Wednesday, August 31, 2016

Another Grim Reminder that Obamacare Has Made Healthcare More Expensive

By Daniel J. Mitchell, writing for FEE.

"Way back in 2009, some folks on the left shared a chart showing that national expenditures on healthcare compared to life expectancy.

This comparison was not favorable to the United States, which easily spent the most money but didn’t have concomitantly impressive life expectancy.

At the very least, people looking at the chart were supposed to conclude that other nations had better healthcare systems.

And since the chart circulated while Obamacare was being debated, supporters of that initiative clearly wanted people to believe that the U.S. somehow could get better results at lower cost if the government played a bigger role in the healthcare sector.

There were all sorts of reasons to think that chart was misleading (higher average incomes in the United States, more obesity in the United States, different demographics in the United States, etc), but my main gripe was that the chart was being used to advance the cause of bigger government when it actually showed – at least in part – the consequences of government intervention.

The real problem, I argued, was third-party payer. Thanks to programs such as Medicare and Medicaid, government already was paying for nearly 50 percent of all heath spending in the United States (indeed, the U.S. has more government spending for health programs than some nations with single-payer systems!).

But that’s just part of the story. Thanks to a loophole in the tax code for fringe benefits (a.k.a., the healthcare exclusion), there’s a huge incentive for both employers and employees to provide compensation in the form of very generous health insurance policies. And this means a big chunk of health spending is paid by insurance companies.

The combination of these direct and indirect government policies is that consumers pay very little for their healthcare. Or, to be more precise, they may pay a lot in terms of taxes and foregone cash compensation, but their direct out-of-pocket expenditures are relatively modest.

And this is why I said the national health spending vs life expectancy chart was far less important than a chart I put together showing the relentless expansion of third-party payer. And the reason this chart is so important is that it helps to explain why healthcare costs are so high and why there’s so much inefficiency in the health sector.

Simply stated, doctors, hospitals, and other providers have very little market-based incentive to control costs and be efficient because they know that the overwhelming majority of consumers won’t care because they are buying care with other people’s money.

To get this point across, I sometimes ask audiences how their behavior would change if I told them I would pay 89 percent of their dinner bill on Friday night. Would they be more likely to eat at McDonald’s or a fancy steakhouse? The answer is obvious (or should be obvious) since they are in box 2 of Milton Friedman’s matrix.

So why, then, would anybody think that Obamacare – a program that was designed to expand third-party payer – was going to control costs?

Though I guess it doesn’t matter what anybody thought at the time. The sad reality is that Obamacare was enacted. The President famously promised healthcare would be more affordable under his new system, both for consumers and for taxpayers.

So what happened?

Well, the law’s clearly been bad news for taxpayers.

But let’s focus today on households, which have borne the brunt of the President’s bad policies. The Wall Street Journal had a report a few days ago about what’s been happening to the spending patterns of middle-class households.

The numbers are rather grim, at least for those who thought Obamacare would control health costs.
A June Brookings Institution study found middle-income households now devote the largest share of their spending to health care, 8.9%… By 2014, middle-income households’ health-care spending was 25% higher than what they were spending before the recession that began in 2007, even as spending fell for other “basic needs” such as food, housing, clothing and transportation, according to an analysis for The Wall Street Journal by Brookings senior fellow Diane Schanzenbach. …Workers aren’t the only ones feeling the pain of rising health-care costs. Employers still typically pay roughly 80% of individual health-insurance premiums… In 2015, 8% of Americans’ household spending went toward health care, up from 5.8% in 2007, according to the Labor Department.
Here’s a chart from the story. It looks at data from 2007-2014, so it surely wouldn’t be fair to say Obamacare caused all the increase. But it would be fair to say that the law hasn’t delivered on the empty promise of lower costs.

Let’s close with a few important observations.

First, there’s a very strong case to repeal Obamacare, but nobody should be under the illusion that this will solve the myriad problems in the health sector. It would be a good start, but never forget that the third-party payer problem existed before Obamacare.
Second, undoing third-party payer will be like putting toothpaste back in a tube. Even though there are some powerful examples of how healthcare costs are constrained when genuine market forces are allowed to operate, consumers will be very worried about shifting to a system where they pay directly for a greater share of their healthcare costs.
Third, there’s one part of Obamacare that shouldn’t be repealed. The so-called Cadillac Tax may not be the right way to deal with the distorting impact of the healthcare exclusion, but it’s better than nothing.
Actually, we could add one final observation since the Obama era will soon be ending. When historians write about his presidency, will his main legacy be the Obamacare failure? Or will they focus more on the failed stimulus? Or maybe the economic stagnation that was caused by his policies?"

Clinton Economist Favors Force over Freedom

By Tyler Cowen, writing for FEE.
"Few candidates spell out their policy proposals in as much detail as Hillary Clinton, but there’s still room to wonder about how a President Clinton would set her agenda for 2017 and beyond.

One clue comes in the naming of Heather Boushey to be chief economist of her transition team, giving Boushey an inside track for a major political appointment. She is currently the executive director and chief economist of the Washington Center for Equitable Growth, and recently published “Finding Time: The Economics of Work-Life Conflict.” That book is one good source for which ideas might rise in a Clinton administration.

The central insight is that American institutions do not support a proper balance between work and family life, and that the burdens fall disproportionately upon women. The proposed remedies are an extensive set of government interventions, including paid sick leave, paid parental leave, subsidized child care and better care for the elderly to relieve care burdens on grown children.

This is a thoughtful and intelligent book, but for my taste Boushey holds too much faith in mandated and centralized solutions.

It is striking, for instance, that private insurance companies offered prescription drug coverage long before Medicare did, and many business employers offered benefits for same-sex partners before the federal government did. When it comes to innovation, including benefits innovation, the federal government is often a laggard, due to the nature of bureaucracy, political checks and balances and the one-size-fits-all feature of most legislation. I am therefore reluctant to give government a much larger role in managing American family lifestyles.

Boushey portrays her policies as boosting rather than restricting freedom of choice, but usually trade-offs are involved. She does argue that recent state-level experiments show that mandatory paid sick leave doesn’t destroy jobs, but there is not yet a lot of hard evidence on the question. And what works in California may not be well-suited to Mississippi.

The Long-term Effects of Government Intervention

Most likely, there is a big difference between short-run and long-run effects. For instance, employers value the workers they have, and are reluctant to fire them when labor costs go up. A lot of “pro-worker” policies thus seem to be a kind of magical free lunch. Over time, however, as a generation of workers turns over and is replaced, mandatory benefits represent a real added cost, evaluated anew, and employers will respond accordingly. They will cut the paid dollar wage, cut other job benefits, require more hard work, automate more, or cut back on plans for growing the business. The downward-sloping demand curve is the best established empirical regularity in all of economics, and in this context that means some laborers -- maybe most laborers -- will pay a price for their new benefits, one way or another.

So let’s say America’s future means better sick leave and pregnancy leave for employed women, but a narrower choice of jobs, including lower pay, for those same women. Is that better? And do we trust the legal machinery of government to be making that decision anew over decades of social and economic change? Keep in mind that there is an alternative mechanism, which for all its imperfections is far more flexible: Let companies and workers make such decisions through employment bargains.

Unrealistic Optimism

Boushey doesn’t estimate or indicate the expense of her proposed mandatory benefits, although she does suggest on page 1 that the cost would be “very small.” She is developing a new kind of supply-side economics, this time on the left, but like her right-wing counterparts she is running the risk of excess optimism about how much her suggested improvements will boost productivity in the system.

I usually suggest comparing any proposed program for amelioration to the simple alternative of sending people cash or leaving more cash in their hands, whether through tax cuts, tax credits or outright payments. With that cash in hand, individuals could try to create better arrangements for child care, elder care, and other problems of work-life balance. Some might work fewer hours or take lesser-paying but more flexible jobs, relying on their cash transfers to make up the difference. Others would spend the money on better neighborhoods, better health care or better schools, or in some cases the expenditures will be wasted.

Freedom vs Government-Mandated Benefits

Might that freedom be better than receiving a big package of government-mandated benefits? There is already a big distortion in the employment relationship that comes from taxing money wages at higher rates than workplace benefits. Workers, at the margin, actually receive higher workplace benefits than they ideally would desire, relative to being paid more cash. The way to remedy that misallocation is a lower net tax on the cash, not more benefits.

A more left-wing version of the cash transfer query would ask this: If workers can claim more resources from their bosses for free, through the exercise of legal bargaining power, why not focus policy changes on boosting minimum and mandated wages?

“Finding Time” doesn’t find time to address, much less resolve, such questions. The most plausible response to these criticisms is that individual Americans cannot be trusted to make good decisions for themselves, and I am afraid that is the view being swept under the carpet here."

Tuesday, August 30, 2016

Rising biofuel use has been associated with a net increase in the carbon dioxide emissions that cause global warming

From Patrick J. Michaels and Paul C. "Chip" Knappenberger of Cato.
"It looks like a new investigation into the use of ethanol as a substitute for gasoline found pretty much what most people have known all along—it’s just a bad idea.

Car mechanics know it. Drivers know it. Food analysts know it. Land conservationists know it. The last bastion of holdouts (aside from Midwestern corn farmers and their Congressional representatives) were the climate change do-gooders, claiming that all of the above sacrifices were small prices to pay for the benefit to the climate that ethanol was producing.  After all, they argued, burning ethanol produces fewer carbon dioxide emissions on net than burning “fossil” fuels because the carbon liberated in the process (for more on liberated carbon check out Andy Revkin’s contribution) was being recycled at a quicker rate than the geologic times scales necessary to produce oil.

While this may be technically true, it turns out that the rate of ethanol carbon recycling was being oversold by its supporters. At least this is the conclusion of a new paper authored by John DeCicco of the University of Michigan Energy Institute and colleagues. According to the paper’s press release:
A new study from University of Michigan researchers challenges the widely held assumption that biofuels such as ethanol and biodiesel are inherently carbon neutral.
Contrary to popular belief, the heat-trapping carbon dioxide gas emitted when biofuels are burned is not fully balanced by the CO2 uptake that occurs as the plants grow, according to a study by research professor John DeCicco and co-authors at the U-M Energy Institute.
The study, based on U.S. Department of Agriculture crop-production data, shows that during the period when U.S. biofuel production rapidly ramped up, the increased carbon dioxide uptake by the crops was only enough to offset 37 percent of the CO2 emissions due to biofuel combustion.
The researchers conclude that rising biofuel use has been associated with a net increase—rather than a net decrease, as many have claimed—in the carbon dioxide emissions that cause global warming. The findings were published online Aug. 25 in the journal Climatic Change.
Interestingly, the U.S. Environmental Protection Agency has recently been called to task for not investigating the supposed climate impact of the Congressionally mandated ethanol standards—a report that the EPA was required to produce by law. The EPA’s response: “we ran out of money and Congress didn’t pay attention to us last time we tried to issue a report.” But, they said they’d get right on it—and have a report ready by 2024.

We have a better idea: skip the report and just drop the standards."

For Affordable Housing, Ditch Prevailing Wage Laws

By Ivan Osorio of CEI.
"For residents of some of the nation’s major cities, it’s hardly news that housing costs are high, with little likelihood of their coming down any time soon.

However, in two of the country’s largest states, construction unions are highlighting a possible solution, albeit unintentionally, by their opposition to affordable housing – if the projects don’t pay union wages. As The Wall Street Journal reports:

In California last week, legislators and interest groups declared dead a measure pushed by Gov. Jerry Brown to allow certain apartments with some low-income units to sidestep the state’s environmental review process. That followed a failed effort by state lawmakers in New York earlier this year to renew a widely used tax break for rental housing in New York City; now lawmakers there are straining to reach an accord to revive it.
For both measures, construction unions were key to the defeat, as they won over key allies with their argument that the government shouldn’t be aiding apartment development without also guaranteeing union-level wages. Unions, particularly in New York, have been facing a gradual erosion of their market share on residential developments, and now developers that a generation ago would have been union shops are able to fill jobs with nonunion workers, which can lower construction costs by an estimated 20%, according to New York-based Citizens Housing and Planning Council, a low-income housing group.

Of course, New York City’s and San Francisco’s high real estate prices are due in large part to those cities’ vibrant economies, but state and local governments guaranteeing union wages only makes the provision of affordable housing more difficult.

Prevailing wage laws are also anti-competitive, as they give a leg up to union contractors by barring their nonunion competitors from bidding below a de fact cost floor. Thus, other states should follow the example of West Virginia, which repealed its prevailing wage law last February.

And it’s not just at the state level. The federal prevailing wage law, the Davis-Bacon Act, routinely increases costs on federally funded construction projects. Its repeal is long overdue."

Monday, August 29, 2016

This Princeton health economist thinks Obamacare’s marketplaces are doomed

From Sarah Kliff of Vox.
"I’ve spent the past week talking to lots of health care experts and economists about the future of the Affordable Care Act. Of all the people I spoke with, Princeton University health economist Uwe Reinhardt offered the most dire and pessimistic assessment of the marketplaces' future.

Namely, he believes they’ve already entered a death spiral and are heading toward total collapse.
This seems to be a minority view among those who follow the marketplaces closely, but not one completely out of the mainstream. And Reinhardt offers an especially thoughtful explanation of why he believes the Obamacare marketplaces won’t work. Much of his work looks at international health care systems, and he was able to discuss what makes the United States different from other countries that have created universal coverage with private insurance, like Switzerland and Germany.

I quoted Reinhardt in my story yesterday on the health care law, but I felt the interview was interesting enough to share in full. What follows is a transcript of our conversation, lightly edited for clarity and context.

Sarah Kliff: Give me your assessment of where the Obamacare marketplaces are right now, and where you expect them to head in the future.

Uwe Reinhardt: I always joke about it like this: If you got a bunch of Princeton undergrads to design a health care system, maybe they would come up with an arrangement like the marketplaces.
The natural business model of a private commercial insurer is to price on health status and have the flexibility to raise prices year after year. What we’ve tried to do, instead, is do community rating [where insurers can’t price on how sick or healthy an enrollee is] and couple it with a mandate.

When you do this as the Swiss or Germans do, you brutally enforce the mandate. You make young people sign up and pay. But we are too chicken to do that, so we allow people to stay out by doing two things: We give them a mandate penalty that is lower than the premium. And we tell them, If you’re really sick, we’ll take care of you anyhow. [A federal law called EMTALA requires hospitals to treat all patients with life-threatening conditions regardless of their ability to pay.]

SK: So what happens in a system like this? Does it eventually right itself, or does it fall apart?

UR: Liberals think this will settle itself. Eventually, though, we all know about the death spiral that actuaries worry about, and I think what you’re seeing now is a mild version of that. These things accelerate, as premiums keep rising.

We’ve had two actual death spirals: in New Jersey and in New York. New Jersey passed a law that had community rating but no mandate, so that market shrank quickly and premiums were off the wall. You look at New York and the same thing happened; they had premiums above $6,000 per month. The death spiral killed those markets.

What we do have in the Affordable Care Act is the mandate, so it will be a slower process. If the premium increases go through for 2017, some are 8 or 9 percent, and that is stiff. If those rates get improved, those are big enough that a lot of people will drop out.

SK: One thing that is different about the New York and New Jersey experiences and the Obamacare one is that enrollees in Obamacare do get subsidies, which essentially cap the cost of health premiums at a certain percent of their income. So wouldn’t that essentially shield people from the high premium prices and lead to fewer dropouts?

UR: The subsidies do help a lot, but this of course means that subsides will have to grow substantially year after year, and that’s a big question, whether Congress is willing to appropriate for that [editor's note: spending on the Affordable Care Act's tax credits is mandatory spending, and does not have to be appropriated by Congress. There are other parts of the tax credit, including cost-sharing reductions and caps on the overall growth of the credits, that could reduce the value of the credit in the future].

The Republicans will, if Hillary [Clinton] wins, style that as corporate welfare for the insurance industry.

SK: Right now I see a lot of liberals pointing fingers at insurance companies, saying that this is what happens when you work with private insurers to expand coverage. But as you mention, there are some European countries like Switzerland and Germany that have really robust universal coverage systems — and rely on private insurers.

What's different there? Why does their system seem to work well, while ours is struggling?

UR: In the Swiss system, there are no public insurers; the whole system is administered by private, commercial plans. They are not allowed to make any profit, and they have a common benefit package that is standardized. They all offer the same package and can price it however they wish. But that’s a lot of regulations, and the Germans are like that and the Dutch are like that.

When they run these exchanges, they accompany them with a very harsh mandate. If you don’t obey the mandate, the Swiss find out, and they go after you and garnish your wages. If you’re not insured, they’ll look at your wages and recoup the premiums you owe. They’re very tough. And we’ve never been tough.

In our marketplaces, every insurer can have a different package of benefits. And it's very difficult to comparison-shop when you’re not looking at the same things.

SK: Is there something inherent to the United States — the way our health care system works, maybe, or the way Congress works — that would make it impossible to build a system like that? 

UR: There are two reasons. One of them is the fight you have over telling people you have to buy from private insurance, and the litigation over the commerce clause. So I think it's systemic in that Congress wouldn’t have the guts to do it.

Voters will say, You’re trampling my premiums by making me buy this — but you’d be surprised at how many things you have to buy, like the seat belts in your car. It's very easy to whip up opposition, as the Republicans so skillfully did.

You need an enforced mandate where the government will say, You live in this country, we’ll look after you when you're sick, and you owe it as a civic duty to pay toward that. When you’re 60 you’ll get health insurance at half your cost, so you’re prepaying — call it a stock option, where you pay a premium that allows you to get health care later.

An alternative route would be to have a mandate that says every American should have access to health care and insurance, so we’ll create a public option, and, yes, its costs will be higher because the people tumbling into it will be sicker, but we’ll learn how to adjust, and the government won’t pull out because it's losing money."

Children -- in particular, those in single-mother families -- are significantly less likely to be poor today than they were before welfare reform

See Did Welfare Reform Reduce Poverty? Define 'Poverty' by Megan McArdle. Excerpts:
"Even if worried progressives are right that the poorest of the poor are doing worse since welfare reform, that doesn’t settle the question. A life of work offers cumulative benefits: You gain good work habits and experience, which enables you to earn more money in the future, and sets an example of self-reliance for your children to follow. The experience of welfare reform suggests that welfare was enabling people to make a rational short-term decision -- welfare benefits are better than working an entry-level job -- that was a disastrous long-term decision, because the longer you go without working, the harder it is to get your foot on the first rung of that vocational ladder, and the less time you have to enjoy any cumulative benefits.

A government policy that helps people with bad long-term decision-making was probably not “the greatest good for the greatest number.” On the other hand, making the badly off even worse off doesn’t sound like great policy either. Which problem you think is more important is a value judgment, not an empirical question.

But what if we don’t have to choose? Scott Winship of the Manhattan Institute has just released a paper arguing that “Children -- in particular, those in single-mother families -- are significantly less likely to be poor today than they were before welfare reform.” How can he come to such a radically different conclusion from other authors? Because official measures of poverty aren’t very good.

That’s a known problem, which Christopher Jencks, now an emeritus professor of social policy at Harvard, exhaustively explored last year for the New York Review of Books.

The measure of inflation used to calculate the poverty line is known to be flawed in a way that pushes up estimates of poverty. People underreport income to survey takers, a problem that may have gotten worse in recent years. Social changes have also affected the reliability of the measure: For example, more people cohabit instead of getting married, but the Census Bureau counts two unrelated people living together as essentially living in two separate households. Noncash benefits have also vastly increased, allowing poor families to stretch their limited funds further, but those too are excluded by the Census. Our poverty rate is calculated as if we were still living in 1960.

The question, of course, is how we ought to calculate it. The one thing that can be said for the official measure is that it’s been the same for a long time. That makes it easy to compare to past periods, and also means that we don’t have to squabble about what number to use. Those are great benefits when you’re getting into a policy argument -- though I think Winship makes a pretty thorough case that at this point, the drawbacks of inaccuracy outweigh the benefits of consistency.

But Winship will probably be less successful at convincing liberals that his measures are the right ones. The charts he provides offer multiple ways of calculating poverty, and while these are extraordinarily useful for policy wonks, they also highlight the fact that there is no one way of looking at poverty.

For example: Should we treat cohabiting couples as if they were married? Cohabiting cuts down on expenses, yes, but both incomes might not be available to other members of the household in the way that we’d expect in a family with two married parents.

Or: Should we count health-care benefits? Medicaid probably frees the poor up from some spending, which means they have more cash for other things, but how much? Some of the health benefits they consume would have in any case been provided for free; prior to Medicaid, the U.S. had a fairly elaborate network of charity care, particularly in urban areas. Or the patients might simply have gone without. In either case, we can’t fairly say that a Medicaid benefit with a market value of hundreds of dollars a month is exactly the same thing as getting cash income. Winship settles for calculating the value of Medicaid benefits at a quarter of their costs, which is not unreasonable, but will probably also be not uncontroversial.

But before we can get to these questions, we need to get to an even more fundamental one: “What does it mean to be poor?” And that’s a surprisingly hard question to answer. Most poor people in America -- even those in deep poverty -- are not starving, freezing to death, forced to go without shoes or clothes, or in danger of dying from some easily treatable disease. Those poor Americans who do have those problems are often suffering from substance abuse or mental health issues that affect their ability to care for themselves even when a safety net is available. And America’s rather unique view of civil liberties makes it more difficult than it is in other countries to, say, forcibly institutionalize someone who is simply incapable of keeping themselves sheltered and fed even with cash assistance. In the 19th century sense of the word, we have already largely won the war on poverty. And yet, looking around, we still seem to have a lot of poor people.

One problem is that we’re often talking about “relative poverty”; Jencks suggests that this sets in roughly when someone’s income falls below half the median income in their community. But the idea is not new. Adam Smith laid out similar thoughts in "The Wealth of Nations":
A linen shirt … is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into without extreme bad conduct.
“The poor you will always have with you,” said Jesus, and by a relative measure, that’s tautologically true: there will always be a bottom of the income distribution, even if that distribution is very narrow and much higher than it used to be. Should we really try to assuage this by government intervention? Can we? This is really the question we’re debating when we argue over whether food stamps should cover steaks.

Or should we try to assuage the constant financial anxieties that come with having a low income? The lack of capital that makes it hard to buy a decent car or appliance, the months in which inflow won’t quite cover outgo, so you have to choose between fixing the car, paying the gas company, or buying your daughter a prom dress? Is freedom from financial worry a basic component of a decent life? Should kids have to skip the prom because their parents are broke?

None of these questions have a simple answer that everyone can agree on. But before we can talk about a better measure of poverty, we need to at least establish the criteria for what we’re calling poverty. Given the divisions over these questions, we may end up with several measures that describe different things. But that’s probably more useful than one measure built to gauge the poverty of the last century, and currently gauging not much."

The Myth of Americans' Poor Life Expectancy

From Avik Roy of Forbes. Excerpts:
"Measuring health outcomes at the point of intervention

If you really want to measure health outcomes, the best way to do it is at the point of medical intervention. If you have a heart attack, how long do you live in the U.S. vs. another country? If you’re diagnosed with breast cancer? In 2008, a group of investigators conducted a worldwide study of cancer survival rates, called CONCORD. They looked at 5-year survival rates for breast cancer, colon and rectal cancer, and prostate cancer. I compiled their data for the U.S., Canada, Australia, Japan, and western Europe. Guess who came out number one?

U-S-A! U-S-A! What’s just as interesting is that Japan, the country that tops the overall life expectancy tables, finished in the middle of the pack on cancer survival.

Car accidents and homicides don’t tell us much about health care quality

Another point worth making is that people die for other reasons than health. For example, people die because of car accidents and violent crime. A few years back, Robert Ohsfeldt of Texas A&M and John Schneider of the University of Iowa asked the obvious question: what happens if you remove deaths from fatal injuries from the life expectancy tables? Among the 29 members of the OECD, the U.S. vaults from 19th place to…you guessed it…first. Japan, on the same adjustment, drops from first to ninth.

It’s great that the Japanese eat more sushi than we do, and that they settle their arguments more peaceably. But these things don’t have anything to do with socialized medicine.

America doesn’t have one health care system, but three

Finally, U.S. life-expectancy statistics are skewed by the fact that the U.S. doesn’t have one health-care system, but three: Medicaid, Medicare, and private insurance. (A fourth, the Obamacare exchanges, is supposed to go into effect in 2014.) As I have noted in the past, health outcomes for those on government-sponsored insurance are worse than for those on private insurance.

To my knowledge, no one has attempted to segregate U.S. life-expectancy figures by insurance status. But based on the data we have, it’s highly likely that those on private insurance have the best life expectancy, with Medicare patients in the middle, and the uninsured and Medicaid at the bottom.
If we look at Switzerland, a country with private-sector, market-based universal coverage, we see very good health outcomes data. Put another way: if we compared the life expectancy of Americans on private insurance with that of centrally-planned Europeans, I’d bet that the U.S. would come out on top. And if that’s true, the argument that socialized medicine leads to longer life evaporates.

UPDATE: A number of mathematically astute readers have asked why some countries have increased average life expectancies once you take out fatal injuries. I asked Robert Ohsfeldt about this, who responded that the adjustment factor was based on fatal injury rates relative to the average. Hence, the adjusted numbers shouldn’t be seen as hard numerical estimates of life expectancy, but rather as a way of understanding the true relative ranking of the various countries on life expectancy excluding fatal injuries.

For further reading on the topic of life expectancy, here are some recommendations. Harvard economist Greg Mankiw discusses some of the confounding factors with life expectancy statistics, citing this NBER study by June and Dave O’Neill comparing the U.S. and Canada. (Mankiw calls the misuse of U.S. life expectancy stats “schlocky.”) Chicago economist Gary Becker makes note of the CONCORD study in this blog post. In 2009, Sam Preston and Jessica Ho of the University of Pennsylvania published a lengthy analysis of life expectancy statistics, concluding that “the low longevity ranking of the United States is not likely to be a result of a poorly functioning health care system.”"

Sunday, August 28, 2016

How to Milk a Bull! Bad bee science and activist capture at the FT

From The Risk-Monger. Excerpts:
"A recent correlation study by researchers mostly from the UK Centre for Ecology and Hydrology (CEH)  has drawn such headlines. The CEH started with a prejudice that wild bees are dying in the UK (nobody really knows how many species of wild bees there are in the UK, so apparently you can make that claim), and they attempted to correlate it to the increase in UK production of oilseed rape (and the parallel use of neonicotinoids).
This correlation study had a long list of inherent weaknesses, namely:
  • The claim of a wild bee decline was based on data collected by a loose organisation of volunteer enthusiasts who would spot bees and record them during their walks. There was no focus to systematically gather data for a determined study and there was no new research conducted. It was simply random data (although the authors of the study would prefer the euphemism: “not structured”) pushed through some statistical analysis “tool”.
  • Wild bee data is quite thin and not robust enough to make any legitimate conclusions (the numbers and number of species in the UK is simply not known). Wild bees became the subject of save-the-bee activist concern after campaigners stopped making the claim that honeybees were affected by neonicotinoids, because, well, data seemed to prove that they weren’t and some activist scientists couldn’t keep ignoring the facts.
  • The study did not consider the shifts in agricultural practices over the 18-year survey period that might have had a detrimental effect on biodiversity levels. How farmers rotated their crops was also not brought into the parameters.
  • The researchers did not consider the variation from different types of neonicotinoids, the exposure levels of each, the type of dosage … they simply grouped a class of different chemicals as: “neonicotinoids” and did not get deeper into the science.
  • In fact, the researchers did not actually consider neonicotinoids, how or when they were applied. They looked at oilseed rape production, assumed it was treated, and then correlated it to the random data from their amateur bee counting enthusiasts. If the farmers had treated OSR fields with the older, less efficient pyrethroid insecticides, many more bees surely would have perished! This was not taken into consideration.
  • The researchers seemed, frankly, immature. At one point, the publication went off on a tangent and postulated that similar conclusions could be made for the influence on bees from treated sunflowers, even though they had not studied that and had no data. The key researcher, Dr Nick Isaac, acknowledged in a blog how he had designed the methodology to show how much of the wild bee decline was due to exposure to neonicotinoids. I believe the correct term is “if”. Building bias into the research methodology at the outset is, simply put, activist science.
  • A wide range of variables were simply ignored: weather, parasites, viruses, nutrition, other predators, regional urban development … the researchers included nothing that would complicate a clear correlation to prove their hypothesis.
  • There were no other hypotheses made to open further scientific debate or add to the body of knowledge. For example, organic farmers have introduced nematodes into their integrated pest management programme to protect against the increase of certain insects, without realising that these nematodes have a taste for wild bee nests and have been hoovering up wintering bumble bees at an alarming rate.
  • They did not recognise the limits of a correlation study in the paper. What they presented was assumed as clear, factual conclusions on the state of wild bee health due to neonicotinoids (even putting it down to causal percentages). I could easily perform a correlation study that shows that honeybee populations have increased globally since the introduction of neonicotinoids, or that these bees are thriving in OSR areas not affected by Varroa mites, but I don’t see the point of using a flawed approach for some vain need to prove I’m right!"
"The source the FT referenced to justify likening pesticide manufacturers to Big Tobacco was none other than that same friendly bunch that counted all of those bees: Friends of the Earth (who published a rabid report in 2014 of loose innuendo on industry lobbying that was largely ignored and quickly forgotten … except, obviously, by the editor of the Financial Times!!!). At this point, does anyone not get that this article was ghost-written by Friends of the Earth?"

David Zaruk is the Risk-Monger. He has been an EU risk and science communications specialist since 2000, active in EU policy events from REACH and SCALE to the Pesticides Directive, from Science in Society questions to the use of the Precautionary Principle. He was part of the team that set up GreenFacts to encourage a wider use of evidence-based decision-making in the EU on environmental health matters. David is an adjunct professor at Université Saint-Louis Brussel and KUL Brussel (Odisee) where he lectures on Risk Communications, EU Lobbying, Corporate Communications and PR. "The CEH study does not actually say neonics are responsible for 30% of the wild bee deaths, and this headline shock factor is not even backed up with a link to the study or reference to it by name. So I guess the FT could say anything they want then!"

Licensing requirements cost consumers more than $200 billion and result in up to 2.85 million fewer jobs

How Detroit Can Liberate Its ‘Extreme Rebels’: Boost job growth in the Motor City by rolling back occupational licensing laws.. By Jarrett Skorup and Jacob Weaver in the WSJ. Mr. Skorup is a policy analyst at the Mackinac Center for Public Policy in Midland, Mich., where Mr. Weaver is a research intern. Excerpts:
"Mayor Mike Duggan, a Democrat, has signaled that he wants to encourage business and entrepreneurship."

"Detroit currently requires licenses for at least 60 occupations. Since the state of Michigan already obligates workers to earn licenses for about half of these jobs, Motor City workers licensed by the state have to pay additional fees and meet another set of requirements to work.

Consider the contractor who installs and repairs elevators. Getting a state license to work in that field requires passing a state-imposed test and paying a $200 fee. Anyone who wants to practice that trade in Detroit must pay the city an extra $142 in fees and pass another oral and written test, which cost an additional $176. This means that it costs $318 more to be an elevator contractor in Detroit than anywhere else in Michigan."

"Why would a contractor who could find a job elsewhere deal with the trouble of doing business in Detroit? And whom do these redundant requirements benefit?"

"Detroit also licenses many professions that the state and the rest of the municipalities in Michigan do not. Furniture movers and auctioneers all need licenses, as do batting-cage operators and even more obscure professions like animal-hide haulers."

"these barriers restrict job growth and provide no measurable health or safety benefits to the public."

"licensing requirements cost consumers more than $200 billion and result in up to 2.85 million fewer jobs."

"occupational-licensure regimes disproportionately harm people with low incomes. A study this year from the Mercatus Center shows that entry-level regulations, especially occupational-licensing requirements, contribute to income inequality. That’s because occupational licensing raises the costs of goods and makes it harder for less well-off Americans to find and maintain steady employment."

Saturday, August 27, 2016

Consumers for Paper Options is funded by paper mills, timber firms and the Envelope Manufacturers Association.

See Paper Pushers by Alex Tabarrok of Marginal Revolution.
"Excellent piece by Tim Carney:
Five years ago, a new quirky-sounding consumer-rights group set up shop in a sleepy corner of Capitol Hill. “Consumers for Paper Options is a group of individuals and organizations who believe paper-based communications are critically important for millions of Americans,” the group explained in a press release, “especially those who are not yet part of the online community.”
This week, Consumers for Paper Options scored a big win, according to the Wall Street Journal. Securities and Exchange Commission chairman Mary Jo White has abandoned her plan to loosen rules about the need to mail paper documents to investors in mutual funds.
Mutual funds were lobbying for more freedom when it came to mailing prospectuses — those exhaustive, bulky, trash-can-bound explanations of the contents of your fund. In short, the funds wanted to be free to make electronic delivery the default, while allowing investors to insist on paper delivery. This is an obvious common-sense reform which would save whole forests of trees.
You won’t be surprised to lean that Consumers for Paper Options is funded by paper mills, timber firms and the Envelope Manufacturers Association.

What bothers me about these stories is not the rent-seeking–that is to be expected. What bothers me is that there is a law that prescribes how mutual funds must inform their customers. Why must every aspect of commercial life be governed by a gun? And this is where I expect pushback–the mutual funds will rip us off if we don’t have these laws, blah, blah, blah. Fine, believe that if you must, but then you have no cause to complain about rent seeking. You created the conditions for its existence."

A Very Brief History of Private Disaster Relief in America

Pete Earle, writing at FEE.
"Again, two weeks ago – as when Hurricane Katrina struck eleven years back – with the waters of the Amite, Comte, and other rivers rising rapidly, for many the first rescuers came not uniformed, nor in taxpayer-funded boats or helicopters, but in craft ranging from canoes and flatboats to fishing boats and crawfish skiffs.

Once again, citizen-sailors, this time dubbed the "Cajun Navy," saved the day as government responders (also again) were found overwhelmed, undersupplied, and without crucial pieces of critical local information.

The reaction of several local politicians, in the immediate aftermath, was not gratitude but a more classic rejoinder: an initiative to politically regulate civilian flood responders.

State Incompetence Is a Feature, Not a Bug

Skepticism of governmental rescue efforts springs from more than natural cynicism. For perfectly intuitive reasons, state authorities have rarely been first to respond to disasters, and often get in the way when they finally arrive. It stands to simple reason: major incidents typically occur with alarming suddenness, too quickly and messily for lumbering bureaucracies to gather information and organize an effective response. Only local individuals and small, flexible groups are suited for decisive reactions employing proximally-relevant information.

Of course, this is merely a specific application of Hayek’s “Use of Knowledge in Society” arguments against central planning: vast bureaucracies – typically political assemblages – are unable to deal with rapidly changing, local information as effectively and efficiently as locally-operating agents. When information must percolate through myriad layers of remote decision makers (who, it bears mentioning, are typically elevated by political appointment rather than demonstrated competence), outcomes are rarely timely and characteristically tend toward subpar outcomes.

Indeed, this is not a recent development; history readily shows that private individuals, whether acting alone or through social, charitable, or business organizations, are the first to react to crises and to make a difference, only afterwards calling for (and at times enduring) state aid. Several examples follow.

The Great Chicago Fire, 1871

During the early hours of the Great Chicago Fire in October 1871, firefighters were ineffective owing to having fought several serious fires the day before; thus many volunteers – home and business owners – made up the first line of defense between property and the racing flames. Order was initially kept by citizens, with the private Pinkerton Agency later taking over. 

The military arrived two days after the fire started and immediately imposed martial law – against the wishes of both the local population and mayor.

Johnstown Flood, 1889

The South Fork Dam burst in May 1889, and within minutes, quick-thinking residents abandoned their homes and businesses, mounted horses, and raced along the path of the flood to warn residents in imminent danger. The manager of the Western Union office in Johnstown, a certain Mrs. Ogle, stayed at her post to relay warnings down the valley despite entreaties to leave. By the time she had advised the final station of the impending cataclysm, she added, “This is my last message,” and was shortly thereafter overtaken and killed by the massive flood.

The Red Cross and the Army took several days to arrive, with one onlooker noting that the military arrived turned out in their finest dress uniforms.

Galveston Hurricane, 1900

In September 1900, a massive hurricane more devastating in terms of dollar equivalent damage than 2005’s Katrina, struck Galveston, Texas. On the evening that the storm struck, even as the scope of the damage was unclear and destruction ongoing, survivors gathered at the privately-owned Tremont Hotel to organize immediate rescue and relief efforts. For several days they dealt with the calamity locally, single-handedly.

San Francisco Earthquake, 1907

As often occurs after an earthquake, shaken but courageous survivors and pedestrians were the first to extricate victims from collapsed buildings. And when fires broke out shortly after the ‘quake, volunteers ran just ahead of the rapidly advancing flames, yelling into buildings and hammering on doors to alert residents. All over San Francisco, thousands fought fires and dynamited precariously teetering structures when firemen were too few, too late, or too exhausted to continue. Banker Amadeo Giannini first safeguarded depositors’ funds in his house, and then set up a desk in the street – a plank across two barrels. From there, he continued to not only take deposits, but make handshake-secured loans throughout the exigency, many of which jump-started the rebuilding of the city.

Accounts documenting the behavior of military personnel in post-earthquake San Francisco are mostly forgotten but bear repeating. One officer directed troops to shoot three citizens stranded on a rooftop who couldn’t be rescued. Another San Franciscan recalled seeing a soldier murder a policeman during an argument over disposing of bodies, and a banker was shot and killed searching the ruins of a bank he owned. A number of citizens, in fact, were shot for alleged looting while searching the ruins of their own homes.

Easter Tornado Outbreak, 1913

On Easter weekend, 1913, tornadoes wreaked havoc across major portions of the Great Plains and Midwest. In Omaha, Nebraska, the local, private telephone exchange served as the nerve center for the rescue efforts, with operators courageously staying at their posts before, throughout, and after tornadoes ripped through the town. Immediately after the destructive torrent subsided, hundreds of citizens gathered together, offering their homes, provisions, and money to care for the newly homeless, destitute, and injured. 

During the tornado outbreak in flash-flood ravaged Dayton, an otherwise unknown citizen named John H. Patterson hastily gathered 150 carpenters from the National Cash Register Co. and oversaw a boat-building frenzy which saved numerous lives. And, when troops arrived, their first act was to put the area under martial law.

Examples abound in the modern day as well. During the LA riots in 1992, after the terror attacks of September 11th, 2001, and in countless other earthquakes, storms, floods, fires, blizzards, building collapses, mine cave-ins, crashes, and freak accidents of every variety, the most critical, earliest lifesaving and recovery efforts were administered not by tax-financed, uniformed agencies, but by the people who were closest, whether they stood ready or not.  

And let’s not forget other peripheral, but no less important private actors: disasterpreneurs, who are so instrumental in keeping the price system working when natural (i.e., geographic dislocation) or artificial measures (i.e., rationing) suppress it; store owners who offer deeply discounted or free products to the afflicted; and the uncountable who invite displaced neighbors or strangers to stay in their homes until insurance payments come through or desperately needed repairs are made. 

More of the Same

The very same dynamics are, at this writing, at work in South Bend, Indiana, where record floods breeched government-maintained dams last week: with government incompetence on unobstructed display, thousands of affected residents are now also being threatened with fines if they don’t procure permits before starting to repair their damaged and destroyed homes and businesses. 

States are far better at creating chaos than responding to it; more equipped to hinder solutions than disinter them. Louisiana politicians would do well to step aside, put the safety of their respective constituencies ahead of their natural instinct to tax, regulate, and otherwise suppress local, nongovernmental initiative, and let the Cajun Navy sail – unencumbered."

Pete Earle is an economist and financial markets professional. He has spent two decades trading in and studying global equity, derivative, commodity, and currency markets, and regularly provides consulting services for trading, cryptocurrency, and online/mobile gaming firms.

Pete has published numerous articles on economic history, spontaneous order, and liberty and in 2014 published A Century of Anarchy: Neutral Moresnet through the Revisionist Lens. He resides in the Greater New York City area.

Thursday, August 25, 2016

Fight For $15 Meets Reality: D.C. Restaurants Lost 1,400 Jobs During First Half of 2016

In a shocking twist, D.C. is not exempt to the basic laws of economics.

By Eric Boehm, a reporter at Excerpts:
"Washington, D.C., is getting a real life lesson in economics as the city moves closer to implementing a $15 per hour minimum wage.

During the first six months of 2016, restaurants in D.C. shed 1,400 jobs. That's a 2.7 percent decline in food service jobs in just six months, the largest drop seen in that sector in more than 15 years. Even during the 2008 recession, restaurant jobs barely dipped before continuing a steady, decades-long rise in Washington.

Mark Perry, an economist and scholar for the American Enterprise Institute, says restaurant jobs are often "ground zero" for consequences of minimum wage increases. The minimum wage in D.C. increased to $10.50 an hour in July 2015 and climbed to $11.50 an hour on July 1, 2016, with further increases planned in coming years until the goal of $15 per hour is achieved.

It's telling that the decline in restaurant jobs appears to have struck only within the borders of the capital city, while restaurants in the Maryland and Virginia suburbs added 2,900 jobs during the first six months of this year.

"While it might take several more years to assess the full impact, the preliminiery evidence so far suggests that D.C.'s minimum wage law is having a negative effect on staffing levels at the city's restaurants," Perry wrote on his blog this week.

For the visual learners in the audience, here's how food industry job growth in Washington, D.C., compares to the city's nearby suburbs over the past decade:

American Enterprise Institute, Mark Perry 
American Enterprise Institute, Mark Perry"

"Supporters of higher minimum wages will claim there is little actual evidence of job losses when one state raises mandatory wages and nearby states do not. Almost always they will point to a single study looking at Pennsylvania and New Jersey that found no negative economic consequences for workers after the latter state increased the minimum wage by a few cents in 1992.

That study has been debunked, but even if you buy the premise that small adjustments in minimum wages might not have catastrophic affects, there's another problem: progressive policymakers are no longer pushing for small increases in the minimum wage."
See It's Simple: Hike The Minimum Wage, And You Put People Out Of Work for Gary Becker's views on the Card & Krueger study.

Federal Subsidies Won't Promote Fair Housing

By Angela Logomasini of CEI.
"Democratic vice presidential candidate Tim Kaine recently outlined his and Hillary Clinton’s plan to promote fair housing. Basically, they want to throw money at the problem of high home prices, offering to match buyer down payments of $10,000.

This won’t help low-income home buyers much, and belies the reason that homes have become so very expensive in many cities.

As Cato Institute Scholar Randall O’Toole explains in a recent blog post, free markets are not the source of this problem; it’s largely created by dumb government policies. Housing prices within the metro regions of places like Los Angeles, Portland, Ore., New York, and Washington D.C. are inflated in good measure due to misguided urban planning policies.

Consider government zoning programs, which once were used for the insidious purpose of segregating populations based on race. The federal Civil Rights Act of 1968 (also referred to as the federal Fair Housing Act) eventually barred all housing discrimination based on race, color, religion, or national origin, yet today many zoning policies still disadvantage low-income families.

In his essay “An Economic History of Zoning,” Dartmouth economics professor William A. Fischel notes that during the past several decades, zoning has become a tool of the Not-In-My-Back-Yard (NIMBY) suburban homeowners’ movement. Unable to use zoning to keep specific groups of people out of their neighborhoods, the NIMBY activists advocate “smart growth” policies in the name of “environmental protection.”

Many of these so-called smart growth policies involve zoning codes that make property too expensive and inaccessible to lower-income families. Such zoning regulations include mandating relatively large lots per house, prohibiting multifamily housing, banning certain home-based businesses, and other restrictions that make housing in these suburbs too expensive for many lower-income families.

In addition, so-called smart growth policies limit housing development in and around cities creating housing shortages, which obviously puts upward pressure on prices. For example, Oregon imposes “urban growth boundaries” that encircle the state’s cities, barring new home construction outside the boundary in would-be suburbs. The boundary around Portland has created severe a housing shortage and high prices.

Unfortunately, the Clinton-Kaine plan doesn’t address these very real housing problems but instead would dole out subsidies for select homebuyers. These subsidies will mostly benefit people in better financial situations, as you must have $10,000 in the bank to qualify.
O’Toole explains the problems with this approach perfectly:

To the extent that the Clinton platform aims to increase homeownership among low-income families, it sounds a lot like the programs of the previous Clinton administration that many people say contributed to the 2008 financial crisis…As it turned out, the Clinton programs did increase homeownership, which reached a record level in 2004. The problem is that this was followed by a crash that reduced homeownership rates to their lowest levels in 20 50 years. Low-income families were hurt the most, not only losing their homes but losing a larger share of their wealth than wealthier families.

We don’t need more of the same.  A truly fair approach would be for the government to get out of the way and allow developers to build housing where people want it.

For more on this topic see How Urban Planning Drives Up Home Prices, by Angela Logomasini, Ph.D."

Connecticut's spending grew 71 percent faster than inflation since 1991 after the introduction that year of an income tax

See No Laffer-ing Matter by Don Boudreaux of Cafe Hayek.

"Here’s a letter to the Wall Street Journal:
Today’s “Notable & Quotable” justifiably scoffs at the wildly mistaken prediction, made in 1991, that the introduction that year of an income tax in Connecticut would eliminate what then-Gov. Lowell Weicker called that state’s “orgies of spending” – spending that, between the introduction of the tax and 2014, grew 71 percent faster than inflation.
This train (wreck) of fiscal events raises a question: Will Paul Krugman and other “Progressives” who routinely ridicule as foolish all claims that cuts in marginal tax rates are not necessarily fiscally irresponsible now be equally dismissive of claims that increases in marginal tax rates are necessarily fiscally responsible?
I doubt it.  But it will be interesting to behold the verbal pirouettes performed by the likes of Mr. Krugman & Co. as they persist in trying to explain that cutting taxes is by nature fiscally reckless while raising taxes is by nature fiscally prudent.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030"

Wednesday, August 24, 2016

The Twenty-Niners

By David Henderson of EconLog.
""We're Hiring Economics Writers," says the headline of a post at the web site FiveThirtyEight.
Good for them.
Then they write:

This is a part-time staff position (up to 29 hours per week) and does not offer benefits.

Any idea why they chose 29 hours? Answer: Obamacare.
Here's how a video at Prager University puts it:

This is Kelly. She's a hard-working, independent college student. To pay for school, she works between 35 and 39 hours a week at her local grocery store. But today's been rough for Kelly. She has just been told that she's now part of a new group of Americans: the "29ers"...
Starting in 2015, the Affordable Care Act requires many companies to offer health insurance to employees who work 30 hours or more a week. As you may have guessed, the grocery store Kelly works for is one of these companies."

Secretary of the Treasury Timothy Geithner was correct when he said the problems at the heart of the financial crisis had “nothing to do with Glass-Steagall.”

See The Return of Glass-Steagall??? by Alex Tabarrok.
"The Atlantic writes:
Hillary Clinton and Donald Trump, have included plans to reintroduce the [Glass-Steagall] bill in their economic platforms. The argument for the act is that it could have prevented (or at least dampened) the 2008 financial crisis, and that reinstating it could ward off future ones. Is that the case?
The Atlantic’s editors reached out to economists and experts in financial regulation to ask them why Glass-Steagall is seeing renewed popularity right now, and what they think would make America’s financial system safer in the future.
Here’s part of what I had to say:
When Black Lives Matter calls for a restoration of the Glass-Steagall Act we know that the Act has exited the realm of policy and entered that of mythology. No, restoring the Glass-Steagall Act would not end racism. Nor would restoring Glass-Steagall have done much, if anything, to have avoided the 2008-2009 financial crisis. Secretary of the Treasury Timothy Geithner was correct when he said the problems at the heart of the financial crisis had “nothing to do with Glass-Steagall.”
The financial crisis is best understood as a run on the shadow banking system, that collection of financial intermediaries who based their credit creation not on deposits but on repo, money market funds, structured investment vehicles, asset-backed securitizations and other financial structures. Separate commercial and investment banking? Please. The problem was that by 2007 the shadow banking system had become so separated from commercial banking that the Federal Reserve didn’t know that a majority of credit was being generated by the shadow banks.
…“Nothing has been done!” may play well in some quarters but the Obama administration has in fact imposed systematic reform on the financial system. Most importantly, capital requirements have been increased (leverage has been reduced), forcing financial intermediaries to have greater skin in the game and to provide a cushion in the event of a fall in asset prices. Moreover, capital requirements have been extended far into the shadow banking system. Most recently, the Fed has imposed a capital surcharge on the biggest institutions i.e. the too big to fail institutions.
…Ironically, despite the political power of the financial sector it seems that more has been done to raise bank capital ratios than to require homeowners to raise their capital ratios by requiring larger down payments. There is a lesson there.
Robert Reich, Sheila Bair, Lawrence White, Stephen G. Cecchetti and others also comment. Only Reich, with some support from Blair, is enthusiastic."

Tuesday, August 23, 2016

Hillary Clinton’s “Exit Tax” Is an Unseemly Example of Banana Republic Economics

By Daniel J. Mitchell of Cato. Excerpt: 
"The Wall Street Journal opines on the issue and is especially unimpressed by Hillary Clinton’s irresponsible approach on the issue.
Mrs. Clinton is targeting so-called inversions, where U.S.-based companies move their headquarters by buying an overseas competitor, as well as foreign takeovers of U.S. firms for tax considerations. These migrations are the result of a U.S. corporate-tax code that supplies incentives to migrate… The Democrat would impose what she calls an “exit tax” on businesses that relocate outside the U.S., which is the sort of thing banana republics impose when their economies sour. …Mrs. Clinton wants to build a tax wall to stop Americans from escaping. “If they want to go,” she threatened in Michigan, “they’re going to have to pay to go.”
Ugh, making companies “pay to go” is an unseemly sentiment. Sort of what you might expect from a place like Venezuela where politicians treat private firms as a source of loot for their cronies.
The WSJ correctly points out that the problem is America’s anti-competitive worldwide tax regime, combined with a punitive corporate tax rate.
…the U.S. taxes residents—businesses and individuals—on their world-wide income, not merely the income that they earned in the U.S. …the U.S. taxes companies headquartered in the U.S. far more than companies based in other countries. Thirty-one of the 34 OECD countries have cut corporate taxes since 2000, leaving the U.S. with the highest rate in the industrialized world. The U.S. system of world-wide taxation means that a company that moves from Dublin, Ohio, to Dublin, Ireland, will pay a rate that is less than a third of America’s. A dollar of profit earned on the Emerald Isle by an Irish-based company becomes 87.5 cents after taxes, which it can then invest in Ireland or the U.S. or somewhere else. But if the company stays in Ohio and makes the same buck in Ireland, the after-tax return drops to 65 cents or less if the money is invested in America.
In other words, the problem is obvious and the solution is obvious.

But there are too many Barack Obamas and Elizabeth Warrens in Washington, so it’s more likely that policy will move in the wrong direction."

In today’s ‘challenging restaurant environment’ there’s no way to raise menu prices to offset minimum wage hikes

From Mark Perry.
"The CPI for Food at Home fell by 1.6% in July compared to the same month last year, marking the eighth straight month of annual food deflation at America’s grocery stores (see chart above). In contrast, the CPI for Food Away from Home (reflecting menu prices at restaurants) increased by 2.8% in the 12-month period through July – that was the 23rd straight month starting in September 2014 that the year-over-year increase in restaurant menu prices exceeded 2.5%. The 4.4 percentage point spread in annual food price changes (+2.8% for restaurants vs. -1.4% for groceries) is the biggest gap in nearly 7 years, going back to the end of recession in 2009.

 food foodprices

The second chart (table) above shows 11 of the specific food items that have fallen the most in price over the last year (see BLS data here), led by a nearly 40% drop in egg prices, from $2.57 per dozen in July 2016 to $1.55 last month. The next biggest price decrease was for ground beef, which fell 12.1%, from $4.20 to $3.69 per pound, since last July.

So guess what’s happening when cost-conscious consumers on limited budgets decide whether to eat at home or dine out? A Crain’s Chicago Business article titled “What’s to blame for slower restaurant sales? Cheap food” explains:
As prices for beef, chicken, eggs, milk and cheese go down at the grocery store, people cook at home more and eat out less. That’s bad news for companies like McDonald’s, which stumbled in the second quarter after two straight quarters of surpassing expectations, disappointing investors looking for more robust results under CEO Steve Easterbrook’s turnaround plan.
The world’s largest burger chain had plenty of company. Of the 25 largest restaurant chains in the country, just one—Domino’s Pizza—reported a same-store sales increase of 5% or better in the most recent fiscal quarter, the worst showing so far this decade, says Mark Kalinowski, a New York-based restaurant analyst at Nomura. “For chain restaurants, it was a weak quarter, no doubt about it,” Kalinowski says. The primary reason: Prices at restaurants are rising, while prices at grocery stores are falling (see top chart above), causing some consumers to skip the Big Mac to grill a burger at home.
Six of the largest chains—Taco Bell, Burger King, Applebee’s, Chipotle, Chili’s and Buffalo Wild Wings—reported negative same-store sales figures for the quarter. Oak Brook-based McDonald’s fared slightly better, reporting that same-store sales rose 1.8% in the U.S. in the second quarter. But that was far below the 3.2% increase expected by analysts and the 5.4% rise it reported the previous quarter.
“Compared with 12 months ago, if you’re shopping at a grocery store and cooking at home, you’re giving yourself a (bigger) discount, on average, versus eating at a restaurant,” Kalinowski says. And consumers, particularly low-income and middle-class families on tight budgets, tend to notice even small changes in prices and act accordingly. That has created what restaurant industry executives call a “challenging restaurant environment.”
Wendy’s CEO Tedd Penegor said during an Aug. 10 earnings call that cheap grocery prices are hurting his burger chain’s sales, which inched up a paltry 0.4% on a same-store basis in the most recent quarter. “It’s gotten a lot cheaper, relatively speaking, to get fresh beef at your local butcher and go home and grill it. . . .The continued gap in the cost of eating at home and dining out is at the widest point since the recession.”
That difference rose to 4.4 percentage points in July, the biggest gulf in nearly seven years, according to Shane Higgins, a New York-based analyst at Deutsche Bank. Price declines in grocery stores are being led by categories like meat and dairy, the stock in trade of most fast-food outlets. Store prices fell last month for the seventh time in the past nine months, according to the Bureau of Labor Statistics. They’re now down 1.6% from 12 months ago. Prices at restaurants, meanwhile, are up 2.8% over the same time frame.
“If I’m a grocer and I see those trends, I’d do more prepared foods, deli items and grab-and-go to try to appeal to the time-starved consumer on the way home from work,” Higgins says. “Not only are these very profitable areas, but they’re also (potentially) replacing a restaurant trip.”
The numbers posted by restaurant companies seem to bear that out. Despite low gas prices, a bullish equities market, low unemployment and high consumer confidence, restaurant traffic was down nearly 4% in July from a year earlier. And there’s no immediate sign that things will get better. Higgins expects grocery prices to be deflationary through the second half of 2016. That’s happening as McDonald’s raised menu prices about 3% over the past 12 months and may continue passing along rising labor costs as more states and municipalities raise the minimum wage.
MP: There are some important economic lessons here, with major implications for the $15 an hour minimum law (both enacted and proposed):

1. Consumers live on limited incomes and and tight budgets, and are therefore very price-sensitive and cost conscious about food prices, and “tend to notice even small changes in prices and act accordingly.”
2. Eating at home and dining out at restaurants are very close substitutes for most consumers, and they switch from one option to the other based on relative prices and relative price changes for each alternative.
3. As restaurant prices increase relative to food prices at grocery stores, price-sensitive consumers naturally tend to eat out less and eat at home more.
4. Restaurants operate on very thin profit margins, e.g. 5%. Under the best of circumstances, the ability of restaurants to raise menu prices, maintain customer traffic, and stay profitable is very, very limited, given Lessons 1 to 3 above, especially now that eating at home is becoming less expensive and more affordable relative to dining out.

5. In cities and states where the minimum wage is being increased to $15 an hour, and in those areas where a $15 wage is being considered, those wage hikes represent increases in labor cost for minimum wage workers of more than 100% in some cases. It’s just a simple matter of economics that if restaurants can’t raise menu prices in today’s competitive and “challenging restaurant environment” without losing customers, there’s no way they’ll be able to raise menu prices anywhere close to the level required to offset higher labor costs from huge minimum wage hikes and remain profitable and stay in business. Higher menu prices following minimum wage hikes will simply drive even more customers than currently away from restaurants in favor of eating at home.

Bottom Line: In the end, the $15 an hour minimum wage comes down to basic math, economics and consumer behavior, not politics and social justice. And the restaurant and consumer math of a $15 an hour minimum wage is an arithmetic for restaurant failures and reduced employment opportunities, not restaurant survival and an expansion of entry-level job opportunities. As I wrote on a recent CD post, the defects of the $15 an hour minimum wage can easily be seen by looking at the many things that law cannot do; that is, by looking at the many inevitable and negative outcomes that a mandated minimum wage cannot prevent or stop from happening. I provided 15 of those adverse outcomes from the things a $15 an hour minimum wage can’t do, and said there are perhaps more.

Here’s one more: A $15 an hour minimum wage hike, followed by higher menu prices at restaurants to offset the higher labor costs, can’t stop cost-conscious, price-sensitive customers from avoiding restaurants and instead choosing to eat at home to save money. In other words, it’s those pesky, greedy, cost-saving consumers who will thwart, foil and doom the $15 minimum wage. After all, if consumers weren’t so damn sensitive to higher food prices, they wouldn’t mind significantly higher menu prices following minimum wage hikes of up to 100% or more and would continue eating out just as often. And if consumers didn’t have the option to eat at home instead of dining out, they would tolerate higher menu prices at restaurants following minimum wage hikes because of limited alternatives for eating. But because consumers are very sensitive to food prices and because they do have the option of eating at home instead of dining out, it’s consumer behavior (“consumer greed”) in the end that makes the $15 an hour minimum wage a public policy that is doomed to fail. If greedy, price-conscious consumers are staying away from restaurants now that food prices at grocery stores are falling, would they act any differently in the future if restaurants try to raise menu prices to offset minimum wage hikes? I think it’s pretty clear the answer is No."

Sunday, August 21, 2016

Louisiana floods, but Wal-Mart, UPS keep trucks running

By Jennifer Larino of | The Times-Picayune.
"Wal-Mart trucks were among the first to deliver much needed supplies after Hurricane Katrina tore through the Gulf Coast in 2005. As many Katrina survivors still note, Wal-Mart trucks arrived well before the Federal Emergency Management Agency did.

Over the weekend, Wal-Mart was again among the large companies in Louisiana able to keep supply lines open and operations going despite catastrophe -- this time historic flooding that devastated whole communities and shut down major roadways.

Wal-Mart spokeswoman Erica Jones said the corporation's emergency operations center in Bentonville, Ark., kicked into high gear late last week as forecast warnings of record rainfall started to roll in. Wal-Mart has about 30 locations in the affected area, including stores in the heavily flooded communities of Denham Springs and Baker.

Jones said early planning included mapping alternate routes for trucks delivering to stores in and around Louisiana. Corporate meteorologists monitored the weather and helped inform plans. Preparations were made to ramp up shipments of essential supplies -- from bottled water to baby formula -- to the region as it became clear conditions would worsen.

Jones said eight Wal-Mart stores were closed because of various levels of flooding and damage. As of Thursday (Aug. 18), five of those stores had re-opened. A key distribution center in Hammond also remained open. The Hammond center serves stores in Louisiana and south Mississippi.
Jones said the current priority is ensuring Wal-Mart employees are healthy and taken care of and that trucks are safely re-routed to get to where they need to be.

"We are shifting our resources to be able to work around the road closures and damage to facilities," Jones said.

Big corporations have a clear motive in investing in disaster preparedness. Planning ahead minimizes the dent otherwise unpredictable natural disasters can make on revenues. And there's a sales advantage in being able to quickly get back to providing supplies and services to customers in a time of need. On the plus side, corporations can serve as a model for how disaster response should work. Experts point to Katrina. While FEMA's response was lethargic and inefficient, major companies ushered in needed supplies quickly.

Last December, FEMA gathered public and private sector officials in New Orleans for its fifth annual Building Resilience conference, during which leaders swapped ideas to improve response measures.

FEMA Administrator Craig Fugate called businesses large and small an "essential member of the team" when it comes to disaster response.

"The more resilient businesses are, the quicker they can recover and provide critical goods and services to help their communities rebuild," Fugate said in a release at the time.

UPS, the world's largest logistics company, has more than 2,860 employees at 19 facilities in Louisiana handling small package business.

UPS spokeswoman Susan Rosenberg said all UPS distribution centers were able to continue operations through the flooding, though there is now limited capacity at its facilities in four cities: Baton Rouge, Port Allen, Jeanerette and Gonzales.

Like Wal-Mart, Rosenberg said UPS started planning to re-route trucks and packages scheduled to pass through south Louisiana late last week. Five company meteorologists track weather patterns all over the world from a UPS hub in Louisville, Ky.

Distribution centers along the Gulf Coast have generators as a precaution for hurricane season. The company also has a phone hotline for employees in affected areas to call and check in.

Rosenberg said packages that are delayed or can't be delivered because of flooding are being marked as such in the company's electronic tracking system. Packages will be held at distribution centers until delivery resumes or for a few days until they are claimed, she said.

She noted UPS warehouses are typically slower this time of year, leaving enough room to store excess packages for the time being.

As floodwaters recede, large companies shift to meeting customer needs.

At UPS, the focus is getting delivery routes up and running as soon as possible and working with customers with high-priority deliveries -- for example, prescription drug orders, Rosenberg said. She added UPS is coordinating the transportation of trailers for the American Red Cross and for supply pickups at area shelters.

After years of tracking disaster recovery, Jones said Wal-Mart supply managers can anticipate what a region needs as it moves from flood to recovery. In coming days, shipments will shift from diapers and water to cleanup items, including shovels, gloves and bleach.

"Once it shifts from evacuation and immediate safety to more the recovery and cleanup, we know the supplies people are looking for," Jones said."