Thursday, March 31, 2011

The Minimum Wage, The New York Times, And Liberal Media Bias

The NY Times had an editorial on Sunday supporting an increase. See A Minimum Wage Increase.

The bias comes in where they only cite studies that agree with them (other studies are mentioned below). And then they say

"Despite evidence to the contrary, businesses and Republicans may keep pushing against the minimum wage — using the jobs crisis now to clinch their argument. They should be disregarded, because their argument is wrong and the United States is too rich to tolerate such an underclass."

See, all those other people are wrong! So disregard them! Don't pay any attention to them! That is clearly bias when you say only your opinion matters.

Now here is some other evidence:

"... research shows that in the long run the adverse effects of a higher minimum wage are quite substantial." (page 84, The Economics of Public Issues, 13e, by Roger LeRoy Miller, Daniel K. Benjamin, and Douglass C. North).

"In a new report, economists David Neumark of the University of California at Irvine and William Wascher of the Federal Reserve Board say a review of more than 90 studies in more than 15 countries since the early 1990s shows nearly two-thirds of the studies find a "consistent" though not always statistically significant negative impact on employment. Fewer than 10 found a consistently positive impact. While there's "no consensus," they say, "the weight of empirical evidence" supports the traditional view." (The Wall Street Journal, p. A4, Nov. 3, 2006)

From Greg Mankiw's blog:
"Economists Richard Burkhauser (Cornell University) and Joseph Sabia (University of Georgia) report: a beneficiary from a proposed federal minimum wage hike to $7.25 an hour is far more likely to be in a family earning more than three times the poverty line than in a poor family. In total, only 12.7 percent of the benefits from a federal minimum wage increase to $7.25 an hour would go to poor families. In contrast, 63 percent of benefits would go to families earning more than twice the poverty line and 42 percent would go to families earning more than three times the poverty line."

Wednesday, March 30, 2011

There Was Alot Of Income Mobility From 2001-2007

See New Mpls. Federal Reserve Bank Study Shows Significant Earnings Mobility Between 2001-2007 from Mark Perry at Carpe Diem. It is a great post but here is a key finding: Percentage of households in each quintile that changed quintiles over the time period: 1st: 44% 2nd: 61% 3rd: 58% 4th: 55% 5th: 34% Where 1st is the highest earning quintile.

Tuesday, March 29, 2011

Medicaid Overspends On Drugs

See Overspending on Multi-Source Drugs in Medicaid. The big issue seems to be when they could have gone with generics instead of name brand drugs. It is in the hundres of millions of dollars.

Scott Sumner On Taxes, Revenue And The Laffer Curve

See Progressive wishful thinking. Excerpts:

"In May 2010 Greg Mankiw reported some data on tax revenue per person in some big economies. From that data I’d guess that the US and European tax systems raise roughly equal amounts of revenue per person, even though US taxes are slightly less than 30% of GDP, and European taxes are closer to 40% of GDP.

Mankiw didn’t even comment on the data, he merely reported it. But the post received all sorts of criticism, none of it valid. I’d go much farther than Mankiw. I’d argue that this data is strongly supportive of the view that both the US and Europe are near to tops of the Laffer Curve for total taxation. I did not say then, nor do I claim now, that we are precisely at the top. But I also don’t see any reason to believe that if we raised taxes from 28% to 40% of GDP, that revenue would rise anywhere near proportionately, with no change in GDP per capita.

The progressive response is that the Laffer Curve idea is far-fetched, and that higher tax rates don’t reduce GDP per capita. Instead they argue that the lower European GDP/person represents mysterious cultural differences, a preference for leisure. Even worse, this cultural trait developed only recently, as during the 1960s (when French tax rates were similar to those in America), they worked just as hard as we did.

All this may be true, but progressives can’t point to any European models (except perhaps special cases like Norway and Luxembourg) that raise the sort of revenue they claim the US would raise if we boosted taxes as a share of GDP to European levels. For instance, in Mankiw’s data the Germans raise $13,893/person with taxes of 40.6% of GDP. The US raises $13,097/person, with taxes of just 28.2% of GDP. The progressive denial of the Laffer Curve is an implied claim that if we raised our tax rate to German levels, our GDP would not decline, instead we’d raise an astounding $18,856/person in tax revenue, despite the fact that no other major country with Euro-style tax rates comes close to raising that kind of revenue. Quite a leap of faith."

Monday, March 28, 2011

Adverse Selection Might Not Be A Reason For Government Funded Health Care

See Should Governments Subsidize Health Insurance? by Jeffrey A. Miron. Excerpts:

"The standard justification for subsidizing health insurance holds that private markets will not supply "fair" insurance due to a phenomenon known as adverse selection. This perspective assumes that insurers cannot tell which applicants are healthy, so they must charge the same premium to everyone. Then, however, only the unhealthy apply, and insurers go broke.

Government can in principle fix this problem by mandating that everyone buy insurance, preventing any "adverse selection" of applicants. But this mandate must include subsidies for low-income households, who otherwise cannot afford insurance.

This argument for government insurance is standard, but it suffers a key flaw: insurers can readily determine applicant health via physical exams and medical histories. So, private insurers will offer health insurance to all applicants, with one key caveat: they will charge higher premiums to those in poor health. This is precisely what most people fear about a free market for insurance.

The real issue for health insurance, therefore, is whether policy should protect people against the differences in economic circumstance implied by their differences in health.

This kind of redistribution strikes many people as compassionate. And, behind a veil-of-ignorance -- before knowing one's future health -- most people would trade some consumption for protection against the possibility of a bad health outcome. Since markets do not seem to offer such insurance, government provision can make everyone better off.

Yet this view does not justify government health insurance for all. Any attempt in this direction would be costly, since everyone would demand unlimited health care. Full or substantial government insurance trades one problem -- the high cost of private insurance for some people -- for a different problem: an inefficient and expensive health care system.

The natural way to balance these concerns is to subsidize health insurance for the poor, but for no one else. Roughly, this mean eliminating Medicare, Obamacare, and the tax-subsidy for employer-provided insurance, but retaining a (scaled down) version of Medicaid.

This approach insures everyone against the worst case scenario in which poor health makes it impossible to earn income. This approach also means that even among the non-poor, some people will pay higher health insurance premiums than others."

Gary Becker On Public Unions

See Government Sector Unions-Becker. Excerpts:
"Whatever the source of their power, unions have managed to obtain better compensation than is available to comparable workers in the private sector. The best evidence supporting this is the much lower turnover of most public employees compared to that of private sector employees. For example, in January 2011, turnover rates among private sector workers were about 2 1/2 times those among government workers. Clearly, workers in any sector are less likely to quit if they are doing better than what they expect to get in alternative jobs. Also reducing turnover is that public employees cannot be laid off easily because they usually receive tenure after only one or two years of employment.

The higher compensation of public employees is heavily weighted toward deferred benefits in the form of favorable medical plans, and especially early retirement ages with generous retirement incomes. Retirement income is usually calculated not as a function of lifetime earnings, but of earnings during the last few years before retirement. Employees can artificially raise these earning by concentrating most of their overtime hours during the pre retirement years. Early retirement ages and generous benefits when retired are found not only at various governmental levels in the United States, but also among public employees in Europe and many other countries as well.

Presumably, in setting this form of compensation, politicians all over the world have responded to their (apparently correct) belief that voters and the media pay greater attention to earnings of government employees than to their deferred benefits. There is so much public attention to earnings that it is difficult to pay high-level government employees anything close to what they might earn in the private sector. This explains why turnover is much greater among top government employees than among the average government worker. Deferred compensation has sometimes been excessive in the private sector as well- demonstrated by General Motors’ financial difficulties- but for the most part the private sector has avoided very early retirements and other extremes of deferred compensation received by public employees.

Unfunded retirement liabilities of many state and local governments are so large that it is highly unlikely that they will ever be paid. For example, according to Joshua Rauh’s calculations in the Milken Institute Review, First Quarter, 2011, unfunded retirement liabilities of the state of Illinois are more than 5 times the state’s annual tax revenue, while the unfunded liabilities of Chicago are more than 7 times that city’s own annual revenue. This explains the recent efforts by governors and mayors of many states and cities to confront government unions and force a change in the system of retirement for state and local workers. The city of Los Angeles recently reached an agreement with its unions to increase significantly the contributions of union members to their retirement benefits. I anticipate that other cities and states will force similar, and sometimes more drastic, changes in their retirement systems."

"Healthcare Marketization" Could End the Crisis

This is from Carpe Diem.

"Some key paragraphs from the editorial "Private enterprise fix could save healthcare":

"Does America have a “grocery system”? An “automobile system?” A “tourism system”? The nation does, of course, have a “healthcare system” and the fact that the medical-services sector can’t be described as a market… well, it’s the prime cause of the “healthcare crisis.”

Consumers make choices about employment, food, housing, clothing, transportation, investment, and leisure peddled by an uncountable — and ever-changing — number of vendors. Price, convenience, and quality vary. Transparency is standard. Accountability is enforced, at times rapidly and ruthlessly, by both sellers and buyers. Yet satisfying the nation’s healthcare needs involves an appalling supply of waste, waiting, bureaucracy, and buck-passing.

Consumer-driven medical services, if fused with health savings accounts that insure against catastrophic conditions, would revolutionize the way physicians and hospitals — gulp — “do business.” Savings would be substantial. The “crisis” would quickly end."

Sunday, March 27, 2011

Privatize the Spectrum

Great post from Alex Tabarrok at Marginal Revolution. See Privatize the Spectrum.
"The proposed merger between AT&T and T-Mobile is getting a lot of attention with most of the focus being on whether consumers will pay higher prices. The answer is maybe. Prices per minute have been falling and this was true even following the two big mergers in 2004-05 (Cingular/AT&T Wireless, and Sprint/Nextel). Quality-adjusted prices, i.e. taking into account the post-merger buildout of 3G networks, have fallen even further. On the other hand, although there are competitors in many large local markets and potential competitors (the Cable companies own a chunk of spectrum not yet in use) a merger could increase market power. But even if consumer prices did rise the merger is probably still a good idea. It’s long been known that even small cost savings can outweigh losses to consumers from a price increase (Nobelist Oliver Williamson was one of the first to drive this point home.)

The big issue, however, is not the merger. The big issue is reallocating spectrum from low to high value uses. My colleague Thomas Hazlett argues that spectrum currently being used for low-value over-the-air broadcast of television could, if it were reallocated to high-value uses like wireless, increase consumer welfare by over a trillion dollars. Moreover, for a price of about 3 billion we could switch almost all of the tv-viewers to cable or satellite. President Obama has pledged to move a big chunk of spectrum, about 500 mhz, to wireless but the process is slow and highly politicized. What really needs to be done is to auction off as much spectrum as possible with as few restrictions on it use as possible. Let the market allocate spectrum across all uses, allowing value maximizing trades. More spectrum would not only be good in itself it would alleviate any concerns about the merger."
Here is the link about Williamson: Williamson trade-off model. The idea is that when two firms meger, if they get more efficient and lower cost, the fall in consumer surplus due to a higher price (the market becomes less competitive) is more than offset by the gain in producer surplus. So overall, society benefits. Here is the graph:

Electric Car Subsidies May Not Be A Good Idea

See Electric Vehicle Subsidies from Cato.

"An op-ed in the Wall Street Journal written by the American Council for Capital Formation’s Margo Thorning makes a good case for “pulling the plug” on subsidies for electric vehicles. Subsidies for alternative energy vehicles have been popular with both Democrat and Republican administrations, but the Obama administration has been a particularly enthusiastic supporter of industrial planning.

Thorning begins by pointing out that the idea of an electric-powered is hardly new:

Electric vehicles have been with us for almost 180 years. The first, an electric carriage created by an inventor named Robert Anderson, made its appearance in Scotland in 1832. By 1907 the American company Cutler-Hammer was advertising electric vehicles and the first electric charging station. Since that time Americans have seen tremendous innovations is everything from air travel to microwaves, yet there has been little progress converting consumers from gasoline-powered cars to vehicles powered by rechargeable batteries.

Today’s entrants aren’t exactly sending consumers rushing to the electric car showroom. There are a couple of obvious reasons why:

A battery for a small vehicle like the Nissan Leaf can cost about $20,000 and still only put out a range of 80 miles on a good day (range is affected by hot and cold weather) before requiring a recharge that takes eight to 10 hours. Even then, those batteries may only last six to eight years, leaving consumers with a vehicle that has little resale value. Home installation of a recharging unit costs between $900 and $2,100. And don't forget workplace and retail recharging stations, which will be necessary.

The bottom line: plug-in electric vehicles simply do not make practical or economic sense.

Undeterred, the government is resorting to taxpayer-financed bribes to create a market that otherwise would not exist:

Despite these significant flaws, the government is determined to jump-start sales for plug-ins by putting taxpayers on the hook. The $7,500 federal tax credit per PEV is nothing more than a federal subsidy that will add to the deficit. There are also federal tax credits for installing charging stations in homes and businesses and for building battery factories and upgrading the electric grid. The administration's goal—one million PEVs on the road by 2015— could cost taxpayers $7.5 billion. Outlays for recharging infrastructure will add billions more.

A Cato essay on energy subsidies demonstrates that the federal government has a poor record when it comes to industrial planning:

Policymakers often make grandiose promises, such as proposing to make America “energy independent” or to convert the nation to a “green economy.” Those visions don’t make any sense, but even if they did history shows that the Department of Energy would be incapable of putting them into place with any degree of competence. Federal energy schemes are often poorly managed and generate huge cost overruns, or they aim at objectives that make little economic sense, as the following case studies illustrate.

The Obama administration apparently believes that it possesses the unique foresight to optimally plan the economy. However, history is replete with examples of overly-ambitious government planners playing Nostradamus with less than desirable results. Before anymore taxpayer money is wasted, the plug should be pulled on electric vehicle subsidies as well as the entire Department of Energy."

Saturday, March 26, 2011

The Stimulus May Have Failed To Boost Infrastructure Spending

See Why the Stimulus Failed to Boost Infrastructure in the US: A Comparison With China by John Taylor. Excerpt:

"The data are now clear. Despite its large size, the 2009 U.S. stimulus package failed to increase government infrastructure spending or other government purchases as its promoters had claimed it would. The large federal stimulus grants sent to state and local governments for infrastructure spending were mainly used to reduce borrowing and thus did not result in an increase in purchases. Here is a summary of my research with John Cogan. The explanation is that local governments in effect acted as many American households did: when they received the stimulus money, they saved it rather than purchased goods and services. This is what permanent income theory would predict. It is also what previous empirical studies of the 1970s stimulus packages found."

Maybe We Can Distinguish Between The Deserving And Non-Deserving Poor

Great post from Bryan Caplan at EconLog. See In Search of the Deserving Poor.

Friday, March 25, 2011

The Economist On Public Sector Unions

See (Government) workers of the world unite! Public-sector unions have had a good few decades. Has their luck run out? Excerpts:

"This private-public shift has transformed the trade union movement. In the 1950s unions were solidly working class, dominated by men who had left school at 16 and leant left on economics but right on social issues. Today they are much more middle-class: more than a quarter of American unionists have college degrees, and even more have liberal views on social and environmental issues.

The shift has also created tension between the public and private sectors. The private sector is dominated by competition and turbulence. Performance-related pay is the norm, and redundancy commonplace. The public sector, by contrast, is a haven of security and stability. Many people have jobs for life and performance measures are rare. The result is a paradox: the typical public worker is better off than the people he is supposed to serve, and the gap has widened significantly over the past decade. In America, pay and benefits have grown twice as fast in the public sector as they have in the private sector."

"Public-sector unions are some of the world’s most powerful interest groups. Many of them have large memberships and comparably large wallets: the American National Education Association, the main teachers’ union, has 3.2m members, an annual budget of over $300m and a vibrant tradition of political activism. But their influence goes much deeper. In many countries unions prop up the left. In Britain Ed Miliband, the leader of the Labour Party, owes his job to trade-union votes. In America Andy Stern, the head of the Service Employees International Union, was the most frequent guest at the White House in the first six months of Barack Obama’s presidency.

Public-sector unions enjoy advantages that their private-sector rivals only dream of. As providers of vital monopoly services, they can close down entire cities. And as powerful political machines, they can help to pick the people who sit on the other side of the bargaining table. Daniel DiSalvo, the author of an excellent essay on America’s public-sector unions in National Affairs, points out that the American Federation of State, County and Municipal Employees was the biggest contributor to political campaigns in 1989-2004. He also notes that such influence is more decisive in local campaigns, where turnout is low, than in national ones.

Even if they fail to elect “their” candidates, public-sector unions have a relatively easy time negotiating with politicians. Private-sector bosses are accustomed to playing hardball with unions because they know they can go bankrupt if they don’t. Politicians have no such discipline: they can always raise taxes or borrow from future generations. Those who have challenged the unions have often regretted it. California’s former governor, Arnold Schwarzenegger, tried to fight the unions in the court of public opinion, only to be outgunned. Others have attempted a more stopgap approach, only to get the blame when services are disrupted.

Economists still debate exactly what impact public-sector unions have on pay. Evidence from the American Bureau of Labour Statistics support the conservative argument that they have used their power to extract a wage premium: public-sector workers earn, on average, a third more than their private-sector counterparts. Left-leaning economists reply that public-sector workers are, on average, better educated. Whatever the merits of this argument, three things seem clear. Unions have suppressed wage differentials in the public sector. They have extracted excellent benefits for their members. And they have protected underperforming workers from being sacked."

"The unions’ influence extends to the size and nature of the public sector. Private-sector unions have learned to exercise self-restraint when it comes to pushing for more manpower: they realise that more workers may reduce the wages of their members and that a higher wage bill may drive their employers out of business. But public-sector unions are relentless in demanding more resources and more personnel, which conveniently translate into more members and more dues.

Their most dramatic success has been in Britain. When Britain’s union-backed New Labour government came to power in 1997, public spending accounted for almost 40% of GDP. When it left power in 2010 public spending was nearly 50% of GDP (partly, to be fair, as a result of recession), and 1m workers had been added to the public-sector payrolls."

"Buffalo, in New York state, has as many public workers in 2006 as it did in 1950, despite the fact that the city has lost half its population."

"It is impossible to calculate the cost of the unions’ inflexibility. But several recent studies provide some indications. Policy Exchange, a conservative think-tank, calculates that people in the British private sector work 23% more hours than their public-sector counterparts over their lifetimes, thanks to public-sector strikes, sick days and early retirement. Barry Bluestone, a left-wing economist, calculates that the price of America’s public services increased by 41% in 2000-08, while that of private services rose by 27%. Eric Hanushek, an economist at Stanford University, argues that replacing the bottom 5-8% of American teachers with merely average performers could move the United States from near the bottom to near the top of the international maths and science rankings."

"Even people on the left are beginning to echo these complaints. Andrew Cuomo, the incoming Democratic governor of New York, is rattling his sabre against public-sector unions despite the fact that they make up an important part of his base. Davis Guggenheim, an impeccably liberal film director whose credits include Al Gore’s “An Inconvenient Truth”, subjected the teachers’ unions to a merciless critique in “Waiting for Superman”, flagellating them for perpetuating a broken system and presenting Randi Weingarten, the head of the American Federation of Teachers, as “something of a foaming satanic beast”, as the Variety reviewer put it."

"Joshua Rauh, of the Kellogg School of Management at Northwestern University, reckons that seven American states will have exhausted their pension assets by 2020."

Great Quotes From Thomas Sowell On Economics & Politics

Hat Tip: Mark Perry of CARPE DIEM.

1. "Economists are often asked to predict what the economy is going to do. But economic predictions require predicting what politicians are going to do-- and nothing is more unpredictable."

2. “The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”

~Thomas Sowell

Thursday, March 24, 2011

Cases Of Drug Cops Stealing

See How Drug Cops Go Bad: We shouldn't be surprised when the police officers we ask to break the laws they enforce turn corrupt by Radley Balko at Reason. He has a great list of drugs being stolen and sold and cash from drug busts being stolen by these cops.

Something Scary About North Korea

See The Love Potion of Socialized Medicine by Bryan Caplan. Excerpt:

"During my flight to Italy, I read Barbara Demick's outstanding Nothing to Envy: Ordinary Lives in North Korea cover to cover. Even if you've studied Communism for decades, you'll be appalled: In the 90s, North Korea basically moved from total state control over the economy to having no economy at all. The government stopped paying salaries and stocking the stores - without relaxing the near-prohibition on all private sector activities. For most, the only way to obey the law was to sit still until you died of hunger. The exiles Demick interviewed, starved and imprisoned, were the lucky ones. All had friends and family who perished in this absurdist hell."

Wednesday, March 23, 2011

The Government Over Regulates Mercury

See Energy Fact of the Week: Mercury Rules and Public Health By Steven F. Hayward of AEI.

"Last week the Environmental Protection Agency finally re-issued its new mercury rules under the Clean Air Act, calling for a 91 percent reduction in mercury emissions from coal-fired power plants. Strangely, the EPA cannot estimate any health benefits from the mercury rules, and rests its entire case on the co-benefit of lower particulate emissions (17,000 premature deaths a year will be prevented by lower particulate levels).

Maybe one reason the EPA can’t estimate any health benefits from lower mercury emissions is that there aren’t any. Figure 1 below shows that mercury emissions have fallen 58 percent between 1990 and 2005 (the most recent year for which the EPA reports mercury data). Most of this reduction came from shutting down municipal incinerators and other industrial processes; mercury emissions from coal-fired power plants are down only 11 percent."

"But it is also the case that there may not be anyone with dangerously elevated levels of mercury, whether airborne or from fish. Figure 2 shows trends in blood lead levels in women of childbearing age from ten years’ worth of data from the Centers for Disease Control’s Human Exposure to Environmental Chemicals study. Average mercury levels in blood among all people the CDC screened are extremely low, about one-thousandth the level of the threshold of health risk. Women of childbearing age (16–49), however, have reason for concern. In the CDC’s 2000 screening, a small proportion of them (about 8 percent of the sample) recorded levels of mercury in blood samples above the government’s very strict “reference dose level.” The reference dose level of 5.8 micrograms per liter of blood is set to allow for the most extreme uncertainty about the effects of low-level exposure, and to serve as a tripwire for determining which populations are potentially at risk and whether exposure is increasing. (The government’s threshold of actual harm from mercury is 58 micrograms—ten times the reference dose, which is used as regulatory tripwire.) There is reason to doubt that any women or their unborn children face significant risk at this low level, but abundant concern warrants planting a caution flag. The good news is that subsequent CDC screenings have found almost no cases of women recording blood-mercury levels above the reference dose."

The Problem With Law Schools

See Schools for Misrule Reviewed posted by Walter Olson at Cato.

"Today was a banner day for my new book on legal academia, Schools for Misrule. It was reviewed at the Wall Street Journal by John McGinnis, professor of law at Northwestern, and at the Weekly Standard by George Leef, director of research at the North Carolina-based John Pope Center for Higher Education Policy. (One or both reviews may be behind subscriber screens.) Both reviews were highly favorable.


American law schools wield more social influence than any other part of the American university. In ‘Schools for Misrule,’ Walter Olson offers a fine dissection of these strangely powerful institutions. One of his themes is that law professors serve the interests of the legal profession above all else; they seek to enlarge the scope of the law, creating more work for lawyers even as the changes themselves impose more costs on society.


At most law schools—and emphatically at elite ones such as Obama’s Harvard—students are immersed in a bath of statist theories that rationalize ever-expanding government control over nearly every aspect of life. ... They learn that the concepts of limited government and federalism are outmoded antiques that merely defend unjust privilege. ... Schools for Misrule explains how most of the damaging ideas that lawyers, politicians, and judges are eager to fasten upon society originate in our law schools. ...

The most recent explosion of legal activism involves making the United States subject to international law. Olson notes that at a New York University Law School symposium, speakers declared that international law requires nations to guarantee all people the right to health, education, “decent” work, and freedom from “severe social exclusion.” Columbia has created a campaign called “Bring Human Rights Home,” which is intended to generate pressure to make American policies consonant with the collectivist notions of “the international community.”"

Even With Taxes To Cover Environmental Damage, Energy Efficient Appliances Pushed By Government May Not Be Necessary

See Economic Efficiency by Peter van Doren, a senior fellow at the Cato Institute and editor of Regulation. Excerpt:

"Recent estimates by economists suggest that electricity prices would have to increase by 1.4 cents per kilowatt hour from their current 9.1 cents per kilowatt hour to account for environmental damages. That’s not enough to make it economically worthwhile to buy many of the energy-efficient appliances and lights bulbs adored by the would-be regulators."

Tuesday, March 22, 2011

More Problems With High Speed Rail

See The High Speed Rail Battle of Britain by Wendell Cox. (Hat tip: Competitive Enterprise Institute). Excerpts:

"The international record of high-speed rail projections is nothing short of horrific. Not only have costs proven far higher, but ridership and revenue have been less than projected. All of this means that taxpayers end up paying more.

Again, Britain is a prime example. The Eurostar London to Brussels and Paris continues to attract at least 50 percent less ridership originally projected. High speed rail systems in Taiwan and Korea have had similar ridership shortfalls.

As in Britain, costs have been higher as well. In Korea, the high speed rail line costs rose three times projections. Costs in California have increased 50 percent in two years and doubled over a decade even before the first shovel has been turned (inflation adjusted). The cost escalation has already equaled the high end of the range predicted by Joe Vranich and me in our Reason Foundation Due Diligence Report on the California system in 2008.

If the proposed high speed rail project were simply to miss its cost and revenue targets by the international average (which is far better than the British experience), the benefits to users would fall below £1.00 for each £1.00 of cost. Both the strategic case and the business case for high speed rail would be blown apart. The spectre of cost overruns was a major factor in Governor Scott’s cancellation of the Florida high speed rail project."

Problems With ObamaCare After One Year, According To Megan McCardle

See ObamaCare, One Year In. Excerpts:

"3. The budgeting problems are even worse than I thought I argued at the time that the spending cuts were not sustainably structured, but I didn't predict just how difficult they would prove to sustain. Already, Congress is resorting to ever-more-desperate health care budget gimmicks, like dipping into the health insurance subsidies in future years in order to pay for higher Medicare physician reimbursements. A month or so after it passed, a healthcare reporter of my acquaintance said that he thought that Congress had pretty much used up every conceivable pay-for in order to pass PPACA, and history is so far proving him right: having exhausted their pay-fors, they've now started cannibalizing ObamaCare itself. And it's three years to go before we actually set the Rube Goldberg machine into motion.

4. Unintended consequences have started kicking in As the Official Blog Spouse points out, the administration is granting waivers to virtually anyone who asks, presumably because they think that absent the waivers, people would be losing their insurance. And not without good reason--thanks to the rules making it illegal to exclude children with pre-existing conditions, insurers have now stopped selling child-only policies in 34 states. Both the government of Massachusetts and the administration are eagerly exploring the option of simply commanding insurance companies to sell policies at the price they would like to pay, a tactic that doesn't really have a great track record in modern industrial economies.

5. It turns out maybe it's not so obvious that it's constitutional At the time of passages, court challenges were dismissed by the bill's supporters as a bunch of fringe quackery--no thinking person could imagine that the Supreme Court could find PPACA unconstitutional. Now it's not so far-fetched--not the most likely outcome, but a distinct possibility. And because no one thought it was possible, the act is not well structured to survive a court challenge. Not only is it missing a severability clause, but the administration's insistence that the mandate wasn't a tax has basically robbed them of a backup strategy--if the court rules that they don't have the authority to do this under the Commerce clause, there doesn't seem to be much hope they can work it in under the taxing power instead.

I wanted to include the upside surprises, but I honestly couldn't think of any. Suspecting I was biased, I looked to Kathleen Sebelius's recent testimony, which doesn't really offer much in the way of serendipitous success--the things that Democrats say are going okay aren't surprises, and also in many cases, according to the Washington Post, aren't true.

Of course, I imagine that at this point supporters are saying that the best is yet to come--that ObamaCare just hasn't really gotten going yet. Perhaps so! But this is the one year report card, and the first-year grades are pretty underwhelming."

China Is Not Especially Mercantilist

A letter written by Don Boudreaux at Cafe Hayek. See Irwin vs. Fletcher on China. Here it is:

"Ian Fletcher writes that “What progress against poverty has occurred in the world in recent decades has not been due to free trade, but due to the embrace of mercantilism and industrial policy by some poor nations…. According to the World Bank, the entire net global decline in the number of people living in poverty since 1981 has been in mercantilist China, where free trade is spurned” (“Free Trade Isn’t Helping World Poverty,” March 19)

Overlook the unbelievable claim, allegedly taken from World Bank data (for which Mr. Fletcher offers neither link nor citation), that China alone is responsible for the past 30 years of the globe’s net decline in number of people living in poverty. Focus instead on Mr. Fletcher’s assertion that China’s recent growth is due to that country’s embrace of mercantilism and its “spurning” of free trade. This assertion is simply wrong.

While it’s true that China – like nearly every other nation on earth – has in place a plethora of growth-inhibiting mercantilist policies, the overwhelming economic story in China over the past 33 years is the liberalization of its markets – a liberalization that includes dramatic reductions in trade barriers. Here’s economist Douglas Irwin: “In December 1978 China began to end its policy of economic isolation. Under the leadership of Deng Xiaopeng, the government decollectivized agriculture, allowed private entities to trade, and permitted foreign investment…. In 1992 the weighted average tariff [in China] on manufactured goods was over 45 percent. Since China joined the WTO in 2001, the country’s average tariff will eventually fall to less than 7 percent.”*

Mr. Fletcher’s suggestion that China has been moving toward mercantilism and making trade less free is contradicted by the facts.

Donald J. Boudreaux

* Douglas A. Irwin, Free Trade Under Fire, 3rd ed. (Princeton University Press, 2009), pp. 181-182."

Robert Heilbroner On Entrepreneurs

Here is what Robert Heilbroner says about Soviet socialism in his book The Making of Economic Society:

“The economic system was, in fact, soon heavily dependent on so called tolkachi-wheelers and dealers who arranged for shipments to be rerouted, shortages to be filled, and excess inventories to be disposed of, either behind the authorities’ backs or with their tacit permission.”
Sounds like middlemen if not entrepreneurs

Nobel Prize Winner Edmund Phelps On Entrepreneurs

Writing in The Wall Street Journal in October of 2006, he said, using what he called an Aristotelian perspective on the “development of talents”:

“In an economy in which entrepreneurs are forbidden to pursue their self-realization, they have the bottom scores in self-realization–no matter if they take paying jobs instead–and that counts whether or not they were born the “least advantaged.” So even if their activities did come at the expense of the lowest-paid workers, Rawlsian justice in this extended sense requires that entrepreneurs be accorded enough opportunity to raise their self-realization score up to the level of the lowest-paid workers–and higher, of course, if workers are not damaged by support for entrepreneurship. In this case, too, then, the introduction of entrepreneurial dynamism serves to raise Rawls’s bottom scores.”

“It would be a non sequitur to give up on private entrepreneurs and financiers as the wellspring of dynamism merely because the fruits of their dynamism would likely be less than they could be in a less imperfect system. I conclude that capitalism is justified–normally by the expectable benefits to the lowest-paid workers but, failing that, by the injustice of depriving entrepreneurial types (as well as other creative people) of opportunities for their self-expression.”

Monday, March 21, 2011

Don’t be snobbish towards merchants & entrepreneurs, and you’ll develop

See the Bill Easterly interview of Deirdre McCloskey. Here it is:

Aid Watch interviewed Deirdre McCloskey, author of the fascinating new book shown here.

Could you briefly state the thesis of your book?

Modern economic growth—that stunning increase from $3 a day in 1800 worldwide to now upwards of $130 a day in the richest countries, and anyway $30 as a worldwide average—can’t be accounted for in the usual and materialist ways. It wasn’t trade, investment, exploitation, imperialism, education, legal changes, genes, science. It was innovation, such as cheap steel and the modern university, supported by an entirely new attitude towards the middle class, emerging from Holland around 1600. (It has parallels in classical music and mathematics and politics, in all of which the Europeans burst out, 1600-1800.)

What led you to focus on dignity?

I was backed into a corner by the facts! For half of my career I assaulted the notion that sociology and politics mattered for growth. Now I seem to be condemned to spend the last half contradicting my earlier self: one minus one equals . . . zero! Innovation, with its handmaidens of creativity and of persuasion, is not a matter of efficient allocation or the exercise of power. Economics of the usual sort, whether Samuelsonian or Marxist, can’t get at why Europeans and then the rest of us started around 1800 to become insanely innovative. A new dignity for innovation and its market applications can: that’s a sociological change, supporting sensible economic policies. Look at China after 1978 and India after 1991. So too, I say, Holland in 1600, England in 1700, the English colonies and Scotland in 1750, and on and on. Praise God.

How does the concept relate to individual rights? Are they two sides of the same coin?

They are at least two coins that need to be paid up. If a place has dignity for the bourgeoisie but not liberty to exercise it—think of Venice late in its history—then it will not innovate. And having liberty without dignity—think of liberated Jews in Europe, and the dismal outcome in the Holocaust—then the liberty will prove in the long run a dead letter. My libertarian friends want the politics by itself, Liberty Alone, to suffice. I don’t think so: we need dignity, too. We need the sociological admiration for innovation and markets, to protect and inspire the liberated.

What is (are) the top lesson(s) that development economists should learn from economic history but haven’t?

I don’t want to scold development economists, who like economic historians seek the answer to our most important scientific question—the nature and causes of the wealth of nations. I was trained as a Samuelsonian economist, and taught at Chicago for a dozen years in its most creative period, so I understand and admire the sort of economics that development economists use. We all want growth to be a story of disequilibrium, misallocation, followed by a movement to a blessed equilibrium. The trouble is that all you get that way are little Harberger triangles of efficiency gain—not enough to explain a factor of 10 or 30 per capita. The real story is not, for example, the deeply Samuelsonian notion that The Institution Is It (Doug North is criticized in the book). It’s that Creativity Is It, which is more Austrian than Samuelsonian, more historical than timeless. What you can learn from the history is that stasis reigned until we discovered dignity and liberty for ordinary people, and in particular for the disturbing, irritating class of entrepreneurs.

What does your work imply for development today?

Politics and sociology, not psychology and economics, are what make growth possible. You can kill an economy with a License Raj or a disdain for the bourgeoisie. People have always been maximizers in markets, but have not always been joyful innovators. Admiring economic novelty irritates the intellectuals, and giving rein to creative destruction pains the vested interests. But both of them, dignity and liberty, seem to be necessary.

Candace Allen Smith said:

"Just as the society that doesn't venerate winners of races will produce fewer champion runners than the society that does, the society that does not honor entrepreneurial accomplishment will find fewer people of ability engaged in wealth creation than the society that does."

I think entrepreneurs are heroes

Sunday, March 20, 2011

More On The Importance Of Entrepreneurship

See Urban Magnets, a book review from yesterday's WSJ by MELANIE KIRKPATRICK. The book is about what happens when immigrants arrive in new cites. Excerpt:

"Property rights is another essential ingredient. The violent squatter communities on the outskirts of Istanbul were revolutionized in the 1980s by the late Turkish president Turgut Özal, who introduced a law that gave squatters formal ownership of their makeshift houses and title deeds to the land under them. Almost literally overnight, millions of Turkish citizens became property owners with a stake in the economy.

Ozal recognized that this new private property would be used as seed capital, Mr. Saunders notes, allowing poor peasants to start small businesses, build up savings and earn rental incomes. In giving squatters property rights, Ozal both created the beginnings of a new Turkish middle class and defused the political threat of the rootless people who populate the country's arrival cities. In contrast, the banlieus of France and the Turkish ghettoes of Germany are often pathways to failure, where migrants can't fully participate in their new countries as citizens and are prevented by local laws from forming businesses."

Low Interest Rates May Have Fueled The Housing Bubble

See Straightjackets and “We Rule” Shirts by John Taylor. He shows a graph that the countries that deviated the most from optimal interest rates had the most investment in housing.

Saturday, March 19, 2011

Madeleine Bunting Is Off Base On Entrepreneurship

She writes for the Guardian and seems to be a socialist. She finishes her recent blog post on microfinance with:

"The gist of the argument is that the enthusiasm for microfinance has been rooted in the myth of the heroic individual entrepreneur, the rags to riches fairytales, Dick Whittington style."

See Is microfinance a neoliberal fairytale?

But just because some or maybe most of these microfinance outfits are not really working out as publicized does not necessarily mean that entrepreneurs and entrepreneurship is not important. She says that

"But wealth creation, outside of fairytales, is very rarely the result of individual effort. Rather it is a collective endeavour – requiring skills and knowledge – in institutions such as companies, co-operatives."

But who starts new firms? To me, an individual will be the catalyst for them. There has to be a first person who says "let's open a donut shop." There is no group mind such that several people all have the same thought at the same instant to start a new business. So for her to make fun of the "myth of the heroic individual entrepreneur" is off base. If we don't say entrepreneurs are or can be heroes, why say that doctors, teachers, fire fighters, etc are? We could say that we don't need heroes to do those things-just a good system or organization.

Saying that entrepreneurs cannot be heroes directs people away from that activity. People respond to incentives and incentives are not all just monetary. Knowing that you might be held in high esteem for taking the risk of starting a new business should matter.

Then she says

"microfinance could actually inhibit poverty reduction by diverting attention and resources from the much more important state co-ordinated policy interventions, financial institutions and investment strategies that have been crucial to the success of fast-growing economies such as Vietnam, China and South Korea."

I don't know much about the role of "state co-ordinated policy interventions" in those countries, but I know that there are critics of industrial policy and MITI in Japan who say that Sony and other companies were successful because they decided to go their own way and not listen to MITI. See this post by David Henderson. Also, surely she would agree that not all "state co-ordinated policy interventions" work. So do they add more wealth on balance once the failures are taken into account? Maybe there are studies out there on that but I don't know that literature.

Then she says that

"microfinance is not very successful at creating prosperous small businesses in the long run. Much was made of the "telephone ladies" in the 1990s who took out microloans to buy mobiles and rent them out. Initially they made handsome profits, but as Chang points out their income has dropped dramatically. If a business idea works and is accessible to poor people, everyone will pile in"

Well, all those new entrants are helping to create wealth, something she says is not resulting from microfinance. I don't think you need to continually have above normal profit to create wealth

Finally, who does she think are heroes? Bureaucrats? Central planners? Does she think individuals should just sit around waiting for a bureaucrat to get things going?

This article from the New Yorker says that the state preventing entrepreneurship in the Middle East is one of the problems they face

The Tyrant Tax

Bunting seems to want more government control of the economy. But here is a very good statistic from the book The Economics of Macroissues:

"Thus for the poorest 10 percent of the population in highly capitalist countries, average per capita income is about $5,900 per year. For the poorest 10 percent of the population in the least capitalist countries, average income is under $750 per year."

But more capitalism (and therefore more entrepreneurship) is not what Ms. Bunting wants. She wants more government control, less capitalism and less entrepreneurship. But that seems to lead to more poverty.

Friday, March 18, 2011

TARP Might Be More Costly Than Is Commonly Thought

See TARP Was No Win for the Taxpayers: Treasury's claim that the bank bailouts will return a profit ignores the other, more costly programs enabling the banks to repay their TARP funds from the WSJ 3-17-11, by PAUL ATKINS, MARK MCWATTERS AND KENNETH TROSKE. Excerpts:

"The financial crisis was born in the housing bubble caused by the policies of Fannie Mae and Freddie Mac, the two bankrupt government-sponsored entities (GSEs) charged with buying and packaging mortgages into mortgage-backed securities (MBS). TARP banks own billions of dollars worth of MBS and have remained liquid in part because the Federal Reserve has bought more than $1.1 trillion of these GSE-guaranteed MBS in the securities markets—all outside TARP.

The Fed purchased the MBS at fair market value, but this value reflects Treasury's bailout and continued support of the GSEs—also done outside of TARP with taxpayer money. Had the GSEs failed, TARP recipients probably would have been stuck with these MBS, writing them down at significant loss. Their ability to pay back TARP funding would have been hurt, and they might have had to obtain more TARP funds or go bust.

So the taxpayer-backed GSE guarantee enables the Fed to prop up the market with taxpayer funds, in turn allowing the TARP banks to "repay" their TARP funds. The bailout of the GSEs by Treasury thus shifts potential losses from TARP to other programs that have less oversight and public scrutiny. Any evaluation of TARP's success must take into account the interaction among all government programs designed to prop-up the financial system, and the shifting of costs among these programs.

The Congressional Budget Office estimates that Treasury's bailout of the GSEs will cost the taxpayers approximately $380 billion through fiscal year 2021. If only one-fourth of CBO's estimate ultimately benefits TARP recipients and other financial institutions, taxpayers will have provided a subsidy to these institutions of approximately $100 billion, which is not accounted for under TARP."

Don't Worry About China Or Manufacturing Jobs

Another great letter from Don Boudreaux at Cafe Hayek.

"Unnecessary anxiety is stirred up by pundits, such as Mike Thompson, who bemoan China surpassing America in total annual value of manufacturing output (“China is now the world’s biggest manufacturer,” March 17). This fact, according to Mr. Thompson, is ominous for America, not least because more output by China allegedly causes higher unemployment in the U.S.

Forget that China’s population is four times larger than America’s (meaning that Americans still produce nearly four times more manufacturing output per person than does China). Instead recognize that most manufacturing job losses today come not from expanding trade with China or any other geopolitical region, but from advances in technology – advances in mechanization, computerization, and chemical processes.

The place to which America is losing manufacturing jobs, therefore, has no geography, although it’s very real. Call it “Technologia.” Technologia has a huge and growing capacity to produce and export valuable goods using ever-more skilled and numerous Technologian workers with names such as “Motor,” “Stamper,” “Robot,” “Software-program,” and “Solvent.” These workers toil with superhuman stamina and discipline, they’re paid nothing, they receive no worker protections, and they never strike. And Technologia’s workforce is forever learning to do, at consistently falling costs, what some American workers do.

Yet few of us worry about trade with Technologia, whose export agents keep cutting the prices they charge for the many imports we receive from that highly productive region. With the exception of some Luddites and technophobes, we rightly celebrate our receipt of Technologia’s massive and low-cost outputs and we understand that Technologia’s exports make us richer. Why, then, do we have a more hostile attitude toward goods and services imported from geographically identified economies such as China?"

Herbert Hoover Raised Spending Quite A Bit

See Krugman’s Forgotten History at Cafe Hayek by Donald J. Boudreaux. Excerpt:

"From 1924 to 1928 Uncle Sam’s real per-capita spending fell by 4.3 percent. But this spending rose significantly during Hoover’s term in the White House. From 1928 to 1929 real per-capita spending rose by 4.7 percent; from 1929-30 by 8.0 percent; from 1930-31 by 17.2 percent; and from 1931-32 by 15.8 percent. (This spending rose by another 28.4 percent from 1932-33.) The overall increase in real per-capita spending from 1928 to 1932 was a whopping 53.5 percent. Real per-capita spending excluding outlays for defense and interest on government debt increased during Hoover’s years in office even more dramatically, skyrocketing by 130 percent.*"

* Randall G. Holcombe, “The Growth of the Federal Government in the 1920s,” Cato Journal, Vol. 16, Fall 1996.

Manufacturing Fetishists and the Worrying Class

Great post from Mark Perry at Carpe Diem. He quotes Don Boudreaux. Excerpts:

"The United States alone produces roughly 20% of all the world's manufactured goods. We may not make many toys or cell phones any more, but we do make most of the world's artificial knees and hips, medical scanners and jet aircraft. Those sound like good jobs to me."

Then Perry says:

"We also need to update our outdated views about manufacturing jobs in an Information Age. When many people think of manufacturing jobs, they think of Rust-belt factory jobs in the steel or auto industry that were common in the Machine Age. But when the Information Age started in 1971 with the commercial introduction of the microchip, that all changed. For example, here are some of the largest U.S. manufacturers, based on sales in 2010: Hewlett-Packard, IBM, Microsoft, Dell, Apple, Intel, Sun, Texas Instruments, and ADM. Manufacturing today has gone high-tech."

Thursday, March 17, 2011

Does Immigration Hurt US Workers?

See Immigration doesn’t hurt native-born workers by Daniel Griswold of Cato. Excerpts:

"America’s current unemployment rate of nearly 9 percent has nothing to do with immigration. The rate was below 5 percent four years ago when, according to the Pew Hispanic Center, there were 1 million more illegal immigrants in the United States than today."

"In fact, immigration helps to soften swings in the unemployment rate by acting as a kind of safety valve for the U.S. labor market. When jobs are plentiful and labor markets tight, immigrants tend to come in greater numbers. When jobs are scarce and unemployment high, immigrants arrive in fewer numbers and more choose to return to their native countries, an option not open to native-born Americans."

"Numerous studies have found a generally positive impact of immigration on native-born wages. The only two groups that do suffer some wage losses because of immigration are other recent immigrants, and the small and shrinking pool of native-born adult Americans laboring without a high school diploma.

A comprehensive study by the National Research Council in 1997 concluded that immigration boosts the income of American workers overall by as much as $10 billion, but that it does slightly reduce the wages of the lowest skilled Americans. The NRC found that immigration had no negative effect on the wages of black Americans as a group.

More recent studies have confirmed the benign impact of immigration on U.S. wages. In a 2006 study for the National Bureau of Economic Research, economists Gianmarco Ottaviano and Giovanni Peri estimated that immigration from 1990 to 2004 had reduced the wages of Americans without a high school diploma by 1 to 2 percent, while boosting the wages of the more than 90 percent of American adults with a high-school education by 0.7 percent in the short run and 1.8 percent in the long run."

Why don't immigrants hurt US workers more? "...they bring a different set of skills and differing preferences for the kind of work they perform compared to native-born increasing the size the labor force, immigrants tend to boost the returns to capital...the number of immigrants and their output continue to be modest compared to the overall size of a U.S. economy..."

The Problems With TARP, According To John Taylor

See Evaluating TARP at his blog. Excerpt:

"At the COP hearing, Stiglitz, Meltzer, Johnson, and Zingales (who rarely all agree) were unanimous in their view that the TARP actions have created an incentive for financial institutions and their creditors to take high risks due to the expectation of being bailed out, favoring big players and leaving the economy vulnerable to financial crisis. They also agreed that the Dodd-Frank legislation did not solve “too big to fail.”

To these costs I would add that the TARP established an unfortunate precedent of heavy-handed government intervention in the operations of businesses. The government forced some financial institutions to take TARP funds, even those that said they did not want them, by threatening actions from regulators. The government used the TARP for purposes other than originally stated in Congressional hearings, including the bailing out of automobile companies."

Venezuela: The High Cost Of Low Gas Prices

Consumers there only have to pay 12 cents a gallon. The government subsidizes the rest. See Low gas prices plague Venezuela: Subsidy keeps prices low at the pump; too much of a good thing? at Market Watch. Excerpts:

"Successive governments have unsuccessfully grappled with how to raise prices, sometimes to disastrous effect. It was an unexpected gasoline price increase in 1989 that set off a week of deadly rioting.

The problem is not unique to Venezuela. Last December, Bolivia’s populist leader Evo Morales had to reverse a decree raising gasoline prices after his own leftist base went on a rampage. That same month, Iran posted troops at gasoline stations when President Mahmoud Ahmadinejad slashed the gasoline subsidy, quadrupling prices.

In Venezuela, local media seized on Chavez’s address, which hit a nerve among a population still smarting from last year’s difficult bout of water and power rationing. Additionally, Venezuelans already endure one of the highest inflation rates in the world, with food prices regularly climbing 30% a year, despite having some of the lowest energy costs.

Government officials quickly moved to quash the idea of price hikes, blaming the opposition for spreading misinformation.

“Where did the opposition get [the idea] that we’re going to ration gasoline or raise the price?” Oil Minister Rafael Ramirez later said during an address to the National Assembly. The government is requesting a more “rational use” of energy resources, not rationing, said Mr. Ramirez.

Nearly everyone agrees the artificially low price for gasoline fuels rampant consumption. “We drive around a lot and practically throw [gasoline] away,” Maria Eugenia Mored says as a gas station attendant tops off her Jeep Cherokee with 11 gallons for about 50 cents. “The streets are always packed.”

Such waste leads to reduced oil export revenues, hampering the national oil company’s ability to make badly-needed investments in its faltering production and refining capacity. Sweeping nationalizations have greatly curtailed outside investment into the oil sector, while massive cash transfers to the central government and rising capital costs also erode PDVSA’s, the national oil company, bottom line, say analysts."

"According to the Energy Information Agency, Venezuela’s refined product exports have fallen to almost 100,000 barrels a day from 379,000 barrels in 1997. Between 2009 and 2010, Venezuela was forced to buy millions of barrels of gasoline and blending components on the international market, an extraordinary situation that some liken to Saudi Arabia buying sand.

Because of the subsidy, PDVSA was paying as much as $60 a barrel for gasoline that was sold at home for the equivalent of $12 a barrel, says Gustavo Coronel, a former PDVSA board member and critic of Chávez’s oil policies.

“They cannot afford to go on like this any longer,” says Coronel,

Different analyst reports calculate that the subsidy’s true cost to the nation is between $7 and $10 billion, amounting to almost 5% of GDP. Barclay’s analyst Alejandro Grisanti said the subsidy is expected to climb to $10.5 billion this year as oil prices rise."

Wednesday, March 16, 2011

How Eminent Domain Hurts California

See Jerry Brown's Good Deed Gets Punished: California's governor wants to close his state's redevelopment agencies, which abuse property rights and breed dependency among city governments by Steven Greenhut, from the WSJ, 3-12/13-11. Excerpts:

"Once public officials deem an area blighted, redevelopment agencies can use eminent domain to clear old properties and sell bonds to pay for improvements.

To pay off the bonds, the agencies gobble up any subsequent increase in tax revenue—what the state calls the "tax increment." In addition, a portion of the sales taxes generated by the new retail and commercial centers go into city, not state, coffers."

"...redevelopment agencies have become fiefdoms that run up enormous debt and abuse eminent domain by transferring private property to large developers promising to build tax-generating bonanzas. Today, there are 749 such projects. In the late 1950s, there were only nine. According to the state controller, redevelopment agencies consume about 12% of all state-wide property taxes..."

"In the 12 years I've spent reporting on this issue, I've seen an agency attempt to bulldoze an entire residential neighborhood and transfer the land to a theme-park developer. I've witnessed agencies declare eminent domain against churches—which pay few taxes—in order to sell the property at a deep discount to big-box stores that promise to keep city coffers flush. Working-class people and ethnic minorities often are the victims of this process since they often live in the vulnerable neighborhoods, and they have less muscle than big business developers."

"Once "blight" is found, the agency creates a project area and can then begins selling bonds (incurring debt) without a public vote. In 1995, one area of the city of Diamond Bar, where I lived, was declared blighted because there was chipped paint on some buildings."

Crooks are taking advantage of lax oversight in Medicare’s Part D prescription drug program

See Fraud found in Medicare drug program from the AP. Excerpts:

"Crooks are taking advantage of lax oversight in Medicare’s Part D prescription drug program to obtain highly addictive drugs including oxycodone, Ritalin, and methadone, according to results of a federal probe.

The report by an independent inspector said Medicare can’t verify all the prescriptions it pays for, leaving the system open to exploitation by criminals using fake medical ID numbers and the identities of dead doctors."

"Critics say pharmacies are getting around safeguards in the system, making it nearly impossible for federal health officials to track whether a licensed doctor prescribed the drug and in what quantities.

“It’s similar to placing a combination lock on a gate to protect what’s inside but then allowing any combination to open the gate,’’ said Robert Vito, a regional inspector general for the Department of Health and Human Services, during testimony before Congress last year."

How Keeping Mexican Trucks Out Hurts The US

See Don't expect trucks from Mexico soon by David Hendricks, San Antonio Express-News, 3-5-11. Excerpts:

"U.S. consumers are losing money every day from the absence of cross-border trucking. The U.S. Chamber estimates unnecessary unloading, reloading and warehousing at the U.S.-Mexico border adds $400 million a year to the price of Mexican imports, a cost passed on to consumers.

Even if Mexico's tariffs went to zero today, the damage from the past two years will be felt for a long time. The Mexican marketplace has replaced U.S. suppliers with non-U.S. sources."

Tuesday, March 15, 2011

Economic Freedom in India Seems To Work

See the Cato Blog post on this by Ian Vasquez. Here is a quote: "states that have increased their level of economic freedom in the past five years have also tended to grow faster." It has a nice graph as well.

Abuse In New York State-run Homes For The Developmentally Disabled.

See NYT Shocks with Investigation of State-Run Homes by Cheryl Miller at the AEI blog. Here it is:

"The Sunday New York Times has a shocking front-page investigation of state-run homes for the developmentally disabled. The Times reviewed 399 cases in which a state employee was accused of beating, molesting, or otherwise harming the patients in their care and had also been disciplined for a prior offense in the last two years.

Just 35 of the workers were fired, while the rest returned to work—thanks, in no small part, to the efforts of New York’s largest union, the Civil Service Employees Association.

That includes employees like Ricky D. Sousie, who was caught by a coworker sexually assaulting a severely disabled, nonverbal woman. (He had previously been disciplined for punching another coworker in the face.) After a stint in jail, Sousie is now ready to collect his state pension (a privilege he shares with New York’s notorious “rubber-room” teachers). In fact, the Times notes, if Sousie hadn’t been sent to jail, he’d, “presumably, still be employed.”"

Gary Becker vs. Paul Krugman On Education

See Are Too Many Young People Going to College? by Becker. Excerpts:

"This brings me to Paul Krugman’s analysis that Posner commented on. I agree with Krugman that not everyone in the United States or elsewhere will benefit from a college education, but the United States and pretty much all other countries are very far from that extreme. However, if Krugman were correct that software was replacing college educated persons on a large scale, that high wage jobs have been more “offshorable” than jobs done by the low-paid, and that college education is becoming less helpful in finding good jobs, then surely during recent years the earnings gains of college graduates should already have begun to fall behind the gains of less educated persons.

Yet since the early 1990s and even during the last decade, the facts are the opposite: the average earnings premiums of college graduates in the US, and especially the premiums of persons with a post-graduate education, have continued to increase, despite the growth in the numbers of educated persons in the labor force (this evidence can be found in “Explaining the Worldwide Boom in the Higher Education of Women” by Gary Becker, William Hubbard, and Kevin Murphy, The Journal of Human Capital, Fall 2010). So the most recent trends in the earnings of college graduates do not support the view that the US is overeducating its labor force."

"Part of the American problem results from the high dropout rates from high school, including in the dropout rate students who only get a High School Equivalency Degree (GED). These dropout rates have remained stable at about 25% of all high school students, a depressing figure relative to those in other developed countries, where dropout rates are usually below 10%. The students who are dropping out do not get good jobs since the evidence is overwhelming that the pay of dropouts is very low, and their unemployment rates are very high. Not much support in these data for any “hollowing out” of job opportunities alluded to by Krugman. Especially disturbing is that African-Americans and other minorities are vastly over represented among those dropping out of high school.

So my conclusion is that America will benefit greatly from increasing the numbers of young men and women who go to and graduate from colleges and universities."

Monday, March 14, 2011

Minimum Wage Laws And The High Unemployment Rates Right Now

See Minimum Wage: The Missing Explanation by David Henderson at EconLog. Excerpt:

"So the unemployment rate among relatively unskilled workers is high--16 percent--and it's hard to explain why they can't find jobs "for less pay?" No, it's not, at least for some of them. The missing explanation is the minimum wage. On July 24, 2009, it increased by 70 cents an hour to $7.25 an hour. Given that there was deflation that year, the real increase was about 12 percent.

Economists have estimated that a 10 percent increase in the minimum wage causes a 1 to 3 percent drop in the number of jobs held by youths (defined as people age 16 to 24.) (That does not imply a -0.1 to -0.3 elasticity, as many people think, for the simple reason that most youths in jobs prior to a minimum wage increase are making well above the minimum wage.)

A 10 percent increase in the minimum wage would, therefore, cause a loss in youth jobs (starting from about 16 million employed) of about 160,000 to 480,000. A 12 percent increase would cause a loss of about 190,000 to about 570,000 jobs. And that's due just to the increase in the minimum wage. The minimum wage, itself, therefore, is responsible for more than those 190,000 to 570,000 missing jobs.

This estimate is in the ballpark of that estimated by labor economist and minimum-wage expert David Neumark. In an article in the Wall Street Journal, "Delay the Minimum Wage Hike," June 12, 2009, he wrote:

The best estimates from studies since the early 1990s suggest that the 11% minimum wage increase scheduled for this summer will lead to the loss of an additional 300,000 jobs among teens and young adults."

Phone Service Has Gotten Much Cheaper

See More Things Are Getting Better (or There's No Great Stagnation): Phone Service by Steven Horwitz at "Coordination Problem." He does some great analysis on the cost in terms of the number of hours we have to work to get a given level of service. There is a also a summary table of cost comparisons over time. Excerpts:

"First, the most basic level of phone service is cheaper today, in terms of labor time, than in 1994. Of course what counts as "basic" has increased significantly. Most notably, "basic" today includes free long-distance. Put differently, that $25 landline plan is probably much closer to the average landline bill than the $19.81 of 1994 was to the $61 average because the latter included all the various toll and long-distance charges. So for what amounts to less labor time, a landline phone today delivers a considerably better product.

Ok, says the critic, what about cell phones? So suppose we add the most basic calls-only cellphone plan on top of that landline (note that I'm ignoring pre-paid or pay-as-you-go cell plans). That's another $40 per month, bringing us up to $65/month, which, assuming our cell customer does not go over her minutes, is roughly the average nominal phone bill in 1994. If we make the labor time calculation, the combo of basic landline and basic cell is cheaper today than in 1994. And if we make it, instead, the entry level Verizon family plan, our typical household is paying $94.99 for phone service (both landline and two cell lines). That is still cheaper in terms of labor time than was the average residential phone bill in 1994.

We can also look at this comparison in terms of percentages of median household income. The combination of a landline and a basic cell package is a smaller percentage of median household income (using 2009 data) than was the average residential phone bill in 1994. If we substitute the Verizon family plan for the basic cell package, the percentage of median household income is nearly identical to the average residential phone bill from 1994. So no matter how you slice it, "typical" phone service today is, at worst, equal to the cost of such "typical" service in 1994 if you look at median household income, and cheaper if you do the labor time calculation."

Bus Competition Serves Consumers

See Competition Is The Consumer's Best Friend at Carpe Diem. Here is that post:

"This was probably inevitable. Faced with all of the competition from Bolt Bus, Mega Bus, Chinatown Bus, DC2NY, Vamoose, etc. for cheap bus fares between cities like Washington, D.C. and NYC, the long-time industry leader Greyhound had to match the "predatory" fares and "cutthroat competition" of its new, upstart rivals.

As the graphic above shows, Greyhound is now offering $15 fares between DC and NYC on the Uncommon Transport website, which is less than 50% of the "standard fare" of $35 listed on Greyhound's regular website for DC to NYC. And for a route of approximately the same distance - DC to Charleston, WV (250 miles) - but without the intense competition of the 225-mile DC-NYC route, the one-way Greyhound fare is $10

Economic Lesson: Intense, even "cutthroat," competition is the consumer's best friend, and often the best regulator."

Sunday, March 13, 2011

Environmental Policies Might Cause People To Drive More Thereby Increasing Pollution

See The Paradox of Efficiency by Kenneth P. Green at the AEI blog. Here it is:

"It is common to hear proponents of the new green energy economy talk about a huge potential for efficiency gains to reduce demand for energy. New efficiency standards for appliances, cars, and just about everything else will magically allow our economy to grow without growing our energy consumption.

Mr. Wizard, meet Mr. Jevons. The Jevons paradox, sometimes known as the rebound effect, is the entirely predictable result of genuinely improving efficiency: when you lower costs of something, people consume more. Jevons observed that more efficient ways of consuming coal led to increased coal consumption. Others have observed that the 1970s fuel-economy standards led to increased driving.

Now we see the Jevons paradox as it relates to the new green vehicles that governments are pushing with lavish subsidies, tax credits, and more. As blogger Zach Bowman points out at AutoBlogGreen,

Sweden seems to be experiencing what experts call a backfire effect from the company’s rash of green car sales. Swedish car buyers have been snapping up clean diesel and ethanol vehicles in droves thanks to sizable government incentives, but, according to reports, the nation has actually seen its emissions from the transportation sector increase by an impressive 100,000 tons. What happened?

According to statistics from the Swedish Transportation Agency, average emissions from new cars in the country decreased from 164 to 151 grams of CO2 per kilometer driven, and Swedish drivers used their green cars to cover more territory than ever before. Thanks in part to better fuel economy and the idea that a green vehicle has a slimmer impact on the environment, the overall result is more fuel burned, more emissions spewed.

Environmentalists would have us believe that somehow, the Jevons paradox doesn’t apply to them. Nothing could be further from the truth: as the guys over at the Breakthrough Institute point out, “There is a large expert consensus and strong evidence that below-cost energy efficiency measures drive a rebound in energy consumption that erodes much and in some cases all of the expected energy savings.”"

Saturday, March 12, 2011

Overplaying the Human Contribution to Recent Weather Extremes

This a post by Patrick J. Michaels of Cato. Click here to read it. Excerpt:

"Where to start? How about last summer’s Russian heat wave?

The Russian heat wave (and to some degree the floods in Pakistan) have been linked to the same large-scale, stationary weather system, called an atmospheric “blocking” pattern. When the atmosphere is “blocked” it means that it stays in the same configuration for period of several weeks (or more) and keeps delivering the same weather to the same area for what can seem like an eternity to people in the way. Capitalizing on the misery in Russia and Pakistan, atmospheric blocking was added to the list of things that were supposed to be “consistent with” anthropogenically stimulated global warming which already, of course included heat waves and floods. And thus the Great Russian Heat Wave of 2010 became part of global warming lore.

But then a funny thing happened – scientists with a working knowledge of atmospheric dynamics started to review the situation and found scant evidence for global warming.

The first chink in the armor came back in the fall of 2010, when scientists from the Physical Sciences Division (PSD) of the Earth System Research Laboratory (ESRL) of the National Oceanic and Atmospheric Administration (NOAA) presented the results of their preliminary investigation on the web , and concluded that “[d]espite this strong evidence for a warming planet, greenhouse gas forcing fails to explain the 2010 heat wave over western Russia. The natural process of atmospheric blocking, and the climate impacts induced by such blocking, are the principal cause for this heat wave.”

The PSD folks have now followed this up with a new peer-reviewed article in the journal Geophysical Research Letters that rejects the global warming explanation. The paper is titled “Was There a Basis for Anticipating the 2010 Russian Heat Wave?” Turns out that there wasn’t.

To prove this, the research team, led by PSD’s Randall Dole, first reviewed the observed temperature history of the region affected by the heat wave (western Russia, Belarus, the Ukraine, and the Baltic nations). To start, they looked at the recent antecedent conditions: “Despite record warm globally-averaged surface temperatures over the first six months of 2010, Moscow experienced an unusually cold winter and a relatively mild but variable spring, providing no hint of the record heat yet to come.” Nothing there.

Then they looked at the long-term temperature record: “The July surface temperatures for the region impacted by the 2010 Russian heat wave shows no significant warming trend over the prior 130-year period from 1880 to 2009…. A linear trend calculation yields a total temperature change over the 130 years of -0.1°C (with a range of 0 to -0.4°C over the four data sets [they examined]).” There’s not a hint of a build-up to a big heat wave.

And as to the behavior of temperature extremes: “There is also no clear indication of a trend toward increasing warm extremes. The prior 10 warmest Julys are distributed across the entire period and exhibit only modest clustering earlier in this decade, in the 1980s and in the 1930s…. This behavior differs substantially from globally averaged annual temperatures, for which eleven of the last twelve years ending in 2006 rank among the twelve warmest years in the instrumental record since 1850….”

With regard any indication that “global” warming was pushing temperatures higher in Russia and thus helped to fuel the extreme heat last summer, Dole et al. say this: “With no significant long-term trend in western Russia July surface temperatures detected over the period 1880-2009, mean regional temperature changes are thus very unlikely to have contributed substantially to the magnitude of the 2010 Russian heat wave.”"

By 2080, Interest On The Debt Could Be 40% Of GDP

See Norquist Is Right, Coburn Is Wrong: Tax Increases Undermine Good Fiscal Policy by Daniel J. Mitchell of Cato. This is shown in a chart. Here is an excerpt:

"Milton Friedman was right when he said that “in the long run, government will spend whatever the tax system will raise, plus as much more as it can get away with.” In other words, if politicians think they can get away with deficits averaging, say, 5 percent of GDP in the long run, then the only impact of higher taxes is an equal amount of additional spending — while still retaining deficits of 5 percent of GDP.

The real-world evidence certainly points in this direction. We've seen "bipartisan budget summits" several times in Washington, and the result is more spending rather than lower deficits. Americans for Tax Reform has a good analysis of what happened after the two big budget summits in 1982 and 1990..."

Biofuels Aggravate Global Warming and Cause Hunger

See the Slate article The Ethanol Catastrophe by Bjørn Lomborg. (Hat Tip: Carpe Diem) Excerpt:

"The United States spends about $6 billion a year on federal support for ethanol production through tax credits, tariffs, and other programs. Thanks to this financial assistance, one-sixth of the world's corn supply is burned in American cars. That is enough corn to feed 350 million people for an entire year.

Biofuels were initially championed by environmental campaigners as a silver bullet against global warming. They started to change their minds as a stream of research showed that biofuels from most food crops did not significantly reduce greenhouse gas emissions – and in many cases, caused forests to be destroyed to grow more food, creating more net carbon-dioxide emissions than fossil fuels.

Some green activists supported mandates for biofuel, hoping they would pave the way for next-generation ethanol, which would use non-food plants. That has not happened. Today, it is difficult to find a single environmentalist who still backs the policy. Even former U.S. Vice President and Nobel laureate Al Gore—who once boasted of casting the deciding vote for ethanol support—calls the policy 'a mistake.'"

Friday, March 11, 2011

Do people with private insurance pay for care for the uninsured through "cost shifting?"

Maybe not. See ObamaCare and the Truth About 'Cost Shifting': There's simply no evidence to support the claim that the insured bear the costs of caring for the uninsured in today's WSJ. Excerpts:

"The centerpiece of the court battle over ObamaCare's constitutionality is the law's mandate that most U.S. residents obtain health insurance. To justify the mandate, the administration and Congress have asserted that people with private insurance pay for care for the uninsured through "cost shifting"—higher prices charged by doctors and hospitals to recover losses from uncompensated care.

The government argues that the Constitution permits Congress to require that people get insurance in order to reduce the extent of this "hidden tax." Although courts have disagreed about the constitutionality of the mandate and the new law as a whole, all courts have accepted the premise that the hidden tax is significant.

But how strong is the evidence for this proposition? Our review of the research has found that there is no credible evidence of a cost shift of any substantial consequence, either within state boundaries or across state lines. Moreover, the new law will likely generate more cost shifting—the opposite of what its supporters would have us believe.

There are, surprisingly, few peer-reviewed studies of the magnitude of alleged cost shifting at the national level. A study conducted by George Mason University Prof. Jack Hadley and John Holahan, Teresa Coughlin and Dawn Miller of the Urban Institute, and published in the journal Health Affairs in 2008, found that so-called cost shifting raises private health insurance premiums by a negligible amount. The study's authors conclude: "Private insurance premiums are at most 1.7 percent higher because of the shifting of the costs of the uninsured to private insurance." For the typical insurance plan, this amounts to approximately $80 per year."

"Moreover, the economics of markets for health services suggests that any cost shifting that may occur is unlikely to affect interstate commerce. Because markets for doctor and hospital services are local—not national—the impact of cost shifting will be borne where it occurs, not across state lines.

The bad news for the new law's supporters (and for individuals with private insurance) doesn't stop there. If anything, the likely impact of the law will be to increase, not decrease, cost shifting. According to the Congressional Budget Office, around half of the people who are expected to become newly insured under the new law will be enrolled in Medicaid. But Medicaid payments to doctors and hospitals are so low that the program creates a cost shift of its own. In fact, a long line of academic research shows that low rates of Medicaid reimbursement translate into higher prices for the privately insured."


Mr. Cogan is a senior fellow at the Hoover Institution and professor of public policy at Stanford University. Mr. Hubbard, dean of Columbia Business School, was chairman of the Council of Economic Advisers under President George W. Bush. Mr. Kessler is a professor of business and law at Stanford University and a senior fellow at the Hoover Institution. The second edition of their book "Healthy, Wealthy, and Wise: Five Steps to a Better Health Care System" was just published by the AEI Press/Hoover Institution.

Thursday, March 10, 2011

Do Trade Deficits Cause Unemployment To Go Up?

They might not. Daniel Griswold has a post on this today at the Cato blog. See Time for a Reality Check on the Trade Deficit. It links to more detailed research he did called Are Trade Deficits a Drag on U.S. Economic Growth? He shows that when trade deficits are rising, we usually experience economic growth. He says:

"How can the seeming paradox of faster growth and expanding trade deficits be explained? The evidence certainly does not suggest that an expanding trade deficit somehow fuels more rapid economic growth or that a trade deficit is necessarily good for the overall economy.

More plausibly, causation flows from economic growth to the trade balance. An expanding economy increases demand not only for domestic production but also for imports. It also promotes more domestic investment as businesses seek to meet rising demand and capitalize on new investment opportunities.

Rising investment opportunities, in turn, attract foreign capital to the United States to fund investment over and above what can be financed through domestic savings alone. Those capital inflows are the flip side of the current account deficit: the greater the net inflows of capital from abroad, the greater the current account deficit needs to be to accommodate those inflows. Thus, when GDP growth accelerates, so does domestic investment, inflows of foreign capital, and the current account deficit. While a growing current account deficit is not the cause of faster GDP growth, it is often its handmaiden.

Our simple comparison of the current account balance and GDP growth does not account for a host of other factors that can influence both growth and the trade balance. But at the very least the data fail to show any discernable negative effect on economic growth from a rising trade deficit. Absent any real evidence, the standard assumption that trade deficits are a drag on growth should be re-examined before it is repeated again uncritically."

My own research on this is The trade deficit, unemployment rates and wages. It explains some regression analysis. I could not find that trade deficits caused unemployment to go up. I tried to account for other factors like changes in the GDP from year to year.

Do Federal Workers Get Paid More Than Comparable Private Sector Workers?

Maybe. See Are Federal Workers Underpaid by Andrew Biggs at AEI. It has a link to some congressional testimony he gave. He says that adjusting for the usual differences that labor economists take into account, they get paid a little more.

Does Medicaid Make People Worse Off

See Medicaid Is Worse Than No Coverage at All:New research shows that patients on this government plan fare poorly. So why does the president want to shove one in four Americans into it? from today's WSJ, by Scott Gottlieb, MD. Excerpts:

"• Head and neck cancer: A 2010 study of 1,231 patients with cancer of the throat, published in the medical journal Cancer, found that Medicaid patients and people lacking any health insurance were both 50% more likely to die when compared with privately insured patients—even after adjusting for factors that influence cancer outcomes. Medicaid patients were 80% more likely than those with private insurance to have tumors that spread to at least one lymph node. Recent studies show similar outcomes for breast and colon cancer.

• Major surgical procedures: A 2010 study of 893,658 major surgical operations performed between 2003 to 2007, published in the Annals of Surgery, found that being on Medicaid was associated with the longest length of stay, the most total hospital costs, and the highest risk of death. Medicaid patients were almost twice as likely to die in the hospital than those with private insurance. By comparison, uninsured patients were about 25% less likely than those with Medicaid to have an "in-hospital death." Another recent study found similar outcomes for Medicaid patients undergoing trauma surgery.

• Poor outcomes after heart procedures: A 2011 study of 13,573 patients, published in the American Journal of Cardiology, found that people with Medicaid who underwent coronary angioplasty (a procedure to open clogged heart arteries) were 59% more likely to have "major adverse cardiac events," such as strokes and heart attacks, compared with privately insured patients. Medicaid patients were also more than twice as likely to have a major, subsequent heart attack after angioplasty as were patients who didn't have any health insurance at all.

• Lung transplants: A 2011 study of 11,385 patients undergoing lung transplants for pulmonary diseases, published in the Journal of Heart and Lung Transplantation, found that Medicaid patients were 8.1% less likely to survive 10 years after the surgery than their privately insured and uninsured counterparts. Medicaid insurance status was a significant, independent predictor of death after three years—even after controlling for other clinical factors that could increase someone's risk of poor outcomes.

In all of these studies, the researchers controlled for the socioeconomic and cultural factors that can negatively influence the health of poorer patients on Medicaid.

So why do Medicaid patients fare so badly? Payment to providers has been reduced to literally pennies on each dollar of customary charges because of sequential rounds of indiscriminate rate cuts, like those now being pursued in states like New York and Illinois. As a result, doctors often cap how many Medicaid patients they'll see in their practices. Meanwhile, patients can't get timely access to routine and specialized medical care.

The liberal solution to these woes has been to expand Medicaid. Advocacy groups like Families USA imagine that once Medicaid becomes a middle-class entitlement, political pressure from middle-class workers will force politicians to address these problems by funneling more taxpayer dollars into this flawed program.

President Barack Obama's health plan follows this logic. Half of those gaining health insurance under ObamaCare will get it through Medicaid; by 2006, one in four Americans will be covered by the program. A joint analysis from the Republican members of the Senate Finance and House Energy and Commerce Committees estimates that this will force an additional $118 billion in Medicaid costs onto the states.

We need an alternative model. One option is to run Medicaid like a health program—rather than an exercise in political morals—and let states tailor benefits to the individual needs of patients, even if that means abandoning the unworkable myth of "comprehensive" coverage."