Monday, March 18, 2024

Donald J. Boudreaux responds to Anne York on the gender pay gap

 See For the Umpteenth Time, Put Your Money Where Your Mouth Is.

"Here’s a letter to the Wall Street Journal:

Editor:

Prof. Anne York insists that much of the gender pay gap is caused by economically unjustified discrimination, insufficient employment opportunities for women, and lack of information (Letters, March 17). If she’s correct, Prof. York – herself flush with this valuable information – has identified a golden opportunity for profit. She can start a business and, by paying underpaid women a bit more than they currently earn, attract teams of productive workers at wages that would yield her a handsome profit as she raises women’s earnings. She would also demonstrate to other entrepreneurs the value of hiring underpaid women and simultaneously bankrupt the knuckle-dragging employers who, stubbornly refusing to pay women what their labor is worth, would be unable to adequately staff their firms.

Prof. York might protest, confessing to have no business skills. No problem. Now that she’s revealed in the pages of America’s premier business publication the reality of an economically unjustified pay gap – the existence of a bonanza of underpriced assets – the profit-hungry readers of your pages, many of whom are quite skilled at business, will surely leap to take advantage of this outstanding profit opportunity.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030"

Biden Plays Whack-a-Bank With ‘Junk Fee’ Rules

The political price controls will merely shift costs somewhere else and reduce access to credit.

WSJ editorial

"President Biden vowed in his State of the Union speech to banish bank and credit-card “junk fees”—i.e., charges that progressives don’t like. If Americans see their credit costs increase, access to credit decline, or card rewards disappear, blame the Administration’s new price controls.

The Consumer Financial Protection Bureau (CFPB) last week finalized a rule effectively capping credit-card late fees at $8, which is about 75% less than the typical past-due charge. Director Rohit Chopra calls these “junk fees”—never mind that governments impose hefty penalties for late tax filings, parking tickets and other things. Are those junk too?

Fifteen years ago, Democrats in Congress authorized financial regulators to limit credit-card late fees at a sum that is “reasonable and proportional” to a borrower’s violation. The Federal Reserve in 2010 capped penalties at $25 ($35 for repeat tardy payments), which are adjusted for inflation. The maximum penalty is now $41.

The CFPB’s rule slashes the cap to $8 and eliminates the annual inflation adjustment. Yet as even the CFPB acknowledges, the lower penalty may cause more borrowers to pay late, and as a result incur higher “interest charges, penalty rates, credit reporting, and the loss of a grace period.” This would make it harder to qualify for an auto loan or mortgage.

The agency concedes that credit-card issuers may also raise interest rates, reduce rewards, “increase minimum payment amounts or adjust credit limits to reduce credit risk associated with consumers who make late payments.” Because some states cap credit-card interest rates, “some consumers’ access to credit could fall.” Thanks, Mr. President.

By the way, the rule comes as credit-card delinquencies have risen to the highest level in more than a decade. Issuers are tightening credit to reduce charge-offs. The rule could force more borrowers to turn to higher-cost credit such as payday loans. Businesses that contract with banks to offer credit cards will also take a hit. Late fees account for between 14% and 30% of department store credit-card revenue. They’ll have to offset the rule’s impact somehow, perhaps with higher prices.

The sprawling damage will be compounded by the CFPB’s proposal in January to cap bank overdraft fees as low as $3. Banks provide overdraft protection up to a limit for a fee as a courtesy to customers. This helps borrowers avoid penalties for late payments. Overdraft protection typically costs less than other forms of short-term credit.

In recent years the biggest banks have eliminated or reduced overdraft fees to compete with fintech firms. Overdraft fees account for less than 2% of U.S. commercial banking revenue. According to the CFPB, market-wide overdraft revenue fell in real terms by 37% between 2019 and 2022. What do you know? Market competition helps consumers.

The cap on overdraft fees could spur banks to raise other charges, the CFPB acknowledges. Some might impose “nonsufficient fund fees” when they reject debit-card purchases and ATM withdrawals that overdraft accounts. So the agency proposes banning those too.

***

The big picture here is that the Administration is playing whack-a-bank, hitting this and that revenue stream as another arises, and turning banks into regulated utilities. Consumers are the biggest losers, as we’ve learned from other such price controls.

The Durbin Amendment to Dodd-Frank directed the Fed to limit fees charged to retailers for debit-card processing. A 2017 Federal Reserve staff study found that as a result larger banks reduced free checking and raised minimum balance requirements. Small banks not subject to the cap also limited free checking because they faced less competition. Rather than lower prices, retailers pocketed the savings.

Now the Fed has proposed a rule that would reduce the maximum debit interchange fee banks can charge merchants—to 17.7 cents from 24.5 cents on a $50 debit transaction. As Fed Governor Michelle Bowman noted, “one consequence may be that banks discontinue their lowest-margin products” designed to increase banking access for lower-income Americans.

The Biden Administration is playing up its price controls as an election-year gambit, but it never explains the unseen effects down the road. The forgotten man always pays."

Our ‘Capitalist,’ ‘Not Anticorporation’ President in Action

From the SEC to the EPA, Biden’s administration has launched an onslaught of stifling regulations.

By Allysia Finley. Excerpts:

"Mr. Biden then called for a 25% tax on billionaires’ income, including their unrealized asset appreciation, endorsed a bill empowering the Federal Trade Commission to dun corporations for “shrinkflation,” and exalted United Auto Workers President Shawn Fain, who last year declared corporate greed America’s biggest enemy."

"The National Oceanic and Atmospheric Administration has proposed an ultralow speed limit for recreational boats off the Atlantic Coast to protect the North Atlantic right whale."

"a soon-to-be-finalized Food and Drug Administration rule that would require the agency to approve tens of thousands of diagnostic tests. Some 97% of clinical labs say they couldn’t afford to pay the FDA fees, which run as high as $483,000 for a single test submission."

"Japanese chemical manufacturer Denka, which operates the only neoprene factory in the U.S. The Environmental Protection Agency has invoked emergency powers under the Clean Air Act in a lawsuit seeking to shut down the company’s plant in LaPlace, La."

"its emissions have dropped by 85% since 2014 and cancer rates in the surrounding St. John the Baptist Parish, La., are among the bottom 25% in the state. The EPA’s evidence for its emergency? Twenty-five-year-old studies on female mice."

"the Securities and Exchange Commission on Wednesday finalized an 886-page climate disclosure rule that would open up public companies to scads of class-action lawsuits."

"Top research universities have lambasted the Commerce Department’s plan to expropriate patents for technologies that aren’t “reasonably priced.” The Federal Reserve’s proposed 1,087-page bank capital rule has drawn criticism from public pension funds and affordable housing groups." 

Sunday, March 17, 2024

The ‘Gender Pay Gap’ Is a Myth That Won’t Go Away

The difference in wages is the natural consequence of choices that men and women freely make

By Phil Gramm and John Early. Excerpts:

"According to the Census Bureau, working 35 or more hours a week is the definition of full-time. Among full-time workers, however, the actual number of hours worked varies significantly. More than a quarter of the reported pay gap for full-time workers is attributable solely to men working an average of two hours more a week than women. For those working less than 35 hours a week, women’s earnings are, on average, 105% of men’s pay.

The Census Bureau treats elementary and secondary teachers in a way that further distorts the wage comparison. On average teachers work only 38 weeks a year, but in its calculations, the Census Bureau pretends they work 52 weeks. This not only moves them into the year-round category with only about three-fourths of a year of work, but also reduces their average weekly earnings because their annual pay is divided by 52 rather than 38. Nearly three-fourths of elementary and secondary teachers are women.

Workers’ earning power increases as they gain more experience. On average, women over 40 have three less years of experience than men of the same age. The reason for this should be obvious: Many women drop out of the labor force at some point to rear children. That alone explains about a third of the observed pay gap.

Women and men also make different choices in terms of occupations and education. Men tend to choose higher-paying college majors and occupations. Only one of the 10 highest-earning college majors graduates more women than men, while nine of the 10 lowest-earning majors graduate more women than men. Physicians are the highest-paid occupation. In 1967, women earned only 8% of medical degrees. Today more than half of students enrolled in medical school are women. More than three-fourths of doctorates in health and medical sciences are earned by women, as are more than half of the doctorate degrees in biological and life sciences. While women earn only about a quarter of engineering doctorates, that share is up dramatically from less than 0.5% in 1967.

Men are more likely to select occupations with greater financial risk, such as jobs that pay commissions on sales. They are also more likely than women to take jobs with physical risk, such as construction, whose pay is higher owing to the risk premium. Men die on the job at 12 times the rate of women and suffer 50% more injuries at work than women do. But even in the skilled trades, the proportion of female carpenters has more than tripled and the proportion of female plumbers and electricians has risen by 50% in the past 25 years."

"The claim that the gap reflects discrimination assumes that employers would pass up the chance to hire a woman at 84% of what they pay a man with the same training, skills and experience to do the same job. Since labor costs make up a significant share of total business costs, not only would employers have a strong incentive to hire women but discriminators would have a hard time staying in business. Market forces penalize discrimination and reward inclusion."

Former Honduran President Is Found Guilty of Cocaine Trafficking

Juan Orlando Hernández, once viewed as U.S. ally in the war on drugs, faces up to life in prison

By James Fanelli and Ryan Dubé of The WSJ. Excerpts:

"Former Honduran President Juan Orlando Hernández was found guilty Friday of helping to ship more than 500 tons of cocaine into the U.S. in exchange for millions of dollars in bribes.

A New York federal jury convicted Hernández, 55 years old, of one count of conspiracy to import cocaine and two counts related to possessing a machine gun and destructive devices. 

The verdict capped the downfall of a powerful figure who dominated Honduran politics for nearly a decade. He was once viewed as an important ally of the U.S. in its war on drugs. His case was a rare instance of a former foreign head of state facing prosecution on U.S. soil.

Hernández lowered his head as the verdict was read. He is scheduled to be sentenced on June 26 and faces up to life in prison. A lawyer for Hernández said he planned to appeal the verdict.

Over the two-week trial, a parade of former drug traffickers testified for the prosecution that Hernández used his government powers to protect illicit shipments that passed through his country by land, sea and air. Witnesses spoke of secretive meetings, including one where former Mexican cartel leader Joaquín “El Chapo” Guzmán agreed to provide $1 million to Hernández’s presidential campaign."

Saturday, March 16, 2024

Another “Least Surprising Headline” for High Speed Rail

By Dan Mitchell.

"California voters made a terrible mistake back in 2008 when they narrowly approved a referendum for a $33 billion high-speed train between San Francisco and Los Angeles.

Opponents said the project was a boondoggle and they made several predictions.

  1. It will wind up costing far more than advertised.
  2. It will take much longer to build than initially promised.
  3. It will benefit special interest groups.

Lo and behold, skeptics were right.

Since I’m a fiscal economist, I was especially interested in the first concern. Based on real-world experience, we know that almost everything government does winds up being very expensive.

Indeed, this pattern is so clear that I wrote a column back in 2017 about the California project’s cost overruns and said it was the “least surprising headline ever.”

New we have another “least surprising headline.”

It’s from KCRA in Sacramento, California’s capital. Here’s what was reported yesterday.

If you want some of the grim details, I’ve excerpted a few sections of the story.

California’s mega high-speed rail project between San Francisco to Los Angeles also faces major funding hurdles, the project’s CEO Brian Kelly told state lawmakers… Kelly told lawmakers the project…was still a few billion dollars short to complete the Central Valley segment between Merced and Bakersfield. …Project leaders estimate it will still need an additional $100 billion to finish what voters were originally pitched in 2008: a bullet train that runs between San Francisco and Los Angeles. A timeline on its completion has not been set.

Here’s some additional analysis on this absurd boondoggle.

Charles Lane of the Washington Post opined on the California project in 2022. Here’s some of what he wrote.

Originally touted as a sub-three-hour link between San Francisco and Los Angeles, this mega-project has not carried a single passenger in the 14 years since the state committed to building it. It has made a lot of public money disappear, though: more than $10 billion…the public was told to expect completion by 2020. …Early on, France’s national railroad company ended its bid to help develop the California line and went somewhere with less red tape: Morocco. …At this point, the best thing for California might be to cut the project’s losses and abandon it. Yes, this would leave in place several massive concrete structures that have been completed. Passersby could look on them as monuments to magical thinking about infrastructure.

That same year, the Wall Street Journal editorialized about throwing good money after bad.

California Democrats once hoped that their 500-mile bullet train from Los Angeles to San Francisco would be a high-speed rail model for the nation. It’s a model, all right—in how politics can drive public works off the rails. …The California High-Speed Rail Authority this week increased its cost estimate for the bullet train to $105 billion from $100 billion two years ago. In 2008 when voters approved $10 billion in bonds for the choo-choo, the estimated price tag was a mere $40 billion. That’s enough to have built 10 large water reservoirs in the parched state. This latest $5 billion doesn’t even account for rapidly rising material and labor costs.

Last but not least, the folks at Reason (who have a long track record of being right on this issue) published a we-told-you-so column.

Here are excerpts from Matt Welch’s article.

The infamous, $113-billion-and-counting California high-speed rail line between San Francisco and Los Angeles, which was supposed to be completed by 2020 for a cost of $33 billion yet has only begun tinkering on a 171-mile stretch in the Central Valley…there never has been, at any stage of this living monument to political unseriousness and hubris, even a “little chance” that the S.F.-L.A. line would zip passengers between the cities in just 160 minutes, let alone deliver on the whole ragbag of laugh-out-loud promises that the state and federal political establishment delivered with a straight face. …There is a point to rehashing these old arguments beyond saying we told you so. The fact is, these reality-based objections were widely known at the time. It’s just that the people who otherwise fashion themselves as serious thinkers about public policy made the conscious choice to jettison rationality in favor of pie-in-the-sky dreaming.

Sadly, this is not just a problem for California taxpayers.

People from every other state are coughing up a lot of money to finance this boondoggle.

One very obvious lesson, therefore, is to get the federal government out of the high-speed rail business, out of the long-distance rail business, out of the mass-transit business, and out of the transportation business."

Seattle Law Mandating Higher Delivery Driver Pay Is a Disaster

Just two weeks after the law went into effect, Seattleites had to contend with $26 coffees and $32 sandwiches.

By C. Jarrett Dieterle of Reason

"In 2022, Seattle's City Council passed an ordinance mandating a minimum earnings floor for app-based food delivery drivers in the city. The law finally went into effect in January 2024, but so far the main result has been customers deleting their delivery apps en masse, food orders plummeting, and driver pay cratering.

The ordinance, part of a legislative package called "PayUp," was passed under the banner of protecting gig workers. By setting a compensation floor for app-based delivery drivers based on miles driven and amount of time worked, the ordinance operates as a (supremely complicated) minimum wage.

The wage floor is based on labyrinthine calculations: the "engaged minutes" for drivers are multiplied by a "minimum wage equivalent rate," which is then multiplied again by an "associated cost factor" and then multiplied yet again by an "associated time factor." Next, this sum is added to the total of "engaged miles" of drivers, multiplied by the "standard mileage rate" and then multiplied once more by the "associated mileage factor." (If you're lost, don't worry—the text of the ordinance itself literally does the math for you).

Heralded as a "first-of-its-kind" legislative breakthrough when it passed, the first two months of the ordinance's operation have provided a grim real-world Economics 101 lesson. First, the delivery companies were forced to add a $5 fee onto delivery orders in the city to cover the sudden labor cost increase. On cue, news stories started popping up of $26 coffees, $32 sandwiches, and $35 Wingstop orders in which taxes and the new fee comprised nearly 30 percent of the total.

Local news station King 5 reported that Seattle residents started deleting their delivery apps from their phones in response to the spiking exorbitant delivery prices. Uber Eats experienced a 30-percent decline in order volume in the city, while DoorDash reported 30,000 fewer orders within just the first two weeks of the ordinance taking effect.

In turn, this decrease in demand directly impacted the pocketbooks of the delivery drivers themselves. A driver who made $931 in a week this time last year saw his earnings drop by half to $464.81 in a comparative week this year. Another reported consistently making $20 an hour prior to the ordinance, only to see his earnings likewise fall by more than half since its enactment.

In other words, while the ordinance theoretically raises driver earnings to over $26 per hour—a number that ironically far exceeds Seattle's $19.97 standard minimum wage—drivers are barely logging any hours as a result of the drastic decrease in demand for food delivery. As one Seattle driver summarized: "It was dead. Demand was dead." A second driver put it more bluntly: "I've got nothin'. I'm not gonna sit here for hours for one frickin' order."

In addition to drivers, those who have been hardest hit include local mom and pop restaurants that have seen delivery orders dry up, and even the city's elderly and disabled population who often depend on affordable delivery options for meals. One might imagine that progressive politicians would be quick to repeal a law that hurts workers, noncorporate local businesses, and the elderly and disabled all at the same time, but Seattle's government officials are busy either doubling down or dissembling.

A spokesman for the mayor noted that "should the data show there have been unintended impacts for workers and small businesses, we are always open to making improvements"—a criterion which has clearly been met already—but nonetheless clarified that the mayor still "stands strongly in support" of the minimum wage ordinance.

Meanwhile, the president of the City Council claims she is "very worried" about the ordinance's impacts so far—and even argues that "it's not the role of policymakers to regulate the profit margins of companies"—before going on to say "I'm not going to redo the whole legislation."

The near future looks even grimmer for Seattle delivery customers and drivers. After passing the PayUp package, the City Council then decided that implementing the minimum earnings portion of the ordinance would require five new full-time government employees in the city's Office of Labor Standards (expanding to nine employees by 2027) and $1.2 million per year (escalating to $1.56 million annually by 2027). To fund these additional costs—as well as other parts of the PayUp package—the Council voted this past November to tack on a 10-cent per-delivery fee, which will take effect in 2025 and is projected to generate $2.1 million in annual revenue for the city coffers.

While the desire to protect delivery drivers may be based on good intentions, the solutions pushed by progressive politicians too often hurt more than help. If policy makers really want to support app-based gig workers, they should instead enact rules protecting independent contracting status while also experimenting with portable benefit models that actually could help these workers.

But given the recalcitrance of city officials, Seattle residents likely will have to resign themselves to more $26 coffees for the foreseeable future."