Sunday, April 30, 2017

Make the Net Neutral Again

From The WSJ. Excerpts:
"Mr. Pai in a speech at Washington’s Newseum sketched out a plan to untangle the 2015 “net neutrality” rules that classified the internet as a public utility under the Communications Act, a law carbon-dated to the 1930s. The rules give the FCC broad authority to dictate whether broadband practices are “reasonable.” Liberal pressure groups like Public Knowledge and Free Press said that nefarious cable companies might someday, somewhere block websites or slow browsing. Years later, no one can drum up an example."

"the agency will vote in May on a proposal to designate the internet as an information service, the status quo of two years ago. The Supreme Court upheld this “light touch” framework in 2005, and Mr. Pai explained in his speech that government nonintervention helped spur $1.5 trillion of private investment that built high-speed internet pipes.

But then came the regulatory uncertainty of a government takeover of the internet. Between 2014 and 2016, Mr. Pai notes, capital expenditures on broadband from America’s 12 largest internet-service providers dropped 5.6%, or $3.6 billion"

"Among the losers are rural areas where profit margins are low: For instance, a provider that serves about 475 customers in northern Illinois recently delayed plans to rev up network speeds to 20 Mbps from 3 Mbps."

"Mr. Pai proposes to eliminate a 2015 rule known as the internet conduct standard. This is an arbitrary directive that he says gave the agency “a roving mandate to micromanage the internet,” sometimes going after wireless companies for the high sin of providing popular services. FCC launched a probe into plans that allow customers to stream unlimited videos or music."

"“bright-line rules” from 2015 that include a ban on “fast lanes” for content or “paid prioritization.” That ban forbids providers from charging more for carrying more content, which makes as much sense as telling FedEx that the company can offer two-day shipping but not overnight delivery."

"the government walls off future innovation by stipulating that cat videos must be treated the same as telemedical X-rays or Amber alert notifications. The irony is that Google and Facebook already offer faster delivery for services like “instant articles” that appear at 10 times the normal speed."

"The FTC’s enforcement power has long obviated the need for an FCC net-neutrality scheme."

Inequality Isn’t the Real Issue: Research suggests that people care most about fair chances, not the distribution of wealth

By Christina Starmans, Mark Sheskin and Paul Bloom. Frm the WSJ. Dr. Starmans is a postdoctoral associate in psychology, Dr. Sheskin is a postdoctoral associate in cognitive science, and Dr. Bloom is a professor of psychology, all at Yale University. Excerpts:
"we can find no evidence that people are, in fact, concerned with economic inequality for its own sake."

"Americans were unaware of just how unequal their society is: They thought that the bottom 40% had 9% of the wealth and the top 20% had 59%, while the actual proportions were 0.3% and 84%."

"people thought on average that, in the perfect society, individuals in the top 20% should have more than three times as much money as individuals in the bottom 20%.

A similar endorsement of inequality appears in studies done in 16 other countries, and it holds for men and women, people on the right and left of the political spectrum, and teenagers."

"Other research points to an even greater acceptance of inequality, with one study finding that people prefer for the richest 20% to have 50 times the wealth of the poorest 20%."

"In other studies, psychologists have been careful to separate concerns about equality from concerns about fairness. When you do this, both adults and children reject unfairly equal distributions in favor of distributions that are fair but unequal. For example, in a 2012 study published in the Journal of Experimental Psychology: General by Alex Shaw and Kristina Olson, 6- to 8-year-olds insisted on dividing rewards equally between two boys who both cleaned a room. When one boy was described as having done more work, however, the children demanded that the harder worker receive a larger reward." 

"few people worry about inequalities between the very rich and the very, very rich, even though the inequalities might be greater, both absolutely and proportionately, than the inequalities between the poor and the moderately well-off."

"we think that many of these equality-obsessives are in the grips of a false consciousness. They fail to distinguish worries about inequality from worries about unfairness. They are confused about what they really want. Human beings, the research suggests, are not natural-born socialists, but we do care about justice."

"When is it unjust to treat people the same—that is, which factors (hard work, skill, need, morality) are fair grounds for inequality and which are not? Which resources should be distributed on the basis of merit?"

"There is no consensus about what a perfectly just world would look like, but for most of us, it will be an unequal one."

Saturday, April 29, 2017

Minimum wage increases lead to worse health outcomes among men

See Do minimum wage increases influence worker health? by Brady P. Horn, Johanna Catherine Maclean and Michael R. Strain. From AEI.

This study investigates whether minimum wage increases impact worker health in the United States. We consider self-reported measures of general, mental, and physical health. We use data on lesser-skilled workers from the 1993 to 2014 Behavioral Risk Factor Surveillance Survey. Among men, we find no evidence that minimum wage increases improve health; instead, we find that such increases lead to worse health outcomes, particularly among unemployed men. We find both worsening general health and improved mental health following minimum wage increases among women. These findings broaden our understanding of the full impacts of minimum wage increases on lesser-skill workers.

Click here to access the published version of the paper
Click here to read the full paper."

Time to Repeal Special Interest 'Prevailing Wage' Laws

By Trey Kovacs of CEI.
"President Donald Trump has plans for $1 trillion in infrastructure spending as part of his administration’s plan to create jobs and spur economic growth. Democrats in the Senate announced a similar proposal earlier this year. Whether either of these are smart plans for jumpstarting the economy is up for debate. If Congress does pass such an infrastructure plan, however, it is imperative to ensure the best rate of return for tax dollars spent on these projects. The only way to do that is to repeal or exempt such infrastructure projects from existing “prevailing wage” laws that needlessly shield labor unions from competition and raise the cost of taxpayer-funded construction.

Prevailing wage laws act as an arbitrary wage mandate on federal, state, and local government construction projects. Although the specifics of the laws vary, the effects are the same—raising the cost of government infrastructure.

Prevailing wage requirements jack up costs because they peg the wages for specific occupations to the union rate in the area (rather than the average wage), impose burdensome paperwork on employers, and stifle competition. Foremost, setting prevailing wages at the union rate is misguided as only 13.9 percent of construction workers are members of a union. Additionally, setting the prevailing wage equal to the union wage suppresses competition. By forcing all contractors to pay the same, labor costs are shielded from competitive pressures.

Despite inflating the cost of public construction and harming competition, new polling data from the union-backed Smart Cities Prevail finds that voters actually support prevailing wage on government projects.

Normally, however, if you want to find out what people think, you ask them using neutral language. In the Smart Cities Prevail poll, they give the respondent the for-and-against argument in one question. This is not the best way to poll if you are looking for an honest answer.

One poll question states:

They [prevailing wage laws] require contractors on any government funded construction projects—like a road, bridge, or school—to pay workers at least the local market rate for their job where the project is being built.

It is disingenuous to say “local market rate.” For example, at the federal level, prevailing wage laws are significantly above the average local rate. According to Beacon Hill Institute research:

We found that on average the [Davis-Bacon Act] prevailing wage is almost $4.43 per hour, or more than 22%, above the [Bureau of Labor Statistics] average wage when wages are weighted according to the number of workers in each trade and each metropolitan area.

There is little doubt that the poll is politically motivated in order to stem the tide of lawmakers reconsidering the wisdom of prevailing wage laws.

Here is what taxpayers and voters really need to know about prevailing wage laws. The added costs associated with prevailing wage rules are massive. In December 2016, the Congressional Budget Office (CBO) estimated that repealing such requirements in the Davis-Bacon Act could save taxpayers $13 billion on federal construction projects between 2018 and 2026.

State governments also face increased costs caused by prevailing wage laws. For example, in Wisconsin, a state looking at repealing its prevailing wage law, the state and local governments could have saved $300 million on construction costs if not for prevailing wage laws, according to a report from the Wisconsin Taxpayer Alliance

Other states have realized significant savings from repealing or exempting certain projects from prevailing wage laws. In Ohio, legislation exempted school districts from prevailing wage requirements. Ohio’s Legislative Service Commission examined the impact of the exemption and found savings of over 10 percent.

Ultimately, prevailing wage laws are special interest legislation that exclusively benefit labor unions, not the public good. The real question that needs to be asked of voters is whether lawmakers should demand a good rate of return for taxpayers on public works projects. If the answer is yes, then prevailing wage laws ought to be repealed."

Friday, April 28, 2017

The French Economy Vs. The British Economy Since 1984

See Will France elect its own Barack Obama? by George Will.
"In 1977, France’s gross domestic product was about 60 percent larger than Britain’s; today it is smaller than Britain’s. In the interval, Britain had Margaret Thatcher, and France resisted (see above: keeping foreigners’ ideas at bay) “neoliberalism.” It would mean dismantling the heavy-handed state direction of the economy known as “dirigisme,” which is French for sclerosis. France’s unemployment rate is 10 percent, and more than twice that for the young. 

Public-sector spending is more than 56 percent of France’s GDP, higher than any other European nation’s. Macron promises only to nibble at statism’s ragged edges. He will not receive what he is not seeking — a specific mandate to challenge retirement at age 62 or the 35-hour workweek and the rest of France’s 3,500 pages of labor regulations that make it an ordeal to fire a worker and thus make businesses wary about hiring. Instead, he wants a more muscular European Union , which, with its democracy deficit, embodies regulatory arrogance."

For all its costs, the Paris treaty will have almost no effect on global warming, and by depleting global income it will make it harder for countries to adapt and innovate in response to whatever changes occur

See The Case for Pulling the U.S. Out of the Paris Climate Accord by Ross McKitrick of Cato.
"EPA Secretary Scott Pruitt has argued that the Paris Agreement on Climate Change is a bad deal for the U.S. because it doesn’t bind China and India. But that implies it could be fixed by imposing the same ruinous terms on developing countries—which would in fact just spread the damage. The real reason for pulling of the Paris Accord is that it is a futile gesture based on empty and dishonest premises.

The first thing to note is that the same computer models that say global warming is a problem also say that Paris will not fix it. If one were to graph the standard warming projections over the next century with and without Paris, the two lines overlap almost exactly. Whatever greenhouse gas (GHG) concentration we would have reached in the year 2100 without Paris, we will reach it shortly thereafter with. For all its costs, the Paris treaty will have almost no effect on global warming, and by depleting global income it will make it harder for countries to adapt and innovate in response to whatever changes occur. Thus not only does Paris not solve the problem, it arguably makes it worse.
This, by the way, was equally true of the earlier Kyoto Protocol: all cost and no benefit. Under current technology and economic realities we have only two options: do nothing and adapt to whatever changes the climate will undergo over the next century, or take a lot of costly and futile actions today and adapt to whatever changes the climate will undergo over the next century. There has never been a third option involving costly actions today that stop the climate from changing.

Paris binds countries to meet their self-imposed Nationally Determined Contributions, or NDCs. The Obama Administration submitted an NDC that committed the U.S. to a twenty six percent reduction in GHG emissions below 2005 levels by 2025 through specific regulatory measures, all of which were enacted by Executive Order rather than by passing laws in Congress. It amounts to an attempt by one Administration to bind all future Administrations despite lacking legislative warrant. If the U.S. NDC was supposed to be legally binding then it should have gone through Congress. And now that some of those measures have been repealed by the current Administration, it is dishonest to keep the existing NDC as part of the Paris Agreement.

Paris embeds an inconsistency between calling for the use of the “best available science” while also prejudging what that science is allowed to say. The Accord’s preamble calls climate change an “urgent threat” even though mainstream climate science and economics does not imply this, instead placing global warming rather low on the list of problems confronting the world. The Agreement enshrines the ill-defined and arbitrary target of holding “the” global average temperature to 2oC above pre-industrial levels while completely ignoring the critical question of how it should be measured. Nor does it say how much of the warming is natural and should not be counted against the 2oC limit. This omission alone makes the overall target absurd, since it could bind the world to taking actions to prevent the sun from shining brighter.

The Paris Agreement also veers into absurdity by its political and ideological language, requiring countries to address extraneous themes like gender equity, biodiversity, poverty eradication, migrants, disabled persons, a “just transition of the workforce,” “creation of decent work,” and so on. Having larded the treaty with social justice slogans, its authors cannot be surprised if they become points of contention. It is not surprising that conservative governments will dislike these items, and if the authors respond that they can simply be ignored, then they should not have been in the treaty to begin with.

Finally, a proponent might acknowledge all these problems yet still defend Paris as a “good first step” in the expectation that later steps will yield big benefits.  But this is flawed reasoning. In any well-structured policy transition the first step yields the highest benefits at the lowest cost—the so-called low hanging fruit. Subsequent steps cost more and yield less, until the point is reached where costs exceed benefits and the process stops. Paris, like Kyoto, cost too much to implement while yielding unmeasurably small benefits. Subsequent steps will only be worse. It is a bad first step on a road to nowhere.

Pulling out of the Paris treaty would send a signal that the U.S. will not bind itself to bad deals based on hype and empty slogans. If this is the best global climate diplomacy could come up with then it is time to pursue other options."

Thursday, April 27, 2017

We Might Not Need Steel Tariffs For National Defense Purposes

See The "national defense" argument by Scott Sumner.
"The Financial Times reports that the Trump administration is considering steel tariffs:
The US has set the stage for a global showdown over steel, launching a national security investigation that could lead to sweeping tariffs on steel imports in what would be the first significant act of economic protectionism by President Donald Trump.  The decision to use a 1962 law allowing the US government to limit imports that threaten its security readiness is intended to deliver on Mr Trump's campaign promises to bolster heavy industry and "put new American steel into the spine of this country", officials said on Thursday.

A few observations:

1. Congress erred in delegating to the executive branch the power to set national security tariffs. Almost any industry could be deemed essential for "national security".

2. The US steel industry currently produces about 80 million tons per year. That's more than enough to meet our essential military needs. And this doesn't even account for the fact that steel production could be increased, as we are not operating at capacity. Yes, it might take a bit of time to bring mothballed plants back online, but as the following quotation suggests, new weapons now take far longer to develop than they did back in WWII:
Civilian manufacturing capacity is now ALMOST ENTIRELY USELESS for defense purposes. Whereas in WWII, auto assembly lines could be used to make planes & tanks, and Singer made guns instead of sewing machines... Now all but the most basic defense products (personal firearms, sewing of uniforms, etc) must be made by specialized expert-firms. Super-weapons such as the F-22/F-35, M1A3 Abrams (it's under development now), and whatever we make when we finally field a next-generation artillery piece (cancelling the Crusader was a mistake, btw) require such a specialized knowledge-base & facilities, that they MUST be made by a dedicated defense industry - something we have (on a best-in-the-world level). Re-purposing a factory that built 2-ton SUVs to build 70-ton tanks just isn't happening. Even if it could, how much experience does your average auto-worker have in assembling uranium-ceramic-steel-composite armor properly, so as to maintain it's ability to take 125mm KE hits? A final point on this issue, is that modern war moves to fast to 'develop and manufacture new products after the fact, using civilian industries'. It's a 'run what ya brung' sort of affair

And this doesn't even account for the fact that the US would likely have access to steel produced in friendly countries such as Canada, Mexico, Brazil, Japan and Germany. Sure, one could construct scenarios where some of that steel is cut off in a war (i.e., Japanese exports are disrupted by a war with China, or German exports in a war with Russia), but unless the US is fighting the entire world at once, we'd surely have access to at least some markets. And if steel imports really were cut off, where would we get our iron ore? Today we don't need much iron because of our use of scrap metal. But if we stopped building cars during a war, then far less scrap metal would be available.

This also fails to account for the fact that warfare in the modern world tends to be asymmetric. The threat of nuclear annihilation means that we fight small countries, not large nuclear powers.
The development of missile technology tends to make steel-intensive weapons (such as ships and tanks) more of a "sitting duck" than in the old days. I recall that a single Argentine missile took out a British destroyer in the Falklands War--and that was way back in 1983. Think about today's cruise missiles, and also consider that the sort of powerful adversary that would require the US to have a massive steel industry would be far more militarily advanced than Argentina in 1983. I'm not expert on modern weapons, but I'd wager that in today's warfare a big steel industry is less important than back in WWII.

3. One possibility is that the national security argument is simply being used as an excuse to save jobs in the steel industry. As an analogy, recall that when Trump campaigned for President he promised to ban Muslim immigration. When Rudy Giuliani told him that this was a legally dubious proposal, Trump asked for a version of the plan that would be accepted by the courts. This led to the recent dispute over the ban on immigration from seven (later six) majority Muslim countries.

I don't have strong views either way on whether Trump's immigration ban was legal. But I will say that the legal argument for protecting the US steel industry on national security grounds seems far less plausible than the claim that the immigration ban protects national security (and I'm dubious of even that claim.) So you might expect the courts to question the steel tariffs on exactly the same grounds they challenged the immigration ban---Trump is on the record favoring this sort of action on entirely different grounds---jobs. On the other hand, courts have tended to show more deference to the government on economic regulation than on civil rights/equal protection issues, so I'm not making any predictions here.

4. It is likely that a suitably high steel tariff could save some jobs in the US steel industry. However, it seems much less likely that this would serve Trump's broader goals of restoring jobs in manufacturing. Tariffs protect industries by driving up the price of the commodity being imported. But if steel prices rise, then this puts other American manufacturers (cars, white goods, etc.) at a competitive disadvantage to imports. Mexican firms making cars or washing machines would be able to buy steel more cheaply than American manufacturers, and this would cost jobs in other sectors of the US economy. The net effect on the total number of jobs in manufacturing is likely to be pretty trivial, and could be either positive or negative.

5. Policies based on metaphors that romanticize and/or anthropomorphize the economy are unlikely to be wise:
The decision to use a 1962 law allowing the US government to limit imports that threaten its security readiness is intended to deliver on Mr Trump's campaign promises to bolster heavy industry and "put new American steel into the spine of this country", officials said on Thursday.
Sorry folks, those days are long gone"