Sunday, August 31, 2014

Climate Change Costs By 2100: Doing Nothing Has the Same Price Tag as Doing Something

From Ronald Bailey of Reason. Excerpt:
"Future temperatures will perhaps be higher, by 2100 the average is likely to hover around the ~2°C benchmark. In the scenarios sketched out above, a worst-case 2 percent loss of income resulting from adaptation would mean that the $60,000 and $138,000 per capita income averages would fall to $58,800 and $135,240, respectively.

In the IPCC's mitigation report, the optimal scenario for keeping greenhouse gas concentrations below 450 parts per million would cut future incomes by between 3 and 11 percent by 2100. Let's look at how much the worst-case mitigation scenario might reduce future incomes. Without mitigation, the increase of global gross product to $577 trillion in the "middle of the road" scenario implies an economic growth rate of 2.42 percent between 2010 and 2100. Cutting that growth rate by 0.14 percentage points to 2.28 percent yields an income of $510 trillion in 2100, reducing per capita incomes from $60,000 to $57,000. Growth in the conventional development scenario is cut from 3.07 percent to 2.93 percent, reducing overall income from over $1.015 quadrillion to $901 trillion and cutting average incomes from $138,000 to $122,000.

All of these figures must be taken a vat of salt, since they are projections for economic, demographic, and biophysical events nearly a century from now. That being acknowledged, the IPCC's projected losses to incomes from doing nothing to slow climate change appear to be roughly comparable to the losses incurred by trying to slow climate change. In other words, doing nothing about climate change will cost future generations roughly the same as doing something.

"Most philosophers and economists hold that rich generations have a lower ethical claim on resources than poorer generations," observes the Yale economist William Nordhaus. How much should people living on incomes averaging $10,000 a year now spend to make sure that people whose incomes will likely be many-fold higher don't see their wealth reduced by a couple of percentage points?"

Markets in everything: Market-based alternatives to Obamacare

From Mark Perry.
"1. Concierge Medicine (as reported by WAAY-TV in Decatur, AL):
With the Affordable Care Act in full swing, there’s a growing trend across the nation that’s changing the way patients get treatment. And now concierge medicine is being offered at The Heartbeat Away Clinic in Decatur, Alabama. “What I’m doing is unprecedented” said Nurse Practitioner Kimberly Samuel. “I’m not accepting any insurance whatsoever.”
“I’m doing a concierge type medicine where people pay a monthly amount. It’s a very minimum amount and I’ll see them as often as they would like to be seen” said Samuel. Samuel charges a monthly or yearly membership fee that starts at $50 for an individual and $100 for a family of 4. The fee includes appointments or walk-ins for reduced wait times, 24 hour access by phone or email, and 45 minutes for each visit. The fee also includes a wellness panel with blood work.
Two weeks ago, Samuel opened the clinic to cater to those who don’t have insurance after researching the growing trend of concierge medicine in larger cities. By eliminating the cost of billing insurance companies, Samuel can cut overhead expenses up to 40 percent and transfer the savings to her patients.
A growing number of doctors are going the concierge route due to what some call a costly amount of insurance regulations and red tape in Obamacare. Samuel said cutting out the middleman allows her to focus more on her patients.
2. Oklahoma Doctor Making a Run Around Obamacare (as reported by
About a year before the birth of Obamacare, Dr. Keith Smith, director of the Surgery Center of Oklahoma, posted all the prices for his center’s surgeries online. Today, he’s in expansion mode, looking to build two more operating rooms. His fastest-growing group of patients? Obamacare enrollees.
Though armed with Obamacare health insurance plans, the patients are saddled with high deductibles. Looking for alternatives, some of them fly from around the country to the Surgery Center of Oklahoma, where the cost of care and travel together amounts to less than their deductibles under their Affordable Care Act plans.
The Surgery Center of Oklahoma is a physician-owned operation that does not take Medicare or Medicaid and only selectively works with private insurance plans. Patients pay in cash or with cashier’s checks.
“Even if someone has this (Obamacare) insurance card in their pocket, they are soon going to find out that it’s worthless,” Smith said, citing both higher prices and doctor shortages under Obamacare. “Coverage doesn’t mean care.” As proof, he points to the fact that among his first waves of patients to the center were Canadians, who though covered under their country’s socialized health care system, found themselves in the back of a long line of patients in desperate need of care.
Smith and others argue Obamacare is moving America even farther away from the real solution to its health care woes. What’s needed, they say, is a free-market model in which Americans are not just patients, but health care consumers.
MP: Look for more of these types of market-based health care solutions as patients look for alternatives to government-managed Obamacare."

Saturday, August 30, 2014

Poland Prospered Using The Free Market While Ukraine Did The Opposite And Got Opposite Results

See A Lesson for America in Poland's Rise and Ukraine's Fall by Phil Gramm And Michael Solon. From today's WSJ. Excerpt:
"Ukraine has largely squandered its economic potential with pervasive corruption, statist cronyism and government control. With budget deficits as high as 14.4% of GDP, hyperinflation and an underground economy approaching 50% of all economic activity, Ukraine's economy since 1992 has grown about one-fifth as much as the economy of its smaller neighbor Belarus. The per capita income of Ukraine, in U.S. dollar equivalence, has grown to only $3,900 in 2013 from a base of $1,570 in 1990

Today, the whole world is painfully aware that Ukraine's economic failure has endangered its freedom and independence, and forced it to courageously fight for both.

By most conventional measures, Ukraine should be a wealthy country. It has world-class agricultural land, it is rich in hydrocarbons and mineral resources, and it possesses a well-educated labor force. Yet Ukraine remains poor, because while successful Central European nations have replaced their central-planning institutions with market-based reforms, Ukraine has never been able to break the crippling chains of collectivism. Only now is Ukraine seriously attempting to limit government, control spending, stop the growth of its national debt, and stabilize the value of its currency.

These are reforms that Poland instituted almost a quarter of a century ago, and dramatically transforming its economy. By employing free-market principles and unleashing the genius of its people, Poland has triggered an economic triumph as per capita GDP, in U.S. dollar equivalence, soared to more than $13,432 by 2013 from $1,683 in 1990. Today Poland is the fastest-growing economy in Europe. Its economic success and democratic reforms have earned it European Union membership, and Poland's once fleeting sovereignty is now anchored in NATO." 

"The Balcerowicz Plan was built around permitting state firms to go bankrupt, banning deficit financing, and maintaining a sound currency. It ended artificially low interest rate loans for state firms, opened up international trade and instituted currency convertibility. 

His plan was signed into law on December 31, 1989 and within days, inflation—which had reached an annual rate of 17,000%—started to plummet. Poland pegged the value of the zloty to the dollar, permitting redenomination of the zloty five years later by crossing out four zeros. Once the reforms were in place, goods started showing up first in the trunks of cars, then in street stands, in small shops and ultimately in large stores. A miracle transition was under way and the rest is history."

Michael Strong's Excellent Response To Jonathan Haidt's "Three Stories about Capitalism"

Haidt has written the excellent book The Righteous Mind: Why Good People Are Divided by Politics and Religion. Strong is an entrepreneur. See Three Stories about Capitalism

Haidt's first story is Capitalism is exploitation. The second is Capitalism is our savior. The third story is "We celebrate the fact that the wide embrace of free markets has lifted more than a billion people out of poverty. Yet we know we can do better."

Here is the comment that Strong left:
"Excellent short summations on Story 1 and Story 2, and a good start towards Story 3. For the past ten years John Mackey, co-founder and CEO of Whole Foods Market, and I have been working on our version of Story 3 (see,, and We certainly believe that free enterprise, and all human activity, should be driven first and foremost by moral concerns and that a blind adherence to profit-maximization often produces monstrous results. We need to create a Story 3 in which all of humanity obtains the extraordinary benefits of entrepreneurial value creation while nonetheless preserving a world that is environmentally sustainable and in which most human activity is devoted to improving the lives of others rather than indulging in materialism, consumerism, and wasteful status competitions.
That said, the hegemony of Story 1 in academia over the past century has led to numerous blind spots that need to be addressed in order develop a version of Story 3 that will produce positive results. For instance, most people, including most scholars, blithely assume that the tragedies in Bangladeshi sweatshops are due to an absence of adequate government regulation. As a consequence, the default assumption among most educated people around the world is that developing nations need more regulation in order to prevent a “race to the bottom.”

As it turns out, prior to the collapse of the factories in Bangladesh a union-supported labor commission concluded that Bangladeshi labor law was “fairly comprehensive and progressive” and a review of some aspects of the Bangladeshi building codes by a Japanese commission concluded that in some respects the Bangladeshi building codes were excessively stringent – by Japanese standards.

It turns out that in Bangladesh, as in many poor nations, there are abundant laws – indeed, by several metrics (World Bank’s Doing Business index, the economic freedom indices) Bangladesh is one of the most highly regulated nations on earth. Indeed, it is a fair generalization that poor countries are poor because of excessive regulation. For instance, the lowest ranked thirty nations on Doing Business and economic freedom indices are mostly African. It requires seventeen documents to import a good legally into the Congo, it costs over $500 to get a document notarized in Senegal, etc.

Conversely, although China is almost universally denounced as one of the most horrific examples of unregulated capitalism, few of its critics seem to be aware that nonetheless average urban wages in China have gone up more than 5x in the past twenty years. With 700 million urban Chinese, this has to be considered one of the greatest moral achievements in history. This is not to belittle the egregious human rights abuses and environmental damages that have taken place in China in the past twenty years. But there are a billion Africans who would love to see their average earnings go up 5x in the next twenty years. There is no way that foreign aid, charity, NGOs, “Fair Trade,” or any other manifestation of “caring” can increase average wages 5x for hundreds of millions of people in a couple of decades. Before moving on to Story 3, we need to start from an accurate understanding of where the world stands regarding the implementation of Story 2. We are not there.

Despite the fact that this information has been well documented and is widely available, I suspect that neither the Dalai Lama nor Professor Haidt was aware of the over-regulation of poor nations or the extraordinary wage growth for the masses in China. The “righteous minds” who dominate the universities are so obsessed with imposing Story 1 on us all that they refuse to acknowledge empirical information that is inconsistent with their narrative. Before we can get to a really rich development of Story 3, we need to reduce the hegemony of Story 1 among university professors (especially those in the humanities and non-economics social sciences).

Once we have cleared up the many misconceptions due to the “righteous minds” of anti-capitalist academia and their social dominance on most campuses, then we can move forward in dramatically positive ways in crafting positive versions of Story 3 that will change the world for the better."

Friday, August 29, 2014

Megan McArdle On Tax Invresions

See Burger King and the Whopper About Taxes. Excerpt: 
"The U.S., unlike most developed-world governments, insists on taxing the global income of its citizens and corporations that have U.S. headquarters. And because the U.S. has some of the highest tax rates in the world, especially on corporate income, this amounts to demanding that everyone who got their start here owes us taxes, forever, on anything they earn abroad.

This is a great deal for the U.S. government, which gets to collect income tax even though it’s not providing the companies sewers or roads or courts or no-knock raids on their abodes. On the other hand, it’s not a very good deal for said citizens and corporations, especially because our government has made increasingly obnoxious demands on foreign institutions to help them collect that tax. Both private citizens and corporations who have a lot of income abroad are deciding that they’d rather renounce their ties to the U.S. than deal with the expense and hassle of letting it tap into income that they have earned using some other country’s roads and sewers and police protection.

Practically speaking, global taxation is hard to enforce and loaded with bad incentives, which is why our fellow members of the Organization for Economic Cooperation and Development have moved away from global taxation of corporate income, and abandoned global taxation of personal income. If anything, the U.S. has gone in the other direction -- by insisting, for instance, that foreign companies report various financial transactions with U.S. citizens to the Internal Revenue Service, and taxing foreign cost of living allowances, which makes it more expensive for companies to employ expats. On the corporate side, the Barack Obama administration has repeatedly suggested tightening up on tax deferral of foreign income and other credits, which would make it even more expensive to be a corporation based in the U.S.

Logically, there’s also not much of an argument for global taxation. OK, yes, most people born and raised here were educated and provided various services by the government to get them to adulthood. But we’re overwhelmingly the largest net recipient of immigrants, and most of those people were educated and provided various services by their governments to get them to adulthood; we don’t seem to think there’s a problem with us free-riding on all those other nations. And surely there’s a statute of limitation on what you owe the government that raised you; 40 years later, should those expats still have to file insanely complicated returns to the IRS? Because that’s what we currently demand.

The argument is even weaker for corporate taxation; it boils down to “the police kept people from sacking your first headquarters, so therefore you owe us 35 percent of everything you make, forever.” Loan sharks and protection rackets offer more reasonable terms than this.

As my colleague Matt points out, most Americans -- including a lot of journalists who write about this -- seem to be under the misimpression that companies that invert, or people who renounce their citizenship, are doing so to get a lower tax rate on income they earn here. And in a few intellectual-property-based businesses, which can make aggressive use of transfer pricing strategies to declare most of their income in low- or no-tax countries, these complaints have some basis. In most cases, however, including Burger King, they’re doing it because the U.S. inexplicably insists on taking a big chunk off the top of all their foreign income, and making their lives miserable in the process.

If we’re worried about inversion, then the U.S. government should follow the lead of other developed countries, and move to territorial taxation. Otherwise, we should stop complaining when people and corporations decide that they’d rather be a citizen of some more sane system somewhere else."

Government spending on R&D might not help economic growth

From Cafe Hayek.
"from page 269 of Matt Ridley’s 2010 book, The Rational Optimist; (the quotation is from Terence Kealey’s 2006 book, Sex, Science and Profits; the OECD study is here):
A large study by the Organization for Economic Co-operation and Development concluded that government spending on R&D had no observable effect on economic growth, despite what governments believe.  Indeed it ‘crowds out resources that could be alternatively used by the private sector, including private R&D’."
The paper does not rule out a positive effect. It seems that so far they could not find one and the private sector seems to be doing a good job:
"Research and development (R&D) activities undertaken by the business sector seem to have high social returns, while no clear-cut relationship could be established between non-business-oriented R&D activities and growth. There are, however, possible interactions and international spillovers that the regression analysis cannot identify. Moreover, non-business oriented R&D (e.g. defence, energy, health and university research) may generate basic knowledge with possible “technology spillovers” in the long run."

Thursday, August 28, 2014

The Unintended Consequences of Environmental Policy: For the Birds

From Marian L. Tupy of Cato. 
"So, here is a story to make your blood boil. According to National Review, “the federal government acted with a bias, giving renewable-energy companies a pass on unlawful bird deaths while rigorously prosecuting traditional energy companies for the same infractions.” The NR article follows a string of recent stories complaining about tens of thousands of birds cut up to pieces or fried in the sky by windmills and solar plants.
Speaking of birds…

Five decades ago, Rachel Carson, of Silent Spring infamy, helped to ban a pesticide called DDT. Back then, DDT was widely used not only in agriculture, but also in malaria control. Carson argued, among other things, that the use of DDT endangered bird populations. The political left jumped on Carson’s arguments. After a massive campaign, DDT was withdrawn from agriculture and its use in malaria control was greatly restricted. Most countries followed the American example and banned DDT for use in agriculture.

Although developing countries could technically use DDT for disease control, no donor agencies (dominated by western leftists) would support its use. This amounted to a de facto ban of DDT in malaria control. Nobody knows for sure, but thousands of Africans, perhaps millions, have died of malaria since the use of DDT was prematurely discontinued, all because of a hysterical drive to save the birds in the West.

Today, tens of thousands of birds are dying to satisfy the newest progressive fetish: the drive for renewable energy. At least they are dying in an environmentally friendly way.

As the left likes to say, you cannot make an omelet without breaking some eggs!"

Locavorism Isn’t Sustainable

From Don Boudreaux of Cafe Hayek. 
"In my latest column in the Pittsburgh Tribune-Review I explore the mistaken notion, held by many locavores, that eating greater amounts of locally grown foods is good for the environment (link added):
Consider a favorite cause of the sustainability movement: locavorism. Champions of “sustainability” assert that, because local foods don’t have to be shipped very far to their final consumers, such foods are more “sustainable” than are foods grown and raised at great distances from where they are consumed.
This analysis appears sound to people who are blind to all but the resources used to transport foods from farms to dining tables. Yet transportation consumes only a small portion of the resources required to feed us. Labor, fuel, water, irrigation equipment, tractors and other farm tools, fertilizers, pesticides, packaging and (of course) land must also be used.
What effect would eating only locally grown foods have on the use of these other resources? Locavores seldom ask this question.
Fortunately, this question has been asked by sensible economists. In their splendid 2012 book, “The Locavore’s Dilemma,” Pierre Desrochers and Hiroko Shimizu conclude that the ecologically and economically best diet is one with foods from all across the globe. Among the most important reasons is that the amount of resources required to eat only locally grown foods would be stupendous.
UPDATE: To make explicit a point that I assumed was obvious if only implicit in the above passage, I would amend the last-quoted sentence to read:
Among the most important reasons is that the amount of resources required to eat locally grown foods rises to ever greater and more wasteful levels the more people eat locally grown foods simply because those foods are locally grown and, hence, the consumption of which is believed to be better for the environment than eating non-locally grown foods."

Wednesday, August 27, 2014

My response to the San Antonio Express-News on minimum wage laws

I just sent this to the paper. If it does get printed it might take a week or so.
"Last month an Express-News editorial advocated an increase in the minimum wage ("Minimum wage frozen at intolerable,” July 25). This was based on a report that said states that increased their minimum wage added more jobs than those that didn't raise minimum pay over a six month period.

Now that report has been challenged by two economics students from George Mason University, Liya Palagashvili and Rachel Mace, as reported last week in The Wall Street Journal.

The Express-News editorial implied that a higher wage for the targeted workers will lead to more spending, spurring economic growth and leading to more jobs.

But Palagashvili and Mace say that this is just 2% of the workforce and it will therefore have an insignificant effect. That is a point that Christina Romer, Obama’s first chief economic advisor, has also made

They also found of the 3 states that raised the minimum wage the most, the job growth was lowest among all states that raised the rate.
In fact, those three states, Connecticut, New Jersey and New York, had a lower rate of job growth than the 37 states that did not raise the rate. And “in New Jersey, the state that hiked minimum wage the most—to $8.25 an hour from $7.25—employment actually fell by about 0.56%.”

A statistical test they did showed that there was no significant difference in job growth between the states that raised the minimum wage and those that did not. It is also true that 9 of the 13 states simply adjusted their minimum wage for inflation, so the increases were very slight and therefore not meaningful.

Texas simply goes by the federal minimum wage. Yet since December 2007 Texas has added 1.3 million jobs while all other states combined have 1.23 million fewer jobs. That seems like a much better test than just six months.

Christina Romer has also pointed out that a higher minimum wage might force businesses to require job applicants to have experience. This means that the unskilled cannot get jobs.

What happens to them then? Research by economists Andrew Beauchamp and Stacey Chan of Boston College suggests that many of those workers turn to crime. Policies like minimum wage laws often have these unintended and unwanted consequences.

It is usually retail outlets and fast food restaurants that are affected by the law. Yet those are very competitive industries. Individual firms cannot afford to pay workers less than they are worth since those workers can always find other companies to work for. Again, this is a point made by Christina Romer.

A minimum wage is paid for by either the customers, the firm (including any stock holders) or both. If you don't eat at McDonalds or own stock in McDonalds, you don't have to contribute to this government anti-poverty program. Ideally, we should all have to pay to fight poverty.

Romer advocates expanding the Earned Income Tax Credit. Greg Mankiw, one of George W. Bush's chief economic advisors, agrees.

Economist Richard V. Burkhauser of Cornell University has shown that "only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households." So it is not even a good anti-poverty tool.

What workers need is a growing economy. In booming North Dakota, you can start at $17 per hour at the nation's busiest Wal-Mart in Williston."

Tuesday, August 26, 2014

A Driving School in France Hits a Wall of Regulations

From the NY Times. Excerpts:
"Alexandre Chartier and Benjamin Gaignault work off Apple computers and have no intention of ever using the DVD player tucked in the corner of their airy office. But French regulations demand that all driving schools have one, so they got one."

"The other driving schools have sued them, saying their innovations break the rules. Their application for an operator’s license for their school, Ornikar, has been met with total silence"

"getting a driver’s license here is so difficult and expensive that it has inspired books on the subject,"

"the myriad rules governing driving schools — and 36 other highly regulated professions — stifle competition and inflate prices in France.

The rules set up barriers to newcomers,"

"President François Hollande’s administration may finally take steps to tear down the tangle of rules that keep competition — and many young people — out of so many sectors of the economy."

"But there has been scant progress so far."

"the government offers only a limited number of exams each year, and these are doled out to the driving schools depending on their success rate the year before. That fact alone gives the old guard a virtual monopoly,"

"the written test, which he says goes far beyond making sure that a person knows the rules of the road. Instead, he said, it seems intended to trip students up with ridiculous questions,"

"the French are probably paying 20 percent more than they should for the services they get from regulated professions,"

"The failure rate for the French driving exam is about 41 percent,"

"barriers to getting a license are so high that about one million French people, who should have licenses, have never been able to get them."

"it often costs 3,000 euros, or about $3,900, to get a license. But others said the average was closer to 1,500 to 2,000 euros."

"Under the current system, would-be drivers register with a driving school. The schools offer instruction in their own classrooms (“often smelly caves,” according to Mr. Koenig) for the written test and on the road. They also determine when students can take an exam.

Since the school never has enough slots for all its students, it picks the best students first. The wait can stretch 18 months or longer. Although students are required to take only 20 hours of driving lessons, most end up doing double that while they wait for a chance to take the test."

Genetically modified food is safe—and essential to feed a hungry planet

See Meet Mr. Frankenfood. From the WSJ. Excerpts:
"Frescada lettuce, a crunchy leaf that is a cross between romaine and iceberg lettuce and was produced, as it happens, through conventional breeding techniques.

Does that mean it's genetically modified? Yes. You may have noticed that lettuce doesn't grow in the wild. For a millennium, farmers have genetically improved crops through breeding"

"and more than 90% of all acres planted with corn and soybeans are now GM crops. These crops, typically fed to livestock and used as ingredients in other foods, are in nearly 80% of the products on grocery-store shelves.

The switch to GM crops happened so rapidly because farmers favored the new technology over the traditional."

"Genetically modified seeds are more resilient, yield more crops on less land and require less labor."

""The biotech-derived products that we eat are the most highly tested and regulated components in what we consume,""

"It takes about $100 million to get one seed from discovery to market. Crops that are bred conventionally, on the other hand, undergo no government testing. None.

Research shows that GM crops are just as safe. "Every regulatory agency—I'm not talking U.S.; I'm talking the world, including Europe—has said these things are as nutritious and healthy as anything else," Mr. Begemann points out. That includes the FDA, the World Health Organization and the British Royal Society, all of which have declared GM crops as safe as conventional crops."

"The anxiety is fueled by "outright myths," including the one that GMOs aren't safe to eat. But no one is getting sick. Another myth is that crops don't increase yield. Yet farmers keep buying the seeds"

"GM crops help the environment by reducing pesticide use. Thanks to fewer sprays and less tillage, GM crops in 2012 reduced world-wide carbon emissions by 26.7 billion kilograms—the equivalent of taking 11.8 million cars off the road for a year,"

"we already have a useful label at the federal level: the organic seal. "Anybody who wants to stay away from GM can buy organic"

Monday, August 25, 2014

Study: US workers are staying put more than ever. And government is making the problem worse

From James Pethokoukis of AEI.
"A deep, dynamic, fluid, flexible labor market is supposed to be one of America’s economic strengths and competitive advantages. Jobs are created, jobs are destroyed as a changing market demands. Workers come and go, always looking for better-paying, more-fulfilling gig. But that process is breaking down. From the Jackson Hole conference, “Labor Market Fluidity and Economic Performance” by Steven J. Davis and John Haltiwanger:
1.) The U.S. economy experienced large, broad-based declines in labor market fluidity in recent decades. Declines in job and worker reallocation rates hold across states, industries, and demographic groups defined by gender, education and age. Fluidity declines are large for most groups, and they are enormous for younger and less educated workers.
2.) Many factors contributed to reduced fluidity: a shift to older firms and establishments, an aging workforce, the transformation of business models and supply chains (as in the retail sector), the impact of the information revolution on hiring practices, and several policy-related developments. Occupational labor supply restrictions, exceptions to the employment-at-will doctrine, the establishment of protected worker classes, minimum wage laws, and “job lock” associated with employer-provided health insurance are among the policy factors that suppress labor market fluidity.
3.) The loss of labor market fluidity suggests the U.S. economy became less dynamic and responsive in recent decades. … These developments raise concerns about productivity growth, which has close links to factor reallocation in prominent theories of innovation and growth and in many empirical studies. The high-tech sector’s sharp drop-off in business entry rates and in the incidence of fast-growing young firms after 2000 reinforces this concern. …  Our econometric evidence supports the hypothesis that reduced fluidity lowers employment rates, especially for younger and less educated workers.
4.) If our assessment of how labor market fluidity affects employment is approximately correct, then the U.S. economy faced serious impediments to high employment rates well before the Great Recession. Moreover, if our assessment is correct, the United States is unlikely to return to sustained high employment rates without restoring labor market fluidity.
Labor Market Fluidity and Economic Performance  by Steven J. Davis and John Haltiwanger
Labor Market Fluidity and Economic Performance
by Steven J. Davis and John Haltiwanger

So, another piece of evidence that America’s economic problems did not start with the usual suspects: George W. Bush, Obamanomics, or the Great Recession. Yes, an aging workforce plays a role. So do big changes in the US retail sector where big-box retailers show less job churn than the smaller players they replaced. Technology has made it easier for employers to screen applicants, including access to criminal records, credit histories, media attention, and social networking activity.

And there is some upside here to having more stability. Job losses can lead to lower earnings and can have negative affects on mortality rates, family stability, and mental health. What’s more, the transformation of the US retailers has boosted productivity and consumer purchasing power.
On the downside, less labor dynamism “goes hand in hand with a slower arrival rate of new job opportunities” which “increases the risk of long jobless spells” and hampers the ability to “switch employers so as to move up a job ladder, change careers, or satisfy locational constraints.” When Americans are on the move, America is on the move. And right now, we aren’t — with evidence to suggest bad government policy shares a large chunk of the blame."

Sunday, August 24, 2014

Minimum Wage and Crime

From Don Boudreaux.
"I meant to post a link to this paper by Andrew Beauchamp and Stacey Chan when I first discovered it several months ago from Tyler Cowen at Marginal Revolution.  The paper explores empirically the connection between minimum-wage rates and crime.  Alas, I apparently forgot to actually post the link.  (I was reminded of this paper just now through an e-mail from Frank Stephenson.)

Here’s the abstract:
Does crime respond to changes in the minimum wage? A growing body of empirical evidence indicates that increases in the minimum wage have a displacement effect on low-skilled workers. Economic reasoning provides the possibility that disemployment may cause youth to substitute from legal work to crime. However, there is also the countervailing effect of a higher wage raising the opportunity cost of crime for those who remain employed. We use the National Longitudinal Survey of Youth 1997 cohort to measure the effect of increases in the minimum wage on self-reported criminal activity and examine employment–crime substitution. Exploiting changes in state and federal minimum wage laws from 1997 to 2010, we find that workers who are affected by a change in the minimum wage are more likely to commit crime, become idle, and lose employment. Individuals experiencing a binding minimum wage change were more likely to commit crime and work only part time. Analyzing heterogeneity shows those with past criminal connections are especially likely to see decreased employment and increased crime following a policy change, suggesting that reduced employment effects dominate any wage effects. The findings have implications for policy regarding both the low-wage labor market and efforts to deter criminal activity."

Try free enterprise in Europe: It's worked elsewhere

Great post from Matt Ridley.
"My recent Times column was on the stagnation of European economic growth rates: 
The financial crisis was supposed to have discredited the “Anglo-Saxon” model of economic management as surely as the fall of the Berlin wall discredited communism. Yet last week’s numbers on economic growth show emphatically the opposite. The British economy is up 3.2 per cent in a year, having generated an astonishing 820,000 jobs. We are behaving more like Canada, Australia and America than Europe.

If you think one year is too short, consider that (as David Smith pointed out in the Sunday Times) Britain’s GDP is now 30 per cent higher than it was in 1999, whereas Germany, France and Italy are just 18 per cent, 17 per cent and 3 per cent more prosperous respectively. For all Britain’s huge debt burden, high taxes and chronic problems, we do still seem to be able to grow the economy. Thank heavens we stayed out of the euro.

The performance of the euro economies continues to be dismal. Last week’s news was that France is flatlining, Germany shrinking slightly and Italy back in recession for its third dip. Spanish unemployment is just a tad under 25 per cent. The Greek economy continues to contract; even the Dutch economy is bumping in and out of growth. The eurozone as a whole is flat and teeters on the brink of debilitating deflation. This at a time when the world economy, driven by Asia and Africa, is roaring ahead at a forecast 3.7 per cent this year, according to the International Monetary Fund.

The euro is not primarily to blame for eurosclerosis; there has been plenty wrong with domestic policies in the individual countries, though joining the euro allowed them to conceal their mistakes for a while. But all the lessons point in the same direction: public spending and dirigisme to stimulate growth does not work, while limiting taxes and regulation to unleash growth does.

Patrick Minford and Jiang Wang produced clear evidence a few years ago that “the surest way to increase economic growth is to reduce government spending and taxation”: as figures from the Organisation for Economic Co-operation and Development confirm, a 10 per cent increase in public spending produces a 0.5-1 per cent decrease in growth rates. The encouragement of free enterprise is what has always brought growth, from ancient Phoenicia to modern Mauritius, from Renaissance Italy to Silicon Valley.

Poland’s economy has doubled in size since the fall of communism, while Ukraine’s has stagnated, because Poland made a far more urgent dash in the direction of free markets in labour, capital and trade. Estonia has been the top performing of the former Soviet colonies because Mart Laar, the historian who became prime minister in 1992 at the age of 32, had read only one book on economics, Milton Friedman’s Free to Choose and was in his own words “so ignorant” that he thought flat taxes, privatisation and the abolition of tariffs and subsidies constituted normal policy in the West.

Mr Laar ignored the warnings from most Estonian economists, who told him what he proposed was as “impossible as walking on water”. There’s a common theme here. Germany’s postwar economic miracle happened because Ludwig Erhard abolished rationing and freed up markets in the teeth of expert advice. When the American general Lucius Clay said his experts thought these policies were a bad idea, Erhard replied “so do mine”, and did it anyway. When Sir John Cowperthwaite turned Hong Kong into a low-tax, free-trade enclave in the 1960s, he had to turn a blind eye to the instructions of his LSE-educated masters in London. Indeed, he kept failing to send them data so they could not see what was happening.

A recent analysis by three German economists for the think-tank Politeia looked at the reasons for the economic transformations of Ireland (from 1986), Sweden (1991), New Zealand (1988), Chile (1974) and Brazil (1990), all of which resulted in sustained bursts of rapid economic growth after long spells of stagnation, and concluded that the causes in every case were deregulation of goods and services markets, liberalisation of labour markets, abolition of tariffs or subsidies, privatisation of state enterprises and the encouragement of competition. “Anglo-Saxon” stuff in every case.

Sweden is an interesting case, because many people still think of it as showing an alternative route to prosperity than the Anglo-Saxon one. Nima Sanandaji, a Kurdish-Swede, demonstrated the very opposite in a paper for the Institute for Economic Affairs two years ago. He concluded: “Sweden did not become wealthy through social democracy, big government and a large welfare state. It developed economically by adopting free-market policies in the late 19th century and early 20th century.”

Between 1870 and 1936, when it was a poster boy for Adam Smith, Sweden had the fastest growth rate in the industrialised world and spawned Volvo, Ikea, Ericsson, Tetra Pak and Alfa Laval. Then between 1950 and 1990 it went from having an unusually small state sector to having a very big one. The result was currency devaluation, stagnation and slow growth, culminating in a full-blown economic crisis in 1992 and a rapid fall down the economic league tables. When it then cut taxes, privatised education and liberalised private healthcare in the 1990s, it rediscovered growth and sailed through the financial crisis in pretty good shape.

Entire continents teach the same lesson. South America and now Africa have both confirmed the hypothesis that state-directed commerce leads to stagnation while free enterprise causes rapid growth.
As the economic historian Deirdre McCloskey argues in her forthcoming book Bourgeois Equality, the chief beneficiaries of free enterprise revolutions are the poor. As a result of what she calls “the great enrichment” since 1800, she says “millions more have gas heating, cars, smallpox vaccinations, indoor plumbing, cheap travel, rights for women, lower child mortality, adequate nutrition, taller bodies, doubled life expectancy, schooling for their kids, newspapers, a vote, a shot at university and respect. Never had anything similar happened, not in the glory of Greece or the grandeur of Rome, not in ancient Egypt or medieval China.”

When Mahatma Gandhi was asked what he thought about western civilisation, he said it would be a good idea. Likewise, continental Europe’s approach to free enterprise should be to “give it a try”. How many more years of self-imposed depression must the European continent suffer before its political masters get over their ideological prejudices against Anglo-Saxons and try reading a little Adam Smith, Friedrich Hayek or Milton Friedman?"

Friday, August 22, 2014

Do Higher Minimum Wages Create More Jobs?: President Obama points to evidence that they do, but he must have missed New York, New Jersey and Connecticut

Click here to read the WSJ article. By Liya Palagashvili and Rachel Mace. Ms. Palagashvili is a fellow of the Classical Liberal Institute at the NYU School of Law. Ms. Mace studies economics at George Mason University. Excerpts: 
"Why would firms hire more workers when government raises the cost of hiring workers? The progressive answer is that hiking the minimum wage raises the incomes of poor workers, causing them to spend more. This additional spending, in turn, is so great that firms hire even more workers."

"This theory is dubious for many reasons, not least because minimum-wage workers make up about 2% of the workforce, a percentage much too small to have such an effect."

"Not so. Of the 13 states that raised the minimum wage, Connecticut, New Jersey and New York were the three that raised it most, with increases ranging from 5% to 14%. These three states also experienced the worst job growth between January and May, an average of 0.03% compared with an average 1.28% for the other 10 states. Indeed, job growth was worse in each of these three states than it was, on average, in the 37 states that did not raise their minimum wage at all. Moreover, in New Jersey, the state that hiked minimum wage the most—to $8.25 an hour from $7.25—employment actually fell by about 0.56%."

"Washington experienced the largest job growth at 2.1%, but the state only raised its hourly minimum wage by 13 cents."

"We conducted a statistical analysis of the Bureau of Labor Statistics' data called a two-sample "t" test for comparing two means. We found, for this time period, no difference in the job-growth trend in the states that raised their minimum wages from states that did not. In other words, the correlation cited as debunking the economic case against the minimum wage is not statistically significant."

"When looking—over the time-span December 2013 through June 2014—at only the 13 states that raised their minimum wage in January, those that raised it the most had, on average, lower job growth than did those that raised it the least."

How much does poverty drive crime?

From Tyler Cowen.
"Maybe less than you thought, at least after adjusting for other variables.  The Economist reports:
    In Sweden the age of criminal responsibility is 15, so Mr Sariaslan tracked his subjects from the dates of their 15th birthdays onwards, for an average of three-and-a-half years. He found, to no one’s surprise, that teenagers who had grown up in families whose earnings were among the bottom fifth were seven times more likely to be convicted of violent crimes, and twice as likely to be convicted of drug offences, as those whose family incomes were in the top fifth.

    What did surprise him was that when he looked at families which had started poor and got richer, the younger children—those born into relative affluence—were just as likely to misbehave when they were teenagers as their elder siblings had been. Family income was not, per se, the determining factor.

    That suggests two, not mutually exclusive, possibilities. One is that a family’s culture, once established, is “sticky”—that you can, to put it crudely, take the kid out of the neighbourhood, but not the neighbourhood out of the kid. Given, for example, children’s propensity to emulate elder siblings whom they admire, that sounds perfectly plausible. The other possibility is that genes which predispose to criminal behaviour (several studies suggest such genes exist) are more common at the bottom of society than at the top, perhaps because the lack of impulse-control they engender also tends to reduce someone’s earning capacity.
The original research, by Amir Sariaslan, Henrik Larsson, Brian D’Onofrio, Niklas Långström and Paul Lichtenstein is here, here is how the authors report the conclusion:
    There were no associations between childhood family income and subsequent violent criminality and substance misuse once we had adjusted for unobserved familial risk factors."

Newsweek’s Cover Story on Internet Gambling Plays Fast and Loose with Facts

By Michelle Minton Competitive Enterprise Institute Blog. Excerpt:
"Seitz’s decision did not open a “Pandora’s box”—the box had been open for two decades. There is and never has been a federal prohibition on online gambling, which took off as soon as the Internet and personal computing became a staple in American life. In 1999 Scott Olson writing for the Journal of Technology and Law Policy noted that by 1997 consumers spent an estimated $1 billion worldwide on net gambling, with around 60 percent coming from the U.S. (even Kenny Rogers had an online casino in 1998). And during the years when the DOJ was arguably strictest against online gambling, Americans continued to spend billions—$30 billion between 2003 and 2010—gambling on foreign-operated sites. The OLC’s opinion simply dispelled some of the ambiguity in federal law and allowed state authorities to begin regulating the activity within their borders.

Experts “warn that online gambling is dangerously addictive for some, especially children.” 

Goodman never names these experts. Later in the article she quotes “experts” (it’s unclear if they’re the same experts) who claim that the demographic most at risk for problem gambling are people between the ages of 18 and 25. While 18-25 isn’t exactly a tot, I’ll give her the point: Pathological gambling, like other addictive behaviors can ruin lives. The question Ms. Goodman fails to ask is: What impact will the DOJ’s 2011 memo have for these at-risk gamblers?

It seems intuitive that as gambling becomes more available the rate of problem gambling will increase. But research has shown this is not the case. While greater opportunity for gambling does correlate with a temporary increase in disordered behavior, it is just that: temporary. Worldwide rates of problem gambling have been declining since the late 1990s. And according to Harvard addiction expert Howard J. Shaffer, the U.S. rate of pathological gambling remained relatively stable over several decades, and has actually decreased since the 1970s, despite a significant increase in gambling availability.

And while there always will be a small portion of the population who show signs of pathological behavior, it is not a reason to ban an activity for everyone, especially in light of the fact that online casinos are better equipped to address such problems than their brick-and-mortar counterparts.
Many studies, including from Harvard Medical School’s Division on Addiction Studies, have found that online gambling is no more addictive than on-site gaming (see also page 403). In fact, some found that addiction rates were lower for online gambling than some off-line games. One reason could be that online games have substantially more avenues through which they can identify and address compulsive gambling behavior."

Thursday, August 21, 2014

The focus on the share of top incomes gives a misleading characterization of the key determinants of societal inequality

See The Rise and Fall of General Laws of Capitalism by Daron Acemoglu (MIT economics dept)and James A. Robinson (Harvard government dept). In response to Piketty. Hare are the abstract and conclusion:
"Thomas Pikettyís recent book, Capital in the Twenty First Century, follows in the tradition of the great classical economists, Malthus, Ricardo and Marx, in formulating ìgeneral lawsîto diagnose and predict the dynamics of inequality. We argue that all of these general laws are unhelpful as a guide to understand the past or predict the future, because they ignore the central role of political and economic institutions in shaping the evolution of technology and the distribution of resources in a society. Using the economic and political histories of South Africa and Sweden, we illustrate not only that the focus on the share of top incomes gives a misleading characterization of the key determinants of societal inequality, but also that inequality dynamics are closely linked to institutional factors and their endogenous evolution, much more than the forces emphasized in Pikettyís book, such as the gap between the interest rate and the growth rate."

"Pikettyís ambitious work, fashioning itself after Marxís Capital, has focused a great deal of new attention on inequality. Piketty pro§ers a bold, sweeping theory of inequality applicable to all capitalist economies. Though we believe that the focus on inequality and the ensuing debates are very healthy and constructive, we have argued that Piketty goes wrong for exactly the same reasons that Marx, and before him Malthus and Ricardo, went astray: his approach and general laws ignore both institutions and the áexible and multifaceted nature of technology shaped by institutions. We have further suggested that the history of inequality over 20th century in economies such as South Africa and Sweden shows why the focus on top 1% inequality is unsatisfactory and why any plausible theory of inequality has to include political and economic institutions at the center stage. We have also provided a brief outline of a framework that squarely puts the spotlight on institutions, their nature and evolution in the study of inequality."

Who-d a-thunk it? Game ranching and private ownership of wildlife for hunting, tourism and meat are saving rhinos, etc.?

From Mark Perry.
"There’s a pretty interesting and stark contrast between two completely different approaches to saving wildlife in Africa (rhinos, elephants, lions, leopards and African buffaloes, etc.): a) ban the private ownership and all commercialization of wildlife except for eco-tourism vs. b) allow the private ownership of wildlife and legalize commercial activities relating to wildlife like private game ranching. Most African countries like Kenya take the first approach – individuals are not allowed to own or profit commercially from wildlife. A change in South Africa’s law in 1991 legalizing private ownership of wildlife and private game ranching provides a natural experiment to compare the two approaches.

A recent Bloomberg article provides these details:

1. South Africa’s private game-ranching is a $1.1 billion a year industry and growing at 10 percent annually. Foreign hunters, about 60 percent of whom came from the U.S., spent $118.1 million on licenses to hunt in South Africa in 2012.

2. Private game ranches have increased fivefold to 10,000 since South Africans were allowed to own and profit commercially from wild animals. The game ranches cover 20 million hectares, or about 16 percent of the country’s land.

So what’s happened to the number of wild animals in South Africa?

3. The private game industry is largely responsible for boosting the country’s large mammal population to 24 million, the most since the 19th century, and up from 575,000 in the early 1960s. For example, South Africa now has more than 20,000 white rhinos, 80 percent of the world’s total, up from 1,800 in 1968 when limited hunting was first introduced.

4. South Africa’s law change has also led to a commercial trade in wild animals with captive-bred species ranging from sable antelope to wildebeest sold at wildlife auctions.

And what about the situation in Kenya?

5. Kenya has lost 80 percent of its wildlife since it banned hunting in 1977 and large-mammal numbers are declining by 4.2 percent a year. The country’s elephant population has dropped 76 percent since the 1970s, while rhinos are down 95 percent.

MP: As counter-intuitive and paradoxical as it might seem, the best way to save African elephants, lions, leopards and rhinos from extinction is to kill them and eat them – in limited numbers of course.

That is, by allowing private ownership and game ranching in South Africa, wild animals like the rhino have a commercial value that naturally results in greater conservation and protection efforts (“sustainability”) than in countries like Kenya, where wildlife naturally and predictably decline in numbers as victims of the “tragedy of the commons.”

As Steven Landsburg reminds us in The Armchair Economist, “Most of economics can be summarized in four words: People respond to incentives. The rest is commentary.” It shouldn’t be surprising then that wild animals are increasing in numbers in South Africa and decreasing in Keyna – private property rights, commercial use, market pricing, and the profit motive are the incentives that make all the difference in the world."

Wednesday, August 20, 2014

European Austerity Is a Myth

By Leonid Bershidsky, a Bloomberg View contributor.
"Just as France's and Italy's poor economic results prompt the leaders of the euro area's second and third biggest economies to step up their fight against fiscal austerity, it might be appropriate to ask whether they even know what that is. Government spending in the European Union, and in the euro zone in particular, is now significantly higher than before the 2008 financial crisis.
Here's the "graph of the week" on the European Commission's economics and finance website, though it might be more appropriately called the "graph of the decade":

Among the 28 EU members, public spending reached 49 percent of gross domestic product in 2013, 3.5 percentage points more than in 2007. It wasn't a linear increase: The spending-to-GDP-ratio first ballooned by 2009, exceeding 50 percent for the EU as a whole, and then shrank a little:

Source: Eurostat
Source: Eurostat
That, however, was not the result of government's austerity efforts: Rather, the spending didn't go down as much as the economies collapsed, and then didn't grow in line with the modest rebound. In Italy, for example, the government spent 47.6 percent of GDP in 2007 and 50.6 percent of GDP in 2013, when economic output was 2.6 percent lower than in 2007. The country's economy dipped into recessions, surfaced, struggled -- but the government spent more or less as much money as before.

Prime Minister Matteo Renzi, seen as a dynamic reformer mainly on the strength of his age and the magnitude of his promises, rails against "high priests and prophets of austerity." Meanwhile, former IMF official Carlo Cottarelli, appointed by Renzi's predecessor Enrico Letta to conduct a thorough spending review, is complaining in his blog that Renzi's government is using his work to make new spending pledges based on proposed cuts that may never happen. "It is a paradoxical situation that a review of future spending is being used to facilitate the introduction of new spending," Cottarelli wrote, pointing out that if the practice continues, the savings he proposes will not be used to cut the tax burden on labor and boost employment.

Even when spending cuts are made -- and hotly contested -- in Italy, the whole public spending system's glaring inadequacy is not affected. The Economist recently served up an egregious example: The ushers at the Italian Parliament, whose job is to carry messages in their imposing gold-braided uniforms, made $181,590 a year by the time they retired, but will only make as much as $140,000 after Renzi's courageous cut. If you wonder what on earth could be wrong with getting rid of them altogether and just using e-mail, you just don't get European public expenditure. It's about preserving old inefficiencies as venerable traditions.

Johns Hopkins University professor Steve Hanke argued recently that there was plenty of room for cuts in European bureaucracies. Italy was an outlier, paying senior government officials 12 times the national average salary, and will remain one now that Renzi has capped civil servants' salaries at $321,000, about 10 times the national average. That doesn't mean the above-four ratios in France, Portugal and Belgium aren't too high.

There is no rational justification for European governments to insist on higher spending levels than in 2007. The post-crisis years have shown that in Italy, and in the EU was a whole, increased reliance on government spending drives up sovereign debt but doesn't result in commensurate growth. The idea of a fiscal multiplier of more than one -- every euro spent by the government coming back as a euro plus change in growth -- obviously has not worked. In fact, increased government interference in the economy, in the form of higher borrowing and spending as well as increased regulation, have led to the shrinking of private credit. According to the European Central Bank, the euro area banks' outstanding loans have been going down since the second quarter of last year.

Unreformed government spending is a hindrance, not a catalyst for growth. The huge private sector failure that was the crisis of 2008 allowed governments to conveniently forget or dispute it, but they cannot hang on indefinitely to the pretense that they are helping to speed up recovery when there is none in evidence."

George Mason Economists Disagree With Obama's Theory That "the whole economy does better" When The Minimum Wage Is Increased

See Reconsider That Happy Narrative About Minimum Wages from "Cafe Hayek."
"One of George Mason University’s star PhD economics students, Ms. Liya Palagashvili, along with a GMU undergrad student, Ms. Rachel Mace (who was taught recently in a GMU econ class by Liya), weigh in in tomorrow’s Wall Street Journal to debunk a happy narrative about the minimum wage.
This narrative made the rounds this summer; even Pres. Obama joined the chorus.  But the narrative was based on a remarkably sloppy interpretation of employment data.  Liya and Rachel set the record straight.  A slice:
Why would firms hire more workers when government raises the cost of hiring workers? The progressive answer is that hiking the minimum wage raises the incomes of poor workers, causing them to spend more. This additional spending, in turn, is so great that firms hire even more workers. When you raise the minimum wage, as Mr. Obama said in Denver, “that money gets churned back into the economy. And the whole economy does better, including the businesses.”
This theory is dubious for many reasons, not least because minimum-wage workers make up about 2% of the workforce, a percentage much too small to have such an effect. Yet if this theory were valid—and if these data reveal useful information—then job growth should be greater the higher the minimum-wage boost.
Not so. Of the 13 states that raised the minimum wage, Connecticut, New Jersey and New York were the three that raised it most, with increases ranging from 5% to 14%. These three states also experienced the worst job growth between January and May, an average of 0.03% compared with an average 1.28% for the other 10 states. Indeed, job growth was worse in each of these three states than it was, on average, in the 37 states that did not raise their minimum wage at all. Moreover, in New Jersey, the state that hiked minimum wage the most—to $8.25 an hour from $7.25—employment actually fell by about 0.56%.
Washington experienced the largest job growth at 2.1%, but the state only raised its hourly minimum wage by 13 cents. A full-time minimum-wage employee in Seattle now earns, before taxes, a whopping $23.80 more a month. That’s barely enough to cover dinner for two at a chain restaurant. Consider also that between December and May the price of gasoline rose by more than 20 cents a gallon, according to
Minimum-wage workers would need a big chunk of their higher pay to cover the increased cost of driving. There’s no way there was enough left over to spark extra job growth.
We conducted a statistical analysis of the Bureau of Labor Statistics’ data called a two-sample “t” test for comparing two means. We found, for this time period, no difference in the job-growth trend in the states that raised their minimum wages from states that did not. In other words, the correlation cited as debunking the economic case against the minimum wage is not statistically significant."

Tuesday, August 19, 2014

The Size and Scope of Fraud in Medicare

By Nicole Kaeding of Cato.
"Medicare spends more than $600 billion annually, but not all of that money is spent wisely.

Yesterday, I wrote about the Washington Post’s expose on motorized wheelchair fraud. Records suggest that 80 percent of motorized wheelchair claims are “improper,” amounting to billions in waste. Unfortunately for taxpayers, this is just the tip of the iceberg on Medicare fraud.
The Government Accountability Office estimated that Medicare’s “improper payments” amounted to $44 billion, or 8 percent of total expenditures, in 2012. GAO considers Medicare a “high risk” program for its “vulnerabilities to fraud, waste, abuse, and mismanagement.” GAO criticized Medicare for its inability to control the problem saying that Medicare “has yet to demonstrate sustained progress in lowering the rates [of improper payments].”

Other experts believe that GAO undercounts examples of fraud in Medicare. Malcolm Sparrow of Harvard University estimates that closer to 20 percent of claims–or $120 billion annually are improper.

Medicare’s lax oversight of its payment system perpetuates the issue. Millions of claims come in daily and are paid without review or analysis. Scammers know that Medicare payments will not be scrutinized; the chance of getting caught is quite low. Scammers simply adapt and continue finding ways to game the system.

Just yesterday, the Department of Justice announced that an individual in Louisiana was sentenced to prison for submitting “unnecessary or never provided” claims to Medicare. The federal government’s Medicare Fraud Strike Force “has charged nearly 1,900 defendants who have collectively billed the Medicare program for more than $6 billion” since 2007 illustrating just how widespread the issue is.

Even with the threat of prosecutions, scammers know that Medicare is slow to act.
According to John Warren, a former employee in Medicare’s anti-fraud office, Medicare is hesitant to deny claims. It risks denying coverage to a legitimate claim, creating a backlog and potential outrage. Even though the scam cost taxpayers billions, Warren told the Washington Post “looking back, I think we did pretty good.”
These various forces illustrate that Medicare will not be able to control the problem of fraud without serious reform. As my colleague Chris Edwards wrote in 2010,
Efforts to combat Medicare fraud frequently fail, and they can involve a vicious cycle. Cracking down on fraud may open new opportunities for fraud. And fighting fraud often involves new layers of complex regulations that may “discourage organizational innovation and market entry, and [ensnare] innocent providers.” To get out of the vicious cycle of government health care fraud, we should move toward a consumer-driven system where patients and providers would have strong incentives to be frugal with health care dollars and crack down on waste.
Medicare might have slowed the motorized wheelchair scam, but as long as the vulnerabilities in Medicare exist, scammers will surely try to benefit."

The number of U.S. bee colonies has remained relatively stable and has even slightly increased over the two decades since neonicotinoid pesticides ("neonics") were introduced in 1993.

See No Simple Answer to Bee Issues Exists: The causes and the solutions to bees' problems are complex and multiple by Henry I. Miller, M.D. of the Hoover Institution. 
"Jennifer Sass's comments about my op-ed "The Buzz About a Bee-pocalypse Is a Honey Trap" are misguided and misleading (Letters, Aug. 6). Although the number of U.S. honey bee colonies has fallen from a World War II peak of about five million to around 2.5 million today, the number of U.S. bee colonies has remained relatively stable and has even slightly increased over the two decades since neonicotinoid pesticides ("neonics") were introduced in 1993. 

The pre-1990s declines were due to three main factors: the end of price supports for honey as a wartime sugar substitute; imports of cheap honey, especially from China, that displaced U.S. supplies; and the arrival of Varroa parasitic mites in the 1980s. All of this occurred before neonics were introduced. 

The elevated levels of over-winter bee losses mentioned by Ms. Sass impose additional effort and cost on beekeepers, but bee scientists at USDA and elsewhere ascribe them to a complex of multiple factors, as I described—not solely or primarily to pesticides—and the losses are quickly made up in the early weeks of spring, as bees begin to breed and forage. 

Ms. Sass is correct that hive rental fees for almond pollination rose from 2003-2009, but that reflects not "high loss rates" but a huge increase in California's almond acreage with a concomitant demand for pollinators. 

The causes and the solutions to bees' problems are complex and multiple. Misguided anti-pesticide ideologues only promulgate confusion."

Monday, August 18, 2014

Fortune 500 firms in 1955 vs. 2014; 89% are gone, and we’re all better off because of that dynamic ‘creative destruction’

From Mark Perry
"What do the companies in these three groups have in common?

Group A: American Motors, Brown Shoe, Studebaker, Collins Radio, Detroit Steel, Zenith Electronics, and National Sugar Refining.
Group B: Boeing, Campbell Soup, General Motors, Kellogg, Proctor and Gamble, Deere, IBM and Whirlpool.
Group C: Facebook, eBay, Home Depot, Microsoft, Office Depot and Target.

All of the companies in Group A were in the Fortune 500 in 1955, but not in 2014.
All of the companies in Group B were in the Fortune 500 in both 1955 and 2014.
All of the companies in Group C were in the Fortune 500 in 2014, but not 1955.

Comparing the Fortune 500 companies in 1955 to the Fortune 500 in 2014, there are only 61 companies that appear in both lists. In other words, only 12.2% of the Fortune 500 companies in 1955 were still on the list 59 years later in 2014, and almost 88% of the companies from 1955 have either gone bankrupt, merged, or still exist but have fallen from the top Fortune 500 companies (ranked by total revenues). Most of the companies on the list in 1955 are unrecognizable, forgotten companies today (e.g. Armstrong Rubber, Cone Mills, Hines Lumber, Pacific Vegetable Oil, and Riegel Textile).

Economic Lesson: That’s a lot of churning and creative destruction, and it’s probably safe to say that almost all of today’s Fortune 500 companies will be replaced by new companies in new industries over the next 59 years, and for that we should be thankful. The constant turnover in the Fortune 500 is a positive sign of the dynamism and innovation that characterizes a vibrant consumer-oriented market economy, and that dynamic turnover is speeding up in today’s hyper-competitive global economy. Steven Denning pointed out a few years in Forbes that fifty years ago, the life expectancy of a firm in the Fortune 500 was around 75 years. Today, it’s less than 15 years and declining all the time.

In the end, the creative destruction that results in a constantly changing group of Fortune 500 companies is driven by the endless pursuit of sales and profits that can only come from serving customers with low prices, high quality and great service. If we think of a company’s annual sales revenues as the number of “dollar votes” it gets every year from providing goods and services to consumers, we can then appreciate that the Fortune companies represent the 500 companies that have generated the greatest votes of confidence from us as consumers – like Walmart (#1 at $476B in “dollar votes”), ExxonMobil (#3 at $407B), Apple (#5 at $171B) and Ford (#8 at $147B)."

Our Poverty and Theirs

Interesting post by Bryan Caplan of EconLog.
"I regularly praise Nicholas Kristof's courageous essay on Third World poverty.  While First World immigration policies and Third World economic policies cause enormous harm, the global poor exacerbate their woes with grotesquely irresponsible behavior.  Kristof:
[I]f the poorest families spent as much money educating their children as they do on wine, cigarettes and prostitutes, their children's prospects would be transformed...

...Here in this Congolese village of Mont-Belo, we met a bright fourth grader, Jovali Obamza, who is about to be expelled from school because his family is three months behind in paying fees...
...The dad, Georges Obamza, who weaves straw stools that he sells for $1 each, is unmistakably very poor. He said that the family is eight months behind on its $6-a-month rent and is in danger of being evicted, with nowhere to go.
The Obamzas have no mosquito net, even though they have already lost two of their eight children to malaria. They say they just can't afford the $6 cost of a net. Nor can they afford the $2.50-a-month tuition for each of their three school-age kids.
"It's hard to get the money to send the kids to school," Mr. Obamza explained, a bit embarrassed...
In addition, Mr. Obamza goes drinking several times a week at a village bar, spending about $1 an evening on moonshine... almost as much as the family rent and school fees combined.
I asked Mr. Obamza why he prioritizes alcohol over educating his kids. He looked pained.
Other villagers said that Mr. Obamza drinks less than the average man in the village...
I was disappointed, then, to learn that Kristof's view of American poverty is rather fatalistic:
One delusion common among America's successful people is that they triumphed just because of hard work and intelligence.
In fact, their big break came when they were conceived in middle-class American families...
Kristof is far more forgiving of Rick Goff of Oregon than Georges Obamza of Congo:
Rick acknowledges his vices and accepts responsibility for plenty of mistakes: He smoked, drank too much for a time and abused drugs. He sometimes hung out with shady people, and he says he has been arrested about 30 times but never convicted of a felony. Some of his arrests were for trying to help other people, especially to protect women, by using his fists against bullies...
A generation or two ago, Rick might have ended up with a stable family and in a well-paid union job, creating incentives for prudent behavior. Those jobs have evaporated, sometimes creating a vortex of hopelessness that leads to poor choices and becomes self-fulfilling.
There has been considerable progress in material standards over the decades. When I was a kid, there were still occasional neighbors living in shacks without electricity or plumbing, and that's no longer the case. But the drug, incarceration, job and family instability problems seem worse.
Why can't people like Rick escape from poverty through old-fashioned puritanism?  Kristof just changes the subject: 
Obviously, some people born into poverty manage to escape, and bravo to them. That tends to be easier when the constraint is just a low income, as opposed to other pathologies such as alcoholic, drug-addicted or indifferent parents or a neighborhood dominated by gangs...
Yes, these men sometimes make bad choices. But just as wealthy Americans inherit opportunity, working-class men inherit adversity.
The knee-jerk response is to demand consistency: Either blame the poor - Americans and African - for their bad choices.  Or excuse the poor - Americans and African - on account of their bad upbringing. 
But the mere demand for consistency ignores a key fact: From cradle to tomb, Africans endure far harsher conditions than Americans.  Poor Africans grow up physically malnourished.  They have little exposure to sober bourgeois habits - even in school. 
Once they enter the labor market, their prospects are grim unless they somehow escape to the First World.  Poor Americans, in contrast, are almost never hungry.  Their teachers expose them to the bourgeois way of life.  And in the labor market, poor Americans earn incomes that poor African migrants bet their lives to enjoy.

Even if you maintain that African and American poverty are both forgivable, then, you should still concede that African poverty is more forgivable than American poverty.  While the African poor could sharply improve their lives with better choices, even perfect choices are not a reliable way for them to escape poverty.  Poor Americans, in contrast, can reliably avoid poverty with basic prudence: finish high school, work full-time, delay child-bearing, and stay sober.  "I couldn't escape poverty even if I tried" has to be more forgivable than "I could have escaped poverty if I tried, but I sadly wasn't raised to try."

P.S. Critics often ask me, "Who cares who's to blame for poverty?  How does that help us fix the problem?"  My deep response is to reject their moral monomania.  Questions of moral blame are intrinsically interesting and important even if better answers won't help us 'solve problems.'" 

My direct response, though, is two-fold.  At minimum, blame provides a compelling criterion for the rationing of limited charity.  If we can only help 100,000 people, we should prioritize the morally blameless, and put unrepentant libertines at the bottom of the list. 
In addition, though, blame helps us correctly identify "problems."  If your suffering is entirely your own fault, the main "problem" is not your suffering.  The main problem is that the guiltless may feel guilty for failing to help you.  Thus, if a woman catches her husband cheating and resolves to divorce him, the morally relevant danger isn't that the husband will feel sad, but that the wife will feel sorry for him.  If your habitual drunkenness destroys your family and career, the morally relevant danger isn't that total strangers fail to help you, but that the fallout of your vices will weigh on the consciences of innocent passersby."