How Welfare Hurts Walmart

From Bryan Caplan.

"Walmart's critics often argue that food stamps, Medicaid, and other poverty programs subsidize its labor force.  Since government pays a big part of its workers' living expenses, Walmart doesn't have to.  Is this true?

As long as non-workers remain eligible for poverty programs, the answer is no.  This is basic supply-and-demand.  When the government offers free stuff to people with low incomes, the marginal benefit of work falls - and so does labor supply.  When labor supply falls, hours of work go down, and wages rise.  This could be very nice from the point of view of Walmart's workers.  From the point of view of Walmart's stockholders however, it's bad.

Not convinced?  Ask yourself: "If I ran Walmart, would I favor higher unemployment benefits?"  Of course not.  Why not?  Because higher unemployment benefits make it easier to not apply for a job at Walmart.  The same goes for any government program that makes idleness less unpalatable.

Once you grasp why standard welfare programs hurt Walmart, you are ready to search for counter-examples.  Is there any government program that actually increases labor supply?  Indeed there is: the Earned Income Tax Credit.  To benefit from this program, you have to work.  The more you work, the larger your tax credit.  When the EITC goes up, the marginal benefit of work rises - and so does labor supply.  This doesn't mean that Walmart is the sole beneficiary of the EITC; unless labor demand is perfectly inelastic, workers capture some of the program's benefits too.  But from Walmart's point of view, a bigger EITC is better."

Fear-based attacks target oil and gas industry

Article by David Blackmon. From the San Antonio Express-News, 2-17-14. David Blackmon is managing director of Strategic Communications. Excerpts:

"Now, here are some things the Ceres report and media stories did not tell you:

A recent story in the Houston Chronicle pointed out that the city of Houston alone loses about 22 billion gallons of fresh water in a calendar year due to leaks in its municipal pipeline system;

Texas is home to 19 coal-fired power plants. The combined annual water use of two of them exceeds the total used for Eagle Ford frac jobs in 2013;

Rusty Todd, a UT professor, pointed out to readers of the Wall Street Journal that Texans consume 18 times more water for their lawns than the highest estimates of water use by the oil and gas industry for frac jobs. The EPA estimates Americans consume 9 trillion gallons of water for their lawns every year.

As the Express-News pointed out in its story on the Ceres report, the Texas Water Conservation Board estimates total oil and gas water usage in the state is less than 1 percent of overall water used in the state."

"in 2011, more than 5 billion gallons of oil and gas industry water use came from recycled or brackish water, efforts that have increased dramatically in the last three years."

Two more reasons raising the minimum wage is a bad idea

Great post by Mark Perry of "Carpe Diem."

 

City	"Adjusted for Cost of Living Relative to Des Moines	Adjusted for Cost of Living Relative to New York City
Des Moines	$10.10 per hour	$4.12 per hour
Dallas	$10.72	$4.37
Milwaukee	$11.38	$4.64
Las Vegas	$11.49	$4.69
Miami	$12.00	$4.89
Minneapolis	$12.35	$5.04
Chicago	$13.15	$5.36
Seattle	$13.15	$5.36
Los Angeles	$14.67	$5.98
Boston	$15.68	$6.39
Washington, DC	$15.85	$6.46
San Francisco	$17.90	$7.30
New York City	$24.77	$10.10

Upon reflecting further about the minimum wage law
government-mandated wage floor that guarantees reduced employment opportunities for America’s teenagers and low-skilled workers during a conference at AEI today titled “Minimum wage or earned income tax credit: Which helps the poor more?” I thought of two reasons (in addition to many others) that a mandated price control in the form of a minimum is a bad idea:

1. Even advocates of the minimum wage can never provide any convincing, solid economic reasoning to support why a specific minimum wage is the “correct” or “optimal” mandated wage. One panelist today, a minimum wage proponent who signed this letter calling for a minimum wage hike to $10.10 per hour by 2016, expressed concern that $10.10 might be too high and he might be more comfortable with a mandated wage closer to $9 per hour.

But where does a minimum wage of $10.10 (or $9) per hour come from? Economic theory? Economic reasoning? Economic logic? Regression analysis? No. It comes from….. well it comes from….. OK, to be really honest, it’s just a made up number by politicians, with no basis in economic reality. Economists who are minimum wage proponents will try to justify the arbitrary number “picked from the air” by politicians and talk about inflation-adjusted comparisons to previous years or decades, like the inflation-adjusted high of a $10.66 per hour (in 2013 dollars) minimum wage in 1968. But why is that the “right” wage and the “right” year to use for comparison? It’s just another arbitrary minimum wage from another era.

Bottom Line 1: Minimum wage proponents can never satisfactorily answer the questions: Why is $10.10 the “correct” or “optimal” minimum wage? How did you arrive at $10.10 hour – what analysis was used? How do you know $10.10 per hour is the “optimal” minimum wage and not  $9.95, $10.15, $10.50, $8.50, $12.50, $4.00, $0.00 or $85 per hour? Does $10.10 per hour accurately account for all of the costs (reduced employment opportunities) and benefits (higher wages for some) of that specific minimum wage, and are those net benefits greater than all other possible minimum wages?

The very fact that minimum wages are ultimately completely arbitrary, and not based on any convincing, sound economic analysis, means they cannot really be taken seriously. Or at the very least, because they are mandated price controls that deviate from market-determined wages, artificially-determined minimum wages have to be distortionary.

2. Let’s suspend economic reality for a moment and assume that politicians (and some economists) can determine some optimal federal minimum wage, e.g. $10.10 per hour, that will universally apply to all 50 states and the thousands of cities within those. How can that federally-mandated minimum wage be the “correct” or “optimal” minimum wage for every labor market in all 50 states? Because of the wide variation in the cost of living across the United States, there is no way that a single minimum wage can possibly be optimal in every labor market in the country.

For example, the table above shows what the minimum wage should be in various cities around the country to be equivalent on a cost-of-living basis to a $10.10 per hour minimum wage in Des Moines (using BankRate’s cost of living calculator). The minimum wage would have to be almost $18 per hour in San Francisco and almost $25 per hour in New York City to afford a low-skilled worker in those cities the same standard of living as $10.10 per hour in Des Moines. Surely, a federally-mandated “optimal” minimum wage of $10.10 per hour can’t possibly be optimal for all cities in America, which vary widely in housing costs and other costs of living.

Bottom Line 2: Not only is a minimum wage of $10.10 per hour completely arbitrary, but it is completely meaningless because it’s not adjusted for the wide divergence in the cost of living around the country. Of course, many states have mandated minimum wages above the federal minimum wage, like New York (currently $8.00 per hour), but how can that be optimal and consistent for the entire state and every regional labor market?

Challenge: Even proponents of the minimum wage would have to admit that regional differences in cost of living and labor market conditions will mean that $10.10 per hour will be too high in some areas and too low in other areas, making it either meaningless or distortionary. In that case, if proponents of the minimum wage can somehow determine that $10.10 per hour is the “correct” or “optimal” minimum wage for the country on average, shouldn’t they further support thousands of individual minimum wages across the country that vary by city, based on differences in the cost of living and the unique supply/demand conditions in each labor market? That is, a single “optimal” minimum wage of $10.10 per hour can’t possibly be “optimal” for every market and is therefore ineffective unless adjusted on a city-by-city basis across the country.

Update: The table above now shows the minimum wage of $10.10 per hour adjusted for the cost of living relative to: a) Des Moines in the middle column as in the original post and c) New York City in the new column on the rights. Thanks to Warren Meyer (Coyote Blog) for his suggestion in an email:

I don’t think it is compelling to say that a minimum wage of $10.10 that might be right in Des Moines is too low for NYC due to cost of living. I would have written it the other way – a minimum wage that might seem OK to policymakers sitting in New York or Washington is way too high in Des Moines. I think this is more compelling because the problem of a price floor is not too bad if the floor is set too low, only if the floor is set too high. So what will seem like an appropriate minimum wage to east coast policy makers will look 2.5 times larger in the interior — which adds an interesting political dimension as it implies that most of the unemployment effect would be concentrated outside of the coasts and large urban areas, i.e. in red states."

Why Kerry Is Flat Wrong on Climate Change

It was the scientific skeptics who bucked the 'consensus' and said the Earth was round.

Click here to read the WSJ article. By Richard McNider And John Christy, 2-20-14. Messrs. McNider and Christy are professors of atmospheric science at the University of Alabama in Huntsville and fellows of the American Meteorological Society. Mr. Christy was a member of the Intergovernmental Panel on Climate Change that shared the 2007 Nobel Peace Prize with former Vice President Al Gore. Mr. Christy was a member of the Intergovernmental Panel on Climate Change that shared the 2007 Nobel Peace Prize with Vice President Al Gore. Excerpts:

"The rate of warming forecast by these models depends on many assumptions and engineering to replicate a complex world in tractable terms, such as how water vapor and clouds will react to the direct heat added by carbon dioxide or the rate of heat uptake, or absorption, by the oceans.

We might forgive these modelers if their forecasts had not been so consistently and spectacularly wrong. From the beginning of climate modeling in the 1980s, these forecasts have, on average, always overstated the degree to which the Earth is warming compared with what we see in the real climate.

For instance, in 1994 we published an article in the journal Nature showing that the actual global temperature trend was "one-quarter of the magnitude of climate model results." As the nearby graph shows, the disparity between the predicted temperature increases and real-world evidence has only grown in the past 20 years."

"The models mostly miss warming in the deep atmosphere—from the Earth's surface to 75,000 feet—which is supposed to be one of the real signals of warming caused by carbon dioxide. Here, the consensus ignores the reality of temperature observations of the deep atmosphere collected by satellites and balloons, which have continually shown less than half of the warming shown in the average model forecasts.

The climate-change-consensus community points to such indirect evidence of warming as glaciers melting, coral being bleached, more droughts and stronger storms. Yet observations show that the warming of the deep atmosphere (the fundamental sign of carbon-dioxide-caused climate change, which is supposedly behind these natural phenomena) is not occurring at an alarming rate: Instruments aboard NASA and National Oceanic and Atmospheric Association satellites put the Mid-Tropospheric warming rate since late 1978 at about 0.7 degrees Celsius, or 1.3 degrees Fahrenheit, per 100 years. For the same period, the models on average give 2.1 degrees Celsius, or 3.8 degrees Fahrenheit, per 100 years (see graph).

The models also fail to get details of the past climate right. For example, most of the observed warming over land in the past century occurred at night. The same models used to predict future warming models showed day and night warming over the last century at nearly the same rates.

Past models also missed the dramatic recent warming found in observations in the Arctic. With this information as hindsight, the latest, adjusted set of climate models did manage to show more warming in the Arctic. But the tweaking resulted in too-warm predictions—disproved by real-world evidence—for the rest of the planet compared with earlier models."

The Truth About the 'One Percent'

The typical 'rich' person works for a salary. Only 18% are in the financial industry.

Article by James Piereson. WSJ, 2-18-14. Excerpts:

"This crusade is based on three questionable claims. One is that the wealthy are mostly Wall Street bankers benefitting from rising stock and real estate prices, or executives who pay themselves extravagant salaries. Another claim is that such people unfairly benefit from a system that taxes capital gains at half the highest marginal rate paid by those who earn salaries and wages. Then there is the assertion that the "super rich" have abundant funds that can be taxed to improve the living standards of everyone else. 

All of these claims are false."

"the top 1% received 15% of the national household income (before taxes) in 2010, up from 9% in 1980. A taxpayer needed a taxable income of $307,000 to enter the top 1%, a figure that hardly qualifies as "rich" today, especially in cities like New York, Chicago, Los Angeles or San Francisco"

"the top 1% consists primarily of salaried executives at nonfinancial businesses (30%) and secondarily of doctors (14%), people working in finance (13%) and lawyers (8%). Among the "super rich" in the top 0.1% (about 110,000 households), the distribution still favors business executives (41%) over people in finance (18%)"

"there were approximately 330,000 salaried non-financial executives in the top 1% and some 45,000 in the top 0.1%."

"The vast majority must have earned their salaries in small- and medium-size businesses—not in the largest firms and definitely not in finance."

"The top 1%, and especially the top 0.1%, also includes a growing number of professional athletes"

"Scores of college football or basketball coaches, like Nick Saban and Mike Krzyzewski, earn annual salaries in excess of $2 million."

"The top earners depend heavily on salaries. In 2010 the top 1% earned 36% of their incomes from salaries and wages (what the CBO calls labor income), 22% from businesses, farms and partnerships, and just 19% from capital gains. The majority of their income would thus be taxed today either at the corporate or the highest marginal rate rather than at the lower capital-gains rate of 23.8%."

"The typical "rich" person today is someone who works for a salary and accumulates stocks and bonds through savings,"

"From 1980 to 2010, as the top 1% increased their share of total before-tax income to 15% from 9%, their share of the individual income tax soared to 39% of the total paid, up from 17%."

"in 2010 the federal government raised approximately $900 billion from the individual income tax, of which about $350 billion (39%) was paid by the top 1% of income earners"

"The shift in incomes in favor of the wealthy has been due to several large forces, including a world-wide boom in asset prices, the rise of global markets, and technological innovation that has increased the earning power of the well educated. These have been positive—not negative—forces that have elevated living standards around the globe."

Minimum wage hikes are accelerating the trend toward automation—and fewer workers—in services.

See The Employee of the Month Has a Battery by Michael Saltsman, WSJ, 1-29-14.

"Steady federal and state increases to the minimum wage have forced employers in retail and service industries to rely on technology as the government makes entry-level labor more expensive"

"Self-service soda machines, available at fast-food restaurants since at least the late 1970s, were a labor-saving device. Even coffee carafes left on the table for customers to serve themselves allowed restaurants to reduce the staff needed to fill cups. More recently, major restaurant chains such as Bob Evans and Chili's have updated their service model to eliminate bus boys, relying on servers to clear tables themselves."

"At some Target and Macy's locations, customers can check their own prices, as well as check themselves out at self-service kiosks after shopping. The Bureau of Labor Statistics reported in 2012 that the number of these establishments has grown by 23% over the last 10 years, while total employment at the firms has fallen by 6%."

"computerized menus as the top tech trend for 2014. Airports in locations like New York City and Minneapolis now feature "restaurants" that are waitstaff-free. In 2011, McDonald's announced it was replacing human cashiers with touch-screen alternatives at more than 7,000 European locations."

"Profit margins in restaurants range from 3%-6%. They are even more modest at grocery stores, at 1%-2%."

"Companies must choose between increasing prices or reducing costs to maintain limited profit margins."

"And in localities such as Seattle and San Francisco, $15 an hour—which translates to an entry-level wage of $30,000 a year—is being seriously entertained. The small airport town of SeaTac in Washington already passed a $15 an hour minimum wage in November. It is not surprising that companies are urgently seeking labor savings that don't dramatically alter the customer's experience."

"But the flip-side of more efficiency is a 20%-25% drop in the number of waitstaff necessary to run a restaurant."

"unemployment for young adults age 16-19 has hovered above 20% for more than five years."

" San Francisco-based Momentum Machines has a burger-flipping robot that replaces three full-time kitchen staff, makes no wage demands and stages no walkouts."

Union Leaders Worry That Obamacare Might Hurt Living Standards For Middle-Income And Low-Wage Workers

See Notable & Quotable: Unions Turn on ObamaCare: Unite Here and the Laborers' International Union of North America write about their disappointment in ObamaCare. From WSJ, 1-31-14.

"From a Jan. 27 letter to Sen. Harry Reid and Rep. Nancy Pelosi from Terry O'Sullivan, general president of the Laborers' International Union of North America, and D. Taylor, general president of the Unite Here labor union:
 

Once we realized the [Affordable Care Act] would not let us keep the health care we had, we spent three years presenting the Administration with reasonable fixes to the ACA's problems. All of them were rejected and the proposed regulations [regarding multi-employer health and welfare trust fund and other self-funded plans] offer virtually no assistance toward any of these solutions.

We were bitterly disappointed upon reading the proposed regulations put forward by the Administration. If the Administration honestly thinks that these proposed rules are responsive to our concerns, they were not listening or they simply did not care. We have examined various health exchanges and should members be forced to purchase insurance on an exchange, their out of pocket costs are likely to be significant, reaching into the thousands of dollars even if they are eligible for a subsidy under the act. It would be a sad irony indeed if the signature legislative accomplishment of an Administration committed to reducing income inequality cut living standards for middle-income and low-wage workers."

ObamaCare's New Theory of Employment

The amazing defense of job losses caused by the Affordable Care Act.

WSJ editorial, 2-6-14. Excerpts:

"some of the giddier liberals even extol ObamaCare for "liberating" workers from the adult responsibility of earning a living.

Supposedly this shrinking labor force development is great news because "this is a choice on the part of workers," as White House chief economist Jason Furman put it. If businesses shed jobs in response to ObamaCare, he said, that would be bad because people who wanted work would have a harder time finding it.

But CBO's lost workers are splendid, Mr. Furman argued, because it means they will simply be making a rational decision to drop out or cut back, and "that, in their case, might be a better choice and a better option than what they had before." Liberals cite the 60-year-old who can retire early before qualifying for Medicare or the second-income spouse who quits to spend time with her kids."

"For years liberals have lamented the jobs crisis and underemployment to castigate Republicans as mean-spirited for opposing more "stimulus" and more weeks of unemployment benefits."

"The 2.5 million worker ObamaCare job exodus, CBO estimates, translates into a 1.5% to 2% reduction in the total number of hours worked, which means less growth."

"Mr. Furman cited the phenomenon known as "job lock," in which people don't switch employers or start their own business to preserve fringe benefits. But job lock is really about employment flexibility, rather than the government extending subsidies so people don't need or want jobs."

Fewer than 2 million signed up for Medicaid under the health law, report says

From AP, 2-6-14. Excerpts:

"Between 1 million and 2 million Americans signed up for Medicaid last year because of the health-care law, according to a new report suggesting that many of the people who have joined the program since the initiative’s rollout in October would have done so absent the law.

The Obama administration has said that 6.3 million people were determined to be eligible for Medicaid between October and December. But the study, from health-care industry consulting firm Avalere Health, suggests that only a fraction of the enrollments are strictly the result of the health-care law"

Marriage And Poverty

See Can Marriage Cure Poverty? by Annie Lowrey, NY Times magazine, 2-9-14. Excerpts:

"Almost no marriages in which both partners work full time fall below the poverty line; about one-third of households headed by a single mother are poor. One in eight children with two married parents lives below the poverty line; five in 10 living with a single mother do. And income aside, children raised by two parents are less likely to have behavioral problems, be asthmatic or hungry; they are more likely to achieve at school and so on. The effects are perhaps even larger than researchers had previously grasped. In a new study, the economist Raj Chetty and his co-authors found that, in terms of income mobility, nothing matters more for a low-income child than the family structures she sees in her community — not neighborhood segregation, school quality or a host of other factors."

"about four in 10 children are born to an unmarried mother."

"Some of the government’s programs seem to have had an effect on the low-income folks they targeted: Couples who participated in an Oklahoma initiative called Family Expectations were about 20 percent more likely to stay together for three years than couples in a control group, for instance. But over all, Uncle Sam tends to make a poor Cupid. The preponderance of evidence is that Washington instead has, over the years, wasted hundreds of millions of dollars on relationship counseling"

"Imagine a working husband making $25,000 a year whose wife decides to take a job for $25,000 a year. Melissa S. Kearney, the director of the Hamilton Project at the Brookings Institution, and a co-author have estimated that the couple would keep only about 30 percent of the wife’s earnings, after you factor in the loss of breaks like the earned-income tax credit."

The CBO On Minimum-Wage Studies

From Don Boudreaux of Cafe Hayek.

"EconLog’s David Henderson has read carefully – in a way that I have yet to do – the Congressional Budget Office study that predicts employment losses for low-skilled workers (only teenagers?) if the national minimum wage in the U.S. is raised.  David highlights the following passage from the CBO’s explanation of its method – a method that included a survey of the existing empirical literature on the effect that minimum-wage legislation has (or doesn’t have) on the number of jobs available to low-skilled workers:

Second, CBO considered the role of publication bias in its analysis. Academic journals tend to publish studies whose reported effects can be distinguished from no effect with a sufficient degree of statistical precision. According to some analyses of the minimum-wage literature, an unexpectedly large number of studies report a negative effect on employment with a degree of precision just above conventional thresholds for publication. That would suggest that journals’ failure to publish studies finding weak effects of minimum-wage changes on employment may have led to a published literature skewed toward stronger effects. CBO therefore located its range of plausible elasticities slightly closer to zero–that is, indicating a weaker effect on employment–than it would have otherwise. (p.22)

As David says, clever.

If I understand correctly what’s going on here, it’s not obvious to me that publication bias for minimum-wage studies runs the way the CBO assumes.  Remember, the standard prediction in economics – the prediction that jumps out most obviously from familiar, textbook supply-and-demand analysis – is that raising the minimum wage reduces the number of jobs available to low-skilled workers.  Empirical studies that find negative employment effects of hikes in the minimum wage are a cause for yawning; in contrast, studies that find no or only small negative effects on employment seem exotic and counter-intuitive (to most professional economists, at least).  If there is publication bias, therefore, these latter studies are more likely to be published in over-large numbers than are the former.

So quite plausibly, any publication bias runs in the direction opposite to that which is assumed by the CBO.  In other words, it makes more sense to assume that the published papers on the employment effects of minimum-wage legislation are biased in favor of those papers that find no or only weak effects of the minimum wage on the employment prospects of low-skilled workers.

The CBO study, in short, seems to give undue weight to the ‘no- or small-effect papers’ and, hence, too little weight to the papers whose findings are more in line with standard supply-and-demand analysis.  If I am correct, then the negative effects on employment of minimum-wage legislation are likely even greater than those predicted by the CBO."

Floods and gales in the UK are not evidence of climate change

See The sceptics are right. Don't scapegoat them by Matt Ridley. Excerpts:

"Mr Miliband says: “This winter is a one-in-250-year event” (yet it’s nothing like as wet as 1929-30 if you count the whole of England and Wales, let alone Britain) and that “the science is clear”. The chief scientist of the Met Office, Dame Julia Slingo, tells us “all the evidence” suggests that climate change is contributing to this winter’s wetness. (Why, then, did she allow the Met Office to forecast in November that a dry winter was almost twice as likely as a wet winter?) Lord Stern, an economist, claimed that the recent weather is evidence “we are already experiencing the impact of climate change”"

"All three are choosing to disagree with the IPCC consensus. Here’s what the IPCC’s latest report actually says:

“There continues to be a lack of evidence and thus low confidence regarding the sign of trend in the magnitude and/or frequency of floods on a global scale.”

Here’s what a paper published by 17 senior IPCC scientists from five different countries said last month:

“It has not been possible to attribute rain-generated peak streamflow trends to anthropogenic climate change over the past several decades.”

They go on to say that blaming climate change is a politician’s cheap excuse for far more relevant factors such as “what we do on or to the landscape” — building on flood plains, farm drainage etc.

As for recent gales caused by a stuck jetstream, Dr Mat Collins, of Exeter University, an IPCC co-ordinating lead author, has revealed that the IPCC discussed whether changes to the jetstream could be linked to greenhouse gases and decided they could not. “There is no evidence that global warming can cause the jetstream to get stuck in the way it has this winter,” he says, in a statement that raises questions about Dame Julia’s credibility.

In 2012, the Met Office agreed:

“There continues to be little evidence that the recent increase in storminess over the UK is related to man-made climate change.”

"That consensus, by the way, has never said that climate change will necessarily be dangerous. The oft-quoted 97 per cent agreement among scientists refers to the statement that man-made climate change happens, not to future projections [and anyway it has been comprehensively discredited and described as infamous by a prominent climate scientist]. No climate change sceptic that I know “denies” climate change, or even human contributions to it. It’s a lazy and unpleasant slur to say that they do.

Sceptics say it is not happening fast enough to threaten more harm than the wasteful and regressive measures intended to combat it. So far they have been right. Over 30 years, global temperature has changed far more slowly than predicted in 95 per cent of the models, and has decelerated, not accelerated. When the sceptic David Whitehouse first pointed out the current 15 to 17-year standstill in global warming (after only 18 to 20 years of warming), he was ridiculed; now the science establishment admits the “pause” but claims to have some post-hoc explanations.

While the green lobby has prioritised decarbonisation, sceptics have persistently advocated government spending on adaptation, so as to grab the benefits of climate change but avoid the harm, and be ready for cooling as well if the sun goes into a funk. Yesterday Mr Miliband yet again prioritised carbon limits — cold comfort to those flooded from their homes. Huge sums have been spent on wind farms and bio-energy, with trivial impact on emissions. The money has come disproportionately from the fuel bills of poor people and gone disproportionately to rich people.

Given that there are about 25,000 excess winter deaths each year, adding 5 per cent to fuel bills kills far more people now than (possibly) adding 5 per cent to future rainfall totals ever would. If just a fraction of renewable energy subsidies sluiced towards wind farms by the climate secretaries Ed Miliband and Ed Davey had instead been put into flood defences, they would have done far more good."

"By 2007, the Met Office was boasting that its new computer could see a resumption of warming in the future:

"We are now using the system to predict changes out to 2014. By the end of this period, the global average temperature is expected to have risen by around 0.3 °C compared to 2004."

In fact, as of now, at the start of 2014, global temperatures are if anything slightly lower than in 2004. The pause continues. Attempts to explain it, using volcanoes, aerosols, natural cycles, missing Arctic heat and ocean absorption of heat have proliferated, but so far they are extremely unconvincing."

"...ocean temperature measurements completely contradict Matthew England's neat explanation for the warming hiatus." 

"as Worstall puts it:.

"We can go further as well. As My Lord Stern has pointed out (and as have eminences like Richard Tol, William Nordhaus, Greg Mankiw and, in fact, just about every economist who has bothered to look at the issue) the correct solution to the results that come from the IPCC is a carbon tax. Of some $80 per tonne CO2-e in fact according to Stern. And it's well known that UK emissions are around 500 million tonnes. And also that we already pay some swingeing amount of such Pigou Taxes: the fuel duty escalator alone now makes petrol a good 15p per litre more expensive than it should be under such a tax regime. And there are other such taxes that we pay, so much so that we are already, we lucky people here in the UK, paying a carbon tax sufficient to meet Lord Stern's target (which is, it should be noted, rather higher than what all the other economists recommend: we're not stinting ourselves in our approach to climate change).

We don't quite pay it on all the right things as yet, this is true, but the total amount being paid is about right. We just need to shift some of the taxation off some products and on to others."

Obamacare's Latest Surprise for Taxpayers?

Great post from Megan McArdle.

"Industry sources tell the Washington Examiner’s Susan Ferrechio that the Barack Obama administration is thinking of extending the Affordable Care Act's "risk corridors," the federal reimbursement program for health-insurance companies that lose money by participating in the newly created health-care exchanges. This is not the first time we’ve seen this idea floated, and frankly, believing that the administration is considering it is all too easy.

If you’re not familiar with the risk-corridor program, read what I’ve written in the past. Basically, there are three temporary risk-adjustment programs to help insurers transition into the new marketplaces. One of them -- a sort of reinsurance program, called the risk corridors, that offsets losses when claims are greater than 103 percent of projections and collects money from insurers whose claims are less than 97 percent of what they expected -- is not designed to be revenue-neutral. That means that if the insurance pool is a lot sicker than initially expected, the federal government could end up transferring a bunch of money to the insurance industry.

Because a lot of insurers seem to be saying that they’re going to lose money on their exchange policies this year, that’s a little worrying for the U.S. taxpayer.

But not that worrying, because the corridors are supposed to expire in three years. If it’s true that the administration is seriously considering extending them, that raises some disturbing possibilities:

• Most obviously, the administration (and insurers) believes the market for individual exchange policies is likely to be still having serious problems in 2017.
  
• The insurers have clearly been willing to lose money on these policies for a couple of years in order to help the exchanges get established. But with the rollout difficulties and the somewhat underwhelming enrollment numbers, they may be threatening to bolt unless they get some guarantee that they can sell policies people will actually be willing to buy.
  
• A risk-corridor extension would help keep the price of policies down by funneling a backdoor subsidy to the insurers. However, it would not keep the cost down -- indeed, it could have the opposite effect. With the administration subsidizing the lion’s share of any losses, the incentives to control costs would be dramatically weakened.
  
• With health-care cost growth already running well above inflation in most years, this could be quite expensive. Basically, the administration would be violating all the promises that were made about deficit reduction and cost control in a desperate bid to keep insurers on the exchanges.
  

It’s hard to see how they can do this legally, as the text of the statute seems quite clear: “IN GENERAL.—The Secretary shall establish and administer a program of risk corridors for calendar years 2014, 2015, and 2016 under which a qualified health plan offered in the individual or small group market shall participate in a payment adjustment system based on the ratio of the allowable costs of the plan to the plan’s aggregate premiums.” This doesn’t seem to leave much room for the Department of Health and Human Services to issue a rule extending the program unless it declares that for the purposes of the law, 2017 and years beyond will be considered to actually be happening in 2016.

Of course, the administration has gotten creative before, so don’t count it out. But if it does extend the program, it is basically confessing two things: It thinks the law is whatever it says it is, and it never really cared how much the program cost."

The combination of a minimum wage hike with Obamacare’s employer fines could boost hourly compensation by 70%

From Mark Perry of "Carpe Diem."

Jed Graham makes the following point in a recent IBD article (“ObamaCare Magnifies Minimum Wage Job Losses“): Proponents of a higher minimum-wage hike have ignored its potential interaction with ObamaCare’s employer mandate. The result combining a large minimum-wage hike with ObamaCare’s employer mandate? A whopping 70% increase in hourly compensation for low-skilled workers, which could mean that low-wage workers will face big cuts in jobs, hours, and income, here are some details:

The Congressional Budget Office weighed in on President Obama’s proposed $10.10-an-hour minimum wage, saying it could lead to job losses that range from “very slight” to “1 million.”

But in a footnote, the nonpartisan number cruncher explained that near-term job loss may be higher because its analysis didn’t factor in the new ObamaCare costs imposed on employers

“At the same time that the proposed increases in the minimum wage would take effect, the Affordable Care Act’s requirement that many employers provide health insurance (or pay a penalty if they do not) will impose an additional cost on employers for some low-wage workers who do not currently have employment-based health insurance,” the CBO said.

Over time, the CBO expects that the cost of complying with ObamaCare’s employer mandate “will ultimately be borne by (low-wage) workers through lower wages.” But in the near term, ObamaCare’s extra cost “boosts the likelihood that employers’ savings from reducing the size of their workforces would exceed their adjustment costs,” such as installing labor-saving equipment, the budget agency said.

There has been little study of minimum-wage hikes of the scale proposed (39% from the current $7.25 an hour). In analyzing a smaller increase to $9 an hour, the CBO projected little job impact, from a slight gain to as many as 200,000 jobs lost.

Proponents of a large minimum-wage hike have ignored its potential interaction with ObamaCare’s employer mandate, which the CBO suggested may result in a bigger near-term job loss than a wage hike by itself

Firms that do offer coverage, even of the skimpy variety, would face a fine of $3,000 per full-time worker who receives exchange subsidies. This penalty is nondeductible, so for profitable retailers facing a 39.2% federal and state tax rate the fine would equate to $4,930 in wages. That comes to $2.37 an hour for a 40-hour-per-week, year-round worker.

Coming on top of a federal minimum-wage hike of $2.85 an hour, ObamaCare fines could mean a 70% increase in compensation costs for a low-wage worker (see chart above).

With a $10.10 hourly minimum wage, full-timers would earn 175% of the individual poverty level in 2016, making many eligible for exchange tax credits (and exposing their employers to potential fines). Whether workers in larger households would be eligible for Medicaid coverage (which doesn’t carry a fine) would depend on family size and other income

In its recent budget outlook, the CBO noted that ObamaCare’s mandate “will initially reduce employers’ demand for labor and thereby tend to lower employment.

“Some employers will respond to the penalty by hiring fewer people at or just above the minimum wage — an effect that would be similar to the impact of raising the minimum wage for those companies’ employees.”

Yet the employer mandate is quite different than a minimum-wage hike because it is to a large extent voluntary: Companies can avoid it by cutting workers to just below 30 hours per week, ObamaCare’s full-time threshold.

The combination of a big minimum-wage hike and ObamaCare’s mandate is likely to result in more low-wage workers losing work hours and income. While much or all of that income might be replaced by a higher wage, with some coming out better off, ObamaCare’s employer mandate would complicate the goal of reducing inequality by lifting up low-wage workers."

Scott Sumner Criticizes The Aministration's Stimulus Report

From EconLog.

"The Administration has released a report defending the ARRA program, and it's every bit as embarrassing as you might expect. Where to begin . . .

1. The report seems to ignore the fact that fiscal stimulus failed to produce the effects the administration claimed it would produce. Now I'm willing to cut them some slack on that point, as ceteris is never paribus. They claimed that the recession turned out to be more severe than they expected, although to be honest it was very clear by early 2009 when Obama took office that the recession was extremely severe. But let's give them the benefit of the doubt.

2. In 2013 the Federal government switched to a policy of fiscal austerity, which should have slowed growth. Instead growth in 2013 accelerated. This time there was no "the recession of 2009 was deeper than we thought" excuse. The fiscal multiplier model simply failed.

3. Instead of comparing actual to predicted results, they have lots of graphs showing the success of fiscal stimulus based on models of the economy that simply assume the policy was successful. How is that supposed to convince anyone?

4. These models are defended with a very inadequate discussion of the theoretical and empirical research that underpins the multiplier model. Let's start with by far the biggest problem, monetary offset. They correctly point out that there are new Keynesian models that show a fiscal multiplier can work when monetary policy is constrained by the zero bound. But those models assume the Fed does not engage in unconventional stimulus such as QE and forward guidance. In fact, the Fed does both, which makes those NK models completely inappropriate for evaluating fiscal stimulus in the US. They also ignore international evidence of the failure of fiscal stimulus at the zero bound, such as the Japanese fiscal stimulus of the 1990s and 2000s

5. They cite studies of fiscal stimulus using wartime spending, which is of little applicability to this crisis. These models are based on the notion that people work harder when military spending depresses consumption. Military spending during WWII did boost RGDP, but also depressed consumption and living standards (recall the Great Depression was basically over by early December 1941, before Pearl Harbor.) In contrast, only about 18% of ARRA plus subsequent stimulus was in the form of public investment, it was mostly tax cuts and transfers. Military spending declined. Given monetary offset, there's no reason to assume that tax cuts had much demand-side effect. And they failed to do the sorts of tax cuts that might have boosted the supply side, such as the employer-side payroll tax cut that Christina Romer recommended

6. If it's really true (as they claim) that fiscal stimulus was needed in 2009 because monetary policy was constrained by the zero bound, why didn't Obama appoint some people to the Fed in 2009 who would adopt Paul Krugman-style unconventional stimulus, such as the forward guidance that was eventually adopted in late 2012? After all, the Dems had a filibuster-proof majority in 2009. I think we all know the answer. Larry Summers says he prefers fiscal to monetary stimulus, even where monetary stimulus is possible. Indeed Summers is so pro-fiscal that progressive blogger Matt Yglesias once characterized his views as "socialist." (Yes, I'm sure Matt was half joking, but there has to be some truth in any joke.) The report suggests fiscal stimulus was needed to save the economy, whereas it was actually adopted for ideological reasons. Obama has not adopted a far left set of public policies. But his actual views (as far as I can tell) are left wing on almost every single economic issue. He's smart enough to know he rules over one of the most conservative developed economies, and hence is cautious in his policy initiatives. But make no mistake about it, he'll use any and all opportunities to expand government, and he'll never try to scale it back in any important way. He's not a Clinton.

7. The report also discusses cross-sectional studies of the effect of fiscal stimulus, despite the fact that cross sectional studies tell us nothing about the aggregate fiscal multiplier. Even if it were zero at the national level, building a billion dollar air force base in Fargo would boost Fargo's GDP. Everyone agrees on that. While the report does acknowledge the monetary offset issue at the state level, they go on to discuss data from eurozone countries that seems to ignore the monetary offset issue with cross-sectional studies within a single currency. Mark Sadowski re-estimated the effect for countries with independent monetary policies, and found little impact. The report seems to have been written by people living within the liberal Keynesian echo chamber, who have little knowledge of important criticisms of the fiscal multiplier model.

8. The report brushes aside any concern about the effect of UI insurance on the unemployment rate. Admittedly we don't have conclusive evidence in this area, but most of the studies I've seen (including studies cited by Brad DeLong) point to effects on the order of 1/2%. Not huge, but not trivial either.

9. There are widely implausible estimates of the impact of ARRA on GDP:

Despite the differences in the models, these private-sector forecasters all estimated that the Recovery Act would raise GDP substantially from 2009 to 2011, including a boost to GDP of between 2.0 and 3.4 percent in 2010.

Any private sector forecaster who thinks the Fed would have allowed 2010 GDP to be about 2.7% less than it actually turned out to be needs to have their forecasting license revoked, that estimate is an insult to Ben Bernanke. He was not about to preside over another depression. Bernanke would have instituted price level targeting long before that outcome materialized. People working in this area need to have common sense about plausible outcomes, otherwise nothing they say will be taken seriously. Again, look at some of the absurd NK predictions as to how the 2013 austerity would impact 2013 GDP growth. Here's what the report says about 2013:

Second, the economy has encountered a long list of additional headwinds in recent years. . . . It includes fiscal austerity at the State and local level that intensified as the Recovery Act began to phase out and has cost hundreds of thousands of additional job losses even during the expansion period. And it includes measures like the sequester which CBO estimated took 0.6 percentage point off growth in 2013, the 16-day government shutdown which the Bureau of Economic Analysis (BEA) estimated directly subtracted 0.3 percentage point from growth in the fourth quarter, and dangerous brinksmanship around the debt limit in 2011 and 2013.

They forgot to mention to big payroll tax increase, or the income tax increases, both occurred at the beginning of 2013. Quite a fiscal drag (the Economist magazine estimated the effect at 1.9% of GDP, even without the shutdown), and yet RGDP growth accelerates from 1.95% in 2012 to 2.7% in 2013. Nor is there a discussion of the fact that fiscal austerity in the U.S. was slightly greater than in the eurozone in recent years. Yet the US economy did far better, solely due to the greater willingness of the Fed to do monetary offset. 

 

10. Elsewhere they suggest that ARRA might have actually reduced the national debt. I guess "voodoo economics" is OK if done by liberals. And note that the standard supply-side model does allow for Laffer-curve type effects, whereas the standard Keynesian model does not. That's right, even the absurd hydraulic 1960s Keynesian model does not allow for fiscal stimulus to reduce the debt. To get that result you must add on even more absurd assumptions.

I do understand that governments feel a need to defend whatever they have done. Bush still thinks the Iraq War was a success. So I expected a whitewash. But I thought they might at least be able to come up with some plausible arguments to counteract conservative criticism of the program. Unfortunately they've failed at even that modest goal. They don't even engage with their critics.
This is by far the weakest economic recovery in my lifetime.

PS. They even cite Bastiat in defense of the fiscal stimulus. Page 33; read it and weep.

HT Marcus Nunes"

Why We Can't Conclude that Obamacare Plus Subsidies are Good for Low-income People

From David Henderson of EconLog.

"All three factors can combine to make the value of the insurance policy well below its price. Let's say that the family values the insurance at $3,500. That family is worse off because it is paying $4,000 net of the subsidy. The family can do a little better if one family member works less in order to increase the subsidy. But we cannot, like Krugman and Blinder, naively conclude from the fact that a family member chooses to work less that the family is definitely better off. All we know is that the government dealt the family a hand that could be very bad. The family has no choice but to play the hand it was dealt. By working less, the family makes the hand less bad. But we can't say for sure that the hand is good.

This is the concluding paragraph of my article, "Obamacare's 'Disincentive' Scheme," Defining Ideas, February 18, 2014. Check out my Trabant analogy."

New York Times Reports Evidence Against Monopsony Power

From Don Boudreaux of Cafe Hayek.

"Here’s a letter to the New York Times:

You report that higher minimum-wage rates in Oregon, Washington State, and Nevada prompt many Idahoans to quit jobs in their home state in order to take higher-wage jobs in these nearby states – jobs that these low-wage workers living in Idaho drive long distances to perform (“Crossing Borders and Changing Lives, Lured by Higher State Minimum Wages,” Feb. 16).  Despite failing to ask if Oregonian, Washingtonian, and Nevadan workers with even fewer skills are displaced by the migrating Idahoans, your report nevertheless offers strong evidence that the most analytically sophisticated economic theory used to justify minimum-wage legislation does not apply in reality.

That theory requires that employers have ‘monopsony power’ over their low-skilled workers.  If monopsony power exists, workers are stuck in their current jobs.  Employers can then keep wages artificially low without causing their workers to quit.  And yet as you report, not only do many low-skilled workers quit lower-paying jobs for higher-paying ones, they do so even if those higher-paying jobs are located many miles away.
This fact is powerful evidence that monopsony power does not infect labor markets – and, hence, that the economic theory used to argue that minimum-wage legislation does not much reduce employment is far weaker than its enthusiasts suppose it to be.
Sincerely,

Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030​

Note also the following passage from this NYT report (bold added) – a passage that reveals that employers respond to mandated higher costs of employing workers not only by hiring fewer hours of work but also by adjusting on other margins, such as demanding harder work per hour from those workers who do remain employed:

Ms. Lynch’s story illustrates some of the competing narratives of the minimum wage debate. When she took her Oregon job last year, at an Irish-themed restaurant and bar called Mackey’s, she got more hours at higher pay, allowing her to compete in more barrel racing events, her rodeo specialty. Two months ago, she even bought a second horse, a gelding paint named Blue Duck.

But Mackey’s owners also told her that she would have to work harder than before for that money. Higher labor costs meant getting rid of the dishwasher, for one thing, said Angena Grove, who owns the restaurant with her husband, Shawn. And whereas Ms. Lynch covered three tables at a time in her old Idaho job, Mackey’s waitresses, with the owners helping out, cover five

“You work for the money,” Ms. Lynch said."

CBO on a Minimum-Wage Hike

From Greg Mankiw.

"From a new report:

Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers....The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold."

CEOs are paid for performance

Great post from Greg Mankiw.

"In response to my recent article, some commentators (like this one) are prone to say, "Sure, actors, authors, and athletes deserve their good fortune, because they get paid well only if they produce, but hefty CEO pay is unfair because it is not based on performance."  Before you are tempted to make that argument, please make yourself familiar with the facts by reading this paper:

Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges
Steven N. Kaplan

Abstract:

In this paper, I consider the evidence for three common perceptions of U.S. public company CEO pay and corporate governance: (1) CEOs are overpaid and their pay keeps increasing; (2) CEOs are not paid for their performance; and (3) boards do not penalize CEOs for poor performance. While average CEO pay increased substantially through the 1990s, it has declined since then. CEO pay levels relative to other highly paid groups today are comparable to their average levels in the early 1990s although they remain above their long-term historical average. The ratio of large-company CEO pay to firm market value is roughly similar to its level in the late-1970s and lower than its pre-1960s levels. These patterns suggest that similar forces, likely technology and scale, have played a meaningful role in driving CEO pay and the pay of others with top incomes. With regard to performance, CEOs are paid for performance and penalized for poor performance. Finally, boards do monitor CEOs. The rate of CEO turnover has increased in the 2000s compared to the 1980s and 1990s, and is significantly tied to poor stock performance. While corporate governance failures and pay outliers as well as the very high average pay levels relative to the typical household undoubtedly have contributed to the common perceptions, a meaningful part of CEO pay appears to be market determined and boards do appear to monitor their CEOs. Consistent with that, top executive pay policies at over 98% of S&P 500 and Russell 3000 companies received majority shareholder support in the Dodd-Frank mandated Say-On-Pay votes in 2011."

President Obama, this is your ‘energy moment’. From Mark Perry.

"Charles K. Ebinger is a self-described “lifelong democrat who voted for Obama twice” and director of the Energy Security Initiative at the Brookings Institution. He has joined a growing group of “those who are tired of protectionist policies that keep this nation from moving our energy strategy forward,” and he expressed his concerns about America’s energy boom in this letter to President Obama, here are some excerpts (with minor edits):

The United States is in the midst of an energy transformation in which our vast abundance of cheap natural gas and rising production of crude oil pose the opportunity for a manufacturing renaissance and a revitalization of the North American industrial base.

Our energy abundance has been spurred by the presence of competitive markets, the willingness of our entrepreneurs to take on risk, the availability of capital for those with pioneering technology and a vision of a future that challenges conventional wisdom of where oil and gas can be found. These developments have brought a historic opportunity to expand our economy, produce thousands of high paying jobs, reduce our balance of payments and add tax revenue to the federal treasury.

Yet groups such as America’s Energy Advantage continue with the chimera that exports of liquefied natural gas are injurious to our manufacturing resurgence and that the gas resource base is inadequate to both foster industrial expansion and export. This argument is misleading as well as out of date. In the last four years, the U.S. Department of Energy has raised its estimate of recoverable gas reserves by 34 percent as well as its forecast for 2035 production by more than 20 percent from the forecast it made just two years ago.
Upon examining the evidence, you have acknowledged that we may have 100 years of reserves at current production levels and that gas offers the opportunity to serve as a “bridge” to a cleaner energy future based on renewables. While I welcome your prescience, I would argue that rather than being a bridge, gas is the future. Given the quantity of gas that is being discovered around the world, it will be the future in many nations once shale gas development takes off in China, Algeria, Russia, Argentina, South Africa and elsewhere.

Mr. President, you have stated that your energy policy is “an all of the above” strategy, suggesting that all energy options are needed to insure the nation’s future well-being. Yet you have failed to show such balance. We can reduce national CO2 emissions by backing out coal in the power sector – as you have rightly promoted – and replacing diesel in the transportation sector (18-wheeler trucks, marine transportation and locomotives).
However, you have allowed your environmental constituency to guide your inaction on the issues of: expedited licensing of LNG projects; streamlining the permitting of oil and gas infrastructure needed to bring these new unconventional resources to market; making a decision on the Keystone XL pipeline despite five favorable environmental reviews; or using executive authority to lift the ban on U.S. crude oil exports.

While LNG exports represent the greatest opportunity, the current ban (with a few exceptions) on crude oil exports also needs to be reexamined, as current market conditions and policies based on assumptions about oil scarcity no longer reflect market realities. Here too, however, protectionist forces are already sharpening their knives to block exports under the mantra of “energy security.”

Mr. President, the opportunities afforded by the full development of our natural gas and crude oil resources need to be seized now, providing you a legacy for years to come. Mr. President, this is your energy moment!

MP: As Scott Lincicome pointed out at a Cato Institute event on Monday about oil and gas exports (see his slides here), there is a strong consensus emerging of energy experts affiliated with the following institutions who support oil and gas exports: American Enterprise Institute, Brookings Institution, Cato Institute, Columbia University Center on Global Energy Policy, Competitive Enterprise Institute, Council on Foreign Relations, Heritage Foundation, Heartland Foundation, Manhattan Institute, Marshall Institute, MIT Energy Initiative, Rice University James A. Baker III Institute, and University of Houston. According to Scott, there are only two organizations opposing increased energy exports: the Center for the American Progress and the Third Way. That’s an overwhelming 13-2 advantage in favor of institutions advocating increased exports of oil and gas."

Comments On The Comcast/Time Warner Merger Sound A Bit Like Those On The Time Warner/AOL Merger

See The Colonization Of The Internet by Salim Muwakkil, Chicago Tribune, Jan. 25, 2000.

"Although the Internet remains a realm of vibrant dynamism and creativity at its edges, it is being colonized rapidly by huge transnational corporations. That process was accelerated by the Jan. 10 announcement that AOL, the nation's largest Internet company, intended to acquire Time Warner, the world's leading media companies.

"... much of the news coverage focused on the gargantuan scope of the $165 billion transaction [this latest merger is just $45 billion]. And the story of the AOL-Time Warner hookup is newsworthy for that reason alone. It brings together the resources and expertise of a company with global holdings in all aspects of media and entertainment with one that has mastered the newfangled intricacies of the Internet, especially those of on-line commerce--the new Holy Grail."

"The headlong commercialization of the Internet threatens the promise of cyberspace as a leveling medium where even the quirkiest media voices can gain access to the public. If profit-hungry conglomerates become the net's primary gatekeepers, marketing products and services will have a much higher priority than maintaining open roads on the information superhighway. The media's increasing fixation on "e-commerce" reflects corporate America's growing preoccupation with its profit potential. Ominously, the narrowing range of ownership severely threatens the independence of those journalists who work for both the new and old media.

Potential for conflict of interest abounds in a media world in which The Washington Post and Newsweek have joined in "strategic alliances" with NBC, which is owned by General Electric. And when Microsoft Corp., helps pay the salaries of reporters for the all-news cable station MSNBC, or AOL helps capitalize CNN, how well can journalists in their employ report on news that may affect the bottom lines of these far-flung corporations.

Several media watchdog groups have warned that these media megamergers threaten democratic values and freedom of expression since only a handful of corporations are controlling both the content and delivery systems of information.

"The only thing certain at present is that the eventual course of the Internet will be determined by where the most money can be made, regardless of social and political implications," says Robert McChesney, professor of communications at the University of Illinois and author of the book, "Rich Media, Poor Democracy."

The AOL-Time Warner deal also threatens to hurt the struggle for "open-access" policies that would allow competing Internet service providers to offer their services over cable systems' high-speed connections, called "broadband." This method of transmission is as much as 100 times speedier than the fastest modems and can seamlessly deliver all manner of data--including text, audio, photographs, video, film--to various kinds of electronic devices.

Before its marriage to Time Warner, AOL was a leader in the fight for open access to broadband. The giant ISP's 20 million subscribers mostly are limited to the slow speeds and interminable waits that are a part of the Internet experience for modem users. So AOL joined a group called the OpenNet Coalition and fought to guarantee access to cable connections with broadband capacity, most of which are owned by telecommunications giant AT&T.

But with its purchase of Time Warner, the second largest cable operator in the country, AOL gained its own broadband capacity. Media activists are watching closely to see if AOL changes its tune now that it pays the piper.

The Internet is a computer-based system of communication created, nurtured and subsidized by the government for three decades before corporations figured out how to exploit it. American taxpayers provided the venture capital and assumed all the risks of incubation.

Now that the net has proven to be a commercial bonanza, the private sector has moved in with a vengeance and American citizens are left bemoaning the squandered opportunities for true media democracy."

This next excerpt was from PBS NEWSHOUR, Jan. 10, 2000. Excerpt:

"NORMAN SOLOMON: What I make of it is we have a continual mass media discussion, and in the last couple minutes I think have typified it, to discuss what is in it for Time Warner, what’s in it for AOL and relatively little discussion of what’s in it for the public.

I think primarily what’s in it for the public is a narrowing of choices under the illusion of having more diversity. I’m afraid that we may look back on January 2000 as the time when de facto, the World Wide Web became essentially the world narrow Web, which is counterintuitive because there’s all this talk today, all this smoke being blown about how AOL and Time Warner will create these multiplicity of choices through the new media.

The reality is, however, that these new media are being used to herd and goad and leverage the consumers, the media consumers into essentially cul-de-sacs where the links in these various new media are self-referential, not often labeled as such. People are going to be directed to and encouraged to go to various media products on the Internet and elsewhere under the guise of giving them a get deal of choice. I mean, we see that now with the corruption of more and more search engines and portals and so forth where it seems that, for instance, the 22 million people who already access the Internet through AOL in this country, it seems as though, hey, they’re free wheeling through what used to be called the information superhighway, now increasingly in the mass media is simply being looked at as avenues for e-commerce.

So, I think this is a tremendous blow for the potential for democracy in our society through genuine wide-ranging discourse. And we have not only in the newsgathering, news-dissemination business, but as Gerald Levin said a few hours ago, the cutting edge here is what is often called entertainment: And that as well has to do with what people feel their possibilities are. We’re essentially seeing the mass distribution of corporatization of consciousness, and this step today is a big stride down that very slippery and very dangerous road.

RAY SUAREZ: But weren’t these companies that were already doing essentially different things? They’re not apples merging with apples or oranges merging with oranges.

NORMAN SOLOMON: Well, there are reasons why they’ve merged — because they feel there’s a positive synergy. They can do a gardening process in different parts of the garden that will help each other to grow what they want to grow. And what they want to grow is profits. We heard one of these kingpins in the setup piece a few minutes ago talk about being trustees. Well, they are private trustees. They’re not public trustees. And let’s not forget the Internet was developed through enormous public subsidy, through taxpayer dollars. And yet now we’re in a situation where these mergers are being greeted with exclamations of, if not surprise, then at least, “Wow, this is amazing; this is humongous, $350 billion.”

But the very mass media they’re increasingly corporatized are not asking the fundamental questions about these mergers. And I think people who are sitting at home contemplating what this really portends need to look at demanding and need, in fact, to demand antitrust action because in lieu of that, this is going to be looked at as a horrendous, perhaps irreversible step, towards the concentration of media control in very, very few hands."

Here's What 'Income Equality' Would Look Like

Take about $4 trillion from the top 40% of families and give it to the bottom 60%—voilà, no more inequality.

WSJ article by Scott Hodge, 2-14-14. Excerpts:

"in 2006," the CBO found that those in the bottom fifth, or quintile, of the income scale received $9.62 in federal spending for every $1 they paid in federal taxes of all kinds"

" households in the top fifth received 17 cents in federal spending for every $1 they paid in all federal taxes"

"the middle class—also got more back from government than they paid in taxes. These households received $1.19 in government spending for every $1 they paid in federal taxes"

"federal tax-and-spending redistributed $1.2 trillion from the top 40% of households to their fellow Americans. Half of this amount benefited the bottom 60% of non-elderly households while the rest benefited seniors.

The Tax Foundation study, "The Distribution of Tax and Spending Policies in the United States," used postrecession 2012 data for all 150 million U.S. families (as opposed to households). It put the amount of federal redistribution from top earners at $1.5 trillion, with state and local governments redistributing another $500 billion. These results don't include the latest hike in top marginal tax rates to 39.6% from 35% or Affordable Care Act subsidies"

"the average market income for American families in 2012 was $81,600"

"A typical American family in the lower income quintile, on the other hand, has an average market income of $9,560 and gets $21,158 more in spending than they pay in taxes. Thus we would need to give them roughly $50,882 more in federal transfers to raise their overall income to the average market income of U.S. families. A family in the middle quintile has on average a market income of $56,885 and gets $7,376 more in spending than they pay in taxes"

" to raise their overall income to the U.S. market-income average, the government would need to give them $17,339 in transfer payments above what they are currently getting."

"Families in the fourth quintile have an average market income of $100,240 and pay $4,089 more in taxes than they receive in spending. Thus, we would need to take an additional $14,551 from these families to bring their market incomes down to the national average."

"Families in the top fifth have an average market income of $311,400 and pay $65,573 more in taxes than they receive in spending. Thus we would need to take an additional $164,227 from them in higher taxes to lower their market incomes to the national average."

"o guarantee everyone in America an average income, the federal government would have to take an additional $2.4 trillion in income from the top 40% of families—in one year. This would bring the total amount of income redistributed from the top to nearly $4 trillion."

"the current amount of redistribution already takes 21% of the top quintile's income. That would have to soar to 74% to make every family in America "average.""

A merged Comcast and TWC still has plenty of competition

See The Bigger Cable Guys, WSJ, 2-14-14. Excerpts:

"He's right, but unlike the markets for beer, air travel and wireless, cable companies don't compete with each other. They have local franchises and compete against telephone, wireless and satellite companies. So there's no market overlap between systems owned by Comcast and those of Time Warner Cable. Comcast, which is dominant in Philadelphia, will get millions of new customers in New York and Los Angeles. But how can dominance in one geographic region give Comcast new pricing power in a different area?

For both firms, the competition in broadband Internet connections comes from firms like AT&T T -1.02% and Verizon. VZ -1.69% In video programming the cable guys compete with those same firms, plus Dish Network, DISH -2.43% DirecTV, DTV -0.11% Netflix, NFLX -0.24% Google's GOOG +0.24% YouTube and various other online ventures seeking to provide video. In this arena cable operators, regardless of size, are hardly dominant. Comcast CEO Brian Roberts said on a call with reporters Thursday that every single cable operator has lost video customers over the last 10 years.

Another fear is that owning more cable pipes would give the combined firm more leverage in negotiations with the producers of TV and other content. But CBS, CBS +0.54% Disney DIS +1.71% and our former corporate cousins at Fox are big enough to take care of themselves. In any case Mr. Roberts has already promised to divest some three million cable subscribers, so the combined Comcast-TWC would still have 30 million subscribers or less than 30% of the cable market nationwide, about the same share it had a decade ago."

"The larger reality is that technology is disrupting the cable industry as it is so much else. Mr. Roberts says the merger will help consumers get higher broadband speeds and faster in-home Wi-Fi, and maybe he's right. But Comcast hasn't been the most nimble of competitors in innovating across the Internet, and in two or more years it could be outmaneuvered in the marketplace."