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October 18, 2012

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Paul Krugman: Romney’s Sick Joke

Posted: 05 Oct 2012 12:48 AM PDT

Will Romney get away with it?:

Romney's Sick Joke, by Paul Krugman, Commentary, NY Times: "No. 1," declared Mitt Romney in Wednesday's debate, "pre-existing conditions are covered under my plan." No, they aren't — as Mr. Romney's own advisers ... conceded ... after the debate.
Was Mr. Romney lying? Well, either that or he was making what amounts to a sick joke. Either way, his attempt to deceive voters on this issue was the biggest of many misleading and/or dishonest claims he made over the course of that hour and a half. ...
So, about that sick joke: What Mr. Romney actually proposes is that Americans with pre-existing conditions who already have health coverage be allowed to keep that coverage even if they lose their job — as long as they keep paying the premiums. As it happens, this is already the law of the land. But it's not what anyone in real life means by having a health plan that covers pre-existing conditions...
What Mr. Romney did in the debate, in other words, was, at best, to play a word game with voters, pretending to offer something substantive for the uninsured while actually offering nothing. For all practical purposes, he simply lied about what his policy proposals would do. ...
What about the claim made by a Romney adviser after the debate that states could step in to guarantee coverage for pre-existing conditions? That's nonsense... For one thing, Mr. Romney wants to eliminate restrictions on interstate insurance sales, depriving states of regulatory power. Furthermore, if all you do is require that insurance companies cover everyone, healthy people will wait until they're sick to sign up, leading to sky-high premiums. So you need to couple regulations on insurers with a requirement that everyone have insurance. And, to make that feasible, you have to offer insurance subsidies to lower-income Americans, which have to be paid for at a federal level.
And what you end up with is — precisely — the health reform President Obama signed into law.
One could wish that Mr. Obama had made this point effectively in the debate. He had every right to jump up and say, "There you go again": Not only was Mr. Romney's claim fundamentally dishonest, it has already been extensively debunked, and the Romney campaign itself has admitted that it's false.
For whatever reason, the president didn't do that, on health care or on anything else. But ... never mind the theater criticism. The fact is that Mr. Romney tried to mislead the public, and he shouldn't be allowed to get away with it.

Links for 10-05-2012

Posted: 05 Oct 2012 12:03 AM PDT

What Do the Minutes from the Last FOMC Meeting Say about the Fed's Exit Strategy?

Posted: 04 Oct 2012 01:11 PM PDT

I have some comments on the Fed Minutes (released earlier today):

Fed members disagree over when to reverse policy

Fed Watch: Data Update

Posted: 04 Oct 2012 11:04 AM PDT

Tim Duy:

Data Update, by Tim Duy: A few data thoughts ahead of the employment report. To recap, we are now in watch and wait mode. For now, US monetary policy has faded into the background. For the foreseeable future - until labor markets make substantial and sustainable improvements in the context of price stability - we can assume the Fed is on hold. If we do not see measurable improvement within six to nine months, I suspect Bernanke & Co. will turn their attention to increasing the pace of balance sheet expansion.
It would be unlikely, however, to see any impact from QE3 in the near term. Instead of looking for the positive impact of QE, I am looking for signs that the underlying path of activity is set to deviate from the slow and steady trend of the past two years:

Gdp

The current fear is that the path will deviate to the downside, putting the US economy precariously close to recession. And no, I don't think the economy is near recession just yet - see Menzie Chinn and Bill McBride for more. That said, a few warning signs are flashing. In particular, core manufacturing orders (nondefense, non aircraft capital goods), while up slightly in August, were revised down sharply for July. The picture isn't exactly pretty:

Coreman

Year-over-year declines are clearly consistent with the past two recessions, but note that this has not yet translated into a substantially weaker ISM survey as might have been expected:

Manism

My working hypothesis is that the core manufacturing orders are being negatively impact by overseas events, and that these external shocks have not propagated sufficiently within the domestic economy to tip aggregate manufacturing into a tailspin. In other words this If that story holds, we will not see the core orders weakness translate into overall industrial production declines - similar to the experience of the Asian Financial Crisis:

Newcoreip

Obviously, if the external weakness spreads internally, we will be telling a different story. That said, while the longer run slow and steady story might still hold, the capital goods shipments data, which feed into the calculation of GDP, is not exactly supportive of the Q3 numbers:

Manship

Note again the behavior of the series around the time of the Asian Financial Crisis. Of course, unlike then, the US doesn't have quite the energy from the tech boom to pull the economy along, which is why the current situation is a little more precarious. That and the fiscal cliff. I am relatively confident the economy can withstand one shock, not so confident it could handle two or more. Unfortunately, it is all too easy to see two or more shocks on the horizon.
Separately, consumer spending continues to limp along, gaining a scant 0.1% in real terms August. Bill McBride notes that this puts the consumer on track for a 1.3% gain in Q3, another drag on the overall numbers. It may seem odd that consumer confidence has been generally stronger, with the University of Michigan sentiment measure climbing to 78.3, but I don't see much in that other than a convergence of spending and confidence to their historical relationship:

Conspend

Gas prices are down a bit:

Gas

Further declines might be expected in the wake of falling oil prices, but the feed-through may be slow (or even limited) in the face of supply contraints. Jim Hamilton pointed me to this piece, for example.
Initial unemployment claims are moving pretty much sideways:

Claims

Nothing to believe that a dramatic improvement or deterioration in the labor market is taking place. Similarly, ADP estimates private jobs climbed by 162k in September, although the value of ADP estimates in projecting the BLS number is questionable. But perhaps all projections are questionable; I tend to think that attempting to forecast the monthly change in payrolls is a fool's game. Simply too much month-to-month noise. With that caveat in mind, my quick and dirty estimate (and quite wrong last month) for tomorrow is 139k; the consensus forecast is 113k.
Bottom Line: Not yet seeing a dramatic shift in the direction of the US economy; that doesn't mean such a shift isn't coming. Underlying growth likely slow and steady, although external factors are clearly working to drag growth even lower, with manufacturing showing stress. Without a doubt, these are a matter of concern, and "slow and steady" is not obviously enough to allow the economy to shrug off a negative shock. This is especially true with fiscal cliff looming. But, overall, nothing to make me believe the Fed would change course anytime soon. Nothing to make me sleep much easier at night either.

'Economic Research vs. the Blogosphere'

Posted: 04 Oct 2012 09:51 AM PDT

One more quick one. Acemoglu and Robinson respond to a recent post that appeared here (and posts by others too, their point three responds to my comments):

Economic Research vs. the Blogosphere: Our new working paper, co-authored with Thierry Verdier, received an unexpected amount of attention from the blogosphere — unfortunately, most of it negative. The paper can be found here, and some of the more interesting reactions are here, here and here . A fairly balanced and insightful summary of several of the comments can be found here.
We are surprised and intrigued. This is the first time, to the best of our knowledge, that one of our papers, a theoretical one at that, has become such a hot button issue. Upon reflection, we think this says not so much about the paper but about ideology and lack of understanding by many of what economic research is — or should be — about. So this gives us an opportunity to ruminate on these matters. ...[continue reading]...

Stiglitz: Monetary Mystification

Posted: 04 Oct 2012 09:35 AM PDT

Busy day today -- so a quick one. Joe Stiglitz argues that recent monetary policy initiatives by the Fed and the ECB won't be anywhere near enough to produce an economic revival, and that "the stimulus that is needed – on both sides of the Atlantic – is a fiscal stimulus":

Monetary Mystification, by Joseph Stiglitz, Commentary, Project Syndicate: Central banks on both sides of the Atlantic took extraordinary monetary-policy measures in September: the long awaited "QE3"..., and the European Central Bank's announcement that it will purchase unlimited volumes of troubled eurozone members' government bonds. Markets responded euphorically... Others, especially on the political right, worried that the latest monetary measures would fuel future inflation...
In fact, both the critics' fears and the optimists' euphoria are unwarranted..., the stimulus that is needed – on both sides of the Atlantic – is a fiscal stimulus. Monetary policy has proven ineffective, and more of it is unlikely to return the economy to sustainable growth. ...
Of course, marginal effects cannot be ruled out: small changes in long-term interest rates from QE3 may lead to a little more investment; some of the rich will take advantage of temporarily higher stock prices to consume more; and a few homeowners will be able to refinance their mortgages, with lower payments allowing them to boost consumption as well. ...
For both Europe and America, the danger now is that politicians and markets believe that monetary policy can revive the economy. Unfortunately, its main impact at this point is to distract attention from measures that would truly stimulate growth, including an expansionary fiscal policy and financial-sector reforms that boost lending. ...

I'm a bit more optimistic than he is about what monetary policy can do. But I also think that fiscal policy is needed to really make a difference, and, like Stiglitz, I worry that too much faith and emphasis on monetary policy has let fiscal policymakers off the hook.

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