Obama Health Care Law Gets Support in First Appellate Review

In its story on the first appellate of the Health Care mandate the NYT wrote (in the story's last sentence)

cost-shifting was inevitable as long as the federal government required hospitals to treat those who show up with life-threatening conditions.

That seems to me to be a decisive argument. If the Federal Government requires hospitals to treat those who show up with life-threatening conditions, and if that requirement is constitutional, then it is reasonable to ask where the money to pay for that treatment will come from. The individual mandate seems like a reasonable answer to that question, and on those grounds should be constitutional.

A modest goal

In this review of Scott F. Aikin's Epistemology and the Regress Problem (207 pp) Kelly Becker quotes Aiken as saying that "the baseline objective in this book is to work out a way for epistemic infinitism to appear better than obviously wrong." Becker notes that this is a modest goal.

High Frequency Trading and the news

David Fry of Dave's Daily says:

This is “the short-term memory market” and may be a suitable alternative headline. But, HFTs (High Frequency Traders) have programmed their HAL 9000s to search for terms like “Greece” and “approved” to launch buy programs.

Awareness

Buddhists encourage awareness. A nice practical example of awareness occurs when one savors food. Did you ever take small bites of a dessert as a way to make it last longer? Each bite filled your mouth with flavor and pleasure. A Black Forest cake, for example, mixes the tartness of cherries, the richness and lightness of whipped cream with the unique taste of chocolate—all built on a foundation of sweetness. Awareness is doing that about everything.

Well, some things are not as enjoyable as dessert. Who wants to savor boredom, pain, or anxiety? For those times think about it this way. You are going to die. The older you get the closer the day—and the more real the understanding of that fact—becomes. Savor the moments because, like a dessert, there will be a time when you've consumed it all.

One reason TED talks are good

Each is a talk backed up by visuals rather than visuals backed up by talk.

Warren Buffet's Import Certificates

Bill Gross's July Investment Outlook argues (a) that a liberal arts education is not worth it, (b) that the governments should be the employer of last resort, and (c) that we have to get our act together as an economy. In discussing our deficit he referred to what Warren Buffet called Import Certificates. (Gross mistakenly called them Import Credits.) Buffet's idea was that to import anything the importer would have to have an Import Certificate for the cost of the import. Where would she get it? Exporters would be given Import Certificates (ICs) matching the cost of everything they export. If adhered to rigidly this would balance imports and exports.

As Buffet pointed out there would be a very liquid market in Import Certificates. Their market price would depend on how grossly unbalanced our trade would be otherwise. The more naturally balanced our trade, the less valuable the certificates since there would be enough to go around. But if we were to import more than we export, there would be fewer certificates available, thus raising their prices. In fact, the price of the certificates would rise to the point that trade would be balanced.

Who would ultimately pay for those certificates? Foreign suppliers would probably pay some of the cost as a way to gain access to the US market. Another part of the cost would be paid by consumers in the form of higher prices on imported goods.

In addition, exporters could use the income derived from selling the ICs they earn to lower their prices, thus making them a bit more competitive.

This seems like a very interesting idea since it does not favor any products, companies, or countries. It simply balances imports and exports. The market would decide how the ICs would be paid for and which products would be penalized the most.

Of course ICs put a barrier of sorts in the way of free trade. Nonetheless it may be a good way to balance our trade without distorting the market too much.

To avoid an initial shock we could start by having the government issue more ICs than are justified by our exports. The number of extra ICs would be reduced year by year until only export-paired ICs would exist.

Soros on "The Enlightment Fallacy"

George Soros wrote a lengthy introduction to a new book on his Philanthropy. An excerpt was published in the June 23 issue of The New York Review of Books. Soros also sent a copy of it to a large mailing list.

Soros has long championed what he called reflexivity in financial markets, the idea that the action of the market participants themselves affect the market. In this introduction he extends that idea to world of politics. Just as the efficient market hypothesis has been shown not to be a good model for markets, the traditional enlightenment assumption that we will use our rationality to seek the truth is not a good model for the political world. (It has recently been argued that much of our ability to think abstractly grew out of our desire to win arguments rather than to seek the truth or understand nature.) Here's how Soros puts it, along with what he sees as the consequences. Unfortunately, he doesn't propose any real solutions.

[Karl] Popper had argued that free speech and critical thinking would lead to better laws and a better understanding of reality than any dogma. I came to realize that there was an unspoken assumption embedded in his argument, namely that the purpose of democratic discourse is to gain a better understanding of reality. It dawned on me that my own concept of reflexivity brings Popper’s hidden assumption into question. If thinking has a manipulative function as well as a cognitive one, then it may not be necessary to gain a better understanding of reality in order to obtain the laws one wants. There is a shortcut: “spinning” arguments and manipulating public opinion to get the desired results. Today our political discourse is primarily concerned with getting elected and staying in power. Popper’s hidden assumption that freedom of speech and thought will produce a better understanding of reality is valid only for the study of natural phenomena. Extending it to human affairs is part of what I have called the “Enlightenment fallacy.”

As it happened, the political operatives of the Bush administration became aware of the Enlightenment fallacy long before I did. People like me, misguided by that fallacy, believed that the propaganda methods described in George Orwell’s 1984 could prevail only in a dictatorship. They knew better. Frank Luntz, the well-known right-wing political consultant, proudly acknowledged that he used 1984 as his textbook in designing his catchy slogans. And Karl Rove reportedly claimed that he didn’t have to study reality; he could create it. The adoption of Orwellian techniques gave the Republican propaganda machine a competitive advantage in electoral politics. The other side has tried to catch up with them but has been hampered by a lingering attachment to the pursuit of truth.

Deliberately misleading propaganda techniques can destroy an open society. Nazi propaganda methods were powerful enough to destroy the Weimar Republic. Different but in some ways similar methods have been used in the United States and further refined. Although democracy has much deeper roots in America than in Germany, it is not immune to deliberate deception, as the Bush administration demonstrated. You cannot wage war against an abstraction; yet the war on terror remains a widely accepted metaphor even today. …

The election of President Obama in 2008 sent a powerful message to the world that the US is capable of radically changing course when it recognizes that it is on the wrong track. But the change was temporary: his election and inauguration were the high points of his presidency. Already the reelection of President Bush had convinced me that the malaise in American society went deeper than incompetent leadership. The American public was unwilling to face harsh reality and was positively asking to be deceived by demanding easy answers to difficult problems.

The fate of the Obama presidency reinforced that conviction. Obama assumed the presidency in the midst of a financial crisis whose magnitude few people appreciated, and he was not among those few. But he did recognize that the American public was averse to facing harsh realities and he had great belief in his own charismatic powers. He also wanted to rise above party politics and become—as he put it in his campaign speeches—the president of the United States of America. Consequently, he was reluctant to forthrightly blame the outgoing administration and went out of his way to avoid criticism and conflict. He resorted to what George Akerlof and Robert Shiller called the “confidence multiplier” in their influential book Animal Spirits. Accordingly, in the hope of moderating the recession, he painted a rosier picture of the economic situation than was justified.

The tactic worked in making the recession shorter and shallower than would have been the case otherwise, but it had disastrous political consequences. The confidence multiplier is, in effect, one half of a reflexive feedback loop: a positive influence on people’s perceptions can have a positive feedback in its effects on the underlying economic reality. But if reality, for example the unemployment rate, fails to live up to expectations, confidence turns to disappointment and anger; that is the other half of the reflexive feedback loop, and that is what came to pass.

The electorate showed little appreciation of Obama for moderating the recession because it was hardly aware of what he had done. By avoiding conflict Obama handed the initiative to the opposition, and the opposition had no incentive to cooperate. The Republican propaganda machine was able to convince people that the financial crisis was due to government failure, not market failure. According to the Republican narrative, the government cannot be trusted and its role in the economy—both regulation and taxation—should be reduced to a minimum.

The Republicans had good reason to take this line: it is a half-truth that advanced their political agenda. What is surprising is the extent of their success. The explanation lies partly in the power of Orwell’s Newspeak and partly in the aversion of the public to facing harsh realities.

On the one hand, Newspeak is extremely difficult to contradict because it incorporates and thereby preempts its own contradiction, as when Fox News calls itself fair and balanced. Another trick is to accuse your opponent of the behavior of which you are guilty, like Fox News accusing me of being the puppet master of a media empire. Skillful practitioners always attack the strongest point of their opponent, like the Swiftboat ads attacking John Kerry’s Vietnam War record. Facts do not provide any protection, and rejecting an accusation may serve to have it repeated; but ignoring it can be very costly, as John Kerry discovered in the 2004 election.

On the other hand, the pursuit of truth has lost much of its appeal. When reality is unpleasant, illusions offer an attractive escape route. In difficult times unscrupulous manipulators enjoy a competitive advantage over those who seek to confront reality. Nazi propaganda prevailed in the Weimar Republic because the public had been humiliated by military defeat and disoriented by runaway inflation. In its own quite different way, the American public has been subjected to somewhat comparable experiences, first by the terrorist attacks of September 11, and then by the financial crisis, which not only caused material hardship but also seemed to seal the decline of the United States as the dominant power in the world. With the rise of China occurring concurrently, the shift in power and influence has been dramatic.

The two trends taken together—the reluctance to face harsh reality coupled with the refinement in the techniques of deception—explain why America is failing to meet the requirements of an open society. Apparently, a society needs to be successful in order to remain open.

What can we do to preserve and reinvigorate open society in America? First, I should like to see efforts to help the public develop an immunity to Newspeak. Those who have been exposed to it from Nazi or Communist times have an allergic reaction to it; but the broad public is highly susceptible.

Second, I should like to convince the American public of the merits of facing harsh reality. As I earlier wrote, I have from my childhood been drawn to contending with what may seem insurmountable challenges. Those in charge of Fox News, Rupert Murdoch and Roger Ailes, have done well in identifying me as their adversary. They have done less well in the methods they have used to attack me: their lies shall not stand and their techniques shall not endure.

But improving the quality of political discourse is not enough. We must also find the right policies to deal with the very real problems confronting the country: high unemployment and chronic budget and trade deficits. The financing of state and local governments is heading for a breakdown. The Republicans have gained control of the agenda, and they are promoting a misleading narrative: everything is the government’s fault. The Democrats are forced into fighting a rearguard battle, defending the opposite position.

To cure the deficit, do nothing

The Congressional Budget Office points out (again) that if we do nothing at all, the budget deficit will cure itself. Here's how Ezra Klein puts it.

If Congress lets the Bush tax cuts expire or offsets their extension, implements the Affordable Care Act as scheduled and makes or offset the Medicare cuts prescribed by the 1997 Balanced Budget Act — which CBO calls the “extended baseline scenario” — the national debt will be totally manageable.

If Congress passes laws extending the Bush tax cuts without offsetting the cost, repealing the Affordable Care Act and its cost controls and protecting doctors from Medicare cuts without making up the savings elsewhere — the “alternative fiscal scenario” — the national debt will be totally out of control:

Brad DeLong adds a comment.

Indeed.

If Obama were to pledge--and get everybody running for his seat to pledge--not to sign any bill that breaks PAYGO, we don't have a long-run deficit problem. If the majority and minority leaders of the Senate and their successors pledge not to let anything move through the Senate that breaks PAYGO, we don't have a long-run deficit problem. If the Speaker of the House and his successors pledge not to let anything move through the House that breaks PAYGO, we don't have a long-run deficit problem.

It boggles my mind why Barack Obama did not, on January 21, 2009, promise to veto everything that broke ten-year PAYGO. I am morally certain that this is what Peter Orszag told him to do. I am morally certain that this is what Jack Lew is telling him to do.

What a disappointment …

PAYGO is pay as you go, the policy adopted a couple of decades ago to tame the deficit. It worked then, and it could work now.

Changes in life expectancy for women in the US

From the LA Times.





Consider the correlation between changes in life expectancy and political party.

Tax rates and economic growth in one graph

Ezra Kleinquotes John Boehner

“We’ve seen over the last 30 years that lower marginal tax rates have led to a growing economy, more employment and more people paying taxes.”

But it’s very hard to find evidence for that view in the economy itself. Michael Linden at the Center for American progress graphed the economy’s average real GDP growth rate at different top marginal tax rates. Apologies to Speaker Boehner, but what we’ve seen over the past 30 years is that lower marginal tax rates have not led to particularly impressive economic growth, labor markets or revenues. Growth was actually more impressive back when marginal tax rates were higher.

I want to be very clear here: I am not saying, and no one should think, that high marginal tax rates drive growth. All else being equal, lower marginal tax rates are probably better for growth, though that can flip if they begin driving large deficits or starving important government functions. But what this graph suggests is that marginal tax rates don’t determine growth in either direction. As Linden concludes, “These numbers do not mean that higher rates necessarily lead to higher growth. But the central tenet of modern conservative economics is that a lower top marginal tax rate will result in more growth, and these numbers do show conclusively that history has not been kind to that theory.”

Too good to pass up

This post (Texas Prayed and God Answered) is by Larry Moran.

Back in April, Governor Rick Perry of Texas proclaimed a weekend of prayer (Friday, April 22, 2011, to Sunday, April 24, 2011). Texans were supposed to pray for God to relieve the terrible dought [Pray for Texas].

Bill Maher reminded me that it's been several months since Texans prayed so it's time to analyze the results.


On the site US Drought Monitor there are maps of the USA showing region of drought.

The top map below shows the regions with severe drought (dark brown) for April 26, 2011, right after all the praying.



The second map shows regions of drought on June 14, 2011.


It looks like God hates Texas and/or Rick Perry.

I'm told that Governor Perry is thinking of running for President of the United States. Is this a good idea?

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It's Still the Economy, Stupid

Bill Clinton has 14 great ideas to help the economy.

Fourteen million Americans remain out of work, a waste of our greatest resource. The 42nd president has more than a dozen ideas on how to attack the jobs crisis.

We miss him as president.

Drew Westen: The Three Wings of the Republican Party

Drew Westen should be put in charge of framing the Democrats' message. He would make the following a statement in a public opinion poll. People would be asked whether they agree or disagree.

The best way to reduce the deficit is to put Americans back to work. There are 14 million Americans who've lost their jobs through no fault of their own, and they'd be happy to be paying taxes again instead of drawing unemployment insurance.

Peggy Noonan on Anthony Weiner: posting sexually suggestive pictures is worse than bribery and real (illicit) sex

Here's how she put it in the Wall Street Journal.

Sometimes all of Washington has to put up its hand up like a traffic cop and say no. It has to say: That doesn't go here, it's not acceptable, it's not among the normal human transgressions of back stairs, love affairs and the congressman on the take. This is decadence. It is pornography. We can't let the world, and the young, know it's "politically survivable." Because that will hurt us, not him, and define us, not him. So: enough.

Think about that. Noonan says that sending off-color pictures—apparently not even pornographic—is less acceptable than "the normal human transgressions of back stairs, love affairs and the congressman on the take." Why is that? I'd much rather have a Congress full of Anthony Weiners than one full of "congressman on the take." Why is what Weiner did so much more uncomfortable for people than "the normal human transgressions of back stairs [and] love affairs"?

I think the answer is that what Weiner did revealed an inner yearning on his part that these other activities no longer do. When we hear of a congressman (or governor or other public figure) who has had a culturally illicit sexual encounter, we no longer think about the person's internal state. We have grown so accustomed to such affairs that we are able to put them into the "illicit sex" box and don't allow ourselves to think about the inner desires that brought them on. In Weiner's case, we don't have such a convenient box in which to put his actions. We are forced to think about what he must have been feeling when he sent those pictures. And we are not comfortable with thinking about people experiencing desire.

A couple of years about Daniel Bergner published The Other Side of Desire. In it he explores the lives of four people with what we would consider fetishes, perhaps perversions. A Salon.com story about him begins like this.

In a series of four stories, Bergner grants us entree into dark worlds of extreme lust and longing: there is the foot fetishist wracked by shame, the dominatrix so turned on by inflicting pain on others that she once roasted a man on a spit, and the stepfather capsized by lust for his 12-year-old stepdaughter. There is even a love story involving amputee fetish. But what's remarkable about Bergner's book is not the way these tales shock or confound or titillate (though they do those things sometimes), but how sympathetic their plights and hungers become. Bergner … is a keen storyteller but above all a humane one, and in his hands, these characters do not seem like freaks so much as shadows of ourselves.

We all have internal desires, and many of us are afraid to talk about them, even to acknowledge that they exist. When someone has his inner desires made public, to avoid acknowledging our own (often hidden) desires we resort to calling the person a pervert, as if no one by a freak could feel the way he apparently does.

This sort of reaction seems to be particularly Republican. Peggy Noonan's piece is a good example. Sending sexually suggestive picture over the internet as worse than bribery or actual affairs? Noonan, like so many of her conservative colleagues seems unable to look at the broad range of human desire and emotion and acknowledge that it exists.

Interview with Paul Krugman.

(Click the image for the full interview.)

… Then I read Hume’s Enquiry Concerning Human Understanding, this wonderful, humane book saying that nobody has all the answers. What we know is what we have evidence for. We do the best we can, but anybody who claims to be able to deduce or have revelation about The Truth – with both Ts capitalised – is wrong. It doesn’t work that way. The only reasonable way to approach life is with an attitude of humane scepticism. I felt that a great weight had been lifted from my shoulders when I read that book. …

[If] you ask a liberal or a saltwater economist, “What would somebody on the other side of this divide say here? What would their version of it be?” A liberal can do that. A liberal can talk coherently about what the conservative view is because people like me actually do listen. We don’t think it’s right, but we pay enough attention to see what the other person is trying to get at. The reverse is not true. You try to get someone who is fiercely anti-Keynesian to even explain what a Keynesian economic argument is, they can’t do it. They can’t get it remotely right. Or if you ask a conservative, “What do liberals want?” You get this bizarre stuff – for example, that liberals want everybody to ride trains, because it makes people more susceptible to collectivism. You just have to look at the realities of the way each side talks and what they know. One side of the picture is open-minded and sceptical. We have views that are different, but they’re arrived at through paying attention. The other side has dogmatic views. …

Politically [James] Tobin was very much a free-market, welfare-state Keynesian [emphasis added], as I am. We appreciate markets, we understand them, we don’t hate rich people, but we want a social safety net and you do need government intervention to avoid what we are going through right now.

Jared Diamond: Thoughts on Managing Change

“There are so many societies in which the elite made decisions that were good for themselves in the short run and ruined themselves and societies in the long run. For example, the most advanced society in the New World before Columbus was the Maya of the Yucatan Peninsula, Guatemala and Honduras. They ended up collapsing …. because of a combination of climate change, drought, water management problems, soil erosion, deforestation….So the Mayan kings had strong power.

Why didn’t the Mayan kings just look out the windows of the Palaces and see the forests getting chopped down, soil being eroded down at the valley bottom. Why didn’t the kings say `stop it’? Well the kings had managed to insulate themselves from the consequences of their actions – in the short run. Even while the forests were being chopped down, they were still being fed well by the commoners, they were in their wonderful palaces. And the kings didn’t recognize that they were making a mess until it was too late, when the commoners rose in revolt.

Similarly, in the United States at present, the policies being pursued by too many wealthy people and decision makers are ones that — as in the case of the Mayan kings — preserve their interests in the short run but are disastrous in the long run.”

Boeing and the NLRB

Andrew Sammick is an intelligent and respected economist. Yet he wrote in his blog that the Boing machinist union

filed a complaint in April alleging that Boeing decided to locate a new assembly line to build 787 Dreamliner jets in South Carolina because it was trying to punish union workers in Washington state for their past strikes. Boeing says the charge is groundless and has said it will fight the case to the Supreme Court.

I think the claim that failing to expand in a given area because it is cheaper to expand in another area is a violation of any law that is worth being upheld is going to be a tough one to make. It is further complicated, in this particular case, by the fact that there is no evidence that any specific workers have lost jobs in Washington, Boeing's home and the location of the existing assembly lines for the 787.

Ellin Dannin explains what's really going on.

The Boeing case began when the Machinists Union in the State of Washington filed a charge with the NLRB alleging that Boeing had retaliated against its Washington employees for past strikes by moving work to South Carolina. The right to strike is protected by law, and an employer’s retaliating against employees for exercising their legal rights violates the NLRA, the law the NLRB enforces.

After the charge was filed, the NLRB’s regional office in Washington investigated the case. That investigation involved taking sworn affidavits from witnesses and collecting other relevant evidence. Boeing had the right to present its evidence during the investigation. The evidence included public statements by Boeing officials – and reported in the Seattle Post Intelligencer Aerospace News and the Seattle Times – that they were angry that Boeing employees in Washington had gone on strike in the past. Boeing officials also said that they would, therefore, move work that was originally going to be done in Washington to a plant in South Carolina. This evidence, if credited by the judge at trial, supports a finding that Boeing violated § 8(a)(1) and (3) of the NLRA.
There is nothing in the case about one state being a right to work state or not.
That red herring was created by Boeing in its aggressive campaign against the NLRB. So far Boeing’s cynical strategy appears to be working. It has gotten congressional representatives to repeat the unsupported claims made by Boeing and to hold hearings and draft legislation that would hamstring the NLRB in doing its job.

Liar, liar pants on fire

Ezra Klein quotes Mitt Romney as saying, “We have seen the most anti-investment, antigrowth, antijob strategy in America since Jimmy Carter. The result has been it’s harder and harder for people to find work.”

Klein makes it clear that Romney is using the standard Republican strategy: lie.

By any measure, this is absurd. Taxes are at a 50-year low. The Dow has staged a roaring recovery. Business profits are near record levels. And the economy has gone from losing 780,000 jobs a month to gaining about 160,000 jobs a month. That is to say, it’s getting easier and easier for people to find work, even if it’s not nearly easy enough.

The tragedy of it is that the Republicans tend to get away with it. When will the American people recognize lies and punish the liars for what they are?

Xefer Wikipedia Radial Graph

Continuously following the first link of any Wikipedia article will eventually lead to “Philosophy.” Try it here

That's neat, but I wonder what would happen if one used some other term as the stopping term. For example, what if one followed first links until one got to, for example, English? That wouldn't work because starting with philosophy one just gets back to philosophy. For example: philosophy, rational argument, reason, rationality, philosophy.

What this is really saying is that Philosophy is a basin of attraction for first word links. So the question becomes what are the other basins of attraction?

Bush tax cuts 10th anniversary: They've been a failure in every conceivable way

By Annie Lowrey in Slate Magazine

The massive Bush tax cuts mark their 10th birthday this week. Sadly, despite my best efforts to find something redeeming about them—honest!—there is little to celebrate. By nearly all of the metrics set out by President Bush himself, the cuts were a colossal failure.

In 2001, the Bush administration inherited a few years' worth of budget surpluses, so it decided to cut income tax rates, double the child-care credit, and sharply reduce the levies on investment income. The economy then slowed, even entering a brief recession. As a form of stimulus, the administration doubled down, expanding and hastening the 2001 changes. Bush promised that the tax cuts would do a whole lot more than put money in people's pockets—which, in fact, they did. He said they would 'starve the beast,' forcing Congress to reduce the size and scope of government. He promised they would increase the prosperity of all Americans. He also vowed: 'Tax relief will create new jobs. Tax relief will generate new wealth. And tax relief will open new opportunities.' …

[Besides that,] the benefits mostly accrued to the rich, according to the nonpartisan Tax Policy Center. The think tank reports that between 2001 and 2008, the bottom 80 percent of filers received about 35 percent of the cuts. The top 20 percent received about 65 percent—and the top 1 percent alone claimed 38 percent.

The argument for, and against, euthanasia

Ezra Klein has a very thoughtful post on euthanasia.

You could even argue that the option of physician-assisted suicide might reduce suicides: The promise of a painless and safe death, one with no chance of failure and no grisly spectacle for loved ones, might be enough to persuade people who want to swallow a bottle of pills now to wait and begin working with a doctor instead. That creates time between the intention and the act, and that’s time in which the individual might reconsider, and time in which a professional caregiver is going to attempt to help them find treatments to ease their pain. …

But Klein goes on to quote from a paper by Ezekiel Emanuel in which he worries that

the option of euthanasia will lead to worse care for the dying, and perhaps even subtle coercion on the part of loved ones and medical professionals who can no longer bear to see a patient suffer, or, more worryingly, can no longer afford to treat their suffering. “Broad legalization of physician-assisted suicide and euthanasia would have the paradoxical effect of making patients seem to be responsible for their own suffering,” he writes. “Rather than being seen primarily as the victims of pain and suffering caused by disease, patients would be seen as having the power to end their suffering by agreeing to an injection or taking some pills; refusing would mean that living through the pain was the patient’s decision, the patient’s responsibility.”

Stan Collendar on the debt limit

From Roll Call, reprinted on his blog.

The best indication of all that the market has already started reacting negatively is the current trading of credit default swaps on U.S. debt. As of late May, the number of CDS contracts — essentially insurance policies on the possibility of a default — had risen by 82 percent. Equally as important, the cost of a CDS — the best indication of how much riskier U.S. debt has become — rose by more than 35 percent from April to May. Last week I spoke to a number of people who calculate such things for a living, and they said this change means that the interest rate the U.S. government has to pay has already increased by as much as 40 basis points compared with what it otherwise would be. This means higher federal borrowing costs and deficits, and overall higher interest rates on everything from car loans to mortgages to credit cards.

What should S&P and Moody's do? Should they take seriously the possibility that the US will default? Everyone "knows" that this is all political gaming and it will never come to a real default. But then, that's always the case before something unexpected happens: no one believes it could possibly happen. If it does happen and S&P and Moody's hadn't taken the possibility seriously, they would be criticized for missing something that was obvious—in the same way they missed the mortgage meltdown. So they should take it serious—just as if it were happening in some other country that is immature enough that it may allow something like this to happen. And perhaps it will really happen.

Except when something unexpected occurs, the initial changes in market psychology and behavior start with just a few investors who act either because they are more or less risk averse, have better information, or are smarter. That means there are usually small signs of change before a market tsunami hits. In this case, there is now clear evidence that the uncertainty over the federal debt ceiling is already having the negative impact on financial markets that the Republican leadership has said will not occur. Just because it may not yet be obvious to everyone doesn’t mean it’s not happening.

Not only that, I'm sure I'm not the only person who has thought these thoughts. As the deadline approaches, more and more people are likely to become more and more uncomfortable and will look for a safe place to put their money. Where is that? I don't know. Not the usual place, U.S. Treasury notes. So where? Cash? That has to be stored somewhere. Money market funds won't do since they depend on Treasuries. Even bank deposits may seem unsafe since who knows what will happen to the banking system. Something solid like commodities or precious metals? Or perhaps companies that for one reason or another are likely to be needed after the crisis and are not likely to fall apart.

After all, the world will go on. We must all eat. It's not the case that everything will grind to a halt. And in the worst case, the Republicans will see how much damage they are doing and retreat—one hopes. But I'm sure quite a few people are right now attempting to imagine possible scenarios and looking for ways both to protect themselves and perhaps even to make money.

Peter Diamond's withdrawal from consideration

for membership on the Board of Governors of the Fed. Andrew Samwick sees of it as representative of our decline and fall.

When historians look back at our era and write about how a nation so blessed was able to squander those blessings so dramatically, they won't have to look much further than the U.S. Senate.  Words, polite ones anyway, cannot really express how how absurd it is that the nomination of Peter Diamond for the Board of Governors of the Federal Reserve System has come down to this.  Even without the Nobel Prize, his qualifications for the position were beyond question -- at least by anyone who could be persuaded by the answers.  I continue to wonder whether our society is resilient enough to withstand many more years of this institutionalized immaturity on important policy matters. 

With Austan Goolsbee's resignation as CEA Chairman, most speculation will turn to his successor and this summer's Senate confirmation process. And, no, I don't think President Obama will nominate Peter Diamond to be the CEA Chairman, though he is, once again, more than qualified for the position. The next CEA Chairman will have to be someone not currently associated with the Obama Administration, so that the confirmation hearings can be less of a retrospective on Obama's policies to date and more of a forward-looking discussion of what could and should be done. And I don't envy Goolsbee's successor, for two reasons. First, outsiders have a terrible time trying to be heard by those who have been around since the campaign and have developed trust and established ways of working together. Second, by the time this person takes office, the entire economic agenda will be driven by the 2012 election campaign and not the more thoughtful possibilities for crafting policy.

Rand Paul, Supposed Defender Of Civil Liberties, Calls For Jailing People Who Attend ‘Radical Political Speeches’

From ThinkProgress. Rand Paul "libertarian":

[If] someone is attending speeches from someone who is promoting the violent overthrow of our government, that’s really an offense that we should be going after — they should be deported or put in prison.

Really?!

Fantastic post about health care

Ezra Klein has a number of guest posters substituting for him while he is on vacation. Here is Karl Smith, assistant professor of economics and government at the University of North Carolina School of Government.

We spend a lot of time talking and, indeed, yelling at each other, over how we are going to pay for health care and who is going to buy what. What gets scant attention is the far more important question: [How] are we going to create and who is going to sell it?

Imagine for a moment that the price of health care suddenly dropped by 90 percent. Care that cost $1,000 could be had for $100. Not only that, but the cost curve began to bend the other way. The next year the care was $95. The year after that it was $90.

In that world, would it matter whether we had RyanCare or ObamaCare? Would it matter if most people had health insurance at all?

Such a world could only be achieved by changes on the supply side. Health care would have to become cheaper to produce. Indeed, health care stands in stark contrast to a portion of our economy that displays that property: information and communication technology.

This is striking, because health care essentially is information and communication technology. To get a glimpse of this, imagine the Universal Health App (UnHA) that comes with your next-, next-generation Android or iPhone. You point your phone at yourself and UnHA immediately tells you what diseases you have. If medication is available, she orders it. If a surgical procedure is needed, she schedules it. She knows your calendar perfectly and can interface seamlessly with the local hospital’s scheduling computer and the surgeon’s calendar.

When the drugs come, UnHA checks to make sure you have the right ones, reminds you when to take them, lets you know what to do if you miss a dose and monitors you for side effects. When you come home from your surgery, UnHA likewise monitors your recovery, making sure that everything is proceeding according to plan.

UnHA is personalized and travels with you everywhere you go. She carries all of your medical records and calculates your risk factors for every imaginable condition on a continuous basis. UnHA will even remind you of the expected increase in your individualized life expectancy from staying on the elliptical for 20 more minutes.

Perhaps most important is UnHA’s back end. UnHA’s server strips away all identifying information and runs constant statistical analysis on incoming data from a billion patients worldwide. When a news story generates a spike in blood pressures, UnHA’s server side can see the wave of tension traveling across the globe.

When more heart attacks come in within the next two hours, UnHA can trace them back to the exogenous event and calculate the effect stressors on the probability of a heart attack. In this way UnHA not only monitors patients but conducts continual scientific analysis. She picks up drug interactions and other effects that would have otherwise been too slight to notice.

Now, this isn’t meant to suggest that UnHA is coming soon to a phone near you. It’s to point out that health care is fundamentally an information and communication industry, yet it isn’t following the trend of collapsing costs.

The key question is why?

My baseline answer is that the current health-care system is riddled with regulation, litigation and occupational and pharmaceutical licensing. We have levels heaped upon levels of protection against bad drugs, bad doctors and bad health-care consumers. While all of these rules provide us with a sense of security, they most likely undermine the evolution of health care and make what care we do have outrageously expensive.

We’ve come to accept rising health-care costs as a fact of life. The CBO projects them going out to 2080. Yet, health care is an information and communication technology industry. It could be enjoying collapsing costs, if only we would set it free.

Why agent-based modeling is important

Here's a good example of the sort of thing that agent-based modeling can do that other approaches can't. This blog post from Capital Gains and Games talks about why

Mitch McConnell (R-KY) … announced—proudly—that he would not allow an increase in the debt ceiling without significant cuts in Medicare?

At first blush this may not seem like that big of a deal given the continuing demands from the GOP leadership in the House for substantial spending cuts before it will allow a debt ceiling increase. But it is. This is not a call for reductions in general; it's insisting on cuts in an exceedingly popular specific program. And it's not just any specific program: It's Medicare, the currently most politically sensitive program of all and the one that, because of the Republican plan to make substantial reductions, cost the GOP a House seat in upstate New York just barely a week ago.…

So why did he do it? According to the Stan Collender, the post author and a perceptive political observer,

1. McConnell likely can't stay as minority leader without unequivocal support from the GOP's tea party-like base and, in the wake of the widespread criticism of Newt Gingrich for abandoning the House GOP Medicare reduction plan (Newt was against it before he was for it), he used this statement and extreme position to shore up his own bona fides with that wing of the party.
2. McConnell wants to be majority leader if the GOP takes over the Senate and needs the base to do that.
3. McConnell is from the state that also elected Rand Paul to the Senate and he runs the chance of looking like a liberal Democrat in comparison to his junior senator if he doesn't make statements like this.

[Perhaps] McConnell has decided that the GOP winning the White House in 2012 isn't as important to him as the GOP getting the majority in the Senate and that requires continually energizing the base rather than trying to win over independents and Democrats.

If Obama wins and the GOP takes over the Senate, McConnell will be the most important and powerful Republican in the United States…Roger Ailes aside. That won't be true if there's a Republican president, of course. But if all of the best known GOP candidates lose the Republican nomination in 2012 and the 2012 nominee then loses in the general election, the next tranche of potential Republican presidential candidates will be at least two years away.

Only an agent-based model in which McConnell is modeled individually could account for that sort of action. No general model of relative political power could do anything like it.