Links worth reading

What have I been reading over the last month?

• Glenn Greenwald on media propaganda surrounding drone victims
• Jed Rakoff on how our criminal justice system forces innocent people plead guilty to crimes they didn't commit 
• SWAT team blows hole in chest of 2-year-old for no reason, consequence free
• Al-Jazeera on voter suppression in the United States
• Obama administration sides with employer in flagrant wage theft case
• Glenn Greenwald on American media propaganda reporting on Latin America
• Alana Semuels on National Nurses United
• Glenn Greenwald asks: How many Muslim countries has the United States bombed or occupied since 1980? ("Reflecting their single-minded obsession with demonizing Muslims...they notably neglect to note thriving gay communities in places like Beirut and Istanbul, or the lack of them in Christian Uganda.")
• Glenn Greenwald and Murtaza Hussain on the horrific conditions of post-intervention Libya

Social democracy / social security is the fiscally responsible choice

Image: The fiscally responsible save for a rainy day. (source)


UPDATED--see below [in brackets]



It should go without saying that budget deficits aren't a result of government spending, but rather the balance of government spending and government income. This becomes obvious when we look at budget deficits of the social democracies, which have far greater government spending per capita than the United States. The United States' budget deficits were 7% of GDP in 2012 (and 10.1% in 2009 at the height of the Great Recession), while Denmark's were 4%, Austria's were 3.1%; Finland's were 2.1%; Iceland, 1.9%; Sweden, 0.3%; and Norway actually ran a surplus of 13.8%. Social democracies are generally very responsible fiscally, historically running fewer budget deficits (chart 4.1) than most other OECD countries, including the United States (Austria being the exception) (click for unobscured graph):

It's important to remember that this 35 year period includes is an incredibly severe recession that affected only Scandinavia in the 1990's; for Finland, this recession was arguably worse than their experiences during the Great Depression. Despite having an extra recession, the social democracies managed to be more fiscally responsible as a whole than the rest of the developed world.

[Update, 02/19/2016: Simply tallying the number of years of budget deficits can be misleading, since a single year may have a greater deficit than the cumulative effect of many years of very small deficits. So, here's a graph of government financial net worth (government assets minus liabilities) with datapoints for 2007, 2009, 2013, and 2014--so before, during, and after the Great Recession. I've marked the social democracies in red and the United States in blue:

Clearly, the social democracies are very fiscally responsible by this measure as well.]

Not only have the Scandinavian social democracies had fewer years of budget deficits, but their rock bottom borrowing costs indicate that investors have utmost confidence in the finances of the social democracies. Markets do err, but the market for the debt of social democratic countries proves that no one seriously thinks that large social democratic welfare states pose a threat to a country's fiscal footing--simply because nobody is willing to bet their money against it.

This adds up to a compelling case that social democracy is fiscally responsible.

Scandinavians don't mind paying taxes, and neither do Tea Partiers

Image: Social democratic activists (source)


The Swedish really love paying taxes:

[A 2012] survey shows that 80 percent of the population thinks the municipal and regional governments should increase the quality of childcare, while only 15 percent think that taxes should be lowered instead. Furthermore, 93 percent believe that the local governments should increase care for the elderly, while only 5 percent favor lowering taxes. Similarly, 91 percent prefer increasing the quality of healthcare rather than lowering taxes.

Since I don't speak a Scandinavian language, more data like these have proven difficult for me to locate. But it's clear that Scandinavians really like paying taxes, and the Swedish even think very highly of their tax collection agency:

Skatteverket, the Swedish Tax Agency, is popular. In fact, it is really popular, with poll after poll showing that it is trusted and respected. A 2013 survey concluded that the Tax Agency has the second-best reputation – beaten only by the Swedish Consumer Agency – of 26 major Swedish public bodies, scoring highly for its customer service and for ‘contributing positively to society’.

‘You don’t have to like taxes, but most people seem confident that things are done fairly’, says Toivo Sjörén of market research institute TNS Sifo, which conducted the poll (link in Swedish).

By contrast its American equivalent, the Internal Revenue Service, is one of the least popular federal agencies in the United States, according to a 2013 poll.

So how has the Swedish Tax Agency managed to pull off what seems like the ultimate confidence trick – taking people’s money but leaving most of them grateful and smiling?

This feat is pulled off very simply. The Guardian wrote a neat story that interviewed the typical Sven on the street about taxes and the welfare system. See if you notice the pattern:

Why social democracy can work in a city, county, state, or country of any size

A common argument holds that social democracy cannot succeed in the United States because it is thirty times more populous than Sweden--population 10 million--the largest social democratic country (though Kerala is a social democratic state in India with 20 million residents). The reason why size is so important is never articulated--but it is nevertheless taken as obvious that social democracy is practical in a nation of 10 million, but impossible in a nation of 316 million.

There are several problems with this argument, however. From the outset, the United States has two extremely successful social democratic programs--Social Security and Medicare--so the burden of proof for this argument is enormous.

Indeed, this assumption contradicts the basic statistics behind social policy design. As I wrote previously, the major strength of social democracy is that the cost of providing services to each participant falls as the number of participants increases. Though there are diminishing returns, for social democratic-style social welfare programs, bigger is always better. The more people participating in a social democratic system, the more secure, efficient, and cost-effective that system will be. In theory, then, social democracy should function better in larger countries like the United States than in smaller ones like Denmark or Sweden.

Of course, statistics and actuarial tables occur in paper, ink, and computer models, not in the real world. Perhaps there are practical, more down-to-earth logistical or management difficulties that are incurred in administering social welfare programs when there are hundreds of millions of participants, rather than millions.

Indeed, intuition argues that large systems cannot be efficient. When a system gets larger and larger, more and more layers of bureaucracy and management are needed to successfully run that system. For an example, let's assume that every ten people need to be managed by a supervisor. For a program with ten employees, one supervisor is needed--that's one layer of management. But if there are 100 employees, then ten supervisors are needed--meaning those ten supervisors need a supervisor--and suddenly we have two layers of management. As more and more employees are needed to administer a program, more and more layers of management are needed, stifling efficiency with oppressive bureaucracy. At some point, the increasing efficiency of more enrollees is certainly overcome by the decreasing efficiency of needing to layer more and more levels of management.

But the intuition is wrong. The administrative costs of Social Security are less than 1% and those of Medicare are around 3%. Neither Social Security nor Medicare have layers upon layers of management. Medicare, for example, is administered by the Centers for Medicare and Medicaid Services (CMS). CMS is responsible for Medicare, Medicaid, HIPAA, parts of Obamacare, clinical laboratory standards, long term care facility standards, and the Children's Health Insurance Program (CHIP). All told, 100 million Americans are covered by a CMS health insurance program: Medicare, Medicaid, or CHIP. Despite enrolling 100 million people--nearly a third of the entire country, or ten times the entire population of Sweden--as well as having numerous other responsibilities, CMS only employs around 4000 people (far fewer than private sector insurance companies).

Comparing the administrative costs of Obamacare to single payer

Above: Critics of Obamacare from the right
Below: Critic of Obamacare from the left

Since this is a very long post, I wanted to emphasize at the beginning that we're most interested in two numbers: $5 billion and 27 million. Obamacare is (at least) $5 billion more expensive than single payer. And, Obamacare leaves 27 million people uninsured that would otherwise be covered by single payer. Essentially, our political system chose to pay $5 billion to prevent 27 million people from getting health insurance.
[UPDATE]--The $5 billion number comes from only start-up costs for the Obamacare website and exchanges--so only for the exchanges and only through 2014. Himmelstein and Woolhandler use CMS estimates to calculate the increase in administrative costs caused by Obamacare to the entire health care system (public and private) from 2014 to 2022: over a quarter of a trillion dollars. See full update at the bottom of this page.



This is the third and final post on how the design of social welfare programs affects their administrative cost. The first two posts (part 1, part 2) established the theoretical framework, exploring how various aspects of social policy design, like eligibility, actuarial values, economies of scale, etc, should affect administrative cost and program efficiency. Of course, theory does not always match reality, so a separate series of two posts compared the individual and aggregate costs of the American versus social democratic welfare states using real world data. This demonstrated that the theory behind program design is sound: the theoretical administrative efficiencies of the social democratic model indeed result in enormous cost savings in the real world.

Missing thus far is an example of social policy analysis using the lessons of administrative design on a real world social welfare policy. This post concludes this series on administrative cost by performing such an analysis on Obamacare. We will examine all the areas of administrative cost (and waste) covered in parts 1 and 2: universal eligibility, actuarial values, economies of scale, automatic enrollment, and other, miscellaneous administrative issues. Since we've already established that the social democratic (single payer) system is the most efficient option, we will compare the administrative structure of Obamacare to the single payer model, and how Obamacare's design makes it less efficient than single payer.

Before beginning, it's worth reiterating that Obamacare is basically the law Obama wanted, not something watered down to get conservative votes (see here and here) (and recall that every single Republican in both houses of Congress voted against the bill, minus one abstension).

Obamacare and universal eligibility
Single payer systems derive much of their efficiency from universal eligibility. When everyone is eligible, there is no need to hire legions of bureaucrats to ensure that all applicants meet eligibility requirements, or verify that all current beneficiaries remain eligible. Every step away from universal eligibility means that some system must be created and staffed by bureaucrats to ensure that only eligible applicants are able to participate, and this does not happen for free.

Links worth reading: Jacobin edition

Jeff Bryant on the (predictably) broken promises of the charter school movement

Glenn Greenwald on the American political class's lurching from supporting dictatorship, then democracy, then back again to dictatorship in Egypt

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The next issue of Jacobin is due out very soon. It sure seems longer than 3 months since the last issue of Jacobin was sent out. To hold you over until the next issue, here are some of my favorites from Jacobin so far:

Megan Erickson - The Strike that Didn't Change New York
Llewellyn Hinkes-Jones - Bad Science
Pankaj Mehta - There's a Gene for That
Seth Ackerman & Mike Beggs - Don't Mention the War
Gavin Mueller - The Rise of the Machines
Penny Lewis - The Myth of the Hardhat Hawk

U6 Watch: September 2014

Vox has two articles on the labor market worth reading, both highlighting recently released data that confronts the misleading U3 unemployment rate. A drop in the U3 unemployment rate is not an entirely positive development because:

• Some of the drop in the U3 unemployment rate continues to reflect a drop in the labor force participation rate. This disproportionately affects female workers and is still vastly underestimated by policy makers and commentators.