Economist Channel

SIMON: This budget would also... mean deep cuts to the food stamp program....

SIMON: Well, let me ask you this bluntly - is every American entitled to eat? 

SMITH: Well, they - nutrition, obviously, we know is very important. And I would hope that we can look to... 

SIMON: Well, not just important, it's essential for life. Is every American entitled to eat? 

SMITH: It is essential. It is essential. 

SIMON: So is every American entitled to eat, and is food stamps something that ought to be that ultimate guarantor? 

SMITH: I think that we know that, given the necessity of nutrition, there could be a number of ways that we could address that. 

SIMON: So you would vote ..  for a budget that cuts food stamps? 

SMITH: I want to look at an entire budget, look at all of the details. I'm still sifting through the details of the newly released budget. But we know that Congress ultimately has the say. I look for there to be a lot of changes made in the House and the Senate to the president's budget. 

SIMON: Congressman Adrian Smith from Nebraska, thanks so much for being with us, sir. 

SMITH: Thank you. Have a good day.

SIMON: ... Doesn't it also, the food stamp program, also help farmers who produce the food that's bought?

"To help poor children, I am going to launch flaming accordions into the Grand Canyon." 

"That's stupid." 

"WHY DO YOU HATE POOR CHILDREN?" 

That exchange should put in perspective the real and present danger Trump poses...But taking away Americans’ food is very tangible, and a real possibility.

...high productivity cities like New York and the San Francisco Bay Area have adopted stringent re- strictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009.

In some parts of America, there has been a revolution in the regulation of home building over the past 50 years (Glaeser, Gyourko and Saks, 2005). For most of U.S. history, local economic booms were met with local building booms, so labor could follow shocks to local productivity. However, between the 1960s and the 1990s, it became far more difficult to build in the nation’s most desirable locations, especially those along the coasts. Higher economic productivity in San Francisco now leads to higher prices, not more homes and more workers (Ganong and Shoag, 2013). This change has both led to a transfer of wealth to a few lucky homeowners and to a distorted labor market where people move to regions such as the Sunbelt that make it particularly easy to build (Glaeser and Tobio, 2008).

Deregulating existing urban land from 2014 restriction levels back to 2000 restriction levels would increase US GDP growth by nearly .5% per annum from 2000 to 2014, bringing output and TFP growth roughly in line with their historical trends. The most significant expanding regions from these hypothetical deregulations are California, New York, and the Mid-Atlantic.

We use a variety of state-level data sources, including the USDA, the Census and the BEA to develop a general equilibrium spatial model of the US states

... general equilibrium congestion forces in the market for housing and land offset some of the gains from deregulation

All providers must post, in their offices and on a public web site without any requirement to sign in or otherwise identify oneself to access it, a full and complete price list which shall apply to every person....  

All customers must be billed for actual charges at the same price on a direct basis at the time the service or product is rendered to them.  This immediately and permanently decouples "insurance" from the provision of care.  The current system of an "explanation of benefits" that often features a "negotiated discount" of some 90% is nothing other than an extortion racket and is arguably felonious...  All medical records are the property of, and shall be delivered to, the customer at the time of service in human readable form (a PDF provided on common consumer computer media such as a "flash stick" shall comply with this requirement.)  Any coding or other symbols on said chart must include a key to same in English delivered at the same time....  

All surgical providers of any sort must publish de-identified procedure counts and account for all complications and outcomes, updated no less often than monthly. Consumers must be able to shop not only on price, but also on outcome... 

Auxiliary services (e.g. medical or dental Xrays, lab testing, etc) may not be required to be purchased at the point of use.  If you wish to buy your tests from the lab down the street (which also must post a price) that's up to you.... 

Any test or diagnostic that carries no exposure to drugs or radiation, nor is invasive beyond a blood draw, may be purchased without doctor order or prescription... 

No government funded program or government billed invoice will be paid for medical treatment where a lifestyle change will provide a substantially equivalent or superior benefit that the customer refuses to implement.  The poster child for this is Type II diabetes, where cessation of eating carbohydrates and PUFA oils, with the exception of moderate amounts of whole green vegetables (such as broccoli) will immediately, in nearly all sufferers, return their blood sugar to near normal or normal levels.  The government currently spends about 25% of Medicare and Medicaid dollars on this one condition alone and virtually all of it is spent on people who can make this lifestyle change with that outcome but refuse... 

Health insurance companies must sell true insurance to sell any health-related policy at all.  A true insurance policy is defined as one that (1) does not cover any condition you have received treatment for over the last 24 months...

"John Cochrane’s idea that money is irrelevant for growth (economists say that money is “neutral”) not only clashes with major scientific results, such as Dani Rodrik’s analysis of the role of excessively strong exchange rates in slowing the growth of a country, but also with what the European institutions are finally admitting through clenched teeth: the reforms are causing deflation and failing to promote employment in any decisive way (footnote 23 in the above-mentioned ECB Economic bulletin).

The best economists had also addressed this point: the negative consequences of structural reforms on the productivity of labour were illustrated by Robert Gordon in 2008. For Cochrane, money is like oil in a motor. The metaphor is (unwittingly) correct. Bad management of oil has long-period consequences like bad management of currency: in the first case the head fuses and the motor stops; in the second a continent, and the world economy stops.

If De Grauwe is incoherent with data and Cochrane with theories,..."

"For today, let's focus on the long-run question, leaving out for now the transition and any immediate benefits and costs...  

Remember first that monetary policy cannot substantially improve long-run growth. Long-run growth comes from people and productivity, how much each person can produce per hour of work.... Improvements in long-run growth come only from structural reform, not monetary machination. 

Money is like oil in a car. Bad monetary policy, like too little oil, can drag an economy down. But after a point more oil will not help you to go faster — you need a bigger engine."

the market share of shadow banks in the mortgage market has nearly tripled from 14% to 38% from 2007-2015. In the Federal Housing Administration (FHA) mortgage market, which serves less creditworthy borrowers, the market share of shadow banks increased...from 20% to 75% of the market. In the mortgage market, “fintech” lenders, have increased their market share from about 5% to 15% in conforming mortgages and to 20% in FHA mortgages during the same period

Consider Quicken Loans, which has grown to the third largest mortgage lender in 2015. The Quicken “Rocket Mortgage” application is done mostly online, resulting in substantial labor and office space savings for Quicken Loans. The “Push Button. Get Mortgage” approach is also more convenient and faster for internet savvy consumers....

Among the borrowers most likely to value convenience, fintech lenders command an interest rate premium for their services. 

Sector shadow banks have gained larger market shares in the refinancing market relative to financing house purchases directly. One possible reason for this segmentation is that traditional banks are also substantially more likely to hold loans on their own balance sheet than shadow banks. Approximately one fourth of traditional banks loans in HMDA are held on their own balance sheet. For shadow banks, the share is closer to 5%. Because refinancing loans held on the balance sheet cuts directly into a bank’s profit, their incentives to refinance are smaller..

Fintech lenders, for which the origination process takes place nearly entirely online... By comparing .. fintech and non-fintech shadow banks, we compare lenders who face similar regulatory regimes, thus isolating the role of technology. First, we find some evidence that fintech lenders appear to use different models (and possibly data) to set interest rates. Second, the ease of online origination appears to allow fintech lenders to charge higher rates, particularly among the lowest-risk, and presumably least price sensitive and most time sensitive borrowers.

Unlike shadow banks, traditional banks are deposit taking institutions, and are thus subject to capital requirements, which do not bind shadow banks. If capital requirements are the constraint that increases the cost of extending mortgages for traditional banks, we should see larger entry of shadow banks in places in which capital requirement constraints are more binding. Indeed, we find a larger growth of shadow banks in counties in which capital constraints have tightened more in the last decade

By comparing the lending patterns and growth of shadow bank lenders, we demonstrate shadow bank lenders expand among borrower segments and geographical areas in which regulatory burdens have made lending more difficult for traditional, deposit-taking banks.

"..the additional regulatory burden faced by banks opened a gap that was filled by shadow banks. "

We argue that shadow bank lenders possess regulatory advantages that have contributed to this growth. First, shadow bank lenders’ growth has been most dramatic among the high-risk, low-creditworthiness FHA borrower segment, as well as among low-income and high-minority areas, making loans that traditional banks may be unable hold on constrained and highly monitored balance sheets. Second, there has been significant geographical heterogeneity in bank capital ratios, regulator enforcement actions, and lawsuits arising from mortgage lending during the financial crisis, and we show that shadow banks are significantly more likely to enter in those markets where banks have faced the most regulatory constraints.

If a country consumes more than it produces, it must import more than it exports. That’s not a rip-off; that’s arithmetic. 

If we manage to negotiate a reduction in the Chinese trade surplus with the United States, we will have an increased trade deficit with some other country. 

Federal deficit spending, a massive and continuing act of dissaving, is the culprit. Control that spending and you will control trade deficits.

We’ll say it again, now for the Senate’s benefit: Apply a few GOP-style fixes and ObamaCare, or something like it, becomes a solution to America’s health-care muddle. You could phase out every other federal program, including Medicare, Medicaid and the giant tax handout to employers, and roll their beneficiaries into ObamaCare.

...In a world where individual insurance is fairly priced, a mandate would be less burdensome. As candidate Obama said in 2008, with a smidgen of hyperbole, if health insurance is a good deal, nobody would need to be forced to buy it. 

...The philosophical premises of the Republican and Democratic individual mandates could not be further apart. The original Republican mandate, hatched by the Heritage Foundation in 1989, was aimed at making sure would-be free riders paid their fair share, no longer transferring their financial risk to the taxpayer or other health-care consumers. 

ObamaCare turned the mandate into a tax—a way to overcharge the young, healthy and (let’s face it) male to generate funds to subsidize voter blocs Democrats wanted to subsidize.

ObamaCare went out of its way to be a bad deal for the young and healthy, who didn’t sign up. The GOP fix [5:1 premiums, much less mandated coverage], if adopted in the Senate, would go a long way toward letting individual premiums be fairly and attractively priced to these people.

Among the provisions senators are tackling is one that allows insurers to charge older Americans five times as much as younger people and lets states obtain waivers that could make that disparity even larger. 

Congress could start making rational judgments about whom to subsidize and whom not to subsidize. Do all seniors need a handout, or only the poor ones? [Or only the sick ones?] And surely no Congress would re-up to the current employer tax benefit, which gives its biggest handout to the highest earners while producing all the pathologies the employer-centric payment system is heir to.

In principle, this should be a transitional problem in a world where everyone has access to attractive, fairly priced health insurance. By giving new options to the states, the House bill would make subsidizing pre-existing conditions a general obligation of the taxpayer as it always should have been.

Republicans...wussed out with a semi-mandate, in which anybody who lets coverage lapse and then tries to re-enter the system will pay a penalty.

Myth #2:  The pre-ObamaCare system was ‘insurance’ 

It was not a system of insurance. Insurance, as practiced everywhere else but healthcare, is about catastrophes. What we had was a government-subsidized payment plan funneled through insurance companies. 

... Due primarily to the tax subsidy given to employer-provided healthcare (a bipartisan, so-far-untouchable disaster), catastrophic health insurance is not Americans’ norm. Rather, employers provide essentially all healthcare from basic health maintenance and symptom relief to the most expensive life-saving procedures, and they do it because the government massively subsidizes this approach. 

This is odd. You don’t go to your car insurer to fill your car with gas or to your homeowner’s insurance company to change a light bulb. Why do you go to your health insurance company for everyday medical services? That is not insurance, it is tax-subsidized provision of all your healthcare needs, and it causes two of our system’s biggest problems. 1) Health coverage is not portable, as it’s employer-provided, and 2) consumers are insulated from the cost of basic healthcare because they don’t pay directly for services. Educated consumers spending their own money would be far better shoppers for healthcare. ...Paying $5 for a prostate exam is demeaning to both parties. 

Myth #3: Stopping insurance companies from charging based on pre-existing conditions is the one good part of ObamaCare 

Even many Republicans fall for this one, perhaps because it polls well. In these days of horrible discord, partisanship, and uncivil discourse (actually very much like the other 200+ years of the Republic) it is nice to know we can all still get together to rally around a really dumb idea....

P.S. Don’t kid yourself that Democrats have a plan other than blindly defending more and more subsidies for more and more health-care consumers. Single-payer is not a plan. It’s an invitation for the health-care industry—doctors, hospitals, the research establishment—simply to turn their full attention to serving the self-paying rich.

While audit and other risk management interventions are effective compliance tools, they can be expensive and time consuming for both Revenue and taxpayers. Targeted treatments using behavioural science can be a complementary and cost-effective tool to improve compliance. A summary of key findings across four behavioural insights is below. 

Deterrence: Deterrence strategies (e.g., highlighting possible sanctions) dissuade taxpayers from non-compliant behaviour. The research confirms that deterrent effects significantly improve taxpayer compliance, particularly when combined with other insights. They impact different taxpayer segments differently. 

Simplification and Salience: Compliance or other behaviours can be enhanced through simpler presentation of information and by drawing attention to key details. For tax administrations, this may involve highlighting the third-party information held, for example through correspondence or the pre-filling of tax returns. Information in any communications should be presented in the most clear and simple way possible, including bolding and centred text. 

Personalisation: International research has shown the potential of more personalised correspondence, which is increasingly becoming a possibility given technological advancements. Revenue trials confirm that personalisation leads to greater and quicker engagement, especially when multiple elements of personalisation are applied. 

Social Norms: The behaviour of others can influence an individual’s choices. Revenue research finds that social norms are generally not effective at influencing behaviour. However, there is limited evidence indicating that these may improve taxpayer compliance when combined with other insights. 

According to a meta-analysis, which weights the result of 20 trials by sample size, the most effective insights tend to be deterrence (+8.0% improvement in targeted behaviour), personalisation (+4.0%) simplification and salience (+3.3%) and social norms (-1.6%). The wording and design of communications can affect taxpayer compliance. Even seemingly insignificant changes to correspondence can significantly change behaviour. While these lessons have mainly been learned from letters, they should be considered in any Revenue communication with taxpayers.

But on the other hand, our era’s “enlightened” governance has produced an out-of-touch eurozone elite lashed to a destructive common currency,..

There is no American equivalent to the epic disaster of the euro, a form of German imperialism with the struggling parts of Europe as its subjects... 

And while many of her economic prescriptions are half-baked, her overarching critique of the euro is correct: Her country and her continent would be better off without it.

Although Italy was an enthusiastic adopter of the euro when the single currency began, the Italian experience of the past decade suggests that was a mistake.

...it seems plausible that Italy’s economy would be in better condition today if Italy, like Britain, had decided to keep its own currency and therefore to be able to manage its own monetary policy and its own exchange rate.

Advocates of adopting the euro argued at the time that members of the Eurozone would be forced by market pressures to converge to a high common level of productivity and a corresponding level of real wages. That never happened. Instead, Germany powered ahead with rising productivity that has resulted in real per capita income 30% higher than Italy’s, an unemployment rate that is less than half Italy's and a trade surplus that is 8 % of its GDP.

The countries that adopted the euro never satisfied the three conditions for a successful currency union: labor mobility, flexibility of real wages, and a common fiscal policy that transfers funds to areas that experience temporary increases in unemployment.

Wal-Mart’s application to form a bank ignited controversy among disparate groups, ranging from union backers to realtor’s groups to charitable organizations. The dominant voice, though, was that of independent bankers complaining that the big-box retailer would drive them out of business. Wal-Mart denied any interest in competing with local banks by opening branches, claiming that it was interested only in payments processing. Distrusting Wal-Mart, the independent bankers urged the FDIC to deny Wal-Mart’s request and lobbied state and federal lawmakers to block Wal-Mart’s plans through legislation. Ultimately, WalMart withdrew its application, concluding that it stood little chance of overcoming the opposition.

... I argue that permitting Wal-Mart to have a bank would have a salutary effect on the relatively uncompetitive market for payment networks. The dominant position of Visa and MasterCard, in which payments are priced above cost to subsidize credit, inevitably will give way to a world in which payment services are priced at cost, or even below cost as a loss-leader to attract customers to other goods and services.  

We are always told that we need regulation to protect consumers and make the financial system safer. That is the theory. The practice is that regulation very often gets used to limit competition. 

"Tucked inside a nearly 600-page legislative proposal to overhaul U.S. financial regulations are 93 words that could provide a windfall for bank investors seeking heftier dividends and share buybacks."

"Bank analysts at Barclays BCS -6.08% PLC estimate $236 billion in capital is tied up in operational risk at the four biggest U.S. banks alone"

"Bankers ... want to free up capital that could be returned to shareholders or used for more lending."

"Mr. Dimon added that U.S. banks now hold about $200 billion in capital against operational risk."