Greg Mankiw's Blog

Healthcare Thought of the Day

noreply@blogger.com (Greg Mankiw) — Fri, 10 Jul 2009 14:39:00 +0000

Six hundred billion doesn't sound like all that much to achieve, or come close to achieving, an important and long-standing goal such as universal health care. But keep in mind that health-care reform is supposed to save money. Its premise is that the current path is unaffordable. In that sense, a "mere" $600 billion extra is total defeat.

Miron on Bailouts

noreply@blogger.com (Greg Mankiw) — Fri, 10 Jul 2009 10:57:00 +0000

Harvard's Jeff Miron makes the case for doing nothing.

Makin on Homeownership

noreply@blogger.com (Greg Mankiw) — Fri, 10 Jul 2009 10:42:00 +0000

Economist John Makin reflects on the housing bubble.

The Problems at Harvard

noreply@blogger.com (Greg Mankiw) — Thu, 09 Jul 2009 22:06:00 +0000

The new issue of Vanity Fair has an article on Harvard's woes, stemming from a particularly bad year of investment returns on the endowment. Here is a tidbit from the magazine's website:

The longtime head of Harvard Management Company, Jack Meyer, quit to start his own hedge fund in 2005 after growing fed up with criticism over the eight-figure salaries some of his managers were pulling down and with persistent meddling from top Harvard officials. Two particular annoyances were [Larry] Summers, who had been questioning Meyer’s investment strategies, and Robert Rubin, a member of the Harvard Corporation, who frowned on Meyer’s aggressive strategies and wound up on the “warpath” with Meyer, as one person put it.
When Meyer left, he took much of Harvard Management Company with him — including 30 portfolio managers and traders, as well as the chief risk officer, chief operating officer, and chief technology officer. The place became “like a Ferrari without the engine,” according to a portfolio manager who arrived after Meyer left. This angered Rubin, according to someone who knows him well: “In Rubin’s opinion, Meyer crippled the institution.”

Lazear on Fiscal Stimulus

noreply@blogger.com (Greg Mankiw) — Thu, 09 Jul 2009 12:06:00 +0000

Eddie weighs in.

A New Business Plan

noreply@blogger.com (Greg Mankiw) — Thu, 09 Jul 2009 08:24:00 +0000

At another blog, Troublesome Frog comments:

I managed to get through a BS in economics at a non-Chicago university without Samuelson's text, but I believe I purchased three (!) Greg Mankiw textbooks in the process. While I have to say that he writes a good textbook, Mankiw is an economist's economist. He knows how to extract maximum producer surplus. I was half surprised that he didn't convince instructors to change editions halfway through the semester just to get another $140 from us.

FYI, for those instructors teaching intermediate macro this summer: The new edition will be out any day now. Feel free to switch editions mid-course.

Interview with Burt

noreply@blogger.com (Greg Mankiw) — Wed, 08 Jul 2009 05:43:00 +0000

As a freshman at Princeton, I took econ 101 (introductory macro) from Burt Malkiel, and I got from my first exposure to modern finance from reading his book A Random Walk Down Wall Street. To this day, as Burt has long advised, most of my equity investments are in low-cost index funds. It is alway great to keep up with what he is thinking. Click here to read a recent interview.

Costs versus Efficiency

noreply@blogger.com (Greg Mankiw) — Tue, 07 Jul 2009 10:44:00 +0000

Advocates of government-run health insurance like to point to Medicare's low administrative costs (which, as I noted yesterday, is a controversial claim). But even if that factual claim were true, the argument would hardly be dispositive as to the greater efficiency of a publicly run system. As I put it in my recent Times article, "True, Medicare’s administrative costs are low, but it is easy to keep those costs contained when a system merely writes checks without expending the resources to control wasteful medical spending."

A reader finds support for this position in some recent testimony by Malcolm K. Sparrow, Professor of the Practice of Public Management at Harvard's Kennedy School of Government. Professor Sparrow suggests that greater administrative costs aimed at uncovering medical fraud might be money well spent. Here is an excerpt:

The units of measure for losses due to health care fraud and abuse in this country are hundreds of billions of dollars per year. We just don't know the first digit. It might be as low as one hundred billion. More likely two or three. Possibly four or five. But whatever that first digit is, it has eleven zeroes after it. These are staggering sums of money to waste, and the task of controlling and reducing these losses warrants a great deal of serious attention....
By taking the fraud and abuse problem seriously this administration might be able to save 10% or even 20% from Medicare and Medicaid budgets. But to do that, one would have to spend 1% or maybe 2% (as opposed to the prevailing 0.1%) in order to check that the other 98% or 99% of the funds were well spent. But please realize what a massive departure that would be from the status quo. This would mean increasing the budgets for control operations by a factor of 10 or 20. Not by 10% or 20%, but by a factor of 10 or 20.

The bottom line: Low administrative costs are not to be confused with high administrative efficiency. In other words, administrators are not necessarily a deadweight loss to the system.

Gruber on Financing Health Reform

noreply@blogger.com (Greg Mankiw) — Tue, 07 Jul 2009 02:59:00 +0000

In the New England Journal of Medicine, MIT economist Jonathan Gruber says we should eliminate or limit the income-tax exclusion for expenditures on employer-sponsored health insurance. He makes a strong case.

N.B.: During the 2008 campaign, candidate McCain proposed something along these lines, and the idea was met by withering criticism from candidate Obama.

Medicare has lower administrative costs?

noreply@blogger.com (Greg Mankiw) — Mon, 06 Jul 2009 10:27:00 +0000

Maybe not:

only an extremely small portion of administrative costs are related to the dollar value of health care benefit claims. Expressing these costs as a percentage of benefit claims gives a misleading picture of the relative efficiency of government and private health plans.Medicare beneficiaries are by definition elderly, disabled, or patients with end-stage renal disease. Private insurance beneficiaries may include a small percentage of people in those categories, but they consist primarily of people are who under age 65 and not disabled. Naturally, Medicare beneficiaries need, on average, more health care services than those who are privately insured. Yet the bulk of administrative costs are incurred on a fixed program-level or a per-beneficiary basis. Expressing administrative costs as a percentage of total costs makes Medicare's administrative costs appear lower not because Medicare is necessarily more efficient but merely because its administrative costs are spread over a larger base of actual health care costs. When administrative costs are compared on a per-person basis, the picture changes. In 2005, Medicare's administrative costs were $509 per primary beneficiary, compared to private-sector administrative costs of $453.

Thanks to Craig Newmark for the pointer.

Update: A reader points me to this related study. Also, see the discussion here and here. Finally, Paul Krugman disses the study I quoted above, and then the author of the study pushes back.

A Case to Watch

noreply@blogger.com (Greg Mankiw) — Sun, 05 Jul 2009 09:00:00 +0000

From the Washington Post:

A majority of the U.S. International Trade Commission recommended on Monday that President Barack Obama impose additional duties for three years on imports of low-cost Chinese tires the panel says are harming U.S. industry.
In a case seen as a test of how the Obama administration will cope with Chinese trade issues, four members of the six-member commission recommended that Obama impose additional duties of 55 percent in the first year, 45 percent in the second year, and 35 percent in the third year on imports of passenger vehicle and light truck tires from China.
"In our opinion, these tariff levels would remedy the market disruption that we have found to exist," the four said in a statement. The complaint was brought by the United Steelworkers union, which said a surge of Chinese tire imports have cost thousands of U.S. jobs.
Two other members of the commission disagreed, saying Obama should take no "trade-restricting" action because this would do more harm than good....
Trade experts are watching to see whether Obama, who criticized China for what he called unfair labor practices during his campaign and won strong labor support in his bid for the White House, will be tougher on China than predecessor George W. Bush. Bush routinely rejected petitions for restricting Chinese imports.

President Obama's views about international trade are still something of a mystery. As a senator and presidential candidate he seemed like a protectionist, but once elected he hired a bunch of free traders as economic advisers.

Larry Summers once said of Barack Obama, "When I’ve heard him talk about economic issues—with the exception of NAFTA, where I just hope he doesn’t believe what he says—he seems intelligent and serious. I wouldn’t say I’m bowled over by the brilliance of anything I’ve heard, but everything has a kind of thoughtfulness to it that’s sort of impressive." That is, even the president's chief economic adviser was discomfited by his campaign rhetoric concerning international trade.

This Chinese tire case may be one indication of the president's true feelings about trade. So let's wait and see what happens.

Happy Independence Day!

noreply@blogger.com (Greg Mankiw) — Sat, 04 Jul 2009 11:02:00 +0000

High-speed Trains to Nowhere

noreply@blogger.com (Greg Mankiw) — Fri, 03 Jul 2009 12:12:00 +0000

Harvard economist Ed Glaeser on transportation policy.

CBO and I agree

noreply@blogger.com (Greg Mankiw) — Fri, 03 Jul 2009 07:43:00 +0000

In my recent Times article on the possibility of a public option, I wrote

An important question about any public provider of health insurance is whether it would have access to taxpayer funds. If not, the public plan would have to stand on its own financially, as private plans do, covering all expenses with premiums from those who signed up for it.
But if such a plan were desirable and feasible, nothing would stop someone from setting it up right now. In essence, a public plan without taxpayer support would be yet another nonprofit company offering health insurance. The fundamental viability of the enterprise does not depend on whether the employees are called “nonprofit administrators” or “civil servants.”

The CBO is thinking along similar lines. In its most recent letter on heath reform plans, it says

The new draft also includes provisions regarding a “public plan,” but those provisions did not have a substantial effect on the cost or enrollment projections, largely because the public plan would pay providers of health care at rates comparable to privately
negotiated rates—and thus was not projected to have premiums lower than those charged by private insurance plans in the exchanges.

Unemployment Update

noreply@blogger.com (Greg Mankiw) — Fri, 03 Jul 2009 01:25:00 +0000

Source of graph. Click here for my discussion of it.

Old Speeches, New Policies

noreply@blogger.com (Greg Mankiw) — Thu, 02 Jul 2009 21:36:00 +0000

For academics, it always a delight when some old, obscure thing we've written suddenly gets noticed. So I was pleased when econoblogger Mark Thoma decided to draw attention yesterday to a speech I gave six years ago (pdf version) to the National Association of Business Economists. I had not looked at that speech in years, but looking back at it today, I think that it holds up pretty well. So, please, feel free to follow the link and read the whole thing.

The part of the speech that Mark highlights on his blog is the defense of running budget deficits during a recession. I am a bit puzzled about why Mark picked up that piece, however. Mark seems to be suggesting that my speech can somehow be construed as a defense of Obama fiscal policy. Yet I don't think that aspect of current economic policy is controversial. As I wrote in the NY Times in March of this year, "Few economists would blame either the Bush administration or the Obama administration for running budget deficits during an economic downturn."

The controversial parts of current fiscal policy are, first, the relative reliance on spending hikes versus tax cuts as short-run stimulus and, second, the long-term picture. On the short-run issue, I explained my preferences here. On the long-run issue, the apparent willingness of the congressional leadership to give away most of the allowances under a cap-and-trade system for carbon is the most recent symptom suggesting either a lack of concern about the long-term fiscal imbalance or a willingness to allow distortionary taxes to rise significantly in the future to close the fiscal gap.

Protectionism: A New Twist

noreply@blogger.com (Greg Mankiw) — Thu, 02 Jul 2009 13:58:00 +0000

More Competition, More Attentive Parents

noreply@blogger.com (Greg Mankiw) — Wed, 01 Jul 2009 18:10:00 +0000

Intriguing new research from UCSD economists Garey and Valerie Ramey (via Dan Hamermesh) shows that parents respond to the incentives:

After three decades of decline, the amount of time spent by parents on childcare in the U.S. began to rise dramatically in the mid-1990s. Moreover, the rise in childcare time was particularly pronounced among college-educated parents. Why would highly educated parents increase the amount of time they allocate to childcare at the same time that their own market returns have skyrocketed? After finding no empirical support for standard explanations, such as selection or income effects, we offer a new explanation. We argue that increased competition for college admissions may be an important source of these trends. The number of college-bound students has surged in recent years, coincident with the rise in time spent on childcare. The resulting "cohort crowding" has led parents to compete more aggressively for college slots by spending increasing amounts of time on college preparation.

Cooley on the Beleaguered Middle-class

noreply@blogger.com (Greg Mankiw) — Wed, 01 Jul 2009 13:38:00 +0000

The NYU economist looks at the data: Read both Part I and Part II.

This makes my day

noreply@blogger.com (Greg Mankiw) — Tue, 30 Jun 2009 20:24:00 +0000

Milton Friedman has long been one of my role models. So I was delighted to read that, according to BYU econ prof Richard Evans, at least in one small way, I have managed to emulate him.

Split Opinion

noreply@blogger.com (Greg Mankiw) — Tue, 30 Jun 2009 18:20:00 +0000

...about the proposed health reforms:

A new Rasmussen Reports national telephone survey finds that 50% of U.S. voters at least somewhat favor the Democrats’ health care reform plan, while 45% are at least somewhat opposed.
While the overall numbers favor the plan, those with strong opinions tilt the other way. Twenty-four percent (24%) strongly favor the plan, but 34% are strongly opposed....
Among all voters, just 12% think their health care coverage will get better if the plan is passed while 37% expect it will worsen. Thirty-seven percent (37%) expect their coverage to stay about the same if the plan proposed by the president and congressional Democrats becomes law.

A Missed Opportunity

noreply@blogger.com (Greg Mankiw) — Tue, 30 Jun 2009 09:32:00 +0000

From Donald Marron:

On Friday, the House of Representatives passed its climate change bill by a slim margin. The bill’s key feature is a cap-and-trade system for greenhouse gases. That system would set national emission limits and would require affected emitters to own permits (called allowances) to cover their emissions.
The number one thing you should know about this bill is that the allowances are worth big money: almost $1 trillion over the next decade, according to the Congressional Budget Office, and more in subsequent decades.
There are many good things the government could do with that kind of money. Perhaps reduce out-of-control deficits? Or pay for expanding health coverage? Or maybe, as many economists have suggested, reduce payroll taxes and corporate income taxes to offset the macroeconomic costs of limiting greenhouse gases?
Choosing among those options would be a worthy policy debate. Except for one thing: the House bill would give away most of the allowances for free. And it spends virtually all the revenue that comes from allowance auctions.
As a result, the budget hawks, health expanders, and pro-growth forces have only crumbs to bargain over. From a budgeteer’s perspective, the House bill is a disaster....
Economists have spent decades demonstrating the potential benefits of using environmental taxes to help finance the government (and make no mistake, a cap-and-trade system is a tax; the Congressional Budget Office, much to its credit, even scores it that way). But that economic logic works only when a substantial fraction of the revenues are used to improve fiscal policy — e.g., reducing deficits or reducing distortions from the tax system. The House bill does neither.

Donald is right. The Pigou Club is not happy.

Interview with Kevin Murphy

noreply@blogger.com (Greg Mankiw) — Mon, 29 Jun 2009 14:46:00 +0000

Click here.

The Arbiter of Ignorance

noreply@blogger.com (Greg Mankiw) — Mon, 29 Jun 2009 09:41:00 +0000

In a brief blog post on healthcare, Paul Krugman says that George Will and I are "either remarkably ignorant or simply disingenuous." I cannot speak for George, but I can attest that I am completely ingenuous. So I suppose I must be remarkably ignorant.

There is a lot of that going around lately. In an earlier post on the state of macroeconomics, Paul says, "Brad DeLong and I have been sort of tag-teaming the Great Ignorance which seems to have overtaken much of the economics profession."

What is going through Paul's head as he writes these posts? I suspect three things:

1. On the issue of macroeconomics, I think I understand Paul's point of view. He accepts the 1970-vintage Keynesian economics he first learned from, say, Jim Tobin when Paul was an undergraduate at Yale. Like Tobin and Bob Solow, one of his teachers at MIT, Paul thinks a lot of modern macroeconomics was an unfortunate turn in the wrong direction. In this old paper (published version), I tell the story of modern macro and describe how many old Keynesians were more likely to denigrate modern macroeconomics than to engage it intellectually. Paul is following in that tradition.

2. On the issue of health care, I also think I understand Paul's point of view. He would like a single-payer system, and he views a public option as a Trojan horse to achieve that goal. In my column, I wrote, "for those who see single-payer as the ideal, a public option that uses taxpayer funds to tilt the playing field may be an attractive second best. If the subsidies are big enough, over time more and more consumers will be induced to switch." Paul was one of the people I had in mind (see this old post of his).

In his latest post, Paul writes, "the standard competitive market model just doesn’t work for health care: adverse selection and moral hazard are so central to the enterprise that nobody, nobody expects free-market principles to be enough."

In my view, these comments are just off point. The Obama administration says it wants a public insurance plan that will compete on a level playing field with private plans (that is, without taxpayer subsidies). Is there any cogent economic analysis that suggests that such a policy addresses problems of adverse selection and moral hazard? None that I know. If it has to stand on its own financially, the public plan has no special advantage in addressing these issues.

In any event, it is not like the only alternatives available to us are a government-run health insurance plan or unregulated laissez faire. The most intriguing proposal in the current policy debate is the Wyden-Bennett bill (see this David Brooks column or this letter from CBO on the proposed legislation). That seems to be the best hope for truly bipartisan healthcare reform. At this point, given the legislative strategy of Congressional leadership, the hope is slim at best.

3. On the issue of tone, I again think I understand Paul's point of view. He likely believes that civility is overrated. He seems to think that in the blogosphere, and perhaps in the public debate more generally, you score points simply by insulting your intellectual adversaries. Sadly, I am afraid he may be right.

Harvard's Troubles

noreply@blogger.com (Greg Mankiw) — Sun, 28 Jun 2009 13:36:00 +0000

As seen by the Times (UK).