Saturday, December 13, 2014

The West from 1830-1900 was not a place of great chaos

From Don Boudreaux of Cafe Hayek.
"from page 10 of Terry Anderson’s and P.J. Hill’s superb and pioneering 1981 Journal of Libertarian Studies article, “An American Experiment in Anarcho-Capitalism: The Not So Wild, Wild West“:
The West during this time [1830-1900] often is perceived as a place of great chaos, with little respect for property or life.  Our research indicates that this was not the case; property rights were protected and civil order prevailed.  Private agencies provided the necessary basis for an orderly society in which property was protected and conflicts were resolved.  These agencies often did not qualify as governments because they did not have a legal monopoly on “keeping order.”  They soon discovered that “warfare” was a costly way of resolving disputes and lower cost methods of settlement (arbitration, courts, etc.) resulted.
See also this more recent essay by P.J."

Piketty is almost certainly incorrect to suggest that wealth, once accumulated, perpetuates itself to the advantage chiefly of its owners

From Don Boudreaux of Cafe Hayek.
"Thomas Piketty writes as if accumulated wealth perpetuates itself, growing inevitably over time and yielding to its owners streams of unearned returns that are unconnected with any productive contributions that these owners might make with their wealth to the economy.  Thomas Piketty writes also that very rich people have advantages over only moderately rich people because very rich people can hire better financial advisors than can people of more modest means.

These two propositions of Piketty sit uneasily with each other.  If (as is unquestionably true) not all financial advisors are equally talented, then not only does wealth not grow ineluctably or without human effort and risks to its owners, but the more talented the financial advisor the better he or she is in a market-oriented economy at investing wealth in ways that generate attractive products for the masses – that is, at investing wealth in ways that cause the economic pie to grow.  And there’s no reason to believe that competition among top-flight financial advisors – each one seeking energetically and brilliantly to serve as faithfully and as successfully as possible his or her plutocratic clients – does not help promote economic growth that raises the living standards of even the poor at a pace equal to, or even greater, than the rise in the living standards of the super rich.

In short, if Piketty is correct that people differ in their talents at investing wealth to yield consistently high returns, then Piketty is almost certainly incorrect to suggest that wealth, once accumulated, perpetuates itself to the advantage chiefly of its owners."

Friday, December 12, 2014

New Study Finds Minimum Wage Increases Hurt Low-Skilled Workers

From Charles Hughes of Cato.
"A new working paper from the National Bureau of Economic Research finds that significant minimum wage increases can hurt the very people they are intended to help. Authors Jeffrey Clemens and Michael Wither find that significant minimum wage increases can negatively affect employment, average income, and the economic mobility of low-skilled workers. The authors find that significant “minimum wage increases reduced the employment, average income, and income growth of low-skilled workers over short and medium-run time horizons.”  Most troublingly, these low-skilled workers saw “significant declines in economic mobility,” as these workers were 5 percentage points less likely to reach lower middle-class earnings in the medium-term. The authors provide a possible explanation: the minimum wage increases reduced these workers’ “short-run access to opportunities for accumulating experience and developing skills.” Many of the people affected by minimum wage increases are on one of the first rungs of the economic ladder, low on marketable skills and experience. Working in these entry level jobs will eventually allow them to move up the economic ladder. By making it harder for these low-skilled workers to get on the first rung of the ladder, minimum wage increases could actually lower their chances of reaching the middle class. 
Most of the debate over a minimum wage increase centers on the effects of an increase on aggregate employment, or the total number of jobs and hours worked that would be lost. A consensus remains elusive, but the Congressional Budget Office recently weighed in, estimating that a three year phase in of a $10.10 federal minimum wage option would reduce total employment by about 500,000 workers by the time it was fully implemented. Taken with the findings of the Clemens and Wither study, not only can minimum wage increases have negative effects for the economy as a whole, they can also harm the economic prospects of  low-skilled workers at the individual level.

Four states approved minimum wage increases through ballot initiatives in the recent midterm, and the Obama administration has proposed a significant increase at the federal level. This study should give them a reason to reconsider.

Recent Cato work on this topic can be found here and here."

Thursday, December 11, 2014

"None of us, not even the most wise and visionary entrepreneurs, can imagine the full panoply of goods and services and life’s options that will be created through the different ideas of countless entrepreneurs competing in free markets"

From Don Boudreaux of Cafe Hayek.
"Californian Charley Hooper, after reading this letter, sent the following splendid observation to me by e-mail:
California has 3,754 wineries and they provide good wines for customers, jobs for employees, profits for owners, and fun places to visit. Imagine if Prohibition had never ended or if regulations were such that a mere five wineries produced all the wine for the entire country. Who would have known what we would have been missing?
Who would have know that there would have been a winery, Solune, that I could walk to from my house, talk directly to the interesting wine maker, taste his delicious and varied wines, and purchase a few bottles for a reasonable price? Few people have such an imagination of what could be and those who do are often discounted by others
I think this is further evidence of the awesomeness of the free market. When it is hindered, we don’t know what we’re missing. When it’s present, we get to use amazing things we never dreamed of.
Indeed so.  The invisible – what Bastiat called “the unseen” – includes more than the outputs forgone by using resources in some ways (say, to repair broken windows) rather than in other ways.  The unseen includes also, and more importantly, the greater and better and completely different goods and services, the newer and safer and less-resource-intensive ways of production, and the more full prospects for human flourishing and the heightened hopes and the improved and expanded life-style options that human creativity – unleashed by free markets and governed by open competition and private property rights – makes possible.

Each of us can imagine marginal economic improvements given our knowledge of the existing economy – improvements imaginable today such as faster Internet speed, more options for pizza toppings, continued falling prices for clothing, homes with ceilings more vaulted and dishwashers more quiet, and even driverless cars and pills that cure cancer.  Yet none of us, not even the most wise and visionary entrepreneurs, can imagine the full panoply of goods and services and life’s options that will be created through the different ideas of countless entrepreneurs competing in free markets, with each consumer having the right to choose how to spend his or her money.  The world of 2014 was totally unimaginable to the likes of Josiah Wedgwood, J.D. Rockefeller, Alfred Sloan, and David Sarnoff.  If markets remain reasonably free, the world of 2114 – even of 2034 – is totally unimaginable to anyone of us today.  And whatever is not created because of government interventions is and will forever be unknown and unquantifiable in any detail.  But regardless of what those things are, they will nevertheless be losses for humanity."

Wednesday, December 10, 2014

New BLS report on women’s earnings: Most of the 17.9% gender pay gap in 2013 is explained by age, marriage, hours worked

From Mark Perry.

According to a TV election ad in 2012, “President Obama knows that women being paid 77 cents on the dollar for doing the same work as men isn’t just unfair, it hurts families.” Do the data support the president’s claim? Not at all.

For example, the Bureau of Labor Statistics (BLS) releases an annual report on the “Highlights of Women’s Earnings” (since the BLS report actually looks equally at data for both men’s and women’s earnings, one might ask why the report isn’t simply titled “Highlights of Earnings in America?”, but maybe that’s a politically incorrect question). Here’s the opening paragraph from the most recent BLS report “Highlights of Women’s Earnings in 2013” that was released this week:
 In 2013, women who were full-time wage and salary workers had median usual weekly earnings of $706. On average in 2013, women made 82.1 percent of the median weekly earnings of male full-time wage and salary workers ($860). In 1979, the first year for which comparable earnings data are available, women earned 62 percent of what men earned.
How do we explain the 23% gender pay gap claimed by Obama, or the fact that women working full-time earned only 82.1 cents for every dollar men earned in 2013 according to the BLS? Here’s how the National Committee on Pay Equity explains it:
The wage gap exists, in part, because many women and people of color are still segregated into a few low-paying occupations. Part of the wage gap results from differences in education, experience or time in the workforce. But a significant portion cannot be explained by any of those factors; it is attributable to discrimination. In other words, certain jobs pay less because they are held by women and people of color.
Let’s investigate the claim that the gender pay gap is a result of discrimination by looking at some of the wage data by gender in the BLS report for 2013:

1. Among full-time workers (those working 35 hours or more per week), men were more likely than women to work a greater number of hours (see Table 5). For example, 25.5% of men working full-time worked 41 or more hours per week in 2013, compared with only 14.3% of women who worked those hours, meaning that men working full-time last year were almost twice as likely as women to work 41 hours per work or more. Further, men working full-time were also more than twice as likely as women to work 60-hour weeks: 6.3% of men worked 60 hours per week in 2013 compared to only 2.7% of women working full-time who worked those hours.

Also, women were more than twice as likely as men to work shorter full-time workweeks of 35 to 39 hours per week: 12.2% of women worked those hours in 2013, compared to only 5% of men who did so.  Although not reported by the BLS, I estimate using their data that the average workweek for full-time workers last year was 41.4 hours for women and 43.4 hour for men; therefore, the average man working full-time worked 2 more hours per week in 2013 compared to the average woman.
Comment: Because men work more hours on average than women, some of the raw wage gap naturally disappears just by simply controlling for the number of hours worked per week, an important factor not even mentioned by groups like the National Committee on Pay Equity. For example, women earned 82.5% of median male earnings for all workers working 35 hours per week or more, for a raw, unadjusted pay gap of 17.5% for full-time workers (Table 5). But for those workers with a 40-hour workweek, women earned 89.6% of median male earnings, for a pay gap of only 10.4%. Therefore, once we control only for one variable – hours worked – and compare men and women both working 40-hours per week in 2013, almost half of the raw 17.5% pay gap reported by the BLS disappears.

2. The BLS reports that for full-time single workers who have never married, women earned 95.2% of men’s earnings in 2013, which is a wage gap of only 4.8% (see Table 1 and chart above), compared to an overall unadjusted pay gap of 17.9% for workers in that group. When controlling for marital status and comparing the earnings of unmarried men and unmarried women, almost 75% of the unadjusted 17.9% wage gap is explained by just one variable (among many): marital status.
3. Also from Table 1 in the BLS report, we find that for married workers with a spouse present, women earned only 78.0% of what married men with a spouse present earned in 2013 (see chart). Therefore, BLS data show that marriage has a significant and negative effect on women’s earnings relative to men’s, but we can realistically assume that marriage is a voluntary lifestyle decision, and it’s that personal choice, not necessarily labor market discrimination, that contributes to much of the gender wage gap for married workers.

4. Also in Table 1, the BLS reports that for young workers ages 25-34 years, women earned 89.4% of the median earnings of male full-time workers for that age cohort in 2013. Once again, controlling for just a single important variable – age – we find that almost half of the overall unadjusted raw wage gap for all workers (17.9%) disappears for young workers.

5. In Table 7, the BLS reports that for full-time single workers with no children under 18 years old at home (single workers includes never married, divorced, separated and widowed), women’s median weekly earnings were 96.1% of their male counterparts (see chart).  For this group, once you control for marital status and children, you automatically explain almost 80% of the unadjusted gender earnings gap.

6. Also in Table 7, the BLS reports that married women (spouse present) working full-time with children under 18 years at home earned 78.9% of what married men (spouse present) earned working full-time with children under 18 years (see chart). Once again, we find that marriage and motherhood have a significantly negative effect on women’s earnings; but those lower earnings don’t necessarily result from labor market discrimination, they more likely result from personal family choices about careers, workplace flexibility, child care, and hours worked, etc.

7. If we look at median hourly earnings, instead of median weekly earnings, the BLS reports in Table 8 that women earned 86.6% of what men earned in 2013, which accounts for about 25% of the raw 17.9% gender earnings gap that exists for weekly earnings. And when we look at young workers, women ages 16 to 19 years earned 96.7% of the hourly wage of their male counterparts in 2013, and for the 20-24 year old group, women earned 94.0% of what men earned per hour. Also in Table 8, we see that for never married hourly workers of all ages, women earned 92.7% of the hourly earnings of their male counterparts in 2013, which explains almost half of the unadjusted 13.4% gender difference in hourly earnings.

Bottom Line: When the BLS reports that women working full-time in 2013 earned 82.1% of what men earned working full-time, that is very much different than saying that women earned 82.1% of what men earned for doing exactly the same work while working the exact same number of hours in the same occupation, with exactly the same educational background and exactly the same years of continuous, uninterrupted work experience. As shown above, once we start controlling individually for the many relevant factors that affect earnings, e.g. hours worked, age, marital status and having children, most of the raw earnings differential disappears. In a more comprehensive study that controlled for all of the relevant variables simultaneously, we would likely find that those variables would account for almost 100% of the unadjusted, raw earnings differential of 17.9% lower earnings for women reported by the BLS. Discrimination, to the extent that it does exist, would likely account for a very small portion of the raw gender pay gap.

For example, in a 2005 NBER working paper “What Do Wage Differentials Tell Us about Labor Market Discrimination?” by June O’Neill (Professor of economics at Baruch College CUNY, and former Director of the Congressional Budget Office), she conducts an empirical investigation using Census data and concludes that:
There is no gender gap in wages among men and women with similar family roles. Comparing the wage gap between women and men ages 35-43 who have never married and never had a child, we find a small observed gap in favor of women, which becomes insignificant after accounting for differences in skills and job and workplace characteristics.
This observation is an important one because it suggests that the factors underlying the gender gap in pay primarily reflect choices made by men and women given their different societal roles, rather than labor market discrimination against women due to their sex.
To claim that a significant portion of the raw wage gap can only be explained by discrimination is intellectually dishonest and completely unsupported by the empirical evidence. And yet we hear all the time from groups like the National Committee on Pay Equity, the American Association of University Women, the Institute for Women’s Policy Research, and President Obama, President Jimmy Carter and Virginia governor Terry McAuliffe that “women are paid 77 cents on the dollar for doing the same work as men.” And in most cases when that claim is made, there is almost no attention paid to the reality that almost all of the raw, unadjusted pay differentials can be explained by everything except discrimination – hours worked, age, marital status, children, years of continuous experience, workplace conditions, etc. In other words, once you impose the important ceteris paribus condition of “all other things being equal or held constant,” the gender pay gap that we hear so much about doesn’t really exist at all.

But we know by now that logic, economic theory and empirical evidence won’t matter to gender activists, progressives, and most Democrats, and all we’ll hear about regarding the new BLS report will be that women earned only 82.1 cents for every dollar earned by men last year…. for doing the same work, and how unfair that is……

Related: The “Discriminator-in-Chief” Obama has his own gender pay gap at the White House that exposes his hypocrisy on this issue – while lecturing everybody about the unfairness of the gender pay gap nationally using aggregate salary data, an analysis of White House salaries shows that he pays his own female staffers 13.3% less on average than his male employees. Alternatively, if the 13.3% gender pay gap at the White House can be explained by factors other than discrimination (like experience, age and education), Obama should then stop using unadjusted, aggregate salary statistics to lecture the country about a gender pay gap crisis at the national level."

Starting this year, the United States’ working population will face three major employment disincentives resulting from the very benefits the Affordable Care Act (ACA) provides

The Affordable Care Act and the New Economics of Part-Time Work Casey B. Mulligan.
"Starting this year, the United States’ working population will face three major employment disincentives resulting from the very benefits the Affordable Care Act (ACA) provides: (1) an explicit tax on full-time work, (2) an implicit tax on full-time work for those who are ineligible for the ACA’s health insurance subsidies, and (3) an implicit tax that links the amount of available subsidies to workers’ incomes.

A new study published by the Mercatus Center at George Mason University advances the understanding of how much these ACA taxes will reduce overall employment, and why. It concludes that the reduction will be nearly double that projected by previous analyses. Labor markets ultimately will reduce weekly employment per person by about 3 percent—translating to roughly 4 million fewer full-time-equivalent workers.

Below is a brief summary of this important update. Please see “The Affordable Care Act and the New Economics of Part-Time Work” to read the entire study and to learn more about author Casey B. Mulligan, a professor of economics at the University of Chicago.

_________  Key Findings____________
Much of the ACA’s tax effect resembles unemployment insurance: both encourage layoffs and discourage people from returning to work. The ACA’s overall impact on employment, however, will arguably be larger than that of any single piece of legislation since World War II.
  • The ACA’s employment taxes create strong incentives to work less. The health subsidies’ structure will put millions in a position in which working part time (29 hours or fewer, as defined by the ACA) will yield more disposable income than working their normal full-time schedule.
  • The reduction in weekly employment due to these ACA disincentives is estimated to be about 3 percent, or about 4 million fewer full-time-equivalent workers. This is the aggregate result of the law’s employment disincentives, and is nearly double the impact most recently estimated by the Congressional Budget Office.
  • Nearly half of American workers will be affected by at least one of the ACA’s employment taxes—and this does not account for the indirect effect on others as the labor market adjusts.
  • The ACA will push more women than men into part-time work. Because a greater percentage of women work just above 30 hours per week, it is women who will be more likely to drop to part-time work as defined by the ACA.
____________  Summary  ___________

The ACA’s subsidies create disincentives to work that act as taxes on employment.
ACA Provisions Creating the Largest Disincentives to Work
  • The ACA imposes a $2,000 penalty for each full-time employee imposed on large employers (generally those with 50 or more workers) that do not offer health insurance. Due to this penalty’s unfavorable tax treatment, it is effectively a $3,000 employment tax and can be expected to reduce full-time employment.
  • The ACA denies health insurance subsidies to full-time workers and their families unless their employer fails to offer “affordable” coverage. Because these workers would qualify for insurance subsidies by cutting their weekly work hours to part time, this provision creates an implicit tax that reduces the benefit of working full time.
  • The ACA phases out health insurance subsidies as workers’ income increases. This compounds the escalated federal and state tax liabilities workers already face for earning more income.
Incentives to Reduce Work Hours Below Full Time
  • The ACA may put millions of Americans in a position in which working part time yields more disposable income than working full time.
  • This occurs when the ACA’s generous assistance to part-time workers for health insurance premiums and out-of-pocket expenses offsets much of the income they forgo by working fewer hours. The lack of this insurance assistance for full-time workers amounts to a tax on full-time work.
  • A comparison of two hypothetical workers illustrates this effect. Each worker represents the same hourly cost to the employer, but one works full time (in this case, 40 hours per week) and one part time (29 hours per week). In addition to salary, the full-time worker receives a partial employer subsidy for health insurance. The part-time worker has lower total compensation, mainly due to fewer hours worked, and no employer-sponsored health insurance, but is eligible for government-subsidized health insurance through the ACA’s exchange. After accounting for taxes, health expenses, and work expenses (e.g., child care and commuting), this part-time worker actually nets more per year than the full-time worker.
Prevalence and Magnitude of the ACA’s New Taxes
  • Nearly half of the workforce will experience significant changes in work incentives due to the ACA.
  • For 20 percent of the labor force—some 33 million workers—their family’s eligibility for exchange subsidies hinges entirely on their employment status. In any month they work part time or not at all, they can obtain subsidized coverage; in any month they work full time, they do not qualify for these subsidies. Members of this group would, on average, have to work an additional 5.5 hours per week to make up for the subsidies they forgo by working full time.
  • Because of the penalty on employers who do not offer health insurance, 5 percent of the workforce faces a new implicit income tax. These workers, who are left to obtain coverage from the ACA exchanges, would have to work at least four hours a week for free if they were to compensate their employer for the $2,000-per-employee penalty the ACA imposes.
  • An additional 21 percent who work for employers not offering coverage will find that their employers are less willing or able to pay their workers because of the ACA’s employer penalty. These workers, on average, would have to work four hours a week for free if they were to compensate their employers for the non-coverage penalty.
The magnitude of the ACA effects will vary with the magnitude of the taxes. Still, the ACA’s benefits to part-time workers will push many to reduce their work hours to 29 per week or fewer. The effect can be summarized as follows:
  • Those who would otherwise work just above 30 hours per week will be induced to cut their weekly work hours to part-time. This effect will be especially pronounced for those working 30–35 hours per week; for them, dropping to 29 hours a week is a relatively small adjustment.
  • Those who continue to work full-time despite the taxes will tend to reduce the number of weeks they work per year (because in those periods they can obtain subsidized coverage) by more than they will increase their weekly work hours. In other words, some of those who continue to work full time will work for fewer weeks per year, and be unemployed for more weeks, than they otherwise would.
  • Income taxes reduce weekly hours worked and weekly employment rates.
This analysis, combined with lessons from labor market history, leads to an estimate that the ACA will reduce employment and aggregate hours by slightly more than 3 percent, or about 4 million full-time-equivalent workers. This is nearly double the contraction indicated in prior studies, mainly because some previous work underestimated the size of the ACA’s employer penalty and did not consider the full range of tax effects.
  • The ACA adds an average of 1.9 percentage points to the marginal earnings tax rates. It also adds a full-time-employment tax equivalent of 2.2 hours per week, or almost 6 percent of a full-time schedule. This is on top of non-ACA taxes, and is akin to doubling the employee Social Security payroll tax. It is the main driver of the 3 percent labor market contraction.
  • Roughly 3.6 percentage points more of the workforce will drop to 26–29 hours per week than would do so in the absence of the ACA.
  • The elderly’s labor is much less affected by the law, because the Medicare program makes them ineligible for the new exchange subsidies, so that they are not subject to the implicit income and full-time-employment taxes that go with the subsidies.
  • Women (regardless of marital status) are especially likely to reduce their hours to below 30 per week because they represent a greater percentage of those currently working 30 to 35 hours, and thus can drop to 29 hours with comparatively little cost.
  • The study does not assume or predict that employment and work schedules are especially sensitive to taxes. Rather, the study’s results derive from the sheer size of the taxes that the ACA has created."

Tuesday, December 9, 2014

Greedy Corporations Save Lives: Prosperity’s conquest of disease offers lessons for global change

From FEE.
"With Ebola wreaking havoc across West Africa, news that a private company has virtually eradicated the disease on its extensive property invites sighs of relief.

Yet Firestone’s actions were not unique: private industry has a long history of saving lives when disease threatens.

As recent history demonstrates, to face the prospect of a rapidly changing world over the next century, the best we can do to help the world’s poorest is to pursue a strategy of resiliency. And that strategy includes rich multinational corporations.

Firestone, one of the world’s leading tire producers, needs vast amounts of rubber and owns a huge rubber plantation in Liberia. The property encompasses 185 square miles, employs 8,000 people directly, and indirectly supports 72,000 more people who live either on the property or in surrounding communities.

When the first case of Ebola appeared on the property, the company initially attempted to place the victim in a hospital in the country’s capital, Monrovia. Company officials quickly realized that the facilities there were inadequate, so Firestone set up its own Ebola ward in the company hospital. By mid-September, the facility was full. But through careful management, the disease was contained. A few weeks later, the facility was almost empty.

Firestone was able to do this because it had wealth, valued its employees and their families, and recognized the importance of stopping the disease. This is not an isolated example of a private company acting this way.

In the 1990s, when HIV/AIDS threatened to devastate Botswana, the mining firm Debswana worked to address the threat the disease posed to its facilities there and began what the United Nations called a “benchmark” program to keep its workers healthy.

Debswana raised awareness among its employees of the HIV/AIDS threat and how the disease spread. The company funded 100 percent of the cost of retroviral drugs to employees with the disease and their spouses, and it provided counseling and monitoring programs. The company called the fight against the disease its “highest corporate priority,” saying,

The Company’s commitment to the fight against HIV and AIDS is captured in its philosophy to minimize the impact of HIV/AIDS on employees, their families and the Company through prevention of new infections, care and support of those infected with HIV and containment of costs.

While some might call this “corporate social responsibility,” it is also, in fact, a product of enlightened self-interest and a recognition of the interconnectedness of people in the modern world.
That is why measures that promote these two aspects of today’s economy are the poor’s best bet in surviving anything a changing world throws at them. Whether it be disease, extreme weather events, or the postulated effects of global warming such as sea-level rise, greedy corporations are saving lives worldwide, every day.

Enlightened self-interest and the interconnectedness of global supply chains combine to promote health and welfare everywhere. Business builds wealth not just in local communities, but in communities far away that connect with it. Bridgestone, Firestone’s parent, is based in Ohio, yet its regard for its own well-being led it to save lives in Liberia.

BHP Billiton
Another example, courtesy of my friend Andrew McLeod, might help to underline this point:

BHP Billiton, the world’s largest mining company, runs one of the world’s most effective anti-malaria programs in Mozal, Mozambique, not because it is nice, but because it increases value.
The company’s program has reduced adult malaria infection from above 90% of the adult population to below 10%. The improved community health has lowered absenteeism in the work force and that has increased the productivity of their operation by a measurable amount higher than the cost of the program itself. When measured well, one can demonstrate that the anti-malaria program is directly, measurably profitable.

Wealthier is healthier. Nigeria, being a richer country than Liberia, was able to keep Ebola at bay. As Indur Goklany and others have shown, wealth is vital for societal resiliency in the face of such risks.

Wealthier is healthier: get with the program
Bearing that in mind, this is what a strategy for reducing the impact of such risks might look like:
  • Promote true free trade by tearing down tariff and nontariff barriers with the developing world, such as the EU’s Common Agricultural Policy.
  • Promote affordable energy and distribution networks for it in the developing world.
  • Reduce regulatory burdens that divert talent toward developing accounting tricks or derivative products, rather than dreaming up genuine innovations.
  • End America’s extraterritorial tax system, which discourages private investment abroad.
  • Liberalize global payment systems to allow the free movement of remittances from immigrants to their home countries.
This program would not only lead to more Firestones around the world but also to more resilience at the national level.

However, such a program is bound to meet with opposition from the “global salvationist” establishment, whose conventional wisdom centers around inhibiting trade, banning effective but politically incorrect technologies such as DDT and coal, and reducing private profit. It may therefore be a while before it can be adopted.

Resiliency today
In the meantime, people in poor countries like Liberia will have to continue to hope that companies like Firestone can be encouraged to invest there. They can best do this by establishing the rule of law and secure property rights. A true resiliency strategy begins at home."

Half of Doctors Listed as Serving Medicaid Patients Are Unavailable, Investigation Finds

From the NY Times. Excerpts:
"Large numbers of doctors who are listed as serving Medicaid patients are not available to treat them, federal investigators said in a new report.

“Half of providers could not offer appointments to enrollees,” the investigators said in the report, which will be issued on Tuesday.

Many of the doctors were not accepting new Medicaid patients or could not be found at their last known addresses, according to the report from the inspector general of the Department of Health and Human Services."

"The health law is fueling rapid growth in Medicaid, with enrollment up by nine million people, or 16 percent, in the last year, the department said. Most of the new beneficiaries are enrolled in private health plans that use a network of doctors to manage their care."

"Patients select doctors from a list of providers affiliated with each Medicaid health plan. The investigators, led by the inspector general, Daniel R. Levinson, called doctors’ offices and found that in many cases the doctors were unavailable or unable to make appointments.

More than one-third of providers could not be found at the location listed by a Medicaid managed-care plan."

"the actual size of provider networks may be considerably smaller than what is presented by Medicaid managed-care plans."

"Among the providers who offered appointments, the median wait time was two weeks. (The number of providers above the median is the same as the number below it.)

“Over a quarter of providers had wait times of more than one month, and 10 percent had wait times longer than two months,” the report said."

"in Lake Charles,...It’s nearly impossible to find specialty care for Medicaid patients of any age with diabetes, asthma, sickle cell anemia and certain other chronic illnesses.”"

Sunday, December 7, 2014

Thoughts On Price Controls

From Don Boudreaux of Cafe Hayek.
"Amy Chen – a high-school senior in Oakland – e-mails me:
My teacher gave my group and I the assignment of debating another group that will take the side that government should stop sellers from raising prices when earthquakes and big natural disasters happen. My dad likes your blog and suggested I ask for your advice.
I sent Ms. Chen a link to Hugh Rockoff’s Concise Encyclopedia essay entitled “Price Controls,” as well as a link to Art Carden’s 2011 Forbes essay “Price Gouging Laws Hurt Storm Victims.”  I also offered to talk with Ms. Chen by phone about this matter, as there’s much to say beyond pointing out that price ceilings will cause shortages of the very goods and services that the legislation is ostensibly aimed at making more available.  But here’s my summary of what I will say to her if she calls:

- price ceilings (on, say, plywood) cause the quantities of plywood that buyers want to buy to be higher than the quantities that sellers are willing to sell; the result is a shortage of plywood;

- the shortage of plywood means that some means of rationing are necessary to determine who gets the available supplies of plywood;

- a common means of rationing is queuing; queuing is costly; the people waiting in long lines are spending valuable time in an effort to increase their prospects of being among the lucky ones who actually get some plywood; so the actual cost to plywood buyers is not the government-mandated price; rather, it’s that price plus the value of the time and effort that was spent to get the plywood;

- another means of rationing is to distribute the good according to political, professional, and personal connections; a hardware-store manager is more likely, with price controls in place, to hold several sheets of plywood aside to be given as gifts or sold to his brother, the mayor of the town, or building contractor who this hardware-store manager plans to hire to refurbish his kitchen;

- price controls spawn black markets; the hardware-store owner might, instead of holding some sheets of plywood aside for his brother (who wants to rebuild a doghouse destroyed by the earthquake), sell plywood on the black market at prices above not only the state-mandated maximum, but above what would be the high market price in the absence of price controls;

- price controls also cause the quality of goods and services to fall; sellers with more buyers than they can possibly serve at existing prices are under less competitive pressure to maintain the quality of the products they sell and the service they offer;

- price controls, by reducing the quantities of plywood actually brought to market, reduce the quantities of plywood that people in this market actually get – reduce it relative to the amount of plywood they would get in the absence of price controls;

- price controls, by reducing the quantities of plywood actually brought to market, raise the market value of each sheet of plywood to levels higher than it would be without price controls; without price controls the market value of each sheet of plywood would be the equilibrium price, but with price controls, the market value of each sheet of plywood is made to be higher than that equilibrium price;

- the amount that people are willing to pay to acquire plywood is shown by the market value of plywood; because a price ceiling on plywood causes the market value of plywood to rise to heights above what the explicit, market price of plywood would be without price controls, price controls cause the total value of resources that people spend to acquire each sheet of available plywood to be greater than they would spend per sheet without price controls – that is, price controls actually raise the price of plywood;

- prices set on markets reflect underlying economic realities; price controls – such as price ceilings on plywood and minimum wages imposed statutorily – are government mandates that force prices to lie about underlying economic realities; rather than lower the cost and increase the availability of plywood, price controls on plywood raise the cost and decrease the availability of plywood by sending out false reports about the true state of the availability and value of plywood; a price ceiling on plywood no more makes plywood less costly for consumers than does a king’s order to kill the messenger change the truth of the messenger’s message that the king’s army suffered a crushing defeat on the battlefield;

- those who complain about higher prices seldom do anything other than complain about higher prices (save, in many cases, actually contributing to the rising prices by being among the consumers seeking to buy the good or service in question); however dastardly it might be for a hardware-store owner to raise the prices he charges for plywood, he at least is doing something to bring a much-needed product to consumers, while the complainers are doing absolutely nothing constructive to bring plywood to consumers; the complainers aren’t willing to supply plywood to consumers even at prices well above the prices that the complainers insist are ‘unfairly’ high;

- rising prices are no more caused, in any meaningful or relevant sense, by “greed” or self-interest than is the death of someone who falls from the top floor of the Empire State Building caused by gravity; the relevant cause must be something that changed; rising prices are caused by either rising consumer demand or falling supplies or by some combination of both – and, in the immediate aftermaths of natural disasters, there is both a significant rise in demand and a fall in supplies (in part because of disruption of supply lines);

- if anyone nevertheless childishly insists on blaming rising prices on “greed,” then greedy consumers even more than greedy merchants should be blamed for rising prices; hardware stores that, after an earthquake strikes, double or triple the prices they charge for plywood do so only because lots of consumers are willing to pay those much-higher prices; so each consumer who, when buying higher-priced sheets of plywood, complains about the “greed” of others ought to look past the merchants who sell the plywood – those who complain should look to the other consumers who are “greedily” offering to pay lots more for plywood, thus enabling hardware-store owners to successfully raise the prices they charge for plywood; without those “greedy” consumers whose gluttony for plywood is so great that they’re willing to pay very high prices for it, the prices of plywood would not rise."

The Gini coefficient for full-time workers: Has it really changed over time and if so, was it because of technical reasons?

See How to Distort Income Inequality by Phil Gramm and Michael Solon, WSJ. Excerpt:
"An equally extraordinary distortion in the data used to measure inequality (the Gini Coefficient) has been discovered by Cornell’s Mr. Burkhauser. In 1992 the Census Bureau changed the Current Population Survey to collect more in-depth data on high-income individuals. This change in survey technique alone, causing a one-time upward shift in the measured income of high-income individuals, is the source of almost 30% of the total growth of inequality in the U.S. since 1979.

Simple statistical errors in the data account for roughly one third of what is now claimed to be a “frightening” increase in income inequality."
Now if we look at the following graph, we see the rise in the Gini coefficient for full-time, year-round workers went up just about this time. If that blip up is not there, we would not see much change over time.

Saturday, December 6, 2014

2002 study by University of Washington epidemiologists found that air bags contributed little to crash survivability

See Air Bag Agonistes: In the future, cars won’t need an IED in the dashboard by Holman W. Jenkins, Jr. of the WSJ. Excerpts:
"Washington has been responsible for research that confirms that air bags save hundreds of lives a year. These studies, though, credit air bags with saving people who were also wearing seat belts, when considerable evidence indicates seat belts alone do the job.

These studies also assume that deaths in collisions where air bags deployed are always attributable to the collision, never the air bag.

A 2005 study by Mary C. Meyer and Tremika Finney published by the American Statistical Association tried to correct for these errors and found that the clearest effect of air bags was an increased risk of death for unbelted occupants in low-speed crashes.

Likewise, a 2002 study of 51,000 fatal accidents by University of Washington epidemiologists found that air bags (unlike seat belts) contributed little to crash survivability."

"In 1997 came the reckoning: Air bags designed to meet the government’s criteria were shown to be responsible for the deaths of dozens of children and small adults in otherwise survivable accidents."

"Undoubtedly the technology has improved but still debatable is whether the benefits outweigh the risks and costs. Air bags remain one of the biggest reasons for vehicle recalls—and no wonder, given that these devices, which are dangerous to those who manufacture them and to those who repair vehicles, are expected to go years without maintenance or testing and then work perfectly."

Thousands of federal patent workers are allowed to work from home with little supervision and face almost no discipline even if they lie about the hours they put in

See the AP story by MATTHEW DALY Watchdog: Patent telework program invites abuse. Excerpt: 
 "Thousands of federal patent workers are allowed to work from home with little supervision and face almost no discipline even if they lie about the hours they put in, an internal watchdog told Congress Tuesday as lawmakers examine a telework program acclaimed as a model for the government.

Senior managers at the Patent and Trademark Office are blocked from ensuring that employees actually work the hours claimed, making it appear that time-card abuse is "tolerated" at the agency's highest levels, the Commerce Department's inspector general said.

While he has seen no evidence that time-card abuse is "systemic" at the patent office, "it would be extremely easy for large numbers of workers" to submit fraudulent time cards if they wanted to do so, Inspector General Todd Zinser told a joint hearing Tuesday of the House Oversight and Judiciary committees.

Lawmakers are examining problems at the Patent and Trademark Office, which allows about half of the agency's 8,000 patent examiners to work from home full-time. Another third work from home part-time. The arrangement reduces traffic and saves at least $34 million a year in rent and other costs for office space, while increasing worker productivity and retention, the agency said.

But some lawmakers said the telework program is ripe for abuse. A report last year found that some employees repeatedly lied about the hours they were putting in, and many were receiving bonuses for work they didn't do. When supervisors found evidence of fraud and asked to have the employee's computer records pulled, they were rebuffed by top agency officials, ensuring that few cheaters were disciplined, investigators found."

Real U. S. Per Capita Consumption Doubled From 1970-2005, Even After Taking Health Care Into Account

This is a chart I show in my micro class. I think it is based on 2000 $s (that is, it uses the price level from the year 2000).

Real Per capita consumption
Minus Health Care






Friday, December 5, 2014

Government Waste Continues

From Nicole Kaeding of Cato.
"Earlier this week, I noted that some Inspectors General provide insufficient oversight of federal government activities. They should be more aggressive in uncovering waste and abuse in federal agencies.  
Nonetheless, many Inspectors General issue helpful reports that alert Congress and the public to wrongdoing. Here is a sampling of recent reports showing the widespread mishandling of federal tax dollars:
  • Internal Revenue Service (IRS): Tax fraud by incarcerated individuals amounted to $1 billion in 2012, growing from $166 million in 2007. One inmate defrauded the government of $4 million over a 10-year period.
  • Department of Homeland Security (DHS): The Inspector General for DHS issued a new report highlighting 68 ways that the agency has wasted tax dollars. The list includes a $1.5 billion cost overrun for construction of the agency’s new headquarters, FEMA’s botched handling of relief for Hurricanes Katrina and Isaac, DHS employees claiming unearned overtime, and insufficient oversight of DHS’s procurement processes.
  • Housing and Urban Development (HUD): According to HUD’s Inspector General, New York City misspent $183 million it received from the federal government to rebuild hospitals following Hurricane Sandy. The city used the funds for employee pay and benefits, which were not allowable grant expenses.
  • Drug Enforcement Agency (DEA): Over the course of 20 years, the DEA allowed an individual running a Ponzi scheme to conduct onsite investment training for employees. The trainer, Kenneth McLeod, used the seminars to solicit clients for his bond investment fund, which promised risk-free returns of 8 to 10 percent. More than half of McLeod’s 130 investors came from the DEA. The Inspector General cites DEA for numerous oversight lapses including failing to verify McLeod’s credentials.
Even with the recent politicization of some Inspector General reports, the reports can be useful to illuminate waste, mismanagement, and fraud within the federal government."

Some Perspective on the Headlining Antarctic Ice Loss Trends

Some Perspective on the Headlining Antarctic Ice Loss Trends From Paul C. "Chip" Knappenberger of Cato. Excerpt:
"The new Sutterley research finds that glaciers in the Amundsen Sea Embayment region along the coast of West Antarctica are speeding up and losing ice. This is potentially important because the ice loss contributes to global sea level rise. The press coverage is aimed to make this sound alarming—“This West Antarctic region sheds a Mount Everest-sized amount of ice every two years, study says” screamed the Washington Post.

Wow! That sounds like a lot. Turns out, it isn’t.

The global oceans are vast. Adding a “Mount Everest-sized amount of ice every two years” to them results in a sea level rise of 0.02 inches per year. But “New Study Finds Antarctic Glaciers Currently Raise Sea Level by Two-Hundredths of an Inch Annually” doesn’t have the same ring to it.
Nor does the coverage draw much attention to the fact that the Amundsen Sea Embayment is but one of a great many watersheds across Antarctica that empty into the sea. A study published in Nature magazine back in 2012 by Matt King and colleagues provided a more comprehensive look at glacier behavior across Antarctica. They did report, in agreement with the Sutterley findings, that glacial loss in the Amundsen Sea Embayment was rapid, but they also reported that for other large areas of Antarctica, ice loss was minimal or even negative (i.e., ice was accumulating). Figure 1, taken from the King paper, presents the broader and more relevant perspective (note that the Amundsen Sea Embayment is made up by the areas labelled 21 and 22 in Figure 1).

Figure 1. Best estimate of rate of ice loss from watershed across Antarctica. The Amundsen Sea Embayment, the focus of the Sutterley study, is encompassed by areas labeled 21 and 22 (taken from King et al., 2012).

We discussed the King and colleagues study in more detail when it first came out. We concluded:
So King and colleagues’ latest refinement puts the Antarctic contribution to global sea level rise at a rate of about one-fifth of a millimeter per year (or in English units, 0.71 inches per century).
Without a significantly large acceleration—and recall the King et al. found none—this is something that we can all live with for a long time to come.
The strategically timed new findings being hyped this week do not change this conclusion."

Thursday, December 4, 2014

An obvious, but overlooked reason for declining household income: the number of work hours per US household has been falling

From Mark Perry.

In a recent CD post (“Have changing household composition and retirement caused the decline in median household income?“), I suggested that the decline in US median household income since around the turn of the century can be largely explained by demographic factors including: a) the significant increase in retired Americans as a share of the US adult population, and b) the changing composition of US households that increasingly includes more no-earner and single-earner households and fewer married and two-or-more-earner households. It’s an important point that most of the discussions and hand-wringing about declining US median household incomes completely ignore the demographic realities that the composition of American households is not static. US households in 2013 are significantly different from US households in 2000 in important ways (size, age, number of earners, hours worked, etc.) that affect household income, so we can’t accurately compare the $51,939 in median household income in 2013 to the much higher peak of $56,895 in median household income in 1999 (both median incomes are expressed in 2013 dollars).

In a recent Real Clear Markets op-ed (“The Obvious Reason for the Decline In Median Income”), economist Jeffrey Dorfman points out another very important demographic change that has significantly contributed to the decline in real median household income in the US over the last decade: the average number of hours worked per US household has been declining. So we would naturally and logically expect median and mean household incomes to decrease when average household work hours are falling. Here’s the opening of Jeffrey’s article:
Much has been made recently of the fact that real median household income has been stagnant over the past twenty years and falling for the past seven. While there are many problems with using median household income as a measure of the economic health of the middle class, it is still important to examine what is causing this middle-income stall. A major, and overlooked, part of the answer appears to be quite simple: Americans are working less.
As I pointed out previously (and as Jeff points out in his article), there’s been a significant demographic shift (along with the economic effects of the Great Recession) that has resulted in both smaller average households over time and a smaller percentage of Americans working in recent years, so that the average number of work hours per US household has naturally declined. And therefore, the very obvious, but overlooked conclusion reached by Dorfman is that: “When people and families work fewer hours, they earn less money.”

Following a procedure outlined by Dorfman in his article but using a slightly different dataset, the top chart above shows the relationship over time between annual US median household income (adjusted for inflation) and the average weekly work hours per US household in each year from 1980 to 2013. To calculate the average works per household, I used: a) the BLS series “Average Weekly Hours at Work in All Industries” (from Table 21 in this BLS report), b) the BLS series “Civilian Employment,” and c) the number of US households in each year from the US Census. Using the average weekly work hours and the number of Americans employed, the total number of hours worked annually were calculated and divided by the number of US households in each year to determine the average number of weekly work hours per household in each year from 1980 to 2013, and those values are represented by the red line in both charts above.

As can be seen in the top chart, the 8.7% decline in real US median household income between the 1999 peak ($56,895) and 2013 ($51,939) was accompanied by an even greater 9.25% decline in average household hours worked. As Dorfman points out, household work hours are calculated here and in his analysis as an average (mean) and not a median, “so it is not the perfect match to median household income, yet the insight revealed is still rather remarkable.” In fact, a simple linear regression reveals that almost 89% of the decline in median household income between 1999 and 2013 can be explained by the decline in average household work hours, so there is a very strong statistical relationship between median household income and average household hours worked, as expected.

The bottom chart above addresses the mis-match between median household income and average weekly household work hours by comparing average annual household income from 1980 to 2013 to the average number of work hours per US household. That chart shows that average household income has declined by 6% from the 2000 peak of $77,287 to $72,641 last year. During that same period, average weekly work hours per household declined by more than 10% from 48.3 to 43.3 hours. Like before, the results of a linear regression model show that 88% of the decline in average household income between 2000 and 2013 can be explained by the decline in average household work hours.

Further, about one-third of the 10.25% decline in average household work hours between 2000 and 2013 can be explained by the 3.1% decline in average household size during that time period from 2.62 to 2.54 persons. The remaining 7% of the decline in average household work hours since 2000 would be explained by other demographic changes including an aging US population with more Americans in retirement as a share of the population, and the shift towards more (fewer) single-earner (multiple earner) households. And there could also certainly be economic effects from the Great Recession that put downward pressure on average hours worked especially in 2008, 2009 and 2010, although that trend has reversed slightly in the last few years. There could also be a downward “Obamacare effect” on average hours worked that started in 2013 when many companies reduced workers’ hours below the 30-hour-per-week threshold to avoid the employer mandate to provide health insurance for full-time employees.
Here’s Jeffrey’s conclusion:
Middle class incomes are not growing as fast as most people would like because middle class families are working fewer hours. Possible policy prescriptions could include pro-business moves to increase hiring or pro-work moves such as making the social safety net somewhat less comfortable than it has become over the past five to ten years. Either way, it seems clear that the major problem restricting faster growth in household incomes is not income inequality, nor corporate greed, but a basic lack of people working.
And to that I would add that in addition to the economic factors that have contributed to a decline in average hours worked in recent years, e.g. involuntary part-time employment because workers can’t find full-time employment due in part to Obamacare, there are other important long-term demographic trends that can also explain declining household work hours and therefore declining household income. Specifically, the composition of US households is changing over time due to the natural consequences of an aging population and an increasing share of household with retirees, along with more (fewer) single-earner (multiple earner) households that reflects an ongoing trend of smaller US households dating back to at least WWII – and those factors can’t be ignored when discussing trends in US household income."