Thursday, August 22, 2013

Does Disability Insurance Receipt Discourage Work?

Click here for more info on this paper

Maestas, Nicole, Kathleen J. Mullen, and Alexander Strand. 2013. "Does Disability Insurance Receipt Discourage Work? Using Examiner Assignment to Estimate Causal Effects of SSDI Receipt." American Economic Review, 103(5): 1797-1829.

Here is the abstract:
"We present the first causal estimates of the effect of Social Security Disability Insurance benefit receipt on labor supply using all program applicants. We use administrative data to match applications to disability examiners and exploit variation in examiners' allowance rates as an instrument for benefit receipt. We find that among the estimated 23 percent of applicants on the margin of program entry, employment would have been 28 percentage points higher had they not received benefits. The effect is heterogeneous, ranging from no effect for those with more severe impairments to 50 percentage points for entrants with relatively less severe impairments."

Venezuela went from being a net exporter of rice to a net importer of rice

See Who’d a-thunk it? by Mark J. Perry of "Carpe Diem."
"About two weeks ago, Don Boudreaux started a great new series of posts on the Cafe Hayek blog with the theme “Who’d a-Thunk It?”, here’s a link to the inaugural post in that series. Don has graciously agreed to allow me to post items on CD under that same theme, so here’s my first one: Under Venezuela’s late president and vocal critic of the market economy, Hugo Chavez’s socialist economic policies, which included nationalizing private farm land, redistribution of land, and government price controls on agricultural products, Venezuela went from being a net exporter of rice to a net importer of rice — with many of its imports coming from… the “imperialist USA,” a term Chavez frequently used to describe America."

Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?

Click here to read this NBER paper by David Neumark, J.M. Ian Salas, and William Wascher.Here is the abstract:
"We revisit the minimum wage-employment debate, which is as old as the Department of Labor. In particular, we assess new studies claiming that the standard panel data approach used in much of the “new minimum wage research” is flawed because it fails to account for spatial heterogeneity. These new studies use research designs intended to control for this heterogeneity and conclude that minimum wages in the United States have not reduced employment. We explore the ability of these research designs to isolate reliable identifying information and test the untested assumptions in this new research about the construction of better control groups. Our evidence points to serious problems with these research designs. Moreover, new evidence based on methods that let the data identify the appropriate control groups leads to stronger evidence of disemployment effects, with teen employment elasticities near −0.3. We conclude that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage."

Wednesday, August 21, 2013

The Clinton-Era Roots of the Financial Crisis

See The Clinton-Era Roots of the Financial Crisis: Affordable-housing goals established in the 1990s led to a massive increase in risky, subprime mortgages. by PHIL GRAMM AND MIKE SOLON, WSJ, 8-13-13. Excerpts:
 "Simply put, the financial crisis of 2008 was caused by a lot of banks making a lot of loans to a lot of people who either could not or would not pay the money back. But this explanation raises two key questions. Why did private lenders, whose job it was to assess credit risk, make those loans? And why did the army of financial regulators, with massive enforcement powers, allow 28 million high-risk loans to be made?"

" traced to Sept. 12, 1992. On that day presidential candidate Bill Clinton proposed, in his campaign book "Putting People First," using private pension funds to "invest" in government priorities, such as affordable housing, to "generate long-term, broad based economic benefits.""

"Six pension funds ultimately agreed to invest in public housing that was backed by $100 million in federal grants and guarantees, but the program never took off. In the end, even unions and their pension funds rejected the effort to direct any part of their retirement savings toward someone else's welfare."

"...drafting Fannie Mae, Freddie Mac and the commercial banking system into the affordable-housing effort. It did so by exploiting a minor provision in a 1977 housing bill, the Community Reinvestment Act, that simply required banks to meet local credit needs.

Bank regulators began to pressure banks to make subprime loans. Guidelines became mandates as each bank was assigned a letter grade on CRA loans. Banks could not even open ATMs or branches, much less acquire another bank, without a passing grade—and getting a passing grade was no longer about meeting local credit needs. As then-Federal Reserve Chairman Alan Greenspan testified to Congress in 2008, "the early stages of the subprime [mortgage] market . . . essentially emerged out of the CRA."

"Effective in January 1993, the 1992 housing bill required Fannie and Freddie to make 30% of their mortgage purchases affordable-housing loans. The quota was raised to 40% in 1996, 42% in 1997, and in 2000 the Department of Housing and Urban Development ordered the quota raised to 50%."

"By 2008, when both government-sponsored enterprises collapsed, the quota had reached 56%."

" 2002 Fannie officials knew perfectly well that these quotas were promoting irresponsible policy..."

"According to the nonprofit National Community Reinvestment Coalition, total CRA lending rose to $4.5 trillion in 2007 from $8 billion in 1991. The American Enterprise Institute's Ed Pinto found that in 1990 80% of the residential mortgage loans acquired by Fannie and Freddie were solid prime loans with healthy down payments and a well-documented capacity by borrowers to make mortgage payments. By 1999 only 45% of their acquisitions met this standard. That number fell to 15% by 2007. By 2008, roughly half of all outstanding mortgages in America were high-risk loans. In 1990, very few subprime loans were securitized. By 2007 almost all of them were."

"It is stunning that, to this day, no one has explained how 28 million high-risk loans (the number calculated by the American Enterprise Institute's Peter Wallison) got around the "safety and soundness" rules that dominate federal and state banking laws. What happened to the enforcement army, with its laws and regulations, its power to investigate and mandate corrective action, and its ability to fine and imprison violators?"

"...a review of the banking laws adopted since 1980 reveals that not one single safety and soundness measure was repealed."

Mr. Gramm, a former Republican chairman of the Senate Banking Committee, is senior partner of US Policy Metrics and a visiting scholar at the American Enterprise Institute. Mr. Solon, a former economic policy adviser to Senate Republican leader Mitch McConnell, is a partner at US Policy Metrics.

Tuesday, August 20, 2013

Barney Frank: "It was a mistake to push lower-income people into housing they couldn't afford"

See Competing Visions for the Future of Housing Finance by PETER J. WALLISON, WSJ, 8-11-13. Excerpt:
"The government's record in housing is not enviable. The 2008 financial crisis was triggered by an unprecedented 30% loss in home values when an enormous housing-bubble collapsed. Before the crisis began, at least half of all mortgages in the U.S.—28 million loans—were subprime or otherwise risky, and their failure in substantial numbers is what drove prices down. Of the 28 million risky loans, 74% were on the books of government agencies, principally Fannie and Freddie. This shows that the demand for those mortgages originated with the government's housing policies.

The terrible events of 2008 are only the most recent government fiasco in housing. There was the collapse of the government-insured savings and loans in the 1980s (costing taxpayers at least $150 billion in bailouts), the insolvency of Fannie and Freddie (more than $180 billion in bailouts) and, coming soon, a bailout of the Federal Housing Administration. With this record, it's amazing that anyone is seriously thinking about giving the government another chance."

Monday, August 19, 2013

Even After "Welfare Reform," In Many States, the Dole Pays Better Than Honest Work

Great post by J.D. Tuccille of Reason. Click here to read it. Here is the intro
"Weren't we all told that welfare had been abolished back in the 1990s, and that now we live in a brand new world of personal responsibility? I could have sworn I heard something about that. As it turns out, though, the dole was rebranded, repackaged, and at least in some states, made more generous. A new report from the Cato Institute's Michael D. Tanner and Charles Hughes says that welfare benefits remain more generous than minimum-wage jobs in 35 states."

Sunday, August 18, 2013

McDonald's, Unions And The Minimum Wage

See Unions Cast Ronald McDonald as Simon Legree: The SEIU is leading protests to 'supersize my wage,' but a minimum-wage hike would mean fewer jobs By STEPHEN MOORE of the WSJ, 8-17/18-13.
"Most of the evidence shows that super-minimum wage laws force businesses to reduce hiring and are counterproductive in reducing poverty."

"An exhaustive study this year by the National Bureau of Economic Research found that "minimum wages pose a tradeoff of higher wages for some against job losses for others," with unemployment rising most for teenagers. "

"...the activists rarely mention the federal Earned Income Tax Credit that supplements the full-time, minimum-wage salaries by up to $6,800 a year."

"President Obama put most of his chips on green jobs, promising five million of them for the middle class. Only a small fraction of those jobs have materialized. And ObamaCare's mandated health benefits have already begun to push more employees into part-time jobs."

"There's at least one place where you're unlikely to find the SEIU besieging fast-food restaurants with protesters: North Dakota. The state has thousands of unfilled jobs thanks to the oil boom, and fast-food workers really do earn as much as $15 an hour and even get $500 signing bonuses. There's nothing better for workers at every level of employment than a flourishing economy."

The American Airlines and US Airways Might Merger Actually Increase Competition

See Arbitrary Antitrust: Government lawyers try again to predict the future of airlines. From the WSJ, 8-16-13.
"Out of the more than 900 domestic routes that American and US Airways fly, there are merely 12 nonstop overlaps, nearly all of them between their hubs. In the U.S., American flies to 48 cities not served by US Airways, and US Airways flies to 64 that American doesn't. Their networks are largely complementary, so combining the two would help them compete in more markets.

Market share data are an old antitrust favorite, yet that also isn't persuasive. A combined American and US Airways would have about 25% of the market for domestic seats, just ahead of Delta and Southwest.

As for international travel, the two airlines seeking to merge have struggled to compete for global corporate business against the extensive international networks of Delta and United-Continental.

US Airways now has 55% of takeoff and landing slots at Reagan, and the merged company would have 69%. But American and US Airways would still only enjoy about 25% market share if the Washington market is appropriately defined to include not only Reagan, but also Dulles and BWI, which is between Washington and Baltimore.

All of this suggests that Justice's real motivation is that airlines are finally profitable again, which must mean something nefarious is going on. Assistant Attorney General for antitrust William Baer declared this week that "neither airline needs this merger to succeed." Since when is that a standard for antitrust law, and how would he know?

The airline deregulation of the 1970s has been a great success for consumers, with fares still lower after inflation than under the price controls set by the Civil Aeronautics Board.

In 2001, Justice blocked the planned merger of U.S. Airways and United because the antitrust seers claimed the deal would reduce service, raise prices and limit competition. By the end of 2002, both airlines were in Chapter 11, which was hardly a boon to competition.

... industry competition is increasing as fewer but stronger competitors compete in more markets. The Journal's Scott McCartney found that over a recent 12-year period airline ticket prices rose more slowly than general inflation, even while fuel prices were rising.

If one of the giants charges monopoly prices on a route, a stronger player is more likely to compete than a weaker one."

Freddie Mac tightened its lending standards and became profitable

See Freddie Mac 2nd-Quarter Profit up 65% By Nick Timiraos and Saabira Chaudhuri of the WSJ.
"Freddie Mac has returned to profitability in large part because it has sharply tightened its lending standards, meaning that riskier loans from the housing bubble are being replaced with much safer mortgages."

Wednesday, August 7, 2013

Some Middle-Class Facts

See Behind the Middle-Class Funk The recession hurt, but some troubles have been simmering for 40 years. By WILLIAM A. GALSTON, from today's WSJ. If you look at all the excerpts below, it seems to me that the middle-class is doing okay. Excerpts:
"Many economists define the middle class as those adults whose annual household income is between two-thirds and twice the national median—today, that means roughly $40,000 to $120,000."

"In 1971, it accounted for fully 61% of adults, compared with 14% for the upper class and 25% for the lower class."

"Four decades later, the middle class share had declined by 10 percentage points to just 51%, while the upper class share increased by six points and the lower class by four."

"During those 40 years, Pew calculates, the median income of middle-class households (adjusted for inflation) grew by 34%. The median grew for the others as well—by 43% for upper-income households and 29% for those with incomes below the middle class. This isn't surprising, because the median income for all U.S. households rose by 32% during that period, from $44,845 in 1970 to $59,127 in 2010. Indeed, 86% of middle-class Americans, and 84% of all Americans, enjoy higher incomes than their parents did."

"Pew uses a definition of income that excludes employer-provided health insurance, non-cash transfers such as food stamps and the redistributive effect of taxes. If these additional sources are included, the rate of increase in median household income between 1979 and 2007 is significantly higher. The increase looks substantially smaller if, as some economists suggest, we use the rate of medical-cost inflation rather than the consumer price index to determine the real value of employer-provided health insurance.

Another complication: Forty years ago, average household size was 3.2 persons. Today, it is only 2.5, a drop of 20%. Most analysts (including Pew's) adjust for this change, because a smaller number of persons per household means that income per person rises faster than the overall household income numbers would suggest. But some researchers disagree, on the ground that smaller households reflect, in part, lower birth rates, which are in turn influenced by gloomier economic realities and expectations."

"Between 1979 and 2007, on average, annual hours worked by middle-income households rose from 3,007 to 3,335—fully 10%, a larger increase than for any other income group. Some of the additional work reflects expanding opportunities for women. But much of it came in response to economic pressure and represents time that men as well as women reluctantly diverted from their children—hardly an unambiguous improvement in family well-being."

Tuesday, August 6, 2013

Entrepreneurs built our roads, rails and canals far better than government did

See Obama's False History of Public Investment By LARRY SCHWEIKART JR. AND BURTON W. FOLSOM JR. From today's WSJ. Mr. Schweikart, a history professor at the University of Dayton, is the co-author, with Dave Dougherty, of "A Patriot's History of the Modern World" (Sentinel, 2012). Mr. Folsom, a history professor at Hillsdale College, is the co-author, with his wife, Anita, of "FDR Goes to War" (Threshold, 2011). Excerpts:
"Create the infrastructure, in other words, and the jobs will come.

History says it doesn't work like that. Henry Ford and dozens of other auto makers put a car in almost every garage decades before the National Interstate and Defense Highways Act in 1956. The success of the car created a demand for roads."

"... the makers of autos, tires and headlights began building roads privately long before any state or the federal government got involved. The Lincoln Highway, the first transcontinental highway for cars, pieced together from new and existing roads in 1913, was conceived and partly built by entrepreneurs..."

"Before the 1860s, almost all railroads were privately financed and built."

"When the federal government decided to do infrastructure in the 1860s, and build the transcontinental railroads (or "intercontinental railroad," as Mr. Obama called it in 2011), the laying of track followed the huge and successful private investments in railroads.

In fact, when the government built the transcontinentals, they were politically corrupt and often—especially in the case of the Union Pacific and the Northern Pacific—went broke. One cause of the failure: Track was laid ahead of settlements. Mr. Obama wants to do something similar with high-speed rail. The Great Northern Railroad, privately built by Canadian immigrant James J. Hill, was the only transcontinental to be consistently profitable. It was also the only transcontinental to receive no federal aid."

"...Pan American World Airways, began flying passengers overseas by the mid-1930s. During that period, nearly all airports were privately funded..."

"Public airports did not appear in large numbers until military airfields were converted after World War II."

"Most state-supported canals lost money, and Pennsylvania in 1857 and Ohio in 1861 finally sold their canal systems to private owners."

"In all of these examples, building infrastructure was never the engine of growth, but rather a lagging indicator of growth that had already occurred in the private sector."

Monday, August 5, 2013

Biofuels Mandate Has Unintended Consequences

See Biofuel Makers Seek to Ease Mandates to Avert Congress by Mark Drajem of Bloomberg, July 25, 2013. Excerpts:
"With production of fuels made from sources such as wood waste, algae or used cooking oils at a fraction of what was envisioned in a 2007 law, the Environmental Protection Agency needs to adjust requirements for use of biofuels in coming years,..."


"...must use a certain amount of renewable fuels each year, or buy credits called Renewable Identification Numbers, known as RINs..."

"...separate requirements for cellulosic fuels, diesel made from biomass such as soybean oil, as well as a general renewable category that is largely filled by ethanol made from corn.

With the use of gasoline falling, refiners say that EPA’s current mandate means they can’t sell enough ethanol without exceeding the 10 percent blended level deemed safe for all vehicles."

Former Clinton Administration Official Says U. S. Broadband Is Good Party Due To Competition

See The Myth of America's Inferior Broadband: Access to faster networks in the U.S. is greater than in Europe, where regulations have discouraged investment by EV EHRLICH today's WSJ. Ehrlich is a former undersecretary of commerce under the Clinton administration. Excerpts:
"...  U.S. broadband is a major success."

" speed rankings, has the U.S. currently at No. 9, up from No. 22 in 2009—faster than in France, Germany and Britain."

"...the U.S. has the second-lowest entry-level broadband prices (behind Israel) in the Organization for Economic Cooperation and Development..."

"...U.S. broadband companies have invested $250 billion in Internet upgrades since the recession began in 2008."

"...Europe, where in most countries Internet service providers lease aging wires from incumbent, often state-sanctioned telephone companies."

"...because the ISPs do not own the underlying infrastructure, they have no incentive to invest in it."

"In the Telecommunications Act of 1996, Congress recognized that existing local phone companies had a serious advantage over potential competitors since they were the only providers with wires going into homes. So Congress mandated that those companies provide their competitors access to their systems at low, government-mandated prices..."

"This seemed great—except that neither the DSL providers nor the incumbent phone companies had any incentive to invest and innovate. As a result, the U.S. started falling behind.

The exception was the cable industry, which wasn't covered by the common-carriage mandate. Cable companies such as Comcast and Time Warner began investing heavily in high-speed networks."
"In 2004, the Federal Communications Commission and the courts ended the mandatory leasing regime,..."
"It was only then that fiber entered the broadband picture."
"The results of these two competing models are now apparent. In the U.S., 85% of households have access to wired broadband networks capable of speeds of 100 megabits per second. By contrast, just half of Europeans get service that meets or exceeds 30 Mbps.
Why the disparity? Because the U.S. is one of two nations on the planet—the other is South Korea—that has three different and fully deployed broadband technologies:"
"...some U.S. critics want to bring back European-style regulations, including the policy of common carriage.
They would do well to listen to regulators in Europe, who have overseen this kind of regulation and say it doesn't work."