Gruber Caveats the "Excise Tax Raise" Claim

Earlier today, DDay pointed out that the NYT, after issuing a fairly pointed correction revealing Jonathan Gruber’s ties with the Administration, then used a quote from Gruber without disclosing his role in the Administration. DDay was focusing on the NYT’s actions. But I would like to focus on the quote.

Jonathan Gruber, a Massachusetts Institute of Technology economist, predicted the excise tax would raise workers’ wages from 2010 to 2019. “There are many academic studies showing that when health costs rise, wages fall,” he said. “In the mid- and late 1990s, when we got health costs under control, wages rose nicely.” But he added that other factors could have also lifted wages during that period.

According to Stephen Greenhouse, Gruber repeated the claim that the excise tax would result in a pay increase for the little guys, and then did the following:

  • Noted that “many” academic studies (though he doesn’t say it, some of them are Gruber’s own studies) show that “when health costs rise, wages fall”
  • Pointed out that during the late 1990s, the slowing rise in health care costs coincided with wage increases
  • Admitted that “other factors could also have lifted wages during that period”

With this formulation, Gruber dramatically backs off one of the key claims excise tax supporters make about the tax–that it will result in a pay increase for those affected. Indeed, he seems to suggest (though I’d need to see a direct quote to be sure) that he doesn’t actually know whether decreasing health care costs would increase wages. He certainly doesn’t appear to say he’s got a study to prove that.

This is one of the reasons why I believe Gruber’s now-revealed ties to the Administration are so important.

The Recursive Claims To Support the Excise Tax Raises

As you might recall, one of my biggest gripes about the excise tax have to do with a bunch of seemingly unexamined assumptions that go into it. For example, the claim that employers would have actual savings from cutting back expensive insurance plans, rather than managing simply to keep health care spending constant; or the claim that increasing out-of-pocket claims will decrease costs without affecting outcomes. Both are dubious and, if they’re wrong, then not only will the tax not generate the revenue promised, but it will make people less healthy.

But one of my biggest gripes was precisely this claim, that employers would pass on presumed savings to employees. I first questioned the claim when Ezra made it based on an uncritical demonstration of the relationship in the 1990s that Gruber points to. Then, I spent an entire post both trying to trace how the White House had justified that claim in a blog post, and pointing out the evidence that contradicted it. I also spent the better part of a day asking economists to point to proof that employers would pass on savings to employees; one normally friendly economist who has elsewhere backed the claim ignored my question; several more pointed to studies showing, again, the inverse (that when health care costs rise, wages fall). More recently, the Economic Policy Institute did analysis–partly based on White House aide Jared Bernstein’s work–showing that wages didn’t go up in the 1990s because health care cost increases slowed.

In other words, no one has been able to point to a study that supports the case. And a lot of data from the real world suggests just the opposite would occur–that employers would pocket the savings as profit rather than passing them onto employees.

The Joint Committee on Taxation and the Excise Tax Raise Claim

Now, the one place that people do point to (aside from things like Gruber’s papers showing the inverse relationship) to defend their Excise Tax Raise claim is a report from the Joint Committee on Taxation, a non-partisan Congressional Committee that provides the same kind of reviews as CBO (but, because it is managed by Committee chairs, may be more exposed to political pressure). I’ll come back to this, but here’s what Center for Budget and Policy Priorities says JCT said about the Excise Tax Raise:

Similarly, the JCT writes, “We expect that consumers will seek less costly policies that will reduce their exposure to the excise tax. Cost reductions could be achieved through several strategies, ranging from managed care plans and limited provider networks to more out-of-pocket cost sharing by consumers. When employers offer employees less costly plans, the employees will have less compensation in the form of non-taxable health care benefits and more in the form of [taxable] cash compensation.”

JCT projects that only 20 percent of the revenues from the proposal in 2014 will come from the excise tax itself, with the remaining 80 percent coming from additional income and payroll taxes on the increased cash compensation that workers will receive. By 2019, fully 83 percent of the additional revenues will come from taxes on higher wages and salaries, not the excise tax.[11]

And here’s what the Chief of Staff of JCT, Thomas Barthold, said to Congressman Joe Courtney, one of the biggest skeptics of the excise tax.

As you can see in the table, other than the first year, the percentage owing to excise taxes is declining over the period, as consumers shift away from higher cost health coverage towards increased wage benefits.

That is, JCT appears to simply assume that workers, not their employers, get to choose whether they want higher cost health care or raises. But I have not found JCT actually citing a study that supports that claim.

Gruber and the Excise Tax Raise Claim

As it happens, Gruber has written three papers (none of these are peer-reviewed; these papers seem to be hybrids that place him squarely in the policy debate about these issues, but not–Gruber says–part of his work-product under the contract with HHS) that include defenses of the Excise Tax Raise claim.

These papers–particularly the November 5 one–are another source cited to defend the claims about the excise tax.

Let me start with the November 17 paper. I don’t dispute some of Gruber’s argument about the AFSCME complaints (note, Gruber hasn’t done a similar response to the CWA’s much stronger report illustrating the problems with the Excise Tax, nor to a recent EPI report that seriously challenged this claim). Here’s what Gruber says about the Excise Tax Raise:

Claim: The argument that reduced employer-sponsored insurance spending will lead to higher employee wages is “speculative”

Reality: The available evidence clearly illustrates that there is essentially a one to one offset between employer insurance spending and wages. There are a number of economics studies that support this conclusion. But it is perhaps most vividly illustrated by simply comparing the growth rate of health insurance costs to the growth rate of wages, a task recently undertaken by Ezra Klein:

do_lower_health-care_costs_mean_higher_wages_(2)

It is readily apparent in this graph that when health care costs moderate, wages rise – but as health care costs increase, wages fall.

Moreover, the ultimate authority on this topic is the Joint Committee on Taxation, and they have clearly spoken: the shift away from high cost insurance raises wages. As I have illustrated in another analysis, the JCT estimates imply that net worker wages will increase by over $300 billion over the next decade under the Senate Finance Committee’s proposed excise tax, after taking out the payments on this high cost insurance tax. The shift out of excessively generous health insurance plans and into wages is a major boon to U.S. workers.

Now, Ezra, to his credit, twice notes this is a correlation (and even calculates it), not proof of causation. But not the economist we’re paying $400,000–for him, “it is readily apparent” is strong enough proof. In my post on this, JTMinIA raised some problem with this correlation. And the EPI does an even more thorough job explaining why this graph can’t prove what Gruber claims it does.

The other value of Ezra’s post is this classic:

Earlier in the day, I’d been talking to MIT economist Jon Gruber about this issue. “There are a few things economists believe in our souls so strongly that we have a hard time actually explaining them,” he said. “One is that free trade is good and another is that health-care costs come out of wages.”

Ahem.

These are, Gruber makes clear, articles of faith, not proven facts. And the absence of any study actually proving this claim (which, I’m sure, most economists would consider less foundational than free trade, for what that’s worth) is instead pitched as a simple “hard time actually explaining.”

Which leaves Gruber, in this paper, with the JCT paper. The “another analysis” Gruber refers to is his own November 5 paper, in which he refers to the JCT’s apparently uncritical assumption that employers will pass on savings in the form of wages.

This [JCT] memo shows the year-by-year revenues raised by the High-cost insurance tax. Importantly, the memo highlights the two different ways the High-cost insurance tax raises revenues. The first is through actual excise tax receipts paid by those high cost plans that remain above the High-cost insurance threshold. The second is through the fact that firms will spend less on health insurance – and this reduced spending will be shifted to workers in the form of higher wages. This conclusion of wage shifting is supported by both economic theory and evidence, and is assumed in modeling by both the JCT and the CBO. This division is very informative: the JCT estimates that about 80% of the revenues raised by the High-cost insurance tax will come from revenue from higher wages, not from the excise tax itself.

Gruber–the guy who has been distinctly unforthcoming about the fact that he had been doing simulations to find out the outcomes of various policy outcomes for more than seven months by the time he wrote this paper–then makes a show of calculating the increased wages based on the JCT numbers.

The JCT estimates can be used infer the impact of the High-cost insurance tax on wages.

[snip]

Key findings[…] are:

  • Worker wages rise by $74 billion by 2019,
  • Worker wages rise by $313 billion in aggregate over this time period, or more than one-third of the estimated price tag of the entire health reform bill

In the November 20 paper, Gruber repeats the same exercise using the revised Senate bill.

Estimates from the Joint Tax Committee (JCT) can be used to demonstrate the important effect of the High-cost insurance tax in terms of increasing worker wages. Using data from the JCT, I show in this memo that the high-cost insurance tax will

  • Raise net worker wages from 2013 through 2019 by $234 billion
  • By 2019, net wages per insured household will be $700 higher because of this excise tax

Do you begin to see why Gruber’s failure to disclose the fact that he has been doing simulations on this stuff is so problematic?

Now, before I move on, let me emphasize what these papers don’t do. They don’t cite any study that proves that a decrease in health care costs bring about an increase in wages. Gruber says they exist,

There are a number of economics studies that support this conclusion.

But as his primary proof, Gruber links to Ezra’s pretty picture (which has since been debunked) and to the JCT analysis (which itself doesn’t seem to cite any evidence). And, apparently, in the conversation supporting Greenhouse’s article, Gruber didn’t cite one either. Gruber, supposedly the expert on precisely this issue, twice stops well short of providing proof for this assertion that wages will increase if benefits are taxed.

Who Is Doing the Simulations?

But I’m more interested in where that leaves us. The popular press often cites Gruber for this claim (without, of course, any disclosure that he’s working for the Administration), and Gruber cites JCT. And neither of them, apparently, cite any study proving this claim.

More interesting to me is that a guy who had, by the time he wrote his November 5 paper, received something in the neighborhood of $250,000 doing simulations showing what would happen if “the President’s plan” were implemented, seeming to work backwards off of the public JCT data, all the while proclaiming “the ultimate authority on this topic is the Joint Committee on Taxation.”

In one explanation to Ben Smith, Gruber said,

Gruber said his work for the administration was running the sort of cost simulations that the Congressional Budget Office does, based on a model that he’d spent 10 years developing. “I’m the numbers guy,” he said.

Part of its value, Cohn writes, is that it helped the administration predict CBO scores.

In an earlier one, Gruber said,

Throughout this year I have provided technical assistance to the administration and to Congress with my micro-simulation model, as well as based on my experience as a member of the Massachusetts health connector board.

Now, to be fair, Gruber once told Jonathan Cohn that he wasn’t doing the same analysis as the CBO on a different topic,

He hasn’t formally modeled the impacts of the reforms on premiums; for this analysis, he has relied simply on available data from the Congressional Budget Office.

But Gruber’s admission that his consulting includes working with Congress doing the same kind of analysis as CBO, and his repeated production of papers that apparently replicate analysis done by CBO and JCT, apparently does just that sort of analysis before the CBO and JCT do them.

Only, in papers he says had nothing to do with his contract, to then work backwards off the analysis of CBO and JCT to prove points that then get used in the Administration’s support of its preferred version of health care reform.

I’m sure Gruber is not doing the CBO’s work for him. I doubt he’s doing JCT’s work either. (Though, in both cases, I’m mindful of the delay Reid had every time he submitted something to the CBO.)

But the way in which Gruber repeatedly does this kind of analysis, all the while suggesting he hasn’t been doing precisely this kind of analysis for the Administration, raises more questions about his role.

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  1. Peterr says:

    “There are a few things economists believe in our souls so strongly that we have a hard time actually explaining them,” he said. “One is that free trade is good and another is that health-care costs come out of wages.”

    When you’re getting paid 400 Large to explain things, you might want to give it a try.

    I was just reading the FDL Book Salon thread, and this little nugget from Raven leaped out at me: “I did my dissertation on high school GED grads and one of my goals was for the folks who participated in the study to be able to read and understand it.”

    If you can’t explain it, you damn well ought not to be teaching it — or getting six figure public contracts to talk about it.

  2. earlofhuntingdon says:

    Paul Krugman inexplicably supports the excise tax, too. I critiqued his claims here. And Jason Rosenbaum points to this source, here (pdf), which he says refutes “the central idea that less spent on health care means more for wages”.

    For more than three decades, median wages in the US have remained stagnant, while those in the top 5% and 1% have seen enormous growth, especially the latter. Companies routinely shift production and every other activity offshore because of “labor costs”. Every manager now employed has come up through a culture that derides labor and labor costs (except his or her own), whether they be wage or benefits costs.

    If a company from that culture and with that past chooses to increase labor rates because it halted the increase in benefits costs or has seen them drop, I’ll eat my hat.

    • earlofhuntingdon says:

      Krugman anecdotally deals with the wage vs. benefits relationship with this:

      I’m enough of a card-carrying economist to believe that there’s a real tradeoff between benefits and wages.

      Real world experience suggests he’s surely right that when benefits costs go up, wages or wage increases go down. Whether the reverse is true – tne central point to Gruber and this discussion – I don’t think is born out by real world experience. If it were, research that documented it would be easier to come by.

      Frankly, I don’t think a company would consider raising wage rates when expected or unexpected savings in benefits arise. Any manager who did would suddenly find himself in the same unemployment line as the guy who let his production plant form a union.

      • emptywheel says:

        One thing the friendly economist who tried to convince me this was a two-way relationship sort of stumbled on was my point that basically, health care is “renegotiated” every year.

        His argument was that it would be wrong to assume employers would just pocket savings, because that implies they would have been overpaying their employees, that their salary negotiation had not resulted in a fair price for labor.

        But as I pointed out that this sort of benefits “discussion” (always one-way) has happened every year for years, and that nevertheless wages remain stagnant, he balked a little.

        • earlofhuntingdon says:

          Krugman makes a similar observation. One reason he gives for characterizing this excise tax as a “good thing”, is that it will spur wage negotiations that will then incorporate this cost in the overall package. Dr. of the Obvious.

          One, that works only for unionized workforces. In a non-union environment, it’s every woman for herself against management, an inherently low leverage “bargaining” position (essentially, none at all).

          Two, whether the resulting negotiations – given the continuing slide in union and worker leverage in such negotiations – results in management giving all or a portion of savings back to the work force is speculative at best. Except for isolated, non-representative examples, it’s a dead cert that sharing would be nil.

  3. phred says:

    For the go-to guy on the excise tax, this is a shocking lack of analytical data to support his hypothesis. So what has he been spending the money to do I wonder?

  4. earlofhuntingdon says:

    That health care costs come out of wages may be axiomatic; health insurance (covering limited or most health care costs), after all, is a deferred benefit in lieu of wages. But as EW argues, companies lower wages because they are paying for health benefits. They do not, however, give back to labor gains prized from negotiations with it or from other cost drivers. One needn’t be a Teamster or UAW member to make that observation.

    • emptywheel says:

      Well, and one of the reasons I’m fairly confident there is no study to support the claim is (as Ezra’s chart makes clear) health care costs have never gone down. So how would they prove the case?

      And why do they think any business, short of halting benes altogether, will “save money” on health care?

  5. PJEvans says:

    IMO someone who is held up as an expert in a field ought to be able to do better than this.
    I can’t get away with claiming something without evidence for my claim, and I’m at a much lower level of nearly everything – but my associates think I’m an expert and come to me with their questions. Hell, my boss brings questions to me.

  6. earlofhuntingdon says:

    To be clear, Gruber was an obvious candidate to be on anyone’s short list as a government adviser on health care economics. But the way these claims have been rolled out, and how this one is being carefully rolled back, suggest a political game rather than a clarification of one’s research.

      • Peterr says:

        Agreed.

        And on money being passed back to employees by employers . . .

        Even if employers gave every dime of what they are spending on health care costs to employees as salary, employees would pay taxes on that new salary, thus losing a non-trivial percentage of the “increase” in compensation. They are therefore able to purchase less insurance than their employers, because they are getting less money to do it.

      • earlofhuntingdon says:

        As you say, the whole argument is predicated on their being savings, a contentious assumption that you suggest hasn’t been a real world event in several decades. Is anyone predicting we will see real savings here, or are they arguing about re-allocating costs rather than savings?

        This debate is beginning to smell like the Medicare drug program, with its rosy and, in some cases, knowingly false assumptions about real world costs vs. budgeted costs.

  7. qweryous says:

    Excellent work on this topic both in terms of collecting data and your analysis.

    Superlative work on this topic in exposing the lack of evidence, unwarranted(imho) application of data, and to be charitable possibly deficient conclusions drawn from incomplete analysis.

    As the situation progresses it seems you have now reported an attempt to clarify, which substantially reduces the certainty that was present in previous conclusions reported on this topic.

    See first quote in your post.

    Has there been a period where health care costs actually fell? Coupled
    with rising wages?

    You quote Ezra:
    “Earlier in the day, I’d been talking to MIT economist Jon Gruber about this issue. “There are a few things economists believe in our souls so strongly that we have a hard time actually explaining them,” he said. “One is that free trade is good and another is that health-care costs come out of wages.””

    It is possible that he is correct in what he believes in his soul in that increasing employer paid health care costs are deducted (partially or totally) from the total compensation package paid to employees.

    It does not in any way follow that decreased employer health care costs would be added to the total compensation package for employees.

    The recursive nature of the process that has been revealed is clear, and
    questionable.

    Thank you for your work on this.
    Thank you to the other participants here as well.

    • emptywheel says:

      Right. I don’t doubt that health care increases come out of wages. I don’t question that at all; I’ve read a numbre of the studies on it, and I think they’re sound.

      But there’s zero reason to believe the inverse is true.

      Now, one of Gruber’s studies that gets cited shows that when you mandate maternity care (I think–I’m working from memory), employers raise wages on all those who won’t need maternity care–unmarried guys.

      But obviously, there’s a difference between raising wages in a competitive situation, and doing so when all your employees–and likely all the employees of your competitors are in the same boat.

  8. orionATL says:

    i placed this comment in the previous gruber post but that post’s a dead arm now, so:

    the health policy debate has two prongs:

    – Accessibility

    For 40 mill Americans -give or take ten mill- who

    Do not have health insurance.

    And

    – Affordibility

    1) for individual citizens

    2) for the society as a whole ,I.e., the federal govt.

    The Obama admin wants to straddle/elide/confound these two parts of “affordibility”.

    That’s why they love them some gruber –

    His data support an excise tax while allowing admin. Claims of individual “rebates” in the form of increased wages (honest!).

    could this be the case?

    i don’t know enough to know.

    but i do know enough about presidential public lying to know that tis straddle could be another public lie –

    a lie like iraq was responsible fot the attack on the wtc in 2001.

    a lie such as that iraq had something called “weapons of mass destruction”.

    lies that led this nation to spend 500 billion $s per year for 7 straight years, all expenditures off record.

    enough money to give every child in america “cadillac” health care til they were 21

    and

    a full college scholarship.

  9. orionATL says:

    Ew

    “in other words no one has been able to point to…”

    You don’t want anyone to be able to point to a study.

    If there are oneor three or five studies
    Pointing in the same
    Direction you
    Still I my
    Have knowledge in the present.

    There is no long
    Intellectual history supporting
    The argument.

    As with Iraq or global warming ppligkcians can choose from a smorgedbord of “scientific” conclusions and then run the tables of
    Public opinion with their tailored choice of “science”.

    The bush admin. Showed how knowledge could be picked over for favorible conclusions.

    “national intelligence” and unsettled, cutting edge science are equally susceptibleto presidential

  10. Hmmm says:

    Noted that “many” academic studies (though he doesn’t say it, some of them are Gruber’s own studies) show that “when health costs rise, wages fall”

    @15 ew pegs it: Yes, it’s been demonstrated that when health costs rise, wages fall, but that doesn’t mean it’s been demonstrated that when health costs fall, wages rise. Ezra et al. seem to have fallen into the trap of making that assumption.

    Another thing about why that graph could mislead -IF- the HC cost line is expressed as a % of wage, not as actual $. That would mean that if you assume a fixed $ amount for the health care cost, then any rise in wage $ will force the HC line down. I.e. a HC cost of $10 is 50% of $20 wages, but only 33% of $30 wages; the HC $ amount has not gone down in $ terms, only in %-of-wages terms. Restating for emphasis: any time the wage growth goes up, HC line is inherently automatically forced down — even when there is no actual HC $ reduction. Kind of the graphical equivalent of a tautology. Not saying this is necessarily a deliberate attempt to mislead, just that the graph is certainly subject to misinterpretation in such a way as to support the mistake that Ezra et al. have made.

    • bobschacht says:

      @15 ew pegs it: Yes, it’s been demonstrated that when health costs rise, wages fall, but that doesn’t mean it’s been demonstrated that when health costs fall, wages rise.

      In logic, the fallacy of affirming the consequent is when you argue that If A, then B, therefore if B then A. This is why, as you say,the consequent needs to be *demonstrated,* not just assumed.

      Bob in AZ

  11. qweryous says:

    Several other publications of Mr. Gruber may be of interest:

    This one on the second page has an earlier iteration of the falling insurance costs=employee raise. The actual description I’d paraphrase as: Employers increase the costs on employees to participate, only those that really want to participate do(those not participating are then uninsured?). Fewer insured= lower cost for employer.
    Now the magic:

    VOILA! Employers can give the employees a raise because they have more money!

    Title of publication “Why Did Employee Health Insurance Contributions Rise?
    By Jonathan Gruber and Robin McKnight. LINK:

    http://econ-www.mit.edu/files/116

    Another is:

    “Health Policy in the Clinton Era: Once Bitten, Twice Shy,” in Jeffrey Frankel and Peter Orszag,
    eds, American Economic Policy During the 1990s. Cambridge, MA: MIT Press, p. 825-874 (with David Cutler). LINK:

    http://econ-www.mit.edu/files/73

    This is has an interesting discussion of the writers self proclaimed biases
    As they were both administration insiders.See the fourth page of the PDF.

    This is the source of the articles: Link:
    http://econ-www.mit.edu/faculty/gruberj

    A rather prolific author, although I’m not judging the output based on quantity.

    • qweryous says:

      Concerning this publication: additional discussion of the employee raise concept, originating with other previously published work.

      See the fifth page of the pdf.

      “Why Did Employee Health Insurance Contributions Rise?
      By Jonathan Gruber and Robin McKnight. LINK:
      http://econ-www.mit.edu/files/116

        • qweryous says:

          Not sure, it seems to be based upon( or reference) some others work referenced on the fifth page of the pdf.

          Haven’t read the other referenced works yet to see what they have to say on this.

        • emptywheel says:

          He is solidly among the core of people working on this.

          I think the fallacy that decreased costs = increased wages is just a matter of being too much an economist–working too deeply in the abstract, rather than in the real world, where you could ask an employer if they’d share these savings and they’d laugh in your face.

          It also doesn’t SEEM to evaluate whether this is just an attempt to keep bene costs relatively constant. Which is pretty amusing, because it would suggest that he hasn’t even measured whether that’s the case.

          But the other important thing is that he KNOWS the same behavior that the excise tax would motivate HAS BEEN GOING ON FOR YEARS and yet we’ve seen no correlated decrease in the speed of insurance increase.

          • bobschacht says:

            I think the fallacy that decreased costs = increased wages is just a matter of being too much an economist–working too deeply in the abstract, rather than in the real world,…

            I wouldn’t blame this on ivory-tower economics. Even as straight out of the book economics it rests on the dubious assumption of low unemployment, i.e. significant competition amongst employers for affected employees, such that an employer would be forced to increase wages to avoid losing employees who would quit to take a higher-paying job with another employer who did turn the decreased costs into higher wages.

            In other words, this formulation assumes a perfectly elastic market, at a time when unemployment is at near-record levels.

            This dog won’t hunt, and any decent economist would not be pushing it.

            Bob in AZ

    • bobschacht says:

      Several other publications of Mr. Gruber may be of interest:

      This one on the second page has an earlier iteration of the falling insurance costs=employee raise. The actual description I’d paraphrase as: Employers increase the costs on employees to participate, only those that really want to participate do(those not participating are then uninsured?). Fewer insured= lower cost for employer.
      Now the magic:

      VOILA! Employers can give the employees a raise because they have more money!

      Title of publication “Why Did Employee Health Insurance Contributions Rise?
      By Jonathan Gruber and Robin McKnight. LINK:

      http://econ-www.mit.edu/files/116

      Geez. He’s supposed to be an economist???
      Hey, I’m only an anthropologist, but let’s talk economics for a moment.
      “Employers can give the employees a raise because they have more money!”

      First, note that “can” is not the same as “will.”
      Second, employers would only give the employees a raise
      (a) if they are charitable people who really care about their employees, are not being hounded by their shareholders to increase profits, and their job does not depend on maximizing profits, or
      (b) unemployment is low, and employees of this type are hard to find, such that it would cost more to hire a replacement employee than to keep current employee– in other words, there is significant competition among employers for this type of employee.

      So, if this really accurately characterizes Gruber’s argument, then he’s no great shakes as an economist, and the country should not be making a multi-billion dollar bet on his conclusions.

      Bob in AZ

      • qweryous says:

        I said I paraphrased, the text should be read by those interested.

        You need only read the first two pages.
        It is plain english.

        I would have quoted, but the restrictions are rather explicit, that is why I did not quote.

        I stand by my paraphrase.

        Warning: have something to relieve the headache that this may induce.

        Your conclusion will be your own.

        Take 10 minutes and read the first two pages.

  12. qweryous says:

    I do not know if these papers have been referenced previously, if so I missed the reference.

    It seems they are useful to analyze the conclusions reached wrt the economic effects and benefits of the proposed health care reform.

    The average reader of the recent EW posts on these topics, and commentors on the same are capable of reading and comprehending the introduction and explanation of the analysis in the linked paper.
    The assumptions made are also understandable .

  13. KarenM says:

    Great post, Marcy!

    And thanks for answering one of my questions from your previous post, where I wondered if Gruber’s work was even peer-reviewed. Yikes!

    This is about far more than the academic peer review process. In general, such papers are not used to force people to buy something they already know they cannot afford… in this case leaving them even less money for one of the most basic needs: Better food. Which, according to the Obamas, would help to “treat” so many of our epidemically chronic conditions.

    Final thought: Excise tax raise? What an oxymoron!

    • emptywheel says:

      KarenM

      Let me be clear–Gruber has a huge corpus of peer reviewed work. He is a very well-respected economist and has done more than enough publication to merit his position in the academy.

      The papers I’m talking about–wrt peer review–are just a series that he has written while under contract but not–he says–as part of that contract that engage directly in the policy debate.

  14. R.H. Green says:

    Reducing health care costs frees up money for wages? How about all that money gained by increases in productivity that somehow failed to materialize in the form of wage increases?

    While I’m here let me point out something about the graph. The trend lines show three different relations. In the early 90s we see that the growth in median income was rising faster than that of health care costs; the faster incomes rose, the slower the growth in HC. After 2000, the opposite occurred; as income growth slowed, HC costs accelerated. A simpleton might try to interpret this to claim that if one wants to slow the growth of HC costs (bend the curve), all that is needed is to accelerate incomes.

    But someone like Gruber would come out wildly waving his arms and shouting, “You can’t do that; there’s no evidence that making more money makes HC costs go down. However that sort of argument is exactly what EW is complaining about; Gruber is claiming that these data show that as HC cost go down, incomes rise. Balderdash. All one has to do is look at the middle portion of the graph (the years between ’94 and ’99); there seems to be no relation whatsoever between the two trend lines. Median income growth quickened and slowed in response to some forces, and HC costs accelerated and slowed according to some forces, but this graph fails to convince that there is any controlling relation here between these metrics, and thus the conclusion that lower employer’s health insurance costs frees up money for wages is based (it would seem) on wishful thinking. As Scribe noted, we need to look at what assumptions Gruber’s simulations are based upon. I hope it isn’t more of this.

    • earlofhuntingdon says:

      Beautiful observation. Typical wage charts show wages static in real dollars for thirty years, while productivity has grown significantly. It went to executive comp, banks and shareholders, not the people who actually created that productivity.

      Krugman knows that story inside out. So why the blindness here, I wonder.

    • emptywheel says:

      I actually think you could make the opposite conclusion: that one (but by no means the only) reason that income growth slowed is that insurance costs were going through the roof.

      That’s what I believe occurred, though it is clear those making the argument are assuming bene costs are the only thing involved; they’re not looking at the larger labor market which undoubtedly is the primary factor involved.

  15. spanishinquisition says:

    Nobody seems to have pointed this out yet, but this is the same logic that is used to justify the HC bill overall with the mandate and whatnot. The claim is that with adding tens of millions of healthy people will reduce HC rates, but just because the insurance companies could lower rates (which I’m not accepting as true, but am using for the sake of argument), it doesn’t mean that those insurance companies wont instead just pocket in increased profits from the people who were forced to buy insurance but didn’t need it. Even if companies could give wage increases, it doesn’t mean that the money will trickle down to the employees. Candidate Obama campaigned against trickle-down economics, while President Obama loves trickle-down economics. To quote Candidate Obama (apparently no relation to President Obama): “Well now we know the truth. It didn’t work. Instead of prosperity trickling down, pain has trickled up.” Oh and here’s another quote from Candidate Obama: “The decline in our GDP didn’t happen by accident. It is a direct result of the Bush administration’s trickle-down, Wall Street-first, Main Street-last policies.”

    • donnadiva says:

      You bring up another good point. If the insurance cos. figure people are willing to pay a certain premium, why should we figure they won’t let people continue to pay that premium, even if adding several million more customers would (ostensibly) reduce it? Proponents of the mandate insist that the uninsured are adding 8% to every premium, yet I’ve seen no guarantee of an 8% decrease in every premium once a mandate is implemented. Why is that?

    • emptywheel says:

      Yes.

      And one of the problems with the whole scheme is that since there is no competition among insurers, there is no way to FORCE them to pass on savings to the govt or to the little people.

  16. donnadiva says:

    Here’s another aspect Gruber, Krugman, et al haven’t figured into their projections: Many union members either work directly for the government (teachers, police, firefighters) or for companies that have substantial government contracts. In many states, such as my state of Arizona, the government is constitutionally obligated to balance the budget. If the excise tax affects a lot of teachers and other gov’t employees here, any savings from it on health insurance will NOT be put back in wages. They can’t be. Savings will be used to fill the budget gap because we are currently in a deep deficit. Many other states are in the same position. Unionized companies with government contracts will simply get less money in their future contracts, hence, no wage increases for them either. Federal employees and contractors could be in a similar situation because all of a sudden we have to be deficit hawks now. I’m fairly certain Gruber and Krugman didn’t figure that into their excise tax projections.

    • emptywheel says:

      Yup.

      AFSCME is one of the unions most heavily affect. So are some of the teacher’s unions.

      And it is inconceivable that, unless the economy improves very dramatically, any savings wouldn’t instead go to provide basic education or basic services instead of increased wages.

  17. Professor Foland says:

    Both my employer and my wife’s offer family health insurance as a benefit. The value of that benefit is provided to us every year on a little tabulated sheet that shows “total compensation”.

    But only one of us (my wife) uses the benefit.

    Using all these various studies, Gruber would conclude that my employer, using the “health care savings” of my not-being-in-their-plan, passes along the value of those saved health care costs into my salary.

    Ha.

    • temptingfate says:

      Exactly so.

      The, perhaps well-meaning, economists like Gruber and Krugman often defend concepts like this based upon some vague idea that there must be pot of money that fills a series of containers which are designated in everyone’s mind for a specific kind of employee benefit. As a container shrinks the money automatically overflows into the general employee benefit pot for immediate reuse in another container. My guess this comes from being trained in academia where negotiations more or less actually work that way. Having worked for a state organization as well as some small private companies, my experience is that nothing could be further from the truth.

      The state, in good times, has a captured union that usually cannot strike and thus lacks any real leverage. The unions negotiate from weakness, more or less hoping that the state feels guilty enough to raise their benefits. The threat of suing for failure to keep a promise being in the final analysis predicated upon hoping the state forces itself to keep it’s promises. Today and for the forceable future for nearly all states this strategy will fail because pensions have been horribly mismanaged and the states lack the tax revenue to keep previous promises.

      A private business on the other hand, that negotiates benefits with an employee and then manages to work out a better deal related to their costs for some part of those benefits will never return part of that improved deal to the employee. This perhaps is the core difference between running an academic enterprise, which does not focus on profits, and nearly every other kind of enterprise. The newly enhanced profit margin will either go back into the company’s coffers or it will be converted to compensation for upper management. One of the great unanswered questions is why so many academics are unable to recognize that their experiences within their chosen profession have so little connection to the real world.

      In the final analysis, it seems likely the current problems with the Gruber and Krugman way of thinking is about not believing that all forms of capitalism are essentially rapacious in nature. Once you imagine that we’re all just one big happy family that just wants to do what is best for everyone you’ve become just a mark waiting to get taken. The difference here is that many of these academics will watch the consequences from far enough away to not be required to learn from their mistakes. Average Americans will learn for them.

      If companies were run like Gruber and others imagine there would be no millionaire CEOs. Management would be spending their time trying to figure out how to pay their employees more than they originally were able to negotiate whenever profits increased.

  18. ezdidit says:

    Countless (more than two are enough to refute Gruber) studies from Towers/Perrin and Kaiser Health point to these “articles of faith” as being nothing more than the blind spots of an uninformed citizenry amid claims of mythic disproportion. Like a form of denial in an addict.

    But in human evolution – the only context in which to view Gruber and his “articles of faith” – the impossible is inevitable – only it takes 500,000 years to prove him correct.

    Thank you, emptywheel! Thank you for telling truth to power, forcing the hand of the media at every turn. I am ever so grateful to you for standing up to the bullshit!

  19. perris says:

    when jobs are under pressure, wage is under pressure and pay will continue along that downward spiral regardless, the only reason a company raises pay is becaues there are few candidates for an abundance of positions or the government forces them

    we are in a negative pay trend because there are more qualified laborers then posititions to be filled

    that means wages go down no matter what costs are

    there is no way on the planet health care costing the company less will raise pay, so long as there are more qualified applicants then positions there is job pressure and wages go down

    simple stuff, even more obvious once told, which I am now telling

    in fact, one of the biggest metricks greenspan and now bernanke use to keep interest rates down is whether or not there is wage pressure to raise pay

    if there is not, or it is stagnant, rates stay low, if wage pressure is on the rise rates go up

    it’s a sick metric but it is the one of their principles

    that’s the first thing wrong with this guys “prediction”

    the next thing is the most glaring;

    using his model is a “trickle down” model, that is you give money or expense relief to those who have money and they will miraculously give it away

    it’s “trickle down” economics and it is a rediculous position to take, wealth migrates up it does not trickle down

    before there is profit there MUST be product (duh)

    but these morons keep proposing “trickle down” models because people fall for it

    • perris says:

      here’s the only way wages rise;

      when there are more jobs then applicants, if obama created job programs instead of private sector gifts to industry, THAT would make wages rise

      but NOOOOOO!!!!!!

      this man just continues to disapoint, what can I say

      off for the day, see all later

  20. allan says:

    I’m old enough to remember when, back in the 70’s and early 80’s,
    NBER czar Martin Feldstein claimed that Social Security had reduced the savings rate in the US.
    Years later, when the studies were made available, they were less than compelling.
    IOKIYAATE (It’s okay if you are a tenured economist)

  21. bobh says:

    While $400k seems a bit high for consultant pay (2 full years at $100/hr.!), I don’t deplore Gruber’s involvement as he seems to be a proponent of universal coverage and is very effective in TV appearances I have seen. No comparison with Armstrong Williams.

    • Professor Foland says:

      I don’t know the details of the contract, but doing detailed simulation work for 2 years, $400k seems about right. (I’ve been on the granting, not grantee, end of such contracts from industry to academia.) The contract probably includes money for data collection, validation, technical support, grad-student labor (perhaps disguised as the previous categories), overhead (which can be 60% if a university is involved), G&A, etc etc. If he himself actually sees as much as a quarter of it I’d be surprised. At a typical consultant rate of $200/hr, that would be about 500 hours, or 250 a year–about 10% time, which, again, seems about right.

      (In fact, in the natural sciences at least, a $200k/year grant for 10% faculty time might even be considered a bit of a loss leader. I don’t know about econ departments.)

      • spanishinquisition says:

        However, it’s not usual that the minute the contract is signed that you go and get booked at the WH and meet with the OMB Director who them subsequently touts you up as independent confirmation rather than as someone paid by the Administration – that is downright unseemly. Whether or not Gruber should have disclosed is actually getting away from the bigger of the WH not disclosing when they touted Gruber up as it is unquestionable that the WH should have said Gruber was in their employ. It’s disgusting that after Orzag met with Gruber upon him getting his payola Orzag subsequently touted Gruber’s work up. The WH utterly failed in transparency while being deceptive to the public.

      • emptywheel says:

        The contract is for 11 months, he lists two employees as covered by the contract, it uses microsimulations he has developed over 10 years, and he lists the employer as a non-profit, meaning this is not going through MIT.

        How does that square, then?

        Though to be clear, given Uwe Reinhardt’s response to me, I’m not contesting that Gruber is the appropriate person for the contract. Just that having the main champion of a policy be the same guy that is feeding in the basic assumptions is pretty dubious.

        • spanishinquisition says:

          Yes, it’s like the rent-a-general issue. It’s not that the retired flag officers weren’t experts in their field, but rather their portrayal as being independent. When their lack of independence was revealed, it totally muddied the water and discredited what they had said since they were deceptively held up as being independent. The WH actively held Gruber up as independent validation when in fact he was on their payroll, which this serves as more of a black mark against the WH than Gruber, though Gruber certainly had to have known what he was doing was unethical.

      • Teddy Partridge says:

        There is no university involved. This is a sole-source, no-bid, sole-proprietorship deal: just Gruber (and one employee).

      • Torchbearer says:

        I don’t think emptywheel is quibbling over the amount of the contract, but is taking issue with the fact that Gruber was paid and failed to disclose it (lack of transparency), that his conclusions are bullshit, and that politicians used his work to support their claims as they screwed over the American people.

        I want to know who in the Obama administration wanted Gruber to do this research and who approved the use taxpayer money to pay for these conclusions.

        Was it Orzag?

        I agree with spanishinquisition’s comment @ 55:

        It’s disgusting that after Orzag met with Gruber upon him getting his payola Orzag subsequently touted Gruber’s work up. The WH utterly failed in transparency while being deceptive to the public.

        • Professor Foland says:

          Nor am I quibbling with the amount. Originally I was responding to someone who thought $400k was exorbitant, I was saying it really wasn’t!

          The real issue is the “payola” aspect; I really don’t think there’s an “exorbitant-amount-that-must-indicate-other-hanky-panky” aspect, so we’d best not get sidetracked on that.

          But to close the loop, for an 11-month, principal + employee…the principal probably charges $200 / hr, but if MIT is like its august neighbor up the river, the principal may only devote 20% of his time to it. Over 11 months that would come to about $75k. Assume he charges (all charges rolled up–benefits, overhead, etc) $100 / hr for the other full-time employee, that comes to about $185k. Total for labor only, $260k.

          So is $140k too much for everything else? Everything else probably includes some contract IT support, licenses for software, some G&A, and possibly some charge specific to the simulation (perhaps written as a licensing fee to HHS or some such.) AFAIK the “Principal + One” evidence comes from the federal contracts site description of his proprietorship; perhaps when he bid the contract he stated that he’d bring on a temp worker for the duration of the contract. Depending on how it was written, it’s not hard to see all that coming to a pretty low dollar amount, or to something on the order of $140k if there was a temp worker brought on, or if there were charges written specific to the use of the simulation. (Or if MIT granted an exception to the 20% rule, which this seems like the sort of case that they might. It’s a low-dollar but high name-in-the-media project.)

          Without seeing the actual statement of work, $400k doesn’t necessarily seem smoking-gun out of line.

          • qweryous says:

            There is also the loss leader concept of pricing.

            Not saying anything other than that total remuneration is not always the upfront contract price.

          • bmaz says:

            I don’t necessarily disagree with that analysis; sounds reasonable and I figure you likely have a decent bead on this subject. That said, if you look at Gruber’s history, he has been a bit of a hired gun for the government in several areas for quite a while now including an extremely lucrative and very curious contract he had with the DOJ to serve as an “expert witness” (they do not usually just keep experts on paid retainer like that; but I have not yet seen the full details to tell what the deal really is. Could be legit I suppose, but sure looks bizarre). Then there is the way, as Marcy and others have described that Gruber is always willing and ready to conveniently say and back what needs it at that moment, even if he has taken a different position in the past. So, for me, it is more a totality of the circumstances that lead me to be distrustful of Gruber. May be all honest and on the up and up; sure exudes a slippery and unsettling feel and smell though.

    • spanishinquisition says:

      Both of them claimed to be true believers as justification for their actions. The only difference is what they claim to be true believers in, which just because someone says what you like while someone else says something you didn’t like doesn’t make them different, but rather it makes them the same as they’re both the same situation.

      • temptingfate says:

        Or that one is selling broken down 1983 Cadillacs and the other has a lot full of rusted out Pintos that he want us to buy. Doesn’t really matter which one is selling which car.

  22. temptingfate says:

    if there is not, or it is stagnant, rates stay low, if wage pressure is on the rise rates go up
    it’s a sick metric but it is the one of their principles

    I was young in the seventies and watched the transformation from the Nixon era idea that inflation was the cost of goods converted to the idea the middle-class wages were the problem. When Reagan decided to fight inflation by crushing unions, starting with the air controllers the die was set. This idea has flourished and economists openly hail beating inflation which they believe requires defeating anything that improves the lives of the majority.

    Inflation as it is usually defined has always done more harm to the monied classes than deflation which reduces the cost of goods and allows those with the most cash to purchase a larger amount of goods.

  23. Synoia says:

    Mr Gruber:

    Put up the model for, donwload, inspection and use. lets try own numbers, Let us test the asumptions in your model.

    If you are the “numbers guy” show us.

  24. JoeBuck says:

    This argument is interesting but maybe beside the point, for several reasons: first, even if medical costs come out of wages, it’s much cheaper for a company to negotiate a good rate than for individuals to do so. This means it pays for workers to agree to forgo wage increases to get a better health plan. Second, if Gruber wants us just to think of health care plans as compensation, they are imposing a hefty tax (40%) on this compensation, a good deal higher than the top rate. That punishes people who negotiated those good plans (organized labor in particular). Third, employers have all the leverage these days. They are in a position to reduce workers’ total compensation, they don’t have to just move it from one bucket to another. They can greatly increase workers’ out-of-pocket costs, and do more of it every year.

  25. Neoptolemos Nikator says:

    Marcy,

    Do you think it might be time to shift from the little fish (Gruber) to the bigger fish (those in the Obama administration who are responsible for paying Gruber to bullshit)?

  26. Torchbearer says:

    emptywheel,

    You indicated in an earlier post that the money went to Gruber through the Department of Health and Human Services (HHS). Do you know who specifically at HHS approved the funding? Do you know who directed HHS to approve the funding to Gruber for this sole-source, no-bid, sole-proprietorship deal?

  27. bmull says:

    Great work Marcy. I’ve been saying for months on Ezra’s blog that Dr. Gruber’s work doesn’t pass the smell test. I hope these revelation will give pause to Dems who are trying to ram this bill through.

  28. majorajam says:

    Wow. You guys would fit in nicely at a climate skeptic blog.

    The reason why economists like the quite unfairly and unreasonably maligned Gruber, and every other economist I am aware of, Krugman, etc. ascribe to a (largely) symmetrical trade-off between health care wages and monetary wages- not aside from the fact that the distinction is specious of course- is foremostly theoretical. In other words, the symmetry follows from mainstream economists’ understanding of wage levels, wage growth, etc. A vastly superior understanding, I might add, to what can be found here, it being evidence based, developed and refined over hundreds of years, etc.

    The empirical data here, far from being the main event, has been cited here by way of supporting that theoretically anticipated dynamic. It is not the basis on which causation rests. That the empirical data doesn’t ‘prove’ anything would hardly be a surprise to anyone with awareness of the paucity of available data and sheer number of factors that contribute to the trajectory of wages and health care expenditures. It is evidence, not proof, and evidence that comports to our own ex-ante expectations, which makes it worthy of calling attention to.

    If you guys would like to differentiate your approach to discourse from that undertaken by the ‘climate skeptic’ community, you might consider building out a proper case. Start by explaining how wage levels and wage growth get determined in an economy, and then explain through those dynamics why an excise tax on health benefits, (which is to say a removal of a tax break), will lead to lower wage levels and/or wage growth. Why should a decrease in the cost of benefits prompt employers to cut the wages of their employees? Why should businesses have to wait for labor to get rolled by the Democrats in Washington before they keep more for themselves? Presumably they may want more money regardless?… These are the types of questions you might consider explicitly responding to by reply.

    When you have, you will be articulating a reasoned argument, (well-reasoned or not), rather than tilting at every academic with the temerity to present you with an inconvenient analysis. It will be fun… and a whole lot more ethical too. A real win win.

    PS Speaking of Krugman, where is the acknowledgement of/response to his pointed rebuke of this blog??…

    • bmaz says:

      Heh, if I read your intentionally obtuse and convoluted writing correctly:

      That the empirical data doesn’t ‘prove’ anything would hardly be a surprise to anyone with awareness of the paucity of available data and sheer number of factors that contribute to the trajectory of wages and health care expenditures. It is evidence, not proof, and evidence that comports to our own ex-ante expectations, which makes it worthy of calling attention to.

      you are admitting that there are so many factors in play that Gruber’s central claim of wage versus insurance is not particularly valid or provable. Exactly what has been stated here (except without the unnecessarily obtuse language).

      • majorajam says:

        “you are admitting that there are so many factors in play that Gruber’s central claim of wage versus insurance is not particularly valid or provable”

        It appears you’ve done your reading comprehension at the same school. “not particularly valid” seems a bit of a strange way to summarize my assertion that the evidence supports Gruber’s claim regarding the tradeoff between benefits wages and monetary wages. Perhaps you could elaborate? As to whether this claim is ‘provable’ well, you’ve done a great parody of a climate skeptic.

        Now, where is the part where you actually articulate a complete argument? You know, the one that involves the economic variables at issue? Or should I have known better than to bother asking?

        Back to the regularly scheduled baseless innuendo and sliming of people’s reputations then.

        • bmaz says:

          It is not my job to prove the negative; it is yours (and Gruber’s) to prove your assertion. You have not, and your own wording demonstrates this. The only thing you have accomplished is projecting the image of some high and mighty oracle, contemptuous of others, without demonstrating squat for a basis or foundation. Your gross puffery, obtuse language and belligerence in the face of facts expose what you are here. But hey, if you want to convince yourself you have accomplished something mighty and profound, who am I to stop your delusions? Good luck with that.

          • majorajam says:

            bmaz, we really do need to work on your reading comprehension. Please point me to where I asked you to prove anything- I haven’t. What I have asked for is an explanation from the folks here, yourself included, why monetary wages shouldn’t go up when benefits wages go down. That explanation should be couched in the dynamics of commercial interactions as you understand them. I guarantee you Gruber could provide as much for his proposition, not to mention call attention to the empirical data which supports him such as it is.

            Consider the argument you folks are ostensibly advancing here. Congress makes benefits more expensive for firms to provide, and they respond by cutting wages (monetary wages + benefits). What I’d like to know, that hasn’t been explained or even attempted, is why they’re waiting for Congress. Presumably the money’s good irrespective… right? Do you have an explanation for me there? Or just more silly invective and precious notions about ‘proof’ where public policy is concerned. You were saying something about belligerence in the face of facts?…

            Speaking of which, the fatuous nonsense that says those wishing to change a policy have to prove beyond any shadow of a doubt their case, while those that wish to maintain the status quo have no such obligation, is another favorite of the climate skeptic community. Keep it up, and pretty soon I’ll have to start referencing your tactics as the gold standard of fallacious silliness.

            • bmaz says:

              What I have asked for is an explanation from the folks here, yourself included, why monetary wages shouldn’t go up when benefits wages go down. That explanation should be couched in the dynamics of commercial interactions as you understand them. I guarantee you Gruber could provide as much for his proposition, not to mention call attention to the empirical data which supports him such as it is.

              My comprehension is just fine, but thanks for the condescension. Secondly, that is exactly my point, it is not the job of the skeptic to demonstrate why they “shouldn’t” go down in this scenario, it is the duty of the proponent to demonstrate why they “should” go down. In this regard, not only has Gruber, nor anybody else, not demonstrated empirical data to support this conclusion; more significantly, they seem to have generally admitted that it rests on a long standing, but never proven, academic assumption.

              Nothing needs to be proven “beyond any shadow of doubt”, this is not a criminal trial courtroom; however, there should be appropriate relevant foundation laid, and I have not seen it.

  29. majorajam says:

    Meant to mention also that this-

    – “Noted that “many” academic studies (though he doesn’t say it, some of them are Gruber’s own studies) show that “when health costs rise, wages fall”

    – Pointed out that during the late 1990s, the slowing rise in health care costs coincided with wage increases

    – Admitted that “other factors could also have lifted wages during that period”

    Decidedly does not do this:

    With this formulation, Gruber dramatically backs off one of the key claims excise tax supporters make about the tax–that it will result in a pay increase for those affected.”

    I’d like to know where this person has done their creative reading comprehension, and suggest a new career as a tax attorney. The only thing that can even be construed as coming within the realm of the memory of the ballpark is the final bullet, regarding other the potential for factors to muddy the inference.

    As I indicated in my prior comment, other totally independent factors are undoubtedly at play that influence both the total level of wages (wage + benefits), such as changes in unit labor costs relative to international competitors, economic growth, etc. and its composition, such as changing preferences of workers for one over the other, e.g. as the workforce ages.

    In any case, in no way does this constitute Gruber’s walking-back of other statements, and it takes a pretty outrageous stretch by quite the chancer to claim it.

  30. majorajam says:

    The foundation is that employers pay wages, not out of the kindness of their soul, but because the labor market demands it. They cannot employ the labor of these workers for less. The empirical evidence for that proposition is not limited to the much discussed time series plot of wages and health benefits. Far far from it. It is furthermore an intuitive proposition that corresponds to most people’s experience. Certainly mine has been that if an employee is willing to take less, they get less.

    You should know that it’s not just Gruber advancing this argument. Krugman is as well, and mind-bogglingly enough, even Marcy Wheeler seems to be. From the subsequent blog post, “One of the reasons wages rose in the late 90s–particularly among the almost half of workers who don’t get health insurance through work that the EPI looks at–is because the labor market in general was tight. That gave employees–whether they had health care or not, whether they were unionized or not–the leverage to negotiate for higher wages (and health care, in some cases)”. In other words, wages are a function of the pricing power of labor.

    So let me break it down for you. If total wages are defined as monetary wages plus benefits, and total wages are determined by pricing power, then for Gruber’s assertion not to be accurate, the excise tax would have to decrease labor’s pricing power. And I’m here to tell you that I have not seen it.

    This to me is more than something of a foundation. It’s the rock of friggin Gibraltar. In any case, and at the very least, it would behoove people on this blog not to malign Dr. Gruber’s motives in advancing a- at the minimum- very reasonable argument as they have done repeatedly here. I hope you would agree.

    PS I still disagree with your formulation regarding where the onus of proof lies. Why should current policy be exempted from an analysis of optimal policy?

    • bmaz says:

      Actually, the information Marcy has provided is directly contrary to what you have just said; furthermore, I have never heard of an employer simply saying “hey employee, I am going to raise your wages because health insurance now costs less”. Secondly, there is no indication that health insurance will ever cost anybody less, and in fact there is every reason to believe prices will simply rise on the coverage or that employers will take the difference to their pockets. There is no evidence whatsoever to support the contention that wages, separate from the health insurance cost, will rise in the real pragmatic world; that contention is based on an academic assumption with no substantive basis. At least where I was educated, it was the hypothesis that had to be proved, not the null; your mileage may vary.

  31. majorajam says:

    “Actually, the information Marcy has provided is directly contrary to what you have just said.”

    Actually, I quoted her directly, fully and in context, so you can take it up with her.

    “furthermore, I have never heard of an employer simply saying “hey employee, I am going to raise your wages because health insurance now costs less”.”

    Perhaps not, and yet there’s every reason to believe that this is how it works. Companies need to recruit and retain workers to remain in business and make profits for their owners. When they can’t get anyone for what they’re paying, they increase their wages provided it is still better than alternative options such as outsourcing or automating or whatever. That follows my experience and that of those I know to a T.

    As that goes, the cost to hire an employer does not vary based upon the composition of compensation, but the amount. So if they’re paying less on health care, they can afford more on wages. If they don’t pay it, competitors with similar cost structures and cost-benefit propositions for marginal labor can start luring away their workers or out-recruiting them, simply by not lowering their total wages. Instances of such eventually prove untenable, and market wages equilibrate (the issue of sticky wages of course muddies this picture, certainly in the short-term, however any country relying on sticky wages for the prosperity of its people is up a creek sans paddle anyway).

    You can continue to argue by assertion that all of this is ‘an assumption without substantive basis’ even as you ignore the clear outlines of a cogent theory, empirical evidence and, most notably, the questions I’ve asked you to answer that point up the Grand Canyon sized holes in the argument you are defending. Unfortunately, plugging your ears and claiming deefness is not a convincing approach, least not where I was educated. Where I was educated, arguments by assertion were considered the last refuge of the desperate and desperately dogmatic. You might as well say ‘it were god what done it’ and be finished with it.

    PS Laying claim to the null hypothesis as if this policy question were a strip of Oklahoman land and Lincoln had just signed the Homstead Act is another patented climate denialist move. If you’re not careful, they’ll get you for royalties.

    • bmaz says:

      You can stuff your whiny, antagonistic and insulting climate denier analogy; and, by the way, it is you that still either cannot or will not supply the precious “empirical data” you once required but now slough off with cheap truisms and conclusions. That is you, not me, pal. And your trite little attempted comeback on the difference between a positive hypothesis versus the null with some ridiculous and impertinent Oklahoman mumbo jumbo is pathetic. You are going to have to do better than that bunk to argue with me, and around here I am a dope compared to most.

  32. maryo2 says:

    “When they can’t get anyone for what they’re paying” does not happen when there is high unemployment.

  33. maryo2 says:

    Data from the 1990s is influenced by the lask of oversight in the banking and credit industries. The low employment of that period was a predecessor to the catastrophic economic meltdown that resulted in Pres. Bush signing the bailout before he left office.

    You say that Marcy is ignoring empirical evidence – but I am telling you that the empirical evidence does not exist. If it did Gruber, Krugman, the JCT and the CBO would have cited it.

  34. maryo2 says:

    Reply is not working.

    To @79 “labor market demands” … “why monetary wages shouldn’t go up when benefits wages go down. ”

    Because there is a surplus of labor in the USA right now.

    • majorajam says:

      maryo2, that is a pretty circumstantial argument to be making for a health policy, wouldn’t you say? Certainly something with the strategic ramifications of health care policy should be based on something slightly less ephemeral than current employment conditions?

      In any case, ‘surplus labor’ is not meaningful as the labor market is segmented in multiple ways, and people would have to anticipate that circumstance extending indefinitely for it to matter in any case. I’ll ask you what I asked before- why are employers waiting for Congress if they can just cut wages right now? It certainly can’t be that employers don’t like money, because that’s not consistent with the rest of what’s been written. So what is it?

      But lets just ignore the fact that there’s no data or cogent reason to, and assume for a second that you’re right, and the excise tax would lead to lower wages, wages being sticky for whatever reason. To argue that this condition matters in any substantial way you would first have to make the case that wage stickiness could persist status quo ante for a substantial amount of time so as to make it meaningful- a questionable assertion for sure. You would then have to argue that such a thing was a good thing. On the latter score, artificially high wages are good for the employed worker near to that margin… and no one else. They’re certainly no good for the unemployed worker, as there will be fewer jobs, and fewer still the larger the magnitude of the wage differential.

      Let me take a step back for a second. I am not one to suggest that market dynamics exist in a vacuum outside of power relationships, i.e. the idiosyncratic proclivities of the people with the dollars. Dubai, for example, has done a gravity-defying job of holding down wage pressures amongst its massive unskilled (largely Asian-Subcontinental) labor force simply due to the power it can bring to bear as a state entity (and to racial and social attitudes that I find abhorrent). I am a liberal, for the most part, and could hardly be accused of starry eyed worship at the altar of the market. It is no more than a part of the picture, albeit the most important one.

      But I also unapologetically acknowledge that modern/marginal economics is meritorious, certainly by contrast with the alternative. And the alternative- what is being proffered here- is classic counter-productive windmill tilting (replete with uncivilized, unjustified attacks on a respected academic trying I would imagine to do good). As is all of the anger directed toward Obama about unemployment, which can also be found all over this blog.

      The idea that the federal government can waive a wand and fixed our deeply entrenched economic malaise- from a lack of jobs, to stagnant wages, to dying towns, etc.- and distinct uncompetativeness is fantasy. Yes, we should be and should have been more protectionist than we are and were in response to Asian mercantilist policies, (though that boat has largely sailed now, and now there is precious little left to protect- and much else that makes the current structure of the global economy dependent on the status quo, meaning the negative consequences of protectionism could be dire). Yes, we should have been on top of the agency problems that mushroomed across corporate america, where executives have run all our companies as their own personal fiefdoms and for their own benefit- to the detriment of everyone else including shareholders- because the system allows them to abuse their power thusly. Yes the financial/credit apparatus and their rent seeking bankers grew like a cancer around our economy, have enveloped it and remain a menacing threat. Yes what we have done to deal with all of those challenges has made them infinitely worse, by putting off all the problems to the next guy’s turn.

      But plenty of other things out of our control, or certainly out of our control 20 years hence, have contributed to the situation we find ourselves in. Our country was an exceptionally wealthy island cloistered away from a world of massive poverty. The poor world has caught up, or come close, as our demise- the demise of our companies, our institutions, our educational system, our families, our political class, etc. etc. etc.- has only intensified. And the ‘jobless recovery’ feature of our economy where jobs only start appearing after we can get demand/debt growth piping hot is just a symptom of that larger malaise.

      These things are each making us all much much poorer, and they do not lend themselves to classical Marxian baloney (see this post for a failed effort to bring the latter to the present: http://crookedtimber.org/2010/01/06/marxian-economics-mia/). They are quite explicable by typical moral cowardice amongst our politicians together with the abundance of useful idiots we have amongst the Serious class of people that have led this country for three decades (and, it must be said, to the proliferation to the point of preponderance of myopic parochial interests that dominate everything we do now).

      I’ve gone well off on a tangent here, but the larger point is on point. The idea that the excise tax is bad for workers is narrow minded parochial silliness on the highest order. All it is doing is removing a policy that distorts our system and makes it less efficient, and any reductions in wages that occur will either be fleeting or were inevitable in any event- employers do not pay wages out of the kindness of their heart. To the extent that there is any (additional) short-term pain, we should be looking to implement policies that directly target it, such as income tax cuts coupled with corporate tax hikes, but we should not be forsaking that efficiency- that effectively free money- due to such silliness as has been outlined here. There’s no basis for it.

      • maryo2 says:

        “why are employers waiting for Congress if they can just cut wages right now?”

        They have cut wages already, and the Senate bill and Pres. Obama’s plan is a continuation of that.

        • majorajam says:

          Are you insinuating that the Obama administration and the country’s hiring managers are a monolith or just a tight-knit conspiracy? I admit that I have no worthy response to this awesomely sensational piece of news.

  35. PJEvans says:

    the idea that the excise tax is bad for workers is narrow minded parochial silliness on the highest order. All it is doing is removing a policy that distorts our system and makes it less efficient, and any reductions in wages that occur will either be fleeting or were inevitable in any event

    I’ve taken pay cuts in the past to keep my job a little longer – and we’re talking a cut of 10 percent, not a small amount, and it wasn’t fleeting either. I know you’re talking through your hat.
    (Remember when all phone bills came with an excise tax attached? How about the one on tires? Would those be acceptable?)

    • majorajam says:

      Please note the use of the word ‘either’ in that phrase. It is operative.

      I have learned exactly one thing by my experience here- a decidedly uncurious, unintellectual and highly cloistered community has grown up in the American hard left. As depressingly dogmatic, and self-righteously strident as those inhabiting the vast wonder worlds of conservatism.

      If only our monumental fiscal, environmental, educational and competitive issues were all we had to worry about, we might even have a chance. But when you throw in the tower of babble and armies of clowns to occupy it, well, good night and good luck.