This site has moved to
The posts below are backup copies from the new site.

August 17, 2012

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 11 Aug 2012 12:06 AM PDT
Posted: 10 Aug 2012 12:00 PM PDT
Brad DeLong is very puzzled:
Department of "Huh!?": What Is Mitt Romney Talking About?: An interview with Mitt Romney:
QUESTION: One thing that distinguishes this recovery is that public sector jobs, government jobs, have already fallen by 650,000. Given the conservative goal of shrinking government, is this a positive development or a negative one?
MITT ROMNEY: Well, clearly you don't like to hear [about] anyone losing a job. At the same time, government is the least productive—the federal government is the least productive of our economic sectors. The most productive is the private sector. The next most productive is the not-for-profit sector, then comes state and local governments, and finally the federal government. And so moving responsibilities from the federal government to the states or to the private sector will increase productivity. And higher productivity means higher wages for the American worker. All right? America is the highest productivity nation of major nations in the world, and that results in our having, for instance, an average compensation about 30 percent higher than the average compensation in Europe. A government that becomes more productive, that does more with less, is good for the earnings of the American worker, and ultimately it will mean that our taxes don't have to go up, that small businesses will find it easier to start and grow, and we will be able to add more private sector jobs. Don't forget! It's the private sector jobs that pay for government workers. So if you have fewer government workers doing work more and more productively, that means private sector work will grow.
Nobody can figure out what Mitt Romney is talking about here. He seems to be referring to some aggregate assessment of "productivity" across the four major sectors--private, non-profit, state and local government, and federal government. But nobody can figure out what he is talking about.
Does he really think that we should outsource the army to Blackwater? Or the NIH to Merck? Or the Marine Corps to Marriott? Or the Social Security Administration to Bain Capital?
Certainly our experience with for-profit hospitals and for-profit universities does not support the hypothesis that productivity inevitably goes up when we shift things over to the private sector.
Where is this coming from?
No reason to be puzzled -- Paul Krugman explained "the real motives for turning government functions over to private companies" several years ago (and it wasn't the first time):
Outsourcer in Chief, by Paul Krugman, Commentary, NY Times, December 11, 2006: According to U.S. News & World Report, President Bush has told aides that he won't respond in detail to the Iraq Study Group's report because he doesn't want to "outsource" the role of commander in chief.
That's pretty ironic. You see, outsourcing of the government's responsibilities — not to panels of supposed wise men, but to private companies with the right connections — has been one of the hallmarks of his administration. And privatization through outsourcing is one reason the administration has failed on so many fronts.
For example, an article in Saturday's New York Times describes how the Coast Guard has run a $17 billion modernization program: "Instead of managing the project itself, the Coast Guard hired Lockheed Martin and Northrop Grumman, two of the nation's largest military contractors, to plan, supervise and deliver the new vessels and helicopters."
The result? Expensive ships that aren't seaworthy. The Coast Guard ignored "repeated warnings from its own engineers that the boats and ships were poorly designed and perhaps unsafe," while "the contractors failed to fulfill their obligation to make sure the government got the best price, frequently steering work to their subsidiaries or business partners instead of competitors."
In Afghanistan, the job of training a new police force was outsourced to DynCorp International, a private contractor, under very loose supervision: when conducting a recent review, auditors couldn't even find a copy of DynCorp's contract to see what it called for. And $1.1 billion later, Afghanistan still doesn't have an effective police training program.
In July 2004, Government Executive magazine published an article titled "Outsourcing Iraq," documenting how the U.S. occupation authorities had transferred responsibility for reconstruction to private contractors, with hardly any oversight. "The only plan," it said, "appears to have been to let the private sector manage nation-building, mostly on their own." We all know how that turned out.
On the home front, the Bush administration outsourced many responsibilities of the Federal Emergency Management Agency. For example, the job of evacuating people from disaster areas was given to a trucking logistics firm, Landstar Express America. When Hurricane Katrina struck, Landstar didn't even know where to get buses. According to Carey Limousine, which was eventually hired, Landstar "found us on the Web site."
It's now clear that there's a fundamental error in the antigovernment ideology embraced by today's conservative movement. Conservatives look at the virtues of market competition and leap to the conclusion that private ownership, in itself, is some kind of magic elixir. But there's no reason to assume that a private company hired to perform a public service will do better than people employed directly by the government.
In fact, the private company will almost surely do a worse job if its political connections insulate it from accountability — which has, of course, consistently been the case under Mr. Bush. The inspectors' report on Afghanistan's police conspicuously avoided assessing DynCorp's performance; even as government auditors found fault with Landstar, the company received a plaque from the Department of Transportation honoring its hurricane relief efforts.
Underlying this lack of accountability are the real motives for turning government functions over to private companies, which have little to do with efficiency. To say the obvious: when you see a story about failed outsourcing, you can be sure that the company in question is a major contributor to the Republican Party, is run by people with strong G.O.P. connections, or both. ...
Going back to Romney's claims about productivity, we seem to be forgetting that there are some goods that the private sector won't produce at all due to market failures (e.g., the classic example is national defense). In those cases, the government is clearly more efficient than the private sector. The government may not be maximally efficient -- and there may be ways to improve upon that -- but it's certainly better than relying upon a private sector that won't produce the goods in anywhere near sufficient quantities, if they get produced at all.
Here's an interesting example from Shane Greenstein:
...with the benefit of ideological blinders, and a dose of lack of detail, several commentators — most notably, the Wall Street Journal editorial page (which David Warsh nicely summarizes) — recently have begun to argue that government's investment in the Internet was not essential to its growth. That conclusion arises due from the (again, frightfully) unstated assumption that the Internet would have turned out the same way without government sponsorship at the outset.
Look, somebody can only say such things if they do not know the history of the Internet, and they make a concerted effort not to know the facts. (If you are neophyte, there are many places to start online, but I recommend starting here). There actually were attempts to make networking investments with private firms, and there were privately funded packet switching firms too. Those did not catch on widely, and they remained a niche service. I repeat: Attempts to build a private national packet switching network of the scale and size of the Internet failed to catch on. And it is very clear why it failed: because they were restricted to proprietary interconnection, with restricted rights to users and other firms. Nobody interconnected with anyone else.
But everyone would interconnect with the government sponsored Internet. It came out of universities, who took over funding for network development from the Department of Defense (who originally got into the business because DOD needed better computing for their own purposes). The standards coming from universities were not proprietary. That is actually why it worked.
Look, take the blinders off. Government sponsorship also was not perfect. That setting truncated application development. Private markets were great for exploring new uses, once the network was up and running. ...
There are lots and lots of things that government has no business doing. The private sector, appropriately regulated to ensure competitiveness, can take care of the provision of these goods and services. But there are other things that government must do if they are to be done at all. Sometimes the lines are fuzzy, and there can be legitimate debates about what should and shouldn't be in government hands. I suspect some people will still object to the claim above about the internet, for example. But there are also clear cases on both sides of the fuzzy line, something we seem to have forgotten.
Posted: 10 Aug 2012 10:57 AM PDT
Do you think Republicans would set aside their political desires in order to help working class households with the struggles they face because of the recession? If so, then think again:
Biden: McConnell decided to withhold all cooperation even before we took office, by Greg Sargent, Washington Post: I've got my copy of Michael Grunwald's new book on the making of stimulus, The New New Deal, and ... it may shed new light on the degree to which Republicans may have decided to deny Obama all cooperation for the explicit purpose of rendering his presidency a failure — making it easier for them to mount a political comeback after their disastrous 2008 losses.
Grunwald has Joe Biden on the record making a striking charge. Biden says that during the transition, a number of Republican Senators privately confided to him that Mitch McConnell had given them the directive that there was to be no cooperation with the new administration — because he had decided that "we can't let you succeed." ...
Biden, of course, has a history of outsized comments. But two former Republican Senators [Bob Bennett and Arlen Specter] are confirming the gist of the charges... Meanwhile, former Senator George Voinovich also goes on record telling Grunwald that Republican marching orders were to oppose everything the Obama administration proposed.
"If he was for it, we had to be against it," Voinovich tells Grunwald. ... "He wanted everyone to hold the fort. All he cared about was making sure Obama could never have a clean victory."
A Republican aide sheds some more light on McConnell's strategizing just after the 2008 election. Page 148:
"People were pretty demoralized, and there were two totally opposite thoughts on how to approach the situation," a McConnell aide recalls. "One was, `we don't like the president, we ought to pop him early.' The other was, `he's really popular, we should work with him, because that's what people want us to do.' The boss's take was: Neither." McConnell realized that it would be much easier to fight Obama if Republicans first made a public show of wanting to work with him.
... It seems pretty newsworthy for the Vice President of the United States to charge that seven members of the opposition confided to him that their party had adopted a comprehensive strategy to oppose literally everything the new President did — with the explicit purpose of denying him any successes of any kind for their own political purposes — even before he took office.
Unless you have enough money to help them with their campaigns or in other ways, Republicans in Congress don't really care about you and the struggles you face. That the rich might pay another dollar in taxes is far more important than a struggling household facing another day without a job.
Posted: 10 Aug 2012 10:14 AM PDT
Rising health care costs are the main force behind the long-run budget worries that are driving the push for large cuts in spending on social services. However, health care costs for Medicare and Medicaid aren't growing as fast as projected:
Medicare and Medicaid Spending Trends Don't Justify Restructuring, CBPP: Medicare and Medicaid spending per beneficiary has grown less rapidly than costs for private health insurance in recent years, as we have previously pointed out.  (See here and Figure 1 here.)
This favorable trend is projected to continue for at least the coming decade, according to a new article in The New England Journal of Medicine.  These data belie the claim that spending for Medicare and Medicaid is "out of control" and that the programs must be fundamentally restructured...

Looking at these trends, Holahan and McMorrow conclude:
With the per-enrollee spending growth in Medicare and Medicaid less than that in private insurance and close to the growth in GDP per capita, it's hard to argue that spending on either program, on a per-enrollee basis, is "out of control.". . . Policy options such as premium support and block grants that entail indexing growth rates to some measure of economic growth will have a hard time achieving lower per-enrollee spending growth than is currently projected. CBO estimates suggest that both approaches may achieve savings for the federal government, but such savings shift Medicare costs onto existing enrollees and, in the case of Medicaid, onto the states as well. . . . Rather than pursuing major restructuring of either program, then, we should continue adopting available strategies to contain costs within the programs' current structure, especially since many of those implemented in the past decade seem to be working, and many on the horizon appear promising.

No comments: