The conservative justices' questioning about the health care law on Tuesday may or may not have betrayed a political bias. But it most certainly betrayed an ignorance of health economics. Henry Aaron, the Brookings economist who has been filing daily dispatches from the hearings, wrote about some of them: Several of the justices, notably Scalia and Alito, responded to the externalities argument by saying that every economic transaction creates similar externalities. "If I don't buy a Volt, I raise the price of Volts," said Scalia. Alito said much the same thing.
Wise Henry Aaron of the Brookings Institution advises not to fret about the super committee's demise, and warns that half or more of any future deficit reduction deal must consist of taxes. Why? Because in the absence of a tax increase that big "the spending cuts required to stabilize the ratio of debt to national income will eventually be so large that it will be impossible to sustain Social Security, Medicare, Medicaid, and the premium subsidies of the Affordable Care Act.
Visit msnbc.com for breaking news, world news, and news about the economy Why has Obama been so willing to make a deal on deficit reduction, even if the terms reflect Republican values far more than Democratic ones? The president himself offered some reasons in his press conference on Friday. Observers like me have speculated about others. But administration officials say that two other factors, both related to the economy, weighed on their minds. Obama and his advisers are looking at the same job numbers as the rest of us.
Nearly a day has passed since Peter Diamond announced he's withdrawing his nomination to the Federal Reserve Board in the face of intractable Republican opposition. I remain convinced that it's a travesty and I don't seem to be the only one. Via e-mail, here's Henry Aaron, the Brookings economist and quite possibly one of the most fair-minded people I know: I find it profoundly sad—for the nation and for the cause of reasoned debate on public policy—that a blocking minority of Senators has refused to permit Peter Diamond’s nomination to the Federal Reserve to come to a floor vote.
The idea of replacing traditional Medicare with a "premium support" system has a long pedigree. And the term itself traces back to a proposal co-authored by economist Henry Aaron. So what does Aaron think of House Budget Chairman Paul Ryan's twist on the idea? Not much. And in an interview with Ezra Klein, Aaron explains why: If one does the arithmetic, income grows a few percentage points faster than prices. Health-care spending grows faster than income by a couple of percentage points.
Along with a large and increasing number of Americans, I care about the long-term deficit because I think that, left unchecked, it will constrict and distort our future economy and society. And I am far from alone in believing that President Obama’s FY2012 budget proposal mostly evades the problem. According to the Congressional Budget Office’s recently released analysis, his proposal wouldn’t reduce the annual deficit below 4 percent of GDP, and the debt held by the public would double from $10.4 trillion to $20.8 trillion, nearly 90 percent of our GDP.
Few political spectacles depress and alarm me right now more than the stalled nomination of Peter Diamond. For those of you who don't already know, Diamond is the MIT economist whom President Obama has nominated to serve on the Federal Reserve Board. Diamond is widely considered among his generation's most brilliant economists.
The U.S. appears to be the only country in the developed world that forbids its government from accumulating debt without authorizing legislation. And that’s led to some scary moments, including one that the economist Henry Aaron shared with me recently. During the early years of the Kennedy Administration, Congress passed an increase in the debt ceiling at the last minute. But when JFK went to sign the bill, according to Aaron, nobody could find the document.
Federal Reserve Chairman Ben Bernanke today announced that the Federal Reserve is prepared to bolster the economy if the economic recovery weakens further. Note the key words: "prepared," "if," and "further." While media coverage is focusing on the possibility that the Fed might do more in the future, the economists talking to TNR this morning think it should be doing more already.
You may not be familiar with Mollie Orshansky. But you’re probably familiar with her work. Orshansky was a researcher and statistician who joined the Social Security Administration in the late 1950s. One of her jobs was to measure income adequacy and, in the early 1960s, she devised a formula based roughly on three times the price of a basic, nutritionally sufficient diet. It was a crude formula, based on previous research showing that people spent roughly a third of after-tax income on food. But it was good enough.