Sunday, November 19, 2017

NY Times On How Bureaucracy Slows Infrastructure Projects

See Trump Wants More Big Infrastructure Projects. The Obstacles Can Be Big, Too by BARRY MEIER.
"President Trump says he is frustrated with the slow pace of major construction projects like highways, ports and pipelines. Last summer, he pledged to use the power of the presidency to jump start building when it became bogged down in administrative delays.

“No longer will we allow the infrastructure of our magnificent country to crumble and decay,” Mr. Trump said in August.

In an executive order, the president directed federal agencies to coordinate environmental impact reviews for major projects with the goal of completing them within two years. Such reviews can often take four years and, in some cases, even longer.

Other presidents, including Barack Obama, have tried with mixed success to streamline the approvals for big infrastructure projects by pushing federal agencies to do environmental reviews faster. Frequently, delays are caused because multiple agencies, including the Environmental Protection Agency, the Bureau of Land Management and the United States Army Corps of Engineers, weigh in on the scope of an environmental review or have to issue separate permits before work can begin.
The centerpiece of Mr. Trump’s plan gives an office, the Council on Environmental Quality, within the White House, the authority to coordinate actions and direct how environmental reviews are performed. Much of the plan’s inspiration lies in a report, “Two Years Not Ten Years,” issued in 2015 by Common Good, a nonpartisan research and advocacy group.

The report estimated that the typical six-year delay in starting large building projects costs the country $3.7 trillion in lost economic activity, more than twice the amount needed to address the most urgent infrastructure needs. Along with roadblocks to speedy federal approval, the report blamed delays on such factors as fear of litigation and overly broad environmental reviews on all levels of government.

“They have embraced some of the goals and core ideas” in our report, said Philip K. Howard, who heads Common Good and is a lawyer at Covington & Burling in Manhattan. He had been a member of President Trump’s Strategic and Policy Forum, which disbanded in August after Mr. Trump’s remarks about the racial violence in Charlottesville, Va.

An analysis by the Congressional Research Service found that some of the claims in Common Good’s report, including the $3.7 trillion estimate, lacked a statistical basis, though the group had defended its work.

Infrastructure experts say that a lack of public and private funding, rather than bureaucratic delays, is the principal reason infrastructure projects stall. (In its budget proposal, the Trump administration has issued a six-page fact sheet about infrastructure funding, including private investment.) Still, they agree that the permitting process can be improved and streamlined. In addition to federal reviews, states and local governments must also approve major proposals — frequently a fraught process — and residents and other interest groups often use the courts to block or delay construction."

NY Times On The Mismanagement Of The Subway System

See How Politics and Bad Decisions Starved New York’s Subways: Disruptions and delays have roiled the system this year. But the crisis was long in the making, fueled by a litany of errors, a Times investigation shows.
"Century-old tunnels and track routes are crumbling, but The Times found that the Metropolitan Transportation Authority’s budget for subway maintenance has barely changed, when adjusted for inflation, from what it was 25 years ago.

Signal problems and car equipment failures occur twice as frequently as a decade ago, but hundreds of mechanic positions have been cut because there is not enough money to pay them — even though the average total compensation for subway managers has grown to nearly $300,000 a year.

Daily ridership has nearly doubled in the past two decades to 5.7 million, but New York is the only major city in the world with fewer miles of track than it had during World War II. Efforts to add new lines have been hampered by generous agreements with labor unions and private contractors that have inflated construction costs to five times the international average.

New York’s subway now has the worst on-time performance of any major rapid transit system in the world, according to data collected from the 20 biggest. Just 65 percent of weekday trains reach their destinations on time, the lowest rate since the transit crisis of the 1970s, when graffiti-covered cars regularly broke down.

None of this happened on its own. It was the result of a series of decisions by both Republican and Democratic politicians — governors from George E. Pataki to Mr. Cuomo and mayors from Rudolph W. Giuliani to Bill de Blasio. Each of them cut the subway’s budget or co-opted it for their own priorities.

They stripped a combined $1.5 billion from the M.T.A. by repeatedly diverting tax revenues earmarked for the subways and also by demanding large payments for financial advice, I.T. help and other services that transit leaders say the authority could have done without.

They pressured the M.T.A. to spend billions of dollars on opulent station makeovers and other projects that did nothing to boost service or reliability, while leaving the actual movement of trains to rely on a 1930s-era signal system with fraying, cloth-covered cables.

They saddled the M.T.A. with debt and engineered a deal with creditors that brought in quick cash but locked the authority into paying $5 billion in interest that it otherwise never would have had to pay.

In one particularly egregious example, Mr. Cuomo’s administration forced the M.T.A. to send $5 million to bail out three state-run ski resorts that were struggling after a warm winter.

At the same time, public officials who have taken hundreds of thousands of dollars in political contributions from M.T.A. unions and contractors have pressured the authority into signing agreements with labor groups and construction companies that obligated the authority to pay far more than it had planned.

Faced with funding shortfalls, the M.T.A. has resorted to borrowing. Nearly 17 percent of its budget now goes to pay down debt — roughly triple what it paid in 1997.

“It’s genuinely shocking how much of every dollar that goes to the M.T.A. is spent on expenses that have nothing to do with running the subway,” said Seth W. Pinsky, the former head of the city’s Economic Development Corporation. “That’s the problem.”

Reporters for The Times reviewed thousands of pages of state and federal documents, including records that had not previously been made public; built databases to compare New York with other cities; and interviewed more than 300 people, including current and former subway leaders, contractors and transit experts.

The examination found that the agency tasked with running the subway has been roiled by turnover and changes to its management structure. Dozens of people have cycled through high-level jobs, including many who left to work for contractors who do business with the M.T.A. Byzantine layers of bureaucracy have allowed transit leaders and politicians to avoid responsibility for problems.

But the theme that runs through it all is a perennial lack of investment in tracks, trains and signals.

On a good day, managing New York’s subway is a challenge. It is the largest urban transit system in the country and one of the oldest in the world. It is also one of the few to operate 24 hours every day.

And in the past two decades, M.T.A. leaders have guided the authority through the Sept. 11 attacks and Hurricane Sandy, disasters from which it is still recovering. After the emergency declaration this year, the authority unveiled an $800 million rescue plan that included adding train cars and staff.

But politicians and transit leaders have not acted on a series of chances to turn things around sooner. They ignored decades of warnings from state and city comptrollers. They failed to pass a congestion pricing plan in 2008. They chose not to give mass transit much of the proceeds from large settlements with banks after the financial crisis. They brushed aside the findings of the M.T.A. Transportation Reinvention Commission, a 2014 panel of transit leaders from around the world.

And through it all, The Times found, the M.T.A. has used sloppy data collection and accounting games that hide from the public the true causes of the subway’s problems."

Saturday, November 18, 2017

This Is What “Effective” Looks Like at HUD?

By Vanessa Brown Calder of Cato.

"Yesterday HUD Secretary Ben Carson tweeted that “The Low-Income Housing Tax Credit [LIHTC] is one of the most effective tools we have to create affordable housing.” And Secretary Carson’s presidential advisor published an op-ed yesterday which lauded LIHTC as a prime example of “the most effective and efficient use of the government’s resources.”

That is high praise for a program known for expense, complexity, lack of oversight, and abuse. LIHTC is arguably one of the most inefficient housing subsidy programs that the federal government administers.

Chris Edwards and I detail some of LIHTC’s failings in our report published earlier this week. One of LIHTC’s problems is that it doesn’t successfully accomplish its own objectives to redistribute to low-income tenants and create new housing.

First, most of the LIHTC subsidy goes to developers, lawyers, accountants, and financiers rather than low-income tenants. A 2011 study found that low-income tenants capture one-third of the subsidy. That leaves two-thirds of the benefit for corporations, banks, accountants, and lawyers involved in the process.

Second, LIHTC displaces similar market-rate housing. A recent study estimated that “nearly 100 percent of LIHTC development is offset by a reduction in the number of newly built unsubsidized rental units.” That means LIHTC requires taxpayers fund housing that would be built on the private market.

Another problem is that LIHTC is relatively expensive even compared to other housing and other government housing programs. Michael Eriksen’s work suggests LIHTC units cost 20% more per square foot than medium-quality market-rate housing, and the Government Accountability Office (GAO) found LIHTC units cost 19-44% more than housing voucher units over their lifetime.
Not to mention, LIHTC has a history of fraud and abuse. NPR ran a documentary that outlined some of the recent cases earlier this year.

This problem is likely due to the federal government’s “minimal” oversight of the program. The IRS oversees LIHTC but has only audited 13 percent of state administrators during the program’s entire existence. As a GAO auditor put it earlier this year, the “IRS and no one else in the federal government really has an idea of what’s going on.”

This is just a sampling of LIHTC’s problems; additional issues are noted in the report. If LIHTC is HUD’s version of an “effective” and “efficient” government program then that explains a lot.
See our report for more details on the Low-Income Housing Tax Credit."

The gains from cutting corporate tax rates

From Tyler Cowen.
"Here is a recent paper by Stephen Bond and Jing Xing:
We present new empirical evidence that sector-level capital–output ratios are strongly influenced by corporate tax incentives, as summarised by the tax component of a standard user cost of capital measure. We use sectoral panel data for the USA, Japan, Australia and eleven EU countries over the period 1982–2007. Our panel combines internationally consistent data on capital stocks, value-added and relative prices from the EU KLEMS database with corporate tax measures from the Oxford University Centre for Business Taxation. Our results for equipment investment are particularly robust, and strikingly consistent with the basic economic theory of corporate investment.
Via Henry Curr.  Here is a piece by Fuest, Piechl, and Siegloch, forthcoming in the American Economic Review:
This paper estimates the incidence of corporate taxes on wages using a 20-year panel of German municipalities. Administrative linked employer-employee data allows estimating heterogeneous worker and firrm effects. We set up a general theoretical framework showing that corporate taxes can have a negative effect on wages in various labor market models. Using an event study design, we test the predictions of the theory. Our results indicate that workers bear about 40% of the total tax burden. Empirically, we confirm the importance of both labor market institutions and profit shifting possibilities for the incidence of corporate taxes on wages.
Via Dina D. Pomeranz.  I’ve been reading in this area on and off since the 1980s, and I really don’t think these are phony results."

Friday, November 17, 2017

The U.S. trade deficit is not a function of trade policy but of underlying macroeconomic factors in the economy.

See Beware a quick drop in the U.S. trade deficit by Daniel Griswold of Mercatus.
"As he departed Asia yesterday, President Trump tweeted that “The United States has to be treated fairly and in a reciprocal fashion. The massive TRADE deficits must go down quickly!” The president should be careful what he wishes for.

The U.S. trade deficit can shrink for many reasons, some of them good for the United States, some of them not so good. If economic growth accelerates abroad, demand for U.S. exports can rise, reducing our bilateral deficits with those countries experiencing the strongest growth. If Americans start to save more, or the U.S. federal government borrows less, domestic interest rates and the value of the dollar can fall, boosting exports and dampening imports. Those are the benign reasons for a shrinking trade deficit.

In the not so good category of reasons, a U.S. recession can curb domestic demand for imports and foreign demand for U.S. assets, both acting to reduce our overall trade deficit. In fact, if we look back on the past 30 years, there have been only three years in which the U.S. trade deficit in goods has fallen by more than 10 percent compared to the year before. Those years are 1988, 1991, and 2009.
The 22 percent drop in the trade deficit in 1988 came near the end of the long 1980s expansion under President Reagan. The drop was a delayed response to the sharp decline in the dollar that was engineered by central banks from 1985 to 1987. For most of the 1983–1990 expansion, the U.S. trade deficit was growing to what were then record levels.

In both 1991 and 2009, the trade deficit dropped even more quickly, by more than 30 percent in each of those years, but neither year was a happy time for the U.S. economy. Both were recession years, with the trade deficit falling because of plunging domestic demand and investment.

For reasons I’ve explained in a recent paper for the Mercatus Center, the U.S. trade deficit is not a function of trade policy but of underlying macroeconomic factors in the economy. President Trump can sign all the trade deals he wants, but they will not put a dent in the overall U.S. trade deficit. The only proven quick fix for the trade deficit in the past three decades has been a recession."

Myths of the 1 Percent: What Puts People at the Top

By Jonathan Rothwell. Jonathan Rothwell is the Senior Economist at Gallup.

"No, It’s Not Trade

A rise in international trade — as a share of G.D.P., measured as either imports or exports using data from the Penn World Tables — is associated with equality, not inequality. The United States imports only a small fraction of the value of its total economy, whereas Denmark and the Netherlands are highly dependent on imports.

Or the Rise of Information Technology

Countries with higher rates of invention — as measured by patent applications filed under the Patent Cooperation Treaty, an indicator of patent quality — exhibit lower inequality than those with less inventive activity. As it happens, tech industries in the United States have contributed just a tiny bit to the rise of the 1 percent, and the salaries of engineers and software developers rarely reach the 1 percent threshold of an annual income of $390,000.

What About Unions?

Unions are thought to redistribute income from owners to workers, but there is no correlation across countries between the change in labor’s share of G.D.P. since 1980 and an increase in the income share of the top 1 percent. Britain saw an increase in the labor share of G.D.P. but also one of the sharpest increases in inequality. The Netherlands saw a large fall in labor’s share but no rise in inequality.

Scandinavian countries are heavily unionized and egalitarian, but Denmark experienced a large decrease in the share of workers represented by unions from 1980 to 2015, according to O.E.C.D. data, and very little change in inequality. Unionization rates dropped precipitously in the Netherlands and especially New Zealand over the period, but inequality rose as much if not more in Spain, where unionization rates rose.

Not Immigration, Either

Nationalists attribute rising inequality to mass immigration and the supposedly low skills of immigrants.
There is no correlation between changing immigration shares since 1990 and rising top-income shares. In fact, the countries that have absorbed the most immigrants — on a per-capita basis — have seen overall income inequality (measured by the Gini coefficient) fall.
An assumption implicit in this argument is that immigrants drag down earnings at the bottom of the distribution, making inequality worse. If this were an important factor, rising inequality should coincide with large gaps in income between foreign-born and native-born adults. It doesn’t.
My analysis of data from the Gallup World Poll from 2009 to 2016 shows that foreign-born adults earn 37 percent less than native-born adults in the Netherlands, after adjusting for age and gender. This is the largest gap among O.E.C.D. countries, and yet, the country saw no change in top-income inequality. Canada (minus 8 percent) and Britain (minus 7 percent) have small gaps but high and rising inequality.

In the U.S., Managers Are a Minority of Top Earners

Most top earners in the United States are neither executives nor even managers. People in those occupations make up just over one-third of all top earners in the United States. This share has been falling — particularly for corporate executives — and is lower than in many other advanced countries. In Denmark, Canada and Finland, close to half of top earners are in managerial occupations, according to my analysis of data from the Luxembourg Income Study.

So What’s Going On?

Almost all of the growth in top American earners has come from just three economic sectors: professional services, finance and insurance, and health care, groups that tend to benefit from regulatory barriers that shelter them from competition.
The groups that have contributed the most people to the 1 percent since 1980 are: physicians; executives, managers, sales supervisors, and analysts working in the financial sectors; and professional and legal service industry executives, managers, lawyers, consultants and sales representatives.
Without changes in these largely domestic services industries — finance, health care, the law — the United States would look like Canada or Germany in terms of its top income shares.

The United States also stands out in terms of how much money its elite professionals earn relative to the median worker. Workers at the 90th percentile of the income distribution for professionals make 3.5 times the earnings of the typical (median) worker in all occupations in the United States. Only Mexico and Israel, which have very high inequality, compensate professionals so disproportionately. In Switzerland, the Netherlands, Finland and Denmark, the ratio is about 2 to 1.
This ratio, the elite professions premium, is very highly correlated with income inequality across countries.
Others are noticing these trends. A new book, “The Captured Economy” by Brink Lindsey and Steven Teles, argues that regressive regulations — laws that benefit the rich — are a primary cause of the extraordinary income gains among elite professionals and financial managers in the United States and of a reduction in growth. 
This year, the Brookings Institution’s Richard Reeves wrote a book about how people in the upper middle class have shaped both legal and cultural norms to their advantage. From different perspectives, Joseph Stiglitz, Robert Reich and Luigi Zingales have also written extensively about how the political power of elites has undermined markets. 

Problems cited by these analysts include subsidies for the financial sector’s risk-taking; overprotection of software and pharmaceutical patents; the escalation of land-use controls that drive up rents in desirable metropolitan areas; favoritism toward market incumbents via state occupational licensing regulations (for example, associations representing lawyers, doctors and dentists that block efforts allowing paraprofessionals to provide routine services at a lower price without their supervision).
These are just some of the causes contributing to the 1 percent’s high and rising income share. 

Reforming relevant laws can make markets more efficient and egalitarian, and in contrast with trade, immigration and technology, the political causes of the 1 percent’s rise are directly under the control of citizens."

Thursday, November 16, 2017

Many of the people who will "lose" health insurance if the mandate is repealed are people who want to lose health insurance

By David Henderson.

"Someone tells you that you have to buy something, and levies a penalty if you don't. So you buy it. Then someone else countermands the first person's order. You no longer have to buy it. So, assuming it's not because the price of what you had to buy rose, you don't buy it. Are you worse off? 

Various media outlets have reported on the loss of health insurance that the Congressional Budget Office thinks will come about if Congress gets rid of the mandate that requires individuals to buy health insurance. Estimating the effects of changes in laws is always tricky, of course. What's not tricky is to explain to readers something that many of the reports don't do a good job of.

Are you ready?

Many of the people who will "lose" health insurance if the mandate is repealed are people who want to lose health insurance. That is, according to the CBO, what is causing them to get health insurance now is the mandate. So, by their standards, even if we, observing them paternalistically, might think different, they would be better off.

How many of the millions who lose health insurance are people who want to lose it? We can't tell exactly but we can probably come close.

Let's take the number that many people are focusing on--the number of people who will be without health insurance in 2027 who would otherwise have it: 13 million. Of these, we know, if the CBO is correct, that fully 5 million people want to be without health insurance. How do we know? Because they would otherwise be on Medicaid. They would choose to be without Medicaid even though they could be on it. And it's not because the price to them of Medicaid would change. The price, excluding their time cost to apply and qualify, is zero with or without the mandate.

Another 5 million would drop their non-group coverage, according to the CBO. Some of these would be healthier people willing to do without health insurance who don't find the current rates attractive. Let's guesstimate that this would be half of the five million, or 2.5 million. I think that's probably an underestimate. Why would the other half drop their insurance? Because, estimates the CBO, with fewer healthy people in the pool, insurance rates for non-group coverage would rise by about 10%.
So arguably over half of the 13 million without health insurance in 2027 would choose not to have it, not because the premiums would go up, but because the coercion would be gone.

Check the CBO's Table 1 for a breakdown that shows why the CBO estimates a multi-billion dollar saving in government subsidies in each year, adding to over $300 billion for the 10-year time period."