Saturday, March 15, 2014

Piketty's Dodge on Inequality

By David Henderson of EconLog.
"New York Times economics columnist Eduardo Porter recently interviewed economist Thomas Piketty on his work on income and wealth inequality. Piketty, in case you haven't followed, has been documenting the increase in income and wealth inequality in the richer countries, including the United States.

Porter doesn't ask any questions about world inequality. My impression is that it has decreased as large countries like China and India have gotten wealthier. But, of course, their real incomes could be growing faster than Americans' real incomes and income inequality could still be increasing. Start with a per capita income of $2,000 that is growing at 8% per year in poorer countries and a per capita income of $30,000 that is growing at 1% per year in richer countries. One year hence, per capita income in the poor countries will be 8% higher, which is $160 more. One year hence, per capita income in the poorer countries will be $300 more, which is, obviously $140 more than $160. So the gap will have grown. It will take a number of years before the absolute gap falls.

By the way, there is one quick way to make sure that global inequality of income falls dramatically: for the richer countries to allow in an additional 50 to 100 million immigrants a year.

I would be interested in Piketty's take on both of the above. Apparently, Porter is not.

But I want to focus on the area on which Porter focuses: increasing inequality within a country, specifically the United States.

Porter asks a good question:

Might inequality in the United States be less damaging than it is in Europe because the very rich were not born into wealth, but earned their money by creating new products, services and technologies?
Porter was implicitly, I think, getting at an obvious point: that large rewards for innovation give incentives for innovation. The innovation will help hundreds of millions of people who will never be really wealthy: think of how you gain from a computer and a cell phone.

Here's how Piketty answers:
This is what the winners of the game like to claim. But for the losers this can be the worst of all worlds: They have a diminishing share of income and wealth, and at the same time they are depicted as undeserving.
Do you see what Piketty did? He didn't answer. Not only did he not answer what I think was Porter's implicit point--the large social value of the incentive to innovate--but also Piketty didn't even answer the narrow question asked: is inequality less damaging because many very rich people earned their money by innovating? What did Piketty do? He made it about what the "winners" "like" to claim, not about whether the claim is true. Had I been Porter, I would have followed with something like the following:

Regardless of what they would "like" to claim, is it true?
Piketty also conflates increasing inequality with "losing." Notice that he calls those with a diminishing share of income and wealth "losers" even though they may well be winners, but not as big winners as those with an increasing share of income and wealth."

BEHAVIOR, PATERNALISM, AND POLICY: Evaluating Consumer Financial Protection

Paper by Adam C. Smith and Todd Zywicki of the Mercatus Center at George Mason University. (Hat Tip: Cafe Hayek) Abstract:
"This paper examines the relationship between behavioral law and economics (BLE) as a policy prescription platform and its influence on the regulations emerging from the Consumer Financial Protection Bureau (CFPB). We show how these regulations are inconsistent with the intent and purpose of improving consumer choices. We further demonstrate that the selective modeling of behavioral bias in the BLE framework causes an overestimation of the ability of regulators, who in actuality use inefficient, heavy-handed rules based on little if any real empirical findings of “consumer irrationality.” Accordingly, the broader lesson on the misapplication of behavioral economics goes beyond the ill-considered policies emerging from the CFPB."

Thursday, March 13, 2014

Obama again decries the gender pay gap, even though women on his staff earn only 88 cents for every dollar earned by men

From Mark Perry of "Carpe Diem."

The Hill reported yesterday that:
President Obama will host women of Congress at the White House for a Wednesday meeting in the administration’s latest bid to focus attention on its economic policy priorities ahead of the midterm election.
The White House Council of Economic Advisers will release new data in conjunction with the meeting showing that women earn just 77 cents for every dollar earned by a man, and the wage gap increases for women of color.
In the 21st century, why aren’t women earning equal pay? So how can we close that pay gap?” White House senior adviser Valerie Jarrett asked CBS News on Wednesday.
The meeting will feature female Democrats from the House and Senate, along with the president and Jarrett. Obama, House Minority Leader Nancy Pelosi (D-Calif.) and Senate Budget Committee Chairwoman Patty Murray (D-Wash.) are expected to speak at the top of the meeting.
MP: If Obama is really serious about the gender pay gap, he should start by addressing the significant gender pay gap that exists in his own White House, where female staffers earn just 88 cents for every dollar earned by their male counterparts (see chart above). Specifically, according to a detailed analysis of salary data from the “2013 Annual Report to Congress on White House Staff,” the 229 female employees in the Obama White House are being paid a median annual salary of $65,000, compared to a median annual salary of nearly $74,000 for the 232 male White House staffers. Unless and until Obama addresses (and closes) the 12% gender pay gap in the White House, it will be very hard to take him and Valerie Jarret seriously when they discuss the gender pay gap and how to close it, without acknowledging or addressing the 12% gender pay gap at the White House."

Unions Suffer for Obamacare

From Megan McArdle. Excerpts:
"Notwithstanding my reservations about the quality of this report, unions actually do have three big problems with Obamacare. As the Official Blog Spouse has chronicled, Obamacare has made things hard for the multiemployer health plans that many unions offer:
The issue here is how the law deals with multiemployer health plans, which cover as many as 26 million Americans, and are especially popular with unions whose members frequently work irregular hours for multiple customers.

ObamaCare requires these plans to comply with a number of regulations that are likely to drive up costs, but it doesn’t allow employers who provide benefits through multiemployer plans access to subsidies or tax credits. The only way for many of those union members currently covered by multiemployer plans to get subsidies would be for the unions to stop offering those plans.
The first problem is that Obamacare regulations are already pushing up the cost of multiemployer insurance plans. Moreover, many of the regulations don’t really fit the plans -- for example, many multiemployer plans do not distinguish between single and family policies, offering everyone the same insurance at the same cost.

The second problem is that the 40 percent excise tax on especially expensive plans -- the so-called Cadillac tax -- is going to hit union plans especially hard. Unlike most people negotiating compensation, union negotiators make an explicit trade-off between wages and other benefits, and the benefit that they seem most attached to is generous health plans. Union plans are made more expensive still because union membership is heavily skewed toward older workers. They are thus very likely to get hit by the Cadillac tax, which takes effect in 2018.

And the third problem is that Obamacare undercuts one of the key benefits of being in a union. Take a low-wage service worker who is currently insured through her union's multiemployer plan. If she went to work for a nonunion shop, she could get a substantial wage hike, use part of it to buy a heavily subsidized exchange policy, and still be better off. As I heard one expert say, Obamacare turns health insurance from an organizing tool to a disorganizing tool."

Wednesday, March 12, 2014

500+ economists assert the irrefutable laws of demand and supply, and slam the minimum wage hike as a jobs killer

From Mark Perry of "Carpe Diem."


More than 500 economists, including three Nobel laureates (Vernon Smith, Eugene Fama and Ed Prescott, along with AEI scholars/fellows Andrew Biggs, Alex Brill, Bob Helms, Marvin Kosters, Tom Miller, Stan Veuger, and Ben Zycher) have signed this letter arguing that artificially raising the minimum wage to $10.10 per hour through a government mandate would have adverse effects on the employment opportunities for unskilled and low-skilled workers. The tragedy of this well-intentioned, but misguided legislation is that it would harm and disadvantage the very workers it is intended to help (see cartoons below from Henry Payne).

PayneMinWage minwage11

In voicing their collective objection to a government price control for entry-level workers, the 500+ economists asserted the Law of Demand and the Law of Supply, two fundamental and time-tested components of basic economy price theory, summarized graphically above. Following a 40% increase in the federal minimum wage from $7.25 to $10.10 per hour, we would expect two incontrovertible effects: a) the number of unskilled, low-skilled and entry-level workers hired by employers would decrease (a movement upward to the left from $7.25 per hour along the blue demand curve above), and b) the number of unskilled and low-skilled workers looking for entry-level jobs would increase (a movement upward to the right from $7.25 per hour) along the green supply curve above). In combination, those two perfectly predictable and unavoidable effects inevitably leads to an “excess supply of unskilled workers” in the graph above, which is just another term for “more unemployed unskilled workers,” and a higher jobless rate for those workers.

Bottom Line: No amount of wishful thinking or well-intentioned legislation will change the unavoidable outcome of reduced employment opportunities for entry-level workers in America illustrated graphically above. The 500+ economists who have signed the letter are in general agreement that economic reality and the laws of supply and demand are not optional, despite the arrogant attempts of economically-challenged politicians and progressives to circumvent or disregard the most basic economic theory, economic laws and economic logic."

Why Still No Real Jobs Takeoff?

From John Taylor.

For each month of this recovery, I’ve been tracking the change in the employment-to-population ratio and comparing it with the recovery from the previous deep recession in the 1980s.  Here is the latest update based on today’s release of February data:
emp-pop feb 2014
and here is a post from 2011 for comparison. It’s remarkable that there’s still no take-off and the percentage employed is still below what it was a bottom of the recession.


As would be expected after so many disappointing years, some are now seeing this as a secular issue of low labor force participation unrelated to the slow recovery from the recession. But research by Chris Erceg and Andy Levin, (Labor Force Participation and Monetary Policy in the Wake of the Great Recession) provides what they consider to be “compelling evidence that cyclical factors account for the bulk of the post-2007 decline in labor force participation.”  One convincing piece of evidence is their chart (see below) which shows the labor force participation rate (LFPR) projection by BLS and CBO before the downturn based on the demographics about which there have been no surprise.  The actual LFPR (63.0 percent as of today) is well below these projections.

A Video of My Lecture On Entrepreneurs As Heroes

I gave a talk in 2007 at Pepperdine University called "Who Says Entrepreneurs Are Heroes?" You can watch it if you click here. It was part of the HERO'S JOURNEY ENTREPRENEURSHIP FESTIVAL. You can also watch it by clicking on the arrow in the picture below. I come on after a short introduction by Elliot McGucken, who put the conference together. After about the 2 minute introduction I come on and it lasts about 18 minutes. You can read a text version of this at Who Says Entrepreneurs Are Heroes?


Tuesday, March 11, 2014

Who’d a-thunk it? Long lines for food under communism?

From Mark Perry of "Carpe Diem."

Venezuelans Are Marked With Temporary Tattoos To Stand In Long Lines At Government Supermarkets That Are Many Blocks Long."

Quotation of the day on the political left’s hypocrisy…

From Mark Perry of "Carpe Diem."
"is from Thomas Sowell, writing in his column today titled “The Left versus Minorities“:
If anyone wanted to pick a time and place where the political left’s avowed concern for minorities was definitively exposed as a fraud, it would be now — and the place would be New York City, where far left Mayor Bill de Blasio has launched an attack on charter schools, cutting their funding, among other things.
These schools have given thousands of low income minority children their only shot at a decent education, which often means their only shot at a decent life. Last year 82 percent of the students at a charter school called Success Academy passed city-wide mathematics exams, compared to 30 percent of the students in the city as a whole.
Why would anybody who has any concern at all about minority young people — or even common decency — want to destroy what progress has already been made?
One big reason, of course, is the teachers’ union, one of Mayor de Blasio’s biggest supporters. But it may be more than that. For many of the true believers on the left, their ideology overrides any concern about the actual fate of flesh-and-blood human beings."

Entitlement nation: The federal government has gradually turned into a gigantic wealth-transfer machine

From Mark Perry of "Carpe Diem."


Below are some selected excerpts from an excellent article in today’s Investor’s Business Daily by John Merline (“70% Of U.S. Spending Is Writing Checks To Individuals“):
Buried deep in a section of President Obama’s budget, released this week, is an eye-opening fact: This year, 70% of all the money the federal government spends will be in the form of direct payments to individuals, an all-time high (see chart above, data here in Table 6.1).
In effect, the government has become primarily a massive money-transfer machine, taking $2.6 trillion from some and handing it back out to others. These government transfers now account for 15% of GDP, another all-time high. In 1991, direct payments accounted for less than half the budget and 10% of GDP. What’s more, the cost of these direct payments is exploding. Even after adjusting for inflation, they’ve shot up 29% under Obama.
Where do these checks go? The biggest chunk, 38.6%, goes to pay health bills, either through Medicare, Medicaid or ObamaCare. A third goes out in the form of Social Security checks. Only 21% goes toward poverty programs — or “income security” as it’s labeled in the budget — and a mere 5% ends up in the hands of veterans.
Interestingly, despite Obama’s frequent pledges to reduce income inequality, the share of direct payments going toward “income security” has dropped from 25% in 2009 to 20% in 2014. (The average share from 1980 to 2008 was 25.4%.) Obama’s Fiscal Year 2015 budget calls for this share to drop to just 17% by 2019, as his programs devote more and more federal tax money to middle-class entitlement programs such as ObamaCare.
This massive shift in federal spending toward direct payments to individuals not only balloons the size of the federal government, it makes cutting the budget all the harder, since any meaningful spending reductions will invariably mean cutting back on some of these check-writing programs.
The Congressional Budget Office figures that, by 2038, Medicare and Social Security alone will eat up 42% of the budget. The explosive growth in these direct-payment programs is also squeezing traditional government functions, such as national defense, which Obama wants to sharply cut. His budget calls for Pentagon spending to drop from $623 billion in 2015 to $570 billion in 2017."

Monday, March 10, 2014

Minimum Wage Increase Is Still Bad Policy

By Matt Powers of the Competitive Enterprise Institute. 
"For the past two years, President Obama has proposed raising the federal minimum wage in his State of the Union address. The main arguments for raising the minimum wage have typically ignored economic arguments against it, and relied upon more politically charged arguments. This time around the argument is a bit different because progressives are now using new studies in economics as intellectual ammunition. Shortly before the State of the Union address, 600 economists signed a letter to the president endorsing a raise in minimum wage, citing the new studies. These studies have argued that moderately increasing the minimum wage would have a negligible impact on employment levels.

Obama himself relied on these revisionist economists in his announcement of the executive order: “Just last month, 600 economists, including seven Nobel Prize winners, wrote the leaders of houses of Congress to remind them that the bill before Congress would have little or no negative effect on hiring, on jobs. So it’s not going to depress the economy. It will boost the economy.”

The mistake being made by using these studies is that 79 percent of economists have not actually changed their longstanding consensus against a high minimum wage, and are skeptical of the new studies. The 600 signatories do not necessarily represent the field as a whole, and their suggestions, as such, should be taken with caution.

Robert P. Murphy, an economist, has offered a very thorough critique of the new “revisionist” studies, as he calls them. One of his main arguments is that, even if we take these new studies at face value, the actual current proposals for increasing the minimum wage do not apply to the studies. The argument within the studies considers a “moderate increase” an increase of 10 percent or less; the president’s actual proposal of $7.25 to $10.10 would be a 39 percent increase. The economists who signed the letter are relying on arguments that compare apples to oranges.

Of course, Murphy goes further in another post to explain how the new studies have yet to change the consensus in economics. The studies are still being digested and critiqued within the field of economics, and are thus not a reliable source for determining the validity of raising the minimum wage.

Furthermore, as my CEI colleague Aloysius Hogan pointed out, Obama’s proposal “would still leave a full-time breadwinner’s family below the poverty line,” contradicting his statement that “…if you cook our troops’ meals or wash their dishes, you shouldn’t have to live in poverty.” This is precisely what would occur with the proposed wage increase for the average family with a single breadwinner.

So, although President Obama is within his rights to impose a higher minimum wage on federal contractors through executive order, it remains to be a bad policy for the economy as whole. The president is cherry-picking economic research to defend his position, and Congress should take heed to avoid emulating this policy in the future."

What we learned about Obamacare March 5-10, 2014

From Natalie Scholl of AEI. Excerpts:
3.) AEI’s Scott Gottlieb writes on the “Hard data on trouble you’ll have finding doctors in Obamacare”:
The graph below illustrates data we developed on the doctor networks found in the Obamacare health plans versus comparable private health plans.The black text illustrates the average number of specialist doctors found in private health plans. The red text shows how many fewer doctors are found in the Obamacare plans being sold in the same markets, and by the same insurer. To assemble this data, we looked at the health plans sold in the most populous county within each of these different states.
The data is for Anthem BlueCross BlueShield. We chose this insurer because it is regarded to offer higher quality plans in both the commercial market and on the exchanges. Moreover, it operates in these markets nationally, in about a dozen states. This allows us to look across the experience in different states and regions.

5.) Obama has officially given “health plans added two-year reprieve”: “The latest delay came Wednesday, when federal officials said insurance companies could continue selling plans that don’t meet the law’s more rigorous standards until 2016 in some instances. It was the second time the administration delayed that requirement after the law’s tougher standards prompted insurers to cancel millions of people’s health plans last year. The latest delay averts another raft of cancellations before this year’s midterm elections…. But the law will only make a dent in the ranks of the roughly 50 million uninsured people in the U.S. in 2014. By 2020, there will still be 30 million people without coverage, according to projections by the nonpartisan Congressional Budget Office.”

7.) The Wall Street Journal reports that “For many individuals and families, the penalty for not having health-insurance coverage will run a lot higher than the $95 figure often cited — and it could run into the five figures in some cases. That’s according to the Tax Policy Center, which has just rolled out a tax penalty calculator — the ACA Tax Penalty Calculator. The calculator helps people figure out how large their tax penalty will be if they fail to obtain required health-insurance coverage.”

8.) James Capretta, an AEI visiting fellow, looks at Obamacare and Medicare:
If Obamacare retains a surface resemblance to a private-sector-driven, market-based system, it is only because those who wrote it and pushed it through Congress believed they could go no farther in 2010 without fragmenting the coalition in support of the legislation. There should be no doubt about the overall direction, though: Obamacare is a massive step toward centralized government control, and that was its purpose. This explains why the same administration that claims to be implementing a market-based reform for working-age Americans is simultaneously trying to undermine the only market-driven elements now operating in Medicare — namely, the Medicare Advantage program and the prescription-drug benefit….
The administration and its allies complain that MA growth has been fueled by overpayments to health-care providers, and that was their justification for including large MA cuts in Obamacare. Of course, these cuts were also useful in transferring resources out of Medicare to pay for Obamacare’s large subsidies to expand health-insurance coverage for those under age 65. According to the Congressional Budget Office, Obamacare’s MA cuts will total more than $150 billion over ten years, including $14 billion in 2015 alone…. The Obama administration is determined to proceed with the planned cuts in Obamacare, and to add to them with administrative decisions that would cut MA rates still further.
9.) The Washington Post says, according to two new surveys, “New health insurance marketplaces signing up few uninsured Americans”:
Only one in 10 uninsured people who qualify for private plans through the new marketplaces enrolled as of last month, one of the surveys shows. The other found that about half of uninsured adults have looked for information on the online exchanges or planned to look. The snapshots from the surveys released Thursday provide preliminary answers to what has been one of the biggest mysteries since and separate state marketplaces opened last fall: Are they attracting their prime audience?
….One of the surveys, by the consulting firm McKinsey & Co., shows that among people who are uninsured and do not intend to get a health plan through one of the exchanges, the biggest factor is that they believe they cannot afford it.
11.) Investor’s Business Daily notes “White House admits ObamaCare work study ‘misleading’”:
The White House last month quietly amended a study aimed at disproving any negative ObamaCare effect on the workweek, admitting it counted 29.5-hour workers as clocking 30 hours. At the same time, the White House Council of Economic Advisers suggested a more reliable measure to gauge ObamaCare’s impact on work hours: the ratio of workers clocking 31 to 34 hours relative to those working 25 to 29 hours per week.Yet that CEA-endorsed measure yields a surprising result: In the fourth quarter of 2013, that ratio sank to the lowest level in 13 years. That’s consistent with employers moving workers below ObamaCare’s 30-hour-week full-time threshold.