Friday, October 31, 2014

Study that purports to find that 97% of climate scientists believe that humans are the main cause of global warming might be wrong

See About That 97 Percent by David Henderson of EconLog. 
"I've posted before (here and here) about the John Cook study that purports to find that 97% of climate scientists believe that humans are the main cause of global warming.

Now Richard Tol, a professor of the economics of climate change, has written a further critique of the Cook study.

Some highlights:
Some have claimed that Cook et al. found a consensus on the dangers of climate change (Kammen, 2013) or on the need for climate policy (Davey, 2013). They investigated neither. Even some of the authors of the paper misrepresent its findings (Nuccitelli, 2014, Friedman, 2014, Henderson, 2014). 
Cook et al. took a sample of the academic literature and rated its contents. The raters were recruited through a partisan website (Cook et al., 2013) and frequently communicated with each other (Duarte, 2014). Their sample is not representative of the literature (Tol, 2014a). The sample was padded with large numbers of irrelevant papers (Tol, 2014a). For example, a paper on photovoltaics in Kenya (Acker and Kammen, 1996) was taken as evidence that climate change is caused by humans as was a paper on the coverage of climate change on US TV (Boykoff, 2008). Three-quarters of the "endorsing" abstracts offer no evidence either way (Tol, 2014a). Their attempt to validate the data failed (Tol, 2014a). An attempt to replicate part of the data failed too (Legates et al., 2013). The data show inexplicable patterns (Tol, 2014a) while the consensus rate suffers from confirmation bias (Cook et al., 2014a, Tol, 2014b).
in sum, one of the most visible climate papers of recent years is not sound. Whereas previous critique could be interpreted as a lack of competence (Tol, 2014a), the later data release suggests that Cook et al., perhaps inadvertently, worked towards a given answer. This reflects badly on the authors, referees, editors and publisher. It also weakens the activists and politicians who cite Cook et al. in support of their position."

it seems simply to have never occurred to most statists to apply realistic assumptions about human nature to the government itself

From Cafe Hayek.
"Quotation of the Day…
… is from page 197 of Michael Huemer’s impressive 2013 book, The Problem of Political Authority (emphases original):
A related form of utopianism consists of suspending general assumptions about human nature when considering agents of the state.  Defenders of government are often keen to point out the harms that might result from the widespread greed and selfishness of mankind in the absence of a government able to restrain our worst excesses.  Yet they seldom pause to consider what might result from the very same greed and selfishness in the presence of government, on the assumption that governments are equally prone to those very failings.  It is not that statists have some account of why government employees are more virtuous than average people.  Nor do they have some plan for making that be the case.  Rather, it seems simply to have never occurred to most statists to apply realistic assumptions about human nature to the government itself.  The state is treated as if it stood above the empirical human world, transcending not only the moral constraints but also the psychological forces that apply to individual human beings.
In short, the typical statist case for government intervention depends upon the occurrence of miracles.  It’s very unscientific and not at all reality-based.  It’s utopian in the worst way."

Thursday, October 30, 2014

The poor are always with us, but merely by definition

From Cafe Hayek.
"Quotation of the Day…

… is from pages 38-39 of the manuscript of Deirdre McCloskey‘s extensive and insightful review of Thomas Piketty’s Capital in the Twenty-First Century; (quoted here with Deirdre’s kind permission) (original emphasis; footnote excluded):
The usual way, especially on the left, of talking about poverty relies on the percentage distribution of income, starting fixedly for example at a relative “poverty line.”  As the progressive Australian economist Peter Saunders notes, however, such a definition of poverty “automatically shift[s] upwards whenever the real incomes (and hence the poverty line) are rising.”  The poor are always with us, but merely by definition, the opposite of the Lake Wobegon effect – it’s not that all the children are above average, but that always there is a bottom fifth or tenth or whatever in any distribution whatsoever.  Of course.
[The Saunders citation is: Peter Saunders, "Researching Poverty: Methods, Results, and Impact," Economic and Labor Relations Review, Vol. 24, June 2013, pp. 205-218.]"

Luna Park To Shutter By The End Of The Year, Citing Rising Labor Costs

By Andrew Dalton.
"Longstanding Valencia Street hip-casual dinner-and-a-cocktail spot Luna Park will close by the end of the year, the restaurant's owner AJ Gilbert told Uptown Almanac over the weekend. According to Gilbert, the popular brunch spot with the whimsical early-aughts flair, is closing due to an expected increase in labor costs that will come along a $15 minimum wage in San Francisco. Although the minimum wage bill doesn't actually go before voters until election day next week, Gilbert believes it is a sure-thing. (Likewise, many other bars and restaurants aren't happy about the proposal.)

Although Gilbert didn't divulge the bar's new owners, the ABC paperwork lists "Gaslight Cafe Partners LLC" as the proud new owner of the bar's full liquor license. The LLC's address is also listed as 3138 Fillmore Street—better known to the city's bottleservice crowd as MatrixFillmore in Cow Hollow—and also home to Gavin and Hilary Newsom's PlumpJack Group. So, while Gilbert tells Uptown Almanac that the new bar will be "a great addition to the neighborhood," it will also be sharing some DNA with a club that used to have ottomans in the shape of the letters S, E, and X. Also, per Gilbert, the new bar will have fewer staff by virtue of not being a full restaurant, and will thus avoid the increased labor costs that (allegedly) would have sunk Luna Park. While there will apparently be fewer employees at the new establishment, Gilbert says his soon-to-be-former workers will be offered positions there.

A commenter over at Uptown Almanac also points out Luna Park's sister restaurant in Los Angeles changed hands in early 2013. One of the restaurant's original founders also moved to Puerto Vallarta and opened a taco shop awhile back, so this might just be a politically charged exit strategy.
Eater reached out to Mrs. Newsom, who oversees the PlumpJack's operations, for more details on Monday, but our requests for comment were not returned by Tuesday morning (See below). We will, of course, update you as the details come in.

Update: In an email to Eater, Hilary Newsom writes a very political no-comment:
"While it is premature to discuss the future of Luna Park in detail, PlumpJack Group is always looking for opportunities to maximize our investments and add to our dynamic collection of hospitality and lifestyle businesses in Northern California. Luna Park is one of the properties we have looked at; however, it would be premature to discuss plans at this point. I look forward to discussing further as appropriate.""

Wednesday, October 29, 2014

Government Projects and Subsidies: What are the Alternatives?

By Art Carden of EconLog.
"Repeat after the economics profession: resources are scarce, and they have alternative uses. Thomas Sowell has said that this is the first rule of economics. He has also said that the first rule of politics is to ignore the first rule of economics, and this is perhaps nowhere more obvious than in discussions of state and local development policy. 
The state of Alabama has given hundreds of millions of dollars in subsidies and tax breaks to auto manufacturers, and the city of Birmingham has been talking for a long time about building a domed stadium and expanding the convention center. I've seen $500 million listed as a price tag for this venture, but I don't know that the city's prospective commitment is that high.

"What else could we do with the money?" is the question too few people are asking. Questions about economic calculation are important, but given that governments are doing these things in the context of a market economy we can at least use a few benchmarks.

So how should governments evaluate their undertakings? Ignore public choice considerations for just a second and indulge a flight of fancy. There is a collective action problem that, in theory, could mean too few stadiums and the like get produced and that could, in theory, mean that government provision of stadiums and the like would make us all better off. If Alabama, for example, is a better place to live because a government spent $250 million to lure CarCo or to build a stadium, the indirect benefits should be reflected in higher real estate prices and, therefore, higher property tax revenues. The "intangible benefits" of "putting Alabama on the map" or "becoming a big-league town" are more tangible than they might at first appear because they will be capitalized into real estate prices. Hence, we could estimate the project's contribution to tax revenue in order to determine whether it's actually creating value.

Of course, there are a lot of ways to use $250 million. A government could fund a stadium, give it to a car company, cut taxes, pay for better schools, or simply invest it in stocks and bonds. What is the baseline to which we should compare government spending on economic development, and how should we evaluate the outcomes?

I'm tempted to say we should evaluate taxes and spending by comparing it to a program of investing in stocks, bonds, or a combination of the two, distributing the proceeds, and relying on entrepreneurs to provide the things governments currently provide. Essentially, we turn states into big mutual funds. Stocks, though, are too risky while risk-free bonds are too conservative. What benchmarks and metrics would you propose?"

7 reasons why income inequality is not killing the American Dream

From James Pethokoukis of AEI.

Thomas Piketty, Emmanuel Saez
Less income inequality is self recommending, according to the left. Full stop. Reducing the income gap as much as possible — while still, of course, leaving some incentive for wealth creation — should be a top priority of government. Maybe the top priority. As President Obama said late last year: “The combined trends of increased inequality and decreasing mobility pose a fundamental threat to the American dream, our way of life and what we stand for around the globe.”
We know now, however, that mobility has not been decreasing. Economic research also suggests that income inequality — at least so far — is not a fundamental threat to the American way of life. The Manhattan Institute’s Scott Winship draws the following conclusions from his review of the literature:
1.)  Across the developed world, countries with more inequality tend to have, if anything, higher living standards. The exception is that countries with higher income concentration tend to have poorer low-income populations.
2.)  However, when changes in income concentration and living standards are considered across countries—a more rigorous approach to assessing causality—larger increases in inequality correspond with sharper rises in living standards for the middle class and the poor alike.
3.)  In developed nations, greater inequality tends to accompany stronger economic growth. This stronger growth may explain how it is that when the top gets a bigger share of the economic pie, the amount of pie received by  the middle class and the poor is nevertheless greater than it otherwise would have been. Greater inequality can increase the size of the pie.
4.) Below the top 1 percent of households—and prior to government redistribution—developed nations display levels of inequality squarely in the middle ranks of nations globally. American income inequality below the top 1 percent is of the same magnitude as that of our rich-country peers in continental Europe and the Anglosphere.
5.) In the English-speaking world, income concentration at the top is higher than in most of continental Europe; in the U.S., income concentration is higher than in the rest of the Anglosphere.
6.) Yet—with the exception of small countries that are oil-rich, international financial centers, or vacation destinations for the affluent—America’s middle class enjoys living standards as high as, or higher than, any other nation.
7.)  America’s poor have higher living standards than their counterparts across much of Europe and the Anglosphere, while faring worse than poor residents of Scandinavia, Germany, Austria, Switzerland, the Low Countries, and Canada.
So income inequality doesn’t seem to correlate with lower living standards in advanced economies, particularly America’s. And income inequality doesn’t seem to be reducing upward mobility. These would seem to be an important conclusions to acknowledge before beginning  an all-out  War on Inequality.

Likewise, it’s important to have a deep understanding of the American economy — an economy that is the most innovative in the world and created 50 million jobs over the past three decades —  before government implements policies that might alter its essential, unique nature.  Example: Before raising investment taxes “on the rich,” consideration should be given to the impact on venture capital investment. Do we want fewer billionaires, even ones that get rich by creating wonderful new products or services rather than, say, inheriting their wealth or benefiting from government favor? A less dynamic  and entrepreneurial economy may be one with less inequality and less opportunity. And more opportunity is what we want even if some folks get really wealthy as a result."

Tuesday, October 28, 2014

A good deal of regulation consists in creating barriers to entry.

From Don Boudreaux of "Cafe Hayek." 
"Quotation of the Day… 
… is from pages 38-39 of Israel Kirzner’s excellent 1985 volumeDiscovery and the Capitalist Process (original emphasis):
A good deal of regulation consists in creating barriers to entry.  Tariffs, licensing requirements, labor legislation, airline regulation, and bank regulation, for example, do not merely limit numbers in particular markets.  These kinds of regulatory activity tend to bar entry to entrepreneurs who believe they have discovered profit opportunities in barred areas of the market.  Such barriers may, by removing the personal gain which entrepreneurs might have reaped by their discoveries, bring bring it about that some opportunities may simply not be discovered by anyone.  An entrepreneur who knows that he will not be able to enter the banking business may simply not notice opportunities in the banking field that might otherwise have seemed obvious to him; those who are already in banking, and who have failed to see these opportunities, may continue to overlook them.  Protection from entrepreneurial competition does not provide any spur to entrepreneurial discovery.
Imposed price ceilings may, similarly, not merely generate discoordination in the markets for existing goods and services(as is of course well recognized in the theory of price controls), they may inhibit the discovery of wholly new opportunities.  A price ceiling does not merely block the upper reaches of a given supply curve – further increases in supply to meet demand.  It may also inhibit the discovery of as yet unsuspected sources of supply … or of wholly unknown new products.
The point is straightforward, yet it and its implications are often missed.  One implication is that we must be more skeptical of empirical studies of the effects of government intervention.  By all means, perform such studies.  But in doing so, and in reading and in interpreting them, be aware that they will never measure that which would have been discovered but which remains undiscovered.  The tamping down of the discovery – the discovery of new products, sources of supply, and production processes – that is prevented by regulations (and by taxes) is among the costs of government regulation (and taxes), yet it is not seen; it is not quantifiable.  Yet it is as real as is, say, the cost to consumers of waiting in queues for a chance to purchase price-controlled gasoline or bread.
That these inchoate yet missed opportunities are not seen and measurable is excuse enough for researchers who mistake quantification as the chief mark of sound social science to ignore these missed opportunities.  ”If we can’t measure them, either directly or by some quantifiable proxies, they’re not real.  And so we Scientists must ignore them” – that’s the scientistic attitude.  (It’s an attitude that dominates the economics profession, although, I boast, not at George Mason.)
Another point: Kirzner above uses price ceilings as his example of how price controls stymie the entrepreneurial discovery process.  Yet price floors do so as well (as I know Israel would agree). Consider “Progressives’” favorite price floor: a legislated minimum wage.  Not even the best possible empirical study of the consequences of such legislation can measure the value of the opportunities that would have, but for minimum-wage legislation, been discovered, tested, and honed.  Who knows if, in the absence of minimum-wage legislation, some entrepreneur in the U.S. would have discovered a method of profitably employing legions of very low-skilled inner-city teens at a starting hourly wage of, say, $4.00, and thereby have created attractive employment opportunities for the millions of young people who are today unemployed or working in the black market?

The current national minimum wage in the U.S. has been in place now for more than three-quarters of a century, with no reasonable hope (at least of yet) of it being repealed.  This reality is one to which employers and entrepreneurs (and workers) have long ago adjusted.  Empirical studies of changes in this national minimum wage, or of differences across states and locales of state and local minimum wages, are all done against the backdrop of this long-standing policy of minimum-wage legislation imposed by Uncle Sam.  Any phenomena measured even by the very best empirical studies will never include the possible employment opportunities that would have been discovered and exploited had there been no minimum wage at all.  Likewise, such studies necessarily cannot quantify the additional job skills (and, hence, worker productivity and subsequently higher worker earnings) that might have been gained had these missed opportunities been realized.

Yet to deny the possibility that such mutually beneficial opportunities would have been discovered or created and exploited were there never a minimum wage is to deny the very possibility of entrepreneurial discovery and creation that we see all around us when markets are left reasonably free.  Such a denial, although allowing the deniers to strike more-scientific-than-thou poses, is in fact deeply unscientific.  The reason is that it rejects some knowledge of reality – knowledge of the reality of entrepreneurial discovery and creation – that we already possess."

Q: If oil speculators were to blame for the $12 per barrel January-June increase, do they now get credit for the $25 drop?

From Mark Perry of "Carpe Diem."

Last summer, Sen. Bernie Sanders (I-VT), a member of the Senate energy committee, blamed greedy speculators for rising oil prices and he introduced legislation on June 26 that would “require the Commodity Futures Trading Commission to take certain emergency action to eliminate excessive speculation in energy markets.” Since Sen. Sanders’ legislation was introduced, oil prices have fallen by about $25 per barrel from a peak of $107.50 per barrel in June to below $83 per barrel last week. So let me have a little editing fun and update this report in the Burlington Free Press from last June:
Sen. Bernie Sanders, I-Vt., introduced legislation to make federal regulators invoke emergency powers to stop speculators from using the
turmoil in Iraq tothe US shale boom and the slowdown in global demand to drive
updown oil prices.
The price of crude oil has
risenfallen by more than
523 percent since June 12,
when militants attacked and took control of several Iraqi cities, thanks in part to a nearly 500,000 barrel increase in daily domestic oil production accompanied by weak global energy demand, according to Sanders’ office. Oil prices have
risen 53 fallen 42 percent since
“The fact is that high gasoline prices have less to do with supply and demand and more to do with Wall Street speculators driving prices
updown so sharply in the energy futures and spot markets,” Sanders said in a statement.
AAA reported gas is
more expensivecheaper now than it has been in
sixfour years at the beginning of the
summer drivingwinter season. The average price of gas nationally today is $3.05 per gallon, according to, the lowest national average since December 2010. In Vermont, gas averaged
$3.69$3.29 per gallon, and in Burlington,
$3.75$3.36 per gallon - that’s about 40 cents per gallon lower than in June when Sanders introduced his bill. Speculation has help drive the price of gas at one station in Jay, VT to below $3 per gallon.
Sanders’ legislation would force the Commodity Futures Trading Commission, the federal agency that regulates oil markets, to use all of its authority, including its emergency powers, to eliminate excessive oil speculation to prevent prices from falling even further. The bill is co-sponsored by 17 senators, all Democrats. Rep. Rose DeLauro, D-Conn., is introducing a companion bill in the House to stop the greedy speculators from driving down prices at the pump even further.
MP: Here’s a question for Sen. Sanders and his 17 fellow Democratic sponsors: If greedy speculators were to blame for the $12 per barrel increase in oil prices during the first half of this year that motivated your anti-speculation bill in June, do oil speculators now get any of the credit for the $25 drop per barrel in oil prices over the last 4 months? And further, do we really still need your anti-speculator legislation?

In Sen Sanders’ fantasy world, I guess we are we to assume that greedy speculators only enter the futures markets when they “smell profits” from rising oil prices, but then they suddenly disappear whenever prices are falling? As if greedy traders can’t speculate just as easily on falling prices (with a short position), as they can for rising prices (with a long position)? Alternatively, I guess Sen. Sanders would have us believe that speculative trading (and not market forces) is solely (or largely) responsible for rising oil or commodity prices, but then market forces (and not speculation) suddenly take over and are responsible for falling prices? After all, greedy speculators who correctly anticipate the future direction of commodity prices can make just as much money when they correctly predict that prices will rise as they can when they correctly predict falling prices.

Realistically, Sen. Sanders and him Democrat co-sponsors can’t have it both ways. If speculators are to blame for rising oil prices, they have to also get the credit for falling prices. In that case, we and Congress should be celebrating and thanking the speculators for the recent drop in oil and gas prices that will save consumers collectively about $100 billion over the next year."

Monday, October 27, 2014

Government Gold-Plating

From Steve H. Hanke of Cato.
"Sen. Tom Coburn (R-OK) released his annual Wastebook this past week. It contains a laundry list of doozies. The U.S. government’s gold-plating operations included $190,000 to study compost digested by worms, $297 million for the purchase of an unused mega blimp, and $1 million on a Virginia bus stop where only 15 people can huddle under a half-baked roof. These questionable (read: absurd) expenditures only represent the tip of the iceberg. 
Just consider the following: the Speaker of the House currently receives an annual salary of $223,500, and will receive a payment of roughly that amount, depending on the years of service, for life. An annual payment of this magnitude amounts to about five times the average annual wage in the United States. But that’s not all. For those who have had different positions in Congress, their retirements can be augmented. For example, Nancy Pelosi will not receive $223,500 for life, but roughly double that. Why? Because she is a member of Congress, currently the House of Representatives’ Minority Leader, and a retired Speaker of the House. For purposes of computing retirement pay, Congress adds and accumulates. They do not net.

In addition to supporting members of Congress and civil servants, U.S. taxpayers support welfare recipients. And they support them lavishly, too. Hawaii, Massachusetts, and D.C. residents receive sizeable welfare payments (read: salaries). Indeed, the magnitude of these payments exceeds the average salary of an American teacher, as well as a soldier deployed in Afghanistan, by at least $10,000 per year.

The public can forget all the clap-trap they are hearing about austerity. Indeed, a fairly dull knife could cut billions of dollars from the U.S. government’s largess.


Windfall Consumer Surplus Tax

With falling gas prices, consumers are receiving a huge windfall. This windfall was not gained through any special effort on the part of consumers. It is not because they were buying more fuel efficient cars, keeping their cars tuned up or forming carpools. It was just luck that is bringing them all this extra cash. Most likely they are going to spend it on themselves to increase their own happiness. This surplus needs to be taxed so it can be spent on for a socially useful purpose.

Sunday, October 26, 2014

Henderson on Piketty, Part 4

From EconLog.
"Here's the next installment from "An Unintended Case for More Capitalism," my long review in Regulation of Thomas Piketty's Capital in the Twenty-First Century
How does Piketty handle this serious problem? [The problem that his proposed tax on capital would hurt labor?] He doesn't. The only behavioral response to a tax on capital that he discusses at length is that owners of capital would move to lower-tax countries. And to avoid that happening, he puts a lot of thought into how to form, essentially, a tax "cartel" in Europe. He would have countries in the European Union agree to tax capital, making it harder for people to move to lower-tax countries.

Even an economist who likes Piketty's book and favors his tax on capital has pointed out its bad effects on economic well-being. In his New Republic review, MIT economist Robert Solow, who won the Nobel Prize in economics for his pioneering work on economic growth, wrote:

The labor share of national income is arithmetically the same thing as the real wage divided by the productivity of labor. Would you rather live in a society in which the real wage was rising rapidly but the labor share was falling (because productivity was increasing even faster), or one in which the real wage was stagnating, along with productivity, so the labor share was unchanging? The first is surely better on narrowly economic grounds: you eat your wage, not your share of national income. But there could be political and social advantages to the second option. If a small class of owners of wealth--and it is small--comes to collect a growing share of the national income, it is likely to dominate the society in other ways as well.
Translation: if capital is taxed heavily, workers' well-being will not improve, but because a tax on capital will likely stem the increase in the share of income going to owners of capital, wealthy people will dominate the society less than otherwise. 
For Piketty and, presumably, Solow to calmly countenance the possibility of stagnating real wages just to keep capital's share from increasing, they would have to see some large problems with increasing inequality. Solow does not point out any such problems, which makes sense because his review is short. But Piketty, in over 600 pages, does not make a clear statement about why increasing inequality is a problem in a society where almost everyone's lot in life is getting better and better.

So let's fill in the gaps. How big a problem is wealth inequality? In my opinion, if people came by their money without cheating others and without getting special government favors, then there is no problem with those people becoming very wealthy. What really matters is inequality in consumption and, here, the differences between poorer Americans and wealthier Americans are probably as low as they have ever been. Most lower-income people have color televisions, cell phones, refrigerators, comfortable clothing, and three square meals a day. That was not true 60 years ago. Or take a longer view: In the mid-19th century, the poorest people in American were probably slaves. That was, of course, awful. The largely rich people who "owned" them could treat them very badly if they wanted to. And even if they did not want to, let me repeat that these poor people were slaves.

Or consider finer differences between the middle class and the wealthiest. You would have to look carefully--at least, I would--to see the difference in the quality of clothing that billionaires and those with a net worth of "only" $100,000 wear. Both can travel by jet, but the wealthier person can get there more quickly and easily on his private jet. The rest of us have to share space. The private jet is certainly nicer, but is that really a major social problem?"

The ‘Fallacy of the Special Case’: Intellectual inconsistency and economic malpractice regarding the minimum wage

From Mark Perry of "Carpe Diem."
"Walter Williams explains why he considers it to be “economic malpractice” for (former) economist Paul Krugman (and others) to claim that the Law of Demand applies universally except apparently in one case: the demand for unskilled and low-skilled workers. As the title of his column suggests (“Embarrassing Economists“), Professor Williams finds it embarrassing that some (former) economists like Krugman are not bothered by their own “intellectual and economic inconsistency” (see graphic above). Here’s Walter:
Suppose the prices of automobiles rose by 100 percent. What would you predict would happen to sales? What about a 25 or 50 percent price increase? I’m going to guess that the average person would predict that sales would fall. Suppose that you’re the CEO of General Motors and your sales manager tells you the company could increase auto sales by advertising a 100 percent or 50 percent price increase. I’m guessing that you’d fire the sales manager for both lunacy and incompetency.
It turns out that there’s a law in economics known as the first fundamental law of demand, to which there are no known real-world exceptions. The law states that the higher the price of something the less people will take of it and vice versa. Another way of stating this very simple law is: There exists a price whereby people can be induced to take more of something, and there exists a price whereby people will take less of something.
There are economists, most notably Nobel Prize-winning economist Paul Krugman, who suggest that the law of demand applies to everything except labor prices (wages) of low-skilled workers. Krugman says that paying fast-food workers $15 an hour wouldn’t cause big companies such as McDonald’s to cut jobs. In other words, Krugman argues that raising the minimum wage doesn’t change employer behavior.
Krugman says that most minimum-wage workers are employed in what he calls non-tradable industries — industries that can’t move to China. He says that there are few mechanization opportunities where minimum-wage workers are employed — for example, fast-food restaurants, hotels, etc. That being the case, he contends, seeing as there aren’t good substitutes for minimum-wage workers, they won’t suffer unemployment from increases in the minimum wage. In other words, the law of demand doesn’t apply to them.
Let’s look at some of the history of some of Krugman’s non-tradable industries. During the 1940s and 1950s, there were very few self-serve gasoline stations. There were also theater ushers to show patrons to their seats. In 1900, 41 percent of the U.S. labor force was employed in agriculture. Now most gas stations are self-serve. Theater ushers disappeared. And only 2 percent of today’s labor force works in agricultural jobs. There are many other examples of buyers of labor services seeking and ultimately finding substitutes when labor prices rise. It’s economic malpractice for economists to suggest that they don’t.
MP: I’ve often referred to the “intellectual and economic inconsistency” described by Professor Williams above regarding the minimum wage (and displayed graphically above) as the “Fallacy of the Special Case.” For example, to somehow exempt the labor market for unskilled workers from the Law of Demand is to fallaciously create a “special case” for that market when in reality that supposed “specialness” cannot be supported by any theoretical or empirical evidence. In reality, there is really nothing “special” about the market for unskilled labor that would distinguish it in any economically important way from any other good or service. In other words, the Law of Demand and the Law of Supply are economic laws that apply universally, without exception, and without any “special cases,” in the same way that the Law of Gravity applies universally, without any exceptions or special cases (Walter Williams makes this point in his column). To allow for exceptions or special cases to market fundamentals and economic reality is faulty, inconsistent and fallacious thinking.

Here are some other examples of the Fallacy of the Special Case:

1. After a natural disaster like a hurricane, flood, tornado or earthquake, government-mandated price controls to prevent “price gouging” are frequently imposed by local or state governments because those major disruptions are incorrectly viewed as a “special case” that justifies temporarily ignoring fundamental economic laws of supply and demand and outlawing market prices.

2. Tickets to concerts or sporting events are a “special case” that justify laws and price controls that prevent those tickets from being sold above face value (i.e. “ticket scalping”). In contrast, other goods like old coins that sell above face value, new cars that sometimes sell above their sticker price, bonds that sell above their par (face) value, and houses that sell above their listed price are not considered to be “special cases,” and there are therefore no laws against “coin scalping,” “car scalping,” “bond scalping” or “house scalping.”

3. Rental apartments in some cities like New York City, Berkeley, and Santa Monica are viewed as a “special case” of housing that justifies special treatment in the form of rent control laws that exempt rental housing from fundamental economic laws of supply and demand. Other housing options like condominiums, homes, co-ops and hotels are not special, and are therefore not subject to any special exemptions from economic reality and market pricing.

Bottom Line: The real danger of the Fallacy of the Special Case is that those allegedly special exceptions to basic economic laws almost always result in legislation that is based primarily on political, and not economic, considerations – minimum wage laws, price gouging laws, ticket scalping laws, and rent control laws. Ignoring economics and/or attempting to circumvent market pricing by allowing for some markets or goods to be “special” might make sense politically, but the legislation that follows makes us much worse off economically, makes us all poorer, and lowers our standard of living. Politicians and the general public can be excused for falling for the Fallacy of the Special Case and supporting price controls like the minimum wage that make us worse off, but the economics profession and (former) economists like Paul Krugman should really know better."

Saturday, October 25, 2014

ObamaCare’s Failing Cost Control

The law’s ‘accountable care’ experiment is a bust so far.

WSJ editorial, 10-20. Excerpts: 
"A major claim of ObamaCare’s political salesmen is that it will reduce U.S. health spending. The heart of this claim is the Accountable Care Organization, or ACO, but already evidence is accumulating that it isn’t working."

"a speech from HHS Secretary Sylvia Mathews Burwell citing “evidence that we have bent the cost curve.” The data show the opposite."

"The Medicare “Pioneer” ACO project originally featured 32 experienced health systems hand-selected by HHS"

"In year one, spending increased at 14 sites and only 13 of the 32 qualified for a bonus. In year two, spending increased at six of the remaining 23 and 11 received a bonus. Spending did fall somewhat overall, driven by a few high-performance successes. After netting out the bonuses and penalties, the Pioneer ACOs saved taxpayers a grand total of $17.89 million in 2012 and $43.36 million in 2013. All in, per capita spending was a mere 0.45% lower compared to ordinary fee for service Medicare."

"Yet the upfront start-up investments for the pioneers (in administration, compliance and information technology) ran to $64 million, so at best the program is a wash."

"Shared Savings program. Among those 114 ACOs, only 29 hit HHS’s financial targets in 2012. They saved $128 million and were paid $126 million in bonuses. In 2013, only 64 of 243 participants hit the targets."

"ACOs are failing because HHS’s regulations are a classic case of counterproductive and arbitrary central planning: The government is paying hospital groups to generate slightly lower bills. As the quitters may have discovered, it is more remunerative to stay with the old system, with higher hospital bills but no bonuses."

"HHS also refused to involve seniors or give them any reason to choose ACOs over other providers."

"patients often never know they are being treated by a given ACO"

"the ACOs cannot accurately know which patients belong to their organization, they cannot understand how they are performing"

"the integrated health systems that ACOs are supposed to recreate—Mayo Clinic, Geisinger, Kaiser Permanente and the rest—refused to become pioneers when the ACO regulations first appeared."

"Mayo wrote that both ACO programs “are still too complex in their structure and requirements. They are excessively detailed and restrictive"

Study: "up to 80% of people participating in ObamaCare’s Medicaid expansion have been shifted off their private insurance"

See ObamaCare Shunts My Patients Into Medicaid: Knocked out of private insurance, they are forced to settle for longer waits and worse care. From the WSJ, by Jeffrey A. Singer. Excerpts: 
"A recent Boston University/Harvard Medical School study suggests that up to 80% of people participating in ObamaCare’s Medicaid expansion have been shifted off their private insurance. These patients’ plans—that they liked, and were told they could keep—did not meet Affordable Care Act requirements, and were wiped out."

"they suffer in the long run by being trapped in a subpar health-care system. A Medicaid card does not translate into quality medical care."

"Only 45% of doctors are now accepting new Medicaid patients, according to a recent survey by the health-care company Merritt Hawkins. This number has dropped from 55% in the past five years."

"numerous studies have shown Medicaid patients have significantly worse outcomes than those with private insurance."
 Dr. Singer practices general surgery in Phoenix, Ariz., and is an adjunct scholar at the Cato Institute.

GAO says oil exports would lower pump prices

See Federal agency says oil exports would lower pump prices. By Jennifer A. Dlouhy of the Houston Chronicle. Excerpts:
"Ending the United States' longstanding ban against most crude exports could lift oil prices inside the country while decreasing the cost of gasoline, the Government Accountability Office"

"lower gasoline prices would result if repealing the export ban spurred more domestic crude production and helped lower world prices for the fossil fuel. Domestic gasoline prices tend to track the international Brent crude benchmark"

"The American Petroleum Institute welcomed the report as fresh evidence that crude exports would be a win for American consumers. "Allowing free trade in energy will mean more jobs, downward pressure on fuel costs, and can further reduce the impact of global unrest on oil markets," said John Felmy, the group's chief economist."

"The GAO report is pegged to interviews, data analysis and a survey of studies from Resources for the Future; ICF International and EnSys Energy; IHS; and NERAEconomic Consulting."

"All of them predicted ending the oil export ban would lift U.S. oil prices"

"all four studies predict a gasoline price decline as well"

"OPEC could seek to maintain prices by pulling crude from the global market or increase production in a bid to maintain its large market share, even if it sends oil prices even lower."

The West Needs a Water Market to Fight Drought

Outdated laws are wasting the region’s scarcest resource. Water should be tradable so it finds its most urgent uses.

From WSJ, 10-24. By Robert Glennon and Gary Libecap. Excerpts:
"A reduction of just 4% in agricultural consumption would increase the water available for residential, commercial and industrial uses by roughly 50%"

"Traditional solutions—diverting more water from rivers, building new reservoirs or drilling additional groundwater wells—are no longer ways to substantially increase the water supply."

"we, along with co-author Peter W. Culp, propose that states use market tools to promote water trading. That is, farmers or other users who reduce their consumption should be allowed to lease or sell the conserved water."

"Western growers of alfalfa—a low-value and high-water-use crop—are on pace this year to export two million tons of alfalfa to China, South Korea and Japan—produced with enough water to supply several million U.S. families for a year or to irrigate hundreds of thousands of acres of high-value almond trees. If there were ways to trade water, some farmers could cut back on the production of more water-intensive, lower-value crops and lease or sell the conserved water to desperate fruit and nut growers or thirsty cities."

"Most farmers don’t have that option."

"Western water law generally inhibits trade in the water used to grow the commodities."

"A market in water would encourage efficiency by stimulating innovation, promoting specialization and allowing water to move from lower-value to higher-value uses. Farmers who have an opportunity to trade a portion of their water have an incentive to take measures, such as installing more efficient irrigation systems, to free up water for trade."
Mr. Glennon, a law professor at the University of Arizona, is the author, most recently, of “Unquenchable: America’s Water Crisis and What to Do about It” (Island Press, 2009). Mr. Libecap, a professor at the University of California at Santa Barbara’s Bren School of Environmental Science and Management, is co-author of “Environmental Markets: A Property Rights Approach” (Cambridge University Press, 2014).

Friday, October 24, 2014

Matt Ridley on why falling oil prices are unambiguously good – they make the world richer and fairer

Via Mark Perry of "Carpe Diem.".


Matt Ridley has a great column on why cheap oil is unambiguously good news – it makes the world richer and fairer, and in the process allows us to abolish much more poverty, disease and misery. Here’s an excerpt:
So ingrained is the bad-news bias of the intelligentsia that the plummeting price of oil has mostly been discussed in terms of its negative effect on the budgets of oil producers, both countries and companies. We are allowed to rejoice only to the extent that we think it is a good thing that the Venezuelan, Russian and Iranian regimes are most at risk, which they are.
Yet by far the greater benefit of the oil price fall comes from the impact on consumers. Making this essential resource cheaper allows everybody, whatever their nationality, to spend less money on dull things like heat, transport, metal and plastic, which leaves them more money for things like movies, holidays and pets, which gives other people new jobs, which raises everybody’s living standards.
The price of Brent crude oil has fallen from about $115 a barrel in June to about $85 today (see chart above, prices are now below $85 per barrel and the lowest in almost 4 years – since November 2010). That will make a tank of gasoline cheaper (though not by as much as it should, because of taxes) but it will also make everything from chairs to chips to chiropody cheaper too, because the cost of energy is incorporated into the cost of every good and service we buy. The impact of this cost deflation will dwarf any effect of, say, a fall in the price of BP shares in your pension plan.
The industrial revolution itself was built around abundant cheap energy, mainly in the form of coal, which enabled mechanization, which vastly amplified the productivity of the average worker and therefore his income. Today a typical British family of four uses as much energy as if it had 400 slaves in the back room pedaling eight-hour shifts on exercise bicycles. It would use even more if it also fed those slaves!
The falling oil price is largely the Americans’ fault. By reinventing the extraction process for first gas, then oil, with horizontal drilling and hydraulic fracturing, engineers have almost doubled the country’s output of oil in six years. That ingenuity was made possible by the high price of oil, which promised fabulous riches to those who could get oil out of shale, but it is no longer dependent on the high price of oil. It is often said that the cure for high oil prices is high oil prices and so it has proved.
But is cheap fossil fuel not bad news for the climate? A new paper in Nature magazine argues that when the gas boom sparked by fracking goes global, prices will fall fast, economic growth will accelerate and so we will end up using more energy and producing more emissions than before, even if we give up coal. It forgets to mention that if we get that much richer, we will also abolish much more poverty, disease and misery, and have the investment funds to invent new, cheap and low-carbon forms of energy too.
HT: Warren Smith"

The Misleading CEO/Employee Pay Gap Lament

"Our recent Wall Street Journal op-ed highlights some of the problems with the notion that the CEO/employee pay gap is too big, a popular lament from union-backed groups who argue that the gap is justification for increasing the minimum wage.

In the piece, we highlighted the case of Yum Brands, the parent of well-known restaurants like Pizza Hut, Taco Bell, and KFC, and a popular target of SEIU-backed protests. Its five member executive team made a combined $30 million in compensation in 2013, according to SEC filings – seemingly a large pot that could be redistributed to its hourly employees. But because Yum also employs so many people - 539,000, 86 percent of whom are part time – these funds would have only negligible impact in hourly wages if redistributed.

For example, if the executive team could somehow take 25 percent of its total compensation and distribute it evenly to Yum’s 463,000 part time workers, hourly wages would only rise by a penny. Even if the executive team took a 100 percent pay cut, hourly wages would only increase by five cents.

Total Executive Compensation Total Part-Time Employees Raise Per Hour
Yum Brands $30 million 463,000 5 cents
Walmart $63 million 600,000 8 cents

Assumed part-time employees work 25 hours per week, 50 weeks per year
Data Sources: SEC 2013 company filings: Schedule 14-A, Schedule 10-K

The results of this analysis aren’t unique to Yum Brands. Take Walmart, for example, another multi-billion dollar company that union-backed activists groups like OUR Walmart have accused of paying its executives too much. Walmart’s five member executive team earned double that of Yum’s in 2013 at a combined $63 million. But they also have a ton of employees to distribute the money to: We estimate that Walmart has roughly 600,000 part-time employees in its workforce.* Even if Walmart’s executives took a 100 percent pay cut and distributed it equally to their part-time employees, hourly wages would only rise by eight cents.

Of course the truth is that executive compensation has very little bearing on what a company’s employees earn. It just serves as a misleading and – as these analyses show – moot talking point for those looking to push through big labor’s agenda.

*Note: Walmart doesn’t provide a breakdown of full-time and part-time employees in its annual report. However, recent news stories on the company’s decision regarding health coverage for 30,000 part-timers indicated that this represented five percent of its part-time workforce. Working backward, we arrived at roughly 600,000 part-time employees."

Thursday, October 23, 2014

IMF's Loungani: Demand for Labor is Downward-Sloping (Minimum wage laws in China lower employment)

From David Henderson of EconLog.
"Now to an interesting study that caught my eye.
Our study is the first to use data on minimum wage changes for over 2400 counties in China. We combine the information on minimum wages changes with employment data from the Annual Survey of Industrial Firms, which covers over 70 percent of China's manufacturing employment. While China instituted a minimum wage system in 1994, enforcement of compliance with the law was significantly tightened only in 2004; the results described below are based on post-2004 data. 
So what does the evidence show? On average across all firms, we find that an increase in the minimum wage leads to a small decline in employment: a 10% percent increase in the minimum wage lowers employment by a little over 1% percent.
This is from Prakash Loungani, "Does Raising the Minimum Wage Hurt Employment? Evidence from China," October 23, 2014. Loungani concludes:
But if raising the minimum wage lowers employment, and ends up excluding low-wage workers from employment prospects, it may have adverse effects on both welfare and efficiency.
Why does he say "may?" If "raising the minimum wage lowers employment, and ends up excluding low-wage workers from employment prospects," it will "have adverse effects on both welfare and efficiency." For that matter, why does he say "If?" Does Loungani not believe his own results? Notice, by the way, that the results he gets accord with the consensus view among U.S. economists for the United States circa 1981."

Infrastructure and other inputs do not turn themselves into valuable outputs.

From Don Boudreaux of Cafe Hayek.
"Here’s a letter to a student in New Jersey:
Dear Mr. Sloan:
Thanks for your latest note.  You remember correctly that I agree that Pres. Obama’s “You didn’t build that!” quip referred to infrastructure and other inputs – admittedly produced by others – that each entrepreneur relies on.  You’re mistaken, however, to insist that “because government makes businesses’ profits possible, even the most innovative” entrepreneurs and investors “earn only a portion of their profits.”
You confuse possibilities with actualities.  Infrastructure and other inputs do not turn themselves into valuable outputs.  That task requires entrepreneurial creativity, risk-taking, and effort.  The very existence of huge profits earned in markets suffused with infrastructure and other inputs implies that entrepreneurs who earn these huge profits produce something unusually rare and valuable - something that the vast majority of people, despite having the same access as do successful entrepreneurs to infrastructure and other inputs, do not produce.
In short, the outputs created by entrepreneurs would not otherwise have been produced.  Therefore, the profits of these entrepreneurs reflect the additional value to the economy of these outputs.  This is additional market value that, despite the use of infrastructure and other inputs, is created only through the actions of successful entrepreneurs.  These entrepreneurs, and they alone, are responsible for making actual that additional value which, without their efforts, would remain only an unrealized – indeed, unnoticed – potential.
This reality does not itself argue against taxation.  Infrastructure, like other inputs, must be paid for, and taxation is one way to pay for it.  But this reality does mean that it’s mistaken both to attribute to government a prime and uniquely important role in the creation of entrepreneurial profits and to suppose that government, by virtue of a politician quipping fatuously to entrepreneurs “You didn’t build that!,” becomes entitled to an open-ended claim on those profits.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030"

Wednesday, October 22, 2014

Deirdre McCloskey On Piketty

Via Cafe Hayek.
"from page 35 of the manuscript of Deirdre McCloskey‘s new, extensive, and brilliant review of Thomas Piketty’s Capital in the Twenty-First Century; (quoted here with Deirdre’s kind permission):
It is important in thinking about the issues Piketty so energetically raises to keep straight what exactly is unequal.  Physical capital and the paper claims to it are unequally owned, of course, although pension funds and the like do compensate to some degree.  The yield on such portions of the nation’s capital stock is the income of the rich, especially the rich-by-inheritance whom Piketty worries most about.  But if capital is more comprehensively measured, to include increasingly important human capital such as engineering degrees and increasingly important commonly-owned capital such as public parks and modern knowledge (think: the internet), the income yield on the capital is less unequally owned, I have noted, than are paper claims to physical capital.
Earlier in her review, Deirdre quite rightly criticizes Piketty for excluding the value of human capital from his [Piketty's] measure of nations’ capital stocks.  Such an exclusion is akin to, say, the decision of a scholar whose goal is to measure the number of automobiles owned by Americans to exclude SUVs and pick-up trucks from the class of vehicles classified as “automobiles.”"

Evaluating the Impact of Thomas Piketty’s Wealth Tax on America’s Poor, Rich, and Middle Class

From The Tax Foundation. Excerpt:
"In Capital in the Twenty-First Century, bestselling author and economist Thomas Piketty argues for a tax on wealth, ranging from 0.5 to 2 percent, in order to combat what he views to be the most pressing economic issue of our time: income inequality. This wealth tax is a fundamental element of Piketty’s policy recommendations. However, the implementation of this kind of tax in America is not only impractical, but could also result in large declines in investment, employment, wages, and national output, according to a new analysis from the nonpartisan Tax Foundation.
“We found that Piketty’s wealth tax would indeed reduce income and wealth inequality, but at the cost of making everyone significantly poorer,” said Tax Foundation Fellow Michael Schuyler, PhD. “Further, it would be profoundly impractical, considering the large, additional compliance costs it would place on many households, the difficulty of enforcing such a tax, and a constitutional barrier limiting the power of the federal government to impose a direct tax. These problems would not go away even if the wealth tax were global.”

The report finds:
  • The basic version of Piketty’s wealth tax would impose a tax rate of 1 percent on net worth of $1.3 million and 2 percent on net worth above $6.5 million. Piketty also contemplates additional tax brackets, including a bracket of 0.5 percent starting at about $260,000.
  • Piketty’s basic tax would depress the capital stock by 13.3 percent, decrease wages by 4.2 percent, eliminate 886,400 jobs, and reduce GDP by 4.9 percent, or about $800 billion, all for a revenue gain of less than $20 billion.
  • The addition of a tax beginning at a net worth of about $260,000 would reduce capital formation by 16.5 percent, decrease wages by 5.2 percent, eliminate 1.1 million jobs, and reduce GDP by 6.1 percent (about $1 trillion annually in terms of today’s GDP), all for a revenue gain of only $62.6 billion.
  • All income groups would be worse off under a wealth tax due to decreased economic activity; in the second scenario, the after-tax income loss for the top quintile would exceed 10 percent, but the losses for all lower quintiles would be in the 7 to 9 percent range.
Although the U.S. government will not be enacting a wealth tax any time soon, it is nevertheless worth evaluating a federal wealth tax so we can better judge whether Professor Piketty’s recommendations would lead us in the correct direction. Also, as tax reform ideas are generated in the future, it is important to know whether a wealth tax might be a constructive part of the mix or whether one should be scrupulously avoided.

This analysis uses the Tax Foundation’s Taxes and Growth Model, a dynamic tax scoring model which estimates the impact that tax changes have on wages, jobs, cost of capital, distribution of income, federal revenue, and the overall size of the economy."

Tuesday, October 21, 2014

Premiums to Rise For Obamacare's Cheapest Plans

From Reason
"What’s really going on with Obamacare premium prices? Are they going up? Going down? Well, ah, yes. The best answer is that it’s complicated; it depends on which premiums you’re looking at, in what areas of the country, and when.

Back in September, a Kaiser Family Foundation study found that, based on a study of 16 major metro areas, that "benchmark silver plans"—the second cheapest plans in the middle or "silver" tier of health insurance available through the law’s exchanges—would drop by 1 percent, on average. Plans in some places, like Nashville, would rise, but overall the price was going down just a little.
Great news! Obamacare premiums are going down! Or are they?

Last week, Jed Graham of Investor’s Business Daily reported that, after looking at premium prices in the largest city in 15 different states, plus Washington, D.C., he found that the cost of the cheapest "bronze" plans—the lowest tier of coverage available on the exchanges—would rise by 14 percent next year.

In some cities, Graham reports, they’ll go up by a lot more than that:
In Seattle, the cost of the cheapest bronze plan, after subsidies, will soar 64%, from $60 to $98 per month, for individuals at this income level. Some other cities seeing notable gains include Providence (up 38%, from $72 to $99 per month); Los Angeles (up 27%, from $88 to $111); Las Vegas (up 22%, from $100 to $122); and New York (up 18%, from $97 to $114).
Of the people who picked bronze-level plans, Graham notes, 39 percent picked the cheapest option. So this could impact quite a few people.

Depending on how you measure it, then, plan premiums are either going down or up in various parts of the country.

What we still don’t really know, though, is what the overall picture looks like, either in terms of the plans that are on offer or the plans that people are actually picking for themselves. That’s because a lot of information about premiums and subsidy amounts, especially in the federal exchanges, is on hold until the middle of next month.

Only then will we actually get a complete look at the various costs and options. The timing isn’t an accident either. Last year’s open enrollment period started in October. This year’s open enrollment, and thus the release of the information it makes available, was delayed until just after the election."

Are Angry Straight White Males Increasing Their Threats And Harassment Of Females?

See Gamergate is loud, dangerous and a last grasp at cultural dominance by angry white men: The outrage isn’t about ‘ethics’ or even really gaming. It’s about harassing women to protest the movement for female equality. It was by Jessica Valenti of the Guardian.

Here are the key questions for which Valenti supplied no data:

Has the percentage of straight white males committing crimes against females increased over time? Has the number of threats or level of harassment increased?

Are straight white males committing more crimes per capita against females than they used to? Are their more threats per capita?

The crime rate in the U.S. has fallen over the last 20 years. It might be reasonable to assume that crimes against women have fallen, too. I don't know that for sure. I think the relevant question is if the crime rate or violent crime rate against women is rising.

So without answers to these questions, we don't know if straight white males are doing more harm to females than they used to.

Monday, October 20, 2014

"industrial nations whose governments invested least in science did best economically"

See How to Stop Wasting Money on Science by Patrick J. Michaels.
"In Thursday’s Wall Street Journal, former Energy Secretary (and Stanford professor) Steven Chu and his colleague Thomas R. Cech penned an opinion piece entitled How to Stop Winning Nobel Prizes in Science, in which they argue for better long-term planning and consistency in the public funding of science. Cato adjunct scholar Dr. Terence Kealey agrees, suggesting the right amount would be consistently $0.

In August, 2013, Kealey wrote precisely about this in that month’s edition of Cato Unbound. Since then, he has stepped down after a long and successful tenure as vice-chancellor (the equivalent of college president in the U.S.) of the University of Buckingham in the United Kingdom.

First, Kealey considers the notion that science is a “public good,” i.e., something that should rightly be funded by government because scientific developments would otherwise be underprovided from the perspective of society as a whole.
The myth [that Science is a public good] may be the longest-surviving intellectual error in western academic thought, having started in 1605 when a corrupt English lawyer and politician, Sir Francis Bacon, published his Advancement of Learning.
Kealey went on to document that there is no evidence the public good model (as opposed to laissez faire) is more efficient at providing for the betterment of the public:
The world’s leading nation during the 20th century was the United States, and it too was laissez faire, particularly in science. As late as 1940, fifty years after its GDP per capita had overtaken the UK’s, the U.S. total annual budget for research and development (R&D) was $346 million, of which no less than $265 million was privately funded (including $31 million for university or foundation science). Of the federal and state governments’ R&D budgets, moreover, over $29 million was for agriculture (to address—remember—the United States’ chronic problem of agricultural over productivity) and $26 million was for defence (which is of trivial economic benefit.) America, therefore, produced its industrial leadership, as well as its Edisons, Wrights, Bells, and Teslas, under research laissez faire
Meanwhile the governments in France and Germany poured money into R&D, and though they produced good science, during the 19th century their economies failed even to converge on the UK’s, let alone overtake it as did the U.S.’s. For the 19th and first half of the 20th centuries, the empirical evidence is clear: the industrial nations whose governments invested least in science did best economically—and they didn’t do so badly in science either.
What happened thereafter? War. It was the First World War that persuaded the UK government to fund science, and it was the Second World War that persuaded the U.S. government to follow suit. But it was the Cold War that sustained those governments’ commitment to funding science, and today those governments’ budgets for academic science dwarf those from the private sector; and the effect of this largesse on those nations’ long-term rates of economic growth has been … zero. The long-term rates of economic growth since 1830 for the UK or the United States show no deflections coinciding with the inauguration of significant government money for research (indeed, the rates show few if any deflections in the long-term; the long-term rate of economic growth in the lead industrialized nations has been steady at approximately 2 percent per year for nearly two centuries now, with short-term booms and busts canceling each other out in the long term.)
The contemporary economic evidence, moreover, confirms that the government funding of R&D has no economic benefit. Thus in 2003 the OECD (Organization of Economic Cooperation and Development—the industrialized nations’ economic research agency) published its Sources of Economic Growth in OECD Countries, which reviewed all the major measurable factors that might explain the different rates of growth of the 21 leading world economies between 1971 and 1998. And it found that whereas privately funded R&D stimulated economic growth, publicly funded R&D had no impact.
The authors of the report were disconcerted by their own findings. “The negative results for public R&D are surprising,” they wrote. They speculated that publicly funded R&D might crowd out privately funded R&D, which, if true, suggests that publicly funded R&D might actually damage economic growth. Certainly both I and Walter Park of the American University had already reported that the OECD data showed that government funding for R&D does indeed crowd out private funding, to the detriment of economic growth. In Park’s words, “the direct effect of public research is weakly negative, as might be the case if public research spending has crowding-out effects which adversely affect private output growth.”
For more on the history of the failure of publicly funded science, from Francis Bacon to the modern era, read Kealey’s The Case against Public Science at Cato Unbound."

Protectionism’s Essence

From Don Boudreaux Cafe Hayek
"Here’s a letter to a college student in New Jersey:
Dear Mr. Sloan:
Thanks for writing.
You ask if my support of free trade is “too simplistic.”  Aren’t there “conditional situations and details” that I overlook when I oppose protectionist arguments?  Fair questions.  My answer, though, is that while I agree that reality is unavoidably more complex than are any human accounts of it, the unconditional case against protectionism is as sound as is, say, the unconditional case against armed robbery.
Suppose your next-door neighbor grows tomatoes and offers to sell some to you.  You reject his offer and instead buy tomatoes from a seller who lives further down the street.  Your next-door neighbor’s prices might be higher than are those charged by the more-distant seller or the quality of his tomatoes not quite to your liking.  Whatever the reasons, you don’t buy tomatoes from your neighbor.
Now suppose that your neighbor responds by pointing a gun at your head to demand that you hand over to him a dollar for every pound of tomatoes that you buy from the seller down the street.  Would you think that your neighbor’s actions are justified?  Of course not.
But what if your neighbor tells you, as he stares at you down the barrel of his gun, that he really needs the extra income that he’ll get if you buy his tomatoes?  Or what if your neighbor insists that the seller down the street is selling tomatoes at prices that are unfairly low?  (“His uncle subsidizes his tomato growing!”)  Or suppose your neighbor asserts that he’s a more reliable supplier of tomatoes for the neighborhood than is the seller down the street?  Would any of these “situations and details” justify your neighbor threatening violence against you if you don’t pay to him a fee whenever you buy tomatoes from someone else?  Of course not - and this conclusion wouldn’t change if your neighbor outsourced to a criminal gang the task of collecting from you the fees your neighbor demands for your patronizing another seller.
Protectionism of the sort practiced by sovereign governments is similarly unconditionally unjustified, for it differs in no relevant ways from the armed robbery described above.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030
I could have added to the letter many other conditions, each equally unsuccessful in justifying the next-door neighbor’s threats of violence.  For example, if a majority of the adults in the immediate vicinity of your house vote to permit your next-door neighbor to threaten violence against you for your not buying his tomatoes, such use of force remains utterly unjustified."

Sunday, October 19, 2014

My Response To The Latest San Antonio Express-News Article In Favor Of Increasing The Minimum Wage

It is on the first page today of the opinion section. But I cannot find it at 

It was written by Shetal Vohra-Gupta, Research Scientist for the Institute of Urban Policy Research

So they have it at their site.
Several times in the last year they have favored an increase in the minimum wage yet have not printed one opposing article by an economist (they did print an excellent article by Thomas Nichta but I am not aware of any degrees in economics that he may have). You can read that here

I submitted the following to them earlier today:

The Express-News continues to push for a higher minimum wage ("States Should Execute Their State Power and Raise the Wage," Oct. 19, by Shetal Vohra-Gupta).

Let's examine Dr. Vohra-Gupta's claims.

She mentions that 20 states have raised the minimum wage with good results. The idea is that a higher wage for the targeted workers will lead to more spending, spurring economic growth and leading to more jobs.

That report was challenged by two economics students from George Mason University, Liya Palagashvili and Rachel Mace, last August in The Wall Street Journal.

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

Of the 3 states that raised the minimum wage the most, the job growth was lowest among all states that raised the rate.
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 showed there was no significant difference in job growth between the states that raised the minimum wage and those that did not. 9 of the 13 states simply adjusted their minimum wage for inflation, so the increases were very slight and not meaningful.

Texas simply goes by the federal minimum wage. Since December 2007 Texas has added 1.3 million jobs while all other states combined have 1.23 million fewer jobs. 

Dr. Vohra-Gupta also mentions that the Congressional Budget Office found a $10.10 minimum wage would lift some families out of poverty. Yet the CBO also found that it would reduce employment by 500,000. She did not mentions this.

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.

Dr. Vohra-Gupta acknowledges that a higher minimum wage will increase prices. Romer found that those higher prices hurt low income people.

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 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.

Dr. Vohra-Gupta mentions that worker turnover and absenteeism decline with higher wages. But if this is good for firms, the government does not have to force them into it.

Romer advocates expanding the Earned Income Tax Credit.

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

Saturday, October 18, 2014

BPA Research Funding Linked to Researcher Bias?

From Angela Logomasini of the Competitive Enterprise Institute.
"The number of studies that have appeared in the news during recent years on the chemical bisphenol A (BPA) is staggering. Few substances undergo such scrutiny. So why BPA? Mattie Duppler of American’s for Tax Reform’s Cost of Government project answers that question in an article for The Hill’s Congress Blog: Congress has poured millions of dollars ($170 million since 2000) into BPA research for what amounts to little more than a witch hunt.
Follow the money and you may find a strong statistical association between government funding and the increased number of research studies that link BPA to various health ailments.

Money goes out to researchers motivated to produce studies that report positive associations that easily get published and that gain more funding. And the more money politicians spend for research studies, the more likely some portion of studies will come up with positive associations between BPA and various health aliments, which is likely to happen by mere accident. In addition, many positive findings appear to be attributable to activist agendas among some researchers who make creative interpretations of largely meaningless data. And the studies that come up negative usually don’t get published or end up in the news either because negative findings as simply not interesting.

Thus far, the allegedly most damning studies on BPA are extremely weak. Most don’t really find what the researchers claim they do, and they are often poorly designed. Consider the latest BPA study in the news. Published in the Journal of the American Medical Association Pediatrics (JAMA Pediatrics), it claims that BPA is associated with wheezing and reduced lung function in children.

Specifically, the authors conclude:

These results provide evidence suggesting that prenatal but not postnatal exposure to BPA is associated with diminished lung function and the development of persistent wheeze in children.

That claim has produced alarming headlines like: “BPA Exposure During Pregnancy Linked To Lung Problems In Children (STUDY),” “Kids exposed to BPA before birth at risk of wheeze study says,” and “BPA Tied to Breathing Problems in Kids: Study.”

Yet, despite what the authors or the headlines say, a study that is simply “suggesting” a finding, offers no real “evidence” of anything. That’s simply doublespeak. And apparently, the entire study is doublespeak. The authors themselves point out many weaknesses of their study, which arguably should have led them to a different conclusion.

The study measured BPA in women’s urine during pregnancy and took measurements of BPA in children’s urine sampled once a year for five years. Then the authors ran statistical models to correlate “BPA exposure” with semi-annual reports from the mothers on how much their children wheezed over a five-year period as well as with medical measurements of lung function. The researchers said they found that some of the children with higher BPA exposures reportedly wheezed more or had more lung function issues than did the rest, although no association was found after children reached five years old.
There are numerous problems here. First, the authors did not have enough information to accurately measure the long-term BPA exposures of any of the subjects. BPA levels can vary substantially over time—even over just a few hours—and a few “spot measurements” are not good proxies for actual exposure over time. The authors allege to have at least partially addressed this problem by doing a series of measurements. But their series amounted to just two measurements of BPA during each woman’s pregnancy! And the children were measured just once a year for five years, but many subjects did not complete all the visits for BPA measurements and measurements of lung function. So, at best, the study authors report, “The BPA and spirometry data [medical measurement of lung performance] were available for at least 1 time point (age 4 or 5 years) for 208 children (155 at age 4 years and 193 at age 5 years).” These few annual spot measurements among a portion of the sample are simply not sufficient to establish BPA exposure levels.

More importantly, the study measured BPA levels in urine, simply showing humans metabolize the BPA and pass it out of the body. They provide no evidence that the babies were exposed in the womb nor do they show that BPA has any impact on the human body at any point in time. In fact, most evidence indicates that BPA passes out of the body without having the opportunity to have any health effects, which is an issue the authors never addressed.

The researchers also admit that they only found associations within subsets of their data and that such associations were “marginal” as well as “limited and inconsistent.” Pair that with the fact that the data on lung function were incomplete and data on wheezing were reported by mothers every six months, making recall bias a potentially big factor. They further admit that their sample was not particularly random and that there may have been other confounding factors not addressed in the study.

A blog post published by the European industry group, the BPA Coalition, sums up some of these obvious problems and also rightly notes that the study is also too small for drawing conclusions and the limited statistical associations it found do not build the case for a plausible cause-and-effect relationship. While some may question the BPA Coalition’s motives because it represents industry, you can’t argue with the points they make; the facts speak for themselves.

This study is a classic example of hype and exaggeration using largely meaningless data. It does not begin to challenge the body of solid research and weight of the evidence showing that consumer exposures to BPA and the resulting risk is exceedingly low, outweighed by the substantial benefits of this chemical."