05 March 2008

HIllary Clinton, "Back From The Brink" OR "Step Away From The Ledge"

The political fairy granted us our two wishes last night: Huckabee dropped out and Hillary stayed in. Huzzah!

This guarantees a bitter fight between Barack and Hillary at least until the Pennsylvania primary on 22 April AND ensures that McCain will be able to fundraise without having to simultaneously worry about Obama's non-stop tv attack ads (not that there's anything wrong with attack ads, we love 'em).

We've been thinking a lot about the ideological similarities and superficial differences between the Democratic candidates. One friend of ours says it's because the Democratic party is unified. Okay, fair enough. But, if unified, they have also moved waaaaay left of where they were when they were successful in the '90's. Back then, free trade was Democratic orthodoxy.

Kind of makes us nostalgic.

Last week, Daniel Henninger explained this perfectly in his WSJ column, Wonder Land
Hillary's politics is the world of Eleanor Roosevelt, when it was all being born anew. The Washington of LBJ's Great Society in the mid-1960s was alive with policy debates -- among Democrats. By now, the Democratic Party's ideas are largely generic. Everyone noticed that the Democratic presidential candidates were largely singing from the same script. Health care, public schools, green energy, the eternal shafting of the middle class, the unions, protecting Social Security and Medicare. This common script means that the Democratic primaries are largely an audition. The candidates are reading for a role. The lines are known.
With this general lack of difference (salute), Hillary and Barack have had to seize on things that strike us as really, really small differences. Hillary's success last night seems to have been sparked by two things: Barack's lack of experience and his inconsistency on trade.

You know, as opposed to her vast experience and "consistency" on Nafta. Still, her quote yesterday about experience--interestingly, both hers and John McCain's--was fantastic:
I think that I have a lifetime of experience that I will bring to the Whitehouse. I know Senator McCain has a lifetime of experience he will bring to the Whitehouse. And Senator Obama has a speech he gave in 2002.
Oooh, burn.


Be sure to check out the latest edition of BYU Political Review. This issue focuses on human trafficking and our friend, Zach Davis, has a particularly interesting article. Take a look, also, at "Obama: The Candy Man Can!" by Ryan Decker, econ major. Decker's blog is also worth a look.

*UPDATE 2:58pm MST: More from Decker (hat tip: Matt Lybbert) and this is really, really good stuff:
The most obvious disappointment Obama will bring will be failure to deliver national unity. Obama portrays himself as a post-partisan unifier. However, he is the most liberal senator in Congress. His record (what little record he has) is very liberal, and his policy promises (what few he has) are equally liberal. This is my main point. America is divided on Iraq, foreign policy, abortion, taxing and spending, healthcare, trade, and just about everything else. If Obama begins making these liberal policies, he will not unite America. America is divided on these issues because they are difficult—there are many different interests and value systems involved. We are divided because the issues are difficult, not because we lack a charismatic president. Obama will bring charisma to the White House, but he will not bring unity to America.
(bold in original, italics by Matt L.)

If you have tips, questions, comments, suggestions, or requests for subscription only articles, email us at lybberty@gmail.com.


Dan Kim said...

I'm glad you said that the Zach Davis Article "interesting" - because it is nothing more than just interesting.

The conclusion he reaches, that technology has somehow caused an increase in human trafficking, is supported by almost no evidence (ask yourself, "What is the link between technology and human trafficking?" - the answer is not clear at all in his article). He uses sensationalism of 11 year old sex-slaves, though he gives no connection between it and technology, and criticizes the viability of economic indicators (such as GDP per Capita) as a standard measure of "progress" - while he uses the low wage of certain workers to support his argument. Economic progress, more than "moral" progress(whatever that means by Davis) can do more to curb human trafficking.

I urge you to critically read Davis' article and take a stance on it. I do not disagree with the existence of the problem he cites, but strongly disagree with the conclusion he is trying to reach.

Decker's article, on the other hand, is well written.

By the way, the phenomenon of Barack Obama, despite his seemingly empty rhetoric, turns out to be surprisingly appealing to British and International students here at Cambridge. I find that quite odd.

Spikers said...

1. In what way is social and moral progress, without economic progress, superior to economic progress that brings with it social and moral progress? Is the author blind to the fact that the evils against which he rails exist almost entirely in 3rd, and poorer 2nd world countries where economic opportunities are very limited?

2. How is pornography part of the "same spectrum" as slavery and labor abuse of illegal aliens? The former is a consensual act by adults, the latter are illegal and not consensual.

Spikers said...

Decker's arguments are not completely true. Since Arrow's article in 1963, many economists have recognized the inherent inefficiencies of health insurance markets and have pushed for government sponsored policies. In fact Arrow concluded, "“[t]he welfare case for insurance policies of all sorts is overwhelming. It follows that the government should undertake insurance in those cases where this market, for whatever reason, has failed to emerge. Nevertheless, there are a number of significant practical limitations on the use of insurance. It is important to understand them, though I do not believe that they alter the case for the creation of much wider class of insurance policies than now exist."

Since Arrow's time, many economists have expanded on Arrow work, and have agreed with his conclusion. While spending can be problematic, high levels of spending do not necessarily mean efficiency.

Furthermore, after a less than well thought out argument against expanding medical insurance, the author continues to argue for a prolonged presence in Iraq. This continued presence will cost trillions. The money spent on the Iraq war could fund universal health care for more than a decade. Why support a costly war, yet oppose a less costly, and possibly efficiency enhancing social program? He derides Obama as economically ignorant, and yet he his positions on health care and Iraq are also economically ignorant.

Mike_D said...

Spikers you're the only reason I occasionally glimpse at this bloggy blog blog.

RD said...

Spikers: In my defense, PR articles are limited to 800 words. I really didn’t have time to develop a complete argument about health care, nor was that the point of my piece. In fact, your argument is completely irrelevant to my piece, which is about how Obama will fail to deliver sweeping changes and bipartisan cooperation.

Regardless, I would support government healthcare under certain conditions. However, since you’re so ostensibly economically literate, I’m sure you are aware of the work of economists Gale and Orszag, who showed that as healthcare entitlements are currently structured, we can expect them to reduce growth by 2% over the next decade. Further, over the next 50 years, we can expect current healthcare entitlements to exceed 20% of GDP, which will put a straitjacket on future growth. Now, add to that the plans of Obama and Hillary to further expand healthcare entitlements. Additionally, consider Krugman’s potentially Nobel-winning work in the 1980s, where he demonstrated that indeed, theoretically, governments can intervene in very positive ways in markets, after which he argued against such intervention due to opportunity cost of misplaced supports and political capture problems (again, I’m sure you’re already aware of these basic economic works). Political capture alone should be cause for pause, since it severely limits the options of future policy makers. Considered together, these facts should compel us to be very careful in expanding the current entitlement structure. Such a measure will certainly dwarf the costs of the Iraq war in the long term, making that faulty argument irrelevant. So, it appears that your arguments are shortsighted (or, not well thought out, in your words). I have long thought that some kind of two-tiered healthcare system would be a good idea, but that’s for a different discussion.

As for Iraq, I think the economist method of at-the-margin decisionmaking certainly applies here. I would certainly agree that the Iraq invasion was a bad idea; however, the sunk costs of that invasion are only relevant to the current discussion insofar as they relate to future costs of either staying or leaving. Rational individuals will draw their normative conclusions about Iraq based on an analysis of the costs of staying (financial, economic, strategic, and in terms of casualties) versus the costs of leaving (financial, economic, strategic, and in terms of casualties). This kind of analysis is conspicuously missing from the dialog. The most ironic thing about Obama and Iraq is that he refuses to give the surge credit for what it has accomplished (including substantial political power sharing progress in recent weeks), yet the continued success of the surge is the only thing that will allow him to withdraw from Iraq as he wants to do. Unless things continue to get better there, the next president will not pull out, regardless of past promises, due the huge political fallout of letting Iraq go to hell as violence skyrockets and institutions deteriorate. If Obama is able to pull out, he will have John McCain, David Petraeus, and the surge to thank.

RD said...

As a point of clarification, the labeling of Obama's NAFTA ideas as "a badge of economic ignorance" comes from the Financial Times, not from me. Incidentally, economist Jagdish Bhagwati has said that on trade, Obama "is dead wrong." Again, I'm sure the economist Spiker is already aware of this.

Spikers said...

First things first. Obama's NAFTA comments cannot be defended.

Now, on to more important matters. There is a vast amount of work on the economics of health care. So much so that I cannot provide you with anywhere near a complete bibliography. So instead i will direct your attention to a few articles which provide nice summaries or key insights into the subject. Most of the debate revolves around information problems in the market for health insurance. There is increasing, though not uncontradicted evidence of significant adverse selection problems in the health care market. There is also some fear of moral hazard, though most data from Europe seems to suggest that moral hazard can be reasonably contained. Fairly convincing evidence also exists that, because preferences regarding risk and insurance are relatively homogeneous, compulsory insurance can increase net social welfare through increase risk pooling and insurance coverage.

Karen Donelan ET AL., The Cost of Health System Change: Public Discontent In Five Nations, 18 HEALTH AFFAIRS, 206, 208 (1999).

Nicholas Barr, Economic Theory and the Welfare State: A Survey and Interpretation, 30 JOURNAL OF ECONOMIC LITERATURE 741, 749 (1992).

Micheal Chernew ET AL, Charity Care, Risk Pooling, and the Decline in Private Health Insurance, 95 THE AMERICAN ECONOMIC REVIEW, 209, 210 (2005).

See generally Kenneth J. Arrow, Uncertainty and the Welfare Economics of Medical Care, 53 THE AMERICAN ECONOMIC REVIEW 941, (1963).

See George A. Akerlof, The Market for “Lemons’: Quality Uncertainty and the Market Mechanism, 84 THE QUARTERLY JOURNAL OF ECONOMICS, 488, 492-93.

Michael Rothschild & Joseph Stiglitz, Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information, 90 THE QUARTERLY JOURNAL OF ECONOMICS, 629, (1976).

See generally, Charles Wilson, A Model of Insurane Markets with Incomplete Information, 16 JOURNAL OF ECONOMIC THEORY, 167, (1977).

Mark J. Browne, Evidence of Adverse Selection in the Individual Health Insurance Market, 59 THE JOURNAL OF RISK INSURANCE, 13, 15 (1992).

See generally, Hajume Miyazaki, The Rat Race and Internal Labor Markets, 8 THE BELL JOURNAL OF ECONOMICS, 394, (1977).

See, Sherry Glied, Health Care Costs: On the Rise Again, 17 THE JOURNAL OF ECONOMIC PERSPECTIVES, 125, (2005);

Burton A Weisbrod, The Health Care Quadrilemma: An Essay on Technological Change, Insurance, Quality of Care, and Cost Containment, 29 JOURNAL OF ECONOMIC LITERATURE, 523, (1991);

R. Busse, Expenditure on Health Care in the EU: Making Projections for the Future Based on the Past, 2 THE EUROPEAN JOURNAL OF HEALTH ECONOMICS, 158 (2001);

Daniel Callahan, Too Much of a Good Thing: How Splendid Technologies Can Go Wrong, 33 THE HASTINGS CENTER REPORT, 19, (2003);

David M. Cutler, The Cost and Financing of Health Care, 85 THE AMERICAN ECONOMIC REVIEW, 32, (1995).

See Kevin N. Rask, Kimberly J. Rask, Public insurance substituting for private insurance: new evidence regarding public hospitals, uncompensated care funds, and Medicaid, 19 JOURNAL OF HEALTH ECONOMICS, 1, 26, (2000)

Martin Hellwig, Some Recent Developments in the Theory of Competition in Markets with Adverse Selection, 31 EUROPEAN ECONOMIC REVIEW, 319, (1987).

Mark J. Browne & Helen I. Doerpinghaus, Information Asymmetries and Adverse Selection in the Market for Individual Medical Expense Insurance, 60 THE JOURNAL OF RISK AND INSURANCE, 300, (1993).

Daniel Altman, David M. Culter. Richard J. Zeckhauser, Adverse Selection and Adverse Retention, 88 THE AMERICAN ECONOMIC REVIEW, 122, 122-23(1998).

James C. Robinson & Laura B. Gardner, Adverse Selection among Multiple Competing Health Maintenance Organizations, 33 MEDICAL CARE, 1161, (1995).

See generally, David M. Cutler & Sarah J. Reber, Paying for Health Insurance: The Trade-Off between Competition and Adverse Selection, 133 THE QUARTERLY JOURNAL OF ECONOMICS, 433 (1998).

Steffie Woolhandler ET AL, Costs of Health Care Administration in the United States and Canada, 349 THE NEW ENGLAND JOURNAL OF MEDICINE, 768, 771 (2003).

James G. Kahn Et Al., The Cost of Health Insurance Administration In California, Estimates For Insurers, Physicians, And Hospitals, 24 HEALTH AFFAIRS, 1629, (2005).

Nicholas Barr, Social Insurance as an Efficiency Device, 9 JOURNAL OF PUBLIC POLICY, 59, 64 , (1989).

generally, David de Meza & David C. Webb, Advantageous Selection in Insurance Markets, 32 THE RAND JOURNAL OF ECONOMICS, 249, (2001);

John Cawley & Tomas Philipson, An Empirical Examination of Information Barriers to Trade in Insurance, 89 THE AMERICAN ECONOMIC REVIEW, 827, (1999)

Spikers said...

Oh, and on Iraq, the sooner we are out the better. I would suggest that you read THE ECONOMIC COSTS OF THE IRAQ WAR, by Linda Bilmes of Harvard University and Joseph Stiglitz of Columbia. The costs of the War in Iraq are laid out nicely, along with an explanation on how the 2 trillion dollars this war will cost could have been put to better use. The authors believe, as do I, that the costs of this war far outweigh the benefits.

RD said...

Spikers: great job getting a list of journal articles from JStor or Wikipedia. As I said before, I would advocate government health care if it were done right; but, as I argued (instead of just listing titles), there are economic and political reasons to be very careful about such policies (arguments to which you didn't respond). I'm not so sure that Obama's plan will be a very safe option. And, again, even at 3 trillion dollars, the long-term costs of expanded entitlements will dwarf the costs of the war. That doesn't mean health care shouldn't be done, but it does mean that we should be careful. It's one thing to argue for government health care; it's another thing to argue that Obama's plan is the right way to do it. This should be a careful choice, because once entitlements are expanded, they are basically impossible to repeal. Of course, all I said in my original article was that government health care will not pay for itself, and I was right about that, regardless of our debate about the economics of government intervention.

As for Stiglitz's book - I haven't read it, though I have read his other two mainstream books, as I'm sure Master Economist Spikers has done. I do know that the book has received criticism for the way it estimates overall welfare (funds used to buy equipment from American companies and pay salaries to American soldiers aren't overall costs to the American economy). Regardless, there is little doubt that the Iraq War has cost us dearly. It was wrong to go there in the first place, and most of America agrees on that. But, as I argued before (and you ignored), the decision to pull out or stay in is unrelated to costs that have already occurred or will happen regardless of the decision. By economists' standards, making the decision based on the past costs is by definition irrational. That doesn't mean that your decision is wrong - it could be right - but the decision should be based on future costs, not past or static costs. The future costs will include not only economic factors, but political factors as well. We certainly need to be planning how to get our troops out, but a hasty withdrawal would be very damaging and necessitate that we go back anyway (as Obama discusses in his book). Those who advocate a quick pullout (which may end up being possible thanks to the surge) should be asked what they think will happen to Iraq once we leave. When Obama was asked this, he naively suggested that Sunnis and Shiites would get together and work things out. This assumes that the conflicts between Sunnis and Shiites are caused by America's presence. In reality, those conflicts have been going on since long before America was even founded. There are deep problems in Iraq. It is unwise to ignore the security and political progress made in recent months. It is also unwise to assume that the surge will heal all. A combination of pressure on the political actors (which Bush has failed at) and military security (which the surge is succeeding at) will be necessary to allow us the option of leaving.

So, my problems with your arguments are that (1) you equate the economically demonstrated likelihood of government health care increasing efficiency with the likelihood of Obama's plan increasing efficiency and (2) you make your decision about Iraq based on costs that have already occurred or costs that will yet occur regardless of the decision, rather than following a rational decisionmaking process of examining the at-the-margin costs of staying or leaving. I would expect more out of someone with such high opinion of his own economic literacy.

Spikers said...

1. None of the articles came for wikipedia. I chose a number of articles i have read over the past few months dealing with this issue. I am working on a note regarding the effects of adverse selection on health insurance markets. There are many more references I am more than willing to give you. I listed the articles because I am sure there are many with which you are familiar, and perhaps some that you are not.

Also, I agree that health reform should be carefully thought out. But I also think the time has come to act.

Obama's plan, while perhaps not the best of all possible alternatives, will likely achieve at least some social welfare gains.

Obama supports expanding an FEHBP like plan to offer group insurance to all individuals. This will facilitate gains through increased risk pooling.

I feel Obama's plan is deficient in as much as it lacks an individual mandate. Mandates are the only way universal health coverage can be achieved, and with it the social welfare gains attendant to increased risk pooling.

Ideally I would prefer some low level social insurance plan in which all individuals are automatically enrolled. Private insurance could then supplement this base level of social insurance. For those below a given level of income, a capped premium subsidy should be offered.

But, no candidate has proposed what i view to be ideal. Clinton's plan comes closest, but she will not win the election. Though Obama's lacks individual mandates, it is a step in the right direct and at least encourages increased risk pooling.

Regarding 2) I have already posted on an earlier thread my opinion that the costs continuing this war outweigh any benefits we may gain through our continued presence. Each day we stay costs us more lives, money and international good will. By some estimates, the war may cost us another trillion dollars to wage. Our presence in Iraq ties our hands in dealing with Iran and prevents us from stopping the genocide in Darfur. I, and many others, also do not see how our continued presence in Iraq makes us any safer, deters future attacks, or provides us with great amounts of tactical advantage.

The Stiglitz working paper is a good source for better understand the true costs and benefits of this war. It is available at:


RD said...

Great points. Your thoughts about Obama's plan in light of your research deserve examination. If you feel that its present and future costs are bearable, then it is worth a second look for me. I do still hold major reservations about the political capture problems associated with expansion of entitlements. Further, in 50 years, how much of our budget and GDP will be committed to health care entitlements? As presently constituted, upwards of 25% of GDP. What will it be with this dramatic expansion? I think it will be difficult or impossible to finance such entitlements without Bush-style deficits; and our ability to run consistent deficits may be diminished by then, depending on international demand for the US dollar. If such is the case, entitlements could squeeze the majority of the budget. That is my biggest fear about health care entitlements, though I do believe they are needed. I suppose I'm a little cynical about the ability of short-term thinking politicians (and they all are) to accurately map out the long-term implications of their policies. Perhaps Obama will be an exception.

I am very frustrated with the costs of the war as well. However, I fear the consequences of a quick pullout. The surge has been reducing violence, and political progress has been made, so I'm inclined to advocate seeing how far these benefits go. If a year from now, the surge has lost its effectiveness, a pullout will probably be necessary. But, if a year from now, progress is still being steadily made, I think it would be in our interests to stay and continue stabilizing. Regardless, I fear the effects of a pullout. What will Iran do? What will Al Qaeda do? These political costs could be substantial. Ultimately the international community will expect the US to maintain stability in the region should we leave and let the place fall apart.

Thanks for the Stiglitz link. I have long respected Stiglitz, and I think he should be listened to.