Casey Mulligan and John Cochrane Crystallize My Angst on CBO ObamaCare Jobs Estimate
I hadn’t read this WSJ piece on Casey Mulligan until the persistent von Pepe sent me Cochrane’s blog treatment of it. Since I already knew Mulligan’s basic points, I didn’t think I’d get much out of it; after all, the CBO itself cited Mulligan’s research in the footnotes when explaining why it drastically increased its estimate of the negative supply-side effects of the Affordable Care Act (ACA aka ObamaCare).
But what I didn’t realize was just how well they were going to put their fingers on what has really annoyed me about the blogosphere reaction to the CBO’s updated numbers. Here’s the WSJ article:
Mr. Mulligan thinks the CBO deserves particular credit for learning and then revising the old 800,000 number, not least because so many liberals cited it to dispute the claims of ObamaCare’s critics. The new finding might have prompted a debate about the marginal tax rates confronting the poor, but—well, it didn’t.
Instead, liberals have turned to claiming that ObamaCare’s missing workers will be a gift to society. Since employers aren’t cutting jobs per se through layoffs or hourly take-backs, people are merely choosing rationally to supply less labor. Thanks to ObamaCare, we’re told, Americans can finally quit the salt mines and blacking factories and retire early, or spend more time with the children, or become artists.
Mr. Mulligan reserves particular scorn for the economists making this…argument…
A job, Mr. Mulligan explains, “is a transaction between buyers and sellers. When a transaction doesn’t happen, it doesn’t happen. We know that it doesn’t matter on which side of the market you put the disincentives, the results are the same. . . . In this case you’re putting an implicit tax on work for households, and employers aren’t willing to compensate the households enough so they’ll still work.” Jobs can be destroyed by sellers (workers) as much as buyers (businesses).
He adds: “I can understand something like cigarettes and people believe that there’s too much smoking, so we put a tax on cigarettes, so people smoke less, and we say that’s a good thing. OK. But are we saying we were working too much before? Is that the new argument? I mean make up your mind. We’ve been complaining for six years now that there’s not enough work being done. . . . Even before the recession there was too little work in the economy. Now all of a sudden we wake up and say we’re glad that people are working less? We’re pursuing our dreams?”
The larger betrayal, Mr. Mulligan argues, is that the same economists now praising the great shrinking workforce used to claim that ObamaCare would expand the labor market.
He points to a 2011 letter…signed by dozens of left-leaning economists including Nobel laureates, stating “our strong conclusion” that ObamaCare will strengthen the economy and create 250,000 to 400,000 jobs annually….
“Why didn’t they say, no, we didn’t mean the labor market’s going to get bigger. We mean it’s going to get smaller in a good way,” Mr. Mulligan wonders. “I’m unhappy with that, to be honest, as an American, as an economist. Those kind of conclusions are tarnishing the field of economics, which is a great, maybe the greatest, field. They’re sure not making it look good by doing stuff like that.” [Bold added.]
And now here’s Cochrane, following up on the above commentary:
The rhetoric of our national conversation is strangely asymmetric…Imagine if, say, a Republican congressman said how great it was that lower and middle income people were quitting their jobs, so they could become artists. He would be pilloried as completely out of touch with the realities of life in middle America. What, has he been hanging out with former President Bush too much?
…
There are a hundred disincentives to work in America right now. Job lock was a big problem with our employer-based health insurance system, and I’ve written against it too arguing for a system based on portable individual insurance. But as economists, we are supposed to look at overall distortions, understand that employer and employee distortions contribute equally, and that jobs represent two-sided matches. The idea that the full effect of government policy was to induce too many people to work is just silly. [Bold added.]
Beautiful; exactly.
Here’s my challenge to people who want to say that the above is totally unfair, and that the reaction to the CBO report has nothing to do with politics: Can anybody point me to an economic analyst whose name I would recognize, who (a) publicly argued that one of the virtues of the ACA is that it would reduce the long-run employment of labor, particularly among low-income people; and (b) did so before the ACA was passed into law?
If that’s not possible, let me give you an easier request: Can anyone find me an example of an analyst whose name I have heard, who typically supports progressive policies, and who, at any time prior to the CBO report, made the case that low-income people were working too many hours? I imagine you might find something “near” this in the inequality discussions, but even there, I bet it would be saying stuff like, “The bottom 20% have only captured x% of the income gains over the last decade, even as their work week has risen by y%.” Yet that’s not the same thing as saying all things considered, low-income people are selling more of their hours to employers than is economically optimal.
Final thing: I’m not laying down the above as a rhetorical gauntlet; I’m genuinely asking. I will be very surprised if anyone finds an example of the first challenge, but maybe somebody made this point during the debate and I missed it.
The ACA is too complicated and it probably will result in fewer workers and jobs. I think those are negatives, and the program should be shelved.
BTW, the US government already runs a gigantic healthcare program, and employs federal workers in federal facilities to operate the program, which is for the exclusive use of former federal employees. All paid for by income tax payers, btw. No co-pays, no contributions.
I just described the VA.
Moreover, the VA sends out $57 billion to 3.7 million former federal employees, for being “disabled.” They get, on average, about $15,000 per year each, more than they would make working the minimum wage. About 150,000 Americans have been injured in battle since and including Vietnam, btw.
The vast majority of vets are claiming disabilities connected to service, but not battle.
It would be nice if there were studies, research and right-wing pique hysteria about the work disincentives and costs imposed on taxpayers by the VA.
But that will never happen. It ain’t PC.
BC wrote:
About 150,000 Americans have been injured in battle since and including Vietnam, btw.
I’m not saying I endorse the numbers necessarily, Ben Cole, but I’m thinking the official estimates must be way the heck higher than that. You must be excluding psychological claims of injury right? A quick web search says 20% of Iraq War veterans have PTSD, for example.
I get what you’re saying, but I think there’s an understandable reason that people are going nuts over means-tested subsidies inducing people to work less, versus military veterans claiming they were injured and need compensation.
Robert Murphy:
Thanks for you reply.
See here for bona fide battlefield injuries, the kind you get a Purple Heart for:
http://en.wikipedia.org/wiki/United_States_military_casualties_of_war
Yes, nearly one-half of soldiers returning from Iraqistan now file for “disability,” citing everything from PTSD to bad backs to hearing losses etc. There is a cottage industry out there (lawyers, consultants etc) to help get the highest benefits.
The criteria for PTSD was lowered under Obama to where a soldier does not have to show any documentation or to have served in battle. They just have to recite the right set of symptoms to a VA staffer.
BTW, I erred a bit, since and including Vietnam, 200,000 soldiers have received battlefield injuries—although even that figure is squishy; evidently in Iraqistan, one-half of injured soldiers return to battle in two weeks. So whether battlefield injuries are “disabling” is an interesting question. Especially in a service economy.
And really, should not anyone receiving “disability”—SSDI or vet—be put into job training programs with the goal to getting off disability?
VA outlays have doubled in the last seven years to more $150 billion. That’s financed by income taxes, no contributions.
Given current growth rates, in the next 10 years, U.S. taxpayers will fork over $2 trillion to the VA.
$2 trillion is a little bit of money.
The right-wing is completely happy with the gigantic federalized pension and health care system called the VA. No right-wing pique hysteria.
Under the VA, federal employees can retire after 20 years service and get full pension and medical thereafter–French railway workers would blush at such a system.
Our Founding Fathers loathed, detested and reviled standing militaries, and one reason is that they become parasitic.
It saddens me that our right-wing has simply turned a blind eye to excessive federal spending on coprolitic federal agencies.
Interestingly enough, if you go back to the 1950s, the defense agencies were somewhat regarded as “Democratic” agencies, and stalwart Republicans were for less defense spending. There was even some glee in me GOP circles after nukes and missiles were invented—who needs expensive militaries?
Back then, the Republicans also had a distaste for rural subsidies.
All changed now.
If you look at agency spending, it is mostly GOP sops. Read that carefully–not entitlement spending, but agency spending.
We spend $1 trillion annually just on three federal agencies: DoD, VA and DHS. That will be $10 trillion in the next 10 years.
I would also cut entitlement spending.
The more cuts the better,
When I was in the Navy (I only served on shore duty, no combat, no deployments, no anything dangerous whatsoever), it was common knowledge and widely circulated that what you “should” do when you separate is to claim in your final physical that you had ringing in your ears, because this would qualify you for 10% VA disability and because it was impossible to definitively prove whether you had it or not.
The VA is a giant scam. For every one legitimately injured veteran, there are 10 guys gaming the system who haven’t even *considered* the morality of their actions. The military breeds a sense of entitlement among its employees that makes Ayn Rand look like Mother Theresa…
Bob,
Earlier in the week you supported a view that proposed that Obamacare is so bad for workers it will make them worse off
http://consultingbyrpm.com/blog/2014/02/david-r.-henderson-on-cbo-and-obamacare.html
Basic economics says this would probably lead to them working more – certainly it would provide no grounds for expecting them to work less.
Today you’re back to supporting the view that ACA benefits workers and motivates them to work less.
Which is it ? Its not only ACA supporters who are inconsistent in their views. ACA opponents can be too.
Wouldn’t that depend on how the subsidy is structured?
For example, if I make significantly more than the subsidy limit, I will most likely experience a huge jump in my expenditures for healthcare (through increased premiums, copays and deductibles and so on.). That would incentivize me to work more in order to compensate for that loss of income.
However, if I make an amount close to or below the subsidy limit, I am incentivized to work less, in order to maximize my “benefit”.
Lastly, people who did not have health insurance before, and are now forced at gunpoint to purchase said insurance, are surely incentivized to work more to make up for the loss of income, subsidy or not.
Not sure what the net effect of all that would be.
“Basic economics says this would probably lead to them working more – certainly it would provide no grounds for expecting them to work less.”
Transformer please don’t call your BS economics “basic” economics, as if it is so plainly obviously true that only non-economists can possibly conclude otherwise. It is not true that economics dictates workers will “work more and certainly not less.”
“Today you’re back to supporting the view that ACA benefits workers and motivates them to work less.”
Where did Murphy “support” that again? Oh that’s right, nowhere.
Transformer wrote:
Bob,
Earlier in the week you supported a view that proposed that Obamacare is so bad for workers it will make them worse off
http://consultingbyrpm.com/blog/2014/02/david-r.-henderson-on-cbo-and-obamacare.html
Basic economics says this would probably lead to them working more – certainly it would provide no grounds for expecting them to work less.
Nah, Transformer, you’re not even close here. Go re-read that post. Its whole point was to say
(1) that just because workers might be better off by choosing to work less under ObamaCare than by continuing to work the same amount under ObamaCare,
(2) doesn’t mean that they are better off under ObamaCare than without it.
So no, there’s no way you could interpret that post as saying, “ObamaCare will hurt workers and should make them work more, if anything.”
OK. I withdraw my charge of inconsistency.
I replace it with a charge of economic error (OK, I know that’s a dangerous and probably foolish thing to say to someone with a Phd from NYU, but here goes….)
I do not think there are any (relevant to ACA) cases (using reasonable assumptions) where a worker chooses to work less where he will end up with lower utility
Here is my logic:
1. If I am forced to buy something that I value at less than its cost to me I cannot think of any circumstances where this will lead to me working less. This will be true even if the price I pay is subsidized.
2. If I choose to work more then and any subsidy I get is mean-tested then this is the same as an increased marginal tax rate on the subsidy aount. Even if the marginal tax rate on the subsidy was 100% (I lose the whole subsidy for even 1 extra hour worked) then I still will not reduce my hours I just won’t increase them.
So if there are no cases where ACA both makes me worse off and makes me work less then I conclude that all the cases leading to less work are where people benefit from ACA.
Isn’t this just the law of diminishing returns applied ?
“I do not think there are any (relevant to ACA) cases (using reasonable assumptions) where a worker chooses to work less where he will end up with lower utility”
That’s because you’re ignoring the counter-factual case where the worker isn’t even presented with the very factor upon which he chose to work less, in which case he would be better off if that factor was absent.
A choice that is constrained by some manner of coercion, is not a choice that makes the individual absolutely better off. It only shows one choice is less worse than another choice.
There are in fact cases where ACA makes workers worse off and is the factor that is the cause for why they made a choice constrained to X and Y, instead of X, Y and Z, which is the counter-factual you’re not considering.
Oops. Should have read Peter’s comment before replying
“However, if I make an amount close to or below the subsidy limit, I am incentivized to work less, in order to maximize my “benefit”.”
This could make someone both worse off and work less.
And re-reading David’s original post that was exactly the point he was making.
Do you ever have days when you wish you hadn’t bothered to get out of bed ?
Just transform into an 18-wheeler.
I had a day like that recently when I asked whether a backward bending supply curve breaks the “law” of supply (and demand).
I began working on computers back in the day before we had italics and bold and underline, thus I developed the unfortunate habit of placing “quotes” around words simply to draw attention to them, but not to mock.
Excellent post Murphy.
The hypocrisy is palpable. The irrational urge to defend the mainstream, the status quo, the state, regardless of consistency in one’s premises.
First we’re told that there are not enough jobs (the state must save us!) and that Obamacare will boost employment by hundreds of thousands per year (the state is benevolent!).
Now that reality has hit (economic laws), and jobs will actually be lost (the state only uses force, which does not benefit society other than defense against initiations of force), now we’re told not that they made a mistake, not that the state made the job market worse, not that their beliefs are flawed, no, now we’re told that this is a good thing about Obamacare, as if this was the plan all along! That the lost jobs are a benefit? ARE YOU KIDDING ME?
These “economists” are political strategists and statist apologists, nothing more. They just don’t care about anything other than power, how to increase state power, where principles and logic go by the board.
Bob, I think there were lots of people saying that some workers were postponing retirement due to healthcare-related job lock. Are you disputing that they said that?
Keshav,
No, I think his “Final thing” makes it clear that he is not asserting the absence of quotes and is instead genuinely asking for legitimate, concrete quotes. Ball’s in your court 😉
Isn’t job lock created because employer-sponsored health insurance isn’t subject to income taxes, whereas wages and other forms of compensation are? And as such something that free market people have argued against as a distortion in the labor and insurance market?
Are we not committing the fallacy we so often think others are by assuming that we have a free market now and then layering on the ACA to analyze the effects? Suppose one narrow result of the ACA is to allow people to leave the labor force as they otherwise would have absent the implicit subsidy for employer-sponsored health insurance, perfectly netting out the distortionary effects. Alternatively, what if we taxed employer-sponsored health insurance like everything else and as a result some people stopped working?
Anyone want to talk about this tension instead of pointing out inconsistencies in other people’s stories?
This quote by Pelosi doesn’t exactly fit Bob Murphy’s criteria but, it’s awfully close IMHO. Pelosi ” Think of an economy where people could be an artist or a photographer or, eh, a writer without worrying about keeping their day job in order to have health insurance, or that people could start a business and be entrepreneurial and take risk but not [be] job-locked because a child has asthma or someone in the family is bipolar. You name it. Any condition is job-blocking.”
This isn’t exactly an admission that ACA would shrink the economy or reduce jobs but the “choose to work less and be better off” part is there. As far as I can tell, no ACA critics seized on Nancy’s statement as an admission that ACA would shrink the economy. We’re they afraid of the rebuttal that goes: “See, they WANT you to be wage slaves.”?