When I was out and about today I heard an interesting radio interview with a cat from Northwestern’s business school on the subject of the economic effects of the PPACA. His general thrust was something with which I agree: there are too many moving parts to have much confidence in pronouncements one way or another. There are some good aspects, e.g. portability will make it easier for sole proprietor entrepeneurs to start new businesses. But there are bad aspects as well, e.g. people who buy healthcare insurance don’t spend that money on other things.

He did say a couple of interesting things. The first was something that had occurred to me: the PPACA may well be the beginning of employers getting out of the healthcare insurance business. But one of the things had never occurred to me. His research has suggested that in some states a substantial number of people are working solely to get employer-provided healthcare insurance and that they are likely to stop working when either the employer no longer offers insurance or employment isn’t necessary to be insured. That may further depress the labor force participation ratio.

It also might be bad news for the states. Small as those incomes may be they’re still subject to state income taxes. It might even be the case that the PPACA will cause state revenues to fall while inducing state expenses to rise.

I’d be interested in further observations on the economic effects of the PPACA. Like much else about the law we’ll have a better idea in the fullness of time.

Megan McArdle does make at least one good point in this article questioning whether the PPACA is actually an improvement over the status quo ante. If the news about enrollments were good, we’d undoubtedly be hearing a lot more about it:

If I’d sketched out the current scenario last summer — computer systems don’t work for months, millions lose insurance, and by the beginning of December, only 1.2 million people have picked up coverage from the exchanges and Medicare combined — the law’s supporters would have rolled their eyes and shaken their heads at the wishful thinking of the law’s critics. And now they generally assume that it will of course get better — that by March 31, if not sooner, we will see a measurable and substantial reduction in the number of uninsured.

But while that’s certainly very possible, it doesn’t exactly seem inevitable. To be sure, I myself find it hard to believe that the number of uninsured people will actually rise, even temporarily, as a result of the law. On the other hand, the administration has been pretty quick to leak whenever they had good enrollment numbers, and we haven’t heard a peep since the beginning of the month. So however incredible, it’s at least a real possibility that we’ll see a net decline in coverage on Jan. 1 — or even on April 1.

The administration hasn’t exactly been shy or secretive heretofore about good news.

Another point: the individual insurance market isn’t composed of one big pool even under the PPACA. It’s composed of a lot of little ones and the risk profile in individual pools might well be impossible to sustain. So it’s not just the risk profile of the nationwide enrollment that’s important. It’s also how those risks are distributed within individual plans.

The Kaiser Family Foundation attempts to tamp down the concerns about a “death spiral”, an unsustainable because self-reinforcing collapse in the individual insurance market, induced by too few young people enrolling for insurance:

Insurers typically set their premiums to achieve a 3-4% profit margin, so a shortfall due to skewed enrollment by age could reduce the profit margin of insurers substantially in 2014. But, even in the worst case, insurers would still be expected to earn profits, and would then likely raise premiums in 2015 to make up the shortfall, However, a one to two percent premium increase would be well below the level that would trigger a “death spiral,” which would occur if insurers needed to increase premiums substantially, in turn further discouraging young and healthy people from enrolling.

From the perspective of keeping insurance premiums stable, how enrollment is distributed by health within each age group is, in fact, more important, since premiums cannot vary at all by health status under the ACA. In other words, the goal is to enroll healthy as well as sick young adults, and also healthy older adults. (Older adults are more likely to be sick than younger people, but that is mostly accounted for by the fact that premiums can vary by age.)

This is, of course, true but “young” is a fair first order approximation shorthand for “young and healthy”. For example, the percentage of people over 60 with congestive heart failure is more than double the percentage among people who are between 40 and 59. I presume the percentage is even smaller among those under 40.

The basic question is the risk profile of those signing up for plans in the individual insurance market. I wonder what the shortfall would be if most of those who sign up are sick regardless of how old they are.

There are a number of things glossed over in the KFF’s article, for example, that insurance companies need reserves so they can pay the bills as well as profits so if there’s a shortfall this year they’ll need to make it up and then some next year. And costs are bound to rise for reasons other than the risk profile. Is there some level of cost increase beyond which the “death spiral” is inevitable?

Ah, well, I guess every article can’t be about everything.

The Watcher’s Council has announced its winners for last week.

Council Winners

• *First place with 5 2/3 votes! Joshuapundit–The Mixed Legacy Of Nelson Mandela
• Second place *t* with 2 votes – Bookworm Room – Pope Francis?s Marxist economic analysis reflects the Left?’s long march through the Catholic Church
• Second place *t* with 2 votes – Liberty’s Spirit – Apparently Antisemitism Doesn’t Exist in Europe Anymore
• Third place with 1 2/3 vote – Nice Deb – Legal Expert At Today?s Judiciary Hearing: ?The Check on Executive lawlessness is Impeachment? (Video)
• Fourth place *t* with 1 vote – The Right Planet – Is the President a Malignant Narcissist?
• Fifth place *t* with 2/3 vote – The Noisy Room – About One of My Articles and Allen West
• Fifth place *t* with 2/3 vote – The Glittering Eye –What Should We Remember About December 7th?

Fifth place *t* with 2/3 vote – Simply Jews – Yousef Munayyer, Open Zion and Nelson Mandela

• Fifth place *t* with 2/3 vote –VA Right! – Calibrating the Extremist Meter
• Sixth place *t* with 1/3 vote –The Colossus of Rhodey – A waste of time and money
• Sixth place *t* with 1/3 vote –The Razor – RIP Nelson Mandela

Non-Council Winners

• First place with 3 votes! – Babalu Blog – Gone is Fidel’s greatest admirer. submitted by Joshuapundit
• Second place *t* with 2 1/3 votes –Victor Davis Hanson/NRO – The World’s New Outlaws submitted by The Noisy Room
• Second place *t* with 2 1/3 votes – Andrew McCarthy/NRO –Impeachment Lessons submitted by Nice Deb
• Third place with 2 votes – Mises Institute –The State Causes the Poverty It Later Claims to Solve submitted by The Political Commentator
• Fourth place with 1 1/3 votes – Alan Johnson – The slaughter and torture of Christians: not a priority for the Government, Labour or DfID submitted by Simply Jews
• Fifth place *t* with 1 vote – Ace of Spades –Almost Three Quarters of All US Military Deaths in Afghanistan Have Occurred During The Presidency of Nobel Peace Prize Winner Barack Obama submitted by Bookworm Room
• Fifth place *t* with 1 vote – The Independent Sentinel – Obama Has Taken To Robbing Banks submitted by The Watcher
• Sixth place with 2/3 vote – Brad DeLong/The Equitablog – “Is Growth Getting Harder? If so, Why, and What Can We Do About It?: The Honest Broker for the Week of December 1, 2013 submitted by The Glittering Eye
• Seventh place *t* with 1/3 vote –Le·gal In·sur·rec·tion –Killer of British soldier Lee Rigby: ?I am a soldier and this is war? submitted by The Mellow Jihadi
• Seventh place *t* with 1/3 vote –The Other McCain – Were Vassar Students Who Perpetrated Hate Hoax Linked to Another Injustice? submitted by Rhymes with Right
• Seventh place *t* with 1/3 vote –Daily Beast – Husain Haqqani –Pakistan?s Change of Guard and General Ashfaq Kayani’?s Legacy submitted by The Razor
• Seventh place *t* with 1/3 vote –Seymour M. Hersh – Who’s Sarin? submitted by The Right Planet
• Seventh place *t* with 1/3 vote – Bill Whittle – I can’t Believe They Let You Do That! submitted by Watcher

The announcement at the Watcher’s site is here.

I have a question, spurred by a number of articles I’ve read lately. Has the U. S. automobile industry been saved?

I’m open-minded on this subject but, frankly, skeptical. Light vehicle sales have just about recovered to what they were when the recession began. They’re lower than they were at the bottom of the recession of 2001.

GM’s market share is no longer in freefall but it’s a lot lower than it was ten years ago. Its present market share hasn’t even recovered to what it was at the beginning of the recession. The company’s total capitalization is a fraction of what it was twenty years ago.

GM has fewer employees and, importantly, fewer dealers than it had prior to 2009. It’s selling about 2,000 Volts a month which appears to be about as many as the company can produce, something I suggested long, long ago. There’s a substantial wait list for them.

I’d say the U. S. auto manufacturers were surviving but that’s about it. I’m willing to be convinced. Convince me.

My view of the long-term prospects for the industry aren’t nearly as rosy. I think that the U. S. auto industry is in a long and probably permanent decline. Most of their profits are in SUVs and light trucks. Unless things have changed rather dramatically recently we import all of our small internal combustion engines. And Chinese and Indian manufacturers are chafing to get into the U. S. market.

For the last couple of days I’ve been watching the latest series of Foyle’s War. While previous series concerned crime on the British homefront during World War II, this newest series concerns itself with Foyle’s activities after the war. The war with which Foyle’s activities are juxtaposed is the Cold War.

One of the great developments in British life in the aftermath of World War II was the establishment of British National Health, that’s touched upon a bit in the series, and, in the context of our own feeble healthcare reform, that’s made me think about the factors that underpinned the creation of British National Health and why we haven’t followed the lead of the rest of the developed world.

This is a pretty fair paper on the subject. I think that I would characterize the reasons that underpinned the adoption of British National Health as

1. World War II
2. Technological
3. Sociological
4. Economic
5. Political

It’s obvious that World War II was an enormous impetus towards the adoption of a national health service in Britain. The massive bombings created both a feeling of national solidarity and the need. British killed or wounded during the war were numerically higher than ours and three times as high as a percentage of their population. I wasn’t there but I suspect that nearly every Briton knew someone who’d been killed or injured in the war and many of the injured needed ongoing care. The historian Charles Webster noted “The Luftwaffe achieved in months what had defeated politicians and planners for at least two decades.”

Additionally, the war upset entrenched bureaucracies and power structures that had worked against a universal healthcare system.

I think that technological developments, some spurred by the war, also played a major role. The first sulfa antibiotic was developed in 1935, penicillin was productized in 1942, and streptomycin developed in 1943. These antibiotics had two implications. The first was that for almost the first time medicine was actually able to do something to make people healthier. The second was that it raised the expectation of future developments. People were eager to share in the benefits of these developments.

Britain was a very different country in 1948, when the BNH was established, and today. About 3% of its population were immigrants and most of those were Irish who had a sort of grudging status as honorary Britons due to the many-century relationship between the Irish and the Brits. Would Britain have adopted a system of universal care if its immigrant population had been many multiples of what it was (as it is now) and most of the new immigrants were non-Europeans? Frankly, I doubt it.

One of the considerations not frequently mentioned is that during the period just before the war and certainly by the war and its aftermath, a generation of young doctors had arisen in the United Kingdom that were not only convinced that they could practice medicine more effectively under a system of universal care but that they would benefit economically from such a system. In the United States by contrast the most ardent and organized opponents of universal care, at least in the 1960s and 1990s, were physicians. The tide on that may be turning very, very slowly.

In 1945 Labour won a historic electoral victory, gaining nearly 300 seats in Commons. One of the planks of the manifesto they ran on was universal care. By comparison no major political party in the United States has ever run on such a platform.

There’s a final factor which might be deemed “historical”. Germany adopted a system of universal care nearly 150 years ago. France and the United Kingdom adopted their plans in the aftermath of World War II as did most other European countries. Japan adopted its system in the 1960s. The tide of history is moving in somewhat the opposite direction now with most developed economies retrenching, including Sweden whose healthcare system is nearly 400 years old.

I’m not sure what my point in this post is. It may be that universal care in the United States is likely to continue to prove a hard sell.

‘Tis the season for Top Ten of the Year lists. Here’s Archaeology Magazine’s list of the ten “most compelling” discoveries of 2013:

• Richard III’s remains
• homo erectus fossils at Dmanisi, Georgia suggest that the number of hominin species may be much smaller than previously thought
• the oldest known Roman monumental architecture in Gabii, Italy
• evidence for a matriarchy among the Wari people of ancient Peru
• the oldest “bog body” (4,000 years) in Ireland
• North America’s oldest petroglyphs (15,000!?) in Winnemucca, NV
• airborne laser sensing revises views of Angkor region
• evidence of cannibalism at colonial Jamestown
• world’s oldest port (4,500 years) discovered in Egypt
• badgers’, moles’, and dolphins’ work result in archaeological finds

To be honest I’m surprised that the discovery of Denisovan DNA in fossils uncovered in Spain didn’t make it onto their list. Not only was that an enormous technical feat (not to mention a vision of things to come) but it revises our notions of the human family tree in pretty drastic ways.

Speaking of Carter nostalgia, can you guess who championed the expansion of patent eligibility that lead to the mess we’ve got today? Yep:

Today’s patent mess can be traced to a miscalculation by Jimmy Carter, who thought granting more patents would help overcome economic stagnation. In 1979, his Domestic Policy Review on Industrial Innovation proposed a new Federal Circuit Court of Appeals, which Congress created in 1982. Its first judge explained: “The court was formed for one need, to recover the value of the patent system as an incentive to industry.”

The country got more patents—at what has turned out to be a huge cost. The number of patents has quadrupled, to more than 275,000 a year. But the Federal Circuit approved patents for software, which now account for most of the patents granted in the U.S.—and for most of the litigation. Patent trolls buy up vague software patents and demand legal settlements from technology companies. Instead of encouraging innovation, patent law has become a burden on entrepreneurs, especially startups without teams of patent lawyers.

Until the court changed the rules, there hadn’t been patents for algorithms and software. Ideas alone aren’t supposed to be patentable. In a case last year involving medical tests, the U.S. Supreme Court observed that neither Archimedes nor Einstein could have patented their theories.

My gripe about patents is that I don’t believe that the Patent Office has the ability any longer to distinguish among the obvious, prior art, and genuinely patentable inventions. That results in routine granting of patents for the equivalent of the wheelbarrow at which point the matter becomes a question of who can afford the best lawyers.

Have I mentioned that big companies, responsible for filing most of the patents, create a lot fewer jobs than small start-ups do?

Update

For an explanation of why copyright law is equally nuts see here. The links are particularly helpful.

For those of you who are nostalgic for the Carter years, Lawrence Summers warns about the prospective return of one of the signal features of those years—stagflation:

My concern rests on several considerations. First, even though financial repair had largely taken place four years ago, recovery has kept up only with population growth and normal productivity growth in the United States and has been worse elsewhere in the industrial world.

Second, manifestly unsustainable bubbles and loosening of credit standards during the middle of the past decade along with very easy money were sufficient to drive only moderate economic growth.

Third, short-term interest rates are severely constrained by the zero lower bound: real rates may not be able to fall far enough to spur enough investment to lead to full employment.

Fourth, in such situations falling or lower-than-expected wages and prices are likely to worsen performance by encouraging consumers and investors to delay spending, and to redistribute income and wealth from high-spending debtors to low-spending creditors.

Although slow growth is obvious to anyone who cares to look around, I don’t see many signs of inflation at this point. In terms of price increases which is what most people think of if they do think about inflation, the greatest price increases remain in those areas in which supply is constrained and government plays the strongest role—healthcare and education. How willingness to pay can increase in the presence of a constrained supply without prices increasing is a puzzle to me.