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August 21, 2009

Economist's View - 4 new articles

Paul Krugman: Obama's Trust Problem

The fight over the public plan is about more than just health care policy:

Obama's Trust Problem, by Paul Krugman, Commentary, NY Times: According to news reports, the Obama administration — which seemed, over the weekend, to be backing away from the "public option" for health insurance — is shocked and surprised at the furious reaction from progressives.

Well, I'm shocked and surprised at their shock and surprise.

A backlash in the progressive base — which pushed President Obama over the top in the ...election... has been building for months. The fight over the public option involves real policy substance, but it's also a proxy for broader questions about the president's priorities and overall approach. ...

One purpose of the public option is to save money. Experience with Medicare suggests that a government-run plan would have lower costs than private insurers; in addition, it would introduce more competition and keep premiums down.

And let's be clear: the supposed alternative, nonprofit co-ops, is a sham. That's not just my opinion; it's what the market says: stocks of health insurance companies soared on news that the Gang of Six senators trying to negotiate a bipartisan approach to health reform were dropping the public plan. Clearly, investors believe that co-ops would offer little real competition to private insurers.

Also, and importantly, the public option offered a way to reconcile differing views among Democrats. Until the idea of the public option came along, a significant faction ... rejected anything short of true single-payer, Medicare-for-all reform... The public option ... settled some of those qualms.

That said, it's possible to have universal coverage without a public option — several European nations do it — and some who want a public option might be willing to forgo it if they had confidence in the overall health care strategy. Unfortunately, the president's behavior in office has undermined that confidence.

On the issue of health care itself, the inspiring figure progressives thought they had elected comes across, far too often, as a dry technocrat... Mr. Obama's explanations of his plan have gotten clearer, but he still seems unable to settle on a simple, pithy formula...

Meanwhile, on such fraught questions as torture and indefinite detention, the president has dismayed progressives with his reluctance to challenge or change Bush administration policy.

And then there's the matter of the banks.

I don't know if administration officials realize just how much damage they've done themselves with their kid-gloves treatment of the financial industry...

So there's a growing sense among progressives that they have, as my colleague Frank Rich suggests, been punked. And that's why the mixed signals on the public option created such an uproar.

Now,... Mr. Obama was never going to get everything his supporters wanted.

But there's a point at which realism shades over into weakness, and progressives increasingly feel that the administration is on the wrong side of that line. It seems as if there is nothing Republicans can do that will draw an administration rebuke: Senator Charles E. Grassley feeds the death panel smear, warning that reform will "pull the plug on grandma," and two days later the White House declares that it's still committed to working with him.

It's hard to avoid the sense that Mr. Obama has wasted months trying to appease people who can't be appeased, and who take every concession as a sign that he can be rolled.

Indeed, no sooner were there reports that the administration might accept co-ops as an alternative to the public option than G.O.P. leaders announced that co-ops, too, were unacceptable.

So progressives are now in revolt. Mr. Obama took their trust for granted, and in the process lost it. And now he needs to win it back.

"Public Auction Option Shouldn't be a Deal Breaker"

Tim Duy recommends this piece on public-private competition. The argument, based upon the outcome of public-private competition in electrical power and worker's compensation insurance, is that there is no reason to fear a public option for health care:

Public option shouldn't be deal breaker for reform, by Jack Roberts, Guest Viewpoint, Register Guard: Recent reports that the Obama administration may (or may not) be backing away from a public option for health care reform are likely to raise the decibel level of the debate even higher. Unfortunately, the result may be to reduce further the chances of getting health care reform passed at all. ...

To a great extent, this is reminiscent of the great debate in the 1930s over public vs. private power... Nowhere was this debate more contentious than in Oregon.

Public power advocates believed that private utilities were strangling the economy and robbing ratepayers, while opponents insisted that public power was a sure route to socialism. Sound familiar? The only thing both sides seem to agree on was that one system or the other must prevail and that public and private power could not coexist.

Jump ahead 70 years. Here in Lane County, most people receive their electrical power from municipal utilities, cooperatives or a people's utility district. Private utilities such as Portland General Electric and Pacific Power serve most of the rest of the state.

Today, we may use euphemisms such as "consumer-owned" and "investor-owned" utilities, but it is still the same public vs. private power distinction. ...[T]here is actually little difference in the way public and private utilities operate. The reason is that both public and private utilities are funded by their ratepayers. Public utilities are not subsidized by general tax dollars, as private power advocates once feared. ...

There is little reason to believe that a public health insurance option would operate much differently from private health insurance companies, either. Already there are nonprofit health insurance companies that operate more or less like their for-profit competitors. Their incentive to hold down costs ... is no less than a for-profit company's. After all, their top management still wants to keep its jobs and be compensated for good performance, too.

Probably the best example of how a public health insurance option could operate is Oregon's experience with a quasi-public worker's compensation insurance company, the State Accident Insurance Fund...

True, its principal private sector competitor, Liberty Northwest, complains about unfair competition... Yet in a state that requires businesses to carry worker's compensation insurance, SAIF serves as a critical provider of affordable workers' comp coverage for thousands of Oregon companies, large and small. ...[M]ost Oregonians don't regard SAIF as representing a government takeover of workers' compensation, much less a harbinger of socialism. ...

Yet Oregon's workers' comp system is not so clearly better than the 25 states that have no equivalent to SAIF as to render their mandatory workers' compensation laws worthless or unworkable. The fact is that mandatory workers' compensation laws were a major step forward..., with or without a public option for providing worker's comp insurance.

Adopting universal health care coverage will be equally revolutionary in its effect on our society, whether it initially includes a mandatory public option, and whatever the precise form that option originally takes.

The real key to health insurance reform is to prevent insurance companies from excluding people from coverage or charging higher premiums based on a person's pre-existing health condition, and then to mandate coverage for everyone. ...

Pop Keynesianism

In response to the posts about Judge Richard Posner playing economist and getting the basics wrong, Tim Duy reminds me of Paul Krugman's "Pop Internationalism" and sends along links to Stephen Gordon and Google books (I am out of town this week, and I appreciate Tim's suggestions as I have a long, long drive ahead of me):

The anatomy of anti-economics, by Stephen Gordon: I recently had occasion to re-read Paul Krugman's "Pop Internationalism", and this passage from 'The illusion of conflict in international trade' jumped out at me. His point of reference is international economics, but in my experience it also applies to other fields as well:

As far as I can tell, the attitude of policy-minded intellectuals to economics is pretty much unique. Many people have opinions about legal matters or about defense policy; but they generally accept that a fair amount of specialized knowledge is necessary to discuss these matters intelligently. Thus a law degree is expected of a commentator on legal affairs, a professional military career or a record of study of military matters is expected of a commentator on defense, and so on.

When it comes to economics, however, and especially international trade, it seems to be generally accepted that there is no specialized knowledge to master. Lawyers, political scientists, historians cheerfully offer their views on the subject, and often seem quite sure that whatever it is that professors have to say – something they are fairly blurry about – is na├»ve and wrong…

[T]he attitude … that international economics requires no special knowledge, and that the theories of the academics, whatever they are, are obviously silly … is extremely common…

[W]hy is this attitude so prevalent? At this point, I am in the awkward position of having to defend economic professionalism by playing amateur sociologist, but let me offer the following five-part hypothesis.

First, economics is a subject that touches so many real-world concerns that there is a great incentive to claim expertise. This is especially true of international economics, in which the romance and allure of anything to which to word "global" is attached adds to the attraction of the enterprise. As a result, a large number of people inevitably propound views about international economics without much background in the subject.

Second, ignorance finds strength in numbers. Since so many lawyers, political experts, etc. feel free to opine on economics, others considering such a role do not hesitate over their lack of formal qualifications or knowledge of the field.

Third, economics written by non-economists often sounds more persuasive than the real thing. This is not just a matter of jargon: no matter how well explained, serious economic analysis is often intrinsically difficult…

Fourth, there is a lot of bad-mouthing of economists. This is understandable. After all, suppose you are, say, a military expert who has decided that he is an economic expert too. You write an article or even a book on the subject; then an academic economist tells you that all of your ingenious arguments are familiar fallacies covered in an undergraduate textbook, and that your basic thesis involves a contradiction because you do not understand national accounts. You might decide that you really should go back and read a basic textbook; more likely, you begin denigrating economists as pompous types who actually don't know anything.

And finally, the bad-mouthing of economists, by people who typically have rapport with their audience because they share that audience's misconceptions, reinforces the perception that economists have nothing to offer – which encourages more non-economists to declare themselves experts, enter the fray, and reinforces the cycle.

In short, there is a circular process by which bad ideas drive out good. As far as the public discourse on international trade is concerned, this process is essentially complete: not only sophisticated theories, but comparative advantage and even S – I = X – M have been driven out of the discussion.

Here's the original from Google books. Begin with "The Anatomy of Anti-Economics at the bottom of page 78. The missing piece at the end is in the post above.

And for even more on this, see Justin Wolfers and Menzie Chinn.

links for 2009-08-21

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