Marketplace of Ideas
The summer doldrums have not yet hit the economic news. Here are some of the top stories this week:
- The Congressional Budget Office this week lowered its projections for spending by Medicare, Medicaid, and other government health care programs, with an estimated $250 billion per year in savings through 2039. What role do cost controls instituted by the Affordable Care Act play in these savings? Perhaps not much, according to Margot Sanger-Katz, writing for the Upshot blog. She sites a number of studies showing that health-care costs are slowing globally, suggesting that factors other than national policies may be at work. Of course, in the U.S. that slowdown in prices is happening from a much higher starting point. The latest Comparative Price Report from the International Federation of Health Plans shows that prices for prescription medications and medical procedures are consistently higher in the U.S. than in other developed countries. According to IFHP, the average hospital cost per day in the U.S. last year was $4,293. The next highest costs were in New Zealand, at $2,491, and Australia, at $1,308. In the U.S., depression drug Cymbalta costs $194, while in England it costs just $46. According to the Wonkblog, the divergence in prices stems from the fact that in the U.S. sellers of health-care services have much more power to set prices, “and they set them quite high.”
- A feature on Janet Yellen in the New Yorker this week alleges that the Fed chair is on a mission “to end, once and for all, a dark period in economics.” That would be the period during which economists who put greater stock in the ability of markets to self-correct have been ascendant. The piece has prompted criticism that Yellen is a mercenary promoting herself as a “caring grandma,” and that her views make her a “religious nutcase.” CNBC wonders what “Yellen’s game” might be in doing the interview. Penned by Columbia Journalism professor Nicholas Lemann, the article contains no revelations about Yellen that weren’t already in the record when the Senate voted 56-26 to confirm her nomination back in January. There’s no doubt Yellen hews to the “Keynesian tradition,” but is she really on a mission to destroy neoclassical economics? That’s hard to say for sure, but the article does have some glaring factual errors and misrepresentations. No, Yellen did not appoint Stanley Fischer vice chairman of the Fed—that’s Obama’s purview. And Yellen didn’t say in March that the Fed would be raising rates in six months, as Lemann claims. Rather, Yellen said that “around six months” was a reasonable time frame to expect a rate hike after the Fed had ended its asset purchase program, which is still ongoing. With such a breezy approach to Yellen’s actual statements, you might wonder whether the Keynesian battle is Yellen’s ax to grind or Lemann’s. Indeed, Lemann elsewhere points out that Yellen has always avoided the political fray. Why would she seek it out now?
- Calling for “economic patriotism,” Treasury Secretary Jack Lew urged Congress this week to pass measures preventing corporate tax inversions—when U.S. corporations merge with foreign companies or relocate abroad to escape U.S. taxes. A Wall Street Journal editorial claims that threats of legislation to prohibit tax inversions will only prompt an exodus of companies to beat the new laws. But many analysts say such legislation is unlikely, especially because there’s no consensus even among Democrats on how to deal with inversions. In its own editorial, the Washington Post says that Congress should eliminate tax loopholes that benefit only some companies in favor of across-the-board top-line tax cuts. Forbes agrees, opining, “The time for corporate tax reform is now.”
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