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Topics today include:
"Bernie Care" Goes Beyond "Medicare for All"
"Bernie Care" is Deflationary
"Bernie Care" is Inflationary
Rouble Sinks to All-time Low
Putin Accused of Assasination
Middle East Recession
Draghi Speaks, Markets Rise
Gundlach - Dollar Could Go Lower
Federal Court Refuses to Issue Stay for Obama Climate Plan
Articles about events, conflicts and disease around the world
Oil, stocks climb; Draghi remarks raise stimulus hopes (Reuters) Oil prices and global equity markets rebounded on Thursday, following a turbulent few days that wiped trillions of dollars off asset values, though it was unclear whether the vigorous selling action had come to an end. Remarks by European Central Bank President Mario Draghi earlier in the day raised hopes for further monetary stimulus and helped buoy the markets.
Gundlach on Economy: ‘The Primary Trend Is Down’ (ThinkAdvisor) The DoubleLine CEO says global economic weakness is not debatable, dollar not likely to rise. Gundlach recommends selling stocks into rallies. And he would not be surprised if the dollar broke out to the downside.
U.S. appeals court declines to block Obama carbon emissions plan (Reuters) A U.S. federal court on Thursday rejected a bid by 27 states to block the Obama administration's Clean Power Plan, the centerpiece of its strategy to combat climate change by reducing carbon emissions from power plants. A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit issued a brief order denying an application seeking to stay the rule while litigation continues. The states, led by West Virginia, and several major business groups in October launched the legal challenges seeking to block the Obama administration's proposal to curb carbon dioxide emissions from power plants. More than a dozen other states and the National League of Cities, which represents more than 19,000 U.S. cities, filed court papers backing the U.S. Environmental Protection Agency's rule. The regulation aims to lower emissions from the country's power plants by 2030 to 32% below 2005 emissions levels. See next article.
Sources of Greenhouse Gas Emissions (Environmental Protection Agency) The Obama plan is for 32% reduction of carbon emissions from 2005 level by 2030. As of 2013 the reduction was approximately 12%.
D.C. area forecast: Blockbuster snowstorm moves in Friday afternoon, calm today (The Washington Post) The U.S. capitol is bracing for a major winter storm. Areas farther north through Pennsylvania, New Jersey, New York and into New England are expected to follow along the storm track over the weekend, even into Monday for New England. Further south mountain snowfall depths are expected to top two feet in North Carolina, Virginia and eastern West Virginia. See also 48hr Snow Forecast (Intellicast)
Don't underestimate Iraqi nationalism (Al Monitor) It is a mistake to dismiss Iraq as a nation despite the sectarian rivalries. This column says that nationalism is a stronger sentiment that given credit.
Oil price slump pushes Russian rouble to a new all-time low (The Telegraph) The Russian rouble has plunged to a record low against the US dollar, as falling oil prices take their toll on one of the world’s largest energy exporters. The currency dropped by more than 4% as it became clear that falling commodity prices had left the economy in a precarious position. At its lowest point, a single US dollar could buy more than 85 roubles.
Sanders health plan would be far more generous than Medicare (Associated Press) Democratic presidential candidate Bernie Sanders calls his plan for a government-run health care system "Medicare for all." But it's not. With full coverage for long-term care, most dental work included, no deductibles and zero copays, the Sanders plan is far more generous. Think of it as Medicare on growth hormones. Ideology aside, the sweeping scope of Sanders' plan and a lack of detail have raised questions. Some health care experts see it mainly as a political document to distinguish Sanders' revolutionary ideas from Hillary Clinton's incremental approach. Says Republican economist Gail Wilensky, who ran Medicare under former President George H.W. Bush:
"It's not Medicare for all. It's nonsense to talk about it as if it were. You're just giving people a comfort level that's inappropriate."
The Sanders campaign estimates the annual cost of "Bernie Care" would be $1.38 trillion. Econintersect: That would be approximately 7.7% of estimated 2015 GDP. In the current system health care is about $3 trillion or 16.7% of GDP.
The Sanders campaign estimates a savings of $6 trillion over ten years (average of $600 billion per year). Econintersect: The inference is that today his plan would result in total health care costs of $2.4 trillion per year if in effect today (a little less than 14% of GDP) . That implies that about $1 trillion for year would be spent of health care outside of Bernie Care. So this is not a truly single payer system for all because almost 40% of health care expenditures would come from sources outside the government coverage plan. Note: If implemented at one time, Bernie Care would create a severe statistical recession - a "savings" of $600 billion in one year would correspond to a shrinkage of 3.3% in the nearly $18 trillion estimated 2015 GDP. Of course this could be avoided if a combination of higher private sector profits (health care expenses removed from corporate cash flow and income satements) and increased government expenditures in other areas - like infrastructure.
Econintersect: There is one sector of the economy that would likely suffer negative effects: Insurance companies. While private companies would be contracted to administer the government program (just as Medicare is today), the profit margins enjoyed by privately issued insurance would almost certainly be diminished. The Sanders campaign cites this as one of the areas where health care costs are reduced. See also next article.
Consider the recent Sanders single payer health care proposal. (This is just one especially relevant current example; but many other proposals would do just as well.) One clearly does need new tax revenues in conjunction with a spending program of this magnitude. Sanders is proposing a permanent structural change to the federal government’s annual fiscal stance, not just some counter-cyclical demand-boosting measure. Right now, Americans spend about 17.5% of national income on health care, equal to about $3 trillion, of which about $1.1 trillion is already the responsibility of the federal government. The single payer proposal effectively calls for moving the responsibility for all of the remaining $1.9 trillion in spending to the federal government. The plan also estimates a $6 trillion savings over ten years, so an average of $600 billion per year. That leaves roughly a $1.3 trillion increase, annually, in health care spending – although the initial increases would be substantially higher until the full savings kick in.
If we were to try to create a program in which that entire $1.3 trillion were left in the hands of the public to be spent on other things, while the government buys all of the health care with government-manufactured dollars – each and every year increasing the money supply by roughly an additional 8% – then the result would be significantly inflationary. There is no fixed and straightforward relationship between the quantity of money and the price level, since price level changes depend on changes in velocity and output as well, but there is no remotely plausible story one can tell about offsetting changes in monetary velocity output to avoid the conclusion that an annual 8% injection of money would produce routinely high inflation.
Using the traditional tax system as a way of adjusting long-term federal spending goals to long-run price stability objectives, rather than relying on an inflation tax on savings, allows us more control over the distributional impact of the fiscal program. A substantial component of the revenue in the Sanders plan, for example, comes from higher income taxes on the wealthiest Americans and an increase in capital gains and dividend taxes. Combine this with the fact that the increase in your payroll tax will be more than offset by the decrease in current payroll deductions and out of pocket expenditures, and the net effect is a substantial shift in the burden for paying the nation’s health care bill away from middle class and working Americans and toward the wealthy.
Maybe the estimates here are too optimistic; maybe not. That’s where the debate should be centered. But please let’s not cloud the issues and dissipate the potential support for a single payer program by throwing around loose suggestions about a tax-free alternative paid for by shaking the money tree, and the annual inflating away of national financial savings.
I would propose the following, very simple two-part rule of thumb for MMTers who make fiscal policy proposals:
R1: If you are proposing a temporary countercyclical policy adjustment designed to return the economy to full employment, then by all means feel free to propose temporarily higher deficits and money-financing as a mechanism for doing so.
R2: If you are proposing permanent structural increases in government fiscal outlays, then propose matching revenue increases to keep price level changes within acceptable bounds.
Even with regard to R1, there is much room for improvement from the MMT economists and community. It would be really good if people would take the informal MMT model of the economy and build it up into formal model so that when it comes time for the policy engineers to “do the numbers”, MMT actually has some numbers it can do. Otherwise, all that is offered are vague qualitative suggestions. If people are musing about the general idea of building some rockets, then casual qualitative thinking about temperatures, volumes and gas is acceptable. But if NASA engineers actually want to build a rocket, they need hard numbers for the specs, not just qualitative impressions. The same is true of economic policy engineering.
At the end of the day, goods and services are paid for with other goods and services. In an economy running below capacity, it is possible to conjure extra output out of unemployed people and resources via monetary stimulus. The injections of dollars stimulate the growth of the additional output that they end up paying for, and price stability is maintained. But for massive long-run changes in government outlays, there is no magic money tree alternative to changing the revenue structure as well.
Other Economics and Business Items of Note and Miscellanea
For the US economy, bad news is actually bad news (CNBC) For years during the stock market recovery, the bad-news-is-good-news theme has been central, the notion being that weak data would ensure strong central bank intervention. That appears to have changed.
Alone on the Ice (Outside) German explorer Martin Szwed claims to have shattered the speed record for a solo ski to the South Pole last year. He has revealed no GPS data, no photos—no proof whatsoever that he even attempted the journey. Since his return from the icy continent, he has lost his house, job, and sponsors and is the subject of two investigations by the German government. Should anyone believe him?
Why Is America Dotted with Giant, Concrete Arrows? (CityLab, The Atlantic) This comes under the heading of 'primitive air traffic control'. The devices are poured concrete arrows placed at intervals on the ground along early air postal service routes across the vast expanse of the U.S. in the early 20th century. Many of the giant arrows are still in place today, although the concrete is weathered instead of painted bright yellow as in the 1920s. Below is an arrow near St. George, Utah.
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