New Disclosure Rules on Employer-Provided Health Care Insurance

An article in today's New York Times outlines a change on the W2 forms we get from our employers for taxable year 2012.  There is a listing of how much the employer paid on the employee's health care coverage for the year.  Many workers are stunned to find out that the health care insurance costs are $12,000 or more.  We know that as health care costs and insurance costs have risen over the last couple of decades that nominal wage increases have slowed down. The employer cares about the total cost of a worker and not just the dollar wages or salaries.  This is also one of the explanations for why middle-class wages have been relatively flat--we are only measuring the wages and not the total coompensation received by the employee.  According to the article, the disclosure is meant to make employees more cost conscious.  I find it hard to believe that that is the reason for the disclosure.  A worker sees that the employer spent $12000 on his medical insurance decides that he should go to the doctor less frequently?  I don't think so. 

Two Different but Related Op-Eds

Two good op-ed pieces in the Wall Street Journal.  The first discusses the myth of the stagnant middle class. It notes a number of important issues, including adjusting wages for inflation understates real wages since the CPI overestimates inflation, the nonwage portion of compensation has increased sharply--especially medical benefits, increased life expectancy, and the abundance of new products not available in the past that are purchased by middle class households.   The authors could have added another element--the puzzle over why consumption data show the middle and poorer classes consuming more than would seem to be indicated by reported income.

The second concerns climate change. Bjorn Borg criticizes the way in which President Obama referred to climate change in his inauguration address. Borg notes that the evidence cited by the president is wrong. Borg fears that the poor rationale used will ultimately lead to poor policy recommendations.  Borg does not dispute climate change but has long argued for a different approach to looking for solutions.

Both topics provide further evidence that the misinformation on some key issues propogated in the media and by politicians remains a problem.

James Buchanan Dies

James Buchanan died on January 9, a few days after the AEA meetings ended.  He won the Nobel Prize in econmics in 1986.  An obituary on him can be found here, and some comments on his importance by Tyler Cowen can be found on his blog. Buchanan was a very important economist and his Nobel was well-earned. In recent years, I have been reading him a lot more.  Since my major area in grad school was industrial organization and I never had a public finance course in grad school, I didn't read him much when I was younger.  But I have increasingly found him of more significance.  In one manner is that I no longer begin micro classes with the idea of scarcity but instead the idea that specialization of labor is productive. This is a point he made in his presidential address to the Southern Economic Association, "What Should Economists Do?",  and was published in the Soutern Economic Journal in January 1964. I am still struggling with his views on cost as found in his short book, Cost and Choice: An Inquiry in Economic Theory. The Liberty Fund has published the collected works of Buchanan, and it is 20 volumes. He had an extraordinary career.

On the Fiscal Cliff and the Progressive Program

The House passed the bill that averts the Fiscal Cliff. It looks like the market thinks it was a good thing, but I still am not sure. As David Brooks noted in the column I cited yesterday, no hard decisions have been made. We continue to put off any decisions about problems we know are there, namely, the unsustainability of our entitlement programs with current taxes and spending. President Obama has said that he will not negotiate when the debt limit ceiling is reached, so he has no plans for any serious reductions in spending.

President Obama considers himself a progressive. If we want to know what progressives want, there is no better place than the New York Times.  John Cochrane parses a recent New York Times editoria in his blog.  The editorial calls for tax reform but does not mean tax reform in a serious way. Instead, it is increasing taxes on higher incomes and redistributing it to others.  Cochrane's analysis is worth reading.

An op-ed in yesterday's Times by Russ Douthat illustrates further, although it is a little more realistic than the editorial Cochrane discusses. He states that for progressives, the government needs to increase revenues because cutting spending is not "progressive." But, he acknowledges that the entitlement programs are not sustainable. He sees the agreement on the fiscal cliff as negative in the sense that so many Democrats were willing to raise the lower bound on the increase in taxes to $400,000.  He argues that the Republicans approach to sustainability is to cut benefits but the programs are popular so  that won't happen. If Democrats are unwilling to broaden the tax base, then the Democratic approach is also not sustainable.

Based on these two examples--Douthat and the editorial--the progressive program offers nothing on how to expand the pie, i.e., nothing on growth.

Looks Like the Fiscal Cliff is Averted

The Senate passed a bill to avert the Fiscal Cliff. (See NY Times article here.)  Assuming the House also passes it, the Bush tax cuts are permanent except for those making over $400,000. The sequester is postponed with promises of finding cuts that are not across the board, unemployment insurance time period is extended again, some tax incentives for "green" energy remain, and a few other minor details. All in all, it looks more like a stimulus bill than a bill related to the deficit.  David Brooks' column today is good on how the politicians continue to refuse to make any tough decisions. He also says that the ultimate fault lies with we voters--we want things and are willing to pass the costs on to our children and grandchildren.  I think he is right.

On the Eve of the Fiscal Cliff

It is New Year's Eve and still no resolution to the fiscal cliff.  I had thought there would be a resolution but it seems unlikely now.  As I have written before, I don't think it will be a cliff since things will change slowly and Congress can still act in January to change things. The extent to which one views the changes tomorrow as a cliff depends on how Keynesian one is. Since I am not a Keynesian, I don't see it as dramatic as many others do. John Cochrane has a post on his blog that puts the cliff in perspective. He calls it a molehill.  As he notes, the key question involves incentives and we have to look much more broadly at things than just the tax rates in the tax code.

The fiscal cliff can lead to positive things if President Obama and Congress use the next couple of months to work out a long-term solution to the budget deficits that includes true tax reform, i.e., a tax structure that raises revenue in line with needed spending, that minimizes disincentives for work and investment, and eliminates most of the portions of the budget and tax codes that engage in industrial planning.

Greg Mankiw's article in the New York Times yesterday pointed out some basic facts that both political parties tend to ignore.  Any long-term solution to budget deficits requires that the middle class pay substantial taxes.  Alternatively, cuts in entitlements have to be large and our entitlement programs basically are for the middle classes. 

New Year's Eve is supposed to be a time of optimism--hopes for the new year. Fortunately, as people we can have a good year even if the macroeconomy is not great.  Life consists in more than wealth and consumption goods. I prefer to rely on God's grace than on my 401k plans or on social security.

The Whole Nine Yards

An interesting piece in today's NY Times on the origin of the term, "the whole nine yards." It turns out that this has fascinated people interested in word origins for a number of years. A number of explanations have been offered, including the length of ammunition belts in WW II aircraft or the amount of cubic yards produced by a cement mixer. Recently, discoveries of the term "the whole six yards" in the early 1900s in some Kenucky papers means the other explanations are false.  A definitive answer has not been offered yet, but many options have been eliminated.

On another note, the article referred to the origin of the Windy City for Chicago. I had thought it originally came from New York politicians complaining about Chicago's lobbying for the 1892 World's Fair, and the fact that Chicago is windy helped make the term stick. That, too, is wrong. Newspaper accounts from the 1860s used the term because of Chicago's weather.  For economists, the big mistake on origins was economics as the dismal science. Most thought that Thomas Carlyle was referring to Malthus, whose vision was rather dismal. But actually Carlyle was referring to John Stuart Mill and his opposition to slavery in the British colonies.