Awkward: CBO More Than Doubles Estimate of Negative Employment Effect of “ObamaCare”
[UPDATE below.]
At Mises Canada I explain the CBO’s new report that has people guffawing. Note: Please be careful in how you cite their analysis; it’s not really accurate to say, “CBO says ObamaCare will destroy 2 million jobs!” (Don’t get me wrong, it may very well do just that, but my point is, that’s not really what the CBO is saying.)
However, on a related note, someone please reconcile Krugman’s post on the report. As best as I can tell, we now know the following:
(1) In general, unemployment benefits will reduce the incentive to work and will cause less employment. However, any right-winger who tries to use that right now as an argument against unemployment benefits is an idiot throwing out decades of economic theory about liquidity traps, since right now we are deeply enmeshed in a slump where demand-side factors totally swamp supply-side factors.
(2) In general, the incentive structure in the Affordable Care Act will reduce the incentive to work and will cause less employment between now and 2017. If the White House wants to cite that as a great feature of the ACA, that is entirely appropriate. Government intervention has actually screwed up the labor market for decades, and the ACA’s supply-side effects will UPDATE: may correct this inefficiency.
Do I have that right, kids? And if so, am I just being churlish for thinking that’s an odd combination of views?
How will unemployment benefits reduce the incentive to work when you have to look for work to receive unemployment benefits? Are these people collecting unemployment dishonest as well as lazy?
Is the concern over the reduction in the labor supply side similar to the concern over raising the minimum wage (higher salary expense for people like the Koch Bros) ?
Demand for labor stays the same while supply falls = higher wages = lower corporate profits.
How will unemployment benefits reduce the incentive to work when you have to look for work to receive unemployment benefits?
Follow the links and read the discussion from Krugman’s textbook. He explains it quite nicely, without reference to lying workers.
In Newfoundland changes in UI, as we call it, led to job sharing. People would work long enough to qualify and then leave and another worker would serve out his qualification period.
Looking for and taking a job are different things. I can assure you from experience- the state departments of labor don’t enforce either those to a degree to be a real deterrent.
Krugman: “it’s complicated. But the argument that work effort actually should fall, for some people, isn’t crazy, and offers the occasion for a nifty (I think) little modeling exercise.”
Murphy: “Government intervention has actually screwed up the labor market for decades, and the ACA’s supply-side effects will correct this inefficiency.”
This doesn’t look to me like a very good paraphrase. But that aside, why be surprised that a highly original thinker can hold an “odd combination” of views? It is complicated.
That wasn’t a paraphrasing. That was separate.
Hi Major,
I was at your local convenience station and I overheard the fuel pump saying to your vehicle, I did not come to abolish your tank but to fulfill it.
Stop being such a Judaizer.http://en.wikipedia.org/wiki/Judaizers
MF wrote:
“False. Jesus said he did not come to abolish the law of the prophets. You were already advised of this in a previous post.
Not surprising faith is trumping your reason.”
Ergo the fuel tank law still applies even after being fulfilled.
No, the fuel tank is full filled, lol. Keep the faith, tank stays full.
You, like the Jews and every other mistaken church leader, are stuck in the past and to this day denying Messiah and His saving grace.
It is no longer about the law rather a personal relationship with Christ, A relationship that is on an individual time table guided by repentance. Pour over Word, pray, knock, repent, you will have your own unique and individual law. Do sins still exist, yes. Do consequences still exist, yes. However it is between you and your creator, not you and a religious institution and not you and the state.
Jesus is the greatest liberator known to humanity.
Major you are ignoring history. Think about Martin Luther. He was opposing the catholic church, why? Because the catholic church uses my above explanation( law fulfilled) as a free pass to sin and also decided to buy/sale free passes. Luther completely opposed the concept sins could be bought and sold, hence 95 thesis.
So Luther and the catholics were dealing with the new reality of the law fulfilled.
Christianity makes Jews nearly irrelevant other than than the prophetic nature of the Old Testament. Jews believe in the prophetic nature, yet are still awaiting the “real” messiah. You have to understand this logic to understand the erroneous love affair between Israeli and America. This is much bigger than making homosexuality okay by claiming atheism… This is the root of geopolitical tensions. This is why we will go to WW3.
You, like most Christians with a selective reading problem, want to ignore Biblical passages that are inconsistent with your Earthly appetites and desires.
It’s not a question of being stuck in the past, present, or future. This is a question of what is written in the Bible, and in the Bible there is no passage that says the law of the prophets are no longer applicable today in 2014. Indeed, it specifically states with the character of Jesus that the law is not abolished.
Jesus was not the greatest liberator known to mankind. The son of Thor was. Or maybe it with Mithra, I can’t remember.
Luther is irrelevant to this.
The old testament is God’s word, not the Jews’ word. The Earth is still here, and so the law of the prophets still apply. You just don’t want to exercise or obey those disgusting laws, because of your heart. You’re trying to find proof for what your heart is telling you, in a contradictory and evil text.
Your last paragraph is straight up apocoplytic Gary North cahrazytown.
Is it really originality that is the reason?
Kevin Donoghue:
Yes, if you focus on different parts of his article, it won’t sound like my paraphrase. Here are the parts I was paraphrasing:
But health reform isn’t stepping into a world that had no government intervention; even on health care, we had a large subsidy via the tax code for employment-based insurance…
…
In this situation, policy changes that subsidize insurance for those not getting it through their employers could lead to lower work hours, not by introducing distortions of incentives, but by reducing the distortion created by the notch; the result could be an economy with less labor input, lower GDP, and higher welfare.
But you should have quoted Krugman talking about Arcade Fire’s live performance. Then I *really* would be doing a hatchet job.
BTW Kevin I modified the post to have Krugman say the ACA *may* fix the distortion in the labor market. I agree I put too much confidence in his position. originally. But other than that I am definitely paraphrasing what he is arguing.
Yes, the modified version is OK. So we’re left with the fact that you are surprised to find Krugman’s views are not simple. The views of Bob Lucas, Joe Stiglitz and Amartya Sen are not simple either.
If half is destroyed the one more double gets us there.
UI has demand and supply side effects (the former positive, the latter negative). Research suggests that demand side effects swamp the supply side effects, particularly at the ZLB.
ACA has demand and supply side effects (the former mixed, the latter negative). CBO looked at the positive demand side effects, concluded they were swamped by the negative supply side effects, and didn’t even look at the potential negative demand side effects because they were too speculative.
Daniel,
So if I asked you, “In the absence of ACA in the year 2014 is there too much or too little work hours being supplied in the economy?” the answer is, “Both”?
I’m not doing the above as a gotcha, I want to be sure you realize that’s what you and Krugman are saying.
I’m not sure I follow.
I’m not commenting on the last two sentences of (2.) if that’s what you’re getting at. I’m commenting on the differential labor supply/demand effects.
My view is that it would be weird to celebrate this as a good thing, but it’s very reasonable to suggest that a supply-side reduction in employment isn’t as objectionable as a problem from a negative demand shock.
Another way of putting this is that it’s very reasonable to be indifferent between two levels of employment if the causes of those two levels are differentially problematic, but that I am not really weighing in on that myself because I don’t have a strong view on whether people working less from the ACA is good or bad. But I definitely think it is less bad than an equivalent decline in work hours from a demand shock.
Until we get closer to something like full employment there’s too little work hours with and without the ACA.
Except we are at full employment. We will know when it drops even further.
Time to use that pesky idle purchasing power in the population’s hands.
Obviously the government spends money better than the owners of said money. It’s both more moral and more efficient. Kumbaya abracadabra that’s the way uh huh uh huh I like it KC and the sunshine band.
Nice remix MF.
http://image.shutterstock.com/display_pic_with_logo/429/429,1220916556,1/stock-photo-usa-cash-bills-in-jars-showing-s-s-and-s-17139859.jpg
To the coal mines! Shall our real income become a good deal greater than it actually is.
And from Krugtron:
“President Obama hails the fact that stimulus projects are coming in “ahead of schedule and under budget.” Yay — but boo.
Ahead of schedule is good. Under budget — well, ordinarily that’s a good thing. But the point of the stimulus is to increase spending! So if we don’t spend as much as expected, that’s less stimulus.”
DK wrote:
Until we get closer to something like full employment there’s too little work hours with and without the ACA.
OK, I agree with you that this is what Krugman thought last week. So, isn’t it interesting that he is now arguing that the ACA might lower work hours and boost welfare?
I’m not saying it’s impossible for that to be right, but I think it’s a needle that needs to be threaded and that you guys aren’t appreciating how thin the thread has to be.
I don’t see why that’s interesting. Or why this is a hard needle to thread.
Let’s say you lost a consultant gig you were expecting to have that represented a week of work on the one hand and you decided to take a week vacation with your family on the other.
Is it really that difficult a needle to thread to say that those two things have different welfare implications – one negative and one positive?
ACA is tougher because there are more trade-offs than just Bob deciding to take a vacation. But the basic point remains. One is a worker deciding she wants to work less and one is a worker being told she cannot work more.
Will ACA let Bob take a vacation from Kontradictions? Because that’s an upside I hadn’t considered.
You remind me of customers of Wal-Mart who continually complain about Wal-Mart.
If you don’t like it, you don’t have to shop there.
You can take a vacation. I am sure that would be something considered by many here to be an “upside”.
Hi Bob,
You wrote:2) In general, the incentive structure in the Affordable Care Act will reduce the incentive to work and will cause less employment between now and 2017. If the White House wants to cite that as a great feature of the ACA, that is entirely appropriate. Government intervention has actually screwed up the labor market for decades, and the ACA’s supply-side effects will UPDATE: may correct this inefficiency.”
I think your pro republican anti Democrat is coming through. I agree ACA will alter labor market and may even reduce labor. But to say that it screws it up is subjective. I mean, how did insurance become intrinsically linked to employer in the first place? Maybe ACA is correcting a past distortion? It is not like ACA gives away free insurance. That is what is ironic about all of this. The ACA plans are every bit as costly as pervious, if not more so.
So people will still need to have money, they will just be able to job hop more easily. This is a good thing. Labor needs a few tools in their belt. The Rothschild’s will be fine, stop worrying about them so much…
Equating employment with job lock is a weird and simple view. Job lock could be fixed nearly trivially. Tying insurance to employment through the tax incentives as healthcare economists generally agree should be done could be phased out relatively painlessly.
There is a version of monetary offset in demand that anything to juice demand is swamped by credit unwinding, offshoring, etc. Thus, demand side is not swamped by supply side right now, even though they’ve built their entire academic framework around making it easier for them to believe that.
Meant: Thus, supply side is not swamped by demand side right now,
If it were, then the CBO estimate will be proven wrong. If way more people want jobs now then the disincentives to work would be absorbed.
But as Bob pointed out yesterday with the minimum wage discussion, it is not only aggregates that matter anyway.
I thought the biggest problem of our time was INEQUALITY. Isn’t it the point of the CBO report that the ACA is going to increase INEQUALITY? If we are going to loose the equivalent of 2 million jobs, doesn’t that mean that in actuality, at least 10 million people will go down the economic scale? I don’t know where the middle class starts or ends, but I have a hard time believing we are doing it any good by suppressing the economic mobility of the broke ass and trailer trash. Dr. Murphy, do you know the income and asset level of the middle class? I remember Krugman posting a graph showing the “marginal” tax rate for people to get out of poverty was 84%, and he made the argument that the marginal tax rate for rich people should be the same. (I was horrified) Isn’t this CBO report saying the “marginal” tax rate will be INCREASING due to the ACA? While the ACA will not impact the rich (the gap to reduce income to get a subsidy being too great) my interest in the middle class is whether any in the middle class will actually be effected. Thank You. BC
We need to follow Ron Paul advise and destroy 1974 HMO laws. We need to divorce employment and health care by neutralizing tax policy. We need to nuke the AMA.
Screw inequality, I just want what is mine, I am okay with others having more, others having less.
Selfish you say? I will pick my own charity. It is not charity when a gun is involved. I want what is mine…
Bob, what’s the contradiction in saying that in general, demand-side factors swamp supply-side factors right now, but in the particular case of Obamacare, supply-side factors are greater than demand-side factors.
And also, what is the contradiction in saying that a lot of workers in the economy are working few hours right now from a welfare point of view, but some workers are working too many hours?
None. But you have to admit that it’s convenient.
I’m the revelator of the mormon church. I claim just yesterday god told me no politician can be trusted. Except my brother. Reaction?
To say that people are just being able to make the natural choice not to work they would have made if they didn’t need to work to get health insurance, would be like saying that people given “free” food are able to make the natural choice to not work they would make if they didn’t need to eat.
I’m sure there are lots of choices people “would” make, if only the world wasn’t so unfair, man.
Okay so in summary.
greater government subsidies = fewer hours worked = greater competition for wages = higher wages = better economy = more taxes taken for working… Repeat? I suppose I should throw in greater ‘supply side’ effect?
So Kevin Donaghue, Keshav, Daniel, et al: Are you saying Krugman has a blackboard in his office, and he did some empirical estimates to see that the group of people who receive unemployment benefits has supply- and demand-side factors such that anybody citing incentive effects is an idiot, whereas there’s a totally separate group of Americans who need to work for health insurance, where the supply- and demand-side factors are so swamped the other way that Krugman doesn’t even mention the phrase “liquidity trap” in the analysis? And, he didn’t bother sharing any of those empirical weighings with us, in the interest of brevity?
That just seems pretty surprising to me. I think a much more plausible explanation is that Krugman likes unemployment benefits and the ACA, and in the morning gets his coffee and figures out how to justify them in a new blog post drawing on the various economic tools he has at his disposal.
You load these questions up with so many different claims that you make it impossible to answer yes or no.
1. He does not have a blackboard where he works this out: it’s the work of others that’s been circulating as these policies have gained prominence.
2. I do not think merely citing incentive effects merits being called an idiot. I think it’s the exclusive citation of such effects plus calling Keynesianism “magic” that raises issues.
3. I don’t get the “whereas there’s…” point. The liquidity trap is relevant to questions of deficit spending, right? The demand effects relevant to the ACA is increased demand for medical services. They appear to be (according to the CBO) overwhelmed by the supply effects. What am I missing here? You’d acting like we are supposed to yell “liquidity trap” at everything and that means you don’t talk about supply side factors. Or something… I genuinely don’t know what the argument is in this part of this sentence. If the ACA was a massive deficit spending program presumably the liquidity trap would be relevant to bring up in the discussion of the demand side effects. But it’s not.
4. You linked to the CBO report. the UI benefit studies are widely circulated in the econ blogosphere. I’m not sure how much we should really make of what he does or doesn’t link to.
re: “I think a much more plausible explanation is that Krugman likes unemployment benefits and the ACA, and in the morning gets his coffee and figures out how to justify them in a new blog post drawing on the various economic tools he has at his disposal.”
That seems pretty surprising to me. I think a much more plausible explanation is that Krugman is a partisan but even handed economist. He knows there’s a negative labor supply effect of UI. He knows UI benefits have big multipliers in recessions. And he is able to read the CBO report and what it says (based on recent research on MTRs) about relative supply and demand contributions to the ACA job loss.
Now I’m worried what you think of me since I hold more or less the same views as him on both these things.
Do you think I get my morning copy and sit down to figure out how to justify policies I like? Or do you think I get my morning copy and set down to do the best economic science I can?
I’m sorta genuinely interested in an answer to this question now – it’s not rhetorical.
“Do you think I get my morning copy and sit down to figure out how to justify policies I like? Or do you think I get my morning copy and set down to do the best economic science I can?”
Doch, considering how the best economics to you appears to be a sanctioning of your existing convictions by finding patterns in past data that do not prove your existing convictions but are nevertheless often consistent with them (same way that past data is consistent with every free market argument) then I’ll say the former. Not because you’re intentionally doing it for reasons your ideological opponents might suspect, but because you’re unintentionally doing it due to repeating what you’ve been taught to do in class, and thus being without the proper tools such that the only thing you have are your existing convictions you brought with you. (Everyone who’s taken economics goes through the same teaching of methodology, so I’m not singling you out, it’s the nature of the beast).
In economics, those who are convinced that they are right because of “empirical evidence”, or at least are convinced that others are wrong because of the same, are those who are, unintentionally or intentionally, engaging in a fact finding mission and seeking opportunities to justify their existing beliefs.
It’s a tragedy actually. We’ve been told in school to disbelieve and distrust philosophical Rationalism, and to consider it as incapable of establishing knowledge of reality. So we leave school without the proper tools. But we all still have convictions concerning capitalism, markets, and government. We’re not seriously challenged in school when it comes to philosophy or epistemology. We’re given a laundry list of formulae, mathematical techniques, and so on, but we’re never in a sitution where the whole course consists of nothing but serious group discussions on philosophy of science, capitalism and socialism. No serious debates either.
We leave school taught to doubt our own minds. To rely on observation alone. To believe that observation alone is the only legitimate path to true knowledge.
WIth this in the graduate’s toolbelt, it’s no wonder that economics is so ideological and partisan in practise. What was always there, was never seriously addressed in school, and so once we leave school, our beliefs and convictions clash in veritable chaos, and every side is taught to believe that there is no other course to take than to yammer on and on that the data is on their side and not the other side. We were taught to believe that it is the data, not our minds, that is the basis of our own convictions!
I confess to temporary man-crush.
Woah. Needed google translator for that one.
Indeed lol
*coffee. That’s really weird I misspelled that the same way twice.
*indeed
to you
The jokes, they write themselves.
“Do you think I get my morning copy and sit down to figure out how to justify policies I like?”
No, I think you get your copy and justify the policies Krugman likes!
No, I think you copy well enough no figuring out is needed!
I could go on, I gotta million of them.
Are any of them good?
group of people who receive unemployment benefits has supply- and demand-side factors such that anybody citing incentive effects is an idiot
I don’t think Krugman has ever claimed that anyone who thinks that unemployment benefits don’t increase employment as an empirical matter is an idiot. Who he does consider an idiot is anyone who thinks that unemployment benefits cannot possibly increase employment, because of the argument “you can’t get more people to work by paying people not to work”. You may disagree with him, but he views what he calls “demand denialism” as idiotic.
This again? Yes, Keshav is exactly right on this point. We litigated this last week. Do we have to go through it again? Doesn’t double jeopardy apply?
Bob Murphy wrote: ” I think a much more plausible explanation is that Krugman likes unemployment benefits and the ACA, and in the morning gets his coffee and figures out how to justify them ”
Winner winner chicken dinner.
“State action is always correct, now how do we make it believable.” ~ Statist
Bob, did you see Krugman’s follow-up post, where he actually does bring up the fact the the economy is demand-constrained right now?
http://krugman.blogs.nytimes.com/2014/02/06/labor-supply-and-the-meaning-of-life/
“Oh, and that’s in the long run. In the next few years, with the economy still depressed, it’s all positive: reduced work by some will open up job opportunities for others, and higher incomes for beneficiaries will mean higher overall employment.”
“Oh, and that’s in the long run. In the next few years, with the economy still depressed, it’s all positive: reduced work by some will open up job opportunities for others, and higher incomes for beneficiaries will mean higher overall employment.”
As a first impression here did anyone else immediately think: “broken window fallacy of employment”?