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Economic News, Data and Analysis

Ten Lessons

Looking for a good book to give someone for Christmas?
Try this one…

Swim Lessons – Ten Lessons for Making Any Dream Come True – by Nick Irons
Swim the Mississippi? Why would anyone do that? Nick Irons did. He swam six hours a day, six days a week, for four months. Good thing. What he discovered along the way is the rock-solid plan the rest of us can use to make our biggest dreams come true.
Irons’ dream was to raise awareness and money to find a cure for multiple sclerosis, the disease his father and hundreds of thousands of other people live with every day. And he did. His historic 1,550-mile swim down the mighty Mississippi? from Minneapolis, Minnesota, to Baton Rouge, Louisiana—makes him the second person in seventy years to swim the length of North America’s
longest waterway and the first to do it with the locks and dams of its “modern” form.
According to Irons, we all have at least one idea that just won’t let go. What’s your Mississippi? Have you always wanted to write that novel or take time off to travel with your kids? How would you like to live on a sail boat for a year, climb a mountain, or learn to ride a horse? Maybe you want to change careers. Whatever your dream, Swim Lessons is the ultimate guide to making it happen.
This is not your typical self-help book that takes an inspiring message and uses “success” stories to illustrate its various points. This is the real deal, someone who got out there, did what the rest of us dream of doing, then came back to show us the way. Irons is a first-rate storyteller, so Swim Lessons is loaded with irresistible details and drama that make the swim itself read like any good adventure. Each chapter then boils down a critical lesson, providing dozens of strategic ideas, activities, checklists, questions, and more to help readers launch their own adventure.
Far more than inspiration, Swim Lessons shows you how to take any idea? no matter how deeply personal, quirky, or outrageous? and make it happen. From getting started to hanging in there, you get fun, easy, step-by-step strategies and tips that will work for anybody. Perfect for dreamers of all ages.
Nick Irons and his story have been featured on CNN, Good Morning America, The Montel Williams Show as well as in magazines and newspapers nationwide, from The New York Times to the Los Angeles Times, USA Today, People, and many others. According to CNN National News Correspondent Gene Randall, “Nick Irons is a true American hero.”
A portion of the proceeds from the sale of this book is being donated to MS research.

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Filed under: Metro DC

Medicare Bill and Accounting for Cost

Faulty Health Cost Accounting
What is the cost of a Medicare prescription drug benefit? According to official estimates cited in the Washington Post today, “[t]he drug benefits, to start in three years, are the most popular and expensive element of the plan, which is predicted to cost $400 billion over its first decade.”
Currently the “cost” of such programs and proposals is measured and reported, misleadingly, as the accounting cost to the federal government – that is, the amount of additional outlays needed to finance the program. However, this is a poor measure of the true cost of the program – to get a better measure, we need to also measure the value of the associated benefit.
To illustrate, suppose that every day you consume about a gallon of water. Suppose the water costs about $1 a day – so over the course of a year you spend about $365. Suppose an average American drinks about the same as you, so total water consumption would be somewhere around $110 billion per year.
Now, let’s say that the government is debating a water benefit – all citizens will receive allotments of 1 gallon of water per day. What is the cost of this program? According to federal government accounting – the cost would be $110 billion per year. But in reality, the total cost to everyone would be close to zero, since the extra government expenditure would be offset by the reduction in individuals’ expenditures. What does it matter if you pay the $1 to the water company or to the federal government in taxes?
If the program were financed by an increase in general revenues, there would be some winners and losers from the program as a whole, but on average people will see a net cost of zero.
For prescription drug care, this means that the cost of a prescription drug benefit would be offset by the lower out-of-pocket expense of medication purchases.
Of course, some choose not to drink ordinary tap water, but rather to spend a little extra for fancy bottled water or soda. These people then face the decision of whether or not to “top-up” their government allotment with additional purchases of beverages – and they would not be receiving the kind of liquid they would otherwise desire. In addition, some people might not drink that gallon of water provided by the government and are then (inefficiently) receiving too much. In both these cases the government provision of the “water” benefit may contain some inefficiency.
In the case of health insurance more broadly, however, most people do not typically actively choose how much, or what quality, insurance they desire. They typically get what they need, or what their employer offers, and then pay what they have to. (There is often some choice, but the price usually ranges from expensive to very expensive.) The point is that if you need open-heart surgery, you will likely get an operation – so there is little choice about the bulk of health care expenditure. The inefficiencies that arise because the government is the provider are thus likely to be small.
So, by having, say, universal health insurance financed by the government, you no longer need to pay for health insurance yourself – (or your employer wouldn’t have to pay on your behalf and could raise your salary.) The government accounting cost needs to be offset by the cost savings at the individual level when deciding if it is a good policy.
In addition, universal health insurance is very likely to save money, since those without health insurance typically incur health care at a greater cost to society by, for example using emergency room service more often or not receiving preventative care. These costs are born by the system as a whole; and just because they are not accounted for in the government’s books, doesn’t mean they don’t exist.
Ok, so the water example is a bit silly, since there is not a very strong case to be made that the federal government should be in the water business – at least not in a modern US economy (although we can always talk network externalities, increasing returns to scale, and/or health benefits… perhaps another time).
However, there are two strong reasons why government needs to be in the market for health care.
First, the private market doesn’t work. Because of what economists call “information asymmetries,” the market is likely to break down. Since only the sickest are likely to buy really good insurance, the price for good insurance will be very high – and most of us have settle for cheaper, but inadequate insurance coverage. By segmenting consumers of insurance, we lose the real benefits of insurance – the spreading of risk across individuals – and we end up having to pay the full cost of care. Try buying insurance directly from a company and you’ll see what I mean.
The solution is to group consumers together for purposes of purchasing insurance – this is one reason you get health care offered by employers. But the same problem arises; the information problem is just shifted to the group level. The best option is to create a single group, which contains everyone – universal health insurance. Allowing people to opt out and purchase private plans just returns us to the same problems as the private market.
Second, the government needs to be involved because there are significant “externalities” involved in the health care system. No one likes to see someone have to forgo needed medical care just because they can’t afford to a doctor. When someone can’t get an operation, can’t afford needed medication, or can’t take a child with asthma to a doctor, we all suffer. In these cases there is a role for government to intervene in the private market and to provide what the market is ill equipped to handle.
Would a real prescription benefit have an accounting cost more than $400 million? Yes. But prescription drugs are being purchased anyway, the government should provide this benefit; and, importantly, we should be willing to pay for it through a fair tax system and not put costs off to future generations.
And just to be clear – I oppose the bill that just passed the congress; it would have been simple to just add a real benefit for prescription drugs, without loading the bill with all kinds of funky semi-privatization schemes, a ban on drug price negotiation, billions in subsidies to HMO’s and other businesses, and 1,100 pages of other who-knows-what. If it’s so great, why wait for three years to have it take effect?

Filed under: Economics

Intern Opportunity

OMB Watch – Economic Policy / Federal Budget Internship
OMB Watch’s Federal Budget group is seeking a full or part time graduate or undergraduate intern to assist researches with a wide range of activities including federal tax and budget analysis.
Responsibilities include finding and manipulating economic and policy data, working with analysts on short and long-term policy oriented research, editing, writing short reports, web maintenance. Responsibilities will vary depending upon the skill level of the applicant. While the position is unpaid, OMB Watch is a small organization, which would allow the intern to observe firsthand a wide range of policy analysis and advocacy within the DC nonprofit community.
OMB Watch, a nonprofit organization located in Washington, DC, is dedicated to promoting government accountability and citizen participation. OMB Watch was formed in 1983 to lift the veil of secrecy shrouding the White House Office of Management and Budget (OMB), which oversees regulation, the budget, information collection and dissemination, proposed legislation, testimony by agencies, and much more. As the years have progressed, tracking OMB activities has led to other concerns about the federal government’s institutional responsiveness to public needs. See http://www.ombwatch.org for more information.
Requirements: Applicants should be at least in their second year of college and graduate students are encouraged to apply as well. Any field of study is acceptable, but good quantitative skills are a must. In addition, good computer skills, including working knowledge of spreadsheet software, are required. Web programming is a plus.
Application Information: Applicants should have an interest in politics, economics, and/or policy advocacy. For more information email jsirons@ombwatch.org. To apply, please mail, fax, or email cover letter, resume, writing sample (optional), and a letter of recommendation to:
Federal Budget Internships
OMB Watch
1742 Connecticut Ave., NW
Washington, DC 20009
Fax: 202.234.8584
Phone: 202.234.8494
Email: jsirons@ombwatch.org
Spring Deadline: Dec 1, 2003 or until filled.
Summer Deadline: March 1, 2004 or until filled.
OMB Watch is an equal opportunity employer.

Filed under: Economics

Presidents and the Stock Market

Just in case you were wondering, stock markets do better under Democratic presidents.

Economic Scene: Which Party in the White House Means Good Times for Investors?
[…]
Still, presidents like to think – or at least claim – that they influence economic activity. So a finding that the party occupying the White House has an impact on stock market performance should mean something.
With respect to the questions asked above, Professors Santa-Clara and Valkanov can give a firm answer only to the first: Stock market excess returns have definitely been higher under Democrats than under Republicans.
[…]

Filed under: Economics

Economy and Jobs Watch

Two new articles in OMB Watch’s Economy and Jobs Watch.
OMB Watch – Federal Budget – Economy and Jobs Watch –

Filed under: Economy

Billions in Tax Breaks for Industry

No surprise here…
I thought the US economy was supposed to be based on free market principles… sorry, my mistake…

Republican energy bill contains tax breaks, incentives – Nov. 15, 2003
WASHINGTON (Reuters) – Republican lawmakers unveiled Saturday a massive energy bill loaded with $20 billion in tax breaks they said would create U.S. jobs while boosting oil, natural gas, coal and nuclear production.
The legislation, mostly written in secret by Republicans, carries a higher price tag than the $16 billion in energy industry benefits proposed in an earlier version.
[…]

Filed under: Economics

Faust Economics

Interesting reading…
Jon Faust
Is Inflation Targeting Best Practice Monetary Policy? with Dale Henderson, manuscript, 2003.

Filed under: Economics

Independent Sector on Government Support

An exerpt from “Purpose, Power, and Participation: Ideas for the Future of Our Sector” by Diana Aviv, President and CEO, INDEPENDENT SECTOR

Independent Sector | 2003 Annual Conference
[…]
First, I believe we must act to preserve our capacity for service, and that means taking a hard look at our relationship to government—or I should say, governments in the plural. Government policy and priorities and funding have a profound effect on the lives of Americans and for that matter on the fortunes of other nations. Laws, regulations, and policy directions determine who is included and who is excluded, who is protected and who is prosecuted, who is assisted and who is left out. Nothing more clearly reflects our nation’s priorities and our values than our national and state and local budgets.
Right now about one dollar in three in the budgets of nonprofits comes from federal or state or local government. And among those nonprofits involved in health and human services, government’s share of the budget is more than one dollar in every two, about 52 percent. Because of recently enacted large tax cuts, a soft economy, the cost of foreign and domestic wars on terrorism, and growing entitlement programs, gigantic deficits are expected to loom over us for the next five to ten years. The government pie is shrinking—and legislators in Congress and the state houses are making choices, choices that often reflect their values and their priorities and that almost always reflect the new constricted economy.
We can spend our efforts quarreling with each other about which of our diverse interests—helping poor people, protecting the environment, fostering the arts, and so forth—which interests deserve to survive in a time of austerity. But that is the last thing we ought to be doing. We should not be clashing over crumbs. We should be fighting for substantial and sustainable support from the federal government and the states. That cannot be done simply by reallocating what is left of the pie. It is time for us to press for a larger pie—whether that includes rolling back the massive tax cuts of recent years or increasing public revenues in some other way. State legislatures and governors of both parties began down this road just a few months ago to close their state budget gaps. In the years ahead these all too modest efforts should be augmented as a result of actions focused on public office holders, both Republican and Democrat, mounted by all of our organizations, working together, regardless of our particular interests. This is not a partisan statement or even a political one. Members of both parties in a number of cities and state houses have been working toward such goals.
[…]

Filed under: Policy

Greenspan on Tax Policy

Alan Greenspan is not so keen on current economic policy…

Greenspan: Odds favor job growth, worries about deficit – Nov. 6, 2003
“Recent budget deliberations are not encouraging,” he said. “The current debate appears to be about how much to cut taxes or how much to increase spending. No significant constituency seems to support taking the actions that will be necessary to move toward, and one hopes achieve, budget balance.”
Greenspan warned that, as Baby Boomers begin to retire and draw down Social Security and Medicare payments within the next decade, the budget picture will get considerably worse, if current tax and spending policies are maintained.
“Such a development could have notable, destabilizing effects on the economy,” he said.

Filed under: Fiscal Policy

US Borrowing at Record Rates

Nothing new here… it’s amazing that just a few years ago the Federal Reserve was trying to figure out what to do once all the debt was bought back!

Treasury Expects to Borrow Record Amount
The government expects to tap $117 billion from the credit markets this quarter, which would mark the largest amount ever borrowed in any quarter, the Treasury Department said Monday.

Filed under: Economics

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