Misinterpreting the Failures of Obamacare

With weekly revelations of new failures of Obamacare, it is tempting to join the chorus of "I told you so", but that would obscure the much broader and more important "I told you so" involved. To wit:

Obamacare did not fail entirely because it was a bad plan (though it was). It failed because no group of men and women sitting in Washington  -- no matter how smart they are (or think they are in the case of Pelosi and Reid), no matter how many MDs, PhDs or LLDs follow their names, no matter whether a D or R is appended-- can design something that will work better in complex markets than what the markets themselves evolve.

A critical adjunct to this understanding is that markets themselves do not always work well in Version 1.0 (ask anyone who tried to run Windows prior to 1998). It takes constant iteration to approach a well-functioning system. And those iterations are not without casualties. In fact it is failure itself that is the essence of the process and why government will always produce inferior results. In government, iterative failure (and associated learning) is not allowed to happen. Systems are rarely adapted to meet people's needs and desires. People must be manipulated and coerced to fit the system that has been designed.  Government's motto is:

When you try to put a square peg in a round hole, it is the responsibility of the hole to change.

It's The Household Composition, Stupid!

As the endless wailing about income disparities continues, it is useful to examine one of the principal reasons for the differences. Scan the table below from the US Census Bureau for 2011. Notice anything? Like higher earning households have more earners in the household? Now this shouldn't be surprising, but it seldom gets reported. Why? Because the solution -- i.e. get married to someone who has income earning potential -- doesn't sit well with those whose agenda is to encourage even more single-earner households. Nor does the solution probably require a massive new government intervention program.

Income range	Households (k)	Percent	Mean # earners	Mean household size
Under $5,000	4,261	3.52%	0.23	2.02
$5- $9,999	4,972	4.11%	0.36	1.81
$10-$14,999	7,127	5.89%	0.42	1.74
$15-$19,999	6,882	5.68%	0.57	1.96
$20-$24,999	7,095	5.86%	0.75	2.14
$25-$29,999	6,591	5.44%	0.85	2.22
$30-$34,999	6,667	5.51%	0.97	2.34
$35-$39,999	6,136	5.07%	1.06	2.41
$40-$44,999	5,795	4.79%	1.2	2.46
$45-$49,999	4,945	4.08%	1.32	2.55
$50-$54,999	5,170	4.27%	1.32	2.52
$55-$59,999	4,250	3.51%	1.49	2.72
$60-$64,999	4,432	3.66%	1.49	2.66
$65-$69,999	3,836	3.17%	1.58	2.75
$70-$74,999	3,606	2.98%	1.63	2.82
$75-$79,999	3,452	2.85%	1.7	2.89
$80- $84,999	3,036	2.51%	1.73	2.86
$85-$89,999	2,566	2.12%	1.8	3
$90-$94,999	2,594	2.14%	1.79	2.96
$95-$99,999	2,251	1.86%	1.87	3.09
$100-$104,999	2,527	2.09%	1.78	2.94
$105-$109,999	1,771	1.46%	2.01	3.18
$110-$114,999	1,723	1.42%	1.96	3.11
$115-$119,999	1,569	1.30%	1.98	3.06
$120-$124,999	1,540	1.27%	2.01	3.16
$125-$129,999	1,258	1.04%	1.97	3.08
$130-$134,999	1,211	1.00%	2	3.17
$135-$139,999	918	0.76%	2.1	3.18
$140-$144,999	1,031	0.85%	2.12	3.26
$145-$149,999	893	0.74%	2.11	3.21
$150-$154,999	1,166	0.96%	1.86	3.09
$155--$159,999	740	0.61%	2.04	3.11
$160-$164,999	697	0.58%	2.05	3.29
$165-$169,999	610	0.50%	2.15	3.17
$170-$174,999	617	0.51%	1.99	3.05
$175-$179,999	530	0.44%	2.09	3.08
$180-$184,999	460	0.38%	2.12	3.28
$185-$189,999	363	0.30%	2.3	3.32
$190-$194,999	380	0.31%	2.22	3.17
$195-$199,999	312	0.26%	2.3	3.28
$200-$249,999	2,297	1.90%	2.06	3.24
$250,000+	2,808	2.32%
Total	121,084

Detroit Refugees

Imagine you lived in a city with the highest income and property taxes in your state. Imagine taxes on business doubled in the last year. Imagine 40% of all revenue your city collected went to pay off people who no longer worked for the city. Imagine that the police didn't respond to emergency calls for almost an hour and 40% of the street lights didn't work. Imagine half of the students at your public schools never graduated high school. Imagine

What would you do? Wouldn't you move out if you could? Wouldn't you follow the 250,000 people who have left the city in the last decade?

Correlation Does Not Equal Causation

Economists frequently issue the caution that correlation does not necessarily imply causation. Chris Blattman at Columbia University came up with this succinct reminder. Even if Chrome and Firefox are more "peaceful" browsers.

Unemployment Rate Drops as the Workforce Drops Out

Periodically you hear President Obama pat himself on the back because the unemployment rate has fallen from nearly 10 in 2009 to 7.6 today. Huzzah!

Except that what's really going on is that more and more people are leaving the workforce.



Which is a bit like the high school principle congratulating himself for having a higher grade point average as more kids are dropping out of school!

Income Inequality -- It Ain't necessarily So

Mark Twain said, "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."

Of course we "all know" that income equality in the United States has been getting worse. Except that's not quite true. The chart below shows the Gini Coefficient for individuals, households and families since 1994. The Gini Coefficient is a measure of inequality where a value of 0 indicates perfect equality (everyone has the same income) and a value of 1 indicates perfect inequality (one person has all the income, while everyone else has none). 



As you can see, that measure for individuals (the people who actually get a paycheck) has not changed.  But that seldom gets reported because it contradicts the narrative of The Rich getting richer. What's reported is the coefficient for households.

If income equality for individuals hasn't changed, how can inequality for households go up? Simple. People with very high income earning potential are increasingly likely to form and maintain families. At the opposite end of the scale people with low earning potential are increasingly likely to be in single earner households.

So rising inequality has nothing to do with economics and everything to do with how people choose to form families or households. If you want to reduce inequality get married to someone with high earning potential and don't split up.