Monday, February 27, 2017

Sports Drinks Are Now More Expensive than Beer Thanks to the Philadelphia Soda Tax

By Scott Drenkard of The Tax Foundation.
"On January 1st, the controversial Philadelphia soda tax took effect. It is levied at a rate of 1.5 cents per ounce, which is 24 times the tax levied on beer in the state of Pennsylvania. This stark new tax has prompted a few interesting reactions on Twitter as customers are starting to see just how large the effects on prices of sweetened beverages in the city are. One person on Craigslist (the post has now been flagged for removal) posted a joke page offering to smuggle in untaxed soda, noting that they “deal in weight only” and “cash or Bitcoin accepted.”

My colleague Bill Rickards—former Tax Foundation intern, Philadelphia native, and all-around great guy—just sent me some pictures of what this looks like on the ground in the city. Some observations (all photo credits to Bill):

A 12-pack of sports drinks is now more expensive than beer. Here’s a 12-pack of Propel energy water versus a 12-pack of Icehouse beer. Before sales taxes, 12 Propels is $5.99 plus $3.04 in soda taxes for a total of $9.03 (and that’s when it’s on sale for $1 less than the $6.99 standard). The 12 Icehouses are $7.99, beer tax included.

The tax on sweetened beverages is approaching the base price of the beverage in some instances. Here’s a picture of store-brand root beer, where the price of a 12-pack is $2.99, plus a beverage tax of $2.16. That’s a 73 percent excise tax. Taxes on 2-liter sodas are even higher percentages.

The “soda” tax is capturing a lot more drinks than just soda. Because of the overly broad statute language, the tax captures zero-calorie diet beverages, juice, and even milk substitutes for lactose-intolerant people."

Fatalities at wind turbines may threaten population viability of a migratory bat

Abstract from Biological Conservation. Volume 209, May 2017, Pages 172–177.

"Large numbers of migratory bats are killed every year at wind energy facilities. However, population-level impacts are unknown as we lack basic demographic information about these species. We investigated whether fatalities at wind turbines could impact population viability of migratory bats, focusing on the hoary bat (Lasiurus cinereus), the species most frequently killed by turbines in North America. Using expert elicitation and population projection models, we show that mortality from wind turbines may drastically reduce population size and increase the risk of extinction. For example, the hoary bat population could decline by as much as 90% in the next 50 years if the initial population size is near 2.5 million bats and annual population growth rate is similar to rates estimated for other bat species (λ = 1.01). Our results suggest that wind energy development may pose a substantial threat to migratory bats in North America. If viable populations are to be sustained, conservation measures to reduce mortality from turbine collisions likely need to be initiated soon. Our findings inform policy decisions regarding preventing or mitigating impacts of energy infrastructure development on wildlife."

Sunday, February 26, 2017

The antitrust authorities, no less than regulatory authorities, are vulnerable to capture by the collective interests of groups having the most salient stakes in antitrust law enforcement outcomes

By William F. Shughart II.
"As Fred McChesney and I wrote 26 years ago in the introduction to our edited volume titled The Causes and Consequences of Antitrust: The Public-Choice Perspective (University of Chicago Press, 1995), the Chicago School’s approach to the enforcement of antitrust (competition) laws is schizophrenic.

Largely happy to accept the implications of George Stigler’s economic theory of regulation (1971) and its formalization by Sam Peltzman (1976), few scholars nowadays accept the naïve proposition that price and entry controls on private firms are designed (or even intended) to protect consumers against abuses of market power. Too much evidence has accumulated before and sinceshowing that regulatory intervention into private markets is ineffective or that its consequences often are perverse—to conclude that regulatory agencies operate in the “public’s interest.”

Nor should it be possible for the defenders of the public-interest theory of regulation to escape criticism by resorting to the shopworn phrase “unintended consequences.” As Prof. Stigler wrote in “A Supplementary Note on Theories of Regulation (1975)”, an essay published in his The Citizen and the State, “mistakes” can explain both everything and nothing. If a regulatory regime were found to result in higher prices for consumers and larger profits for producers (a very common empirical finding), surely that “error” would be corrected by amending or repealing the relevant regulatory statute. If not, as Stigler concluded, the actual effects of regulation must be the intended effects.

Stigler advanced what has since been known as the “capture” theory of regulation. His theory was based on ideas in Mancur Olson’s Logic of Collective Action (Harvard University Press, 1965), a manuscript cited by Stigler in his Spring 1971 article in the Bell Journal of Economics and Management Science (now the Rand Journal of Economics). Olson’s insight was to explain why small, homogeneous and well-organized groups of individuals (or firms) tend to dominate political processes at the expense of larger, heterogeneous and less-well organized groups: the “law of 1/N”, where N is the number of group members. Stigler adapted those ideas to illuminate the outcomes of regulatory processes in which the interests of producers dominate those of the mass of unwashed consumers.

While many economists continue to plow the theoretical fields in search of “optimal” regulation without acknowledging the political contexts in which regulatory agencies function in the so-called real world, the Chicago School’s interest-group theory of regulation dominates the modern literature. Curiously, however, the antitrust laws and their enforcement have escaped by and large being brought within the ambit of Chicagoan analyses of public policy.

Antitrust is seen in Chicago (and nearly everywhere else) as somehow “different” from ordinary economic regulation of prices and entry conditions into narrowly defined “markets” for electric power and other “public utilities.”1) That mindset becomes even curiouser insofar as Judge William Landes warned long ago of the increasingly regulatory nature of antitrust decrees.2) Richard Posner once called for the abolition of the Federal Trade Commission, courts having ruled that the FTC can bring charges under Section 5 of the Federal Trade Commission Act (1914) against virtually any law violation the Justice Department can prosecute under the Sherman Act (1890), the first competition law enacted on the planet; Judge Posner later recanted.

Standing on the shoulders of at least one giant, my former colleague and frequent co-author the late Robert Tollison, I laid out the special interest group basis of antitrust in Antitrust Policy and Interest-Group Politics (Quorum, 1990). That book documented the political pressures brought to bear on antitrust law enforcers, including those of congressional oversight committees and the competitors of antitrust defendants, that shape enforcement outcomes at every stage of the process. The rent-seeking and rent-defending efforts of the parties involved in both public and private antitrust lawsuits are consistent with Olson’s Logic. The antitrust authorities, no less than regulatory authorities, are vulnerable to capture by the collective interests of groups having the most salient stakes in antitrust law enforcement outcomes.

It is tempting to think that antitrust law enforcersand the judges who rule on such matters—are immune from the self-interested motivations of ordinary mortals, that the parties involved look only to the “public’s interest” by protecting consumers from the depredations of profit-seeking business enterprises. A review of more than a century of the actual practices of applying the relevant laws points in the opposite direction.

Antitrust is economic regulation and, as such, is amenable to scholarly evaluations of it within the same analytical framework. If not, scholars will continue to bemoan antitrust’s failures rather than seeing them as the predicable outcomes of an understandable political process, helping to explain the secular rise and fall of activist intervention against mergers and the behaviors of so-called dominant firms both at home and abroad.3)

Antitrust bureaucrats, judges and the parties who can bring the laws to bear to their own benefit are rational actors, not Madison’s fictional angels able to shed their parochial interests in the courtroom. The evidence is clear. Chicago School scholars, if anyone, should take off their rose-colored glasses.

(Note: William F. Shughart II is the Research Director and Senior Fellow at the Independent Institute, the J. Fish Smith Professor in Public Choice at the Jon M. Huntsman School of Business at Utah State University. He is also the Editor-in-Chief of Public Choice, and a former economist at the Federal Trade Commission.)"

New Study on Low-Income Housing Subsidies

By Chris Edwards of Cato.
"A new study at Downsizing Government looks at low-income housing aid. Howard Husock of the Manhattan Institute examines the history of federal aid and discusses problems with current policies, particularly rental subsidies and public housing.

One problem is that housing aid is costly to taxpayers. The federal government spent $30 billion on rental subsidies (Section 8 vouchers) and almost $6 billion on public housing in 2016.

Another problem is that housing aid and related rules are costly to urban communities. Howard argues that federal interventions undermine neighborhoods, encourage dependency, and create disincentives for long-term maintenance and improvements in housing.

In urban politics, there are frequent calls for “affordable housing.” But Howard says that it is a myth that markets cannot provide decent housing for people at all income levels. He discusses the vast private housing investment in the decades prior to the 1930s, which was a time of rapid growth in America’s big cities.

The problem today is that government rules and regulations inflate housing costs, which is the topic of an upcoming study by Cato’s housing expert, Vanessa Calder.

What should Ben Carson do? The new Secretary of Housing and Urban Development should heed Howard’s advice and work to cut federal subsidies. Carson should also follow through on his conviction that HUD imposes too many “social engineering” rules on local governments.

Vanessa provides further policy guidance for Carson here, and she discusses an example of the sort of top-down HUD mandate that should be on the chopping block here.

Howard’s vast scholarship on housing policy is here.

More information on HUD is here. I would particularly recommend HUD Scandals. My god, Ronald Reagan’s HUD was appalling."

Saturday, February 25, 2017

Those of us who demonize government and think it's incompetent still have a solid basis for those views (the role medicaid might have played in the opiate epidemic)

See Quinones versus Eberstadt by David Henderson.

"We have demonized government and laughed at government and called it incompetent, not paid taxes to support it. And we have a situation now, in my opinion, where--having done all that, having exalted the private sector, demonized government, what we now have is a story that the private sector has visited upon the United States of America and its people the most devastating threat to personal liberty that we know today, which is opiate addiction. And for a long time the only ones who were fighting that were government officials--coroners, jailers, cops, public health nurses, etc.
This is a statement by Sam Quinones, author of Dreamland: The True Tale of America's Opiate Epidemic. It's at the tail end of the January 23 EconTalk interview of Quinones by Russ Roberts. Yet elsewhere in the interview, Russ, drawing on Quinones's own book, said:

But you don't have $1000. You do have a Medicaid card. And the co-pay for Medicaid is $3. Which seems like a very nice, thoughtful thing. But what it means is that the taxpayer is going to cover $997 of this. The addict is going to cover $3. And then the punchline--that's interesting by itself and as an economist who has often talked about the value of cash, I can't help but note the irony that we give people Medicaid because we don't want them to have cash as a way to use it on drugs and alcohol. So there's an incredible tragedy here. So, they take the $3 co-pay; they $1000 worth of drugs; and it's worth $10,000 on the street.

I found it interesting--as Russ appeared to also--that after pointing out the huge role of government in creating or exacerbating this opioid problem, Quinones said that we demonize the government and call it incompetent. But surely this absurd policy--having taxpayers pay for people to get addicted--deserves demonization and possibly the "incompetent" label.
 I haven't had time to read Quinones's book but elsewhere I did find confirmation of the point he's making. It comes from a chilling article by Nicholas Eberstadt of the American Enterprise Institute (HT2 John Cochrane). The article is titled "Our Miserable 21st Century" Eberstadt quotes the section of Quinones's book that Russ drew on and then adds:

You may now wish to ask: What share of prime-working-age men these days are enrolled in Medicaid? According to the Census Bureau's SIPP survey (Survey of Income and Program Participation), as of 2013, over one-fifth (21 percent) of all civilian men between 25 and 55 years of age were Medicaid beneficiaries. For prime-age people not in the labor force, the share was over half (53 percent). And for un-working Anglos (non-Hispanic white men not in the labor force) of prime working age, the share enrolled in Medicaid was 48 percent. (italics in original)

Eberstadt adds:
By the way: Of the entire un-working prime-age male Anglo population in 2013, nearly three-fifths (57 percent) were reportedly collecting disability benefits from one or more government disability program in 2013. Disability checks and means-tested benefits cannot support a lavish lifestyle. But they can offer a permanent alternative to paid employment, and for growing numbers of American men, they do. The rise of these programs has coincided with the death of work for larger and larger numbers of American men not yet of retirement age. We cannot say that these programs caused the death of work for millions upon millions of younger men: What is incontrovertible, however, is that they have financed it--just as Medicaid inadvertently helped finance America's immense and increasing appetite for opioids in our new century. (italics in original)

So those of us who demonize government and think it's incompetent still have a solid basis for those views. I agree with Quinones on one thing, though: this is not a laughing matter.
 Also, unlike Quinones, I don't see how opiate addiction threatens people's liberty or how jailers and cops in the drug war apparently don't."

Large inflows of foreign aid change local politics for the worse and undercut the institutions needed to foster long-run growth

See Gates Foundation Should Credit Market Reforms for Poverty Reduction by Daniel Press of CEI.
"Last week, the Bill and Melinda Gates Foundation released its annual letter, celebrating its investments in the developing world. Following their typical upbeat style, this year’s letter served as a thank-you note to their friend and fellow philanthropist, Warren Buffett. Buffett, who has donated a substantial portion of his fortune to the Foundation over the years, recently wrote a letter asking what humanitarian return there has been on his investment. The Gates Foundation provided this summary of its report back:

It’s a story about the stunning gains the poorest people in the world have made over the last 25 years. This incredible progress has been made possible not only by the generosity of Warren and other philanthropists, the charitable giving of individuals across the world, and the efforts of the poor on their own behalf—but also by the huge contributions made by donor nations, which account for the vast majority of global health and development funding.
Our letter is being released amid dramatic political transitions in these countries, including new leadership in the United States and the United Kingdom. We hope this story will remind everyone why foreign aid should remain a priority—because by lifting up the poorest, we express the highest values of our nations.

In part, the Foundation is spot on. The world’s poorest have indeed made “stunning gains” over the past few decades. Extreme poverty has fallen by some 80 percent since 1970, while child mortality has also seen dramatic improvements. What they get wrong, however, is the cause of all of this. The letter’s emphasis on government development aid as the source of this progress is misplaced, and masks a controversial legacy.

Between 1962 and 2012, world governments contributed almost $4 trillion of their taxpayers’ money to aid programs. For some recipient nations, this accounts for as much as 44 percent of their GDP. While international development experts have been predicting that such incredible charity would end poverty as we know it, it has been shown to have had little effect on the recipient countries’ economic growth. In some African nations, among the largest recipients of aid, there is even a negative relationship. Zambia is one such sad example. Former World Bank economist William Easterly found that if Zambia had received its aid funding between 1960 and the early 1990s as investment dollars instead, it could have had a per capita GDP of around $20,000. Instead, an average Zambian in the early 1990s lived off of just $500 per year – less than in 1960.

The reason behind the aid-development model’s monumental failures are clear – aid corrupts the incentives required for nations to develop. With the promise of large aid checks, African governments have transferred their attention from domestic economic development towards courting foreign donors. This has created generous budgets for unaccountable governments, who would rather reap in aid money than begin the tedious task of reform. Without such free-market reforms, long-term prosperity is unlikely. As economist and Nobel laureate Angus Deaton has written, “large inflows of foreign aid change local politics for the worse and undercut the institutions needed to foster long-run growth.”

It is well established by now that countries that embrace free-market reforms, including liberalized trade, reduced regulation, and secure property rights, tend to grow faster than others. Indeed, the unprecedented decline in world poverty in the last few decades has coincided with a significant increase in global economic freedom. The collapse of the Soviet Union, the opening up of India and China, and the spread of globalization have all helped spur the recent explosion in economic freedom.
The comparison of capitalist South Korea with socialist Ghana is especially compelling. Since the 1960s, South Korea’s embrace of foreign investment, liberalized trade, and strong property rights led to an over 2,000 percent increase in income, reaching $38,571 per capita. Ghana’s socialist experiment, on the other hand, led to a meager 83 percent rise in per capita incomes, reaching $4,495. This was while Ghana was receiving massive amounts of aid and South Korea received relatively little.  The “efforts of the poor” that have followed free-market reforms have created wealth and fostered robust economic growth. That the people of the developing world are creating their own development through embracing markets is the real cause for celebration.

The Gates Foundation should give greater credit to the proven economic reforms that have spurred development throughout the world. They crafted their annual letter to reassure Mr. Buffett of the effectiveness of his charity. But if he was looking for better return, I’d bet on free markets for the developing world."

Thursday, February 23, 2017

Manufacturing GDP and the Trade Deficit Rise and Fall Together

By Alan Reynolds.
"As The Wall Street Journal notes, “Mr. Trump and his advisers see the U.S. goods trade deficit as an indicator of U.S. economic weakness.”

Manufacturing Output and Goods Trade Deficit

Yes, they do. But why?  As the graph clearly shows, the real gross output of U.S. manufacturing rises when the goods trade deficit (both measured in 2009 dollars) is also rising.  When trade deficits fall, so does U.S. manufacturing.  Sinking industries need fewer imported parts and materials, and their unemployed workers can’t afford imports.

Measured in 2009 dollars, the goods trade deficit fell from $863.4 billion in 2006 to $525.2 billion in 2009.  Peter Navarro, the President’s liberal protectionist trade adviser, would apparently call that good news.  The rest of us called it The Great Recession."