The Agenda

Today’s Policy Agenda: Obamacare Isn’t Driving the Cost Slowdown, Even the Times Admits

Without the Wind Production Tax Credit to prop it up, the wind-energy sector is collapsing.

For U.S. News and World Report, Alan Neuhauser looks at the wind-energy industry in the wake of losing their subsidy:

While more than 12,000 megawatts’ worth of new wind power was installed in 2012, fewer than 2,000 new megawatts were just a year later. The reason: Investors rightly predicted the production tax credit would not be renewed by Congress before it expired after last year, according to data from the Union of Concerned Scientists and the American Wind Energy Association . . .

The tax credit, originally enacted in 1992, in its most recent form gave turbine owners 2.3 cents for every kilowatt-hour of power their windmills produced and applied also to wind power construction. It sounds small, but the credit added up. It not only eased the intense upfront costs of constructing high-tech turbines, but also often made the difference when wind was compared to competitors in the solar, coal, and oil and gas sectors.

Not only was the Wind Production Tax Credit ridiculously expensive, President Obama’s version would’ve cost over $19 billion over a decade, and we now can see that it’s been propping up an industry that couldn’t compete without it. (The credit may be revived toward the end of this year, retroactively, along with a range of other “tax extenders.”)

The credit is likely a waste of government resources and of the capabilities of the economy that could’ve been channeled in other, more productive directions. Encouraging alternative energy sources is a noble goal, but it’s probably much better to provide subsidies on the research and development side of the endeavor rather than to distort the entire energy market.

Is Obamacare causing the slowdown in health-care spending? Nope.

Liberals claimed another “victory” for Obamacare this week when a new CBO report projected Medicare to be slightly more solvent than we thought, promptly attributing the change to Obamacare. For the New York Times’ Upshot, Margot Sanger-Katz examines worldwide trends in health-care spending and casts some doubt on such claims.

The rate of health cost growth has slowed substantially since 2000 in every high-income country, including the United States, Canada, Britain, France, Germany and Switzerland, according to data from the Organization for Economic Cooperation and Development. . . . The synchronized slowdown offers reasons to be skeptical about neat explanations for the trends in any one country, be it local changes in medical practices or Obamacare’s various attempts to slow cost growth . . .

What’s behind the pattern? Economic growth around the industrialized world has been slow for much of the last decade, and the aging of the population in much of the world has also created fiscal pressures to rein in health spending. But these economic and political forces — which in turn leave governments and households with less money to purchase medical care — do not appear to be the only causes.

The world’s health-care systems are also converging in important ways. New drugs and medical advances, which were once adopted locally and spread more slowly, are now experiencing international launches. Medical technology companies are increasingly global, and seeing regulatory approval in many markets at once. Strategies that can reduce the need for expensive hospital stays, such as performing surgeries in outpatient clinics, are expanding around the world…

At the same time, the development of new expensive medical technologies has slowed for a decade or so. That trend has been most pronounced in the pharmaceutical market. Many big blockbuster drugs lost their patent protection, including Lipitor, the best-selling drug in history. Few expensive, mass-market medications have come to replace them.

If Sanger-Katz is right that these larger forces are driving the shift — and the fact that virtually every country is experiencing the same trends suggests that she is — Obamacare has played at best a small role in the slowing of inflation. And even if inflation doesn’t return to pre-slowdown levels, health-care costs will continue to pose a huge fiscal problem for the federal government, it just won’t be quite as huge as it had appeared it would be.

We’re still not sure whether ending emergency unemployment benefits was a good idea or not.

Maria Canon and Yang Liu of the Federal Reserve have weighed in on the conversation over what we’ve learned from ending emergency unemployment benefits.

We find that the extension of unemployment benefits affected the labor market status of long-term unemployed workers in late 2013. Without extended UI benefits, these unemployed workers would have been more likely to be employed, more likely to exit the labor force, and on average 1.9 percent less likely to remain unemployed in the following period. In short, our simulated early termination of the EUC program lowered the unemployment rate by 3 to 5 basis points, suggesting that the December 2013 expiration of the EUC program might have slightly lowered the unemployment rate in early 2014.

It seems clear that ending the emergency extension of benefits lowers the unemployment rate, but before the faction of conservatives that have argued for cutting unemployment insurance take too much validation from this, it’s important to remember that there is a good way to lower the unemployment rate, and a bad way.

Ending emergency UI benefits can push some back into taking a job they might otherwise decline to take if they had more checks coming their way — a good outcome – or it could lower the unemployment rate by driving folks out of the labor force who know longer have to actively search for work — a bad outcome. Some of these people surely transition into what’s become America’s permanent unemployment program, Social Security Disability, and are much worse off then if they could’ve just stayed in unemployment insurance a few more weeks.

This Fed report confirms that ending extended benefits lowered the unemployment rate through both mechanisms. Economists still need to sort through which effect dominated, and the normative question of how many need to get work before we accept one individual driven from the labor force remains. It’s become an interesting debate that the Right collectively needs to work through. 


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