Saturday, January 31, 2015

Evidence supports the view that stagnant wages are a result of government policy

See Solving the Puzzle of Stagnant Wages by Edward P. Lazear.
"So what accounts for the relative decline in jobs in high-wage hospitals and finance? One obvious possibility is increased regulation. The Affordable Care Act for hospitals and Dodd-Frank for finance both passed in 2010, the year real wages began to decline. It might be a coincidence that the industries most affected by these two laws suffered the most damage. But the following facts lend some credence to regulation as a causal factor.

First, the decline in the share of workers in financial activities from 2006-10 was about one-fifth as rapid as that between 2010 and 2014. Given that the financial crisis peaked in autumn 2008, one would have expected the earlier period to see the most rapid declines, not the reverse.

Second, the share of workers in hospitals increased rapidly from 2006 to 2010, placing it among the top 10% of industries in labor growth. That trend was reversed in the past four years. Nursing and residential care’s share of employment also grew in the early period and declined in the latter one. Ambulatory health-care services, whose share did continue to grow from 2010 to 2014, slowed to one-fourth the pace of growth that prevailed from 2006 to 2010.

Third, industries with educationally similar workforces to those in finance and hospitals, like professional and technical services, enjoyed continued growth in their share of the workforce during the latter period. Even the construction industry, which was at the center of the recession and saw substantial declines between 2006 and 2010, experienced slight increases in share between 2010 and 2014."

"Wages tend to move with productivity—and tax hikes on capital, threatened or actual, were not helpful to business investment, which spurs growth in labor productivity. Higher taxation of dividends and capital gains, as has occurred under President Obama, reduces incentive to invest and makes it more difficult to attract capital to the U.S."

Trade Increases Purchasing Power

See A Trade Opportunity for Obama and the New Congress by Charles Boustany And Robert B. Zoellick. Mr. Boustany (R., La.) is a senior member of the House Ways and Means Committee, where he serves on the Subcommittee on Trade. Mr. Zoellick served as U.S. trade representative, deputy secretary of state, and president of the World Bank.

"American families, and businesses, benefit from higher incomes and lower-priced imports. The World Trade Organization reports that the North American Free Trade Agreement and the Uruguay Round, the last big global trade agreement, have increased the purchasing power of an average American family of four by $1,300 to $2,000 every year. The Peterson Institute for International Economics estimates that the new trade deals in the works could offer that family another $3,000 or more a year."

As Medicaid Rolls Swell, Cuts in Payments to Doctors Threaten Access to Care

So if they try to keep costs down there won't be enough service. Click here to read the article. Excerpts:
"doctors who have been receiving the enhanced payments will see their fees for primary care cut by 43 percent, on average."

"Medicaid payments for primary care services could drop by 50 percent or more in California, Florida, New York and Pennsylvania, among other states."

"some patients would have less access to care after the cuts."

"A survey by the Ohio State Medical Association found that some Ohio doctors began accepting Medicaid patients because of the rate increase in 2013. Ohio doctors who were already participating in the program said they had accepted more Medicaid patients after the rate increase. And almost 40 percent of Ohio doctors indicated that they planned to accept fewer Medicaid patients when the extra payments lapsed."

Friday, January 30, 2015

You have water, no bread. I have bread, no water. We trade. We both profit. There is no community to give back to-Same for all market trades

I wish people would stop saying successful business owners need to give back to the community

How Fossil Fuels Cleaned Up Our Environment

From Alex Epstein of Fortune.

"How much of a positive difference does fossil fuel energy make to environmental quality? Let’s look at modern trends in three key areas of environmental quality: water, sanitation, and air.
Here’s water quality—measured by the percentage of world population with “access to improved water sources.”"


"If you were to turn on your faucet right now, in all likelihood you could fill a glass with water that you would have no fear of drinking. Consider how that water got to you: It traveled to your home through a complex network of plastic (oil) or copper pipes originating from a massive storage tank made of metal and plastic. Before it ever even got to the distribution tank, your water went through a massive, high-energy treatment plant where it was treated with complex synthetic chemicals to remove toxic substances like arsenic or lead or mercury. Before that, the water would have been disinfected using chlorine, ozone, or ultraviolet light to kill off any potentially harmful biological organisms. And to make all these steps work efficiently, the pH level of the water has to be adjusted, using chemicals like lime or sodium hydroxide.

Natural water is rarely so usable. Most of the undeveloped world has to make do with natural water, and the results are horrifying. Billions of people have to get by using water that might contain high concentrations of heavy metals, dissolved hydrogen sulfide gas (which produces a rotten-egg smell), and countless numbers of waterborne pathogens that still claim millions of lives each year. It’s a major victory for any person who gains access to the kind of water we take for granted every day—a victory that fossil fuels deserve a major part of the credit for."


Historically, the inability to effectively deal with our own bodily waste has been one of the largest threats to human health. To this day it takes an enormous toll on human life throughout the world. For example, cholera is a bacterial disease that is transmitted through the ingestion of food or water contaminated by human fecal matter. The toxin that these bacteria produce inhibits the body’s ability to absorb food and water, which can very quickly cause death through dehydration. Worldwide, over a hundred thousand people get sick from cholera annually. (Think about that when you hear environmentalists talk about “harmony with nature”—i.e., harmony with all our predators, their waste, and our waste.) But cholera has been all but eradicated in the industrialized world.

Here’s the big picture of sanitation—the percent of our world population with access to improved sanitation facilities, according to the World Bank.


"Note that as recently as 1990, under half the world had “improved sanitation facilities.” The increase to two thirds in only a few decades is a wonderful accomplishment, but a lot more development is necessary to make sure everyone has a decent, sanitary environment.

Part of the way we have solved sanitation problems is through the industrialized world’s ability to thoroughly sanitize any water human beings might consume using high-energy machines. Just as important, we have created entirely separate water systems to deal with sewage. Historically, a person’s sewer tended to be connected, at least in part, to his drinking water. This was rarely intentional, and early civilizations did construct sewer systems to isolate human waste, but natural, unrestricted water flows usually lead to a certain amount of mixing between the human waste and the nearest freshwater source—particularly as more and more people group together.

Today, sewage is not only kept separate from clean water sources, but it is also extensively treated to render its most dangerous elements harmless so that it can be disposed of safely, in some cases used as a fertilizer or even, thanks to the latest technology, turned into drinking water. The technology of sewage treatment is another advance made possible by industrialization, and it is yet another energy-intensive process for transforming our environment.

Want a more sanitary environment for people around the globe? We need more cheap, reliable energy from fossil fuels.


Most of us have had the experience of sitting around a campfire when the wind changes direction and blows the smoke into our faces right as we take a breath. The resulting experience is unpleasant: a few sharp coughs, along with some stinging of the eyes and throat. For us, it’s a temporary annoyance. For billions of people around the world, it is an everyday experience.

Imagine if the only way you could avoid the danger of cold—historically, cold is a far bigger killer than warmth—was to light a fire in your house every day of the year. You could do things to reduce the amount of smoke you breathed in by using a chimney and opening windows (though at the expense of letting cold in), but the fact remains that you would be breathing in an enormous amount of smoke every day. For many people today, that’s the choice: breathing in smoky air, or going cold.
Today the idea of using a fire to routinely heat our dwellings is foreign to most of us. Modern homes are heated with advanced furnaces that heat air within a machine and then send the warm air to various locations in the house. The heating is usually done either via clean-burning natural gas, in which case the furnace has an exhaust system to remove any waste from the combustion, or with electrical heating elements powered by mostly faraway smokestacks (which themselves minimize air pollution by diluting and dispersing particulates higher in the air).

The combination of sophisticated machines and cheap, reliable energy has made the heating of homes such a trivial issue that most of us have never considered its connection to cleaning up the air we breathe every day. And yet natural-gas furnaces enable us to enjoy all the benefits of having a warm place to live with none of the downsides of smoky, toxic air that our ancestors would have endured for the same privilege.

All of these benefits apply, not just in heating our homes, but in cooking our food. Indoor pollution from primitive cooking methods is a major global problem, and using fossil fuels can help solve it.
We need to consider all these air-cleaning benefits when we consider the air pollution risks of fossil fuels.
And technology is making these risks ever smaller. Stories of rampant smog in Chinese cities bring fears that the situation will inevitably get worse there and in any other country that industrializes. Fortunately, our experience in the United States illustrates that things can progressively get better.
Here again is a graph of the air pollution trends in the United States over the last half century. In the image are total emissions of what the EPA classifies as six major pollutants that can come from fossil fuels. Notice the dramatic downward trend in emissions— even though we were using more fossil fuel than ever.


Source: U.S. EPA National Emissions Inventory Air Pollutant Emissions Trends Data. Graph originally appeared in The Moral Case for Fossil Fuels.
How was this achieved? Above all, by using anti-pollution technology to get as many of the positive effects of fossil fuels and as few of the negative effects as possible."

the rate of homeownerhip is back to where it started before the political obsession with homeownerhsip turned millions of good renters into bad homeowners as government housing finance policies pressured (forced) lenders to lower credit standards, income requirements, and down payments

From Mark Perry.
"The US homeownership rate fell to a 25-year low in the fourth quarter of last year at 63.9% (seasonally adjusted) — the lowest rate since Q4 1989, according to Census data released today. So the rate of homeownerhip is back to where it started before the political obsession with homeownerhsip turned millions of good renters into bad homeowners as government housing finance policies pressured forced lenders to lower credit standards, income requirements, and down payments to what would otherwise have been unqualified home buyers. After a housing bubble, mortgage meltdown, financial crisis and a homeownership rate approaching 70%, we’ve returned to the homeownership rate of the mid-1980s."


Thursday, January 29, 2015

The Economy Has Done Okay Since Long-Term Unemployment Benefits Ended

From Scott Sumner.
"I will illustrate the problem with modern economics by discussing the impact of extended unemployment insurance. Last spring, Paul Krugman suggested that the elimination of the emergency extended unemployment program in 2014 was not leading to more jobs, thus refuting the claims of conservative opponents of the program. In earlier posts he suggested that ending the extended UI program would mean less fiscal stimulus, and hence more unemployment. As we'll see, this prediction turned out to be as ill timed as his famous "test" of market monetarism comment, which occurred a year earlier. Nonetheless, at the time it looked like Krugman might be right, as the first quarter of 2014 was weak (perhaps due to bad weather.) In addition, Congress was still debating an extension, which would have applied retroactively to those still unemployed.
In numerous posts over at TheMoneyIllusion, I suggested that the 99-week extended unemployment insurance program had probably increased the unemployment rate by about 0.5%. That's perhaps 700,000 people, which is significant, but not the major cause of high unemployment during the recession. I always acknowledged that this was little more than a guesstimate.

Now Tyler Cowen directs us to a fairly rigorous academic study that uses a "difference in difference" approach and estimates that ending extended UI led to an additional 1.8 million jobs in 2014:
We measure the effect of unemployment benefit duration on employment. We exploit the variation induced by the decision of Congress in December 2013 not to reauthorize the unprecedented benefit extensions introduced during the Great Recession. Federal benefit extensions that ranged from 0 to 47 weeks across U.S. states at the beginning of December 2013 were abruptly cut to zero. To achieve identification we use the fact that this policy change was exogenous to cross-sectional differences across U.S. states and we exploit a policy discontinuity at state borders. We find that a 1% drop in benefit duration leads to a statistically significant increase of employment by 0.0161 log points. In levels, 1.8 million additional jobs were created in 2014 due to the benefit cut. Almost 1 million of these jobs were filled by workers from out of the labor force who would not have participated in the labor market had benefit extensions been reauthorized.
Obviously this study is far superior to my guesstimate. And in a sense it does support my side of the debate I'm having with Keynesians, who (falsely) accuse me of promoting the "lazy worker" theory of unemployment. So I should jump on this result, right? Especially since I can't find any flaw in their empirical work (although honestly I just skimmed the paper.) 
In fact, I'm not being a good Bayesian, I'm not shifting my prior view that extended UI cost about 700,000 jobs, although I am widening the band around that estimate to include 1.8 million as a plausible estimate. I'll try to explain my stubbornness, and I want smarter, less biased people to tell me if I am wrong.

In 2012 the US created about 2.25 million jobs, and in 2013 it created about 2.35 million jobs. In late 2013, before it was known that extended UI would be repealed, most economists seemed to expect 2014 to be at least as good as the previous two years. The markets also seemed to expect continued growth, although unfortunately we lack good RGDP and NGDP futures markets. But my sense was that 2014 was likely to be similar to 2013, and it seemed to me that forecasters in academia and the asset markets both expected a similar result.

In fact, employment growth in 2014 was 2.95 million, a number quite likely to be revised higher in the next year or two. That's why I still think 700,000 is a decent ballpark guesstimate. I just don't find it plausible that job growth would have suddenly plunged to 1.15 million in 2014, if nothing had been done about extended UI. I saw nothing going on in terms of "shocks" that would have suddenly caused job growth to slow.

If the markets agreed with me, the difference would have been about 700,000. If they agreed with Marcus Hagedorn, Iourii Manovskii, and Kurt Mitman, the difference would have been 1.8 million. If they agreed with Krugman it might have been negative (fewer jobs if the program ended.) Think of the market forecast as a sort of meta-study, which efficiently incorporates Krugman's arguments, my arguments, and the empirical work in the study mentioned above."

When Health-Care Reforms Don't Add Up

From Megan McArdle 
"The Barack Obama administration has announced plans to tie 90 percent of all Medicare fee-for-service payments to some sort of quality or value measure by 2018. Sounds exciting! Who wouldn't like to ensure that their doctors are paid for delivering value, rather than just randomly sticking needles into us?

Unfortunately, as both the Official Blog Spouse and Aaron Carroll of the Incidental Economist have noted, there is less to this announcement than meets the eye. Saying you want to pay for quality instead of procedures is quite easy to say; indeed, many an administration has said so, because "paying for outcomes instead of treatment" is the holy grail of health-care economists everywhere. But actually doing this, rather than just saying it, turns out to be really hard. I think it's fair to say that the Official Blog Spouse is one of the few journalists in the nation who has extensively reported on the history of Medicare payment reforms, all of which were supposed to move the system toward paying for valuable health care rather than cardiologists' greens fees. As he details, they mostly failed. Medicare payments turn out to be a lot like one of those gel stress balls: You can squeeze them very small in one place, but the spending just pops out somewhere else.

There are a lot of reasons for this. Health-care lobbies are powerful, and Congress is almost uniquely easy to lobby, so ideas like controlling the growth rate of physician payments fell by the wayside once those payments actually had to be cut. The larger problem, however, is finding what to measure -- and making sure that your measurement doesn't introduce perverse incentives into the system. The fundamental problem is that while we want to pay for "health" or "outcomes," we can't really measure those very well.

Here's a little exercise that will illustrate the problems of measurement that confound attempts to pay for "outcomes" or "health" instead of treatment: Tell me how healthy you are on a scale of 1 to 10.
Now before you blurt out an answer, stop and think. You're probably already pondering some questions: What's on the scale? What does a 1 look like, and what is a 10?

Let's say that 1 is a terminal cancer patient in the ICU; 10 is an 18-year-old athlete in the prime of his physical powers. But you're probably neither of these things. So where do you fall in between? Maybe you're pretty healthy for a 47-year-old accountant, but your back gives you frequent trouble and you've got some acid reflux you need to watch, and, of course, there's your blood pressure pills, or maybe in your case it's a statin ...

If you rate yourself compared to your neighbors, or other 47-year-old accountants, you might give yourself an 8 -- 9 if you're the cheery sort, 7 if you're a perpetual grump. But if you compare yourself to that 18-year-old athlete, you're probably more of a 5 or a 6.

And that's only the stuff you know about. What about the stuff you don't know about? How likely are you to die in the next five years? Or have a heart attack or a stroke or lose a limb?

The answer is "you have no idea." If we had 50,000 of you, actuaries could predict these things pretty accurately: how many heart attacks, strokes, deaths, car accidents and so forth. But unless you are that terminal cancer patient in the ICU, no one can predict how likely you, personally, are to die in the next five years. We can say something about the expected life and health of large groups of people very like you. But not you personally.

Unfortunately, doctors don't treat statistical universes; they treat individual patients. Those patients may unpredictably die, or just as unpredictably survive against incredible odds. Some of that is due to the skill of the doctor, some to the innate characteristics of the patient. How much of which? Hard to tell unless the doctor does something obviously completely wrong and stupid, like leaving an instrument inside the patient he's operating on.

You can look at the whole pool of patients that the doctor treats, of course, but the more complicated and expensive the treatment, the fewer patients the doctor will be treating, which means that your data is prone to being swamped by a few outliers. Moreover, doctors do not treat identical patient pools. A good doctor who treats really sick patients may look worse than a bad doctor who confines their treatment to the relatively young and healthy.

Of course, we can attempt to correct for this by adjusting the measurement for risk. The problem is that we don't know all the risk factors; we know some risk factors that we can measure. There are a lot of risk factors we can't, which means that this adjustment will be far from perfect.

If the adjustment is too imperfect, providers have recourse even beyond lobbying: They can stop taking patients covered by your program. That limits your ability to shrug your shoulders and say, "Gosh, well, the world's imperfect, so I'm afraid that yes, some of you are going to get unfairly penalized under the new system. It's the best we can do."

Medical systems are not the only systems that encounter these problems. Just ask any organization that has tried to implement a new sales compensation scheme to better align sales incentives with "customer value." As one veteran of such attempts told me, suddenly salesmen who majored in beer pong are "like Aristotle" -- they can explain exactly why their sales territory is special and your new, complicated system fundamentally mismeasures the value of their efforts. Within six months, you'll have lost a few top performers who hate the new system. Within a year, your burgeoning philosophers have probably figured out how to game the new metrics.

Gaming -- "juking the stats," as it was called on "The Wire" -- is the other major reason that these sorts of systems are hard to implement. Let me illustrate with a little example. The town of Beachy Head, England, had a big problem with suicide; people threw themselves off its dramatic cliffs. In 1975, however, it managed to cut the rate of suicide in half in a single year. An improvement in the national mood? Or a dramatic triumph of public policy?

A new medical examiner. The new chap decided to test the blood alcohol level of bodies found at the base of the cliffs. Those with alcohol in their blood were ruled to be accidents, rather than suicides.
You might argue that people bent on suicide could be taking a drink to fortify their courage before attempting to take their own lives -- and you'd probably be right. Which is exactly the point. There is some true rate of suicides at Beachy Head, but that's not information we have. All we know is the suicide rate, which is dependent on things like the assumptions of the medical examiner.

This is always a big problem, but it is particularly problematic when you give the person taking the measurements strong incentives to see things one way, rather than the other. On "The Wire," cops made their crime rate look good by reclassifying serious crimes as less serious, or as accidents, which did nothing about the underlying problem but made the cops look much better. Unfortunately, we see the same behavior in doctors and hospitals. It's called "upcoding": rating conditions as more serious than they are in order to increase the reimbursement, or to improve their performance on those risk-adjusted mortality measures.

This can go beyond just massaging a few figures and do active harm. For example, consider what happened when New York state started measuring cardiology outcomes.

The idea was that they were "ending years of private, clubby surgeon culture." The public report cards "were intended to shine a light on poor surgeons and encourage a kind of best-practices ethic across the state. If the system worked, mortality rates would fall everywhere from Oswego to NYU." And at first glance, the system worked beautifully: Risk-adjusted mortality rates dropped by an astonishing two-thirds. But as New York magazine reports, it rapidly became clear that one way surgeons were achieving these advances was simply by refusing to treat the sickest patients:
This isn’t just about high-risk patients. It’s about doctors playing games with practically any patient to get better scores. Some surgeons look for ways to make their easy cases seem harder. Others make their hard cases appear so difficult that they place out of the state reporting system. When it comes to the sickest patients, some surgeons simply turn them away, asserting that they’re better off getting drug treatments, or waiting in the ICU. “The cardiac surgeons refer their patients to the cardiologists, and the cardiologists refer them to the intensive-care unit,” says Joshua Burack, a SUNY–Downstate surgeon in Brooklyn who in 1999 released a study revealing that nearly two-thirds of all heart-bypass surgeons in the state anonymously admitted to refusing at least one patient for fear of tainting their mortality rates. “Everyone’s going to pass along the hot potato to the person who’s not vulnerable to reporting.”
In the past five years, no fewer than five studies have been published in reputable journals raising the possibility that New York heart surgeons are not operating on certain cases for fear of spoiling their mortality rates. The clincher came in January, when, in an anonymous survey sent out to every doctor who does angioplasty in the state, an astonishing 79 percent of the responders agreed that the public mortality statistics have discouraged them from taking on a risky patient. If you’re a hard case, in other words, four out of five doctors would think twice before operating on you.
The Cleveland Clinic started getting a lot more referrals from New York -- and their patients were sicker than the patients referred from other states.

Now, you can make an argument that maybe this is all to the good -- that maybe the money we spent doing heart surgery on very sick people was wasted, and it's better to concentrate our money on the relatively healthy. But that's not the purpose of the report cards, which are supposed to help patients make informed choices about their surgeons -- not to help surgeons better choose their patients.

The doctor profiled in the article, who had New York's lowest cardiac mortality rate at the time, told the reporter that he achieved that rate by not operating on people who were "already dead." But what does that mean? Refusing to operate on hopeless cases, or refusing to operate on people who have a 40 percent chance of living with surgery and no chance at all without it? If that were me, I'd probably want to gamble -- and I'd probably be pretty angry if surgeons were too afraid that a failure would show up on their report card.

In some cases, surgeons code their patients as sicker than they used to, even if doing so means doing additional, unnecessary treatment. This can range from putting a patient on nitroglycerin to, the article alleges, actually putting a little ring around someone's mitral valve, which the surgeon who recalled the incident describes as "assault." These measures either improve the risk adjustment or take the patient out of the report card sample entirely, because they're deemed special cases.

You get the point: A measure that was supposed to make patients healthier and encourage the spread of best practices has instead kept doctors from treating sick patients and encouraged unnecessary treatments. Don't get me wrong: It may well have encouraged some better treatment, too. But we always need to be mindful of the perverse incentives by which even a simple, obvious solution like "more transparency!" could actually make the system worse.

More broadly, when money is on the line, assume that people will act against any system you come up with to preserve their income, even to the detriment of patients -- like Medicare's plan to reduce hospital readmission rates, which completely succeeded in reducing those numbers and also apparently resulted in a lot more patients being put on observation status rather than being admitted to the hospital. That meant they didn't count as "readmissions" if they came back. It also potentially left the patients on the hook for bigger bills.

I'm not saying that no payment reform program can ever work. I am saying that most of the significant attempts to reform the way we pay for health care haven't, and for similar reasons. Reformers have the basic idea right: You'll get more of what you'll pay for, and less of what you don't, so you should pay for what you want. Unfortunately, in fields like health care and education, we can't pay for what we want; we can only pay for what we can measure. And it's usually a lot easier for people to play with the measurements than it is to change their behavior or give up a big hunk of income."

Tuesday, January 27, 2015

Another promising startup, regulated out of business

Form James Pethokoukis of AEI.
"Over at Business Insider,  James Rosenbush writes about the need for startups (a favorite topic of mine):
The private sector economy has a life blood, and it is startups. New businesses are started by inventive entrepreneurs out of economic necessity or because their new ideas won’t wait. Technology has been a boon and a barrier to job creation. In past cycles, startups were more labor intensive — requiring more people to run them. Ford Motor Company, once a startup, is a good example. Technology shies away from jobs and shifts productivity and lifestyle gains to software. We’re going to need many more startup zealots and maniacs to sustain and grow an economy where people can find and keep good jobs with growing wages.
But government often erects barriers and lays down minefields in front of America’s entrepreneurs. Pacific Standard’s Susie Cagle writes about just such a situation, the story of Night School, which “just wanted to provide a modest, low-cost bus service from San Francisco to the East Bay.” It wasn’t complicated. Regular old school buses driven by insured, licensed drivers between two stops every half hour. But it was not to be:
The response to Night School’s speculative press was overwhelmingly positive. But less than two weeks later, the week of its planned launch, Night School was postponed indefinitely while its founders grappled with the [California Public Utilities Commission] which claimed the start-up was not properly licensed as a passenger carrier. If Night School had sought to operate as a service only available to members of a private club, the CPUC wouldn’t have had jurisdiction over the business. But the founders’ vision was decidedly public, from the school buses to the low fares. The CPUC has struggled to codify new rules for “transportation network companies,” shifting and changing regulations over the last three years while those companies continued to operate. Night School never got the chance to open its doors.  After months of back and forth, false starts, and moved goal posts, Night School announced its closure last December.
The CPUC, by the way, is the same regulator which has tried to fine and regulate Uber, Lyft, and other ride-sharing services."

On the power and importance of the ruthless consumer – ‘they make poor men rich and rich men poor’

From Mark Perry.
"In his 1944 book “Bureaucracy,” legendary economist Ludwig Von Mises explained the important and supreme role of the ruthless consumer in the market economy (emphasis added):
The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor.
The consumers are merciless. They never buy in order to benefit a less efficient producer and to protect him against the consequences of his failure to manage better. They want to be served as well as possible. And the working of the capitalist system forces the entrepreneur to obey the orders issued by the consumers.
The consumers are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or that is cheaper, they desert their old purveyors. With them nothing counts more than their own satisfaction. They bother neither about the vested interests of capitalists nor about the fate of the workers who lose their jobs if as consumers they no longer buy what they used to buy.
Here’s how I explained the role of ruthless consumers and the concept of “consumer greed” in a 2002 article for the Mackinac Center:
Here’s a dirty little secret about capitalism: consumers, not corporations, run the show. If you find something about the marketplace objectionable, it would be more appropriate to blame those who actually call the shots: the ruthless, cutthroat, and disloyal American consumers. 
Consumers are the kings and queens of the market economy, and ultimately they reign supreme over corporations and their employees. When corporations make mistakes and introduce products that consumers don’t want, which happens frequently, you can count on consumers voicing their opinions forcefully and immediately by their lack of spending.
In a market economy, it is consumers, not businesses, who ultimately make all of the decisions. When they vote in the marketplace with their dollars, consumers decide which products, businesses, and industries survive—and which ones fail. It is therefore consumers who indirectly but ultimately make the hiring and firing decisions, not corporations. After all, corporations can make no money, hire no people, and pay no taxes unless somebody, sooner or later, buys their products. 
What consumer sovereignty in a free marketplace translates into is each person husbanding his resources for the greatest benefit to himself and his family, which in turn translates into the greatest efficiency in the consumption of the world’s scarce resources. If you don’t like the message of the marketplace, don’t assume that corporations and greed are to blame while consumer behavior and consumer greed play no role in the outcome. We should be thankful, in fact, that the marketplace puts consumers on such a powerful pedestal.
Bottom Line: Consumers ultimately run the market economy, and for that we should be thankful. Because what’s the alternative? The alternative is allow producers to run the economy, inevitably with the assistance of their government enablers who help erect barriers to entry and restrict competition for producers in the form of occupational licensing, protectionist trade barriers, artificial limits on the number of firms allowed to operate (e.g. taxi cartels), etc. In other words, the alternative to consumers running a capitalist market economy, is to have producers running an economy based on the corrupt, anti-consumer principles of “crony capitalism.”
Further, we typically assume that “greedy” behavior is practiced exclusively by business owners and corporate executives, and never by consumers. But consumers, especially when spending their own money on goods and services for themselves and their families, are frequently the very epitome and apotheosis of greed. As Mises observed, “With them [consumers] nothing counts more than their own satisfaction,” and for that we should be thankful. Because in a market economy, the ruthless consumers provide the discipline that guarantees that producers will operate efficiently and offer the best products and services at the lowest prices."

Monday, January 26, 2015

"market monetarism passed the test as set up by Keynesians, using the Keynesian ground rules"

See Monetary offset: Reply to my critics by Scott Sumner.
"Not surprisingly, there has been lots of criticism of my claim that the Keynesian test of 2013 failed. Let me respond to some of the points:

1. I was accused of cherry picking dates, as I compared growth in the 4 quarters before and after the onset of austerity on January 1st, 2013 (when all the tax increases kicked in--the sequester came a few months later.) Growth rose from 1.60% in 2012 to 3.13% in 2013 (Q4 to Q4.) But my critics are correct that 2012 was an unusually slow year, so maybe a longer time period would be better. Here are growth rates over:

The previous 2 years: 1.65%
The previous 3 years: 2.04%
The previous 4 years: 1.47%
The previous 5 years: 0.59%
The previous 6 years: 0.81%
The previous 7 years: 1.05%
The previous 8 years: 1.33%
The previous 10 years: 1.91%
The previous 15 years: 2.51%

All lower than in 2013. (I ignored compounding to save computational time; the actual growth rates were slightly less, strengthening my point.)

So cherry-picking data isn't the issue. What if you go forward more than 4 quarters, say 2 years? The winter 2014 quarter was slow because of unusually bad winter; however both the spring and summer of 2014 were red hot. It looks like 2014 will also show decent growth when Q4 data comes in.

Another complaint is that the increase in growth in 2013 was not significant. There are actually two issues here, measurement error, and the problem of ceteris paribus. As far as measurement error, I've always acknowledged that the government probably overestimated the speed up in 2013, as other data like job creation shows a much smaller acceleration. But the point is that even the other data shows faster growth, which refutes the Keynesian prediction that growth would slow.

A better argument is that the speed up was within the normal year-to-year fluctuations reflecting all sorts of factors. To see the problem with this argument, we have to go back and look at the "test," and consider what the Keynesians were trying to show. It might be helpful to first look at a case where the RGDP data went as the Keynesians expected, Britain after the election of the Conservatives in 2010.
The Conservatives were accused of slowing the British recovery with a policy of "austerity." I use the scare quotes because Britain continued to run just about the largest budget deficits in the world during the early years of Cameron. But let's accept the Keynesian method of estimating changes in cyclically-adjusted deficits. One thing I noticed is that Britain had a very odd growth slump:

1. Britain continued to generate more jobs than many other developed countries.
2. Britain experienced relatively high and rising inflation.

Now I'm not arguing that Britain had no AD problem, I think it did have one. But given the jobs growth, surely some of the British slowdown in RGDP growth was due to productivity factors unrelated to low AD. Some have pointed to less North Sea oil output and less earnings from big banks in the City. Perhaps the "big government" policies of the previous Brown government slowed trend productivity growth a little bit. I don't claim to know all the reasons, but Britain would be a textbook case where you might want to question whether it was austerity, or some other factor that explained the RGDP growth slowdown. The ceteris paribus problem.

Nonetheless, the impression I got reading people like Paul Krugman and Simon Wren-Lewis was simply; Austerity ---> RGDP slowdown, case closed.

Suppose that if instead of increasing from 1.60% to 3.13% in 2013, growth in the US had slowed by an equal amount (to near zero). Let's be serious for a moment, and please answer this honestly. Does anyone think the Keynesians would have been saying, "Gee, that pause in the recovery can't be attributed to austerity, because the drop in RGDP growth is not statistically significant?" If any reader answered "yes," I hereby accuse you of intellectual dishonesty.

Now some want to argue that even if Krugman, et al, got this wrong, and also used sloppy techniques for considering UK and eurozone austerity, this doesn't definitively prove market monetarism is correct or Keynesianism is false. Sure, I'd agree with that. Personally, I prefer market tests. I like to look at how market prices respond to new information about monetary policy. And of course this is one reason why the Fed needs to subsidize trading in NGDP (and RGDP) futures markets. And I'd prefer looking at NGDP growth, whereas the Keynesians use RGDP growth.

My point is different; market monetarism passed the test as set up by Keynesians, using the Keynesian ground rules. Their own model failed their own test.

PS. Sometimes Keynesians refer to more systematic studies, but these generally involve lots of observations for regions lacking an independent monetary policy. Numerous researchers have found the correlation goes away if you exclude observations lacking an independent monetary policy. (Mark Sadowski, Kevin Erdmann, Benn Steil & Dinah Walker.)

PPS. I am certainly not dogmatic on this issue:

1. Fiscal stimulus that lowers inflation can be expansionary, even with monetary offset (VAT cuts and employer-side payroll tax cuts are two examples of fiscal stimulus that might work by encouraging monetary stimulus to raise inflation up to target.)
2. Supply-side cuts in capital taxation can boost real GDP growth.
3. Spending on wasteful things like military output can boost RGDP (at the expense of lower living standards) by encouraging people to work harder to try to maintain living standards.
4. If central banks are incompetent in a very specific way then fiscal stimulus might help. But not incompetent in the way the ECB was incompetent when they tightened in 2011 by raising their target rates. More (demand-side) eurozone fiscal stimulus in 2011 would not have helped."

By cherry-picking data points that were favorable to his narrative, Piketty was able to “show” an increase in inequality over the last three decades.

From historian Phillip W. Magness.
"My previous posts on the data problems in Piketty’s Capital in the Twenty First Century have focused almost entirely on errors contained within his data charts and files. But what happens when one tries to reconstruct those files?

To find out, I conducted a simple experiment using Piketty’s Figure 10.5 – the widely cited depiction of wealth inequality in the United States over the past century. I previously deconstructed and critiqued this chart at length, concluding that it is essentially a Frankenstein graph – a clunky assemblage of cherry-picked data points from multiple divergent sources and arranged in an order that seems to confirm Piketty’s historical narrative about a dramatic upturn in inequality since the early 1980s. The purpose was to reconstruct Piketty’s chart using his own source data and techniques, only I would cherry-pick different “representative” numbers than Piketty did from within those sources as needed.

The rules:
1. I had to use the same data sources that Piketty used in constructing the original. These consist of the estate tax study by Kopczuk & Saez (2004) and SCF studies by Wolff (1994, 2010) and Kennickell (2009, 2011).
2. My time series would be constructed the same way that Piketty constructed his: decennial averages of the century long trend, using data points from the aforementioned studies to obtain a “representative” estimate for each decade.
3. I could only use adjustment techniques that Piketty also used in reconciling differences within the sources. This included applying an adjustment ratio to bring Kopczuk-Saez in line with the SCF studies, light averaging to fill in gap years if needed, and a rough estimation of the top 10% from top 1% numbers where such numbers were not available (i.e. copying Piketty’s technique of adding 36 percentage points to the lower trend line).
4. Where source data conflicted I was free to select between preferred data points to form the representative estimate for each decade, in keeping with Piketty who did the same.

The results of the experiment are as follows:


The two red lines represent Piketty’s original depiction of U.S. wealth inequality. The two black lines represent my “alternative” depiction, as derived from the exact same data sources. The differences are most evident second half of the chart. Specifically: Piketty tended to cherry-pick data points that suggested increasing inequality after 1980. My alternative does the opposite, cherry-picking data points that suggested flat or decreasing inequality. Please note that I make absolutely no pretenses that my method is more accurate. It simply exists to illustrate that one may obtain dramatically different results by preferentially selecting certain specific data points over others while still retaining Piketty’s own data sources and blending methods.

The effect is readily apparent. By cherry-picking data points that were favorable to his narrative, Piketty was able to “show” an increase in inequality over the last three decades. By cherry-picking data points that ran against his narrative even though they came from the exact same source series, I was able to “show” that inequality is actually decreasing in the same period.

In short, Piketty’s assembly of Figure 10.5 demonstrates nothing more than the ability to get its source data to say whatever one desires with enough discretionary manipulation. The product lacks any scientific rigor or interpretive value, except to illustrate the perils of a data assembly process that succumbs entirely to selection biases."

Friday, January 23, 2015

Two examples of how ‘competition breeds competence’

From Mark Perry.
"When government agencies or heavily regulated industries are insulated from market competition, the incentives to offer better service and lower prices, along with the incentives to innovate, upgrade and improve are either significantly weakened or non-existent. But when faced unexpectedly with some market competition, it’s amazing how the normally sclerotic, anti-consumer and unresponsive government agencies or protected industries can suddenly become responsive and consumer-friendly. Here are two examples:

1. The Kelston Toll Road in the UK. I reported last August on CD that an entrepreneurial UK grandfather built a 400-yard private toll in just ten days that allowed drivers to bypass a 14-mile construction detour. A landslide last February closed a road between the towns of Bristol and Bath and construction was originally scheduled to take until last Christmas to complete. The private owner was therefore expecting toll revenue through December to cover his $500,000 in construction and repair costs, along with the cost of staffing a toll both 24 hours each day, and hopefully generate some profit for his entrepreneurial efforts.

But the local government, possibly unhappy with the competition from the private toll road, suddenly made an emergency decision to spend an extra $1 million to speed up the road construction project, which was completed six weeks ahead of schedule in mid-November. Now the toll road entrepreneur and his wife are upset and have accused the local government of trying to bankrupt him with the early opening of the road five weeks ahead of schedule. And perhaps the road construction would have been completed early even without the private toll road, but it seems pretty likely that the presence of competition from the private toll road may have imposed some additional incentives that changed the normal “we don’t care, we don’t have to” attitude of the local civil servants (who often are neither very “civil nor “servile”).

2. Big Taxi vs. Uber. After being protected from competition for generations by government regulations that restrict the number of traditional taxis in most major cities like New York, Chicago and LA, the “taxi cartel” has recently come under competitive pressure from new ride-sharing services like Uber and Lyft that offer consumers a transportation alternative to taxis at lower prices and with better, faster service. Suddenly, the traditional, sleepy taxi industry is being forced to act and think more competitively in response to the upstart ride-sharing services, which is behavior that is completely alien to an industry that never faced the discipline of market competition before. For example, the LA Times is reporting that:
All taxicab drivers in Los Angeles will be required to use mobile apps similar to Uber and Lyft by this summer, according to a measure passed by the Los Angeles Taxicab Commission this week.
The order, passed on a 5-0 vote, requires every driver and cab to sign onto a city-certified “e-hail” app by Aug. 20 or face a $200-a-day fine. The move is seen as a way to make taxicab companies more competitive with rideshare apps such as Uber and Lyft.
Los Angeles cab companies reported a 21% drop in taxi trips in the first half of 2014 compared with the same period the previous year, the steepest drop on record. Cab companies largely attribute the drop to the popularity of app-based ride services.
William Rouse, general manager of Yellow Cab of Los Angeles, says his company has utilized a mobile app for several years. The app, Curb, allows riders to hail and track a cab, provide payment and rate drivers. “If our industry is ever going to get a chance to move passengers from Uber back to taxis, each one of these companies should have an app,” Rouse told The Times. “It’s a shame that the city had to mandate it in order for this to happen.”
Last summer, ABC News reported that:
Meet the new secret weapon to get a leg up in the cutthroat competition among cabbies — charm school. Taxi drivers in Washington state are getting lessons that they hope will give them an edge against startups such as Lyft and Uber. About 170 taxicab operators paid $60 out of their pockets for a four-hour training session to learn about topics including customer satisfaction and developing relationships with institutional clients.
Pretty amazing how the taxi cartel is suddenly starting to change the way it operates now that its drivers are facing intense market competition/discipline from Uber and Lyft.

Bottom Line: Perry’s Law says that “competition breeds competence.” These two cases above help to illustrate that principle, and provide examples of how direct, ruthless, even cutthroat competition is often the most effective form of regulation, and provides the intense discipline that forces firms to maximize their responsiveness to consumers. To maximize the competence of producers and suppliers, we have to maximize competition, and to maximize competition we usually need to reduce the government barriers to market competition like occupational licensing and artificially restricting the number of taxis that are allowed to operate in a city. In other words, we need to move away from the ubiquitous crony capitalism that protects well-organized, well-funded, concentrated groups of producers like the taxi cartel, barbers, funeral home operators, and sugar farmers from market competition. Government regulation typically reduces competition, which then reduces the competence of producers, and reduces their willingness to serve consumers and the public interest, which make us worse off. I say the more market competition the better, for consumers and for the human race. As Bastiat pointed out in 1850:
Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.""

Economist magazine supports vouchers

See America’s new aristocracy. Excerpt:
"Many schools are in the grip of one of the most anti-meritocratic forces in America: the teachers’ unions, which resist any hint that good teaching should be rewarded or bad teachers fired. To fix this, and the scandal of inequitable funding, the system should become both more and less local. Per-pupil funding should be set at the state level and tilted to favour the poor. Dollars should follow pupils, through a big expansion of voucher schemes or charter schools. In this way, good schools that attract more pupils will grow; bad ones will close or be taken over. Unions and their Democratic Party allies will howl, but experiments in cities such as battered New Orleans have shown that school choice works."

Thursday, January 22, 2015

U.S. Sugar Maple Tree Distribution Expands with Warmer Temperatures

By Craig D. Idso of Cato
"One of the major concerns with forecast CO2-induced global warming is temperatures might rise so rapidly that many plant species will be driven to extinction, unable to migrate fast enough toward cooler regions of the planet to keep pace with the projected warming. The prospect of species demise and potential extinction have served as a rallying cry in calls for restricting CO2 emissions. But how much confidence should be placed in this climate-extinction hypothesis? Do real world data support these projections? Are plants really as fragile as model projections make them out to be?

A new paper published in the research journal Botany investigates this topic as it pertains to sugar maple trees, and the findings do not bode well for climate alarmists. In this work, Hart et al. (2014) analyzed “the population dynamics of sugar maple (Acer saccharum Marsh.) trees through the southern portion of their range in eastern North America,” selecting this particular species for this specific task because its range “has been projected to shift significantly northward in accord with changing climatic conditions” by both Prasad et al. (2007) and Matthews et al. (2011).
The three U.S. researchers
analyzed changes in sugar maple basal area, relative frequency, relative density, relative importance values, diameter distributions, and the ratio of sapling biomass to total sugar maple biomass at three spatial positions near the southern boundary of the species’ range using forest inventory data from the USDA Forest Service’s Forest Inventory and Analysis program over a 20-year observation period (1990-2010),” during which time temperatures increased and summer precipitation declined.  
And what did they discover?

Range expansion (!). Hart et al. write that,
In contrast to a contraction of the sugar maple range, our results corroborate the pattern of increased mesophyte (including sugar maple) density and dominance that has been widely reported throughout the Central Hardwood Forest of the eastern US, including sites near the southern range boundary (e.g., Hart and Grissino-Mayer, 2008; Hart et al., 2008; Schweitzer and Dey (2011).
Or put another way, they say the results of their study indicate that (1) “over the past 20 years, the southern range boundary of sugar maple has neither contracted nor expanded,” and that (2) “when accounting for documented northern range boundary shifts (Woodall et al., 2009), these results indicate an expansion of the geographic distribution for sugar maple at this time attributed to the relatively stable southern range boundary.”

Clearly, the rise in temperature and decline in precipitation observed across the study area has had no negative impact on sugar maple populations, despite model projections to the contrary.  Rather, the observed response has been positive, and largely so as evidenced by increased sugar maple density, dominance and range expansion. To most rational people, these observations represent benefits. To climate alarmists, they are problematic, inconvenient truths which they tend not to  acknowledge."

Spending More Money Won't Fix Our Schools

From Megan McArdle. Excerpts:

"American spending on education is in line with that of our peers in the developed world -- a little higher than some, a little lower than others, but not really remarkable either way:

chart 1
That black bar represents total spending, and as you can see, we spend more on education than most of our peers, not less. To be sure, that is partly driven by our very high spending on tertiary education, aka college. But we spend more than most of our peers at most levels, not just on college.

Of course, we're richer than many of our peers, so maybe we should spend more. If you look at spending as a percentage of gross domestic product, we're no longer the highest, we're just average:

chart 2
We spend more than many of our peers on college and late secondary education, less than a few on primary and early secondary school. Perhaps we should reallocate those resources, diverting more into earlier education. But this is not a problem of inadequate overall investment -- and Japan and Switzerland, which spend less than we do, are hardly Third World hellholes.

What about public investment? Is the problem that we don't put enough public funds into education? I find these sorts of arguments rather unconvincing -- the idea seems to be that we should spend more government money on education not because there's a gap we've identified, but simply for the purpose of spending more government money on education. But at any rate, we spend quite a lot of public funds on education at all levels:

chart 3
And when you look at primary, secondary and post-secondary training, we're on par:

chart 4
You can argue that there's an inequality problem in our schools. In fact, I think there is obviously an inequality problem in our schools, but that the big problem is not at the college level, but rather in the primary and secondary schools that are overwhelmingly government-funded. And those disparities are also not primarily about the dollar amounts going into schools -- Detroit spends well above the U.S. average per pupil, and yet one study found that half the population of the city was "functionally illiterate."

"It is just as likely that improvements will come from changing methods and reallocating resources as that they will require us to pour more money into failing institutions."

Wednesday, January 21, 2015

Did Keynesianism Fail In Haiti?

From Cafe Hayek.
"Maybe Keynesianism doesn’t work if the country you try it in has “H” as its first letter. The Economist reports:
FEW countries have suffered an earthquake so devastating, or have been less prepared for such a calamity. The quake that struck Haiti on January 12th 2010 killed perhaps 200,000 people—no one is sure how many—left 1.5m homeless and caused economic damage equivalent to 120% of the country’s GDP. A cholera epidemic compounded the misery. These disasters called forth the biggest-ever outpouring of humanitarian relief, worth some $9.5 billion in the first three years after the quake. The well-wishers vowed, in the words of Bill Clinton, who helped co-ordinate their early efforts, to “build back better”. Yet five years later, the country is little better off than it was before the disaster—and in some ways it is worse.
Worse? After all those broken windows? And that’s with the money and resources to repair the broken windows coming from outside the economy. Perhaps some other factors hurt Haiti in the meanwhile and those factors explain why the aid didn’t help. But I will continue to maintain that destruction is not good for human beings or the economy they interact in. And that the act of spending money doesn’t generate wealth other than for those who receive the money."

Thomas Sowell on disparities in the ability to create wealth

From Mark Perry.
"With all the talk about “disparities” in innumerable contexts, there is one very important disparity that gets remarkably little attention — disparities in the ability to create wealth. People who are preoccupied, or even obsessed, with disparities in income are seldom interested much, or at all, in the disparities in the ability to create wealth, which are often the reasons for the disparities in income.In a market economy, people pay us for benefiting them in some way — whether we are sweeping their floors, selling them diamonds or anything in between. Disparities in our ability to create benefits for which others will pay us are huge, and the skills required can develop early — or sometimes not at all.

Gross inequalities in skills and achievements have been the rule, not the exception, on every inhabited continent and for centuries on end. Yet our laws and government policies act as if any significant statistical difference between racial or ethnic groups in employment or income can only be a result of their being treated differently by others.
Nor is this simply an opinion. Businesses have been sued by the government when the representation of different groups among their employees differs substantially from their proportions in the population at large. But, no matter how the human race is broken down into its components — whether by race, sex, geographic region or whatever — glaring disparities in achievements have been the rule, not the exception."

Monday, January 19, 2015

SCIENTIFIC CONSENSUS that 2014 was record HOTTEST year? NO

From The Register.

No significant warming, since at least 2005
"So the results are in. The main US global-temperature scorekeepers - NASA and the NOAA - say that last year was definitely the hottest year on record. But they've been contradicted by a highly authoritative scientific team, one actually set up to try an establish objective facts in this area.

On the face of it, there's no dispute. The NASA and NOAA (National Oceanographic and Atmospheric Administration) statement says:
The year 2014 ranks as Earth’s warmest since 1880, according to two separate analyses by NASA and National Oceanic and Atmospheric Administration (NOAA) scientists.
Open and shut, right?

But in fact, detecting a global average temperature rise - of less than a degree since the 1880s, as all sides agree - among thousands upon thousands of thermometer readings from all over the world and spanning more than a century is no simple matter. The temperature at any given location is surging up and down by many degrees each day and even more wildly across a year. It can be done, across a timescale of decades, but trying to say that one year is hotter or colder than the next is to push the limits of statistics and the available data. This sort of thing is why the battle over global temperatures tends to be so hotly debated.

A few years ago, a new dataset was established called the Berkeley Earth Surface Temperature project. It was intended to address various issues raised by climate sceptics: but in fact it has plumped down firmly on the warmist side of the debate, saying that in fact there are no undue biases in the temperature records, changes in the Sun do not have any major climate effects, and so on.

Now, however, the BEST boffins have broken ranks with the NASA/NOAA/UK Met Office climate establishment and bluntly contradicted the idea that one can simply say "2014 was the hottest year on record". According to BEST's analysis (pdf):
Our best estimate for the global temperature of 2014 puts it slightly above (by 0.01 C) that of the next warmest year (2010) but by much less than the margin of uncertainty (0.05 C). Therefore it is impossible to conclude from our analysis which of 2014, 2010, or 2005 was actually the warmest year.
That may seem like not such a big deal, but it is really. At the moment the big debate in this area is about the "hiatus" - has global warming been stalled for the last fifteen-years-plus, or not?

If you think it hasn't, and you're seeking to convince ordinary folk without advanced knowledge in the area, it is a very powerful thing to be able to say "last year was the warmest on record".

If on the other hand you contend that global warming has been on hold for over a decade, saying "last year was almost exactly as hot as 2005 and 2010" fits exactly with the story you are trying to tell.

It matters, because colossal amounts of CO2 have been emitted during the hiatus period - on the order of a third of all that has ever been emitted by humanity since the Industrial Revolution, in fact. Nobody says that CO2 isn't a greenhouse gas, but it could well be that it isn't nearly as serious a problem as had been suggested. 

You takes your choice of who you listens to on this, of course: NASA/NOAA/UKMetO or BEST, warmists or sceptics.

But it might be worth remembering that the former are arguing for massive government and economic action, action which people would not take voluntarily - that is action which will make people poorer, then. In other words the warmists want to take away your money and your standard of living (for your own good, they would say). And standard of living is not just consumer goods, it's health care, it's regular showers and clean clothes, it's space programmes and education for your kids and many many other things that you will have less of in the green future advocated by warmists - it's your whole life.

Whereas the sceptics, certainly the more reasonable among them, are merely saying "look here wait a minute". Which is always a good idea before taking massive governmental and economic action, some would say, especially as rather a lot has been done in that line already.

And one thing's for sure - given NASA/NOAA/UKMet's attitude this year ("hottest on record") compared to 2013 ("one more year of numbers isn't significant"), the idea that they aren't actively pushing a warmist agenda - the idea that they are in some way unbiased and objective about all this - is quite plainly rubbish."

Far too many of our politicians don’t grasp how markets work

By Allister Heath From The Telegraph.

Ed Miliband’s disastrous threat to introduce extreme price controls into the domestic energy market has cost the country dear
"Imagine that the energy market worked the way many politicians – Labour, of course, but even some members of the coalition – apparently believe that it operates. It would be impossible to know how much turning on the radiator or taking a bath was going to cost. Prices to consumers would vary drastically and immediately depending on supply and demand conditions in the global economy. It would be chaos, and the politicians would be the first to rush to denounce it.

The good news, of course, is that it doesn’t work that way, never has and never will. Prices for consumers are deliberately smoothed. We know how much we are going to pay because our energy providers buy gas in advance. The energy most of us consume today was generally purchased by our provider in 2013 or 2014, at the market prices of the time. This allows gas companies to contractually agree a fixed price with their customers, and at least allows a degree of medium-term predictability. Risk is passed on, albeit at a price; insurance is never costless.
All of this is one reason why the 30pc or so drop in wholesale prices since the commodity’s recent peak are only now starting to have an impact. It takes time for price changes to filter through to consumers; in theory, it could easily take two years for the entire decline to be felt. E.ON recently announced that it would be cutting prices by 3.5pc; British Gas owner Centrica is pushing through a 5pc cut, reducing the bills of 6.8m people by an average of £37 a year from February 27. By waiting a little longer, Centrica was able to cut by more. Both firms are actually taking a risk: they are assuming that wholesale prices won’t bounce back immediately and permanently.
Some believe the firms should have cut earlier. But if companies like Centrica start cutting prices by 1pc every few weeks, they would also then have to start hiking them by 1pc every few weeks when conditions reverse, as they undoubtedly will one day. In extremis, one returns to the idiotic scenario described at the start of this article, something which nobody in their right minds would want.
Others believe that prices should be falling by more. But how? Wholesale only represents half or so of the total price of gas. Other costs include transport and distribution costs, which are going up partly as a result of increased spending by National Grid. Green taxes and other costs have also risen over the past few years. Energy firms’ profit margins are pretty low, as their annoyed shareholders would be the first to point out.

Take a hypothetical supplier that buys wholesale gas gradually over a two-year period in advance of delivery. Such a company would expect its wholesale costs for the year to be roughly 11pc lower as a result of the slide in market prices. Given that wholesale only accounts for half the bill, and there are lots of other uncertainties and changing costs, a 5pc drop in consumer prices seems exactly right.

Ed Miliband’s disastrous threat to introduce extreme price controls into the domestic energy market has had entirely pernicious and predictable effects. It has frightened companies and added risk that shareholders are only too aware of. It has probably slightly increased the cost of capital, reducing investment in an area that is desperate for it. It has incentivised at least some companies to agree to even longer supply contracts, thus further delaying the positive impact of falling wholesale prices. It has been a disastrous policy that has cost the country dear. Labour needs to go back to the drawing board, and fast, if it wants to rebuild its shattered economic credibility.

Take wealth statistics with a pinch of salt

Hold the front page: 22-year-old US medical students, who generally go on to earn many millions during their lifetimes, are officially among the poorest people in the world. Ditto MBA students who’ve just joined Goldman Sachs or McKinsey. Genuinely, heartbreakingly poor workers who subsist on $1 a day in emerging economies, by contrast, are deemed to be better off than these two demographics – or so the statistics would have us believe.

Why, you ask? How could this possibly be so? The reason for these nonsense numbers is that the medics and business school graduates have very large unsecured debts, far bigger than almost anybody anywhere, and thus have a hugely negative net wealth. A poor worker in an emerging economy is deemed far richer – in part because they don’t have access to credit.

Absurd? Of course, but that is the methodology used in most reports on global wealth inequality. As the Adam Smith Institute points out, it makes no sense to look at net wealth without also examining the incomes people are likely to earn in future from wages, investments and pensions. The shock and oft-cited statistics about the share of total wealth owned by the richest are based on such misleading net wealth figures. If gross wealth were used, or if adjustments were made for disposable income and living standards, the picture would look significantly less unequal. The bottom 80pc may statistically own just 5.5pc of the world’s net wealth, but that is because they have mortgages. They control far more of the world’s assets than such numbers suggest.

The latest Oxfam study on net wealth falls into the same trap. It also has two other failings. For years, the share of net wealth held by the top 1pc globally kept on falling; it started to rise again with the global recovery and quantitative easing but remains lower than it was 15 years ago, a point which the report didn’t emphasise. Its most eye-catching finding – that the top 1pc could soon own more than half of the world’s net wealth – is just an extrapolation of very temporary trends and exceptional circumstances. Who knows what will happen next? Stock markets could fall, and the top 1pc’s share could decline. There is no science here, mere speculation.

The report misses the real story: the collapse in genuine global poverty and the explosion in living standards in India, China and much of Africa in recent years. There is much more wealth than there used to be, and far more previously poor people now share in its fruits. African poverty, measured correctly, fell by 38pc between 1990 and 2011. Any system that delivers such a wonderful improvement gets my vote."

Friday, January 16, 2015

Fraser Institute’s Alan Dowd on the importance of economic freedom

From Cafe Hayek
"Economic freedom is one of the main drivers of prosperity and growth, and the evidence shows that states with low levels of economic freedom reduce the ability of their citizens to prosper economically, while states with high levels of economic freedom maximize their citizens’ ability to prosper economically.
Consider that in the most economically free U.S. states, the average per-capita GDP in 2012 (the most recent year of available data) was about $55,000, while in the least economically free states it was just $48,000. In fact, the jurisdictions in the least-free quartile on what my colleagues call “the world-adjusted, all-government index” had an average per-capita GDP of just $10,079, compared to $57,269 for the most-free quartile."

As oil and gas prices tumble, it’s a good time to reflect on the marvels of the market and Julian Simon

From Mark Perry.
"At today’s price of $2.09 per gallon, gasoline prices in the US are the lowest in history, adjusting for increased fuel economy and higher wages as the chart above illustrates. At today’s average fuel economy of 25.1 miles per gallon, a typical car would require just under four gallons of gas, which would cost $8.32 at today’s price of $2.09.  At the estimated average hourly wage today of $20.82, a typical worker would have to work for 24 minutes to earn enough pre-tax income to purchase the gas required to drive 100 miles, and that brings the “time cost of gas” priced in minutes of work to the lowest level in US history.


It’s therefore a great time for us to acknowledge and celebrate the importance of falling gas and oil prices, as Jeffrey Tucker suggests in his excellent and timely article “All Hail the Tumbling Price of Gas: The people against the powerful at the pump.” As Jeff points out, consumers should be especially happy about today’s low gas prices because there are many very powerful special interest groups who are very unhappy that gas prices are approaching $2.09 per gallon (and 43.5% below the $3.70 price in April) and that oil prices are below $50 per barrel.

As Jeff describes it, today’s low gas prices are an impressive tribute to the “marvels of the market” and he points out that there are at least eight very powerful special interest groups who benefit from high prices for gas and oil, and they hate today’s low prices. But even the combined power of those eight powerful groups hasn’t been able to counteract the powerful market forces that have brought gas prices down so quickly and dramatically:
Despite it all — and despite every effort by the world’s most powerful people — all the pressure is downward. It’s a shock, to be sure, but a glorious one. The low price comes about despite a vast and unrelenting barrage of policies and attempts to raise it. Think for a moment of all the powerful interests in the world that have pushed for higher gas prices only to see their ambitions frustrated by a reality they despise.

1. The environmentalists are desperate for higher prices because they are against driving and internal combustion generally, which they believe spoil the planet. They want us pedaling around on bicycles as in Mao’s China or enduring mass transit, or slogging from place to place on foot. They’ve been hectoring us about this for decades. A high price for gas is the best way to bring about their dream to discourage consumption. They cringe with every penny drop. “Fracking” is their F-bomb.
2. And don’t forget about the gloom-and-doom industry. It was only some 10 years ago that “peak oil” theorists were explaining to us how oil was running out and prices were going to soar. We’d better start hoarding, they said, because soon the pumps will be dry. How wrong they were. The new gloomers are all about the supposedly terrible glut of oil.
3. The oil industry itself is similarly unhappy with lower prices because they devastate profits and make it impossible to fund more drilling, production, and exploration. When the oil industry was closest to the presidency, under the Bush years — both father’s and son’s presidencies — it worked to keep prices and production high. Even war for oil became part of this strategy. The industry’s benchmark price is $100 per barrel of crude. But it has no power to make that happen. That’s because the oil industry doesn’t finally control the price of its product.
4. Some of the world’s richest and most powerful states, from Saudi Arabia to Russia to Iran to the United Arab Emirates, consider high oil prices to be their lifeblood. A US gas price that is double or triple the current one could mint a slew of new billionaires. As it is, the rich and mighty just sit watching the price and weep with their heads in their hands. How pathetic was the statement by King Abdullah of Saudi Arabia who said in a speech that he would deal with a lower price “with a firm will”? Will as much as you want, Your Highness, but it is not going to matter. Your will is not decisive. No one’s is.
5. In the United States, both states and localities depend on oil for their entire revenue stream. Politicians in places like Alaska, Texas, and Louisiana are actually in emotional meltdown about this price trend. If they could fix it, they would.
6. Then there are the urban planners — not to speak of legions of intellectuals — who loathe lower prices. They want prices to soar to punish all us drivers and get us to use their subways, buses, and taxi monopolies instead. That we keep insisting on sitting in our comfy bucket seats and driving these machines around makes them crazy. Low gas prices only encourage us to do more of what we love — and what they hate.
7. It’s been a huge priority for government generally to subsidize alternative energies, ones that don’t depend on fossil fuels. So long as gas remains affordable, alternative fuels will not get the boost that regulators want them to.
8. Then there are the central banks run by people who are convinced that falling gas prices are a bad omen of generalized deflationary trends. For five years, they’ve fought relentlessly against deflation, but there is a crucial thing they can’t control: the rate at which people themselves spend and borrow. There’s the rub. It’s because consumers haven’t cooperated that the Fed has not achieved its aims.
Jeff finishes his article with this excellent summary of  “power of the market” and the “power of market prices”:
If the market price were a person, he or she would be the wisest, most clever, most powerful person on the planet, causing the multitudes, even the ruling class with enough weaponry to destroy the planet, to submit and bow down in awe. The simple and unassuming price — so humble and yet so decisive for human decision making — is this concise point of data, a mere number, that actually causes nations to rise and fall, topples the mighty, and humbles the arrogant with its truth-telling, rational, and yet unpredictable movements.
Those who want to rule the world fear the market price for this reason, but peaceful people experience it as a gentle force that grounds our daily lives in reality in the midst of artificiality, pomp, and phoniness. The powerful can shake their fists at it, the intellectual class may curse it, and the moralists can denounce it, but no one can make it obey the dictates of those who purport to stand above it, much less make it go away.
The market price is our salvation from the despotism of those who would rule us. The price of gas is a lovely example. And who benefits in the end? You and I. All the activities of the market are ultimately directed toward pleasing the consumers, the 99 percent who are the real rulers of the world. The 1 percent have no power in the face of global forces of competition, supply, and demand.
Take comfort from the gasoline price. It indicates that the powerful aren’t really what they believe they are. In the long run, decentralized markets always outpace and outwit the ability of elites to dictate and manipulate them. Every penny by which the price drops signals to the world: freedom can prevail even in a world in which the powerful are conspiring to destroy it.
Bottom Line: With the price of gasoline at its lowest level ever when adjusted for fuel economy and measured in “time cost,” it’s a great time to celebrate the “marvel and power of the market and market prices” and Jeff Tucker does that exceptionally well in his article. Resource economist Julian Simon must be smiling right now because he predicted throughout his noteworthy career that the prices of commodity and resources would generally trend downward in the long run due to market forces, innovation, and technology. Today’s low gas and oil prices are an appropriate tribute to Julian Simon, and a compelling confirmation of his many decades of work and writing on resource economics."

Thursday, January 15, 2015

Warning: Disability Insurance Is Hitting the Wall

By Charles Blahous. Charles Blahous is a senior research fellow for the Mercatus Center, a research fellow for the Hoover Institution, a public trustee for Social Security and Medicare, and a contributor to e21. Excerpts:
"The problem in a nutshell is that Social Security’s disability trust fund is running out of money.  The latest trustees’ report projects a reserve depletion date in late 2016.  By law Social Security can only pay benefits if there is a positive balance in the appropriate trust fund (there are two: one for old-age and survivors’ benefits (OASI), the other for disability benefits).  Absent such reserves, incoming taxes provide the only funds that can be spent.  Under current projections, by late 2016 there will only be enough tax income to fund 81 percent of scheduled disability benefits.  In other words, without legislation benefits will be cut 19 percent. "

"The cause of the problem is that DI costs have grown faster than the program’s revenue base.  In 1990, the cost of paying DI benefits equaled 1.09 percent of taxable wages earned by workers.  This year the relative cost is more than double that: 2.37 percent of the tax base."

"The biggest reason is the growing number of beneficiaries, though real per capita benefits are also growing.  Disabled population growth reflects several factors, including most notably the historically large baby boom generation moving through their ages of peak disability incidence (45-64).  In addition, today more women have been employed long enough to be insured for disability benefits than was the case in earlier decades.

The growth in beneficiaries exceeds prior projections even after taking these factors into account.  For example, the Chief Actuary reports that “the prevalence of disability among insured workers on an age-sex adjusted basis” rose by 42 percent from 1980 to 2010, even though there is no evidence suggesting that actual disability is much more common than it was thirty years ago. Instead the rise reflects causes ranging from a liberalization of eligibility criteria in 1984, to a surge in disability benefit applications when unemployment rose during the Great Recession."

How Opposition To Fossil Fuels Hurts The Poor Most Of All

By Alex Epstein of Forbes. Excerpts:
"Consider China and India. In each country, both coal and oil use increased by at least a factor of 5 over the last 40 years, producing nearly all their energy—and both life expectancy and prosperity skyrocketed.
China, India Fossil Fuel use and Life Expectancy

Sources: BP, Statistical Review of World Energy 2013, Historical data workbook; World Bank, World Development Indicators (WDI) Online Data, April 2014
The story is clear—both life expectancy and income increased rapidly, meaning that life got better for billions of people in just a few decades. For example, the infant mortality rate has plummeted in both countries—in China by 70 percent, which translates to 66 more children living per 1000 births. India has experienced a similar decrease, of 58 percent.

Not only in China and India, but around the world, hundreds of millions of individuals in industrializing countries have gotten their first lightbulb, their first refrigerator, their first decent-paying job, their first year with clean drinking water or a full stomach. To take one particularly wonderful statistic, global malnutrition and undernourishment have plummeted—by 39 percent and 40 percent, respectively, since 1990."

"Back in the 1970s and 1980s, many leading environmentalists had predicted that this would be not only deadly, but unnecessary due to the cutting-edge promise of solar and wind (sound familiar?). Then as now, environmental leaders were arguing that renewable energy combined with conservation—using less energy—was a viable replacement for fossil fuels."

"From the 1970s to the present, fossil fuels have overwhelmingly been the fuel of choice, particularly for developing countries. Today the world uses 39 percent more oil, 107 percent more coal, and 131 percent more natural gas than it did in 1980.

Solar and wind are a minuscule portion of world energy use."

"The poor benefited most of all—but they would have stayed destitute had we listened to leading environmentalists."

"It is false that we are making the underdeveloped world more vulnerable to climate disaster.
Here is a graph of climate related deaths in the G7 nations, the leaders of the developed world, vs. the world as a whole, including underdeveloped nations.

G/, World climate deaths rate

Sources: EM-DAT International Disaster Database; World Bank, World Development Indicators (WDI) Online Data, April 2014

 If we look at year-to-year data, there is a dramatic difference between the heavy fossil fuel users and the light fossil fuel users in climate-related deaths—you are much, much safer in an industrialized country. But those in non-industrialized countries are still better off—climate-related deaths are going down for everyone."

"Our technologies and our wealth have given poorer countries better, cheaper everything: materials for building buildings, medicine, food for drought relief. The scientific and medical discoveries we have made in the time that has been bought with fossil fuel-powered labor-saving machines benefit everyone around the world."