On the Nobel Prize in Economics*

Eugene Fama and Lars Peter Hansen of the University of Chicago--along with Robert Shiller of Yale--have ended up sharing the prize for this year. Fama and Shiller are on different sides of the asset-pricing debate; Fama is a major proponent of the Efficient Market Hypothesis, and Shiller is . . . well . . . very much not a major proponent of EMH, so the awarding of the prize this year reflects the major split in the economics community that exists concerning asset-pricing.

I was curious as to how Paul Krugman would greet the news that Eugene Fama--he of the Dreaded Chicago School of Economics--was awarded the Nobel, and sure enough, Krugman didn't disappoint those who are used to the way in which he dismisses and insults intellectual opponents. Shorter Krugman: Fama is awesome because he set up an intellectual rubric against which alternatives could be tested, and Shiller is even more awesome because he showed how Fama was wrong, and by the way, Krugman has graciously decided to ignore the "foolish things" (by Krugman's lights) that Fama has said. Also, it's great that the prize committee both gave Fama a share in the Nobel while pointing out that he's oh-so-terribly wrong.

This, by the way, is Paul Krugman being gracious, which goes to show that however one prices certain assets, grace and class are always at a premium with some people.

*It's actually the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, which means that it is not one of the original Nobel prizes mentioned in Alfred Nobel's will. I'm sure that neither Fama, nor Hansen, nor Shiller will lose sleep over this fact.

What Paul Krugman Gets Wrong

Let us make a little list:

  • Tyler Cowen points out that when it comes to discussing Milton Friedman's analysis of the Great Depression, Paul Krugman gets things wrong.
  • Both Tyler Cowen and Donald Boudreaux point out that Krugman gets Hayek wrong.
  • Raghuram Rajan points out that Krugman gets Carmen Reinhart and Kenneth Rogoff wrong, though I am not sure that Krugman actually engaged in a classic ad hominem. It seems that he was just needlessly insulting and made ludicrous charges against Reinhart and Rogoff, which is par for the course for Krugman when it comes to dealing with people he views as enemies.
That's a lot of things to get wrong in a short period of time. Fortunately, as ever, Krugman proves himself equal to the task.

When Nobel Prize Winners Miss a Trick

A strange post by Paul Krugman. I know, I know; that's like saying "water is wet," but this is an especially fascinating case of Krugmanian shortsightedness.

Krugman is commenting on the habit of wealthy New Yorkers to purchase

. . . pied-a-terres in newly fashionable Lower Manhattan. You have to read a bit carefully to realize that these are, for the most part, people with apartments on the Upper East Side; their downtown bolt-holes are to avoid the need to trek uptown after a night out.

Krugman approves of this, because

. . . the truth is that of the various things the wealthy might spend on, this is one of the less offensive; it might even reduce externalities, if people walk back to their downtown hideaways instead of having a limo wait outside the restaurant for hours.

I get the reasoning here. I really do. Krugman believes that if people have second apartments, they will be able to rely less on limousines or other forms of motorized transportation, which means less carbon dioxide in the atmosphere, which might help solve the global warming problem. But not a thought spared for the poor limo driver who might lose his/her job as a consequence of all of this (even as real estate agents get richer)? And no conception of the possibility that a limo doesn't have to have the engine running while it waits for someone?

You know, it's best to think things through before writing a blog post. Too bad that Krugman often doesn't.

Is Obamacare Affordable?

There has been some celebrating on the port side ever since stories like this one came out, indicating that premium costs associated with the Affordable Care Act--Obamacare--are, well, affordable. We are to believe that 

[b]ased on the premiums that insurers have submitted for final regulatory approval, the majority of Californians buying coverage on the state's new insurance exchange will be paying less—in many cases, far less—than they would pay for equivalent coverage today. And while a minority will still end up writing bigger premium checks than they do now, even they won't be paying outrageous amounts. Meanwhile, all of these consumers will have access to the kind of comprehensive benefits that are frequently unavaiable today, at any price, because of the way insurers try to avoid the old and the sick.

Paul Krugman is positively gleeful as he contemplates the political consequences that he expects to ensue should these findings hold up:

. . . think about the political dynamics. Because the Supreme Court decided to let states opt out of the Medicaid expansion, some states — notably Texas — will have a pretty dysfunctional version of Obamacare in 2014, although even those systems will provide significant benefits to many people. Still, the whole political calculus was supposed to be that Republicans in red states could point to the horrors of Obamacare and ride them to political victory. Instead, it looks as if we’re going to see blue-state residents reaping the benefits of a functional health care system, while red-state residents are denied many of those benefits, for what looks like no better reason than mean-spirited spite — because what’s going on is, indeed, mean-spirited spite.

Predictions that Obamacare will be a big political issue are probably right — but not in the way gleeful conservatives imagined.

Unfortunately for Krugman et al., these claims of triumph do not give us some very important details about the California findings. For those details, one must consult Walter Russell Mead:

On Wonkblog, a pro-ACA outlet that cheered loudly when the California numbers came out, Sarah Kliff argues that success in the Golden State might not be replicable elsewhere. According to Kliff, California is one a few states to take an “active purchaser” approach to the ACA. This means that a state board has the power to select which plans will be available in the exchange, and can reject any plan whose rates are too high. Most other states, however, do it differently:

The vast majority of states…operate under a “clearinghouse model.” In that scenario, any health plan that meets a set of criteria gets approval to sell on the health insurance exchange. All 33 state exchanges that the federal government will run operate under this  clearinghouse model. So do 10 of the 18 state-run health exchanges (this includes the District of Columbia). Two states, Kentucky and New Mexico have not, according to Kaiser Family Foundation, addressed the issue yet.

In the final count, only six states are currently “active purchaser” states, so nationwide might not be as low as California’s projections suggest.

If that’s not enough to temper any lingering optimism, consider that the state had to make some significant tradeoffs to keep rates so low, as an 
LA Times piece reveals. Under the plans offered on the exchange, consumers will have access to far fewer doctors and hospitals. Blue Shield of California, for example, will give its exchange customers access to only 36 percent of its regular physician network . . .

Mead ends his piece with the following words: "With Obamacare, even the good news is often bad." Quite so.