A few more questions lifted from last weeks’s comments.
In response to my post on our unmet infrastructure needs:
Q: Given these needs, why didn’t Obama target the stimulus to infrastructure?
A: Actually, about $100 billion of the stimulus, around 12%, went to infrastructure. Why not more? The rationale was that stimulus spending should get in and out of the economic bloodstream pretty quickly, so you need to find “shovel-ready” infrastructure projects that don’t go on for too long.
There’s certainly a credible argument against this rationale—would it be so terrible if new Recovery Act projects were still coming on line this year or next? But I can tell you the following:
–it took longer to get this stuff out the door than we thought it would; “shovel-ready” apparently means different things to different peeps.
–I don’t know this for a fact, but I suspect that a lot of the infrastructure projects turned out to be more capital intensive—and thus labor intensive—than we thought. Nothing wrong with that, of course, but it means you need more projects to create more jobs.
And as you know from my post, my view is bring ‘em on.
Q: Regarding the moral hazard on helping underwater homeowners, John Hussman and Luigi Zingale and William Wheaton have independently proposed some form of debt for equity swap. Why haven’t these ideas been more widely discussed?
A: It probably wouldn’t work if it were voluntary, i.e., up to the banks to decide if they wanted to make the swap. Though such a swap would in some cases—I’d guess many cases–be in their interest, they’d rather “extend-and-pretend”—keep under-performing loans on their books hoping they’ll come back to life someday. On the other hand, if homeowners can insist banks/lenders make the swap, which I think is their proposal, that could work. But it would take legislation which makes it a heavier lift, of course.
Re my post on gas prices:
Q: I have been an expatriate resident in Oman for over two decades and at least in most of the GCC region, demand for oil in the short run does not seem to be becoming more elastic. On mulling over this, the following possible causes came to mind:
a. While countries like Oman wax eloquent about economic diversification, alleviating oil dependence and adopting alternative sources of energy, the prices remain highly subsidised (one litre in Oman currently averages at 0.12 OMR (1 USD = 0.385 OMR), so unless there was a drastic price increase, demand would be likely to remain the same.
b. Another reason is the ‘conspicuous consumption’ effect. The consumer mindset in these parts seems to allocate a very high priority to status symbols such as flashy cars and school teachers take loans to buy ferraris. Logically speaking, if people are willing to spend so much more than they can actually afford on a car, wouldn’t they continue to drive their vehicles extensively even when oil prices rise?
A: I can’t say I know much about elasticities in Oman, but I thought your observations were interesting. And your instinct seems right to me. If gas consumption is subsidized, and driving flashy cars are important to people, it would probably take a lot on the price side to get them to change. Those conditions are less the case here, though as you may have heard in recent tax debates, our oil companies do enjoy non-trivial (and non-useful) subsidies.
Q: To what extent is the ever-widening gap between increases in productivity and (lack of) increases in wages due to the continuing, and successful, assault on unions? And if enforcement and strengthening of labor laws is helpful, isn’t THAT within the purview of the government?
A: I’ve seen a number of studies that find de-unionization to be responsible for as much as one-fifth of the increase in wage dispersion. That’s not a trivial share, either—it’s about as large as any other factor in play.
Strengthening of labor laws is important. Most objective observers judge the playing field for union organizing to be seriously tilted against forming a union. Union-busting—mostly by making sure elections to recognize a union fail—has become a huge business; I’ve heard there are law firms that offer money-back guarantees. A functional NLRB is very important in this space and as you can imagine, they were not exactly loaded for bear during the Bush years. But they’re back now and have some good ideas (and they can make rule changes, as opposed to legislative ones, which are a much heavier lift). I’ll try to write about them soon.
Q: Can you explain HOW the exchanges work? I’m self-insured, THE audience for this program – yet I’ve read nothing that makes me think these aren’t just another layer of bureaucracy for someone like me to wade through.
A: There’s a useful (and moderately readable) new paper on this by Jon Gruber and Ian Perry that both explains how the exchanges work and at least according to their analysis, why they should be affordable to many in the middle class. Problem is, I can’t get the link to work. Maybe you’ll have better luck. Here’s title/abstract:
Update: Got the link from Perry himself!
The Commonwealth Fund
Realizing Health Reform’s Potential
Will the Affordable Care Act Make Health Insurance Affordable?
By Jonathan Gruber and Ian Perry
Using a budget-based approach to measuring affordability, this issue brief explores whether the subsidies available through the Affordable Care Act are enough to make health insurance affordable for low-income families. Drawing from the Consumer Expenditure Survey, the authors assess how much ‘room’ people have in their budget, after paying for other necessities, to pay for health care needs. The results show that an overwhelming majority of households have room in their budgets for the necessities, health insurance premiums, and moderate levels of out-of-pocket costs established by the Affordable Care Act. Fewer than 10 percent of families above the federal poverty level do not have the resources to pay for premiums and typical out-of-pocket costs, even with the subsidies provided by the health reform law. Affordability remains a concern for some families with high out-of-pocket spending, suggesting that this is the major risk to insurance affordability.