Sunday, July 27, 2014

Solar power is by far the most expensive way of reducing carbon emissions

See What is the cheapest form of green power? from Marginal Revolution.

"From Free Exchange:
    …levelised costs do not take account of the costs of intermittency…

    Seven solar plants or four wind farms would thus be needed to produce the same amount of electricity over time as a similar-sized coal-fired plant. And all that extra solar and wind capacity is expensive.

    If all the costs and benefits are totted up using Mr Frank’s calculation, solar power is by far the most expensive way of reducing carbon emissions. It costs $189,000 to replace 1MW per year of power from coal. Wind is the next most expensive. Hydropower provides a modest net benefit. But the most cost-effective zero-emission technology is nuclear power. The pattern is similar if 1MW of gas-fired capacity is displaced instead of coal. And all this assumes a carbon price of $50 a tonne. Using actual carbon prices (below $10 in Europe) makes solar and wind look even worse. The carbon price would have to rise to $185 a tonne before solar power shows a net benefit."

Some Additional Questions for Supporters (Especially Among Economists) of the Minimum Wage

Great post from Don Boudreaux of Cafe Hayek.
1. Suppose that all low-skilled workers telecommute to their jobs in the U.S. from foreign countries, and that Congress imposes a tariff on the importation of such services.  Do you predict that employers of these workers will continue to hire the same hours of labor from such workers – under the exact same terms of employment – as these employers hire without the tariff?  If not, why do you believe that obliging employers to pay to low-skilled workers a per-hour tax called “minimum wage” will not reduce the number of hours that employers hire of such labor?

2. Suppose the government, expressing pity for producers of low-priced metals, passes and enforces a minimum-price-of-metal statute that prevents metals from selling at prices as low as some metals have been selling for recently.  Suppose also that researchers from Ivy League schools report, from their empirical investigations, that this government action results in no empirically detectable reduction in the amounts of metal used in the construction of skyscrapers, automobiles, lawn mowers, snowblowers, outdoor grills, and other products made with lots of metal.  Would you conclude that government can raise the incomes of all metal producers simply by passing such legislation?  Would you wonder why metal is apparently an exception to the foundational law of demand?  How many such studies would be required before you conclude that, yes indeed, the market for metal (especially low-quality metal) is so different from that of other goods and services that the law of demand is inoperative in that market (at least for relatively modest, government-imposed hikes in the price of metal)?

And even if you become convinced that these empirical studies are flawless and that their findings are indisputable, would you worry that the minimum-price-of-metal legislation caused a substitution away from the use of lower-quality metals in production toward the use of more higher-quality metals?  (That is, would you worry, even if the absolute amount of metal used in production is unchanged by the minimum-price-of-metal legislation, that lower-quality metals – the ones whose makers the government meant to help – are being used less while higher-quality metal are now being used more?)

Saturday, July 26, 2014

A Recovery Stymied by Redistribution

Public policy intended to make layoffs less painful actually made layoffs cheaper and more common.

Click here to read this WSJ article by Casey B. Mulligan. He is an economics professor at the University of Chicago economics. Excerpts:
"Major subsidies and regulations intended to help the poor and unemployed were changed in more than a dozen ways—and although these policies were advertised as employment-expanding, the fact is that they reduced incentives for people to work and for businesses to hire."

"But there is also the food-stamp program. It got a new name and replaced the stamps with debit cards. Participants are no longer required to seek work and are not asked to demonstrate that they have no wealth. Essentially, any unmarried person can get food stamps while out of work and can stay on the program indefinitely.

There were new mortgage-assistance programs. People who owed more on their mortgage than their house was worth could have their mortgage payments set at a so-called affordable level—in government-speak, that means that you pay full price for your house only if you have a job and earn money."

"All of these programs have in common that they, like taxes, reduce incentives to work and earn."

"Waves of new programs increased the typical marginal tax rate from 40% to 48% in two years."

"The more you help low-income people, the more low-income people you'll have. The more you help unemployed people, the more unemployed people you'll have."

"I met a recruiter—a man whose job it is to find employees for businesses and put unemployed people into new jobs—and he described the trade-off pretty well. Stacey Reece was his name, and he said that in 2009 his clients again had jobs to fill. But he ran into a hurdle he hadn't seen before. People would apply for jobs not with the intention of accepting it, but to demonstrate to the unemployment office that they were looking for work.

As Mr. Reece described it, the applicants would use technicalities to avoid accepting a position. The applicants would take Mr. Reece through the arithmetic of forgone benefits, taxes, commuting costs and conclude that accepting a job would net them less than $2 per hour, so they'd rather stay home."

"you could just as well say that this situation arises from the employer's failure to up his bid so that it competes better with unemployment benefits. My point here is not to assign fault but to illustrate that a lot of different actors contribute to market outcomes."

"the new and expanded programs for the unemployed and poor were subsidizing layoffs—they were making layoffs cheaper."

"the federal unemployment-insurance expansions were paid by taxpayers generally, which means that an employer could lay off as many people as he wanted without adding to his federal tax burden."

"Lay somebody off during the crisis and, for the first time, among other things, the employer wouldn't have to pay for former-employee health insurance."

Government Dries Up California's Water Supply

Price and other controls make it much harder to deal with the drought.

Click here to read this WSJ article by Edward P. Lazear. Mr. Lazear, former chairman of the President's Council of Economic Advisers (2006-09), is a professor at Stanford University's Graduate School of Business and a Hoover Institution fellow. Excerpts:
"Government-dictated prices, coupled with restrictions on the transfer of water, have made a bad situation much worse.

Shortages are generally caused when governments place ceilings on prices or when they prevent markets from operating freely in some other way, like restricting trade. Gasoline is a case in point. Thanks to the 1970s oil shocks, gas became less abundant and prices rose. The U.S. government's response was to put ceilings on gasoline prices, which caused shortages and long lines at gas stations.

The current water situation resembles oil in the mid-1970s. Prices are determined in large part by state and federal government dictates rather than by the market. When drought hits, the price to some users, most notably agriculture, is too low to clear the market and shortages result."

"Markets would encourage farmers to sell water to urban users, thereby increasing residential supply and driving residential water prices down, as the University of California's Howard Chong and David Sunding showed in a 2006 study"

"San Francisco Bay Area residents obtain much of their water from the Hetch Hetchy reservoir. The pipes from Hetch Hetchy to the Bay Area intersect the California Aqueduct, which supplies water both to agriculture and urban areas. Residential users of aqueduct water in San Diego pay rates that can be more than five times as high as those paid by the farmers in Kern County

So if some people, businesses or localities have rights to water and others would be willing to pay more for those rights, why not trade? Answer: government controls and lawsuits."

"In 2012, the Public Policy Institute of California reported on the morass of regulations that continue to restrict the exporting of local water to other communities."

"To solve California's water problem, the first step is to let all owners of water sell their rights with minimal government limitations. This would ensure that water goes to its highest valued use.

Second, federal and state agencies that redirect water to environmental use should pay the market price for it."

"Third, farmers who now receive water at below-market prices should be compensated for having to pay higher prices by giving them the rights during a transition period to use or sell the water that they typically use."
cities across California have encouraged residents to tattle on their neighbors for wasting water

Friday, July 25, 2014

Sweden’s school choice disaster? Nope

Great post by Michael McShane of AEI.
"Earlier this week, an article in Slate by Columbia Business School professor Ray Fisman provocatively titled “Sweden’s School Choice Disaster” made the rounds on Twitter, with the perfunctory head nodding and tut-tut-ing from the anti-school choice crowd.

From the jump, much of Fisman’s analysis didn’t really make sense. He blames the drop Sweden has seen in international test scores since 2000 on the country’s voucher program, even though that program precedes the drop by almost a decade. He also highlights the fact that only about 25% of secondary school students and only 13% of elementary school students use vouchers to attend private schools, so it would be hard to blame any nation-wide problems on such a small program. He further cites studies that appear to show that voucher and non-voucher students score about the same on fairly-grade exams. This is perhaps a scandal for schools with inflated grades, but it is not evidence that the voucher program is a “failure.”
But that’s about as deep as I want to dig. Luckily, several others went farther down the rabbit hole to get into numerous other problems with the piece.

Over at National Review, Tino Sanandaji offered myriad other possible explanations for Sweden’s poor performance on assessments. A key paragraph:
There is no doubt that the voucher reform was poorly implemented, but this doesn’t change the fact that the reform worked. Surveys suggest that parents and pupils in private schools tend to be more satisfied than average. Many of the worst schools have simply closed as few students choose them. Bullying is a major problem in Swedish schools; with school choice, children are no longer forced to attend the same school as their tormentors. Ambitious immigrant children have the option to escape the ghetto and attend better schools. Some — though admittedly not most — private schools have been innovative and significantly improved education.
At Education Next, the Cato Institute’s Andrew Coulson lowered the boom. He writes:
Nevertheless, Slate claims that competition from private schools may have led to “a race to the bottom” in Sweden. But since Sweden’s private schools score higher on PISA than its public schools, it’s not obvious what this might mean. Could Slate be claiming that the performance of private schools has been declining faster than that of public schools? If so, the reverse is true. Since the PISA test was first administered in 2000, Swedish private schools lost a scant 6 points overall. The nation’s public schools lost 34 points over the same periodnearly six times as much. If one of these sectors is leading a race to the bottom, it’s not the private sector.
Finally, Jay Greene of the University of Arkansas offers Fisman’s work as a cautionary tale on his blog:
Fisman would never make such sloppy mistakes in a journal submission or conference presentation.  His colleagues would laugh at him.  But nothing seems to deter Fisman or other would-be Paul Krugmans from making laughable claims in the popular press.  Maybe academics should not be given such a free pass for whatever they write outside of journals.  Maybe the credibility of their scholarly work and their status within the academic community should also be called into question if they are willing to be so reckless.
All good food for thought and worth checking out in full!"

Fraud Rampant and Unpoliced on Obamacare Health Insurance Exchanges

Great post By Hans Bader of the Competitive Enterprise Institute Blog.
"Almost anyone can fraudulently obtain taxpayer subsidies to cover most of the cost of their health insurance on the Obamacare health insurance exchanges. That’s the gist of recent news coverage in The New York Times, Reason, and Associated Press. The fraud is possible because the government doesn’t check’s people’s eligibility, or verify the claims they make in their applications, contrary to what former HHS Secretary Sebelius certified in January.  
Applicants can submit a fake name and social security number, and no one even checks—not the government, not  insurers, not Obamacare contractors. This is the finding of a recent investigation by the federal Government Accountability Office, as described in The New York Times and Reason magazine.

This matters because most of the cost of health insurance policies on the exchanges is picked up by taxpayers through tax credits, to the tune of billions of dollars a year. (87% of customers are getting taxpayer subsidies to purchase health insurance, with taxpayers on average footing 76% of the bill.)
Applicants have included documents showing their income is too high to qualify for a subsidy, and received a subsidy anyway.  

As Reason magazine observes, “neither the administration, which wants to sign up as many people as possible regardless of actual eligibility, nor the insurers, which get paid for each person who signs up, have much of an incentive to make the system work better.”

As Peter Suderman noted at Reason,

On January 1 . . . former Health and Human Services Secretary Kathleen Sebelius submitted a  letter to the president. On the very first page of the letter, Sebelius personally certified that Obamacare’s health insurance exchanges “verify that applicants for advance payments of the premium tax credit and cost-sharing reductions are eligible for such payments and reductions” as required by the law. “When a consumer applies . . . [the exchange] verifies application information provided by the consumer” in order to assess eligibility.

In short, when people apply for Obamacare’s health insurance subsidies, there’s a robust, reliable system in place to check their documentation . . .But as it turns out, there isn’t. . .Not one that actually works, or even really attempts to work.

Undercover investigators from the Government Accountability Office (GAO) spent some time this year attempting to see if it would be possible to get subsidies using false application information. They set up fake names and Social Security numbers that aren’t real, then claimed citizenship or legal residence, according to the AP, which obtained an early copy of the GAO report. They submitted applications with income amounts that should have been too high to get subsidies. In other words, they fed the system blatantly fraudulent information that should have been swiftly rejected.

But the majority of their attempts were successful anyway (. . .The New York Times reports 11 of 12). Indeed, the agency is still paying its share of the premiums on those accounts, because the Obama administration, which certified the validity of its subsidy verification system, just a few months ago, hasn’t caught on to the fraudulent accounts yet. . .The lone rejection occurred when the GAO investigator refused to supply a Social Security number at all. . .The federal contractor supposedly in charge of weeding out fraudulent applications told the GAO that “it does not seek to detect fraud and accepts documents as authentic unless there are obvious alterations.” . . .

The upshot, then, is this: Not only did the administration not set up a working verification system, they lied about it and said they did.

These tax credits awarded to participants in the Obamacare exchanges have eligibility requirements that operate as massive marriage penalties and work disincentives. The Congressional Budget Office estimated those work disincentives may shrink the number of people employed in America by two million people.  That is one reason why analysts at institutions such as Bank of America expect Obamacare to increase the budget deficit. The GAO estimated in a 2013 report that Obamacare will increase the long-term federal deficit by $6.2 trillion."

Thursday, July 24, 2014

Why Does Government Fail?

By Peter Boettke of "Coordination Problem." 
"One of the books I have been reading this summer is Peter Schuck's Why Government Fails So Often? (Princeton, 2014).  So far, it is excellent.  Here is David Henderson's reaction to his work, which I basically share.

My own view of how to approach this question takes its cue from Ronald Coase's 1959 paper on the FCC published in the Journal of Law and Economics.  As Coase walks through his argument, he states clearly on p. 18 the following:
This "novel theory" (novel with Adam Smith) is, of course, that the allocation of resources should be determined by the forces of the market rather than a result of government decisions.  Quite apart from the misallocations which are the result of political pressures, an administrative agency which attempts to perform this function normally carried out by the pricing mechanism operates under two handicaps.  First of all, it lacks the precise monetary measure of benefit and cost provides by the market. Second, it cannot, by the nature of things, be in possession of all the relevant information possessed by the managers of every business which uses or might use radio frequencies, to say nothing of the preferences of consumers for the various goods and services in the production of which radio frequencies could be used.
In this short passage, Coase highlights the incentive problems that government faces in making decisions about resource utilization, the problems of bureaucracy and interest groups, the problem of monetary calculation (or the absence thereof), and the discovery and use of dispersed information/knowledge in the economic system.  And, of course, he is right to link the identification of these problems with governmental decision making back to Adam Smith.  Economists have known about these problems for a long time -- though of course in the course of the history of economic thought different individuals have given particularly crisp explanations of the respective problems -- most notably the work of Mises-Hayek and Buchanan-Tullock.  But Coase gets this right, and from what I have read so far of Peter Schuck's book -- so does he."