StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



The Andrew Samwick Archives

Posted by Andrew Samwick

Here are two headlines and excerpts to make a budget wonk smile, both from The Wall Street Journal:

Promise on Taxes Sparks GOP Rift

Two decades after President George H.W. Bush abandoned his "read my lips" promise, some Republicans are chafing at their party's stand against new taxes.

A few prominent GOP lawmakers believe they will have to raise some tax revenue if they are to bring Democrats along on a bipartisan compromise to address the U.S.'s long-term fiscal problems. Many Democrats want higher taxes to cover at least part of future budget gaps. That has led to clashes between Republican lawmakers and a Washington advocacy group, Americans for Tax Reform, the self-appointed keeper of the party's anti-tax flame.

Democrats Split on Social Security

Posted by Andrew Samwick

I think that Matthew Yglesias has the right reaction to the surprise move by the Wisconsin Senate to circumvent the need for a quorum and pass the anti-public-union bill:

Not to draw an equivalence between a bad bill and a good one, but what it reminds me of is congressional Democrats after Scott Brown’s election. The early CW was that somehow Democrats “had to” back down in the face of their unpopularity. But they didn’t have to do anything. They believed as strongly in universal health care as the Wisconsin GOP believes in crushing labor unions. So they passed the damn bill.

Pensions or 401(k)s

05 Mar 2011
Posted by Andrew Samwick

I made a brief radio appearance on Marketplace Money yesterday, in a story with the same title as the post, asking which type of retirement plan is better.  The segment was motivated, I think, by this article last month in The Wall Street Journal decrying the inadequacy of 401(k) plan balances for near-retirees.The answer is that there need not be any important difference.  If I were tasked by a plan sponsor to provide an adequate retirement income for plan participants and to keep the plan properly funded, I could do just fine under either a defined benefit plan or a defined contribution or 401(k) plan.  It just requires a projection of the retirement income that is needed and a funding strategy of contributions and investment returns to get there.  What differs across the two plans is the exposure to risk and the responsibility for making choices. 

Posted by Andrew Samwick

From the New America Foundation this week comes a brief report on the efficiency losses of America's outmoded infrastructure.  The costs approach $200 billion per year, with sitting in traffic making up over half that total.  An excerpt:

Posted by Andrew Samwick

The news from initial unemployment claims is good:

In the week ending Feb. 26, the advance figure for seasonally adjusted initial claims was 368,000, a decrease of 20,000 from the previous week's revised figure of 388,000. The 4-week moving average was 388,500, a decrease of 12,750 from the previous week's revised average of 401,250.

I think of 400,000 as the dividing line between a labor market this is moving in the right direction and one that has not regained its strength after a recession.  That's where we were in the past two jobless recoveries following recessions not induced by the Fed to halt inflation. Here's the historical data -- take a look for yourself:

Posted by Andrew Samwick

Via Powerline, Wisconsin Governor Scott Walker gives a virtuoso performance in his press conference on his proposal to help close the state's budget deficit by reducing benefit costs for state employees:

This is an example of why I think governors have so much more credibility than senators when they seek the Presidency -- the best of them have a track record of taking responsibility for hard choices. 

Posted by Andrew Samwick

New Hampshire Public Radio ran a story yesterday about Governor Lynch's request that hospitals in the state stop building new facilities.  Normally, governors never miss an opportunity to encourage new business in their state, because in most markets, greater investment leads to better services or lower prices.  Finally, policy makers understand that the normal rules don't apply in health care:

[T]hese facilities are driving up utilization and driving up health care costs. Those are costs that we all see in our ever-increasing health insurance premiums. To that, I say enough.

What is missing from the health care market that causes the rules to be different?  There are a number of factors:

Meet Chris Christie

16 Feb 2011
Posted by Andrew Samwick

New Jersey Governor Chris Christie makes his DC debut at the American Enterprise Institute:

Posted by Andrew Samwick

In my reaction to President Obama's state of the union address, I wondered, "If we win the future, who loses?" and suggested that the analogy to a "Sputnik moment" was inappropriate.  In his New York Times column this weekend, Greg Mankiw makes a similar point, urging us to see "Emerging Markets as Partners, not Rivals."  The key excerpt:

Listening to the president, you might think that competition from China and other rapidly growing nations was one of the larger threats facing the United States. But the essence of economic exchange belies that description. Other nations are best viewed not as our competitors but as our trading partners. Partners are to be welcomed, not feared. As a general matter, their prosperity does not come at our expense.

Posted by Andrew Samwick

From my inbox, this morning, from Fidelity Investments:

In 2011, Social Security withholdings taxes are being reduced by 2%. Since this money was intended for retirement savings, why not consider putting it into your own workplace savings plan? Check the amount that you are currently contributing and, if you are eligible to do so, consider increasing your contributions now to take advantage of this opportunity.

Why not?  Officially, because I am going to spend that money on things I would never have purchased otherwise, so that I may do my part to ensure enough aggregate demand to continue the recovery.  Technically, because the 2% was not intended for retirement saving -- it is being covered by the General Fund and my Social Security benefits are not any lower because of it.  My generation delays, your generation pays.

Posted by Andrew Samwick

Judge Roger Vinson, a district court judge in Florida, has ruled the individual mandate in the Affordable Care Act unconstitutional and gone further to say that the unconstitutional part is not severable from the rest of the legislation, requiring the whole law to be invalidated.  I think he is correct on the lack of severability.  As the legislation developed, it was clear that an individual mandate was an essential part of the legislative intent.  The other provisions of the law about pricing -- community rating and guaranteed issue -- are predicated on it.

But I find the whole discussion of the individual mandate being unconstitutional to be ridiculous.  Is the following system unconstitutional?

Posted by Andrew Samwick

It turns out that Lexington at the Economist had noticed the introduction of "Sputnik moment" into the Preisdent's speeches last month.  Anticipating the argument in my last post based on the State of the Union address:

The trouble with applying the Sputnik moment to China is that it is not much of an analogy. There has, for a start, been no “moment”: China has been rising steadily for years without delivering any single shock. Whereas the Soviet Union and America built separate economic spheres, globalisation has bound the American and Chinese economies intimately together, to mutual advantage. And though China is a geopolitical competitor, it is not a mortal enemy of the United States as the Soviet Union was (unlike Nikita Khrushchev, Mr Hu has never promised to “bury” the West). Even if it were, most Americans believe that they still have the military edge. According to a Pew survey, Americans think by two to one (60% to 27%) that China’s economic strength is a greater threat than its military might. And a 58% majority says it is very important to build a stronger relationship with China.

Posted by Andrew Samwick

The trouble with the State of the Union address is that it is a good 20-minute speech that drags on for about an hour.  Whatever is useful about it is drowned out by the rest, which is typically a poor combination for cheerleading and inconsistent policy suggestions.  What did I like about the speech?

Posted by Andrew Samwick

I am back in the classroom this term, teaching a public policy course on the challenges facing local governments.  Across the country, no other issue compares to providing public education.  This story from last week's Washington Post about the likely changes to school assignments in the Wake County, North Carolina district (Raleigh and its suburbs) is a case in point.  At issue is which kids get to go to which schools -- even in a unified school district, it is the rule that the schools that offer the best opportunities are located in the neighborhoods with the highest socioeconomic status.  So calls for students to go to schools in their own neighborhoods really do put kids from minority, low-income households into schools with less opportunity.  That's the direction in which the momentum has swung with conservatives ascendant on the new school board.  From the article:

Posted by Andrew Samwick

I might need to see an optometrist to undo the damage from rolling my eyes so hard at this one, as reported in The Washington Post yesterday:

One of the leading contenders [to succeed Larry Summers as NEC director] is Gene Sperling, a longtime Democratic policy guru and veteran of the Bill Clinton White House who has spent two years advising Treasury Secretary Timothy F. Geithner. But some liberals say Sperling is too close to Wall Street after being paid $887,727 in 2008 by Goldman Sachs, one of several part-time jobs he held that year. Administration officials say Sperling was paid to develop a charity that has taught business skills to women in developing countries and did no commercial work.

Posted by Andrew Samwick

Happy New Year to everyone.  I am happy to be back from my holiday blogging hiatus.  And this week, I go back in the classroom to teach a course on local public policy.  One of the biggest challenges facing states and localities at this moment is the underfunding of defined benefit pension plans for public sector workers.  According to a recent editorial in The Christian Science Monitor (citing work by Robert Novy-Marx and Joshua Rauh):

By this spring, many states will run out of the $217 billion in stimulus money from Washington. (Illinois is already a deadbeat in paying bills.) Their budget woes will only mount as joblessness persists and politics prevents solutions in state houses.

Most of all, they face an estimated shortfall of $3.23 trillion owed to pension plans for current and retired state workers. Municipalities have an estimated $557 billion in pension liabilities. That adds up to about a quarter of the yearly US economic output.

Posted by Andrew Samwick

Here is Austan Goolsbee explaining the President's rationale for the tax cut deal.  My comments are after the break.

Posted by Andrew Samwick

Over at the Huffington Post, Sam Stein regards me as skittish about the recent tax deal.  Can a broken record really be skittish?

I haven't been skittish about the Bush era tax cuts -- I have been quite clear about wanting them to expire.

I haven't been skittish about the payroll tax holiday -- I have suggested it as part of a green tax swap, offset by other revenues and not as a short-term stimulus measure.

I haven't been skittish about what is conspicuously absent from this deal -- a means of paying for it over the long term and productive investments in public infrastructure that should form the backbone of it. 

The person who has been skittish, sad to say, is President Obama.  Consider a counterfactual -- imagine that the President had no veto power and was required by the Constitution to sign all pieces of legislation that passed both Houses.  How would this tax deal have been any different?  How much less could the Democrats have gotten out of it? 

Posted by Andrew Samwick

A weak economy is not an excuse to spend money we don't have on things we don't need.  I am with Stan on this tax cut deal.  And Paul Krugman, for that matter.  I repeat my view that the Bush era tax cuts should expire on schedule.  The New York Times reports the two-year cost of this tax cut package at $900 billion. What is amazing is how little we have learned in three years.  Quoting from an op-ed I wrote in February 2008, almost nothing has changed (other than the magnitudes, which have all gotten worse):

Posted by Andrew Samwick

That is the question asked in a new working paper by David Cutler, nicely summarized here in the NBER's Bulletin on Health and Aging.  This assessment is consistent with just about everything I have observed in health care markets:

The obvious question is why the health care market has not evolved to become more efficient. To answer this, Cutler explores the incentives for providers to make investments that will improve quality. He notes that providers cannot charge a higher price for providing higher quality care because prices are typically fixed (for example, by Medicare). Providing higher quality care might result in a greater volume of patients if consumers had ready access to information on quality, but generally this information is not available. In fact, providing higher quality care may lead to lower patient volumes and revenues, since higher quality care may mean patients need fewer services and providers are often reimbursed a fixed amount for each service.



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