Saturday, July 4, 2015

Are Mercury Emission Rules Cost Effective?

See The Mercurial Court: The Supremes rebuke the EPA but decline to rein in its abuses, a WSJ editorial. Excerpt:
"The EPA later calculated—after the rule had been written and finalized—that the mercury rule would cost industry and electricity consumers $9.6 billion a year but yield direct benefits that were between 1,600 and 2,400 times smaller. A narrow 5-4 majority of the Court ruled that failing even to consider costs violates the Clean Air Act and the general requirement that executive agencies engage in “reasoned decision-making.”

“One would not say that it is even rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits,” Justice Antonin Scalia writes. “EPA’s interpretation precludes the agency from considering any type of cost—including, for instance, harms that regulation might do to human health or the environment.”

Though the direct benefits from reducing mercury only amount to $4 million to $6 million annually, the EPA conjured “co-benefits” of $37 billion to $90 billion on reality-free assumptions. As an example of how the EPA rigs such analysis, it claims that 15% of pregnant women in Wisconsin catch and eat 300 pounds of lake fish a year and thus fewer newborns would be exposed to the toxic substance in utero. That’s a lot of fishing by pregnant women."

How State Certificate-of-Need (CON) Laws Affect Access to Health Care

From the Mercatus Center. Excerpt:
"Currently, 36 states and the District of Columbia prohibit entry or expansion of healthcare facilities through “certificate-of-need” (CON) programs. These laws, which require government permission before a facility can expand, offer a new service, or purchase certain pieces of equipment, were enacted in the belief that restricting entry would lower health care costs and increase availability of these services to the poor.

These regulations were initially enacted under the theory that unregulated market competition would drive medical providers to overinvest in facilities and equipment, raising the cost of medical care.

    A recent study by Thomas Stratmann and Jacob Russ, however, finds that these regulations do little to increase access to health care for the poor, but they instead limit the supply of such services. For example, States with Certificate of Need programs are associated with:

    131 fewer beds per 100,000 persons.
    A reduction by between 1 and 2 hospitals providing MRI services per 500,000 persons.
    A reduction of 37 percent in the number of hospitals offering CT scans."

Big Government, not 'austerity', has brought Greece to its knees

By Kristian Niemietz of IEA. Excerpt:
"Between the late 1970s and the early 1990s, government revenue surged from under 25 per cent of GDP to over 35 per cent, but client states are expensive to maintain, and government favours fuel demand for more government favours. So the money was never enough, and the shortfall was made up by borrowing and printing more of it. Government debt increased from less than 20 per cent of GDP to more than 100 per cent, and inflation jumped from less than 5 per cent to more than 10 per cent, while growth largely stalled.

The Greek economy had become a rent-seeking economy, in which economic activity is not about creating wealth, but about extracting wealth from others through the political process. If you’re afraid of dog-eat-dog capitalism, you haven’t seen dog-eat-dog socialism yet.

A particularly popular form of favouritism has been to restrict entry into various professions. This benefits incumbents, because it wards off competitors, and drives up the value of their licence. But their gains come at the expense of consumers and of would-be entrants. Every country has some protected sectors, and as long as there aren’t that many of them, it does not matter hugely. But when over a hundred professions are closed off, as is the case in Greece, the cost to consumers becomes unbearable, even before taking into account the decline in labour mobility and productivity.

At the same time, the economic policy fundamentals – essentially, the rule of law and the quality of institutions – have been undermined, or at least utterly neglected. In the World Bank’s "Ease of Doing Business" rankings, Greece ranks 155th out of 189 countries in the crucial “enforcing contracts” category, just a few places above Zimbabwe and Sudan. In the "registering property" category, Greece comes out 116th, behind Pakistan, Ethiopia and Cambodia. The Fraser Institute’s "Economic Freedom" index shows a similar picture. In all-important categories like "judicial independence", "impartial courts", "protection of property rights" or "reliability of the police", Greece looks more similar to Latin American than to the rest of Europe."

Friday, July 3, 2015

New overtime rules unlikely to help workers

By Aparna Mathur of AEI.
"President Obama’s proposed overtime legislation would affect nearly 5 million workers by increasing the salary level for exemption status to $50,440 per year from its current level of $23,660. However, evidence on the effects of such overtime provisions on workers suggests that the impacts are not likely to be beneficial.

These new regulations will impose incremental costs on employers by requiring them to make additional payments to workers that put in more than 40 hours per week. Employers can respond to these higher costs in several ways. First, they can cut the base or regular wage for workers who will likely receive these overtime payments. Second, they can cut existing workers’ hours and hire new workers who will also work fewer than 40 hours per week. Third, they can cut their hours or their jobs entirely and invest in a machine that can do the same job, perhaps more cheaply. Fourth, they can keep the workers but pass on the costs to consumers in the form of higher prices. Fifth, they can keep the workers, pay them the time and a half premium and bear the brunt of the higher costs.

Which of these scenarios is the most likely?

A recent study found that many firms, in response to 2004 regulation changes in overtime pay, lowered the base wage in jobs that often required overtime work in order to offset the new higher costs of overtime pay. In particular, workers in minimum wage or near-minimum wage jobs were given fewer overtime hours by their employers. This is likely because at that wage level, employers can no longer adjust wages downward so they are more likely to cut overtime use.

An earlier paper studied the impact of overtime regulations by comparing wholesale workers and retail workers between 1938 and 1950. The Fair Labor Standards Act of 1938 mandated time and a half overtime pay for wholesale workers, but not for retail workers. Using this difference in regulation, the author found that overtime mandates reduced the number of hours worked. Among workers in wholesale trade there was a 5 percent reduction in the length of the standard work week and 18 percent fewer men and women reported working more than 40 hours per week. The study also found that changes in hours depended upon whether the employers had flexibility to adjust regular wages. In the South, firms could not adjust wages as much due to minimum wage regulations, so Southern firms cut more hours compared to other regions. Finally, although the FLSA led to reductions in number of hours worked, it had little impact on levels of employment.

Not surprisingly, the Department of Labor’s own projections take into account how firms will likely respond to these new rules. Their report suggests that affected workers will see their base pay and hours reduced, but despite that they project that overall earnings will increase due to higher overtime pay rates. This latter assumption seems implausible in light of the research findings discussed above.
In today’s economy, determining what is overtime and what isn’t is not entirely straightforward. Some workers value flexibility to work on weekends and at odd hours, which employers can compensate through additional vacation days or higher bonuses. Imposing a rigid structure on the exact form of compensation or the nature of the employer-employee relationship is unlikely to be beneficial to workers or employers in the long-run.

I believe the most likely effect of this rule will be that firms reduce workers’ hours to avoid the threshold for having to pay higher overtime rates. As per today’s job report from the Bureau of Labor Statistics, we already have 6.5 million workers who are involuntarily working less than full-time because of poor economic conditions. The Affordable Care Act has created further incentives for firms to hire workers who work less than 30 hours in order to avoid paying for their health insurance. Unfortunately, it appears that this legislation will push us further in that direction with no obvious benefit and very tangible costs."

Why Salaries Of Fire Fighters Don't Need To Be High Even Though Fire Fighting Is Valuable

See Applauding Abundant Supplies of Things of Great ‘Total Social Worth’ by Donald J. Boudreaux.

"Here’s a letter to a long-time correspondent (who doesn’t like today’s Quotation of the Day):
Ms. Anne Koeller
Dear Ms. Koeller:
Thanks for your kind e-mail.
You’re correct that the importance to humanity of the services of firefighters, paramedics, and other first-responders is huge.  But your conclusion that these workers are underpaid doesn’t follow.  Pay isn’t determined by what you call “the total social worth” of some particular line of work.  Rather, pay is determined by the value of each individual worker’s contributions to his or her fellow human beings.
The amount that Jones is paid on the market is determined by the amount that Jones adds to his or her employer’s revenue – which itself is determined by how much consumers willingly pay for the additional output produced by Jones.  If elsewhere lots of what Jones produces is available relative to the amounts of this good or service that people wish to consume, then consumers won’t be willing to pay much for what Jones produces.  The market value of Jones’s output will be low even if the “total social worth” of the good or service produced by all people in Jones’s line of work is astronomically high.
Consider this example.  Nothing has more ‘total worth’ to society than does breathable air.  Without it, we’d all die within minutes.  So suppose that, having accurately noted the great “total social worth” of air, Jones goes into the air-supply business.  He toils many hours to capture air in bottles.  Jones then offers to sell these bottles of life-sustaining gases to willing buyers here on earth.
What price will Jones fetch for his bottles of air?  Zero.  Even you, I dare say, would not pay more than $0.00 for a bottle of Jones’s air.  The reason is not that you deny the great importance of being able to breathe.  The reason is not that you don’t recognize air’s great “total social worth.”  The reason isn’t that you’re oblivious to the fact that humanity could not survive if it were denied the product that Jones works to supply.  Instead, the reason is that air is so abundant relative to humans’ demand for it that each unit of air is worthless.  If you reject the opportunity to breathe the air that Jones offers for sale, the abundance to you of air elsewhere is so great that you sacrifice nothing by spurning Jones’s offer of the air in his bottles.  Any one unit of air is of no market value to you.
While the life-saving services of first-responders are less abundant than is air, the reality is that these services are nevertheless quite plentiful.  These services are so plentiful (relative to our demand for them) that the market value of the contributions of any individual first-responder is relatively low.
Your temptation, I’ll guess, is to lament this economic reality.  But this reality should be celebrated, for it means that something of unambiguously great “total social worth” is supplied to humankind in such abundance that the prices we pay for it are low.  The alternative world in which the market wages of first-responders are very high would be a world cursed by a low supply of people who are willing and able to work as first-responders.  In that world, we’d all, except for the very rich, be constantly at greater risk of dying prematurely.  Put differently, unless you think the world would be better if air were so scarce that air-supply workers would earn high wages by selling air to willing buyers, you should recognize that our world is better than one in which first-responders commanded higher wages.
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"

Former federal judge savages the Drug War and compares its damage to the destruction of cities in World War II

From Mark Perry.
"From Conor Friedersdorf writing in The Atlantic about federal judge Nancy Gertner, who left the bench after 17 years, and compared the damage caused by drug prohibition to the destruction of cities in World War II in a speech she gave last Sunday at the Aspen Ideas Festival:
Former Federal Judge Nancy Gertner was appointed to the federal bench by Bill Clinton in 1994. She presided over trials for 17 years. And Sunday, she stood before a crowd at The Aspen Ideas Festival to denounce most punishments that she imposed.
Among 500 sanctions that she handed down, “80 percent I believe were unfair and disproportionate,” she said. “I left the bench in 2011 to join the Harvard faculty to write about those stories––to write about how it came to pass that I was obliged to sentence people to terms that, frankly, made no sense under any philosophy.”
No theory of retribution or social change could justify them, she said. And that dispiriting conclusion inspired the radical idea that she presented: a call for the U.S. to mimic its decision after World War II to look to the future and rebuild rather than trying to punish or seek retribution. As she sees it, the War on Drugs ought to end in that same spirit.
“Although we were not remotely the victors of that war, we need a big idea in order to deal with those who were its victims,” she said, calling for something like a Marshall Plan.
She went on to savage the War on Drugs at greater length.
“This is a war that I saw destroy lives,” she said. “It eliminated a generation of African American men, covered our racism in ostensibly neutral guidelines and mandatory minimums… and created an intergenerational problem––although I wasn’t on the bench long enough to see this, we know that the sons and daughters of the people we sentenced are in trouble, and are in trouble with the criminal justice system.”
She added that the War on Drugs eliminated the political participation of its casualties. “We were not leveling cities as we did in WWII with bombs, but with prosecution, prison, and punishment,” she said, explaining that her life’s work is now focused on trying to reconstruct the lives that she undermined––as a general matter, by advocating for reform, and as a specific project: she is trying to go through the list of all the people she sentenced to see who deserves executive clemency.
Her remarks can be watched in full beginning at about the 41 minute mark in the video above."

New York Federal Reserve Bank report concluded the minimum wage contributed to a lack of jobs for lower-skilled workers in Puerto Rico

See Puerto Rico’s Pain Is Tied to U.S. Wages: Economists say island’s use of the mainland’s minimum pay helps crimp its economy by Nick Timiraos and Ana Campoy of the WSJ. Excerpts:
"The commonwealth is subject to the federal minimum wage of $7.25 an hour, even though local income and productivity are significantly lower than in Mississippi, the poorest American state. The minimum wage in Puerto Rico is equal to 77% of per capita income, compared with 28% in the U.S. overall.

Roughly one-third of workers earned the minimum wage on the island in 2010, compared with just 16% for the U.S. mainland, according to a 2012 report by the New York Federal Reserve Bank. That report concluded the minimum wage contributed to a lack of jobs for lower-skilled workers, in part because businesses can relocate to lower-wage nearby countries.

These problems are laid bare in a report Puerto Rico’s government released Monday by Anne Krueger, a former top official at the International Monetary Fund. Puerto Rico’s economy, which has been in recession for nine years, has struggled to create jobs and has compensated by offering generous tax breaks to companies and income support to residents."

"The island’s lack of competitiveness can be seen in the scant growth of its low-skill and low-wage industries, such as tourism. The number of hotel beds on the island has changed little from the 1970s, and tourist arrivals are down over the past decade, according to the Krueger report.

“They have all the traits of a welfare state gone wrong,” said Arturo Porzecanski, professor of international economics at American University in Washington, D.C.

The minimum wage is also high relative to average worker productivity. A 2012 World Bank study judged that the ratio of Puerto Rico’s minimum wage to the value added per worker was nearly twice that for the Bahamas and Jamaica, and three times that of the U.S. mainland.

The Krueger report recommends that Congress allow Puerto Rico to set its wage below the federal minimum, which is now allowed for a handful of employers. The New York Fed, in its report, separately advised creating a separate “sub-minimum” wage for workers under the age of 25 that gradually increases to match the federal minimum after several years."

"In Puerto Rico, broad use of government benefit programs have further damped workforce participation. Transfer payments, such as food stamps and disability benefits, account for roughly 40% of personal income in Puerto Rico, double the share on the U.S. mainland, according to the New York Fed.

Those payments tend to be generous relative to local incomes because payments are indexed to conditions on the mainland. Moreover, because they decline as wages rise, they can create a disincentive to work. The Krueger report recommends providing lower benefit payments to a larger number of people, which would maintain the social safety net while encouraging more labor-force participation.

At the same time, economists say other local labor laws, including more generous overtime pay and vacation rules, plus laws that make it harder to fire workers, have made employers reluctant to hire."