How to Mislead with Charts: Who’s Responsible for the Great Divergence?

I’ve been following with interest Timothy Noah’s series on income inequality in the United States. In the latest installment, he cites Larry Bartels’ book in which Bartels supposedly proves that Republicans are responsible for the “great divergence”:

Bartels came to this conclusion by looking at average annual pre-tax income growth (corrected for inflation) for the years 1948 to 2005, a period encompassing much of the egalitarian Great Compression and all of the inegalitarian Great Divergence (up until the time he did his research). Bartels broke down the data according to income percentile and whether the president was a Democrat or a Republican. Figuring the effects of White House policies were best measured on a one-year lag, Bartels eliminated each president’s first year in office and substituted the year following departure. Here is what he found:

That looks pretty impressive. According to the chart, not only have Democratic presidents created more equitable income growth, but they’ve created larger growth for every income category! This seems to be a slam dunk case against Republicans. But there are some problems. Firstly, is it really right to consider only a one-year lag before a president is fully responsible for the economy? President Obama might object to that! Secondly, of course the president is not the only one who affects economic growth. We don’t live in a dictatorship. What about the congress? Again, you can ask President Obama how easy it is for a president to get exactly the policy he wants, even when his own party controls congress, much less when it doesn’t. I decided to take a look at these two questions.

Firstly, I wanted to reproduce Bartels’ data. Unfortunately the Census Bureau’s historical tables that I found only go back to 1967, so I had to start from there. In any case, that’s about when the “great divergence” started, so that should be the most interesting data set anyway. I get similar results as Bartels:

But what happens when I tweak the parameters to have a two-year lag instead of a one-year lag?

Now we see a slightly different picture. Republican presidents still help the rich more, at the expense of the middle class, but the over-all economic growth picture is more fuzzy. Is a two-year lag better than a one-year lag? I don’t know. The point is that Bartels’ decision to use a one-year lag is arbitrary, and I’ve demonstrated that we get a very different result by just tweaking one arbitrary parameter. That’s not a sign of solid scientific evidence. What if I were to tell you that a climate model could be tweaked to predict global cooling instead of global warming just by tweaking one little parameter that was chosen arbitrarily to begin with?

Ok, but still even my tweaked graph doesn’t look good for Republicans: it still supports the argument that Republican presidents help the rich at the expense of the middle class. But what about congress? What if we looked at which party held the majority and ran the same analysis? I did that, dropping the years were there was a split legislature with one party controlling the senate and the other controlling the house. I’m actually left with only a handful of years with Republicans in control of both chambers, but that illustrates yet another problem with Bartels’ methodology: we’re talking about precious few data points to begin with, not to mention we’re not controlling for any other variables. In any case, here’s the result with a one-year lag:

Hmm… this graph looks very different from the first one we saw. Never fear, Democrats, using a two-year lag makes things look a little better for you:

So, which party’s policies are contributing more to income inequality? Which party is better at producing economic growth? My point is not to answer those questions. My point is to show that Bartels’ guess is no better than yours or mine. His methodology is interesting, but unfortunately fatally over-simplified.

Obama: Changing the Tone of Our Politics

There were a lot of things to like about President Obama’s State of the Union address. But I’d like to focus on this part for now:

But what frustrates the American people is a Washington where every day is Election Day. We can’t wage a perpetual campaign where the only goal is to see who can get the most embarrassing headlines about the other side -– a belief that if you lose, I win. Neither party should delay or obstruct every single bill just because they can. The confirmation of — (applause) — I’m speaking to both parties now. The confirmation of well-qualified public servants shouldn’t be held hostage to the pet projects or grudges of a few individual senators. (Applause.)

Washington may think that saying anything about the other side, no matter how false, no matter how malicious, is just part of the game. But it’s precisely such politics that has stopped either party from helping the American people. Worse yet, it’s sowing further division among our citizens, further distrust in our government.

So, no, I will not give up on trying to change the tone of our politics. I know it’s an election year. And after last week, it’s clear that campaign fever has come even earlier than usual. But we still need to govern.

Right on, Mr. President. This is something I can get behind. We really do need to change the tone of our politics.

We want to debate the issues respectfully and listen to opposing views with an open mind:

And we need to stop taking cheap-shots on the opposition. Intelligent people often disagree, so we shouldn’t be belittling people’s character or intelligence:

And we certainly shouldn’t be criticizing our opponents because of their age or disabilities, particularly when those disabilities are due to war injuries. That would just downright dirty politics:

Despite all of your efforts, Mr. President, the tone of our politics hasn’t changed much. But keep up the good work. Your consistent example is appreciated and is sure to bring about the change we hoped for eventually.

I Think We All Know Where It’s Coming From

At one of Obama’s recent town hall meetings on the health care proposals, a questioner brought up the misinformation that is circulating in the debate:

You touched on this. I would like you to expand a little more. This problem with misinformation in our country, it seems to me that it’s not only just hurting health care reform, health insurance reform, it’s dividing our country. (Applause.) Is it not maybe time — I think we all know where it’s coming from.

Yes, we do. It’s coming from all sides. During that same town hall, as well as those that preceded it, Obama has been using the proposed Medicare Advantage cuts as an example of where we can eliminate waste from the system in order to pay for his plans:

So I’ll give you — let me give you one particular example. We right now provide $177 billion over 10 years — or about $17 billion, $18 billion a year — to insurance companies in the forms of subsidies for something called Medicare Advantage where they basically run the Medicare program that everybody else has, except they get an extra bunch of money that they make a big profit off of. And there’s no proof, no evidence at all that seniors are better off using Medicare Advantage than regular Medicare. If we could save that $18 billion a year, that is money that we can use to help people who right now need some help.

Medicare Advantage is a system in which seniors who would normally qualify for Medicare can instead buy private health insurance plans, and have some of the cost of that plan subsidized by Medicare dollars. In 2003, the system was changed such that private insurers are given a more generous subsidy to provide these services. It is mainly this change that has prompted the concern that tax-payers are lining the wallets of insurance company executives. That is a legitimate concern. However, it is clear that those additional subsidies have encouraged insurance companies to offer more attractive plans to seniors. According to the Congressional Budget Office:

In 2004, Medicare Advantage plans accounted for 13 percent of enrollment in Medicare, the lowest level since 1996. Over the past two years, however, enrollment in those health plans has increased to about 19 percent of all enrollment, or 8.3 million beneficiaries.19 That increase resulted from changes enacted in the Medicare Modernization Act that increased payment rates and added the prescription drug benefit to complement the medical benefits provided under Parts A and B of Medicare. CBO projects that enrollment in Medicare health plans will continue to increase rapidly in coming years, to 22 percent of total Medicare enrollment in 2008 and 26 percent by 2017 (see Figure 1).

So, the higher government subsidy to insurance companies resulted in more seniors seeking after these private plans. There’s a reasonable debate to be had to be sure we are using government money wisely. However, the debate has to recognize a simple fact: if increasing the subsidy caused more attractive plans to be offered to seniors, what will happen when the subsidy is decreased? Will private insurers still offer those same plans as the same premiums to seniors? Reason says no. And yet, there’s this oft-repeated line from the President: “If you like your health care plan, you keep your health care plan.” Unless it’s a Medicare Advantage plan. Then all bets are off.

Some mock the elderly for statements such as “Keep your government hands off my Medicare.” It is true, that statement doesn’t express the frustration well, but the underlying concern is a real one. Maybe, before mocking, we should think about the fact that these people have been around many decades, and maybe have learned a thing or two about how government works. It turns out that, despite the patronizingly reassuring words that are used to try to calm the elderly on this issue, they have good reason to be concerned. If this is Obama’s example of an “inefficiency” in the system, what else might there be?

What’s Wrong With the Health Care Bill: How Small is Small?

Continuing my series I began a few days ago, here’s another little gem within the health care bill. The plan imposes a penalty on companies that don’t contribute to health care for their employees. But don’t worry, small businesses. The Democrats are fully committed to engaging in rhetoric to ensure that you don’t think this is going to affect you. From the summary, in a section ironically entitled “Assistance for small employers”:

Recognizing the special needs of small businesses, the smallest businesses (payroll that does not exceed $250,000) are exempt from the employer responsibility requirement. The payroll penalty would then phase in starting at 2% for firms with annual payrolls over $250,000 rising to the full 8 percent penalty for firms with annual payrolls above $400,000.

Democrats know that they must continue the charade of appearing to be on the side of small business. They argue that it will only be big business that will be penalized. You know those businesses with those big pockets. (On a side note, having big pockets doesn’t always mean they have anything in them, but that’s a matter for a different day.)

But now we learn that businesses with a payroll of as little as $250,000 would be hit by a tax. Now we know that Obama means it literally when he says he wants to help the “mom and pop” businesses. Just don’t hire the uncle and a few cousins–that might put you over the limit into evil big business territory. I know that isn’t a fair representation of Obama’s position–he probably does care about helping small business. But, as is common lately, his rhetoric doesn’t match the bill. Unfortunately, congress will not be voting on the president’s speeches. They will be voting on the bill before them that they (hopefully) have read.

But I’ll ask a more fundamental question: why should it be the employers’ responsibility to contribute to health care coverage? I don’t think you can argue that employers have a responsibility to do anything except fulfill the agreement they have made with the employee when he is hired. If I’m an employer looking to hire someone, and I put out the conditions of employment, and someone looking for a job agrees with those conditions, why should the government tell us we can’t make that arrangement, or punish us for doing so.

Those who support the tax on business will argue that businesses should pay for health care because they have the deep pockets. Those who make this argument don’t understand economics. The amount that the employer has to pay for health care is approximately the amount by which they will decrease their employees’ salaries. If it were not so, then I think we should mandate businesses to pay for my groceries and mortgage also. If the money that my employer pays comes out of thin air, we could easily solve our housing crisis that way. Of course that’s ridiculous. If my employer has to pay my mortgage, my salary would decrease.

There are several problems with employer-based health coverage:

1) If I lose or change jobs, I lose my coverage. Plans aren’t portable. This contributes to the problem of the uninsured, and also makes people stay in jobs they don’t like, rather than looking for greener pastures. That is detrimental to the labor market, as it means that employers don’t have to work so hard to keep their employees happy.

2) When employers offer health care plans, they offer limited choices. Choice is essential in a free market. If I don’t like my insurance provider, I ought to be able to easily switch to another. This keeps the insurance companies honest because they would know if they do not provide good service and a reasonable price, I’d go elsewhere.

So, considering those disadvantages, why is it that we have a employer-based health system?

1) Employers are offered a tax break to give health coverage to their employees. It still costs them money, of course, but it costs them less money then it would cost their employees to buy the plan themselves, since they would not qualify for the tax break. So, employers can provide something to their employees which is of high value to them, but costs the business less. This could be solved by equalizing the tax structure so that individuals who buy health insurance benefit just as much as businesses. Businesses that want to attract the best and brightest would still be able to contribute to the health care plans for their employees, but they would not get any additional benefit from the government for doing so. In addition, those who don’t have jobs or work for companies that don’t provide health care would not be disadvantaged in the insurance market.

2) Employees like the fact that when they sign up for a health care plan through their employer, they are part of a pool. That means their cost doesn’t depend on their health status, but rather the health status of the entire work force. It means that healthy employees subsidize the health care of the less healthy. Many people see this as a good thing, but a pool is just a crutch since we don’t have a better way to charge people. A better way would be to charge people based on their behavior, which eliminates the need for pools because everyone pays what they should pay, and everyone is equally able to lower their costs by making healthy choices, regardless of pre-existing conditions.

But even if the “charge on behavior” philosophy is not palatable to some who prefer the more tried-and-true mechanism of pools, we could set up such pools at the state level, instead of putting that responsibility on the employers.

But wouldn’t taking away the incentive to provide health care (or the punishment for not doing so) from businesses cause people to lose their health insurance? It might cause some businesses to drop coverage, but it would also add revenue to the system to provide tax credits to help individuals buy coverage, as well as more help for those with lower incomes.

What I’ve outlined is true change–way more than Obama wants to take on since he is determined to build on the current system. At the very least, that proves he is wrong to suggest that the only alternative to this bill is to do nothing. One alternative is to do more. But, really it’s not about less or more. It’s about what’s right. And pinning the responsibility of health care on “big” business is wrong, costs jobs, and leads to less choice in the marketplace.

What’s Wrong With the Health Care Bill: What Happened to Personal Responsibility?

I recently read the summary of the house bill and a few parts of the actual bill that I wanted to dive into in more detail. No, I don’t have time to read the entire bill. I have to say: it’s worse than I thought.

I won’t bother about the part about the “public option”. It is the most debated part of the bill, and most of the debate is ideological. Although personally I don’t like it as I fall on the more conservative small government side, but I don’t feel I have much to add to that debate. I’d like to focus on some things that are wrong because they are wrong–not because they don’t fit a certain ideology. So this is the first post in a series (if I get around to more) on what’s wrong with the health care bill.

The summary of the bill says this:

It also limits the ability of insurance companies to charge higher rates due to health status, gender, or other factors. Under the proposal, premiums can vary based only on age (no more than 2:1), geography and family size.

(You can read the part of the actual bill that relates to this issue here.)

I actually like the idea of preventing insurance companies from charging sick people more. The unregulated free market punishes people for having the nerve to get sick. Now, some diseases are preventable and one could argue that in some cases it is justified to charge people more if they get sick due to their own poor choices. However, there are two problems with this argument:

1) Many people get sick because of bad luck, not because of anything they did wrong.
2) Many people make bad health choices but don’t get sick.

If the intent of a free market is to encourage good choices by rewarding them and discourage destructive choices by punishing them, clearly the free market does not do this well in the health care world. As I’ve argued before, the free market is a great system, but is not perfect, especially in the areas of health care and education (I’ll leave education for another day).

So what’s wrong with this proposal, then? If we’re going to take away health status as a measure of how much someone should pay, what should we replace it with? I propose that we regulate insurance companies such that their premiums must be based on behavior, not health status. For example, someone who smokes can be charged more. Someone who is overweight, but loses weight over a certain amount of time, should see his premiums decrease. That would help accomplish two important goals:

1) Make the pricing system more fair. In our current system, someone with a chronic disease, whether they acquired it because of their own poor choices or not, would have to pay enormous premiums in order to be insured. Or, they have to be in a pool where healthy people help subsidize their care. Why not make people who are making poor health care choices, but who are not yet sick, subsidize the care for those who are sick?

2) Basing premiums on behavior would be a driver to improve health choices, and therefore lower health care costs. If people know they can lower their health care premiums by making better choices, they’d be more inclined to do so. Safeway has proven it, but according to my reading of the bill, Safeway’s program would not be approved.

Fortunately, I’m not the only one making this case. Although I haven’t heard much in the media, and have yet to find any other blog post regarding this important issue. Obama likes to talk about decreasing health care costs, but I don’t see much in the bill that actually does. This would be one way to do so, and it’s not even an partisan issue.

David Axelrod: Iraq War Worth It

David Axelrod, senior adviser to President Obama, on Face the Nation:

SMITH: Were the lives, American lives, lost in Iraq worth it? Were the Iraqi lives worth it?

AXELROD: Harry, I think any time someone serves their country it — it is an honorable thing, a worthwhile thing. And the president said in the speech that Iraq is better without the tyranny of Saddam Hussein. So, yes, the answer to that is yes.

Was that the right choice to make at the time given all the factors involved? The president’s spoken on this. This has been a heated debate in our country, and I suspect it will be debated for some time.

How can one argue that the Iraq war was worth the cost, but that it wasn’t the right thing to do?

What If It Were Bush?

I’m not fond of the the “What if it were Bush” syndrome–the perpetual need to point out how unfair the critics of Bush were, considering the praise for the Obama administration. But I couldn’t pass this one up.

Presidential Historian Doris Kearns Goodwin on Meet the Press:

We’ve learned that he somehow shapes his own day. I mean, I think it’s great that he gets up in the morning, has breakfast with the kids before going to the Oval Office. Ronald Reagan did the same thing. He said–not with the kids, but he got to the Oval Office later. Somebody said, “There’ll be a national security adviser there at 7:15. You’ve got to be there, Mr. President.” He said, “That guy’s going to be waiting a long time. I’m going when I want to…. If you can find ways to sustain your spirit and maintain a sense of normalcy, the fact that he goes out and he has dinner in the White House–I mean, in the, in the Washington, D.C., area, that he goes on ESPN, all of that frees up, I think, your energies to replenish yourself and allow you to become a good president.

If Bush had been showing up at the office late and spending time “replenishing himself”, do you think he would have been praised for that? When it was Bush taking “vacations*”, he’s lazy. If it’s Obama taking some down-time, he’s struck a good work-life balance.

* (I put “vacations” in quotes becomes everyone except those with Bush-derangement syndrome would agree that presidents don’t go on vacation. They might be located in a different place and spending some time with family, but the idea that he was just chilling-out for days at a time is ludicrous.)

Obama: I’m Responsible, But It’s Not My Fault

Obama, on the AIG debacle:

So, he’ll take responsibility, but wants everyone to know it’s not his fault. That’s some new politics for you.

Meanwhile, Dodd says it is his fault:

Personally, I think this whole issue is way overblown. Yes, the bonuses are misplaced in these times, but a contract is a contract, and the government shouldn’t get in the business of overturning contracts, no matter how bad they are. This is why the provision was added to the bill. All that is reasonable. The part that bugs me is that politicians, especially the president, are falling over themselves to feign outrage over something that was already anticipated and accounted for in the bill. If it was not anticipated, why was the clause added?

The same candidate that criticized McCain because he made a big deal about earmarks which weren’t a significant part of the budget, and the same party that criticized Republicans for making a big deal out of a few million here and few billion there in the stimulus bill, are now apparently outraged over 150 million–a drop in the bucket.

That’s what you get when you don’t read the bill before you enact it.

Lies, Damn Lies, and Obama’s Healthcare Statistics

When Republicans tried to explain the size of the stimulus bill based on the amount of money it amounted to per day since the birth of Jesus, I objected: “I’ve never really thought these sorts of number analogies all that useful. I can make just about any number look large or small using some visualization.”

I had a similar reaction when Obama said that healthcare costs cause a bankruptcy every thirty seconds. But I have ever greater reason to be annoyed, because it turns out Obama’s number is not only a meaningless statistic, but is actually dead wrong:

“The cost of health care now causes a bankruptcy in America every thirty seconds,” Obama said at the opening of his White House forum on health care reform. The problem: That claim, based on a 2001 survey, is simply unsupportable.

The figure comes from a 2005 Harvard University study saying that 54 percent of bankruptcies in 2001 were caused by health expenses. We reviewed it internally and knocked it down at the time; an academic reviewer did the same in 2006. Recalculating Harvard’s own data, he came up with a far lower figure – 17 percent.

…

Himmelstein tells me that the reason for the difference is a change in federal law that sharply reduced the number of bankruptcies. In 2005, the year he and Warren wrote their op-ed, there were just over 2 million bankruptcies. Data out just today say that in 2008 there were 1.1 million (up sharply, by the way, over 2007). So this error in the White House claim stems simply from the fact that it’s using out-of-date information. The next question is whether the estimate of “medical bankruptcies” is reliable in the first place.

A good part of the problem is definitional. The Harvard report claims to measure the extent to which medical costs are “the cause” of bankruptcies. In reality its survey asked if these costs were “a reason” – potentially one of many – for such bankruptcies.

Beyond those who gave medical costs as “a reason,” the Harvard researchers chose to add in any bankruptcy filers who had at least $1,000 in unreimbursed medical expenses in the previous two years. Given deductibles and copays, that’s a heck of a lot of people.

Moreover, Harvard’s definition of “medical” expenses includes situations that aren’t necessarily medical in common parlance, e.g., a gambling problem, or the death of a family member. If your main wage-earning spouse gets hit by a bus and dies, and you have to file, that’s included as a “medical bankruptcy.”

You might think, “So what? Healthcare reform is important, so why so much fuss over a statistic?” I would agree that healthcare reform is important, as I’ve blogged about before. But to illustrate why I think this mischaracterization (and the many that take place every day in the world of politics) is important, let’s do a little thought experiment:

Imagine that you are an HR rep, and you come to your boss with a new brilliant idea to increase employee retention:

You: “Sir, I believe we should give away free soda in the break rooms.”

Boss: “Why’s that?”

You: “Well, did you know that someone quits every five days because there is no free soda in the break room?”

Boss: “Every five days? Wow, that’s a lot. Where did you get that number?”

You: “Well, in 2001, we gave everyone who quit a survey, and some said that no soda in the break room was a reason they quit. And actually it’s closer to one person every 9 days, but that’s not the point…”

Boss: “Wait, we’ve cut the number of people who quit in half since 2001 due to other policy changes. And just because someone says it’s a reason they quit, doesn’t mean it was the main reason. But even so, that number seems high.”

You: “Yes, well I also included people who said they liked soda even if they didn’t list it as a reason they quit. I assume that if we had free soda, they might not have quit.”

Boss: “I see. How much do we pay you again?”

I hope that makes it clear. We would never tolerate this sort of fudging in our real lives, but for some reason we tolerate it from our politicians. I don’t mean to single out Obama. Almost every politician does this. But of all the politicians that have come along, Obama was the one who had the most power to change the norms that we have come to accept. Looks like the opportunity will be wasted.

Obama’s Inheritance

When speaking to the nation about his budget, President Obama made sure we all remembered that he inherited the deficit. It was not of his own making. Of course this is true, except for the almost trillion dollar spending package, but even that can be argued was the necessary result of previous policies. So I don’t blame Obama for not wanting to take blame for the massive deficit we find ourselves in.

For a few years, the financial policies of the Bush administration seemed to be working. But the seeds of recession, planted long ago, were quietly being cultivated. Then, the weeds sprung up all at once. Now it’s up to Obama to clean it up, and he’s right to remind us that it was not his mess.

But fast forward to today, when President announced his plan to withdrawal troops from Iraq:

The situation in Iraq is the opposite of the situation with our economy. There is no doubt that the Bush administration made mistakes in Iraq. But then we changed course. Bush replaced the leadership and came up with a new plan, and had the audacity to urge us to have more patience with him, our troops, and the Iraqi people. Amid the apparent chaos in Iraq was being sown the seeds of freedom and peace that started to emerge as Bush’s time faded. While I wouldn’t go so far so say that the rose has bloomed, President Obama inherited that bud just as much as he inherited the thorns in the economy.

But did Obama go out of his way to thank President Bush for this inheritance? Did he thank him for sticking up for the plan he knew was best for the nation–the plan that Obama opposed? If he did, wouldn’t that have been a refreshing change from the politics of the past?

He didn’t, but I will. Thank you, President Bush, for giving our troops and the Iraqi people a chance. You left us with plenty of problems to deal with, but I’ll give credit where credit is due.