The Becker-Posner Blog

The Health Care Bill: Progress or Retrogression? Becker

Studies show that men and women place a high value on even small decreases in their probability of dying at different ages. Presumably, the same is true of increases in the quality of their lives. This is why, given the rise in incomes over time, and the revolution in the development of blockbuster drugs and the advances in medical technology, the share of national income spent on health care would have risen over time in the US, even if it has had the best health care delivery system. Indeed, the share of income that is spent on health has risen quite sharply over time in every economically developed country, regardless of the nature of their health system.

Clearly, however, the American health system does have many defects, which contributed mightily to the growth of the share of medical spending to 17% of American GDP. Yet when I was recently asked whether I prefer the present healthcare bill to no change in the health delivery system for a decade, I answered “no change”. Even though the American healthcare  system can use many reforms, regrettably the bill that passed the House and Senate is a messy compromise to attract reluctant Democrats that is short on needed reforms. Instead, the bill is filled with many complicated, and generally bad, new regulations, higher subsidies, and greater taxes.

The most important needed reform is an increase the fraction of total medical costs that come from out-of pocket expenses in the form of large deductibles and significant co-payments. Out-of-pocket spending accounts for only about 12% of total American spending on healthcare, whereas the share of out-of –pocket spending is over 30% in Switzerland, a country considered to have one of the better health delivery systems. Partly because of this major difference, health care takes 11% of Swiss GDP compared to the much higher American percentage. As far as I can discover, nothing in the new bill really tries to raise the out-of-pocket share, and some changes would reduce it even further. These include tax credits for individuals and families that earn up to 400% of the federal poverty level (up to about $90,000 for a family of four) that enable them to get coverage through newly created Insurance Exchanges.

Another desirable reform is to reduce the reliance of the American health system on tax-deductible employer-based insurance since tax deductibility has encouraged low deductibles and low co-payments. It has also locked workers with health problems into their current jobs since they may not qualify for insurance at other companies because of these pre-existing health conditions. The bill does propose to phase out tax deductibility for the more expensive plans by 2018, but who knows if that will ever be implemented.

For the most part, however, the bill increases our dependence on employer-based health care by imposing sizable penalties on companies that do not provide their employees with sufficient health insurance. Many companies are already beginning to add to their projected future costs the anticipated increase in the cost to them of insuring their employees. These changes will particularly affect the costs of smaller companies since they are the main ones that do not provide health insurance for their employees. Since smaller companies are responsible for a disproportionate share of additions to employment during recent years, this provision of the bill will tend to reduce the demand for workers and hourly wages.

The US health care market is over-regulated rather than under-regulated. One example is that families in one state are generally not allowed to buy their health insurance from companies located in other states. Another example is the mandates that states impose on insurance companies, such as coverage of the costs of normal birth deliveries. Such coverage has little to do with insurance against unexpected health costs, whereas coverage of extraordinary delivery costs is a desirable protection against unexpected health care risks. The bill generally pushes in the direct of greater regulation, such as the limitations imposed on how much health insurance companies can spend on administrative costs relative to their other costs, the mandated reviews of the premiums charged by health insurance companies, and the mandated provision of health insurance by small companies.

Health savings accounts (HSAs) have been one of the most important innovations in the health care field during the past decade. These accounts require large deductibles, such as $2500, that individuals and families most cover out of their own pockets. Unused portions of the amounts in these accounts can be carried over tax free from any year to future years, and can eventually be phased into their old age pension accounts. HSAs with large deductibles encourage individuals to economize on their normal health care expenses, such as visiting doctors for colds or flu shots that they could get much more cheaply at CVS, Walgreens, and other retail medical clinics. There is little mention of HSAs in the new bill, and certainly no encouragement to their expansion.

The American health care delivery system needs greater transparency and easier access to medical information by consumers. The bill takes a valuable step in this direction by encouraging the development of online medical records and medical histories for all individuals, no matter how many doctors they have seen, or how often they have moved. A few other parts of the bill would also increase information and transparency, but for the most part the bill obscures rather than enlightens consumers about the health area. Many of the most important taxes come early while the additional spending kicks in much later, so that it will appear for a few years as if the new system will cut medical costs. Consumers will get a false impression that they are getting a more efficient medical care system when in fact the new system will turn out to be both expensive and invasive of individual choices.

Proponents of the bill claim it will save hundreds of billions of dollars during the next ten years from cuts in Medicaid and Medicare, but it is far from obvious how such cuts will materialize. Moreover, some changes will clearly increase the costs of these programs, such as the expansion of Medicaid coverage to individuals well above the poverty line, and by additions to drug coverage of seniors under Medicare. I do not see how the bill will lead to Medicare savings since there is no increase in out of pocket payments by Medicare enrollees, and Congress is likely to continue to override any scheduled cuts in payments to Medicare doctors and others. The most likely attempt to cut future Medicare costs will be through greater rationing of health care to the elderly, but lobbying groups for the elderly will fiercely resist these efforts.

Adequate and appropriate coverage for persons with pre-existing health conditions is a challenge for any healthcare system, especially those with private insurance. Although the bill addresses this issue, it makes coverage of pre-existing conditions more difficult in one dimension by expanding rather than contracting employer-based health insurance. The bill prevents insurance companies from dropping individuals if they develop serious sicknesses, and also prevents these companies from imposing limits on how much they will pay to cover an individual’s health costs during any year. In addition, uninsured individuals with pre-existing conditions will be able to obtain health insurance through the new health insurance exchanges run by non-profit companies.

The only truly efficient way to handle the pre-existing condition issue is to try to develop an insurance system in which young adults, who generally have few serious existing medical conditions, can take out long-term healthcare insurance. Long-term health insurance programs have been proposed in the academic literature, but they have been implemented only to a very small extent. Perhaps the bill’s approach to pre-existing conditions is the best that can be expected at this point if nothing is done to wean the system from employer-based tax-deductible health insurance (which at least does provide long term health insurance for employees who stay with the same company for many years).

Although the impact on the costs to taxpayers of the more than 40 million uninsured persons in the US is usually greatly exaggerated, I do support a requirement that everyone has health insurance that covers medical catastrophes. Coverage limited to catastrophes would not be expensive for the uninsured since they are mainly young and are generally in quite good health. They could readily pay the premiums for catastrophic insurance from their incomes. The health care bill does make health insurance compulsory, but it does this in an unsatisfactory way by requiring rather extensive benefits, and by subsidizing coverage for individuals and families with incomes far above the poverty line.

So for all the reason I have given, and many more, no change in the present American healthcare delivery system would be much better than the new bill. The American system has many great strengths and some serious weaknesses. The bill will generally weaken the strengths and strengthen the weaknesses.  

 

 

The Health Care Bill—Posner’s Comment

The bill has now become law. Its length alone (some 2,700 pages, including the modifications made in the “reconciliation” process) precludes a full analysis within reasonable length limitations.

 

Although on balance I think the new law is a mistake, there are three things that can be said in its favor. The first is that it is a genuine social experiment, and we are bound to learn a lot from it—about the size and elasticity of demand for medical services, the reliability of cost estimates by the Office of Management and Budget and the Congressional Budget Office, the reliability of advice given by health economists, the relative perceptiveness of liberal and conservative commentators, the ability of the federal government to manage a vast and highly complex program of social welfare, and, a related point, the relative efficiency of a lightly regulated market, versus a government-controlled market, in providing health services, and perhaps goods and services more generally.

 

Second, the very cost of the health-care program, which is likely to be far higher than predicted by its sponsors and not nearly offset by tax hikes, spending cuts, or economies in the provision of health care, may act as a wake-up call for the need for fiscal reform. Greece is making real reforms in its economic system, because it has to; it’s broke. If the new health law, piled on top of all the other measures that are causing the federal deficit to explode, causes real damage to the United States, the stage will be set for real reform.

 

Third, and related, the health law does contain some economizing measures, though fewer than the sponsors pretend. (The best may be the tax on “Cadillac” health-insurance plans, which I discuss at the end of this comment.) For example, the requirement that all chains with more than 20 stores must publish calorie information on menus and signs may contribute to reducing obesity, though the effect will be modest. But a typical measure included in the new law that is touted as economizing—subsidizing preventive care—is unlikely to reduce overall health expenses. The reason is not only that preventive care is often more costly than treatment, especially because it tends to be repetitive (annual tests for this and that, for example), but also that it is consumed by the healthy as well as by the sick, and there are more healthy than sick. Even the sick, moreover, are potential users of preventive care—to prevent the illnesses they don’t yet suffer from.

 

More than the tepid economizing measures, however, the Administration will be under pressure to prove that the bill really will save money. Responding to this pressure may produce significant economies, or at least raise the public consciousness concerning the need and opportunity for reducing health costs.

 

That’s the bright side of the new health law. The dark side includes the timing of the measure: the uncertainty that the health law and the deliberations leading up to it have generated for business and consumers alike has probably retarded our economic recovery from the financial crisis. But the law’s biggest negative is its costs. The $100 billion or so of annual subsidies that the law mandates is just the beginning, but it is an ominous beginning. It is true that these are transfer payments, rather than costs in an economic sense; but they are federal transfer payments and so increase the federal deficit, which even without them is growing by more than $1 trillion a year. The subsidies will grow at the rate at which medical costs grow, which is between 5 and 10 percent a year—much greater than any plausible estimate of annual economic growth. Indeed, as Greg Mankiw has argued, the health bill is likely to reduce the nation’s annual growth by increasing the income taxes on the well to do.

 

The biggest cost is likely to come from the law’s effect on the demand for health care. One effect that can be expected is that, if one assumes (plausibly) that the supply curve of health care is upward-sloping, meaning that unit costs increase as demand increases, adding 30 million people to the health-insurance rolls (whether private or Medicaid) will increase overall health-care costs by more than the percentage increase in the number of persons insured.

 

A second demand-related cost effect will result from the fact that insurance,(even with deductibles and copayments, drives a wedge between the cost of a service and its price, and so increases demand. (It’s like a restaurant with a buffet: the marginal cost of eating all you want is zero.) Persons who are uninsured are deterred from consuming medical services in quantity— because of cost (they are billed for such services at very high prices and may be forced into bankruptcy if unable to pay), because of difficulty of obtaining quality service from charity hospitals or other “free” providers, or simply because, though they can “afford” insurance, they prefer to gamble on remaining healthy. These persons, when they become insured, will increase their utilization of medical services, because those services will now be cheaper to them.

 

Health insurance may even induce some people to take worse care of their health: the lower the expense of treatment, the less benefit one derives from prevention, including nonmedical preventives such as a healthy diet, exercise, and avoidance of dangerous activities.

 

The additional costs of health care are likely either to be defrayed by higher taxes on upper-income people or avoided by reductions in the quantity or quality of medical services. The idea that the costs of our health-care system can be significantly reduced by eliminating “unnecessary” treatment is as quixotic as the idea that the Pentagon budget can be significantly reduced by eliminating the “fat” in it. One person’s “unnecessary” medical treatment is another person’s last hope for survival. Cutting medical costs means reducing treatment, which will impair outcomes.

 

The only durable and culturally acceptable ways of reducing the nation’s health costs—which are, by comparison with other wealthy countries, excessive—are by eliminating the tax deductibility of employer-provided health benefits (and thus decoupling health insurance from employment, reducing the cost of insurance to the taxpayer, and discouraging overconsumption of medical services because the tax treatment of health benefits encourages employers to substitute them for wage increases), increasing deductibles and copayments in health-insurance policies in order to give people a greater incentive to take care of themselves, and changing Medicare from an entitlement program to a means-tested welfare program. Unfortunately, there is no political support for any of these measures—although the heavy tax on “Cadillac” employer-provided health insurance, which is to go into effect in 2018—is a step in the direction of reducing the tax deductibility of employer-provided health insurance. In practical effect, it will eliminate the tax deductibility of expensive employer-provided plans.

Greece’s Economic Crisis—Posner

I’ll describe the crisis briefly, then address two questions: whether the nations of the European Union, such as Germany, should try to bail out Greece; and what the Greek crisis tells us about what is in store for the United States.

 

In the easy-money years of the early 2000s—for which we have Alan Greenspan, other central bankers, and President Bush and his foreign counterparts to thank—the Greek government borrowed a great deal of money from banks, mainly in Europe, to fund its huge public sector. Greece has chronic difficulty in funding its government expenditures out of tax revenues because of rampant tax evasion. And its bureaucracy appears to be either corrupt or incompetent or (probably) both, and as a result its published financial data are inaccurate and misled and continue to mislead lenders. The global downturn, which has driven up unemployment in Greece (to 10 percent) as elsewhere, has weakened the Greek economy further, but what has precipitated the country into de facto bankruptcy is the realization by lenders that Greece, like so many other countries, is dangerously overindebted. Its national debt, most of it owed to foreigners, of some $400 billion is greater than its Gross Domestic Product, and its current annual budget deficit is almost 13 percent of GDP, which means that its indebtedness is growing rapidly. Greece like other borrowers has to roll over its debt continuously. In 2010 it will have to replace some $65 billion in public debt, and fear of default has driven up the interest rate on new Greek government debt to 6 percent.

 

The Greek government has taken drastic-seeming measures to reduce its deficit. It has imposed new excise taxes and increased existing ones, reduced wages and pensions of government employees and increased their retirement age, and reduced public services. Greece has a huge public sector—40 percent of GDP is generated by the public sector, and 25 percent of Greek workers are public employees—and so the government can effectuate big reductions in public spending virtually by a stroke of the pen, though not without inciting riots.

 

Despite the measures taken by the government, it is desperately seeking financial aid from EU countries or failing that the International Monetary Fund: that is, it wants to borrow more money, and at lower interest rates than are available from private lenders, in order to avoid defaulting on its public debt or, alternatively, reducing government spending even more sharply than it is doing, with potentially serious political consequences.

 

Assuming that the Greek government, without foreign assistance, cannot avoid defaulting on its public debt because it has reached the limits of what the Greek people will acccept in the way of austerity measures imposed by their government, there is not much difference between a default on the one hand and borrowing—whether from EU countries or from the IMF on what undoubtedly would be onerous terms—on the other hand. Either way, Greece will be broke. Default would be the cleaner and simpler solution. A cascade effect from a Greek default can be avoided by EU nations’ bailing out any creditors of Greece whose failure, because of a Greek default, would have macroeconomic significance.

 

Default would be a wake-up call for the Greek nation and put it on the path to competent economic management. A bail out of Greece would be administratively complex. The Greek government would try, for compelling domestic political reasons, to substitute bail out money for cuts in spending and tax increases, and the bailers out, whether EU nations or the IMF, would struggle to prevent the substitution.

 

Comparisons are being drawn between Greece and the United States. Our national debt of $12.5 trillion is approaching our GDP of about $14.5 trillion and will probably exceed it within the next couple of years, as the debt seems likely to grow by about $1.5 trillion for several years to come, especially with the enactment of the health care bill and the spur that that enactment will impart to other spending programs. Our annual federal budget deficit is now more than 10 percent of GDP. We do not have the same tax-evasion problem as Greece, but we have low taxes and intense resistance to either raising them or reforming the tax system to obtain more revenue with less economic distortion. Our public finances are transparent, so we will not slide into national bankruptcy inadvertently. But we seem incapable either of cutting existing public spending or avoiding costly new public-spending programs.

 

What we have sustaining us is the status of the U.S. dollar as the major international reserve currency (plus the fact that, since our debt is in dollars, we can reduce it by inflation, though not without cost; Greece can’t do that because it doesn’t have its own currency). Many international transactions are in dollars even when the transacting parties have no American connection. (There are other reserve currencies, mainly the Euro and the Yen, but the U.S. dollar accounts for about two-thirds of the world’s total reserve currency.) If a Saudi Arabian oil company sells oil to Singapore, the sale will be in dollars, and this will require the central bank of Singapore to hold dollar reserves that it can exchange with Singaporean merchants for the local currency to enable those merchants to make purchases in dollars. With the world’s central banks awash with dollars—and for the further reason that many foreign countries, such as China, Japan, Germany, and the oil-producing countries of the Middle East, export much more to the United States than they import from us and as a result accumulate large dollar balances—the United States can easily borrow to finance its public debt. Greece doesn’t have its own currency, and so is in the approximate position of a private borrower.

 

This happy situation will enable us to avoid defaulting on our enormous public debt for the foreseeable future. But it will perpetuate our fiscal improvidence.

Will the Euro Survive its Current Difficulties? Becker

The short answer is “yes”. Yet possibly much more serious challenges to the euro will arise in the future unless some important changes are made in the European Monetary Union (EMU).

When the euro was launched on January 1, 1999, I was skeptical about its long run viability primarily for two reasons. The members of the EMU maintain their ability to follow different government spending and taxing policies, and their economies are subject to specific shocks because they produce different products and services, and have varying levels of per capita incomes and wealth. Since no country has the power to print Euros, no country can offset these country-specific difficulties by devaluating their currencies relative to the currencies of other members of the EMU, or even by devaluing relative to countries outside the monetary union. Devaluation under these circumstances reduces the net import of capital by a devaluing country, and hence eases its foreign debt. In the past, countries like Italy or Greece that had, among other troubles, insufficient taxes relative to government spending, frequently devalued their own currencies (the lira and drachma, respectively). When the debt was issued in local currencies, devaluation also in effect “inflated away” some of the real value of any foreign debt.

A partial alternative to devaluation when a country is in economic trouble is for many of its workers to move to other countries where jobs are more plentiful and wages are higher. Such migration helps soak up the unemployment and reduces the scarcity of jobs caused by the economic difficulties. This is essentially what happens in the US, a common-currency union of 50 states. States that do poorly relative to other states experience outmigration of many of their younger workers. Yet migration is still quite limited within the EU, despite the progress that has been made.

However, the remarkable success of the euro since its launch more than a decade ago had been convincing me that I and other euro-currency skeptics had exaggerated the importance of these missing ingredients in the EMU. The euro has become of the most important international currencies. After falling sharply for a couple of years from its initial launch rate of close to $1.2 per euro to just about $0.80 per euro, it bounced back to reach over $1.5 dollars per euro. The euro is still above its initial exchange rate, with a current exchange value versus the dollar of about $1.35. In the past few years, considerable speculation developed that the euro might well supplant the dollar as the number one currency for international contracts and for assets held internationally.

These rosy euro forecasts have ended, at least for a while. Not only Greece, but also Portugal, Spain, Italy, and Ireland are in financial trouble with their international creditors, although Greece appears to be in the most immediate difficulties. They may all get out of these troubles without defaulting on their debt, but similar challenges are likely to arise in the future unless major changes are made in the architecture of the EMU. Either much more power over taxation and government spending has to be taken away from the individual member countries and given to the central authorities of the European Union in Brussels, or much more effective measures need to be introduced that would prevent government spending of different countries from greatly exceeding their tax receipts.

Since most countries within the monetary union are probably more willing to leave the union than give up sovereignty over their spending and taxation, the centralization of taxation and spending authority seems unlikely. Perhaps a system of fines and other punishments to weak-willed countries will be sufficiently strong to deter future transgressions, but that seems unlikely.

There is no simple way out of this dilemma, which is why Germany, after much initial reluctance, is warming to the idea of calling on the IMF to help Greece. One plan being discussed is for the eurozone countries to provide the funding used by the IMF. Since much of the IMF financing comes from the US, eurozone financing would avoid the EMU appearing to ask the US for assistance. Although the European Central Bank opposes this indirect route of helping Greece, the hope is that the IMF is more capable than the EMU of imposing stringent restrictions on Greece’s spending and taxation.

Some commentators have drawn analogies between the fiscal difficulties of the United States and Greece and other weak members of the EMU. As Posner shows, the US and Greece have many similarities in terms of fiscal deficits and the rate of annual turnover of its government debt. However, one crucial difference is that the US has a much more robust economy, and greater growth prospects.

The other absolutely essential difference is that the US debt is denominated in dollars, a currency that it controls, while none of the EMU countries can issue more Euros. If push came to shove, the US could consider meeting its obligations to creditors by issuing additional dollars, and partly inflating away its international debt burden. Inflation is a potential weapon for the US Treasury, almost regardless of whether its debt is in the hands of Americans or foreigners, although both groups would protest against seeing the real value of their assets greatly reduced by inflation. Greece can probably force domestic holders of its government debt to take severe haircuts, but aside from bankruptcy, it is much more impotent than the US against international creditors.

Perhaps, as Posner suggests, Greece and possibly also the other fiscally weak members of the EMU should be allowed to declare bankruptcy, although this is not without serious consequences for the future of the EMU. Still, the monetary union might well be stronger in the long run if its weaker members were forced out, or were forced into more responsible behavior by having to bear the consequences of irresponsible actions.

 

The Long-Term Unemployed: Consequences and Possible Cures-Becker

Greater unemployment is a casualty of every recession, and the so-called Great Recession is clearly no exception. The unemployment rate grew from under 5% to just over 10% at its peak, and has fallen during the past few months a little to 9.7%.  Most forecasters are predicting only a gradual further decline in the unemployment rate during 2010, and some even predict that this rate will increase before it continues to fall again. Aside from its level, the most disturbing feature of the unemployed is its composition since many of them have been without a regular job for over six months.

Men and women who are unemployed for a relatively short time-say for no more than a few months- create relatively few problems for themselves or the economy. They can usually finance their consumption while unemployed- such as on housing, food, and other basic expenses- out of their own savings, unemployment compensation payments, and from loans from family and friends. The long-term unemployed are the major problem. And the fraction of the unemployed who have been out of work for six months or more increased greatly during the Great Recession to reach over 40% of the unemployed in February 2010. The average period of unemployment for these long -term unemployed is about 7 months. Only a year earlier, in February 2009, the long-term unemployed constituted only 22% of the total number of unemployed persons, and even that percent was up from its share of the unemployed at the beginning of the recession in December 2007.

The long-term unemployed tend to lose confidence in their abilities, their resources to finance their consumption gets depleted, and their skills begin to depreciate. They may be forced to uproot their families to move to new communities where employment is more readily available. As a result of all these factors, their family life undergoes considerable stress, which leads to marital problems, and not infrequently to divorce. These effects are all reasons why special attention has to be given to reducing the rate of long-term unemployment, and mitigating some of its harmful effects.

In most respects, the characteristics of the unemployed are similar during this recently ended recession as it has been during all prior recessions, and even the Great Depression of the 1930s. Unemployment is concentrated among the young, less educated, and low skilled. For example, according to the March 10^th report of the Bureau of Labor Statistics, (seasonally adjusted) unemployment rates in February of this year was 16% for high school dropouts, 11% for high school graduates, only 8% for persons with some college or associate degrees, and a quite low 5% for persons with a bachelor’s degree and higher levels of education. Similar differences are found by age and skill level. So despite all the attention given to the growth in the unemployment of highly educated persons from the financial sector, the burden of increased unemployment is still being mainly borne by the young and less skilled.

Although more educated and older workers are far less likely to become unemployed, once they do they have a much tougher time finding jobs that pay them close to what they had been getting while employed. This is why college educated and older workers constitute a much larger percent of the long term unemployed than they do of the total number unemployed. These differences in long-term unemployment are easy to understand. Many kinds of low paying jobs are available to the young and high school dropouts in all parts of the country. This means that these workers can relatively easily find other jobs if they become unemployed, even though the new jobs may not last so long and they may have to seek still other jobs. Finding other jobs with comparable pay to their old ones is much harder for more skilled and experienced workers since they are more specialized in their knowledge. They may have to move to another region to get suitable employment.

The fraction of workers who have been unemployed for at least 6 months tends to rise for a while after a recession, even after the overall unemployment rate starts to fall. This is not surprising since the fact that a person has been unemployed for many months is an indication that he or she cannot easily find a new job. As a result, the long-term unemployed are less likely than other unemployed workers to find jobs quickly after the economy begins to pick up.

In several of the prior recessions, the unemployment rate came down slowly after the recession was over. The Great Recession ended during the third quarter of 2009, yet the unemployment rate continued to rise for a few months after that. It has now started to decline slowly, and is likely to continue to fall at a slow rate. Regrettably, the decline may be particularly slow in the present situation because Congress and the President have created too much uncertainty about, among other things, health care costs to employers, taxes on higher incomes and on businesses, taxes on carbon emissions, caps on the pay of some executives, and the new regulations of lenders. Businesses are reluctant to take on many additional employees until they become more certain about their costs, and the direction the economy is moving in.

Unfortunately, several remedies that have been suggested to reduce the rate of long-term unemployment will be ineffective. For example, many people believe the solution is to retrain the long-term unemployed. However, retraining adults of all ages, but especially older workers, have generally been failures: it is much too costly relative to the benefits in terms of new jobs.

A current proposal in Washington is to give companies a subsidy if they hire workers who have been unemployed for longer than a few months. The problem with this proposal is that the Job Openings and Labor Turnover Survey (or JOLTS-I am indebted to Ed Lazear for bringing these data to my attention-) shows that even during this period of high unemployment, there are about four million new hires every month, and slightly more separations than that when employment is falling. So the great majority of the new hires that would receive a subsidy under such a proposal to stimulate employment would have occurred anyway. The program would end up being another costly subsidy to businesses.

The only real remedy for the long-term (and other) unemployed is to have the economy grow fast, as it did after the severe recession in 1982 when unemployment peaked in December of that year at 10.8%, and then fell rather rapidly. There is no magic bullet to accomplish this, but I do believe it would help a lot if the leaders in Washington did not try to radically transform various aspects of the economy while we are recovering from a serious recession, and thereby magnify the high degree of uncertainty that is typically caused by a recession. Instead, they should be concentrating on fighting the recession, and stimulating long-term economic growth.

 

 

 

Long-Term Unemployment—Posner

I have little to add to Becker’s persuasive analysis.

 

Among the many reasons to regard the current economic situation as dire is the high incidence of long-term unemployment. More than 40 percent of the unemployed have been unemployed for more than six months, and there are reasons to expect long-term unemployment to remain at or near its present level (or even rise) for some time to come. One reason is shifts in consumption. If consumption patterns remain unchanged throughout a downturn, or if the downturn is so short that when it’s over consumers resume their previous consumption pattern, then most of the unemployed can expect to be rehired in their old jobs, for which they are trained and in which they may have firm-specific human capital, making them more valuable to their old employer than they would be to a new one. But if the downturn is protracted and consumers as a result make durable changes in consumption, many old jobs will disappear (“job destruction,” economists call this phenomenon).

 

The longer the downturn, moreover, the more young people will be competing for jobs when it ends, and this make it difficult for the long-term unemployed to find jobs. It is hard for older workers to compete with younger ones for new jobs in which the older workers have no specific human capital. Other things being equal, employers generally prefer younger workers because they have less interest in unions (younger workers are less likely to remain in the same job, and unions therefore cater to older workers) and lower salary expectations, and are healthier and so do not cost as much in health benefits as older workers do (not that all employers offer health benefits, of course).

 

Older workers are more likely, moreover, to own their home and to have ties to their community. With house prices severely depressed, homeowners are reluctant to sell because there is not enough equity in their house to enable them to buy another house. This makes them all the more reluctant to search for a job in a different community.

 

The longer a worker is out of work, the less likely he is to get another job comparable to the one he held. This is not only because skills atrophy if unused, and the worker ages during his period of unemployment, but also because employers may take the worker’s long layoff as evidence that he lacks commitment to working or that other prospective employers found something lacking in him, which is why he has gone so long without finding another job.

 

The long-term unemployed exert political pressure for extension of unemployment benefits, and their plight—they are likely to have used up their savings—triggers an altruistic response that makes their political pressure more effect. But unemployment benefits delay re-employment by reducing the cost of search for a new job. And the cost of unemployment benefits contributes significantly to our soaring federal deficits—unemployment benefits are expected to cost the government about $250 billion this year.

 

What can be done about the problem of long-term unemployment? Nothing that is politically feasible. A job-subsidy bill is wending its way through Congress. It is hard to see how it can have any effect. Apart from the reason Becker gives, a job subsidy is likely to have a very indirect and limited effect on demand for goods and services, and without an increase in demand firms have no incentive to add workers even if a new worker’s wage is subsidized. Suppose a firm is producing 1,000 units of output a year with a work force of 30, and it adds a 31st employee and thereby qualifies for a $5,000 tax credit. The firm’s total costs will have risen by the wages and benefits that he pays the new employee minus $5,000, unless the new, cheaper worker enables the firm to obtain a greater saving because the worker substitutes for some capital input. Unless that happens, then because the firm’s sales will not have risen, the firm’s participating in the job-subsidy program will reduce its profits (revenue minus cost).

 

The only solution to the problem of long-term unemployment that would not impair the operation of the labor market would be, as Becker points out, rapid economic growth, which would increase the demand for labor by more than the annual increase in the number of persons in the labor force. But it does not appear that any significant measures to accelerate economic growth are politically feasible. Measures that might be effective, such as reforming the immigration laws, reforming the tax laws, reducing the power of unions, reducing the minimum wage, eliminating agricultural subsidies, fighting protectionism, and reducing government subsidies of pensions and health care, are off the political radar screen for now and the foreseeable future.

Should the Senate Abolish the Filibuster? Posner

The filibuster is usually thought a peculiar institution unique to the U.S. Senate. Actually it originated in the ancient Roman Senate, has a long history in the British Parliament, is found in the legislatures of other English-origin nations as well, and was at one time employed by members of our House of Representatives. Until quite recently it consisted simply of a legislator, or group of legislators, refusing to yield the floor, thus preventing the legislature from conducting other business. Strom Thurmond appears to hold the record, having spoken on the floor of the Senate for 24 hours uninterruptedly. Before there was a rule of “cloture” (a vote to limit debate), filibusters could be defeated only by the majority’s remaining in session, ready to vote on the bill being filibustered, until the filibustering senators gave up, exhausted. Since 1975, a vote of 60 senators (previously it had been 67) can limit debate and thus end a filibuster.

 

Filibusters have become increasingly common (and therefore cloture votes as well), and this is usually ascribed to growing political polarization. But a simpler explanation is that because the Senate is busier than it used to be, the announcement of a filibuster is generally enough to impel a cloture vote—the majority doesn’t want to take the time to try to wear out the filibusterers. If there are enough votes for cloture, the filibuster never takes place; if there aren’t enough votes, the majority gives up and abandons the bill that was to be filibustered. Hence the cost of filibustering has plummeted.

 

The filibuster, especially in its present streamlined form, creates a supermajority requirement to enact federal legislation. Supermajoritarianism is not unknown to the U.S. Constitution, which requires a two-thirds majority to overcome a presidential veto and a two-thirds vote to send a constitutional amendment to the states for ratification and three-fourths of the states must vote to ratify for the amendment to be adopted. But there is no supermajority requirement to enact ordinary legislation that the President does not veto, though the framers of the Constitution may have known that there were filibusters in the House of Commons and if so may have realized there could be filibusters in the Senate. The Senate could abolish the filibuster by changing its rules to allow a simple majority to end debate on a bill. It is true that Senate rules require a two-thirds vote to change a Senate rule, but it is possible that the two-thirds rule could be changed by a simple majority.

 

There is no pressure in the Senate itself to abolish the filibuster. The reason is that it benefits all Senators, not just those who expect to be in a minority, because it arms every Senator to demand concessions in exchange for voting for cloture. Several Senators exacted what seemed exorbitant concessions to induce them to vote for the health reform bill.

 

The usual criticism of the filibuster is that it is undemocratic, but this is imprecise, quite apart from the fact that the Constitution is riddled with undemocratic features (such as the amendment provision that I mentioned and the rules for the appointment and tenure of federal judges, not to mention the Electoral College and the entitlement of every state to two Senate seats regardless of population). A supermajority requirement for the enactment of legislation should just increase the “price” that the committed majority must “pay” for the votes of the uncommitted or strategic holdouts. If 49 Senators oppose or pretend to oppose some bill and threaten a filibuster, the majority needs to pry only nine of the opponents away from the opposition bloc to defeat the filibuster threat. The majority can offer concessions quite unrelated to the bill; alternatively, rather than “paying off” prospective  filibusterers, they may be able to threaten to withhold support from them on issues more important to them than defeating the bill favored by the majority. If the holdouts are members of the majority party, the leadership may be able to coerce them by threatening to deny them choice committee assignments.

 

And in fact historically the filibuster has rarely resulted in paralyzing the federal legislative process. The usual example of where it did paralyze it is the filibustering of civil rights legislation by Southern Senators such as Thurmond and Byrd in the 1950s. But it has been argued that the filibuster would have been overcome had not many Northern Senators been only lukewarm in their support of civil rights; and it does seem unlikely that the civil rights revolution could have come much earlier than it did.

 

What has awakened controversy over the filibuster is of course the election of Scott Brown as Senator from Massachusetts in place of the deceased Ted Kennedy. It is assumed that since the Senate and House had each voted a health reform bill—in the Senate, over an attempted filibuster—and the Democrats retain a strong (59 to 41) Senate majority even after Brown’s election, were it not for the filibuster a health reform bill would now be law. This is far from certain. The Senate and House bills were different in a number of respects, and the differences would have had to be ironed out in conference and a single draft then have had to be approved by a majority in both the House and the Senate. With the vote on the House bill having been excruciatingly close, and a majority of the general public being opposed to either bill, an attempt to enact a compromise bill might have foundered. Conversely, a single bill may still be enacted, despite Brown, with the aid of the “reconciliation” procedure for thwarting filibusters by a simple majority vote. That procedure is intended for bills designed to reduce federal debt, but has sometimes been used outside its intended scope—and by both parties. The Administration appears to be desperate to obtain passage of a health law by hook or crook, as otherwise the capacity of the President and the Democratic Party to govern will be called into question.

 

There is an argument for the filibuster, and hence for a supermajoritary requirement, in the case of the health care program being pushed by the Administration. Because the program is unpopular among the general public, its enactment by a simple majority in both Houses would raise a valid question about the representative character of Congress. Not that a legislature should always bow to popular opinion. The theory of American government is representative rather than direct democracy (the latter illustrated by the referendums in California and other states—the Constitution makes no provision for federal referendums), and the representative is intended to season his constituents’ opinions with his own judgment rather than act simply as a transmission belt. But the health care program has been kicking around in Congress for a year, and the inability of its supporters to convince the public of the program’s wisdom, coupled with the program’s enormous cost and its potentially disruptive consequences for the health care industry—the largest in the United States, accounting for a sixth of our $14 trillion Gross Domestic Product—and indeed the entire economy, may make people question the democratic legitimacy of enacting the program with just a simple majority in the House and Senate.

 

 

The Filibuster and Supermajorities-Becker

Although the American Constitution does not provide for the filibuster, the founders of this country were very much concerned about protecting the rights of minorities. The checks and balances between the Congress, President, and Judiciary built into the Constitution were designed to make it difficult to pass legislation that infringed on the rights of important minorities. The Bill of Rights was added to the Constitution to solidify this protection.

Alexander Hamilton, James Madison, and John Jay in their essays in the superb Federalist Papers argued for the Constitution against a skeptical New York public. They recognized the necessity of having a constitution that protected minorities from “ephemeral” majorities, and they claimed the separation of powers, and other aspects of the Constitution, would succeed in protecting most minorities. The founding fathers were not believers in a naïve form of democracy where simple majorities should always have their way.

Posner gives a brief history of the evolution of the filibuster rule in the Senate. The requirement that at least 60 senators, or 60% of the senate members, are needed to impose cloture and cut off debate is not an overly stringent requirement for issues of any real significance. The size of the supermajority needed to cut off debate is considerably smaller than the Constitutional stipulated two-thirds majority required to overcome a presidential veto of a bill sent from Congress. Surely, for example, a simple majority should not be sufficient to commit a country to a major war, for that could involve both a large sacrifice of the lives of men and women from different regions and backgrounds, and much higher taxes and the creation of large amounts of public debt, although I do not believe any senator has ever tried to filibuster against US entry into a war.

Several senators from the South in the 1950s tried to use the filibuster to block civil rights legislation. Since for almost a century after the Civil War the South had been preventing its sizable black population from obtaining a decent education, good jobs, judicial protection, and common decency, many in the North were outraged at this filibuster attempt to block the provision of better education, voting rights, and other protections to Southern blacks. Nevertheless, the civil rights legislation would require major changes in the South, and it is not unreasonable that more than a simple majority of Senate votes should have been necessary to implement these momentous (and also highly desirable) changes. However, it should have been possible during the 1950s when Southern senators were filibustering to use a supermajority in the Senate to invoke cloture to end the filibuster.

The many proposed changes in health care in the House and Senate bills is the most controversial and important of all the current bills working their way through Congress and President Obama’s agenda. Expenditures on health care currently absorb 16% of American incomes, and this percentage continues to grow. Since many of the changes in these health bills would have large effects on taxpayers and patients, any major new health bill should be subject to a possible filibuster that would require the votes of at least 60 senators to cut off further debate.

The President has said that the debate has gone on long enough, and that further prolonged debate on health reform would be useless. He therefore proposes to use the “reconciliation” procedure to avoid any filibuster and allow a health bill to be passed with a simple majority in the Senate (and of course the House). I cannot say whether this is a wise political maneuver, but I do believe the use of reconciliation in this case is harmful from the point of view of the country’s welfare.

Despite the long debate, many provisions of both the House and Senate bills remain highly controversial. These include, among many others, the way the uninsured would get coverage, the de-emphasis on health savings accounts, the postponement until 2018 of the elimination of the tax advantages from expensive employer-based health plans, no increase in the ability of persons and companies in one state to contract with insurance companies located in other states, and especially the minor efforts to raise out of pocket expenses by consumers of health care in order to reduce their overuse of doctors, drugs, and even hospitals. Such a badly designed health care bill would on the whole worsen rather than improve the American health care system, and it should not be allowed to slip by through the back door of reconciliation.

So my conclusion is that the supermajority requirement of invoking closure to cut off Senate debate is useful protection not only to minorities, but also to overly hasty passage of controversial legislation. People on all positions will sometimes be frustrated by the need to have such a supermajority, but in the long run most of the time they will be happy that such rules are in effect.

Fiscal Stimulus Packages: What are their Effects? Becker

The over $800 billion American fiscal stimulus package is enormously unpopular in many quarters. Yet for others, including some well-known economists, a second package is needed to make unemployment decline faster. It is very difficult to give a definite answer to the effectiveness of what has been spent so far, but I believe both theory and quite limited empirical evidence suggest that it is likely having a small “multiplier”.

According to simple Keynesian models, the rationale for increased government spending during a recession is straightforward. If governments employ underutilized labor and capital when they spend more, that provides an immediate boost to employment and output. A further stimulus comes from the spending by the owners of the unemployed labor and capital who benefit from the government spending. Their spending helps multiply the effects of the government spending still further, and so does spending by the recipients of this second round of spending. The total impact is the sum of all these separate boosts, and its ratio to the initial level of government spending is called the spending multiplier. A study by Dr. Christina Romer, Chair of the Council of Economic Advisers, published shortly before she took office claimed the spending multiplier during the recession at that time would be well over 1.0.

In reality, several major considerations neglected by this Keynesian analysis suggest a rather different multiplier. There is often a long delay between discussions of a fiscal stimulus, enactment of a law providing for the stimulus, and the actual spending. Dr. Romer discussed the broad dimensions of the current stimulus package even before she took her current position, and Congress passed the law providing for about an $800 fiscal stimulus shortly after President Obama took office. Yet it is now more than one year later, and only about a half of the stimulus package has been spent. In the meantime, the economy first hit bottom, and then has begun a strong recovery in GDP, and a modest recovery in unemployment. The long lag between discussion, enactment, and actual spending is an old criticism of fiscal stimulus even by very committed Keynesians.

Nor did the actual stimulus package voted by Congress correspond very closely to the theory behind the multiplier from government spending. Instead of being concentrated mainly on sectors that had suffered large increases in unemployment, such as construction, the stimulus spending was oriented toward many sectors that liberal members of the Democratic controlled Congress wanted to greatly expand. These include healthcare, schools, alternative energy sources, and medical and basic research. Some of this spending may have considerable social value, but it provides little stimulus since sectors like health, education, and wind power development were not hit hard by the recession, and hence have had low levels of unemployment. Government spending in these areas would tend mainly to bid labor away from either the private sector, or other government programs, or raise the earnings of those already employed. As a result, any multiplier from the stimulus package is likely to be less than one, not greater than one.

Even though the theory behind the multiplier has been around for a long time, few studies credibly estimate multipliers from different kinds of government spending. Part of the problem is that many other things are usually also changing when government spending changes, so it is difficult to find “natural” experiments where the effects of government spending are isolated from changes in other important variables. Some of the relevant factors that may be changing are prices, including wage rates and interest rates, consumption, and private investment.

Robert Barro of Harvard University has been estimating both spending and tax multipliers from past episodes, not from the current one. Using historical data obviously has many limitations from the point of view of evaluating the current stimulus, but such an evaluation is difficult because many aspects of the American economy have been changing during this recession along with stimulus spending, such as the monies spent on bank bailouts. Barro's estimated spending multipliers are based mainly on fluctuations in defense spending before, during, and after wars, such as World War II and the Korean War.  He reports in a recent Wall Street Journal article (February 23) estimated spending multipliers over a two-year period following changes in defense spending. These multipliers equal about 0.4 following the first year, and 0.6 after two years.

They indicate sizable changes in overall GDP per $100 billion change in defense spending, but they also suggest that government spending significantly crowds out either personal consumption spending, private investment, or exports. Still, if these were the only effects of stimulus packages, multipliers of about 0.6 would indicate that larger government spending, such as the Obama stimulus package, can induce significant growth in GDP, presumably especially when unemployment rates are high.

However, greater spending has to be paid for eventually by higher taxes, including inflation taxes, since governments are subject to long term budget balance requirements, just as are households and businesses. Barro also estimates tax multipliers based on the effects on GDP of changes in average marginal tax rates from federal and state and local income taxes, and social security payroll taxes. These tax multipliers are about -1.1, which means that increases in marginal tax rates that raise tax revenue by say $300 billion would lower GDP by over $300 billion in the following year.

Putting these estimated spending and tax multipliers together, in recognition that government budgets have to be balanced eventually, indicates that the Obama stimulus package on balance would have a small, possibly even negative, overall effect on GDP. To be sure, these results have to be qualified since changes in nondefense spending, as in this stimulus package, may have larger multipliers than those estimated by Barro, although it is not obvious why that should be so. Moreover, if the spending occurs in 2009 and 2010, and raises GDP for a few years during a recession, perhaps that is worth any reductions in GDP that follows in later years when taxes are actually increased to produce the budget balance (although much of that effect might be anticipated earlier).

A few other discussions of the current stimulus package have much rosier conclusions about its effects on employment and GDP. But these estimates have little credibility because of the difficulties in disentangling the stimulus effects from those of Fed and Treasury spending on bailouts, many other factors that have been changing along with the stimulus spending, and the intrinsic strengths of the private sector of the American economy  (see, for example, an article by Cogan, Taylor, and Wieland in the Wall Street Journal of September 17, 2009 for a discussion of some of these factors).

My conclusion is that the Obama-Congress stimulus was an attempt at reengineering government’s role in the economy that was badly designed and executed relative to the alleged goal of giving a short-term stimulus to the economy. Its design, and the general evidence on the effects of spending fiscal stimulus, should make Americans wary of any attempt to pass a second stimulus package, whatever form it takes.

 

 

 

Stimulus: Pluses and Minuses—Posner

Becker is certainly right that it would be a mistake to enact a further stimulus program. With half the existing $787 billion stimulus package (which has grown to $862 billion while no one was looking—and that’s the figure I’ll use henceforth) that Congress enacted in February of last year still unspent, and given the sluggishness with which our government moves, a new stimulus program would probably not come on line until 2011 or 2012, by which time its principal effect might be to increase our already staggering public debt. Anyway the question of a new stimulus package is thoroughly academic because of the extreme unpopularity of the existing one, which only 6 percent Americans believe has had any positive impact on employment.

 

I think they’re wrong, and that the original stimulus was, on balance, a justified measure. But I can well understand its unpopularity, and I share many of the reservations voiced by critics.

 

Because it is being financed by federal borrowing rather than by taxes, by the time the stimulus is fully implemented (probably early in 2011) it will have injected $862 billion into the economy: roughly $400 billion in 2009 and the same amount in 2010. Each figure is a little less than 3 percent of GDP. The economic effect of such an increase in GDP depends on what is done with the money. Suppose all the recipients used it to buy Treasury bonds. Then its economic effect would be zero: the government would be lending the money and then borrowing it back from the borrowers.

 

Obviously some, and probably much, of the money has been spent rather than saved, though  no one knows how much. Since the personal savings rate is less than 5 percent and some personal savings finance private business activities, probably almost all of the stimulus money has been or will be spent. This does not mean that it is or will be well spent, in the sense of financing activities that add more to economic welfare than the same amount used for private investment would do. But the stimulus has not reduced private investment, as it might do if the borrowing to finance the stimulus raised interest rates. Interest rates have been kept very low by the Federal Reserve. Despite that, private investment has been anemic; net of depreciation it was negative in 2009. Banks and consumers alike—heavily indebted and pessimistic about profit and income prospects—have trimmed their expenditures. Banks continue to hoard some $1.2 trillion in excess reserves (lendable cash sitting in accounts in federal reserve banks rather than being lent or otherwise invested), and the personal savings rate, which before the current depression was only about 1 percent, has increased dramatically.

 

In effect, the Treasury has borrowed from Americans money that wasn’t being used productively, and from foreigners (but mainly from Americans) money that they preferred to lend than to spend, and has recirculated the money into the American economy. Consumption expenditures rose in 2009 at the same time that incomes were falling and saving was increasing because stimulus money financed consumption that otherwise would not have materialized. An increase in consumption stimulates an increase in production (or at least a more rapid drawdown of inventories, so that production recommences sooner), which in turn increases the demand for labor and so reduces unemployment.

 

No one knows how many people are employed who wouldn’t be were it not for the stimulus money. There are almost 15 million unemployed Americans, and since the unemployment rate is almost 10 percent, this suggests that about 135 million are employed. If the stimulus, which as I said is injecting about $400 billion a year into the economy, has increased the number of employed by 1 percent, that would reduce the number of unemployed by almost 10 percent. Or stated differently, were it not for the stimulus, the unemployment rate might be almost 11 percent rather than almost 10 percent. An unemployment rate of almost 11 percent would cause something akin to panic among businessmen, consumers, and politicians, with very bad consequences for the country. So one can think of the stimulus program as a kind of insurance policy against potential economic and political unrest.

 

The stimulus has not, not yet anyway, “crowded out” private investment because there is so little demand for such investment at present even though interest rates are extremely low. The Barro-Ricardian Equivalence hypothesis implies that people are reducing their consumption and investment in anticipation of having to pay increased taxes in the future to repay the money borrowed to finance the stimulus. There may be something to this, but probably not much, because no one knows the form and incidence of taxes or other measures (inflation, devaluation, curtailment of government exenditures) that will be necessitated by the borrowing that is financing the stimulus. Probably most people take the view that sufficient unto the day is the evil thereof, rather than curtailing spending in the light of some unknown future prospect of having to pay in some form for their present consumption. The studies by Robert Barro and others that find evidence to support the Barro-Ricardian Equivalence hypothesis are considered unpersuasive by most economists.

 

The biggest objection to the stimulus is that it adds almost a trillion dollars to our enormous and rapidly growing federal deficit, in a political setting in which measures to reduce the deficit whether by tax increases, spending cuts, inflation, or stimulating more rapid economic growth seem either politically infeasible or economically undesirable, or both. Yet to the extent that the stimulus has increased production, employment, and therefore incomes, it has, by increasing tax revenues, offset some of the increment to the deficit that the borrowing to finance it has added.

 

The stimulus was poorly designed. A lot of it went to states, and the stimulus supporters brag that it saved hundreds of thousands of state public sector jobs. But without the stimulus the states might have preserved the jobs, or most of them at any rate, by cutting inessential state expenditures.  Any such cut would reduce the amount of money in circulation and therefore consumption and therefore production and therefore jobs, but how many and when are entirely unclear.

 

Moreover, a stimulus that saves public employees’ jobs directly and private employees’ jobs at best indirectly creates resentment among private employees who have lost or fear losing their jobs. They think the government is in effect paying itself, or taking care of its “own” ahead of the broader public, although many of the public jobs saved (policemen, firemen, teachers) may be essential. Federal financing of state employees’ jobs also retards necessary reforms of the swollen public-employee sector.

 

No effort was made to target the stimulus on industries and areas of the country in which unemployment is greatest; it is those industries and those areas in which the employment effect of the stimulus would have been maximized. Indeed, stimulus moneys spent in areas or industries of low unemployment may not directly reduce unemployment at all, but do so only indirectly through the stimulus that spending imparts to production and hence employment. Becker’s argument that the stimulus reflects Democratic Party priorities rather than national priorities is compelling.

 

The stimulus was also poorly executed, because its direction was placed in the hands of Vice President Biden, who has no management experience, to oversee; and he allotted only 20 percent of his time to the task. The Administration should have hired an experienced manager, as it did to supervise the auto bankruptcies (which went quite quickly and smoothly), to oversee and expedite the stimulus.

 

And it has been poorly defended. The critical public relations botch was Christina Romer’s prediction in January 2009 that, without the stimulus that the new Administration was planning, the unemployment rate would rise from its then rate of 7.2 percent to 8 percent. With the stimulus, of course, the unemployment rate rose to 10 percent, though it has now fallen back to 9.7 percent. It’s hard to get people to understand that trying to predict the effect of the stimulus was a chump’s game and that without the stimulus the unemployment rate could well be 11 percent.

 

Although the President is articulate and intelligent, and Romer and the other members of his economic team are competent and in some cases outstanding (Lawrence Summers, for example), none of them seems able to explain the theory behind a stimulus in words that people who are not economists or financiers can understand. It doesn’t help that neither the members of the President’s team, nor Fed Chairman Bernanke, are gifted communicators, and that Bernanke, Treasury Secretary Geithner, and National Economic Council Director Summers, are implicated (Geithner, and especially Bernanke, deeply) in errors of policy that bear primary responsibility for the economic crisis—complacency, unsound monetary policy, and regulatory laxity. The fact that so few Americans believe that the stimulus saved any jobs suggests a profound failure of communication on the part of the Administration, not to mention financial journalists and public-intellectual economists.