Lee Craig's bio of Josephus Daniels getting attention

Kudos to NC State economist Lee Craig, whose recently published biography of Josephus Daniels received a resounding "thumbs up" from WSJ on Saturday.  Daniels was a white supremacist who was instrumental in disenfranchising blacks after reconstruction in his role as publisher of the Raleigh News & Observer.  He later became Secretary of the Navy under Woodrow Wilson.  Coffee came to be known as a "Cup of Joe" after Daniels banned demon rum from all naval bases and vessels. 

A pleasant Obamacare surprise?

I promise this will be the last Obamacare post for awhile, but I saw this WP post today and thought I should share it so that readers continue to get a balanced perspective.  In 2009 experts were predicting that monthly premiums would be about $450 for a "silver" plan.  Most media coverage since then has warned of stiff increases in premiums. 

Now California has posted the actual rates for 2014 and the results are encouraging.  The lowest pre-subsidy price is $276; the second lowest is $294.  After subsidies, the rates will be in the $100-110 range. 

If this turns out to be the case in most states, then it is quite likely that more individuals than expected will opt to buy insurance instead of paying the penalty for being uncovered.  Although the penalty will be a relatively low $95 in 2014, it rises to a much heftier $695 in 2016. 

Two-tiered health system coming?

Forbes columnist John Goodman (the health economist, not the actor) sees a have-and-have-not future for health care.  The wealthy will pay a premium of about $2k/year for concierge medicine, with quick and easy access to one's regular doctor and no surgery delays. 

Most everyone else will be dealing with a rationing-based system, not unlike Canada's.  Goodman sees rationing coming quickly because

1. Obamacare will create more demand for medical services
2. But it does nothing to increase the supply of doctors
3. Many doctors will accelerate their retirement to avoid dealing with heightened regulation
4. More and more doctors will shift from small practices (where they get paid more if they work more hours) to hospitals where they will pull a fixed salary; as a result, doctors are likely to cut back significantly on their work hours

In other words, supply down, demand up and price not allowed to adjust -- the classic recipe for a shortage. 

Another Obamacare surprise

Three years after the Affordable Care Act (ACA) was passed and signed, significant new details about the law's provisions continue to drip out.  This week WSJ reports that consultants have discovered that the law treats large and small employers very differently.  Policies sold to individuals and small employers must provide extensive coverage (including hospitalization) whereas policies sold to companies with more than 50 employees only have to provide "preventive services" costing in the range of $40 to $100 per month.  This cost is well below the $2000 penalty for failing to provide insurance. 

The tradeoff for employers: a cheapo health plan will result in higher turnover and lost loyalty but maybe the cost savings make it worthwhile.  One further complication: employers get dinged $3000 if a worker opts out of the cheapo health plan and buys an individual policy at one of the new exchanges. 

Point to ponder: insurance companies are jacking up rates of individual and small group policies in anticipation of losing the ability to deny coverage for pre-existing conditions.  Will the higher rates and the relatively small penalty for not being covered result in an outcome where ACA yields no increase in health insurance coverage?

Picking stocks

Harvard economist Greg Mankiw has a great column today in NYT regarding what stocks he should by.  Economists get this question all the time and Mankiw's answers are noteworthy for being solidly based on economic research.  Here is a quick, high-level summary:

1. Markets always know more than you do.  So unless you have inside info or you see things no one else sees, you should realize your insights are priced into the market's valuation.  Buy index funds to save costs. 
2. Many price moves cannot be explained, even after the fact.  Deal with it.
3. You better own some stocks.  All the research shows that they outperform other assets over the long haul.  
4. Don't put all of your eggs in one basket.  Folk wisdom and high-powered econometrics yield the same conclusion.  
5. Think global.  The US represents slightly less than half of total global valuation; get yourself some EU, Japanese and emerging market stocks.  

I have followed most of this advice, although I must admit my global exposure is a bit out of balance.  Mankiw recommends Vanguard's Total World Stock exchange traded fund FWIW.

How to run a meeting

I must sheepishly admit that NC State's MBA program does not cover the important subject of how to run a meeting.  Now I do not have to worry, because I can point students to an excellent article on the subject by Donald Rumsfeld in last weekend's WSJ.  Here is a quick summary of the key issues he raises:

1. Ask whether you really need to have the meeting.  If it is purely informational, why not use an email or memo?
2. Think hard about who really needs to attend.  
3. Start and end on time.  
4. Do everything in your power to make sure all views get articulated.
5. If people are not prepared, end the meeting and reconvene later.
6. If everyone agrees that an idea is brilliant, encourage questions and concerns.  
7. At the end, be sure to summarize key points and identify action items.  

He also says leaders should have stand-up desks so that walk-ins do not linger.  Not sure I buy that one.  

Feldstein on quantitative easing

In a WSJ op-ed last Friday, Harvard economics professor Martin Feldstein casts serious doubt on whether the fed's quantitative easing (QE) policy is doing much good.  Frankly, I have wondered this myself, since it is hard for interest rates (short or long) to get much lower.  But lower long-term rates are but one of a host of mechanisms through which QE is supposed to stimulate the economy.  Another key part, Feldstein argues, is a "portfolio-balance" effect.

Here is how it works: the Fed buys so many long term securities (government bonds and mortgage-backed securities mainly) that investors have to buy stocks in search of yield.  This raises stock prices, makes people wealthier and (in theory) they should spend more. 

Feldstein shows that even if ALL of the recent run-up in stock prices between 2009 and now has been caused by QE, the impact on spending would be small (0.3% of GDP) because one dollar of stock wealth is associated with only four cents of extra spending.  It is highly unlikely QE is the only factor behind the stock market, other things like earnings per share and new savings also are at play.  So the real net impact has to be even smaller than 0.3% of GDP, he claims. 

Dr. Doom on the Fed

NYU Stern's Nouriel Roubeni takes a hard look at the Federal Reserve's quantitative easing policy in a recent blog post.  Roubeni, aka Dr. Doom for calling the 2008 recession, thinks the Fed is creating another asset bubble that will end badly.  With interest rates at historic lows, investors are pumping more and more cash into risky assets: stocks, junk bonds, and emerging markets.  Of course there is a significant downside to increasing interest rates, a move that likely would decrease investment.  Roubeni thinks the Fed is likely to keep interest rates too low for too long, and we will see a repeat of the same movie we saw in 2006 and 2007 with the same sad ending. 

Increasing access to health insurance: does it make people healthier?

The results of a Medicaid experiment in Oregon have the econ blogosphere ablaze.  In 2008 the state had enough funding to expand Medicaid to 10k people.  Problem was that way more than 10k applied, so there was a lottery to decide.  Economists then started following both the winners and the losers, so they could learn how much difference Medicaid coverage made. 

The study has been running two years now, and here is a succinct summary of the results from the Daily Beast's Megan McArdle:

No statistically significant treatment effect on any objective measure: not blood pressure.  Not glycated hemoglobin.  Not cholesterol. 

These findings have surprised nearly everyone.  The theory was that lack of insurance coverage prevented poor people from getting treatment for conditions which, as a result, will adversely impact their health.  Increased coverage did increase spending on health care, but health itself did not improve.  Perhaps the benefits of health care are an illusion?  Perhaps the guidance from doctors was not followed?

One good bit of news: health care spending went down a lot among the experimental group.  Also depression went down, even though there was no change in the use of anti-depressants.  Maybe the new Medicaid recipients were relieved because they did not have to worry about paying their doctor bills? 

Although one should be wary about putting too much weight on one study, similar results were obtained in a large scale experimental study conducted by the RAND Corporation in the early 1970s. 

Prelude to Friday's job report

First quarter GDP growth was disappointing, so all eyes will be on the April jobs report that comes out on Friday.  But we should all heed the words of Stanford Business School professor (and former chief economist for Bush 43) Ed Lazear in a recent WSJ op-ed: "The initial reports are often inaccurate and don't say anything useful about where the economy is heading." Research has shown that the monthly job number is, on average, off by 73k jobs.  Sometimes the revision in later months is in the hundreds of thousands. 

Bottom line: even if the new jobs number is a lousy 25k or a marvelous 200k, we should neither despair or celebrate too much.