Demonomics

Demonomics

By Clarice Feldman


This week the big story was the tag end of the old JournoList gang trying to spin gold out of the dross of the Congressional Budget Report. The CBO report projected that by 2021 under ObamaCare more than 2 million full-time workers will find it financially advisable to quit work entirely or switch to part-time jobs in order to get more subsidies for healthcare insurance. To most of us who studied real economics or just paid attention to human nature, subsidizing indolence means you'll get more of it.

But to the airheads on the left and their JournoList spinmasters -- the very people who believed in their hearts that young, healthy workers would willingly pay more for their health insurance to subsidize older, sicker Americans and learned nothing from the failure of that prediction , this devastating CBO report spelled out a wonderful new world of possibilities for American workers at the bottom rungs.

1. Job Lock
Working their dreidels overtime, the gang argued that the CBO report was going to end job lock -- long a Republican goal -- but as "Ignatz" posted on Just One Minute: "I believe the Republican idea was to decouple insurance from employment, not decouple the employee from employment" http://justoneminute.typepad.com/main/2014/02/a-bit-of-a-dis-to-single-payer-advocates.html?cid=6a00d83451b2aa69e201a3fcb6219e970b#comment-6a00d83451b2aa69e201a3fcb6219e970b

Nancy Pelosi, the JournoList band leader on this less-is-more score taunted: "The GOP seems to have forgotten that ending 'job-lock; has been an avowed Republican goal for years -- even a highlight in the Republican Sen. John McCain's 2008 presidential race." Her claim was a gross misrepresentation:http://dailycaller.com/2014/02/05/pelosi-obamacare-allows-workers-to-escape-their-jobs/

"Job-lock" itself is a different problem. Instead of effectively paying people to work less, as Obamacare does, conservative proposals would end federal preferences for employer-based insurance, allowing Americans to take insurance with them from job to job. People would not be stuck with a specific employer because they want to stay insured.

Conservative health policy heavyweights James Capretta and Tom Miller have repeatedly argued for a movement to what they call portable insurance. The tax code ties gives those with employer-based coverage a break, making it harder for Americans to switch jobs as they please.

"If households, not firms, chose and controlled their own insurance plans, people would no longer face the risks that come with changing coverage based on new employment arrangements," the scholars wrote just after ObamaCare was passed in 2010. "By carrying the same insurance plan from one job to the next (or even through periods with no job at all), individuals would keep their coverage even as their health status changed."

McCain's 2008 presidential campaign also floated the idea of equalizing tax treatment for employer-based health insurance, as Pelosi recalled. McCain's version extended equal tax breaks to those with health coverage that isn't tied to an employer; other proposals could end tax breaks altogether.
Obama opposed these proposals, saying, "Senator McCain would pay for his plan, in part, by taxing your health care benefits for the first time in history."

2. Well, if the Job-Lock Argument was a Stupid Response, Will Another Tap Dance Do?
Jared Bernstein, former economic advisor to Joe Biden (and isn't that a position inspiring confidence?), was next up to the plate with an argument in the New York Times that rendered Tom Maguire "slack-jawed":http://justoneminute.typepad.com/main/2014/02/a-bit-of-a-dis-to-single-payer-advocates.html

But there's no model of health care reform from the left or the right that doesn't involve a subsidy that fades out as income rises. So this labor-supply-choice problem is endemic.

Uhh, does single payer really have subsidy phase-outs?http://en.wikipedia.org/wiki/Single-payer_health_care

 I don't claim to be up to speed on every aspect of every progressive fantasy, but then again, I never worked for Joe Biden. I would have guessed that if Uncle Sam picked up the tab for everyone's health care and paid for that out of general tax revenues, there would be no specific subsidies to be phased. The overall level of taxes might rise, providing a general disincentive to work, but that disincentive would not be focused on the subsidy-eligible lower-earners, as with the ACA.http://www.motherjones.com/kevin-drum/2014/02/heres-why-cbo-thinks-obamacare-will-reduce-employment-among-poor

Well. Perhaps as a demonstration of the impact of delivering a reduced work effort, Mr. Bernstein then linked approvingly to this comic riff:

So what do you get when there's less labor supply around stable labor demand? A tighter job market.http://www.washingtonpost.com/blogs/plum-line/wp/2014/02/05/cbo-director-obamacare-will-reduce-unemployment/

The economist Dean Baker uses Congressional Budget Office numbers to make this point:http://www.cepr.net/index.php/blogs/beat-the-press/cbo-says-obamacare-will-raise-wages

"If hours fall by 1.5 to 2.0 percent, but compensation falls by 1.0 percent, then compensation per hour rises by 0.5-1.0 percent due to the ACA. If this is bad news for workers then someone must have been enjoying the new found freedoms in Colorado or Washington State too much."

I'm crying. OK, I'm laughing through the tears, but the tears are real. The CBO was crystal clear -- lower earners will have the disincentive to work due to subsidy phase-outs, so they will be more inclined to retreat from the labor market:http://justoneminute.typepad.com/main/2014/02/However,%20people%20whose%20employment%20or%20hours%20worked%20will%20be%20most%20affected%20by%20the%20ACA%20are%20expected%20to%20have%20below-average%20earnings%20because%20the%20effects%20of%20the%20subsidies%20that%20are%20available%20through%20exchanges%20and%20of%20expanded%20Medicaid%20eligibility%20on%20the%20amount%20of%20labor%20supplied%20by%20lower-income%20people%20are%20likely%20to%20be%20greater%20than%20the%20effects%20of%20increased%20taxes%20o

However, people whose employment or hours worked will be most affected by the ACA are expected to have below-average earnings because the effects of the subsidies that are available through exchanges and of expanded Medicaid eligibility on the amount of labor supplied by lower-income people are likely to be greater than the effects of increased taxes on the amount of labor supplied by higher-income people.

And this is arithmetic anyone can do, even an advisor to Biden. If the lower earners reduce their participation in the labor pool then the average wage of those WHO CONTINUE TO WORK will... (a) go up; (b) go up; (c) go up.

If you picked "go up", well done. If the folks earning $10 bucks an hour cut back on their hours and the folks earning $30 bucks an hour stick to their old schedule then total hours worked will fall and the average wage will rise even though no one gets a raise or works more hours.
As BS spin goes this could hardly get weaker. How Obama or his fellow progressives can think the working class will overcome the challenge of income inequality (the defining challenge of the age!) by slacking their way to success remains a mystery.

A number of online posters felt the entire Demonomics riffs from job lock to higher wages for those employed was closer to Groucho Marx's "Wage Slave" speech in Cocoanuts...

 ...than to reality.
3. Making more Losers

 If the left thinks that this monstrous legislation will achieve their goal of a substantial redistribution of income, they will be as disappointed as those who believed the original CBO projection in March 2010 of the costs of ObamaCare.http://www.cbo.gov/publication/21351

The Brookings Institution, known to be sympathetic to Democratic goals, studied the redistribution effect of income under ObamaCare, and the results will surely be unsatisfactory to those who hoped ObamaCare would equalize incomes: True, the bottom two deciles benefit on average and the top 80 percent experience mild losses, but the brunt of the hit is on the middle class.http://justoneminute.typepad.com/main/2014/02/that-is-a-lot-of-obamacare-losers.html


...per CBO, the work cutback will represent about 1.5% to 2% of hours worked but only 1% of wage compensation, since the cutback will occur among the lower-earning folks eligible for subsidies (see p. 133 of the .pdf).

However, per this Economic Policy Institute chart based on the authors' "analysis of Kopczuk, Saez, and Song (2010) and Social Security Administration wage statistics", we glean that the bottom two quintiles only take about 11% of wage income. So if CBO-projected 1% reduction in wage income falls entirely upon those two quintiles, it is an income reduction of roughly 9% for that group.http://stateofworkingamerica.org/chart/28559-2/

I would not take that calculation to the bank, but it is surely something to keep in mind -- whether a 1% reduction in national income does or does not sound huge, it is a lot for a group only collecting about 11% of national income (pre-transfers and benefits, presumably). FWIW, Table H-2 from the Census Bureau has the two lowest quintiles getting 11% of "Aggregate Income" in 2012.http://www.census.gov/hhes/www/income/data/historical/inequality/index.html

 If someone wants to tell me whether that is before or after adjusting for taxes and transfers I am all ears -- their website makes clear they look at both, but what am I looking at?http://www.census.gov/hhes/www/income/about/index.html

 [CBO figures on p. 11 have "market income" for the bottom two quartiles at about 10%, but market income includes business income, capital income, capital gains and other stuff. So 1% of wages would be less than 1% of aggregate market income.http://cbo.gov/sites/default/files/cbofiles/attachments/44604-AverageTaxRates.pdf

PILING ON: Per the Heritage Foundation blog the recent Fed beige book has lots of ACA gloom from businesses.http://blog.heritage.org/2014/02/03/federal-reserve-finds-obamacare-reducing-employment/

In a survey of CFOs the Duke University B-school found that "44 percent are considering reducing health benefits to current employees due to Obamacare".http://washingtonexaminer.com/duke-university-44-of-u.s.-firms-consider-cutting-health-care-to-current-workers/article/2543506

Just as wags once said of Wernher Von Braun, "He aimed for the stars, but sometimes he hit London," it may be fair to say of Democrats' redistribution and social justice schemes, "they claim to aim for the rich, but
hit the middle class."