Saturday, March 31, 2012

Supreme court and health insurance

It was interesting watching and reading about the Supreme Court arguments on the constitutionality of the health-care law.

This is an interesting moment for constitutional law. Are there limits to the commerce clause? What is the balance of Federal vs. State power? But this is an awful conversation for thinking about reasonable health-insurance and health-care regulation.

The central constitutional weakness of the law is the "individual mandate." We're all supposed to buy insurance, and if we don't we pay a penalty. So everyone is hot and bothered discussing the mandate. But the mandate is far from the central economic problem with the law. So, as a country, we're like a squabbling couple, fighting over who should do the dishes, when the real problem is "why did you buy that stupid boat?" 

Thursday, March 22, 2012


I'm in Japan, one great data point on the ineffectiveness of fiscal stimulus, and the reason for blog silence for the last week or so. I will be giving a talk about asset pricing, based on the "Discount Rates" paper, at a Chicago Booth  event on Friday evening March 23 at the American Club in Tokyo, details here. Blog readers and ex-students most welcome. It's a public event, but you have to register.  

Wednesday, March 21, 2012

Austerity, Stimulus, or Growth Now?

(This is also a Bloomberg "Business class" column, with minor improvements.)

Austerity isn't working in Europe. Greece is collapsing, Italy and Spain’s output is declining, and even Germany and the U.K. are slowing down. In addition to its direct economic costs, these “austerity” programs aren't even swiftly closing budget gaps. As incomes decline, tax revenue drops, and it is harder to cut spending. A downward spiral looms.

These events have important lessons for the U.S. Our government cannot forever borrow and spend 10 percent of gross domestic product each year, with an impending entitlements fiasco to boot. Sooner or later, we will have to fix our finances, too.  Europe's experience is a warning that austerity -- a program of sharp budget cuts and (even) higher tax rates, but largely putting off “structural reforms” for a sunnier day -- is a dangerous path.

Why is austerity causing such economic difficulty? What else should we do?

Friday, March 9, 2012

To London

I'll be at the Booth campus in London next Monday March 12 as part of a panel discussion with Francesco Garzzarelli and Charles Goodhart on "Financial Stability and the Macroeconomy," sponsored by the Becker-Friedman Institute. More information on the event here. Presuming, of course, that the fact that Greece has finally defaulted doesn't mean the end of the world, as so many predicted. Ex-students, colleagues, and blog readers, if you come to the event, stop and say hi. 

Tuesday, March 6, 2012

Too big not to fail

The Economist has a great article, "Too big not to fail" about the Dodd-Frank regulation. Readers of this blog will know I'm no big fan of Dodd-Frank, for example an article in Regulation, collected opeds, and collected blog posts on reform. I've made most of these points before. But to hear it from the liberal-leaning Economist, with very detailed documentation, is good news.

A few delicious quotes:

Sunday, March 4, 2012

Manna from Heaven: the Harvard Stimulus Debate

Last week there was a fiscal stimulus debate between titans John Taylor and Larry Summers, at Harvard. Taylor wrote his opening remarks on his blog, which I recommend without further comment.  Summers was quoted in the Harvard Crimson:
Summers also said that in studies comparing states that received varying amounts of stimulus money, those that received more money experienced higher levels of job growth.
This makes no sense as an argument for overall fiscal stimulus. 

A story from Davos, and how Grumpy got his name

I was reading Nick Paumgarten's New Yorker article about Davos in the bathtub this morning, and ran into this gem:
The Belvedere [hotel], ... is the annual meeting’s hub after dark. Often, there are a half-dozen parties going on at once. To get into it, must pass through airport-like security ... The line, on this night, was long enough that a Nobel laureate in economics, who, moments earlier at the Hotel National, had been holding forth on unfairness, deemed it worth cutting. 
It would be easy enough to figure out who it was, but I like the story better as it is, a reflection on the Davos attitude, not a snarky comment on one individual. (If you know, please don't run it by outing him in the comments.) 
A while back, on a lovely spring night, I was walking home with my family after dinner out. We observed one of Hyde Park's Great Liberal Minds, walking his ill-trained dog. He watched his dog deliver a a large steaming poop, and walked off, leaving the poop behind.

I opined, "well, there goes the Great Liberal; I suppose he thinks there is a Federal Department of Picking up your Dog Poop."

The kids laughed and dubbed me "Grumpy Economist" on the spot.

Update: I removed a few comments. I really do not want this to be personal.  

Thursday, March 1, 2012

Benn Steil and I debate house prices

Last week Benn Steil wrote a very interesting oped on housing. (Originally at Financial News) He unearthed the amazingly large number of young people who bought houses in the boom, and then lost a lot when house prices fell. One quote:
What effect did the housing bust have on them? Household balance sheets among the Facebook generation were the hardest hit: between 2007 and 2009, half of those under the age of 35 lost over 25% of their wealth. A quarter of those under 35 lost over 86% of their wealth. Not surprisingly, they have been badly hit by the foreclosure tsunami; the median head of household in foreclosure being eight years younger than the median not in foreclosure. Younger households typically started off with less wealth than older ones and, following the bust, ended up with much less.

This bodes badly for their future, and the country’s
I wrote back, and the following exchange might be useful for blog readers here.  We don’t come to hard and fast answers, but I think we clarified a lot of channels that do and don't work.

Your oped was very interesting, but I have to disagree with a basic point.  Lower house prices are great news for the majority of young households.