A Quick Note on the myRA Program Announced By President Obama in the State of the Union Address

The President’s State of the Union Address yesterday was better than most of these speeches, particularly because it did not have a long laundry list of proposals and initiatives mostly of interest to a particular cabinet member and the people or institutions directly affected. There was nothing much surprising in it, except for one, perhaps, small item – the announcement of a new investment vehicle for individuals. This is called myRA, which stands for “My Retirement Account.” It is only available for individuals with annual income below certain amounts who are employed by participating firms which do not offer a retirement plan. More details are in this Treasury “Fact Sheet.”   

What caught my attention was the interest rate. It will be the same as that paid by the Government Securities Investment Fund of the Thrift Savings Plan for federal employees (the “G-Fund”).

This is a good deal for a safe investment which has neither credit nor market risk. The interest is determined monthly by averaging the interest rate on conventional marketable Treasury securities with a remaining term of maturity of four years or more. Since the yield curve is usually positively sloped (i.e., long-term interest rates are higher than short-term rates), this is an attractive rate for an essentially riskless investment.

Of course, some banks pay rates on federally-insured savings accounts which are significantly higher than T-bill rates for money that can be pulled out at any time. The banks are willing to do this because from experience they know that this is a stable source of funding; money put into savings accounts tends to stay there for relatively long periods. Of course, the banks can change their rates anytime they want to. The Treasury would have more difficulty in changing the way the interest rate is determined.

Don Kohn, Christine Romer, and Federal Reserve Independence

Last week at an event at the Brookings Institution, Don Kohn discussed a paper he wrote, “Federal Reserve Independence in the Aftermath of the Financial Crisis: Should We be Worried?” Don Kohn was a longtime career official at the Federal Reserve Board – I first met him in 1980 when the Treasury, the Federal Reserve, and other agencies were looking into the silver market debacle of that period – who eventually became Vice Chairman of the Board before he retired from government service.

Not surprisingly, his answer to the question in the title of his paper is yes. He argues that the extraordinary actions that the Fed felt it had to take to mitigate the economic consequences of the financial crisis have increased the risk to the Fed’s independence in conducting monetary policy. He is particularly concerned by the threat of subjecting the Fed’s monetary policy to GAO “audit.” As he emphasized in his talk, “audit” in this context does not mean verifying financial reports but evaluating the effectiveness of Fed monetary policy by a Congressional agency. He admits that a GAO audit would not be catastrophic; the Fed, after all, could ignore GAO recommendations if it thought they were wrong. But he fears it would be a first step at eroding Fed independence in monetary policy. He argued at the event that the best way the Fed to prevent this is by following a successful monetary policy.

Christine Romer, who was the discussant of Kohn’s paper, agreed with his conclusion but differed as to why the Fed’s independence is being challenged. She argued that the reason is the current distrust of experts, whether they are monetary economists or climate scientists. She said that this distrust of experts is prevalent in part of the current Republican Party.

As Kohn admits, though, part of the reason there is a threat to Fed independence is that the Fed failed to prevent the financial crisis. I would go further than that. The Fed Board staff and some of the various research departments of the Federal Reserve Banks published papers during the Greenspan era denying that there was a U.S. housing bubble. Perhaps all that expertise was getting in the way of seeing what was perfectly obvious – one just had to compare rents to housing prices and also realize that the rate of increase in housing prices was unsustainable. Also, Chairman Greenspan refused to take any regulatory action when then Fed Board member Ed Gramlich warned him about problems with subprime mortgages.

With respect to the latter event, I would note that the Fed is less independent with respect to regulation than it is with respect to monetary policy. The Fed’s refusal to take regulatory action to address developing problems in financial markets and at financial institutions during the period preceding the financial crisis was not unique to the Fed.

I agree with both Kohn and Romer that the Fed’s actions under Chairman Bernanke were generally correct, though one could argue about particular actions or lack thereof (Lehman Brothers?). I also agree that the Fed should be independent in monetary policy, though I would be less worried about the GAO than Kohn. Interestingly, Peter Fisher, a former New York Fed official and former Under Secretary of the Treasury, suggested at the conference that he was less concerned than Kohn about the GAO in a question he asked him.

While I support Fed independence, that does not mean that the Fed should be insulated from criticism. Some of that criticism will no doubt be well reasoned in the future, and the Fed should consider it. There is a tendency at the Fed, which is apparent to those of us who have worked at other agencies which have dealings with the Fed, for there to be a certain amount of arrogance about their knowledge, wisdom, and abilities. Of course, that does not mean that all Fed staffers come across that way, but enough do to give that impression. There is, after all, a reason that William Greider chose the title Secrets of the Temple for his book about the Fed. In this respect, Bernanke has been good for the Fed. While he undoubtedly is very smart, he does not come across as arrogant or as someone who thinks he knows better than everyone else. He has also has introduced much more transparency at the Fed, even giving press conferences after FOMC meetings to explain Fed decisions.

As for Romer, while I agree that the attacks on climate scientists is unwarranted, I think she would have to agree that there is less consensus about monetary policy among economists than there is among climate scientists about global warming and its causes. The climate change deniers appear to be motivated by ideology; they have to deny that it is occurring because the solutions require government action, which they oppose in principle. Therefore, they are particularly subject to confirmation bias, grabbing any isolated facts that might give rise to doubts (hey, the hurricane season in the North Atlantic was less severe than predicted).   

While debate about monetary policy is to an extent fueled by ideology, there are legitimate differences among economists about what the ultimate outcome of quantitative easing will be. At the conference, Martin Feldstein, who served as Chairman of the Council of Economic Advisers in the Reagan Administration, also spoke at the event and expressed concern about quantitative easing. He would prefer, as everyone else who spoke on the subject agreed, that fiscal policy take some of the pressure off the Fed.  He favors more infrastructure spending in the current situation, and departs from current Republican orthodoxy in supporting this. I agree with him on this. More reliance on fiscal policy to mitigate the aftermath of the financial crisis would have been preferable to exclusive reliance on monetary policy after the initial, and too small, fiscal stimulus program had run its course.

In his appearance, Bernanke mostly disagreed about the concerns over quantitative easing. There is no settled consensus on this, and debate is healthy while the Fed keeps it monetary policy independence.

Larry Summers, Bubbles, Fiscal and Monetary Policy, and Financial Regulation; The IMF’s Fourteenth Jacques Polak Annual Research Conference Speech

As I have noted previously, Larry Summers delivered an interesting speech at the IMF’s Fourteenth Jacques Polak Annual Research Conference in November. Some commentators have jumped all over the speech, claiming that Summers is advocating that the Federal Reserve create bubbles in order to stop it from falling into recession or worse. (To find such comments, all you need to do is google “Larry Summers bubbles.”)

I was in the audience when Summers delivered his speech, have watched it again online, and have read a transcript of the speech.* What Summers is saying about bubbles is ambiguous. In fact, the word “bubble” appears only once in the speech. This is what Summers said:

“Let me say a little bit more about why I’m led to think in those terms. If you go back and you study the economy prior to the crisis, there is something a little bit odd. Many people believe that monetary policy was too easy. Everybody agrees that there was a vast amount of imprudent lending going on. Almost everybody believes that wealth, as it was experienced by households, was in excess of its reality: too much easy money, too much borrowing, too much wealth. Was there a great boom? Capacity utilization wasn’t under any great pressure. Unemployment wasn’t at any remarkably low level.  Inflation was entirely quiescent. So, somehow, even a great bubble wasn’t enough to produce any excess in aggregate demand.”  

This, however, is Summers' interpretation of what happened prior to the financial crisis. It is not his policy prescription going forward. In fact, he does not offer policy prescriptions but argues that what we need “to think about” is “how we manage an economy in which the zero nominal interest rate is a chronic and systemic inhibitor of economic activity holding our economies below their potential.”

Near the end of his speech is the one statement about asset prices that could be interpreted as Summers’ advocacy of bubble:

“Now, this may all be madness, and I may not have this right at all. But it does seem to me that four years after the successful combating of crisis, since there’s really no evidence of growth that is restoring equilibrium, one has to be concerned about a policy agenda that is doing less with monetary policy than has been done before, doing less with fiscal policy than has been done before, and taking steps whose basic purpose is to cause there to be less lending, borrowing, and inflated asset prices than there were before.”

It is not clear from that how “inflated” asset prices before Summers might want to do something. It is, however, fair to assume that Summers is concerned about a premature cessation of quantitative easing of monetary policy.

With respect to fiscal policy, Summers is pretty clear about what he advocates:

“But imagine a situation where natural and equilibrium interest rates have fallen significantly below zero. Then, conventional macroeconomic thinking leaves us in a very serious problem, because we all seem to agree that whereas you can keep the federal funds rate at a low level forever, it’s much harder to do extraordinary measures beyond that forever; but, the underlying problem may be there forever. It’s much more difficult to say, well, we only needed deficits during the short interval of the crisis if equilibrium interest rates cannot be achieved given the prevailing rate of inflation.”

It is, though, surprising that, even by those inclined to agree with Summers about deficit spending, there has not been much criticism, if any, about another controversial argument Summers made in this speech. Right after the paragraph quoted above, Summers says:

“If this view is correct, most of what might be done under the aegis of preventing a future crisis would be counterproductive, because it would, in one way or another, raise the cost of financial intermediation, and therefore operate to lower the equilibrium interest rate on safe liquid securities.”

It appears that Summers is hinting that, in his view, Dodd-Frank goes too far. Perhaps he is concerned about a Volcker rule that he considers too restraining on banks. The argument that some of what is being done in the regulatory arena could be characterized as closing the barn door after the cows have left or as overkill is not obviously ridiculous even if one is inclined to disagree with it. There were, though, regulatory failures that were clearly an important part of the story of the events leading up to the financial crisis. It is hard to argue against doing something about that, even if one finds fault with particular regulatory initiatives.  

I have criticized Dodd-Frank for not attempting to deal with the regulatory capture issue and not reducing the number of agencies involved in federal regulation. Also, the failure of the regulatory agencies in the years leading up to the financial crisis was more due to a failure to use existing authority rather than due to a lack of authority. For example, it is common to hear the argument that financial derivatives were unregulated prior to Dodd-Frank; however, the bank regulators could have told the banks that certain uses of derivatives constituted an “unsafe and unsound banking practice.”  That they did nothing while major banks were buying credit default swap protection from one source, AIG, was a clear failure. Nevertheless, it is hard to fault the government from trying to rein in excesses in financial markets that pose systemic risks or could result in the taxpayer being on the hook. If Summers made his argument more explicit here, he might find himself in a politically uncomfortable position. Democrats who preferred Janet Yellen over Summers as Fed chair because they felt he might be lax on regulation had a valid concern. (I have previously written about the regulators’ dilemma and regulatory organizational issues.)

Now that Summers is not likely to be appointed to a government position in the near future, I hope he will clarify his thoughts on regulatory issues, as well as resolve the ambiguity of his speech with regard to monetary policy. Even if some of us do not agree with everything he says in this regard, it would certainly be thought provoking. And most of us would probably not disagree with everything.
 

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* The video of the entire panel session during which Larry Summers gave his speech can be found here. It is the last video of the research conference. The video quality is better than what can be found on YouTube.  An unofficial, but it seems to me to be accurate, transcript of the speech can be found here. Summers has posted a “lightly edited” version of the speech on his blog. The major edit is the elimination of his calling “stupid” what “people in Chicago and Minnesota” might write in his hypothetical scenario.  

Observations on Increasing the Fed’s Inflation Target

The U.S. economy is currently growing sluggishly and has too much unemployment. No one thinks this is a good thing. Indeed, at the IMF research conference last month, many economists expressed particular concern about the high youth unemployment rate in the U.S. and elsewhere and the negative implications of this for society.

They are right to be concerned. The question is what should be done.

One answer is given by two economists of different political stripes. They are Paul Krugman and Ken Rogoff. Krugman is clearly a liberal; he even uses that word in the title of his widely read New York Times blog – “The Conscience of a Liberal.” Rogoff’s politics are somewhat less clear; I heard him say at a seminar arranged as part of the program of the World Bank/IMF annual meetings in October that he was not political, just a scholar. However, he was an adviser to the John McCain presidential campaign in 2008.

Even though they have had disagreements, they both advocate that central banks in the current situation target a higher inflation rate than the current two percent. (For example, see here and here.)

The principal argument of some economists advocating a higher inflation target is that it is a way to achieve a negative real rate of interest (the nominal interest rate is lower than the inflation rate), given that the Fed cannot lower nominal interest rates below zero. They believe that a negative real interest rate is necessary to achieve full employment. Another reason, though this seems to be less explicitly argued, is that inflation encourages current consumption (and discourages savings). Consumers have an incentive to buy now before prices increase. The resulting increase in consumption stimulates the economy.

There are a few problems with these arguments. First, in the current period, the Federal Reserve does not seem capable of increasing inflation. It has increased its balance sheet and, hence, the monetary base to an unprecedented degree. This has not, though, translated into rapid growth of the money supply and the current inflation rate, as measured by the CPI, is less than 2 percent. (I have commented on this here, here, and here.) There is, though, concern about possible bubbles in stocks and bonds and in housing prices.

Second, assuming that the Fed could eventually produce four percent or higher inflation, the economists making the case for this seem to assume that there would not be a political reaction reflecting heightened concern among the public about the future value of their savings and their ability to generate earnings that keep up with inflation.¹ In this regard, it is interesting to note that in July 1971, the CPI had risen by 4.4 percent year over year. The next month, President Richard Nixon announced wage and price controls (as well as severing the last remaining link of the dollar to gold).

The public would be right to be concerned about inflation. Monetary policy is a blunt instrument, and it is doubtful that the Fed would be able to achieve a narrow target on the inflation rate for a substantial period of time. Higher inflation also can feed upon itself, as the aftermath of the Nixon’s Administration’s experiment with wage and price controls demonstrates. If this happens, ultimately the Fed would have to slam on the brakes and generate a recession, as Paul Volcker did when he was Fed chairman. Targeting inflation is not the same as targeting a short-term interest rate, such as the fed funds rate (the rate at which banks lend to each other on an unsecured basis). Inflation is only observable with a lag, and it takes some analysis and judgment to discern whether a higher or lower than expected monthly number is due to a temporary aberration or is indicative of something more permanent.

Finally, using fiscal policy is preferable and more likely to be effective than monetary policy to stimulate the economy in a prolonged period of sluggish growth (or worse). When the Fed increases the monetary base, it does not directly add to demand. If the money is lent out by the banks, the borrowers will spend or invest it. But what if the banks sit on a huge amount of excess reserves, as they are doing now? Then nothing much happens to the real economy except for whatever stimulatory effect there is from the increase in the prices of the assets the Fed has bought (Treasury notes and bonds and mortgage backed securities).

On the other hand, if the government spends money, this directly adds to demand. In this regard, there is a strong argument that the federal government should be investing in improving infrastructure, both because infrastructure, such as highways, bridges, public transportation systems, and water and sewer systems, need to be improved and because such projects will put people to work. Krugman and Rogoff agree on this, as does Martin Feldstein, who disagrees with the other two on monetary policy. Also, if the federal government finances this by increased borrowing rather than taxes, it can borrow very cheaply since interest rates are too low. The cost in inflation-adjusted terms may even be negative, if inflation turns out to be higher than the nominal rate at which Treasury borrowed.²

The rejoinder to this argument is that it is not currently politically possible to increase government expenditures in any significant way. That is true, which is why the Fed feels it has no choice but to follow an aggressive monetary policy. Janet Yellen apparently believes that regulatory tools can be used to contain any bubbles that may develop because of this before they cause too many problems. I hope she is right, but I understand why the Fed needs to run this risk when fiscal policy has been contractionary. It is a troubling fact that the current economic distress and uncertainty have given rise to a populism of the right that believes that shrinking government in the current situation will solve economic problems rather than prolong them. It is also troubling that there is a dearth of skilled and knowledgeable politicians who can lead the public to understand the right solutions. Instead, we have a faction of the Republican Party riding the Tea Party wave for opportunistic reasons, though it is doubtful that they will reap the political benefits they hope.

While I think the Fed has no good options other than following its current course, announcing an inflation target of 4 percent would be a mistake. The risks of doing that are, I believe, higher than Krugman and Rogoff appreciate. In any case, it is doubtful that it is politically possible. While the Fed is an independent agency and insulated from the political winds of the moment, it cannot totally ignore political reality.

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1. When I worked at Treasury, I was heavily involved in the discussions about and the development of Treasury inflation-indexed bonds (Treasury Inflation-Protected Securities or “TIPS”). One of the arguments made for Treasury issuing inflation-indexed bonds is that this would facilitate the private sector’s creation of other inflation-indexed products, such as inflation-indexed annuities or mortgages. There has not been much interest in other inflation-indexed products, except for mutual funds that invest in TIPS and, sometimes, physical commodities. Note, though, that, if there were greater use of inflation-indexed products, these instruments could have served to mitigate to a degree people’s fear of inflation, but at the same time they would also have acted to limit inflation’s ability to stimulate the economy.

 

2. Treasury does not match particular security issuances with particular expenditures. Therefore, as a practical matter, it is not possible to determine the borrowing costs for any particular expenditure without making some assumptions.

 

A Brief Note on “Printing Money” and the Monetary Base, M2, and Inflation

When it comes to monetary policy, the media is fixated on the Fed’s “printing money”* and the timing of any tapering of “quantitative easing.” Critics of the Fed assert that the Fed’s quantitative easing policies will lead to inflation. The simple argument is that the Fed’s policies will lead to too much money chasing too few goods, which will result in price increases.

In order to evaluate this argument, it is useful to remind ourselves of some basic facts. It is true that the Fed through its quantitative easing policies – purchasing Treasury notes and bonds and mortgage-backed securities – has been vastly increasing the size of its balance sheet to an unprecedented degree. This has resulted in a large increase in bank reserves and the monetary base (currency in circulation and balances of depository institutions held at Federal Reserve Banks). It has not, though, resulted in an unprecedented increase in the money supply. M2, which is a commonly used measure of the money supply, consists of currency held by the public, transaction deposits at depository institutions, savings deposits, time deposits of less than $100,000, and retail money market fund shares. (See here for the Fed’s description of these aggregates and links to monetary data.) Note that bank reserves, including excess reserves, are not included in M2.

What is important to note is that the relationship of changes in the monetary base, which the Fed controls, and changes in M2 has been completely transformed since the financial crisis. The monetary base also currently has no relationship to inflation as measured by the CPI. This graph shows on a monthly basis beginning in 2000 percentage changes from a year ago of M2, the monetary base, and the CPI.

 

 

Before claiming that Fed policy is leading to inflation, critics need to analyze the change in the relationship between the Fed’s expansion of its balance sheet and the growth rate of M2. They also need to examine the current lack of relationship between the monetary base and inflation.

What seems more plausible is that monetary policy has not been as effective as desired at stimulating the economy. There also is little effect of quantitative easing on increasing the growth rate of the money supply. There is a case to be made, though, that the quantitative easing policies have served to lower long-term interest rates, particularly on Treasuries and mortgage-backed securities, but to an unknown degree. This has perhaps fueled increases in stock market and housing prices, but it has not resulted in an increase in prices of consumer goods. There is reason to be concerned about asset bubbles at the current time, but the danger (or benefit) of inflation seems remote.

Some economists, such as Paul Krugman and Ken Rogoff, advocate Fed policies leading to an increase in inflation as a way to get the economy growing. Higher inflation can produce negative real interest rates, which some view as necessary to get the economy to full employment. At the moment, it would seem that the Fed would have to be much more aggressive than is currently feasible politically or practically to get the inflation rate at some economists’ preferred target of four percent. Of course, it may become possible at a later time, though it is subject to debate whether this would be good policy. At the moment, the greatest risk to the economy from current Fed policy is asset bubbles which inevitably deflate. The Fed’s greatest challenges are deciding how to meet its legislatively mandated goals of “stable prices” and “maximum employment” in a period when fiscal policy is far from helpful in stimulating the economy, when and how to phase out its quantitative easing policies, and how to avoid dangerous asset bubbles.    

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* The phrase “printing money” is misleading shorthand for what the Fed does. I prefer to call it “creating money.” The Treasury Department through its Bureau of Engraving and Printing prints money. The Federal Reserve pays the Treasury for the printing costs. How much the Federal Reserve orders of Federal Reserve notes is largely determined by the public’s demand for physical currency. Coins are minted by the Treasury’s Bureau of the Mint and sold at face value to the Fed. The difference between the face value of the coins and the cost to the Treasury of producing the coin enters into government accounts as a means of financing, i.e., it is not an outlay or a receipt and does not serve to increase or reduce the reported budget deficit. This is called seigniorage. In minting pennies and nickels, this seigniorage is a negative number.

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.