Catch-22

There was only one catch and that was Catch-22, which specified that a concern for one's safety in the face of dangers that were real and immediate was the process of a rational mind. Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn't, but if he was sane, he had to fly them. If he flew them, he was crazy and didn't have to; but if he didn't want to, he was sane and had to. Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle.

                                                                 Joseph Heller, Catch-22 (1961)

In 1978, Congress passed the Foreign Intelligence Surveillance Act (FISA), which regulates intelligence surveillance inside the United States. It required the government to get a warrant from the FISA Court in order to monitor Americans' communications with suspected terrorists living abroad. (In practice, the FISA Court too often rubber stamped these government requests.) Shortly after 9/11 President Bush began violating the act by authorizing warrantless wiretaps of the telephone and email conversations of American citizens. In 2008, Congress retroactively ratified Bush's illegal behavior by passing the FISA Amendments Act, which expanded the Attorney General and the Director of National Intelligence's ability to spy on international communications.

The 2008 amendment, specifically §1881a, revised FISA in two ways. The government is no longer required to demonstrate probable cause that the target is an agent of a foreign power, and the government is not required to specify in advance the communications that will be spied upon. The Obama administration not only continued the Bush policy of warrantless surveillance, but what indirect evidence we have suggests that it has been increased considerably.

As soon Bush signed the amendment, the ACLU challenged its constitutionality on behalf of a coalition of lawyers, journalists, and human rights activists (Amnesty International, et al v. Clapper). The ACLU argued that it interfered with the First Amendment guarantee of free speech and Fourth Amendment protection against unreasonable searches and seizures. There is ample precedent to show that the Fourth Amendment was specifically intended to prevent such massive eavesdropping on persons not suspected of any crime.

In rebuttal to earlier charges of illegal surveillance, the Bush Justice Department developed a Catch-22 defense. In order to challenge a law, you must prove that you have standing; that is, you must show that you have been harmed by the law. This ordinarily good idea is intended to prevent freelancers from contesting any law they happen to disagree with. The Bush Administration argued that since the surveillance was secret, no one could prove that they had been targeted. Therefore, no one had standing to sue to overturn the law, and it could not be challenged. This argument, now recycled by the Obama administration, was unanimously rejected by the U. S. Court of Appeals, but the Justice Department appealed their decision to the Supremes.

If the wiretaps are secret, how do you know whether you have been victimized? There are some common sense answers to this question. For example, if you are a lawyer who has clients living abroad that are accused of terrorism, you can safely assume your international calls are recorded. In fact, some of the plaintiffs argued that they suffered the additional harm of having to go to considerable expense and inconvenience in order to interview their clients in person.

Yesterday, in a 5-4 decision, the five more conservative Supremes dismissed the suit, ruling that the plaintiffs had no standing to contest the law, and effectively insulating it against any future challenge (unless the Obama administration is foolish enough to try to use information gathered under §1881a in court). Justice Samuel Alito, writing for the majority, said the plaintiffs had failed to show that the threatened harm was “certainly impending.”

[Plaintiffs] have no actual knowledge of the Government's §1881a targeting practices. Instead, [plaintiffs] merely speculate and make assumptions about whether their communications with their foreign contacts will be acquired under §1881a . . .

The four less conservative Supremes dissented. Justice Stephen Breyer said:

In my view, this harm is not “speculative.” Indeed it is as likely to take place as are most future events that commonsense inference and ordinary knowledge of human nature tell us will happen . . .

Breyer objected to Alito's “certainly impending” standard. He pointed out that the court has often granted standing to plaintiffs who predicted but could not prove that they would be harmed by future events, as when homeowners are allowed to sue to prevent future environmental damage to their property.

Glenn Greenwald summarized the decision as follows:

When the new 2008 FISA eavesdropping law was passed, all sorts of legal scholars debated its constitutionality, but it turns out that debate was—like the Constitution itself—completely academic. As both the Bush and Obama administrations have repeatedly proven, they are free to violate the Constitution at will just so long as they do so with enough secrecy to convince subservient federal courts to bar everyone from challenging their conduct.

I've recently been reading Seth Rosenfeld's Subversives: The FBI's War on Student Radicals and Reagan's Rise to Power, which is about extensive surveillance of Americans engaged in peaceful constutionally-protected protest, primarily against instutional racism and our illegal invasion of Vietnam. It seems that we have entered a new era of routine violations of constitutional rights.

Medicaid Expansion Update

On Thursday, the Pennsylvania Health Access Network and Families USA issued a report on the economics of Medicaid expansion in Pennsylvania. The report and the reaction of Governor Corbett's spokesperson address some previously unanswered questions.

The cost of Medicaid expansion. The Governor estimated that Medicaid expansion would cost PA $4.1 billion over 10 years while the nonpartisan Kaiser Family Foundation put the cost at $2.8 billion. Department of Public Welfare spokesperson Anne Bale stated three items that went into the Governor's estimate.

• Staffing and administrative costs to serve 800,000 new Medicaid recipients.
• The woodwork effect: This refers to the possibility that people currently eligible for Medicaid in PA who have not signed up will do so because of the publicity surrounding Medicaid expansion and the individual mandate requiring everyone to have health insurance. If their income is below 46% of the Federal poverty level, the state would have to cover 46% of their Medicaid costs. However, the woodwork effect will occur regardless of whether PA expands Medicaid and should not be counted as a cost of expansion.
• The possibility that people currently eligible for Medicaid but who have either private insurance or are insured through their employer might drop that coverage in favor of Medicaid. However, in order for PA to be responsible for 46% of their costs, they would have to be making less than 46% of the poverty level. How many Pennsylvanians who are that poor have private insurance or are insured through an employer?

The "flexibility" issue. The Governor has stated that he opposes Medicaid expansion because it does not afford PA the flexibility it needs to design a Medicaid system that is financially sustainable, and that he would like Medicaid to include incentives for recipients to seek employment. I previously speculated that he might want PA to provide less coverage than required by the Affordable Care Act, or to place some time limit on coverage.

On Wednesday, Florida's Governor Rick Scott accepted Medicaid expansion after negotiating an agreement with the Feds to allow Florida to privatize Medicaid by placing recipients in private, for-profit HMOs and managed care plans. This plan could, in theory, cut costs by reducing the incentive for unnecessary medical treatments. Florida has already embarked on a pilot program of Medicaid privatization. It has not yet been evaluated, but it is said to be filled with exactly the kinds of problems that already plague for-profit health insurance:

Critics worry for-profit providers are scrimping on patient care and denying medical services to increase profits. Some doctors have dropped out of the pilot program, complaining of red tape and that the insurers deny the tests and medicine they prescribe. Patients have complained they struggled to get doctor's appointments.

Gov. Scott's agreement with the Feds requires that the program be evaluated in real time.

Given Governor Corbett's devotion to privatization, it seems possible that he is negotiating to bring a similar disaster to PA's working poor. We might at least want to be aware of that possibility.

The Families USA report allows us to give better answers to two financial questions about Medicaid expansion in PA.

How much is Medicaid expansion actually worth to PA's economy? I previously indicated that PA will receive $37.8 billion in health insurance from the Federal government over ten years, and that this money will benefit the economy. Families USA hired Regional Economic Model, Inc., an economic think tank, to estimate the direct and indirect effects of this cash infusion in a target year, 2016. Direct effects would be new money spent on health care. Indirect effects would be items like the construction of new hospital facilities or the money spent by new health care workers on groceries and entertainment—the so-called multiplier effect. The estimate was that these federal dollars would support 41,200 new jobs in 2016. They also estimated that the $3.3 billion in additional health care spending that would occur in 2016 would, through the multiplier effect, bring $5.1 billion additional economic activity to PA in that year. Some of this money would come to the state in the form of additional taxes.

What is the financial cost of not expanding Medicaid, and who would bear it? As you know, hospitals must treat people without health insurance (“forced charity”) and that someone must pay for this uncompensated care. The report gives the following estimates of how this uncompensated care will be distributed between 2013 and 2022.

• $878 million will be paid by state and local governments, and ultimately by taxpayers.
• $891 million will be absorbed by hospitals and medical facilities.
• $1017 million will be added to the cost of health insurance paid by Pennsylvanians who have private insurance.

None of these things matter as much as the 4000 lives per year that would be saved by Medicaid expansion. However, it's possible that the Governor and his cronies will find these economic arguments more persuasive.

You may also be interested in reading:

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 1)

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 2)

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 3)

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 4)

A Stroll Down Memory Lane

Here's Hubris: Selling the Iraq War, the documentary that was shown on Rachel Maddow's program Monday night. If you didn't see it, it's about 45 minutes long and well worth watching. In fact, we should all watch a brief clip every morning before we pick up the newspaper.

The film traces the origin of most of the false reports leading up to the war. However, it only mentions in passing the body of information coming from United Nations weapons inspectors that rebutted the claim that Saddam Hussein had "weapons of mass destruction." When I predicted in 2002 that no WMDs would be found, I relied heavily on the testimony of Scott Ritter.

Not surprisingly, they don't take a clear stand on whether the Bush administration fell victim to confirmatory bias or this was a deliberate deception.

While they take a few swipes at the media, including the New York Times, they fail to mention MSNBC's own role in selling the war. On February 25, 2003, MSNBC cancelled its highest rated program, Donahue, due to host Phil Donahue's opposition to the upcoming invasion of Iraq.  A leaked memo stated that Donahue would be a "difficult public face for NBC in a time of war."

Raising the Floor

President Obama, in his State of the Union speech, made two proposals that will reduce inequality, and that have strong research support—raising the minimum wage and universal pre-school. The main difference is that raising the minimum wage is a short-term, direct solution to inequality. It proposes to help the working poor by ensuring that they make more money. Universal preschool, which I'll discuss in a future post, is about making kids more socially mobile 20 years from now. Not surprisingly, more things can go wrong with that plan.

The current federal minimum wage is $7.25 per hour, which is $15,080 per year—well below the federal poverty level for a family of three, and well below the minimum wage in most industrialized countries. The value of the minimum wage in this country peaked in 1968 at $10.56 per hour in inflation adjusted dollars. But worker productivity has risen sharply since 1968. If the minimum wage had kept pace with productivity growth, it would be $16.50 per hour. Obama proposes to raise it gradually to $9 (24%) by 2015—hardly a radical proposal—and index it to the rate of inflation thereafter, so that it increases with the cost of living without requiring action by Congress. For comparison, the top 1% increased their real income (adjusted for inflation) by 281% between 1979 and 2007. Although every income group lost money during the Great Recession, during the economic recovery (2009-2011), income increased by 11.2% for the top 1%, but declined by -.4% for the bottom 99%.

In a 2012 survey, raising the minimum wage to $10 in 2014 and indexing it to inflation thereafter was favored by 73% of Americans, with 20% opposed and 7% undecided. Support is strongest among Democrats and those who would be helped most by the proposal—women, minorities and young adults.

Unfortunately, there is an incorrect argument about the effect of raising the minimum wage that appeals to the conventional wisdom. It states that raising the minimum wage causes employers to hire fewer workers or lay off existing workers. House Speaker John Boehner reacted to the President's proposal by saying, “When you raise the price of employment, guess what? You get less of it.” Fortunately, this is an empirical question, and Boehner is wrong.

The fact that the minimum wage has stagnated since 1968, while bad for the country, has been a boon to research on its effects. Some states and cities have raised the minimum wage above the federal level. This variability makes it possible study whether raising the minimum wage depresses employment. The modern history of this research begins with a before-after comparison group design by Card and Kreuger. New Jersey increased its minimum wage in 1992 while Pennsylvania did not. The authors did a telephone survey of employment in fast food restaurants in counties along the NJ-PA border. (Restaurants were chosen because they are the business that experiences the greatest increase in cost when the minimum wage goes up.) They found no evidence that NJ's minimum wage reduced employment relative to PA.

Of course, this could be an atypical case. But Dube, Lester and Reich published a study in 2010 comparing restaurant employment in 318 state borderline pairs of counties in which the minimum wage differed, essentially replicating the Card and Kreuger study over a much larger sample of times and locations. They found no employment effects. In recent years, there have been two meta-analyses of minimum wage studies, one of which summarizes 1492 separate tests of the minimum wage hypothesis. They find no significant overall effect on employment among low income workers, teenage workers, or anyone else. (By the way, 80% of minimum wage workers are adults.)

These studies are now well accepted by economists, but they raise the question of why the conventional wisdom is wrong about the effects of raising the minimum wage. The most likely reason is that, for most owners, the cost of increasing the minimum wage is small relative to other costs affecting their business. Schmitt has suggested 11 “adjustment channels” that might explain the lack of a minimum wage effect. Here are the four that he feels have the greatest research support.

• Increasing the minimum wage reduces turnover, an important cost savings for employers.
• Workers who are paid more increase their productivity, either on their own, since the job is more important to them, or in response to employer demand.
• The cost is passed on to consumers in the form of increased prices. Does this cause inflation? Yes, but not very much. One study found that a 31% increase in the minimum wage increased restaurant prices between 1% and 2%, at worst increasing the cost of a $10 meal to $10.20.
• In the long run, employers compensate by reducing wages paid to higher wage workers. This results in “wage compression,” or less wage inequality within the organization.

Of course, Boehner's comments suggest that the President's plan is dead on arrival in Congress. But let's imagine we lived in a country where some wage relief for the working poor were possible. If the minimum wage is to be indexed to inflation, it is important that it start from a baseline that is high enough to be fair to low income workers. The data in the second paragraph suggest that $9 is too low. Wicks-Lim has suggested that businesses could easily adjust to a 70% rise in the minimum wage to $12.30 per hour. Raising the minimum wage could be seen as a form of reparation for the harms caused to low wage workers by the successful class warfare waged by the rich for the past 30 years.

Killer Kane

Here's a description of the 1939 movie serial Buck Rogers which often ran on New York television when I was younger.

A pilot [Buck Rogers] and his young passenger crash-land on a mountaintop and are put into suspended animation by a strange gas. They awake 500 years later to discover that the Earth is now ruled by a tyrannical despot called Killer Kane, and they lead a fight to overthrow him.

After only a month in office, Pennsylvania's new Democrat Attorney General Kathleen Kane is giving Republican Governor Tom Corbett a bad case of hemorrhoids. First, she negotiated an agreement with Florida to close the “Florida loophole,” which had allowed Pennsylvanians who were denied permits to carry concealed weapons to obtain them from Florida. Then she announced the appointment of a special prosecutor to investigate Corbett's handling of the Jerry Sandusky case while he was Attorney General. Critics have alleged that Corbett delayed prosecuting Sandusky until after he was elected Governor in order to avoid a backlash from Penn State football fans. On Thursday, she thwarted Corbett's plan to privatize the state lottery by invalidating his agreement to turn over its management to Camelot, a British firm.

Camelot had pledged to bring the state $34 billion in revenue in 20 years, largely by allowing internet gambling and introducing the game of keno, a lottery-type game sometimes referred to as “bingo on steroids.” But the state lottery, now managed by state employees, made over $1 billion in profit last year, so the guaranteed gain in revenue under the Camelot contract is only 70%. Couldn't the current lottery employees bring in that much extra revenue if they were allowed to offer keno? For its part, Camelot celebrated the new deal by opening its U. S. corporate headquarters in Delaware to ensure that it would not have to pay Pennsylvania income tax.

Ms. Kane gave three reasons for declaring the Camelot contract illegal:

• Signing the contract was “an unlawful extension of executive authority” by the Governor.
• The state law which created the lottery does not authorize the development of “monitor-based games such as keno.” A monitor-based game is one which is played at a computer terminal and does not require human intervention.
• A provision by which the state is required to compensate Camelot for “indirect expenses” is too broad and undefined.
  
  

It's hard to predict how this will be resolved. It may depend on the court's interpretation of statutory language. Kane's second reason resonated most strongly with me. This seems to be a substantial escalation in the state's ability to take advantage of its citizens. The plan is to put computer gambling terminals in bars, restaurants and convenience stores all over Pennsylvania. This differs from present casino gaming since you don't have to go to a casino; you can play at the corner store. It differs from the lottery in that you can play almost continually, rather than the current twice a day. And most importantly, it's keno, a game which has proven popular and addictive.

While the rules governing keno in Pennsylvania have not been announced, in Maryland, the house edge in keno—the extent to which the odds favor the state—is 42.5%. The expected value of a dollar spent on keno is $1 minus the house edge, or 57.5 cents. This can be compared to a house edge of 15% for slot machines, 5.26% for roulette, and only .46% for video poker.

Current state lotteries also offer very poor odds for the player. They pay out about 55% in prizes—very similar to keno. Operating expenses consume 12% of the funds, and the remaining 33% go to the state. Clotfelter and Cook, whose book, Selling Hope, is the definitive work on state lotteries, refer to this 33% as an implicit tax, since it is essentially a tax on playing the game. It is higher by percentage than state taxes on liquor and cigarettes.

If the odds of winning are bad, why are lotteries so popular? One theory is that people who should know better treat games of chance as if the outcome were partially determined by skill, and fall victim to an illusion of control over their outcomes. Another theory is that people have difficulty calculating their odds, but advertising showing happy winners encourages them to visualize being a winner. Since the availability of winning is increased, people overestimate its likelihood. However, the most important attraction of keno may be large prizes. Studies of multistate lotteries have shown that participation goes up as the jackpot increases.

Who plays the lottery? Surveys show that about 60% of adults in lottery states play, spending an average of $75 a year. But 5% of citizens account for 54% of total sales and spend almost $4000 a year, suggesting that gambling addicts disproportionately support the system. Expansion of gambling will increase the need for state services to help these people and their families. Men are more likely to gamble than women. As education goes up, gambling goes down. Most importantly, studies consistently show that lower-income people spend a higher percentage of their income on state lotteries than middle class or rich people. Therefore, gambling is a regressive tax, a tax that increases the already large disparity between the rich and the poor.

State lottery profits are often earmarked for specific purposes, such as education, or, in Pennsylvania, services for senior citizens. This can be a way of manipulating the public to accept a policy they might otherwise question. For example, when Governor Corbett announced the Camelot agreement he said that expansion of gambling was necessary because in 17 years, one in four Pennsylvanians will be over 60, and the state needs a larger and more reliable funding stream for them.

However, Clotfelter and Cook have found that earmarking lottery funds for a specific purpose seldom results in any change in the amount of money the state actually spends for that purpose. If the lottery brings in more money than anticipated, the money goes into the state's general fund, rather than providing a windfall for education, senior citizens, or whatever the earmark is. However, there is a potential danger should lottery proceeds be lower than expected, since it may give the state legislature an excuse to cut back on spending for the earmarked purpose.

I have no moral objection to gambling. However, most theories of government propose that the state has a responsibility to make its citizens' lives better. It's hard for me to see the Camelot contract as fulfilling that purpose. Maybe Killer Kane is doing us all a favor.

I've Seen the "Promised Land" . . . (And It Was Disappointing)

I saw the film four weeks ago, but I've been waiting for it to close in the Pittsburgh area. I can't discuss it without revealing its surprise plot twist, but there are rumors that fracking interests have been leaking the ending in an attempt to discourage attendance. We know they've been running pro-drilling ads and passing out industry leaflets at showings of the film.

The gas companies needn't have worried. People on both sides of the fracking debate will find some things to like and some not to like about Promised Land, but anyone expectating a serious discussion of the environmental and public health risks of fracking will be disappointed. But how could it be otherwise? It seems likely that co-stars and co-writers Matt Damon and John Krasinski and director Gus Van Sant were required to present a “balanced” view of fracking in order to secure studio financing. To do otherwise would have resulted in an unprofessional looking movie and might have damaged their careers. The resulting film is better described as anti-corporate than anti-fracking.

A few plot basics. Damon plays the role of a representative of “Global Power Solutions,” who, with his colleague Frances McDormand, is expected to offer as little money as possible to the poverty-stricken farmers of a Western Pennsylvania town in return for the natural gas drilling rights on their land. He's challenged by a high school science teacher (Hal Holbrook) who is familiar with fracking's risks, and by a friendly and persistent environmentalist (Krasinski), whose persuasiveness frustrates and confuses Damon.

There are some things to like about this film. It dramatizes the real economic plight of rural America. ("You wouldn't be here," one farmer says, "if we weren't poor.") Damon's drilling salesman is a borderline psychopath, willing to say almost anything to get signatures on contracts. The film nicely captures the contrast between the respectful and friendly way he treats these landowners and the demeaning way he talks about them behind their backs. I particularly liked the scene in the diner which a local politician approached Damon for a bribe. It was taken for granted that Global would pay him off, but Damon did his job, talking him into reducing his price by threatening to leave town. Finally, every community should have role model like Holbrook, who had done his homework, and who quietly and patiently stands up against group pressure.

On the other hand, some aspects of the film were totally unrealistic.

• The centerpiece of the plot is a referendum in which the entire community gets to vote on whether to allow fracking in the town. The truth in Western Pennsylvania is quite different. When communities have placed restrictions on fracking, it's been done by their elected officials. But the natural gas companies know it's far too risky to leave such decisions up to the people who are actually affected by them. So in Pennsylvania we have Act 13, which preempts all local zoning laws and substitutes a statewide standard endorsed by the drillers. This encroachment on grassroots democracy is currently being contested in the courts.

• How likely is it that an environmentalist would be allowed to give an anti-fracking demonstration—a rather inflammatory one, at that—to elementary school children?

• Then there's the scene in which a group of anti-fracking folks enter a bar, pick a fight with Damon, and beat him up. Those nasty environmentalists! They're such bullies! Was this a crude attempt to “balance” the film's message?

SPOILER ALERT!!!

• The final twist comes in two parts. Surprise #1. On the eve of the referendum, Global provides Damon with evidence that Krasinski is a fraud. He's lied about his farming background, and the “evidence” he's been using are photos of cows who died for reasons unrelated to drilling. This, of course, totally reverses the momentum leading up to the referendum. Surprise #2. He's not even a legitimate fraud. He's an employee of the drilling company who was planted in the town for the sole purpose of being exposed, for the impact this would have on the community's vote.

There is no evidence that I'm aware of that any drilling company has ever done anything quite like that, and the implausibility of this scenario totally undermines the credibility of the film. Was that the intention, or are we to assume that it was just an inept attempt to malign the drilling companies?

Ironically, there is a sense in which the film is basically correct. Many of our best-known environmental and conservation organizations have been infiltrated by corporate interests whose purpose is to undermine their political influence, but the way it was done is more subtle than the plot of Promised Land. At one time, environmental groups were funded by their members and occasional wealthy supporters. But their leaders have discovered a new source of revenue—corporations that are among the world's worst polluters. Not only are these organizations funded by corporate donors, their Boards of Directors are dominated by corporate executives.

But these donations come at a heavy price. Have you heard about the deal between the Sierra Club and Clorox bleach? Between IKEA and the World Wildlife Foundation? Between BP and the Nature Conservancy? Environmental groups now engage in commodity certification—putting their green stamp of approval on environmentally-unfriendly products. More importantly, their leaders dismiss necessary solutions—such as the limit of 350 ppm of CO₂ in the atmosphere that is needed to stabilize the climate—as “unrealistic,” and endorse disastrous “compromise” agreements. It could be argued that the real purpose of these “environmental” groups is to deceive their members into accepting the slow but inevitable destruction of our environment.

But that's not as easy to dramatize as the plot twist at the end of Promised Land.

Laffing All the Way to the Bank

For more than three decades, Republicans have argued that higher taxes, especially higher taxes on the rich, hurt the economy by discouraging work and investment, or alternatively, that the economy will be stimulated by tax cuts. This prediction was illustrated by the Laffer curve, named for economist Arthur Laffer, who claimed that under most circumstances government revenue increases when taxes are cut, since economic growth more than compensates for loss of revenue due to the tax cut itself.

That this rhetoric is still central to the Republican message is illustrated by Sen. Marco Rubio's rebuttal to President Obama's State of the Union speech:

[A]s you heard tonight, his solution to virtually every problem we face is for Washington to tax more, borrow more and spend more. . . . And the idea that more taxes and more government spending is the best way to help hard-working middle-class taxpayers—that's an old idea that's failed every time it's been tried.

True to his word, Rubio was one of eight senators who voted against last month's “fiscal cliff” agreement, presumably because it raised taxes on Americans earning over $400,000 per year ($450,000 for couples).

What's the actual relationship between marginal tax rates and economic growth? An article by economist Gerald Friedman in the latest issue of Dollars and Sense addresses this issue with two important charts.

As I've noted before, when it is impossible to do a controlled experiment to test a hypothesis about social policy, we must turn to two types of quasi-experiment. In a time series design, you look at how the outcome variable (economic growth in the United States) changes from before to after a change in the social policy (a tax cut) that is hypothesized to affect it. This table shows the relationship between tax rates on the wealthy and gross domestic product (GDP) growth during all the presidencies after World War II.

The biggest tax cuts came under Reagan and Bush II. You might object that it takes time for tax cuts to stimulate the economy, but Bush I and Obama presided over even lower GDP growth than their predecessors. The main counterargument to a time series design is that the results might be explained by other historical changes that happened to coincide with tax policies.

The alternative is a comparison group design. Since tax policies are national decisions, the United States must be compared to other similar countries that have different marginal tax rates. The historical change argument is partially negated by the fact that the countries are compared over the same time period.

This chart is particularly stark in its condemnation of U. S. tax policy. The main counterargument to a comparison group design is that the countries are simply not comparable—for example, that all these other countries have some advantage that the U. S. lacks which accounts for their greater economic growth. Really?

I don't mean to suggest that these two charts exhaust the arguments against low taxes or tax cuts for the wealthy. For example, Friedman also shows that there is no relationship between top marginal tax rates and investment. Returning to Sen. Rubio's argument, it appears that it is not tax increases but tax cuts that have failed every time they have been tried.

The evidence that higher taxes and tax increases do not harm the economy seems so clear that it may be time to call into question the media's policy of false balancing, or quoting statements like Rubio's without comment or evaluation. It is difficult for public attitudes to change when the media merely act as a conduit for false information.

Tom Corbett to PA's Working Poor: "Drop Dead!"

Part 4. What We Can Do

On Tuesday, February 5, PA Governor Tom Corbett stated that at this time he cannot recommend accepting $38 billion in federal funding to expand Medicaid, thereby denying medical assistance to more than 700,000 Pennsylvanians. So far, I've discussed empirical studies demonstrating that Medicaid improves health and saves lives, the costs and benefits of Medicaid, how those costs and benefits are distributed in Pennsylvania, and the governor's stated reasons for rejecting Medicaid expansion.

The conclusion to this series has proven to be the most difficult to write. I've already had to change the “tomorrow” in part 3 to “next time.” It's time to tie the loose ends together.

First, let me try to justify the rude title of these posts. As previously noted, the Sommers, et al, study contains an estimate of the number of lives saved by Medicaid expansion.

Results correspond to 2840 deaths prevented per year in states with Medicaid expansions, in which 500,000 adults acquired coverage. This finding suggests that 176 additional adults would need to be covered by Medicaid in order to prevent one death per year.

Granted, this is just an estimate. The real number may be somewhat higher or lower, but both mortality and Medicaid enrollment statistics in this country are usually pretty accurate. Corbett's decision will deny health insurance to 719,000 Pennsylvanians whose income is between 46% and 100% of the Federal poverty level. This too is an estimate based on 2010 census data. Using these two estimates, we can compute the number of lives per year that would be saved by Medicaid expansion.

719,000/176 = 4085

I think we can safely estimate that Corbett's decision sentences approximately 4000 Pennsylvanians to death per year, at least for the first five years (the duration of the Sommers study). These lives will be lost in order to save the state (by Corbett's estimate) $4.1 billion over eight years, while simultaneously turning down $37.8 billion in Medicaid funds from the Federal government.

Gov. Tom Corbett

As if to add insult to injury, Corbett has been extremely generous to Pennsylvania's corporate class. His budget projects that corporate tax revenues will drop $311 million (-5.9%) in 2013-14, due mostly to rate cuts in the capital stock and franchise tax beginning in 2014. He proposes to gradually phase out this tax. He also proposes to gradually eliminate the corporate income tax beginning in 2015. Corbett has pledged $1 billion in corporate welfare to Shell Oil to attract a $5 billion ethane cracker plant to Western Pennsylvania. (These are not saltines; they are dirty petrochemicals.) This plant will create hundreds of jobs, far fewer than Medicaid expansion. And Act 13, which imposes a minimal “impact fee” on natural gas drillers, has been described as “the nation's worst corporate giveaway.” Meanwhile, the Governor is not proposing to close tax loopholes, such as the Delaware loophole, which allows two-thirds of Pennsylvania corporations to completely avoid income tax.

I would argue that the humanitarian and economic arguments in favor of Medicaid expansion are overwhelming. In addition, Medicaid expansion would be easy to incorporate into a single-payer system, should the state or the nation move in that direction. I suggest that as health care advocates we immediately begin to lobby for Medicaid expansion with all the enthusiasm we can generate.

The economic logic of Medicaid expansion is so strong, and there are so many powerful economic interests that support it, I think that we will ultimately find ourselves on the winning side of this debate. Here are some of the reasons to be optimistic:

• Governor Corbett's announcement rejecting Medicaid expansion contained the hedge words “at this time,” suggesting that he may be open to changing his mind.
• He will face serious pressure from hospitals that, instead of gaining new customers, face financial losses as a result of having to provide medical services to the uninsured (“forced charity”). Other segments of the health care industry, such as pharmaceutical and medical equipment companies, are also seeing dollar signs disappearing.
• Since Medicaid expenditures ultimately circulate throughout the economy, it's likely that Chambers of Commerce and other business interests will come out in favor of expansion.
• Public opinion data collected last Summer showed 49% of Americans favor of Medicaid expansion in their state and 43% opposed. The number in favor should increase as the costs and benefits become more clear.
• The fact that several other Republican governors who initially opposed expansion, such as Govs. Brewer of Arizona, Kasich of Ohio and Snyder of Michigan, have decided to accept it has cast Corbett in the role of an ideological extremist.
• Since Pennsylvania Democrats who have spoken out so far seem to be unanimous in their support of Medicaid expansion, it may take only a few high profile Republican defectors to convince the Governor that he doesn't have majority support.
• I hedged my statement by saying “ultimately.” Even if it isn't decided to expand Medicaid this year, there is nothing to prevent Pennsylvania from accepting it in the future, should Gov. Corbett not be re-elected and the political balance of power in Harrisburg change.

However, there is no justification for complacency. The stakes for Pennsylvania's working poor are too high.

I've previously reviewed research showing that wealthy people have the greatest influence on political decisions in this country, the influence of the middle class is much less, and the influence of the poor is virtually nonexistent. This suggests that the occasional successes progressive activists have are usually due to our interests temporarily coinciding with those of much more powerful economic forces. For example, passage of the Affordable Care Act itself may have had little to do with providing health care to uninsured Americans, except insofar as this provided the cover story for a massive transfer of wealth from the government to health insurance, pharmaceutical, and other health care corporations.

Medicaid expansion is another instance in which our preference coincides with that of important segments of the economic ruling class. Our support may make a difference; we will never know for sure. But even if Medicaid expansion occurs for reasons having nothing to do with anything we say or do, this is an excellent opportunity for health care advocates to renew their faith in the effectiveness of progressive activism.

I expect more sophisticated analyses of the costs and benefits of Medicaid expansion to become available soon. Meanwhile, if you would like to reprint this analysis or if you want me to edit it down to meet your needs, please let me know.

You may also be interested in reading:

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 1)

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 2)

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 3)

I Cough in Your General Direction

 Some rights reserved by United Nations Photo

New international research has shown that particulate air pollution (or soot) is a significant cause of low birth weight in infants. The study is actually a meta-analysis of 14 studies done in nine countries, with a total sample of over 3 million births. A meta-analysis is an analysis of analyses, or a way of statistically combining the results of several studies to arrive at an overall estimate of the significance of an effect. The fact that the studies were done by different researchers, at different sites, using slightly different research methods is generally seen as increasing our confidence in the outcome.

Pollution at the study sites varied from 10 to 70 micrograms per cubic meter of air. The effect was small but consistent. Two ways of summarizing the results are:

• For every 10 microgram increase in pollution, average birth weight declines by 8.9 grams, or roughly one-third of an ounce.
• For every 10 microgram increase, the probability that an infant will be of low birth weight—less than 5 pounds, eight ounces—increases by 3%.

The effect was highly significant when controlling for the socioeconomic status of the mother and other confounding variables.

The two major sources of particulate pollution are industrial plants, especially power plants, and vehicle emissions. Exposure has been shown to be associated with health problems such as asthma, heart disease, stroke and diabetes. It's not clear why particulate pollution reduces birth weight, but one possibility is that it, and the diseases with which it is associated, place stress on the mother's body, which affects fetal growth. Low birth weight is a risk factor for infant mortality, and for heart, lung and behavior problems in later life.

A recent article in The Lancet attempted to quantify the major causes of premature death in the world. Air pollution was #7, contributing to 3.2 million deaths per year. (In case you're wondering, high blood pressure is #1, smoking #2, and alcohol consumption #3.) As David Pettit of the Natural Resources Defense Council notes:

Fortunately there are many actions that can be taken to address outdoor air pollution. The technology is readily available at a fraction of the investment cost compared to the health costs that the public bears.

Obviously, the availability of clean air technology is of little consequence if the corporations responsible for most of the pollution control a corrupt political system.

As if to show how obsolete our political system is, last August, the U. S. Court of Appeals struck down an Environmental Protection Agency rule intended to reduce emissions crossing state borders, partially on grounds that the rule was a violation of states' rights.

Tom Corbett to PA's Working Poor: "Drop Dead!"

Part 3. What Medicaid Expansion Would Mean to Pennsylvania

On Tuesday, PA Governor Tom Corbett stated that at this time he cannot recommend accepting $38 billion in federal funding to expand Medicaid, thereby denying medical assistance to more than 700,000 Pennsylvanians. This series of posts will consider the implications of that decision. My first post presented evidence that Medicaid improves health and saves lives. The second examined the costs and benefits of Medicaid expansion under the Affordable Care Act (ACA). This time, I'll look at how these costs and benefits apply to Pennsylvania.

I attended a webinar on Corbett's budget sponsored by the Pennsylvania Budget and Policy Center on February 6. Some of the figures in this post come from that discussion. If it becomes available on the web, I will add a reference to it.

First of all, let's look at the 719,000 Pennsylvanians who will be denied coverage. Pennsylvania is one of the least generous states in the country when it comes to providing Medicaid coverage for adults. To qualify for coverage you must make 46% of the federal poverty level or less. For a family of three, that's less than $8781 per year. (You'll recall that children under six are covered up to 133% of the poverty line, and older children up to 100%.) If the governor had agreed to Medicaid expansion, all adults (and children) would have been eligible for Medicaid if they made up to 133% of the poverty level—$25,390 for a family of three.

This is where it gets complicated. Under the ACA, people who make between 100% of the poverty level ($19,090 for a family of three) and 138% are eligible for subsidized health insurance purchased through the federal exchange. (Pennsylvanians will be using the federal exchange because Corbett has refused to implement a state exchange.) This subsidy should, in theory, reduce the cost of private insurance to approximately what they would pay in Medicaid premiums and co-payments. However, this leaves a huge coverage gap for Pennsylvanians making between 46% and 100% of the federal poverty level. They will not be eligible for either Medicaid or subsidized private insurance.

These are the 719,000 adult Pennsylvanians who will be denied health care coverage as a result of Corbett's decision. In effect, Corbett has created a new “doughnut hole” for Pennsylvanians making between 46% and 100% of the poverty level. Most of them fall into the category of the working poor. These are the people who work at Walmart or McDonald's. The graph below illustrates this problem. You can click on it to expand it.

The Kaiser Family Foundation has estimated that Medicaid expansion is worth $37.8 billion in health care coverage for Pennsylvanians to be paid by the federal government between 2014 and 2022. The governor gave as his main reason for refusing the coverage that it will cost Pennsylvania $4.1 billion to implement the program between now and 2022. Most of this is backloaded, when the state is required to cover 5% (in 2017) or 10% (in 2020) of Medicaid costs. This $4.1 billion figure is contested. Kaiser puts it at $2.8 billion. The governor has not realeased any data to show how he arrived at his figure. However, even if it turns out to be accurate, the governor is turning down $38 billion in order to save $4 billion.

Furthermore, this neglects other costs to Pennsylvania if it rejects Medicaid expansion. For example, it is estimated that, if Medicaid is not expanded, Pennsylvania hospitals will be faced with $1 billion per year in uncompensated costs for the care of uninsured people. Some of these costs are shifted to people with insurance through higher premiums, or are paid for by state and local taxes.

In Governor Corbett's letter to Health and Human Services Secretary Kathleen Sibelius, he gives two other reasons for rejecting Medicaid expansion in addition to the alleged $4.1 billion cost.

He refers to the current Medicare as a “broken system” plagued by waste and fraud, and states that it makes no sense to expand such a system. He claims that in 2009, $43 billion “could not be traced directly back to Medicaid beneficiaries.” He does not cite a source and I'm unable to evaluate this claim.

He also calls for granting states greater flexibility “to successfully reform and build a system that works for them.” He calls for aligning benefits “to meet individual needs and closer (sic) resemble coverage provided by employers.” He calls for a Medicaid program that “promotes personal responsibility” and provides “appropriate incentives for participants to seek and retain employment.” This is vague, but bear in mind that Pennsylvania is already one of the country's stingiest Medicaid states. It appears that Corbett wants the flexibility to reduce coverage below the amounts specified in the ACA, or to place some time limit on Medicaid enrollment.

Next time, I'll speculate a bit about the politics of Medicaid expansion in Pennsylvania, and what health care activists can (and cannot) do to persuade the governor to change his mind.

You may also be interested in reading:

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 1)

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 2)

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 4)

His Master's Voice

The banner headline in yesterday's Pittsburgh Post-Gazette proclaims, “County, Consol strike $500M gas drilling deal.” Allegheny County Executive Rich Fitzgerald announced the terms of a contract that will allow Consol Energy to frack on county land—the 9,236 acres surrounding Pittsburgh International Airport. The $500 million figure is pure speculation. The county gets $50 million up front, but whether we get the remaining $450 million depends on how much gas is found and the future price of natural gas. But buried deep into this story is the most interesting part—when and where Fitzgerald chose to make this announcement: At a public hearing on proposed legislation to allow fracking at the Pittsburgh Airport. Fitzgerald's statement no doubt was a surprise to most of the overflow crowd of 300 citizens attending the meeting, especially to the 77 who registered to speak. It was particularly shocking to members of Marcellus Protest, a local anti-fracking group that showed up in force for the meeting. Guess what, citizens? Nobody cares what you have to say.

The article reminded me of an experiment.  Unfortunately, I've previously written about it, but it's particularly a propos here. Let me explain.

Social psychologists study two types of justice norms. Distributive justice refers to the fair allocation of social outcomes (rewards and punishments). Procedural justice refers to the fairness of the processes for arriving at those outcomes. For example, in a classroom, the distributive justice question is whether the grades fair. Procedural justice refers to questions like whether the tests are relevant to the course, or whether the teacher is free of bias. Even a good decision doesn't feel right if it was not arrived at by fair procedures.

One variable that influences people's procedural justice judgements is voice—the opportunity to express yourself or present your views. People who have some input into the decision process are more satisfied with a decision than others in the same circumstances who are not given a voice. This is especially true when the outcome goes against their self-interest. But this raises the possibility that authorities will attempt to manipulate citizens' satisfaction with a decision by trying to convince them that they have more influence than they actually do.

 All rights reserved by BBurnie82

How often have you heard this scenario? The county (or city, or state, or federal) government is about to make an important decision affecting all of our lives. But before they decide, they will travel around and hold several public hearings on the issue. Citizens who have an opinion on the question are invited to attend one of the meetings and present their views. The question of course is this: Are the decision-makers really listening to your views, or have they already made up their minds, and are they simply going through the motions of soliciting public input? Maybe public hearings are just another way of “cooling the mark out.” The right to be heard is, after all, not the right to be heeded.

Social psychologists Allan Lind and Tom Tyler have found that voice makes a difference in satisfaction even when it's objectively unlikely that the speakers will have much influence on the decision. To test the limits of this “voice effect,” Lind, Kanfer and Earley did a study in 1990 in which student participants were allowed to present evidence to a decision maker. For some of them, their presentation was delivered before authorities had decided what to do—the usual situation. But other participants were told that the decision had already been made, and then invited to present their views. A third group was given no voice. The results showed that people who got to speak before the decision were more satisfied than those who didn't speak until after the decision. But even under the absurd circumstance of presenting evidence after it was too late, participants with voice were more satisfied with the decision than those who were not given an opportunity to express their views. The authors had speculated that there might be a frustration effect leading to more dissatisfaction with the decision in the after condition, but there was not.

Before this study, the accepted explanation for the voice effect was that people optimistically believed they might persuade decision makers to accept their point of view. The Lind study suggests that people also value voice for self-expressive reasons. Maybe getting to present your views is an indication that you are respected by the community, although you might think that self-respect would be reduced by the knowledge that the intended audience is not paying any attention. Are people really that easily fooled by manipulations of voice? Maybe all authorities have to do is pretend to listen to our views and we are more satisfied with their decisions.

Even a casual newspaper reader can't help but notice that the timing of this announcement was a rude and arrogant gesture on Fitzgerald's part. His statement was followed by pro-fracking speeches by three Consol executives and a parade of elected officials. I'm told that those people who came to present the case against fracking were furious. To their credit, they resisted the impulse to fling feces at Fitzgerald. Even though it took more than an hour before the first citizen got to speak, they politely played their part in this theatre of the absurd, delivering their prepared speeches even though it was futile. This can be partially justified by the fact that the county council has not yet ratified the decision, although approval is almost certain.

I don't mean to imply that the members of Marcellus Protest were ever naïve enough to think they could convince the county not to drill on airport land. I also don't mean to suggest that they are in any way “satisfied” with the decision. These are well-informed, committed activists, whose views are not going to be turned around by one incident. They are more likely to show a frustration effect than Lind's participants. In fact, I'd be surprised if this experience doesn't have some effect on their cynicism about government and their willingness to participate in future public hearings.

Judging from my email box, the Pittsburgh area is awash in public hearings. Does all of this activity translate into more democratic decision-making? One way of looking Thursday's events is that Rich Fitzgerald let his side down—his side being his fellow politicians. He has laid bare their guilty secret for everyone to see. Public hearings are a sham. They are just a way of keeping the suckers occupied, while the real decisions are made behind closed doors.

Tom Corbett to PA's Working Poor: "Drop Dead!"

Part 2. Medicaid Expansion is a Huge Bargain for the States

On Tuesday, PA Governor Tom Corbett stated that at this time he cannot recommend accepting $38 billion in federal funding to expand Medicaid under the Affordable Care Act, thereby denying medical assistance to more than 700,000 Pennsylvanians. This series of posts will consider the implications of that decision. Yesterday, I wrote about the evidence that Medicaid is effective in improving health and saving lives. Today, I will look at Medicaid's costs.

I have previously discussed the circumstances which caused Medicaid expansion to become a political issue. To summarize: Medicaid expansion is a critical part of the Affordable Care Act (ACA). Of the approximately 30 million people who were scheduled to be insured for the first time under the ACA, fully half of them—the poorest half—were going to be insured through Medicaid expansion.

Traditional Medicaid is jointly administered by the state and federal governments. Federal law requires that all children be covered if their family makes less than the federal poverty level. Children under six are covered up to 133% of the poverty line. The eligibility rules for adults are determined by the states. In most states, adults without children don't qualify for Medicaid no matter how poor they are. The income level at which parents with dependent children qualify for Medicaid varies from state to state. In the least generous states, parents only qualify if they make less than 40% of the federal poverty level—$4850 a year for two parents with a single child. The most generous states cover all adults making up to 133% of the poverty level. But on the whole, Medicaid is not much of a safety net for the poor. Right now the federal government pays on average 57% of the cost of traditional Medicaid—between 50% and 75% depending on state eligibility rules.

The ACA expands Medicaid by making everyone—children and adults—eligible for Medicaid if their family income is 138% of the poverty level or less. This is expensive, so the Feds agreed to pay most of the cost. In 2014, they will pay 100%. This drops to 95% in 2017, and 90% in 2020. States whose current Medicaid eligibility rules are relatively stingy stand to gain more money per capita from Medicaid expansion than states whose current eligibility rules are more generous.

The ACA required states to implement the Medicaid expansion. If they refused, the federal government threatened to withhold its contribution to traditional Medicare. The Supreme Court, in National Federation of Independent Business v. Sebelius, ruled that this was coercive, and that states may opt out of Medicaid expansion. The numbers change every day, but as of this writing 21 states have announced that they will expand Medicaid, 11 states have decided not to, and 18 are undecided. To the extent that states refuse to expand Medicaid, they will frustrate the intent of the ACA and deny medical care to many Americans who need it most.

How expensive is Medicaid? The average annual cost of Medicaid expansion for adults is $6000 per year, although the ACA hopes to implement some cost savings. Recall that the Sommers, et al study I referred to yesterday estimated that one life is saved per year for every 176 people added to the Medicaid rolls. From this we can calculate that the average cost per life saved is 176 x $6000, or slightly over $1 million. This sounds like a lot, but is actually well below what society is ordinarily willing to pay to save a life.

Most health care policy experts point out that Medicaid expansion is a huge financial windfall for the states, and that the logic of expanding Medicaid should be strong enough to overcome any resistance due to ideology. The states that do not expand Medicaid will be turning down “free money.” They will have to explain to their citizens why they can't have health care that is fully paid for by the federal government. The citizens of those states will be paying to expand Medicaid anyway through their federal taxes, their money will go to the states that have accepted the deal.

Uninsured citizens in the non-expanding states will continue to show up at hospital emergency rooms. Their care will be paid for through cost shifting. Costs are shifted in three ways.

1. Some of the cost is paid by those who have health insurance. Their premiums are higher to cover the cost of treating people without health insurance.
2. Part of the cost is paid by federal, state and local taxes, which provide emergency health care for the poor. The Urban Institute estimated that in 2008, state and local governments spent $10.6 billion providing emergency care for the uninsured. But beginning in 2014, the federal government will no longer subsidize emergency care, so the burden will fall even more heavily on state and local government. If they expand Medicare, state and local governments will have to spend very little on emergency care. This cost savings alone could be greater than the cost to states even when they are paying 10% of the cost of Medicaid expansion.
3. Finally, part of the cost is shifted to hospitals through what is called “forced charity”—uncompensated medical care for the uninsured.

Whatever Medicaid costs the federal government—and our best estimate is $6000 per recipient—this money will be added to the economies of the accepting states. Initially, it will go primarily to doctors, hospitals, pharmaceutical companies and other health care providers. Doctors and hospitals have already agreed to reduce their reimbursement rates under the ACA, in anticipation of having many more customers due to Medicaid expansion. They are also not happy about forced charity. They can be expected to lobby heavily for Medicaid expansion.

These advantages must be balanced against the costs to the states of Medicaid expansion.

1. The 5% (in 2017) to 10% (2020 and thereafter) of the cost of Medicaid expansion is not exactly pocket change. Some states also claim to be worried that the Feds will play a “bait and switch” game on them and increase their financial obligation in the future.
2. States also claim to be worried about the “woodwork effect.” Many Americans who are eligible for Medicaid in their state don't apply for it. However, the publicity surrounding the ACA and the threat of a fine for violating the individual mandate may persuade more eligible people to sign up. The states will then be responsible for whatever part of the cost they would have had to cover under traditional Medicare. However, the woodwork effect will occur anyway, even if the states do not expand Medicaid.

Health care experts such as Aaron Carroll and Austin Frakt argue that, leaving all humane considerations aside, it's in the overwhelming financial interest of states to implement Medicaid expansion. In the next part, I'll look at how these financial contigencies affect Pennsylvania and attempt to evaluate Governor Corbett's stated rationale for refusing Medicaid expansion.

You may also be interested in reading:

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 1)

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 3)

Tom Corbett to PA's Working Poor:  "Drop Dead!" (Part 4)