Krugman’s blog, 6/1/13

There were two posts yesterday.  The first was “What We Have Here Is A Failure To Communicate:”

Interest rates are rising! Head for the hills!

OK, maybe not quite yet. Some perspective on recent moves:

The 10-year bond rate, in perspective. The 10-year bond rate, in perspective.

Still, a rise in bond rates is not helpful just as there are signs the economy is gaining momentum despite the best efforts of politicians. So what is happening?

Well, recall my little typology of rate rises:

With stocks down and the dollar up, this looks like a market that has upgraded its estimate of the chances that the Fed will tighten too soon. And yes, I mean too soon, for sure. Look not at the unemployment rate, which to some extent reflects people dropping out of the labor force, and instead look at the employment-population ratio — focusing on prime-age workers to avoid demographic issues:

Employment-population ratio, ages 25-54. Employment-population ratio, ages 25-54.

Our labor market has barely begun to recover. Meanwhile, inflation is dropping well below target, even as a growing number of analysts believe that the target itself has been set too low.

So unless Bernanke and company mean to signal their intention to tighten much too soon, and derail recovery, they had better start getting their message out better.

The second post of the day was “We Are Not Having A Serious Discussion, Obamacare Edition:”

I fairly often receive mail pleading with me to take a more even tone, to have a respectful discussion with people on the other side rather than calling them fools and knaves. And you know, I do when I can. But the truth is that on most of the big issues confronting us, there just isn’t anyone to have a serious discussion with. Ezra Klein offers a nice illustration of this point today, in his takedown of Avik Roy on Obamacare in California.

The thing you want to bear in mind is that Roy is widely considered a good example of a reformist conservative, not to mention a health policy wonk. So what does this reform-minded wonk have to say about Obamacare?

Klein tries really hard to keep his temper even; too hard, I think, because I wonder how many readers will stay with him all the way through. But to cut to the chase, Roy claims that Obamacare will cause soaring insurance rates, using a comparison that is completely fraudulent — and I say fraudulent, not wrong, because he is indeed enough of a policy wonk here to know that he is pulling a fast one.

So here’s the comparison Roy uses: he points out that the insurance premiums that will apparently be charged on the California exchange will be higher than the lowest rates being offered by some insurers in California right now.

As Klein says, this isn’t just comparing apples and oranges; it’s comparing apples with oranges you can’t even buy.

Right now, California has a basically unregulated individual market, in which insurers are free to reject whoever they choose, and charge whatever rates they choose. This means that a few young, healthy people with no record of prior medical problems can get cheap plans; these are, of course, precisely the people who need insurance least, and these plans are cheap not just because they’re only available to the very healthy but because they don’t provide much insurance. If you’re not healthy or wealthy enough to get by with this kind of insurance, too bad.

So looking at these rates tells you nothing at all about the success of a program that offers insurance to everyone, regardless of medical history, and sets fairly high minimum standards for the quality of that insurance.

What’s more, this isn’t some obscure issue. When people try to explain the logic of ObamaRomneyCare — certainly when I try to explain it — they often start from precisely this point, pointing out that unregulated insurance markets give the healthy and wealthy a pretty good deal but leave everyone else out in the cold, then work from that point toward the “three-legged stool” of community rating, mandates,and subsidies that supports reform. So Roy has to know that he’s making an essentially fraudulent argument — and does it anyway.

And Roy is about as good as you get in this stuff: his tone is even, he actually knows something. Nonetheless, he goes for the cheap, misleading shot.

I know that a lot of people wish we lived in a country where debates about things like health care policy were serious, honest discussions of debatable points. I like to hope that by the time I retire I’ll actually live in a country like that. But right now, and surely for years to come, it’s basically facts versus fraud.



One Response to “Krugman’s blog, 6/1/13”

  1. Philip Pulse Says:

    Mr. Krugman likes to say he is against austerity and rightly so. I suppose he favors stimulus though monetary easing may not be his favorite dish. I would offer the thought that QE while its current preponderance of uses by hedges is foremost responsible for the low level of mortgage closings in spite of the lowest interest rates in decades. In order for banks to expand they need to lend. They can’t lend because their assets are held by the Fed while they sort out their bad bets under Bush. For each closing a little room is made. So while interest rates are low the volume is equally low. How to stop it? By putting a tourniquet around the wound. Force the banks to use their low interest loans as collateral to break open the bottleneck. If this inspires higher rates coupled by prices so be it. But you can’t have it both ways: low rates and significant expansion while the brakes are on. Thus the reason for slowing down fiscal spending for goods and services in the manufacturing market. So much more can be gained by putting even 10% of the huge surplus of taxes recouped from corporations into education and R&D than spending on more bullets or butter. That is not the same as cutting back on Medicare or Social Security. Smaller slices on prescription drugs, autos, tanks, planes and roads. To expand taxes on the wealthy those in the top 1/10 of 1% must feel the ax on their necks.

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