Module 4 Extra Credit Posts for Fall 2025

November 3rd

Update for 11/12: News reports are that the House will vote on re-opening the federal government around 7 pm eastern time. It is expected to pass, and Trump has indicated he will sign it. Note that this continues the problematic payments to health insurers through the end of January. That gives them about 11 weeks to sort out their differences.

Update for 11/11: The Senate voted 60-40 to end the shutdown late on Monday evening. The bill they voted on now goes to the House. Many of the Representatives are still out of town (being around your district at election time to make appearances with candidates for other offices), but they are expected to vote by the end of the week. No guarantee it will pass, but that vote only needs to be a majority rather than a supermajority.

As explained in other parts below, they can fund some or all of the government. They funded parts of the government through the end of the fiscal year, and the rest of it through January 30th. Yes, it's possible we might go through this again in February.

There are two interesting points about the Democrats. First, the leaders of the breakaway group includes 3 former state governors. Thus, they have executive branch experience that most senators do not. I suspect they are more practical and less political about this. Secondly, the Senate Democratic Whip Dick Durbin voted to end the shutdown. "Whip" is the title of the # 2 of a party in one of the chambers of Congress. The Whip is the person who "twists arms" to get everyone in the party to vote the same way. My personal opinion is that he probably was not that interested in voting yes, but that it was a signal that someone at the top was willing to vote yes, so it was OK for the rank and file senators to vote their conscience.   

Update for 11/10: The news this morning is that a group of 10-12 Democrats is working with Republicans on re-opening the federal government. They have met with all the available Democratic senators, and have moved forward and made at least one of those 60-40 votes needed.

Update for 11/09: There's definitely some "fake news" since the last class. I hate that phrase because I am not a fan of Trump, but in this case it's appropriate. 

The White House is obligated to make payments for SNAP to the states, who actually administer the spending. But there are limited reserves to do so. So the White House sent half payments to the states, which they did have enough money to do.

A federal District Court Judge ordered the White House to continue full funding of SNAP (with money from other sources). Late Friday night, two layers up, (Supreme Court) Justice Jackson temporarily lifted that order, but bounced it back to the middle layer for a fuller decision which is expected in a few days.

The issue here is that SNAP is what's called an "appropriated entitlements". It has to be appropriated by Congress first, but then it is automatically sent in the direction of people who qualify. Constitutionally, the White House isn't allowed to use money appropriated for something else to do this (and they just don't have big bags of cash laying around to pay for random stuff because a judge said they should).

This piece from Politico (definitely not pro-Trump) covers the non-fake parts of the story fairly evenhandedly. 

What's fake is that lots of voices in politics, the media, and the internet are labeling this as Trump won't pay for SNAP. Not so. 

Update for 11/7: Adding some clarification about how "rights" work. Consider the right to freedom of speech: this is not a right to speak, but a right to not be blocked from speaking (by the government unless it goes through the difficulty of passing some laws). This is why we don't have the right to say anything, like shouting "fire" in a theatre, or libeling someone. A right to something is called a positive right, and a right not to be interfered with is called a negative right. The problem with people saying that healthcare is a right is that it is used in the positive sense to justify low or no cost service; that's not something that we actually need a right for, we could just vote to approve that any time. It's because voters have never approved something along those lines that some people want to close the issue by calling it a right. FWIW: society also decided a long time ago that healthcare is a negative right, in that no one can make you have a procedure or take a drug that you don't want. It would be preferable if I could make the macroeconomic points that I need to about the shutdown without clarifying all this; in my defense, I'll just note that the slogan "healthcare is a right" is brought to the discussion by some, and it's just not a seriously thought through position.

Update for 11/6: A still small but large enough group of Democrats is apparently working up to voting with the Republicans on a CR. FWIW: 3 Democrats have always been voting with the Republican majority on a CR, and 1 Republican has been voting against it.

Update for 11/5: On Monday morning, enough Democrats voted against to block a CR for the 14th time since October 1st.

*** 

Well, it's been a month, so I'd better do an in-depth discussion of the federal government shutdown. There's a lot to unpack.

*** 

Don't forget that this is all about Congress, not Trump. The White House is obviously allied with the Republicans in Congress. But Trump isn't running this show. There's a lot of misdirection in the media about this, particularly on the pro-Democrat side (which is most of the legacy media).

Congress is legislative. It works by passing bills/laws. 

Congress is composed of 2 chambers, the House (of Representatives) and the Senate. Bills can be proposed in either one, then sent to the other one for edits, and then they both have to settle on one bill that is passed by a majority vote of both chambers. (Then the President has to sign it to make the bill a law, but Trump has indicated he'll sign whatever they pass).

Government spending is done through appropriations bills. These are supposed to be passed into law before the fiscal year begins on October 1st. They can cover just part, or the whole of the government.

Congress has had a lot of trouble passing appropriations bills on time ... for decades. When this happens, they will sometimes resort to passing a continuing resolution (CR), which basically says they'll continue following last year's law for so many weeks into the future.

No appropriations bill or CR has been passed so far. Thus the shutdown.

This shutdown is more complete than some others, because sometimes the spending is broken into different appropriations bills, some of which get passed on time. 

Most of the serious work on appropriations bills or CR's is done by committees. They have expertise on specific subjects, do all the detail work, and then pass a finished product to the whole chamber for a vote. 

Committees are set up by the majority party. But they have membership that's roughly proportional to the overall chamber. The Chair of a committee always comes from the majority. 

The two chambers of Congress can and do have their own rules. The shutdown is really coming out of the Senate, which has a rule that has good and bad features. Exploiting that rule is the typical way these shutdowns happen.

Both chambers of Congress currently have Republican majorities. But in the U.S. that does not mean they can just pass anything they want anytime they want (because ... rules). Plus those majorities are currently very slim.

Here's that rule. In both chambers, a bill comes up for a vote, then they debate it, then they vote on it. In the Senate, while the bill can pass with simple majority 50-50 vote (there's a tiebreaker that favors the majority), the debate can only be ended by a supermajority 60-40 vote. 

All the Republicans will vote to end debate. But they need several Democrats to go along with them to get up to sixty. They don't have that. 

In a very real sense, the Republicans have a majority in the House, but no one has a majority in the Senate. No one talks about that. They should.

So what's the sticking point? Let's call all the pieces of the government by the letters A to Z. Both sides favor A through Y. The Republicans have repeatedly proposed bills to fund A through Y, and have indicated they will vote for them. The Democrats refuse to vote for anything that does not contain Z. More about Z below.

Two points need to be made here. First, it's OK if the Democrats want Z so much. That is the way legislative politics is supposed to work. But second, it is also absolutely true that the Democrats are blocking everything else to get that one thing. 

The Republicans have said they are willing to continue debate about Z, and to pass an appropriations bill just for it alone later on. Sure, they want it reduced.  But they do get the overall need.

Yes, the Republican majority in the Senate can vote out that 60-40 rule (filibusters are part of that, but "filibuster" is often used as the name for the whole thing). 

But, both parties recognize that it is there to protect the interests of the minority. And of course, the Republicans know they'll be the ones in the minority some time in the future. This rule is a very big deal, so changing it is often colloquially called "the nuclear option".

In the U.S. system, the Legislative branch (Congress) appropriates the money to be spent, but the Executive branch (with the President and the White House at the top) actually does the spending. 

With the passage of time, more and more bits of government spending are being cut off as reserve funds run out. The big one in the news right now is SNAP, which provides debit cards to the poor that can be used to buy groceries. There are others, like paychecks for air traffic controllers and the military.

Trump asked Senate Republicans on the 30th to start moving forward on the nuclear option. Whether Trump likes a particular program or not isn't really relevant. It's his job to make sure that SNAP benefits get sent out, and so on. He's in a tough spot because he does not have any tools to come up with money to spend. 

***

So what is Z? 

Well ... there's a lot of loaded words here ... so I'll have to unpack that too.

Anyway, Z is extra-generous subsidies from the Federal government to private health insurance firms to support Obamacare with cheap health insurance plans.

***

Of course, unpacking why we need those subsidies means that we have to talk about the U.S. healthcare system. I'm not going to remotely unpack all of that. But I will do enough to get at 4 features of that last paragraph: 1) private health insurance, 2) why it needs subsidies, 3) why they need to come from the Federal government, and 4) Obamacare. I'll skip over a 5th point: the Democrats controlled Congress and the White House in 2021-3 ... of course their support for Obamacare was extra-generous.

But first ... 

This is a macro class, so we want to think about the big picture things.

First off, healthcare works. It helps us live more comfortable lives for longer.

Secondly, healthcare is expensive. Most people have no clue how expensive it really is: about $30K/year for a family of four. For comparison, that's roughly 5 times the annual payments on decent new car.

Third, healthcare, like owning a home, is beyond the financial reach of many. That $30K/year is the entirety of the gross income of someone working full time at a $15/hour job. But, most people are not college students: median household income is about $85K/year. And that's take home pay; if you have health insurance through your employer, the compensation figure they worry about on their end gets bumped up to $115K/year.

Fourth, over 80% of the population does get health insurance through their employer. So, for the vast majority, the problem is solved.

Fifth, there are definitely millions of people who can not afford this. Further, there are many who can afford it but will choose not to.

Sixth, anyone who says "healthcare is a right" probably needs to be excluded from serious discussion. That's harsh, I know. But here's the thing. Healthcare is some peoples' job, and they deserve to be compensated for the stuff they do. The reductio ad absurdum (Google it) of saying healthcare is a right is saying that healthcare should be provided with or without paying for it ... but ... um ... not paying people for their labor is called slavery. No one will go there, so "healthcare is a right" is code for someone else ought to pay for it. Last I checked, "someone else" gets a say in that too.

Put those first six together, and most complaints you hear about healthcare amount to people wanting to buy something that works without paying the full price. We all love doing that for any good or service. Outside of healthcare we recognize that this is a rarity. With healthcare, a lot of people expect it to be normal and common. You should recognize that this is pretty weird, especially for something that costs quite a bit more than a new car.

Seventh, while all of the buyers of healthcare think it's too expensive ... um ... there's a whole set of sellers of healthcare who don't agree. Have you ever told any of them that you expect pay cuts from them, or free stuff, or that they don't work hard enough for the money?

Eighth, on that last point, many people will start to blame the healthcare providing institutions, like hospitals, group practices, specialists, and so on. This is macro: a basic insight to take away is that in every enterprise the majority of revenue goes to cover labor (usually between 2/3 and 3/4). So blaming the institutions is diverting attention away from wanting really just to pay someone else less for what they do.

Put all eight of those together, and you have a lot of reasons for cost-shifting. This is where one person pays more for a certain thing, so that others can pay less. In healthcare, this mostly means the young pay too much, and the old not enough; and people unrelated to those who have or plan to have children paying less than people who are unattached. The government then goes further and make sure that richer people pay more so that poor people don't have to (it is an urban myth that richer people do not already pay most of the taxes). 

Ninth, there's a lot of general discussion about healthcare outcomes being worse in the U.S. than in other rich/developed countries. In a much more limited sense than most people realize ... this is merely a little bit true. But the big differences in outcomes are ones that shouldn't count, and that reasonable people will correct for. For example, roughly half of the difference is accounted for by accidents and the U.S. having a younger population (which takes more risks). There are other confounders, but if your source isn't talking about that one, you're absorbing a biased view: people don't correct the data when they have an agenda. 

***

We also need to look into why health insurance is a problematic idea. That doesn't mean we shouldn't have it. But it's pitfalls are readily explained, and often ignored. 

First off, insurance works by bringing in more money than goes out in reimbursements. But this is on average across the whole set of clients.

For most people, insurance is a bad deal. You don't need it most of the time. But you really want to have it if you have a problem. This makes people disinclined to pay for it. However, since the insurance company needs more money brought in from the whole pool of people it insures, it needs to make sure people are paying in whether or not they need the insurance at the moment.

There's adverse selection too (see around Chapter 8 in any principles of microeconomics text). This is basically a bad driving out the good sort of argument. It's a fact of healthcare that helping the unhealthy typically leads to them needing more care (it's crass to say, but dying is cheap, living is not). This argument is most telling between the young and the old. For the old, health insurance is a good deal because the may get services whose cost exceeds what they pay in. That needs to be covered by the young. The adverse selection is that this makes the pool of people insured more heavy with the old (who see the value) rather than the young. But this makes the problem worse, so the aging of the pool is a never ending problem, that can only be solved by convincing more young people to pay for something that isn't cost-effective for them.

Then there's moral hazard. This is the idea that those covered want more things covered, or are more likely to partake of things that are covered. For example, IVF is expensive, and most couples that go through with it don't begin until they have some private insurance coverage. This raises the costs for everyone.

The trick here for the insurance companies is that they need to make the insurance cheap enough for a younger person to want to buy it, while simultaneously bringing in enough money from the young as a group to cost shift some of the expenses incurred by the old.

 ***

Another common complaint is that the flaws in the U.S. system imply that we should have a national healthcare system. Some countries have this, but it's actually fewer than you'd think. Most countries are a mix (just like us) ... and people fib about that.

Anyway, it turns out we have 6 different kinds of healthcare systems in the U.S., and some of them are exactly what those people say we need more of. The fact that they aren't pushing for those should give you pause.

First we have the VA medical system. It's national, comprehensive, and very close to free for those who qualify for it. No one mentions this much, but it's also basically a socialist free-healthcare-for-all who qualify system. That's right: the U.S. military is running our closest analog to the National Health Service in the UK.

Second we have Medicare, which covers costs for seniors. The coverage here is pretty broad but still incomplete, so many seniors have to buy some additional coverage. Having said that, it's pretty rare for seniors to say they were happier with their healthcare when they were employed.

Third we have Medicaid, which covers costs for the poor. For some reason Democrats are shy to admit that a big success of Obamacare is getting many otherwise uncovered people into this system

Fourth, we have public and charity hospitals in all big cities. They prefer to get paid for services whenever they can, but also write off billing many patients. People tend to forget about these. Oddly, TV hospital shows often feature them. (FWIW: I was shocked at the end of 2020 — the lockdown year — when the University of Utah Hospital zeroed out a several hundred dollar bill my family had without us asking ... but that's what non-profits do).

Fifth, we have that private insurance system. Everyone likes to claim they hate their insurance. That contradicts that it's an important job benefit that people strive to get. I trust their actions more than their words.

And sixth, we have a huge healthcare sector, that few people object to, where we pay out-of-pocket. This includes everything from breast implants, to semaglutide importers, to supplement shops. To me, it seems like a stretch to claim that a third-party-payer system is essential (or even critical) rather than merely desirable if this sector is doing well. And it's pretty obviously thriving.

***

Now back to those 4 reasons why we're subsidizing health insurers.

First, health insurance didn't exist at the time of the writing of the Constitution. And Article X says that anything not expressly designated to the Federal government is under the purview of the state governments. So all health insurance in the U.S. is run on a state-by-state basis. 

But, or course, no one in D.C. pushes very hard about Article X. So the Federal government has been dabbling in health insurance for nearly a century.

And both parties have been interested in comprehensive healthcare funding improvements at the Federal level for about 40 years. 

Obamacare is presented as being about healthcare and coverage for all, but what it's really just an attempt to improve the funding of healthcare (remember the importance of cost-shifting mentioned above).

It would be a lot easier if people on both political sides took Obamacare less seriously. It was an attempt to improve things. And it's OK. BUT, it's just not as great as Democrats like to claim, or as horrible as Republicans paint it to be.

Interestingly, Obamacare is roughly based on Romneycare, the attempt to improve healthcare funding in the state of Massachusetts when Mitt Romney was that state's Republican governor. So Democrats claim as their own a plan that's basically Republican, and Republicans hate a plan that's basically Republican. Some stuff ... you just can't make up. 

Be clear on this: Obamacare is mostly about funding. (It's sort of like a magician's trick: when the public focuses on healthcare the government is mostly doing something different). And funding health insurance is mostly about getting more people to buy insurance that's a bad deal for them, so that some of the costs of covering people for whom health insurance is beneficial can be shifted over. 

When it was passed, Obamacare did this by requiring people who didn't have insurance, but could possibly afford it, to buy insurance or else pay a fine. This led to the creation of the "healthcare marketplace" where about 10% of the population sign up for cut-rate health insurance during open enrollment every fall. This is going on right now.

Even at the time that Obamacare was passed in 2011, prices for plans purchased in that open enrollment period were subsidized (recall what I said above about how expensive health insurance really is). Those subsidies went straight to the health insurance companies to cover their cost-shifting, and low retail price is what buyers paid.

It's probably important to put in a word here about why health insurers need subsidies at all. It is an urban myth that these businesses are very profitable. This is a common mistake that people make: presuming that any business that brings in a lot of revenue must be making a lot of profit. That doesn't always follow because it says nothing about costs. And ... oh yeah ... healthcare costs a lot of money. Once again, the proof is in actions not words: if people really though health insurance companies were making tons of profits, they could buy their stock to get in on that action. But ... they don't. Mostly because investing in health insurance companies is a lousy way to make money: truth be told, they're one of the worst performing industries in the country. Again, this should be pretty obvious: they're the third party covering everyone's bills, and many people think the product ought to be free. It really is a no-brainer.

The part of Obamacare that required uninsured people to buy subsidized health insurance plans was dubbed "the mandate". It was problematic for many people: it required some people to buy a product they didn't want ... backed up by a real financial threat. 

That's actually pretty weird. Can you name another product that you're required to buy? Yeah, you can probably come up with a few. But it's weirder than that: people were required to buy this merely because they were alive. There aren't other products like that.

Politicians are availability entrepreneurs. They are trying to find or create a political edge by looking around for political positions that are available for exploitation.  No one should be surprised that Republicans took up the position that the mandate had to go. And eventually the got rid of it.

Which made the funding problems for health insurers worse. Democrats response to this was to increase the subsidies "for the poor". And, of course, there was a lot of extra spending that got passed during COVID and the lockdowns. Except that Obamacare subsidies really aren't for the poor: they've been covered by Medicaid for decades. Instead, Obamacare subsidies are for people with jobs and incomes. So the real question is ... how much income? Well, they're really generous: about $130K/year for a family of four. But recall what I wrote above about median income: it's about $85K/year for a household. So the Democrats are helping ... not just the poor ... but the lower middle class ... and pretty dang far into the upper middle class.

But that point is kind of a lark: those people aren't getting the money, their health insurers are. And those firms need it. Unless, of course, some of those people really don't think they need health insurance at all, or that it's still a bad deal for them. 

The Republicans then fanned all these flames, by passing legislation earlier this year that did not renew those subsidies. And without the subsidies, the price of plans offered through the healthcare marketplace will go up by a lot. This will be in the news a lot this month.

 ***

So there, let me summarize the answer to those 4 questions about Z.

Private health insurance is not well-funded enough to afford the healthcare we already provide.

So it needs to be subsidized.

Those subsidies have to come from the Federal government because its the state governed systems that are already short of money.

And its part of the Obamacare package that Democrats are wedded to because the subsidies were baked in at the start. They're just bigger now because the Republicans didn't like the plan or its mandate. And the Democrats are in bed with the health insurance industry, and deeper than they used to be.

***

Let's be realistic about the politics here.

The Democrats hold most of the good cards. The 60-40 rule is there so the minority has some protections. It's there to be used, and the Democrats are using it.

But we should also be honest: the Democrats are wielding this power to perpetuate Obamacare and the health insurers who pay the bills for its costs. And in my earlier language, they are willing to shut down A through Y to make sure they get Z. They should get the blame for problems with SNAP, or air traffic controllers, or whatever.

Thing is though ... it's not like the Republicans have an alternative healthcare plan. Do they have any plan other than making Obamacare fail? It doesn't seem so. And they've said as much: they want to keep the subsidies but just make them smaller. It's not clear to what end, other than making it look like Obamacare is unworkable.

It also should be emphasized that both sides want this fight now. Back in the summer Congress passed and Trump signed the "One Big Beautiful Bill Act" (yes, that's the real name). Unpack that going backwards: to be signed it had to be passed, to be passed the Senate must have voted to pass it, but to do this debate must have been closed by one of those supermajority votes ... But Wait! ... there's another rule that allows for a workaround the supermajority requirement, bascially that the bill doesn't add many new provisions. Because the subsidies were simply not renewed, they were not a sticking point. The bottom line is that Democrats could have picked this fight in the early summer (when people aren't paying much attention to the news); but they chose to do it just before the elections. Hmmm.

October 31st

Usually the FOMC announcement doesn't come on a test day, but this year it did. So I didn't stress you about it.

But, they did meet on Tuesday and Wednesday, as scheduled, 6 weeks after the previous meeting that we covered in class.

The decision for this week was to reduce their interest rate target by another quarter point (0.25% or 25 basis points).

That's a repeat of what they did last time. It's consistent with the metaphor I've used in class a few times that they proceed by taking many "baby steps" in the same direction. At the time that I'm writing this (during your test) FRED has not updated their graph yet, but my guess is that if you click on this link now it will show 1 larger, and 4 smaller, steps downward over the last 14 months.

You can also see on the left hand side of that graph how they raised their interest rate target in many, sometimes bigger steps, through 2022-23. This was to slow the economy down after it become clear that the expansionary fiscal policy packages passed in 2020-21 (to alleviate the effects of lockdowns) had gone too far and created an inflation problem.

I would describe this as them being concerned about the side effect of an expanding economy in 2022-23 (inflation), and as being more concerned about supporting the economy with the effect of expansionary monetary policy in 2024-25 (while now being less concerned about the side effects).