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When should one blog the obvious...?
Usually I try not to blog points which already have occurred to everyone, even if those points are true and important. But today I will do so.
First, the idea of an employer mandate for health care is a tax on hiring labor in a time when, if anything, the hiring of labor should be subsidized. On top of that is the proposal to tax health insurance benefits. Keynesians especially should be upset about these developments, although I haven't heard many peeps. Even if they favor this policy in the abstract, surely they are accustomed to the idea that the short run is very important, most of all for labor markets and aggregate demand.
Second, Joseph Stiglitz's idea that "the UN has a key role to play in "reforming the global financial and economic system"" is a bad idea. It is a very bad idea. We're past the point where "they can't do any worse than we did" is a good or usable argument. Has the Public Choice revolution been such an unpalatable pill to digest?
On the brighter side, I did not agree with but enjoyed this comment from thehova (citing Michael Powell):
"Wilco" is a five-letter word for the quiet slaughter of all that is elemental, passionate, and reverentially stupid about rock 'n' roll.
Posted by Tyler Cowen on July 2, 2009 at 07:55 AM in Economics | Permalink
Comments
Tyler, please think like an economist and say a little more about the tax on employment. The numbers I read suggested that the tax would be approximately 375 dollars per employee per year (and only applies to companies with > 25 employees)... at the margin, how many jobs would this eliminate? 375 dollars is less than a dollar a day. How many jobs exist in the US for whom a 1 dollar a day is make or break as far as hiring? You might argue that for large companies the fees add up, but again, how much? I want a cost-benefit analysis, not just some knee jerk econ 101.
Posted by: Paul at Jul 2, 2009 8:32:03 AM
More than a dollar a day. Apparently I also have trouble thinking like an economist :-)
Posted by: Paul at Jul 2, 2009 8:42:24 AM
Further to Paul's comment:
Some (most?) of the employed will surly be happy to accept a lower wage, as they now get health insurance included in their benefit package.
Also, employees now having health insurance that they did not previously have will demand more health services. How large will this effect be? How many more employed in the health and insurance industries?
Obvious stuff one would think, but I must be missing something?
Posted by: Morten at Jul 2, 2009 8:44:46 AM
thehova credited the Village Voice (though not the review's author, Mike Powell). Maybe you should too.
Posted by: Tom Anderson at Jul 2, 2009 8:54:17 AM
Tyler- How is the "tax" of a health mandate not born by the employees, like every other payroll tax? If we believe our traditional views on incidence, the mandate is really a mandate to reallocate compensation towards non-wage health benefits. Granted their is always a dynamic that never seems to be considered in the long run incidence.
Posted by: Taggert J. Brooks at Jul 2, 2009 10:12:31 AM
Paul, it does add up, especially when hiring the 26th employee. 375 * 26 = $9750. $9750 is how much the 26th employee costs because the first 25 are free according to this tax. This equation: (9375 + 375x)/x, where x equals the amount of employees hired after the 25th, is a better representation of the cost per employee.
But even $375 per employee is rough at any level. For bigger businesses, as you say, it adds up. 1000 employees? That's $375,000 down the drain. That of course makes a difference. But even for small scale operations, barring the fact that the first 25 employees are free, the costs matter because presumably smaller businesses more clearly see the effects of smaller costs. This is all true because everyone is producing to the margin.
Benefits? That's another story. You could argue that the costs are worth the benefits. I'm just here to say that even "miniscule" costs make a difference.
Posted by: Daniel Reeves at Jul 2, 2009 10:32:34 AM
Since health care is a long lasting change does it make to sense to oppose it because of effects it will on a recession that will soon end. If it really it a problem they could just delay imposing the tax until 2011 or 2012 and fund it out of stimulus money.
Posted by: joan at Jul 2, 2009 10:44:27 AM
We're past the point where "they can't do any worse than we did" is a good or usable argument.
And we are not past the point where it is even faintly true. One look at the make-up of UN Human Rights Council should be a the only and final word on this farcical idea.
Posted by: Patrick at Jul 2, 2009 12:30:41 PM
"Some (most?) of the employed will surly be happy to accept a lower wage, as they now get health insurance included in their benefit package."
Darn those surly employees!
Posted by: Gene Callahan at Jul 2, 2009 12:39:55 PM
I'm agnostic about who reforms the global finance architecture. Presumably the USA doesn't have much legitimacy here after consigning countless nations to poverty and then not taking similiar draconian steps when your finances went in the crapper.
No the Human Rights Council isn't in charge of this anymore than USA's prison and courts employees are in charge of reforming helathcare.
I note dead silence about the substance of the reforms.
Posted by: Phillip Huggan at Jul 2, 2009 12:48:30 PM
When is the health-insurance task supposed to kick in? We aren't supposed to be in a recession forever are we?
Isn't the idea short-term stimulus to boost the economy (Keynesian-style) and long-term solutions to fix the structural deficit caused by impending increasing health care costs?
It'd be silly to avoid steps towards the long-run fix because they aren't ideal short-term. Just pass a bigger short-term stimulus package to subsidize employment.
Posted by: Paul J. Reber at Jul 2, 2009 12:51:25 PM
Where does the $375 come from. The number is twice that, $750.
Plus once the mandate is in place, Congress will find it much easier to tinker with the number as budget requirements change.
Quick review. What determines the wage rate? The marginal productivity of labor and the cost of capital. Employers will need to find a way to increase the productivity of their workers and/or find substitutes for labor. Easiest way to increase the productivity of unskilled workers, export the jobs to low wage countries. Next automate some jobs. Next reduce total employment. eliminate marginal entry level jobs. If you are lucky enough to employee in Hawaii you can pass much of the cost onto tourists. If you live in North Carolina you see a drop in unskilled workers employed.
Posted by: DanC at Jul 2, 2009 1:49:35 PM
When should one comment the obvious...?
The site is called MARGINAL Revolution.
Posted by: Andrew at Jul 2, 2009 2:39:26 PM
It may be really obvious, but not to me: why is the UN participation in financial and economic reform a bad idea?
The argument that Stiglitz brings, that smaller groups like G-20, are not that representative of the whole world seems appropriate to me.
The fact that the UN is the nearest thing to a world government that we have, and that there is a case to make that the 21st century should see the first world government with real power, suggests that the UN should take care of these issues (as well as climate change coordination, international justice, international military interventions, etc.).
Posted by: jose at Jul 2, 2009 5:28:16 PM
You'll have to explain how "Public Choice revolution" is relevant for discrediting the UN, for those of us that didn't go to George Mason U. Google tells me it means you can game political actors against themselves to achieve your own objectives if you slut your loyalties correct. Stiglitz is talking about establishing an alternative to USD as primary reserve vehicle.
You're saying money market managers should reflexively go to USD in future recessions (even ones where a hyperinflating USA is trying for weak currency manufacturing exports?)...because...it would be too confusing to have different choices...and the other actors would be misrepresenting their economic and financial stats to gain reserve currency status?
If Republicans were in charge now (as they were in Canada last fall and fought stimulus tooth and nail), the developing world would be the only hope. Be nice to for world to have a Plan B if Republicans do find a pretty VP face with brains.
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