Different Answers For Hourly Wages vs. CPI-Food vs. CPI-All

I was looking at a debate between Mr. Davis and Mr. Perry over inflation. Mr. Davis started out the debate with this provocative article, American Families Are Right To Be Worried About Inflation, and Mr. Perry responded with his own chart showing that average hourly earnings grew faster than inflation. Since I do the grocery shopping for our family my gut feeling says we are experiencing mild inflation in excess of wage growth. So who is right? In almost all cases like this I go over to FRED and chart some data.

My first reaction to the debate was Mr. Perry’s selection of average wage earnings. The logical choice would have been real disposable income since it removes personal current taxes and inflation and is readily available at FRED. For the average person the only wage growth that matters is what they have after taxes.

If we look at a Fred graph of real disposable personal income versus the two CPI measurements, we can see that the graph confirms Mr. Davis’s statements who claims that “food inflation blows away wage growth” and “food prices have soared since 2009”. If we adjust the real disposable personal income for population growth, the difference is even more dramatic. So what is the best way to measure wage growth, average wage earnings or real disposable personal income per capita? They tell different stories.

The graph is shown below. Here is a link to the FRED graph, http://research.stlouisfed.org/fred2/graph/?g=Gix.

Fixing The Affordable Care Act Has Suddenly Become A Lot More Important

Healthcare LunchboxI was not surprised that a divided three-judge panel of the D.C. Circuit Court of Appeals ruled that millions of Americans are not entitled to government health insurance subsidies under the Affordable Care Act because of the way the law is written. The law was pretty clear that the only people eligible for subsidies were those who purchased their health insurance via state exchanges so the only remaining question was whether the court was willing to bail out the Democratic Party for a poorly written law. The Democratic Party owns all of the successes and problems with the Affordable Care Act. They were so giddy after the elections in 2008 that they chose to go it alone on health care reform. They reasoned that the law was going to be such a rousing success that they would be in power for the next thirty years. Now a Republican Congress is stuck with the problem of trying to fix the health care laws and I doubt they are willing to take the risk of being accused of putting lipstick on this pig. Here is what Greg Scandlen said in an article over at the The Federalist called Three Conservative Ideas Buried Within Obamacare.

The political spinmeisters are already getting positioned for the next round of health care debates. They don’t really much care what happens as long as they can give their team credit for anything that seems to be good and blame the other team for anything that seems to be bad.

So Republicans want to be sure that whatever they do bears no resemblance to Obamacare, and Democrats will pounce on anything that seems similar to Obamacare as a vindication of that noble effort.

Since this is an election year and the ruling is being appealed, it is probably in our best interests to not fix this problem in 2014. Maybe by the end of 2014 we can find a few humble men and women who can work together. By then we will probably have a better estimate of the number of people who are affected, the impact of the insurance risk corridor, and the total costs to the budget. The best case scenario for a subsidy fix is that we pass a partial, non-partisan reform in 2015 with a 2016 implementation date. Maybe we will get a longer postponement of the individual and employer mandates as part of the deal. Any way you look at it you have chuckle at the naivety of Ms. Pelosi’s famous comment about the Affordable Care Act in 2010.

You’ve heard about the controversies within the bill, the process about the bill, one or the other. But I don’t know if you have heard that it is legislation for the future, not just about health care for America, but about a healthier America, where preventive care is not something that you have to pay a deductible for or out of pocket. Prevention, prevention, prevention—it’s about diet, not diabetes. It’s going to be very, very exciting. But we have to pass the bill so that you can find out what is in it, away from the fog of the controversy.

The Affordable Care Act is a grim reminder that large “comprehensive reform” strategies satisfy the political gods a whole lot better than the American people. The politics of getting policies that actually work still requires bipartisan support and lots of hard work. The Affordable Care Act had neither and it shows.

Yes, I Am #NotCool!

I just finished reading the Not Cool book by Greg Gutfeld last night. We had purchased the book at the book signing and I read most of the book during a long car trip to Georgia. I actually liked the book but had problems finding time to finish it. The theme of the book is a reminder how we sacrifice our freedom and individuality in order to look cool by certain social groups. If you find Greg entertaining on The Five, you will probably like this book, too.

Two Things I Learned From The Hobby Lobby Case

The first interesting thing I learned from the Hobby Lobby case was that it was a narrow legal decision that said for this administrative law to trump a law passed by Congress it must pass the strict scrutiny test. The Administration failed to show the court a compelling state interest to declare the Religious Freedom Restoration Act of 1993 unconstitutional. In the classic whac-a-mole style the court wisely avoided a discussion of the role of religion in the workplace. Here is Judge Napolitano explaining the Hobby Lobby ruling.

The second interesting thing I learned from the Hobby Lobby case came from the reactions of the Affordable Care Act supporters. The Affordable Care Act supporters have not quite grasped the idea that companies view health insurance as a negotiable benefit. Increasingly companies see employer sponsored health insurance as an employee benefit whose time has come and gone. The reactions to the decision reminded companies of the risk that health care crazies pose. I don’t think it will be the sole reason for a company to migrate over to a defined contribution plan but for those companies who were already looking at defined contribution plans for cost reasons, the decision just got simpler. The lure of getting back to running the company without the health care drama is very attractive.

The wise choice for the Affordable Care Act supporters would have been to let this sleeping dog lie. The employer sponsored plans are part of the 85% that was not supposed to be significantly affected by the Affordable Care Act. Making a fuss over the court ruling is counterproductive since it will encourage more companies to drop employer sponsored plans and embrace defined contribution plans. The drawback to switching over to a defined contribution plan is that it will create employer-employee chaos at an inopportune time. I can see businesses biting the bullet in 2014 but the Affordable Care Act desperately needs to settle down in 2014 and the last thing its supporters need is to try to explain more employer-employee chaos. If we have more defined contribution plans then we will likely have more people whose purchasing decision will be aligned with the individual insurance market. This will likely make it more difficult to achieve income redistribution through health care. Several health care pundits have quietly argued that income redistribution is a necessary policy objective for real health care reform. That may be true in their world but in the real world I suspect that these pundits have forgotten how much easier it is to get money out of companies than healthy individuals. The complaints could get real interesting because healthy people are notoriously passive-aggressive about health care costs. If the Affordable Care Act supporters really want to give the ACA a chance of settling down and succeeding, this is not the time or place to pick a fight with employers who for all practical purposes have ACA compliant plans. It is as if they do not want the Affordable Care Act to succeed.

GDPNow Forecast

I continue to be fascinated with forecasting that errs in only one direction. A couple of days ago I made fun of GDP forecasting in the post, Who Is The Better Forecaster, The Economist Or The Climate Scientist? The good news is that these “scientists” are not building stuff that could hurt us like cars or airplanes. For the last couple of years the initial GDP estimates are consistently too optimistic and the chart below continues that trend. Today I found out that the Atlanta Federal Reserve’s GDPNow forecast is expecting 2.6% GDP growth for the second quarter of 2014. It should not be a surprise to anyone that this estimate is at the bottom of the range for GDP forecasts and will leave us at a negative growth rate for the first six months of the year. For those of you who like to look at the details the Atlanta Federal Reserve has graciously provided the spreadsheet they use to make the GDPNow forecast. Here is the latest forecast from their site.

Latest forecast
The GDPNow model forecast for real GDP growth (SAAR) in 2014: Q2 was 2.6 percent on July 10, unchanged from its July 3 value. This morning’s wholesale trade release from the U.S. Census Bureau had no effect on the GDP nowcast after rounding.

Evolution of Atlanta Fed GDPNow Real GDP Forecast

Who Is The Better Forecaster, The Economist Or The Climate Scientist?

I was looking at this wonderful chart from Business Insider and from Bloomberg LP Chief Economist Michael McDonough and wondered who was the better forecaster, the economist or the climate scientist. As we can see from the chart the GDP forecasts for the last couple of years are particularly bad. In four out of four years the forecasts start out 50% to 100% too high. That is impressive! Winking smile


Here is my favorite chart from that other dismal science, climate science. Although this is not a fair comparison the climate scientists are wrong only 95% of the time! They win!


Justice Clarence Thomas upon learning that the Senate’s most powerful member said he is Caucasian

Justice Thomas is my favorite Supreme Court justice. I like all of the justices but my appreciation for him started after listening to his autobiography, My Grandfather’s Son: A Memoir, several years ago. I checked out the audiobook from the local library for a long car ride to Virginia Tech. I enjoyed the book and over the years my appreciation increased as I read and agreed with his opinions on several court decisions.

Sometimes I wonder whether Vice President Joe Biden or Senator Harry Reid are in a friendly competition for the biggest gaffes. I think Harry just pulled ahead. Time to step it up, Joe!

A day after vowing to “do something” about the Supreme Court’s recent Hobby Lobby ruling, Senate Majority Leader Harry Reid (D-Nev.) reiterated Democrats’ desire to undermine the high court’s decision by attacking the “five white men” who voted in favor of the Christian, family-owned business.
There’s just one glaring problem with his statement .. .

My Solution To The IRS Scandal Is To Arrest The IRS IT Guy

l_201_300I think we can quickly fix the IRS scandal if we arrest the IRS IT guy. Ms. Lerner’s attorney says it was IT’s responsibility to archive the emails so if we are going to pursue this passive-aggressive game to its logical conclusion then the next step is to throw an IT guy in jail. The beauty of this plan is that it doesn’t even have to be the right guy or gal. As soon as the IT staff gets a whiff of what is going on a lot of these political problems that have been plaguing the operation of the IRS will automagically get solved. I suspect that even that missing 2010 email stating that ‘Tea Party’ applications should be forwarded to a specific group for additional review will finally show up. If the courts do not put the fear of God into these political hacks running the IRS, the IT guys and gals will make it happen and it will not be pretty.

Did The Tail Wag The Dog In The First Quarter GDP Report?

I am puzzled why health spending had such a large impact on first quarter GDP report. I thought the Affordable Care Act impacted the health care expenditures for only a small part of the population. Other people are puzzled, too. The best article that I have found that partially explains the impact of health care spending on first quarter GDP is, “Health Spending and First Quarter GDP: What Happened?“, but it fails to explain why such a small component of the GDP had such a large effect.

When I get puzzled with economic data, I go over to FRED and plot some data. So if we follow Tyler Durden’s lead of plotting quarterly changes for health care expenditures and include the Real Gross Domestic Product series we get this graph. You can see that the quarterly change in GDP dwarfs the health care expenditures and it is hard to see much of a correlation between these two indices. Unless we are willing to believe that the tail can wag the dog, we have to conclude that the 2.9% decline in the economy was for economic reasons other than health care expenditures. The impact of changes in health care expenditures is still a minor factor in the GDP growth. The Affordable Care Act taxes are probably holding the economy back a little bit but if we want to grow the economy we have to do it the old fashion way by making things bigger, better, faster, or cheaper.

FRED Graph of Health Expenditure and GDP Quarterly Changres

Is Lois Lerner Corrupt Or Stupid?

LoisLernerI was chuckling to myself while reading Patrick Howley’s article on the Daily Caller, “Issa to IRS Commissioner: Lerner’s Lawyer Contradicted Your Testimony… Want To Try Again?”. In that article he says that Ms. Lerner’s attorney claims “that Lerner did not know she was supposed to comply with federal law.” According to Wikipedia, Ms. Lerner “is a member of the Massachusetts bar having earned her juris doctorate from Western New England College School of Law and graduating cum laude. She completed her undergraduate studies cum laude at Northeastern University.” She sounds like a pretty smart student. Before her stint at the IRS she was the lead counsel for the Justice Department and Acting General Counsel for the Federal Elections Commission. It sure looks like the Justice Department and Federal Elections Commission thought she has a pretty sharp legal mind. Now we are being asked to believe that she did not know that she was supposed to comply with federal law? So let me see if I understand this correctly. Her lawyer asserts that she made an innocent mistake by not complying with the Federal Records Act and due to an unfortunate disk drive crash the evidence that would have proven her innocence of illegally targeting conservative organizations is now missing. These circumstances are way too convenient for me to believe Ms. Lerner and the IRS were that stupid. According to a recent Rasmussen poll, “71% Think IRS Likely to Have Destroyed E-mails to Hide Guilt”. Most of the people use a different standard concerning government corruption. They will assume the IRS and Ms. Lerner are corrupt until the IRS finds her missing emails. It may be unfair but it is hard to tell the difference between government incompetence and corruption. If we want to change future outcomes we have to stop treating government incompetence as a kinder, gentler form of corruption.