Jonathan Chait brought my attention to something interesting, Why Are Republicans Suddenly Fixated With Urban Failure? His take on it is that Republicans are fleeing from the “Obama is destroying America!” meme, and have gone back to their tried and true meme, “Democrats have created scary urban areas!” I think this is actually not true. What’s happening is that Republicans know that Obama is at the end of his term. In the past their argument was, “Just you wait!” It’s like the Paul Bibeau satire, What If They NEVER Come For Our Guns? So the Republicans are just marking time until they can explain that it is really Hillary Clinton who is destroying America.

But Chait does note the most important issue: where “big government” is a problem is not at the federal level; it is at the state and local level. That’s where we have problems with onerous business regulations and zoning that causes rent to be exceptionally high. It is also, it seems reasonable to note, where county clerks refuse to marry people because of their hatred of gays and where minority groups have had the most problems with the law. So it is ironic that Republicans would claim that cities are dysfunctional as a justification for stopping the federal government from repairing bridges.

What Chait completely leaves out is the Ultimate Republican Idea™ — that everything is better at the local level. So we need no national education standards, for example. But most of all, there is Block Grant mania! By this logic, the federal government doesn’t need to tell states what to do; it just needs to give them block grants and the states will innovate in ways that we just can’t imagine! So there’s no need for Medicaid: just give money to the states and figure they will sort it out.

But if that’s the case, how does highlighting dysfunction at the local level help? Well, that’s the great Republican trick. They don’t actually believe that local control is better. Block grants are all about destroying these programs that they don’t like. Making Medicaid a block grant is a way to defund it. They know that they can’t just eliminate it. They’ve tried and there is too much support for it. But making it a block grant, allows them to slowly kill it, since Congress won’t be keen on properly fund it when it isn’t really their program. So year by year, Medicaid would have less and less purchasing power to the point where it was effectively repealed.

But as for the likes of George Will, this is just a period where they relax and complain about little things. They will be back. They just don’t yet know who will be the next Liberal Destroyer of All That Is Good™. Once that person arrives, it will be back to usual. In fact, George Will can just go back and use his columns from the 1990s. It will be especially great if Hillary Clinton is the next president — he will be able to recycle some articles without even a search and replace. “President Clinton is destroying America…”

Last week at Vox, Sarah Kliff wrote, This Study Is Forcing Economists to Rethink High-Deductible Health Insurance. High deductibles were supposed to be a way to keep healthcare costs down by incentivizing patients to get cheaper care. This is what “health economists” thought. It goes along with something that should have been clear for a long time: most economists are so far removed from reality as to be useless.

Think about deductibles. They don’t cause people to shop around. For one thing, it is hard to shop around (I’ll come back to this in a moment). But more to the point, this isn’t how people look at their deductibles. If people have a $1,000 deductibles (roughly half of Americas have deductibles this high or higher), then they see it as something getting in the way of their insurance. It is just a barrier that stops the insurance company from actually providing care.

But most economists are above such real world considerations, so they had to study the question. And a great opportunity came back in 2013, when a company decided to shift “tens of thousands of workers into high-deductible insurance plans.” But to offset the cost, they provided “new shopping tools” that allowed the employees to compare prices. So at least the study did look at the question of whether or not people would shop around if they had an easy way to do so — the way they do when buying groceries. And the result was clear: no.

And it is worse than even this. What the company did was provide health savings accounts for the employees. So they really had an incentive to shop around! Generally, you get to keep whatever you don’t spend (although you would have to pay taxes on it). This is, of course, the Great Conservative Idea™. High deductibles and health savings accounts would solve all our problems — or so the story goes. But that story comes to us from reality deficient economists.

The new policy did work in that it reduced spending. And let’s face it: that’s all that conservatives care about. But it didn’t reduce spending because it made the market more efficient. And remember: that’s the key issue. We pay roughly twice as much for healthcare as people do for equivalent care in other advanced economies. So the fact that we can bring healthcare costs down by forcing people to consume less of it misses the whole point. By that logic, we should eliminate all healthcare availability — that would really bring down costs!

The study also found that the sickest people were the ones who reduced their spending the most. Again: this wasn’t because they were getting a cheaper MRI, but rather because they were getting no MRI at all. So the reduction in healthcare spending resulted in a reduction in health. This is not a solution to our healthcare problems — unless your point is to appear to be addressing the problem but to actually do nothing.

After sick patients reached their deductibles, however, they spent normally. Kliff wonders why this is, and presents a few possible reasons. But is it really that complicated? Isn’t it just that humans aren’t that rational? They don’t live in a world of perfect competition and information. And they have other things to do besides try and hunt down a great deal on their next procedure. Not surprisingly, one of the economists who did the study thinks it might just be a matter of time before people get used to the system and it starts cutting down on costs the way it was intended. Because we should never forget: people serve markets, not the other way around.

I hope you will forgive me for talking about monetary policy. But really, you should pay attention, because it is good for you, in a far more important way than Cymbeline. Tim Duy has a sub-blog over at Mark Thoma’s place, Fed Watch. In general, I skip what he writes, because it makes my brain hurt. Monetary policy really is difficult. It drives home just what a slippery concept money is.

But there is another aspect of it, that is really important but also keeps me away from it: the Federal Reserve is irrational. It has been obsessing for the last two years about when exactly it will raise interest rates. I saw an interview recently where Dean Baker explained in clear terms what that means: the Fed raising interest rates is deciding to put millions of people out of work to head off inflation. Now, maybe that’s a good thing when inflation is a problem. But when there is just concern that maybe the economy is kind of, sort of at the place where maybe inflation will tick up to the Fed’s own 2% target, talking about raising interest rates is not just mad — it is evil.

I’ve been in this very uncomfortable position of thinking that the Fed is making no sense. But everywhere you look, people are saying that they are right to do this. I realize that most of this is nonsense. It’s an unstated kind of moralism that cheap money just can’t be good. But this belief is so common that it makes me uncomfortable. If I didn’t have Dean Baker, who I trust completely, I’d wonder if I weren’t just really ignorant. So any indication that the conventional wisdom is actually wrong is welcome.

Thus we get to Duy’s recent article, Brainard Drops A Policy Bomb. That’s a reference to Lael Brainard, a Fed governor, but formally Undersecretary of Treasury. She’s something we don’t see all that much in economists: an independent thinker. She recently gave a speech at the National Association of Business Economists. And she said that she was not willing to make “calendar-based statements” about raising interest rates. This is a shot across the bow at Janet Yellen and others at the Fed who seem to do nothing but.

The issue, to me at least, is that most of the people are not letting the facts guide them. They want to raise interests rates. (That is: they want to put people out of jobs and make wages continue to stagnate.) And they are looking for any reason to do so. And now, it’s December. If the economy can just hold on and look good for a couple of months, then Yellen and company can raise the interest rates and get the bankers off their backs!

Paul Krugman offered an interesting take on why it is that Brainard has such a different idea from the other folks at the Fed, “I would say that Brainard’s experience is dominated not so much by the Great Moderation as by the Asian financial crisis and Japan’s stagnation.” In other words, Brainard isn’t hyper-focused on the possibility of inflation — she knows that there is at least as big a threat of low and even negative inflation.

What I find fascinating is that the inflation rate in the 1970s was high — but not that high. In 1980, it reached almost 15%. But before the Federal Reserved decided to tame inflation, the unemployment rate was less than 6% — so workers weren’t suffering that much. I can see being totally freaked out if the inflation rate had been 200%. But it was manageable. And that was it at its worst. And they are only concerned about that, and not the great threat of low inflation.

On Wednesday, Walmart stock went down by over 10%. And over the following two days, it has slowly gone down another 3%. Walmart did announce that earnings for the next year will be 6% to 12% less. But as Michael Hiltzik pointed out, this is primarily due to investments that the company is making. In particular, Walmart is raising wages and improving its ecommerce capabilities. To offset this, the company is going to do a $20 billion stock buyback, which should increase shareholder value. But that was apparently not good enough. And clearly, this wasn’t an impetuous reaction from Wall Street — the slide continues.

What the whole thing shows is how American finance is razor focused on short term profits. The things that Walmart is doing are undoubtedly good for its long term profitability. In fact, this has traditionally been the point of having stocks. It is a way for businesses to raise money so that they can invest in their infrastructure. But today, it seems the only point of stocks is to have a quarterly return. The stock traders figure that they can always buy back into Walmart after it is done with its worker and capital improvements. They don’t need to be part of the process, because actual business investment is scary.

As I write this, the total value of Walmart stock is down over 12%. Supposedly, this means that the company is worth that much less than it was Wednesday morning. You know: the perfection of markets and all. But this just shows that Wall Street doesn’t actually reflect the value of companies. It is some kind of sick and twisted notion of wealth where companies are worth only what they can bring in immediately. It is this kind of thinking that never would have gotten us to the Moon or even to civilization.

Although I think this is a particular dysfunction of modern Wall Street, this has actually always been the problem with capitalism. It really is great at doing the minutia of production and distribution. If you need to produce and distribute disposable diapers, capitalism is absolutely the best way there is for getting them to new parents. When it comes providing prenatal care for mothers, capitalism is a particularly bad system. So that ought to be settled. But as a society, we seem incapable of looking objectively at capitalism, and see it rather as a law of the universe that can’t be questioned.

But it is very disturbing that as proven a moneymaker as Walmart can’t look out for its long term interests without being savaged. Investors would rather use their money to get certain immediate profits than do the work of actual investment. There are only two possibilities in the Walmart case. It’s either that the investors are panicking over nothing — they care only about profits in the next year and not at all about Walmart’s long term profitability. Or it is that investors greatly overvalued it before based only on short term considerations, not calculating its need to continue to invest in order to grow.

This is a great example of the failure of capitalism. And part of it is that the rich understand that they don’t need to worry about the long term. If things go wrong, the government — which they spend so much time complaining about — will be there to bail them out. So they base everything on a three month time frame. Squirrels plan further ahead.