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Laszewski On The Recent ObamaCare Data

If this keeps up there won’t be a “death spiral.” Heck, so far the insurers are just re-enrolling their old customers at higher rates!   Robert Laszweski

That’s Laszweskis’s reading of the latest ObamaCare enrollment numbers. As usual, his most recent post is the best place to get informed, non-partisan data and analysis of this ongoing train wreck.

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Back To Blogging

Well, it’s been a rather nice extended Holiday hiatus from the keyboard. Don’t ask why I’ve neglected to communicate with my meager audience because I don’t have any sort of good answer. Just lost the itch for awhile, and let’s face it, things have been somewhat boring. Seriously, how much can you say about inequality, the minimum wage, NGDP, ObamaCare and the latest JP Morgan fine. Too much if you base it on my reading history. So, while I do have a couple of things to say about those subjects, I’ll spare you more boredom this evening.

I do want to point you to two really outstanding posts. Both should engender some introspection, so don’t just breeze through and not think about what they’re saying.

The first is by the Felix Salmon. He does what he does best, take a complicated subject and explain it simply. In” Why Quants Don’t Know Everything” he analyzes the rise of the quants and explains the potential, limitations and perils of Big Data. If you haven’t already read it, I  recommend you start with his earlier essay, “The Formula That Killed Wall Street.” They’re both masterpieces.

The other is Tim Carney’s tribute to Tom Coburn. I’m not sure it was meant as a tribute but that’s the way it read to me. Coburn’s departure from the Senate represents a loss for both sides of the aisle, but be sure to read to the end in order to appreciate the man’s integrity as opposed to the craven behavior of his contemporaries.

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A Very Merry Christmas To All

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A&E Not Giving Up On Their Money Machine

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I suppose you can put this in the inevitable column.

Regardless of the current controversy and behind-the-scenes tension, A&E has every intention of keeping Phil Robertson on the air.

A source close to the situation confirmed that when the network resumes airing new episodes of Duck Dynastystarting Jan. 15, footage featuring the Robertson patriarch will indeed remain intact. The network also hopes the media and fan furor will cool down over the holidays and that tensions over shooting future episodes can then be resolved.

“There’s no negotiation to have; we’re doing the show,” said an insider close to the situation. “We’ll figure out a solution. It’s just not going to happen overnight. Everybody will take a break for the holidays and regroup afterward. That’s probably the smartest thing for everyone to do. Time heals a lot of wounds.”

It would seem the negative here is that we all get subjected to more bloviating about this.

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Sic Transit The Individual Mandate

Doing a rare Thursday night dump, the Obama administration announced that the individual mandate for some is no longer operative and catastrophic plans, heretofore referred to as “junk insurance”, should be made available to those who choose that course. The lucky few, at least for now, are those whose insurance has been cancelled. Ezra Klein, no less, explains the Kafkaesque logic applied here.

1. The individual mandate includes a “hardship exemption.” People who qualify can either ignore the individual mandate altogether or purchase a cheap, bare-bones catastrophic insurance plan that’s typically only available to people under age 30.

2. According to HHS, the exemption covers people who “experienced financial or domestic circumstances, including an unexpected natural or human-caused event, such that he or she had a significant, unexpected increase in essential expenses that prevented him or her from obtaining coverage under a qualified health plan.”

3. Today, the administration agreed with a group of senators, led by Mark Warner of Virginia, who argued that having your insurance plan canceled counted as “an unexpected natural or human-caused event.” For these people, in other words, Obamacare itself is the hardship. You can read Sebelius’s full letter here. HHS’s formal guidance is here.

Klein offers some further perspective on the illogic of the new regulations. For instance:

6. But this puts the administration on some very difficult-to-defend ground. Normally, the individual mandate applies to anyone who can purchase qualifying insurance for less than 8% of their income. The Obama administration is erasing that threshold for people whose insurance has been canceled. If they decide insurance costing 5% of their income is too expensive, then they can simply opt out. But if someone who’s currently uninsured decides 5% of their income is more than they can pay, then they have to pay the individual mandate’s penalty. What’s the logic in that?

7. The same goes for the cheap catastrophic plans sold to customers under age 30 in the exchanges. A 45-year-old whose plan just got canceled can now purchase catastrophic coverage. A 45-year-old who didn’t have insurance at all can’t. The Obama administration argues that they’re just giving a bit of extra help to people who lost what they already had. But why don’t people who couldn’t afford a plan in the first place deserve the same kind of help?

I recommend his entire post.

I think that we’ll probably find out in short order that the panic inherent in this latest move merely reflects an attempt to do anything to avoid the catastrophe they can’t abide. Specifically, more uninsured after January 1st than existed before the advent of this disaster. They know the real enrollment numbers they’re not turning over to anyone else and they have to be awful to inspire this Rube Goldberg fix. Panic, however, rarely results in intelligent action, rather it simply delays an imminent reckoning.

If you like, shed a tear for the insurance companies who opted for nationalization in exchange for dreams of millions of captive customers. Tonight they’re faced with the disintegration of their carefully (imaginary?) risk pools, not to mention the unenviable task of offering, possibly creating, insurance products which will afford unanticipated coverage for an untold number of people within two weeks. Just how good does this administration imagine the private sector is?

It’s not hard to imagine this as the beginning of the end for the individual mandate. Since the Supreme Court defined the mandate as a tax, and since taxes can’t be constitutionally levied in a discriminatory manner, the exemption is certain to be subject to legal challenge. More to the point, politically anointing winners and losers in this manner is a non-starter. The fate of the mandate and perhaps even the law itself rests with the resolve of Congressional Democrats. The resolve to preserve the mandate under these new circumstances will certainly be tested and most likely found lacking. The resolve to preserve the rest of the law is going to be sorely tested. With this latest move, the President has put them in a precarious position and placed his entire project in real jeopardy.

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Simplifying The ObamaCare Enrollment Data

From Coyote Blog, an attempt to look through the government doublespeak about the progress of ObamaCare.november-obamacare-exchange

You might also want to look at his companion piece concerning the amount of subsidy implicit in the numbers to date. Bottom line, this might get really expensive.

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The Bond Market Won’t Allow An End To QE Any Time Soon

A couple of days ago I linked to this article which suggested that were Hayek alive today he might well counsel to proceed with caution in its use of unconventional policies, e.g. QE. The gist of the piece was that economists, indeed all social scientists, tend to certitude based on quantitative models which are anything but certain. In other words, a model of employment and aggregate demand while engaging, is in no way infallibly descriptive of what actually will transpire under differing sets of circumstances in the same way that, say, Einstein’s theory of relativity is.

Humility is probably not going to cause the Fed to question what they have wrought, let alone incent them to begin withdrawing QE. That appears to be solely up to the vagaries of the economy, particularly the health of the labor market, and the Fed thinks that it is far from robust. Greg Mankiw in a New York Times essay doesn’t disagree that by some measures the market for jobs is still quite weak – relatively high unemployment, a declining labor force participation rate, abnormally high number of long-term unemployed – but also points to data which tell a different tale.

Another clue to what’s happening in the labor market is the vacancy rate. Although less widely followed than unemployment figures, this rate is its mirror image. To compile the unemployment rate, the Bureau of Labor Statistics surveys households to find workers without jobs. To compile the vacancy rate, the bureau surveys employers to identify jobs without workers. In short, the vacancy rate measures the percentage of available jobs that are currently unfilled.

Not surprisingly, the vacancy rate is highly cyclical. In recessions, when customers are hard to find, businesses post fewer new jobs. In addition, because the number of job seekers expands, the posted openings are filled quickly. As a result, the vacancy rate falls. Conversely, when the economy recovers, businesses start posting new openings, and jobs are harder to fill, so the vacancy rate rises.

The recent recession is a case in point. Seven years ago, the vacancy rate was a bit over 3 percent. It fell to a low of 1.6 percent in July 2009, a month after the official trough of the recession. The most recent reading puts it at 2.8 percent. So according to this measure of labor-market tightness, the economy is almost back to normal.

Data on wage inflation also suggest that the labor market has firmed up. Over the past year, average hourly earnings of production and nonsupervisory employees grew 2.2 percent, compared with 1.3 percent in the previous 12 months. Accelerating wage growth is not the sign of a deeply depressed labor market.

The point he makes is that the data present conflicting pictures of the labor market and that this particular recession has tended to break historical molds. To put it less charitably the past is not prologue. He concludes by suggesting that Ms. Yellen might need to be adaptive if the signals she’s watching turn out to be wrong.

So here we have one economist suggesting humility and another that the Fed might be reacting to the wrong signals. Then we have Felix Salmon coming forth with a good post which lays out a scenario for the Fed being trapped in QE.  He posts a couple of intriguing charts which show a marked change in both the demand for bonds and the mix of buyers of those bonds. Essentially, since 2008 buyers, save for pension funds, have exited the market having been replaced by foreign official and G4 central banks. The supply of bonds now comes preponderantly from government entities, though the amount raised is decreasing. He concludes:

…Instead, step back and look at the big picture, which is pretty simple: as a stylized fact, the bond market is dominated on both sides by the official sector. Private participants might sit in the middle as market-makers, or try to borrow money here or there, but overall what you’re looking at, when you look at the bond market, is government issuing debt and governments buying it.

The good news is that this large transfer of money from the official sector’s left hand to its right hand is slowing down, but that’s going to take a while. In any case, there doesn’t seem to be any conceivable way that the private sector could possibly be able to fund the still-substantial government deficits which have been bequeathed to us by the financial crisis. As a result, I suspect that QE is likely going to be around for a while, just as a matter of mathematical necessity. The world’s national deficits can’t get funded any other way.

So Brough and Mankiw might well make excellent points but the inexorable logic of the math, at least at this point in time, would seem to dictate QE for an indeterminate time. It’s certainly possible that the demand side for government bonds could expand to include previous market participants, but that seems unlikely given the current regulatory environment as well as the near certainty of loss of principal given the low current coupons. For the time being most of the buyers are going to be those who intend to hold to maturity. It also seems unlikely that interest rates will rise enough in the near future to compensate for this problem given the bias of the Fed and other central banks towards the idea that economies are still sick and in need of support, as well as a political and economic imperative to keep rates low in order to lessen the strain on government budgets. Felix is right, the structure of the mark dictates the continuation of robust QE.

Go buy stocks!

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