Wednesday, November 25, 2015

A Cost-Benefit Analysis of Government Compensation of Kidney Donors

From Alex Tabarrok of Marginal Revolution.
"The latest issue of the American Journal of Transplantation has an excellent and comprehensive cost-benefit analysis of paying kidney donors by Held, McCormick, Ojo, and Roberts. Earlier, Becker and Elias estimated that a payment of $15,000 per living donor would be sufficient to eliminate the US waiting list. The authors adopt a larger figure of $45,000 for living donors and $10,000 for deceased donors and find that even at these rates paying donors generates benefits far in excess of costs.

In particular, a program of government compensation of kidney donors would provide the following benefits (quoting from the article):
  • Transplant kidneys would be readily available to all patients who had a medical need for them, which would prevent 5000 to 10 000 premature deaths each year and significantly reduce the suffering of 100 000 more receiving dialysis.
  • This would be particularly beneficial to patients who are poor and African American because they are considerably overrepresented on the transplant waiting list. Indeed, it would be a boon to poor kidney recipients because it would enable them to reap the great benefits of transplantation at very little expense to themselves.
  • Because transplant candidates would no longer have to spend almost 5 years receiving dialysis while waiting for a transplant kidney, they would be younger and healthier when they receive their transplant, increasing the chances of a successful transplantation.
  • With a large number of transplant kidneys available, it would be much easier to ensure the medical compatibility of donors and recipients, which would increase the success rate of transplantation.
  • Taxpayers would save about $12 billion each year. Dialysis is not only an inferior therapy for end-stage renadisease (ESRD), it is also almost 4 times as expensive pequality-adjusted life-year (QALY) gained as a transplant."

Singapore: the Power of Economic Freedom

By Marian L. Tupy of Cato. Excerpt:
"The Telegraph ran a fascinating collection of photos from different statges of development of the Asian city state of Singapore. The first photo is from 1900, the second is from the 1970s and the last photo is contemporary. The incredible transformation of Singapore from a sleepy outpost of the British Empire to a global commercial and technological hub was partly facilitated by a very high degree of economic freedom. In 1970, the first year for which data is available, Singapore had the third freest economy in the world (behind Hong Kong and Canada). Singapore maintained a high degree of economic freedom over the next 45 years and ranks as the second freest economy in the world today (behind Hong Kong). As late as 1970, per person income in Singapore was 54 percent of the global average. Today it is 321 percent of the global average."

The invisible hand of the market, not the heavy hand of the government, brings economic prosperity to Kenya

From Mark Perry.
"There was a fascinating segment on “60 Minutes” last night (“The Future of Money“) about the “mobile money” revolution this has swept Kenya, where people can send and receive money on their cell phones – without using banks, bank accounts or credit cards.  Kenya’s mobile money system is called “M-PESA” and it now acts as a terrific platform that has helped launched other technological innovations to the point that the East African county is being called the “Silicon Savannah.” Not surprisingly, when M-PESA started, Kenya’s commercial banks, like any entrenched industry, lobbied for the government to impose regulations to impede its development, but the government decided to take a hands-off approach and allow Schumpeterian “creative destruction” to flourish. And flourish M-PESA has, bringing economic prosperity and growth to a poor country and giving poor people across Kenya greater access to water and electricity. And all of this new economic prosperity came to Kenya largely because of market forces, innovation, and technology and not because of the World Bank, United Nations, the IMF, or taxpayer-funded aid from foreign governments.

For Kenya’s newfound economic prosperity, it can thank the “invisible hand of the market,” rather than the more traditional “visible, heavy hand of governments” and government-funded forms of economic aid."

Tuesday, November 24, 2015

On the ACA, forecasters overestimated total exchange enrollment, the share of higher-income individuals enrolling, and the general health of those who did enroll

See Downgrading the Affordable Care Act: Unattractive Health Insurance and Lower Enrollment by Brian Blase of Mercatus. Excerpt:
  • Enrollment figures fell short of projections. Initial Congressional Budget Office (CBO) projections overestimated the number of 2014 enrollees by 2.5 million and 2015 enrollees by 3.5 million, and other forecasting organizations overestimated by even more.
  • Enrollment of all but the near-poor is far below projections. Individuals and families earning more than 200 percent of the federal poverty line, who do not qualify for subsidies that significantly reduce high exchange plan deductibles, are largely shunning exchange plans.
  • The individual mandate failed to motivate as many uninsured to enroll as predicted. Projections assumed that a large noneconomic motivation to conform to a social norm of having insurance would motivate people to comply with the mandate, but financial incentives to remain uninsured appear to be dominating insurance decision-making for the middle class.
  • The pool of enrollees is sicker and more costly than projected. Despite an $8 billion subsidy to cover most of the cost of their expensive enrollees, in 2014 insurers suffered losses equivalent to about 12 percent of the premiums of ACA plans (plans satisfying the law’s new rules and requirements). Insurers are increasing premiums, raising deductibles, and narrowing provider networks in response to unexpectedly large losses on ACA plans.

As Congress was debating the ACA in March 2010, CBO released initial projections of ACA exchange enrollment. They were followed by more optimistic projections by the Centers for Medicare and Medicaid Services and RAND Corporation later that year. The three-year projections are displayed in table 1.

In July 2012, CBO revised its estimates slightly upward following the Supreme Court’s ruling that Medicaid expansion would be at the option of the states, which meant more people just above the poverty line gained eligibility for subsidized exchange plans.
Following the initial failures of, CBO revised its projections downward, and has repeatedly downgraded its estimates over the past three years. However, data from the Department of Health and Human Services show that even the downgraded estimates are overly optimistic. Table 2 shows CBO projections over time and compares them with actual enrollment data.

Low enrollment figures have been driven, in large part, by the exchange plans’ failure to attract middle-class uninsured people. Most recently, CBO projected 3 million unsubsidized enrollees in 2015, when in fact there were only 1.6 million. In early 2015, the Urban Institute estimated that 25 percent of enrollees in 2016 would be earning more than 400 percent of the federal poverty line; at the end of the 2015 open enrollment period, only 2 percent of enrollees fell into that income class. Most strikingly, only 2 percent of eligible individuals earning more than 400 percent of the federal poverty line chose to purchase exchange plans.

A contributing factor to these forecasting errors was the assumption that the individual mandate would be a more effective tool than it has been thus far. Several forecasting organizations assumed a large noneconomic motivation to conform to laws and to a new social norm for having health insurance. However, a recent study found that most households above 200 percent of the poverty line would be financially better off forgoing ACA insurance for economic reasons, an effect that appears to be dominating decision-making more than any noneconomic desire to conform to the mandate. Moreover, numerous exemptions to the mandate allow people with a broad range of financial difficulties to remain uninsured and not pay the penalty.


Early results from the risk corridor program, an ACA-created profit- and loss-sharing program between insurers, show significant losses for insurance companies selling ACA plans. Specifically, profitable insurers owed $360 million, while unprofitable insurers filed claims for $2.9 billion, a shortfall of $2.5 billion. The risk corridor data indicate that insurers’ 2014 losses on ACA plans equaled about 12 percent of the premiums collected.

The performance of the risk corridor program falls short of CBO projections and reflects a significantly sicker (and thus more expensive) pool of enrollees than originally expected. The sicker-than-expected risk pool, together with the phase-out of a large back-end subsidy program to offset insurers’ costs for the most expensive enrollees, is already translating into plans with higher premiums, higher deductibles, and narrower networks. These changes will make ACA plans look even less attractive to the relatively healthy uninsured, creating conditions for an adverse-selection “death spiral” in the individual market."

Inconvenient truths for the environmental movement

By Joshua S. Goldstein and Steven Pinker. Joshua S. Goldstein is emeritus professor of international relations at American University and a research scholar at the University of Massachusetts Amherst. Steven Pinker is professor of psychology at Harvard University and the author of “The Better Angels of Our Nature.” Excerpts:
"The first is that, until now, fossil fuels have been good for humanity. The industrial revolution doubled life expectancy in developed countries while multiplying prosperity twentyfold. As industrialization spreads to the developing world, billions of people are rising out of poverty in their turn — affording more food, living longer and healthier lives, becoming better educated, and having fewer babies — thanks to cheap fossil fuels."

"Nuclear power is the world’s most abundant and scalable carbon-free energy source. In today’s world, every nuclear plant that is not built is a fossil-fuel plant that does get built, which in most of the world means coal. Yet the use of nuclear power has been stagnant or even contracting."

"Nuclear today is relatively expensive, but that is largely because it must clear massive regulatory hurdles while its fossil competitors have been given relatively easy passage. New fourth-generation nuclear designs, a decade away from deployment, will burn waste from today’s plants and run more cheaply and safely."

"Without nuclear power, the numbers needed to solve the climate crisis simply do not add up. Solar and wind are growing quickly, but still provide about 1 percent and 4 percent respectively of electricity production, and cannot scale up fast enough to supply what the world needs. Moreover, these intermittent energy sources could power the grid only with big advances in battery technology that are still in the basic-science stage. Even with them, we must not triple-count the energy promised by renewables: they cannot supplant existing fossil fuel use and replace decommissioned nuclear plants and meet the skyrocketing needs of the developing world."

"These arguments have been forcefully made by pragmatic environmentalists such as James Hansen and Stewart Brand."

"The second priority is carbon pricing: charging people and companies to dump their carbon into the atmosphere. Economists across the political spectrum agree that such a price would incentivize conservation, decarbonization, and R&D far more effectively than regulating specific industries and products (to say nothing of sermonizing for a return to an abstemious preindustrial lifestyle). Without carbon pricing, fossil fuels — which are uniquely abundant, portable, and energy-dense — simply have too great an advantage. Yet despite a strong campaign by Citizens’ Climate Lobby, a policy that ought to be a no-brainer has yet to catch on with politicians or the public." 

Monday, November 23, 2015

Will Obama Make Housing Affordable?

By Randal O'Toole of Cato.
"Property-rights and housing-affordability advocates were surprised and elated that the chair of President Obama’s Council of Economic Advisors, Jason Furman, gave a speech blaming housing affordability problems on zoning and land-use regulation. They shouldn’t be: while Furman is correct in general, he is wrong about the details and the prescriptions he offers could make the problems worse than ever. 
There is no doubt, as Furman documents in his speech, that land-use regulation is the cause of growing housing affordability problems. Yet Furman fails to note the fact that these problems are only found in some parts of the country. This is a crucial observation, and those who fail to understand it are almost certain to misdiagnose the cause and propose the wrong remedies.

Citing Jane Jacobs (who was wrong at least as often as she was right), Forman blames affordability problems on zoning that “limits density and mixed-use development.” Such zoning is found in almost every city in the country except Houston, yet most cities don’t have housing affordability problems. Thus, such zoning alone cannot be the cause of rising rents and home prices.

Based on this erroneous assumption, Furman endorses what he calls the administration’s agenda, which is its Affirmatively Furthering Fair Housing program. Rather than making housing more affordable, this program is aimed at ending racial segregation of middle-class suburbs by requiring the construction of multifamily housing in suburbs that are not racially balanced relative to their urban areas. It assumes that multifamily housing is less costly (and thus more affordable to low-income minorities) than single family, but that is only true because units are smaller: on a dollar-per-square-foot basis, multifamily costs more than single family, especially for mid-rise and high-rise apartments. Multifamily also uses more energy per square foot than single family, which means heating bills will be higher.

In other words, the fundamental assumption of Affirmatively Furthering Fair Housing is that it is “fair” to put low-income minorities in cramped apartments with little privacy so long as those apartments are in the same suburbs as single-family homes with large private yards occupied by the middle class. It also assumes that the solution to problems created by zoning is even more government interference in the market, either through regulations mandating certain housing types or subsidies to that housing (another part of the administration’s agenda). It is worth noting further that nothing in the program would insure that the people in those apartments are, in fact, racial minorities.
In any case, even when accompanied by housing subsidies, building expensive apartments in middle-class suburbs does little or nothing to make housing more affordable, mainly because even the most aggressive subsidy programs will build too little housing to have much of an effect on the market. This is especially true since this prescription will be diluted by applying it as much to regions like Dallas or Raleigh, which don’t have housing affordability problems but may have suburbs that are not racially balanced, as to places with real housing affordability issues such as the San Francisco Bay Area, Seattle, and Boston.

Once we recognize that housing affordability is a crisis only in some urban areas and not others, we have to ask what it is about those urban areas that makes housing expensive. It is not zoning that limits density or mixed-use, which is found almost everywhere; it is growth-management planning that limits development at the urban fringe, which is found mainly in coastal states (CA, FL, HI, MA, MD, OR, VA, WA, and most New England states)–not coincidentally, the very places where housing affordability is a major issue.

Without land-use regulation outside of the cities, all the city zoning in the world won’t stop developers from meeting demands for affordable high- or low-density housing outside city limits. On the other hand, if growth management, whether through urban-growth boundaries, urban-service boundaries, large-lot zoning, greenbelts, or other means, limits expansion of the urban area, then housing will become both more expensive and more volatile.

Personally, I would be willing to give up all city zoning restricting density and mixed-use development provided we also give up all zoning and land-use regulation outside of city limits. This will allow developers to meet whatever demand there is for high-density housing as well as for traditional suburbs. Neighborhoods could continue to protect themselves from unwanted intrusions and nuisances using deed restrictions, as is done in much of Houston, one of the nation’s most affordable cities and urban areas.

One of the major points of my 2012 book, American Nightmare, is that zoning was originally developed to keep not just racial minorities but the working class in general out of middle-class neighborhoods (a point more recently made in Sonia Hirt’s 2014 book, Zoned in the USA). When that failed to work due to rising working-class incomes, middle-class planners supplemented zoning with growth management. That policy appears to be working as blacks and other working-class populations are fleeing many of the urban areas that have applied it, urban areas that celebrate themselves as havens for the “creative class,” which is simply another name for the middle class.
In short, Furman’s and the administration’s focus on zoning is wrong and will fail to make housing more affordable. Instead, they should look at growth management as the cause of housing affordability problems and at eliminating such growth management as the solution."

An Anonymous First-Rate Economist On the Economics of the Minimum Wage

From Don Boudreaux of Cafe Hayek. Excerpts:
"First-year GMU economics masters student Ash Navabi sent to me notice of a commenter at on this post at Economics Job Market Rumors.  According to Ash, the commenters “Economist 1C88” and “Economist E446” are the same person.  Whoever this commenter is, I tip my hat to him or her.  He or she says in these seven short comments at least as much as, and perhaps more than, I’ve said about the minimum wage in dozens of longer blog posts – and he or she says it more eloquently, clearly, thoroughly, and cogently.  I paste these seven comments [I only post some-CM] with my own numbering, but without further edit or comment by me, below the fold.  Read these comments and treat yourself to the reasoning of a first-rate economics mind.  Every word below the fold (save for the obvious quotations from other commenters) is that of Economist 1C88/E446.  (For the record, I have no idea who this economist is.)"

"suppose that for every single margin, you’ve found a way to argue that the supply and demand responses are inelastic. Now take a step back and think about the hypothetical world you’ve created. In this world, both the supply and demand curves for low-wage labor are near-perfectly vertical. This means, of course, that any shocks to supply or demand must result in massive equilibrating movements in the market-clearing wage. Does this actually happen? Not even close: 10th percentile wages are surprisingly stable relative to 50th percentile wages, and the big changes that do occur tend to come from the minimum wage itself.

So the project of denying every supply and demand response at the low end of labor markets is doomed from the start. But this doesn’t stop many of you from attempting it. I call this (forgive the alliteration) the Selective Skepticism of Substitution Syndrome.

Whenever someone mentions a margin along which firms or households could substitute in response to changing prices, thereby creating unintended consequences from the policy you support, you’ll dig deep and find a way to argue (earnestly as ever) that the substitution response is actually close to zero. Then they’ll mention another margin; again, you’ll find a way to deny it, and so on it goes…

The problem with all this Selective Skepticism of Substitution is that it makes you look silly. Surely there are, in reality, plenty of ways in which agents substitute in response to changing relative prices. That’s how the economy works! It would really be quite a coincidence if substitution happened to be shut down in only those cases that matter for the minimum wage.


I want you to look at the table of occupations from the BLS’s Occupational Employment Statistics, and sort by median wage. Think about all those occupations with median wages below $15 – and then also think about all the occupations with median wages a bit above $15 that still have 20 or 30 or 40 percent of workers making below $15.

If we raise the minimum wage to $15 and entry-level fast food or cashier jobs are just as easily available as they are today, do you really think that none of the kinds of people who currently train for the other jobs with median wages below $15 will be tempted to just pick the lower-end jobs instead? “Pest Control Workers” have a median wage of $14.74 – are you really so confident that none of them will say “f*** pest control, I’m going to earn the same wage working the counter at McDonald’s”? The 25th percentile wage for “rock splitters, quarry” is only $12.81 – are you really so sure that none of them will get tired splitting all those rocks and take the Safeway cashier job closer to home instead, once it pays just as much?

The answer is that of course some of them will be tempted to switch jobs (or choose different jobs in the first place). It won’t necessarily happen right away – there are costs to moving between jobs, and even bigger costs to switching careers, so you’re not going to do it in response to a fleeting, idiosyncratic, almost below-the-radar change in the minimum wage (like, erm, virtually all of the cross-state minimum wage changes used for identification in existing “cleanly identified” studies). But it will happen in the long run, and even a very small response would be enough to swamp low-end labor markets – which are quite small relative to the vast middle of the distribution – and displace the existing workers.


They’ll say that some kind of Keynesian channel, with minimum wage workers spending out of their now-higher wages, boosts demand and undoes the negative effect. (This is deliciously innumerate: only a tiny fraction of the marginal consumption basket of minimum wage workers flows through to other minimum wage workers. Perhaps 189d is trying to argue otherwise by complaining that “preferences are not homothetic” – with the presumption, I suppose, that at the margin minimum wage workers happen to spend 100% of their income on McDonald’s, even though the inframarginal share is more like 5%!)

– They’ll say that it’s really a story of monopsony – where firms face upward-sloping supply curves for labor, and use this market power to pay workers less than their marginal product. If you force them to pay a minimum wage, the story goes, then monopsony considerations will disappear and firms will actually demand more labor. (Of course, unless the monopsony wedge is huge, it’s not clear how this story can justify an aggressive minimum wage – and if the monopsony wedge was really that big, it would imply massive returns to employee recruitment that are hard to reconcile with the evidence. Nor is it clear why monopsony is such a big deal in the low-end labor market – of all places!


To top it all off, none of these stories can explain the key feature of the minimum wage literature that supporters are always citing – which is that estimates for the disemployment effect are generally near zero. Not positive or negative depending on the exact balance of the monopsony and substitution effects (which might vary predictably based on the features of the industry or occupation), but zero.

To be precise, the estimates cluster around zero, with these researchers never able to reject the null hypothesis of zero at a rate higher than you’d expect from chance alone, and the most precise point estimates getting closer and closer to zero (as you may have seen in all those funnel graphs). Taking all the evidence at face value, in fact, you must believe that we have a rather precise quantification of the effect of the minimum wage, at almost exactly zero.

How remarkable that the monopsony or Keynesian or whatever channels happen to precisely cancel out the substitution channel in every environment that left-leaning labor economists study!"