Archives: September, 2010

Protectionist Candidates Firing Blanks So Far

The early returns are in on the Democratic tactic of making trade an issue in the 2010 campaign, and the results are not encouraging for those who want to blame trade agreements for the state of the economy.

In a column this morning for the Wall Street Journal (“Ohio’s Test of Protectionist Rage”), Gerald Seib reports from Ohio that two Republican candidates have been unscathed so far by Democratic attacks on their past support for major trade agreements.

In races for U.S. Senate and governor, Democrats have unleashed hard-hitting ads accusing their GOP opponents of supporting trade deals “that shipped tens of thousands of Ohio jobs overseas.” So far the attacks have failed to draw blood. According to Seib:

Right now, both Republican contenders in those races—Rob Portman for the Senate and John Kasich for governor—are coming under fire for their past support of free trade. The fact that both enjoy big poll leads right now suggests the attacks have had limited effect so far.

A key question in the campaign stretch run, both for Ohio and for policy making in Washington after the election, is whether that remains the case.

Blaming trade for Ohio’s economic woes is wrong on substance, as I noted in 2008 when the issue came up in the state’s Democratic presidential primary. Politically it has proven to be a non-factor. As keen as I am to promote free trade, I’ll admit that it is probably not a big vote-getter on Election Day, but neither is it a vote-loser.

Candidates who support our freedom to trade with the rest of the world should not abandon that sound position under the desperate fire of their opponents.

ObamaCare’s First Adverse-Selection Death Spiral

This is what happens when government price controls limit insurance companies’ ability to set premiums according to risk:

Note that this adverse-selection death spiral happened before ObamaCare’s price controls on child-only coverage even took effect.  (Of course, President Obama never calls them price controls.  He calls them “consumer protections.”  Some protection.)

ObamaCare supporters are in full-blown denial:

“We’re just days away from a new era when insurance companies must stop denying coverage to kids just because they are sick, and now some of the biggest changed their minds,” Ethan Rome, executive director of Health Care for America Now, an advocacy group, said in a statement. “[It] is immoral, and to blame their appalling behavior on the new law is patently dishonest.”

I’d say that brave new world is already here.

ObamaCare supporters can take comfort in this: since it might take healthy people a while to figure out that they’re better off financially if they drop their coverage and pay the individual-mandate penalty, ObamaCare’s health insurance exchanges might not collapse before their January 1, 2014, launch date.  They could last until January 2.

Has Obama Lost the Confidence of Black Citizens on Education Reform?

Polls consistently indicate that President Obama has lost proportionally more ground on job approval with white and Hispanic than with black Americans.

But data from question-experiments within the yearly Education Next/Harvard poll suggest the opposite in regard to Obama’s influence on education policy opinions. Obama’s policy influence with black respondents has dropped significantly more than it has with respondents overall; Obama’s position on vouchers and merit pay has no impact on black opinion.

In 2009, informing respondents that Obama supported merit pay for teachers increased the margin of black support for the policy by 30 points. Obama’s opposition to vouchers dampened the margin of black support for them by 26 points. And for the full sample, the shift in support was 19 and 21 respectively. But this year, mentioning that Obama supports merit pay actually decreases the black margin of support by a couple of points and his opposition to voucher increases the margin of black support by a few points.

The number of black respondents is small (just 280), but no discernable impact?

The intersection of race and politics is a complicated place; a jumble of socio-economic, ideological, and Party differences. Black Americans are predominantly Democratic, are more liberal than the general population on many issues (although more conservative on some), and on average have lower incomes. All of these characteristics have a major impact on an individual’s political opinions, and they are highly correlated with race in America. What this confluence of correlations translates into is overwhelming support for Democratic Presidents in general and President Obama in particular; 88 percent approval compared to 54 percent from Hispanics and 38 percent from whites.

These data make sense. What is surprising is that Obama’s policy preferences on education reform no longer appear to influence the policy preferences of a largely Democratic demographic that still overwhelmingly approves of his performance.

What’s going on behind these crosstabs? Does Obama’s policy endorsement no longer have an impact on Democrats in general? Why the disconnect between support for the President and his ability to move opinion on policy? Are we seeing through a race/Party social-desirability impact here?

ObamaCare’s Premium Refunds: Bad News for the Sick

USA Today and Politico Pulse report that ObamaCare has prompted BlueCross BlueShield of North Carolina to rebate $156 million to its customers in the individual market.  This may seem like good news.  It’s actually bad news, particularly for BCBS’s sickest customers.

Pre-ObamaCare, BCBS’s customers – whether healthy or sick – had coverage with an insurer that had already pre-funded their future medical needs. Competition protected them from BCBS skimping on care: if BCBS got a reputation for skimping, it would have a hard time enrolling new customers.

Post-ObamaCare, BCBS no longer needs that pile of cash, so they’re returning it to their customers. That hurts sick enrollees because BCBS is doling it out to all enrollees – not just the sick enrollees whom that money is supposed to serve. This cash-out is actually a transfer from the sick to the healthy.

Also, every BCBS customer who is sick or becomes sick in the future will have less protection against their insurer skimping on care. Competition used to discourage insurers from providing lousy access to care, but under ObamaCare competition will reward skimping. Under ObamaCare’s price controls, insurers that gain a reputation for providing quality coverage to the sick will attract sick people and go out of business.  Insurers that gain a reputation for providing lousy access to care will drive away sick people and thrive.

Russian Government Announces 20 Percent Reduction in Number of Bureaucrats

I’ve already commented on Cuba’s surprising announcement to slash the number of government workers. And I’ve complained about the federal workforce expanding in the United States. This is not what one would expect when comparing policy developments in a communist nation and a (supposedly) capitalist nation. Well, Russia wisely is following the Cuban approach on this issue (I never thought I would type those words!) and plans to get rid of 100,000 bureaucrats over the next three years.
Russia will cut its army of bureaucrats by more than 100,000 within the next three years, saving 43 billion rubles ($1.5 billion), Finance Minister Alexei Kudrin said on Monday. “We assume more than 100,000 federal state civil jobs will be cut within three years. The government has already included a schedule for cutting the number of federal civil servants in the draft budget for the next three years and coordinated it with ministries and agencies,” Kudrin told President Dmitry Medvedev, who in June ordered a 20 percent cut in the number of bureaucrats. Under the government plan, ministries and agencies will have to sack five percent of their staff in 2011 and 2012, and 10 percent in 2013. …In the last three years, the number of bureaucrats in the federal government had increased by nearly 20,000, in regional governments by 60,000 and at municipalities by 50,000, he said.

Recession Over?

As an economist I am the first to admit that sometimes the methods and practices of economics can end up creating confusion rather than understanding.  The National Bureau of Economic Research’s (NBER) recent announcement that the recession ended in June 2009 is one such example.

At the heart of this confusion is a difference in how the public sees a recession and how NBER defines it.  Most importantly, NBER views recessions as contractions.   Simply, “Is the economy growing or not?”  NBER uses that framework to then date business cycles from their peak to their trough.  For this reason, NBER will often date the beginning of a recession during a time when the economy feels strong (at its peak) and date the end of a recession when it feels weak (when it’s at the bottom).

Since this method seems at odds with how the public views the economy, why do economists use it?  Quite simply, it is a lot easier to spot, and agree on, turning points in the economy than it is to agree on when growth moves from weak to moderate to strong.

OK, enough on definitions.  Did we actually hit bottom in Summer 2009?  Looking at a variety of economic measures, I think it’s clear we hit bottom earlier–more like Spring 2009.  Again, I must emphasize: Hitting bottom is not the same thing as “everything is fine” - just ask anyone who’s personally hit bottom.  Just two examples of why I believe the contraction ended in early 2009; first: consumption, as one can see from the chart, actually hit bottom hear the end of 2008.

One of the defining characteristics of the current recession has been continued weakness in the labor market.  I would go as far as to say there has almost been a disconnect of the labor market from the general economy.  All that said, looking at the trend in layoffs and discharges indicates that separations from the labor force peaked near the end of 2008.  The graph below also illustrates why some are worried about a double-dip, as layoffs spiked again in the middle of 2010, although most of that is driven by the 2010 Census hires.

The point to all this is not to argue that the economy isn’t weak.  It obviously still is.  However, the economy has been growing, for at least a year, and under many measures, longer.  Interestingly enough, most measures of the economy hit bottom before a dime of stimulus money was spent.  The above charts are from the Federal Reserve of St. Louis FRED website.  Don’t take my word on these two charts.  Look at lots of other measures.  Not all, but most other measures seem to tell the same story.

GOP Sore-Loser Syndrome

Today POLITICO Arena asks:

Does the Republican Party have a sore-loser problem?

My response:

Lisa Murkowski is Exhibit A of the GOP sore-loser syndrome. Poor little thing: She thought she was entitled to the seat. After all, Daddy gave it to her.

But she’s not alone: Charlie Crist, Bill McCollum, Bob Bennett, Bob Inglis, Mike Castle, Dede Scozzafava – all sitting on the sidelines, running against the primary opponents who beat them, or even endorsing the Democrat in the race. They confirm the Tea Party contention: They have no clue about the changes taking place beneath their feet. Lisa Murkowski talks about the bacon she’s brought back to Alaska. But unlike the people marching in Paris to protest moving the retirement age from 60 to 62, the growing Tea Party movement is marching across America with signs that say “We Want Less!” In other words, get out of the way so we can be free to plan and live our own lives.

Matt Kibbe of FreedomWorks, co-author with Dick Armey of the new book Give Us Liberty: A Tea Party Manifesto, has it exactly right when he says: “What you’re seeing in the Republican primaries amounts to a hostile takeover of the Republican Party – and I mean that in the technical sense of replacing a failed management and tired ideas.” It began, one could say, with slowly growing opposition to the two Bushes, who squandered the Reagan Revolution. It continued with the rejection, ultimately, of the Republican Congress that came to office in 1995, which in time forgot why it was elected as members grew far too comfortable in office. Today, the opposition to “business as usual” – to Republicans as “Democrat Lite” – has a full head of steam. A two-party system works only if the parties are distinct, standing on different principles. It’s taken a long time – since the New Deal – but that’s what we’re moving toward, and that’s good, because it gives voters a real choice.