Tuesday, July 17, 2012

A Brief Comment about the Relative Efficiency of Diesel Vehicles

It is true that diesel-powered vehicles get more miles per gallon than comparable gasoline-powered vehicles.  But is this the correct way to compare the two fuels?

By way of background, I have been thinking about this question both because I own a diesel car and because of a fact I ran across long ago at work.

In the late 1970s, I worked in the Treasury's Office of Balance of Payments.  One of my assignments was to maintain a model used to predict U.S. oil imports.  Because the model used data involving refined petroleum products, I became aware of a phenomenon called "refinery gain."  Refinery gain refers to the fact that more barrels of refined product leave a refinery than barrels of crude come into the refinery.  The reason for this is that refined products are less dense than oil and therefore take up more volume for a given weight.

A gallon of diesel is around 17 to 19 percent heavier than a gallon of gasoline and there is more energy to be extracted from a gallon of diesel than a gallon of gasoline.  If we were comparing miles per pound rather than miles per gallon, the advantage of diesel fuel over gasoline in terms of mileage would be much less.  While it is not practical to sell fuel at the retail level by weight, thinking about mileage in this way would make for a different analysis.

At the retail level, those who say that, in the U.S., diesel is more expensive than gasoline are thinking in terms of volume not weight.  Moreover, at the moment, the price of diesel in terms of gallons is about the same as midgrade gasoline at the gas stations I frequent in the Washington, D.C. area.  Diesel is obviously cheaper by weight here. For those wanting to save on fuel costs, buying a diesel car is worth considering, though cars with diesel engines are more expensive than those with gasoline engines. (In my case, this price differential was at least partly offset by a tax credit that was available to the purchasers of particular diesel and hybrid engine models, which is no longer available for the model of car I bought.)

Also, it is interesting that in Europe, volumes of crude oil are usually measured in metric tonnes, while in the U.S. we measure crude oil in terms of barrels (42 gallons), though it has been a long time since oil was transported in 42 gallon barrels.  Thinking about oil in terms of weight rather than volume would seem to be more appropriate.

As far as how green diesel cars are compared to conventional gasoline cars, I have not come across any good analyses.  Part of the problem is that the composition of the emissions from the two fuels is different.  There are also differences in the refining process, if one wants to take a broader view of how green each fuel is.

In Europe, about half of the cars are diesel, while in the U.S. it is a very small percentage. European car purchasers are responding to economic incentives partly due to government tax policies. Whether diesel should be more encouraged in the U.S. is an issue worth studying. The analysis required is more complicated than it might first appear.

Tuesday, July 10, 2012

Why the Affordable Care Act is a Drafting Mess and Why No Single Act is the ACA

The health reform legislation is very difficult to read and there is even some confusion about what it should be called. From reading John E. McDonough's book, Inside National Health Reform, here is my understanding about why there are these difficulties.

On November 7, 2009, the House passed the "Affordable Health Care Act for America Act." Then the Senate passed the "Patient Protection and Affordable Care Act" ("PPACA") on December 24, 2009.

The Senate included a Title 10 in the PPACA which amends the other nine titles. The reason it was done that way was that the Republicans in the Senate indicated that they would force a cloture vote for each amendment, which would have been too time consuming. The Senate Democrats expected that the House would fix the problem and incorporate the amendments in each of the other nine titles.

After Scott Brown won the election to replace Senator Kennedy in Massachusetts on January 19, 2010, the House had to pass exactly what the Senate had passed, because there were no longer 60 votes in the Senate to break a filibuster threat. The House passed the PPACA with a separate Title 10 on March 21, 2010. President Obama signed the PPACA on March 23. Subsequently, the Senate passed through a budget reconciliation procedure, which cannot be filibustered, a "sidecar" piece of legislation, the "Health Care and Education Reconciliation Act" ("HCERA"), on March 26, 2010. The House passed it on the same day, and President Obama signed it on March 30. HCERA amends the PPACA.

Thus, we have a PPACA with a Title 10 that amends the language in the other nine titles and a HCERA which amends the PPACA. That makes things difficult. Apparently, there is a reading copy in existence that incorporates the amendments, but any disputes have to refer to what Congress actually passed.

The name "Affordable Care Act" or "ACA" now generally refers to the PPACA as amended by HCERA.

Incidentally, the Senate had not included a severability clause for political reasons having to do with Republicans saying that the Democrats doubted the constitutionality of the legislation. (A severability clause would say that if one provision is found to be unconstitutional the other provisions remain in force.) The Senate Democrats planned to include a severability clause at a later point, but the Senate parliamentarian ruled that it could not be included in the sidecar legislation under the reconciliation procedure because it was not related to the budget. This made it easier for the four dissenters to argue that the whole of the ACA should be invalidated because of the Constitutional problems they found with the individual mandate and Medicaid provisions. In the end, it did not matter, since Chief Justice Roberts decided to rule the individual mandate constitutional under Congress's taxing authority and decided on a much less draconian remedy for the Medicare issue (limiting the withholding of federal Medicaid funds to states not going along with the Medicaid expansion to the amount to finance the expansion).

A Brief Note on CFTC Funding and Libor

The Administration has threatened a veto of a bill passed by the House Appropriations Committee on agricultural matters. Among other issues the Administration raises about the legislation, the bill would cut the funding of the Commodity Futures Trading Commission, which for historical reasons is funded under the agricultural appropriation legislation. The bill's consideration by the House has been delayed. The CFTC, which wants increased funding, can point to its role in the Barclays Libor case to highlight why it needs more funds to police adequately the OTC derivatives market. The Financial Times recently published an article quoting an unnamed lobbyist who said that part of the reason the CFTC is not getting the funding it wants has to do with CFTC Chairman Gary Gensler's relationships with some House members. While the article is otherwise generally flattering of Mr. Gensler, at the end it quotes the lobbyist as saying: "My view is the reason that the House keeps cutting his budget is about him [Gensler]… He makes a point to be right and tell them them they're wrong." Given the growing Libor scandal, though, it may be more difficult for Republicans to oppose increased funding for this small agency, but we'll see. It seems to be a current Republican talking point that the Dodd-Frank legislation and associated regulations are costing the economy jobs.

The Importance of Medicaid

I recently finished reading John E. McDonough's book, Inside Health Care (University of California Press, 2011), which is a very useful explanation of the provisions of the Affordable Care Act.

He notes why Medicaid is important: “Medicaid and CHIP are the nation's key public health insurance programs for about sixty million low- and lower-income Americans.  While the programs cover approximately 15 percent of the U.S. population, Medicaid and CHIP cover more than 40 percent of lower-income Americans, 24 percent of African Americans, 23 percent of Hispanics, 53 percent of low-income children, and 41 percent of all U.S. births – as well as 20 percent of Americans living with severe disabilities, 44 percent of persons living with HIV/AIDS, and 65 percent of nursing home residents.” (p. 142)

About Medicaid and the health care legislation, McDonough writes: “In four weeks of Senate debate on the PPACA through December 2009, it is easy to find statements by Republican senators disparaging the Medicaid program.   Far more difficult is finding statements from Democratic senators either supporting or defending the program that provided health insurance protection - including the Children's Health Insurance Program (CHIP) – to an estimated 60.4 million Americans in 2010, now the nation's largest health insurance program (by contrast, Medicare had an estimated 46.8 million enrollees in 2010).  If the ACA is implemented as written, that number is projected to grow by 21.8 million to 82.2 million by 2019.  Through the ACA, Congress has enacted the most thorough revamping of Medicaid in its history, and there was no Democratic senator who articulated a vision – or even just an explanation – of what was being done and why.” (p. 141)

Of course, given the recent Supreme Court decision and the uncertainties of which political party (or parties) will control the Congress and the Executive Branch next year, we do not know how Medicaid will evolve.

Friday, July 6, 2012

A Brief Note on Monetary Policy

Those who are currently complaining that monetary policy is much too loose most often fail to note that the relationship between the monetary base and the money supply has changed dramatically beginning in the last half of 2008.  While the Federal Reserve will face a difficult decision at some point about interest rates and its provision of reserves to the banking system, it is hard to take seriously any analysis that does not take into account the dramatic reduction in the money multiplier.

For evidence of what I am talking about, here is a graph of M2 and the Federal Reserve Bank of St. Louis adjusted monetary base.  The left scale is logarithmic.

FRED Graph

And here is the M1 money multiplier as calculated by the St. Louis Fed using their adjusted monetary base:

FRED Graph

Thursday, July 5, 2012

The Peculiar Lineup of Justices on the Medicaid Decision

The Medicaid portion of the ACA case shows how splintered the Supreme Court was in this case. Two liberal justices, Stephen Breyer and Elena Kagan, joined the section of Chief Justice Roberts' opinion concerning Medicaid. But three Justices do not make that the opinion of the Court. The four dissenters also argue that Congress went too far in attempting to coerce the states to accept the expansion of Medicaid by cutting off all Medicaid funds if they did not, but the dissenters do not reach the same conclusion about what the remedy should be and did not join Roberts' opinion on this or anything else. The four dissenters conclude that the entire ACA should be declared unconstitutional because of the problems they see with it. However, Justice Ginsburg in the section of her opinion dealing with Medicaid, with which Justice Sontamayor joined, agreed with the Chief Justice that the remedy for the Medicaid issue would be to limit the reduction in funds paid to a state rejecting the Medicaid expansion to the amount for reimbursing the state for the expansion. Ginsburg and Sontamyor, though, while agreeing to the remedy, did not agree that the original Medicaid provision was unconstitutional. This result is peculiar, to say the least.

Some Comments on the Supreme Court Decision on the Affordable Care Act

The recent Supreme Court decision on the Affordable Care Act was peculiar, to say the least. The dissenting opinion does not discuss the controlling opinion of the Chief Justice, even where they agree, and takes issue with Justice Ginsburg's opinion, which they call a "dissent" when in fact it was also a partial concurrence. The dissenters are apparently really angry, and someone confirmed this and provided other information about the internal politics of the Court in a leak to CBS reporter Jan Crawford.

One question that has lawyers scratching their heads is what exactly the Court held about the Commerce Clause. The dissenters did not sign on to Chief Justice Roberts' opinion on this subject and neither did the four liberals. The four liberal justices, though, apparently agreed that the "Court" held that the mandate could not be justified by the Commerce Clause, even though they did not agree with this. From their point of view, what was important is that they did agree with the Chief Justice that the so-called mandate was justified by Congress's taxing power under the Constitution. The controlling opinion on the Commerce Clause, therefore, is that of the Chief Justice alone. What weight does that have as a precedent?

In fact, this may not matter that much, since lower courts are unlikely to get a case with anything like the fact pattern of the ACA case anytime soon, if ever. How the Court builds on this Commerce Clause decision and whether it does depends more on the future makeup of the Court than on the precedential value of this case.

Many observers seem to think that the Republican governors who say that they will reject the Medicaid expansion in the ACA, as they are more able to do as a result of the Supreme Court decision, are playing Republican politics and hedging their bets by hoping for a Romney win and ACA repeal. Assuming that the ACA is not repealed, most observers believe that the money that comes with the federal government offer is too great to refuse and that hospitals will be lobbying furiously in state capitals for their states to take the money. Otherwise, the hospitals will have to eat the costs of more uninsured patients showing up in emergency rooms. Moreover, the hospitals will feel some urgency about this since the ACA reduces the Disproportionate Share Hospital Payments for hospitals that provide more services than the average to low income patients who are uninsured or currently covered by Medicaid or the Children Health Insurance Program ("CHIP"). This is probably correct, but my guess is that some states will not sign up right away, which will be to their economic detriment.

The ACA relies heavily on the expansion of Medicaid to reduce the number of people without any kind of health insurance. Medicaid, unlike Medicare, is a joint program of the federal and state governments. Currently, some states are much more generous than other states, and, of course, the experience of those eligible for Medicaid in dealing with state bureaucracies varies depending on the state. The expansion of Medicaid is designed to bring some uniformity across the country regarding eligibility, but this may be thwarted for a while because of the Supreme Court decision and the internal politics of the Republican Party.

Medicaid and Chip are very large programs. John E. McDonough writes in his book, Inside National Health Reform (University of California Press, 2011): "Medicaid and CHIP are the nation's key public health insurance programs for about sixty million low- and lower-income Americans. While the programs cover approximately 15 percent of the U.S. population, Medicaid and CHIP cover more than 40 percent of lower-income Americans, 24 percent of African Americans, 23 percent of Hispanics, 53 percent of low-income children, and 41 percent of all U.S. births – as well as 20 percent of Americans living with severe disabilities, 44 percent of persons living with HIV/AIDS, and 65 percent of nursing home residents." (p. 142) Medicaid and CHIP cover more people than Medicare.

According to McDonough, the number of people covered by Medicaid and CHIP will increase to 82.2 million by 2019 if the ACA "is implemented as written." (p. 141) Of course, the Supreme Court has changed Title II of the ACA, which deals with Medicaid, and there are likely to be legislative changes before 2019 in any case. I am not convinced that the expansion of Medicaid is the best way to cover the poor, partly because the current Medicaid program has problems and partly because some states are not enthusiastic or very good at running health insurance programs for the poor, but it is certainly better than nothing. My hope is that, regardless of what the Supreme Court did, we will improve the provision of medical services for the poor in the coming years.