The IMF’s Fourteenth Jacques Polak Annual Research Conference – Some Observations

Last week, the IMF held its annual research conference, which was open to members of the public who registered prior to the conference as guests. I attended the two-day conference and have a few observations.

One of the striking things about this conference was the concern about unemployment, especially long-term unemployment and youth unemployment. The worry is that these factors can cause long-term damage to the economy. One paper by three Federal Reserve Board staffers, including David Wilcox, Director of the Division of Research and Statistics and former Treasury Assistant Secretary for Economic Policy during the Clinton Administration, got particular attention in this regard. The paper – “Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy” – is technical but its conclusions after reporting on model simulations are not reassuring. It argues that the “natural rate of unemployment” has increased and that potential GDP decreased by 7% in the wake of the financial crisis. During the seminar, Wilcox indicated particular concern about unemployment. In his New York Times column, Paul Krugman, who gave the keynote speech at the conference, called this paper the “blockbuster” of the conference.

There was also consideration of what the government should do about an economy mired in a slower than desired recovery. Stanley Fischer (the former head of the Israeli Central Bank, the former deputy head of the IMF, and a renowned economics professor at MIT), who was the honoree of the conference, said that the next revision of his textbook will say that the “zero-bound” does not mean that monetary policy is done, since Bernanke has had some success with quantitative easing. Larry Summers and others indicated that QE has not been enough. The obvious implication is more aggressive fiscal policy, which was more clearly embraced by some speakers than others. I did not hear much deficit hand-wringing, though. Given its history, it is somewhat surprising to hear this at the IMF. It is nice to see people taking to heart the famous statement attributed, perhaps falsely, to Keynes that, when the facts change, he changed his mind.

The last session at the IMF conference included talks by Stanley Fisher and three of his former students – Ben Bernanke, Larry Summers, and Ken Rogoff. Summers' speech was particularly interesting and it was the most entertaining talk I've seen him give. He seemed less constrained in what he said since he is not currently a candidate for any public post. He got a laugh from the IMF staffers in the audience when he suggested that there be a key they could hit when preparing an IMF country report which would insert at the end a statement to the effect that, whatever was being proposed for the near-term, long-term financial prudence in government budgets was, of course, of the utmost importance (or something like that). 

An amusing aspect of the conference was that an author would discuss his or her paper and it would all sound perfectly reasonable. Then, sometimes, the discussant would declare that he or she found the paper very interesting and learned a lot from it. But then sometimes the discussant would next politely but effectively demolish the paper by saying that it was based on too many simplifying assumptions and did not take into consideration x, y, or z. The discussant would conclude by saying that the authors should come up with something akin to a unified field theory (okay, those are my words) on the particular issue they were working on. This would leave the audience on a barren plain, with no guidance about where to go or what to think.

What was missing during the conference was much discussion of the links between economic distress and political developments. I can understand why the Fed and the IMF would want to steer clear of any such discussion, but it remains the case that political developments can affect economic performance and economic performance can affect politics. Severe economic developments can spur groups both on the left and the right. Sometimes this can lead to disastrous consequences; sometimes these movements fizzle out. It depends both on the circumstances and the political culture of a particular country. In the U.S., the rise of the Tea Party is partly due to hard economic times. My guess is that this movement will eventually fizzle out. But how long can countries in the European "periphery" be subject to austerity measures and high unemployment without negative political ramifications? After all, some of these countries were dictatorships not that long ago.

Complicated econometric techniques would not be that useful in looking at the political dimension of hard economic times, and using these techniques, however unrealistic the assumptions sometimes have to be when using them, is what economists are now comfortable doing.

It would be good if economists and political scientists worked together on the feedback effects between economics and politics. Maybe some will, but the institutional separation between economics and political science departments seems to be a high barrier.

Some Recent Articles Criticizing the Affordable Care Act

Critics of the Affordable Care Act are having a field day. Reasons include the well-publicized problems of the federal website for those shopping for health insurance under the ACA, the cancellation of existing insurance plans for some who acquired insurance as individuals, and the President’s false assurances that everybody could keep their existing plans if they “liked” them.. Some of the criticism I have run across comes from well-off, self-employed people; some is purely motivated by politics; and some make come from conservative analysts making valid criticisms and sometimes constructive suggestions.

An example of an unhappy well-off person is Lori Gottlieb, a Los Angeles marriage and family therapist and writer. This past Sunday the print edition of the New York Times published her article on her health insurance travails – “Daring to Complain About Obamacare.” She has two major complaints. First, she thinks the premium increase of $5400 a year over what she had been paying for her canceled plan by for a new plan offered by her insurance company, Anthem Blue Cross, is too much. Her second complaint is the lack of sympathy from her Facebook “friends” when she complained about this on her FB page. The problem with the first complaint is that she apparently has not done any research on what other plans might be available to her. She incidentally would not be dealing with the federal website but the California one, since California has set up its own exchange. Also, she does not mention that her out of pocket costs will be less than any premium increase, since as a self-employed person she can deduct the cost of health insurance as a business expense. The second complaint is pure whining from a person who probably has a relatively high income. Nevertheless, it is true that, if all she knew about the ACA was what the President said, she is right to complain that she was misled. (I would point out that anyone who thought about it had to know that the President’s assurances could not be taken at face value, since insurance companies can always change their plans, cancel policies, raise premiums, and change the membership of its network of providers. More criticism of Gottleib’s article from the progressive left can be found here.)

Today, the Administration bowed to the intense political pressure and announced that it will allow non-compliant plans to continue offering the plans to existing customers throughout 2014. This should please Gottleib.  However, it is not clear how this will work. We will see if private insurance companies and state regulators go along. The new policy does raise an adverse selection issue, which could affect the risk pools on the exchanges. On the other hand, many in the individual insurance market eligible for subsidies may find that to be the cheaper and better option.

Keith Hennessey, who was Director of the National Economic Council in the George W. Bush Administration, has posted on his blog three articles expressing his outrage at the President Obama’s “lies.” He even went so far as to create a flow chart about this. To me, these posts are purely political, but they probably do not accomplish much since most visitors to his blog, except for a few like me, are already convinced that the Obama Administration is terrible at economic policy. His posts are examples of what Ana Marie Cox (founder of and former Wonkette, now serious Guardian columnist) calls “faux outrage.” Unfortunately, Hennessey does not seem interested in making constructive suggestions. (Incidentally, Hennessey’s making unfavorable comparisons between the current Administration and the one he worked for regarding their relative propensities to mislead is a bit rich, even if the major issues in this regard in the Bush Administration did not fall under his bailiwick. In the future, he might want to proceed more cautiously on this topic.)

In the remarkably stupid category of criticism of the ACA is an article by someone who should know better, Edward Lezear, who was Chairman of the Council of Economic Advisers in the George W. Bush Administration – “President Obama, is a 'substandard' health plan really substandard?” In this article, Professor Lezear compares existing insurance plans to the base Ford Focus he chose to buy when he worked for the White House. Even putting aside that cars and health insurance plans are hardly the same thing, would he really want to drive a car that did not meet the minimal safety standards required by the federal government and not be subject to recall if problems develop? Consumers do want government standards when it comes to cars. That is probably enough said about this article, which, as it appears on the Fox News website, is another example of preaching to the choir.

James Capretta, who was an Associate Director of OMB in the first term of the George W. Bush Administration and is clearly no friend of the Obama Administration, recently wrote an article critical of the ACA website issues – “It's Already Too Late to Avoid the Train Wreck.” Capretta uses stronger language than necessary when he writes this at the end of his article that “[t]he Obama administration is in a very dangerous place.” This detracts from the valid point Capretta makes about the website problems. He argues that, even if the website problems are fixed by the end of November, this only gives people about two weeks to sign up for coverage by January 1 (the deadline is December 15.) This may cause problems for both the website and the people having to decide what plan to sign up for and filling out the necessary website forms. That is a genuine concern. The Administration does need to be thinking about contingency plans if the first two weeks of December become a logistical nightmare.

Finally, writing for the Real Clear Politics website, Robert Pollock, who used to be an editor of the opinion pages of the Wall Street Journal makes a suggestion worth considering (“Fixing Obamacare: The Federal Charter Solution”). He suggests that it would greatly simplify the regulatory situation for health insurance plans if there was an option for them to get a federal charter. Health insurance plans that opted for the federal charter would then not be subject to a maze of different regulatory requirements in the 50 states (and, I would add, in the District of Columbia and potentially other places, such as Puerto Rico). This would be similar to the federal charter that is available to commercial banks which choose to be supervised by the Office of the Comptroller of the Currency. It is also similar to the private health insurance plans made available to federal employees and retirees under the Federal Employee Health Benefits Program. These plans are subject to regulations of and overseen by the Office of Personnel Management, a federal government agency, and not by state regulatory authorities. I have not seen any discussion of this issue in the ACA context, but I think Mr. Pollock has made a constructive suggestion, though one that may be politically difficult to implement because of possible strenuous opposition by state governments.