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March 22, 2010

Comments

nato

"...the country fundamentally doesn't buy into that vision."

I dunno:
http://www.gallup.com/poll/126929/Slim-Margin-Americans-Support-Healthcare-Bill-Passage.aspx

nato

Also:
http://www.fivethirtyeight.com/2009/12/in-polls-much-opposition-to-health-care.html

Nathan Smith

I'm not sure whether the "right"/"left" distinction is entirely applicable here. If I think it's wrong for the state to force people to buy the products of health insurance companies, do I oppose the bill from the libertarian right or the anti-corporate left?

The poll Nato cites does seem to be a shift in sentiment vis-a-vis pre-vote opinion. But of course, one poll doesn't erase months of public opposition. And people may just be glad we can stop talking about it already and move on to dealing with the nation's real problems, i.e., jobs. When it starts hitting people in their pocketbooks, I think we can expect sentiment to switch.

Still, it could be counter-productive for Republicans to obsess about the health bill in particular too much. Vow repeal, and move on. And include repeal in a broader agenda to restore fiscal solvency to a nation which is economically depressed and careening towards bankruptcy due to the reckless misgovernment, excess spending, and unsustainable deficits of the Democrats.

The danger here is that people will get used to Democrat depression, to think we can do no better. People need to remember, and be inspired by, the 5% unemployment that prevailed when Republicans were in charge.

Nato

"The danger here is that people will get used to Democrat depression, to think we can do no better. People need to remember, and be inspired by, the 5% unemployment that prevailed when Republicans were in charge."

Pardon me for harping on this, which is somewhat orthogonal to a useful discussion of HRC, but it's like we're living in different realities here. Employment was terrible when the GOP was in charge. Real GDP growth was poor. Household worth was very sad indeed. Once one subtracts the mostly-spurious real estate windfall, the 2000s were a very grim decade. Yes, the 90s were a high base from which to work, but of course so was essentially every previous decade, especially recently.

Nathan likes to point at low unemployment and high productivity, but given the steady drop in actual employment figures, these are two sides of the same coin.

Do I think this demonstrates somehow that he GOP destroyed the economy or something? Of course not. As I've said recently, I think it represents a much larger trend. Still, for Nathan to continue to say things like the above is just bizarre. I mean, the major stock indices have performed strongly since the passage of the bill, and it was by no means a given that it would pass at all. If Nathan was at all consistent and non-tendentious with his tea-leaf reading, he would regard that as a positive indication for its probable economic impact.

This is just not good intellectual practice, and his ability to read the data in a manner so counterintuitive without evincing the smallest inkling that it might need explanation or apology is truly unsettling.

Nathan Smith

Nato:

Is it or is it not a fact that unemployment average about 5% during the twelve years that the GOP controlled Congress?

The 2000s were not, prior to 2008, a "very grim decade." Household net worth was very healthy during the Bush years. It's true that was largely driven by real estate prices, but to say that rising real estate values were "mostly spurious" is too simple. Some, but I think not all, of the gains were later reversed, and if immigration reform had gone through housing prices might not have needed to fall at all.

There was not a "drop in actual employment figures." Jobs were being created, just not as fast as before. And the fact that the slower rate of job creation didn't show up as higher unemployment figures suggests that the softening of employment growth wasn't causing a lot of economic distress. After all, if people had desperately needed jobs, they would, one supposes, have actively looked for them, in which case they would have showed up in the unemployment figures.

I do think the rise in the stock market in the past couple of days is evidence, albeit weak, that the bill will have a good economic impact. Maybe because they think it will fail spectacularly and make way for something better?

re: "Yes, the 90s were a high base from which to work, but of course so was essentially every previous decade, especially recently."

Uh, no. The 1990s were quite different from the 1980s and 1970s, even to the extent that economists were amazed by how low unemployment went in 1997-2000. Nato's counter-argument is wrong here.

Speaking of "just not good intellectual practice," Nato's whole comment seems to be a good example. What he's taking me to task for asserting is, in fact, true, and he has no real argument against it, yet he refuses to acknowledge it. Of course, whether the Bush economy was good or bad is partly a glass-half-full-glass-half-empty question. I tend to say, yeah, it was a bit worse than the late 1990s but it still deserves a warm thumbs-up. Nato is a little more demanding. But what is indisputable is that the economy is WAY worse now than it was in, say, 2007. There's nothing "counter-intuitive" about that.

Will Nato acknowledge that if we could bring employment back to its trend from the middle Bush years, that would be an enormous improvement over where we are now?

nato

"Is it or is it not a fact that unemployment average about 5% during the twelve years that the GOP controlled Congress?"

It is, but that is a)of questionable meaning and more importantly b)not the matter at hand. The GOP was not "in charge" of the pen signing bills in the late 90s.

"Household net worth was very healthy during the Bush years"

Well, if we cut off the "Bush years" with the FRB 2007 survey, then household net worth was limping along with approximately 20% growth - not stellar, but not absolutely horrible either.

"Some, but I think not all, of the gains were later reversed

No, if you'll look at the figures, all of that disappeared before the end of 2009. Of course, one could blame Obama for that, if one was really determined, but I don't think impartial observers would agree that this was legitimate. Some losses have indeed reversed, of course, but not enough to make the 2000s look anything but grim.

"...if immigration reform had gone through housing prices might not have needed to fall at all"

That's fantastic. Immigration reform would have helped, but to actually avert the underlying problem? No. The problems were far too deep and broad for that. Why would housing prices nearly double and stay there, unless a fundamental change in the utility or costs of homeownership had occurred?

"There was not a "drop in actual employment figures.""

Not in an absolute sense, of course, but the proportion of people with jobs has dropped so rapidly that the numbers employed has gone almost nowhere.

"If people had desperately needed jobs, they would, one supposes, have actively looked for them, in which case they would have showed up in the unemployment figures."

So is this analysis supposed to imply that dropping percentage of those employed was because fewer people felt like working, but this wasn't because the job market seemed too poor to be worth it? I'm sure that if taxes had increased during this time one might be tempted to blame it on that disincentive, but I don't see it here.

Perhaps Nathan believes that there is some social change afoot that is causing people to want to work less irrespective of the job market. I don't know what that could be, but perhaps that's the reason for everything. If so, then it still leaves one to explain why to ascribe the low unemployment to GOP governance. After all, if people just decide not to work, of *course* the labor market would be tight.

"I do think the rise in the stock market in the past couple of days is evidence, albeit weak, that the bill will have a good economic impact. Maybe because they think it will fail spectacularly and make way for something better?"

I hope this is a joke.

"Uh, no. The 1990s were quite different from the 1980s and 1970s, even to the extent that economists were amazed by how low unemployment went in 1997-2000. Nato's counter-argument is wrong here."

In the original context of a base from which to work, the word in play was "employment," not "unemployment". As Nathan hopefully knows, these are not mirrors of one-another. Certainly the 90s had high participation, but workforce participation had been growing steadily for half a decade. In the above context, I had mentioned Household wealth antecedent to my mention of a high base, as well as GDP. So, there's no context in which Nathan addresses my counter-argument.

"Speaking of "just not good intellectual practice," Nato's whole comment seems to be a good example. What he's taking me to task for asserting is, in fact, true, and he has no real argument against it, yet he refuses to acknowledge it."

Nope. I responded to Nathan's use of unemployment figures and have given reasons for not making so much of them (and productivity). Perhaps my arguments are inadequate. Nathan could show how, or perhaps he will just continue to asseverate that I have made none.

"Of course, whether the Bush economy was good or bad is partly a glass-half-full-glass-half-empty question. I tend to say, yeah, it was a bit worse than the late 1990s but it still deserves a warm thumbs-up."

Measured by real GDP growth, it was the worst in 50 years. Measured in real GDP growth per capita it was the worst in 50 years. Measured by household net worth it may or may not have been better than Carter. Measured by employment growth it was the worst since the Great Depression. I don't think this has all that much to do with Bush, but it certainly would raise eyebrows to say without further justification that "it still deserves a warm thumbs-up." Yes, I'm aware that Nathan thinks that the low unemployment rate is laudable, and I could give a variety of reasons why I agree, but until his latest comment Nathan hasn't given any reason why it should weigh more heavily than the other traditional indicators.

"...what is indisputable is that the economy is WAY worse now than it was in, say, 2007. There's nothing "counter-intuitive" about that"
and earlier:
"The danger here is that people will get used to Democrat depression, to think we can do no better. People need to remember, and be inspired by, the 5% unemployment that prevailed when Republicans were in charge."

I suppose an extremely charitable interpretation would be that Nathan didn't really mean to blame the aftermath of a burst bubble on the Democrats. Rather, he was just saying that the Democratic policies of today and the future will *cause* a prolonged depression when we could have gotten back to the idyll that happened to transpire under the GOP's watch. However, there seems to be a strong implication that the current doldrums are the Democrats' fault and that the GOP could save the day. The second position is plausible, but the first part is hard to understand short of either amnesia or someone informing themselves from narrowly-selected sources.

"Will Nato acknowledge that if we could bring employment back to its trend from the middle Bush years, that would be an enormous improvement over where we are now?"

Of course! I would not acknowledge that we should blow ourselves another bubble to do so, however.

As a final side note, Obama and the Dems of 2008 ran on a platform advocating HCR rather more liberal than that actually passed, and for a long time there was a great deal of support. Ironically, it was as the bill became less liberal that it lost support(though of course I think that it became less liberal because of dropping support, not the other way around). I'm not sure in what way it's supposed to be some kind of nearly unconstitutional usurpation for a politician to carry through on campaign promises even when it no longer seems like a winning issue.

Sometimes the good guys lose, but that doesn't mean the bad guys cheated.

Nathan Smith

There are good reasons in economic theory and/or morality to regard unemployment and productivity as THE most important indicators of the health of an economy. There's no theoretical reason to regard a high or a low rate of labor force participation as particularly desirable. The method of 'revealed preference' implies an approach of not judging someone's decision to enter or exit the labor force. But when people want to work and can't find a job, that's a sign of economic distress. As for productivity, that's the key indicator of a country's level of wealth. Given that people earn $X an hour, they may to choose to consume more leisure or more market goods, with the time that underlies their earning power, and there's no reason to presume they should consume more of one or the other.

My suggestion that the stockmarket's reaction to ObamaCare might reflect an expectation that the markets expect ObamaCare to fail spectacularly and pave the way for something better was not a joke and is not silly, and Nato should know better than to suggest that it is. But it was a tentative, even a throwaway remark. The bounce is a very slight one anyway, it doesn't really suggest anything. The 1,000-point drop on Obama's election merited interpretation, this one really doesn't. Except that there wasn't a crash, so the stockmarket apparently didn't perceive this as a disaster. But it should also be noted that some of the harms of this are not the type that would necessarily lower GDP. Suppose Congress passed the Slave Act, by which anyone who was unable to find a job for two years becomes a slave of the state for a five-year period, to be rented out to any corporation that pays top dollar to do any type of labor that corporation sees fit to impose on them. That law might not be bad for GDP, but it would be very bad for liberty. In a similar fashion, a law compelling individuals to buy insurance from private companies might be bad for liberty and for human welfare without being bad for GDP or corporate profits. That said, I have very little idea what the economic impact of ObamaCare will be in the end, particularly because it doesn't seem to be an "equilibrium," so to speak, either economically or politically, and it's hard to guess how it will evolve.

Nato's claim that it is "fantastic" that immigration reform could have sustained home prices at their 2007 levels is a case of intellectual hubris. In 2007, most of the nation's biggest banks were betting on housing prices to sustain their high values or even to keep rising. These were smart people who had a lot of money at stake. To claim that it is "fantastic" that 2007 home values could have proven to have been justified is to claim that their fall was necessary for some powerful underlying reason, i.e., that their coming fall was somehow obvious. If that were the case, investors should have realized it and not staked so much money on rising home prices. The alternative hypothesis that there really were scenarios under which 2007 home values would have been justified *ex post*, so that all those high-powered investors were not merely stupid. One scenario is that monetary policy stayed looser. But another is that immigration reform would let in another 10-20 million or more people. If things had gone differently, both of those could easily have happened. And the fact that so many smart people with big stakes in the question seem to have believed it in 2007 is strong evidence in favor of the alternative hypothesis.

No, the immediate aftermath of the burst bubble was not the Democrats' fault (well, maybe somewhat; Democrats did hold Congress and do a couple of counter-productive things in 2007-2008; but mostly not); but economies tend to bounce back quickly from financial crises when Keynesian stimulus doesn't get in the way. (See East Asia after 1997-98, or the US economy after the depression of 1920.) That the economy is still as bad as it is even now is, I think, largely a function of investors and consumers being spooked by massive deficits, impending health care reform, the threat of radical pro-union legislation, the distortion of the economy by the GM bailouts and other forms of micromanagement.

No, just because the good guys lose doesn't mean the bad guys cheated, but in this case they, or at least Obama, did. He promised to cut taxes on 90% of working people, now he's raised them. He bashed John McCain for wanting to tax employer health care benefits, now he's taxing them himself. He promised to be post-partisan and now he's passed the most divisive major legislation in decades on completely partisan lines. However, it's true that Obama promised health care reform, and if he were to veto the Senate bill he'd be breaking promises to other people. I guess the ultimate problem is that, as politicians often do but to a much greater extent-- and Bush for one is, I think, quite innocent of it-- the sum of his promises was not remotely feasible. Also, sweeping social legislation has never been rammed through on purely partisan lines and despite steep unpopularity. That doesn't make it unconstitutional-- though it would be great if individual mandates are found to be unconstitutional, as they ought to be-- but it does make it a violation of the spirit, at least, of consent of the governed. Whether it was a campaign promise or not doesn't affect that aspect of the question. And anyway, other campaign promises, which received far more emphasis in swing-state advertisements, were broken by this legislation.

Heh. I remember Hillary saying something about "fiscal sanity" at the Democratic National Convention. Since it was his DNC, that kind of had his implicit endorsement. In a way, to be really straight with the American people, he would have had to stand up and say, "I'm afraid I must respectfully disagree with Senator Clinton. There will be no 'fiscal sanity' on my watch..." That said, Obama's utter inexperience affords him some protection against charges of dishonesty. It's plausible that he's not a liar, because it's plausible that he's such an idiot he didn't even know he was promising the impossible.

Nato

I find it odd that Nathan does not mention the widely accepted conclusion that bankers thought they had conquered risk with their new mortgage-based financial instruments and thus became willing to leverage the heck out of everything. But, as so many of the principles have since sheepishly pointed out, they had not, so the bubble must burst when real-estate prices stopped rising enough to cover non-performing loans. Immigration would not have deleveraged anyone. It might have increased the length of time the bubble could inflate, or it might have softened the landing of the bursting somewhat, but there's no reason to believe it could have done more than that unless there was a veritable tidal wave of fairly skilled newcomers. I invite Nathan to Google away and see if anyone claimed to have predicated their real estate projections on immigration or some such thing. I have a friend in real estate banking here who basically knew something very bad was going to happen as early as 2007, though no one had enough visibility to know who was leveraged how much. Maybe it's just that what I thought was common knowledge is not actually so common, but I swear I've seen exegeses of the bubble plenty of places, and they agree on the basics.

As for Obama taking on some of McCain's ideas - why is that not a laudable example of compromise or something?

Nathan Smith

Concerning *ex post* exegeses of the bubble, yes, there are a lot of them, and they tend to imply that the bubble was obvious and bankers were fools. But that won't quite do. And for Obama to run against McCain's ideas and then implement those same ideas is a dishonest way to deal with voters even it leads to good policy.

Nato

Well, I thought the Internet bubble was obvious too, but it didn't seem to stop people generally intelligent people from putting out books like "Dow 38,0000" or whatever. People say, "Everything is different this time," but then it isn't. It's a very familiar formula.

Nathan Smith

Well, a lot of people who thought the Internet bubble was obvious were wrong, in the sense that they called it too soon. If you looked into it I would guess that you'd find a lot of cases where people are saying "Whoa, this price is way too high," but no, it stays high.

nato

There are always plausible reasons: the internet fundamentally changing economic efficiency in the case of the internet bubble and financial instruments ameliorating risk for real estate. In both cases the justifications' plausibility was based on the difficulty of any one person having enough information to refute them. Ultimately I *do* think that more and more advances financial instruments do ameliorate risk, but unless one either 1) didn't think about it too hard or 2) got swept up in the spirit of things, I don't think it was easy to accept the positive case for a near *doubling* in real estate prices.

In real estate finance circles, there was intense pressure to get in on the poorest practices because risk (as one might expect!) provided such sweet numbers. Execs and analysts had to keep explaining why they thought it was all a mistake to investors who saw their results lag behind competitors. Many of them knuckled under, thinking that the folks betting the farm on the new instruments must know what they were doing. As the apparently unsustainable boom went on longer and longer, my friend's company was weeks away from starting to carry the same kind of paper when the first of the cracks started showing publicly (the collapse of Bear Stearns' subprime hedge funds), giving them something to point to. Which is a big reason why my friend still has a job.

In retrospect, it would have been good if Bear Stears had been allowed to collapse entirely so that the value of its holdings could have been litigated out. Then banks might have deleveraged in a steadier, more organized manner throughout 2008 instead of everything suddenly imploding in September without anyone having any idea of how to value CDOs and etc. Even so, if the Bear Stearns blow-up hadn't enabled skeptics to hold the line, I can only imagine how much worse things might have been. San Francisco banks were right on the ledge, and I think they would have looked a lot more like Washington Mutual than Wells Fargo.

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