The budget battles

[PassedOut]

Hopefully doctors and nurses will be involved in defining the metrics. The above formula has been tried for years in public education and is a complete disaster in that domain... partly or perhaps mostly because the people defining the metrics have little to no experience in public school classrooms.

Agreed.

 

Because linking payment to metrics is so effective, poorly chosen metrics will produce disastrous results in a very efficient way. If you pay for increased test scores, for example, you'll get increased test scores whether or not they represent real achievement or knowledge.

 

But by focusing on things like reducing preventable errors (which some hospitals have already done), you link payment to results that no reasonable person can quarrel with: improving the satisfaction of customers (patients) while saving the costs of rework (the costs of treating the problems caused by the errors). At the same time, you start to move away from the fee-for-service model, which (very efficiently) results in the performance of many unnecessary tests and procedures.

[Winstonm]

I work in the hospice industry, which is a medicare benefit and thus hospice owes its livelihood to medicare.

 

I can assure you the problems are not about too few metrics but about too few sheriffs. The metrics are in place to prevent fraud and overbilling, but without an enforcement arm, fraud and overbilling go basically unchallenged.

 

In the South and South Central, a private company named Palmetto oversees the hospice medicare benefit. In order to curb costs, Palmetto issued guidelines to help physicians determine the likelihood of death of non-cancer patients based on certain metrics - I know of no (as in zero) hospice in the Tulsa area that follows those guidelines. The main reason no one follows the guidelines is that there is no enforcement division to make sure the guidelines are followed. And it is much more profitable to not follow them.

 

I do have to admit that the new health care bill has helped to a degree, but not nearly enough. The best idea has been held up - that any hospice who has 40% or more of their patients exceed the 6-month prognosis is placed into focused medical review, which means they receive no medicare funds until medicare approves the necessity of the hospice service. This is a killer to cash flow, and most hospices could not recover if that were to occur. When I last checked, my own hospice, which is better than most in at least semi-deligence, had 45% of patients exceeding the 6-month prognosis.

 

The claim that hospice as it is being utilized is cost effective is illusory. Hospice is only cost effective if it replaces higher cost services, like doctor's visits and hospitalizations. It is amazing how many dementia/alzheimer's patients stay on service 2 or more years without requiring any extra treatment, so the addition of hospice is pure added cost - no savings at all.

 

And this is occuring where doctors and nurses are primarily responsible for guarding the medicare funds based on personal ethics - but they have little reason to prevent waste while at the same time having high profit-motive reasons to abuse the system.

 

Healthcare + profit-motive will always lead to abuse. Some aspects of society are better served by elimination of pure capitalistic motivations.

[blackshoe]

Healthcare + profit-motive will always lead to abuse. Some aspects of society are better served by elimination of pure capitalistic motivations.

 

Perhaps, although a socialist would say you could substitute just about anything for "healthcare" and still have a valid assertion, and therefore all capitalism should be abolished. And that's absurd.

[PassedOut]

And this is occuring where doctors and nurses are primarily responsible for guarding the medicare funds based on personal ethics - but they have little reason to prevent waste while at the same time having high profit-motive reasons to abuse the system.

When waste reduces profits instead of increasing them, behavior changes.

[awm]

This article made a good case for raising taxes, with some data about historical US tax and revenue rates relative to GDP, taxes relative to GDP worldwide, and the relationship (basically none) between taxation and economic growth.

[Winstonm]

Perhaps, although a socialist would say you could substitute just about anything for "healthcare" and still have a valid assertion, and therefore all capitalism should be abolished. And that's absurd.

 

Painting a picture of us/them, socialist/capitalist is narrowminded thinking IMO. Some aspects of society are better served without the profit motive; many work well with the profit motive.

 

To argue for continuation of an obviously dysfunctional healthcare system in order to sustain cold war ideology and rhetoric seems misguided to me.

[blackshoe]

Painting a picture of us/them, socialist/capitalist is narrowminded thinking IMO. Some aspects of society are better served without the profit motive; many work well with the profit motive.

 

To argue for continuation of an obviously dysfunctional healthcare system in order to sustain cold war ideology and rhetoric seems misguided to me.

 

If you think that's what I was doing, then your own prejudices have blinded you.

[phil_20686]

Experience in Britian suggests that governments can have massive difficulties changing long standing benefits packages, not just because of political backlash, but also because of court action vs the Unions.

 

In britian the Government found a loophole to exploit by changing the measure of inflation which will have a big effect over a decade or so.

 

I have always felt that when it comes to things like healthcare it helps to see the big picture, and regard healthcare as an economic overhead. I mean, spending more than you need to on healthcare is clearly an economic drag whoever is doing the spending. By that measure a single payer system will bring healthcare costs under control and reduce the overall economic overhead, which must be a good thing. I really do not understand why every developed country does not have an NHS equivalent. Not only is it easily the most efficient solution, but it is also massively re-distributive/progressive, but in a way that does not involve subsidising "bad behavior" in the way that most social security systems struggle with.

 

It is absolutely incredible to me that democrats have failed to get major Christian churches to offer widespread support for a NHS type system. Feels like that could be done fairly easily.

[hrothgar]

 

It is absolutely incredible to me that democrats have failed to get major Christian churches to offer widespread support for a NHS type system. Feels like that could be done fairly easily.

 

There are two variables that (pretty much) predict political affiliation here in the US

 

1. Population density

 

People who live in rural districts vote Republican

People who live in urban districts vote Democrat

 

2. Religious intensity

 

People with strong ties to organized religions vote Republican

People with weak ties to organized religions trend Democrat

 

The "brand" of Religion that is popular in the US these days is tightly connected to the prosperity gospel rather than older theories of social justice (even the Catholics are shying away from this one)

[phil_20686]

This article made a good case for raising taxes, with some data about historical US tax and revenue rates relative to GDP, taxes relative to GDP worldwide, and the relationship (basically none) between taxation and economic growth.

 

 

I looked at that article. I have always been suspicious of this POV for lots of reasons. Firstly, the thought experiment that taxes reduce the number of profitable trades and therefore must reduce growth seems watertight. Secondly, if deficit spending without taxation will increase GDP, it should be clear that taxation without government spending will decrease growth. Of course this is complicated by the fact that taxation is generally accompanied with spending. E.g. All industrial countries spend large amounts of their GDP on healthcare, which is (mostly) economically unproductive spending. In the UK that spending is entirely included in tax, whereas in the US it is nearly entirely excluded from tax, so comparing tax rates is not even close to comparing like with like. If I added the 17% of GDP that the US spends privately on healthcare to its tax, it moves a long way to the right on the graph, or similarly most industrial countries will move a long way to the left if you remove their healthcare spending. Many EU countries have part-taxpayer funded healthcare (thought the government pays the vast majority).

 

Further, in the decade shown on those graphs in most industrial countries, tax % did not match spending % in many of those countries, and it seems clear that deficit spending will artificially inflate gdp, so that can move countries up and down depending on whether they were running surpluses (eg Australia/china) to large deficits (italy typically has been close to 10% in the last decade in at least some years even before the crisis).

 

I would say that the following four statements are pretty uncontroversial, but the big picture is complicated:

1) Taxation in abstract reduces GDP growth.

2) Spending in abstract increases GDP.

3) Variation in price parity purchasing means that GDP growth often does not reflect real changes in Quality of life (probably a better measure of economic growth). (E.g. You can have stagnant wages with large falls in prices).

4) Large Taxation increases often mean that the government is simply taking over spending that was previously being done via the private sector. The gain/loss on this will depend purely on whether the government runs said service more efficiently enough to outweigh the general economic inefficiency of tax collection.

[phil_20686]

There are two variables that (pretty much) predict political affiliation here in the US

 

1. Population density

 

People who live in rural districts vote Republican

People who live in urban districts vote Democrat

 

2. Religious intensity

 

People with strong ties to organized religions vote Republican

People with weak ties to organized religions trend Democrat

 

The "brand" of Religion that is popular in the US these days is tightly connected to the prosperity gospel rather than older theories of social justice (even the Catholics are shying away from this one)

 

I'm pretty sure the US Catholics Bishops conference came out broadly in support of health care reform, except that they were worried about conscience protection/government funding for abortion. Read it here.

 

Your point seems to be that to get healthcare you have to get religious to vote democrat. I would say that you should start by focusing on healthcare as a generally good goal, and attempt to get it put on the republican agenda by convincing the public that it is a good idea. Parties will follow the voters as much as voters will follow the parties.

[helene_t]

Firstly, the thought experiment that taxes reduce the number of profitable trades and therefore must reduce growth seems watertight.

Not really. If a transaction gives me a before-tax profit of x and my tax rate is r then it gives me an after-tax profit of (1-r)x which has the same sign as x as long as 0<r<1.

 

What matters is the tax rate on one opportunity relative to the tax rate on other opportunities. If I bake my own bread I pay zero taxes on the value of my work while if I do paid work and spend my salary on paying the baker for baking bread for me then I do pay taxes, and the higher the tax rate the bigger the incitement to bake my own bread.

[cherdano]

2) Spending in abstract increases GDP.

That's a bit simplistic. Let's consider a metro line. If the metro company sells tickets at the marginal cost of transportation, it will run a big deficit. However, the consumer surplus generated by all passengers using the line will probably outweigh that deficit. Yet, price discrimination for metro tickets just doesn't seem to work (selling rush hour tickets more expensively doesn't count, that's just accounting for the difference in marginal cost). So a private company won't be able to run a metro line at a profit, even though it creates a (potentially big) economic surplus.

In addition to that, a metro line will have huge indirect effects. It will spur the development in the suburb it is creating, it will decrease congestion on roads running in parallel, it will decrease the need for regulatory parking subsidies, etc. etc.

So I would argue that a government-run (or basically government-run) metro line

2a) increase GDP (via the expenditures for building and running the line)

2b) creates an economic surplus (or a net increase in quality of life, if you prefer)

2c) can indirectly spur development and growth

 

Of course, such beneficial opportunities are always limited, and at some point the government may run out of infrastructure investment opportunities where the costs (in the need for higher taxes, along with their negative impact on economic growth) outweighs the benefits.

The US, to put it mildly, does not seem to be at this point.

[PassedOut]

So I would argue that a government-run (or basically government-run) metro line

2a) increase GDP (via the expenditures for building and running the line)

2b) creates an economic surplus (or a net increase in quality of life, if you prefer)

2c) can indirectly spur development and growth

 

Of course, such beneficial opportunities are always limited, and at some point the government may run out of infrastructure investment opportunities where the costs (in the need for higher taxes, along with their negative impact on economic growth) outweighs the benefits.

The US, to put it mildly, does not seem to be at this point.

For sure. Well chosen infrastructure projects, paid for by taxes when not feasible privately, boost the economy and result in net gains in the GDP. They also provide jobs for people in the meantime. Unlike interest payments on the debt, such government projects are truly "investments" in the future. Spending on real educational improvements and on basic research also produce increased economic growth.

 

In the US, though, we now face the prospect of allocating tax collections toward ever greater debt service payments. There is fault to be shared all around for this, but the republicans here are much more irresponsible fiscally than are the democrats. Of the 288 republicans in the US congress today, all but 13 have signed a formal "free lunch" pledge to pass the deficit on to future generations: Among GOP, free lunch orthodoxy runs deep.

 

In his race to succeed Reagan, George H.W. Bush famously embraced the pledge, saying “read my lips, no new taxes.” But as president, he raised tax rates as part of a balanced-budget deal with Democrats. Bush’s loss to Bill Clinton in 1992 “proved for all time, that even though tax increases may be justified economically, they are never justified politically if you’re a Republican,” Bartlett said.

 

“Since then it’s been Republican dogma that deficits don’t matter and the only thing that matters for the economy is cutting taxes,” he said.

It's putting free lunch politics ahead of the good of the country, and only 13 congressional republicans disagree.

[awm]

The point of the article is not necessarily that taxes should be raised in abstract, or that increasing taxes improves economic growth.

 

Clearly if we want the economy to grow, the best thing to do in the short term is to increase spending and cut taxes. There are coherent arguments that we should do this, especially since interest rates are extremely low right now. However, that policy leads to huge deficits (and we already have huge deficits); in the long run debt can create substantial problems (see Greece). American politicians seem to have determined that we need to reduce the deficits over the next few years. Assuming we want to do this, the question is whether deficit reduction should be done through spending decreases, tax increases, or a mix of both.

 

It's true to some extent that raising taxes will decrease economic growth. But it's also true that reducing spending will decrease economic growth. The question is, given that we want a balanced budget (or some limit to the deficit that might not be zero), how should we best go about it? What is the "sweet spot" that maximizes economic growth? Obviously this is a complicated question and it very likely depends on exactly what the government spends on, and the manner in which taxes are allocated and collected. Nonetheless, it seems like some useful information may be gathered by considering both historical data in the US and data about other countries. If we look at countries where the economy is healthy and/or times in the USA in the past when the economy was healthy... we invariably see that taxes are/were higher than they are in the US today. In the US, spending was also lower than it is today.

 

This suggests that we might want to return to historical norms, which would require a mix of tax hikes and spending cuts. If we were to balance (or nearly-balance) the budget entirely through spending cuts, this would mean that we are both spending and taxing less than any other time in the last 80 years. There is no particular evidence that this would work; times and places when taxing/spending were less are not necessarily doing better economically than times and places when taxing/spending were more. In fact given our own history and what other countries are doing, the suggestion is that the "right" balance of taxing and spending would involve higher taxes than we have now.

 

It is often argued that US tax rates (especially on businesses) are very high. This is true on the face of it, but most businesses (and high-income individuals) don't pay anything particularly close to the statutory rate. Statutory rates (especially the top statutory rate) are not necessarily the best way to judge taxation, especially in a country with lots of loopholes and deductions like the US. Further, many other countries have much higher sales taxes (or a VAT) which increases taxation without showing up in the statutory income tax rates. Of course, other countries also provide health care for their citizens (rather than requiring employers to do it) which could help a business's bottom line too.

[phil_20686]

Not really. If a transaction gives me a before-tax profit of x and my tax rate is r then it gives me an after-tax profit of (1-r)x which has the same sign as x as long as 0<r<1.

 

What matters is the tax rate on one opportunity relative to the tax rate on other opportunities. If I bake my own bread I pay zero taxes on the value of my work while if I do paid work and spend my salary on paying the baker for baking bread for me then I do pay taxes, and the higher the tax rate the bigger the incitement to bake my own bread.

 

I have a friend who is fond of saying that the answer to every question in economics is "Its a bit more complicated than that".

 

Even in your case of a profit tax, you will effectively stop an activity if the profit falls below the central bank interest rate, and further, in practice the cost of taxes on businesses is nearly always borne by consumers in the form of raised prices. E.g. the "inflation" spike following the rise in VAT in the UK. And rising prices always mean that the number of units sold will fall. Ie less trades.

[phil_20686]

That's a bit simplistic. Let's consider a metro line. If the metro company sells tickets at the marginal cost of transportation, it will run a big deficit. However, the consumer surplus generated by all passengers using the line will probably outweigh that deficit. Yet, price discrimination for metro tickets just doesn't seem to work (selling rush hour tickets more expensively doesn't count, that's just accounting for the difference in marginal cost). So a private company won't be able to run a metro line at a profit, even though it creates a (potentially big) economic surplus.

In addition to that, a metro line will have huge indirect effects. It will spur the development in the suburb it is creating, it will decrease congestion on roads running in parallel, it will decrease the need for regulatory parking subsidies, etc. etc.

So I would argue that a government-run (or basically government-run) metro line

2a) increase GDP (via the expenditures for building and running the line)

2b) creates an economic surplus (or a net increase in quality of life, if you prefer)

2c) can indirectly spur development and growth

 

Of course, such beneficial opportunities are always limited, and at some point the government may run out of infrastructure investment opportunities where the costs (in the need for higher taxes, along with their negative impact on economic growth) outweighs the benefits.

The US, to put it mildly, does not seem to be at this point.

 

I merely meant, that since GDP amounts to the sum of all spending, an increase in spending always amounts to an increase in nominal gdp. You have merely constructed an example where the multiplier for government spending is greater than one. I.e., where it increases GDP by more than the amount spent.

 

If your point was really that the good done can outweigh the "badness" of having a deficit, I do not disagree, but it seems virtually certain that it would be better off to have paid for it in extra tax than by (structural) deficit. In the spirit of "its a bit more complicated than that" let me outline an alternative scenario.

 

Suppose I borrow money to build a motorway in 20xx. All is good and it causes decent economic return. A few years later a new technology cuts the cost of building a motorway by a factor of 5. Now with the money that I have to pay back in debt for the motorway I have already built, I could have built 5 motorways. So I have a "lost opportunity" cost.

 

Of course, the counter argument is that with my extra revenue from the the first motorway I can fund more debt so I can actually build all 6 motorways. I do not think that this is really a good argument as in practice the amount of debt one can have at any one time is finite, so by holding debt (even if it increases my revenue) I have probably certainly lost money if motorways became that much cheaper, as there would be many motorways i might want to build at that price....etc etc.

[Winstonm]

Opportunity cost is the value of the "next best thing" you could have done with the money.

 

Lost opportunity cost is the dream they sell in Las Vegas.

[helene_t]

Even in your case of a profit tax, you will effectively stop an activity if the profit falls below the central bank interest rate

Assuming I have the option of receiving tax-free interests from the central bank.

[cherdano]

I merely meant, that since GDP amounts to the sum of all spending, an increase in spending always amounts to an increase in nominal gdp. You have merely constructed an example where the multiplier for government spending is greater than one. I.e., where it increases GDP by more than the amount spent.

 

No, this is just a side point. My main point is that in the case of a metro line, a "benevolent monopolist" is able to create a huge amount of value that is not measured by the increase in GDP. That's what I meant with "consumer surplus". However, this cooperative monopolist needs to run the metro line at a deficit, and essentially only the government is in the position to be able to do that.

 

If your point was really that the good done can outweigh the "badness" of having a deficit, I do not disagree, but it seems virtually certain that it would be better off to have paid for it in extra tax than by (structural) deficit. In the spirit of "its a bit more complicated than that" let me outline an alternative scenario.

This is really a separate discussion. But all serious economists seem to agree that a modest structural deficit is beneficial for the economy. It increases the availability of money, which encourages economic activity. (That's why the Fed is targeting a non-zero level of inflation.) Since not running a deficit is a drag on economic growth, the logic "if the government hadn't borrowed 2 Billion in 2000, it could spend 2 Billion * (interest rate)^10 times more in 2010" does not hold.

[phil_20686]

No, this is just a side point. My main point is that in the case of a metro line, a "benevolent monopolist" is able to create a huge amount of value that is not measured by the increase in GDP. That's what I meant with "consumer surplus". However, this cooperative monopolist needs to run the metro line at a deficit, and essentially only the government is in the position to be able to do that.

 

Ah, ok, I see. Yes, a government can do this. My intuition would be that the consumer surplus will get spent else where, so the benefit will probably turn up in GDP somewhere, in the same way that a more efficient transport infrastructure tends to help economic activity.

 

 

This is really a separate discussion. But all serious economists seem to agree that a modest structural deficit is beneficial for the economy. It increases the availability of money, which encourages economic activity. (That's why the Fed is targeting a non-zero level of inflation.) Since not running a deficit is a drag on economic growth, the logic "if the government hadn't borrowed 2 Billion in 2000, it could spend 2 Billion * (interest rate)^10 times more in 2010" does not hold.

 

There seem to be several points here. I think everyone agrees about the benefits of a mildly inflationary economy. However, it does not follow that borrowing is a sensible tool to achieve this. Afterall, a government can inflate the economy easily by "printing" money. It feels like borrowing from the private sector is inflationarily neutral since, in general, the private sector will find a way to put their capital to use anyway. This means that government borrowing is (relatively) inflationary only if the private sector was planning to sit on the money. Further, by printing enough to put inflation at 3-4% the government gets the best of both worlds, since it makes it expensive to sit on capital and therefore forces the private sector to invest even without borrowing money.

 

Further, several well run advanced economies run surpluses routinely, eg Australia. I think if you sensibly manage a sovereign wealth fund you can achieve worth objectives while saving up money for a rainy day, eg, buying up land in cities to create parks, and prevent over development which in the future could be sold to business to raise funds. I do not see that such a scheme necessarily represents economic drag. It is true that one can sustain a small deficit forever provided that one has robust growth, but I am not at all convinced that this is a better strategy than a (cyclically) balanced budget.

[Winstonm]

IMO inflation is not so easily created with debt-backed fiat currencies, and inflation is a monetary event only with a commodity-backed currency where there actual value can be lowered by creating additional currency without proper backing.

 

In the U.S., the thinking error is that the Fed can "print money", but that is only part of the picture, as they must then "buy" something with that money, namely, debt. It is hard to buy U.S. debt if the budget is truly balanced.

 

Quantatative Easing undertaken by the Fed has been their move into the bond markets to buy long-dated US treasury bonds.

 

At the other end the 3-4% inflation idea is the crushing affect inflation has on fixed incomes, but I doubt a hardline Randian free-marketeer cares much about the difficulties of the lower 95% and especially when Soylent Green prices have gone up dramatically and you own that stock.

[phil_20686]

In the U.S., the thinking error is that the Fed can "print money", but that is only part of the picture, as they must then "buy" something with that money, namely, debt. It is hard to buy U.S. debt if the budget is truly balanced.

 

The government can also pay the wages of its employees with this money, for example. Provided the amount printed does not exceed the value of the goods and services that the Government purchases is can buy `real stuff' rather than debt.

 

Buying debt is a strategy for helping the banks, it seems mostly irrelevant to the printing money argument.

[phil_20686]

At the other end the 3-4% inflation idea is the crushing affect inflation has on fixed incomes, but I doubt a hardline Randian free-marketeer cares much about the difficulties of the lower 95% and especially when Soylent Green prices have gone up dramatically and you own that stock.

 

This is not a real argument, as wages respond to inflation. Inflation as high as 10% has not been uncommon in developed ecnonomies since WW2, in the UK inflation averaged 13% for the 1970's for example, inflation, but gdp at PPP still rose in the UK through this time.

[PassedOut]

This is not a real argument, as wages respond to inflation.

Many retired people here no longer receive wages, but live on income that is fixed, such as an annuity or a set pension. Inflation reduces the buying power of these folks.