Bringing a fire extinguisher to a flood

A few days ago,  a friend sent me a 297-word graduation speech by economics Nobel laureate Thomas Sargent, delivered in 2007, that's been making the rounds. The speech consists of twelve precepts, delivered with economists' economy, that have been hailed as a distillation of "everything you need to know about economics," as Ezra Klein -- too fond of such sweeping overstatement since launching Vox -- put it.

The piece rubbed me the wrong way, not because its precepts are not true, but because their uber-message seems out of step with our slow-growth, post-meltdown, austerity-hog-tied economy. The upshot, as Josh Barro summarizes it this morning, is that there's no free lunch. The two bullet points that bugged me in particular  were these:

4. Everyone responds to incentives, including people you want to help. That
is why social safety nets don't always end up working as intended.

5. There are tradeoffs between equality and efficiency.

To take the second first: sure. But as we've learned in the last few years, there's also tradeoffs between inequality and efficiency. When the top 1% grab 95% of the fruits of growth, they tend to 1) use their outsized capital unproductively, increasing their rents, 2) hollow out their customer base, and 3) extend their control over the political system, eroding checks on their own power and ensuring their further corruption.

Take two: Employers want to provide health insurance

Perhaps I buried my lede a bit yesterday in a post about the ACA's employer mandate. So let me try a carve-out.

Josh Barro, taking at face value some bitching about the requirement that employers with more than 50 full-time employees offer health insurance to their employees, recently charged that the mandate is a mistake and that health reform should have pushed health insurance away from the employer-employee relationship.

Defensible as that diagnosis may be in the abstract, voters at large were not the only constituency resistant to weakening the employer-healthcare bond.  Big businesses, and a not inconsiderable number of small businesses, values their role as health insurer, seeing that role as an important part of their bond with employees, as a competitive advantage, and increasingly, as an opportunity to make their workforce more productive  -- not to mention as font of a tax-free form of compensation.

Call them crazy, as Matt Miller did in October 2009 when the National Coalition on Benefits, an association purporting to represent the interests of employers covering 130 million Americans in the health reform process, helped to shoot down Senator Ron Wyden's Free Choice Amendment, which would have enabled all employees to opt out of their employer's health care plan and buy insurance on the insurance exchanges established by what later became the Affordable Care Act. The group's motto: Don't Erode What Works to Fix What's Broken. *

U.S. employers want to provide health insurance

The Wall Street Journal has a good article today, by small business reporters Emily Maltby and Sarah Needleman, about three smallish businesses grappling with the the Affordable Care Act's employer mandate, which charges employers with more than 50 employees $2,000 per employee (excluding the first 30) if they don't offer coverage.  None of the business owners opt not to offer coverage. Here's the head of a small pizza chain with 90 hourly workers:

Next year, Mr. Stark intends to offer a health-insurance plan for the first time to comply with the law. "At the end of the day, if we take care of our team members, they will take care of the guests," he says. "I philosophically believe people having health care, regardless of age, is positive."

A consultant with 93 employees adds:

Chaining ourselves to (slightly) higher tax rates

I was going to suggest a couple of potentially good things about chained-CPI, a slower and allegedly more accurate measure of inflation than the one currently in use, as a means of boosting tax revenue. Josh Barro slowed me up. Having criticized chained-CPI as a means of reducing Social Security benefits, which Barro believes should be indexed to income growth rather than inflation, he moves on to taxes:

Inflation indexing of the income tax code also makes little sense. Every year, income tax brackets are adjusted upward in line with CPI. So, while the 25 percent federal income tax bracket started at $34,500 of taxable income in 2011, it doesn't start until $35,350 for 2012. But, except in recessions, incomes tend to rise faster than price inflation. That means that, absent changes in tax law, a taxpayer at any given place in the income distribution will face a higher effective tax rate over time.

This effect is called "real bracket creep," and it’s undesirable if we want a tax code that produces stable collections and a stable distribution of the tax burden over time. Indexing tax brackets to national income would cause the bracket thresholds to rise faster, eliminating real bracket creep.