Sunday, April 23, 2017

How FDA Rules Made a $15 Drug Cost $400: For many older medicines, government forces the original, name-brand version off the market

From the WSJ.
"All these prescription drugs fall under a category known as DESI drugs, named for their inclusion in an FDA program called Drug Efficacy Study Implementation. These drugs came to market before 1962, when getting FDA approval for a drug required proving its safety but not its efficacy. Such drugs, manufactured under expired patents, are used by millions of Americans today.

But once the FDA approves a new-drug application for a DESI drug, the existing drug can be pulled from the market. The “new” drug is treated as a material advance because it underwent testing for safety and efficacy—even though the DESI version was proved safe and effective over decades of actual use. The developer of the new drug may also get a new period of market exclusivity that lasts three years.

This makes little sense. Market exclusivity should let pharmaceutical companies recoup their often enormous investments in genuinely new drugs. Giving monopoly protection for what is essentially a generic version of a DESI drug merely enriches sharp-dealing companies while injuring patients."

"a generic-drug application can cost as much as $15 million. This high upfront cost is part of why would-be manufacturers of generics often pass on the opportunity to compete against branded drugs with smaller markets. This has allowed many pharmaceutical companies to raise prices with impunity.

"The Drug Quality and Security Act of 2013 was designed to ensure that companies can quickly respond to a drug shortage by allowing a new type of drug maker, called an “outsourcing facility,” to enter the market. It copies an FDA-approved product, regardless of exclusivity, provided that it manufactures the drug in an FDA-registered and -inspected facility using FDA-approved ingredients. American companies, including mine, have invested in such facilities.

Yet the potential of this legislation remains untapped. The FDA should clearly define “drug shortage” to include a lack of access due to abnormally high prices. With this simple change, FDA-registered outsourcing facilities could quickly bring sky-high prices for monopoly generics with expired patents back to earth."

"the Trump administration should authorize Medicare and Medicaid to pay for compounded drugs made in outsourcing facilities, which currently aren’t covered. Right now government policy forces Medicare to pay Turing Pharmaceuticals, the brainchild of the notorious “pharma bro” Martin Shkreli, $750 for a single Daraprim pill."

California’s Wasted Winter Rains: The drought is over but the greens keep sending the water out to sea

From the WSJ.
"Hydrologic records indicate that this year could be the wettest on record in California."

"Most of the major reservoirs in the north are full, and some are releasing hundreds of billions of gallons of water to prevent flooding and make room for the melting snowpack this spring.

While farmers and communities downstream can capture some of the discharges, millions of acre-feet will invariably flow into the ocean due to lack of storage capacity and rules to protect endangered fish species. One problem is that while the state population has increased 70% since 1979, storage hasn’t expanded."

"five proposed reservoirs could add four million acre-feet of storage capacity at a cost of $9 billion. Yet environmentalists have opposed every significant surface storage project for three decades. The state is even razing four hydroelectric dams on the Klamath River that green groups complain impede fish migration.

Ah, the fish. Regulations intended to protect smelt and salmon have limited pumping at the Sacramento-San Joaquin River Delta. As a result, some seven million acre-feet of water that was once available for Central Valley farmers and Southern California is flushed into San Francisco Bay each year.

Meanwhile, a 60-mile dry riverbed on the San Joaquin River that hasn’t borne fish since the 1940s is being restored at a cost of $1.7 billion to farmers and state and federal taxpayers. The river restoration is expected to divert an additional 170,000 acre-feet each year, but it could be more since the Chinook salmon that environmentalists want to revive require cool temperatures—meaning more water—to spawn and survive."

"While the state board’s plan would cause more farmland to be removed from production, the main casualties would be low-income and Hispanic communities like Merced that rely on groundwater recharged by the tributaries."

"Communities and farmers have drilled deeper wells and pumped more groundwater to compensate for reduced imports from the delta, leading to severe land subsidence."

"San Joaquin Valley is sinking at a rate of nearly two inches per month in some areas."

Saturday, April 22, 2017

Portugal And Greece Make Budget Cuts And There Economies Don't Go South

See Public sector expenditure cut when economies are not already imploding from Tyler Cowen.
"Portugal slashed its public sector deficit by more than half in a single year, when measured as a proportion of GDP, the national statistics bureau has said, taking the shortfall comfortably below euro zone limits.
The deficit dropped to 2.1%  of gross domestic product in 2016, a staggering reduction from its 4.4%  level a year earlier.
This confirms Finance Minister Mario Centeno’s prediction last month that the deficit would be “not more than 2.1%”, its lowest share of GDP since the advent of democracy in 1974.
Euro zone members are required to keep their public deficits to below 3% of GDP, but some are struggling to do so.
Portugal’s public deficit shot up into the double digits during the global economic crisis, and despite an international bailout it had difficulty bringing it back down to 4.4% in 2015.
Portugal’s economy expanded by 1.4% in 2016, the national statistics institute said in February, after growing by 1.6% the previous year on the back of stronger exports and private consumption.
Here is the full piece, here is a useful Bloomberg piece on Portugal.  Furthermore, by one estimate:
Greek gov’t makes a 6.8%/GDP fiscal adjustment in a single year, without any decline in country’s GDP.
You can quibble over those numbers, and yes I do agree this is bad and also not sustainable, but still people this is not exactly the Keynesian model at work."

Ban on neonicotinoids has done more harm than good

European Commission buries science on bees by Matt Ridley.

"Is the European Commission determined to dim the Enlightenment? I ask this because its behaviour in one specific instance goes so utterly with dogma and against evidence as to suggest that there is no longer even a pretence of respect for reason left in Brussels. It concerns bees.

In 2013, you may recall, the European Union banned some uses of neonicotinoid insecticides to save bees. The verdict on this policy has now come in, from the commission’s own Joint Research Centre (JRC), whose job is to provide independent scientific advice to support EU policy. I have seen the commission’s internal report plus a PowerPoint summary that was shown privately to MEPs. Its conclusion is that the ban has been disastrously counterproductive, resulting in an increased use throughout the continent of more damaging pesticides, mainly pyrethroids, which are sprayed on rather than seed-treated (worse for non-pests) and are especially harmful to aquatic life. It finds the ban has had no benefit at all for bees.

In Britain, for example, the study finds that farmers have more than quadrupled the number of insecticide applications on oil-seed rape (from 0.7 to 3.4 per growing season), but pest pressure has increased. Meanwhile, recent studies have demonstrated that declines among wild bees are driven mostly by land use changes and have not increased since neonics were introduced in the 1990s. In fact, a 2015 study published in Nature Communications found that those wild bees most often found in agricultural areas — and probably most exposed to neonics — are “common” and “dominant”.

This makes sense because neonics are mostly used as seed dressings, absorbed into the plant from germination, rather than sprayed on a growing crop. This makes them more lethal to pests such as flea beetles that eat the crop but less dangerous to innocent bystanders, including bees that collect pollen and encounter lower doses. (To declare an interest, I own a farm, which does not grow oil-seed rape but does use neonics to protect wheat. My pride and joy is to have created a new 40-acre wildflower meadow, which is buzzing with bees all summer.)

What has the commission decided to do in response to the news that its policy has been bad for wildlife? Suppress the JRC report and double down, of course. It is refusing to release the report and has (I hear) told the JRC that the centre will have to publish it itself in a journal, which would take months and, crucially, delay publication until after an appeal against the ban at the European Court of Justice is concluded. The commission fears it will lose the case, so it has leaked to friendly reporters at The Guardian and Politico (via the activist Pesticide Action Network) that it intends to push forward with a full ban on neonics, except in greenhouses. The original 2013 ban was on seed treatments and other uses on bee-attractive crops. The leak suggests the full ban would be imposed in May — months before the final decision was to be made this autumn. It apparently wants to get the ban in place before the evidence that it is mistaken reaches the public. The leak was probably intended to keep pressure on the ECJ to rule in the commission’s favour.

Last week Bernhard Url, executive director of the European Food Safety Authority, appeared before the European parliament’s agriculture committee and said that “on the request of the European Commission”, the neonic policy would be based instead on the so-called Bee Guidance Document, even though he admitted this has not been adopted by EU countries. This was a bizarrely one-sided piece of politicised science, written mainly by activist researchers with a conflict of interest, that forces regulators to rely on lab studies often using absurdly high doses of the pesticides while ignoring the many large field studies that overwhelmingly concluded that neonics had no hive-level effect on bees. The document has been reputationally shredded in court.

As background, the German MEP Markus Pieper recently drafted a report for the European parliament budgetary committee calling for more transparency about what is sometimes called sock-puppet commission funding of NGOs. He was gobsmacked by the realisation that the commission pays wealthy green NGOs to lobby the parliament. “I can’t get my head around that sort of thing,” he said. Revealingly, Bart Staes, a Belgian Green MEP, responded with fury to his draft.

David Zaruk, a Brussels-based academic, has been documenting the extent to which Europe has become a playground for American green NGOs. European policy is based on hazard, not risk; it measures whether something can cause harm no matter what the exposure. That, along with an extreme interpretation of the precautionary principle (to consider the hazard, but not the benefit, of any innovation), makes it much easier to get things banned in Europe than in America, where lawyers put up a fight. Hence the way US activists now start their campaigns in Europe. Zaruk says: “If you can ban your target substances (glyphosate and certain neonicotinoids are the flavours of the month) in the influence-rich but lawyer-weak left-leaning European Commission, you then take that feather in your cap back to DC and try to build regulatory momentum.”

Perhaps the European Food Safety Agency should drop the pretence that its regulatory decisions are based on science and admit that EU regulations on the environment and health are political determinations driven by whoever can create the most pressure on bureaucrats and politicians, which is almost always these days anti-science NGOs with their vast and subsidised budgets. For those who would prefer we do without insecticides altogether: great idea, but we missed that bus 20 years ago when we turned our back on genetically modified crops. Insect-resistant GM cotton and maize have boomed elsewhere, but work on European crops largely ceased at the behest of the environmentalists.
It is tragic that this is happening in Europe, home of the Enlightenment, birthplace of the scientific method, where the human race began to climb out of its solitary, brutish and short-lived natural state. The fact that the commission is using a corrupt document and suppressing its own report showing that the ban has been a counterproductive failure — and that few in Brussels appear to give a damn — suggests that Brexit cannot come soon enough.

Post script:

The following letter appeared in the Times the next day from a farmer:

Sir, Matt Ridley (“Europe’s age of unreason harms its wildlife”, Comment, Apr 17) perfectly sets out the facts surrounding the scandalous suppression of scientific evidence and the pandering to illogical non-governmental organisation pressures, by the EU, and how this has led to a ban on the use of the use of neonicotinoid seed dressings in oil seed rape crops. On my farm this environmentally friendly technique prevented the use of any insecticide sprays on any of the farm for more than ten years. This enabled me to encourage a wide spectrum of insects in crops and specially created habitat areas. It is a vital part of the food chain for a multitude of wildlife species.

The ban on the neonic seed dressing has now forced me to spray my rape crops, three times, with broad-spectrum insecticide, so as to achieve the same insect control. Sadly, we have undone ten years of environmentally friendly work. It is infuriating that this outcome should have been brought about by pressure and distorted information from so-called environmental groups and against the wishes and better judgment of bee keepers and farmers alike.

Richard Harvey
Owston, Rutland"

Friday, April 21, 2017

The Rich Aren't Getting Richer

From Greg Mankiw.
"This  paper by Fatih Guvenen and Greg Kaplan is worth a read by anyone interested in inequality trends.  An important excerpt:
Since 2000, different measures of top income inequality have exhibited very different trends. Top income shares based on measures of total income show a continued rise, whereas top income shares based on wage and salary income show no increase in inequality post-2000. The most important difference between these two measures of income is the income that accrues to S-corporations.... 
But interpreting trends in the S-corporation component is extremely difficult. Feenberg and Poterba (1993), Gordon and Slemrod (2002), and Cooper et al. (2016) warn that much of the recent increase in S-corporation income is income that previously accrued to C-corporations. Such income is not “new” income earned by top earners but is simply income that was previously labeled as corporate income rather than household income."

Thus, the Canadian corporate tax raises relatively more than the U.S. tax—even though the rate is less than half the U.S rate

See Corporate Tax Cuts: Canada’s Experience by Chris Edwards of Cato.
"President Donald Trump and congressional Republicans are proposing to cut the corporate tax rate. With any tax cut, members of Congress want to know how much revenue the government may lose from the reform. I do not think that cutting our 35 percent federal corporate tax rate to 20 percent or so would lose the government any money over the long term. U.S. and foreign corporations would invest more in the United States, which would boost our economy, and corporations would avoid and evade taxes less.

Canada provides us with a real-world trial run of corporate tax cuts, and new budget data includes the latest revenue estimates. The nation slashed its federal corporate tax rate from 38 percent in the mid-1980s, to 29 percent by 2000, to 15 percent by 2012, as shown in Chart 1 below. Has the government lost revenue?

You be the judge. Chart 2 shows that corporate tax revenues in Canada have fluctuated with the ups and downs in the economy—revenues fell, for example, during recessions in the early 1990s and 2009. But even with the modest Canadian economic growth of recent years, revenues have held up under a much lower rate. Corporate tax revenues are 2.1 percent of gross domestic product (GDP) today, which is a bit higher than in the mid-1980s when the rate was more than twice as high.

Let’s compare to the United States. While Canada’s 15 percent federal corporate tax will raise 2.1 percent of GDP this year, the 35 percent U.S. federal corporate tax will raise just 1.7 percent. Thus, the Canadian corporate tax raises relatively more than the U.S. tax—even though the rate is less than half the U.S rate.

Canada historic tax revenues here. New Canadian budget data here."

Thursday, April 20, 2017

18 spectacularly wrong predictions made around the time of first Earth Day in 1970, expect more this year

From Mark Perry.
"In the May 2000 issue of Reason Magazine, award-winning science correspondent Ronald Bailey wrote an excellent article titled “Earth Day, Then and Now” to provide some historical perspective on the 30th anniversary of Earth Day. In that article, Bailey noted that around the time of the first Earth Day in the 1970, and in the years following, there was a “torrent of apocalyptic predictions” and many of those predictions were featured in his Reason article. Well, it’s now the 47th anniversary of  Earth Day, and a good time to ask the question again that Bailey asked 17 years ago: How accurate were the predictions made around the time of the first Earth Day in 1970? The answer: “The prophets of doom were not simply wrong, but spectacularly wrong,” according to Bailey. Here are 18 examples of the spectacularly wrong predictions made around 1970 when the “green holy day” (aka Earth Day) started:

1. Harvard biologist George Wald estimated that “civilization will end within 15 or 30 years unless immediate action is taken against problems facing mankind.”
2. “We are in an environmental crisis which threatens the survival of this nation, and of the world as a suitable place of human habitation,” wrote Washington University biologist Barry Commoner in the Earth Day issue of the scholarly journal Environment.
3. The day after the first Earth Day, the New York Times editorial page warned, “Man must stop pollution and conserve his resources, not merely to enhance existence but to save the race from intolerable deterioration and possible extinction.”
4. “Population will inevitably and completely outstrip whatever small increases in food supplies we make,” Paul Ehrlich confidently declared in the April 1970 issue of Mademoiselle. “The death rate will increase until at least 100-200 million people per year will be starving to death during the next ten years.”
5. “Most of the people who are going to die in the greatest cataclysm in the history of man have already been born,” wrote Paul Ehrlich in a 1969 essay titled “Eco-Catastrophe! “By…[1975] some experts feel that food shortages will have escalated the present level of world hunger and starvation into famines of unbelievable proportions. Other experts, more optimistic, think the ultimate food-population collision will not occur until the decade of the 1980s.”
6. Ehrlich sketched out his most alarmist scenario for the 1970 Earth Day issue of The Progressive, assuring readers that between 1980 and 1989, some 4 billion people, including 65 million Americans, would perish in the “Great Die-Off.”
7. “It is already too late to avoid mass starvation,” declared Denis Hayes, the chief organizer for Earth Day, in the Spring 1970 issue of The Living Wilderness.
8. Peter Gunter, a North Texas State University professor, wrote in 1970, “Demographers agree almost unanimously on the following grim timetable: by 1975 widespread famines will begin in India; these will spread by 1990 to include all of India, Pakistan, China and the Near East, Africa. By the year 2000, or conceivably sooner, South and Central America will exist under famine conditions….By the year 2000, thirty years from now, the entire world, with the exception of Western Europe, North America, and Australia, will be in famine.”
9. In January 1970, Life reported, “Scientists have solid experimental and theoretical evidence to support…the following predictions: In a decade, urban dwellers will have to wear gas masks to survive air pollution…by 1985 air pollution will have reduced the amount of sunlight reaching earth by one half….”
10. Ecologist Kenneth Watt told Time that, “At the present rate of nitrogen buildup, it’s only a matter of time before light will be filtered out of the atmosphere and none of our land will be usable.”
11. Barry Commoner predicted that decaying organic pollutants would use up all of the oxygen in America’s rivers, causing freshwater fish to suffocate.
12. Paul Ehrlich chimed in, predicting in 1970 that “air pollution…is certainly going to take hundreds of thousands of lives in the next few years alone.” Ehrlich sketched a scenario in which 200,000 Americans would die in 1973 during “smog disasters” in New York and Los Angeles.
13. Paul Ehrlich warned in the May 1970 issue of Audubon that DDT and other chlorinated hydrocarbons “may have substantially reduced the life expectancy of people born since 1945.” Ehrlich warned that Americans born since 1946…now had a life expectancy of only 49 years, and he predicted that if current patterns continued this expectancy would reach 42 years by 1980, when it might level out. (Note: According to the most recent CDC report, life expectancy in the US is 78.8 years).
14. Ecologist Kenneth Watt declared, “By the year 2000, if present trends continue, we will be using up crude oil at such a rate…that there won’t be any more crude oil. You’ll drive up to the pump and say, `Fill ‘er up, buddy,’ and he’ll say, `I am very sorry, there isn’t any.'”
15. Harrison Brown, a scientist at the National Academy of Sciences, published a chart in Scientific American that looked at metal reserves and estimated the humanity would totally run out of copper shortly after 2000. Lead, zinc, tin, gold, and silver would be gone before 1990.
16. Sen. Gaylord Nelson wrote in Look that, “Dr. S. Dillon Ripley, secretary of the Smithsonian Institute, believes that in 25 years, somewhere between 75 and 80 percent of all the species of living animals will be extinct.”
17. In 1975, Paul Ehrlich predicted that “since more than nine-tenths of the original tropical rainforests will be removed in most areas within the next 30 years or so, it is expected that half of the organisms in these areas will vanish with it.”
18. Kenneth Watt warned about a pending Ice Age in a speech. “The world has been chilling sharply for about twenty years,” he declared. “If present trends continue, the world will be about four degrees colder for the global mean temperature in 1990, but eleven degrees colder in the year 2000. This is about twice what it would take to put us into an ice age.”

MP: Let’s keep those spectacularly wrong predictions from the first Earth Day 1970 in mind when we’re bombarded in the next few days with media hype, and claims like this from the 2017 Earth Day website:
Global sea levels are rising at an alarmingly fast rate — 6.7 inches in the last century alone and going higher. Surface temperatures are setting new heat records about each year. The ice sheets continue to decline, glaciers are in retreat globally, and our oceans are more acidic than ever. We could go on…which is a whole other problem.
The majority of scientists are in agreement that human contributions to the greenhouse effect are the root cause. Essentially, gases in the atmosphere – such as methane and CO2 – trap heat and block it from escaping our planet.
So what happens next? More droughts and heat waves, which can have devastating effects on the poorest countries and communities. Hurricanes will intensify and occur more frequently. Sea levels could rise up to four feet by 2100 – and that’s a conservative estimate among experts.
Reality Check/Inconvenient Facts:

1. From the National Oceanic and Atmospheric Administration’s (NOAA) Annual Report for 2016, we’re actually in the longest major hurricane drought in US history of 11 years (and counting):
The last major hurricane (Category 3 or stronger) to make landfall in the US was Wilma on November 24, 2005. This major hurricane drought [of 11 years] surpassed the previous record of eight years from 1861-1868 when no major hurricane struck the coast of the United States. On average, a major hurricane makes landfall in the U.S. about once every three years.
2. The frequency of hurricanes in the US has been declining, see top chart above that shows the hurricane count (all Categories 1 to 5) in the first seven years of each decade back to the 1850s, based on NOAA data here. In the seven years between 2010 and 2016, there were only eight hurricanes (all Category 1 and 2), which is the lowest number of hurricanes during the first seven years of any decade in the history of NOAA’s data back to 1850. It’s also far lower than the previous low of 14 hurricanes during the period from 1900 to 1906.

3. What you probably won’t hear about from the Earth Day supporters is the amazing “decarbonization” of the United States over the last decade or so, as the falling CO2 emissions in the bottom chart above illustrate, even as CO2 emissions from energy consumption have been rising throughout most of the rest of the world. Energy-related carbon emissions in the US have been falling since the 2007 peak, and were at their lowest level last year in nearly a quarter century, going back to 1992. And the environmentalists and the “Earth Day” movement really had very little to do with this amazing “greening” of America. Rather, it’s mostly because of hydraulic fracturing and the increasing substitution of natural gas for coal as a fuel source for electric power, see related CD post here.

Finally, think about this question, posed by Ronald Bailey in 2000: What will Earth look like when Earth Day 60 rolls around in 2030? Bailey predicts a much cleaner, and much richer future world, with less hunger and malnutrition, less poverty, and longer life expectancy, and with lower mineral and metal prices. But he makes one final prediction about Earth Day 2030: “There will be a disproportionately influential group of doomsters predicting that the future–and the present–never looked so bleak.” In other words, the hype, hysteria and spectacularly wrong apocalyptic predictions will continue, promoted by the “environmental grievance hustlers.”"

Tuesday, April 18, 2017

A Twisted Tale of Rent Control in the Maximum City

By Alex Tabarrok. Excerpt:
"Walking around Mumbai it’s common to see some lovely, older buildings (circa 1920s perhaps) that


are in a great state of disrepair. A well maintained building can last for hundreds of years so why are these buildings falling apart? The answer is rent control. Bombay passed a rent control act in 1947 that froze rents at 1940 levels.

More than fifty years later, rents remained frozen at 1940 levels. It wasn’t until 1999 that the Act was modified slightly to lift controls on some new construction and to allow rent increases of 4% per year. After a fifty two year freeze, however, a 4% increase was a pittance. Thus, even today there are thousands of flats where tenants are paying rents of 400-500 rupees a month (that’s $6 to $8 a month!)–far, far below market rates.

The rent control law meant that there was virtually no construction of rental housing (WP) for decades and a slowly dilapidating housing stock. (Ironically, the only free market in rental housing is in the slums.


The nominal landlords have neither the incentive nor the funds to maintain the buildings so every year during monsoon season some of the buildings collapse and people die. As the World Bank put it, the monsoons are Natural Hazards but the collapses are Unnatural Disasters:
Rent controls in Mumbai may have initially benefited tenants at the expense of landlords, but over time everyone suffers. Rent controls cause landlords to forgo maintenance and neglect their properties, and tenants not only live in dilapidated buildings but die when they collapse in heavy rains. Even if tenants are willing to either pay higher rents or to maintain the building, each tries to not pay his share of the expense (free riding), especially if appropriate retrofitting involves structural changes to the entire residential structure and not to individual apartments. Tenants also may lack the legal authority to make changes to their building’s structure.
Consider the photo at top, it’s an elegant building on a nice plot in a highly desirable part of town but take a closer look and you can see that it is falling apart (second photo). Several businesses and flats operate in the building. Now read the sign on the wall.


I don’t doubt that the sign is largely accurate but it also illustrates another aspect of rent control. Rent control transforms a mutually profitable exchange into a zero-sum war of misery."

In Wake of United Debacle, Give Airlines - and Travelers - More Flexibility

By Ryan Young of CEI.
"Yes, there is such a thing as bad PR. United Airlines proved it recently by forcibly removing David Dao, a 69-year old physician, from an overbooked flight. Blood was involved, and possibly a concussion. When the story became public, United lost more than $200 million of market capitalization in a day.

Markets at work, and rightfully so. Governments exist to shield bad actors; markets exist to punish bad actors. But there is more to the story. Two solutions to United’s easily-avoidable PR debacle come to mind.

The first is to use the price system. If a flight is overbooked and the airline has no choice but to ask some paying passengers to leave, compensating them for their trouble is a simple and peaceful way to do so. United does have such a policy, but its limited flexibility prevents it from being very effective.

Someone flying for an urgent family matter or an important business meeting will likely want to stay on the plane at almost any cost. But someone else on the same flight for a weekend getaway could easily be talked into vacating his non-urgent seat in exchange for, say, future discounts or a stay at a nearby hotel until the next flight is available. Different people have different preferences.

A flexible negotiating policy could have easily avoided United’s current PR nightmare. It would also make sure that the people with the most urgent needs would get seats. United should change its overbooking policies to better serve its customers.

The second and more fundamental solution is adding competition. As my colleague Marc Scribner puts it, quoted in a Los Angeles Times op-ed:

If American consumers wish to enjoy improved service quality in air travel, they should demand that Congress repeal 90 years of anti-competitive federal law. Less regulation of air travel, not more, is the solution.

One example. A foreign airline such as British Airways or Lufthansa cannot legally run a domestic U.S. flight from, say, San Francisco to Detroit. It may only run flights to or from international destinations, such as London-to-New York or Munich-to-Atlanta. This regulatory restriction gives U.S. airlines an unfair advantage, and they use it. Regulations let U.S. airlines behave as they do without recompense—short of a major PR disaster, which we are seeing now.

Opening the domestic market to international carriers would provide a powerful check on bad behavior, such as Dao experienced. If United treats its customers the way it treated him, travelers should have the option of going not just to Delta or American, but Air France, Air India, or anyone else for their next flight, domestically or internationally.

Incidents like last week’s bloody removal of Dao from his paid-for seat would likely never happen with a more flexible negotiating policy, coupled with a regulatory system that allows competition. The only thing standing in the way is regulation.

While there’s no excuse for how United handled Dr. Dao’s now-infamous “re-accommodation,” we know that the government regulations airlines are subject to often end up creating perverse outcomes for customers. It would be nice to see airline executives explain to the public how most of the time it’s actually government policies, from the TSA’s security theater to outdated government-run air traffic control, that end up ruining a traveler’s day.

Traveling through the air at 30,000 feet above ground at nearly the speed of sound should feel like the miracle it is. Airlines and their customers should stand together against regulators and make it feel that way once again."

Monday, April 17, 2017

Paid Leave Means Women Pay

By Vanessa Brown Calder of Cato.
"Who pays for women’s mandated paid leave and other women-centric labor policies? At a superficial level, it depends on who you ask. Proposals for federal mandated paid leave and child care laws run the gamut, and advocates identify government, taxpayers, or private companies as backers.

Unfortunately, those answers reveal a glaring oversight: directly or indirectly, women will pay.

Economists of a variety of ideological persuasions agree, including Larry Summers, former Director of the National Economic Council for President Obama. In 1989, Summers wrote “Some Simple Economics of Mandated Benefits” where he asserted that “The expected cost of mandated benefits is greater for women than it is for men.”

What does that mean? In his paper, Summers concludes that women will be paid less or not hired as a result of mandated benefits. In his words, “If wages could freely adjust, these differences in expected benefit costs would be offset by differences in wages.” And if not? “[T]here will be efficiency consequences as employers seek to hire workers with lower benefit costs.”

In the real world, Summers’ predictions seem to be borne out. Jonathan Gruber, an MIT economist historically unopposed to economic intervention, authored research that “consistently suggest[ed]” women’s wages are reduced to reflect the cost of benefit mandates in states that try them. Gruber estimated that the shift in cost is around “the order of 100 percent.”

And more recent research indicates women “pay” for mandated paid leave and job protections in other ways.[1] According to Jenna Stearns, wage and job entitlements led fewer women to hold management positions and promotion-track jobs in Great Britain. Her research provides “evidence that access to job-protected paid maternity leave can actually exacerbate gender inequality among highly educated workers” [emphasis added].

Although proponents rarely mention it, the U.S. policy status quo holds some counterintuitive advantages. A 2015 study comparing the U.S. against other countries suggests that women in the U.S. are more likely to have full time jobs and work as managers or professionals. That difference is attributed to a lack of maternal wage and job entitlement policies.

Importantly, if the U.S. did move toward paid leave or job entitlements for women, the loss of wages and/or opportunities during childbearing-aged years would not be one-time penalties. Being passed over for a job, involuntarily mommy-tracked, or having wages slashed to pay for prospective benefits can have impacts that last a professional lifetime.

These points aren’t mentioned in the current debate, but they should be. As Summers concludes, “There is no sense in which benefits become ‘free’ just because the government mandates employers offer them to workers.” Intellectual honesty requires we don’t ignore this inconvenient, but important fact: paid leave means women pay.
[1] Additional evidence here."

There is no evidence that trade with China has any impact on the overall number of jobs in the US

See Does trade with China cost jobs? by Scott Sumner.
"Trade with China undoubtedly costs jobs in specific industries. However there is no evidence that it has any impact on the overall number of jobs in the US. Last year I did a number posts criticizing a study by Autor, Dorn and Hanson, for drawing aggregate conclusions from cross-sectional data. Later Paul Krugman made the same criticism:
OK, what about the effect on overall employment? In general, you can't answer that with a similar computation, because it all depends on offsetting policies. If monetary and fiscal policy are used to achieve a target level of employment - as they generally were prior to the 2008 crisis - then a first cut at the impact on overall employment is zero. That is, trade deficits meant 2 million fewer manufacturing jobs and 2 million more in the service sector. . . . Up through 2007 we basically had a Fed which raised rates whenever it thought the economy was overheating; in the absence of the China shock it would have raised rates sooner and faster, so you just can't use the results of the cross-section regression - which doesn't reflect monetary policy, which was the same for everyone - to predict how things would have turned out.

Since then a number of papers have provided support for the Sumner/Krugman critique. First there was one by Jonathan Rothwell, and more recently by Ildikó Magyari. Notice how Magyari distinguishes between microeconomic and macroeconomic effects:
What is the impact of Chinese imports on employment of US manufacturing firms? Previous papers have found a negative effect of Chinese imports on employment in US manufacturing establishments, industries, and regions. However, I show theoretically and empirically that the impact of offshoring on firms, which can be thought of as collections of establishments - differs from the impact on individual establishments - because offshoring reduces costs at the firm level. These cost reductions can result in firms expanding their total manufacturing employment in industries in which the US has a comparative advantage relative to China, even as specific establishments within the firm shrink. Using novel data on firms from the US Census Bureau, I show that the data support this view: US firms expanded manufacturing employment as reorganization toward less exposed industries in response to increased Chinese imports in US output and input markets allowed them to reduce the cost of production. More exposed firms expanded employment by 2 percent more per year as they hired more (i) production workers in manufacturing, whom they paid higher wages, and (ii) in services complementary to high-skilled and high-tech manufacturing, such as R&D, design, engineering, and headquarters services. In other words, although Chinese imports may have reduced employment within some establishments, these losses were more than offset by gains in employment within the same firms. Contrary to conventional wisdom, firms exposed to greater Chinese imports created more manufacturing and nonmanufacturing jobs than non-exposed firms.
But the media loves a good story, and the "China stealing American jobs" meme just won't go away. Here's a recent article from The Economist:
Since relatively few industrial robots are in use in the American economy, the total job loss from robotisation has been modest: between 360,000 and 670,000. By comparison, analysis published in 2016 found that trade with China between 1999 and 2011 may have left America with 2m fewer jobs than it would otherwise have had. Yet, if the China trade shock has largely run its course, the robot era is dawning.
That's very misleading. It's possible that there are 2 million specific workers who lost jobs because of Chinese trade. But there is no evidence that the net number of US jobs was reduced at all.

Fortunately, the public doesn't seem to be buying all this gloom and doom, as support for trade is soaring dramatically higher. And Trump seems to have abandoned his proposal for 45% tariffs on Chinese goods."

Sunday, April 16, 2017

This Isn't A March For Science This Is About Economic And Political Policy

By Tim Worstall. Excerpt:
"One of those who organises the Union of Concerned Scientists has penned an explanation of the March for Science to take place next weekend. And it's entirely obvious that what he's actually irate about isn't science at all, it's the political and economic policies being put in place as a result of science that irks him. The two are not the same thing, not the same thing at all:
So, why are they grabbing placards now? Because an unprecedented attack on science, scientists and evidence-based policymaking is underway in the US federal government.
An attack upon science or the scientific method would be worthy of a march of course. But that really just isn't what is being complained about:
Nowhere is the attack more ferocious than on the issue of global warming, where the Trump administration has taken a wrecking ball to the modest but important policies put in place by President Obama.
Ah, no, that's not a complaint about science at all is it? That's a complaint about political and economic policy. I am, for example, boringly mainstream concerning climate science. That warming climate is happening, we're causing it and we should do something. And then I become equally boringly mainstream with what we should do about it--have a carbon tax. As Nick Stern, James Hanson, Greg Mankiw, William Nordaus, John Quiggin, Richard Tol, Marty Weizman, Sir Partha Dasgupta and just about every economist who has studied the matter agrees.

And the thing is, as the Stern Review itself, all 1,200 pages of meaty goodness of it, explains, because the carbon tax is the efficient method of dealing with this then the other methods, say, regulatory action like that from Obama, is not something we should do. For, if we deal with this problem the efficient way then we will either be able to solve more of it for the costs we're willing to bear or, alternatively, solve it entirely at least cost. Using regulation, that less efficient method, means that either we'll solve less of it because we'll be so aghast at the cost, or we'll be poorer once we have solved it.

That is, good economic policy tells us that the political action to deal with climate change should not be what Obama has been doing. Reversing those regulations is not thus an attack on science it's an attack on bad policy. And do please note that this is true whatever we think of climate science itself. The truth of emissions causing warming has no influence at all upon he best method of reducing emissions and thus warming."

In most of America it is illegal to construct the attached rowhouses and small-scale duplex and triplex apartments that historically provided the bulk of America’s cheap housing stock

The American economy isn’t actually becoming more concentrated: Opportunity is clustering, but people and growth aren’t by Matthew Yglesias.  Excerpts:
"Economic opportunity is becoming more concentrated, but Americans’ ability to move to take advantage of that opportunity is declining. Consequently, the rising average incomes in big coastal cities are being offset by those cities’ declining share of the population."

"America’s metropolitan areas are becoming more unequal, with per capita income rising faster in a small number of already affluent metro areas. This accords with the basic intuition that the growth sectors of the American economy — high tech, finance, biomedical devices — are largely concentrated in a few large coastal areas, while the plethora of manufacturing centers that dotted much of the country decades ago have declined."

"this has not led aggregate economic activity to be more concentrated in those affluent cities."

"How can New York get richer without growing its share of the overall national economy? The answer is that these same affluent metro areas contain a shrinking share of the country’s overall population."

"Today, instead of heading to the metro areas that offer the highest wages, Americans are generally moving to places like Atlanta, Dallas, and Nashville, where economic opportunities are mediocre at best.

The reason for this is not too mysterious. 

The price of a house — especially one in a neighborhood that’s considered to have good public schools — in the suburbs of Boston, Washington, or San Francisco is prohibitive. Young people of all kinds move to the central cities of the great coastal metropolises despite the rent squeezing, making do with roommates and cramped apartments. But middle-class grown-ups face vicious trade-offs between space, commuting time, and money. 

If you happen to earn a good living with specialized skills in a locally dominant industry, the math generally works out. New York bankers and Silicon Valley engineers pay exorbitant housing costs but make commensurate salaries. 

A mere dental hygienist, high school math teacher, chef, hairstylist, or physical therapist would also earn a higher average wage in the Seattle area than in the Sunbelt. But in most cases, the difference isn’t enough to compensate for the higher cost of living. The result is that Americans as a whole are “moving to stagnation,” voluntarily accepting lower pay in lower-productivity places in order to avoid the bite of housing costs. 

The problem in a literal sense is that high-wage coastal cities are adjacent to oceans and thus have fewer dimensions of freedom in which to sprawl without creating untenable commuting conditions. 

America does, however, possess the technological capacity to construct large numbers of dwellings on relatively small parcels of land. It happens to be the case that across most of the land in America’s suburbs — and even in America’s central cities — it is illegal to construct the attached rowhouses and small-scale duplex and triplex apartments that historically provided the bulk of America’s cheap housing stock. And where rowhouse neighborhoods exist and have become inordinately expensive, it is almost universally illegal to knock them down and replace them with large apartment buildings."

Saturday, April 15, 2017

Economic freedom has been key to advancement of women worldwide

By Fred McMahon of The Fraser Institute.
"Through March, we’ve seen two well-publicized celebrations of freedom, though the architecture of freedom has been little discussed.

CNN’s Freedom Week featured clips of people, many of them famous, describing what freedom means to them. More global was International Women’s Day, marking women’s gains in freedom and achievement across much of the planet. Achievement depends on freedom and, with freedom, women’s achievements become inevitable.

But these celebrations seldom mention one of the most fundamental freedoms; economic freedom—the ability of individuals to make their own economic decisions, without government or crony capitalist control or dependence.

Economic freedom has been key to women’s advance, opening many doors, including the ability to make their own career decisions and enter into once virtually forbidden professions such as engineering.

Antony Davies, Duquesne University, and James R. Harrigan, of Strata, a Utah-based think-tank, have found a strong relationship between economic freedom, as measured by the Fraser Institute economic freedom index, and gender equality, as measured by the United Nations Development Programme.

Economic freedom has been shown to be correlated with a number of outcomes for women, for example, literacy, which increases for both men and women in economically free nations, but most dramatically for women.

In the quarter freest countries, women’s literacy is 92 per cent and men’s 95 per cent. In the least free nations, women’s literacy is 60 per cent, a huge gap below men’s literacy at 75 per cent, using data from the World Development Indicators.

We at the Fraser Institute have just made a huge advance. Many countries do not extend the same economic liberties to women as to men. In the past, data were not available to measure the difference adequately.

Data availability now enables us to adjust the economic freedom index to take this into account. In the 2016 report, Rosemarie Fike explored the adjustment methodology, which will be fully incorporated into the 2017 report. And here too, the positive relation between economic freedom and gains in gender inequality still holds.

The adjustment technic penalizes the score of countries lacking economic freedom for women. The penalty is not based on subjective judgments but rather from data from the OECD and World Bank, The downward adjustment for the quarter least free nations is two-and-a-half times the adjustment for the freest nations.

Economic freedom is important for everyone. It provides the foundation on which the architecture for freedom is built. In an economically unfree society, government or crony capitalists have plenty of coercive tools, influencing an individual’s ability to find a job, get a promotion, gain education, feed and clothe their families, and see opportunity for their children.

One of the last century’s great totalitarian thinkers realized the power that comes from suppression of economic freedom. As Leon Trotsky put it: “In a country where the sole employer is the State, opposition means death by slow starvation. The old principle, who does not work shall not eat, has been replaced by a new one: who does not obey shall not eat.”

Of course, few states have been this extreme, but the more control government or crony elites have over an individual’s economic life, the greater the individual’s dependence. Economic freedom liberates individuals from this dependence and opens the door for other freedoms."

Welcoming Immigrants Means Higher Wages

By Ronald Bailey of Reason

'Immigration represents an opportunity rather than a threat to our economy and to American workers.'
"The benefits that immigration brings to society far outweigh their costs," declares an open letter to congressional leaders and President Donald Trump. The letter, published on Wednesday and signed by nearly 1,500 economists—including six Nobel Prize winners—notes that immigrant entrepreneurs start new businesses that hire lots of Americans; that immigrants are far more likely to work in innovative, job-creating fields such as science, technology, and engineering; and that they bring diverse skill sets that keep our workforce flexible, help companies grow, and increase the productivity of American workers. A new study parsing employment data between 1991 and 2008 confirms that immigrants significantly boost both the productivity and the wages of workers.

The paper, published this week in the journal Economic Geography, compares how 160 U.S. metropolitan areas are faring according to the statistics compiled by the Census Bureau's Longitudinal Employer-Household Dynamics program. (This dataset has information on more than 30 million workers at 1.2 million businesses, including their sex, age, race, wages, length of employment, education, and country of birth.) The authors, economic geographers Abigail Cooke of SUNY-Buffalo and Tom Kemeny of the University of Southampton, note that "inclusive institutions" encourage trust, lowering costs and fostering cooperation. To get a handle on how inclusive various American cities are with respect to immigrants, the two researchers devise two indicators. The first measures how widespread social capital is in each city, and the second accounts for pro- and anti-immigrant ordinances adopted by local governments.

Social capital consists of the connections of trust between individuals and entities that can be economically valuable. The authors constructed their indicator for social capital by assessing data from the County Business Patterns on the number of social, political, advocacy, business, professional, and labor associations per 10,000 residents in each metropolitan area. They also take into account the number of gathering places, such as specialty food shops, restaurants, cafés, bars, hair salons, corner stores, fitness centers, sports clubs, and bowling alleys.

For a stark contrast between places with inclusive institutions and those without, the researchers focus their analysis on the cities that scored in the top and bottom third of their social capital indicator. Municipalities with the highest social capital included Appleton, Wisconsin; Des Moines, Iowa; and Trenton, New Jersey. Those with the lowest include McAllen, Texas; Fayetteville, North Carolina; and San Bernardino, California.

Next they develop an inclusiveness indicator based on pro- and anti-immigration ordinances enacted by various metropolitan areas. They note that most of the ordinances specifically focus on undocumented immigrants, but they argue that their adoption indicates residents' attitudes toward immigration more generally. Some cities pass English-only rules or try to punish employers who hire undocumented immigrants; others pass sanctuary laws. In their analysis, they include the 160 urban areas that alternatively crossed thresholds in which at least 50 percent of their municipalities and counties had adopted either pro- or anti-immigrant ordinances. Metropolitan regions with more mixed policies were excluded.

Among the cities scoring highest on the pro-immigrant indicator were Salem, Oregon; Austin, Texas; and Fresno, California. Anti-immigrant areas included Charlotte, North Carolina; Green Bay, Wisconsin; and Harrisonburg, Virginia.

On top of all that, the researchers used the Census data to determine what percentage of people in each urban area is native and foreign-born. They also follow people's work and wage histories.

The results? "What we found was remarkable. In cities that are unwelcoming to immigrants, as diversity rises, people's wages either don't change, or they go up by only a small amount," said Cooke in a statement released by SUNY-Buffalo. "In cities that are welcoming to immigrants, as diversity goes up, people's wages go up, and by a lot."

If the intent of anti-immigrant laws is to boost native-born wages, it does not work. To the contrary, the researchers find that "the average worker in a metropolitan context featuring pro-immigrant laws receives a 36 percent wage increase." In addition, scoring in the top third of cities on the social capital inclusiveness indicator correlates with a 21 percent increase in the average worker's wage.

What appears to be happening is that in urban areas that welcome them, immigrants' economic and social diversity helps increase overall productivity, which in turn boosts average wages. How? Among other things, immigrants bring different skill sets, higher levels of ambition, and a greater likelihood of adopting more outside-the-box approaches to solving problems.

This new study strengthens the open letter's argument that "immigration represents an opportunity rather than a threat to our economy and to American workers." Hindering immigrants makes our country poorer than it would otherwise be."

Friday, April 14, 2017

Let's call entrepreneurs heroes

I submitted this to The San Antonio Express-News two weeks ago and it looks like it will not get printed.

Let's call entrepreneurs heroes. That may seem strange, given that entrepreneurs start businesses with the aim of making a profit. Who wants to say that profit making is heroic?

But recently, Jeffery S. McMullen, a professor of management at Indiana University published an insightful article in the academic journal Business Horizons titled "Are we confounding heroism and individualism? Entrepreneurs may not be lone rangers, but they are heroic nonetheless." (Full disclosure-he cites my own published research).

McMullen says "any innovative act exhibits an element of uncertainty and thus requires a corresponding degree of courage" and that to not consider entrepreneurs heroes would "merely neglect the courage and sacrifice required from individuals like Elon Musk, who may not act alone, but nonetheless must act if entrepreneurship is to occur."

Yes, an entrepreneur gets help from many sources. But a single person must take that first step in the face of uncertainty to try something new.

McMullen also wants scholars and policy makers to see entrepreneurs as heroes because otherwise "they are likely to underestimate the costs entrepreneurs must incur not just to succeed, but also to try at all."

You might think that the profit motive alone would bring us enough entrepreneurship. But as an economist, I recognize that although incentives matter, not all incentives are monetary.

In 1996, award winning educator Candace Allen and Dwight Lee, economics professor at the University  of Georgia, wrote a paper on this subject. They said “Just as the society that doesn't venerate winners of races will produce fewer champion runners than the society that does, the society that does not honor entrepreneurial accomplishment will find fewer people of ability engaged in wealth creation than the society that does.”

People want to know that their actions are valued by their fellow citizens. Prospective entrepreneurs are no exception.

This is important because we may be seeing a decline in entrepreneurship in the U. S.

Last year in The Wall Street Journal, Marie-Joseé Kravis of Hudson Institute reported that the net increase in business establishments was lower after the 2009 recession than the 2001 recession (which, in turn, was lower than for the one in 1990).

Also, she said that "young firms... now account for a smaller share of new hires, down from about 38% in the late 1990s to roughly 33% today" and that "the per employee cost of federal regulatory compliance was $10,585 for businesses with 19 or fewer employees, compared with $7,755 for companies of 500 employees or more."

In 2015, the World Bank reported that US was ranked only 46th in terms of how easy it is to start a company. Again, as Jeffery S. McMullen says, we should not underestimate the costs entrepreneurs face.

In the long-run, our economy needs entrepreneurship. Relying only on very large companies makes us inflexible. For example, Michael DeWilde, professor of philosophy at Grand Valley State University, wrote a study comparing two Michigan cities, Flint and Grand Rapids.

In 1950, Flint was doing much better than Grand Rapids, with the largest employer being General Motors. But since 1970, Grand Rapids grew while Flint shrank. De Wilde indicates that Grand Rapids fostered a more diverse economy that led to innovation.

He even goes as far as to say "the importance of entrepreneurship cannot be overstated for regional advantage." That is not the whole story, as he also cites social capital and shared values.

But as America looks to the future, we will need more entrepreneurs than ever to solve problems. Seeing them as heroes will surely help.

Wednesday, April 12, 2017

Spain has recently been growing rapidly after adopting some unpopular economic reforms

See Supply and demand both matter by Scott Sumner.
"There's an unfortunate tendency for economists to align themselves into "supply-side" and "demand-side" camps. Many conservatives in Europe denied that the ECB's tight money policy caused a double-dip recession, leading to a dramatic rise in unemployment between 2008 and 2013. Indeed conservative Eurozone policymakers caused that recession.

On the other hand, many demand-siders go too far, ignoring the fact that the relative performance of individual countries within the Eurozone reflects supply-side factors. Greece and Spain would have been better off never having joined the Eurozone. But given that they did so, they should have tried to make the best of it by adopting labor market reforms to make their economies more flexible, and austere fiscal policies with budget surpluses. Greece and Spain both had very poor labor market policies, and Greece had almost unbelievably reckless fiscal policies.

The Financial Times reports that Spain has recently been growing rapidly, after adopting some unpopular economic reforms:
For some, not least the Spanish government and Europe's political establishment, this is a moment of relief and vindication. In their view, the recovery of the eurozone's fourth-largest economy shows that the unpopular policies pushed through at the height of the crisis worked. Despite causing initial pain, Spain's decision to reform the labour market, overhaul the banking system and cut the deficit paved the way for a return to growth. It is a message Madrid would like to resonate beyond Spain's borders: countries can reform their way out of an economic crisis, even while being locked into the single currency. There is, however, another view. Critics, mainly from the left but also from parts of academia, argue that the country's recovery is not just incomplete but that the price of austerity and reform was too high. The unemployment rate may have fallen sharply, but at 18.6 per cent it remains far above the pre-crisis level and almost double the eurozone average. Ms Oltra is one of many who bemoans the creation of a new class of "working poor" in Spain. Inequality has increased dramatically and public finances continue to bear the scars of the crisis: Spanish government debt is 100 per cent of GDP, up from 40 per cent before the crisis.

Here it is important to avoid "mood affiliation". My views are much closer to the first paragraph than the second, even though the people making that argument are to a large extent the same people who caused the Eurozone crisis, which imposed so much misery on the Greek and Spanish public. But on this particular issue they are correct, supply-side reforms are the key, once you've ruled out leaving the Eurozone.

Let's start with a comparison of growth rates. Here are the quarterly growth rates in recent years in Spain. (If you are an American, it helps to multiply by 4 to annualize the rates.)
Screen Shot 2017-04-08 at 9.47.43 AM.png
Compare that the Greece, which is just treading water:
Screen Shot 2017-04-08 at 9.47.56 AM.png
But what about Spain's 18.6% unemployment rate? There's no denying the fact that unemployment remains a huge problem in Spain. But it's also important to note two other facts. First, just a few years ago it was over 26%. Second, Spain has a very high natural rate of unemployment. Since 1980, their unemployment rate has fluctuated between about 10% during booms and 20% to 25% during recessions---even garden-variety recessions that are much milder than the Great Recession.
Screen Shot 2017-04-08 at 9.48.12 AM.png
Thus an 18.6% unemployment rate in Spain is not nearly as horrific as the same rate would be in the US or Japan.
Finally, the creation of a "new class of working poor" should be viewed as a policy success. To see why, just look at the huge class of poor in Greece, who are not working at all.

PS. In my view the ECB should adopt more expansionary monetary policy as well. This post is looking at options from the perspective of individual Eurozone members."

By Allowing Airlines To Auction Off Overbooked Flights, $100 Billion Has Been Saved

See Today is a good day to remember the great Julian Simon from Marginal Revolution.
"Today is a good day to remember the great Julian Simon. Here’s a piece on just one of his many accomplishments.
Julian Simon helped revolutionize the airline industry by popularizing the idea that carriers should stop randomly removing passengers from overbooked flights and instead auction off the right to be bumped by offering vouchers that go up in value until all the necessary seats have been reassigned. Simon came up with the idea for these auctions in the 1960s, but he wasn’t able to get regulators interested in allowing it until the 1970s. Up until that time, Litan writes, “airlines deliberately did not fill their planes and thus flew with less capacity than they do now, a circumstance that made customers more comfortable, but reduced profits for airlines.” And this, of course, meant they had to charge passengers more to compensate.
By auctioning off overbooked seats, economist James Heins estimates that $100 billion has been saved by the airline industry and its customers in the 30-plus years since the practice was introduced."