Spreading the Wealth Around

Over the past few years, I have done some thinking and writing about the distribution of income and optimal tax policy.  I have collected some of my thoughts in this new paper, which later today I will be presenting as my presidential address to the Eastern Economic Association.

More on Ranking CEAs

The Economist takes up the challenge.

An Interview

With my favorite economist.

Financing Healthcare Reform

Today's Washington Post reports:

Obama's proposal takes the more modest Senate bill as his basic framework. But, in what is perhaps his proposal's most notable feature, he scales back the Senate bill's main revenue source, a tax on high-cost insurance that he has strongly supported. Instead, he would impose a new tax on the unearned income of the wealthy.

In my view, this is a step in the wrong direction. The tax on so-called Cadillac health plans made sense as a way to reduce the existing tax incentive toward excessively generous health insurance, which in turn encourages excessive use of healthcare. That reform is, apparently, now gone.  Instead, the current administration proposal is to increase the tax on capital income, reducing the incentive for saving and investment. 

In other words, the new proposal would do less to bend the curve of rising healthcare costs and more to impede long-run economic growth.  This change was probably made to attract more House Democrats.  It will likely make the plan even less attractive to congressional Republicans.

By the way, according to CBO director Doug Elmendorf, the new administration proposal has too few details for the CBO to provide cost estimates.  Perhaps more details will be available in the days to come.

How Not to Stop Healthcare Inflation

The NY Times reports:

President Obama will propose on Monday giving the federal government new power to block excessive rate increases by health insurance companies, as he rolls out comprehensive legislation to revamp the nation’s health care system, White House officials said Sunday.

Very, very strange.  You would think that all those future Nobel-prize-winning economists working for the President would explain to him the history and economics of government price controls.  Imposing price controls certainly wasn't President Nixon's finest hour.

Maybe President Obama should instead follow in President Ford's footsteps and start wearing a WHINE button on his lapel, for Whip Healthcare Inflation Now, Egads!  

Feckless would be one step better than counterproductive.

What unions are getting...

....from the Obama Administration, according to The Economist:

Union leaders such as Mr Trumka and Andy Stern, the leader of the more moderate Service Employees International Union, are regular guests at the White House. Mr Obama has revoked some Bush-era executive orders that unions hate and issued a few they adore. He has appointed union insiders to top jobs, allowed Congress to add “buy American” provisions to the stimulus bill, risked a trade war with China to please tyre-workers, let other trade deals wither and brazenly favoured unions when bailing out car firms.

But his biggest favour has been green, foldable and borrowed. For example, he encourages the use of “Project Labour Agreements” on big federal construction projects, whereby contractors must recruit through a union hiring hall. Such agreements inflate costs by 12-18%, according to David Tuerck of Suffolk University, and were banned under Mr Bush. Even where PLAs are not in force, federal contractors are obliged to pay “prevailing” wages. That actually means something close to the union rates, which is nice for the workers in question but means that taxpayers get fewer roads and schools for their money.

What I've Been Reading

I enjoy good memoirs. At their best, they can give you a sense of what it would be like to lead a different life, to walk in another's shoes. Political memoirs are usually a disappointment, as the writers typically have an agenda, such as establishing a place in history or angling for the next job.  They seem more like spin than truthful self-assessment.  Memoirs by nerdy academics, rare as they are, are among my favorite, in part because I can easily see myself in them and in part because the authors are often brutally honest.

All this is a prelude to a book recommendation: My Life as a Quant: Reflections on Physics and Finance, by Emanuel Derman. I have never been a physicist or worked on Wall Street, but this book gives a good sense of what both career paths are like.

The book was written, by the way, before the recent financial crisis. As a result, one does not get a sense of how the author would put recent events into perspective. But by the end of the book, the author is skeptical enough about the use and abuse of financial models that I suspect he would not be terribly surprised when they went awry.