Monday, August 31, 2015

Problems with Chinese fiscal stimulus

From Tyler Cowen.
"Remember back in 2009, and a bit thereafter (pdf), when so many people were praising China’s very activist, multi-trillion fiscal stimulus?

Yet some of us at the time insisted this would only push off and deepen China’s adjustment problems.  There was already excess capacity and high debt and favored state-owned industries, and the stimulus was making all of those problems worse and only postponing a needed adjustment.  The Chinese incipient contraction was based on structural problems, not a simple lack of aggregate demand.  As I wrote in 2012:
To keep its investments in business, the Chinese government will almost certainly continue to use political means, like propping up ailing companies with credit from state-owned banks. But whether or not those companies survive, the investments themselves have been wasteful, and that will eventually damage the economy. In the Austrian perspective, the government has less ability to set things right than in Keynesian theories.
Furthermore, it is becoming harder to stimulate the Chinese economy effectively. The flow of funds out of China has accelerated recently, and the trend may continue as the government liberalizes capital markets and as Chinese businesses become more international and learn how to game the system. Again, reflecting a core theme of Austrian economics, market forces are overturning or refusing to validate the state-preferred pattern of investments.
How’s that debate going?  While the final outcome remains uncertain, Austrian-like perspectives on China are looking pretty good these days.

Just as you go to war with the army you’ve got, so must a country conduct fiscal stimulus with the policy instruments it has.  And most forms of Chinese fiscal stimulus make their imbalances worse rather than better.  Yet dreams of fiscal stimulus as an answer to the macro problems on the table never die:
Sangwon Yoon writes for Bloomberg:
China is sliding into recession and the leadership will not act quickly enough to avoid a major slowdown by implementing large-scale fiscal policies to stimulate demand, Citigroup Inc.’s top economist Willem Buiter said.
The only thing to stop a Chinese recession, which the former external member of the Bank of England defines as 4 percent growth on “the mendacious official data” for a year, is a consumption-oriented fiscal stimulus program funded by the central government and monetized by the People’s Bank of China, Buiter said.
“Consumption-oriented” is the key word there.  I don’t blame Buiter for speaking precisely, but few readers will pick up on his careful use of words.  Still, switching to more consumption is a surrender to lower rates of economic growth, not a way of keeping the growth rate high.  That is a good idea, but a funny kind of stimulus.

In the meantime, the consumption sector in China seems to be faring poorly.  On the way up, investment rose at the expense of consumption, but on the way down they are falling together.  Funny how things like that work out, and it does suggest that a consumption-oriented stimulus maybe can break the fall but it won’t restore prosperity.

It’s striking how little recent discussion I’ve seen of China’s much-heralded fiscal stimulus of 2008-2009.

This is an object lesson in relying too much on short-run macro models, or models in which sticky prices are the only imperfections, or models where the quality of investment is not a factor.  Whatever you think of the American Great Recession, the Chinese case is very, very different."

If you want to become and remain a monopoly, you will produce high quantity, and hence charge low prices

See The Monopoly Motive by Bryan Caplan of EconLog.
"Today's the first day of GMU's fall semester, and for some reason I'm thinking about a class I haven't taught in years: Industrial Organization.  I wrote the notes when I was much younger and more enamored of theory.  Much of the class was a critique of the Structure-Conduct-Performance model so prevalent at Berkeley and Princeton.  Slogan version of the model, to paraphrase Orwell: "Many firms good, few firms bad."

While I hate to claim vindication by vaguely-defined events, the last two decades seem wildly incompatible with the S-C-P model.  Many of our favorite new firms have no close competitors.  What's the next-best-thing to Amazon?  Netflix?  Facebook?  Starbucks?  Even weirder, a sizable chunk of these apparent monopolies give their product away gratis.  Meanwhile, the spread of occupational licensing and rise of Uber have raised awareness of the elephant in the IO room: governments' deliberate effort to make markets less competitive than they would naturally be.  (And don't get me started on immigration restrictions).

Still, it's easy to see the intuitive appeal of S-C-P.  Namely: If you are a monopoly, you'll charge high prices, and hence produce low quantity.

The problem with S-C-P is that it ignores an even more intuitive truism.  Namely: If you want to become and remain a monopoly, you will produce high quantity, and hence charge low prices.

In short, the desire to become and remain a monopoly leads firms to do the exact opposite of what they'd do if their monopoly status were a law of nature - or the law of the land."

Sunday, August 30, 2015

Insurers Win Big Health-Rate Increases

Some state regulators say new costs justify hefty increases under the Affordable Care Act

By Louise Radnofsky and Stephanie Armour of the WSJ. Excerpt:
"At a July town hall in Nashville, Tenn., President Barack Obama played down fears of a spike in health insurance premiums in his signature health law’s third year.

“My expectation is that they’ll come in significantly lower than what’s being requested,” he said, saying Tennesseans had to work to ensure the state’s insurance commissioner “does their job in not just passively reviewing the rates, but really asking, ‘OK, what is it that you are looking for here? Why would you need very high premiums?’”

That commissioner, Julie Mix McPeak, answered on Friday by greenlighting the full 36.3% increase sought by the biggest health plan in the state, BlueCross BlueShield of Tennessee. She said the insurer demonstrated the hefty increase for 2016 was needed to cover higher-than-expected claims from sick people who signed up for individual policies in the first two years of the Affordable Care Act.

Several regulators around the country agree with her, and have approved all or most of the big premium increases sought by the largest health plans in their states for the new sign-up season that begins Nov. 1."

"Now, insurers have found that business has been more costly than expected. Some have said they’ve incurred steep losses. The American Academy of Actuaries also said in a recent paper that some programs designed to cushion insurers against high-risk enrollees are ending."

Methane emissions have been faliing while proposed regulations would be costly and have a negligible effect on temperatures

See Political Target: Natural Gas, a WSJ editorial. Excerpt
"Methane has long been a target of the green lobby because it is viewed as an especially potent contributor to global warming. Yet the EPA’s own research shows methane emissions from drilling have been declining rapidly.

The EPA’s Greenhouse Gas Inventory acknowledged this year that methane emissions from natural gas production have fallen 35% since 2007. That’s despite a 22% increase in gas production over the same period. The EPA last year found that methane emissions from hydraulically fractured gas wells had fallen 73% from 2011 to 2013. Overall methane emissions are 17% lower than in 1990. 

The industry has every incentive to capture methane emissions because it’s also a valuable energy source that can be used to produce electricity and heat. The more methane that drillers capture, the better the return on their investment. The industry has already unleashed an array of technologies to prevent leakage from drilling, transportation and processing, and innovation is improving those tools.

The new EPA rule will impose large new costs for little benefit. In 2013 methane emissions counted for about 9% of U.S. greenhouse gas emissions. Of that 9% about 3% are subject to the new rule, which would cut them in half. A Cato Institute study notes that even if the U.S. ceased all carbon emissions “now and forever,” the effect would be to reduce the rise in temperatures by the end of the century by 0.10 degrees Celcius. The methane rule’s contribution would be a mere 0.002 degrees Celsius."

Saturday, August 29, 2015

Fracking Is Our Clean Power Plan

By Jacki Pick in Fortune. She is the executive vice president and chief operating officer at the National Center for Policy Analysis. Excerpts:
"The U.S. already leads the world in carbon emissions reduction, with emissions down 26% since the shale boom hits its stride in 2007. Why? Because of the use of natural gas, a fossil fuel, now produced in historic volumes made possible through fracking, or hydraulic fracturing. 

Fracked natural gas has been key to reducing U.S. carbon emissions to their lowest levels since 1988, the U.S. Department of Energy recently announced. 

Over the same 27 year time-frame, figures from the U.S. Bureau of Economic Analysis show the U.S. economy nearly doubled, growing about 50% when gross domestic product is adjusted for inflation.  

With the shale boom, lower emissions and economic growth need not be at odds

Our economic growth was largely the result of cheap fossil fuels. They feed our electric grid, enable the digital revolution, run our transportation sector, manufacture American durable goods and electronics, and produce petrochemicals and pharmaceuticals."
"1.2 million wells have been fracked in the U.S. Because of historic production through fracking, the U.S. was the top natural gas and petroleum producer on earth in 2014, and our energy costs have fallen. U.S. industrial electricity costs are now 30-50% lower than those of our foreign competitors, resulting in a manufacturing renaissance and the “reshoring” of perhaps millions of American jobs,"

"Americans, using American ingenuity with advances in fracking and horizontal drilling, harnessed the free market to accomplish what the president, the EPA and the environmental groups have failed to achieve: America’s status as the top carbon emissions reducer in the world, simultaneous with a doubling of the economy. We should not be surprised; the U.S. oil and gas industry invests more in carbon emissions reduction tech than the U.S. government and all other industries combined, according to the American Petroleum Institute." 

How does the President’s plan compare to the frackers’ record?

Obama’s unproven plan would yield less carbon reduction than fracking over twice the time frame. This plan, built on nonsensical assumptions and costly, inferior energy production methods, outlines a 32% reduction in carbon emissions from 2005 levels, and demands this outcome by 2030. Since frackers have already achieved a 26% reduction in carbon emissions since 2007, the job is mostly done. If the president would simply stay out of the way, the remainder of his goal would come about on its own through market forces (continued displacement of other fuels by natural gas) and greater efficiency through innovation.    
"The consulting firm NERA warned that the Clean Power Plan, even in its original, less ambitious form, would be the most expensive regulation ever imposed upon the power sector (passed on to consumers). Energy Ventures Analysis estimated that industrial electricity rates could double."
"Commissioner Moeller of the Federal Energy Regulatory Commission (FERC) opined that the president’s approach threatens to bring “widespread rotating blackouts,” sporadically killing whatever productivity remains and leaving Americans vulnerable during the most severe weather events.   

Fracking is the answer to carbon emissions reduction

Enough already. Fracking for natural gas is the answer to carbon emissions reduction, and even Obama’s top officials such as his EPA Administrator, Gina McCarthy, and Secretary of Energy, Ernest Moniz, have spoken publicly about the safety of fracking. 

If you like your clean air, do not thank the President. Thank the membership of the American Natural Gas Association and the pioneers of hydraulic fracturing and horizontal drilling.

One great lesson of the success of U.S. carbon emissions reduction is that government is not the answer. If the president and environmental groups are serious about lowering carbon emissions, they will begin to promote what works by getting out of the way, rather than trumpeting that which fills the coffers with carbon tax dollars and Big Green contributions."

it is difficult for prescriptive planners to anticipate changes in comparative advantage, and it is easy for regulations to stifle creative destruction and to create misallocation

See The economic history of one NYC block from Marginal Revolution.
"Here is the academic paper, by William Easterly, and Laura Freschi, and Steven Pennings:
Economic development is usually analyzed at the national level, but the literature on creative destruction and misallocation suggests the importance of understanding what is happening at much smaller units. This paper does a development case study at an extreme micro level (one city block in New York City), but over a long period of time (four centuries). We find that (i) development involves many changes in production as comparative advantage evolves and (ii) most of these changes were unexpected (“surprises”). As one episode from the block’s history illustrates, it is difficult for prescriptive planners to anticipate changes in comparative advantage, and it is easy for regulations to stifle creative destruction and to create misallocation. If economic growth indeed has a large component for increases in productivity through reallocation and innovation, we argue that the micro-level is important for understanding development at the national level.
It is a block on Greene St., near NYU, and so a section of this paper focuses on whorehouses.  History made them do it.  Here is the interactive site.  I am in general a big believer in this kind of micro-history, which remains undervalued in the economics profession."

Friday, August 28, 2015

California Green Job Initiative's Broken Promises

Disappointment doesn’t stop backers from offering new promises

By Steven Greenhut of Reason.
"When Gov. Arnold Schwarzenegger (R) signed California's anti-global-warming law (AB 32) in 2006, he did so amid fanfare over a predicted boom in "green jobs." Gov. Jerry Brown likewise has used the promise of an emerging low-pollution economy to ameliorate fears over the loss of traditional jobs as "cap-and-trade" policies boost costs for the state's businesses.

Green jobs have been growing rapidly percentage-wise, but that's mainly a function of the tiny size of this sector. Fortune magazine reported on a "big spike" of 9,800 green jobs nationwide over three months — but that's still a pittance in a nation of 320 million people. California didn't top that list.

This slow performance explains the recent brouhaha over an Associated Press report about the failure of 2012's Proposition 39 to live up to its goals. The "Clean Energy Jobs Act" – which closed a corporate tax loophole and diverted the extra revenue to green-energy projects in public schools — claimed it would create 11,000 jobs a year.

"Money is trickling in at a slower-than-anticipated rate, and more than half of the $297 million given to schools so far has gone to consultants and energy auditors," according to AP. "The board created to oversee the project and submit annual progress reports to the Legislature has never met … ."

The "yes" ballot argument promised "a complete and full accounting of all funds and expenditures, and full public disclosure." That was supposed to come from the official disclosure process — not from an enterprising reporter who revealed that instead of 33,000 new jobs over three years, the initiative has created only 1,700 jobs.

The report has sparked the usual Capitol response. Republican legislators have called for oversight hearings. They were joined by Democrat Henry Perea of Fresno, who likewise said the state ought to "see how the money is being spent, where it is being spent and seeing if Prop. 39 is fulfilling the promise that it said it would." That seems reasonable.

Senate President Pro Tempore Kevin De Leon, D-Los Angeles, and his fellow Proposition 39 co-chairman, billionaire environmentalist Tom Steyer, responded with a statement: "It's irresponsible and more than a little misleading to prejudge a long-term, multiyear program this early in the process."
How does the multiyear nature of the process explain why the oversight committee has never even met? Although such programs clearly need time to evolve, that's not the line Proposition 39's backers were using while they were touting the measure.

"(I)n the campaign three years ago, promoters promised fast results, and officials responsible for making unbiased assessments of ballot measures made certain guarantees," wrote a Sacramento Bee editorial recently. The newspaper, which endorsed the measure in 2012, noted that voters "hate being manipulated."

Not to be too cynical, but voters ought to be used to such manipulation by now when it comes to ballot measures. They approved a $68-billion high-speed-rail project in 2008 that offered specific guarantees — few of which are included in the current rail plan. In 2012, they approved Proposition 30, which increased taxes to bolster education spending. It's old news now, but public schools only get a portion of the extra cash.

There's more here than another initiative that fails to live up to its hype. Many observers (including the Union-Tribune editorial board) had problems with the old loophole – i.e., giving companies with multistate operations a choice of methods for calculating their state tax burden. Instead of closing it and easing taxes for other businesses, Proposition 39 created a program built on bold claims about the future economy. More than 61 percent of voters agreed.

De Leon is now pushing a bill (SB 350) that would impose other costly mandates on businesses (cutting gasoline use by 50 percent, increasing the use of renewable energy to 50 percent and doubling the energy efficiency of current buildings by 2030). The pitch includes familiar lingo about a green-jobs revolution.

Sure, revolutions take time. But is it irresponsible to suggest the public consider the failed results of past promises before they embrace new promises from many of the same people?"

the strongest and most robust predictor [of the level of upward mobility in an area] is the fraction of children with single parents.”

From What Malcolm Gladwell gets wrong about poverty by Robert Doar of AEI.
"Malcolm Gladwell’s latest New Yorker piece considers the Hurricane Katrina victims who left New Orleans and what their experiences can teach us about poverty. The reasons people remain stuck in poverty are complex, interconnected, and range from the environmental to the systemic to the personal. Gladwell’s interest in Katrina victims is that the storm created a “natural experiment” that allows us to try to untangle that causal web.

By no choice of their own, thousands of poor New Orleans residents changed their environment. The scholars Gladwell profiled hope that tracking these movers can prove the importance of where you live in escaping poverty.

Get out of town
The first study Gladwell cites looked at prisoners released from prison before and after the storm and tracked their new residences. The researcher, David Kirk, found that prisoners who, upon release, returned to New Orleans had a much higher recidivism rate than those who found a new home. This echoes what Bryan Kelley, re-entry manager for the Prison Entrepreneurship Program, said at a recent American Enterprise Institute conference on recidivism: “The sad fact is sometimes their home environment wasn’t a very healthy one, and so we provide a new one for them.” This is an important insight: Reformers need to be aware of the often-harmful social networks that develop in areas of concentrated poverty, work to minimize the segregation, and sometimes, help those in disadvantaged neighborhoods move out.

Unfortunately, Gladwell neglects an opportunity to fully inform his readers when discussing his second piece of evidence, the now well-circulated Equality of Opportunity Project from Raj Chetty. Gladwell characterizes the findings with the following:

“The neighborhoods that offer the best opportunities for those at the bottom are racially integrated. They have low levels of inequality, good schools, strong families, and high levels of social capital (for instance, strong civic participation). That’s why moving matters: going to a neighborhood that scores high on those characteristics from one that does not can make a big difference to a family’s prospects.”
That’s all accurate. But it obscures the most important finding of the study with a euphemism (“strong families”) meant to avoid engaging with an idea uncomfortable to some. Chetty’s paper reports that “the strongest and most robust predictor [of the level of upward mobility in an area] is the fraction of children with single parents.” This point may not appeal as much to liberal sensibilities, but any serious conversation of this study, or upward mobility generally, has to begin with the state of the two-parent family in America.

Married parents raise happier, wealthier children
Chetty’s study is impressive and popular, but his finding about two parent-families is hardly an outlier. For example, Richard Reeves of the Brookings Institution found that four out of five children who started out in the bottom income quintile—but who were raised by married parents—rose out of the bottom quintile as adults. Meanwhile, kids raised in the bottom quintile to never-married parents had a 50 percent chance of remaining at the bottom. And Brad Wilcox of AEI calculated that 32 percent of the increase in income inequality since 1979 can be linked to the decline in stable, married families. Gladwell hardly acknowledges that reality in this essay.

The effects of economic segregation and concentrated poverty are significant in preventing upward mobility, as Gladwell helps document. There are policy approaches that can try to mitigate them. Limiting zoning regulations, allocating relocation vouchers (as my AEI colleague Michael Strain has proposed), and implementing school-choice reforms all might be among the options in tearing down the walls that separate the poor.

But until all participants in the debate recognize the overwhelming importance of having two parents in the home, we’re not going to get very far in improving opportunity.

Robert Doar is the Morgridge Fellow in Poverty Studies at the American Enterprise Institute. From 2007-2013, he was the commissioner of the New York City Human Resources Administration."

Thursday, August 27, 2015

Enlightened Chinese Industrial Planning Will Crush U.S. Free Markets, Said Pundits: Maybe Not

Reminding pundits Tom Friedman, Robert Reich and others of what they said

From Ronald Bailey of Reason.
"As the world watches China's Communist Party leaders try to order markets around, my mind turned to those pundits who earnestly recommended that the United States emulate the brilliant beneficient Chinese planners in running our economy. The most fulsome China booster was New York Times columnist Tom Friedman. Included below are a few choice obervations:

On September 8, 2009 Friedman adivsed:
One-party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century. It is not an accident that China is committed to overtaking us in electric cars, solar power, energy efficiency, batteries, nuclear power and wind power. China’s leaders understand that in a world of exploding populations and rising emerging-market middle classes, demand for clean power and energy efficiency is going to soar. Beijing wants to make sure that it owns that industry and is ordering the policies to do that, including boosting gasoline prices, from the top down.
So enamored of China's industrial policy was Friedman that in 2010 he likened Chinese economic planning boldness to making "moon-shots." He specifically cited Chinese government subsidies to support the innovative electric car company Coda as an example, and predicted that the company would soon put thousands of its vehicles on California's roads:
China is doing moon shots. Yes, that’s plural. When I say “moon shots” I mean big, multibillion-dollar, 25-year-horizon, game-changing investments. China has at least four going now: one is building a network of ultramodern airports; another is building a web of high-speed trains connecting major cities; a third is in bioscience, where the Beijing Genomics Institute this year ordered 128 DNA sequencers — from America — giving China the largest number in the world in one institute to launch its own stem cell/genetic engineering industry; and, finally, Beijing just announced that it was providing $15 billion in seed money for the country’s leading auto and battery companies to create an electric car industry, starting in 20 pilot cities. In essence, China Inc. just named its dream team of 16-state-owned enterprises to move China off oil and into the next industrial growth engine: electric cars.
Coda declared bankruptcy in 2013.

And then there is the inevitable Robert Reich. Reich, who is a former Clinton Secretary of Labor, has never been right about anything when it comes to economic policy prescriptions. For example, Reich was convinced in the 1980s the Japan would bury the United States due to the planning acumen of that country's savvy bureaucrats. In 1982, Reich co-authored Minding America's Business with Ira Magaziner which recommended that the federal government start directing the economy. A few excerpts below:
U.S. companies and the government [should] develop a coherent and coordinated industrial policy whose aim is to raise the real income of our citizens by improving the pattern of our investments...
Perhaps the most striking feature of the U.S. industrial policy apparatus is the absence of a single agency or office with overall responsibility for monitoring changes in world markets or in the competitiveness of American industry, or for easing the adjustment of the domestic economy to these changes...
The failure of U.S. industrial policy is not simply a failure of organization, of course. It is a failure of substantive strategy. The industrial policies of Japan, West Germany and France have been more successful than U.S. policies because they have explicitly and consciously aimed at improving the international competitiveness of their businesses.
Just shy of 30 years later Reich sang the same stale tune in 2011, only instead of Japanese planners, he was praising the the wonders of Chinese industrial planning:
Here’s the real story. China has a national economic strategy designed to make it, and its people, the economic powerhouse of the future. They’re intent on learning as much as they can from us and then going beyond us (as they already are in solar and electric-battery technologies). They’re pouring money into basic research and education at all levels. In the last 12 years they’ve built twenty universities, each designed to be the equivalent of MIT.
Their goal is to make China Number one in power and prestige, and in high-wage jobs.
The United States doesn’t have a national economic strategy.
As late as 2012, Richard D’Aveni, a Professor of Strategy at Tuck School of Business at Dartmouth College, declared in The Atlantic that "The U.S. Must Learn From China's State Capitalism to Beat It."
Free markets alone won't be enough if we want to keep pace with China. It's time for some new-fashioned industrial policy …To win, we must to add to our repertoire of free-market tools the tools of managed capitalism. We cannot rely only on free-market policies of the 1980s and 1990s. We must learn new capabilities to beat a form of capitalism that is overwhelming our old formula for success.
Perhaps I am wrong and the "reasonably enlightened" autocrats who rule China will beat the forces of the market ... but I wouldn't make any bets on it.

As I concluded in a recent on-line debate with China idolizer economist Dambisa Moyo over Chinese economic policies at Cato Unbound:
The [Chinese Communist] Party leaders evidently are still in thrall to the failed ideology of economic central planning and the ultimate results of those policies will not be pretty.
For more background on what the Chinese government actually should do, see my article, "China Needs the Rule of Law.""

Update on Seattle and San Francisco restaurant employment

From Mark Perry.
"Here’s an update to my recent post about Seattle area restaurant employment “Minimum wage effect? January to June job losses for Seattle area restaurants (-1,300) largest since Great Recession.” Local area employment data by industry was released last week for the month of July, and showed a large increase in restaurant employment of 2,500 jobs during July for the Seattle MSA (seasonally adjusted), giving minimum wage proponents a lot to cheer about (see chart above). But before declaring victory for the success of Seattle’s (and San Francisco’s) pending increase to a $15 an hour minimum wage, we should consider the following:


Here’s an update to

2. For example, the chart above shows the 6-month percentage changes in Seattle area restaurant employment from January to July in each of the last 12 years back to 2004. The January to July percentage change of 1.8% in Seattle restaurant employment this year was lower than the increases over that same period last year and in 2012 (both 2.0%) and lower than the 4.3% increase in 2013. Put into the context of a longer 6-month time period, the one-month increase in July for restaurant employment in Seattle doesn’t seem quite so impressive.

3. Another way to smooth the month-to-month volatility in Seattle area restaurant employment and uncover any underlying trends is to calculate quarterly averages of the seasonally adjusted monthly data and then compare those quarterly averages to the same quarter in the previous year. The chart above displays the year-over-year changes for the quarterly averages for each month between January 2003 and July 2015. For example, the average number of Seattle MSA restaurant jobs over the last three months (May to July) of 135,000 is 3.4% above the average over the same months last year of 130,500. Similar growth rates have been calculated for each month.

An interesting pattern emerges in the chart above, which shows an acceleration of the year-over-year growth in restaurant jobs in the Seattle area following the Great Recession peaking at above 6% growth in six of the months between July 2013 and March 2014. Starting in the spring of last year, there has been a noticeable downward trend in the year-over-year growth rate of Seattle area restaurant jobs (quarterly averages), which fell below 3.6% in each of the last three months (May, June and July) for the first time since July of 2012, three years ago. Again, the one-month gain in July restaurant jobs may have created a slight up-tick for the last quarter’s average, but certainly didn’t come close to reversing the downward trend in growth rates over the last year.

4. The same analysis uncovers a very similar pattern in the year-over-year growth in San Francisco area restaurant employment, see chart above. In the most recent quarter (May to July), restaurant employment growth in the San Francisco MSA slowed to just over 4%, the lowest growth since October 2011, almost four years ago.

Bottom Line: It will take more time, probably several more years, to completely assess the employment effects of the $15 minimum wages in Seattle and San Francisco as those mandated wage hikes get phased in over the next few years. And the month-to-month job losses or gains in Seattle and San Francisco won’t tell us very much compared to looking at smoothed quarterly averages over longer periods of time like in the analysis above. But unless the time-tested, irrefutable, ironclad economic laws of supply and demand somehow don’t apply to the cities of Seattle and San Francisco, then it’s likely we’ll see some of the adverse effects of government price floors and the $15 an hour minimum wage that economic theory and empirical evidence clearly predict: reduced employment opportunities for unskilled, low-skilled, and limited-experience workers especially for minorities, adjustments from businesses and restaurants that include reducing workers’ hours, reducing workers’ fringe benefits, and raising prices. In other words, there’s no “free lunch” from a minimum hike to $15 an hour, despite what politicians (and minimum wage proponents) think. In the extreme, one only need look to the disastrous consequences of failed socialist, government policies in Venezuela (including price controls) to get some understanding of the effects of excessive government interference in the marketplace – including the effects (even if less extreme) of a $15 an hour minimum wage."

Wednesday, August 26, 2015

President Obama’s claims on clean energy don’t really stand up to inspection.

From the Institute For Energy Research.
"President Obama recently delivered a speech on energy in Las Vegas at Sen. Harry Reid’s “Clean Energy Summit.” Like much that is said in Las Vegas, President Obama’s claims don’t really stand up to inspection.
Claim #1: “[The] Clean Power Plan [is] the single most important step America has ever taken to combat climate change.”

The administration’s carbon regulation will have little to no effect on global warming; in fact, the government’s own data show the rule will only mitigate temperature increases by 0.019 degrees Celsius by 2100.

Far from “historic” as the president has claimed, this regulation is not so important after all.

Claim #2: “The Clean Power Plan is also going to accelerate the third way that we’re cutting emissions, creating jobs [and] saving folks money.”

The President’s carbon plan would scrap affordable electricity to build costly renewable generators, including wind power. A recent study published by the Institute for Energy Research found that new wind generators produce electricity that is nearly three times more expensive than existing coal-fired plants and nearly four times more expensive than existing nuclear plants.

In his speech, the president touted solar as a revolutionary energy source. However, solar remains extremely expensive. Electricity from existing coal costs $38.4 megawatt hour, electricity from existing natural gas plants costs $48.9 per megawatt hour, but according to the Energy Information Administration, new PV solar costs $125.3 per megawatt hour.

The regulation does not create jobs or save folks money. Forcing the closure of existing coal-fired power plants and installation of new wind and solar will only drive up electricity rates, harming the entire economy.

Claim #3: “[T]he world’s largest solar installation came online last year, with 9 million solar panels generating enough electricity to power more than 100,000 homes with clean, renewable energy — not in Germany, not in China, not in Saudi Arabia — right here in the United States of America.”

Increasing solar panel installations will benefit Chinese, not American, manufacturers. China supplied 35 percent of our imported solar photovoltaic (PV) modules in 2012, with Asia as a whole providing 81 percent, according to the most recent data available. Only 12 percent of PV modules were made in the U.S. in 2012. Further, the price of solar panels has fallen in recent years, in part because Chinese manufacturers have flooded the U.S. market with solar PV arrays sponsored by their government.

Claim #4: “Google is the largest corporation buyer of renewable energy in the world; companies like Apple and Costco close behind. They’re not doing this just out of altruism. They’re doing it because it means big cost savings.” 

In 2007, Google launched an initiative (REAccording
to the company’s own engineers, the program was shut down in 2011 because “[t]rying to combat climate change exclusively with today’s renewable energy technologies simply won’t work.”
Furthermore, it is not clear that Google actually is the largest buyer of renewable energy in the world. The reason is that Google buys electricity from the electric grid. When Google or anyone else uses electricity, there is no differentiation between electricity generated from coal or wind. Often times, when companies claim to be buying renewable power, they are actually just buying credits or offsets while they continue to consume electricity from the grid, 86 percent of which is powered by coal, natural gas, and nuclear.

Claim #5: “So we’re taking steps that allow more Americans to join this revolution with no money down.”

There is no such thing as a free lunch. President Obama could give everyone solar panels, regardless of income, but that does not mean solar is cost-competitive. Electricity produced by solar panels will remain among the most expensive forms of energy until at least 2020, according to President Obama’s Energy Information Administration. This makes it unaffordable for low-income families. Solar panels remain expensive, making solar subsidies such as net metering particularly regressive.

Such policies force the poor to subsidize wealthy families’ electricity.

Additionally, the President’s carbon plan will lead to substantially higher electricity rates for American families. A study of the proposed rule by NERA Economic Consulting found that residential rates could rise by double-digit percentages in 43 states, and by as high as 21 percent in Kentucky.

Claim #6: “It’s another thing when you’re free market until it’s solar that’s working and people want to buy, and suddenly you’re not for it anymore.”

There is nothing free market about the heavily-subsidized solar industry. The federal government has supported the industry through loan guarantees, cash grants, and tax credits—costing taxpayers tens of billions of dollars over the last decade. In addition to the generous federal subsidies, there are hundreds of state and local mandates for renewable power production. California alone has nearly 200 different incentives and mandates.

In fact, corporate welfare is the lifeblood of the renewable energy industry. The summit at which Obama spoke was organized by the Clean Energy Project. This group is run by former staffers of Sen. Harry Reid, who brags about steering subsidies to green energy companies. Numerous renewable energy companies that have funneled donations to the Clean Energy Project went on to secure grants and loans from the federal government, as detailed here.

Despite what President Obama says, there is nothing free market about mandates and subsidies.

Claim #7: “But the real revolution going on here is that people are beginning to realize they can take more control over their own energy — what they use, how much, when.”

This is not a “revolution” driven by average Americans. President Obama tried and failed to pass cap-and-trade legislation through the Democrat-controlled Senate in 2009, and is now essentially forcing states into a similar system through his carbon rule. President Obama’s regulation of carbon dioxide emissions from power plants is a federal takeover of the electricity system, removing the control over electricity from individuals and states and handing it over to the executive branch.


President Obama’s speech was wrong on many details. He was wrong to suggest that solar (and wind) will reduce electricity rates and save people money. The most accurate thing on energy President Obama has ever said is his admission that “under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket.” Cap-and-trade failed in Congress, but President Obama is back with a new plan, imposed by executive fiat, to make electricity rates skyrocket. It’s too bad the president can’t be honest about it."

Tuesday, August 25, 2015

Spending on the basics takes up a smaller and smaller share of an American’s personal disposable income—dropping from 39% in 1988 to 32% in 2013

See Americans Have More than They Realize by Chelsea German of Cato.
"According to Gallup, more Americans think of themselves as “have-nots” today than at any point since Gallup began posing the question almost thirty years ago, while fewer Americans see themselves as “haves.” (Please see Emily Ekins’s earlier post for an in-depth analysis from a different angle). But do Americans actually have less in 2015 than in 1988? Let’s dig into the data to see whether Americans might have more than they realize.

2015 is the first year when Americans spent more money dining out than they spent on groceries. Let’s examine why that might be. In 2015, U.S. GDP per person (adjusted for inflation) reached an all-time high. At the same time that average personal wealth is rising, many necessities like food are going down in price. As a result, spending on the basics takes up a smaller and smaller share of an American’s personal disposable income—dropping from 39% in 1988 to 32% in 2013. This means that Americans have more money left at the end of the day, which they can then choose to save, invest, or spend on luxuries like dining out.

Not only are Americans wealthier on average, but they are also working less. The average American worker in 2015 works 30 fewer hours in a year than her counterpart in 1988, and yet is almost $18,000 dollars richer in real terms. advisory board member Mark Perry recently pointed out that today’s young Americans may actually be the luckiest generation in history, based on what they can buy with earnings from a summer job. And increases in real wealth do not capture technological advances, which also contribute to rising living standards. The quality and variety of available goods is improving across the board. Almost no one had a cell phone in the United States back in 1990, but today they’re ubiquitous—and more useful, with an app for just about everything.

In many ways, Americans have more today than ever before: more leisure time away from work, more disposable income left after basic expenses,  more choice in what they buy, and more advanced technologies at their fingertips.  Of course, there are still people who live in genuine need. The Great Recession and various growth-retarding policy decisions have done great harm, especially to the poor. Still, if the many positive trends that we are seeing continue, then hopefully more Americans will come to count themselves among the haves instead of the have-nots. To learn more about improving living standards in the United States and beyond, pay a visit to"

How bad government policies make us meaner

From Scott Sumner of EconLog.
"Regardless of how you feel about monetary policy, it's clear that if employers feel they have a "captive audience" of workers, who are terrified of losing their jobs, it would be easier for the employer to crack the whip and drive the employees to work extremely hard. One advantage of a healthy job market is that workers have more power to negotiate pleasant working conditions.

But progressives also have some major weaknesses in this area. They tend to favor policies such as New York City's rent controls, and the new $15 minimum wage being gradually phased in in some western cities. I like to think of these policies as engines of meanness. They are constructed in such a way that they almost guarantee that Americans will become less polite to each other.

In New York City, landlords with rent controlled units know that the rent is being artificially held far below market, and thus that they would have no trouble finding new tenants if the existing tenant is unhappy. So then have no incentive to upgrade the quality of the apartment, or to quickly fix problems. They do have an incentive to discriminate against minorities that, on average, are more likely to become unemployed, and hence unable to pay the rent. Or young people, who might damage the unit with wild parties.

Wage floors present the same sort of problem as rent ceilings, except that now it's the demanders who become meaner, not the supplier. Firms that demand labor in Los Angeles in the year 2020 will be able to treat their employees very poorly, and still find lots of people willing to work for $15/hour.

Even worse, this regulation will interact with the migrant flow from Latin America, to produce another set of unanticipated side effects. In some developing countries there is a huge army of unemployed who go to the cities, hoping to get one of the few high wage jobs available in the "formal" sector of the economy. With a $15 minimum wage, migrants will come from Mexico until the disutility of waiting for a good job just balances the expected utility of landing one of those good jobs. You'll have lots more angry, frustrated young Mexican illegal immigrants, with lots of time on their hands."

Monday, August 24, 2015

Pell Grants: Billions Go to Students Who Don't Graduate, Analysis Finds

From NBC News.
"Billions of taxpayer dollars go to college students who never end up with a diploma in their hands, a new report found.

Pell grants — which are given to low-income families and, unlike student loans, do not need to be paid back — are the costliest education initiative in the nation. But little official data exists on whether they are a good investment, according to the education watchdog Hechinger Report.

Education Department Undersecretary Ted Mitchell last month lauded Pell grants as "one of the key levers that we have" to increase college completion rates. But an analysis published Monday by Hechinger revealed that Pell recipient graduation rates are often considerably lower than the overall graduation rate — even six years after a student starts college.

To make matters worse, the government keeps no official tally of what proportion of those who receive the grants end up getting degrees — despite the fact that money spent on Pell grants has quadrupled since 2000."

"only about 40 percent Pell recipients graduate, significantly lower than the national average of about 60 percent."

"Taxpayers paid $31.4 billion on Pell grants in fiscal year 2015, and since 2000, they have poured $300 billion into them, Hechinger reported.

"It's not surprising that Pell grant students graduate at most schools at a lower rate than the overall student body. We know that low-income students are less likely to get a college degree than their peers," Sarah Butrymowicz, Hechinger's data editor and author of the report, told NBC News.

This could be in part because students from a lower socioeconomic status may come into college less academically prepared, she said."

"the more Pell students there are at a given institution, the lower the chance that they will graduate."

"Maybe a student that is below a 2.0 average two years into a Pell grant should lose their Pell grant. At least we cut our losses earlier than we do now," he said." (economist Richard Vedder)

Public housing for the rich?

By Angela Rachidi of AEI.
"This week, the Washington Post and The Hill reported on an internal audit of the Department of Housing and Urban Development’s (HUD) public housing program. This audit found that more than 25,000 families earned more than the income eligibility amounts allowed for public housing. Although it accounts for only 2.6% of all public housing tenants, many were far over the income eligibility requirements and had been for a while.

In one of the more egregious cases, a New York City family earned almost $500,000 in annual income (mostly from rental income on properties they owned) and paid $1,500 per month in rent to the public housing authority. New York City had 10,000 of the over-income cases and a waiting list of over 300,000 families, according to the audit. And this was only one of a handful of equally appalling cases.

But most surprising was that the local housing authorities knew about the over-income families and chose to leave them alone, and HUD allows it. According to the report:
The 15 housing authorities that we contacted choose to allow over-income families to reside in public housing. HUD did not encourage them to require over-income families to find housing in the unassisted market. As a result, HUD did not assist as many low-income families in need of housing as it could have. We estimate that HUD will pay $104.4 million over the next year for public housing units occupied by over-income families that otherwise could have been used to house low-income families. Although it would be reasonable to expect that a minimum number of over-income families would reside in public housing at any time, HUD can significantly reduce the number of over-income families that reside in public housing.
It would be reasonable to expect that that high-income families not be allowed to reside in low-rent apartments at the expense of tax payers. In no other means-tested program (e.g., TANF, SNAP, Medicaid, EITC) are families who exceed income limits allowed to receive a benefit indefinitely.
According to a follow-up report by the Washington Post, HUD reversed its original response to the audit and is now “taking additional steps to encourage housing authorities to establish policies that will reduce the number of over income families in public housing.”

This seems inadequate. Local housing authorities have the final say and they have little incentive to evict higher-income tenants. According to the Post report, New York City’s Housing Authority collects $90 million in revenue from higher-income tenants. It is unlikely that they would forgo this revenue without consequences. While it is true that housing authorities must be careful not to discourage tenants from earning more money, allowing high-income tenants to benefit from tax supported public housing indefinitely is not the answer."

Sunday, August 23, 2015

The Imaginary Problem of Corporate Short-Termism

Short-term thinking often makes sense for U.S. businesses, the economy and long-term employment.

By Mark J. Roe, WSJ. He is a professor at Harvard Law School.
"there’s also considerable evidence that stock markets don’t discourage long-term business plans. Institutional investors haven’t penalized companies for bumping up research-and-development spending, even though the payoff may be years down the road. Think of Amazon, Apple and Google, each of which spends billions on R&D. Oil companies make multi-decade investments in oil fields without the stock market impeding them."

"Some complain that today’s corporations aren’t investing cash back into their businesses to expand capacity. But that’s just what long-term investment should produce in a weak economy with below-normal capacity utilization. Firms should wait until they anticipate using current capacity well before expanding."

"Typical American shareholders, like Fidelity Investments, Vanguard and other mutual funds, haven’t shortened their holding period for stocks."

"Moreover, investors aren’t the only and maybe not even the most important place to look for short-term pressures: Managers and boards want good results on their watch, and CEOs shorten their management horizons as they reach the end of their tenure. Proposals to free managers further from investors by giving them more autonomy could thus worsen, not help, the problem."

"It makes no sense for brick-and-mortar retailers, say, to invest long-term in new stores if their sector is likely to have no future because it will soon become a channel for Internet selling."

What is right-wing about the claim that as the cost of doing action x rises, people are less likely to do x?

Don Boudreaux raised this question. See Friday Thoughts on the Minimum Wage. Excerpt:
"What, I wonder, is so right-wing about the claim that as the cost of doing action x rises, people are less likely to do x?  Is it a “right-wing mantra” that, say, taxing carbon emissions will cause there to be few carbon emissions than otherwise?  Is it a “right-wing mantra” that taxing the purchase of cigarettes causes people to purchase fewer cigarettes than otherwise?  Is it a “right-wing mantra” that higher tariffs on imports reduce imports?  Is it a “right-wing mantra” that imposing a poll tax reduces the number of people who vote?  If the answer to each of these questions is ‘no’ (and it surely is, even non-right-wing folk will agree), then what exactly about the employment of low-skilled workers makes that specific activity exempt from the law of demand?  (Yes, yes; I know: monopsony power.  But the claim that such power exists in reality is empirically suspect – see below.  And here.)

Although I believe that I’ve asked this question before at the Cafe, I’ll ask it again now: would it be a “right-wing mantra” to believe that firms would employ fewer low-skilled workers if government, instead of imposing a minimum wage of $7.25 per hour, taxes each firm the amount ($7.25 – w) for each hour of labor it employs at a wage of w (for all w between 0 and 7.25), and then distributes the revenues from this tax to low-income households?  Would those who crusade righteously against “right-wing mantras” applaud this special tax on the employment of low-skilled workers?  If not, why not?

(An especially befuddling claim made by this second commenter at Mark’s Facebook post was that raising the minimum wage would result in more money being spent by somehow causing the release of money that is now being hoarded by the likes of drug lords, pawn-shop owners, and owners of gambling casinos.  I’ll let that claim speak for itself.)
Back now to the monopsony claim.  Here’s a recent news story out of Tulsa, Oklahoma.  (HT Christopher Wiseley)  True, it’s an account of just one firm and just one group of low-skilled workers, but it does serve as relevant evidence against the proposition that monopsony power is rampant in the market for low-skilled workers."

Historians frequently misunderstand and falsely portray

From Cafe Hayek.
"from pages 91 of Robert Higgs’s 1971 volume, The Transformation of the American Economy: 1865-1914; Bob’s discussion here is of the manner in which historians frequently misunderstand and falsely portray the economics of land, but the underlying point is more general (original emphasis):
Historians have similarly erred by using the term “speculator” to characterize a person who buys solely with the intent to resell and not to cultivate.  The objection to this usage is that in a private property system every owner of an asset is necessarily a speculator in the sense that he bears the risk of reductions in the value of the assets but hopes that the value will rise."

Saturday, August 22, 2015

The future outlook on host-parasite interactions has the potential to be much more favorable than climate alarmists often make it out to be

Warming-Assisted Rapid Evolution of a Parasitic Host by Craig D. Idso of Cato.
"In 1980, heated water from a nuclear power plant in Forsmark, Sweden (60.42°N, 18.17°E) began to be discharged into Biotest Lake, an artificial semi-enclosed lake in the Baltic Sea created in 1977 that is adjacent to the power plant and covers an area of 0.9 km2 with a mean depth of 2.5 m. The heated water has raised the temperature of the lake by 6-10°C compared to the surrounding Baltic Sea, but aside from this temperature difference, the physical conditions between the lake and the sea are very similar. 
A few years after the power plant began operation, scientists conducted a study to determine the effect of the lake’s increased temperatures on the host-parasite dynamics between a fish parasite, the eyefluke (Diplostomum baeri), and its intermediate host, European perch (Perca fluviatilis). That analysis, performed in 1986 and 1987, revealed that perch in Biotest Lake experienced a higher degree of parasite infection compared to perch living in the cooler confines of the surrounding Baltic Sea (Höglund and Thulin, 1990), which finding is consistent with climate alarmist concerns that rising temperatures may lead to an increase in infectious diseases.

Fast forward to the present, however, and a much different ending to the story is observed.

Nearly three decades later, Mateos-Gonzales et al. (2015) returned to Biotest Lake and reexamined the very same host-parasite dynamic to learn what, if anything, had changed in the intervening time period. According to the team of researchers, Biotest Lake “provides an excellent opportunity to study the effect of a drastically changed environmental factor, water temperature, on the evolution of host-parasite interactions, in a single population recently split into two.” Specifically, it was their aim “to examine if the altered conditions have produced a change in prevalence and/or intensity of infection, and if these potential variations in infection have led to (or might have been caused by) a difference in parasite resistance.”

To accomplish their objective, Mateos-Gonzales et al. compared the prevalence and intensity of parasitic infection in perch populations growing in warmer Biotest Lake versus the natural population from the surrounding cooler Baltic Sea in 2013 and 2014. They also conducted a controlled laboratory experiment in which they exposed perch from both locations to D. baeri, comparing their infection rates.

The field results indicated that fish from the warmed Biotest Lake had a much lower parasite infection rate than fish from the Baltic Sea. In fact, the authors report that the “intensity of infection in Baltic fish was on average 7.2 times higher than in the corresponding Biotest fish” (italics added, see figure below). In addition, Baltic fish were found to acquire “slightly more parasites as they age,” whereas Biotest fish did not.

With respect to the laboratory tests, Mateos-Gonzales et al. report that exposure to parasites “did not have an effect in fish from the Biotest Lake, but it did in fish from the Baltic Sea,” increasing their intensity of infection by nearly 40 percent.

Infection intensity of the parasite D. baeri in juvenile perch from the Baltic Sea (left panel) and Biotest Lake (right panel). The line indicates best-fit and the shaded area represents the 95% confidence interval. Adapted from Mateos-Gonzales et al. (2015).

Infection intensity of the parasite D. baeri in juvenile perch from the Baltic Sea (left panel) and Biotest Lake (right panel). The line indicates best-fit and the shaded area represents the 95% confidence interval. Adapted from Mateos-Gonzales et al. (2015).

In discussing their findings, Mateos-Gonzales et al. write they present “a dramatic contrast” to those reported nearly three decades earlier when Biotest fish were infected at a rate of “almost twice” that of Baltic fish. Compared to 1986/87, the intensity of parasitic infection in Biotest fish has fallen almost 80%, whereas it has decreased only slightly in Baltic fish. Consequently, the authors conclude their results illustrate “how an increased temperature has potentially aided a dramatic change in host-parasite dynamics,” and that change, it might be added, has clearly been for the better

Furthermore, Mateos-Gonzales et al. note this rapid and surprising reversal of fortunes has “direct implications for consequences of global climate change, as they show that fast environmental changes can lead to equally rapid evolutionary responses.” Indeed they can; and such responses need to be included in predictive models that “highlight the importance of empirical research in order to validate future projections” of host-parasite interactions in a world of rising temperatures. Clearly, the future outlook on host-parasite interactions has the potential to be much more favorable than climate alarmists often make it out to be.

References Höglund, J. and Thulin, J. 1990. The epidemiology of the metacercariae of Diplostomum baeri and D. spathaceum in perch (Perca fluviatilis) from the warm water effluent of a nuclear power station. J Helminthol. 64: 139-150.
Mateos-Gonzalez, F., Sundström, L.F., Schmid, M. and Björklund, M. 2015. Rapid evolution of parasite resistance in a warmer environment: Insights from a large scale field experiment. PLOS ONE 10: e0128860, doi:10.1371/journal.pone.0128860."

More on the minimum wage-related job losses on the West Coast, and why they might be worse than reported

From Mark Perry.
"Over the last year, three West Coast cities – Los Angeles, San Francisco and Seattle – have passed $15 an hour minimum wage laws that will be in full effect by 2018 in San Francisco and Seattle and by 2020 in Los Angeles. On the way to the full $15 an hour, Seattle increased its minimum wage to $11 on April 1 and San Francisco increased its minimum wage to $12.25 on May 1. In addition, the Los Angeles city council last fall passed a targeted minimum wage of $15.37 an hour for hotel workers that just went into effect on July 1.

What effects are these minimum wage increases having? As I (and other economists) have reported here, here and here there is already preliminary evidence that the minimum wage hikes in all three cities have had negative employment effects: a loss of 1,300 restaurant jobs in the Seattle area between January and June, a loss of 2,500 restaurant jobs in the San Francisco metro area over the last year, and a loss of 2,200 hotel jobs in the Los Angeles area over the last year.

One technical issue with those documented job losses is that they are reported for the entire metro areas of Los Angeles, Seattle and San Francisco, and not just for the core cities, where the minimum wage increases went into effect. The challenge is that the Bureau of Labor Statistics only reports employment by industry for entire Metropolitan Statistical Areas (MSAs) or Metropolitan Divisions (MDs), and not for the main individual cities that those MSAs and MDs are based on. Ideally, it would be best to isolate the employment effects of minimum wage increases by looking at only the geographical area where those increases were implemented, but that analysis is not possible and we are left with a second-best option of analyzing the employment effects of entire MSAs or MDs like Los Angeles, Seattle and San Francisco. The second-best option has been criticized here and elsewhere.

However, I think a case can be made that the restaurant job losses documented for the San Francisco and Seattle MSAs and the hotel jobs losses for the Los Angeles MSA might significantly underestimate the actual number of job losses that took place in those three cities. As Stephen Bronars explained in his Forbes article yesterday (“Higher Minimum Wages in San Francisco and Seattle Mean Fewer Restaurant Jobs”):
The first wave of minimum wage increases appears to have led to the loss of over 1,100 food service jobs in the Seattle metro division and over 2,500 restaurant jobs in the San Francisco metro division. These estimates are likely to be conservative, especially in Seattle, because many jobs in the metro division are outside the city limits and not subject to the minimum wage increase.
The reason those job losses might be conservative is that they are based on the entire MSA or MD, when in fact most (or all) of the job losses were likely concentrated within the cities where the minimum wage was actually increased. In each of the three cases discussed above, the jobs in the state outside the MSA areas increased over the period examined: restaurant jobs outside the Seattle MSA increased in Washington state, restaurant jobs outside the San Francisco MSA increased in California, and hotel jobs outside the Los Angeles MSA increased throughout the state of California.

Therefore, common sense would dictate that the restaurant jobs in the suburban areas of San Francisco and Seattle, where there was no minimum wage hike, would more likely follow the pattern of employment gains that took place throughout the rest of those two states than they would follow the pattern of job losses in the core city where the minimum wage increased. Likewise, it would make sense that hotel jobs in the suburban areas of LA, where there was no minimum wage hike, would have increased along with the gain in hotel jobs throughout the rest of the state outside of the LA metro area. In that case, those job gains in the suburban areas of Seattle, San Francisco and LA might have actually offset some of the job losses within the cities, making the job losses in the city look better than what gets reported for the entire MSA.

For example, suppose there were actually a loss of 2,000 restaurant jobs in the city of Seattle between January and June due to the first minimum wage hike, accompanied by a gain of 700 restaurant jobs in the rest of the Seattle MSA where there was no change in the minimum wage. The net loss of 1,300 restaurant jobs that gets reported by the BLS (and Federal Reserve) for the Seattle MSA would actually then understate the true job loss of 2,000 for the city of Seattle by itself.
Bottom Line: Economic logic and common sense suggest that employment patterns in the outlying suburban areas of Los Angeles, Seattle and San Francisco, where there was no change in the minimum wage, would more likely track the pattern of jobs in the rest of the states of California (where hotel and restaurant jobs increased) and Washington (where restaurant jobs increased), that those areas would follow the pattern of job losses within the nearby city limits where the minimum wage increased significantly. In that case, the reported hotel jobs lost in LA, and the reported restaurant jobs lost in San Francisco and Seattle, would actually underestimate the true number of jobs lost within the cities of LA, Seattle and San Francisco due to the minimum wage hikes this year."

Friday, August 21, 2015

What Would Happen to the U.S. Economy If We Had Another Country’s Corporate Tax Rate?

See The Economic Effects of Adopting the Corporate Tax Rates of the OECD, the UK, and Canada by Scott A. Hodge of the Tax Foundation. Summary:
"Washington, DC (Aug 21, 2015)—Policymakers in Washington are currently discussing ways to improve U.S. competitiveness in the global economy, and there are a lot of options on the table. Some proposals include converting to a territorial tax system or creating an “innovation box” to lower the tax rate on patents and intellectual property. However, policymakers would be wise to remember that one of the most important factors in international competitiveness is the corporate income tax rate, and that, at 35 percent, the U.S. has the highest rate in the industrialized world.
A lower corporate rate would certainly lessen the tax code’s sticker shock, but how would it affect federal revenue, job growth, wages, or GDP? To answer this question, a new report from the nonpartisan Tax Foundation examines what would happen to our economy if U.S. corporations faced tax rates similar to those in other developed countries.

Using the Taxes and Growth (TAG) Model, the report simulates the economic benefits and budgetary costs of reducing the corporate rate from 35 percent to the OECD average of 25 percent, the UK’s rate of 20 percent, and Canada’s federal rate of 15 percent.
The report’s key findings include:
  • Reducing the corporate income tax rate to 25 percent would increase long-term GDP by 2.3; a cut to 20 percent would boost long-term GDP by 3.3 percent; and a cut to 15 percent would increase long-term GDP by 4.3.
  • Workers would also benefit from a corporate rate reduction. Depending on the reduction’s size, we would expect to see an additional 425,000 to 613,000 new jobs. Wages would increase by between 1.9 percent and 3.6 percent over the long-term. 
  • Regardless the size of the corporate tax cut, the larger GDP would translate into higher after-tax incomes for taxpayers up and down the income scale.
  • Using conventional scoring, these rate reductions would cost between $1.2 and $2.5 trillion over the next ten years. However, using the more realistic assumption that these cuts would increase the size of GDP, the reductions would cost between $746 billion to $1.5 trillion over the next decade.
“When 35 percent federal corporate rate is combined with the average state corporate, the U.S. imposes third-highest overall corporate tax rate in the world,” said Tax Foundation President Scott Hodge. “To the extent that America is suffering from an increase in base erosion, corporate inversions, or the flight of intellectual property, our uncompetitive corporate tax rate is the root of those problems. Policymakers looking to improve our standing on the international stage would be wise to address it.”

Full report: The Economic Effects of Adopting the Corporate Tax Rates of the OECD, the UK, and Canada"