Japan and Abenomics

I'll avoid directly rehashing what Scott Sumner and Lars Christensen have already said. Instead I'll highlight it and add some comments.

Here is Scott:

There’s a lot of speculation about how Abenomics will work out in the long run.  I don’t like much of this speculation, because it seems to conflate four quite distinct questions:

1.  Can the BoJ boost nominal aggregates?  I.e. is Japan stuck in a liquidity trap?

2.  Will the BoJ succeed in reaching its 2% inflation goal?

3.  Would higher inflation lead to better outcomes for the real economy?

4.  If 2% inflation is achieved, will Japan experience good times?

Before proceeding, let me indicate that I think the answers are:

1.  Yes, definitely.

2.  Probably not.

3.  Probably.

4.  Probably not.

These are important points, and not just for Japan.

1. If you're sympathetic to market monetarist thinking (and I am), then it's obvious that 'liquidity traps'  exist only to the extent that policy makers believe in them and are bound by ineffective policy tools (i.e. short term nominal interest rate manipulation). If you have a fiat currency, you can always devalue to reach a nominal income target. 
2. The real uncertainty is in the will. It is a very different sort of question that brings in the influence of institution-specific structures, history, and politics. The BoJ has a long history of extreme conservatism and has repeatedly tightened monetary policy prematurely. Expectations theory implies that a change in policy must be perceived as permanent to be effective; temporary increases in the money supply have no effect. If there is any substance behind claims that Fed monetary policy is ineffective, this is the mechanism.
3. If an economy is in long-run equilibrium, then this answer would be no. After a large debt-deflation spiral (aka decline in NGDP), then the answer is yes. Higher inflation will erode any wage stickiness and reduce the burden of nominal debt (debt/NGDP ratio goes down). Some people would call this a haircut, which is a fair but myopic point. Real returns may take a haircut, but the long run credit quality is improved because the risk of outright default (and much larger haircuts!) is significantly reduced.

Lars does a very good job of going into why #4 is "Probably no". Market monetarists often get accused of thinking NGDP targeting is a panacea, but this shows our innocence. Monetary policy can fix problems caused by bad monetary policy. Supply side problems still require supply side solutions.

Markets in health

The fatal problem with AACA/Obamacare.

The US healthcare system does a lot of things well. Efficiency is not one of them. Many wonks praise Obamacare for improving access to affordable health insurance (faint praise considering the baseline), but rarely ask 'for whom?' The biggest beneficiaries are the underemployed & self-employed middle aged, financed at the expense of the underemployed & self-employed young.

Improving the overall outcomes of our healthcare system is not difficult, at least conceptually. Starting from first principles, you need to establish a market for health care and health insurance. What makes a functioning market? Choices and prices; the more you interfere with choices and/or prices, the further you will get from efficient outcomes.

 The employer-provided health insurance paradigm has dominated the US health market since WWII (when wage controls prompted a boom in employer-provided benefits). One of the primary failings of this system is the wedge it drives between the cost of service and the price paid by the consumer. Unless prices reflect the full cost of a service, consumers will consume more/less of the service than is optimal. This third-party-payer issuer is also reflected in the ask/bid prices behind the scenes. While you may pay a $20 copay for a service, the real negotiations happen between doctors offices' and insurance companies. This is a recursive process whereby doctors' inflate the true cost of service, in full knowledge that insurance companies' will refuse to pay the full amount. In addition to the obvious inefficiency of this process, there is an enormous waste of labor and capital resources to facilitate it. The end result of these problems is the 17%+ of NGDP spent on healthcare in the US, for the worst price-performance in the developed world.

I wrote a more in depth break down of the specific improvements that should have been implemented for healthcare reform several years ago.