Brookings Papers on Economic Activity

Fall 2014 Brookings Panel on Economic Activity

The Fall 2014 Brookings Panel on Economic Activity took place September 11-12, 2014 at the Brookings Institution's Falk Auditorium in Washington, DC. The conference agenda is available for download and panels were live-tweeted under the Chatham House rule using hashtag BPEA.

New research findings at the Fall 2014 BPEA conference by leading academic and government economists include: the factors behind geographic variations in health care spending, the early impact of the Affordable Care Act state-by-state, the decline in the labor force participation rate, the current state of European economic integration, policy actions to be taken in the event of another housing crisis, and the trade-offs involved in a middle-of-the-road reform for Social Security.

Variation in Health Care Spending is Socioeconomic Not Geographic
Challenges oft-cited theory that emulating low Medicare spending areas will significantly reduce health care system waste and inefficiency 
 

Underlying socioeconomic and demographic characteristics have important implications for the geographic patterns in Medicare spending. The findings contradict prior research claiming that most of the variation in Medicare spending can be attributed to geographic differences in medical ‘practice styles’ (the extent and intensity of medical interventions in a given area), thus calling into question the claim that the U.S. could save up to $700 billion in health care waste and inefficiency if all providers were to emulate the practices of low-costs states. The geographic variation in health care spending does not provide a useful measure of inefficiency and waste in the system.

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ACA Roll-Out a Mixed Bag: 4.2 Million New Enrollees Since 2014 ACA Rollout, but Premiums Increase over 24 Percent
Participants in states that ceded all enforcement of the ACA to the federal government worse off by about $245 by the end of 2014, but those in states with flawed exchanges experienced even larger loss

The number of Americans insured in the individual health insurance market through exchanges and directly through insurers was at least 13.2 million in the second quarter of 2014—larger than reported by the government, which only includes the number insured through exchanges—and at least 4.2 million of them would not have been insured in this market had pre-2014 trends continued, but average per-person premiums increased over 24 percent. This large premium increase stands in contrast to the experience in Massachusetts, which saw premium decreases after its 2006 reform; Massachusetts also saw decreases in markups (premiums minus costs), which have been rare in other states in 2014.

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Decline in the Labor Force Participation Mostly Structural in Nature; Rate will Likely Continue to Decline
Some drop since 2007 due to cyclicality; Aging workforce will continue to push rate down over the next decade

The decline in the labor force participation rate—the number of Americans either working or looking for work as a percentage of the population—is primarily due to the aging population and other structural factors, rather than cyclical weaknesses, and is expected to continue. The finding has implications for policymakers who are grappling with whether the sluggish job market can be improved with government tools, and for the potential growth rate of the U.S. economy through the end of the decade. The rate is projected to decline to 61 percent by 2022—a level as low as the early 1970s.

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European Integration a Catch-22: Fear of Going Backward, No Interest in Going Forward, but Economically Unsustainable to Stand Still
Monnet’s vision now almost irreversible but risk of political meltdown real

Although each major step forward in European integration has caused popular support to drop, support for the common currency remains strong—mainly out of fear. The paper finds that the so-called father of Europe Jean Monnet’s, chain reaction theory—that partial steps toward unification would generate crises increasing demand for further integration—has worked in fostering that integration, but at the cost of a decline in popularity as well as jeopardizing future sustainability such as increasing the risk of an economic meltdown.

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Government Should Focus on Cash-Strapped Homeowners, Not Principal Reduction
If another housing market crash occurs, taxpayer money should be directed to helping distressed homeowners make monthly mortgage payments

Should another housing market crash occur, the government’s highest priority should be helping cash-short homeowners maintain spending in a weak economy and avoid foreclosure by temporarily reducing or deferring mortgage payments, rather than reducing loan principal. The research builds a theoretical framework to guide policymakers ahead of a housing collapse and in the aftermath, finding that reducing the loan principal spreads the benefits of government funds over a long period of time, rather than focusing on the crisis period. The authors focus on the importance of liquidity constraints and consumer spending in the overall economy, especially during a financial crisis when there is a need to support household consumption.

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Indexing Social Security Benefits Could Protect both Poorest, Short-Lived Elderly as well as Longer-Lived Seniors with No Budget Impact
Policy choices are a see-saw; Reform could have both positive fiscal and distributional impacts

A middle-of-the-road reform for Social Security which indexes benefits, front-loads them for the shorter-lived elderly poor while back-loading pay-outs or “benefit enhancements” for those at advanced ages who have outlived their savings is a potentially powerful policy tool in terms of fiscal implications and has a possible role as a vehicle for redistribution. While Social Security is often eyed by policymakers as potentially easier to reform compared to other entitlements, there are trade-offs—a see-saw—that needs to be taken into account, given the different life expectancies of the poor versus the wealthy, with a difficult choice between front-loading benefits to those short-lived elderly poor compared to those longer-lived who may have exhausted their benefits by the time they really need them.

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