Month: June 2013

Is there ACA rate shock in California?

I wasn’t going to weigh in on this, but enough of you have asked me what I think of Avik Roy’s claim that California insurance premiums, under ACA, will go up 64% to 146%.  Let me start by telling you this: based on a reading of the secondary commentary, I cannot tell you how much rates in California will be going up (and my original inclination was not to blog it for this reason).

Still, the question having been raised, let’s go back in time.  In 2009, the CBO wrote (pdf):

CBO and JCT estimate that the average premium per person covered (including dependents) for new nongroup policies would be about 10 percent to 13 percent higher in 2016 than the average premium for nongroup coverage in that same year under current law.

About half of those enrollees would receive government subsidies that would reduce their costs well below the premiums that would be charged for such policies under current law.

If you read their subsequent discussion, it seems fairly clear to me they are not averaging “higher premia for those still getting insurance” with “a price decline from infinity, for those who couldn’t get any insurance in the pre-ACA days,” in some kind of complicated index number fashion.  They are talking about price increases on already-existing policies and what kind of continuation one can expect.

I will treat this as the canonical estimate, and stipulate that we will have had “rate shock” if the percentage increases are three times higher than had been forecast by the CBO.

You will note that these higher rates still may be an efficient form of lump sum taxation, or they may be unsustainable price hikes which cause the mandate to unravel (read Will on this point) by encouraging non-participation, or perhaps a bit of both.  Megan McArdle considers some public choice implications of unpopular and unexpected high rates.

In 2009, you will find a claim by Jonathan Gruber:

What we know for sure the bill will do is that it will lower the cost of buying non-group health insurance.

Maybe he had in mind an index-number weighting where the “price decline from infinity” weighs heavily in the calculation and in that sense such a claim can always be true if even one person receives extra coverage.  Still, I am more likely to call it a misspoken sentence, a Denkfehler, an excess enthusiasm, and most of all a highly inexact way of describing the issue no matter what is the truth.  It was always the case that the median and modal individual premium was likely to go up, even with full political cooperation from the Republicans.  After all, that is part of the “efficient lump sum taxation” idea behind the use of the mandate in the first place.  And yes I do understand that a competitiveness effect and a transparency effect still may push prices down but that is not the way I would bet it and for sure it is not “for sure,” to quote Gruber, that such prices are going to fall.  (By the way here is an Indiana estimate of rate increases in the range of 70-90%; I can’t vouch for the underlying data.  It also seems that price declines are highly likely for New York state, in part because the current system has so many problems.  So we also need to be disaggregating the different states here.  Also, here is some informal poll evidence for a 30-40% rate increase at the individual level, with some higher increases for some other groups.  Caveat emptor, but those would be higher rates and they might even surpass the 3x standard I have set up.)

If you add in President Obama’s varied comments on the matter, I absolutely do see the real truth behind conservative and Republican complaints of “bait and switch.”  The median and modal cost of buying non-group health insurance is likely to go up, not down, and not everyone will enjoy the option of keeping the status quo, as had been promised.  And that whole matter is being given a different spin today than it was say in 2009.  On that Roy is entirely correct.

(In passing,  I see employer shedding of coverage as a greater danger to ACA at the macro level, so in my view it is a mistake to see too much of ACA as turning on this issue.)

On the other side of the debate, you will find criticisms of Roy here, here, here, here, and here, among many others.  At least two points of the critics seem to stick, first that these may be teaser (status quo) rates sampled by Roy and second we don’t know actually which individuals can end up getting those rates, once they fill out the questionnaires about the earlier medical histories.  But even there we are left with “we don’t know” more than “I have better numbers which show Roy to be wrong.”  The level of subsidies is relevant too.  I think also that Roy’s response undercounts the number of uninsurable people.  The worry is not that the market price for insurance is infinite, but rather at the prevailing market price one is simply paying one’s medical bills, plus a processing premium to the insurance company, rather than obtaining ex ante insurance.

To raise two other points critical of Roy’s position, first I am uncomfortable with putting so much emphasis on percentage rate increases, when some of these sums in question may be relatively small.  (I find the emphases in Megan’s presentation of the numbers more useful.)  I also think it requires a lot more argumentation to measure the number of “those who can’t get useful insurance” than by looking at the number of applications for the high-risk pools, even if that argument ultimately succeeds.

That all said, I find the screeds of most but not all of Roy’s critics to be inappropriate or in some cases beyond inappropriate.  It is disturbing how much space and emotional energy is devoted to attacking Roy, and to attacking conservative policy wonkery, relative to trying to calculate the actual extent of rate shock or possible lack thereof.  That is not how good policy wonks go about their job.

I think there is quite a good chance we will see rate shock, as I have defined it above.  I also think we still don’t know.  I also see rhetorical bait and switch from ACA defenders.  I also see that Roy is too quick to jump on possible negative information about the California rates without nailing down the case.  I also don’t think these are the most important issues for ACA, though they are issues worth discussing.

Overall this is not a debate which is going very well.

Airport Security Signals

Lars Christensen has a theory of airport security:

…my theory is that if you meet an unfriendly bureaucrat at the security check in the airport then it is also very likely it will be hard to start a business in that country. Therefore, I tend to think of airport security as an indicator of the level of government regulation of the country’s economy. This is something that makes me terribly bearish on the US’ long-term growth perspectives every time I encounter a TSA official in an US airport – and makes me terribly depressed about the prospects for Ukraine and it gives me an understanding of why the Scandinavian countries ‘works’ well despite excessively large public sectors.

It was therefore a pleasure today to meet friendly and efficient people at the security check in Chopin airport (Poland). And if my theory has any value this is an indication that Poland has “matured” and the level of regulation is luckily getting lighter. That is good news. So now I am thinking of raising my long-run growth forecasts for Poland…

I recently asked my young son whether he thought he could travel by himself to visit his grandmother in Victoria, Canada. He said that he could navigate the airports fine and getting into Canada was no problem but he was afraid of the security people coming back into the United States. Bear in mind that my son is American.

Shares of economic growth

The world’s top 10 countries by share of global growth will have shifted entirely out of Europe and the whole EU is expected to account for only 5.7 per cent of world growth. Together, India and China will represent almost half of global economic expansion.

That is from Chris Giles and Kate Allen at the FT.  By the way, here is an FT table, by Kate Allen, of the most rapidly growing economies right now, keep in mind data problems may be significant.

South Sudan 32.1
Libya 20.2
Sierra Leone 17.1
Mongolia 14.0
Paraguay 11.0
Timor-Leste 10.0
Iraq 9.0
Panama 9.0
The Gambia 8.9
Mozambique 8.4

source: IMF

How depressing is the moral regression of Syria?

Syria is undergoing moral regression (one NYT update here), just as Lebanon did in the 1970s or the former Yugoslavia did in the 1990s or for that matter Germany in the 1930s.  The behavior of the government is far more evil and oppressive than before, while the moral quality of the opposition is worse than what we might have expected several decades ago.

That said, most of the world is not regressing morally and arguably can be seen as advancing morally, at least on the fronts of general tolerance, democracy, and the moral virtues which are encouraged by prosperity and market exchange.

Syria is only a small percentage of the broader world and there are only a few other places which count as (possibly) morally regressing.  In total they will not sum to a billion people.  Just for purposes of argument, if you toss in DRC and parts of Pakistan and Egypt, along with a few other areas, let us say it runs at five percent of the world’s population which is morally regressing (though DRC has made some very recent progress and is arguably the new undervalued nation).

One worry is that observed regression draws our attention to the contingency of moral progress.  It can be argued whether Syria is one data point or millions of data points.  I don’t understand very well what observed moral progress is contingent upon, and the histories of Germany and Yugoslavia make this especially tough.  Both locales seemed to have bright futures when they fell apart, morally speaking that is.  So I am not all cocky about moral progress continuing indefinitely.

Is it possible there is more moral regression in the world today than say five years ago?  Does moral regression have a unit root?  Serial autocorrelation?  Do we understand the causes of moral regression better as time passes?  I don’t see that.

Another worry is how well the rest of the world can cope with five (?) percent of its citizens undergoing moral regression.  “Quite fine” it seems so far, although this may be contingent on technology and furthermore Israel and Lebanon may not feel the same way.  In any case the moral regression of Syria may be a more serious problem when insect-sized drones can enable strategic assassinations, including outside of Syria.

The technologies and prices of fifty years from now may require much higher moral standards of us — “every man a Denmark” — than the world of today.  More generally, we dismiss the possibility of moral regression at our peril.

For a useful conversation on this topic I am indebted to SL.

Assorted links

1. Jeff Sachs on Turkey, published on May 27 (the point is not to criticize Sachs, rather nothing he wrote about Turkey seemed to be wrong at the time and arguably it is still not wrong).

2. Retraining Washington state sniffer dogs to ignore pot.

3. Dani Rodrik recommends this piece on Turkey.

4. Why Finnish babies sleep in cardboard boxes, and Europe is losing the 4G race.

5. Wiesbaden cafe charges for time instead of coffee, and Albuquerque has a cereal restaurant.

6. Are Japanese kids too noisy?  Some people think so.

7. In defense of the capital gains tax loophole.

Partisan Bias Diminishes When Partisans Pay

In November of last year I wrote:

Overall, I am for betting because I am against bullshit. Bullshit is polluting our discourse and drowning the facts. A bet costs the bullshitter more than the non-bullshitter so the willingness to bet signals honest belief. A bet is a tax on bullshit; and it is a just tax, tribute paid by the bullshitters to those with genuine knowledge.

A recent paper provides evidence. It’s well known that Democrats and Republicans give different answers to even basic factual questions when those questions are politically loaded (Did inflation fall under Reagan? Were WMDs found in Iraq? and so forth). But do the respondents really believe their answers or are they simply signalling their affiliations? In other words, are respondents bullshitting? In a new paper, Bullock, Gerber, Huber and Hill provide evidence that the respondents don’t actually believe what they say and the authors do so by making partisans pay for their beliefs. Dylan Matthews at Wonkblog has a good writeup:

They ran two experiments. In the first, they split respondents into two groups: Those in the control group were asked basic factual questions about politics; those in the treatment group were asked the same questions but were entered into a raffle for an Amazon gift card wherein their chances depended on how many questions they got right.

In the control group, the authors find what Bartels, Nyhan and Reifler found: There are big partisan gaps in the accuracy of responses.

…But when there was money on the line, the size of the gaps shrank by 55 percent. The researchers ran another experiment, in which they increased the odds of winning for those who answered the questions correctly but also offered a smaller reward to those who answered “don’t know” rather than answering falsely. The partisan gaps narrowed by 80 percent.

The paper also has implications for democracy. Voting is just another survey without individual consequence so voting encourages expressions of rational irrationality and it’s no surprise why democracies choose bad policies.

Hat tip: @jneeley78.

Astro Teller

Dennis is not more likely to be a dentist. Nevertheless, are you surprised that the head of Google[x] lab–the lab bringing you electronically chauffeured vehicles and googles–is called Astro Teller? I kid you not. Named Eric Teller at birth, he has been called Astro since high school. Would you also be surprised to learn that Astro’s grandfathers both made notable contributions? The first grandfather you have probably already guessed, physicist Edward Teller. The second? Gerard Debreu.

What technology exists that most people probably don’t know about & would totally blow their minds?

That is the title of a new Reddit thread, reproduced here.  Overall I am not blown away by the nominations and I find few of them in my own everyday life.  Here is one example:

ALON – transparent aluminium, you can have a window that don’t break!!!

Here is further information, with photos.  Cool enough, but not as good as cheap quality education and health care.  And it costs 20k per square meter, at least according to that article.

I’m ready to call the great stagnation over when driverless cars are in the hands of the middle class, but that’s still a while away.  Steady deflation for education and health care expenditures would do it too, and I can see this will come for education but not for health care.  As for Google Glass, I will review it once they sell me one.  I’d also claim the end of stagnation if we saw a 2% yearly rise in the median real wage on a sustained basis, say most of the years out of a ten-year period.

In the meantime, here is a robot which pours you a beer.

For the pointer I thank Max Roser.

The great unbundling continues, let’s kill room service

Bravo to them, I have never wanted their room service anyway:

The New York Hilton Midtown is the largest hotel in the city, with nearly 2,000 rooms. In August, it will earn another distinction: It will discontinue room service.

The move will eliminate 55 jobs. It could also ignite an industrywide trend. Other hotels, such as the Hudson in New York and the Public in Chicago, are already nibbling at the concept, offering meals delivered in brown paper bags.

…The Hilton property on Sixth Avenue, between West 53rd and West 54th streets, will open a downmarket grab-and-go restaurant this summer called Herb n’ Kitchen, a cafeteria-style eatery that will offer breakfast, lunch and dinner.

The full story is here, hat tip goes to David M. Wessel.  I believe that the argument for the continuation of room service has to involve some mix of drugs and sex.  I say why turn yourself into a captive culinary audience?  This is Manhattan, buy what you need in advance.

Is China the new Brazil?

The biggest external risk concerns China. Its real exchange rate has become overvalued. It is heavily exposed to developed world countries ratcheting down their real exchange rates. Since abandoning the fixed 8.28 yuan/dollar rate in 2005, China’s unit labour costs have been rising at 7 per cent a year, and its currency by 4 per cent, for a combined annual 11 per cent in dollars.

Overvaluation became a serious problem in 2011. Producer price inflation (PPI) of 7 per cent then matched unit labour costs (in yuan), but crumpled into 2-3 per cent producer price deflation over the past couple of years. April’s 2.6 per cent deflation has intensified from 1.6 per cent in February. Chinese businesses have to slash prices to keep a grip on their export markets. But unit labour costs are still rising at a 5 per cent rate, squeezing profit margins, and are up 20 per cent relative to the export competition since 2011.

Adding to this problem is the sudden, related, swing into high real interest rates. In mid-2011, the one-year lending rate from state-owned banks was 6.6 per cent, which combined with 7 per cent PPI to give a slightly negative real rate. But a flight of depositors from China’s banks has kept nominal interest rates high. The nominal interest rate is only down to 6 per cent now, but combined with PPI deflation, the real interest rate is close to 9 per cent. Such high real interest rates combined with squeezed profit margins have pushed China into a prolonged “investment-led” slowdown.

That is from Charles Dumas, here is more.  Dumas also notes that China is especially heavily invested in assets which are interest-rate sensitive in value.

Do not bargain with round numbers

When negotiating for a salary, most of us reach for a nice, round number like $65,000. Or $90,000. Or $120,000.

But, by favoring all those zeros, we may be missing an opportunity to score a better deal, according to a new paper from researchers at Columbia Business School. They found that using more precise numbers in an initial request—or anchor, as it is known in negotiating parlance—generally results in a higher final settlement.

Precision conveys the impression that the job candidate has done extensive research and deeply understands the market for his services, said Malia Mason, the lead author of the paper and a professor at Columbia who teaches a course on managerial negotiations. When people use round numbers, by contrast, they’re conveying that they have only a general sense of the market rate for their skills.

…In one experiment, Ms. Mason and her team had 130 sets of people negotiate the price of a used car. When buyers suggested a round anchor, they ended up paying an average of $2,963 more than their initial offer. But buyers who suggested a precise number for a first offer paid only $2,256 more, on average, than that number in the end.

When it comes to negotiating salary, Ms. Mason’s research indicates that a job candidate asking for $63,500 might receive a counteroffer of $62,000, while the request for $65,000 is more likely to yield a counteroffer of, say, $60,000, as the hiring manager assumes the candidate has thrown out a broad ballpark estimate.

There is more here,  Mason’s home page is here.  The paper itself is here.  Here is her TEDx talk on mindwandering.

Arrived in my pile

1. Stephen H. Axilrod, The Federal Reserve: What Everyone Needs to Know.  A short introduction to the topic, from OUP.

2. Hugh White, The China Choice: Why We Should Share Power (that link is for Kindle, the US Amazon link for the hardcover version is not yet available it seems).  A book about what is possibly the world’s #1 issue.

3. Robert Kuttner, Debtors’ Prison: The Politics of Austerity versus Possibility.

Each book works at a margin which is not mine, but I am happy to pass along notice of them to you.