Tuesday, May 31, 2016

When countries do have trade surpluses or deficits, they reflect shifts in savings/investment propensities, and are essentially unrelated to globalization

See Random thoughts on globalization by Scott Sumner.
"Here's Scott Alexander:
An article by Freddie deBoer in this month's Current Affairs proposes "Journalistic Self-Outsourcing". DeBoer notes that lots of journalists and intellectuals suggest that protectionism and other anti-globalization policies are immoral. For example, Zack Beauchamp of Vox calls Bernie Sanders' skepticism of free trade "screwing the global poor"; Brad deLong calls the same "a call to keep China a society of poor subsistence rice farmers as long as possible - keep them poor, barefoot, uneducated, and by no means allow them to work at any of the high-value manufacturing occupations we want to keep in the United States."
Here's how Fredrik deBoer begins his response to DeLong:
We have entered another phase of journalists, raised in affluence and currently enjoying at least middle class incomes -- who are thus, according to their own moral calculus, very economically privileged -- telling Americans devastated by the collapse of the uneducated labor market that their poverty, marginalization, and hopelessness is Actually Good, because people in Bangladesh can now move from absolutely abject poverty to slightly-less-abject poverty. Provided the sweatshop where they work doesn't collapse on them. And provided they are willing to endure a nightmare of nonexistent labor power, terrible health and safety standards, total impunity from their bosses, and for the women, an atmosphere of near-constant sexual threat and exploitation.
I'm not familiar with deBoer, so I have no idea whether he's being dishonest or if he's simply unaware of global realities. But he's got things exactly backwards. The gain in living standards in recent decades (due to neoliberalism, including globalization) is one of the best things that has ever happened. Yet look at the adjectives that deBoer uses:
Americans devastated by the collapse
people in Bangladesh can now move from absolutely abject poverty to slightly-less-abject poverty
The losses to certain segments of America, while large in an absolute sense, are utterly trivial compared to the gains in living standards seen in places like Asia. And yet deBoer makes it seem like it's the Asian gains that are trivial. Does he not know what it means to see per capita income rise from say $1000 to $2000, or $5000, or $10,000? Or is he just trying to score debating points? I don't know. I basically agree with Scott's take on all this, but I'd like to comment on this paragraph in Scott's long post:
Again, there's a contingent argument otherwise. If you're really pro-globalization, you might believe that it's impossible for the Chinese to take all our jobs, in the same way that the Luddite Fallacy says it's impossible for robots to take all our jobs. The more Chinese take manufacturing jobs, the more Americans will have lots of money which will encourage new service jobs that the Chinese can't easily take. If this is Beauchamp's argument, he could say that we should globalize all the jobs that can be globalized, including his if possible, and then he will just move to an unglobalizable job. Since his job hasn't been globalized yet, maybe he's already in an unglobalizable job, so people should just stop bothering him.
I don't think that's a useful way to frame things---it makes it seem like rich countries simply outsource tradable goods jobs to poor countries, which is not at all what's going on. When thinking about the impact of globalization on the US it's useful to view the US trade account as balanced. You might find this claim strange, as we actually run a large deficit. So let me explain in 4 steps: 
 1. I am fairly confident that for the developed world as a whole, trade is roughly balanced. The rise of manufacturing in developing countries does not cause significant trade deficits in the developed world. Some developed countries, especially English-speaking countries such as the US and Australia, run trade deficits, while other developed countries such as Germany, Japan and the Nordics run big trade surpluses. But overall you have a roughly balanced trade account for rich countries. Thus even if you believed that trade deficits destroyed jobs in manufacturing (I don't), the argument would be very hard to apply to the developed world as a whole, because we export about as much as we import. So when we import more, we also export more. If there are fewer jobs in manufacturing in the developed world (and there are) it's due to automation, not trade.

2. I hope you are with me so far, as the preceding argument isn't particularly controversial. The next step may be controversial. When countries do have trade surpluses or deficits, they reflect shifts in savings/investment propensities, and are essentially unrelated to globalization. Because the US invests more than it saves, it would run a big trade deficit even if China were not a big factor. In fact, before China became a big factor we did have big deficits with places like Taiwan, Japan, Germany, etc. Germany has labor costs comparable to the US, but doesn't see their manufacturing jobs being taken away by China. They run trade surpluses because they save more than they invest. 

3. I was unable to get good data on manufacturing, but for what it's worth one source claimed the US exports $1.4 trillion in manufacturing goods each year, and various sources had total manufacturing output in the US as just above $2 trillion (I am not certain this data is correct.) The point is that workers in the export part of the manufacturing sector are actually helped by trade liberalization. Given a trade deficit of say 3% of GDP, any big boost in imports will lead to an equally big boost in exports, and in jobs manufacturing those exports. Less that 9% of American workers are in manufacturing, and most of those seem to be in sectors helped by trade. 

4. To summarize, trade deficits are not a problem, and don't cause a higher unemployment rate. But even if I am wrong about deficits, globalization is not causing our deficits, as indicated by the fact that the entire developed world has been heavily impacted by globalization, but has roughly balanced trade. It's (almost) all about automation.

Some commenters claim that economists are hypocrites because they don't advocate outsourcing their own jobs to Asia. DeBoer makes a similar accusation against DeLong. I'm not sure that's true, as I see increasing numbers of Asian job candidates at the AEA meetings, looking for academic jobs, and I approve of that trend, as do most economists that I know. On the other hand, I suppose economists might be opposed to an otherwise desirable policy change that immediately took away 100% of our jobs, so perhaps in that sense the accusation is true. But beside the point. I am pretty sure that DeLong doesn't complain when factory workers fail to advocate the outsourcing of their jobs.

Our models predict that trade will hurt people in some industries, and that the losers from trade will lobby Congress to prevent open markets. If I were an American textile worker I'd be pissed off right now. And yet cynics who contrast the views of economists and unemployed textile workers are missing the point. The really interesting divergence is between economists and those non-economists who have the same economic interest as economists.

Doctors, lawyers, plumbers, and electricians, are all helped by free trade, as their jobs are not threatened by imports, and they gain as consumers. Just like economists. However their views on trade are very different from the views of economists, in two ways:

1. Most people believe that if you like a domestically built car almost as much as an import, the patriotic thing to do is to buy the American car. Economists believe that if the imported car makes you a tiny bit happier, the patriotic thing to do is to buy the BMW. (Or at least good economists, who probably account for at least 37% of the profession.)

2. Most people view trade and automation as being radically different issues. Technological progress is viewed as good; trade is viewed with some suspicion. Economists see the two issues as being quite similar; creative destruction that improves overall welfare at a cost of painful dislocation for some workers and companies. Just imagine if Trump started railing against technological progress---even his supporters would be perplexed. Belief in "progress" is almost a religion in America. And yet it's automation, not trade, which is destroying millions of manufacturing jobs all over the developed world. Again, for the developed world as a whole, trade is roughly balanced. It's automation that destroyed factory jobs in the developed world.

The bottom line is that it's too easy to dismiss the views of economists by pointing to their comfy position, unthreatened by Chinese imports. For better or worse, we really do have a radically different view of how the world works. I can respect someone who goes full bore Luddite. I won't agree with them, but I can respect them. I cannot respect anyone who becomes an anti-globalization activist without also railing against technological progress. Instead, I assume they don't understand the issue---they haven't yet absorbed the message in Paul Krugman's Pop Internationalism. They aren't rejecting comparative advantage and trade; rather they don't yet understand the concept.

PS. I am not certain about my trade account claim. I found some recent current account data that seemed to show a net surplus for the developed world, defined as Western Europe, plus the US, Canada, Australia and the rich parts of East Asia. I'm pretty confident that if the trade balance is smaller than the CA balance, the difference is not dramatic enough to affect my claim that trade is roughly balanced for the developed world. In any case, the Swiss will tell you that service exports are nothing to sneeze at.

Tyler Cowen has a new post reminding us that reduced employment in manufacturing is about automation, not trade. However contrary to the title of his post, China is not really deindustrializing (prematurely or not), it is becoming more efficient at a rapid rate--the mark of a successful economy. Manufacturing output in China, already the world's largest, continues to rise rapidly."

Five Facts about the Minimum Wage

By Alan Reynolds of Cato.
"1. A dozen California metropolitan areas – including big cities like Fresno, Stockton, Bakersfield and Modesto – already have unemployment rates from 8.0% to 18.6%. Yet California’s statewide minimum wage is now scheduled to rise every year through 2022.
2.  News reports imagine that raising the minimum wage will push up other wages, so average wages would supposedly rise more quickly. On the contrary, three of the four most recent increases in the federal minimum wage were quickly followed by prolonged stagnation in average wages.
change in avg and min wage

3. In 2015, twice as many earned less than the $7.25 federal minimum wage (1,691,000) as the number paid that minimum wage (870,000).

4. Every time the federal minimum wage has been increased the number earning less than that minimum always increased dramatically.  This was not just true of teenagers but (as the graph below shows) also for those over 25.  When the minimum wage is pushed up faster than the market would have moved it, the effect is to greatly increase the proportion of jobs paying less than the minimum (including working for cash in the informal economy).  Employers offering less than the minimum, legally or otherwise, then enjoy a flood of unskilled applicants unable to compete for scarcer opportunities among larger businesses subject to minimum wage laws. Such intensified rivalry for sub-minimum-wage jobs then pushes the lowest wages even lower.

more were paid less than min when min wage went up

5. Regardless of federal, state or city laws, the actual minimum wage is always zero."

Monday, May 30, 2016

No, legal weed is not ‘dumbing down’ the nation’s teens

By Christopher Ingraham of The Washington Post. Excerpts:
"Given the widespread liberalization of marijuana laws and huge changes in public acceptance of the drug, you might expect that by now we'd be seeing more marijuana use — and more problematic use, such addiction and dependency — among the nation's teens. But in fact the exact opposite has happened, according to a new study from Richard Grucza and colleagues at the Washington University School of Medicine in St. Louis.

The number of American teens with marijuana-related problems — such as dependency on the drug, or troubles with family and school due to marijuana use — fell by 24 percent between 2002 and 2013. The overall number of teens using marijuana fell, too. And the teens who do use marijuana are less likely to experience problems due to the drug.

"We were surprised to see substantial declines in marijuana use and abuse," Grucza said in a statement. "Whatever is happening with these behavioral issues, it seems to be outweighing any effects of marijuana decriminalization.""

"The reduction in the past-year prevalence of marijuana use disorders among adolescents took place during a period when 10 U.S. states relaxed criminal sanctions against adult marijuana use and 13 states enacted medical marijuana policies," the study found. "During this period, teenagers also became less likely to perceive marijuana use as risky, and marijuana use became more socially acceptable among young adults."
"the number of adolescents experiencing a broad array of non-drug-related conduct problems — fighting, stealing, arguing with their parents — was declining, too. And so they divided the kids experiencing marijuana-use problems into two groups: those who exhibited marijuana-use disorders alongside other conduct problems and those who had marijuana-use disorders but otherwise experienced no other conduct problems.
They found that the decline in marijuana-use disorders was concentrated almost exclusively in the kids dealing with other problems on top of their pot use: "We observed a decline in the proportion of adolescents who both reported conduct problems and met criteria for marijuana use disorders. In contrast, the proportion of adolescents with marijuana use disorders who did not report conduct problems remained relatively constant."

Researchers know that bad behavior and drug use often go hand in hand among teens. While the causality can go either way — bad behavior causes drug use or vice versa — a reduction in one usually accompanies a reduction in the other. So if teens are becoming better-behaved overall, it stands to reason that drug problems will decrease, too.

"Other research shows that psychiatric disorders earlier in childhood are strong predictors of marijuana use later on," Grucza said in a statement. "So it's likely that if these disruptive behaviors are recognized earlier in life, we may be able to deliver therapies that will help prevent marijuana problems — and possibly problems with alcohol and other drugs, too."

Again, the research here does not at all show that liberalization of marijuana laws caused these reductions in teenage marijuana abuse. But it does strongly suggest that other factors — such as broader behavioral and mental health trends — are much more likely to drive changes in teen marijuana use than other factors, such as laws or attitudes toward pot.

Grucza's study adds to a growing body of research showing that changes to marijuana policy have had a much smaller effect on teenage drug use than once feared. A paper published in Lancet Psychiatry last year found that passing medical-marijuana laws had no effect on teen marijuana use at the state level. Other large surveys of adolescents, such as the Monitoring the Future Study, find that in recent years teen marijuana use has been flat. State-level federal survey data shows little change in teen marijuana use, even in states that have legalized it for adults."

The other great accomplishment of markets is that they reconcile the choices people make for themselves with the choices other people are making

From Cafe Hayek.
"from pages 73-74 of NYU economist William Easterly’s superb 2006 book, The White Man’s Burden – a book that explores the differences between economic ‘development’ that is designed and imposed by “Planners” and economic development that is undesigned and generated by “Searchers”:
The other great accomplishment of markets is that they reconcile the choices people make for themselves with the choices other people are making.  Back at the dinner table we find that no Planner is necessary to process the enormous amount of information that is required to decide how much pasta, rice, cheese, and takeout cuisines of various cultures to supply to the people of New York.  This great achievement of markets is achieved through Searchers.  The suppliers search for customers, the customers search for suppliers, and the price adjusts up or down to equate supply and demand.  So the market determines prices and quantities to reconcile the needs and abilities of suppliers and consumers.  The price reflects both the additional cost that the supplier incurs to supply an additional item and the additional benefits that the customer gets from purchasing one more of each item.  Hence, the market matches the additional cost to society of producing each item to the additional benefit to society of consuming that item.  The market comes up with a basket of commodities produced at the lowest possible price for the highest possible benefit.
Does this competitive, decentralized market pricing system work perfectly in reality – as in ‘never failing to maximize benefits at some given cost, or never failing to minimize the cost of generating some given benefits’?  Does this market system always and at every moment ensure that all willing buyers have all of their needs that can be met at appropriate costs actually met at appropriate costs?
Answering these questions can be surprisingly difficult depending on how “benefits” and (especially) “costs” are defined.  But my answer is “no.”  No: real-world markets, even in ideal institutional and cultural settings, never achieve maximum maximization of human well-being.  Genuine opportunities for improvement are always present.  (These opportunities are a chief fuel for the on-going market process.)

But the reality that deserves our attention and admiration is that markets, where they are allowed to work, work as well and as smoothly as they do.  The failures of markets when private property rights are at least reasonably secure and most prices are allowed to rise and fall in response to market forces are nothing as compared to the successes.  And a great danger is this: efforts to tax, subsidize, or regulate a market in ways meant to correct whatever failures currently exist are far too likely not only themselves to fail to correct those failures, but that these efforts will also so disturb the complex interactions of the market that the net result is a worsening of the overall market outcomes."

Sunday, May 29, 2016

Did increased trade with China from 1990-2007 cause employment problems or was it government-program changes that made being unemployed a bit easier?

See Getting Trade Straight by Don Boudreaux.
"Here’s a comment that I left this morning on this EconLog post by David Henderson:
David: Thanks for the pointer to Feenstra’s paper.
Here’s one elaboration on the point you make – and that Scott made in an earlier post – about the Autor, Dorn, & Hanson paper on American trade with China. Specifically, I’m led to offer this elaboration by your admission that you’re “a little surprised at the long-term reduction in U.S. employment.” (Note that what I say here is not meant to suggest that such surprise is inappropriate or, well, surprising. I share that surprise. And I agree with all that you write above.)
All predictions, even those that Hayek called “pattern predictions,” of course rest on ceteris paribus assumptions. When an economist predicts that increased imports will have no long-run effect on the number of jobs (or rate of unemployment) in the domestic economy, the empirical prediction that the data will reveal this theoretical prediction to be correct rests on countless assumptions about policies, preferences, physical constraints, even culture, remaining sufficiently unchanged so as not to prevent the creation of a large-enough number of new employment opportunities in the long-run to offset the jobs ‘destroyed’ by the increased imports. So stated, the above seems to be trivially true.
Yet over the course of the 17-year period studied by Autor, et al., ceteris was not paribus. It never is, of course. But when Russ, in his podcast with Autor, asked Autor about government-program changes that made being unemployed a bit easier – and, hence, perhaps explains much, or all, of Autor, et al.’s findings – Autor dismissed this possibility. Autor chose to conclude from the data that the cause of the increase in long-term joblessness that he and his co-authors found was Americans’ increased trade with China.
Perhaps Autor’s conclusion is correct, but note that not only is it not one that is ‘proven’ by the data, it demands some supplemental theoretical account to make it work. The very nature of the economists’ case for free trade – namely that free trade is simply one manifestation of economic competition, and that economic competition causes no lasting unemployment because the economy is assumed to be sufficiently robust to ‘create’ enough jobs to replace those that are ‘destroyed – demands that an observation that long-term unemployment increased following a change in trade patterns be explained by some account of a change in the economy or in government policy (and not just by a change in the intensity of trade).
Because international trade is just one particular manifestation of economic competition – and because economic competition incessantly changes the patterns of economic activity – why in the years 1990-2007 do we suddenly get an economy that apparently cannot create employment opportunities, in response to changes in trading patterns, as well as it did in the 200-plus years earlier? And why focus on increased trade with China? The 1990-2007 period was famously one of great technological change – change that itself ‘destroyed’ many jobs and that altered the manner in which people are able to earn livings. Is it really possible, empirically, to determine that the increased long-term unemployment is only of American workers who were competing with Chinese imports rather than also of American workers who lost jobs to new technologies – or, even, to changing demographics within the United States?
Pointing out, as Autor did, that the workers affected by increased trade with China were generally low-skilled and poorly educated is insufficient to conclude that the economists’ case for free trade now no longer holds. The 19th and 20th centuries were filled with many workers just as unskilled and as ill-equipped for ‘new’ jobs as were the years 1990-2007.
So, the surprising long-term unemployment [or reduction in jobs] that occurred in the U.S. just as American trade with China intensified cannot be explained simply by pointing to this increased trade with China (and then concluding that the standard economics of trade no longer applies). Its explanation demands some account of changes in the economy or policy that, for the first time in American history, make the economy unable to create, and to create in ‘good’ time, a sufficiently large number of new employment opportunities to replace those that are ‘destroyed’ by foreign trade.
The surprise about unemployment, in short, must be due, not to increased foreign trade, but to some underlying change in the economy. And this change, whatever it might be (call it “X”), means not only that we should now start to fear increased competition from imports but also fear any changes in production technologies and in the pattern of consumer expenditures. The reason is that these changes, too, will interact with X to create undesirable, long-lasting unemployment.
I’m not yet ready to conclude that the U.S. economy has changed in this way, although I might well be mistaken. But if the U.S. economy has indeed changed in this unfortunate way, the problem is not trade per se – and protecting ourselves from long-term unemployment will involve a great deal more than higher tariffs on imports.
At the risk of being too repetitive, I emphasize, as I said in this post from March, that if Autor’s, et al.’s, key finding is that many actual, flesh-and-blood workers were left permanently worse off by increased trade with China than these workers would have been, ceteris paribus, had Americans’ trade with the Chinese people not increased, then this finding is not in the least inconsistent with conventional economic theory or with standard economic policy prescriptions that are based on conventional economic theory.  Such a finding is simply not newsworthy.  And a main reason why such a finding isn’t newsworthy is that the economic case for market competition – of which the case for free trade is simply a part – does not assume that actual, flesh-and-blood individuals are never made permanently worse off, ceteris paribus, by the many changes that are incessantly wrought by competition.

If instead the main finding of Autor, et al., is taken to be that Americans’ trade today (unlike in the past) with large, low-wage, and liberalizing countries such as China leads to a permanent reduction in jobs below what the number of jobs would otherwise be – or that such trade causes, now for the first time in U.S. history, an increase in joblessness that lasts so long as to be a genuine problem – then the culprit is not increased trade.  The culprit is some change in the economy – the “X” that I refer to in my EconLog comment – that today interacts with increased foreign trade to cause these problems.  But note, again, that if the problem is some “X” in the nature of the domestic economy (including the government policies that influence that economy), then it is inaccurate to say that “‘X’ has caused economists’ traditional case for a policy of free trade to no longer hold.”  A more accurate statement is that “‘X’ has caused economists traditional case for competition and consumer sovereignty to no longer hold.”

My plea, amidst all these many words, is for a clearer understanding that trade is simply competition.  My plea is for people to understand that any complaints about trade, or any findings that trade sparked this or that problem (be the problem real or illusory), are really complaints about competition and findings that competition sparked this or that problem.  If politicians and pundits (and, especially here economists) really have found some good economic reason to restrict people’s freedom to trade with foreigners, then these politicians and pundits (and economists) have in fact found some good economic reason to restrict people’s freedom to compete economically in whatever ways economic competition might be manifested.  Such a finding has implications that go well beyond the case for international free trade.

Put differently, if someone insists on making a case against free trade, I want that case to be made more honestly and consistently with the underlying argument: make it openly, not as a case merely against international trade, but as a case against all competition and economic change."

Productivity and Pay: Do Workers Enjoy the Fruits of their Labor?

From The Heritage Foundation.
"Do workers enjoy the fruits of their labor? Economic theory predicts that firms pay workers according to their productivity. Some analysts argue this no longer happens in the United States. They contend that workers’ pay has stagnated for the past generation despite large increases in productivity. This belief drives much of the Obama Administration’s regulatory agenda. Labor Secretary Tom Perez explains the newly released salaried overtime regulations are intended ensure that “as we have productivity and profitability in this country, that is shared between business and workers.”

New research from The Heritage Foundation finds that is already happening. Since 1973 average hourly labor productivity has grown 81 percent. Over the same period employees’ average hourly compensation has grown 78 percent. Employee pay closely tracks productivity growth. The studies finding otherwise compare the productivity and pay of different groups of workers, adjust pay and productivity for inflation differently, and contain mathematical errors. These factors cause the apparent gap between pay and productivity reported."

Pizza Hut just signaled a terrifying reality for fast-food workers

By Hayley Peterson of MSN.
"A former McDonald's CEO warned this week that companies will replace human workers with robots if the minimum wage is raised above $15.

But that possibility has already become a reality for Pizza Hut waiters.

Pizza Hut has partnered with MasterCard to deploy robotic waiters to its restaurants in Asia.

A digital tablet displayed on the robots' chests show menu options.

In order to interact with Pepper, customers must have a MasterPass account on their phones.

Here's how it works: Customers will greet the robot, then pair their MasterPass account by either tapping the Pepper icon on their phones or by scanning a QR code on robot's tablet.

Then the robot will be able to help customers order and pay for their food.

Pizza Hut executives said Pepper will make it easier for people to customize their orders and it will speed up customer service.

"We are excited to welcome Pepper to the Pizza Hut family," said Vipul Chawla, managing director of Pizza Hut Restaurants Asia. "Core to our digital transformation journey is the ability to make it easier for customers to engage, connect and transact with Pizza Hut. With an order-and-payment-enabled Pepper, customers can now come to expect personalized ordering at our stores, reduce wait time for carryout, and have a fun, frictionless user experience."

Click here to watch Pepper in action

The addition of Pepper to Pizza Hut represents a new threat to fast-food workers.

Wendy's, McDonald's, and Panera have all started rolling out digital ordering kiosks to restaurants across the US to speed up customer service and reduce labor costs.

Robots haven't been piloted in US restaurants yet, but it might not be long before they become mainstream, at least according to former McDonald's USA CEO Ed Rensi.

Former McDonald's USA CEO Ed Rensi warned on Tuesday: "It's cheaper to buy a $35,000 robotic arm than it is to hire an employee who's inefficient making $15 an hour bagging french fries," Rensi warned in a Fox Business interview on Tuesday. " It's nonsense and it' s very destructive and it's inflationary and it's going to cause a job loss across this country like you're not going to believe."

Saturday, May 28, 2016

Big Bureaucracies Beget Bad Behavior

By Chris Edwards of Cato.
"One of the problems with big government is that it stimulates the worst sort of behavior from people and attracts legions of cheaters on the inside and outside.
On the outside, the more than 2,300 federal subsidy programs are under constant assault by dishonest individuals, businesses, and criminal gangs. The improper payment rates for the earned income tax credit and school breakfast programs, for example, are more than 20 percent. Medicare and Medicaid are ripped off by tens of billions of dollars a year. It’s a sad reality that when the government dangles free money, millions of people will falsify application forms to try and get some of it.

On the inside, the bad behavior of some federal bureaucrats never fails to amaze me. The official responsible for recent security failings at the TSA apparently bent the rules to line his own pockets and bullied his subordinates to silence any dissent. Kelly Hoggan was the person in charge when “undercover agents from the inspector general’s office … were able to penetrate security checkpoints at U.S. airports while carrying illegal weapons or simulated bombs, 95 percent of the time.”
The Washington Post describes how Hoggan filled his pockets with an extra $90,000 on top of his regular salary of $181,500:
The downfall of a top official in the Transportation Security Administration this week came amid allegations of under-the-radar bonuses and targeted retribution at the highest levels of the agency.
One of the practices that led to Kelly Hoggan’s removal as head of the TSA’s crucial security division is common enough to have a name: smurfing. … Hoggan received bonuses of $10,000 on six different occasions, and three others just above or below that amount, over a 13-month period…
The inspector general, in a report last year, outlined a convoluted process through which Hoggan received the bonus pay. His boss, then-TSA Deputy Administrator John Halinski, told one of Hoggan’s subordinates to recommend Hoggan for the bonus money. That subordinate, Deputy Assistant Administrator Joseph Salvator, recommended that Hoggan receive bonuses. Halinski then approved them.
As for the bullying, the Post reports:
Hoggan also was identified as one of the senior TSA officials who used forced transfers to punish agency employees who spoke out about security lapses or general mismanagement. Those allegations, first raised by TSA whistleblowers, caused considerable anger among members of Congress at three hearings held this month and last. Three of the whistleblowers appeared before the House Committee on Oversight and Government Reform on April 27.
“Many of the people who broke our agency remain in key positions,” testified Jay Brainard, the TSA security director in Kansas. “These leaders are some of the biggest bullies in government.”
Mark Livingston, a manager in the Office of the Chief Risk Officer at TSA headquarters, told the committee that his pay was reduced by two grades after he reported misconduct by TSA officials and security violations.
“If you tell the truth in TSA you will be targeted,” Livingston said.
Directed reassignments have been punitively used by TSA senior leadership as a means to silence dissent, force early retirements or resignations,” said [Andrew] Rhoades, a TSA manager at Minneapolis-St. Paul International Airport.
The solution to the TSA mess is to demonopolize and decentralize aviation security, as I discuss here and here.

For more on the federal government’s failing bureaucracies, see here."

Controlling labor costs in the new $15 an hour minimum wage world: kiosks, robots, and housekeeping opt-out rewards

From Mark Perry.
"We know from basic economics that capital and labor are substitutes in the production process, and the more expensive labor is, the more incentive there is for firms to substitute capital for workers. It should be no surprise then that restaurants across the country are suddenly more interested than ever before in investing in labor-saving technologies, self-ordering kiosks, automation, and robotics as they prepare to counteract the inevitable spike in labor costs from the $15 an hour minimum wage hysteria that is sweeping the country.

For example, Investor’s Business Daily reported recently that fast-food chain “Wendy’s said self-service ordering kiosks will be made available across its 6,000-plus restaurants in the second half of the year as minimum wage hikes and a tight labor market push up wages.”

Former McDonald’s CEO Ed Rensi had this to say on FOX Business News a few days ago about what he called the “$15 an hour minimum wage nonsense“:
I was at the National Restaurant Show yesterday and if you look at the robotic devices that are coming into the restaurant industry — it’s cheaper to buy a $35,000 robotic arm than it is to hire an employee who’s inefficient making $15 an hour bagging French fries — it’s nonsense and it’s very destructive and it’s inflationary and it’s going to cause a job loss across this country like you’re not going to believe.
Ed Rensi also wrote recently for Forbes about the “restaurant math” of a $15 an hour minimum wage:
For some McDonald’s locations, a $15 minimum wage wipes out their entire profit. Recouping those costs isn’t as simple as raising prices. If it were easy to add big price increases to a meal, it would have already been done without a wage hike to trigger it. In the real world, our industry customers are notoriously sensitive to price increases. Instead, franchisees can absorb the cost with a change that customers don’t mind: The substitution of a self-service computer kiosk for a a full-service employee.
But what about industries like hospitality? It’s pretty difficult for a hotel to automate services like housekeeping, so how can they control labor costs when they are forced by government fiat to pay workers a $15 an hour minimum wage? Actually, the minimum wage in the city of Los Angeles for hotel workers is even higher — it’s currently $15.37 an hour for hotels with 300 or more rooms and will apply to hotels with 150 or more rooms on July 1. So it shouldn’t be surprising that some hotels are starting to come up with creative ways to control their labor costs, like Marriott’s offer to credit guests with bonus points of 250 to 500 towards its Marriott Rewards Program for each day they agree to pass on housekeeping.  

Interestingly, Marriott is promoting its “Pass on Housekeeping” option as a way to help “conserve natural resources” and “save on millions of gallons of water” (see receipt in the photo above advertising the program via Steve Rider’s article below). But it’s also certainly an innovative way for Marriott to save on labor costs, especially in an era of $15.37 an hour labor costs in LA, and pending increases to $15 an hour in San Francisco, Seattle and New York state in 2018, and statewide in California by 2022. And $15 an hour minimum wage laws are being considered around the country in cites and states like Minneapolis, Cleveland, San Diego and New Jersey, to name just a few.

I first found out about the Marriott housekeeping opt-out option from this first-hand report and commentary from Steve Rider — “Marriott’s ‘Help Us Conserve Water’ Program Seems More Likely a Reaction to Minimum Wage Increases,” here’s a slice:
As a corporate consultant, I travel on business quite frequently. This week while checking in at a Marriott that I’ve stayed at several times, I was asked “Would you like to take advantage of our opt-out housekeeping program?” The desk clerk explained to me that now Marriott is offering the option for guests to opt out of housekeeping and to then receive 500 Marriott points per day. Giving points is a more effective incentive than giving a lower hotel rate. Most business travelers bill their hotel costs to their employer, or to the customer. But by giving points rather than a discount, it benefits the person making the hotel reservations — the guest — rather than the bill payer.
It’s an innovative attempt to control housekeeping costs and now with California leading the way with massive increases in the minimum wage, it seems likely that Marriott’s real motivation for this program is a low profile but highly effective way to combat spikes in labor costs.
Hotel cleaning staff is one of the more vulnerable fields to minimum wage laws, giving employers few options beyond raising prices or reducing services. Most housekeeping work cannot be automated or outsourced. Additionally, skill-sets among cleaning staff is not going to vary in large degrees. A fast food restaurant may be able to consolidate some of its headcount with highly skilled employees who can manage the register, speak three languages and still flip burgers, but it’s difficult to imagine a housekeeper being twice as valuable as their co-workers.
What should really surprise no one is that liberals’ aggressive minimum wage laws will hurt the very people it’s intended to help. Ironically and most certainly not by liberals’ design, it’s actually going to benefit white-collar business travelers like myself. Seeing this, one can understand Marriott’s decision to promote this as a “Save Water!” program instead of a potentially less popular title of, “Help us reduce our low-income workforce and earn free travel!”
Regardless of the intent of Marriott’s plan, the program will most certainly allow Marriott to control its labor costs more effectively. As more housekeeping staff gets laid off, or their hours slashed, the media will paint Marriott as a greedy corporation laying off its loyal workforce.
I suspect that this innovation will be adopted by other hotel chains. Indeed, Marriott itself might have adopted the idea from a competitor.  Good ideas have a tendency to be widely adopted.  And that’s not good news for unskilled hotel staff — or for low-skilled employees in every industry.
Bottom Line: Most industries that employ low-skilled and limited-experience minimum wage workers operate on razor-thin, single-digit profit margins, e.g. restaurants (7.5%), hotels (8%), discount retailers (2.6%), grocery stores (1.4%) and department stores (1.7%) for the most recent quarter. There just simply isn’t any magic pile of money or profits lying around that would allow businesses in those industries to absorb an annual increase in labor costs of $15,500 per full-time worker from an increase in the minimum wage from $7.25 to $15 an hour. In the end, it’s a matter of simple “business math” — and a $15 an hour minimum wage is some very, very bad math for business survival and job creation. Those businesses that are able to survive will only be able to do so by replacing workers with labor-saving technologies discussed above including self-ordering kiosks, automation and robotics, along with innovative labor-saving strategies like Marriott’s reward program for opting out of housekeeping. As former McDonald’s CEO Ed Rensi predicts, you should expect “job losses across this country like you’re not going to believe” as a result of the $15 an hour minimum wage."

Friday, May 27, 2016

Americans could prevent roughly half of all cancer deaths by doing these four things

By Melissa Healy of the LA Times. The report is from the journal JAMA Oncology. Excerpts: 
"Roughly half of cancer deaths in the United States could be prevented or forestalled if all Americans quit smoking, cut back on drinking, maintained a healthful weight and got at least 150 minutes of exercise each week, according to a new report.

These same measures would also reduce the number of new cancer diagnoses by 40% to 70%.

For men, universal embrace of this lifestyle could avert or delay 67% of cancer deaths and prevent 63% of new malignancies each year, researchers calculated. If all of the nation’s women did the same, their yearly cancer mortality rates would fall by 59% and new cancers would drop 41%."

"healthful lifestyles could cut into a disease that will claim the lives of 600,000 Americans this year and upend the lives of 1.6 million by turning them into newly diagnosed patients."

The effect of a healthful lifestyle varied according to gender and cancer type. For instance, women who followed the strictures on smoking, drinking, weight and exercise could reduce their lung cancer risk by 85% and their colorectal cancer risk by 60%. For men, the corresponding figures were 90% and 50%.

The researchers also calculated that women who took good care of themselves could reduce their risk of pancreatic cancer by 53%, endometrial cancer by 37%, ovarian cancer by 34% and breast cancer by 15%.

For men, a healthful lifestyle could mean a 62% reduction in bladder cancer risk, a 40% reduction in prostate cancer risk and a 36% reduction in kidney cancer risk, according to the study.
The study’s findings present a significant challenge to research published last year that said as many as 80% of cancers might be attributable to factors beyond the control of individuals — the “bad luck” hypothesis. Instead, the new research offers evidence that bad behavior trumps bad luck as a cause of cancer."

"“Primary prevention should remain a priority for cancer control,” wrote the study authors, Drs. Mingyang Song and Edward Giovannucci.

"“As a society, we need to avoid procrastination induced by thoughts that chance drives all cancer risk or that new medical discoveries are needed to make gains against cancer,” wrote Dr. Graham A. Colditz and Siobhan Sutcliffe of Washington University School of Medicine in St. Louis. Instead, they wrote, “we must embrace the opportunity to reduce the collective cancer toll by … changing the way we live.

Efforts to promote those changes, they added, “will be our fastest return on past investments in cancer research over the coming decades.”"

Earth’s climate may not warm as quickly as expected, suggest new cloud studies

By Tim Wogan of Science Magazine.
"Clouds need to condense around small particles called aerosols to form, and human aerosol pollution—primarily in the form of sulfuric acid—has made for cloudier skies. That’s why scientists have generally assumed Earth’s ancient skies were much sunnier than they are now. But today, three new studies show how naturally emitted gases from trees can also form the seed particles for clouds. The results not only point to a cloudier past, but they also indicate a potentially cooler future: If Earth’s climate is less sensitive to rising carbon dioxide (CO2) levels, as the study suggests, future temperatures may not rise as quickly as predicted. 

"It's been long thought that sulfuric acid is really the key player [in cloud formation]," says atmospheric chemist Chris Cappa of the University of California, Davis, who was not involved in the research. The studies “show pretty convincingly that we don't need sulfuric acid around to allow new particles to grow.”

Scientists, who agree that CO2 and other gases from human activities are warming Earth, disagree widely about how sensitive the planet's climate is to these changes. One contentious point is the effect of sulfur dioxide, a pollutant that has risen nearly sevenfold in the modern era. Sulfur dioxide reacts with oxygen and water to form sulfuric acid, which helps form the aerosol particles that seed cloud droplets. Since clouds reflect sunlight back into space, any extra clouds could have offset a portion of greenhouse gas warming.

The new research, however, suggests that the past may have been cloudier than scientists realized. To simulate ancient atmospheric conditions, one research group used CLOUD (Cosmics Leaving OUtdoor Droplets), a controlled chamber at CERN, Europe’s particle physics facility near Geneva, Switzerland. Nearly as big as a bus, the chamber was filled with synthetically produced air, allowing precisely controlled chemical conditions. Jasper Kirkby, a CERN particle physicist, and his colleagues introduced a mixture of natural oxidants present in the air and an organic hydrocarbon released by coniferous plants. The hydrocarbon was rapidly oxidized. The only other ingredient allowed in the chamber was cosmic rays, high energy radiation from outer space, which made the molecules clump together into aerosols. Sulfuric acid was not required. In fact, even when the researchers introduced low concentrations of sulfuric acid to the chamber such as might be found in unpolluted air, the aerosol formation rate was unaffected. In a second CLOUD experiment published simultaneously in Nature, researchers showed these same oxidized molecules could rapidly grow the particles to sizes big enough to seed cloud droplets.

In search of a pristine atmospheric environment, a second group of researchers made atmospheric measurements of aerosol formation at the Jungfraujoch high altitude research station, 3500 meters up in the Swiss Alps to confirm that this process really occurs in nature. Over the course of a year, they measured the changing concentrations of sulfuric acid and organic molecules in the air. They found more aerosols formed with more organic molecules around, and—crucially—observed formation of organic particles without sulfuric acid. They used exactly the same instruments as at CLOUD to analyze the aerosols: "The clusters were formed mainly by organics," says atmospheric chemist Federico Bianchi of the Paul Scherrer Institute in Villigen, Switzerland, who led the Jungfraujoch research published today in Science.

All the researchers stress sulfuric acid is still a major contributor to cloud formation on Earth today.

"Today the purely plant-based pathway is much less important than it was preindustrially," Kirkby explains. Crucially, however, the result means climate modelers can't assume that the ancient past was much less cloudy simply because there was less sulfur dioxide. If ancient cloud cover was closer to today’s levels, the increase in the cloud-cooling effect due to human pollution could also be smaller—which means that Earth was not warming up so much in response to increased greenhouse gases alone. In other words, Earth is less sensitive to greenhouse gases than previously thought, and it may warm up less in response to future carbon emissions, says Urs Baltensperger of the Paul Scherrer Institute, who was an author on all three papers. He says that the current best estimates of future temperature rises are still feasible, but "the highest values become improbable."  The researchers are currently working toward more precise estimates of how the newly discovered process affects predictions of the Earth's future climate."

From Good News On Climate For A Change, Thanks To Ancient Clouds by Eric Mack of Fortune;

"But it turns out that the Earth, and particles expelled by trees in particular, did a pretty good job of seeding clouds long before the industrial revolution. Therefore, the atmosphere may not be quite as sensitive to what we’ve been putting into it the past few centuries as we might have previously guessed. This finding will likely lead to a revision of many climate models."

Thursday, May 26, 2016

Have U.S. wages stagnated? Probably not.

By Robert J. Samuelson. Excerpts:
"A new study from the Federal Reserve Bank of San Francisco suggests just that. It concludes that widely cited figures showing stagnation are mostly a statistical fluke. Workers continuously employed in full-time jobs received wage increases higher than inflation from 2002 to 2015. Last year, the gain was a 3.5 percent increase after inflation, up from 1.2 percent in 2010.

Typically, the median wage — the wage exactly in the middle of all wages — is cited as evidence of stagnation. Indeed, the Fed study confirms this. Median wage increases have fluctuated around 2 percent, unadjusted for inflation. But the median wage is misleading, the report argues, because it’s heavily driven by demographic changes: an influx of young and part-time workers whose relatively low wages drag down the median; and the retirement of baby-boom workers whose relatively higher pay no longer lifts up the median.

“Exiting workers with higher wage levels are [being] replaced by entrants to full-time employment who earn less than the median wage,” says the study, which was done by economists Mary Daly and Benjamin Pyle of the San Francisco Fed and Bart Hobijn of Arizona State University. The result is that all workers, as judged by the median wage, seem to be treading water when many workers are actually receiving modest increases."

Is much of our effort to combat global warming actually making things worse?

From Judith Curry. She is a Professor and former Chair of the School of Earth and Atmospheric Sciences at the Georgia Institute of Technology and President (co-owner) of Climate Forecast Applications Network (CFAN). Excerpts:
"all the actions taken together until now to reduce our emissions of carbon dioxide will not achieve a serious reduction, and in some cases, they will actually make matters worse. In practice, the scale and the different specific engineering challenges of the decarbonization project are without precedent in human history. This means that any new technology introductions need to be able to meet the huge implied capabilities. An altogether more sophisticated public debate is urgently needed on appropriate actions that (i) considers the full range of threats to humanity, and (ii) weighs more carefully both the upsides and downsides of taking any action, and of not taking that action."

Cambridge (UK) professor says much of the effort to combat global warming is actually making it worse

As part of an open discussion on the critical issue of energy, sustainability and climate change, MRS Energy & Sustainability—A Review Journal (MRS E&S) has published a paper in which Cambridge (UK) engineering professor M.J. Kelly argues that it is time to review the current efforts to reduce carbon emissions, some of which “represent total madness.”

"Central to his thesis, which is supported by examples, is that rapid decarbonization will simply not be possible without a significant reduction in standards of living. The growing call to decarbonize the global economy by 80% by 2050 could only foreseeably happen alongside large parts of the population plunging into poverty, destitution or starvation, as low-carbon energy sources do not produce enough energy to sustain society. According to Kelly, “It is clear to me that every further step along the current pathway of deploying first-generation renewable energy is locking in immature and uneconomic systems at net loss to the world standard of living.”

"As Kelly notes, it has been 40 years since the modern renewable energy developments began, and yet the fraction of world energy supplied by renewables (wind, solar and cultivated biomass sources combined) has hardly increased. The BP Statistical Review of World Energy 2015 reports 3 % for wind, solar and cultivated biomass sources combined, for 2014.

Kelly’s argument is that weaning off fossil fuels will take much longer than postulated by some experts. He suggests that a more viable option is to employ another generation of fossil fuels—during which economic conditions of humankind can be improved and alternate solutions can be explored and developed."
"There is an abundance of reports focusing on the energy needs of humanity and the sustainability of mass action, but relatively little acknowledgement of the upsides of present cities as a way for allowing large populations to live in some comfort."
"I start by accepting the IPCC’s Fifth Assessment Report at face value, although I shall return to this towards the end.

I am concerned that what is done in the name of decarbonization should leave the world in a better place. I am sure that what has been done so far in the name of decarbonization is set to fail comprehensively in meeting its avowed target, and that a new debate is needed. If our emissions of carbon dioxide are causing the world to warm and lead into possibly difficult times in the future, it is important also to establish the upsides of such emission. Peter Allitt quotes: “The rising carbon dioxide footprint may be troublesome, but it is a side effect of the creation of immense benefits.”"

"Our mobility, our health and lifestyles, our diet and its variety, our education system, particularly at the higher level, and our high culture would be quite impossible without fossil fuels, which have provided over 90% of the energy consumed on the earth since 1800."

"Indeed the rate at which fossil fuels are growing is seven times that at which the low carbon energies are growing, as the ratio of fossil fuel energy used to total energy used has remained unchanged since 1990 at 85%. The call to decarbonize the global economy by 80% by 2050 can now only be described as glib in my opinion, as the underlying analysis shows it is only possible if we wish to see large parts of the population die from starvation, destitution or violence in the absence of enough low-carbon energy to sustain society."

"There is one emerging measure that comes closely back to the engineering and the thermodynamics of energy production. The energy return on (energy) investment is a measure of the useful energy produced by a particular power plant divided by the energy needed to build, operate, maintain, and decommission the plant."

"WeiƟbach et al. have analysed the EROI for a number of forms of energy production and their principal conclusion is that nuclear, hydro-, and gas and coal-fired power stations have an EROI that is much greater than wind, solar photovoltaic (PV), concentrated solar power in a desert or cultivated biomass: see Fig. 2 . In human terms, with an EROI of 1, we can mine fuel and look at it—we have no energy left over. To get a society that can feed itself and provide a basic educational system we need an EROI of our base-load fuel to be in excess of 5, and for a society with international travel and high culture we need EROI greater than 10. The new renewable energies do not reach this last level when the extra energy costs of overcoming intermittency are added in.

In energy terms the current generation of renewable energy technologies alone will not enable a civilized modern society to continue!
Suppose the world unites and agrees to provide $1Tpa for ten years to mitigate future adverse climate change. What is the best strategy for spending that money for the reason given, namely to mitigate future climate change, and what will we be able to measure as the outcome of such an investment?

The answer is that no-one knows the latter now, or will ever know on the 2050 timescale. A crude calculation suggests that such a sum would allow the capture of all the CO2 from coal fired power stations over the next year, reducing global CO2 emissions by about 40%. But what difference would that actually make to the future climate, and would we be able to measure that difference as being attributable to the $1Tpa spent, and so even begin to assess the potential value-for-money of the investment?

What if the sun goes cool, or we have a spate of major volcanic eruptions: would we be able to isolate the contribution from the reduced CO2 emissions? No. It is sober to compare the sheer scale of this undertaking in view of the total uncertainty in the outcome. It is a current act of faith that investments in green energy projects are intrinsically good."

The virtuous role of government funding in R&D is to be contrast with the litany of failure in recent times of subsidies in support of the premature rollout of technologies that are uneconomic and/or immature.
The primary problem is the use of public money, i.e., subsidies, to encourage the roll-out. They have a plethora of unintended consequences in the energy infrastructure sector. The reason so far for these failures is that the technologies are uneconomic over their lifecycles and immature in terms of the energy return on their investment.

There is an unintended and unwanted social consequence of the roll out of these new technologies. There is ample evidence in the UK of increasing fuel poverty (i.e., household spending over 10% of disposable income keeping warm in winter) in the regions of wind farm deployment where higher electricity bills are needed to cover the rent of the land (from usually already rich) landowners, a direct reversal of the process whereby cheap energy over the last century has lifted a significant fraction of the world’s poor from their poverty."

"In my view, the 2014 IPCC report was somewhat obfuscatory on this issue: there was no expert assessment of one key parameter, the climate sensitivity (the expected actual temperature rise for a doubling of CO 2 in the atmosphere), because of wide disagreements between models and data, and the current debate points to a lowering of the estimated range of values. In addition any prospect of a further reduction of the temperature rise over the next few decades (e.g., from the sun) gives us extra breathing space on new technology introductions.

This weakening of the timescale for future temperature rises has a direct policy implication in the here and now. Since the design lifetime of most fossil fuel plants is of order 40 years, the world would be wise to opt for another generation of fossil fuels to continue the improvement of the lot of mankind, while making a more determined effort over a longer time to develop real workarounds to the currently perceived problem of carbon dioxide emissions.

It is clear to me that every further step along the current pathway of deploying first generation renewable energy is locking in immature and uneconomic systems at net loss to the world standard of living. In view of the level of hard engineering evidence for this point that is already available, the romantic notion of sustainability at any cost, as opposed to hard-nosed sustainability, is indefensible. There should be a calling to account on how these matters came about.

The demographic transition

The population of the world started growing sharply at the time of the industrial revolution. In the 1960s, a qualitatively new feature emerged which will come to dominate demographics in the latter part of last century: the rate of growth of the population started to decline. As of now wherever the majority of people live in urban areas and have access to universal primary education (particularly for girls) the indigenous populations, are in absolute decline. This applies now in Europe, North America, and Japan. The drop in the fertility rates for child-bearing women in Europe is now so severe that Italy’s population will shrink from 61M to 8M and Germany from 80M to 4M over the century.

The population is predicted to grow to 9B by mid-century and to fall back, even to 7B by 2100. In one hundred years, the discourse will be on the possible uses of infrastructure for 2B people no longer alive on the earth. This future can be seen in certain parts of the world where depopulation has already started, as in the east of the former East Germany. Villages are vacated, buildings torn down—if left to decay they collect vermin and detract from the quality of life of the few who remain. This is now a more certain future than possible uncontrolled future climates.

This prospect has a major impact on the contemporary response to the perceived threats of future climate change. The infrastructure being planned now has to last only 100 years and should be designed for dismantling at the end of service life. The increased energy intensity of industry coupled with an eventually declining population is not as yet factored into the climate models.

JC reflections

This is a terrific paper, that I am still digesting, and will be working to incorporate some of this material into my public .ppt presentation on climate change.

I was particularly struck by:
  • Figure 2 and the EROI argument
  • The demographic argument, including the population decline in Europe
  • The idea of  sustainability at any cost, versus hard-nosed sustainability
But it is really the integration and exposition of all these points.  This is surely a compelling argument for anyone who cares about true sustainability and human well being.

When I have spoken with engineers at Georgia Tech, nearly all of them question the feasibility of a rapid transition away from fossil fuels (the ones that don’t question this have been civil/environmental engineers).

First it was the scientists, then the economists.  It is now time for the engineers to drive the discussion and policies on this issue."

Wednesday, May 25, 2016

Lesson from Cyprus: Spending Restraint Is the Pro-Growth Way to Solve a Fiscal Crisis

By Daniel J. Mitchell of Cato.

"Much of my work on fiscal policy is focused on educating audiences about the long-run benefits of small government and modest taxation.

But what about the short-run issue of how to deal with a fiscal crisis? I have periodically weighed in on this topic, citing research from places like the European Central Bank and International Monetary Fund to show that spending restraint is the right approach.

And I’ve also highlighted the success of the Baltic nations, all of which responded to the recent crisis with genuine spending cuts (and I very much enjoyed exposing Paul Krugman’s erroneous attack on Estonia).

Today, let’s look at Cyprus. That Mediterranean nation got in trouble because of an unsustainable long-run increase in the burden of government spending. Combined with the fallout caused by an insolvent banking system, Cyprus suffered a deep crisis earlier this decade.
Unlike many other European nations, however, Cyprus decided to deal with its over-spending problem by tightening belts in the public sector rather than the private sector.
This approach has been very successful according to a report from the Associated Press.
…emerging from a three-year, multi-billion euro rescue program, Cyprus boasts one of the highest economic growth rates among the 19 Eurozone countries — an annual rate of 2.7 percent in the first quarter. Finance Minister Harris Georgiades says Cyprus turned its economy around by aggressively slashing costs but also by avoiding piling on new taxes that would weigh ordinary folks down and put a serious damper on growth. “We didn’t raise taxes that would burden an already strained economy,” he told The Associated Press in an interview. “We found spending cuts that weren’t detrimental to economic activity.”
Cutting spending and avoiding tax hike? This is catnip for Dan Mitchell!
But did Cyprus actually cut spending, and by how much?

That’s not an easy question to answer because the two main English-language data sources don’t match.

According to the IMF data, outlays were sliced to €8.1 billion in 2014, down from a peak of €8.5 in 2011. Though the IMF indicates that those numbers are preliminary.
The European Commission database shows a bigger drop, with outlays of €7.0 billion in 2015 compared to €8.3 billion in 2011 (also an outlay spike in 2014, presumably because of a bank bailout).

The bottom line is that, while it’s unclear which numbers are most accurate, Cyprus has experienced a multi-year period of spending restraint.

And having the burden of government grow slower than the private sector always has been and always will be the best gauge of good fiscal policy.

By contrast, there’s no evidence that tax increases are a route to fiscal probity.
Indeed, the endless parade of tax hikes in Greece shows that such an approach greatly impedes economic recovery.

Though not everybody in Cyprus supports prudent policy.
Critics have accused the government of working its fiscal gymnastics on the backs of the poor — essentially chopping salaries for public sector workers. Pambis Kyritsis, head of the left-wing PEO trade union, said the government’s “neo-liberal” policies coupled with the creditors’ harsh terms have widened the chasm between the have and have-nots to huge proportions. …Georgiades turned Kyritsis argument around to reinforce his point that there shouldn’t be any let-up in the government’s reform program and fiscal discipline.
In the European context, “liberal” or “neo-liberal” means pro-market and small government (akin to “classical liberal” or “libertarian” in the United States).

Semantics aside, it will be interesting to see whether Finance Minister Georgiades is correct about maintaining spending discipline as the economy rebounds.

As the above table indicates, there are several examples of nations getting good results by limiting the growth of government spending. But there are very few examples of long-run success since very few nations have politicians with the fortitude to control outlays if the economy is growing and generating an uptick in tax revenue (which is why states like California periodically get in trouble).

This is why the best long-run answer is some sort of constitutional spending cap, similar to what exists in Switzerland or Hong Kong.

The bottom line if that spending restraint is good short-run policy and good long-run policy. Though I doubt Hillary Clinton will learn the right lesson.

P.S. Cyprus also is a reasonably good role model for how to deal with a banking crisis."

The mobility of citizens internationally may be useful to citizens for improving the quality of their countries’ governments

See Quotation of the Day from Cafe Hayek.
"from page 26 of my colleague Peter Leeson’s and GMU Econ alum Zachary Gochenour’s excellent article “The Economic Effects of International Labor Mobility,” which is Chapter 2 of the superb collection (2015), edited by Ben Powell, The Economics of Immigration (link added):
If citizens are mobile and political authorities are concerned with enlarging, or at least preserving, their tax bases, the prospect of inter-jurisdictional migration may improve their incentive to follow those policies their citizens demand.
Traditionally, inter-jurisdictional competition is considered in domestic contexts with reference to the movement of a country’s citizens between federal jurisdictions, such as states, or within states, between municipalities.  However, the mobility of citizens internationally may also be useful to citizens for improving the quality of their countries’ governments.
International labor mobility is nowhere near as great as labor mobility domestically – because of the much more substantial policy barriers to international movement as well as the considerably larger cost of moving to another country for many citizens.  Thus Tiebout competition‘s potential to improve government quality at the national level is surely much weaker than its potential to do so at the local level.  Still, since some citizens in developing countries do in fact migrate internationally, and many more desire to do so, there is reason to think that inter-jurisdictional competition at the international level may be able to affect national government quality to some degree and that reducing policy impediments to international migration could strengthen that effect.
I add to Pete’s and Zac’s point that, despite the naturally higher costs of migrating internationally compared to the costs of migrating intranationally, at the margin the payoff – in terms of improved government behavior – from more international migration is today likely higher than is the payoff from more intranational migration.  The reason is the one highlighted above by Pete and Zac: precisely because policy now puts far higher obstacles to international migration than to intranational migration, international migration has not yet been allowed to put as much “Tiebout” pressure on governments as has intranational migration."

Tuesday, May 24, 2016

What Elizabeth Warren Gets Wrong About Uber

By Jared Meyer of Reason. Excerpt:
"What Warren and other critics of the sharing economy cannot seem to comprehend is that there are two ways to "level the playing field." One is by extending antiquated, anti-competitive regulations to new technologies. The other—and far better—option is to remove these barriers so that legacy business models can adapt to new competition.

Given the many downsides of fingerprint background checks, including higher costs, longer processing times, and false positive results, Austin should have removed the fingerprint requirement from its taxi drivers instead of applying it to ridesharing drivers.

The common failure of fingerprint databases to keep up-to-date records on those who were arrested and then never charged with a crime has many negative effects. This is the main reason why the NAACP and Austin Area Urban League came out ‎strongly against‎ these requirements—which they correctly argue disproportionately harm minorities.

Beyond Warren's push to apply pointless regulations to new business models, there were countless other problems with her speech. The most glaring is her push to extend collective bargaining to every worker.

When discussing collective bargaining, Warren argued that, "every worker should have the right to organize—period." Warren does not seem to care that ridesharing drivers are rightly classified as independent contractors instead of employees. Independent contractors can join a union (such as the ‎Freelancers Union), but for good reason they cannot collectively bargain.

Extending collective bargaining to independent contractors makes no sense and would violate federal laws against price-fixing. Not to mention that collective bargaining, which requires an employee designation, would take away ‎most of the benefits that make sharing-economy work so appealing, namely flexibility. For example, 50 percent of Uber drivers work less than 10 hours a week and 80 percent of Lyft drivers work under 15 hours a week.

Warren also claimed that ridesharing relies on, "extremely low wages for drivers." This may be true compared to senators' speaking fees, but for a single mother working while her children are in school or for a college student trying to earn some extra income in between classes, the ability to earn about $15 an hour after expenses is important. After all, given the Fight for $15 movement, is this not the wage that activists desire for workers?

Warren is the latest in the long line of Washington Democrats who cannot hide their distaste for the independent, flexible work that many workers prefer—especially working mothers and millennials. While much of this opposition is led by labor unions that desperately want to unionize sharing-economy workers, another reason is the utter lack of understanding of why someone would want to drive for a ridesharing company. Given that these powerful individuals—such as Hillary Clinton—usually do not even drive themselves around, it is no wonder they look down on the decisions that millions have made to earn extra money by driving with Uber or Lyft."

White House Supports Bill that Exempts Puerto Rico from New Overtime Regulation

By Trey Kovacs of CEI.
"Progressives praised the Department of Labor’s new overtime rule as a way to fatten workers’ pockets and a means to strengthen the middle class. If the overtime rule is such a boon to workers, why did Democrats in Congress and the White House agree to a deal, which allows Puerto Rico to restructure its enormous debt, but also exempts Puerto Rican workers and employers from the new overtime requirements?

It is likely because they understand that the overtime rule is unlikely to raise most workers’ wages and undoubtedly burdens job creators. Furthermore, the primary policy objectives in the DOL rule do not mention pay raises as a goal. The purpose of the rule, according to the DOL, is to reduce involuntary unemployment by making work over 40 hours more expensive and to cut back on overwork to protect employee health and safety.

They probably realized with unemployment in Puerto Rico at 11.8 percent in March that making any kind of labor more expensive or burdening employers with greater administrative costs is not going to help.

Employers in the United States have already expressed concerns about the rule that was only finalized this week. The New York Times reports on small businesses concerns and adjustments they will make in the light of the overtime rule. Lior Rachmany, founder of Dumbo Moving & Storage, tells the Times that he would consider “hiring freelancers and independent contractors” to avoid paying overtime during busy seasons. This is a clear unintended consequence, since the DOL recently issued guidance, which intent is limit the proliferation of freelance and independent contractor use.

The tech startup community has been outspoken on the challenges the overtime rule imposes on them. Dan Gelerenter, CEO at Dittach, LLC, a tech startup that improves email searches for attachments, penned a letter to the Senate Committee on Small Business and Entrepreneurship laying out the obstacles the rule places on tech startups that start off with no or very little funds. Gelerenter cites cumulative cost of regulation that larger companies may be able to “cope with,” but “startups do not.” Further, he views the rule as callous since even a modest increase in the cost of doing business may “put some of us out of business.”

It is not just tech startups that have very little room to navigate around government increasing costs of business. Retail and restaurants companies operate on extremely thin margins. Sageworks, a financial information company, finds “more than half of the 15 industries identified are within the retail sector.” Unsurprisingly, the National Retail Federation and National Restaurant Association have been some of the most outspoken critics of the new rule.

But the new overtime standard, which increases the salary threshold for overtime eligible employees to slightly over $47,000 from $23,660, is not just problematic to employers—employee career prospects are at risk.

As a Competitive Enterprise Institute coalition letter signed by 17 free-market organizations explained, “[B]y increasing the threshold, many workers will lose salaried employment status and the benefits they depend on, like flexible work arrangements and health benefits.”

Millions of workers potentially becoming hourly employees overnight is a terrifying prospect, even though some progressives understand the benefits of salaried careers as opposed to hourly jobs.
Dedrick Muhammad, senior director of the NAACP’s Economic Department, penned an article at The Huffington Post, citing that salaried employment is better in the long run for workers:

It’s also true that some hourly positions can pay more than salaried positions, either due to higher pay or compensation for extra hours. But depending on your long-term plans, a salaried job with benefits, even if it pays less than an hourly job, might ultimately put you in a position of greater financial strength. In other words, it’s not about what pays you more, but rather what gives you more.

President Obama frames the issue of overtime as “making sure you're paid fairly.” If he believed his own words, then why did he agree to a deal that, to him, ensures workers in Puerto Rico are paid unfairly?"