Give Congress the Same Plan the Random Draw Has

Some politicians like to push public-option health insurance plans by describing them as giving "every citizen the same plan that every member of Congress has". This marketing scheme is fine as far as it goes, but apparently it works only so much.

So here's an alternative: let's give every member of Congress the same plan that a randomly drawn member of the public has.

Most important, let's tally up the share of Americans who go without health insurance each year, and let's randomly assign the same share of House and Senate members to uninsurance status the following year: we, their employers, will not provide them with a health plan.

For example, if 15 percent of Americans are uninsured in 2010, then round(0.15*535,1) = 80 randomly drawn House and Senate members will be denied employer-provided coverage in 2011. Most senators will be ok, since they're almost all rich and can afford individual-market plans. But some of those House members might actually suffer for it and get a taste of the not-so-good life.

Caveats: Yes, I know that the uninsured are not a random draw from the population. And yes, I know that there are real debates over how to interpret survey data concerning the share who are uninsured. But I'm going for simplicity here.

So how about it, all you congressional universal-coverage opponents: are you ready to take the same odds facing the randomly drawn U.S. citizen?

Put Your Money Where Your Mouth Is: A Public-Option Compromise

Nancy Pelosi says the House cannot pass a health care bill without a public option. Kent Conrad says there aren't 60 votes in the Senate for a bill with a public option.

So what's a party interested in governing the nation to do?

One compromise Congress sometimes uses in such situations is to enact a demonstration plan with a short-term sunset -- something like five years. That's a bad idea here. Any publicly run plan will require developing a network of providers, which takes time and--more important--money to put together. The fixed costs of setting up public plans around the country make a demonstration with a sunset wasteful. Moreover, there's little reason for providers to take seriously the bargaining power of a program they know may go away in short order.

Here's a better alternative: implement a permanent public option in some parts of the country, but not others. This approach makes both economic and political sense.

First, consider the economic front. Most types of health expenditures go to regional providers: doctors and hospitals generally provide brick-and-mortar service. So, most of the bargaining power and economies of scale that proponents argue a public plan will achieve should be feasible without a nationwide plan. If public-option supporters are right about its virtues, they can be acheived on a regional or state level. (The obvious exceptions are pharmaceuticals and medical devices, though few of the gains that a public plan's supporters project seem to have been based on these goods.)

Second, consider politics. Public plan opponents have conjured up various boogey men, with none appearing quite so often as the specter of "socialized medicine". Apparently a publicly funded health insurance plan will cost a lot and deliver low-quality care.

Let's leave aside a discussion of the status quo's performance on these dimensions for brevity. Instead, I'll point out that under my compromise, Congressional skeptics of a public plan could rest assured that no one in their districts or states had access to a voluntary public plan, preserving the status quo for their constituents. So, folks like Jim DeMint and Michele Bachmann wouldn't have to make constitutional arguments or threats of revolution against a public plan -- they could just make sure that neither South Carolina nor Minnesota is included in the public plan's coverage area. If they're right that the public plan will reduce freedom, kill grandma, destroy capitalism, or whatever, then they'll have an easy time pointing to the medical carnage sure to unfold in areas where people can choose a public plan.

Why is my compromise a good idea for supporters of a public plan? If they're right that the plan will cut costs, keep private insurers honest, improve quality, and so on, then it will do all these things in the parts of the country where it takes effect. People in the rest of the country will be able to see these virtues, and they'll clamor for a piece of the public action -- with the end result being a nationwide public plan.

It goes without saying that each side stands to gain electorally if it turns out to be right enough to convince supporters of the other (see Medicare and Social Security, for an example). And if no one can convince anyone else, it won't be the end of the world: some areas will have a public option and others won't. Other goals like universal coverage can be met with other measures.

How should we choose which areas should be served by a public plan? One novel option would be to include those congressional districts whose House representative votes yay and excludes those whose rep votes no (admittedly, it might be tough to write legislation that effects this without knowing ahead of time who will vote for it).

A more conventional approach would be to let the federal government set a standard package of benefits and premium levels and then allow states to decide via their usual legislative processes whether to participate in a federal-state partnership funded entirely or partly via federal tax dollars. This approach has been used for important federal-state programs like cash assistance and Medicaid, and it has both advantages and disadvantages. The devil would be in the details, but such a system could be designed to satisfy the claims of people on both sides of this issue.

So why not do it? Let's enact a permanent public plan that denies the benefits of a public plan to convervatives and imposes the horrors of socialized (financing of) medicine on progressives.

Update: Looks like Reps. James Clyburn, Louise Slaughter, and John Larson are thinking along similar lines....

That GOP Pork List

A relative has forwarded me the text of this CNN.com post, titled "What GOP Leaders deem wasteful in Senate stimulus bill". She explains that she is contacting the WH to demand more responsibility and less waste. Here is the reply (name removed to protect my relative!):

Dear Person X 

I am glad that you are worried about fiscal profligacy. But I think that in your attempt to read between the lines, you've fallen victim to some vision-blurring rhetoric.

There are two reasons why I cannot agree with you that the GOP list you sent out is somehow evidence of a flawed plan.

First, let's suppose we accept the premise that all items on this list are "reckless" or "pork", etc. I added up all the items on the list. While it is possible I've made a mistake, as I had to do it by hand, and quickly, the total I came to was only $19.1 billion. This total is roughly 2.2-2.3% of the House and Senate bills' totals. That strikes me as a shockingly small amount of pork. Maybe there's more. I haven't read the bill. But if that's it, then kudos to our representatives for keeping the bad stuff -- if it is that -- so stingy. 

Second, I do not actually agree with you or the GOP that these items are pork, reckless, whatever. The point of using govt spending to stimulate aggregate demand is to have the government spend money. It is not to spend it only on someone's personal idea of "good" projects (much less some GOP member of congress's personal idea). It is to have the government spend money. There's an old joke (due to Keynes, if I remember correctly) that during a severe recession, it would be worthwhile to hire people to bury money and then dig it back up again. Presumably each of the projects to which you and the GOP object has more value than the result of that kind of endeavor. (Actually, I think the real point of the GOP's objection is that they don't like it when the govt does popular things, because that makes govt popular; hence their resort to trying to trick publicly minded folks like yourself.)

Now, don't get me wrong. I would prefer to spend money on things with a positive social return rather than a zero return. But many of the items on the list you sent along from the GOP look to me like they have some value. So I ask you: why are you opposed to spending money on things that (a) will have some value, and (b) will help boost aggregate demand at a time when we are at risk of a deficient demand-driven spiral into depression? 

The knock on spending-oriented stimulus was supposed to be that you can't spend quickly enough to make a difference. Many of those projects you listed via the GOP could be funded right away, I imagine. So now the knock is that money that can be spent quickly doesn't sound like it will be spent on roads or bridges. So what?

I don't mean to single you out, but you sent this email and asked for it to be forwarded to others. As someone who is in the middle of writing textbook chapters on fiscal policy, as well as the Great Depression, I can't help but tell you that I think you've got the economics wrong. Please feel free to send out this email to any others you'd like.

Meanwhile, I hope all is well with you!!

Best,

Jonah

Maybe He Should Name His Next Dog "Mellon"

Harvard economics professor Greg Mankiw spent some time as President George W. Bush's CEA chair. He's also a founding member of the New Keynesian school of macroeconomics (in my first year in grad school, I bought his two-volume New Keynesian Economics collection, co-authored with David Romer, husband of Obama CEA chair Christina Romer). And, Mankiw's blog has emerged recently as a sort of online file cabinet for stimulus opponents. 

In the course of collecting material for a textbook I'm coauthoring with Tom Smith of Emory, I ran across this Mankiw column from December 23, 2007. Given the column's timing--it was written during the month the NBER subsequently declared as the first of the current recession--it's kind of amusing that it's titled "How to Avoid Recession? Let the Fed Work". Here are some of the good quotes:

• The Fed's control over the money supply is a powerful lever to move overall demand for goods and services. [Translation: monetary policy is where it's at.]
• The influence of interest rates on the economy is particularly strong in housing, where buyers are rate-sensitive. Because housing woes are the source of the current slowdown, the Fed's tool kit is well suited for the task at hand. [Translation: By cutting interest rates, the Fed will stimulate housing demand, raising prices!]
• The recession-fighting effects of monetary expansion, however, are not limited to the housing market. When lower interest rates make fixed-income investments less attractive, investors turn to the equity market and bid up stock prices. [Translation: If we let the Fed alone, its rate cuts will cause the stock market to boom!]
• Higher stock prices, in turn, make consumers wealthier and more eager to spend. [Translation: The stock market boom will cause consumers to run out and buy, buy, buy!] 
• They also make it easier for corporations to expand their businesses with equity financing. [Translation: The stock market boom will make it really easy for businesses to get credit!]
  
• Admittedly, monetary policy can sometimes use an assist from fiscal policy. If an economic downturn is deep, if a recovery is anemic or if the Fed is running out of ammunition, Congress can help raise aggregate demand for goods and services[Translation: I might agree with DeLong & Krugman in a year if the Fed runs out of bullets.]
  
• In 2003, the Fed had cut its target interest rate all the way to 1 percent, the economy was still suffering from the lingering effects of recession, and there were increasing worries about deflation. A tax cut was a good complement to monetary expansion to get the economy going again, even though it increased the budget deficit. [Translation: I like fiscal policy in the same circumstances that other guys do, provided that the word that dare not speak its name not be spoken.]
  
• Today's situation is different. The Fed has plenty of room to cut rates further, if it deems such cuts necessary. At the moment, recession is only a possibility, and inflation is a bigger worry than deflation. In this environment, there is no need for a short-run fiscal stimulus. [Translation: no reason to worry, there's no recession on, and no real deflation threat.]

As we all know now, Mankiw was wrong about virtually every prediction or evaluation he mad: housing prices have not risen, the stock market has not boomed, consumer demand has not boomed, business credit has not boomed. Meanwhile, the Fed is now "out of ammunition" by Mankiw's own December 2007 description, and there's now deflation happening. 

Sure, Mankiw wasn't the only guy who made the wrong predictions, and it's easy to look back with hindsight. But some folks got it right. And Mankiw's newfound stimulus opposition is interesting. 

As the preceding post makes clear, there's plenty of switching going on by folks on all sides of the ideological aisle. But as a regular reader of Mankiw's blog, I have a difficult time figuring out both (a) what his understanding of the macroeconomy is, and, therefore, (b) how he comes to the macroeconomic policy views he does.

(In case you're wondering about the post title: see here.)

White House Fact Sheet on Stimulus

The White House released a fact sheet explaining its support for fiscal stimulus plan. Here's an excerpt:

The President’s economic plan has three main goals:

• Encourage consumer spending that will continue to boost the economic recovery and create jobs.
• Promote investment by individuals and businesses that will lead to economic growth and job creation.
• Deliver critical help to unemployed citizens.

No surprise there, right? After all, President Obama has been quite clear about his support for a stimulus plan to achieve these goals, all of which are textbook Keynesian stuff.

Gotcha!

The White House fact sheet in question was released in the name of former President George W. Bush, on January 7, 2003. You can read the whole thing here (lots of plugs for tax cuts, of course).

Here's an entertaining chunk of text from a page A1 story in the LA Times the next day:

With Democrats criticizing Bush’s plan for its effect on the deficit, Republicans – who for years pushed for a balanced budget – are in the unusual position of arguing that deficits do not matter.

“What we need to do for an economic stimulus package is not look at what the cost is but what the impact will be on the economy,” said Sen. Rick Santorum (R-Pa.).

How things change.