Author Danny Vinik

PolitiFact vs. the Liberal Blogosphere

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There was a bit of a dust-up between liberal bloggers and the fact checking site PolitiFact yesterday over House Majority Leader Eric Cantor’s (R-VA) comment this weekend that the government should be “focused on trying to deal with the ultimate problem, which is this growing deficit.” The deficit isn’t growing. It’s shrinking at a rapid pace, but PolitiFact rated the statement as “half-true.” So, what gives? How can the deficit be shrinking and Cantor’s statement be half-true? Let’s take a look:

Steve Benen, one of the first bloggers to jump on PolitiFact today, wrote about Cantor’s comments the day before. In fact, he quoted the following exchange in his post:

CANTOR: Here is the problem. What we need to have happen is leadership on the part of this president and White House to come to the table finally and say, we’re going to fix the underlying problem that’s driving our deficit. We know that is the entitlement programs and unfunded liability that they are leaving on this generation and the next.

WALLACE: So, are you’re saying you are willing to get — you’re willing, if you could get a compromise on entitlements, then you would give up on the sequestration?

CANTOR: What we have said in the House as Republicans, leadership and members alike, is that we want to fix the real problem. The real problem is entitlements. We’ve also said sequester is not the best way to go about spending reductions. It was, as you know, a default mechanism because Congress couldn’t do the job it was supposed to a couple of years ago. We’ve always said that. But, in fact —

WALLACE: You’re willing to give up on sequestration?

CANTOR: But, in fact, Chris, we’ve always said, president, come join us.

The full interview is here. That exchange is right before Cantor made his false “growing deficit” comment. But clearly, Cantor isn’t talking about the current debt. He’s talking about the long-term deficit. Entitlements are driving our long-term deficit while our current deficit is the result of two wars, the Bush tax cuts, and increased spending on the safety net during the recession. That’s the context of Cantor’s comment and if you are going to grade its truthfulness, you have to take that into account.

That’s what PolitiFact did. They realized that Cantor’s remark was 100% false, but in the context of what he was talking about, Cantor is right. The ultimate problem with the deficit is entitlement spending. Cantor misspoke and that’s why his statement isn’t correct. But it also can’t be called a “Pants on Fire” lie. PolitiFact responded to the criticisms today and pointed all of this out.

Kevin Drum explained this as well and noted that this is the problem with fact-checking in general. When most people think about fact-checking, they want the specific comment checked for accuracy. But this isn’t really fair. How can you analyze something without including the context? Cantor’s comment taken out-of-context is flatly wrong. In context, it makes much more sense and is more Cantor mis-speaking than anything else.

What’s most frustrating about this is that as soon as Benen posted his critique of PolitiFact, it spread around the blogosphere quickly. Paul Krugman, Ed Kilgore, Greg Sargent and Brian Beutler all criticized the fact-checking. All of those are well-respected journalists whose work I read daily. But they chose to look at Cantor’s quote out of context (except for Sargent, who put it in context of the debt ceiling when it actually referred to the problems driving the long-term deficit). Kilgore relied upon Benen’s analysis while Sargent quoted Krugman’s. It’s easy to jump on PolitiFact and make fun of Cantor for his remark, but it just creates more partisan bickering and further harms PolitiFact’s reputation. That’s not helpful for anyone.

Purchasing Health Insurance Right When You Get Sick

Danny Vinik 1 Comment

This is more of a question than a comment, but Ramesh Ponnuru brings up a point that’s been bugging me a bit in his column in Bloomberg today. He quotes a piece by Kevin Drum who sarcastically asked if FreedomWorks would pay the health care costs of anyone who was convinced by the organization to forego health insurance and then contracted leukemia. Ponnuru responds:

The other thing Drum misses is that people who “contract leukemia” will be able to buy insurance once they’re sick at the same rate they could have gotten it for when they were well. That’s the part of the Obamacare law that its defenders are usually most keen to emphasize. People who go without insurance while they’re healthy may have to pay a tax — although even at that the Internal Revenue Service will be limited in its methods of collection — and may, if they get sick, find their options for getting insurance limited for a few months.

Since insurers can no longer refuse to cover people with pre-existing conditions, that means that if I don’t have health insurance, but get sick, I immediately can purchase a plan that covers my costs. Thus, I avoid paying for health insurance when I’m healthy, but as soon as I need it, I buy it. But does that really work in practice?

Obamacare is supposed to make purchasing health insurance easier through the online exchanges, but that doesn’t mean it will be a straightforward process as you’re sitting in a hospital. And what about all the costs that accrue before you purchase your plan, but while you’re being diagnosed? Or what if something happens that requires a visit to the ER? Or a serious injury that requires immediate surgery and gives you no time to purchase a plan?

You’re going to be left with some major bills at the end. So I don’t think it’s fair to say that people shouldn’t wait to purchase coverage until right when they get sick. Because it won’t always be possible to do so quickly enough to cover the costs. There is a risk in postponing buying health insurance. It’s certainly much less than it was when insurers could refuse to cover you if you had a preexisting condition. But there is some risk still.

Is that risk enough to make it economically sound to purchase coverage? Well that depends. Purchasing a bronze level plan will cost a certain amount depending on your state. Not purchasing a plan will cost you in two ways: the penalty for not paying the individual mandate and the risk-adjusted amount you’ll pay if you get sick and can’t purchase coverage in time to cover all your costs. Now, that’s not a calculation many people will make. That risk-adjusted amount is incredibly hard to determine. But economic theory has demonstrated that people are loss averse – meaning that when the risk of losses exist, people act in risk-averse fashion.

This is an aspect of the law that I haven’t seen get any coverage. I have seen few people challenge the idea that people will be able to buy coverage immediately and not accrue any costs in the meantime. But that is unlikely to be the case. Ponnuru admits as much in his article and proponents of the law would be smart to point it out as well. After all, if people don’t sign up for health insurance (particularly young people), then the law will fail. Showing people that they can still face substantial costs if they decide to purchase coverage just when they get sick is a good way to convince them to sign up.

We’re Having the Wrong Conversation About Uncertainty

Danny Vinik 1 Comment

Imagine the following situation: You’re the CEO of a small business with one store and just five other employees. You survived the Great Recession and business has been slowly improving. As the economy improves, you’re thinking about expanding by opening another store with five more workers. Then you hear the President’s State of the Union Address calling for a higher minimum wage. This scares you. A higher minimum wage would raise your costs and prevent you from opening that new store (this is how a minimum wage hurts job growth). Now, it’s the beginning of August and no minimum wage bill has passed. The President isn’t pushing it particularly hard and Congress is focused on other bills. Do you open the second store?

It’s a tough call. It would just about wreck your business if you expand and then Congress passes a higher minimum wage. On the other hand, you’re leaving profits on the table for every day you don’t expand and the minimum wage stays the same. That right there is policy uncertainty and it is what Republicans have been yelling has been holding back the economy for years.

Today, Jim Tankersley at the Washington Post and Kevin Drum at Mother Jones push back and basically declare uncertainty a farce. Here’s Drum:

Republicans wanted to blame the sluggish recovery on mountains of red tape from the business-hating Obama administration, and the press played along. This means that “uncertainty” got a lot of media attention, which in turn means that if you have an “uncertainty index” based partly on media mentions, it would have shown persistent elevation during 2010-12, the heyday of the uncertainty campaign. Sure enough, that’s exactly what it showed:

….

As we knew all along—and as the media should have known all along—”uncertainty” was just an invented partisan talking point. It no longer serves any purpose, so now it’s gone. But the sluggish recovery is still with us.

Roosevelt Fellow Mike Konczal proved last year how ridiculous uncertainty indexes are. It’s more media manipulation than anything else. But this doesn’t mean that uncertainty isn’t real. The simplified example above demonstrates how it works on a theoretical level. But saying that uncertainty is holding back the recovery doesn’t imply that one party or the other has the correct policy prescription. In the above example, you can remove the uncertainty in two different ways: passing a higher minimum wage or the President declaring he is no longer interested in pushing for it. In either choice, the uncertainty disappears.

This isn’t how Republicans described uncertainty as holding back the recovery. For them, uncertainty was excessive regulations and new rules from the Obama Administration. But this is just one factor in the uncertainty debate. There is economic uncertainty. Who knows what the next jobs report will look like? There’s also fiscal uncertainty. The looming potential government shutdown may be holding firms back as well. Same with corporate tax reform which is slowly moving forward. Businesses must take all of this into account. The more threats to shut down the government, breach the debt ceiling, rewrite existing regulations and pass major policies, the more businesses are going to be hesitant to make major decisions. That’s how uncertainty affects the economy, but it’s largely not the Obama Administration’s fault. That’s where Drum is right: it became a partisan talking point in the last election.

So instead of having a smart discussion on how we can actually reduce uncertainty, Republicans fostered a partisan belief that the uncertainty that was really holding back the recovery was the Obama Administration’s regulations and nothing else. Not the economy. Not Congress. It was all on the Obama Administration.

So is it any surprise that as uncertainty has decreased (according to uncertainty indexes meh), liberals are using it to show that uncertainty wasn’t holding back the economy? Tankersley demonstrated this aptly:

The index seeks to measure the effect of policy uncertainty, including pending regulations and expiring tax provisions, on the economy. As you may have heard once or twice over the last few years, many conservatives blame uncertainty for holding back hiring and growth in this recovery. Those lawmakers love to cite this index as proof of elevated uncertainty.

According to the index, the decline of uncertainty this year is clear*.

And the hiring boom that was supposed to follow? Well…

Maybe hiring would be significantly less if uncertainty was at 2009 levels. Maybe reduced uncertainty has offset some of the effects of the payroll tax increase earlier this year and has been an important factor in our recent meager job growth. It’s tough to tell for sure. But no matter what, the facts are that uncertainty indexes show reduced uncertainty and job growth is weak. So liberals have jumped on this to show that reduced uncertainty and job growth don’t go together. This continues to obscure the debate as uncertainty is a drag on growth. But it’s not just regulatory uncertainty. It’s much more. Republicans need to admit that. Democrats need to admit uncertainty exists. And uncertainty indexes need to go away. Then maybe we can have a conversation about how to actually reduce it. Right now, it’s a partisan mud-flinging contest with hand-picked stats and a bogus index used to support them. isn’t that just great?