Wednesday, November 30, 2011

Collective Bargaining Weakens Cities: Public unions on the local level have too much power—even deep blue Massachusetts is starting to rein them in

Click here to read the article. By ROBERT M. COSTRELL. WSJ, 11-23-11. Mr. Costrell, a professor of education reform and economics at the University of Arkansas, served as chief economist for the Commonwealth of Massachusetts from 2003-2006 and education adviser to Gov. Mitt Romney from 2005-2006. Excerpts:
"After a seven-year effort dating to the Romney administration, the Democratic-controlled legislature finally passed a law aimed at bringing local costs in line with state costs—and it was signed by Gov. Deval Patrick. Previously, localities could not change the copayment, deductible or any details of any bargaining unit's health plan without the approval of every local union. As a result localities were paying, on average, 37% more for health insurance than state and private employers."

"In Cleveland, for example, the collectively bargained contribution by teachers is $75 per month for family health coverage, a fraction of a state employee's $205 monthly contribution. Ohio state employees face an out-of-pocket maximum of $3,000 per family for in-network coverage, including a deductible of $400 and a co-insurance rate of 20%. For Cleveland teachers, the out-of-pocket maximum is zero—there's no deductible and no co-insurance. These provisions are written into Cleveland's union contract. They will be very difficult to remove."

Wal-Mart does far more than churches to assist needy people

See The Retail Principle of Doing Good. It was a letter to the editor in the 11-23-11 WSJ.
"Aaron Belz ("How Calvinists Spread Thanksgiving Cheer," op-ed, Nov. 18) describes a Santa Monica, Calif., church distributing holiday food baskets. But the truth is, Wal-Mart and its counterparts spread far more holiday-food cheer than do churches and public-service groups.

Scholars estimate that the presence of Wal-Mart in a community reduces food prices somewhere between 10% and 15%. That's equivalent to shoppers receiving an additional 5.2 to 7.8 weeks of "free" food shopping. That Wal-Mart's customer base is skewed toward lower-income shoppers reinforces the beneficent consequences of its price effect.

Telling of the good that big-box retailers do for their customers doesn't pack the same "feel good" punch as Mr. Belz's account of a California church. Hey, the idea that one can do good while doing well in the marketplace has always been a tough sell.

Lest you think me a curmudgeon putting down church efforts, let me say that I contribute to my church's food and winter coat drives. And my church is part of the same denomination as the church Mr. Belz describes (Presbyterian Church in America). That I also believe that my local Wal-Mart does far more than my church to assist needy people often causes me to feel like the odd man out.

T. Norman Van Cott

Department of Economics

Ball State University

Muncie, Ind."

Are the Unemployed Victims of Discrimination?

Click here to read the article. From the WSJ, 11-25-11. By MICHAEL SALTSMAN, a research fellow at the Employment Policies Institute. Excerpts:
"This issue first bubbled up last year when the mobile phone company Sony Ericsson contracted with an Orlando-based job recruiter to hire employees for its new Atlanta headquarters. The recruiting firm added a caveat to one of the job posts: "No unemployed candidates will be considered at all."

After a series of news stories, a Sony Ericsson spokeswoman described the language in the job post as a "mistake" on the recruiter's part. The company wasn't trying to exclude the currently unemployed, she explained; rather, having already received an overwhelming number of applications from this group via its website, it was trying to expand the applicant pool to people who currently had a job."

"Missing from advocates' vague discussions of "numerous instances" and "emerging trends" was hard evidence to support the claim that the unemployed are being discriminated against. The closest thing to a data point came in a report released this summer by NELP, which identified 150 "exclusionary" ads during a one-month review of major job-search websites."

"NELP's sample, in other words, represents 0.005% of one month's job postings. found a similar result, announcing this summer that "less than one one-hundredth of one percent of the postings on Monster had any language excluding the unemployed.""

"The lack of evidence for a nationwide epidemic is compounded by the fact that the NELP report took words out of context. For example, national recruiter Kelly Services placed the following ad in the St. Louis area: "Currently employed but lacking growth in terms of responsibilities and technical proficiencies? If so, Kelly IT Resources-St. Louis wants to talk to you!" NELP zeroed in on "currently employed," counted it as discriminatory, and ignored the rest of the posting."

"Common sense dictates that marketing to the currently employed looking to advance does not signal a rejection of the unemployed."

Tuesday, November 29, 2011

The bankers were not behaving in patterns we would expect from reckless greedheads

See New Data on Bankers' Risk Aversion by Jeffrey Friedman.
"Probably the most controversial claim of the book will prove to be our suggestion that the behavior of bankers before the crisis was actually risk averse, at least in the aggregate. (A key point of Chapter 4, however, is that there was considerable heterogeneity underneath these aggregates.)

The risk-aversion claim rests on two facts: the much-higher-than-legally required capital ratios of commercial banks and savings and loans before the crisis; and the fact that commercial banks and S&Ls overwhelmingly bought the least lucrative and supposedly “safest” mortgage-backed securities: those implicitly guaranteed by the federal government through Fannie and Freddie’s congressional charters; and those rated AAA vs. those rated AA or lower.

Lower-paying bonds pay higher yields than higher-rated bonds, which in turn pay higher yields than “agency” (Fannie/Freddie) bonds. Reckless, greedy bankers should not have bought agencies or AAA bonds; they should have bought BB or BBB bonds.

In Table 2.2 of the book, we claim that banks bought more than twice the quantity of agency bonds as AAA mortgage bonds, and four times the quantity of AAA mortgage bonds as AAA CDOs. CDOs usually tranched mezzanine (sub-AAA) tranches of “regular” mortgage bonds, i.e., private-label mortgage-backed securities (PLMBS), so AAA CDOs were objectively riskier than AAA PLMBS. Thus, one way to view the collective risk profile of U.S. banks and savings and loans is to recognize that the following list shows the least risky and least lucrative of their mortgage bond holdings first, with the riskiest and most lucrative last:

$852 billion in agency bonds
$383 billion in AAA private-label mortgage-backed securities
$90 billion in AAA CDOs

Those are the figures on which row 1 of our Table 2.2 are based. However, none of our tables show bank holdings of actual AA, A, BBB, or BB tranches of PLMBS. This is because our data on the distribution of the various types of mortgage bond in banks’ portfolios came from a famous Lehman Brothers study dated April 11, 2008: “Residential Credit Losses—Going into Extra Innings?” (We discuss this study in end note 1 to the conclusion of the book.) The Lehman figures assign PLMBS and CDO holdings by various types of investor (commercial banks and S&Ls, investment banks, hedge funds, etc.) by billions of dollars. But the 2008 Lehman table says that commercial banks held no PLMBS or CDOs rated lower than AAA. That seems implausible, unless the authors of the report could not find holdings totaling more than $500 million, so the figure got rounded down to zero billions of dollars. (We attempted to contact the authors of the report, but they all now work for hedge funds and are barred from communicating with members of the public.)

The Lehman figures have been widely cited by others (e.g., Arvind Krishnamurthy, “The Financial Meltdown: Data and Diagnoses”--download PDF--Table 1 [November 2008]; Viral Acharya and Matthew Richardson, Restoring Financial Stability: How to Repair a Failed System [2008], Table 5). They are more comprehensive and newer than the only comparable data source, a 2007 Lehman Brothers report entitled “Who Owns Residential Credit Risk” (cited by the Financial Crisis Inquiry Commission, “Preliminary Staff Report: Securitization and the Mortgage Crisis” [April 2010], Table 1). However, we wish there were a better source. Unfortunately, as of November 2010, when our book was completed, we knew of no other data. Now (ht Viral Acharya) we do—although this source, too, has limitations.

In August 2011, Isil Erel, Taylor D. Nadauld, and René M. Stulz released an NBER working paper, “Why Did U.S. Banks Invest in Highly Rated Securitization Tranches?” Erel et. al found a way to use regulatory filings from bank holding companies to “back out” their mortgage-bond holdings.

The key data source, Schedule HC-R of form FR Y-9C, groups assets by risk bucket: 0%, 20%, 50%, 100%. This means that AAA and AA PLMBS, which were both risk weighted at 20%, are grouped together. And the 100% category contains so many different types of securities, such as corporate bonds and equities, that we cannot back out mortgage bonds in that category, namely those rated BBB or BB. Using Erel et al.’s method, however, we are able to provide the following results for the four biggest bank holding companies as of the end of 2006:

$70 billion in agency bonds
$28 billion in AAA/AA mortgage bonds
$10 billion in A-rated mortgage bonds

Bank of America:
$157 billion in agency bonds
$4 billion in AAA/AA mortgage bonds
$2 billion in A-rated mortgage bonds

$75 billion in agency bonds
$1 billion in AAA/AA mortgage bonds
$0 billion ($351 million) in A-rated mortgage bonds

Wells Fargo:
$27 billion in agency bonds
$27 billion in AAA/AA mortgage bonds
$1 billion in A-rated mortgage bonds

$329 billion in agency bonds
$60 billion in AAA/AA mortgage bonds
$14 billion in A-rated mortgage bonds

In short, the Big Four invested in the safest two classes of mortgage securities, agencies and AAA/AA, at a ratio of 28:1 compared to the riskiest, most lucrative category for which we have figures: A-rated bonds. One should keep in mind that, for example, in mid-2006, agencies paid a 9-bps spread over Treasuries, AAAs paid 18 bps, AAs paid 32 bps, and As paid 54 bps. Reckless, greedy bankers should have bought As--or lower-rated mortgage bonds (BBBs paid 154 bps, and BBB- paid 267 bps) every time--never agencies, AAAs, or AAs.

However, do the new data mean that the Lehman figures on which we relied are wrong, for showing zero (or less than $500 million) in sub-AAA mortgage-bond holdings among commercial banks and savings and loans? Not necessarily. The figures above are from the consolidated regulatory filings of bank holding companies, which include investment-banking arms. The Lehman figures do show $24 billion in sub-AAA bonds among investment banks.

As for the data, then, we conclude that the full story remains to be told, but that our basic point stands: the bankers—even at Citigroup, which had the riskiest portfolio—were not behaving in patterns we would expect from reckless greedheads."

Jeff Friedman's Response to Comments on Engineering the Financial Crisis

Interesting post at "Coordination Problem."
"I haven't wanted to interrupt all of these kind words, but thank you, Pete and everyone else.

Engineering the Financial Crisis was indeed inspired by what I take to be the core Austrian insight: the ubiquity of human ignorance. Popper makes a very similar point: the ubiquity of human error.

To me, Austrian economics is distinctive because it opens the door to saying, as Mises did in the socialist calculation debate: People may err because they don't know what they should know. Speaking for myself, not Wladimir Kraus, I’m not so sure about the rest of Austrian economics, but then, I am not an economist of any kind.

I agree that it's kind of absurd to have to *theorize* ignorance-based error, as Anthony Evans and I do in our recent “Critical Review” paper, but mainstream economists really do seem to have trouble with the concept, and it was this trouble that also led Wlad and me to write “Engineering the Financial Crisis.” For example, the book notes that Stiglitz asserts repeatedly that the crisis was *not* the result of anyone's errors. But we also note, following Pete Boettke's 1997 “Critical Review” article, “Where Did Economics Go Wrong?” that whether it's Stiglitz on the left or Stigler on the right, such assertions are commonplace among mainstream economists, clearing the way for them to claim that incentives, as opposed to ignorance, explain (or rather explain away) errors.

The Evans and Friedman paper linked to above suggests that Austrians seize the moment to criticize that tendency among mainstream economists. Austrians might be able to reform their discipline in this golden moment of opportunity if they show that an ignorance-based economics has a much firmer purchase on the empirical realities of the crisis than the evidence-free assertions of Stiglitz and virtually all other economists who have written about the disaster. That's what Engineering the Financial Crisis” tries to do.

The book is also an exercise in “Austrian political science.” Just as Mises asked how central planners would know what they'd need to know if they were to avoid errors, an Austrian political theory would ask how political actors are to know what they need to know, and an Austrian political science would examine political actors' actual sources of information, the gaps therein, and the theoretical and ideological biases therein.

Thus, Wlad and I find that banking regulators were in the grip of the same economistic ideology gripping Stigler and Stiglitz. They thought that deposit insurance created misaligned incentives for bankers (a moral hazard), such that bankers would now want to take wild bets. Therefore capital cushions had to be mandated by law, and the details of those mandates incentivized bankers to pile into what regulators thought were "safe" securities: those rated AAA. (Incidentally, the regulations provided an even greater incentive to pile into sovereign debt.)

Similarly, the accounting regulators thought corporate executives faced the moral hazard of profiting by hiding losses from shareholders. So they mandated mark-to-market accounting on the grounds that market prices "tell the truth" by "aggregating information" (. . . even Hayek was fallible . . .), rather than aggregating the fallible decisions of buyers and sellers. Mark-to-market accounting therefore writes down corporate assets that are experiencing an ignorance-based market panic, which happened to AAA mortgage bonds in 2007 and 2008, and this directly translates into dollar for dollar reductions in capital. If the corporation is a bank, this dramatically shrinks lending power, and thus may have transformed the financial-market panic into the Great Recession.

The "information," ideas, theories, and ideologies that prompt political action have long been studied in political science, so those who study it face none of the high hurdles to career success that face Austrian economists. The Critical Review Foundation has been running occasional seminars since 1995 to encourage young scholars of Austrian bent to go into political science. Two of those young scholars are now tenure-track political scientists at Yale. If you may be interested in this career path, please contact me through the Critical Review website,

Finally, Wlad and I have a blog where we've posted updated data on the actually risk averse (but regulation-following) behavior of bankers prior to the crisis: We'd be happy to debate the theses of the book there."

People have more appliances than they used to, even the poor

Saw these at "Carpe Diem" and "Coordination Problem." The source is the Census Bureau and BLS.

In 2000 $s, per capita consumption in the US was about $11,000 per year in 1970, taking health care out. By 2005 it was about $22,000.

Some good news in the world

Life expectancy continues to rise. From 52.6 in 1960 to 69.4 in 2009. A World Bank Report.

Literacy rates are rising. From UNESCO.

"At the global level, the adult literacy rate increased throughout the post-1950 period: from 56% in 1950 to 70% in 1980, and to 82% in the most recent period (2000-04)."

Violence is trending down, accoring to Steven Pinker

"The criminologist Manuel Eisner has assembled hundreds of homicide estimates from Western European localities that kept records at some point between 1200 and the mid-1990s. In every country he analyzed, murder rates declined steeply—for example, from 24 homicides per 100,000 Englishmen in the fourteenth century to 0.6 per 100,000 by the early 1960s."

"At the widest-angle view, one can see a whopping difference across the millennia that separate us from our pre-state ancestors. Contra leftist anthropologists who celebrate the noble savage, quantitative body-counts—such as the proportion of prehistoric skeletons with axemarks and embedded arrowheads or the proportion of men in a contemporary foraging tribe who die at the hands of other men—suggest that pre-state societies were far more violent than our own. It is true that raids and battles killed a tiny percentage of the numbers that die in modern warfare. But, in tribal violence, the clashes are more frequent, the percentage of men in the population who fight is greater, and the rates of death per battle are higher. According to anthropologists like Lawrence Keeley, Stephen LeBlanc, Phillip Walker, and Bruce Knauft, these factors combine to yield population-wide rates of death in tribal warfare that dwarf those of modern times. If the wars of the twentieth century had killed the same proportion of the population that die in the wars of a typical tribal society, there would have been two billion deaths, not 100 million."

U. S. gini coefficient for income is similar to OECD's

Click here to see the data

At this link you can see the gini calculated after taxes and transfers and, it seems, is adjusted for household size. For all people in the mid 2000s, the US has .38 and the OECD average is .31

Maybe The Top 1%'s Share Of Wealth Has Not Been Rising Over Time

See The Growing Wealth Gap? Fortune Makes up the Numbers by Alan Reynolds of Cato. Here it is:

"The latest Fortune magazine contains a page on “The Growing Wealth Gap.” The author, Doris Burke, says, “here are some of the facts.” But they aren’t facts, or even official estimates.

The opening line is, “The top 1% owns 36% of all wealth” as of 2009. Yet the latest figure was 33.8 percent in the Arthur Kennickell’s report on the Federal Reserve’s triennial Survey of Consumer Finances (SCF) and that was for 2007, not 2009. There will never be an estimate for 2009 (the next one is for 2010), so something is obviously fishy.

Using actual SCF estimates instead of Fortune’s made-up numbers, the first column in my table shows that the top 1 percent’s share of household net worth briefly spurted to 34.6 percent in 1995, but subsequently stabilized at 33.9% in 1998, 32.7% in 2001, 33.4% in 2004 and 33.8% in 2007.

An alternative source − a study of estate tax data in June 2004 The National Tax Journal by Wojciech Kopczuk of Columbia University and Emmanuel Saez at UC Berkeley − found the top 1 percent’s wealth share has fallen over the years from 26 percent in 1939 to 24.4 percent in 1962, 22% in 1989 to 20.8% in 2000 (shown in the table as 2001). The press repeatedly cites Saez’s estimates of the top 1 percent’s average income up until 2007 (since top incomes fell by 19.7 percent in 2008 and by a similar amount in 2009), but nobody ever mentions Saez’s estimates about the top 1 percent’s share of wealth.

So where did Fortune’s estimate of 36% (actually 35.6%) come from? The author cites the left-of-center Economic Policy Institute (EPI), which turns out to mean a paper by Sylvia Allegretto. (Fortune’s more amateurish sources include Deloitte and somebody named Mark Kroll). The EPI estimates, shown in the second column of the table, purport to be from the SCF but are simply mysterious. The dates were supposedly “chosen based on the data available,” but there is no data for 2009 while there is data for the strangely missing years of 1992 and 1995. Ironically, these enigmatic EPI estimates show the top 1 percent’s share of wealth declining since 1989 or 1998, which is not the impression that the EPI or Fortune hope to convey.

To fabricate a number for 2009, Ms. Allegretto relies on her own “author’s analysis” of an “unpublished analysis” by Ed Wolff “prepared for” the EPI but not on the website of Wolff or the EPI. Allegretto’s inexplicable analysis of Wolff’’s invisible analysis supposedly “updates” the official figures “based on changes in asset prices between 2007 and 2009 using Federal Reserve Flow of Funds data.” But changes in the flow of funds estimates are also rough and incomparable with the SCF, partly because they combine households with nonprofit organizations and unincorporated businesses.

Financial assets of households and nonprofits were worth $78.6 trillion at the end of 2007, according to the flow of funds, while homes were worth only $20.9 trillion and half of that was mortgaged. Allegretto implies that the top 1 percent’s share rose in 2009 because the flow of funds’ estimated 18 percent drop in the value of homes from 2007 to 2009 supposedly exceeded the drop in the value of assets that dominate the top 1 percent’s assets in 2007 – such as unincorporated business (whose value fell by 28.7 percent) and stocks (down 23.5 percent). Even if the flow of funds data confirmed the allegedly greater drop in home values than in, say, stocks, Allegretto’s own figures (her Table 6) show that stocks accounted for 30.8 percent of the wealth of the bottom 95 percent, but only 19.2 percent for the top 1 percent. In any case, home equity is too modest fraction of total wealth to drive the top 1 percent’s share upward at a time when stocks and small businesses were crashing. There is ample evidence (e.g., my forthcoming Wall Street Journal article updating the “new” CBO estimates to 2009) that recessions always drive down the top 1 percent’s share of both wealth and income. For those who obsess over the top 1 percent’s share, including the CBO and the Occupy Wall Street crowd, deep recessions should properly be celebrated as a wonderful decline in “inequality” by their twisted definition.

Fortune does not know what the top 1 percent’s share of wealth was in 2009, and it never will (because the next SCF survey will be for 2010). When the 2010 results are released, however, the top 1 percent’s wealth share will surely be lower than it was in 2007, not higher."

Friday, November 25, 2011

An open letter to Amnesty International on corporate abuse and entrepreneurship as a human right

I got an email from AI about "corporate abuse" of human rights, asking if it is on the rise. So here is an email I sent to some AI officials.

Below is an email I sent to Ana Polanco in response to her email. I think many governments around the world make it very hard for people to start a business and that this contributes to poverty. Perhaps this is a human rights violation. I think that entrepreneurship is a human right. What do you think? Maybe you have a committee or some experts who study this issue that you can pass this along to.

Ms. Polanco:

I received an email about this topic and I admit that it could be a concern. Corporations don't necessarily put human rights first. But when it comes to economic issues and their relationship to human rights, I also believe that governments do many things which prevent people from starting and running businesses that help get them out of poverty. Governments often set things up so that you have to have a connection to or be a friend of some official to get you business started. Or there is an enormous amount of paper work and regulations that have to be complied with to start a business. This makes things hard for the poor and those with little formal education. I have provided some links to articles on this topic. I wish that AI would look into this issue to see if it is worth publicizing and acting on. I believe that entrepreneurship is a human right. Thank you for your time.

Cyril Morong

Here is an article in the New Yorker by James Surowiecki called The Tyrant Tax

The Tyrant Tax

Here is Nobel Prize winning economist Gary Becker on the upheaval in the Middle East

Here is an article by economist HERNANDO DE SOTO in The Wall Street Journal called "Egypt's Economic Apartheid"

Egypt's Economic Apartheid

Unintentional overdose of medication causing emergency room visits

See Most Drug-Related Hospitalizations Due to Handful of Drugs at WebMD. It seems like we could cut health care costs alot if people took their medications properly. Emergency room visits tend to be costly.
"Just a few medicines are responsible for a majority of the emergency hospitalizations for bad events related to medication use in older U.S. adults, according to new research.

Each year in the U.S., there are nearly 100,000 emergency hospitalizations for adverse drug events in adults 65 and older, says researcher Daniel S. Budnitz, MD, MPH, director of the CDC's Medication Safety Program.

"The most significant finding of this study was [that] of the thousands of medicines available to older adults, it's really a small group ... that causes two-thirds of the hospitalizations," he tells WebMD.

The blood thinner warfarin, insulin, oral anti-platelets such as aspirin, and oral diabetes drugs led the list.

"Both blood thinners and diabetes medicines are critical drugs that can be lifesaving," Budnitz says. However, he says that ''these are medications that you do need to pay attention to," being sure the dose and timing are correct, among other measures.

High-risk medications, such as narcotics, only accounted for about 1% of the hospitalizations, the researchers found.

The study is published in The New England Journal of Medicine.

Tracking Bad Events From Drugs

The researchers used data collected between 2007 and 2009 from 58 hospitals around the country. The facilities participate in the CDC's drug event surveillance project.

The researchers looked at how often an adult 65 or older was hospitalized after emergency department visits for adverse drug events.

The researchers estimated that 265,802 visits to emergency departments for adverse drug events occurred from 2007 to 2009 for adults 65 or older.

Over a third of these visits, or nearly 100,000, required hospitalization. About half of the patients hospitalized were age 80 or older.

Unintentional overdose of medication was the most common reason, accounting for nearly two-thirds of hospitalizations."

The Problem With Minimum Wage Laws

Let's say you want to be humanitarian and help poor workers. So you enact a minimum wage law or your raise the current minimum. If we use a competitive labor market model, fewer workers will be hired. So you have the problem of helping some workers at the expense of others. And then there is the problem of those who never get hired for their first job and can never move up the income ladder. And then there are businesses that are never started due to higher costs and that means fewer workers hired.

But what if we assume a monopsony model, where only one firm hires labor. In that case, a minimum wage can increase the number of workers hired, if it is not raised too high (above a certain level, the number of workers hired will fall).

But if the affected firms can stay in business with this increased cost of labor, it means that before the minimum wage was imposed they were making above normal profit. Because if they had been making just normal or zero profit, the increased costs would put them below normal profit and they will not stay in business in the long-run, leading to job losses.

Now if they were making above normal profit in the first place, what prevented other firms from entering and driving profit back down to normal? There would have to be barriers to entry. But it seems like the barriers to entry are not that high in industries affected by the minimum wage like retail and restaurants.

Also, if new firms entered these industries, the demand for labor would increase, thus raising the wage rates. This eliminates the need for a minimum wage law.

But in any case, minimum wage advocates have to show that the industries affected have significant barriers to entry. I am not aware that this case has ever been made.

But what if there is monopsony power (or temporary monopsonies as Card and Krueger suggest)? How does the government know the degree of monopsony power each firm has? A single minimum wage imposed on all firms might be sub-optimal. It might be too high for some firms and too low for others (I'm assuming that the wage that would exist under competition would be optimal). As Milton Friedman said, you replace market failure with government failure because government often faces the same lack of information that the private sector faces. And Hayek might say something similar, that there is a knowledge problem. The government does not have enough information to set the right wage for each firm.

I have also never seen any minimum wage advocate say what wage would actually start to decrease the number of workers hired. Again, even in the monopsony model, this will happen if it were too high.

A minimum wage advocate could argue that it makes businesses more efficient and productive because it cuts down on worker turnover which reduces hiring and training costs. But why would businesses have to wait for the government to impose a minimum wage to do that? They can do that on their own. Now maybe the first time this happened, firms were presently surprised by the beneficial effect of the minimum wage. But now that this knowledge is out there, we don't have to keep raising the minimum wage to make this happen. And, as always, how would the government know how high to set the minimum wage so that its negative effects don't outweigh this positive effect? There is no guarantee that they do.

Finally, if the minimum wage law is used as an anti-poverty policy, then the burden of this policy is placed on those who have hired the poor workers. The businesses will have to pay and they may pass some of the cost along to the customers. So anyone who does not patronize, say, fast food restaurants, and does not own any stock in them, does have to pay for this anti-poverty program. It has to be paid for by those who were responsible for the poor having those jobs in the first place: the owners and customers. Is it fair to push this cost on them while everyone else pays nothing? Maybe expanding the Earned Income Tax Credit would be more equitable since it spreads the burden over everyone in society, not just a small minority.

BPA Is Not A Danger

See Harvard Prof Spins Scary Soup Study: Media Swallow by Trevor Butterworth of Forbes.
"Imagine three of the top scientific agencies in the U.S. working with the one of the nation’s top research laboratories try to find out how much BPA you are exposed to when you eat a lot of canned food over 24-hours. Imagine they continuously measure blood and urine to create a picture of human metabolism, a “Where’s Waldo” of chemical absorption and diffusion. Imagine they find that BPA rises in the urine after a meal of canned food as the chemical is rapidly metabolized and excreted and – even more surprising – they effectively fail to find any active BPA in human blood (it’s below the level of detection using the most advanced techniques for detection).

Imagine, also, that one of the world’s top endocrinologists, who specializes in looking at the potential risks of tiny amounts of chemicals to humans, calls the study “majestic,” for the way it was carried out, and says its conclusion effectively rules out the possibility that rodent experiments, where the chemical caused adverse effects, have any relevance for humans.

Well, such a study exists – but it might as well be a dream or a work of fiction, because the mainstream media just couldn’t be bothered to report it, despite publishing hundreds upon hundreds of stories about the alleged dangers of BPA in the past six years.

But what makes this particular omission particularly ironic, is that lo, a letter cometh out of Harvard and the Journal of the American Medical Association in which the best and the brightest students were fed canned soup, and behold, they haveth BPA in their urine. Cut to journo-evangelist, Anahad O’Connor, in the New York Times.
““The new study is the first to measure the amounts that are ingested when people eat food that comes directly out of a can, in this case soup.”

Well, um, no. The aforementioned study by the Centers for Disease Control, Food and Drug Administration, and Battelle researchers at the Pacific Northwest National Laboratory (Teeguarden et al.), which was funded by the Environmental Protection Agency, fed humans a diet almost entirely composed of canned food, which included chicken noodle soup and clam chowder. Perhaps Professor Michels and the New York Times weren’t aware of this?
“The spike in BPA levels that the researchers recorded is one of the highest seen in any study. ‘We cannot say from our research what the consequences are,” said Karin Michels, an associate professor of epidemiology at Harvard Medical School and an author of the study. “But the very high levels that we found are very surprising. We would have never expected a thousand-percent increase in their levels of BPA.’”

Actually, it’s not surprising at all. Why? Because the FDA has studied the concentrations of BPA in canned food and it published the results last July in the Journal of Agricultural Food Chemistry. BPA levels varied widely in canned food (note this point, because we’ll come back to why it is highly significant later) and in terms of soup, levels of BPA were up to 100 parts per billion (ppb) or nanograms per gram.

So, work out the dose for a 70 kilo person ingesting 12oz of soup at the highest level, and you end up with 0.5 ug/kg bw – which is ten times higher than the mean daily intake of BPA for the general population as calculated from the NHANES database (Lakind and Naiman, Journal of Exposure Science and Environmental Epidemiology, 2010). This comports with the levels found by Michels.

And wait – remember the Teeguarden study that no one in the media thought was worth reporting? Yes – that too shows similar levels of BPA in urine to Michels (and in some cases higher) after certain meals, with the added bonus that it demonstrated the levels did not translate into active BPA in the blood, which is the only thing we should be concerned about when it comes to this chemical.

But here’s where the New York Times allows Professor Michels to spin the most:
“Dr. Michels said that the increases in BPA were most likely temporary and would go down after hours or days. ‘We don’t know what health effects these transient increases in BPA may have,’ she added.”

We know exactly the metabolic profile of BPA, and not just from Teeguarden et al. There is almost 100 percent elimination in 24 hours. Active BPA is below the level of detection. Inactive BPA cannot, by virtue of basic chemistry, mimic estrogen.
“But she also pointed out that the findings were probably applicable to other canned goods, including soda and juices. ‘The sodas are concerning, because some people have a habit of consuming a lot of them throughout the day,’ she said. ‘My guess is that with other canned foods, you would see similar increases in bisphenol-A. But we only tested soups, so we wouldn’t be able to predict the absolute size of the increase.” (emphasis added)

Why bother with guessing when we have extensive knowledge of BPA levels in canned goods thanks to the FDA? We know there is such wide variance that we cannot make any assumption that the level of BPA in one product is “probably” the same in another. More to the point, Health Canada, has done extensive testing on canned soda and other drinks, and the results are nowhere close to Professor Michel’s soup cans. (By the way, this takes very little specialist knowledge to work this out: Google “BPA migration soda can” and you can find the Health Canada data).

But then Professor Michel’s study was in part funded by the National Institute of Environmental Health Sciences, which has a truly remarkable track record of funding almost all the scare studies on BPA – and then later (sotto voce, of course) admitting that many of them can’t really tell us anything about human risk, and should have really be conducted in a manner similar to studies funded by the FDA and EPA – and their overseas equivalents.

Unfortunately, if journalists don’t bother to wrestle with the regulatory science, they’ll never know whether they are being spun or whether, in this case, Professor Michels is not as familiar with the research literature on BPA as a professor with two Ph.Ds should be."

Thursday, November 24, 2011

Walter Williams: There Is No Money Pile To Be Shared Equally

From "Carpe Diem."
"Class warfare thrives on ignorance about the sources of income. Listening to some of the talk about income differences, one would think that there's a pile of money meant to be shared equally among Americans. Rich people got to the pile first and greedily took an unfair share. Justice requires that they "give back." Or, some people talk about unequal income distribution as if there were a dealer of dollars. The reason some people have millions or billions of dollars while others have very few is the dollar dealer is a racist, sexist, a multinationalist or just plain mean. Economic justice requires a re-dealing of the dollars, income redistribution or spreading the wealth, where the ill-gotten gains of the few are returned to their rightful owners.

In a free society, for the most part, people with high incomes have demonstrated extraordinary ability to produce valuable services for -- and therefore please -- their fellow man. People voluntarily took money out of their pockets to purchase the products of Gates, Pfizer or IBM. High incomes reflect the democracy of the marketplace. The reason Gates is very wealthy is millions upon millions of people voluntarily reached into their pockets and handed over $300 or $400 for a Microsoft product. Those who think he has too much money are really registering disagreement with decisions made by millions of their fellow men."

Fortune 500 Firms in 1955 vs. 2011; 87% Are Gone

Great post by mark Perry of "Carpe Diem."
"What do the companies in these three groups have in common?

Group A. American Motors, Studebaker, Detroit Steel, Maytag and National Sugar Refining.

Group B. Boeing, Campbell Soup, Deere, IBM and Whirlpool.

Group C. Cisco, eBay, McDonald's, Microsoft and Yahoo.

All the companies in Group A were in the Fortune 500 in 1955, but not in 2011.

All the companies in Group B were in the Fortune 500 in both 1955 and 2011.

All the companies in Group C were in the Fortune 500 in 2011, but not 1955.

Comparing the Fortune 500 companies in 1955 and 2011, there are only 67 companies that appear in both lists. In other words, only 13.4% of the Fortune 500 companies in 1955 were still on the list 56 years later in 2011, and almost 87% of the companies have either gone bankrupt, merged, gone private, or still exist but have fallen from the top Fortune 500 companies (ranked by gross revenue). Most of the companies on the list in 1955 are unrecognizable, forgotten companies today. That's a lot of churning and creative destruction, and it's probably safe to say that many of today's Fortune 500 companies will be replaced by new companies in new industries over the next 56 years.

Update: Here's a related article from Steve Denning in Forbes, featuring some insights from Steve Jobs about what causes great companies to decline (power gradually shifts from engineers and designers to the sales staff) and how the life expectancy of firms in the Fortune 500 and S&P500 has been declining over time."

Convenient, Consumer-Driven Health Care on the Rise: Retail Clinic Use Jumps 10X in Two Years

Great post by Mark Perry of "Carpe Diem."
"Fierce Healthcare -- "With retail clinics increasing ten-fold, more health systems and hospitals are capitalizing on the trend and getting in on the retail movement. Between 2007 and 2009, retail medical clinics at pharmacies and other retail settings have risen from a monthly tally of 0.6 visits per 1,000 enrollees in January 2007, to 6.5 visits per 1,000 enrollees in December 2009, according to a new study by RAND Corporation, published in the American Journal of Managed Care (study abstract here).

Surprisingly, the availability of primary care physicians didn't affect use of retail clinics. The strongest predictor was proximity.

"It appears that those with a higher income place more value on their time, and will use clinics for convenience if they have a simple health issue such as a sore throat or earache," senior study author Dr. Ateev Mehrotra, investigator at RAND and the University of Pittsburgh, said in a RAND press release.

This week's announcement that Emory Healthcare, Georgia's largest hospital system is partnering with CVS MinuteClinic may demonstrate a broader trend of traditional hospital systems aligning with convenient clinics. Earlier this year, Mayo Clinic announced it moved into the Mall of America in what it calls the "Create Your Mayo Clinic Health Experience" center, a 2,500-square-foot space of high-tech interaction. And Walmart recently declared it wanted to be the nation's biggest primary care provider with its entrance into the retail care market."

MP: At the same time that the pending implementation of Obamacare threatens a government takeover of health care and medicine in America that will stifle competition and raise prices, the market continues to offer many new, innovative, alternative solutions to health care that are competitive, affordable and convenient. The ten-fold increase in the use of retail health clinics in just two years demonstrates that consumers appreciate the market-based, consumer-driven convenience of affordable, no-wait service at retail health clinics, and they'll be pretty disappointed if that changes to long-wait, inconvenient health care under Obamacare."

Tuesday, November 22, 2011

We’ve Had Enough Government ‘Stimulation’

Great post by Tad DeHaven of Cato.
"After three years and $4 trillion in combined deficit spending, unemployment remains stubbornly high and the economy sluggish. That people are still asking what the government can do to stimulate the economy is mind-boggling.

That the Keynesian-inspired deficit spending binge did create jobs isn’t in question. The real question is whether it created any net jobs after all the negative effects of the spending and debt are taken into account. How many private-sector jobs were lost or not created in the first place because of the resources diverted to the government for its job creation? How many jobs are being lost or not created because of increased uncertainty in the business community over future tax increases and other detrimental government policies?

Don’t expect the disciples of interventionist government to attempt an answer to those questions any time soon. It has simply become gospel in some quarters that massive deficit spending is necessary to get the economy back on its feet.

The idea that government spending can “make up for” a slow-down in private economic activity has already been discredited by the historical record—including the Great Depression and Japan’s recent “lost decade.”

Our own history offers evidence that reducing the government’s footprint on the private sector is the better way to get the economy going.

Take for example, the “Not-So-Great Depression” of 1920-21. Cato Institute scholar Jim Powell notes that President Warren G. Harding inherited from his predecessor Woodrow Wilson “a post-World War I depression that was almost as severe, from peak to trough, as the Great Contraction from 1929 to 1933 that FDR would later inherit.” Instead of resorting to deficit spending to “stimulate” the economy, taxes and government spending were cut. The economy took off.

Similarly, fears at the end of World War II that demobilization would result in double-digit unemployment when the troops returned home were unrealized. Instead, spending was dramatically reduced, economic controls were lifted, and the returning troops were successfully reintegrated into the economy.

Therefore, the focus of policymakers in Washington should be on fostering long-term economic growth instead of futilely trying to jump-start the economy with costly short-term government spending sprees. In order to reignite economic growth and job creation, the federal government should enact dramatic cuts in government spending, eliminate burdensome regulations, and scuttle restrictions on foreign trade.

The budgetary reality is that policymakers today have no choice but to drastically reduce spending if we are to head off the looming fiscal train wreck. Stimulus proponents generally recognize that our fiscal path is unsustainable, but they argue that the current debt binge is nonetheless critical to an economic recovery.

There’s no more evidence for this belief than there is for the existence of the tooth fairy.

Not only has Washington’s profligacy left us worse off, our children now face the prospect of reduced living standards and crushing debt."

John Taylor Did Not Omit Variables, Showing That Tax Rebates Did Not Help The Economy

See Omitted Facts in a Speech on Omitted Variables
"Christina Romer gave a speech at Hamilton College earlier this month which criticizes my findings that recent temporary tax rebates had little or no effect on aggregate consumption. Romer claims that in analyzing this “relationship between two variables” I did not consider the impact of third variables “influencing both of them.”

Romer’s claim is wrong. In fact, in my paper which Romer cites (first presented on January 4, 2009 at the AEA meetings and published in the American Economic Review), I explicitly state that one must take account of other variables. Here is a quote from that paper: “policy evaluation requires going beyond graphs and testing for the impact of the rebates on aggregate consumption using more formal regression techniques….an advantage of using regressions is that one can include other factors that affect consumption.” In that investigation, which focused on the 2001 and 2008 rebates, I used monthly data and included in the regressions monthly data on oil prices, which rose dramatically in the first half of 2008 and which would be expected to reduce consumption around the time of the rebates. Indeed, oil prices had a highly significant coefficient in the regressions, and yet I found no significant effect of the rebates as shown in Table 2 of the paper. In another paper published in the Journal of Economic Literature, (discussed in the blogosphere here and here) I used quarterly data to investigate the 2001 and 2008 stimulus packages and also the 2009 stimulus. With quarterly data, I also included a household net worth variable from the Fed’s flow of funds accounts, along with the quarterly average of oil prices. The net worth variable had a significant effect, and yet I still found no statistically significant impact of the temporary payments as shown in Table 1 of the JEL paper.

In sum, my research does consider the impact of third variables, contrary to what Romer claimed. And the results I reported are robust to adding such variables, contrary to what Romer conjectured."

Gary Becker On The Occupiers

See The Occupy Wall Street Movement-Becker.
"Will the “Occupy” movement develop into a significant political force? I am doubtful: the movement is already losing supporters in most places where it has been active. Cold weather will accelerate the decline. The movement is losing ground not because the issues it raises are unimportant, but rather because the great majority of Americans and those in other countries with Occupy groups do not sympathize with most of the people doing the occupying.

We discussed the unemployment situation in the US last week, and reform of banks in several previous posts, so I concentrate my comments on the inequality issues raised by occupiers. American inequality in the distribution of incomes, and inequality in many other Western nations, has grown a lot since the late 1970s. This growth can be separated into the growth in earnings inequality across education and other skill classes, and the growth in income at the very top of the income distribution. I start with the inequality by skill since that is what most closely affects the vast majority of people.

Many of the Occupy Wall Street participants are college students- it is easy to miss classes at most colleges for a few days and even much longer- and other young persons who had gone to college. They have complained about the ”high” unemployment of college-educated persons, and also about the burden of college loans. Yet the large increase in earnings inequality during past 30 years has mainly taken the form of a growth in the earnings of college graduates and that of others with high levels of skills relative to earnings of high school dropouts, high school graduates, and others with lower skills. Although unemployment grows for all education groups grow during recessions, it has not grown any faster during the Great Recession for college-educated persons than for persons without college, and is still much lower for the college educated. For example, in October of 2011 the unemployment rate for college graduates was under 5% compared to an unemployment rate of almost 14% for high school dropouts.

Nor are the complaints by occupiers about the burden of student loans much better founded for the great majority of graduates. The typical rate of return to a college graduate, especially those with post-graduate degrees, has risen greatly since the late 1970s, certainly high enough to support even sizable student loans with interest payments that are heavily subsidized by the federal government. The real ones with a gripe are high school dropouts who not only have high unemployment rates, but also low real earnings that may have fallen for dropouts during past 30 years, poorer health than others, bad marital prospects, and weak access to home ownership and other consumer luxuries.

The Occupy Movement and everyone else worried about earnings inequality should be emphasizing the need to find ways to encourage more high school dropouts and high school graduates to get the required background and study habits so that they can, and want to, continue on for a college education. A daunting task, but a necessary one in order to respond in an effective way to the anatomy of the large growth in earnings inequality.

The income share of the top 1% in the United States has declined a lot since the onset of the Great Recession, but it is still much higher than it was in the 1970s. Earnings are also an important component of these very high incomes, but these are earnings of top management and executives, including the top earners in banking, and in hedge funds and other managers of money, and including also the top earners in medicine, law, consulting, and some other fields. According to a November 2010 study by Bakija, Cole, and Heim (I am indebted to Steve Kaplan for referring me to this study), more than 60% of the persons in the top 1% of the income distribution in 2005 consisted of (non-finance) executives, managers, and supervisors, medical personnel, lawyers, and non-finance persons doing computing, math, or engineering.

Although, on the whole, I believe that most members of the top 1% provide useful services to society, I share the concern of “occupiers” and Tea Party members about many of the bailouts. The rich bankers and others who took large risks should have taken much larger haircuts. I have also supported from the beginning of the recession higher capital requirements for banks, especially for the large “too big to fail banks” that will be bailed out if they get into financial difficulties.

Nevertheless, the overall earnings inequality has far greater relevance for the vast majority of occupiers and Tea Party supporters than do the earnings of men and women at the very top of the financial sector. The most effective way for the US to reduce overall inequality that will help the largest number of young persons is by finding ways to bring American high school and college graduation rates up to the levels achieved by the other nations, such as South Korea and some European nations, that have replace the US as worldwide leaders in education achievements."

Sunday, November 20, 2011

Why John Taylor Is Against Nominal GDP Targeting

See More on Nominal GDP Targeting
"Several people have asked me to comment on nominal GDP targeting, as recently proposed by Scott Sumner, Christina Romer and Paul Krugman. I did research on nominal GDP targeting many years ago and found that such targeting proposals had a number of problems, which I summarized in the paper “What Would Nominal GNP Targeting Do to the Business Cycle?” Carnegie-Rochester Series on Public Policy, 1985. Although much has changed in the past quarter century I find many of the same problems with the recent proposals.

One change is that, in comparison with earlier proposals, the recent proposals tend to focus more on the level of NGDP rather than its growth rate. This removes some of the instability of NGDP growth rate targeting caused by the fact that NGDP growth should be higher than its long run target during the catch up period following a recession. But it introduces another problem: if an inflation shock takes the price level and thus NGDP above the target NGDP path, then the Fed will have to take sharp tightening action which would cause real GDP to fall much more than with inflation targetting and most likely result in abandoning the NGDP target.

A more fundamental problem is that, as I said in 1985, “The actual instrument adjustments necessary to make a nominal GNP rule operational are not usually specified in the various proposals for nominal GNP targeting. This lack of specification makes the policies difficult to evaluate because the instrument adjustments affect the dynamics and thereby the influence of a nominal GNP rule on business-cycle fluctuations.” The same lack of specificity is found in recent proposals. It may be why those who propose the idea have been reluctant to show how it actually would work over a range of empirical models of the economy as I have been urging here. Christina Romer’s article, for instance, leaves the instrument decision completely unspecified, in a do-whatever-it-takes approach. More quantitative easing, promising low rates for longer periods, and depreciating the dollar are all on her list. NGDP targeting may seem like a policy rule, but it does not give much quantitative operational guidance about what the central bank should do with the instruments. It is highly discretionary. Like the wolf dressed up as a sheep, it is discretion in rules clothing.

For this reason, as Amity Shlaes argues in her recent Bloomberg piece, NGDP targeting is not the kind of policy that Milton Friedman would advocate. In Capitalism and Freedom, he argued that this type of targeting procedure is stated in terms of “objectives that the monetary authorities do not have the clear and direct power to achieve by their own actions.” That is why he preferred instrument rules like keeping constant the growth rate of the money supply. It is also why I have preferred instrument rules, either for the money supply, or for the short term interest rate.

Rules for the instruments are what monetary policy needs, not excuses for discretionary actions. I welcome more research looking for better instrument rules which are explicit and operational enough to be evaluated with empirical economic models. Even an historical comparison of different rules would be welcome, and Allan Meltzer's monumental History of the Federal Reserve would be a good foundation to build on. As he summarized in a speech this week, “Economists and central bankers have discussed monetary rules for decades. A common response of those who oppose a rule, or rule-like behavior, is that a central banker’s judgment is better than any rule. The evidence we have disposes of that claim. The longest period of low inflation and relatively stable growth that the Fed has achieved was the 1985-2003 period when it followed a Taylor rule. Discretionary judgments, on the other hand, brought the Great Depression, the Great Inflation, numerous inflations and recessions. The Fed contributed to the current crisis by keeping interest rates too low for too long.”"

Adam Smith: The evils of unrestrained selfishness might be better that the evils of incompetent and corrupt government

See Quotation of the Day… by Don Boudreaux of "Cafe Hayek."

… is from the great Jacob Viner’s classic 1928 article “Adam Smith and Laissez Faire”; here, specifically, from page 142 of the 1966 A.M. Kelley reprint of the 1928 volume Adam Smith: 1776-1926:
Even when Smith was prepared to admit that the system of natural liberty would not serve the public welfare with optimal effectiveness, he did not feel driven necessarily to the conclusion that government intervention was preferable to laissez faire. The evils of unrestrained selfishness might be better that the evils of incompetent and corrupt government.

I add only that nothing removes the restraints on selfishness more readily and surely than does access to government power.

Why The Occupiers Chose Zuccotti Park

See Occupy Wall Street's Crony Capitalism: Political extortion created Zuccotti Park, and it allows protesters to remain despite the noise, filth and stink by L. Gordon Crovitz, WSJ, 10-17-11. Excerpts:
"How did protesters manage to take over Zuccotti Park, a half-acre plot a few blocks from Wall Street? It turns out that this land grab is not due to the power of social media. Instead, the main force letting protesters stay in the park is old-fashioned crony capitalism."

" Zuccotti is not a city park, where sleeping overnight is prohibited. Instead, it is one of some 500 "privately owned public spaces" that New York City officials created as part of zoning deals with real estate developers.

In the case of Zuccotti Park, the crony capitalism goes back to the 1970s, when U.S. Steel built the One Liberty Plaza office tower. In exchange for adding nine stories, city officials extracted an agreement that U.S. Steel would fund a 24-hour-a-day park across the street.

These quasipublic spaces are notorious for leaving unclear who's responsible for what."

"Even if this were a public park, Supreme Court cases on the "time, place and manner" for demonstrations would clearly allow officials to stop a month-long sleepover.

Occupy Wall Street leadership and lawyers picked Zuccotti Park knowing the split responsibility for privately owned public spaces would give them a better chance to stay than in a public park. The absence of quasipublic parks explains why similar Occupy efforts failed in Washington, Chicago and Trenton, N.J., where police quickly removed protesters camping out in parks."

"Last week, Brookfield finally asked the New York police commissioner for help. "The manner in which the protesters are occupying the park violates the law, violates the rules of the park, deprives the community of its rights of quiet enjoyment to the park, and creates health and public safety issues that need to be addressed immediately," its letter to the police reads."

""Brookfield got lots of calls from many elected officials threatening them and saying, 'If you don't stop this, we'll make your life more difficult,'" Mayor Bloomberg said on his radio show on Friday."

Thursday, November 17, 2011

In 2008, nearly 5,000 people died waiting for a kidney

See Why Legalizing Organ Sales Would Help to Save Lives, End Violence by Anthony Gregory, a research editor at the Independent Institute. From the Atlantic Monthly.
"In the United States, where the 1984 National Organ Transplantation Act prohibits compensation for organ donating, there are only about 20,000 kidneys every year for the approximately 80,000 patients on the waiting list. In 2008, nearly 5,000 died waiting.

A global perspective shows how big the problem is. "Millions of people suffer from kidney disease, but in 2007 there were just 64,606 kidney-transplant operations in the entire world," according to George Mason University professor and Independent Institute research director Alexander Tabarrok, writing in the Wall Street Journal.

Almost every other country has prohibitions like America's. In Iran, however, selling one's kidney for profit is legal. There are no patients anguishing on the waiting list. The Iranians have solved their kidney shortage by legalizing sales.

Many will protest that an organ market will lead to exploitation and unfair advantages for the rich and powerful. But these are the characteristics of the current illicit organ trade. Moreover, as with drug prohibition today and alcohol prohibition in the 1920s, pushing a market underground is the way to make it rife with violence and criminality.

In Japan, for the right price, you can buy livers and kidneys harvested from executed Chinese prisoners. Three years ago in India, police broke up an organ ring that had taken as many as 500 kidneys from poor laborers. The World Health Organization estimates that the black market accounts for 20 percent of kidney transplants worldwide. Everywhere from Latin America to the former Soviet Republics, from the Philippines to South Africa, a huge network has emerged typified by threats, coercion, intimidation, extortion, and shoddy surgeries."

"Several years ago, transplant surgeon Nadley Hakim at St. Mary's Hospital in London pointed out that "this trade is going on anyway, why not have a controlled trade where if someone wants to donate a kidney for a particular price, that would be acceptable? If it is done safely, the donor will not suffer.""

The middle class and the poor have gained over the past three decades

See Let's get real about poverty in America by Walter Williams. Excerpts:
""The Material Well-Being of the Poor and the Middle Class Since 1980" is a research paper by professor Bruce D. Meyer of the University of Chicago and the National Bureau of Economic Research and professor James X. Sullivan of the University of Notre Dame.

In it, they report: "Our results show evidence of considerable improvement in material well-being for both the middle class and the poor over the past three decades. Median income and consumption both rose by more than 50 percent in real terms between 1980 and 2009.

"In addition, the middle 20 percent of the income distribution experienced noticeable improvements in housing characteristics: living units became bigger and much more likely to have air conditioning and other features.

"The quality of the cars these families own also improved considerably. Similarly, we find strong evidence of improvement in the material well-being of poor families.""

"Income measures fail to capture important components of economic well-being, such as wealth and the ownership of durables, e.g., houses and cars. For example, official measures would consider a retired couple who owned their car and mortgage-free $700,000 home and lived on $20,000 savings to be poor. Clearly, their income does not reflect their material well-being.

"Income Mobility in the U.S. from 1996 to 2005" is a report by the U.S. Department of the Treasury that shows considerable income mobility of individuals in the U.S. economy.

"Roughly half of taxpayers who began in the bottom income quintile in 1996 moved up to a higher income group by 2005. Among those with the very highest incomes in 1996 -- the top 1/100 of 1 percent -- only 25 percent remained in this group in 2005. Moreover, the median real income of these top taxpayers declined over the study period."

These findings confirm previous studies dating back to the 1960s reaching the same conclusion, namely: At different periods of time, different people occupy different income groups, but the overall trend is upward.

What about the concentration of wealth? In 1918, John D. Rockefeller's fortune accounted for more than half of 1 percent of total private wealth. To compile the same half of 1 percent of the total private wealth in the United States today, you'd have to combine the fortunes of Microsoft's Bill Gates ($59 billion) and New York Mayor Michael Bloomberg ($19 billion), but with 10 other multibillionaires in between."

Sunday, November 13, 2011

U.S. Sugar Program Hurts Businesses and Kills Jobs

Great post by Daniel Rivera Greenwood of the Competitive Enterprise Institute Blog.
"CBS San Antonio affiliate KENS 5 reports that a San Antonio candy company, Judson-Atkinson Candy Company, has ceased operations after 110 years of making candy. The company has been forced to lay off more than 100 employees, and currently has only 14 people in its production facility. The family-run business says that the company simply can’t compete with firms outside the U.S., since domestic companies pay more for candies’ main ingredient: sugar. According to the owner of the company, Amy Atkinson Voltz, the candy company pays more than twice the international price for sugar, which caused an additional $2 million in costs for the company. “It’s totally unfair competition,” Atkinson said. “It’s been really hard. We had to bring in employees who had worked here 20-plus years and tell them that we were not going to produce candy right now.”

With the costly and unnecessary U.S. sugar program, it’s no surprise that American candy and beverage manufacturers have a hard time competing against international products from countries like Brazil and Mexico. While some domestic manufacturers are able to switch to alternative products like high fructose corn syrup, its application is limited in the candy manufacturing and baking industries.

The U.S. sugar program, part of the 2008 Farm Bill, is a policy that protects sugar producers at consumers’ and manufacturers’ expense. At the same time the program increases sugar expenditures by American consumers and manufacturers by about $2.4 billion, it adds $1.4 billion in extra income for sugar producers.

The costs go beyond businesses’ and consumers’ pockets. A U.S. Department of Commerce report found that from 1997 to 2009, more than 112,000 jobs were eliminated in the sugar containing industries. Supporters of the program claim that artificially inflating sugar prices supports jobs in the sugar producing sector. But, according to the same report, for every job in that sector, approximately three jobs are lost in the sugar containing industries. Unsurprisingly, there are around 600,000 sugar using jobs in the United States, as opposed to only 20,000 jobs in the sugar producing sector. Artificially propping up a few jobs with few beneficiaries at a larger group’s expense is inefficient and inexcusable.

In a time of high unemployment (9.1 percent in August), politicians should move to eliminate programs that increase the federal budget deficit and eliminate jobs. Companies like Judson-Atkinson, and larger ones like Hershey, are forced to close facilities or move them to other countries as a result of expensive sugar in the United States. And while labor cost differences are real and play a role in companies’ bottom line, artificially expensive inputs do not help United States’ competitiveness."

"The 99%" of Us Get Fined and Go to Jail for Insider Trading, But the Exempt "Political 1%" Can Get Rich

Great post by Mark Perry of "Carpe Diem."

"(CBS News) -- "Martha Stewart went to jail for it. Hedge fund honcho Raj Rajaratnam was fined $92 million and will go to jail for years for it. But members of Congress can do the same thing -use non-public information to make stock trades -- and there's no law against it. Steve Kroft on "60 Minutes" reports on how America's lawmakers can legally make tidy profits on information only they know, simply because they won't pass a law against themselves. The report will be broadcast on Sunday, Nov. 13 at 7 p.m. (watch preview above).

If senators and representatives are using non-public information to win in the market, it's all legal says Peter Schweizer, who works for the Hoover Institute, a conservative think tank. He has been examining these issues for some time and has written about them in a book, "Throw them All Out." "Insider trading laws apply to corporate executives, to Americans...If you are a member of Congress, those laws are deemed not to apply," he tells Kroft. "It's really the way the rules have been defined... lawmakers have conveniently written them in such a way as they don't apply to themselves," says Schweizer.

Efforts to make such insider trading off limits to Washington's lawmakers have never been able to get traction."

MP: Maybe the OWS protests should direct some outrage at the greed of the political class "who get rich off insider stock tips, land deals and cronyism that would send the rest of us to prison" (from the front cover of Peter Schweizer's book)?

Update 1: A 2011 research article in the journal Business and Politics ("Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives") found that the stock portfolios of House of Representative members outperformed the overall stock market by 55 basis points per month, or 6.6% on an annual basis between 1985 and 2001, suggesting that lawmakers have a "substantial informational advantage" over the general public and even over corporate insiders.

Update 2: The chart below illustrates how an additional return of 6.6% per year for House Members would have affected an investment in the stock market between 1985 and 2001. A $1,000 investment in the S&P500 at the beginning of 1985 would have grown to $6,043 by the end of 2001, earning an annual return of 11.16%. In contrast, adding a 6.6% premium for lawmakers due to their informational advantage would have generated an annual return of 17.76%, and a $1,000 investment in 1985 would have grown to $16,172, or roughly 2.7 times as much as an investment in the S&P500. Not bad. Insider trading has its advantages."

The Long, Undistinguished, and Very Costly Graveyard of Failed Government Energy Projects

Great post by Mark Perry of "Carpe Diem."
"From an article in yesterday's Washington Post by energy writer Steven Mufson "Before Solyndra, A Long History of Failed Government Energy Projects":

"Solyndra, the solar-panel maker that received more than half a billion dollars in federal loans from the Obama administration only to go bankrupt this fall, isn’t the first dud for U.S. government officials trying to play venture capitalist in the energy industry. The Clinch River Breeder Reactor. The Synthetic Fuels Corporation. The hydrogen car. Clean coal. These are but a few examples spanning several decades — a graveyard of costly and failed projects.

Not a single one of these much-ballyhooed initiatives is producing or saving a drop or a watt or a whiff of energy, but they have managed to burn through far more more taxpayer money than the ill-fated Solyndra. An Energy Department report in 2008 estimated that the federal government had spent $172 billion since 1961 on basic research and the development of advanced energy technologies."

Conclusion: "Perhaps the federal government is, as former Obama economic adviser Lawrence Summers put it, “a crappy VC,” or venture capitalist. Or perhaps it should stick to funding basic research. But if more recipients of Energy Department loan guarantees falter, they will become part of a long, if undistinguished, history of failure.""

Thursday, November 10, 2011

There may be nothing wrong with social mobility in the U.S.

See Confirmation Bias, Perhaps? by Don Boudreaux of "Cafe Hayek."

"Here’s a letter to the Washington Post:
Fareed Zakaria writes that “The most comprehensive comparative study, done last year by the Organization for Economic Cooperation and Development, found that ‘upward mobility from the bottom’ … was significantly lower in the United States than in most major European countries, including Germany, Sweden, the Netherlands and Denmark” (“The downward path of upward mobility,” Nov. 10).

Not so.

Here are this OECD-study’s three bullet points summarizing findings on economic mobility directly (rather than findings on the connection between family background and educational achievement). Does the U.S. stand out from “major European countries”?

“* Parental or socio-economic background influences descendants’ educational, earnings and wage outcomes in practically all countries for which evidence is available.

“* Mobility in earnings across pairs of fathers and sons is particularly low in France, Italy, the United Kingdom and the United States, while mobility is higher in the Nordic countries, Australia and Canada.

“* Across European OECD countries, there is a substantial wage premium associated with growing up in a better-educated family, and a corresponding penalty with growing up in a less-educated family. The premium and penalty are particularly large in southern European countries, as well as in the United Kingdom. The penalty is also high in Luxembourg and Ireland. In these countries the wage premium is more than 20%, while the penalty is some 16% or more (relative to wages earned by individuals raised in a family with average education).”

As for this study’s other measures of social mobility (which examine family-background’s influence on students’ educational achievements), on these, too, U.S. mobility simply does not stand out as being significantly or consistently lower than in other – including major European – countries.

Donald J. Boudreaux"

And this exchange in the comments was good:

Euro-JoeDoe November 10, 2011 at 4:44 pm

Is it easier to move upward in social ladders here in Europe? The answer is yes! But it’s not because we have some how better system. It’s only because gaps between social classes are much smaller here than in US.

. Don Boudreaux November 10, 2011 at 4:48 pm

Yes. This point is important – and, coincidentally, one that I made earlier today at a talk I delivered at Duke’s law school.

Wednesday, November 9, 2011

Number of Millionaires Down 40%

See The Wild Ride of the 1%: The once-stable incomes of America's biggest earners now fluctuate dramatically from year to year. And as go the rich, so goes much of the economy by Robert Frank, WSJ, 10-22/23-11. Excerpts:

"During the past three recessions, the top 1% of earners (those making $380,000 or more in 2008) experienced the largest income shocks in percentage terms of any income group in the U.S., according to research from economists Jonathan A. Parker and Annette Vissing-Jorgensen at Northwestern University. When the economy grows, their incomes grow up to three times faster than the rest of the country's. When the economy falls, their incomes fall two or three times as much.

The super-high earners have the biggest crashes. The number of Americans making $1 million or more fell 40% between 2007 and 2009, to 236,883, while their combined incomes fell by nearly 50%—far greater than the less than 2% drop in total incomes of those making $50,000 or less, according to Internal Revenue Service figures."

"During the 1990 and 2001 recessions, the richest 5% of Americans (measured by net worth) experienced the largest decline in their wealth, according to research from the Federal Reserve. As of 2009, the richest 20% of Americans showed the largest decline in mean wealth of any other group."

"Only 27% of America's 400 top earners have made the list more than one year since 1994, one study shows."

"It wasn't always this way. For decades after World War II, the top-one-percenters were the most steady line on the income and wealth charts. They gained less during good times and lost less during contractions than the rest of America.

Suddenly, in 1982, the wealthiest broke away from the rest of the economy and formed their own virtual country. Their incomes began soaring higher during good times. The top 1% of earners more than doubled their share of national income, to 20% as of 2008. Looking at another measure, the richest 1% increased their share of wealth from just over 20% to more than 33%."

"This marked a new personality type in the history of wealth: the High-Beta Rich.

"High beta" is a term used in financial markets to describe a stock or asset that has exaggerated up and down swings with the market."

"Between 1947 and 1982, the beta of the top 1% was a modest 0.72, meaning that their incomes moved relatively in line with the rest of America. Between 1982 and 2007, their beta soared more than three-fold."

" communication technologies that allow the best workers and products to be scaled over larger markets, thus making them more sensitive to economic changes. Others cite globalization and the rise of "winner-take-all" pay schemes."

"...a different cause: the "financialization" of wealth. Simply put, more wealth today is tied to the stock market than to broader economic growth."

"The household debt of the top 1% surged more than three-fold between 1989 and 2007, to $600 billion, and grew faster than their net worth."

"The top 5% of earners now account for 37% of consumer outlays, according to Moody's Analytics. The top 1% of earners pay 38% of federal income taxes. The richest 1% of Americans own more than half of the country's individually held stocks, according to the Federal Reserve."

"The spending of the rich is even wilder than their incomes. The spending volatility of the top 10% of earners is now more than 10 times the spending volatility of the bottom 80%, according to one study."

"Since a high percentage of spending by the rich is discretionary—jewelry and vacations rather than toothpaste and milk—it rises and falls with their confidence and the stock market. Luxury is now the most volatile segment of the consumer economy."

Energy stimulus programs are like "attaching a lawn mower to a fire hydrant"

See Waste cited in energy stimulus program, 11-2-11, by CAROLYN LOCHHEAD of the San Francisco Chronicle. Excerpts:
"The Department of Energy's Inspector General said Wednesday that the 2009 stimulus program for green energy was so at odds with the realities on the ground that it was akin to "attaching a lawn mower to a fire hydrant.""

"...weatherization programs of such shoddy quality that more than half of those audited failed inspection because of substandard workmanship."

"... problems also plagued training programs for green jobs that were allocated nearly $500 million. Of the roughly 125,000 workers targeted for training, only 40 percent received it and only 8,035 participants landed jobs."

"... there is no difference between a plumber who installs a water-saving, low-flow toilet and a plumber who installs a standard toilet, other than the government's definition of the first job as green."

"..."in reality, few actual 'shovel ready' projects existed,"..."

" late as last month, 45 percent of the stimulus funds had not been spent."

:...bureaucratic hurdles such as the "literally thousands" of state and local officials, contractors and others involved."

"...the Energy Department "now confronts the unpleasant task of laying off significant numbers of the contractor workforce, many of whom had just recently been hired.""

"W. David Montgomery, a former official at the Congressional Budget Office and Energy Department who taught economics at Stanford University and the California Institute of Technology, said that trying to promote clean energy as a jobs program was misguided."

"..."loan guarantees such as the kind that Solyndra received "will amount to nothing more than pushing on a string," because there will be little market demand for alternative energy."

What Tax Dollars Can’t Buy

Click here to read this NY Times article by Ross Douthat. Excerpts:
"Remember that those tax dollars, once collected, would not be disbursed with perfect effectiveness to the most deserving members of the American middle class. Instead, they would be used to buy a little more time for our failing public institutions — postponing a reckoning with unsustainable pension commitments, delaying necessary reforms in our entitlement system and propping up an educational sector whose results don’t match the costs.

More spending in these areas won’t necessarily buy us more mobility. The public-sector workplace has become a kind of artificial Eden, whose fortunate inhabitants enjoy solid pay and 1950s-style job security and retirement benefits, all of it paid for by their less-fortunate private-sector peers."

"Yet even though government spending on K-to-12 education has more than doubled since the 1970s, test scores have flatlined and the United States has fallen behind its developed-world rivals. Meanwhile, federal spending on higher education has been undercut by steadily inflating tuitions,..."

"The story of the last three decades, in other words, is not the story of a benevolent government starved of funds by selfish rich people and fanatical Republicans. It’s a story of a public sector that has consistently done less with more, and a liberalism that has often defended the interests of narrow constituencies — public-employee unions, affluent seniors, the education bureaucracy — rather than the broader middle class."

"Rather, it should be a kind of small-government egalitarianism, which would seek to reform the government before we pour more money into it, along lines that encourage upward mobility and benefit the middle class. This would mean seeking a carefully means-tested welfare state, a less special interest-friendly tax code, and a public sector that worked for taxpayers and parents rather than the other way around."

Tuesday, November 8, 2011

Public School Teachers Are Overpaid by 52%

Great post by Mark Perry of "Carpe Diem."
"Andrew Biggs (AEI) and Jason Richwine (Heritage) in today's WSJ:

"In short, combining salaries, fringe benefits and job security, we have calculated that public school teachers receive around 52% more in average compensation than they could earn in the private sector.

The compensation premium is especially relevant today, as states and localities struggle with budget deficits. Restraining the growth of teacher compensation—in particular, pension and retiree health benefits that outstrip what comparable private-sector workers receive—could help balance budgets and perhaps restore school resources lost to rising labor costs. Broader pay reform should give school administrators greater flexibility to reward the best or most-needed teachers with high salaries and benefits, while encouraging the least effective ones to improve or to leave the profession.

Effective reform, however, requires knowing all the facts about teacher pay. Policy makers and the public should not accept at face value that the typical teacher earns far less than he or she would in the private sector. The evidence points to a very different conclusion.""

IRS Data from 1992-2008 on the Top 400 Show Significant Turnover: 73% Remain for Only 1 Year

See Great post by Mark Perry of "Carpe Diem."
"In Table 4 of the IRS bulletin "The 400 Individual Income Tax Returns, 1992-2008," they report the "Frequency of Appearing in the Top 400 Tax Returns for Tax Years 1992-2008."

Over the 17 tax years between 1992 and 2008, there were a total of 6,800 tax returns analyzed (400 per year), and because some individuals appeared in the top 400 for more than one year, there were 3,672 unique taxpayers. Here is what the IRS found about the ever-changing group of the top 400 taxpayers:

1. Almost three out of four of those individuals (2,676 or 72.88%) were in the top 400 taxpayer group for only a single year over the 17-year period.

2. Only 439 individuals, or 11.96% of the total, remained in the top 400 for two years. Therefore, almost 85% (or 3,115 of the 3,672 total) were in the top 400 for only one or two years.

3. Only 1% of the sample group (37 out of 3,672) stayed in the top 400 for 14 years or more, and only 4 taxpayers (or about 1/10 of 1 percent or 1 in a 1,000) stayed in the group for the entire 17-year period.

MP: The IRS study of the top 400 taxpayers over a 17-year period provides additional evidence of significant income mobility over time. Individuals do not remain stuck in the same static income groups, quintiles, percentages or brackets over their careers or lifetimes, but instead move dynamically both up and down through those statistical groups from year to year."

Wal-Mart brought much-needed competition to financial services.

See Walmart Serves Underserved and Unbanked Customers with Everyday Low Banking Fees by Mark Perry of "Carpe Diem."
"YAHOO FINANCE -- "Four years ago, Wal-Mart abandoned its plans to obtain a long-sought federal bank charter amid opposition from the banking industry and lawmakers, who feared the huge retailer would drive small bankers out of business and potentially conflate its banking and retail operations. Ever since, Wal-Mart has been quietly building up à la carte financial services, becoming a force among the unbanked and “unhappily banked,” as one Wal-Mart executive put it.

Jennifer Tescher, chief executive at the Center for Financial Services Innovation, which focuses on finding financial services for those not well served by banks, said Wal-Mart brought much-needed competition — and lower fees — to financial services.

“I think it’s one of the best things that has happened in the last 10 years for underserved consumers,” she said. “There is now much more choice in the marketplace for consumers, where they can vote with their feet.”

Even before the recent outcry against banks, the services had become popular with cash-poor customers, many of whom never had a bank account and found the services more affordable than traditional check-cashing operations. Now newcomers to the ranks of the banking disaffected are helping to swell the numbers, Wal-Mart officials said."

MP: Gotta love Walmart for improving the lives of millions of low-income Americans on a daily basis."

Sunday, November 6, 2011

China does not appear to be dumping solar panels

See America Waking to Light of Chinese Sun? Pot calls kettle green in solar dumping petition by Tim Cavanaugh of Reason. Excerpts:
"Trina Solar Ltd., a Chinese manufacturer, tells BusinessWeek that even the well-known largesse of China’s Marxist government is modest compared to the pork dispensed by the American republic:
Jifan Gao, chief executive officer of Changzhou-based Trina, said China Development Bank Corp. charges interest at the “market’s average level” of 6 to 7 percent. That exceeds the average rate of about 5 percent offered to Solyndra on $70 million the U.S. panel maker borrowed in 2011 before filing for bankruptcy protection in September, according to Bloomberg calculations based on filings by a U.S. Treasury bank.

Gao’s comments are the clearest defense yet by a Chinese solar executive against accusations they’ve used more than $30 billion in state subsidized loans to dump panels on overseas markets. U.S. manufacturers led by SolarWorld AG asked the Obama administration to slap duties of as much as 100 percent on more than $1 billion in Chinese imports to counter what they called illegal aid. That added to the debate in the U.S. over publicly funding solar companies that exploded with Solyndra’s collapse.

A look at the documents on ITC’s website (search for investigation number 701-481) supports Trina’s claim. Out of a total of 74 documents so far filed in the solar dumping petition, 46 of them—62 percent—are confidential. And the 28 that can be viewed contain plenty of oddities.

At one point, SolarWorld notes, for example, that the Shandong Province Energy Fund provides RMB 2.133 billion in order to “finance renewable energy developers, supporting activities ranging from manufacturing to technology developers.” That sounds like a lot, and it is a lot. It comes to $337,509,217.11—about 64 percent of what U.S. taxpayers lost on Solyndra alone. The Department of Energy’s Energy Efficiency and Renewable Energy (EERE) program lavished $2.2 billion on domestic manufacturers in 2010, and DOE’s 2012 budget request jacks that up to $3.2 billion."

"But one solar industry observer points out the paradox of heavily subsidized American companies seeking to punish Chinese manufacturers (via American consumers) for winning the same game they themselves are trying to play. John L. Whisman, CEO of VeriSol, Inc., a solar marketing, development consultant, points out that the United States is a net exporter of solar technology by a margin of about $1.9 Billion.

“This is simply a self interested play by a group attempting to protect their businesses,” Whisman said in an interview. “I think it's shortsighted because economics is a long run game. [SolarWorld and its co-complainants] know that they may achieve some favorable result based on the idea that politics is a short run game.”"