור מבית ומחוץ
Overlay it [the ark] with pure gold, overlay it inside and out. -Exodus 25:11
If no one was going to see the inside of the ark, why have the inside filled with gold as well? Why not just have the outside be filled with gold and fill the inside with a different metal or nothing at all? And while we're at it, why isn't the entire ark made of gold? Why is it made of acacia wood (Exodus 25:10)?
According to the Talmud (Yoma 72b), much like with the gold coverings on the outside and the inside of the ark, the Torah scholar must be genuine to the point where his interior matches his exterior. This consistency goes beyond the Torah scholar. Rabbi Gamilel also points out (Berachot 28a) that one could not even enter a study hall until one was the same person on the outside as he was on the inside. For R. Joseph Hertz, this gold overlaying meant that one needed to be pure in mind and heart as he was in outward manner.
What this commentary is meant to say is that "going through the motions" only does so much, especially if you do not allow for it to transform your mind or heart. The reason for that is that the externalities and the rituals become the ends of spiritual practice, not the means in which you transform yourself. As a result, the primary message is lost and individuals succumb to a downward spiral of hypocritical, "holier than thou" behavior in which they justify their depravity or immorality by invoking G-d's name. We all know those people who act nice to your face but are all the while stabbing you in the back, and this is exactly the kind of behavior we are to avoid.
This is not to say that we don't need to have a sense of obligation when we're having a bad day or "we truly do not feel like it." However, we are supposed to strive for something more than halachic minima. We are to strive for spiritual refinement and do so in a genuine manner that reflects our love of G-d. Take a look at Maimonides' Eight Levels of Tzedakah. Giving unwillingly, regardless of the amount is at the bottom of the hierarchy. Yes, it counts as doing a mitzvah, but we aspire for higher levels of holiness and character refinement that is illustrated by one's spiritual authenticity.
Gold is shiny, malleable, valuable, and is considered to be a pure metal. Humans do not have that level of purity, and neither does המשכן, which is why the entire ark is not made of gold. According to R. Yaacov Haber, the acacia wood is to represent our humanness. Our core is not golden, i.e., we're not angels. Our core is something much more natural and organic. עץ חיים is the Tree of Life. Trees are able to grow, and so are humans. We cannot obtain that sincerity, purity, and humility overnight. There are points in life where we might have it one day and lose it the next. To err is to be human. At the end of the day, G-d wants us to be authentic in our spirituality and go for the gold.
Tuesday, January 28, 2014
Is Obamacare Doomed or Is It Merely Contending With Some Major Hurdles?
It's no secret that I dislike Obamacare. There already have been enough promises broken with regards to Obamacare, not to mention that I just think it's poor policy. The implementation of Obamacare has been severely mishandled, and this goes beyond the website glitches. Whether I think the law should be repealed for a superior one is not the question I would like to ask today. Now that the law has been implemented, I have to wonder about its staying power. I didn't think that the Senate and House would be able to merge their versions of the bill into a single bill. With the election of Scott Brown, I didn't think that the bill would get past the Senate. I didn't think that Justice Roberts would be the one to screw over the American health care system by justifying his vote with the Taxation Clause of the Constitution. Yet all of these events occurred and Obamacare remains as the law of the land. As such, I hesitate to make a clad-iron predictions as to what will happen. Nevertheless, I would like to take a look at some indicators and make an educated guess as to whether Obamacare's main components will be "indefinitely delayed" or if Obamacare will simply be a clunky framework for providing health insurance in this country.
Last week, Obamacare officially hit the "milestone" of three million enrollees. As I have already pointed out, five million Americans have already lost their individual health care plans through Obamacare with more on the way. There is also the concern that not enough young adults enrolling into the Obamacare-induced health insurance markets. For Obamacare to work, there needs to be enough young, healthy individuals to subsidize those who are more elderly and more ailing. If more people are not enrolled, insurance companies will suffer losses and be forced to increase premiums, which would very likely result in what is known as an "adverse selection death spiral." Sarah Kliff over at the Washington Post holds more optimism than I do that young adults will enroll before the March 31st deadline of open enrollment. Why I am less optimistic? Projections of enrollees were higher than what has actually taken place. The Obama administration is currently below the projected seven million that were to sign up during open enrollment. This makes sense because if the government is going to provide insurance, it needs to legally define what is and is not insurance. Looking at §1501 of the ACA, it should be no surprise that so many plans have already been cancelled. I am also curious to see the effects that Obamacare will have on employer-based insurance, particularly in terms of whether enough employers will drop employees from their current plans to the point where it will cause a net decrease of insured individuals. However, the employer mandate had been delayed until 2015, which is convenient for those Democrats running for reelection. This does not even factor the ability to keep one's doctor due to the limited options of health care providers that qualify under Obamacare, which the Cato Institute does a good job of outlining in its recent policy analysis (Obamacare: What We Know Now, p. 14-15).
I also have to wonder the effect that Obamacare will have on insurance prices. The Manhattan Institute provides an interactive map of how rates have increased for individual insurance plans. Even so, looking at averages is statistically problematic. I would rather do things like find out the median and distribution of the percent changes, not to mention that much like with income inequality and income mobility, I would rather track individuals than groups. Although there are bound to be winners and losers in health insurance, much like there are in any other policy, if Obamacare is focused on providing more access to more comprehensive health care, I would intuitively expect prices to increase. Not only that, there is the matter of higher deductibles, which is going to make health care less affordable because what good would lower premiums do anybody if the deductibles are higher? In order to compensate, the government will enact price controls, which makes me rightfully skeptical. If the government imposes price controls, that means both the patient and doctor would lose their say in terms of what the optimal treatment would be because the government is trying to force the lowest-cost treatment.
There is also the matter of the impacts on the labor market. Aside from what Obamacare will do to current employer-based insurance plans, there is also the provision that mandates that employers with over fifty full-time employees to cover the insurance for each employee or pay a penalty. Will this either result in less hiring or more part-time workers? According to Mulligan and Gallen (2013) and the Chamber of Commerce, it will. Others are more skeptical of this claim, but even so, let's not forget that much like with the minimum wage debate, there are costs to labor and there will be a certain point in which hiring another worker will not be worthwhile for the employer. I also would be curious to see what impacts the other ACA taxes have on job creation.
The more information that is provided on Obamacare, the more reason I find to dislike it. It is evident that Obamacare is a law that will rob the consumer of health care options while causing prices to spiral, whether that it is in terms of the costs to the federal government, the individual, or the employer. Although there are some outcomes that are evident, there are many questions that remain to be unanswered. Will Obamacare receive have an adequate number of enrollees? Will Obamacare enroll enough young individuals to avoid an adverse selection death spiral? Will the "temporary fixes" used to delay the unpopular parts of Obamacare simply become permanent? Will Obamacare cause a doctor shortage because "more comprehensive care means longer waiting lines," doctors will be fed up with practicing because of the new law, or some other reasoning? Will Obamacare constrain consumer choice so badly that keeping your plan or doctor will only be possible if you can afford to do so? Will the Supreme Court hear a case that will partially or entirely overturn Obamacare? A lot remains unanswered to the point where I have to give the response of "time will tell." At this juncture, I would like to wait about another year to see the extent of the damage that Obamacare has caused to the American health care system.
Last week, Obamacare officially hit the "milestone" of three million enrollees. As I have already pointed out, five million Americans have already lost their individual health care plans through Obamacare with more on the way. There is also the concern that not enough young adults enrolling into the Obamacare-induced health insurance markets. For Obamacare to work, there needs to be enough young, healthy individuals to subsidize those who are more elderly and more ailing. If more people are not enrolled, insurance companies will suffer losses and be forced to increase premiums, which would very likely result in what is known as an "adverse selection death spiral." Sarah Kliff over at the Washington Post holds more optimism than I do that young adults will enroll before the March 31st deadline of open enrollment. Why I am less optimistic? Projections of enrollees were higher than what has actually taken place. The Obama administration is currently below the projected seven million that were to sign up during open enrollment. This makes sense because if the government is going to provide insurance, it needs to legally define what is and is not insurance. Looking at §1501 of the ACA, it should be no surprise that so many plans have already been cancelled. I am also curious to see the effects that Obamacare will have on employer-based insurance, particularly in terms of whether enough employers will drop employees from their current plans to the point where it will cause a net decrease of insured individuals. However, the employer mandate had been delayed until 2015, which is convenient for those Democrats running for reelection. This does not even factor the ability to keep one's doctor due to the limited options of health care providers that qualify under Obamacare, which the Cato Institute does a good job of outlining in its recent policy analysis (Obamacare: What We Know Now, p. 14-15).
I also have to wonder the effect that Obamacare will have on insurance prices. The Manhattan Institute provides an interactive map of how rates have increased for individual insurance plans. Even so, looking at averages is statistically problematic. I would rather do things like find out the median and distribution of the percent changes, not to mention that much like with income inequality and income mobility, I would rather track individuals than groups. Although there are bound to be winners and losers in health insurance, much like there are in any other policy, if Obamacare is focused on providing more access to more comprehensive health care, I would intuitively expect prices to increase. Not only that, there is the matter of higher deductibles, which is going to make health care less affordable because what good would lower premiums do anybody if the deductibles are higher? In order to compensate, the government will enact price controls, which makes me rightfully skeptical. If the government imposes price controls, that means both the patient and doctor would lose their say in terms of what the optimal treatment would be because the government is trying to force the lowest-cost treatment.
There is also the matter of the impacts on the labor market. Aside from what Obamacare will do to current employer-based insurance plans, there is also the provision that mandates that employers with over fifty full-time employees to cover the insurance for each employee or pay a penalty. Will this either result in less hiring or more part-time workers? According to Mulligan and Gallen (2013) and the Chamber of Commerce, it will. Others are more skeptical of this claim, but even so, let's not forget that much like with the minimum wage debate, there are costs to labor and there will be a certain point in which hiring another worker will not be worthwhile for the employer. I also would be curious to see what impacts the other ACA taxes have on job creation.
The more information that is provided on Obamacare, the more reason I find to dislike it. It is evident that Obamacare is a law that will rob the consumer of health care options while causing prices to spiral, whether that it is in terms of the costs to the federal government, the individual, or the employer. Although there are some outcomes that are evident, there are many questions that remain to be unanswered. Will Obamacare receive have an adequate number of enrollees? Will Obamacare enroll enough young individuals to avoid an adverse selection death spiral? Will the "temporary fixes" used to delay the unpopular parts of Obamacare simply become permanent? Will Obamacare cause a doctor shortage because "more comprehensive care means longer waiting lines," doctors will be fed up with practicing because of the new law, or some other reasoning? Will Obamacare constrain consumer choice so badly that keeping your plan or doctor will only be possible if you can afford to do so? Will the Supreme Court hear a case that will partially or entirely overturn Obamacare? A lot remains unanswered to the point where I have to give the response of "time will tell." At this juncture, I would like to wait about another year to see the extent of the damage that Obamacare has caused to the American health care system.
Thursday, January 23, 2014
Parsha Mishpatim: How Can the Torah Permit Slavery? But Wait, Does It Really?
The Jewish people have been freed from slavery. They received the Ten Commandments at Mount Sinai. Shortly afterwards, at the beginning of this week's Torah portion, G-d begins by laying out a series of enactments. The first set of enactments have to do with owning slaves (Exodus 21:2-11). Hold on a second! Didn't G-d just free us from the awful institution of slavery? All that showboating and G-d still allows slavery to take place? What gives?
If we take a closer look at the passage, the institution put into place is much closer to indentured servitude than it is slavery. The period of servitude is only six years, and during the seventh year, he shall go free (Exodus 21:2). Even when dealing with additional parties, such as a wife and child (ibid, 21:3-4, 11), there are still ways for all to be emancipated.
But let's forget the semantics between "slavery" and "indentured servitude" for a second. Why allow for any period of time in which an individual works for another without just compensation? It seems so counterintuitive for G-d to punish the Egyptians for inflicting slavery on the Jewish people, only to allow for fellow Jews to become slaves in some form or the other.
Allow for me to provide an interpretation that will not completely offend our modern-day notion of morality. It is human nature for people to want to maintain within their comfort zone. Change is scary. Even when people do decide to change, the vast majority of human beings need to do so in a gradual manner. Maimonides pointed this out with regards to leading the Jewish people out of Egypt (Guide for the Perplexed, III, xxiv). According to Maimonides, G-d led the Jewish people away from the direct path (Exodus 13:17) because He did not want the Jewish people to become discouraged and want to return to the comfort zone of slavery. G-d helped in such a way without taking away that which makes us human.
Humans need time to adapt to change, and G-d was well aware of that when enacting these laws. If you need another example of G-d's understanding in this matter, look at the Jewish mourning process (שבעה). The typical human cannot cope with the loss of a loved one instantaneously. G-d gives us time to mourn. Even so, G-d puts a limit on the time it takes to adapt, which is why the maximum time for mourning is eleven months (which is the longest mourning time [reserved for one's parents]).
Much like with שבעה, G-d gave the Jewish people a certain period of time to adapt to being freemen: six years. If, after the seventh year, the slave decides to remain a slave, the master takes the bondman to the doorpost and pierces his ear with an awl (Exodus 21:6). Why? Because at that point, the bondman has declared himself to be property. The reason why the series of laws begins with those regarding indentured servitude is because freedom is a prerequisite for following laws. Without free will, laws, morals, and ethics are pointless. By removing ourselves from our own modern-day slaveries, we can truly appreciate what it means to be human.
If we take a closer look at the passage, the institution put into place is much closer to indentured servitude than it is slavery. The period of servitude is only six years, and during the seventh year, he shall go free (Exodus 21:2). Even when dealing with additional parties, such as a wife and child (ibid, 21:3-4, 11), there are still ways for all to be emancipated.
But let's forget the semantics between "slavery" and "indentured servitude" for a second. Why allow for any period of time in which an individual works for another without just compensation? It seems so counterintuitive for G-d to punish the Egyptians for inflicting slavery on the Jewish people, only to allow for fellow Jews to become slaves in some form or the other.
Allow for me to provide an interpretation that will not completely offend our modern-day notion of morality. It is human nature for people to want to maintain within their comfort zone. Change is scary. Even when people do decide to change, the vast majority of human beings need to do so in a gradual manner. Maimonides pointed this out with regards to leading the Jewish people out of Egypt (Guide for the Perplexed, III, xxiv). According to Maimonides, G-d led the Jewish people away from the direct path (Exodus 13:17) because He did not want the Jewish people to become discouraged and want to return to the comfort zone of slavery. G-d helped in such a way without taking away that which makes us human.
Humans need time to adapt to change, and G-d was well aware of that when enacting these laws. If you need another example of G-d's understanding in this matter, look at the Jewish mourning process (שבעה). The typical human cannot cope with the loss of a loved one instantaneously. G-d gives us time to mourn. Even so, G-d puts a limit on the time it takes to adapt, which is why the maximum time for mourning is eleven months (which is the longest mourning time [reserved for one's parents]).
Much like with שבעה, G-d gave the Jewish people a certain period of time to adapt to being freemen: six years. If, after the seventh year, the slave decides to remain a slave, the master takes the bondman to the doorpost and pierces his ear with an awl (Exodus 21:6). Why? Because at that point, the bondman has declared himself to be property. The reason why the series of laws begins with those regarding indentured servitude is because freedom is a prerequisite for following laws. Without free will, laws, morals, and ethics are pointless. By removing ourselves from our own modern-day slaveries, we can truly appreciate what it means to be human.
Wednesday, January 22, 2014
Oxfam's Poor Study on Global Economic Inequality
A recent study published by Oxfam, an international organization dedicated to fighting global poverty, has gone viral. The main finding that has grabbed people's attention is that "the bottom half of the world's population owns the same amount of wealth as the richest 85 people in the world (p. 2)." When hearing that statistic, I'm sure many of us are thinking, "How unfair! How unjust! How can we live in a world where the wealthy thrive, and the poor are suffering?" Oxfam's issue is not with economic inequality per se, but rather when it's so concentrated that the rich dictate policy, such as financial deregulation, skewed tax systems and rules facilitating evasion, and austerity economics (p. 3). To counter this 'disturbing trend,' Oxfam's recommendation is to create "the right mix of government policies that focus on poor people by increasing social public expenditures (p. 24)," or as I like to call it, creating redistributionist welfare states. Oxfam's facile, anti-capitalist narrative notwithstanding, I had quite a few issues with how they portrayed global economic inequality in the past thirty years.
First is the problem with economic inequality itself. When looking at the rising inequality in five middle-income countries (Figure 2), the poor have a smaller percentage of wealth than they did about thirty years ago. Looking at the disparity between the rich and the poor in this manner makes the flaw of looking at wealth in relative terms, not absolute terms. Everyone would like a bigger piece of the pie. That's part of human nature. Now, if the pie stayed the same size over this time period, I would find this trend to be disturbing. However, when having this discussion, what people tend to forget is that the pie has grown substantially over the past thirty years. Just take a look at real GDP growth over time. Like most people, I would rather have more pie [in absolute terms], even if that means having a smaller percentage of the overall pie.
This is why I wish Oxfam would have finished the sentence of "the rich get richer." While the rich get richer, what the people over at Oxfam neglect is that the poor also get richer. Looking at the United States, this is certainly the case, even when looking at the growth rates in real dollars. And that does not even consider the increased purchasing power that comes about when looking at the improved quality of what can be consumed compared to thirty years ago! On a global level, let's look at the fact that extreme poverty, which is measured as those earning less than one dollar per diem, has dropped eighty percent over the past thirty years (Pinkovisky and Sala-i-Martin, 2009), but you'll never here this statistic as part of the narrative. And let's not forget that income inequality between nations has decreased substantially in the past forty years (Liberati, 2012).
Also, I wish Oxfam had some historical perspective when looking at the issue. For one, in pre-capitalist times, if you were not one of the very few who was lucky enough to have been born into wealth, you were destined to an impoverished life in squalor. If you want to talk about concentrated wealth, pick up a history book! Capitalism has been the single greatest impetus for helping people get out of poverty. Second, I don't think Oxfam really bothered to ask why the trend occurred in the first place. By reading Oxfam's report, one would be under the disillusion that the wealthy having a disproportionate pull in politics, not to mention the general corruption in politics, were unique phenomena that have only existed in the past thirty years. Simply not so. The biggest drivers of the enlarged disparities over the past thirty years are globalization, technology, and the expansion of various sectors that amass and utilize large amounts of capital and wealth, most notably the financial and technology sectors.
A bit of nitpicking before I conclude. Oxfam blames Europe's woes on austerity (p. 13), which I found perplexing because with the possible exception of Greece, Europe has not partook in austerity. Furthermore, why is Oxfam not looking at individuals while measuring economic inequality? By tracking individuals, instead of quintiles or other groupings, you get a better sense of economic mobility. Moreover, if you're going to kvetch about tax avoidance (p. 16), maybe you shouldn't make tax regulation so burdensome where the rich feel incentivized to stash their money in the Cayman Islands or a Swiss bank account. Oxfam also uses Latin America as its success story when it comes to advocating for increased social spending (p. 24). I don't think Oxfam has enough of an understanding of Latin American political history because simplifying it to "the government needs to collect more tax revenues for social spending" is specious. Taking Chile out of the equation because it actually embraced economic freedom, I would, at best, consider Latin America's economic growth to be modest. Argentina is a good example of how interventionist policies impede economic growth.
Although Oxfam's report is slightly more nuanced, its conclusion (p. 24-25) is that with a wave of the magic redistributionist wand, poverty will go away. Even if we were to concede that economic inequality is an issue, which I necessarily don't (at least in a prima facie sense), I fail to see how wealth redistribution would remedy the situation because it does not address wealth creation. Even though the solutions will have to be tailored for each country, the general solution is twofold. First, make sure that countries have strong enough institutions because without institutions, how would property rights, civil rights, and other necessary freedoms be enforced? This is especially important for developing countries who have a weak sense of institutionalization and are thus more prone to corruption, misallocation of resources, and human rights abuses. Second, while getting those institutions solidified, and even afterwards, the general direction has to be towards more freedom, not less. If Oxfam were to heed this advice about the importance of freedom, perhaps I would take their report more seriously. But as it stands, Oxfam is nothing more than a socialist organization that does not have any regard or appreciation for economic freedom.
First is the problem with economic inequality itself. When looking at the rising inequality in five middle-income countries (Figure 2), the poor have a smaller percentage of wealth than they did about thirty years ago. Looking at the disparity between the rich and the poor in this manner makes the flaw of looking at wealth in relative terms, not absolute terms. Everyone would like a bigger piece of the pie. That's part of human nature. Now, if the pie stayed the same size over this time period, I would find this trend to be disturbing. However, when having this discussion, what people tend to forget is that the pie has grown substantially over the past thirty years. Just take a look at real GDP growth over time. Like most people, I would rather have more pie [in absolute terms], even if that means having a smaller percentage of the overall pie.
This is why I wish Oxfam would have finished the sentence of "the rich get richer." While the rich get richer, what the people over at Oxfam neglect is that the poor also get richer. Looking at the United States, this is certainly the case, even when looking at the growth rates in real dollars. And that does not even consider the increased purchasing power that comes about when looking at the improved quality of what can be consumed compared to thirty years ago! On a global level, let's look at the fact that extreme poverty, which is measured as those earning less than one dollar per diem, has dropped eighty percent over the past thirty years (Pinkovisky and Sala-i-Martin, 2009), but you'll never here this statistic as part of the narrative. And let's not forget that income inequality between nations has decreased substantially in the past forty years (Liberati, 2012).
Also, I wish Oxfam had some historical perspective when looking at the issue. For one, in pre-capitalist times, if you were not one of the very few who was lucky enough to have been born into wealth, you were destined to an impoverished life in squalor. If you want to talk about concentrated wealth, pick up a history book! Capitalism has been the single greatest impetus for helping people get out of poverty. Second, I don't think Oxfam really bothered to ask why the trend occurred in the first place. By reading Oxfam's report, one would be under the disillusion that the wealthy having a disproportionate pull in politics, not to mention the general corruption in politics, were unique phenomena that have only existed in the past thirty years. Simply not so. The biggest drivers of the enlarged disparities over the past thirty years are globalization, technology, and the expansion of various sectors that amass and utilize large amounts of capital and wealth, most notably the financial and technology sectors.
A bit of nitpicking before I conclude. Oxfam blames Europe's woes on austerity (p. 13), which I found perplexing because with the possible exception of Greece, Europe has not partook in austerity. Furthermore, why is Oxfam not looking at individuals while measuring economic inequality? By tracking individuals, instead of quintiles or other groupings, you get a better sense of economic mobility. Moreover, if you're going to kvetch about tax avoidance (p. 16), maybe you shouldn't make tax regulation so burdensome where the rich feel incentivized to stash their money in the Cayman Islands or a Swiss bank account. Oxfam also uses Latin America as its success story when it comes to advocating for increased social spending (p. 24). I don't think Oxfam has enough of an understanding of Latin American political history because simplifying it to "the government needs to collect more tax revenues for social spending" is specious. Taking Chile out of the equation because it actually embraced economic freedom, I would, at best, consider Latin America's economic growth to be modest. Argentina is a good example of how interventionist policies impede economic growth.
Although Oxfam's report is slightly more nuanced, its conclusion (p. 24-25) is that with a wave of the magic redistributionist wand, poverty will go away. Even if we were to concede that economic inequality is an issue, which I necessarily don't (at least in a prima facie sense), I fail to see how wealth redistribution would remedy the situation because it does not address wealth creation. Even though the solutions will have to be tailored for each country, the general solution is twofold. First, make sure that countries have strong enough institutions because without institutions, how would property rights, civil rights, and other necessary freedoms be enforced? This is especially important for developing countries who have a weak sense of institutionalization and are thus more prone to corruption, misallocation of resources, and human rights abuses. Second, while getting those institutions solidified, and even afterwards, the general direction has to be towards more freedom, not less. If Oxfam were to heed this advice about the importance of freedom, perhaps I would take their report more seriously. But as it stands, Oxfam is nothing more than a socialist organization that does not have any regard or appreciation for economic freedom.
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