Saturday, October 31, 2015

New York Times Posts Major Correction On Incomes Since 1974 (they are up slightly, not down)

Here is the link to the article. They also started with median family income, switched to household income when adjusting for inflation and then switched back to family income for 2015. See my Sept. 13 post on this.

The original passage:
"To understand the feeling of crisis that many see in higher education right now, it’s useful to start with some figures from 40 years ago. In 1974, the median American family earned just under $13,000 a year. A new home could be had for $36,000, an average new car for $4,400. Attending a four-year private college cost around $2,000 a year: affordable, with some scrimping, to even median earners. As for public university, it was a bargain at $510 a year. To put these figures in 2015 dollars, we’re talking about median household income of $62,000, a house for $174,000 and a sticker price of $21,300 for the car, $10,300 for the private university and $2,500 for the public one.

A lot has changed since then. Median family income has fallen to about $52,000,"
Now the correction (which is at the link):
"Correction: September 27, 2015  

An article on Sept. 13 about college tuition referred incorrectly to CUNY when describing a program that helped improve the graduation rates of its community colleges. It is the City University of New York (not Universities). The article also referred incorrectly to a measure of income in a comparison of 1974 income and current income when adjusted for inflation. It is median family income, which has risen to about $64,000 a year from $62,000 in 1974, not median household income. And the article also described incorrectly the change in median family income over the past 40 years. It has risen slightly, not fallen."

How Climate Change Activism Harms Third World Countries

The world can't avert climate catastrophe without climate injustice

By Shikha Dalmia of Reason.
"But as Oren Cass, a Manhattan Institute analyst, notes, fighting climate change is a particularly vexing problem because the individual cost to each country, especially Third World ones, will be immediate and huge—and the benefits distant and uncertain. The notion that emission cuts can pay for themselves through increased energy efficiency is at best fanciful and, at worst, a lie.

There are no low-carbon energy technologies available today that can sustain the economic growth rates these countries need to lift their people out of abject poverty, let alone offer Western living standards at anything resembling an affordable cost. Over 300 million Indians still live below the poverty line, earning less than $1 per day. India's per capita energy consumption is 15 times less than the United States'. India has to keep boosting its energy use—and therefore carbon emissions—for at least another two decades to eliminate dire poverty, which is why its reduction plan only commits to slashing "emission intensity"—its emission rate as a percentage of its GPD—not emissions themselves.
Even this much, India claims, will require up to a $2.5 trillion investment over the next 15 years in renewable energy sources and adaptation technologies. Even if that figure is exaggerated, clearly this would be a challenge for a country that has yet to offer basic sanitation, transportation, and clean-water infrastructure to all its citizens.

But Western countries have to date pledged to raise only $1 trillion over 10 years ($100 billion annually) to offset the climate change costs of the entire Third World. Upping that commitment while simultaneously absorbing their own emission reduction costs will require Western government to take very radical—and very draconian—steps to pare back the living standards of their own citizens."

"India and China counter by dragging out the West's historic emissions. The IPCC (Intergovernmental Panel on Climate Change) has determined that the planet can handle 2,900 gigatons (Gt) of carbon dioxide before the Earth begins to warm catastrophically. Third World countries insist that justice demands that every country get a quota based on its population. By that arithmetic, America's total quota would add up to 128 Gt (and the entire developed world's 406 Gt). But America used up over twice that amount between 1850-2011. As these countries see it, America (as the rest of the Western world) is in their ecological debt. It needs to put itself on a drastic energy diet—and effectively undo the industrial revolution that has generated untold wealth for it. Especially since India has used only 7 percent of its share. "For the sake of the world's future, American lifestyle can no longer remain non-negotiable," froths India's leading environmentalist, Sunita Narain."

Friday, October 30, 2015

When Governments Offer Empty Health Care Promises, Black Markets Deliver the Goods

From the Third World to the First World, officials can’t exempt medicine from the laws of economics.

By J.D. Tuccille of Reason. Excerpts:
"When it comes to the triumph of state-provided everything, what could beat the example set by North Korea? What is officially the hardest of hard-core communist regimes remaining on the planet boasts that "All natural resources, main factories and enterprises, harbours, banks, transportation means and communication organizations are only owned by the state." When it comes to the provision of healthcare to the inhabitants of this socialist workers' paradise, "the state bears totally the expenses of medical checkups and treatment, bed and board in hospitals, medicines, and even travel costs to and from sanatoria."

When governments make economically improbable promises, the private sector is usually left to deliver what politicians can't. But the Democratic People's Republic of Korea officially has no independent entrepreneurs—they're forbidden by law. Despite that awkward hurdle, by 2008 "the average North Korean family drew some 80 percent of its income from the private economy," according to Andrei Lankov, author of The Real North Korea: Life and Politics in the Failed Stalinist Utopia.

The health care sector has been no exception. In a country where "the state bears totally the expenses" of diagnosis and treatment, the result has been as lousy as everything else North Korea's government provides. So the black market has stepped into to meet the demand for actual care. "Many doctors working in the black markets are retired from state hospitals, unable to make a living on measly wages. Some are without medical licenses and are usually self-taught Korean medicine doctors," reports Daily NK, an internationally well-regarded news source based in South Korea.

Diagnoses start at around the equivalent of $10, with the price of treatment varying as you'd expect. With the total collapse of the state system, even high party officials reportedly turn to black market providers.

Informal medical providers, like other black marketeers, may provide North Koreans with something more substantial than the state's empty promises, but they still face risks."

"For years, private medicine operated in something of a gray area in Canada, with provincial laws in place that made it difficult for providers and patients to negotiate payments for care outside of the state system. Even so, Dr. Brian Day opened the country's first private surgery clinic in 1995—and rose to become head of the Canadian Medical Association a bit over a decade later.

The legal barriers put in place to discourage private medicine were nothing compared to the shitty quality of care driving Canadians to hurdle those barriers. As the Supreme Court of Canada noted in the 2005 case, Chaoulli v. Quebec, "Access to a waiting list is not access to health care. As we noted above, there is unchallenged evidence that in some serious cases, patients die as a result of waiting lists for public health care."

That decision set aside only Quebec's ban on private health insurance, leaving other provincial barriers in place. But the same pressures that blew apart one province's restrictions drove an explosion in private health care elsewhere. "In British Columbia, private clinics and surgical centers are capitalizing on patients who might otherwise pay for faster treatment in the U.S.," the Los Angeles Times reported in 2009. "Private clinics continue explosive growth," the Canadian Medical Association Journal added two years later, noting that many "private clinics were openly violating" restrictions on billing private parties while contracted with government Medicare.

This year Quebec officials moved to legalize many of the fees that private providers were already charging. That makes sense, since those providers were delivering actual care when the state system could only offer "access to a waiting list.""

Obamacare Premiums Rise, Sort of as Predicted

By Megan McArdle. Excerpts:
"If you buy insurance on the exchanges, your premiums are probably going up. How much will depend on what state you live in. New data released by the government indicate that the lucky citizens of four states will see the price of their two cheapest options fall (by significant amounts, in Indiana and Mississippi).  On the other hand, citizens of 19 states, almost 3 million people, will see increases of more than 10 percent, and four states will see increases of more than 25 percent. On average, the premiums of the benchmark plans (the second-lowest silver plan offered in the market) are set to rise about 7.5 percent.

What you think about this probably depends on what you think of the law. If you’re a supporter, 7.5 percent may compare favorably to premium increases in the years leading up to the law’s passage. If you opposed it, well, 7.5 percent sounds like a pretty large increase. And two states actually hit the 35 percent mark predicted by Donald Trump. Those big numbers will mean sticker shock for the folks buying without subsidies -- and a higher bill for the taxpayers who pay subsidies.

What can we learn from the government’s figures?
  1. There was a lot of mispricing in the early years. Supporters of the law got very excited about low premiums in the first couple years of the program’s operation. Finally, it seemed, some government program had gotten health care costs under control! But those premiums were not based on the actual costs of providing insurance to people buying insurance on the exchanges. They were guesses. We now know that the insurers guessed wrong; many more lost money than made it in the first two years of the program’s operation. Those guesses are now being adjusted based on actual experience, which means that premiums will probably rise both this year and next.

  2. These numbers aren’t a very accurate picture of what people are actually paying. Remember, this is not an estimate of the premiums everyone is paying; they’re a look at the cost of a specific plan, the second-cheapest silver plan in a given market. In 2014, about two-thirds of customers bought either the cheapest or second-cheapest silver plan. But that leaves a lot of the market that isn’t buying the benchmark plan, and the other plans' cost may have gone up or down at a different rate.
    For that reason, ignore anyone who tries to compare these figures to the average premium increases before Obamacare kicked in. Those figures represent the average increase in what everyone was paying for insurance, not the increase in the price of a specific plan. The numbers aren’t comparable.
  3. Reports of the death of health-care-cost growth were greatly exaggerated. Health-care costs have been moderating for about a decade, and when premiums stayed low in 2015, people dared to hope that this had something to do with Obamacare. (I’ve always been skeptical.) But health-care costs ticked up at a brisk clip last year, and as sure as night follows day, premiums will rise to match.
  4. States with big price hikes are going to have a hard time attracting unsubsidized customers to the exchanges. I don’t have to explain this, do I? If they’re not buying it now, they’re not going to buy it when it costs 30 percent more. Does this matter? Some, at least. Small exchanges are going to run big operating losses. And the unsubsidized folks who are declining to buy coverage are probably healthier than the unsubsidized folks who are ponying up for the insurance, so keeping them out of the pool means a higher average cost to cover the folks who remain. Some people who are buying now may get sticker shock and drop it.
  5. The government is going to be spending more on subsidies this year. Most people buying on the exchange will be insulated from price increases by the subsidies. The taxpayer is providing the insulation.
Is this a disaster? Not yet. Insurance was underpriced in the first few years, and now it’s rising toward the market level. What matters is what happens in the future. Is this a one-year blip, as insurers adjust? Or is a 7.5 percent annual hike something we can expect for years to come? If it’s the former, then this is, well, a blip. If it’s the “new normal,” then it presents some issues. Three or four years of high-single-digit rate increases will probably make unsubsidized folks rethink their decision to purchase insurance, raising the specter of adverse selection.

And even subsidized folks will start feeling the pinch if premiums rise too much, because once the government’s spending on subsidies exceeds 0.504 percent of GDP , the subsidy formula is supposed to change to cap total expenditures -- meaning that some folks currently getting subsidies will no longer be able to count on having their premiums capped at a certain percentage of their income. We’re nowhere near that amount yet, and may not get there if enrollment in exchange policies has truly stalled. On the other hand, it wouldn’t take all that long to get there with premium costs growing at two or three times the rate of GDP.

If I had to guess, I’d say that this year’s premium increase represents a lot of one-time factors that will taper off after 2016. But I’m not very confident in that guess -- and if health-care costs keep growing as fast as they did last year, that guess will be wrong.

The upshot is that it’s still early innings for Obamacare. We don’t know what the mature program will look like: how many people it will enroll, at what cost. We'll have to see what happens."

Obamacare rate increases in Mississippi

From Tyler Cowen.
"Mississippi will be ground zero for ObamaCare’s individual mandate to buy coverage or pay a tax penalty.
The state already is near the bottom when it comes to the percentage of the subsidy-eligible individuals who are enrolled via — just 38%. Now Mississippi’s subsidized premiums are about to jump far more than any of the 36 other states using
For 30-year-olds in Yazoo City earning about $25,000 (214% of the poverty level), the after-subsidy cost of the cheapest bronze plan will spike by $554, or 60%, in 2016.
There is more here.  To be sure that is lemon picking from the data, but in politics the people who suffer the most often end up with the biggest say.  Furthermore the reported seven percent average rate hike is not so small either, so perhaps the Mississippi story will resonate.  Here is more on the ambiguity in the numbers on reported rate increases.  Still, this is not developing in a favorable manner."

Thursday, October 29, 2015

Markets and Social Justice in Housing and Education

By Jason Bedrick of Cato.
"For decades, discriminatory housing policies in the U.S. restricted the ability of black citizens to purchase homes outside of predominantly black ghettos. From the 1950s through the 1970s, real estate speculators called “blockbusters” made some progress opening up white-only neighborhoods to black families until an odd coalition of segregationists and left-wing activists succeeded in regulating blockbusters out of existence. Tragically, the U.S. housing market has remained largely segregated even until today. Moreover, because a family’s access to a quality education is determined primarily by the location of their home, black children are disproportionately assigned to low-performing district schools, depriving them of opportunity. 

Sadly, misguided suspicions about the market led left-wing leaders to support paternalistic regulations that harmed the very people they intended to help – a disastrous mistake that many modern progressives are now repeating in education policy.

In a recently updated version of his 1998 paper, “A Requiem for Blockbusting,” Dmitri Mehlhorn of the Progressive Policy Institute details the sordid history of discriminatory housing policy in the U.S. When Southern agricultural jobs dried up in the early 20th century, black workers began migrating to the industrial North. The response was ugly:
White Americans mostly reacted to this migration with coordinated and violent hatred. Driven by xenophobia, they used physical, political, and economic power to drive blacks into strictly circumscribed ghettos. The ugliness was a team sport, including local governments, state and federal agencies, courts, businesses, and the media.
At the federal level, the Federal Housing Administration encouraged racial covenants, stating that they “provide the surest protection against undesirable encroachment and inharmonious use.” These covenants contractually prohibited homes from being resold to black families. By the 1940s, integrated neighborhoods had ceased to exist in every major city in the United States.
The U.S. Supreme Court eventually ruled against racial covenants in housing, but racists found workarounds. As Mehlhorn details:
For instance, both federal and local agencies encouraged white flight by steering resources to whites seeking segregated suburban houses and schools, while cutting those resources for black families. So-called “urban renewal” laws were used to raze expanding black neighborhoods that threatened white institutions. Federal funds were used to construct massive public housing projects for the displaced black residents.
We are still feeling the effects of these discriminatory policies today, particularly in education, which is intimately linked with housing policy. According to a 2012 study by the UCLA Civil Rights Project, “80% of Latino students and 74% of black students attend majority nonwhite schools (50-100% minority), and 43% of Latinos and 38% of blacks attend intensely segregated schools (those with only 0-10% of whites students) across the nation.”
In the 1950s, “blockbusters” began selling homes in white areas to black families in violation of industry norms because they could charge blacks significantly higher prices. As Mehlhon details:
From the 1950s onward, for roughly two decades, blockbusters bought low, sold high, and moved housing supply from whites to blacks at an accelerating pace. By 1962, when blockbusting had been in existence for barely a decade, Chicago alone had over 100 operators. For a time, blockbusters around the country were on pace to destroy the price differential between white and black housing markets, making housing much more widely available for African Americans.
But make no mistake, these men were hated.
It’s easy to understand why segregationist whites hated the blockbusters, whom the segregationists accused of being race traitors perpetrating “communicide.” The reason progressives joined with the segregationists in supporting laws against blockbusting is more complicated. Progressives believed blockbusting entailed an “unconscionable exploitation of minority groups” for profit because blockbusters regularly charged blacks higher prices than whites. Congress responded by passing a series of regulations restricting blockbusting and in 1969, a federal court ruled that any black homebuyer could invalidate his property and finance contracts if he could demonstrate “that he was charged more than a white person would have been charged or that he received less favorable terms and conditions than would have been given to a white person.” On its face, that seems sensible. But practically, as Mehlhorn shows, these regulations and rulings preserved segregation:
Thus, by the early 1970s, any real estate agent who wished to sell a home to a black family faced enormous legal liabilities. If any clients alleged that their contractual terms were not identical to the terms a white family might have obtained, they would have an automatic cause of action in federal court to challenge the contracts. If a client asked about changing racial demographics, the agent would either have to decline to answer, or could be subjected to substantial civil and criminal penalties. Given the realities of the racially segregated markets of the time, the only safe way to avoid these lawsuits was to adhere to the prior professional code of racial steering: buy and sell homes only within a single race.
Blockbusters charged blacks higher prices but, as Mehlhorn explains, they also bore significantly higher risks and costs. “By dealing with blacks, blockbusters earned the social sanctions of the segregationist era, including boycotts, local government sanctions, and even death threats.” At the time, “banks would not lend to blacks and whites would not sell to blacks” so, Mehlhorn concludes, “Without the profits available from blockbusting, the real estate and finance industries might not have been willing to alienate their racist white customer base by dealing with blacks, or at the very least might have slowed their activities. The profits available to blockbusters were the biggest driver of support for black homebuyers during this period.” By eliminating those profits, well-intentioned activists eliminated blacks’ only promising avenue to escape the ghetto and live in middle-income communities.
Given all of these problems, it seems astonishing that progressive elements of society supported the anti-blockbusting movement. The problem appears to be that progressives lacked economic savvy, and in fact were openly hostile to market mechanisms. This hostility blinded them to the needs of individual blacks and allowed them to accept destructive policies. […]
The first way that blacks suffered from this bias by their leaders was at the individual level. Prior to anti-blockbusting laws, blacks had the choice of whether or not to patronize blockbusters. By the millions, blacks indicated that their preference was for blockbusting. The anti- market, anti-blockbusting progressives, however, refused to accept that choice as legitimate, and thus enacted laws that prevented blacks from acting upon these preferences. Perhaps some progressives genuinely felt that the decisions to patronize the blockbusters were the result of market distortions such as fraud. Others, however, refused even to accept the possibility that market mechanisms can empower individuals and reveal preferences.
Fear and misunderstanding about profit and market mechanisms also drives much of the modern left’s opposition to school choice. Even more prevalent is the concern that by choosing a better education for their children, parents who accept vouchers or tax-credit scholarships or enroll their children in charter schools thereby deprive traditional district schools of funding. The left’s solution, therefore, is to deprive families of that choice – and those families are disproportionately low-income minorities. 
Take, for example, the case of Washington D.C.’s Opportunity Scholarship Program (OSP). Nearly all of the OSP voucher recipients are black or Hispanic and a gold-standard study of the program found that it increased high school graduation rates by 12 percentage points. As the study’s lead researcher notes, this finding is important because “high school graduation is strongly associated with a large number of important life outcomes such as lifetime earnings, longevity, avoiding prison and out-of-wedlock births, and marital stability.” Moreover, Congress intentionally funded the OSP separately from the district schools to shield them from any fiscal impact. Yet although 74 percent of D.C.’s mostly black residents support the OSP, all but two Democrats in Congress voted against the OSP’s reauthorization last week.

D.C.’s non-voting member of Congress, Eleanor Holmes Norton, condemned the voucher program as Speaker John Boehner’s “pet project” and argued that “D.C. residents, not unaccountable members of Congress, know best what our children need and how to govern our own affairs.” However, by “our own affairs” Norton appears to be referring to government officials rather than individual residents and families. Norton’s language betrays the progressive inclination to celebrate democratic decision-making while dismissing decisions made in a market, a tendency that Mehlhorn detected in the progressive opposition to blockbusting:
One court made this argument explicitly, holding that blacks should be forced to express their preferences through political, instead of market, mechanisms. According to this court, the availability of housing from blockbusters actually reduced the likelihood of true justice, “by offering the long-oppressed black an unattractive yet alternative choice to that of a confrontation for equal buyers’ rights in a white neighborhood.” The explicit articulation of the court’s anti-market bias allows us to explore its moral and empirical flaws. At face value, the court’s argument seems brutal. After all, the court appears to be agreeing that individual blacks would choose blockbusters over political confrontation. Nonetheless, the court refuses to allow them that option, preferring to force them to take political action. In addition to moral problems with overtly removing decision-making power from blacks, the court’s logic has little empirical grounding. The court fails to consider the speculative nature of the eventual political relief, or the costs that would be imposed by delay while blacks waited for political reform to take effect. Moreover, it is not clear how making blacks desperate would have enhanced their ability to influence the all-white power-brokers of city government.
One hears echoes of these arguments in the claims of some modern leftists that–using Albert O. Hirschman’s lexicon–giving families an “exit option” (the ability to leave a school that isn’t working for them) undermines their exercise of “voice” (advocating for change) within in a school. However, this is an empirically testable hypothesis and it has been tested repeatedly. Of 23 studies on the impact of competition on district schools, 22 found a modest but statistically significant positive impact on student outcomes and one found no detectable difference. None found harm.

Indeed, the ability to leave may well enhance the ability of and propensity for parents to advocate change within their schools. Hirschman himself later realized that “opening up of previously unavailable opportunities of choice or exit may generate feelings of empowerment in parents, who as a result may be more ready than before to participate in school affairs and to speak out.” When administrators who know that parents have other options, they are more likely to pay attention to their concerns. And when parents see that the administration takes their concerns seriously, they’re more likely to speak up. Choice, therefore, benefits not only those who choose to leave it but also those who choose to stay.

Moreover, despite fears to the contrary, numerous studies have found that school choice improves integration. As Dr. Ben Scafidi details in a Friedman Foundation study released yesterday, school choice policies have a better track record of promoting integration than government efforts. Sadly, it is too often the case that “government restrictions on the choices of African Americans and of low-income families leads to a more segregated society.”

The market is not the enemy of social justice. As Mehlhorn observes, “Markets allow an expression of preferences, including in some circumstances the preferences of society’s worst-off.” The best way for policymakers to foster integration and remedy historical wrongs against minorities is to empower minorities to make decisions in their own best interests rather than to presumptuously make decisions for them."

Minimum wage hikes and reductions in ‘non-wage job attributes’

From Mark Perry.
"I posted yesterday on CD about how minimum wage laws force employers to discriminate against unskilled workers in favor of skilled workers, which is a way for employers to reduce the amount of costly on-the-job training provided to workers with no skills. But without a job that will now be filled by a more skilled worker following a minimum wage hike to $15 an hour, for example, unskilled workers are unable to acquire valuable on-the-job training while unemployed. Therefore, minimum wage = minimum on-the-job training  = maximum misery for unskilled workers.

But Don Boudreaux points out on Cafe Hayek that on-the-job training is just one of many different “margins” on which employers can adjust following an increase in the minimum wage. Here’s a list of some of the “non-wage job attributes” that employers offer and which can be adjusted (reduced) when the minimum wage rises:

– the extent and strictness of work demands
– flexibility in scheduling [including the number of hours worked]
– kindness and amiability in the workplace
– consideration and respect in the workplace
– upward mobility
– health insurance
– on-the-job training
– lockers for workers
– food for workers
– transportation (or transportation allowances) for workers
– the quality of air conditioning and lighting
– the number, quality, and cleanliness of restrooms for use by workers
– workplace comfort
– workplace safety

I would add:
– employee discounts on merchandise
– free or reduced cost uniforms
– company-sponsored holiday parties, picnics, and outings to sporting events
– tuition assistance and scholarships
– parking lot maintenance (including frequency of snow removal in winter)
– bonuses and profit-sharing

In other words, the quality of the workplace can easily be reduced by employers following an increase in the minimum wage in the same way that the quality of rental housing declines significantly as a result of rent control laws. Let me adjust my formula from yesterday’s post as follows with a fourth term:

Total Compensation for an Unskilled Worker = 1) Money wages + 2) Fringe benefits + 3) On-the-job training provided by the employer + 4) Other Non-wage job attributes.

Bottom Line: It’s a matter of simple economics and “minimum wage math” that when the money wages for unskilled workers is artificially increased by government fiat, many employers will have no other choice, if they want to remain profitable and stay in business, but to reduce: a) fringe benefits, b) on-the-job training and c) other non-wage job attributes. In that case, empirical studies that claim to find no negative employment effects following minimum wage hikes are probably not capturing the many other, and more difficult-to-measure, negative effects experienced by unskilled and low-skilled workers from artificially high monetary wages.

That is, to the extent that minimum wage increases are completely offset by employers naturally reducing the non-wage attributes offered to their employees to remain profitable, even unskilled workers who remain employed will not necessarily be better off from a minimum wage hike. Their total compensation could stay the same, or maybe even be reduced if the reductions in non-wage attributes more than offset the artificial increase in monetary wages. In the same way that a tenant who is able to find a rent-controlled apartment in Manhattan will pay a below-market rent, but will also have to live in a necessarily reduced-quality housing unit, the unskilled worker who manages to keep or find a job following an above-market minimum wage hike will likely work in a reduced-quality work environment with significantly reduced non-wage attributes.

(I’m fairly certain that politicians and minimum wage proponents almost never consider these real-world complexities and economic realities when advocating for a $10.10 or $15 an hour minimum wage law. They only look at some of the obvious, immediate, and visible benefits of a wage dictated by government fiat, while ignoring the many, less obvious, less visible, unseen, delayed and secondary costs of such legislation.)"

Tuesday, October 27, 2015

Private Science vs. Government Science

By Chris Edwards of Cato.
"In researching an upcoming study on privatization, I came across an interesting illustration of the advantages of private science over government science. Private science focuses on efficiency and results, but government science maybe not so much. 
The study by Jonathan Karpoff in the Journal of Political Economy found:
From 1818 to 1909, 35 government and 57 privately-funded expeditions sought to locate and navigate a Northwest Passage, discover the North Pole, and make other significant discoveries in arctic regions. Most major arctic discoveries were made by private expeditions. Most tragedies were publicly funded. By other measures as well, publicly-funded expeditions performed poorly. … Although public expeditions made some significant discoveries, they did so at substantially higher cost (as measured by crew size or vessel tonnage) than private discoveries.
Historical accounts indicate that, compared to private expeditions, public expeditions: (1) employed leaders that were relatively unmotivated and unprepared for arctic exploration; (2) separated the initiation and implementation functions of executive leadership; and (3) adapted slowly to new information about clothing, diet, shelter, modes of arctic travel, organizational structure, and optimal party size. These shortcomings resulted from, and contributed to, poorly aligned incentives among key contributors.
My upcoming study will look at the advantages of privatizing federal activities such postal services, air traffic control, and passenger rail. But policymakers should also explore the advantages of privatizing federal science activities.

Cato adjunct Terence Kealey has written about the advantages of private over government science, and he will discuss that topic at an upcoming Chicago seminar.

Meanwhile, if you plan to explore the Arctic, it would be best to go on a private rather than government ship. There would be less chance of getting scurvy–at least that’s the way it used to be, according to Karpoff."

Ex-Im: Welfare for Commodity Traders and China

By Michael Needham of Excerpts:
"An obscure taxpayer-backed government bank funneled $113 million in aid to an even more obscure commodities trading company. This isn’t some insidious plot revealed in the opening scene of a John Grisham novel. Rather, it is the widely accepted practice of the U.S. Export-Import Bank.

At the heart of this story is, almost predictably, a Swiss company. Glencore claims to be “one of the world’s largest global diversified natural resource companies.” The company’s U.S. presence is “modest” according to Ken Silverstein, who wrote the book The Secret World of Oil; however, its Stamford, Connecticut office “helps run” the company’s massive oil and gas trading activities.

Why would those activities be eligible for export assistance from the Ex-Im Bank? It is hard to know for sure because publicly available information about the bank’s activities is sparse. According to Ex-Im’s website, the $113 million in assistance was simply for “banking and finance.”

So what exactly were Glencore’s 325 traders exporting? It “involves not the fabrication of products with a punch press and other shop equipment,” wrote the Greenwich Time, “but rather the movement of commodities across borders at the punch of a computer key.” That same year Glencore produced $233 billion in revenue, making it one of ten largest companies in the world.

Exporting American commodities isn’t Glencore’s entire business model, though.

Quoting a seasoned commodities trader, Silverstein explains China's manufacturing base "could not exist without Glencore, because it is dependent on raw material imports, many of which Glencore plays a major role in trading and producing.”
While that may be a bit of hyperbole, it is also ironic considering proponents of the Ex-Im Bank frequently invoke the specter of “China Inc.” to justify the continuation of taxpayer-backed export subsidies. Last October, bank chairman Fred Hochberg told the Financial Times “Even a large business cannot compete against the second-largest economic power in the world.”

But, if you need more evidence this isn’t really about combating China’s aggressive use of export subsidies, consider that America’s credit export agency actually subsidizes state-run Air China and even the Export-Import Bank of China. That’s right, our Ex-Im works with their Ex-Im to, supposedly, create jobs in America."

Monday, October 26, 2015

Why Is the Rent Too Damn High? Because We Ignore the Real Problem

By Randal O'Toole of Cato.
"Rising home prices and apartment rents have been in the news lately, but almost no one is looking at the real causes behind these problems. Instead, they are proposing band-aid solutions that will do little to help most people afford housing but will greatly benefit special interest groups.
According to the news, BostonLos AngelesMiamiNew YorkPortlandSan Francisco-Oakland, San JoseSeattle, and Washington, DC, among other major urban areas, are all suffering from housing crises. Economists who have studied these regions know why their housing is becoming less affordable.

First, urban-growth boundaries and other land-use regulations in most of these regions have limited the amount of land available for new housing. Urban planners say these regulations are needed to control the externalities caused by urban sprawl. However, as New Zealand’s Deputy Prime Minister recently noted in a speech about a similar housing crisis in Auckland, urban planning itself “has become the externality” that is making housing the most expensive.

Second, in many of these regions–specifically, Los Angeles, New York, San Francisco-Oakland, San Jose, and Washington–rent control has only made housing less affordable for everyone not lucky enough to live in a rent-controlled apartment. Even though some of these cities exempt new developments from rent-control rules, developers know that such exemptions could be eliminated at any time and are wary of investing in new housing. Many of these and other cities have also passed “inclusionary zoning ordinances” that force developers to sell or rent 10 to 20 percent of the new housing units they build at below-market rates, which both discourages new development and increases the cost of the market-rate units that are built.

Although these problems are obvious to anyone who understands the rudiments of supply and demand, they are almost completely ignored by politicians, housing officials, and low-income housing advocates. Instead, the almost exclusive focus is on building government-subsidized (or, in the case of inclusionary zoning, developer-subsidized) housing. Yet this does nothing to solve the problem for the vast majority of homebuyers and renters.

California has the nation’s second-least affordable housing (after Hawaii), and probably has some of the most aggressive subsidized housing programs. Yet a recent report from the state legislative analyst’s office found that these programs have produced only about 7,000 subsidized housing units per year, or about 5 percent of new housing. In a state that has nearly 14 million homes and apartments, adding 7,000 subsidized units per year will have no measurable influence on overall prices, especially in the face of growth boundaries and other factors that make housing expensive.
So why is so much emphasis placed on a policy that won’t work while a policy of deregulating land markets is ignored? The answer is that long-standing federal subsidies to housing have created an affordable-housing-industrial complex that thrives on subsidies in unaffordable housing markets and whose reason for existence would be severely diminished if those markets were deregulated.

Take, for example, Enterprise Community Partners (ECP), whose mission (as described on its 2013 IRS Form 990) is “to create opportunities for low and moderate-income people through affordable housing.” ECP is heavily funded by your tax dollars to promote affordable housing, getting much of its tax support through Section 4 of the HUD Demonstration Act of 1993, which specifically designates ECP as a grant recipient.

Enterprise Community Partners has certainly found the business of promoting a few units of affordable housing, as opposed to making all housing more affordable, to be quite lucrative, at least for many of its staff. According to its tax form, only a quarter of the organization’s $58 million annual expenses went to grants aimed at making more affordable housing, while 62 percent went for salaries, benefits, and professional service contracts. (The rest went for things like conferences, travel, rent, and office expenses.)

More than two dozen of its staff members earned more than $200,000 in salaries and benefits in 2013. The United States of America gets along with just one vice president; ECP has sixteen of them, half of whom make more than the $230,700 per year taxpayers pay to Joe Biden.

The organization’s tax form also admits that it spent nearly $600,000 on lobbying in 2013. Thus, groups like Enterprise Community Partners that focus on creating a few units of affordable housing while they ignore the real problem become self-perpetuating. They use taxpayer dollars lobby to continue their tinkering at the edges of affordability while they and the people who listen to them do nothing about the overall affordability problem in regions with strict land-use regulation and rent control."

Thanks to minimum-wage increases Buffalo Wild Wings will not be expanding in Seattle and San Francisco

From Cafe Hayek.
"from Buffalo Wild Wings’s CEO Sally Smith’s recent interview with the Wall Street Journal (gated):
WSJ: How are minimum-wage increases affecting the way you make business decisions?
MS. SMITH: You look at where you can afford to open restaurants. We have one restaurant in Seattle, and we probably won’t be expanding there. That’s true of San Francisco and Los Angeles, too. One of the unintended consequences of rising minimum wages is youth unemployment. Almost 40% of our team members are under age 21. When you start paying $15 an hour, are you going to take a chance on a 17-year-old who’s never had a job before when you can find someone with more experience?
(HT Doug Irwin)
Makes sense – and keep in mind the point of this earlier post, as well as the research of Jonathan Meer and Jeremy West."

Sunday, October 25, 2015

What Media-Merger Crisis?

By Brent Skorup & Joe Kane of the Mercatus Center at George Mason University.
"Federal regulators recently approved AT&T’s acquisition of DirecTV and Verizon’s purchase of AOL and are currently deciding whether to permit the merger of two cable companies, Time Warner Cable (TWC) and Charter Communications. Inevitably, media mergers breed techno-panic in some quarters with a consistency matched only by the failure of their predicted disaster scenarios to materialize. 

Regarding the TWC-Charter deal, there is a largely unchallenged narrative that cable companies have local monopolies and the ability and desire to harm television competition. That notion fails to recognize the changing realities of media. It is true that decades ago many cities, with the encouragement of the Federal Communications Commission, granted cable companies exclusive contracts to build because of beliefs that subscription TV service is a natural monopoly. Those beliefs were not merely ill-founded—the market, it turns out, can support TV competition—the gifting of cable monopolies resulted in ugly corruption in cities and towns across the country. As a result, those natural monopoly theories were put to rest in the 1990s when policymakers removed regulatory barriers in order to make television provision more competitive. 

Those deregulatory actions of Congress and the FCC are starting to bear fruit for consumers because TV watchers increasingly have several alternatives to traditional cable television. The increased competition from the two national satellite TV companies and new TV services from “telephone” companies, like AT&T U-verse TV and Verizon FiOS TV, is intense. Cable companies have lost nearly 15 million subscribers since their peak number of subscribers in 2002. In 2004, over 70 percent of TV households had cable. Today, cable market share approaches 50 percent.

These numbers don’t even include all available TV options. Omitted from these measurements are households that subscribe only to online video, like Netflix or Amazon Instant, and those that supplement their online viewing with free broadcast television. These are harder to measure but a recent survey from the Leichtman Research Group suggests that 5 to 10 percent of U.S. households fall into this category. 

Market power in TV, clearly, has never been more precarious. The rise of competing providers in the past decade has coincided with falling TV production costs because digital technology makes cameras and editing much cheaper. The result is a seller’s market where content is king. It is impossible to stay caught up on all the quality programming that exists and hundreds of articles have been written about the Golden Age of Television we’re in. 

Economist Joseph Schumpeter wrote in the 1940s of the “creative destruction” of markets. Though Schumpeter’s description derives from Marxist theory, free market proponents have adopted it to describe the (sometimes messy) way that markets drive progress. Any industry touching technology, and includes TV and Internet providers, cannot be complacent. Disruption lurks with every passing year—so cable, telecommunications, and satellite companies spend billions every year upgrading broadband and TV infrastructure and acquiring content. 

The optimism many viewers have about the direction of media, communications, and entertainment is not shared by everyone. Fortunately, the doomsayers’ predictions typically do not age well. Look back, for instance, on the heated commentary surrounding contentious mergers like AOL-Time Warner, Sirius-XM, Sprint-Nextel, NewsCorp.-DirecTV, and Comcast-NBCU. Some of these deals worked out for the merging firms but some of these were disasters, not for consumers, but for their shareholders. Consumer habits are unpredictable and competition, like that from Netflix, iPhones, Pandora, Google Fiber, often comes from unexpected places. 

This news—there is no crisis in media that needs fixing—should come as a comfort to regulators. Instead of meddling with business plans and applying dated rules to new entrants, regulators should focus on removing entry barriers and making regulations consistent across industry."

What Bernie Sanders Doesn’t Understand About Germany’s Free College

Why does America have higher attendance and graduation rates?

By Scott Shackford of Reason. Excerpts:
"He recently tweeted a particularly stupid complaint about college loans, whining that there's no reason why their interest rates should be higher than for cars or mortgages. It was pointed out that cars and homes can be repossessed or foreclosed upon, thus reducing the risk from the banks for providing the loan and reducing the potential losses."

"Sanders points to other, smaller countries that have "free" college tuition (scare quotes because obviously somebody's paying for it): Finland, Denmark, Ireland, Iceland, Norway, Sweden, and Mexico. He takes special note of Germany, because even Americans can access their college system:
For a token fee of about $200 per year, an American can earn a degree in math or engineering from one of the premier universities in Europe. Governments in these countries understand what an important investment they are making, not just in the individuals who are able to acquire knowledge and skills but for the societies these students will serve as teachers, architects, scientists, entrepreneurs and more.
Since Sanders left out any analysis of why college is so expensive, it's worth exploring what exactly Sanders has left out when he invokes Germany's college system. Note that Sanders has said "A college degree is the new high school diploma"? That attitude is exactly backwards from how Germany approaches higher education. Germany does not have a work environment that demands a college degree for every well-paying career. The apprenticeship program that Sanders bemoans having lost in America is well intact in Germany. Many careers that require college degrees in America do not require college degrees in Germany.

Even with the free tuition, Germany actually has a lower college enrollment rate than many other Western countries, including the United States (check out World Bank data here). Actually, America has a higher rate of college enrollment than all of the countries Sanders lists except for Finland.
Oh, also: America has a higher college graduation rate than Germany, too. And a greater percentage of young Americans have college degrees compared to every country on Sanders' list except for Norway and Ireland.

Instead, Germany has a very robust vocational education track that partners businesses and the government to provide apprenticeships, so the government (and citizenry) is not paying the full burden for the students' training, though Germany is still covering classroom costs.

It is also a highly regulated, centrally controlled, and very inflexible system that probably won't fly in the United States. Tamar Jacoby noted at The Atlantic when exploring Germany's apprenticeship program a year ago:
What makes dual training work, every manager told us, are the standardized occupational profiles, or curricula, developed by the federal government in collaboration with employers, educators, and union representatives. Every young machinist training anywhere in Germany learns the same skills in the same order on the same timetable as every other machinist. This is good for apprentices: It guarantees high-quality programs where trainees learn more than one company's methods, making it possible for those who wish to switch jobs later on. But it's hard to imagine this level of state control or business-labor cooperation in the U.S.
It's certainly easy to see how a guy who thinks we have too many types of deodorant would not grasp that flexibility and innovation could be lost as a result of standardizing college the way we have public education. It's also possible Sanders wouldn't even grasp that this is a problem."

Saturday, October 24, 2015

Does higher regulatory uncertainty constrain credit? Maybe

See Lending on Hold: Regulatory Uncertainty and Bank Lending Standards. Here is the abstract bu three members of the Fed board of governors:
"Does higher regulatory uncertainty constrain credit? This paper focuses on the recent regulation of "qualified mortgages" (QM) and on the effects of the related rule-making process on bank lending. In 2011, the Federal Reserve proposed a set of criteria that would give lenders the presumption of a borrower's ability-to-repay a mortgage -- and, thus, legal protection should a borrower sue. But the debt-to-income (DTI) ratio criterion -- the most binding in the final rule -- was not specified in the proposed rule. The absence of such a bright line created high regulatory uncertainty for banks between the proposed and the final rule. Using public comments submitted by banks in response to the rule proposal, we compute a measure of policy uncertainty at the bank level. We show that more uncertain banks issued fewer loans (and for smaller amounts) after the rule proposal. To control for general economic uncertainty, we instrument our measure by a bank's past legal costs. We confirm that banks that historically were sued more often cut lending more severely during the rule-making process. At a more aggregated level, counties that recorded a large number of mortgage lawsuits also experienced lower house price growth."

What the Washington Post Gets Wrong about Free Markets

By Marian L. Tupy and Chelsea German of Cato.
"This morning, the Washington Post ran an op-ed titled, “How free markets make us fatter, poorer and less happy.” Actually, the data suggest the exact opposite: free markets make us healthier, richer and happier.
Free markets make us healthier

First, the authors argue that free markets result in an abundance of temptations, such as candy and fattening food, and that encourages obesity. Obesity is a problem, but let’s put matters in proper perspective. The best proximate measure of the health of a nation is life expectancy. That is increasing. In fact, Americans have never lived longer.

Moreover, a ban on fatty foods raises questions about personal freedom and responsibility. We allow people to buy alcohol, but discourage them from drinking and driving. Why not allow for sale of fatty foodstuffs, while discouraging gluttony through, for example, increased medical insurance premiums?
The free market has been amazingly successful in increasing food production across the globe. In 1962, people in 51 countries consumed fewer than 2,000 calories per person per day. By 2011 that number fell to one (Zambia). All the while, life expectancy around the world has increased.

Free markets make us richer

The authors of the Washington Post op-ed note that the average U.S. household does not save very much money. This, they say, is evidence of increasing poverty. This argument confuses two separate issues: spending and earning. If we want to encourage more saving, we may want to switch to a consumption tax, instead of an income tax. But regardless of what tax system we opt for, the data clearly show that the U.S. is becoming richer.In 2015, average income, adjusted for inflation, reached an all-time high.

Free markets make us happier

Economically freer countries are wealthier, and wealthier countries tend to be happier.  One early study suggested that greater wealth only correlates with happiness up to a certain point. That correlation came to be known as the “Easterlin Paradox.” Subsequent research suggests that wealthier people are indeed, on average, happier. 

As advisory board member Matt Ridley summarized in his book The Rational Optimist:
Rich people are happier than poor people; rich countries have happier people than poor countries; and people get happier as they get richer. The earlier study simply had samples too small to find significant differences. In all three categories of comparison—within countries, between countries and between times—extra income does indeed buy general well-being. That is to say, on average, across the board, on the whole, all other things being equal, more money does make you happier.
Find out more about improvements in health, wealth, happiness, and other areas of human wellbeing on"

Drug with rage-inducing >5,000% price-hike now has $1/pill competitor

Different company developed alternative in response to $750-per-pill price tag.

See article by Beth Mole at Ars Technica of Condé Nast.
"Turing Pharmaceuticals, the company that last month raised the price of the decades-old drug Daraprim from $13.50 a pill to $750, now has a competitor.

Imprimis Pharmaceuticals, Inc., a specialty pharmaceutical company based in San Diego, announced today that it has made an alternative to Daraprim that costs about a buck a pill—or $99 for a 100-pill supply.

“While we respect Turing's right to charge patients and insurance companies whatever it believes is appropriate, there may be more cost-effective compounded options for medications, such as Daraprim,” Mark L. Baum, CEO of Imprimis, said in a news release.

The alternative is not exactly the same as Daraprim, but it’s close. Daraprim’s active ingredient is pyrimethamine, which has been available since 1953 for the treatment of parasitic diseases (namely malaria and toxoplasmosis). Imprimis’ alternative also contains pyrimethamine as well as leucovorin, which the company said helps to reverse pyrimethamine’s negative effects on bone marrow.

Until now, Turing was the sole source of a pyrimethamine-based drug, which is often prescribed to patients with compromised immune systems such as those suffering from AIDS and cancer.

The price increase of Daraprim, announced last month, sparked widespread outrage against the company and its founder and chief executive, Martin Shkreli. The move by Imprimis is in direct response to those events, and the company said it plans to produce more cheap alternative drugs. In the news release, the company announced the start of a new program called Imprimis Cares, which will ensure affordable versions of the 7,800 generic FDA-approved drugs."
From the USA Today
"To be sure, the FDA has not approved Imprimis’ compounded drug formulations as a recommended treatment for toxoplasmosis.

But doctors can prescribe the medications for individuals when they perceive it to be a viable alternative treatment."
From Alex Tabarrok
"Imprimis Pharmaceuticals did not apply for approval to sell a generic version of Daraprim. As I argued earlier, that would take years and cost millions of dollars. Instead, it is doing an old-style end-run of the FDA process by offering its alternative under the compounding pharmacy laws. That means that it can only sell to order, on a patient by patient, prescription by prescription basis. Since Daraprim is not widely used this may work. Indeed, I hope this end run works but my reading of the act is that compounders can only supply drugs in large quantities if they are on the FDA’s shortage list. Perhaps the FDA will look the other way, however, in order to send Turing and similar firms a message."

Friday, October 23, 2015

Carbon dioxide emissions over two centuries have produced massive benefits for humanity

See The great carbon boom by Indur Goklany, an independent scholar and author. He was a member of the U.S. delegation that established the IPCC and helped develop its First Assessment Report. He subsequently served as a U.S. delegate to the IPCC, and an IPCC reviewer. Excerpts:
"The plant-productivity increase has been steady, large and ubiquitous: widespread evidence confirms that the earth is greener; terrestrial ecosystems’ productivity has increased 14% since 1982. Further, the IPCC estimates that the terrestrial biosphere productivity is 5% over pre-industrial times, that is, “carbon fertilization” due to rising CO2 levels has helped overcome any productivity loss from deforestation and other habitat loss. (Habitat loss is the greatest threat to terrestrial biodiversity and natural ecosystems.)

Carbon dioxide emissions over two centuries have produced massive benefits for humanity — and nature. Halting emissions could increase hunger and  habitat destruction

This productivity increase is to be expected: the results of thousands of scientific experiments indicate that at current levels of atmospheric CO2, crop yields should increase by 9-15% relative to pre-industrial levels because higher CO2 increases rates of plant growth (i.e., photosynthesis), improves the efficiency with which plants use water, increases their drought resistance and, possibly, increases resistance of crops to pests and weeds.

These increases in crop yields, in addition to helping feed a larger population, have limited the need to convert existing habitat to farming. The increased crop yields from higher CO2 levels reduced habitat loss by 11-17% compared with what it would otherwise have been. Consequently, more land has been left relatively wild.

Satellite evidence also confirms that increasing CO2 concentrations have resulted in greater productivity of wild terrestrial ecosystems in all vegetation types. Moreover, increasing CO2 concentrations have also increased the productivity of many marine ecosystems, and although this effect may be partially or fully offset by the effect of lower average pH on calcification rates in some marine organisms, the evidence of net harm in wild marine ecosystems remains sparse."

"Empirical trends indicate that climate-sensitive indicators of human well-being have also improved markedly over recent decades, notwithstanding the gloomy prognostications of warmists.

The above-noted increases in crop yields reduced chronic hunger in the developing world from 24% of population in 1990–92 to 14% in 2011–13, despite a 37% increase in population. The increase in GDP per capita reduced the absolute poverty level in developing countries by almost three-quarters between 1981 and 2012 (from 54% to 15%). Between 1990 and 2012, more than 2 billion additional people obtained access to better sanitation and safer water. The global mortality rate for malaria, which accounts for about 80% of the burden of vector-borne diseases that may pose an increased risk due to global warming, declined by 95% since 1900. Deaths from extreme weather events have declined by 93% since the 1920s and, once the increase in the amount of wealth-at-risk is accounted for, there has been no increase in economic damages from extreme weather events.

The wide divergence between dystopian warmist claims and empirical reality can be attributed to the fact that those claims derive largely from unvalidated models. Empirical data, however, indicate that these models have overestimated the rate of warming.

A recent study compared projections from 117 simulations using 37 models versus empirical surface temperature data. It found that the vast majority of the simulations/models have overestimated warming, on average by a factor of two for 1993–2012 and a factor of four for 1998–2012.It also estimated that the observed trend for 1998–2012 was marginally positive, but not statistically significant; that is, notwithstanding model results, warming has essentially halted.

Impact models, likewise, have underestimated direct benefits of CO2, overestimated the harms from climate change, and underestimated human capacity to adapt which enables the benefits to be captured even as it also reduces the harms. Consequently, these models overestimate net negative damages.  Not surprisingly, dire prognostications of increasing death, disease, and decline of human and environmental well-being from global warming are not reflected in the empirical data."

In the theater community of Los Angeles of all places, there’s a rebellion against mandated pay hikes

See Acting Up Against the Minimum Wage: Los Angeles actors sue their labor union to preserve small theaters. Editorial from the WSJ. Excerpts:
"On Saturday in federal court in Los Angeles, a group of actors and other workers sued Actors’ Equity Association to stop the union from forcing theaters with fewer than 100 seats to pay union members at least $9 per hour.

The rebels, who seem to have a better grasp of economics than the union leadership, warn in their lawsuit that forcing the rules on theaters that used to be exempt will force many to “close altogether.” They add that “all will have greater difficulty producing original works.”

It turns out that just as young, unskilled workers in the restaurant industry are willing to accept low wages to gain valuable experience, actors also want the freedom to make their own decisions on which jobs to accept. According to the lawsuit, “Thousands of actors and other creative artists will likely lose access to important theatrical volunteer acting opportunities which contribute to their creative development, enhance their professional careers, and often lead to recognition by others in the theatrical, television and film industries and then to remunerative acting employment.”"

Thursday, October 22, 2015

Clear evidence of a gender gap in annual performance of lawyers

See Politically Incorrect Paper of the Day: So Sue Me! from Marginal Revolution.
Gender Gaps in Performance: Evidence from Young Lawyers
Abstract:  This paper documents and studies the gender gap in performance among associate lawyers in the United States. Unlike other high-skilled professions, the legal profession assesses performance using transparent measures that are widely used and comparable across firms: the number of hours billed to clients and the amount of new client revenue generated. We find clear evidence of a gender gap in annual performance with respect to both measures. Male lawyers bill ten percent more hours and bring in more than twice the new client revenue than do female lawyers. We demonstrate that the differential impact across genders in the presence of young children and differences in aspirations to become a law firm partner account for a large share of the difference in performance. We also show that accounting for performance has important consequences for gender gaps in lawyers’ earnings and subsequent promotion. Whereas individual and firm characteristics explain up to 50 percent of the earnings gap, the inclusion of performance measures explains a substantial share of the remainder. Performance measures also explain a sizeable share of the gender gap in promotion."

Minimum wage effect? From Jan. to Sept. Seattle MSA restaurant jobs fell -700 vs. +5,800 food jobs in rest of state

From Mark Perry.

"In June of last year, the Seattle city council passed a $15 an hour minimum wage law to be phased in over time, with the first increase to $11 an hour taking effect on April 1, 2015. What effect will the eventual 58% increase in labor costs have on small businesses, including Seattle area restaurants? It’s too soon to tell for sure, but there is already some preliminary evidence that the recent minimum wage hike to $11 an hour, along with the pending increase of an additional $4 an hour by 2017 for some businesses, has started having a negative effect on restaurant jobs in the greater Seattle area.



The lighter blue line in the top chart above shows that restaurant jobs in the Emerald City started to stagnate and then decline around the first of this year (when the state minimum wage increased to $9.47 per hour, the highest state minimum wage in the country), following steady growth in Seattle MSA food services employment during the previous five-year period between January 2010 and January 2015 (data here). On April 1 of this year, the city’s minimum wage increased to $11 an hour which may have contributed to the loss of 700 Seattle area restaurant jobs between January and September (new BLS employment data for last month were released yesterday), the largest decline over that period since a loss of 3,000 restaurant jobs in 2009 during the Great Recession (see bottom chart above). What makes the restaurant job losses this year especially noteworthy are that the average job gain during the January-September period over the previous five years from 2010 to 2014 was almost 3,000, and over the previous three years nearly 4,000.

What is also noteworthy about the loss of Seattle restaurant jobs this year is the fact that restaurant employment in the rest of Washington state is booming this year, as the top chart shows (see dark blue line). At the same time that Seattle area food services employment has declined this year by 700 (and by -0.52%), restaurant jobs in the rest of the state have increased by a whopping 5,800 new positions (and by 6.6%).

And overall employment in the Seattle MSA increased 1.9% and by 34,800 jobs between January and September, while jobs at the state level increased 1.6% during that period, with both of those job growth rates far above the 1.1% growth in payroll employment at the national level during that period.

Bottom Line: Overall, job growth rates this year from January to September in Washington state (1.6%) and in the Seattle MSA (1.9%) are above average compared to the 1.1% payroll growth nationally from January to September of this year. Further, restaurant employment in the state of Washington outside of the Seattle MSA is booming this year, with food services jobs increasing by 5,800 (and by 6.6%) between January and September. Meanwhile, there is at least one weak spot in Washington’s employment situation – restaurant employment in the Seattle MSA has declined by 700 jobs since January, the largest decline over that period since 2009.

One likely cause of the stagnation and decline of Seattle area restaurant jobs this year is the increase in the city’s minimum wage. Perhaps Seattle’s restaurant employment will recover, or perhaps it will continue to suffer from the upcoming full 58% increase in labor costs for the city’s restaurants that will be phased in during the coming years – time will tell. What we know for sure is that there are now 700 Seattle area restaurant workers who were employed in January who are no longer employed today, so it looks like the Seattle minimum wage hike is getting off to a pretty bad start. Especially considering that restaurant employment in the rest of the state is booming, and nearly 6,000 more restaurant workers are employed today than in January."

Sunday, October 18, 2015

Don Boudreaux And Deirdre McCloskey On The Minimum Wage

Here is the link.
"from page 455 of the second edition (1985) of Deirdre McCloskey’s brilliant textbook for courses in intermediate microeconomics, The Applied Theory of Price (footnote deleted):
The assertion that the minimum wage causes unemployment and especially that it causes unemployment among teenagers is controversial.  It is fair to say that most economists believe this assertion.  But some do not believe it, on various grounds.  One line of counterargument is that the minimum wage encourages businesses to improve machinery, buildings, materials, and other things workers work with to justify the higher wage paid.  It is argued that an unskilled worker pushing a broom is not as valuable as the same worker pushing a $1500 automatic broom-mop-waxer.  There is an element of confusion in the argument, for it must be admitted that if it were good for the economy to invest in such automatic equipment before the minimum wage the economy might well have done so already.  And if it were bad for the economy it is strange to argue that the investment thus induced artificially by the minimum wage is a good thing.  Another and more persuasive line of argument … is that working conditions will adjust to offset the higher wages.  A slow janitor at $2 an hour is no better bargain to the company than a fast one at, say, $5.  The company that hires the janitor will be willing to pay the higher price if it can specify that the janitors rush around at top speed.  A faster pace of work or a greater degree of self-supervision or a higher standard of precision might all tend to compensate for the higher wage paid.  This line of argument, however, has the same fault as the first.  True as it may be, it does not necessarily justify the minimum wage.  The mix of wages and conditions that existed before the state intervened in exchange presumably had some desirable feature, or else it would already have been bargained away.  In the end the argument in favor of the minimum wage must come down to a simple distaste for the result of exchange in the absence of intervention.  The feeling is that we simply should not tolerate anyone in a job so undignified that it was worth only $2 an hour.  Better that such people be supported by the rest of us, or even starve, than that they be required to work at such a job.

Thirty years ago, when Deirdre wrote the above, the economics profession was more in agreement than it is today about the negative consequences of the minimum wage on low-skilled workers.  The shrinking since then of this level of agreement, however, ought not be interpreted – as some people interpret it – to mean that today most economists agree that at least modest increases in the minimum wage do not reduce low-skilled workers’ job options.  If this 2013 survey of prominent economists by the University of Chicago’s Booth School of Business can be read as revealing the current state of thinking of economists generally, then a plurality of economists still agree that raising the minimum wage (at least if the raise is by 24 percent or more) does indeed “noticeably” make it more difficult for low skilled workers to find jobs.

(Note: The answers to which I refer are to Question A in this survey.  These same economists’ responses to Question B in the survey do not mean that ‘most’ or even a plurality of economists today deny the standard prediction that raising the minimum wage reduces low-skilled workers’ job prospects.  Question A is ‘positive’ while Question B is normative.  As David Hume made clear – and as these survey results serve as evidence – no “is” ever implies an “ought.”)

The shrinking of economists’ (weak but real) pre-1990s consensus in support of the proposition that even modest hikes in the minimum wage reduce job prospects for low-skilled workers began in earnest with the 1994 publication of David Card’s and Alan Krueger’s paper “Minimum Wages and Employment:  A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania.”  My aim here is not to point out specific research-design flaws in this paper; David Neumark and William Wascher (among others) have done a fine job on this front.  Instead, I suggest that the warm reception that Card’s and Krueger’s paper received by many economists reflects the (to me sad) reality that the percentage of economists who have mastered sound price theory has shrunk.  Mastery of technique, as impressive as such mastery is, has both selected in to the economics profession people who are especially good at technique to the exclusion of people who are especially good at economic reasoning, and – because mastering technique is not costless – pushes students of economics to spend more time mastering technique and, hence, to spend less time mastering sound microeconomic reasoning.

In short, the economics profession is today more populated with people who simply do not know what probing questions to ask.  Such people suppose that if they gather and process data and then generate statistically significant results, they are doing sound research.  The conformity of such statistically significant results with some coherent underlying theory is either of no concern (“The data speak for themselves!”) or, more frequently, such conformity is forced in an ad hoc manner – such as when those economists who find empirically that modest hikes in the minimum wage cause no negative employment effects for low-skilled workers explain their finding by asserting that this finding is evidence of monopsony power in the market for low-skilled workers.

Such economists not only implicitly assume, often without justification, that their econometric results capture enough relevant features of an enormously complex and ever-changing reality to enable them to draw from their findings firm conclusions about reality.  These economists also – trusting their data but having too little facility with microeconomic theorizing – don’t probe with questions the validity of the theory that they grab to explain their empirical findings.

Such questions would here include “If monopsony power is so widespread as to justify minimum-wage legislation, why are profit rates in industries that employ lots of low-skilled workers very low?”  “Why do not other greedy employers enter the market to take advantage of these underpaid workers and, thereby, compete wages up to competitive levels?”  “Why should we suppose that our finding of monopsony power at time t and in place g means that such power will exist – with a certainty sufficient to justify our advocating a hike in the minimum wage – also at time t+1 in place g (or exists at time t in places h and j, or will exist at time t+1 in places h and j)?”  “What reason have we to presume that government officials can, as a rule, be trusted with the power to impose minimum wages in ways that are welfare-enhancing rather than vote-enhancing?”  “Why, if employers really do possess monopsony power, must these employers raise the wages of their current low-wage employees if and when these employers seek to hire more low-skilled workers?  That is, wouldn’t monopsony power give to employers who possess it the ability to hire a new worker at a wage higher than the wage paid to its existing workers without that employer worrying about losing any existing workers to other employers?  Or put differently: why presume that no wage discrimination exists in labor markets that are genuinely infected with monopsony power – wage discrimination that might well render even a modest hike in the minimum wage destructive of some jobs for low-skilled workers?”"

Canada's private air-traffic system

See Nav Canada Draws Interest in U.S: Northern air-traffic system is attracting attention as model for U.S. privatization fans by Susan Carey of the WSJ. Excerpts:
"It is an appealing story: Nav Canada operates through user fees that Mr. Crichton says are 35% lower than the government formerly levied in ticket taxes, not adjusted for inflation. The operation is safer while handling more traffic with fewer people, he says. It can sell bonds to fund upgrades, unlike the FAA, and airlines save fuel through more efficient altitudes and routes, Nav Canada says."

"About two dozen nations in the past two decades have created state-backed corporations or public-private partnerships to take air-navigation control from government bureaucracies.

The foremost concern in such changes is maintaining flight safety. Auditors from the Transportation Department’s Office of the Inspector General recently visited four overseas air-navigation providers and concluded that “separating air navigation and safety/regulatory functions has not impacted safety” in Canada, France, Germany and the U.K.

Mr. Crichton says Nav Canada has cut the rate of loss of separation—a key risk indicator that measures how often planes get too close—to under 0.8 per 100,000 flights last year from more than 1.4 when the government was still running things."

"Nav Canada has brought in-house much of the engineering and software development previously done by contractors, which has helped cut costs while freeing it to launch new products and services. Sid Koslow, chief technology officer, said Nav Canada doesn’t favor expensive, “big bang” projects like the FAA’s NextGen. But it has widely rolled out some technology the U.S. doesn’t yet have, such as data communications between pilots and controllers, or isn’t finishing installing, such as automated air-traffic management systems at all of its facilities.

It also is trying to capture revenue for its know-how. Nav Canada has sold its tower automation system to eight Australian airports. It developed a Web-based viewer that monitors airport activity and helps airports and airlines avoid congestion. And it owns 51% of a company that plans to launch satellite-based air-traffic surveillance covering the planet. Nav Canada and its partners will sell those signals to other air-navigation service providers."