Monday, February 24, 2014

CBO speaks truth to power

In policy debates, the two parties rarely acknowledge that their choices have tradeoffs.  Instead, one party will point out the benefits, the other the costs.  In an adversarial system, we count on the two parties opposing interests to report all of the benefits and costs.

To the extent that we have a neutral arbiter, the CBO is it.  And they just came down hard on President Obama's two major initiatives,

...By providing households with a transfer payment to purchase health insurance that phases out as labor market income grows, Obamacare discourages work—period. The subsidy shrinks with income. That means for every additional dollar you earn, you lose a bit of support from Obamacare.

The White House and its allies have characterized this as a good thing, and as a free choice that households are making. This characterization insults basic economics reasoning. People electing to work less because the government has raised their marginal income tax rates is not quite an independent choice that deserves our congratulations. And since the health care subsidies are paid for by progressive taxes, this creates an awkward scenario where higher-income families are subsidizing the newfound leisure time of the less fortunate.

For the minimum wage, a similar finding

...The White House and its allies have been arguing that the minimum wage is basically a free lunch: There will be negligible job losses, and millions of workers will get a raise. The CBO rejected this talking point.

To be fair, there is considerable debate among economists as to whether and how much an increase in the minimum wage will decrease employment. But my opinion is that the weight of the evidence points to a noticeable decrease in employment among low-skill workers. The CBO agrees, arguing that an increase in the federal minimum wage to $10.10, as the president is proposing, will likely cause hundreds of thousands of jobs to disappear relative to a world without the minimum wage increase.

HT:  Nico


  1. There are benefits of having someone assess the financials of a business plans such as the CBO is essential because it provide an outside independent analysis that is not politically motivated by ownership of the business plan or in the case of “Obamacare” the program. In the case of Obamacare, I believe that the “extent” decision process was merely a “muddling through process” because the problem within healthcare is much more than a simple economic problem to solve because the demand curve can only estimate demand and prices in the short-term. It also includes a variable that is emotional which is “the life and death” issue and whether it can be used fairly when price and service levels are controlled for all. Here we see both taxes and subsidies promoting health plans that are supposed to create a straight-line economy of scale for healthcare services. Essentially, what they are saying is that by increasing the number of participates into the system they believe the system will provide every service to everyone because more people would be paying into the system especially on the premise that by forcing younger and healthy people to pay higher premiums would subsidies the system for everyone else.

    However, the premise is leading to what is known as “diseconomies of scope” (Froeb, McCann, Shor, & Ward, 2014) especially because of “the so-called 80-20 rule(idea not actual percentage) that the younger insured as well as continue growth in taxes will be able to subsidies all the services for others at all of an equal level. Many economists do not accept the concept and the CBO reviews have also provided concerns related to the negative outcomes of the program costs.


  2. The debate on this point to the extent that it is debatable turns complex, depending on the vision of the actors involved in this, as well as their interest, and whichever way it is interpreted.
    While some understand that their contribution to the community shall be the minimum amount of money possible, other groups understand that those who produce the most should contribute more of their income.
    If the government does not subside a part of the population that have the decreased capacity of purchasing power for health care, what would happen with this population? Everyone would get ill, and would be a heavier burden in terms economic to the State itself, therefore, the contributors? Or simply the proposal would be let die, since investment in economic terms is less important than the investment that would have to be in health care.
    From my point of view, I understand that the responsible subsidies, tend to be healthy for the Health of the State. When I refer to the issue of responsible subsidy, I mean those people in productive ages, from 18 to 65 years of age. The subsidies received by them, should be conditioned to take these trainings, resulting that they have educational levels that would allow them in a period not exceeding 24 months to join or return to productive activities.
    This type of training should be coordinated with the private sector in a way that the formational processes are directed to meet the needs of the labor market area geographic in which these people are work in. In this way the private sector receives qualified labor forces, their discounts.

    References: Froeb, McCann, Ward, Shor: (2014) Managerial Econonics. A Problem Solving Approach, Ohio: South Western Cengage Learning

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