CAA May 2014 – Economics of Intergenerational Transfers

I’m speaking to today to the Council on Action for Aging at Henry Ford Senior Living Village. I’ll be talking about the economics of intergenerational transfers and how, contrary to the views put forth in much of the news media, the Social Security system is actually doing quite well and “will be there” when even the youngest among us retire.

HLC 2014 – Effective Strategic Planning for Disruptive and Challenging Times

Higher education is facing some very interesting time – challenging and disruptive times. Although virtually all colleges and universities engage in strategic planning, the way they approach strategic planning is ill-suited to the when markets, stakeholders, students, technology, and regulations are changing as rapidly and predictably as they are now. In effect, there’s too much plan and not enough strategy in higher education strategic planning.

My presentation today to HLC 2014 conference (embedded) and more summary below the fold. Continue reading

There’s No “Skills Shortage”

There are plenty of reasons why higher education in the US needs to change. There are plenty of good reasons why community colleges in particular deserve greater investment. But the American Association of Community Colleges (AACC) gets it wrong when they claim

There is a skills gap in our country, causing employers to have unfilled positions and too
many Americans unable to find family wage supporting jobs.

Wrong. Wrong. Wrong.  This is a zombie economic idea.  It’s enormously disappointing when leaders in higher education can’t even get the basic economic thinking straight.  First, let’s just apply some basic economic thinking to it.  Although there are good heterodox reasons for not thinking of the labor market is not an ordinary market (i.e. it’s institutional, not transaction-based), but let’s roll with the idea since so many purveyors of the “skills shortage” myth act like it is.  The implication is that there are multiple “job markets” and that many, perhaps, most are suffering a “shortage”.

So what’s a “job market”.  A simple definition would identify the nexus of potential workers and potential employers in a specific geographic region in a particular occupation.  For example, “welders in metro Chicago” or “CNC machine operators in SE Michigan” or “software developers in Houston” would be examples. Now if there’s a “shortage” in one of these job markets, it means there are fewer sellers (smaller quantity offered, to be technical) and more buyers demanding a larger quantity at the going market price.  Now what happens in both theory and practice when a market has a persistent shortage? Anybody? Yes, the price rises.  Price goes up to attract more sellers and discourage buyers.  And the price keeps going up until equilibrium between quantity offered for sale and quantity demanded become equal and eliminate the shortage. If there were shortages in job markets we should see wages going up!  We should see companies tripping over themselves to offer more and better benefits.  But we don’t see that do we? Wages are stagnant across the board.  That’s because there really isn’t any widespread “skills shortage”.

What we have is business owners and managers reporting a shortage of highly skilled workers who would be willing to work for below-equilibrium and falling wages.  Remember as a nation we’ve drastically cut back on public funding of education and over the last generation  companies have drastically cut their spending on training and apprenticeships.  Those businesses now expect a free-ride from others.  They want workers to pay for their own education and training without paying the wages needed to make that human capital investment worthwhile.  If there were truly a skills shortage, not only would we see rising wages but we’d also see rising college enrolments as the rising market wage encouraged students to invest.  But we don’t see either rising wages or rising enrolments.  In fact for the last couple (few?) years, enrolments have been declining.

I’m not the only one pointing out how bad this zombie “skills shortage” myth is.  Paul Krugman pointed out recently:

    …this new EPI report is a useful reminder of the extent to which another doctrine that sounds serious retains a grip on discourse — namely, the notion that we have big problems because our work force lacks essential skills.

This is very much a zombie doctrine — that is, a doctrine that should be dead by now, having been repeatedly refuted by evidence, but just keeps on shambling along. EPI presents some very interesting evidence from a survey of manufacturing, but they’re hardly the first to show that the data don’t at all support the skills-shortage hypothesis.

But it’s not just Paul Krugman and progressives saying that the “skills shortage” idea is bunk, its leading conservative economists too, like Ed Lazear in this 2012 paper.   Even the Boston Consulting Group, who we might expect to take push the “skills shortage” idea since business owners like to push the idea, seems constrained to follow the data and their data show that:

So what accounts for the high and lingering unemployment?  The Economic Policy Institute looked at the whole issue and surveyed the literature and research in this January EPI report.

There is a sizeable literature on whether a skills mismatch is a driver of today’s weak jobs recovery, and the strong consensus is that the weak labor market recovery is not due to skills mismatch (or any other structural factors). Instead, it is due to weakness in aggregate demand.

That’s it.  We have a shortage of aggregate demand. We have a shortage of customers who spend. We have a shortage of spending. We don’t have a shortage of skills.

Higher education leaders who position their plans based on the false premise of a skills shortage do themselves and their institutions a dis-service, so we may have a shortage of higher education leaders willing to do their own critical thinking and rely on research instead of parroting politically popular zombie ideas. I can understand the temptation of many higher education leaders to use push the idea because they think it will help them get funding. But that’s a losing strategy. By embracing such zombie ideas, they destroy their own credibility with the faculty, the very people they need to implement the changes they’re advocating.

Healthcare Comes to America – The ACA Is Working

Last night was the cutoff for signing up for health insurance on the new Affordable Care Act (“Obamacare”) healthcare exchanges.  Despite a very rocky start and despite an incredible blitz of lies and propaganda against it by opponents, the program has met its first year target. Charles Gaba at ACASignups tracks the numbers so we don’t have to:

…in spite of everything–the terrible website launch of HC.gov and some of the state sites; the still-terrible status of some of the state sites even now; the actively-hostile opposition and obstructive actions in certain states, the negative spin on every development by some in the news media–in spite of all of this, over 7 million people nationwide enrolled in private, ACA-compliant healthcare plans between 12:01am on 10/1/13 and 11:59pm on 3/31/14…slightly surpassing the original CBO projection for that period.

Of course, the deadline isn’t that final depending on where you live and whether you already started an application or you fall into other special categories.  Again, Gaba tells us:

the enrollment “extension period”, which is 15 days in most states, but which actually runs until April 30th in Oregon (without any “started by 3/31″ requirement that I can see) and even all the way out until May 30th in Nevada (with the “3/31 start” requirement). Only 3 states (CT, RI and WA) aren’t offering any extension period at all, and I’m not entirely sure about Rhode Island as their press release was a bit confusing. I also have no idea know what the status of Hawaii’s exchange is.

Of course the 2nd open enrollment period kicks off again this November, but there’s also the other types of enrollments which haven’t ended, even for the current year.

  • Medicaid has no cut-off date; if you qualify, you can enroll at any time.
  • The SHOP exchanges (small business) don’t have a cut-off date. Most of them still aren’t functional (only about 70,000 people are covered by SHOP policies so far nationally), but some are, and they’re year-round.
  • If you’re one of the 5.2 million Native Americans living within the U.S., there’s no cut-off for you either.
  • Finally, for the rest of us, you can still enroll in an exchange-based QHP if you have a major life event such as getting divorced, giving birth, losing your job and so on.

This is a very good start for the country and for the economy.  My own preference, documented elsewhere, was and still is for a single-payer system similar to Canada’s.  But this is significant start.

Doctors Vote With Their Feet and Move to Canada

Opponents of universal healthcare tell a lot of tall tales.  In particular, one common tale we were told in the debates about whether the US could provide near-universal healthcare insurance coverage (the so-called Obamacare) was that “socialized” medicine doesn’t work. In fact, an oft-repeated tale is that the Canadian socialized insurance system is supposedly so awful that Canadians can’t get enough doctors and that doctors flee the Canadian system to go to the land of opportunity, the US.

Well, it’s more than a tall tale.  It’s a lie.  The Windsor Post points out how for the last ten years, the net flow of doctors has been from the US to Canada.  Yes, that’s right.  To the degree that doctors are migrating at all, they’re moving away from the bloated, inefficient, costly system that the US runs and moving to Canada.

“The job here is better,” is how Florida native Dr. Christopher Blue summarizes why he moved here in 2010 with his wife, Dr. Kristen Kupeyan (a Windsor native), after attending medical school in the Caribbean, and training in the United Kingdom and Michigan. Here, he works as a hospitalist, an emergency doctor and assists in surgeries at local hospitals, and has two practices with his wife. Having such a varied career is something he couldn’t do in the U.S. [bolding mine)]

But the lure of the Canadian system is more than the ability to have a more varied (and likely more meaningful) career, it’s also a matter of sheer economics.  Despite the US system ultimately costing Americans a multiple of what the Canadian system Canadians, and despite Canadians living longer and getting more out of their healthcare, for doctors, it’s dollars and cents.

 One of the big draws for him (Dr. Sajad Zalzala) was Canada’s system of universal health care. In the States, the health care system is like a class system, he said.

“If you have Blue Cross/Blue Shield (health insurance), you’re in great shape, you can go to what hospital you want, specialists, but that leaves everyone else not as fortunate,” he said.

…he has low overhead and fewer hassles. In the States, you need two or three staff just to fight with the insurance companies all day long, he said.

“It’s good. With the OHIP system you pretty much know how much you’re going to get paid as the patient leaves the room, as opposed to the States,” he said, explaining the insurance company may adjust your bill or reject it entirely.

The name for Canadians give to their healthcare system, Medicare, is a clue to how the US could dramatically improve its own healthcare system.  The US has a Medicare system also, and the two Medicares are actually quite similar in structure and operation.  The US Medicare system is also actually reasonably efficient, althought it could be more efficient if it, like its Canadian namesake had more power and authority to negotiate prices.  But the key difference is that the Canadian Medicare system covers all Canadians of any age.  The US Medicare system only covers Americans 65 years or older.  Much of the difference and savings comes from having a single payer insurance outfit.  Since the government system is the only insurer and covers everybody, it has no incentive to find administrative excuses to not pay or to exclude people.  Private insurance companies in the US do.  Thus the US spends 10-15% of every healthcare dollar paying for paper-pushers and phone-call-talkers that try to find reasons not to pay for services that have often already been performed.  That’s why US doctors need so many staff personnel to track the paper and fight the insurance companies and file claims.  The Canadian doctors don’t need that extra staff – staff that doesn’t add anything to the quality of care but adds a lot of cost.