Tuesday, January 31, 2017

Limited Government as Insurance

By Bryan Caplan.
"Imagine going back in time to January 20, 2009.  Obama's Inauguration Day.  You're a cheering fan.  On that day, an angel appears and makes you this offer: If you give up on Obama's best ideas, none of Trump's worst ideas will happen either.  Obamacare will never happen - but neither will Trump's immigration policies.  Would you take that deal?

I know, it's a galling hypothetical.  You want the good stuff without the bad stuff.  Why can't that be on the menu?  In theory, of course, it could be.  But in practice, it wasn't - and never has been.  If government has the power to do big good things you like, it will also have the power to do big bad things you don't like.  And in a democracy, your side's grip on the reins of power is always temporary.  (Anyone want to re-bet me on the duration of Unified Government in America?)

On reflection, the angel in my hypothetical is offering insurance.  He's guaranteeing a stable mediocre outcome, rather than the wild democratic oscillations we've been experiencing.  You'll no longer be able to get excited about great political victories, but you can stop worrying about great political defeats. 

Now consider: This insurance policy is very similar to a seemingly unrelated idea: limited government.  While it doesn't invalidate any existing government policies, it shackles government's power to do any big new thing. 

In American political culture, conservatives have traditionally praised "limited government," though libertarians are the main people who take it seriously.  But it seems like almost everyone, regardless of ideology, should be interested in getting insurance against bad future uses of government power.  What are the best reasons to spurn the angel's offer?

1. The arc of the moral universe.  If, like MLK, you believe, "The arc of the moral universe of long, but it bends towards justice," you're not just avoiding bad stuff by giving up good stuff.  You're avoiding a shrinking stock of bad stuff by giving up a growing stock of good stuff.  If you're going to eventually win anyway, insurance isn't so important.

2. Asymmetric hyperbole.  Political rhetoric normally paints your good stuff as great, and your opponents' as awful.  If you're overstating across the board, the case for insurance remains intact.  Suppose, however, that your good stuff is genuinely fantastic, but your opponents' bad stuff is only a moderate pain the neck.  Then again, accepting limited government for insurance purposes is a bad deal.  (The insurance case for limited government gets even stronger, of course, if you oversell your own policies, but accurately rate your opponents' policies).

If neither of these responses seems especially credible, you'll probably feel tempted to impatiently respond: "This is a stupid hypothetical, because there are no angels."  Sure, it would be nice to contain the oscillations of democracy.  But there's no way to do it.  Limited government has to be enforced by someone - and the "someone" is democratically determined, too, right?

Wrong!  If you want the insurance of limited government, there are well-tested mechanisms to deliver it.  You all know them.  Supermajority rules require more than a majority to act.  Division of powers makes it hard for government bodies to accomplish anything on their own.  Judicial review allows judges to invalidate acts of government.  Federalism greatly reduces the cost of "voting with your feet."  If you think these institutions aren't working, the obvious solution is to strengthen them.  Impose more supermajority requirements.  Divide more powers.  Overturn legislation that fails to get support from six, seven, eight, or all nine Supreme Court Justices.  Make states pay for their own spending with their own taxes, not federal grants.

So why are the limits on government so weak?  I blame myopia.  Limited government helps everyone in the long-run, but immediately hurts the ruling party.  They fought hard to win power; now that they have it, they yearn to flex their muscles.  Logically, they could support limited government starting ten years from now ("Lord, grant me chastity and continence, but not yet"), but that's not very exciting compared to riding the wave today.  The insurance of limited government would make most of our lives better, but sadly, it's not sexy."

Paid family leave: Balancing benefits and costs

By Harry J. Holzer of Georgetown University and Brookings.

"A strong consensus is developing among politicians and policy analysts that there are important benefits to paid family leave, and that some such policies should be widely implemented at the federal and/or state levels. Indeed, both presidential candidates last fall embraced paid family leave as a goal, though with quite different specific proposals on how to implement it. A number of states have implemented paid family leave or soon plan to, and the Washington, DC Council passed a generous bill in December 2016 providing paid leave to all workers in the District (though the Mayor has not yet indicated whether she will sign it.

There is also a growing consensus on the range of benefits paid leave provides to working parents (especially women), other family members, and even employers to some extent. Specifically, women benefit by remaining more attached to the labor force generally and also to specific jobs when they take time from work; other family members, especially newborn children, can get the care and attention they need for their health and well-being; and employers benefit from less employee turnover and healthier workplaces.

But, as economists always emphasize, there are important costs as well as benefits associated with paid family leave, and policymakers should strive for appropriate balance between them. The real and potential costs include:
  • Tax burdens on employers and employees;
  • Potential impacts on federal or state budget; and
  • Disruptions to the workplace that also burden employers.
Tax burdens and potential shortfalls

Most paid family leave plans are financed through some version of a payroll tax, rather than a simple mandate on employers. This is a largely sensible approach, as it spreads the costs of providing leave over employers and all employees. In most states that have implemented paid family leave to date, something like a 1 percentage point tax on payroll has been sufficient to fund the amount of leave taken by employees.  This extra 1% of tax, relative to the 15.3% federal social security taxes already levied  on payroll plus other taxes (e.g., for unemployment insurance), is not a terrible additional burden but also not trivial.

Regardless of whether the tax is levied directly on employers or workers, economists believe much of the cost is ultimately borne by workers either way, in tax payments or lower wages. On the other hand, employers will bear some burden in the cases of very low (or minimum) wage workers, whose wages cannot be further reduced; and they will usually perceive that they bear the cost of taxes they directly pay, in any event.

Will these taxes be sufficient to fully fund the amount of leave taken? This depends on the generosity of the benefits, in terms of the replacement rate for lost earnings (up to a usually specified cap), plus the maximum duration of the benefit. Very high replacement rates and caps will raise the take-up rate on the benefit, and also encourage people to take the maximum allowable time out of work (though we don’t really have evidence on how much).

Thus, the first states to provide paid leave – California, New Jersey, and Rhode Island – provided replacement rates of about 50-60% up to modest dollar caps for weekly earnings, for a total of 4-6 weeks. In contrast, the bill just approved by the DC Council (replacing an earlier one vetoed by the mayor) provides up to 8 weeks of parental leave, 6 weeks of other family leave and 2 weeks or personal sick leave; they voted a replacement rate of 90% up to $900 per week of salary and 50% beyond that level, up to a cap of $1,000 per week in total benefits. In the latter arrangement, workers will have very little incentive to limit the durations of leave they take below the maximum allowed, and so the costs of the system might well exceed the 0.62% additional payroll tax allotted to pay for leaves there.

Thus, the possibility of fiscal shortfalls in DC and elsewhere exists, when the political pressure to limit taxes brushes up against the desire for lengthy and generously paid leaves with high replacement rates up to high caps.

Workplace disruptions and costs

Employers will likely experience some disruptions in their workplaces when their employees take paid leave, especially if employees have the right to return to their previous positions. The disruptions will be greater the longer the spells last, particularly in smaller establishments; and employers might hire temps, whose wages or salaries they must pay (on top of payroll taxes) and whose work performance will vary in quality.

Of course, many employers voluntarily provide these benefits to their highly-educated employees, in which case they must believe the benefits to them outweigh the disruption costs. This occurs most frequently with professional or managerial workers who are highly valued and expected to remain with the employer for many years, despite a leave or two over these years. Whether employers feel the same way about paid leave for less-educated employees whose work they value less, whose expected tenure on the job they expect to be shorter, and whom they might expect to give birth more frequently (especially if they have stereotypes about birth rates among less-educated women in general and minority women in particular) is an open but important question.

Under these circumstances, a mandatory paid leave policy might well lead employers to begin discriminating in hiring against less-educated women in the child-bearing ages, especially minority women. Though we have no direct evidence of such discrimination, we have some indirect evidence from the Americans with Disabilities Act, which caused employers to hire the disabled somewhat less frequently than before (accordingly to at least one widely respected study).

The paid leave costs employers believe they will bear will also likely be high in states or cities that have already imposed other large costs on employers of less-educated workers – such as high minimum wages, paid sick leave, and restrictions on hiring practices. For example, Washington DC and several other cities and states have already decided to raise their minimum wages to up to $15 per hour (though in stages); several of them have also mandated several paid worker sick days a year, and have outlawed asking about criminal records in the application (“Ban the Box”) or screening for marijuana use.

One can debate the merits of each of these practices individually, and the evidence to date is limited. My own reading of the literature suggests that very high minimum wages, especially if indexed to inflation, could generate substantial employment reductions in the long run, and that “Ban the Box” tends to discourage the hiring of less-educated minority men, who are now costlier to screen for criminal records.

But I strongly believe that, collectively, their impacts on the hiring of less-educated workers could be much more negative than the sum of the individual effects. Economists believe that changes in hiring practices and workplace organization are costly, and employers will undertake them only when the benefits of doing so are substantial and long-lasting. Imposing a large number of permanent labor costs on employers will render the benefits of less hiring much more attractive – perhaps leading to “tipping points” in many establishments.

Furthermore, these hiring changes can be implemented gradually but permanently over time – by employers who move (or who simply open their newer establishments) more frequently in lower-cost nearby locales. This is a particular risk for Washington, DC, since Arlington, VA, is right across the river and has retained a $7.25 minimum wage and imposed no other burdens on hiring. Absent a moderate and sensible federal minimum wage increase or paid leave policy, the variations across states and localities in both will become very large, and might trigger employer and worker relocations in opposite directions.

Even employers who remain in the high-cost jurisdictions will also gradually reduce their hiring over time. Recent work by Isaac Sorkin of the Chicago Federal Reserve Bank shows that new, less labor-intensive establishments gradually replace older, more intensive ones after lasting minimum wage increases. The remaining establishments might also implement new technologies (such as robots) over time to perform simple tasks now performed by low-wage workers.

Thus, the tendency of some states and localities – like Washington, DC – to impose very generous paid family leave policies on top of a range of other large costs on employers of less-skilled workers – reinforces my concerns that these policies might have unintended consequences, such as less employment of the very people whom we intend to help. I still support paid family leave, even in such locations, but urge even greater caution there regarding its costs.

In conclusion… 

I strongly believe that paid family leave — especially parental leave for newborn infants — provides important benefits to workers, their families and even their employers. Providing paid leave with moderate replacement rates up to a cap, for limited durations of time (perhaps 2-3 months for new parents and less in other circumstances) makes good sense, as does paying for the leave with a modest increase in the payroll tax. This tax should be primarily on employees, and fully funded to avoid burdening the federal or state governments with new fiscal shortfalls.

But it is important to strike the right balance between these benefits and the costs imposed on other workers, employers and perhaps the governments in question. Failure to consider these costs might well create a range of serious problems – such as fiscal shortfalls and lower employment for less-educated younger women.

It would be a great shame if such policies harm the very people whom we intend to benefit from them."

Monday, January 30, 2017

CEI Salt Study Leaves a Bad Taste in Anti-Salt Advocates’ Mouths

By Michelle Minton of CEI.
"How do we know what to believe when it comes to science? Some might look at that question and answer that science doesn’t require belief; the facts and the research should speak for themselves.
Unfortunately, if you’ve delved into the scientific literature, you know that “facts” are rarely as black and white as we’d like them to be, that science and facts often require interpretation, and that true consensus within any topic takes decades—sometimes centuries—and is preciously rare.

In the meantime, people are suffering and dying from illnesses that science, eventually, might show us how to prevent. It is understandable that those within the research community and those in public policy feel compelled to act—to “do something”—now with what we think we know today.

However, what we thought we knew often proves to be inaccurate. This may be what happened with the commonly-held belief that lower sodium diets are always healthy, as I detail in my new CEI study, “Shaking up the Conventional Wisdom on Salt: What Science Really Says about Sodium and Hypertension,” published this week.

If you ask 10 people on the street what they think about salt’s role in human health, more than eight out of 10 will likely give some variation of the “salt dogma”—they’ll reveal some level of belief in the idea that lowering sodium will reduce blood pressure and improve health. A year ago, I might have been among them. But, despite what many in the public health field would have us believe, this consensus is not shared by those within the research community. As a study published last year demonstrated, only about half of those in the field believe there is evidence to support population-wide sodium reduction (policy attempts to get us all to lower salt consumption).
In addition to the shakiness of the current dogma, the most shocking findings from my research were how polarized the experts are on this issue and why our fervent belief in the evils of sodium has stuck around for 40 years, despite ever-increasing evidence to the contrary.

The intense, vitriolic, and largely ideological war that has been raging over salt for more than a century can be broken out into two camps:

Camp 1 believes the science irrefutably shows higher sodium leads to higher blood pressure, and therefore getting the general population to lower consumption to the government-recommended limit would result in lower blood pressure and better health outcomes.
Camp 2 is skeptical that salt is the main driver of hypertension or that sodium restriction is the best way to improve health outcomes for broad swaths of the population.

Whenever anyone from Camp 2 publishes a study, members of Camp 1 invariably criticize the study, and vice versa. Accusations range from the typical “methodological flaws” argument to the more inflammatory “industry influence” charge. Often, claims are made that the preponderance of “good” evidence points strongly enough one way or the other that action is justified.

Wading into this gang war, I expected CEI’s study to receive criticism from one side or the other (if not both). And, lo and behold, the American Heart Association (AHA)—which advocates for an even lower level of sodium than even the government recommendation—was the first to come out against it. What was surprising and instructive was the study the AHA cited as evidence of the wisdom of population-wide sodium reduction.

The research, published this month in the British Medical Journal (BMJ), details the cost effectiveness of implementing strategies to reduce population sodium—like the “voluntary” sodium reductions for food manufacturers the Food and Drug Administration proposed last year. While presented as “proof,” this study is little more than an exercise in fantasy.

The researchers assume a linear, dose-response relationship between dietary sodium and blood pressure—meaning that for every increase in X mg of sodium there’s a corresponding X increase in blood pressure. They also assume that for every increase in blood pressure, there’s a corresponding increase in deaths. Lastly, they assume programs that nudge people to reduce their sodium will work. Thus, if all these assumptions are correct, the cost of implementing such programs balances out with the health benefits. The problem is, their assumptions aren’t supported by the research.

First, it requires little scientific background to realize that any trend between sodium and health cannot be linear. Humans require dietary sodium in order to live, so there is a low level at which health does not improve, but becomes worse. In fact, researchers have pointed to this sub-optimal level of sodium intake as a possible reason for why several large population studies have found that groups with extremely low sodium intake are more likely to die (they also found higher risk of mortality at the extreme upper end).

Furthermore, the research the BMJ study’s authors relied upon likely had skewed results because of the types of people on which they were based. As noted in our study and elsewhere, not everyone responds the same way to increases and decreases in dietary sodium. As Niels Graudal (a Camp 2 researcher) pointed out in commentary on the BMJ article, randomized control trials—the gold-standard of biomedical research—“have documented that there is no effect of blood pressure reduction on health outcomes in normotensives individuals.”

Salt’s role in hypertension and other aspects of human health is far from settled. That does not mean that for some people sodium reduction won’t help, but it does indicate that neither population-wide recommendations nor “soft regulation” of sodium are warranted by the existing evidence.

For the past four decades, health agencies have been pushing us to consume less sodium, even as Americans—and the rest of the world—have continued to consume roughly the same amount of sodium. This is despite the fact that processed foods have become saltier and we eat more processed foods as a culture. That said, the prevalence of hypertension has increased over the last two decades. These facts should prompt researchers to ask why this is the case, and to investigate other possible causes and solutions to hypertension.

Unfortunately, it seems no amount of evidence will stop those who cling to the old dogma. As researcher Sandro Galea put it: “We pay quite a bit of attention to financial bias in our work … we seldom pay attention, however, to how long-held beliefs bias the questions we ask and the results we publish, even as new data become available.”

But don’t take my word for it. If CEI’s study proves anything, it’s that health decisions are intensely personal, that no solution works best for everyone, and that individuals must decide and test for themselves what health advice is most likely to benefit them."

President Trump’s predecessors — Bush II and Obama — learned about tariffs the hard way…..

From Mark Perry.
"…. not that our protectionist president Donald Trump will pay attention or learn from the long history of how protectionism weakens, not strengthens, an economy; and how tariffs destroy, not increase, jobs on net. From Yahoo Finance (emphasis added):
In March 2002, President George W. Bush imposed a 30% tariff on Chinese steel. The results were chaotic. In a report put out by Consuming Industries Trade Action Coalition in February of that year, the coalition found the tariffs against China boosted the overall prices of steel and cost the U.S. 200,000 jobs in businesses that buy steel, representing $4 billion.
In another recent situation, in September 2009, President Obama imposed a three-year tariff on car tires from China. Chinese imports went down, but the tires were simply sourced from other countries, the LA Times noted. According to the Peterson Institute for International Economics, 1,200 tire jobs were saved in the U.S., but through costs passed along to American consumers, 2,500 jobs were lost indirectly.
In Bush’s case, seven months after the tariffs were imposed more American jobs had been lost than Americans employed by domestic steel producers. Writing about the trickling effect of trying to help a certain domestic industry, CITAC noted: “In making policy for the revitalization of manufacturing, including the steel industry, our conclusions suggest that the effects across the full industrial spectrum should be considered.”
It is not clear if this full industrial spectrum has been considered by the Trump administration, which said it was considering implementing a 20% tariff on goods imported to the US from Mexico—a move that would require the US leaving NAFTA. “By doing it that way we can do $10 billion a year and easily pay for the wall just through that mechanism alone,” Trump Press Secretary Sean Spicer said Thursday.
MP: As I’ve said before, this is just the “protectionist math” that reflects the economic reality that tariffs inevitably generate significantly more economic costs than benefits, destroy more jobs than are gained, and make the protectionist country worse off on net. It’s a simple economic fact that you can’t artificially raise prices with protectionism and reduce the amount of trade that takes place and make the economy better off on net or increase the net number of jobs. If Trump goes forward with protectionist trade policies, he’ll face the same adverse outcomes as did Bush II and Obama — a net loss of US jobs. There’s just no way to avoid the infallible “protectionist math” that guarantees net job losses from tariffs and protectionism."

Sunday, January 29, 2017

In California, ‘Paper or Plastic?’ Is Against the Law: Supermarkets can no longer give out shopping bags, though the claimed benefits are dubious

By Allysia Finley of the WSJ. Excerpts:
"Grocery and convenience stores can offer paper or reusable bags, but the law requires them to charge at least 10 cents a pop."

"In 2006, the state Legislature passed a law that required large grocery stores to run recycling programs to collect plastic bags. To obtain grocers’ support for the law, the Legislature prohibited cities or counties from imposing fees on plastic bags.

San Francisco responded to this prohibition the following year by banning plastic bags entirely. Nearly 150 cities and counties followed suit"

"Liberals in San Francisco proclaimed that the city’s ban would reduce global warming and America’s reliance on foreign oil. Yet only about 3% of plastic bags are produced using oil"

"Many reusable bags, on the other hand, are derived from oil, and produced in Asia to boot."

"paper, cloth and reusable bags produce many times more greenhouse-gas emissions over their life cycles"

"a paper bag, compared with a plastic one, was 3.3 times worse in terms of greenhouse gases. The study also found that paper bags resulted in more water and air pollution."

"plastic bags make up a tiny share of litter, less than 1% in most cities, according to a 2013 survey by Environmental Resources Planning."

"emergency-room admissions in San Francisco from food-borne illnesses surged after the city imposed its ban. Many people, it seems, were reusing their bags without washing them first."

"Los Angeles County’s ban shifted commerce to incorporated cities where plastic bags remained free and legal. In the months after the ban passed, employment dropped by an average of 10.4% at grocery stores in the county’s unincorporated areas. Meanwhile, the at-store recycling centers, mandated by the 2006 law, were expensive to operate and produced uncertain benefits, since few customers returned their bags."

"The requirement that stores charge at least 10 cents for alternative bags was meant to keep retailers from undercutting each other by giving them out free. Farmers markets, naturally, were exempted."

The mortgage-interest deduction is poorly targeted

See Let’s Write Off Mortgage-Interest Deduction in the WSJ.

"The mortgage-interest deduction is our nation’s largest housing subsidy, but it is poorly targeted, primarily benefiting America’s highest-income households. The Congressional Budget Office says the top 20% wealthiest households receive 75% of the benefits and the top 1% of earners get 15% of the benefits. Each year the federal government spends more to subsidize the homes of seven million of the highest-income households, concentrated primarily in New York and California, than it does to help the more than 55 million families with incomes of $50,000 or less, those far more likely to struggle to afford housing. Three-fourths of all taxpayers—households who rent and approximately half of all homeowners—receive no mortgage-interest benefit.

Economists agree that the deduction does little to promote homeownership. Most of those who benefit would choose to buy a home whether or not they were receiving the tax benefit. Instead, it incentivizes existing homeowners to purchase larger homes, taking on more debt, increasing the size of their tax deduction.

The United for Homes campaign calls for lowering the portion of a mortgage that can be used for tax relief and converting the deduction to a credit. The result: 16 million lower-income homeowners eligible for a new tax benefit and $240 billion in savings over 10 years that can instead be reinvested to address the housing needs of the lowest-income households.

With the political will to rebalance federal housing policy we can end the affordable housing crisis in America with no additional spending.

Diane Yentel
President and CEO
National Low Income
Housing Coalition

Saturday, January 28, 2017

Ditching NAFTA Would Be a Bad Deal for America

Daniel Griswold of Mercatus.

"With all the challenges confronting the United States, the two major presidential candidates have committed themselves to picking a needless trade fight with the two biggest customers for U.S. exports: Canada and Mexico. Hillary Clinton recently joined Donald Trump in threatening to reopen and potentially scuttle the 22-year-old North American Free Trade Agreement. But tearing up NAFTA would be an economic and foreign-policy blunder of historic proportions.

NAFTA was a bipartisan achievement, approved by Congress with strong Republican support and signed into law by Bill Clinton in 1993. Once fully implemented, the agreement eliminated virtually all trade barriers between the United States, Canada and Mexico. By every reasonable measure, NAFTA has been a success.

The trade agreement delivered its core promise of deeper North American economic integration. Since its passage, our two-way trade with Canada and Mexico has more than tripled, with trilateral trade flows within NAFTA topping $1 trillion in 2011. Canada and Mexico are now the No. 1 and No. 2 foreign markets, respectively, for U.S. goods and services, collectively buying 34 percent of total U.S. exports.

NAFTA delivered the level playing field politicians say they want. Before NAFTA, Mexico imposed tariffs on U.S. agricultural and manufactured goods that were significantly higher than U.S. tariffs on Mexican goods. NAFTA reduced all duties in all directions to zero. What could be more fair than that?

As a result, North American production and capital markets are highly integrated, making companies in all three partner countries more competitive in global markets. The auto sector is especially intertwined, going back to the U.S.-Canada auto pact of 1965. NAFTA is a major reason, despite other challenges, the North American economies have outperformed those of the European Union and Japan.

Critics of NAFTA make outlandish claims about its impact on American workers and industry. Trump asserts that the agreement has been “totally disastrous” for the United States. More than two decades ago, H. Ross Perot warned that passage of NAFTA would unleash “a giant sucking sound” of jobs and investment going south of the border. Critics were wrong then, and they’re wrong now.

NAFTA was never going to have a huge positive or negative effect on the United States, though most studies show a modest positive effect on the U.S. economy. When NAFTA took effect, our economy was more than 17 times larger than Mexico’s, our barriers were already low, and our two-way trade with Mexico was a mere 1.4 percent of the U.S. gross domestic product.

Manufacturing investment to Mexico did increase after NAFTA, but it remains a fraction of annual manufacturing investment in the U.S. domestic economy. In the five years after NAFTA’s passage, the U.S. economy added more than 500,000 manufacturing jobs. Real, inflation-adjusted manufacturing output is up 40 percent since NAFTA came into effect. The loss of manufacturing jobs since 2000 wasn’t because of NAFTA, but because of gains in productivity fueled by automation.

Along with the economic gains, NAFTA has been a foreign policy success. It locked in Mexico’s economic reforms and stabilized its economy. Today Mexico is a multi-party democracy with a growing middle class. Relations with our southern neighbor and its 100 million citizens have never been better.

Mexico’s improving economy has reduced the incentive for its citizens to migrate to the United States. Net immigration from Mexico has turned negative in recent years, with more Mexicans returning to their homeland each year than entering the United States. If Mexican workers are barred from selling their goods in the United States, they’ll be more tempted to export their labor.

Withdrawing from NAFTA would be a disaster for the United States. What sort of business model would impel a company or a nation to provoke an unnecessary fight with its top two customers? 

Overturning this successful, 2-decade-old commercial agreement would disrupt supply chains and put millions of current U.S. jobs at risk. It would make U.S. companies less competitive in global markets, reducing U.S. imports, exports, output and employment.

That would be a bad deal by any measure."

Bryan Caplan Reviews "Eight Market-Oriented Proposals That Reduce Income Inequality"

From Byran Caplan of EconLog.
"I was initially excited to see that progressive Dean Baker has written a piece on "Eight Market-Oriented Proposals That Reduce Income Inequality" for AEI. It begins promisingly by criticizing overly strict occupational licensing for high-skilled workers.  But it then studiously avoids the really big wins.  Namely:

1. Immigration.  High-skilled immigration reduces conventionally measured inequality by making high-skilled workers more abundant relative to low-skilled workers.  And low-skilled immigration drastically reduces properly measured inequality by moving the absolutely poor to First World prosperity.  Estimates of the size of this effect are vast.

2. Housing deregulation.  Letting developers build more housing in expensive areas of the country directly reduces inequality by making housing more affordable.  And it indirectly reduces inequality by making it more affordable to live in high-wage areas of the country.  Estimates of the size of this effect are also vast.

To be fair, Baker does discuss occupational licensing as a barrier to high-skilled immigration.  But that's only the tip of the immigration iceberg.  And his only "market-oriented proposal" for real estate, bizarrely, is a surtax on vacancy!  On the surface, he's got a decent case:
A vacant property tax can have a similar effect on the real estate market to that of reducing unemployment benefits and other supports on wages.
But this misses the bigger picture: A vacancy tax also reduces the incentive to build housing in the first place, so it's a lot more like a tax on firing workers than a reduction in unemployment benefits.  In the short-run, such a tax saves jobs, but in the long-run, it makes employers nervous about hiring.  A vacancy tax, similarly, keeps rental units on the market during bad times, but reduces the long-run payoff for construction.  Baker is flatly wrong to say, "Unlike most taxes, all the side effects of this tax are positive."

Governments around the world willfully create poverty and inequality.  I'm glad to see Baker calling attention to these ugly facts.  But focusing on relatively minor and not-so-market-oriented examples spreads the false impression that government-sponsored poverty and inequality is but a marginal issue.  Alas!"

Friday, January 27, 2017

Minimum Prices Have Consumer Benefits: Contact Lens Case Study

By Ryan Radia of CEI.
"Today, the Competitive Enterprise Institute published a study that I co-authored with Tom Haynes, who chairs CEI’s board of directors, about price regulation in the contact lens market. We look at how this industry has evolved in recent years, and how the rise of discount stores and online retailers has affected people who buy, sell, and make contacts. In particular, our study discusses policies adopted by several major contact lens manufacturers to distribute only to retailers who sell the manufacturers’ contacts at or above a specified price. Although these policies have been met with skepticism by some lawmakers—and one state, Utah, has passed a law to ban this pricing practice—we argue that allowing manufacturers the option to set a price floor for their own contacts actually benefits consumers and improves competition in the contact lens marketplace.

Behind the push for laws restricting contacts manufacturers from influencing the retail prices of their contact lenses are discount and online retailers such as Costco and 1-800 CONTACTS. These high-volume retailers specialize in offering lower prices than competing retailers with higher costs, so they oppose efforts by manufacturers to prevent them from undercutting their competitors’ prices. But contacts aren’t a typical consumer good that one can simply grab off the shelf (or place in an online cart). Instead, contacts require a prescription individually tailored to each patient’s needs from an eye care professional (such an optometrist). Literally tens of millions of variations of contact lenses are manufactured today, with myriad combinations of prescriptions, brand names, and sizes.
Eye care professionals operate independently from contact lens manufacturers, but these professionals play a crucial role in ensuring consumers get the contacts that work best for them. Thus, people who wear contacts and the companies that make them have a shared interest in a well-functioning eye care industry. Because optometrists and other eye care professionals not only prescribe contacts but also sell them, many consumers opt to buy their contacts from the same person who prescribes them. Other consumers prefer to take their prescription to a discount store or online retailer, and they are free to do so.

Many eye care professionals offer eye examinations at a modest cost—or, sometimes, for free—hoping to recoup the cost of this loss-leader service by selling contact lenses. Similar business models are common in many markets, such as the cell phone industry, in which smartphones are often “sold” at a fraction of their actual cost to customers who commit to a multi-year service plan, and the video game console industry, in which consoles are often sold slightly below cost while game publishers must share a portion of their proceeds with the console manufacturer.

By maintaining a price floor for contact lenses, manufacturers can preserve the ability of eye care professionals to generate reasonable returns on their retailing operations, offsetting the costs of their professional services. To be sure, not all major contacts manufacturers currently have a minimum pricing policy, and there is no reason to believe that pricing uniformity is necessarily optimal in the contacts industry. But allowing competing manufacturers to decide for themselves how to attempt to shape the process by which their contacts are sold at retail is the best way to promote innovation and ultimately serve consumers.

Read the full paper, Resale Pricing in the Contact Lens Industry: A Case Study of Regulation Undermining Pro-Consumer Resale Pricing Strategies, here."

Because effective [cancer] treatments almost always require hitting more than one target at the same time, some very good and relatively safe cancer drugs show no evidence of effectiveness when used alone, and therefore, might not be approved by the FDA

See Frances Kelsey Syndrome from Marginal Revolution.
"Occasionally I have been told that FDA reform is something that only a few libertarian economists support. But in fact, there is strong support for reform in much of the medical community. See, for example, the survey that Dan Klein and I did on off-label prescribing and FDA reform or the many surveys of physicians done by CEI.

I mentioned Dr. Vincent DeVita in my post, Will Trump Appoint a Great FDA Commissioner? It’s worthwhile exploring DeVita’s views at greater length because he is a prominent figure in the field of oncology. Here, from Wikipedia, is some background on DeVita:
Vincent Theodore DeVita, Jr., MD is an internationally recognized pioneer physician in the field of oncology. DeVita spent the early part of his career at the National Cancer Institute (NCI). In 1980, the president of the United States appointed him as director of the NCI and the National Cancer Program, a position he held until 1988. While at the NCI, he was instrumental in developing combination chemotherapy programs that ultimately led to an effective regimen of curative chemotherapy for Hodgkin’s disease and diffuse large cell lymphomas. Along with colleagues at the NCI, he developed the four-drug combination, known by the acronym MOPP, which increased the cure rate for patients with advanced Hodgkin’s disease from nearly zero to over 70%.
DeVita was the Director of Yale Cancer Center from 1993 to 2003. He is currently the chair of the Yale Cancer Center advisory board and is professor of internal medicine and of epidemiology and public health at Yale’s medical school.
DeVita currently serves on the editorial boards of numerous scientific journals and is the author or co-author of more than 450 scientific articles. He is one of the three editors of the popular textbook (also available online) Cancer: Principles and Practice of Oncology and serves as the editor-in-chief of The Cancer Journal.
In his book, The Death of Cancer, DeVita has a chapter on the FDA. The title of that chapter? Frances Kelsey Syndrome. He writes:
The thalidomide episode sent the message to those who worked at the FDA that the way to do right by people was to say no. Saying yes would prove perilous–not only to patients, but to the careers of a reviewer. As a result, the agency tends to reward those who say no, not yes. (In fact, there’s an annual Frances Kelsey award. But there are no awards for getting a good drug quickly into the public domain.)
Exactly right. Later he discusses another problem that he sees with FDA evaluation procedures:
We are approaching what we might have considered nirvana years ago. We can design drugs that will hit a specific target, and by being so specific, they have fewer side effects. But because effective treatments almost always require hitting more than one target at the same time, some very good and relatively safe cancer drugs show no evidence of effectiveness when used alone.
What a dilemma. After spending millions of dollars developing a drug, a company may be forced to abandon it for lack of efficacy, when, if approved, it would be another exciting tool for clinical investigators who want to explore combinations of targeted therapies in post-market research trials. Compound that with the FDA’s insistence on testing them first on patients with very advanced, resistant disease, and many potentially useful drugs don’t look so good. As a result, drug companies are reluctant to invest money in new cancer drugs, because they might never make it past the FDA’s hurdles.
DeVita may be wrong but he’s certainly not uninformed."

Thursday, January 26, 2017

2009 tire tariffs cost US consumers $926K per job saved and led to the loss of 3 retail jobs per factory job saved

From Mark Perry.
"On a recent CD post, I summarized some empirical evidence on the costs of US trade protectionism based on case studies in a 1986 book Trade Protection in the United States: 31 Case Studies by Gary Clyde Hufbauer, Diane Berliner and Kimberly Ann Elliot. The lead author of that book, trade expert Gary Clyde Hufbauer of the Peterson Institute for International Economics was also the lead author on a more recent 2012 study (“US Tire Tariffs: Saving Few Jobs at High Cost“) that investigated the economic impact of tariffs on Chinese tires in 2009. In response to a petition from the union that represents tire manufacturing workers, the Obama administration imposed punitive tariffs on tires imported from China from the normal rate of 4% all the way up to 35% in September of 2009 (for a full year), followed by a 30% tariff in 2010 and then a 25% tariff in 2011. Here’s the introduction of Hufbauer’s paper (emphasis mine):
In his 2012 State of the Union address, President Obama claimed that “over a thousand Americans are working today because we stopped a surge in Chinese tires.” The tire tariff case, decided by the president in September 2009, exemplifies his efforts to get China to “play by the rules” and serves as a plank in his larger platform of insourcing jobs to America.
However, our analysis shows that, even on very generous assumptions about the effectiveness of the tariffs, the initiative saved a maximum of 1,200 jobs. Our analysis also shows that American buyers of car and light truck tires pay a hefty price for this exercise of trade protection. According to our calculations, explained in this policy brief, the total cost to American consumers from higher prices resulting from safeguard tariffs on Chinese tires was around $1.1 billion in 2011. The cost per job manufacturing saved (a maximum of 1,200 jobs by our calculations) was at least $900,000 in that year (see table above). Only a very small fraction of this bloated figure reached the pockets of tire workers. Instead, most of the money landed in the coffers of tire companies, mainly abroad but also at home.
The additional money that US consumers spent on tires reduced their spending on other retail goods, indirectly lowering employment in the retail industry. On balance, it seems likely that tire protectionism cost the US economy around 2,531 jobs, when losses in the retail sector are off set against gains in tire manufacturing. Adding further to the loss column, China retaliated by imposing antidumping duties on US exports of chicken parts, costing that industry around $1 billion in sales.
Here’s a summary of the main findings on the cost per tire job saved from the tariffs:
Adding together the $817 million price increase from the shift to non-Chinese tire imports and the $295 million price increase in US-made tires, we conclude that the gross annualized cost of the safeguard tariff s to American consumers in 2011 was around $1,112 million. The arithmetic in Box 2 (above) shows that, if this cost is divided by the maximum of 1,200 jobs saved since the safeguard tariff s took effect, the total cost to American consumers exceeded $900,000 per job saved. While this figure seems extravagant, it is consistent with prior research. Studies repeatedly show that the consumer cost of trade protection typically exceeds, by a wide margin, any reasonable estimate of what a normal jobs program might cost. Of course only a small fraction of the bloated cost reaches the pockets of factory workers. Most of the money extracted by protection from household budgets goes to corporate coffers, at home or abroad, not paychecks of American workers. In the case of tire protection, our estimates indicate that fewer than 5% of the consumer costs per job saved reached the pockets of American workers ($48 million out of $1,112 million).
When consumers spend more money on tires, then they have less money to spend on other retail goods. By dividing the total number of workers employed in the retail services at the end of 2011 by annual sales (not including food services) in that year, Table 6 calculates that 3,507 retail sales jobs are created in the United States for every one billion dollars spent in the domestic retail market. The tire safeguards extracted an estimated $1,112 million annually from US consumers; at the same time, the safeguards put $48 million in the pockets of otherwise unemployed tire workers. The net effect was to reduce consumer spending on other retail goods by about $1,064 million, indicating that the safeguard tariff s probably cost around 3,731 jobs in the retail sector. This loss of employment in the retail sector is admittedly widely disbursed and therefore politically unnoticed. But when the retail job loss figure is offset against the highly visible figure of a maximum of 1,200 manufacturing jobs saved, it appears that safeguards actually cost the American economy around 2,531 jobs. A net loss of jobs may surprise many observers (including those in the White House), but in fact trade protection often takes more jobs from the retail sector than it saves in the manufacturing sector.
From the paper’s conclusion:
The big winners from the 2009 safeguard tariff s were alternative foreign exporters, primarily located in Asia and Mexico, selling low-end tires to the United States. Domestic tire producers were secondary beneficiaries. The members of the labor union that petitioned the ITC’s investigation received only a small share of the money extracted from the pockets of American households.
US car and light truck tire consumers are paying higher prices regardless of whether they purchase a Chinese or non-Chinese tire. Jobs created in the tire manufacturing industry were more than offset by the loss of jobs in the US retail sector. As an added consequence, US chicken firms lost export sales in the wake of Chinese retaliation.
MP: Following the results that Hufbauer found when he investigated 31 case studies of protectionism in the 1980s, these more recent results for tire tariffs in 2009 confirm a pattern of “protectionist math” that should be considered as we assess trade policies going forward from the “first authentic protectionist to win the White House since the 1920s.” Here’s a summary of “protectionist math”:
Outcome #1. The costs to US consumers from trade protection will always be greater than the benefits to protected US industries and their workers, resulting in a net economic loss of welfare and efficiency as the case above illustrates. See previous CD post for a summary of this outcome in dozens of case studies.

Outcome #2. As a result of trade protection, the number of jobs lost throughout the economy will always exceed the number of jobs saved in a protected industry, resulting in a net loss of jobs. In the case above, there were more than 3 US jobs lost from the tire tariffs for every 1 job saved (-3,731 retail jobs vs. +1,200 manufacturing jobs), resulting in a net loss of more than 2,500 jobs.

Outcome #3. The cost to US consumers per-job-saved on an annual basis from trade protectionism will always exceed the annual income of the protected workers. In the case of tire tariffs above, the annualized cost to consumers of more than $925,000 per manufacturing job far exceeded by almost 24 times the average annual income of $38,000 for a US manufacturing worker in 2011.

Outcome #4. Trade policies that protect some American industries and workers from imports and foreign competition will inevitably be followed by retaliatory trade policies enacted by other countries against the US that will harm US industries and workers that export goods overseas. In the case above, the retaliation from China came in the form of duties on US exports of chicken parts, costing that industry around $1 billion in lost sales.

Outcome #5. The benefits of protectionism for protected US industries and the workers in those industries will always be easily concentrated, immediate, visible, identifiable, and measurable. The higher costs for consumers and the loss of jobs throughout the economy from protectionism will be much less visible and much harder to identify, and the higher costs will be dispersed among millions of consumers.

Outcome #6. Given Outcome #5 that the visible benefits of protectionism are concentrated on a small group of producers and their workers (tire companies in the example above), those concentrated special-interest groups (i.e. domestic producers) will always be better organized and better financed compared to the disorganized and dispersed consumers when it comes to exerting political influence (“rent-seeking”) for protectionist trade policies. In the case above, it was the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial, and Service Workers International Union that represented tire manufacturing workers and filed a petition with the US International Trade Commission lobbying for tariffs on passenger vehicle and light truck tire imports from China. On the other hand, there is no consumer advocacy group for the millions of Americans who purchase new cars or tires every year.

Bottom Line: From an economic viewpoint, based on economic theory and empirical evidence, protectionism makes an economy worse off, not better off. It is just an economic reality that when both the costs and benefits of protectionism are evaluated, “protectionist math” (cost-benefit analysis) predicts a net loss of jobs and reductions in economic welfare and economic efficiency as the case of tire tariffs above clearly illustrates. Trump has boasted that “protection will lead to great prosperity and strength” for America, but that claim is completely unsupported by international trade theory and contradicts hundreds, if not thousands, of empirical studies like the one above.

From a political viewpoint, protectionism has an obvious payoff because it generates political support, votes, and financial contributions for protectionist presidents and politicians from the beneficiaries — domestic industries and their workers — who are protected from foreign competition by government fiat. Fortunately for the protected industries and their political enablers, the groups that shoulder the burdens and costs of protectionism — millions of dispersed consumers and thousands of invisible, hard-to-identify workers who lose their jobs — are unorganized and therefore completely disregarded by protectionist politicians.

For example, when have you ever heard anything from President Trump about American consumers when he talks about international trade or protectionism? We only hear about US manufacturers and US workers, and never, ever about consumers — the biggest and most important group of all economically. Sure, if you completely ignore the costs of protectionism and ignore those who pay those costs – consumers; and also ignore the economic reality that the costs of protectionism outweigh the benefits, it’s pretty easy to make a political case for tariffs and protectionism, even though that’s a guaranteed prescription for impoverishing and weakening America from an economic viewpoint.

To paraphrase Thomas Sowell: The first lesson of international economics is that free trade makes us better off and protectionism makes us worse off. The first lesson of politics when it comes to trade issues is to ignore the first lesson of international economics. And that pretty much sums up what we’re getting from the “first authentic protectionist to win the White House since the 1920s” — 0% economics and 100% politics."

Nationalism and Socialism Are Very Bad Ideas: But liberalism is a good one

Deirdre Nansen McCloskey.
"Between the Great Lisbon Earthquake and the revolutionary year of 1848 the European chattering classes had three big ideas. One was very, very good. The other two were very, very bad. We're still paying.

The good one, flowing from the pens of such members of the clerisy as Voltaire, Thomas Paine, Mary Wollstonecraft, and above all the Blessed Adam Smith, is what Smith described in 1776 as the shocking idea of "allowing every man [or woman, dear] to pursue his own interest in his own way, upon the liberal plan of equality, liberty, and justice."

Admittedly, true liberalism took a long time. "All men are created equal" was penned by a man who kept in slavery most of his own children by Sally Hemings, not to mention Sally herself. Even his co-author Ben Franklin once owned slaves. In 1775, the English literary man Samuel Johnson had ample reason to launch a sneer from London, "How is it that we hear the loudest yelps for liberty among the drivers of negroes?"

But those liberal yelps re-echoed, and had force, amplified by the repeated embarrassment over two centuries of denying slaves, apprentices, women, immigrants, anarchists, socialists, communists, Okies, Nisei, blacks, Chicanos, gays, Vietnam protesters, criminal suspects, handicapped people, gender crossers, ex-cons, drug users, smokers, and citizens of the District of Columbia their own equality, liberty, and justice.

The fruits of the new liberalism, when it could make its way against the two bad ideas (wait for it), were stunning. Liberalism, uniquely in history, made masses of ordinary people bold, bold to try out their ideas for how to improve the world by testing them in the marketplace. Look around at the hundreds of betterments that resulted: from stock markets to ball bearings, from penicillin to plate glass.

The boldness of commoners pursuing their own interests resulted in a Great Enrichment—a rise in Europe and the Anglosphere of real, inflation-corrected incomes per head, from 1800 to the present, by a factor, conservatively measured, of about 30. That is, class, about 3,000 percent. The glory of Greece and the grandeur of Rome, Song China, and the Mughal Empire might have managed a 100 percent increase over a century or so, to something like $6 a day—but eventually they all fell back to the $3 a day typical since our species lived in caves.

And now, despite the best efforts of governments and international agencies to bungle the job, liberalism is spreading to the world, from Hong Kong to Botswana.

It's astonishingly good for the poor. Add up the fruits of illiberal government action—redistribution, licensing, tariffs, zoning, building permits, farm subsidies, restrictions on immigration, foreign aid, industrial policy, a third to half of income seized as taxes by the state—and all together, they might, if you suspend your economic disbelief, raise the income of the poorest folk by, say, 30 percent, one time only. Not the 3,000 percent attributable to liberalism, which continues to grow with no end in sight.

The two bad ideas of 1755–1848 were nationalism and socialism. If you like them, perhaps you will enjoy their combination, introduced in 1922 and still for sale in Europe and implied by Donald Trump's popularity: national socialism.

Nationalism, when first theorized in the early 19th century, was entwined with the Romantic movement, though of course in England it was already hundreds of years old. It inspired reactive nationalisms in France, Scotland, and eventually Ireland. In Italy, in the form of campanilismo, or pride in your city, it was older still. (Italians will reply when asked where they are from, even if speaking to foreigners, "Florence" or "Rome" or at the most "Sicily." Never "Italy.")

What is bad about nationalism, aside from its intrinsic collective coercion, is that it inspires conflict. The 800 U.S. military bases around the world keep the peace by waging endless war, bombing civilians to protect Americans from non-threats on the other side of the world. In July 2016, we of the Anglosphere "celebrated," if that is quite the word, the centenary of the Battle of the Somme, a fruit of nationalism, which by its conclusion three and a half months later had cost the Allies and the Central Powers combined over a million casualties, most of them dismembered by artillery. Thank you for your service.

The other bad idea of the era was socialism, which can also be linked to Romanticism, and to a secularized Christianity, with its Sermon-on-the-Mount charity and an apocalyptic view of history. It's all of a piece—from central planning in Venezuela to building permits in Chicago. A communist is a socialist in a hurry and a socialist is a regulator in a hurry and a regulator is a corrupt politician in a hurry.

What's bad about socialism, aside from its own intrinsic collective coercion, is that it leads to poverty. Even in its purest forms—within the confines of a sweet family, say—it kills initiative and encourages free riding. St. Paul, not famous for being a liberal, scolded the Thessalonians: "We gave this order: 'If anyone doesn't want to work, he shouldn't eat.' We hear that some of you are living in idleness. You are not busy working—you are busy interfering in other people's lives!" Good for St. Paul.

The not-so-sweet forms of socialism, especially those paired with nationalism, are a lot worse. Thus North Korea, Cuba, and other workers' paradises. As the joke goes, "Under capitalism man exploits man; under socialism it's the other way around."

What to do? Revive liberalism, as the astonishing successes of China and India have. Take back the word from our friends on the American left. They can keep progressive, if they don't mind being associated with the Progressive movement of the early 20th century, and its eugenic enthusiasms for forced sterilization and for using the minimum wage to drive immigrants, blacks, and women out of the labor force. And we should persuade our friends on the right to stop using the l word to attack people who do not belong to the country club.

Read Adam Smith, slowly—not just the prudential Wealth of Nations, but its temperate sister The Theory of Moral Sentiments. And return in spirit to the dawn of 1776, when the radical idea was not nationalism or socialism or national socialism, but "the obvious and simple system of natural liberty" that allows all men and women to pursue their interests in their own ways.

It was a strange but very, very good idea. Still is."

Wednesday, January 25, 2017

Declining enrollments, shrinking networks, fleeing insurers. The ACA may be repealing itself

By Robert F. Graboyes of Mercatus.
"The full-throated rhetorical war over the Affordable Care Act has begun. The health care law, also known as Obamacare, will likely meet its demise in the coming days, weeks or months. Given its structural infirmities – soaring premiums and deductibles, collapsing exchanges and CO-OPs, unbalanced risk pools – that would almost certainly have been true under a Hillary Clinton presidency, as well; it just may have taken a little longer.

Obamacare opponents (largely Republicans) repeat their longstanding pledge to "repeal and replace," which the health care law's supporters (largely Democrats) disparage as "make America sick again." Supporters argue that millions gained coverage under the law, and its repeal may deprive them of that coverage. Opponents can truthfully craft a three-part counterargument: 1) the way the law paid for that increased coverage harmed vastly more millions, some severely; 2) the coverage gains that supporters tout may in part be transitory; and 3) there are better ways to expand coverage.
The Affordable Care Act is at best a byzantine zero-sum game with many winners and far more losers. Some gained coverage; others lost coverage (or crucial parts of their coverage). Some felt costs go down; others saw theirs go up. For some, care improved; for others, it deteriorated. The health care law likely means better health for some, worse health for others.

Those who gained coverage are easy to identify and assemble before television cameras; their potential coverage loss is simple to explain. In contrast, the law's casualties suffer in myriad ways that can be complex and often indirect. Archetypes may include:

    The guy who formerly had coverage but can't afford it now since the law pushed premiums through the roof.
    A woman who lost her top-of-the-line oncologist in the middle of chemotherapy because Affordable Care Act plans use skimpy provider networks to cut costs.
    A working-class family whose food, housing and education budgets are now badly squeezed by higher taxes and insurance premiums.
    The medical device inventor whose company can't survive the health care law's ruinous medical device tax, not to mention the patients whose suffering that device could ease.
    The fellow paying the individual mandate penalty/tax while receiving no benefits for it.
    The woman whose chronic care expenses used to be covered by insurance but whose $6,500 deductible today forces her to bear those expenses out of pocket.
    The couple who lost their jobs and benefits because the employer mandate forced their company to cut back on full-time employees.
    The woman who used to have high-quality insurance but now languishes in Medicaid waiting lines.
    The small-business owner who can't expand her company beyond 49 employees because of the health care law's employer mandate, along with the unemployed Americans she wished to hire.
    The man who refuses a job offer because he'll lose his Affordable Care Act subsidies if his income increases.

For actual Americans represented by these examples, the pain today is no less than the pain the health care law's repeal might – might – bring on others. But ironically, even that singular Affordable Care Act achievement, the coverage expansion, may well be partly ephemeral.

In the 1990s, Tennessee passed its own mini-Affordable Care Act to expand coverage via the TennCare Medicaid program. After an initial, highly celebrated increase in the insurance rolls, costs exploded, forcing the state to withdraw coverage from nearly 200,000 newly insured Tennesseans. Similar mini-Affordable Care Acts imploded in Kentucky, Hawaii and other states. It's easy and exhilarating to distribute piles of plastic insurance cards; paying for them over the long haul is another matter.

Repealing the Affordable Care Act will benefit the healthy, but high-risk patients still need protection.

While the health care law hasn't reached a Tennessee-style plummet, its strains mirror the early stages of those earlier disasters: declining enrollments, accelerating costs, shrinking networks and benefits and fleeing insurers. Congress aside, the Affordable Care Act may be repealing itself.

The health care law was not the only route to expanded coverage, and its Rube Goldberg architecture was never the best. Sustainable access to insurance and, more importantly, sustainable access to care will require fundamental changes in how providers deliver care and when patients demand that care. There are a hundred ways to do that, e.g., better use of telemedicine and nurse practitioners, faster Food and Drug Administration drug and device approvals, fewer anti-competitive hospital practices, more choices for veterans and Medicaid recipients. But these solutions require greater creativity and patience than "print some cards and find some money."

Repealing the Affordable Care Act and finding an array of substitutes will require work. The process will not always be painless. But sometimes, lawmakers have to look beyond the immediate, lean against the wind and head in the right direction."

How Virginia’s Hospital Licensing Laws Contributed to the Death of a Baby: New at Reason

Virginia’s Department of Health blocked a Roanoke-area hospital from building a NICU because a competitor objected; months later, an infant died there.

From Reason.
"In February 2012, a woman arrived at the emergency room of LewisGale Hospital in Roanoke, Virginia. She was 24 weeks pregnant, but something was very wrong.
Doctors and staff at LewisGale did what they could to save the mother. The infant, born prematurely, died.

Had the baby been born at a different hospital, one with a neonatal intensive care unit, there's a chance that it would have survived. But it had the misfortune to be born at LewisGale, a hospital that had, just months earlier, been told by state officials that it was not allowed to build a NICU because, in the state Department of Health's expert opinion, it was not needed.

In Virginia, and more than 30 other states, hospitals must get special permission from government planners before being allowed to offer new services, like the specialty nursery that may have saved that child's life in 2012. These so-called Certificate of Necessity laws are supposed to balance the interests of hospitals with the needs of the public, but in reality they are fraught with politics and allow special interests to effectively veto unwanted competition—sometimes with tragic consequences.

A Reason investigation relying on public records, legal documents, and interviews with experts on CON laws uncovered one of those tragic consequences.

Eric Boehm writes:
This baby died, at least in part, because bureaucrats in Richmond—acting in accordance with the wishes of LewisGale's chief competitor and against the wishes of doctors, hospital administrators, public officials, and the people of Salem, Virginia—let it happen.
Like many states, Virginia has a Certificate of Public Need (COPN) law requiring hospitals and other medical providers to get special permission from the state government before they are allowed to offer new services, like the specialty nursery that may have saved that child's life in 2012. These COPN licensing processes are supposed to balance the interests of hospitals with the needs of the public, but in reality they are fraught with politics and allow special interests to effectively veto unwanted competition.
In July 2010, two years before the baby died, administrators from LewisGale Medical Center submitted an application to the state Department of Health seeking permission to build a small specialty care nursery service. It was denied. The state's refusal ensured that, sooner or later, some child would face an ugly fate."

Tuesday, January 24, 2017

Yes, protectionism can save some US jobs, but at what cost? Empirical evidence suggests it’s very, very expensive

From Mark Perry.
"According to Team Trump’s website, we’re told that “blue-collar towns and cities have watched their factories close and good-paying jobs move overseas, while Americans face a mounting trade deficit and a devastated manufacturing base. By fighting for fair but tough trade deals, we can bring jobs back to America’s shores, increase wages, and support U.S. manufacturing.”

Actually, it’s been capital investments in labor-saving technologies like robotics and increasing worker productivity that have led to the large majority of US factory job losses, not trade or outsourcing, as I documented recently here. And there’s been no devastation of America’s manufacturing base; to the contrary, real US manufacturing output has reached all-time high levels in recent quarters.

What’s Trump’s solution to the loss of US manufacturing jobs?  America’s “first authentic protectionist to win the White House since the 1920s” has outlined a series of protectionist trade measures including tariffs (30-40-50%), “tougher trade deals” (likely trade deals to protect US manufacturers from foreign competition), “Buy American” policies, and border adjustment taxes, among other strategies to “save American jobs.”

Here’s a relevant question to ask: How have protectionist trade policies in the past worked out for the US economy and how expensive is it to save American jobs with the protectionist trade policies Trump is proposing? We can find some answers to those questions in a Federal Reserve Bank of St. Louis research article published in 1988 by three economists “Protectionist Trade Policies: A Survey of Theory, Evidence and Rationale,” which presented a summary of the empirical evidence on trade protectionism from the 1986 book published by the Institute for International Economics Trade Protection in the United States: 31 Case Studies. Even though the research and empirical results are from the 1980s, this article and book provide useful empirical evidence on the costs of protectionism to bring some much-needed sanity to the debate on trade policy to counterbalance the favorable treatment being given to protectionism these days.

Here’s the introductory paragraph of the research article, which certainly sounds like it could have been written today, even though it was written to describe the rising protectionist tide in the 1980s (emphasis added):
Protectionist pressures have been mounting worldwide during the 1980s. These pressures are due to various economic problems including the large and persistent balance of trade deficits in the United States; the hard times experienced by several industries; and the slow growth of many foreign counties. Proponents of protectionist trade policies argue that international trade has contributed substantially to these problems and that protectionist trade policies will head to improved results. Professional economists in the United States, however, generally agree that trade restrictions such as tariffs and quotas substantially reduce a nation’s economic well-being.
Here’s a discussion of the summary of the empirical evidence on trade protection from the article, based on the results in the Hafbauer et al. book (and summarized in the table above):
Hufbauer et al. (1986) examined 31 cases in which trade volumes exceeded $100 million and the United States imposed protectionist trade restrictions. They generated estimates of the welfare consequences for each major group affected (see table above). The figures in the table indicate that annual consumer losses exceed $100 million in all but six of the cases. The largest losses, $27 billion per year, come from protecting the textiles and apparel industry. There also are large consumer losses associated with protection in carbon steel ($6.8 billion), automobiles ($5.8 billion) and dairy products ($5.5 billion). The table above also reveals that domestic producers were the primary beneficiaries of protectionist policies…..
The purpose of protectionism is to protect jobs in specific industries. A useful approach to gain some perspective on consumer losses is to express these losses on a per-job-saved basis. In 18 of the 31 cases, the cost per-job-saved is $100,000 or more per year; the consumer losses per-job-saved in benzenoid chemicals, carbon steel, specialty steel, and bolts, nuts and screws exceeded $500,000 per year [in 1986 dollars, see the last column for annual consumer losses per-job-saved re-stated in 2016 dollars].
Here’s from the paper’s conclusion (emphasis added):
The empirical evidence is clear-cut. The costs of protectionist trade policies far exceed the benefits. The losses suffered by consumers exceed the gains reaped by domestic producers and government. Low income consumers are relatively more adversely affected than high-income consumers. Not only are there inefficiencies associated with excessive domestic production and restricted consumption, but there are costs associated with the enforcement of the protectionist legislation and attempts to influence trade policy.
MP: In other words, an increase in protectionist trade policies would “Make America Poorer” — not “great again” — and would especially impoverish the most vulnerable Americans – the poor and low-income families. Further, the wasteful costs to enforce protectionist trade policies create a further drag on the economy. And here below the authors use public choice theory to explain the popularity of protectionism, which applies today just as it did in the 1980s:
The primary reason for these costly protectionist policies relies on a public choice argument. The desire to influence trade policy arises from the fact that trade policy changes benefit some groups, while harming others. Consumers are harmed by protectionist legislation; however, ignorance, small individual costs, and the high costs of organizing consumers prevent the consumers from being an effective force. On the other hand, workers and other resource owners in an industry are more likely to be effective politically because of their relative ease of organizing and their individually large and easy-to-identify benefits. Politicians interested in re-election will most likely respond to the demands for protectionist legislation of such an interest group.
MP: As H.L. Mencken explained it, protectionism results for political, and not economic reasons, because the legislative process is like having two foxes (producers and politicians) and a chicken (consumers) taking a vote on what eat for dinner. Finally, the long-run effects of protectionism on economic growth are discussed, as well as the inevitable tendency for protectionism to breed more protectionism:
The empirical evidence also suggests that the adverse consumer effects of protectionist trade policies are not short-lived. These policies generate lower economic growth rates than the rates associated with free trade policies. In turn, slow growth contributes to additional protectionist pressures.
Interest group pressures from industries experiencing difficulty and the general appeal of a “level playing field’’ combine to make the reduction of trade barriers especially difficult at the present time in the United States. Nonetheless, national interests will be served best by such an admittedly difficult political course.
Bottom Line: Let me re-phrase that last paragraph as follows:

Interest group pressures from industries like manufacturing experiencing difficulty producing products, the general now popular appeal of a “level playing field,’’ and the election of the first authentic protectionist president in nearly a century combine to make the reduction introduction of trade barriers especially difficult likely at the present time in the United States. Nonetheless, national interests will not be served best by such an admittedly difficult politically popular course.
The popularity of protectionist trade policy is growing and is being actively promoted by President Trump. The appeal is clear and understandable: protectionism does save and protect some American jobs in protected industries, and those jobs are easily visible, identifiable, and measurable; in fact, they provide wonderful photo opportunities and hand-shaking opportunities for protectionist presidents and politicians. And that’s all we hear about from President Trump are the factory jobs that he’ll save by protecting American manufacturers and their workers from foreign competition. But the one group of Americans we never hear about from Trump when he discusses international trade are the most important group of Americans – the American consumers (including especially the poor and low-income households) — who are the group that have the most to gain from international trade and the group that has the most to lose from trade barriers. But by not considering the most important group — consumers — we get a biased and distorted viewpoint of protectionism because we only hear about the benefits of protectionism to some producers and workers whose jobs are saved, while ignoring the huge and burdensome costs of protectionism imposed on consumers.

The empirical evidence above helps us to understand a very important economic lesson about international trade, call it “protectionist math” — and that mathematical reality is that the costs of protectionism imposed on American consumers in the form of higher prices and a reduction in trade will always be greater than the benefits generated for the protected industries and the workers in those industries. And here’s another part of that “protectionist math” that helps us answer the question: Sure, we can save US jobs with protectionist trade policies, but how much does it cost consumers for every job saved with protectionist trade policy, and is that cost worth it? Economic analysis and the empirical evidence presented above suggest that it’s very, very expensive to save US jobs with protectionism — more than half-a-million dollars on average per year per job in 2016 dollars (see chart above). If Trump enacts protectionist policies that save $50,000 per year US factory jobs but at a cost to consumer of $500,000 annually for each job saved, that’s a surefire formula to “Make America Expensive and Poor Again,” not “great again.”


A century of Marxism-Leninism

By Matt Ridley.
"Human beings can be remarkably dense. The practice of bloodletting, as a medical treatment, persisted despite centuries of abundant evidence that it did more harm than good. The practice of communism, or political bloodletting as it should perhaps be known, whose centenary in the Bolshevik revolution is reached this year, likewise needs no more tests. It does more harm than good every time. Nationalised, planned, one-party rule benefits nobody, let alone the poor.

The diseases that Marxism-Leninism was intended to treat, poverty and inequality, were ancient scourges just beginning to fade, even in Russia. Higher living standards were starting to reach ordinary people, rather than just the feudal elite, for the first time. Radicals had long seen government as the problem, not the solution: that to enrich the masses required liberating people from kings and priests.

Along came Karl Marx with essentially the opposite suggestion: a powerful state creating wealth, distributed from each according to his ability, to each according to his need, as a result of which classes would disappear and with them, eventually, the state itself.

The progressive left rather suddenly fell in love with the idea of expanding, rather than limiting, state power. It was in such a good cause. Unfortunately, the wealth never materialised and the state, far from withering way, became tyrannical.

Russia’s Bolsheviks, seizing power in a coup after the fall of the tsar, set a pattern that would be repeated again and again during the following century. A communist party takes power on behalf of the people, outlaws all other parties, holds no elections and after a sanguineous power struggle is soon dominated by one man. Famine results from the destruction of incentives inherent in the collectivisation of agriculture. Millions die. The nationalisation of all commerce and the cessation of most foreign trade result in shortages of consumer goods.

The leader becomes paranoid and kills a lot of people, especially independently minded ones, in purges. More are imprisoned without trial or charge. A secret police grows powerful. The regime destroys free speech, but is excused and praised by left-leaning sympathisers in western democracies. Living standards stagnate or fall, except for those of the elite, who live a privileged existence. Many people try to flee.

Communism was not unique in ruling through violence. Fascism, founded by an ardent socialist, Benito Mussolini, and German National Socialism, pursuing racial rather than class-based collectivism, were at least as bad, though they ended up killing fewer — not for lack of trying.

But from this distance they are all manifestations of the same phenomenon: centrally planned dictatorship justified as popular rule. Hitler’s bombers over London in 1940 burnt Soviet fuel.
In 1949 China repeated the Russian experiment with the same result. Mao Zedong managed to kill even more people, probably 45 million in the four years of the Great Leap Forward, through forced collectivisation and selling food to Russia in exchange for nuclear technology. When that did not work and he began to lose his grip on power he embarked on a purge of the entire country, called the Cultural Revolution, plunging his people into abject poverty while himself living like an emperor.

In 1959 Cuba tried Marxism-Leninism with a similar outcome: 5,000 people executed, an unknown number imprisoned for dissent and tens of thousands dead after trying to escape on makeshift rafts. Cuba’s GDP per capita was about the same as South Korea’s in 1959. Today South Korea’s is five times higher.

In 1962 Burma followed suit when Ne Win seized power and set out to create a “socialist state”. He introduced one-party rule, nationalised business and isolated the country from world trade, while imprisoning and executing perceived rivals. He impoverished the country while its neighbours prospered.

In 1974, it was Benin’s turn for the purges and oppression. The economy stagnated for a quarter of a century. Elsewhere in Africa, the Republic of the Congo and Zimbabwe also tried communism, Robert Mugabe having come to power (lest we forget) as an enthusiastic Marxist-Leninist.

East Germany had to build a wall to stop people escaping. Vietnam, like Cuba, sent thousands to sea in leaky boats. Cambodia deserves special mention for the thoroughness with which it stuck to Marx’s plan of “sweeping aside” the bourgeoisie. As head of the Khmer Rouge, Pol Pot enslaved the entire population on collective farms, his thugs clubbing or starving any who showed less than total obedience, so that from 1975 to 1979 approximately 1.7 million people were killed.

North Korea managed to turn communism into a feudal dynasty of unparalleled paranoia, which not only executes supposed dissidents in unusually gruesome ways but managed to starve millions of its citizens during the 1990s, a time when the rest of the world was feeding itself ever more abundantly.
Oil-rich Venezuela has ruined itself through socialism, creating shortages of loo paper and soap. It’s been said that if they tried communism in the Sahara there would soon be a shortage of sand.

Those communist countries that discovered economic growth, notably Vietnam and China after Mao, did so by abandoning nationalisation of the means of production, the very core of the Marxist prescription. They were exceptions that proved the rule.

Need I go on? Communism has killed on average a million people a year for a century, far more than any other ism, let alone what Marxists call “capitalism”, and the rest of us call freedom.

And yet in large chunks of the media and the Labour Party, including the troika of Jeremy Corbyn, John McDonnell and Seumas Milne, Marxism is still excused and admired while free enterprise is despised.

The first communists meant well. Their crime was to bet the farm on an untried idea and then, when it failed (as Lenin’s half-hearted New Economic Policy conceded), to be pig-headedly insensitive to the negative empirical data coming back from the experiment.

Like bloodletting medics, they elevated a principle into a dogma, with no regard to human suffering, in spite of overwhelming evidence."