My Idea For Fixing The Influx Of Central American Children Streaming Into The U.S.

Why don’t we set up boarding schools in their native country? It is probably cheaper and more compassionate than George Wills idea. Having your kid in a local government run boarding school is definitely less stress on the family than having the kid in child welfare services somewhere in America with no family or friends. We could call them refuge schools. Maybe we would even ask the Catholic church for some advice on how to run them. They have a few centuries of experience.

Here is another idea. If these kids graduate from a refuge school and a U.S. university or serve in the U. S. military for four years, we could offer them the same immigration opportunities as the Dream Act kids. These are the high value kids we want in the USA. It would be a nice way to motivate the kids.

The Latest GDPNow Forecast For Second Quarter Growth is 2.7%

I have a certain fascination with forecasts so on August 1st we shall see if the GDPNow method is better than the professional forecasters. Here is what the Atlanta Federal Reserve site said in the last report.

The final GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2014 was 2.7 percent on July 25, unchanged from its July 17 reading. The first GDPNow model forecast for GDP growth in the third quarter will be released August 1.

Do We Still Have “Cooperative Federalism” If States Are Unwilling To Cooperate?

Glenn Reynolds has interesting post over at the Instapundit stating that “Senate Hearing: Tax Credits are available for State Exchanges Only. Senator Baucus explains how The Affordable Care Act sets conditions where Tax Credits are available for State Exchanges Only.“. I watched the video several times and did not hear where tax credits were available for state exchanges only. That part was muddled. Senator Baucus did make a strong argument that the Affordable Care Act as a form of “cooperative federalism” in which states agree to rewrite state laws to comply with ACA recommendations and implement health insurance exchanges in exchange for tax credits. If he wittingly failed to mention that citizens would get tax credits from federal exchanges then he was deliberately negotiating in bad faith. Then it struck me. For states that refused to set up health insurance exchanges you would have to describe them as unwilling participants. What did these states get in return for rewriting laws and generally given up their prerogative to write health care laws? Do we still have “cooperative federalism” if 34 states are unwilling to cooperate? Do we have “cooperative federalism” if the states who did cooperate get nothing in return for their efforts? The states who opted out thought that they had gotten out of the individual and employer mandate by not establishing health insurance exchanges. Instead they got a deal with the government that looks like it has the same legal standing as a shotgun wedding.

What Was The Reason For States To Set Up Exchanges?

I just finished reading Nicholas Bagley’s article, “What does the Gruber video tell us about Halbig?”, and Aaron Carroll’s article, “My one comment on Gruber and Halbig”, this morning when it struck me that there was a lot of circumstantial evidence that the federal government fully expected that they could convince states to set up exchanges. In 2010 I read some posts on The Incidental Economist website that trumpeted the site so I checked it out. I found their insurance finder a “complete waste of time”. Obviously the writers at The Incidental Economist had never visited the site. The site was a poorly designed information site that was completely unprepared for becoming a retail site for insurance. Whoever was running the site thought that state exchanges were going to take the brunt of the load. Over the next couple of years there was lots of complaints that no one anticipated that the federal site would be the insurance exchange for 36 states. Everybody was saying the same thing, states were supposed to setup insurance exchanges. There is nothing that screams louder that the Affordable Care Act plan was for states to set up exchanges than the botched roll out of

So if we assume that the plan all along was for states to set up exchanges and that subsidies were not going to be used as leverage then how was the federal government planning to convince states to set up insurance exchanges? States would have to set up an organization kind of like the one they use to administer Medicaid and for most states the cost of administering Medicaid is a real pain in the budget. In the rough and tumble world of state politics and budget deficits what could the federal government offer states to offset the risk? Setting up a state exchange could be costly and embarrassing fiasco as Oregon found out. It almost looks like a Republican conspiracy to make traditional “blue” states look bad except without Republicans. What issue was big enough that Democrats would throw fellow Democrats under the bus? Until someone can explain to me the political and financial incentives for setting up state exchanges rather than using the federal exchange, I have to assume that the Affordable Care Act supporters decided to change course in mid-stream and it was part of their strategy. The only selling point for setting up state exchanges that had enough urgency was the subsidies. This was not a drafting error and I suspect there were Affordable Care Act supporters who questioned the wisdom of this strategy. To them the idea of restricting subsidies to the state exchanges was always a bluff so without much fanfare they  reverted to Plan B even though the law said otherwise and even more reluctantly started planning for a bigger Solely for political reasons they chose to save the Affordable Care Act by offering subsidies through the federal exchange and hoped to whether the storm.

Free At Last, Halbig v. Burwell

I was chuckling my way through Nicholas Bagley’s article, Halbig said it was applying the law as written. Don’t believe it, when I realized that I needed to refresh my memory on the grand bargain offered by the Affordable Care Act supporters. There is rich irony in hearing Mr. Bagley allege there was a consensus on providing subsidies in federal exchanges when at the same time the Speaker of the House was saying “we have to pass the bill so that you can find out what is in it”. The Speaker of the House does not know what is in the bill except in vague terms. I doubt she cared how subsidies were supposed to work. Then we get to the question that if postponing a large part of the Affordable Care Act is a pretty good indicator that the supporters were particularly bad at writing this law then why should we assume their intentions concerning subsidies are different than what was written in the law? The overwhelming body of evidence says they did not know what they were doing when they wrote the bill and no one checked the work. If there was a consensus then it was to write the law in the vaguest of terms so that they could do what ever they wanted if a problem arose. It took several years before problems arose and someone sued. Instead of working with Congress to fix the problems they resorted to fixing the problems via administrative rulings. Although it is difficult to discern Congress’s intention with a law so poorly written, I think it is safe to say that they have been making it up as they went along.

My recollections of the intent of the subsidies differ from Mr. Bagley. When the law was passed I remember the supporters like Mr. Gruber were constantly reminding reluctant states that the subsidies were only being offered to people who purchased their health insurance from state exchanges. They argued that the states better get busy setting up their exchanges if they want their citizens to get that subsidy. This subsidy argument magically disappeared when major employers figured out they could get out of the hated employer mandate penalties if states opted for the federal exchange route. If a state did not set up an exchange then subsidies would not be available. If subsidies were not available then the law says that employers would not be penalized. Was I imagining this? Fortunately I did not have to go far to clear up this subject.

In the Washington Post article, Why the DC Circuit’s interpretation of the ACA in Halbig v. Burwell is far from “absurd”, Mr. Somin lays out the grand bargain like this.

Under the DC Circuit ruling, a state’s residents can only get ACA tax credits for purchasing health insurance if their state decides to establish and operate an insurance exchange. This creates a strong incentive for state governments to create such exchanges, thereby participating in the administration of Obamacare. If they do as the federal government wants, their residents get millions of dollars in tax credits, and their insurance companies and health care providers get lots of new business. By contrast, states would have far less incentive to create their own exchanges if they can rely on the federal government to do all the administrative heavy lifting without imperiling their residents’ eligibility for federal tax credits.

The unanswered question was the impact of state exchanges on the employer mandate. I found the answer to that question in the Forbes article, Halbig v. Burwell Would Free More Than 57 Million Americans From The ACA’s Individual & Employer Mandates, in which Mr. Cannon argues that a victory for the Halbig plaintiffs would free more than 8.3 million residents from the individual mandate and 250,000 firms and 57 million employees from the employer mandate. Wow, this is better than I thought! We get rid of the two most hated parts of the Affordable Care Act with one ruling. As a person who may find himself faced with an individual mandate penalty in 2015 I really like the Halbig v. Burwell decision. This is Christmas in July!

If most of the country hates the individual and employer mandates and the court has an easy, legal way to give the people what they want, what is the court to do? Here are the alternatives I see for the court.

  • The Whac-A-Mole Strategy
    This is the current strategy used by the court. Make narrow rulings and hope Congress or the Administration will fix the big problems. In this strategy the court overturns the Halbig v. Burwell decision and lets the case get appealed to the Supreme court. The problem with this strategy is that it is heavily dependent on the Administration fixing the broader problems with the hated individual and employer mandates via administrative rulings. History has shown that setting rules by edict are likely to cause more problems then they solve. For such an unpopular law this strategy practically guarantees that the court will continue to be flooded with cases challenging the constitutionality of administrative laws when the law reads otherwise.
  • The Enough is Enough Strategy
    In this strategy the court gives up trying to fix the Affordable Care Act and confirms the Halbig v. Burwell decision. No more convoluted legal opinions like the one used by Justice Robert to justify the individual mandate as a tax. Judges can go back to interpreting the law rather than reading tea leaves. This ruling would force responsibility to fix the law back on the Administration and Congress and probably forces those two branches of government to work together to fix this health law in a non-partisan manner. We already know the other way doesn’t work. The hated individual and employer mandates get fixed by the legislative process. I envision a process similar to that was used by Congress to determine which military bases to close.
  • The Kick The Can Down The Road Strategy
    This is a variation of the Whac-A-Mole strategy in which the court does not rule on the Halbig v. Burwell decision in 2014 and lets the Administration try to minimize the problems with the individual and employer mandate issues. The key part of this strategy is to not make a decision until the court can see if the subsidy system is sustainable. If adverse selection rears its ugly head and the subsidy system is not sustainable then confirming Halbig v. Burwell is not a problem. The subsidy system is going to be overhauled anyway. If the subsidy system looks like it is workable then the court can decide at that time what to with Halbig v. Burwell.

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,

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