The Counter-Upshot: Obamacare is quite as egalitarian as it appears

Tyler Cowen draws a rather odd conclusion from the spike this year in premiums for health plans sold in the nongroup market: The ACA is not as egalitarian as it appears.

Cowen legitimately spotlights the weakness of the ACA value proposition for uninsured people with incomes above 250% of the Federal Poverty Level (FPL) and so for a large group of the remaining uninsured. But his discussion of its "egalitarian" impact is limited by his leaving the Medicaid expansion out of the equation (if not entirely out of the discussion).

Cowen bases his case that "by some measures, the Affordable Care Act has had only a limited impact on economic inequality" mainly on a recent study* by Wharton School researchers led by health economist Mark Pauly.* Pauly et al found that slightly less than half of the still-uninsured who are eligible to buy health plans on the ACA exchanges would not experience "welfare improvements" if they buy health plans. Cowen summarizes:

Is the tax code the best route to attacking wage stagnation?

David Leonhardt identifies stagnant wages as the political issue of our time and the prime mover of Democrats' current woes, as they've been left holding the bag during a period in which median income has fallen. He runs through a list of measures that in part address the problem, of which some (infrastructure) have been blocked by Republicans, others (investment in education) work slowly (if at all), and still others (health reform) have made some headway -- but without much direct or immediate impact on most middle class voters. He then segues to a short-term solution that he suggests might provide at least political relief:

Truly new ideas don’t come along very often in any field, including economics.

So it goes with lifting middle-class incomes. The best hope for doing so, in the immediate future, is probably the oldest and most obvious play in the book: a tax cut.

A few years ago, a middle-class tax cut would have seemed a silly idea. Both Mr. Bush and Mr. Obama had already cut taxes, and the federal budget deficit was enormous. But the deficit has since fallen sharply, thanks in part to lower health costs. Meanwhile, middle- and lower-income families are reaping a disproportionately small share of economic growth. Having the government try to rectify the situation doesn’t sound so silly now — and probably won’t in the 2016 presidential campaign.

Leonhardt admits that the country as a whole is under-taxed, short of revenue for other economy-building action. Hence he suggests pairing a middle class tax cut with a further hike on the wealthy, which of course Republicans will never allow. It's not entirely clear whether he's touting the tax cut because it helps plug the income gap a bit, or because it may stimulate the economy and thus tighten the labor market enough to generate upward pressure on wages. Most likely both.

Tyler Cowen's modest proposal for an imaginary GOP

Tyler Cowen would have Republicans shake up the tax debate by proposing a tiny across-the-board income tax hike in addition to the moderate tax hike for the wealthy proposed by President Obama. Further tax hikes would then kick in automatically as (or if) spending rises. He regards this direction for tax reform as fairer and more sustainable than current proposals, as everyone would feel the effects of "paying" for whatever level of social services and other spending we collectively undertake. Here's the meat of it:

To see how this could work, consider this script: Let’s say the Republicans decide to largely give in to what the President Obama is proposing. There is, however, a catch: the president has to agree to raise marginal tax rates on all income classes, not just on the rich. The tax increase would be one-quarter of a percentage point, or some other arbitrary small amount, with larger increases possible for higher incomes, as has been discussed. The deal also stipulates that both the president and Congress must publicly acknowledge that current plans for government spending can’t be financed unless taxes on most or all income groups climb further yet, and by some hefty amount. 

In which Timothy Egan completes Tyler Cowen

Methinks that there's a circularity to Tyler Cowen's argument that lack of trust in government would undermine the effectiveness of traditional stimulus measures to boost public employment:

Various policies that are being put on the table, including forms of fiscal and monetary stimulus, try to accelerate this repair process. They would all be likely to underperform, partly because the public, rightly or wrongly, doesn’t see them as ways to rebuild confidence. We have become skeptical of our own macroeconomic authorities and abilities, and that, in turn, makes successful policy harder to pull off. 

For instance, there is a good case to be made for monetary expansion, given the current low rate of inflation and high rate of unemployment. But if fear of inflation puts off the American public, such a policy will again underperform, relative to what we have learned in textbooks. There won’t be a credible commitment to see the monetary stimulus through, as people panic that resulting inflation will be used to redistribute wealth. (Although Sweden and Switzerland have had effective monetary policies recently, both of those countries have especially high rates of trust in government.)

First, lack of trust stems in part from lack of effective government. Timely and sufficient stimulus would (or would have) demonstrably improved the economy and so boosted trust that government can act effectively.

Supply-side gastronomics: does low rent and cheap labor mean good food?

The Dish has put up an Ask Tyler Cowen Anything feature, focused on his new book, An Economist Gets Lunch.  Which reminds me: I read the excerpt or precis in The Atlantic, Six Rules for Dining Out, and found those rules bizarre.  I want to have a little fun with them. In most cases my "objections" are a matter of taste (literally) or sensibility, but I have a stray logical or economic quibble or two to air as well. So here we go:

In the Fanciest Restaurants, Order What Sounds Least Appetizing 

At fancy and expensive restaurants (say, $50 and up for a dinner), you can follow a simple procedure to choose the best meal. Look at the menu and ask yourself: Which of these items do I least want to order? Or: Which one sounds the least appetizing? Then order that item.

The logic is simple. At a fancy restaurant, the menu is well thought-out. The kitchen’s time and attention are scarce. An item won’t be on the menu unless there is a good reason for its presence. If it sounds bad, it probably tastes especially good.

My counter-logic is simple too. I'm a residually fussy eater (much worse as a child). There are a lot of textures, colors and smells that I don't like in food.  If an item sounds unappetizing to me, it's almost guaranteed to prove so.  Which probably explains why I don't eat in $50+/person restaurants.

The reader over your shoulder

Whither the U.S.? Whither the human race?  I've read some pretty good books recently that grapple with the big questions, and I've enjoyed engaging with them here, whether in the form of reviews, free association, nitpicks, whatever.  Below, various responses to some good reads.

Steven Pinker's The Better Angels of Our Nature
Religion helped develop our better angels 
Better Angels in the news 
The bettering angels of our nature

Erik Brynjolfsson and Andrew McAfee's Race Against the Machine 
We may be half-drowning, but we're not stagnating
see also:  A Kling-free future prosperity?

Tyler Cowen's The Great Stagnation
Slo-mo grow on the plateau: Tyler Cowen's theory of American Malaise

Stux chucks world into flux

Ever since I first encountered Jeffrey Goldberg crowing about Stuxnet, the cyber-weapon that reportedly set back Iran's nuclear program by 1-2 years, I've worried that by launching such weapons (or helping the Israelis launch them) the U.S. is sowing the wind and will reap the whirlwind.  The same might be said for our ever-expanding drone deployments. David Rothkopf fleshes out such fears:

"America still hasn't quite understood that we are opening Pandora's box. Take drones. We feel we can use them anywhere, soon others will be using them against us. There are dozens of countries around the world developing their own drone technology or buying what is out on the market. The same is true for technologies like those associated with Stuxnet," said the former senior diplomat who has worked closely throughout his career with the military and intelligence communities. Or as another journalist friend of mine put it who has been covering the issue closely, "The day after Stuxnet was like the day after Hiroshima. We had the technology and no one else did. But within a matter of a few years that had changed." So had the nature of modern warfare...and by extension of modern diplomacy and that's what is going to happen here.

We may be half-drowning, but we're not stagnating

Some months ago, in an encounter with Tyler Cowen's ebook The Great Stagnation, I questioned Cowen's premise that technological transformation of human life has slowed down in recent decades, that is

whether we're living in an era in which transformative technological innovation is in short supply. Cowen does allow "the Internet" as the great exception, but points out that the leading-edge tech companies employ relatively few people, and that Internet innovation has been notoriously difficult to monetize. He is strangely silent, though, about the impact of interactive technology and computer technology more generally on production and commerce of all kinds -- just-in-time factory production, product customization, bar coding, all the incredible efficiencies of large-scale retail operations that wring out large profits on tiny margins -- and on interactive technology's role in globalizing production. He also doesn't consider transformative technologies hiding in plain sight: personal computers themselves (never mind the Internet) and cell phones. It's true, as Cowen says, that the basic physical components of middle class life in America don't look that much different than they did in the 1960s. But they are much different. And the differences have generated a lot of wealth, even if  the U.S. middle class hasn't garnered as large a share as it did in he previous generation.

That demurral is advanced at book length by MIT scholars Erik Brynjolfsson and Andrew McAfee in Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy. Brynjolfsson and McAfee argue that computer and network technology is indeed, like the steam engine and electricity before them, a "general purpose technology" (GPT), that is, one that accelerates economic progress in a world-transforming way.  IT's transformative power is an inevitable effect of Moore's Law: we have lived through a time of sustained exponential growth in processing power, which has brought us to the brink of self-driving cars, chap robots that function more or less as mini-factories, and viable automated translation and communication. While the landscape may not yet have been as visibly transformed as it was by prior GPTs, as Cowen argues, business processes have. Regarding  the Web and enterprise resource planning and CRM software, for example:

Seeing beyond the trough we're in

Kevin Drum today takes on a meme gathering steam: that innovation has stalled, and we're in a period of relative technological stagnation. In particular, addressing the question of whether inventions in the last 50 years have been less transformative than those in the previous 50-odd, he argues:

Most of the best known inventions of the early 20th century were actually offshoots of two really big inventions: electrification and the internal combustion engine. By contrast, the late 20th century had one really big invention: digital computers. Obviously two is more than one, but still, looked at that way, the difference between the two periods becomes a bit more modest. The difference between the offshoots of those big inventions is probably more modest than we think too. Just as we once made better and better use of electrification, we're now making better and better use of digital computing. And to call all these computing-inspired inventions mere "improvements" is like calling TV a mere improvement of radio. These are bigger deals than we often think. We have computers themselves, of course, plus smartphones, the internet, CAT scans, vastly improved supply chain management, fast gene sequencing, GPS, Lasik surgery, e-readers, ATMs and debit cards, video games, and much more.

Drum is responding in large part to Tyler Cowen's The Great Stagnation. I'd like to second his skepticism.  In fact, some months ago I posed five questions for Cowen, e.g.:

Christopher Caldwell slips into the Fallows Fallacy on China

Noting that toilet maker Kohler has a global hit with an ultraluxury $6,400 toilet that was designed in large part to cater to Chinese tastes, Christopher Caldwell sees "a harbinger of trouble for the U.S":

A stubborn myth, in fact, holds that US creative exports are a more robust foundation for prosperity in the global economy than heavy industry ever was. Anyone can build a car, but Americans’ gift for innovation is ineffable. It is a kind of creative magic that is hard for the country’s sclerotic, overly bureaucratised trading rivals to match. How can you fight what you can’t fathom? Who can compete with a je-ne-sais-quoi?

America’s rivals are much less backward than its cheerleaders assume, however, and the country’s creative dynamism is much less mysterious. Taste tends to follow wealth. It should not surprise us if it turns out that people want US design only so long as the US is perceived as the richest, the best, the hegemon. True, there will always be American products that mix glamour and craftsmanship. But certain US exports are based on glamour alone, and will collapse as US prestige does.

At first read I thought that Caldwell was onto something profound here. And maybe he is, long term.  But I think he's overselling the troublesome toilet as a signifier that we're in deep shit now on the design-and-style front. This may well be an episode of what James Fallows calls the " "I just rode the bullet train to Tianjin, and holy shit, we're doomed!" approach to China's rise:

Slo-mo grow on the plateau: Tyler Cowen's general theory of American malaise

Why has the U.S. been plagued with a series of jobless recoveries, an extended period of middle class stagnation, and an equally extended rise in income inequality?  Tyler Cowen floats a new unifying theory through a medium that's part of his message: a novella-sized theory outline first  published as an e-book. The title provides an admirably concise precis: The Great Stagnation - How America Ate All the Low-Hanging fruit of Modern History,Got Sick, and Will (Eventually) Feel Better. The book is as accessible in price ($3.99) as it is in concision, clarity, and freedom from technical economic analysis (or jargon).

Cowen proposes that the United States has already picked all the "low-hanging fruit" of a now-past era of transformative technological development.  He claims that we are now living off the wealth (and growth) generated by the life-changing technologies of the late nineteenth to mid-twentieth century: automobiles, mass communication, air travel, fossil fuel exploitation --and that we're currently on a technological plateau, where growth is inevitably slower. At the same time, we're living with government institutions that can't be easily funded at the slower real growth levels that have prevailed in recent decades. So we're fighting with understandable bitterness over whether to maintain past levels of redistribution of a not-quickly-enough-growing pie -- or whether, ultimately, to shrink our expectations of what government can do for us, at least until we get off the plateau and into a new era of transformative technology.  Meanwhile, he is rueful about the efficiency of government where it matters most -- in education and healthcare delivery -- though perfunctorily upbeat about recent attempts to find efficient ways to improve education.

These theses are obviously meant to be provocative, all the more so as delivered in a short e-book that's almost an abstract of a potential tome that would fill in the conspicuously lacking evidence. In responding, I beg some latitude on two fronts. First, Cowen is an extraordinarily well-read polymath and an able economist, and it's fair to take it on faith that his evidence-light outline represents distillation of a huge amount of data and analysis. I'm responding just as a casual and moderately informed reader. Second, I'm going to indulge myself and compound the error by posting my spontaneous reactions without checking on what's probably already a copious response literature.  I could call this an experiment, but it's really an indulgence: I'm eager to read and engage other responses. But I want to get my thoughts out first, and blog space is cheap...

1) I'd question whether we're living in an era in which transformative technological innovation is in short supply. Cowen does allow "the Internet" as the great exception, but points out that the leading-edge tech companies employ relatively few people, and that Internet innovation has been notoriously difficult to monetize. He is strangely silent, though, about the impact of interactive technology and computer technology more generally on production and commerce of all kinds -- just-in-time factory production, product customization, bar coding, all the incredible efficiencies of large-scale retail operations that wring out large profits on tiny margins -- and on interactive technology's role in globalizing production. He also doesn't consider transformative technologies hiding in plain sight: personal computers themselves (never mind the Internet) and cell phones. It's true, as Cowen says, that the basic physical components of middle class life in America don't look that much different than they did in the 1960s. But they are much different. And the differences have generated a lot of wealth, even if  the U.S. middle class hasn't garnered as large a share as it did in he previous generation.