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Ohio the Latest State Proposing Barriers in Medicaid
// Center on Budget: Comprehensive News Feed
Ohio's request to the federal government to change how most adult Medicaid beneficiaries get their health coverage would — as the state admits — cause hundreds of thousands of people to lose that coverage. Similar to proposals in Kentucky and Arizona, the
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Economic inequality in the United States appears to be trapped in a vicious cycle, as shown by several new working papers published today by the Washington Center for Equitable Growth alongside other recent research. Non-white, lower-income Americans are far less likely to vote than wealthier white citizens, and much of this participation gap is due to discriminatory practices at the ballot box. As a result, the political interests of lower-income minorities are not well-represented, and these interests are vastly different than those of their voting counterparts. This in turn means that policy decisions are made that exacerbate economic inequality and the inequalities that limit citizens' voices in the first place.
To figure out how to break this cycle, social scientists need to understand what is happening at various points along the political continuum. So, let's first examine new and existing research on the vote.
The disgraceful history of voter disenfranchisement is no secret. For more than a century, African Americans (and other marginalized groups) were restricted or evendisqualified from voting. Today these practices are formally outlawed, yet we still see patterns in voter turnout that indicate that voting discrimination is alive and well. When looking across race and ethnicity, for example, data demonstrates that non-voters are predominantly African American, Hispanic, Asian, and other ethnic minorities. Non-voters also tend to be younger, less educated, and less affluent than their voting counterparts.
These trends are, in part, related to deep-seated institutional marginalization through practices including ballot access restriction—long lines, voter identification laws, andchanges to polling sites—and voting dilution. But individual behaviors may play an important a role in generating voter turnout disparities, too. Recent research shows that attitudes toward civic engagement may be developed long before a citizen reaches voting age.
According to a new working paper by Sarah Bruch from the University of Iowa and Joe Soss from the University of Minnesota, enduring negative peer-to-peer relationships and authoritative interactions between 7th through 12th grades lowers the odds of civic engagement and electoral participation later in life, and also reduces future trust in government. Non-white students are disproportionately more likely than others to endure these negative interactions, suggesting that school environments may not only add to existing social inequalities but also contribute to inequalities in civic engagement and democratic participation.
The absence of equal political participation translates into unequal policy voice. If wealthier white citizens had similar policy preferences to their lower-income, minority counterparts, then the participation gap would not necessarily be so troubling. Yet evidence suggests that voters' policy preferences in the United States continue to vary sharply by race and income in ways that imply that a functional democracy needs to give equal voice to these various groups in order to be truly representative.
Just how different are these preferences? A recent report from Demos unpacks how net support for policy changes based on a variety of demographic characteristics. Using 2012 election data from the American National Election Study, Demos finds large discrepancies between the public opinions of white voters and non-white non-voters and between rich voters and poor non-voters. White voters supported more spending on the poor by a margin of 5 percentage points, for example, while non-white non-voters and poor non-voters supported these same measures by a margin of 50 percentage points. On the question about whether the government should reduce inequality, there were diametric oppositions between the two groups, respectively.
Perhaps unsurprisingly, the policy preferences of non-white, lower-income non-voters—economic policies that address on poverty and inequality—are already seldom the focus of congressional attention. Analyzing mentions of terms such as economic growth, inflation, poverty, inequality, deficit, and unemployment in the Congressional Record between 1995 and 2012, researchers Peter Enns at Cornell University, Nathan Kelly and Jana Morgan at the University of Tennessee, and Christopher Witko at the University of South Carolina find in their new working paper that Congress prioritizes the interests of the upper-class largely because they dole out political resources in the form of the all-important political campaign contributions necessary for re-election.
The four political scientists note that economic inequality increased during the period of their study while over the same time period congressional "nonresponse" to inequality or redistribution also increased. In fact, the term inequality was mentioned only 80 times in a year at its highest point compared to 30,000 mentions of "deficit," an issue the authors note is of much greater concern to the wealthy than to the working-class.
Without a voice represented through the vote, the likelihood that issues of economic inequality are elevated in this skewed congressional climate is slim.
With Congress evidently uninterested in issues of economic inequality, it should come as no shock that the actual policies that have a tangible impact on minority and low-income voters struggle to pass. Take the minimum wage. William Franko of Auburn University and his co-authors Kelly and Witko find that changes in election rules at the state level, particularly those that limit the voice of already-marginalized voters, are associated with economic inequality. Specifically, the researchers observe that high levels of class-biases in voting make states less likely to pass minimum wage increases, and as these class-skews in voter turnout grow, states become less prone to pursuing other policies that could reduce inequality.
The same pattern is apparent when it comes to the issue of taxes. Christopher Faricy of Syracuse University finds in his new working paper that increases in public conservatism—ideologies that often don't represent the voice of minorities—correlates with a reduction in tax progressivity. In other words, there are lower levels of social spending and lower taxes on the rich.
Without policies such as the minimum wage or progressive taxation put into practice, the tools we have to combat the economic inequalities that disproportionately burden minorities and other vulnerable groups are limited.
These recent findings suggest that inequalities seem to beget inequality writ large. As University of Oregon economist and Equitable Growth grantee John Voorheis, along with Princeton University's Nolan McCarty and Georgetown University's Boris Shor, show in their paper, increasing income inequality in the United States is associated with even more political polarization and gridlock, which, in turn, makes addressing inequality through public policy more challenging, too. As Faricy puts it, we're witnessing an "inequality trap."
So, how do we break the cycle and escape the trap? That's a complicated question with an even more complex answer.
Expanding the franchise might be a good step. Through measures such as automatic registration, weekend voting, voting by post, reduced I.D. requirements, increased language accessibility at polling sites, and same-day registration, we can reduce the barriers to accessing the polls. Early interventions programs in schools may also play a role in changing the culture around disparate civic participation. But an equally important step, as Nick Carnes of Duke University points out in his new working paper, is reducing political gatekeeper biases and recruiting more working-class and minority candidates to be on the ballot in the first place.
In conjunction, all these efforts may work to ensure more people can voice their vote and vote their voice for the people and policies that help promote equity.
Truthout, July 4, 2016
Unfortunately, that's not true. After all, we don't expect our multi-billionaire types to be that innovative. But if Gates really did want to help the world, it's hard to envision a better use of $1 billion or so of his money than to post this sort of prize, especially at a time when needless austerity is threatening the survival of the European Union.
In case folks haven't been following it, the basic story is that the insistence on balanced budgets or low deficits in Europe is costing the continent over $1 trillion a year in lost output (over $2,000 per person). Rather than spending money on improving infrastructure, education, health care and expanding the use of clean energy, the eurozone countries have been cutting back spending with the idea of getting their budgets closer to balance and lowering their debt-to-GDP ratios. These policies have also prevented millions of people across the continent from getting jobs.
The pain being experienced by workers across Europe is undoubtedly a factor in their hostility to immigrants and their turn to right-wing populist politicians. The deterioration of public services, like national health care systems due to needless budget cuts, has played an important role in this backlash as well. It is easy for right-wing politicians to blame immigrants for the deterioration in these services, even if the real problem is that said politicians' governments have reduced spending levels. After all, none of the mainstream politicians are making this point.
The austerity is altogether unnecessary because the evidence indicates that European governments could easily increase spending without hitting any constraints. The European governments are in the same situation as Bill Gates when he goes out to dinner: He can safely order anything on the menu without worrying about how he will pay the check. Similarly, in the current economy, European governments can increase spending to meet important needs and employ workers.
There are several measures that tell us European governments are not up against any real constraints. The most basic indication of a government running up against the limit of its ability to borrow is that it faces high interest rates on its long-term debt. The interest rate on government debt is currently extremely low across Europe.
The interest rate on 10-year treasury bonds issued by the French government is just 0.2 percent. The interest rate on Italian bonds is 1.1 percent. The interest rate on German bonds is -0.1 percent. That's right; you have to pay the German government money if you want to lend to them for 10 years. By comparison, in the United States in the late 1990s, when the country was running budget surpluses, the interest rate on 10-year treasury bonds was in the 5-6 percent range.
The other major factor to assess whether a country is running up against limits is its inflation rate. If an economy is overheating due to excessive government spending or any other cause, we would expect to see the inflation rate rising. We see the exact opposite across Europe, with the inflation rate remaining stubbornly close to zero in spite of the efforts of the European Central Bank to raise it towards its 2.0 percent target.
So if there are many great things that can be done with more government spending -- in addition to putting people to work, and low interest rates are an indication that the financial markets are begging governments to borrow money -- and low inflation means the economy doesn't face any constraints, what's the problem? Here's where Bill Gates' XPrize comes in.
The problem is that many people in leadership positions, especially those from Germany, cling to folk wisdom handed down to them from their parents or grandparents. They are told the story of the hyperinflation in Weimar Germany in 1920s. These leaders seem to hold the view that if we relax budget restrictions, even in a period of economic weakness like the present, we will soon be again confronting Weimar-type hyperinflation.
Of course, there is no logic to this position. There are many instances of governments boosting demand with deficit spending. Outbreaks of hyperinflation, especially in wealthy countries, are extremely rare. It would take a long period of reckless spending to push inflation to the point where it poses a serious problem for the European economy.
But even though there is no logic to this German view, it continues to be the basis for economic policy in the eurozone. The XPrize should go to whoever can find a way to explain real world economics to the Germans and their allies so that the eurozone can adopt policies that will get them to full employment and address unmet needs.
Thursday's Brexit vote wasn't a "Lehman moment", as some have feared. Instead, it was a growth moment. And that may be the greater threat. If policymakers respond effectively, the benefits could be substantial: a stronger global economy, and an ebbing of the political and economic forces now pressuring UK and European policymakers. Conversely, failure to address the growth risks could cause broader and deeper global economic contagion.
In the immediate aftermath of Thursday's vote, there were significant concerns that Brexit would generate a market reaction similar to what we saw following the fall of Lehman Brothers in August 2008. Market moves in the immediate aftermath of the vote wiped around $3 trillion off of global equity markets, mostly in the industrial world. Indeed, foreign exchange markets (and some equity markets) saw larger moves than after Lehman's collapse, before finding a degree of stability today. Yet, by all accounts, markets moved smoothly and cleared, there were few reports of payment and settlement issues, and little evidence of financial distress affecting counterparties. No doubt, news may emerge in coming days of large loses taken by some over-leveraged investors, and periods of intense volatility are more likely than not. So we should see today's bounce as a temporary calm, not the end of the storm. But, if we define a Lehman moment as a comprehensive breakdown in trust in markets, a collapse in creditworthiness and confidence that cascades through financial markets as we saw in 2008, then Brexit is a crisis averted.
Central banks deserve a great deal of credit on this score. According to reports, the major central banks, led by the Bank of England, had been war-gaming a Brexit vote for several weeks, talking to market participants, and stress testing banks and markets. BoE head Mark Carney had his version of 'whatever it takes' remarks early on Friday, and provided ample liquidity to markets (in both pounds and sterling). The Federal Reserve, European Central Bank, and other central banks made statements of support.
The broader concern for markets, and for policymakers, is growth. For the United Kingdom, which before the vote was expected to grow on the order of 2 percent, the shock will be severe, perhaps on the order of 2-3 percent over the next 18 months. Some market analysts are predicting an outright recession given the substantial political and economic uncertainty that has been created and its likely effect on investment and consumer demand. The exchange rate depreciation will over time provide a powerful offsetting boost, as will expected rate cuts from the Bank of England, but will take time to be felt. First and foremost, this is a UK shock.
The more difficult question is the extent of contagion to the rest of the world. The sharp rise in the yen has intensified concerns about Japanese growth, and put pressure both on the Bank of Japan and the government to introduce additional stimulative measures. But looking beyond the immediate cyclical considerations, Europe poses the more significant concern, given the weak state of the region's economy (and a population increasingly frustrated with their economic prospects). As in the United Kingdom, uncertainty about post-Brexit relations is likely to weigh powerfully on investment. Relatedly, it is not surprising that European bank stocks fell sharply after the vote, given a continental banking system struggling with the legacy of the crisis and weak profitability. Lower interest rates will not help on that latter score. The ECB can ensure adequate liquidity to troubled banks, but can't make them lend. If Europe wants above-trend growth in this environment, fiscal policy will need to do more. My colleague Sebastian Mallaby has asensible set of recommendations, starting with a German tax cut, but his proposals seem politically quite challenging. Failure to act may not lead to an immediate economic crisis, but a weaker European economy makes the politics of preserving the European Union all the more treacherous.
The dog that hasn't yet barked is the emerging markets, which have held up well in recent days. In part, this reflects that commodity prices and Chinese growth, the two most important drivers of EM prospects, have strengthened in recent months and, at least compared to the start of the year, there was a buffer to absorb this most recent shock. Also, many emerging market investors pulled back on risk before the vote. Tax measures in some countries (e.g., South Korea and Indonesia) have boosted confidence. Perhaps most importantly, the decline in interest rates in the United States, and the associated decline in expectations that the Federal Reserve would hike rates, matters a great deal for these markets. Still, if doubts about any of these supports were to arise, particularly Chinese growth, then a European regional shock could become global quickly.
Finally, in the United States, most analysts (and the market more generally) now expect the Fed to delay a tightening till the end of the year, if not cut interest rates. The prospect of a significant strengthening of the dollar will cause a drag on growth, but given normal lags the brunt of any dollar move will not be felt on the economy till 2017. Unfortunately, the political consequences of a dollar spike on the election campaign is far more uncertain, and potentially more immediate. Those who believe that the populist anger we saw in the UK will be mirrored in the U.S. elections will see opportunity here. This may be the most worrisome source of contagion from Brexit.
A few thoughts, focusing on narrow issues of macroeconomic management rather than the bigger political issues.
The U.K. has been running a sizeable current account deficit for some time now, thanks to an unusually low national savings rate. That means, on net, it has been supplying the rest of Europe with demand—something other European countries need. This isn't likely to provide Britain the negotiating leverage the Brexiters claimed (the other European countries fear the precedent more than the loss of demand) but it will shape the economic fallout.
The fall in the pound is a necessary part of the U.K.'s adjustment. It will spread the pain from a downturn in British demand to the rest of the euro area. Brexit uncertainty is thus a sizable negative shock to growth in Britian's euro area trading partners not just to Britain itself: relative to the pre-Brexit referendum baseline, I would guess that Brexit uncertainty will knock a cumulative half a percentage point off euro area growth over the next two years.*
Of course, the euro area, which runs a significant current account surplus and can borrow at low nominal rates, has fiscal capacity to counteract this shock. Germany is being paid to borrow for ten years, and the average ten year rate for the euro area as a whole is around 1 percent. The euro area could provide a fiscal offset, whether jointly, through new euro area investment funds or simply through a shift in say German policy on public investment and other adjustments to national policy.
I say this knowing full-well the political constraints to fiscal action. The Germans do not want to run a deficit. The Dutch are committed to bringing an already low deficit down further. France, Italy and especially Spain face pressure from the Commission to tighten policy. The Juncker plan never really created the capacity for shared funding of investment. The euro area's aggregate fiscal stance is, more or less, the sum of national fiscal policies of the biggest euro area economies.
If I had to bet, I would bet that the euro area's aggregate fiscal impulse will be negative in 2017—exactly the opposite of what it should be when a surplus region is faced with a shock to external demand. A lot depends on the fiscal path Spain negotiates once it forms a new government, given that is running the largest fiscal deficit of the euro area's big five economies.
Economically, the euro area would also benefit from additional focus on the enduring overhang of private debt, and the non-performing loans that continue to clog the arteries of credit. Debt overhangs in the private sector—Dutch mortgage debt, Portuguese corporate debt, Italian small-business loans—are one reason why euro area demand growth has lagged.
Euro area banks should have been recapitalized years ago, with public money if needed, to allow more scope for the write down of private debt. But in key countries they were not, even with the impetus from various stress tests and the move toward (limited) banking union. And Europe's new banking rules are now creating additional incentives for delay.
The banking rules require bail-ins, which are typically better politics than outright bail-outs.
But countries like Italy are caught in a bind:
• Clearing away legacy non-performing loans (NPLs) takes capital—capital many of its banks do not have;
• National governments cannot provide public capital without bailing in a portion of the banks' liabilities structure;
• And in Spain, Portugal and Italy, many of the banks that need capital now raised capital in the past by selling preferred equity and subordinated debt to their own depositors, so bail-ins in effect means hitting small investors who took on a set of risks they didn't understand (and often made investments before the banking rules were tightened).
The consensus VoXEU document alluded to this problem, but didn't quite spell out how the current banking rules could be "credibly modified."
Putting public funds into the banks does not addresses popular concerns about the way the global economy works. Forcing retail investors to take losses in the name of new European rules does not obviously build public support for "more" Europe. Keeping bad loans at inflated marks on the balance sheet of weak banks undermines new lending, and makes it hard for private demand growth to offset the impact of fiscal consolidation. There is no cost-free option, economically or politically.
The euro area's ongoing banking issues highlight the broader tensions created by a conception of the euro area that focuses on the application of common rules with only modest sharing of fiscal risks—and by a political process that has often designed those rules a bit too restrictively, with too much deference to Germany's desire to avoid being stuck with other countries' bills and too little recognition of the need to allow the member countries to use their own national balance sheets to spur growth.
Something will need to give, eventually.
* My back-of-the envelope estimate is close to Draghi's estimate, and similar to that ofGoldman. The OECD's estimate actually suggest a slightly bigger impact on the euro area from a similar to slighter larger fall in British output. In their model, the euro area is facing a two year drag on growth of about a percentage point; see p. 22.
The news that the government might need to hire hundreds of immigrants to negotiate post-Brexit trade deals isn't merely a delightful irony. It raises a serious question about the UK's state capacity.
This refers (pdf) to the ability of governments to implement policies to achieve their objectives. Although it is usually discussed (pdf) in the context of less developed nations, it applies to the UK government now. Does it have the capacity to negotiate difficult trade deals, or to implement complex points-based immigration controls? The fact that we lack people capable of doing the former suggests perhaps not.
In fact, other things should strengthen our scepticism on this point. Larry Summers oncewrote that "it is much easier to design policy than to implement it." The British government's failure to introduce Universal Credit in a timely or cost-effective manner, and its mismanagement of the deportation of foreign students (in the "safe pair of hands" of Theresa May) give us two examples of this fact.
These, though, might be just specific manifestations of general defects. Christopher Hood and Ruth Dixon have shown (pdf) how the endless management reforms of the last 30 years have given us a civil service which "worked a bit worse and cost a bit more" than before. Giles Wilkes has written:
Much of the time, Whitehall throngs with officials struggling just to find out what is going on. The sound of dysfunction is not the cacophony of argument, but the silence of suppressed documents and unreturned phone calls.
And a report from the Institute for Government says:
Departments are inconsistent in how they format and organise their objectives. They confuse measures, milestones and means of reaching them. The inconsistency across departments and the sheer number of objectives questions how useful and usable they are – and crucially, whether they are actually being used to measure performance.
This suggests that government is failing to implement the Bloom and Van Reenen idea that management is a form of technology (pdf), in which there are clear targets, monitoring and feedback.
It is appropriate that I should be writing this in the week that the Chilcott report is finally published. Its massive delays remind us that complex tasks often take much longer than expected, in part because of the planning fallacy.
All this should add to our scepticism about whether Brexit can proceed smoothly, even ignoring (which we shouldn't) the legal technicalities and arguments. I fear that Brexiteers' optimism on this point reflects what I've called cargo cult leadership: the "right leader-????-success" fallacy.
And herein lies another delightful irony. Many right-wingers have for years preached the virtues of small government and been sceptical of what the state can achieve. And yet it is now they who are placing massive and perhaps excessive demands upon the competence of the state.
