Donald Marron
Much of growth in the fourth quarter of 2009 was due to businesses restocking their inventories. (Donald Marron, Bureau of Economic Analysis)
Inventories still the growth story in Q4
The Bureau of Economic Analysis has released its third look at the economy in the fourth quarter of 2009. The economy grew rapidly in the quarter, but slightly less than previously reported: the new estimate is a 5.6% pace of real GDP growth vs. 5.9% in the prior estimate.
As usual, I think the best way to understand this report is to see what sectors contributed the most or least to reported growth:
Almost two-thirds of the growth reflects businesses restocking their shelves and warehouses: inventories accounted for 3.8 percentage points of the overall 5.9% of growth.
Consumer spending grew at a modest 1.6% pace and thus added 1.2 percentage points to overall growth (consumer spending accounts for about 70% of the economy and 70% x 1.6% = 1.2%, allowing for some rounding). That’s down from the previous quarter, when cash-for-clunkers boosted car purchases. Housing investment also slowed, again in the wake of earlier efforts–the tax credit for new home buyers–that had boosted growth in the third quarter.
Business investment in equipment and software showed signs of life, growing at a healthy 19% pace. That added 1.1 percentage points to growth, more than half of which was offset by the ongoing decline in non-residential construction.
Government spending fell slightly during the quarter. Stimulus efforts boosted non-defense spending by the federal government, but that increase was more than offset by a decline in defense spending and in state and local spending.
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Rep. John Kline (R) of Minnesota speaks during the House and Senate Republican education leaders press conference March 16, on the inclusion of a government takeover of student loans in the pending health care reconciliation package. (Newscom)
About that government takeover of the student loan business…
Health care understandably dominated the headlines leading up to — and beyond — yesterday’s historic House vote. It’s important to remember, however, that the reconciliation legislation also includes major reforms in the way that the government supports student loans.
Under current law, federally supported loans are made both direct from the government and through private lenders. The government loans are direct loans (i.e., the government lends directly to students). The private loans are guaranteed by the government (i.e., private organizations lend to students and the government guarantees the lenders against the risk of default). The health/revenue/education legislation will eliminate the private lending channel. (The market for non-government private loans will continue to exist.)
Opponents have denounced this change as a government takeover of the student loan market. That makes for a great soundbite, but overlooks one key fact: the federal government took over this part of the student loan business a long time ago.
In a private lending market, you would expect lenders to make decisions about whom to lend to and what interest rates to charge. And in return, you would expect those lenders to bear the risks of borrowers defaulting. None of that happens in the market for guaranteed student loans. Instead, the federal government establishes who can qualify for these loans, what interest rates they will pay, and what interest rates the lenders will receive. And the government guarantees the lenders against almost all default risks.
In short, the government already controls all of the most important aspects of this part of the student loan business. The legislation just takes this a step further and cuts back on the role of private firms in the origination of these loans.
That step raises some interesting questions about the costs of the current system (see this post), possible benefits of the current system (some colleges and universities appear to prefer working with private lenders), and the potential budget savings of cutting out the middle man (which appear to be large but somewhat overstated in official budget analyses).
But it hardly constitutes a government takeover.
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Should campaign contributions be anonymous?
Although it addressed only direct spending by corporations and unions, the Supreme Court’s recent Citizens United ruling has rekindled broader concerns about the power of money in politics. Over at the Washington Post, Marc Geffroy and R.R. Reno argue that our traditional approach to these concerns –in particular the requirement that campaigns disclose their contributors — might be exactly backwards. Instead, they suggest that we should move in the other direction:
There is a way to break the iron grip on access that campaign contributions provide. The United States should establish an anonymous campaign finance system. We need a federally chartered clearinghouse for campaign donations that matches donors to designated, registered candidates and political action committees. Under such a system, politicians would not know who supports their careers, er, causes.
It’s a simple but powerful concept. The identity of the campaign donor would be kept secret, which would break the wink-and-nod link between money and the legislative process
Imagine the confusion on Capitol Hill. Members of Congress wouldn’t know exactly whom to reward with special carve-outs. Union leaders might say they’re big supporters of certain candidates, but who could know for sure?
The proposal raises some obvious practical questions about designing a truly anonymous system (many of which are addressed in Voting with Dollars by Bruce Ackerman and Ian Ayres). But leave those aside for a moment and ponder how this approach might (or might not) address whatever concerns you have about the role of money in politics. Disclosure is a double-edged sword: we can see who is giving how much to whom, but so can the whom.
Marc and R.R. finish their argument with an analogy to the secret ballot:
If you think requiring anonymity for political donations wouldn’t work or is impractical, ask yourself: Does the secret ballot work? Imagine politicians paying you if you promise to vote for them. You can’t — for good reason. The secrecy of the voting booth prevents anyone from knowing whether you are true to your promise. The same would hold for an anonymous campaign finance system.
On this point, I think they identify one benefit of the secret ballot, but overlook at least two others. First, the secret ballot protects voters from politicians that would retaliate against them if they cast the “wrong” vote. That’s the flip side of the paying-for-a-vote argument. Second, the secret ballot protects voters from anyone else punishing them for their vote.
Which leads to what I think may be the most interesting question about their anonymous contribution proposal: How many people out there don’t make campaign contributions because they don’t want relatives / neighbors / friends / employers / activists to know which candidates and causes they are supporting? And would it be a better world if they felt free to make their contributions anonymously?
Update: R.R. Reno suggests a related question: how many people and businesses feel they have to make contributions in order to avoid reprisals from elected leaders? In other words, to what extent are contributions defense rather than offense?
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House Democratic leaders celebrated the passage of the new healthcare bill on March 22 (from left to right are: Democratic Caucus Vice Chair Xavier Becerra, House Majority Leader Steny Hoyer, Speaker of the House Nancy Pelosi, unidentified, and Caucus Chair John Larson). But for the plan to work, Congress will have to have the courage to make cuts in benefits a decade from now. (Larry Downing/Reuters)
New healthcare bill pros and cons: It expands benefits now, cuts them later
On Saturday, the Congressional Budget Office released its complete cost estimate for the health/revenue/education legislative package that the House is expected to vote on later today.
The good news: The combined package would reduce the deficit by slightly more over the next ten years ($143 billion) than previously estimated ($138 billion). And nothing has changed about the projected increase in insurance coverage. CBO still expects that the legislation would increase the number of people with health coverage by 32 million in 2019.
The interesting news: A few months ago, CBO invented a particularly useful measure of the federal government’s commitment to health care. This measure combines federal spending on health care and federal tax subsidies for health care. If you view many tax subsidies as close equivalents to spending (as I do), this is a very important metric. It would indicate, for example, that if you increase health spending, but decrease tax subsidies by the same amount, that the federal commitment to health care is not increasing, even though both spending and taxes would be rising. I think that’s a useful way to look at things.
So how does the legislative package line up on this measure?
CBO estimated that H.R. 3590, as passed by the Senate, would increase the federal budgetary commitment to health care over the 2010–2019 period; the net increase in that commitment would be about $210 billion over that 10-year period. The combined effect of enacting H.R. 3590 and the reconciliation proposal would be to increase that commitment by about $390 billion over 10 years. Thus, the incremental effect of the reconciliation proposal (if H.R. 3590 had been enacted) would be to increase the federal budgetary commitment to health care by about $180 billion over the 2010–2019 period.
In subsequent years, the effects of the provisions of the two bills combined that would tend to decrease the federal budgetary commitment to health care would grow faster than the effects of the provisions that would increase it. As a result, CBO expects that enacting both proposals would generate a reduction in the federal budgetary commitment to health care during the decade following the 10-year budget window—which is the same conclusion that CBO reached about H.R. 3590, as passed by the Senate.
In short, the reconciliation package increases the federal commitment to health care over the next decade (e.g., by rolling back the excise tax on expensive insurance plans that’s in the Senate bill) but then brings it down in the future (e.g., by ramping up the excise tax beyond the ten year window).
From a budget point of view, the basic structure of the legislative package is thus: Expand the commitment to health care in the next decade, pay for that expansion using other revenue sources, and then reduce the overall health commitment in later years. It’s that structure that leads to disagreement among budget experts about the long-run effects of the legislation. If the legislation executes as written, it will reduce future deficits substantially. If future Congresses flinch on the future budget savings (without flinching on the continued new spending), it will increase future deficits.
The shout-out: Long-term readers of CBO cost estimates know that they traditionally end with a sentence identifying the one or two people most responsible for the analysis. Given the importance of this cost estimate, however, the letter takes a different approach, identifying several dozen dedicated analysts who have been doing their best to provide Congress (and the American people) with as much information as possible about the legislation. They all deserve our thanks:
David Auerbach, Colin Baker, Reagan Baughman, James Baumgardner, Tom Bradley, Stephanie Cameron, Julia Christensen, Mindy Cohen, Anna Cook, Noelia Duchovny, Sean Dunbar, Philip Ellis, Peter Fontaine, April Grady, Stuart Hagen, Holly Harvey, Tamara Hayford, Jean Hearne, Janet Holtzblatt, Lori Housman, Justin Humphrey, Paul Jacobs, Deborah Kalcevic, Daniel Kao, Jamease Kowalczyk, Julie Lee, Kate Massey, Alexandra Minicozzi, Keisuke Nakagawa, Kirstin Nelson, Lyle Nelson, Andrea Noda, Sam Papenfuss, Lisa Ramirez-Branum, Lara Robillard, Robert Stewart, Robert Sunshine, Bruce Vavrichek, Ellen Werble, Chapin White, and Rebecca Yip.
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A demonstrator in a patriot cap spoke to a policeman during a November rally in Washington against proposed healthcare reform legislation. The official $940 billion price tag doesn't include other reform initiatives in the legislation that push the cost above $1 trillion. (Kevin Lamarque/Reuters/File)
Hold on. Healthcare reform will cost more than $1 trillion?
It figures that CBO would release its much-awaited score just as I was boarding a plane to go to a conference. So apologies for being slow to the party.
The headlines are reporting that CBO scored the health reform effort as costing $940 billion over the next ten years. Readers of this blog know that isn’t correct. The $940 billion figure refers only to the coverage expansions in the legislative package. There are also many other health reform initiatives–e.g., filling the “doughnut hole” in Medicare’s prescription drug benefit and increasing funding for community health centers and prevention efforts–in the legislation. Add it all up and the ten-year cost of health reform is about $1,072 billion.
Bonus question: How much does health reform reduce the budget deficit?
The headline claim is that CBO says the health reform package will reduce the deficit by $138 billion over the next ten years. That’s not right either. First of all, the health reform has now been stapled together with student loan reform in order to deal with some of the specifics of reconciliation. The student loan package accounts for $19 billion of the ten-year savings. So at best health reform should get credit for $119 billion in deficit reduction. But then there’s the CLASS Act gimmick. Lop that off and health reform really should be credited with $49 billion in deficit reduction. And even then it isn’t really health reform that’s creating those reductions. The health policy changes are actually expanding the deficit over the next ten years; other, non-health tax increases offset those increases and provide some deficit reduction.
Lest I be viewed as relentlessly beating on the package, let me offer a second bonus question:
Does the package generate budget savings only because it’s using ten years of taxes to pay for six years of benefits?
This appears to be a common refrain among opponents of the package. But it doesn’t hold up either. It is true that the new health benefits don’t start in earnest until 2014; that helps keep the ten-year sticker price down. But those six years of costs are offset by a combination of spending cuts and tax increases during those years, even if you strip out the CLASS Act gimmick. And in the second decade, CBO tells us that the bill reduces the deficit significantly more if–and this is a huge if–it executes as written.
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Housing starts fell by 5.9 percent in February. (Source: Bureau of Labor Statistics, Donald Marron)
Is home construction bottoming?
This morning the Census Department released its latest look at housing activity. The headlines are that housing starts fell by 5.9% in February, mostly because of weakness in the Northeast and the South (which may well reflect February’s terrible weather). Most of the decline was in multi-family; single-family starts were essentially unchanged.
Although starts and permits usually grab the headlines, I think it’s also useful to look at another measure of housing activity: the number of houses under construction (see above).
Not surprisingly, the chart shows that the number of single-family homes under construction fell off a cliff in early 2006. Almost 1 million new single family homes were under construction in February 2006. Today there are just 300,000.
The precipitous decline ended last summer, and housing construction has been essentially flat for several months. Perhaps housing construction has finally found bottom?
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
Nations that enjoy high standards of living have high productivity. But how they achieve that productivity varies. (Organization for Economic Cooperation and Development)
Rich nations' secret: Work harder. Work smarter. Or both.
This week the Organization for Economic Cooperation and Development released its annual Going for Growth report. The purpose of G4G is to benchmark economic performance among the OECD member countries and suggest pro-growth policy reforms.
My favorite chart in the report (click on chart above) examines how GDP per capita differs so much across countries:
The first column of bars shows how GDP per capita in each country stacks up relative to a benchmark equal to the average level of the 15 richest OECD countries in 2008. (Fun fact: In prior years, the OECD used the United States as the benchmark.) As you can see, the United States has the third highest level of per capita income, topped only by Luxembourg and Norway. Looking lower down, you can see that, on average, the GDP per capita of the EU19 countries is more than 20% lower than the benchmark and more than 30% lower than in the United States.
There are two basic ways that a country can achieve a high level of GDP per capita: People can work a lot (i.e., high labor hours per person) or people can work productively (i.e., high output per hour worked). The second and third columns of bars disaggregate the income differences into those two components.
The second column shows that there are significant differences among the countries in the average number of hours worked per person. As you might expect, people in the United States work slightly more than the benchmark average of the richest 15 OECD countries. People work substantially more, on average, in some nations, most notably South Korea, Iceland, and the Czech Republic. People work substantially less in Turkey, France, and Belgium. (Keep in mind that these figures are average hours per person, so they are influenced by the age distribution of the population as well as the number of hours worked by working-age people.)
The third column shows that there are even larger differences among the countries in productivity. Most notably, all of the countries with low per capita incomes have relatively low productivity.
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
Sens. Charles Schumer (D) of New York (l.) and John Kerry (D) of Massachusetts (c.), talk with Senate Majority Leader Harry Reid (D) of Nevada following a 60 to 40 Senate cloture vote on healthcare reform Dec. 21, 2009. The Congressional Budget Office has recently updated the expected costs of that bill. (Harry Hamburg/AP Photo/File)
How much does the Senate health bill cost?
Earlier yesterday the Congressional Budget Office released an updated analysis of the Senate health bill. The update reflects all the amendments that were adopted during Senate consideration of the bill, some technical adjustments, and the assumption that the bill would be enacted in the spring of 2010 (rather than December 2009, as previously assumed).
The bottom line is that not much has changed. The near-term costs of the bill have increased somewhat, but the budget story remains essentially the same.
The health care debate seems to have moved on from budget issues. For example, the big news today was that the Senate Parliamentarian announced that the legislative strategy of using reconciliation to pass a second health care bill will work–at least as far as he is concerned–only if the Senate bill is first passed by the House and signed into law by the President.
Nonetheless, as a public service let me offer a quick summary of the budget impacts of the bill over the next ten years here.
There are four things you should take away from this table:
1. The Senate bill costs about $971 billion — not $875 billion — over the next ten years. As long-term readers know, one of my pet peeves is that the media (and many policymakers) use the phrase “cost of the health care bill” when they should be saying “cost of the provisions in the health care bill that expand health insurance coverage.” This distinction is important because all the health bills also contain provisions that have nothing to do with expanding insurance coverage. The Senate bill, for example, would help fill in the doughnut hole in Medicare Part D, fund more community health centers, and fund prevention efforts, among other things. These efforts may be worthy, but they aren’t free. Thus while the media reports that the bill costs $875 billion, I estimate that the real cost is about $971 billion. That figures includes the $875 billion being spent to increase health insurance coverage plus $94 billion in new spending on other health initiatives and $2 billion in new tax cuts.
2. The Senate bill will reduce the deficit by $118 billion over the next ten years. The bill contains more than $1 trillion in offsets, including $251 billion in tax increases related to health insurance coverage (e.g., the tax on “Cadillac” health plans, penalties on some employers, and penalties on some uninsured individuals), $266 billion in tax increases unrelated to health insurance coverage (e.g., higher Medicare payroll taxes on wages above $200,000), and $572 billion in spending reductions (e.g., lower Medicare payment rates for some providers).
3. The near-term budget savings are exaggerated by the inclusion of the CLASS Act; adjusting for that, the ten-year deficit reduction is $48 billion. Another item familiar to long-time readers, the CLASS Act would create an insurance program for long-term care. Premium income, which reduces the reported deficit, would start much faster than benefit payouts, so the program generates surpluses in the near-term. But it won’t in the long-run. So most budgeteers view the inclusion of the CLASS Act here as a gimmick. Netting out the $70 billion in budget savings from the CLASS Act, and you have deficit reduction of $48 billion over the next decade.
4. The bill would increase the Federal commitment to health care over the next ten years. CBO created this metric to reflect the fact that the Federal government supports health care both through spending programs and through tax subsidies, most notably that for employer-provided health insurance. CBO finds that the combination of these efforts will expand during the first ten years of the bill. If the entire bill executes as written, however, CBO expects that the federal commitment to health care will decline in the second decade.
Note: CBO does not calculate a total cost figure for the health bills. The bills include dozens of policy changes, and it would be difficult (perhaps impossible) to allocate all their impacts to specific provisions. Thus, my figures should be considered approximate. I calculated the $94 billion figure for additional spending by adding up all the individual line items in Table 4 of the cost estimate that increased direct spending, with a couple of exceptions. First, I did not include the interaction effects that CBO lists as the end of the estimate because I was not sure how to allocate them; the interactions are large and could have a material effect on my estimate, potentially up or down. Second, there was one policy that led to both spending increases and spending decreases; I included the net spending increase in my figure. I am certainly open to other suggestions about how to add up the other spending in the bill. It’s also worth noting that I have taken as given CBO’s estimate of the gross cost of expanding coverage. There are some nuances in the calculation of that figure (e.g., the treatment of payments in a reinsurance program) that I need to understand better. I made similar calculations for the $2 billion in tax cuts itemized in the JCT analysis of the bill.
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A Google logo is displayed at the National Retail Federation convention in New York on Jan. 11. Google has recently improved its presentation of public data. (AP Photo/Mark Lennihan/File)
Google’s public data: Much improved
Google recently released some major improvements in its public data efforts. If you click on over to Public Data, you will find a much broader range of data sets including economic information from the OECD and World Bank, key economic statistics for the United States, and some education statistics for California. Google has also included more tools for visualizing these data, from standard line charts to the evolving bubble charts that have made Hans Rosling such a hit at TED.
As an example, I made a flash chart of state unemployment rates from 1990 to the present. Puerto Rico (which counts as a state for these purposes), Michigan, Nevada, and Rhode Island currently have the highest unemployment rates, so I thought it would be interesting to see how they stacked up against the other states over the past twenty years.
I can't embed Flash, but if you click here and then click play, you will see the evolution of state unemployment rates over time. (Spoiler alert: All those colored bars move sharply upward toward the end of the “movie”.)
Long-time readers may recall my series of posts criticizing Google for directing its users to unemployment data that have not been seasonally adjusted. Happily, Google now allows the user to use either seasonally adjusted or non adjusted data. Two cheers for Google.
Why only two cheers rather than three? Because Google still directs unsuspecting users to unadjusted data–without the ability to switch to seasonally adjusted–if they do a Google search on “unemployment rate United States“. That’s a big deal, particularly for February 2010 when the official unemployment rate was 9.7%, but the unadjusted figure reported by Google was 10.4%.
Clearly, the two parts of Public Data need to integrate a bit more.
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
A view of Nevada Fall and Liberty Cap from the John Muir Trail in Yosemite National Park. The US makes a point of not placing a dollar value on such stewardship and heritage assets. But the US does have $1 trillion in financial assets it could sell off. (Ben Arnoldy / The Christian Science Monitor / File)
Sorry, Germany. Greece won't sell Corfu. Wanna buy Yosemite?
Several German lawmakers hit a nerve last week with their suggestion that Greece sell some of its assets in order to cut its debts. The German newspaper Bild summarized this line of reasoning quite memorably: “We give you cash, you give us Corfu.”
That zinger has prompted a cottage industry of possibly humorous efforts to tote up what Greece should consider selling. For example, the Christian Science Monitor has a slide show of the top ten items it thinks that Greece could sell, including the Parthenon and the Acropolis.
While no one (?) takes these suggestions seriously, they do raise an important point. Spending reductions and revenue increases are important when governments face budget pressures, but they are not the only option. Governments can also sell off assets.
Which raises a natural question. If push comes to shove, what could the United States sell in order to cut its debts?
The United States isn’t Greece, of course, and I am far from suggesting that we actually need to start selling. On the other hand, there’s plenty of rhetoric (some coming from me) that the United States should set a target for its publicly-held debt. If we do adopt one, we should keep in mind that asset sales may be one way that policymakers may try to reach it.
So what does the United States own?
That’s a hard question to answer completely, but a good place to start is the Financial Report of the United States Government. According to the 2009 report, the U.S. owned $2.7 trillion in assets at the end of 2009, up from only $2.0 trillion a year earlier. Many of these are off-limits (we aren’t going to sell the Capitol or the USS Nimitz), but some raise interesting questions.
For example, we own an impressive portfolio of financial assets:
- $540 billion in direct loans (e.g., student loans) and mortgage-backed securities
- $240 billion in TARP loans and equity investments (some of which have since be repaid)
- $24 billion in a trust that invested in AIG
- $65 billion in preferred stock in Fannie Mae and Freddie Mac
We also have a tidy amount of gold:
- $250+ billion (The official financial statements report the gold as worth $11 billion, but that’s assuming gold is worth $42 per ounce. Gold prices are now about 25 times higher.)
Throw in another hundred billion or so for the value of the spectrum that we currently give away for free (not included in the financial statements), and we have a bit more than $1 trillion in assets that might conceivably be salable. Of course, whether they would actually yield that trillion is an open question.
What about the ideas of the German lawmakers? Wouldn’t they suggest that we could sell Yosemite or Mount Rushmore as well? How much are they worth?
No one knows. Our nation’s accountants understandably make a point of not placing a dollar value on such “stewardship and heritage assets,” almost all of which should never–and will never–be on the auction block.
There might be a few salable items lurking in there–the United States came close to selling the Presidio in San Francisco a few years back–but the real money is in the financial assets that the government owns.
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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
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