Saturday, September 29, 2012

Romneycare vs. Obamacare (reprise)

Remember, the Republicans are running against Obamacare, which is basically just warmed-over Massachusetts Romneycare, with the individual mandate and all. 


RomneyCare was the first significant healthcare reform to happen in the U.S. for decades.

The primary goal of RomneyCare was to provide all citizens in MA with access to affordable health insurance and to eliminate the "free riders" who expected the government or taxpayers to pay for their health care. The plan did an extraordinary job of covering nearly half a million people who were previously uninsured without raising taxes. Under RomneyCare, the citizens of MA can be assured that they will retain their health coverage when they move from job to job, or if they suffer financial hardship.

Highlights of what RomneyCare has accomplished after 5 years of being in affect:

1 - Nearly every Massachusetts citizen is covered. A recent study showed that 98.1% of adults and 99.8% of children now have medical insurance. This is by far the highest rates in the nation. The overall national rate is 83%, with Texas having the worst rates in the nation at 74%. In Texas, one out of every six children is uninsured.

2 - Many more businesses are offering medical insurance to their employees. Now 76% of employers of medical insurance to their employees, compared with 70% just five years ago. The national rate remained at 60%.

3 - The overall costs of the program to the state have not exceeded expectations. At the time of passage, Romney predicted that the new law would add just 1 to 1.5% to the state budget. Last year the additional cost to the state was only 1.2% - precisely where Romney predicted it would be even though the costs to the state would be much lower if the Massachusetts legislature and Governor Patrick (Romney's successor) hadn't added significant costs to the healthcare law. (This is covered more thoroughly in Section 6 - What changes would Romney make to RomneyCare?)

4 - The cost of health care premiums for individuals who buy insurance without the help of an employer have gone down dramatically. According to, individuals who bought insurance on their own "saw a major drop in premiums, as much as a 40% decline, according to some figures." On average, premiums dropped between 18%-20% for the average individual buying health insurance on their own.

5 - RomneyCare remains exceptionally popular among state residents. Studies repeatedlyconfirm that 67-84% of Massachusetts residents are happy with the plan and would not go back to the old system if given the chance.

The Creation of RomneyCare

Remember that the overall goal of RomneyCare was to provide all citizens with access to affordable health insurance and to eliminate the "free riders" who expected the government or taxpayers to pay for their health care. The plan did an extraordinary job of covering nearly half a million people who were previously uninsured without raising taxes.  [continues here]

See also Massachusetts health care reform - Wikipedia, the free encyclopedia

Life Under Romneycare (Esquire)

The Romney fan site includes the revisions Romney would have made to the law, most overturned by the Democratic Massachusetts legislature.  Most are relatively minor.

For the Republicans to be running “against Obamacare”—instead of saying they’d like to revise it—continues to be one of the most glaring instances of their perversity.  The country could easily be thrown backwards by decades, if not centuries.

Friday, September 28, 2012

Am I my brother’s keeper? (reprise)


The Cainite Repubicans say no, they say the bottom 47 percent are all a bunch of victim whiners. 

But the bottom 20 percent is doing worse than I imagined, according to the BLS.  And many of us are only a job loss or two away from joining them.  There will be a need for low cost [ware-] housing for the Americans frozen out of the economy as more of them lose their houses and can’t afford market rents.  I’ve often said my retirement will probably be in a single-wide mobile home in the desert.

Expensive to Be Poor: Expenses Twice as Much as Income for Bottom 20% of US Households

By: David Dayen Thursday September 27, 2012 11:38 am

A new study from the Bureau of Labor Statistics out today probably won’t get as much notice as their other report showing the US gained 386,000 jobs more than expected. However, this one shows a persistent problem in America, that it’s actually expensive to be poor.

The average individual in the lowest 20% of the income ladder had take-home pay of $10,074 and average expenses of $22,011. That’s more than double, and it makes being poor nearly impossible to manage. The story for the second and third quintiles weren’t much better, with their expenses roughly commensurate to their income, meaning they live paycheck-to-paycheck and save next to nothing. But the expenses-versus-income report for the poorest Americans is almost unreal.

The Huffington Post puts some of these numbers in context:

This percentage of households includes many retirees, who are presumably living off savings.

Many of these households may be spending more than they earn through some combination of loans from family and friends, credit cards, savings, and payday loans. The government helps a bit with an income tax credit: The average bottom-fifth household’s after-tax income is $269 higher than its before-tax income. The income accounted for includes welfare and Social Security benefits.

Many are also taking on debt. In 2010, roughly one-quarter of the poorest fifth of households held a high debt burden, or had debt service payments exceeding 40 percent of their income, according to the Economic Policy Institute.

These households mainly are spending on necessities such as food, shelter, utilities, clothing and transportation. The average bottom-fifth household spent 87 percent of its after-tax income on housing alone last year.

Thursday, September 27, 2012

If we were a democracy…

Via: Reuters

Fighting Recession the Icelandic Way

Few countries blew up more spectacularly than Iceland in the 2008 financial crisis. The local stock market plunged 90 percent; unemployment rose ninefold; inflation shot to more than 18 percent; the country’s biggest banks all failed.

This was no post-Lehman Brothers recession: It was a depression.

Since then, Iceland has turned in a pretty impressive performance. It has repaid International Monetary Fund rescue loans ahead of schedule. Growth this year will be about 2.5 percent, better than most developed economies. Unemployment has fallen by half. In February, Fitch Ratings restored the country’s investment-grade status, approvingly citing its “unorthodox crisis policy response.”

You can say that again. Iceland’s approach was the polar opposite of the U.S. and Europe, which rescued their banks and did little to aid indebted homeowners. Although lessons drawn from Iceland, with just 320,000 people and an economy based on fishing, aluminum production and tourism, might not be readily transferable to bigger countries, its rebound suggests there’s more than one way to recover from a financial meltdown.

Nothing distinguishes Iceland as much as its aid to consumers. To homeowners with negative equity, the country offered write-offs that would wipe out debt above 110 percent of the property value. The government also provided means-tested subsidies to reduce mortgage-interest expenses: Those with lower earnings, less home equity and children were granted the most generous support.

Debt Relief

In June 2010, the nation’s Supreme Court gave debtors another break: Bank loans that were indexed to foreign currencies were declared illegal. Because the Icelandic krona plunged 80 percent during the crisis, the cost of repaying foreign debt more than doubled. The ruling let consumers repay the banks as if the loans were in krona.

These policies helped consumers erase debt equal to 13 percent of Iceland’s $14 billion economy. Now, consumers have money to spend on other things. It is no accident that the IMF, which granted Iceland loans without imposing its usual austerity strictures, says the recovery is driven by domestic demand.

In addition to easing consumer debt, Iceland reduced government spending and increased revenue by raising taxes and cutting deductions that mainly benefited the well-off, a path the U.S. might profitably emulate. In fact, relief for overburdened U.S. consumers is a cause promoted by former U.S. Federal Deposit Insurance Corp. Chairman Sheila Bair in a new book published this week. Bair would have done more to aid sinking homeowners and done less for banks, but she says her efforts were blocked by Treasury Secretary Timothy Geithner and others.

It worked in Iceland. A deficit that reached 13.5 percent of gross domestic product in 2009 fell to 2.3 percent last year. The IMF predicts Iceland will have a primary surplus (excluding interest on debt) of 1.5 percent this year.

As for the banking industry, Iceland never had an option to adopt the too-big-to-fail policy that led governments in the U.S. and Europe to prop up their banks. Assets held by Iceland’s three largest lenders had swelled to nine times the size of the economy. After they defaulted on $85 billion in debt, the government seized control of them.

Initial plans to repay foreign creditors, mostly U.K. and Dutch depositors, collapsed in 2009 as street protests led to the demise of the government. Repayment of obligations to overseas creditors was either postponed or written off, leaving the reconstituted banks with much smaller domestic operations. Twice, Icelanders rejected national referendums on repaying foreign depositors, who are pressing their claims in European courts.

Holding Accountable

A new government led by Johanna Sigurdardottir embarked on a campaign to hold accountable the so-called neo-Viking bankers at the center of Iceland’s crisis. Instead of picking a prosecutor from law firms in Reykjavik, which had depended on the banks for business, the government drafted an investigator from a remote village. Although a number of bankers fled the country to avoid prosecution, the former chiefs of two of the three biggest banks have been indicted and are standing trial.

Undoing the damage caused by the crisis is a work in progress; not every Icelandic innovation would be feasible in the U.S. or Europe. Iceland’s debt stands at almost 100 percent of GDP. Many of the country’s professionals have left for Norway and Denmark amid a dearth of jobs. Iceland still must figure out how to ease constraints that barred investors from withdrawing as much as $8 billion from the country and transferring it overseas. Inflation remains stubbornly high. To counter that, and to prevent capital flight, Iceland’s central bank has increased interest rates five times in the past year. But raising interest rates makes credit more expensive, checking growth.

Iceland’s central bank on Sept. 18 released a report suggesting the country go slow with plans to enter the European Union, a process started in 2010 when the euro seemed sounder than the krona. Becoming a member won’t be easy: If the issue were put to a referendum, Icelanders would probably reject admission. And why would Iceland want to join now? Euro-member nations such as Greece and Ireland offer testimony to the risks of being yoked to a currency along with stronger economies.

Devaluation of the kind Iceland suffered is never fun. Reneging on debts leaves a legacy of violated trust. But it still looks better than recession with no obvious way out.

More on modern monetary theory


MMT has a solution to the debt problem:  let the Congress, which has the Constitutional authority to “coin” money, make some more money to put people back to work in productive and needed ways, like rebuilding the infrastructure, and educating our children.

My previous criticisms of MMT fall under the rubric of “problems with fiat money,” namely its tendency to be produced in excess.

My question this morning is:  okay, so Congress coins money and puts people to work, what happens to the value of the dollar internationally?  I get that if the increase in the “quantity of money” is matched by increase in “goods and services,” that the price level need not rise, and presumably the trading value of the dollar would remain stable, ceteris paribus.

There is still the problem of the mountain of debt on the backs of the people, much of it bad, that the banking system has succeeded in keeping on its books.  What happens to that?  Even if the MMT-style stimulus produces healthy real growth, such debt might still be essentially unpayable.

In the end, I believe the temptation to inflate out the bad debt is insurmountable, even if the MMT-style stimulus were undertaken.

However, in the short run that we all live in, the MMT solution produces real growth and social welfare benefits.

Our global fiat monetary system is going to go super nova either way, as I have been writing for some time.

Last week, Reps. Michael Honda, Keith Ellison, Raul Grijalva, Jan Schakowsky, John Conyers, Barbara Lee and Lynn Woolsey stalwarts of the Congressional Progressive Caucus (CPC) begged for mercy from “the Gang of Eight” in a letter.

Here’s what they said and my commentary on their “loser liberalism.”

”Thank you for your work – past and present – towards solving one of the greatest policy challenges facing us today: the unsustainable path of our national debt. We appreciate the bipartisan and collaborative spirit with which you’ve approached your negotiations. . . .”

Thanks vanguard progressives for embracing the major premise of the austerity ideology, namely that the national debt is on an unsustainable path. I’m here to tell you that this idea is false and also terribly harmful to progressive aspirations to end economic stagnation and get everyone, who wants to be, employed at a living wage. You can’t win an argument if you start by agreeing with your opponent’s false premise.

The US has a non-convertible fiat currency which it allows to freely float on international markets. It also has no debts in any currency not its own. It also has the constitutional authority to issue currency and coins in unlimited amounts to pay any debt obligations when they fall due. It also has a central bank, the Fed, that can determine the interest rates paid on new debt issuance unilaterally and in spite of any desire on the part of private markets to raise those rates. So, it should be obvious to you and everyone else that it doesn’t matter how high our national debt, or our debt-to-GDP ratio is, the US always has the capacity to deficit spend what it needs to in order to buy any goods and services for sale in USD, including the services of all the currently unemployed or under-employed who would like full-time jobs at a living wage.

Wednesday, September 26, 2012

QEternity demolished

Via:  What If the Fed Has It All Wrong 

Hard not to pile on when monetary policy has become such a joke, but here is a thorough demolition of QEternity that addresses where the heads of the consumer, the ruling elite, the central bankers, and the youth of the world are at, and it ain’t pretty.  The whole article is must reading.  From the concluding remarks:

While the Fed waits for the wealth effect to take effect, the European Central Bank is also waiting for its own Godot following Draghi's magic with the ECB rules and regulations. Super Mario's "whatever it takes" promise is powerful, but not without pitfalls:

  • When, if ever, will the Eurozone achieve the necessary banking and fiscal unions?
  • Will Spain and Italy surrender before it is too late?
  • Will ever more austerity finally work?
  • When will the debt spiral stop?
  • How much longer will the Germans put up with the situation, accepting that the ECB ruins its balance sheet taking unlimited risk on behalf of the German taxpayers, risking their fiscal sovereignty to save the "reckless Southerners"?
  • How much longer will the hordes of unemployed young Europeans put up with the situation?

Bankers have indeed delivered. In truth, however, they are merely experimenting with totally unproven ways and means, hoping to gain enough time until more responsible politicians emerge. Given the significant risk still facing us until Godot arrives, investors should await more evidence that either earnings resume their uptrend or some kind of miracle(s) happen.

Equity holdings should be trimmed to conservative levels. Sustainable income should be favored. Cash earns essentially nothing, but is safe for now. Gold remains attractive for many, many obvious reasons.

Saturday, September 22, 2012

The big lie

“Lower taxes cause higher economic growth.”  It’s making the rounds.

What causes robust economic growth—and a myriad of health and welfare benefits--is social justice, as reflected in a viable social contract that produces a much more equitable distribution of spoils than currently exists in the US, a state of the union where everyone is more or less pulling together rather than pulling apart, as the nation is currently.


Truest statement made by a politician this week:  “You can’t change Washington from the inside.” – Barack Obama.

Mobilize, America!  Vote!  Amend the Constitution!  Clean up the mess!  You’re better off telling the rich to “love it or leave it,” than to fall into the neo-feudalism they would have your and your children and your children’s children live in.  The level of GDP is not the best measure of social welfare.  Most of what they tell you is lies anyway.

Thursday, September 13, 2012

Ben’s bubble theory of monetary stimulus


I am quoting liberally because this coverage of today’s press conference gets to the heart of the matter, that the only tool the Fed has to deal with an economy struggling under a debt load it can’t handle is to inflate it out.  But Ben, the American people are scared stiff of the stock market and have come to the conclusion that Wall Street is a rigged game, are scared stiff of buying a home (if they can come up with the down payment).  The other prescient insight, this one offered by Charles Hugh Smith also on zero, is that the only monetary surprises left are negative, which taken together with the fact that last several stock market advances have been undergirded by QE or Twist activities, could mean either that (1) the market will take off now for an extended upward leg, or (2) it won’t; it will collapse as the economy undeniably goes into recession.  Speaking on behalf of John Q. Public, who is quaking in his boots about holding on to his job and possibly his house, I don’t find those odds appealing.  We are heading into a period of unprecedented monetary instability.

The Punchline In His Own Words: Bernanke Advocates Blowing Asset Bubbles As The Antidote To Depression

If there was one absolutely must see moment exposing everything that is broken with the Fed's brand new policy of QE-nfinity, it was this exchange between Reuters' Pedro da Costa and the Chairman. It explains, beyond a reasonable doubt, that the only goal the Fed now has is to reflate the stock market bubble to previously unseen levels, to focus on generating jobs although not for everyone but only for Wall Street, consequences be damned, because by the time the consequences arrive, and they will (just recall that subprime is contained) they will be some other Fed chairman's problem. Bernake's term mercifully runs out in January 2014.

From the official transcript:

QUESTION: My question is -- I want to go back to the  transmission mechanism, because speaking to people on the sidelines of the Jackson Hole conference, that seemed to be the concern about the remarks that you made, is that they could clearly see the effect on rates and they could see the effect on the stock market, but they couldn't see how that had helped the economy.

So I think there's a fear that over time this has been a policy that's helping Wall Street, but not doing that much for Main Street. So could you describe in some detail, how does it really different -- differ from trickle-down economics,where you just pump money into the banks and hope that they lend?

BERNANKE: Well, we are -- this is a Main Street policy, because what we're about here is trying to get jobs going. We're trying to create more employment. We're trying to meet our maximum employment mandate, so that's the objective. Our tools involve -- I mean, the tools we have involve affecting financial asset prices, and that's -- those are the tools of monetary policy.

There are a number of different channels -- mortgage rates, I mentioned other interest rates, corporate bond rates, but also the prices of various assets, like, for example, the prices of homes. To the extent that home prices begin to rise, consumers will feel wealthier, they'll feel more -- more disposed to spend. If house prices are rising, people may be more willing to buy homes because they think that they'll, you know, make a better return on that purchase. So house prices is one vehicle.

Stock prices -- many people own stocks directly or indirectly. The issue here is whether or not improving asset prices generally will make people more willing to spend.

One of the main concerns that firms have is there's not enough demand. There are not enough people coming and demanding their products. And if people feel that their financial situation is better because their 401(k) looks better or for whatever reason -- their house is worth more -- they're more willing to go out and spend, and that's going to provide the demand that firms need in order to be willing  to hire and to invest.

And there you have it.

Tuesday, September 11, 2012

‘Animal spirits’ update

My judgmental unemployment forecast with adaptation level:


Regardless of the fact that the unemployment rate is hardly the best indicator of labor market health, I assume it dominates people’s perception of labor market health, and that when it increases above an adaptation level formed by recent experience, confidence fails.  My best guess as to when the unemployment rate will cross above its adaptation level continues to be about halfway through next year, when America will experience an accelerating collapse of confidence.  Animal sprits will remains depressed until 2016 or so.

The situation continues to resemble the 1973-1974 period, especially with regard to the configuration of the Michigan consumer sentiment series and my imputed confidence measure.  One thing that my measure has done fairly  consistently is to signal the onset of NBER-defined recessions when unemployment rises above adaptation level.

After period doubling in the ‘Eighties, ‘Nineties, and Oh-Oh decades, the American business cycle seems to have reverted to a possibly chaotic shorter pulse more characteristic of the earlier postwar business cycle.


Graph of the day

Via: The Food Crises and Political Instability in North Africa and the Middle East

Via:  MIT Technology Review

What causes riots? That's not a question you would expect to have a simple answer.

But today, Marco Lagi and buddies at the New England Complex Systems Institute in Cambridge, say they've found a single factor that seems to trigger riots around the world.

This single factor is the price of food. Lagi and co say that when it rises above a certain threshold, social unrest sweeps the planet.

The evidence comes from two sources. The first is data gathered by the United Nations that plots the price of food against time, the so-called food price index of the Food and Agriculture Organisation of the UN. The second is the date of riots around the world, whatever their cause. Both these sources are plotted on the same graph above.

This clearly seems to show that when the food price index rises above a certain threshold, the result is trouble around the world.

This isn't rocket science. It stands to reason that people become desperate when food is unobtainable. It's often said that any society is three square meals from anarchy.

But what's interesting about this analysis is that Lagi and co say that high food prices don't necessarily trigger riots themselves, they simply create the conditions in which social unrest can flourish. "These observations are consistent with a hypothesis that high global food prices are a precipitating condition for social unrest," say Lagi and co.

In other words, high food prices lead to a kind of tipping point when almost anything can trigger a riot, like a lighted match in a dry forest.

On 13 December last year, the group wrote to the US government pointing out that global food prices were about to cross the threshold they had identified. Four days later, Mohamed Bouazizi set himself on fire in Tunisia in protest at government policies, an event that triggered a wave of social unrest that continues to spread throughout the middle east today.

That leads to an obvious thought. If high food prices condition the world for social unrest, then reducing the prices should stabilise the planet.

But what can be done to reverse the increases. Lagi and co say that two main factors have driven the increase in the food price index. The first is traders speculating on the price of food, a problem that has been exacerbated in recent years by the deregulation of the commodities markets and the removal of trading limits for buyers and sellers.

The second is the conversion of corn into ethanol, a practice directly encouraged by subsidies.

Those are both factors that the western world and the US in particular could change.

Today, the food price index remains above the threshold but the long term trend is still below. But it is rising. Lagi and co say that if the trend continues, the index is likely to cross the threshold in August 2013.

If their model has the predictive power they suggest, when that happens, the world will become a tinderbox waiting for a match.

Tuesday, September 4, 2012

Quote of the day

Via:   Ultra-Republican apostate Bruce Bartlett sez,

Mitt Romney holds no more attraction for me than Mr McCain did. If his speech to the Republican convention on Thursday night were to display the same Romney who governed the state of Massachusetts moderately and competently, he would have my vote. But he too has sacrificed his independence to pander to the GOP’s conservative base, substituting thoughtful policies for rightwing talking points that consist of little more than tax cuts for the rich, benefit cuts for the poor and war with Iran.

Thus my dilemma: both candidates are unsatisfactory. The choice is between a continuation of policies that have not worked and different ones that almost certainly will not. I may change my mind at the last minute but as of now my only choice seems to be “none of the above”. I expect to stay home on election day.