You Ask, I (try to) Answer

June 5th, 2011 at 9:12 am

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
April 2011
Realizing Health Reform’s Potential
Will the Affordable Care Act Make Health Insurance Affordable?
By Jonathan Gruber and Ian Perry

Abstract:

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.

 

 

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7 comments in reply to "You Ask, I (try to) Answer"

  1. The Raven says:

    Just by the way, the hell with “strengthening” labor laws. Repeal Taft-Hartley, and then we’ll talk. As a start, Obama could appoint pro-labor NRLB members as he gets the chance. Heck, I’d settle for neutral members.

    (And you know, and I know, that there isn’t a chance of either of those before 2012, and probably not before 2020. The fight continues.)


  2. Dave Roberts says:

    I still haven’t seen any insight into why the Obama administration isn’t pursuing more of the low hanging energy conservation fruit. The McKinsey report from 2009 identified $520 billion in spending (about $50 billion per year) that would save $1.2 trillion in energy expenditures by 2020. It seems like a ready made stimulus plan. I understand many of the institutional barriers, but don’t understand the lack of interest by the administration in trying to tackle the challenge.

    http://www.mckinsey.com/en/Client_Service/Electric_Power_and_Natural_Gas/Latest_thinking/Unlocking_energy_efficiency_in_the_US_economy.aspx


  3. Paul says:

    As I understand, “shovel ready” infrastructure projects usually had funding streams [local, state, federal] already in place and were about to go into production anyway. It was assumed immediate stimulus funding for these would allow the next run of projects not yet “shovel ready” to receive the original funding streams. In practice, however, the lead time for getting projects ready to shovel is too great [the work for planning, environmental approval, design, engineering, etc., is often many years' worth] creating a gap between what can start now and what can start next. Plus, excess construction resources – including skilled workers and equipment – is not usually sitting idle and waiting to start anything-anywhere. Add the fact that much of the original funding was dedicated to those specific pre-stimulus “shovel ready” projects and not transferrable to other projects, and we are left with a vacuum in time, capacity and money for maintaining the rate of infrastructure replacement/development needed. Pumping dry a well in a slow perc aquifer leaves you waiting for your shower or wishing for rain.


    • Kevin Rica says:

      Paul,

      You hit the nail on the head” “As I understand, “shovel ready” infrastructure projects usually had funding streams [local, state, federal] already in place and were about to go into production anyway.”

      That is exactly what happens. In fact, years ago, I worked on an assessment of exactly this problem and interviewed local officials on how they managed these projects. the basic answer was:

      “We love this program. We just took the next thing that we were going to break ground on, filled in in on your form and took your money and gave the firemen a raise and cut the property tax three mills. Now the mayor’s going to get re-elected and we really do thank you.”

      That’s my characterization, but the money was fungible and used for all sorts of different things, just not what was on the form. In some cases, it was banked and spent when the next thing came down the pipeline 18 months later or sometimes it saved the locality from issuing a bond. In the former case, the net economic stimulus was delayed and in the latter, it never happened.


  4. Ken Houghton says:

    A Google search for the Gruber/Perry piece by title gives a downloadable PDF at this link.


  5. Kevin Rica says:

    There is no such thing as “shovel ready” but not currently funded. It’s just not the way (rightly) that projects are done. You don’t do all the design, siting, and permitting before the project is funded. Those things can take months or years.

    Try adding an addition to your house or a charging station for an electric car — even if none of the neighbors object.

    Want to build wind turbines? You need to build long-distance transmission lines and a lot more than you would need for conventional power plants. That could be a decade or more just for the lines, until then the turbines, (which are no easy permit themselves because lots of people hate the sight or sound of them) are useless. All the techniques of litigation and regulatory protest that have been perfected by the environmental movement will be turned on wind. There are however, some otherwise “shovel ready” nukes waiting for the regulatory go ahead or government guarantees. And don’t forget the Keystone XL pipeline. That could go quickly. Pipelines are the safest way to ship oil and there is no doubt that the U.S. pipeline system no longer matches the oil industries needs. (It’s built to bring oil into the U.S. and Canadian mid-continent, but now oil is trapped there and needs to reach the coast.)

    Without debating the environmental merits of this; if it involves energy, it involves environmental debate and that makes the permitting process sloooooooow.


  6. Main Street Muse says:

    I’m the one who asked the question on the exchanges. The paper you link to does not really answer my question.

    1) I’m self-insured, not low income. Seems like from the paper, a key focus of the new health care law is “low income” people, so I’m SOL, it seems. [Why do these papers refer to numbers as a percentage of the poverty level? It's so much easier to understand the actual income figure, not the percentage of a figure! And it's hard to judge the effectiveness of the program when it's all kind of vague right now.]

    2) Nothing I’ve read explains just HOW the exchanges are going to control costs and make insurance/health care more affordable (and I did read the paper you link to. However, I’m not an economist, so maybe the answer’s in that paper, just in economese, not English ;-) And please correct me if I’m wrong, but the statement from the paper quoted below leads me to believe that ACA will NOT fully address the affordability questions for consumers with high-deductible plans:

    “But the out-of-pocket cost protections, in the form of the cost-sharing sub-
    sidies that the government provides to low-income groups or the out-of-pocket limits facing those above three times the poverty level, leave some groups more vulnerable.”

    Insurance is expensive – but it’s expensive in part because the health care itself is billed at excessively high levels (though unless the consumer is UNinsured and thus on the hook for the whole thing, the consumer has no idea of the real costs – it’s all fuzzy math.(I don’t know anyone who thinks the EOB is an accurate reflection of what the hospital is actually paid for a procedure.)

    Is ACA focused solely on reducing insurance costs by offering subsidies – or will it tackle the cost of health care too?

    So my question remains – how are the exchanges designed so as to cut costs of health care (not just subsidize the insurance premiums of the poor).

    And I still wonder – how are the exchanges going to be more than just another layer of bureaucracy in a system crammed chock full of bureaucratic and administrative layers?


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