The only way to get dangerous global warming is to assume stagnation

See More growth, less warming by Matt Ridley.

"The debate over climate change is horribly polarized. From the way it is conducted, you would think that only two positions are possible: that the whole thing is a hoax or that catastrophe is inevitable. In fact there is room for lots of intermediate positions, including the view I hold, which is that man-made climate change is real but not likely to do much harm, let alone prove to be the greatest crisis facing humankind this century.

After more than 25 years reporting and commenting on this topic for various media organizations, and having started out alarmed, that’s where I have ended up. But it is not just I that hold this view. I share it with a very large international organization, sponsored by the United Nations and supported by virtually all the world’s governments: the Intergovernmental Panel on Climate Change (IPCC) itself.

The IPCC commissioned four different models of what might happen to the world economy, society and technology in the 21st century and what each would mean for the climate, given a certain assumption about the atmosphere’s “sensitivity” to carbon dioxide. Three of the models show a moderate, slow and mild warming, the hottest of which leaves the planet just 2 degrees Centigrade warmer than today in 2081-2100. The coolest comes out just 0.8 degrees warmer.

Now two degrees [above pre-indistrial levels] is the threshold at which warming starts to turn dangerous, according to the scientific consensus. That is to say, in three of the four scenarios considered by the IPCC, by the time my children’s children are elderly, the earth will still not have experienced any harmful warming, let alone catastrophe.

But what about the fourth scenario? This is known as RCP8.5, and it produces 3.5 degrees of warming in 2081-2100 [or 4.3 degrees above pre-industrial levels]. Curious to know what assumptions lay behind this model, I decided to look up the original paper describing the creation of this scenario. Frankly, I was gobsmacked. It is a world that is very, very implausible.

For a start, this is a world of “continuously increasing global population” so that there are 12 billion on the planet. This is more than a billion more than the United Nations expects, and flies in the face of the fact that the world population growth rate has been falling for 50 years and is on course to reach zero – i.e., stable population – in around 2070. More people mean more emissions.

Second, the world is assumed in the RCP8.5 scenario to be burning an astonishing 10 times as much coal as today, producing 50% of its primary energy from coal, compared with about 30% today. Indeed, because oil is assumed to have become scarce, a lot of liquid fuel would then be derived from coal. Nuclear and renewable technologies contribute little, because of a “slow pace of innovation” and hence “fossil fuel technologies continue to dominate the primary energy portfolio over the entire time horizon of the RCP8.5 scenario.” Energy efficiency has improved very little.

These are highly unlikely assumptions. With abundant natural gas displacing coal on a huge scale in the United States today, with the price of solar power plummeting, with nuclear power experiencing a revival, with gigantic methane-hydrate gas resources being discovered on the seabed, with energy efficiency rocketing upwards, and with population growth rates continuing to fall fast in virtually every country in the world, the one thing we can say about RCP8.5 is that it is very, very implausible.

Notice, however, that even so, it is not a world of catastrophic pain. The per capita income of the average human being in 2100 is three times what it is now. Poverty would be history. So it’s hardly Armageddon.

But there’s an even more startling fact. We now have many different studies of climate sensitivity based on observational data and they all converge on the conclusion that it is much lower than assumed by the IPCC in these models. It has to be, otherwise global temperatures would have risen much faster than they have over the past 50 years.  As Ross McKitrick noted on this page earlier this week, temperatures have not risen at all now for more than 17 years. With these much more realistic estimates of sensitivity (known as “transient climate response”), even RCP8.5 cannot produce dangerous warming. It manages just 2.1C of warming by 2081-2100 [see table 3 in the report by Lewis and Crok here]

That is to say, even if you pile crazy assumption upon crazy assumption till you have an edifice of vanishingly small probability, you cannot even manage to make climate change cause minor damage in the time of our grandchildren, let alone catastrophe. That’s not me saying this – it’s the IPCC itself.

But what strikes me as truly fascinating about these scenarios is that they tell us that globalization, innovation and economic growth are unambiguously good for the environment. At the other end of the scale from RCP8.5 is a much more cheerful scenario called RCP2.6. In this happy world, climate change is not a problem at all in 2100, because carbon dioxide emissions have plummeted thanks to the rapid development of cheap nuclear and solar, plus a surge in energy efficiency.

The RCP2.6 world is much, much richer. The average person has an income about 16 times today’s in real terms, so that most people are far richer than Americans are today. And it achieves this by free trade, massive globalization, and lots of investment in new technology. All the things the green movement keeps saying it opposes because they will wreck the planet.

The answer to climate change is, and always has been, innovation. To worry now in 2014 about a very small, highly implausible set of circumstances in 2100 that just might, if climate sensitivity is much higher than the evidence suggests, produce a marginal damage to the world economy, makes no sense. Think of all the innovation that happened between 1914 and 2000. Do we really think there will be less in this century?

As for how to deal with that small risk, well there are several possible options. You could encourage innovation and trade. You could put a modest but growing tax on carbon to nudge innovators in the right direction. You could offer prizes for low-carbon technologies. All of these might make a little sense. But the one thing you should not do is pour public subsidy into supporting old-fashioned existing technologies that produce more carbon dioxide per unit of energy even than coal (bio-energy), or into ones that produce expensive energy (existing solar), or that have very low energy density and so require huge areas of land (wind).

The IPCC produced two reports last year. One said that the cost of climate change is likely to be less than 2% of GDP by the end of this century. The other said that the cost of decarbonizing the world economy with renewable energy is likely to be 4% of GDP. [See fro example, this summary.] Why do something that you know will do more harm than good?"

Donald J. Boudreaux Reviews Piketty

See Piketty: A Wealth of Misconceptions from Mercatus Center.

"Thomas Piketty's Capital in the Twenty-First Century might soon stand with Karl Marx'sCapital, which inspired its title, as one of the most influential economic masterworks of the past 150 years. But sad to say, this 696-page tome, ably translated by Arthur Goldhammer, is no more enlightening about capitalism in the 21st century than Marx'sCapital was about capitalism in the 19th century.

As a publishing phenomenon alone, the Paris School of Economics professor's treatise, which has been hailed by three Nobel laureates—Paul Krugman, Joseph Stiglitz, and Robert Solow—commands our attention. It is also noteworthy as a symptom of a perverse ideology that seems to dominate progressive thinking, including that of President Barack Obama and President François Hollande of France, and of a flawed method of economic analysis.

Many of us care about whether, and to what extent, the broad masses of people have improved absolutely their material conditions of life. While Piketty (pronounced "PEEK-et-tee") doesn't entirely ignore that question, he focuses instead on the causes and cures of relative disparities in monetary income and wealth across groups of people and over centuries. Some ways of narrowing those disparities, such as punitive rates of taxation, might run the risk of dragging down everyone, rich and poor alike. But for Piketty, the importance of diminishing monetary inequalities is so monumental that he all but totally ignores such risks.

Piketty's method of doing economics involves frequent grand proclamations about "social justice" and economic "evolutions," but he offers no analyses of the dynamics of individual decision-making, often referred to as "microeconomics," that should be central to the issues he raises.

The author hovers instead in the economy's stratosphere, gazing down on the only phenomena visible from such a distant perch—big statistics such as population growth or the share of national income "claimed" by the very rich. Revealingly, Piketty writes of income and wealth as being claimed or "distributed," never as being earned or produced. The resulting statistics are too aggregated—too big-picture—to reveal what is happening to individuals on the ground.

Instead of actually looking at the behavior behind his statistics, the author serves up ad hoc and ultimately unpersuasive theories about the "behavior" of his big statistics themselves, including such hulking impersonal aggregates as the return to capital and the ratio of national wealth to national income. He imagines that such aggregates interact in robotic fashion through a logic of their own, unmoved by individual human initiative, creativity, or choice.

CONSIDER PIKETTY'S CENTRAL theory, that the rate of return on capital, which he labels "r," tends to be greater than the rate of economic growth, or "g." For the author, the fact that r runs faster than g—by several percentage points, by his reckoning—alone seals capitalism's fate, because it implies that owners of capital must get increasingly richer than nonowners. Because capital ownership is itself unevenly "distributed" across society, wealth and income disparities must in turn worsen, "impoverishing" the middle classes and the poor alike, while giving a relatively small number of rich elites both vast resources and disproportionate influence over government policy-making.

Despite the logical implications of return on capital being greater than economic growth, Piketty doesn't think that the plutocraticization of society is inevitable. First of all, it can be arrested and even reversed by calamities such as world wars or Soviet-style communism, the destructive effects of which fall disproportionately upon the rich. Alas, he opines that the welcome consequences of such correctives are only temporary.

But another, more lasting remedy is readily at hand: hard-hitting taxation. Piketty calls for greater and more progressive taxation, not only of incomes—at a top bracket of at least 80%—but also of wealth, preferably to be enacted globally, lest differential tax burdens prompt plutocrats to flee from high-tax to low-tax jurisdictions. While he isn't optimistic about the likelihood of the necessary government cooperation, he's willing to settle for whatever steps more-enlightened governments might take to soak the rich—and especially such steps as might be accompanied by greater cross-border sharing of information about bank accounts and other investments owned by foreigners.

Flaws aplenty mar Piketty's telling of the capitalist saga, flaws that spring mainly from his disregard for basic economic principles. None looms larger than his mistaken notion of wealth.

Every semester, I ask my freshman students how wealthy they would be if they each were worth financially as much as Bill Gates but were stranded with all those stocks, bonds, property titles, and bundles of cash alone on a desert island. They immediately see that what matters is not the amount of money they have but, rather, what that money can buy. No principle of economics is more essential than the realization that, ultimately, wealth isn't money or financial assets but, rather, ready access to real goods and services.

Piketty seems barely aware of this reality, focusing on differences in people's monetary portfolios. He therefore ignores the all-important supply side: what people—rich, middle class, and poor—can buy with their money. Yet, to the extent that inequalities are at all relevant, the only ones that really matter are inequalities in access to real goods and services for consumption. Bill Gates' living quarters are larger and more elegant than mine and, I dare say, yours. But even the poorest people in market economies have seen their ability to consume skyrocket over time. And the poorer they once were, the greater has been the enhancement of their ability to consume.

If we follow the advice of Adam Smith and examine people's ability to consume, we discover that nearly everyone in market economies is growing richer. We also discover that the real economic differences separating the rich from the middle class and the poor are shrinking. Reckoned in standards of living—in ability to consume—capitalism is creating an ever-more-egalitarian society.

THE U.S. IS THE bête noir of Piketty and other progressives obsessed with monetary inequality. But middle-class Americans take for granted their air-conditioned homes, cars, and workplaces—along with their smartphones, safe air travel, and pills for ailments ranging from hypertension to erectile dysfunction. At the end of World War II, when monetary income and wealth inequalities were narrower than they've been at any time in the past century, these goods and services were either available to no one or affordable only by the very rich. So regardless of how many more dollars today's plutocrats have accumulated and stashed into their portfolios, the elite's accumulation of riches has not prevented the living standards of ordinary people from rising spectacularly.

Furthermore, these improvements in real living standards have been undeniably greater for ordinary folks than for rich ones. In 1950, Howard Hughes and Frank Sinatra could easily afford to pay for the likes of overnight package delivery, hour-long transcontinental telephone calls, and air-conditioned homes. For ordinary Americans, however, these things were out of reach. Yet, while today's tycoons and celebrities still have access to such amenities, so, too, do middle-class and even poor Americans. This shrinking gap between the real economic fortunes of the rich and the rest of us should calm concerns about the political dangers of the expanding inequality of monetary fortunes.

Flaws in the author's stratospheric viewpoint are also on display when we try to think in human terms about the inevitability of the return on capital, at 4% to 5%, exceeding the growth rate of economy, at 1% to 1.5%. According to the author, that gap of a few percentage points, when compounded over many years, can render economic inequality "potentially terrifying." But two key factors make it quite difficult for that tendency to persist for very long in the lives of most individuals.

To begin with, advance and retreat, rather than permanence, tends to characterize the pattern of most successful businesses. Sooner or later, the entry of competitors and of changing consumer tastes curbs their growth, when not reducing their size absolutely or even bankrupting them. In 2013 alone, 33,000 businesses in the U.S. filed for bankruptcy, a typical figure for a year of economic expansion. Second, and more importantly, successful capitalists rarely spawn children and grandchildren who match their elders' success; there is regression toward the mean. Note that the terrifyingly successful capitalist Bill Gates will likely not be succeeded by younger Gateses prepared to capitalize on his success.

Even leave aside plans like those of Gates and Warren Buffett to give away much of their fortunes, or the redistributive role of philanthropy generally. The empirical data suggest that turnover is the norm among wealthy capitalists, rather than the building of a permanent plutocracy. The IRS' list of "Top 400 Individual Tax Returns" provides evidence of instability at the top. Over the 18 years from 1992 through 2009, 73% of the individuals who appeared on that list did so for only one year. Only a handful of individuals made the list in 10 or more years. Wealth gets diluted over time when left to multiple heirs, and is further diluted by estate taxes, philanthropy, and changes in market conditions.

PIKETTY'S PRONOUNCEMENTS about the stability of capitalist wealth deny such realities. He writes, for example, that "Capital is never quiet: it is always risk-oriented and entrepreneurial, at least at its inception, yet it always tends to transform itself into rents as it accumulates in large enough amounts—that is its vocation, its logical destination." Read: The risky, entrepreneurial element in business formation eventually recedes in importance until the business naturally evolves toward its "logical destination"—that of a perpetual cash machine that regularly spits out "rents."

In a similar vein, Piketty observes, "[W]hat could be more natural to ask of a capital asset than that it produce a reliable and steady income: that is in fact the goal of a 'perfect' capital market as economists define it." It may be "natural" to ask this of a capital asset. But only economists who talk of "perfect" capital markets are naive enough to expect a "yes" answer.

If Piketty really believes in a "perfect" capital market yielding capitalists reliable and steady income, he might wonder why the bankrupt book-selling giant Borders is no longer around to sell his books, while Amazon.com has grown up to challenge all manner of bricks-and-mortar retailers. In his world, capitalism is a system of profits; in the real world, it's a system of profit and loss.

Piketty's disregard for basic economic reasoning blinds him to the all-important market forces at work on the ground—market forces that, if left unencumbered by government, produce growing prosperity for all. Yet, he would happily encumber these forces with confiscatory taxes.

Commendably, though, he expresses concern about the potential for his tax regime to expand the size of government: "[B]efore we can learn to efficiently organize public financing equivalent to two-thirds to three-quarters of national income," he cautions, "it would be good to improve the organization and operation of the existing public sector." It would indeed be "good" to make such improvements. I'd like to imagine that, if Karl Marx were alive today, he'd sadly inform his less-experienced colleague that, 150 years ago, socialists had that very same idea. It did not work out as hoped."

The High Cost of Cheap Health Insurance

By Peter Suderman of Reason.

"Here’s what the Obama administration wants you to know about health insurance premiums under Obamacare: On average, people who selected subsidized insurance plans through the federally-run insurance exchange paid $82 a month, out of their own pockets, for health insurance. People who selected "silver" health plans—the most popular tier of coverage offered in the exchange—paid less: $69 per month, on average. Almost 70 percent of the people who signed up for subsidized plans through the federal exchanges are paying less than $100.

Those are the average premium prices that the Obama administration highlights in a press release touting a new government report on Obamacare and health premiums.

But there are several things to remember about those figures.

One is that they’re incomplete. The data released by the administration doesn’t account for premiums in the 14 states that ran their own exchanges this year.

Another is that those averages conceal an awful lot of variation. Even with the federally run exchange covering the majority of states, Obamacare varies quite a bit from state to state. Out of pocket insurance costs in Mississippi averaged about $23 a month, but came in at $148 in New Jersey. About a third of people buying subsidized coverage through the federal marketplace were paying more than $100. And the report focuses on the majority of participating individuals who bought subsidized coverage: 14 percent of people who selected plans in the federal exchange through the end of open enrollment got no tax credits at all.

That’s another thing to remember: The administration’s premium averages are based on out-of-pocket costs after the law’s tax credits and subsidies are factored in. Those subsidies end up offsetting quite a bit of the cost of insurance under Obamacare. But if you strip away the subsidies, individual market health insurance has, on average, become significantly more expensive in the wake of Obamacare, according to a newly published analysis by the Manhattan Institute.

Relying on a 3,137 county comparison of the five cheapest individual plans available prior to Obamacare with the five cheapest plans through the exchanges, the study by health policy fellow Yevgeniy Feyman found that, on average, premiums were up 49 percent under Obamacare. Again, that’s an average, and it masks some variation—in New York, which had unusually restrictive, badly designed health insurance market rules prior to Obamacare, premiums are actually down quite a bit—but it indicates that the overall trend for unsubsidized premiums is up.

The difference, then, is being made up by federal subsidies. According to the administration’s report, those subsidies are carrying 76 percent of the total cost of subsidized insurance plans selected in the federal exchange. The out-of-pocket average is $82. But the actual average premium price, without subsidies, is $346.

To the extent that insurance is relatively cheap, it’s because taxpayers are footing a big chunk of the bill. Obamacare didn’t reduce the price of insurance; if anything it raised it—and then used tax revenues to cover the difference.

That’s frequently how subsidies work—they lower the out-of-pocket price tag, but, by separating consumers from meaningful price signals, they also distort markets in ways that drive up the overall cost, leaving the public to pick up the ever-growing tab.

There’s already evidence that this is happening with Obamacare. As the Los Angeles Times reports today, "while the generous subsidies helped consumers, they also risk inflating the new health law’s price tag in its first year." If premiums and subsidy levels in the state-run exchanges that were left out of the report generally match up with the federal government, then the Times estimates that the total for subsidies this year could run as high as $16.5 billion—significantly more than the roughly $10 billion estimated by the Congressional Budget Office.

The Obama administration wants everyone to know how cheap insurance is under Obamacare. But they don’t really want people to think about how expensive it is to keep it that way."

John Walters, Drugs, and Libertarians

By Tim Lynch of Cato.

"Over at Politico, former Bush administration drug czar and Hudson Institute official, John Walters, has an article titled, “Why Libertarians Are Wrong About Drugs.”  The thrust of the article is that (1) drug policy is one of the political divides between libertarians and social conservatives and that the social conservatives have the better case; and (2) libertarians can support the drug war without surrendering essential tenets of their political philosophy.  In this post, I want to briefly scrutinize some of Walters’ arguments and observations.

Walters tries to set up his article by framing the debate between social conservatives and libertarians fairly, but right away he falters. “Social conservatives,” he writes, “are troubled by drug abuse, especially among the young.” The implication seems to be that libertarians are not troubled by drug abuse–even if it involves minors. That’s unfair to Milton Friedman, who is quoted in that paragraph, and libertarians generally. I don’t think Walters is intentionally trying to mislead readers here, but that statement does expose one of his faulty understandings of libertarianism. The question has never been whether drug abuse is a problem. It is. The question is how best to address that problem.

Next, Walters tries to demonstrate that a basic tenet of libertarianism is inconsistent with reality–at least in the area of narcotics. Here is Walters: “[L]ibertarians argue that the state should have no power over adult citizens and their decision to ingest addictive substances–so long as they do no harm to anyone but themselves…But this harmless world is not the real world of drug use. There is ample experience that a drug user harms not only himself, but also many others.” Walters then cites instances of domestic violence and other criminal acts that were committed by persons under the influence of narcotics. More faulty reasoning.

The libertarian critique of drug prohibition does not depend on the existence of a “harmless world.” I should not have to point out (but, alas, I guess I do for some) that libertarians have heard of domestic violence and drugged driving. We are also aware that criminal acts are sometimes committed by persons under the influence of narcotics. Now, let’s return to the tenet that Walters fairly stated, but misapplied: The state should have power over adults who harm others. A batterer, for example, should be arrested and prosecuted (whether he was stoned, drunk, or sober.)

The reality recognized by libertarians, but ignored by Walters, is that millions and millions of people use drugs peacefully and do not harm anyone. Our government treats these people like criminals and that is wrong. This is the real divide between neoconservatives like Walters (conservatives such as William F. Buckley and Thomas Sowell oppose drug prohibition) and libertarians. As drug czar, Walters approved television ads that said casual drug users were ipso facto guilty of serious crimes, such as supporting terrorists! Even before 9/11, First Lady Nancy Reagan said casual drug users were guilty of aiding and abetting murder. Libertarians vehemently reject such claims.

Walters does not address the unintended consequences of drug prohibition, such as the enrichment of gangster organizations, the billions wasted on futile interdiction operations, and the curtailment of our civil and constitutional rights by militarized police units and the use of civil asset forfeiture laws. Without any evidence, he expresses fears about the future of our political order because voters are starting to approve drug reform initiatives in Colorado and Washington and elect reform-minded candidates. And yet no mention of the corruption and carnage in Mexico that can be traced to neoconservative drug prohibition policies. Also no mention of Portugal and its successful move to decriminalize drugs there in 2001.

The libertarian case against drug prohibition is gaining traction both here at home and around the world. Like alcohol prohibition, drug prohibition will eventually come to an end.  We should welcome, not fear, that development."

Maybe the classical hypothesis worked in the UK

See The economic recovery in the United Kingdom by Tyler Cowen:

There is an excellent Chris Giles FT article on this topic, here is the bit of greatest interest to some recent debates:

The latest IMF fiscal monitor shows a cyclically-adjusted deficit of 5.9 per cent of national income in 2011, falling only to 5.7 per cent in 2012. This 0.2 percentage point drop in the cyclically-adjusted deficit appears tiny compared with the 2010 vintage of the same IMF document, which shows plans for a 1.4 percentage point decline over the same two years.

That’s not my favorite measure of fiscal stance, but it is the one most commonly cited.  What we see is that “austerity didn’t get much worse,” to borrow the language of many of the Keynesians.  It remains a mystery to me how this could account for the British recovery, as for instance expressed by Krugman:

Finally, Britain is growing much faster right now than I expected. Fundamental model flaw? I don’t think so. As Simon Wren-Lewis has pointed out repeatedly, the Cameron government essentially stopped tightening fiscal policy before the upturn, which means in effect that the “x” in my equation didn’t do what I thought it would. On top of that, there was a drop in private savings, which is one of those things that happens now and then.The point is that the deviation of British growth from what a standard Keynesian model would have predicted, while real, wasn’t out of line with the normal range of variation-due-to-stuff-happening; nothing there that warranted a major revision of framework.

I would say the fiscal stance of the British government stayed more or less the same, and a rapid recovery came, because the labor market was flexible and market economies have a natural (though in my view not universal) tendency to mean-revert and put unemployed resources back to work.  Furthermore the UK had a relatively loose monetary policy, which sustained nominal values, even in light of a supposed liquidity trap.  (The hypothesis that the relatively high inflation rate came from a VAT hike didn’t last long.)
I took the Keynesian position on Britain to be “they are in a liquidity trap, and possibly secular stagnation, so they will just sit there and not experience any natural tendency toward major recovery, at least not for a long time.”  If the current Keynesian position (would it now be the New New Old Keynesian view?) is “in the absence of additional negative shocks, even in a liquidity trap market economies have a natural tendency to mean-revert and put unemployed resources back to work pretty quickly,”…well, I guess I am more of a Keynesian than I used to think.
Addendum: The article also offers this:

UK officials have no time for such comparisons, based on “spurious cyclical adjustment”. The Treasury said: “It’s interesting how the people who have started saying that we eased up on austerity are the very same people who just a few months earlier were accusing us of doggedly sticking to it. We have been consistent and stuck to the plans we set out.”
The independent Office for Budget Responsibility provides data with which to arbitrate this dispute. On the public spending side, there is no evidence of a secret stimulus. Public expenditure in 2012 and 2013 was a little lower than the level planned in 2010.
Its data also show there were no significant changes to the UK tax system in 2012-13, so no deliberate stimulus. Tax revenues, by contrast, were much weaker than expected as the economy stagnated, showing the strength of the automatic stabilisers in Britain.
Measures of the degree of fiscal tightening that do not rely on tax revenues, but changes in the tax system, such as those from the OBR or the independent Institute for Fiscal Studies, still show as much austerity in 2012 and 2013 as they did in 2010.

Sorry guys, but I have to call this one for some version of the classical hypothesis.  And by the way, I still think the UK recovery is relatively fragile, but not for reasons which have much to do with traditional Keynesianism.
- See more at: http://marginalrevolution.com/marginalrevolution/2014/06/the-economic-recovery-in-the-united-kingdom.html#sthash.u5ff6Gk0.dpuf

"There is an excellent Chris Giles FT article on this topic, here is the bit of greatest interest to some recent debates:

The latest IMF fiscal monitor shows a cyclically-adjusted deficit of 5.9 per cent of national income in 2011, falling only to 5.7 per cent in 2012. This 0.2 percentage point drop in the cyclically-adjusted deficit appears tiny compared with the 2010 vintage of the same IMF document, which shows plans for a 1.4 percentage point decline over the same two years.

 That’s not my favorite measure of fiscal stance, but it is the one most commonly cited.  What we see is that “austerity didn’t get much worse,” to borrow the language of many of the Keynesians.  It remains a mystery to me how this could account for the British recovery, as for instance expressed by Krugman:

Finally, Britain is growing much faster right now than I expected. Fundamental model flaw? I don’t think so. As Simon Wren-Lewis has pointed out repeatedly, the Cameron government essentially stopped tightening fiscal policy before the upturn, which means in effect that the “x” in my equation didn’t do what I thought it would. On top of that, there was a drop in private savings, which is one of those things that happens now and then.The point is that the deviation of British growth from what a standard Keynesian model would have predicted, while real, wasn’t out of line with the normal range of variation-due-to-stuff-happening; nothing there that warranted a major revision of framework.

 I would say the fiscal stance of the British government stayed more or less the same, and a rapid recovery came, because the labor market was flexible and market economies have a natural (though in my view not universal) tendency to mean-revert and put unemployed resources back to work.  Furthermore the UK had a relatively loose monetary policy, which sustained nominal values, even in light of a supposed liquidity trap.  (The hypothesis that the relatively high inflation rate came from a VAT hike didn’t last long.)

 

I took the Keynesian position on Britain to be “they are in a liquidity trap, and possibly secular stagnation, so they will just sit there and not experience any natural tendency toward major recovery, at least not for a long time.”  If the current Keynesian position (would it now be the New New Old Keynesian view?) is “in the absence of additional negative shocks, even in a liquidity trap market economies have a natural tendency to mean-revert and put unemployed resources back to work pretty quickly,”…well, I guess I am more of a Keynesian than I used to think.

Addendum: The article also offers this:

UK officials have no time for such comparisons, based on “spurious cyclical adjustment”. The Treasury said: “It’s interesting how the people who have started saying that we eased up on austerity are the very same people who just a few months earlier were accusing us of doggedly sticking to it. We have been consistent and stuck to the plans we set out.”

The independent Office for Budget Responsibility provides data with which to arbitrate this dispute. On the public spending side, there is no evidence of a secret stimulus. Public expenditure in 2012 and 2013 was a little lower than the level planned in 2010.

Its data also show there were no significant changes to the UK tax system in 2012-13, so no deliberate stimulus. Tax revenues, by contrast, were much weaker than expected as the economy stagnated, showing the strength of the automatic stabilisers in Britain.

Measures of the degree of fiscal tightening that do not rely on tax revenues, but changes in the tax system, such as those from the OBR or the independent Institute for Fiscal Studies, still show as much austerity in 2012 and 2013 as they did in 2010.

Sorry guys, but I have to call this one for some version of the classical hypothesis.  And by the way, I still think the UK recovery is relatively fragile, but not for reasons which have much to do with traditional Keynesianism."

Even Congress admits that the minimum wage causes unemployment by exempting people with disabilities

From Mark Perry of "Carpe Diem."

"From Nicholas Freiling writing for the Mises Institute:

When Congress first established the minimum wage in the Fair Labor Standards Act of 1938, it left a loophole for businesses that employ people with disabilities.

The Secretary, to the extent necessary to prevent curtailment of opportunities for employment, shall by regulation or order provide for the employment, under special certificates, of individuals … whose earning or productive capacity is impaired by age, physical or mental deficiency, or injury, at wages which are lower than the minimum wage.

These special certificates are known today as 14(c) permits, and thousands of employers have one. Some studies claim that more than 300,000 Americans work for subminimum wages under the auspices of such permits.

When Congress passed the 14(c) exemption along with the minimum wage in 1938, they did so, as quoted above, “to prevent curtailment of opportunities for employment” of people with disabilities. The authors of the bill understood that minimum wage leads to unemployment for those “whose earning or productive capacity is impaired.” So in order to avoid the negative publicity associated with putting people with disabilities out of work, they exempted such people from the minimum wage.

But this begs the question. If people with disabilities are exempt from the minimum wage because their earning capacity is impaired and finding employment might otherwise be impossible, why don’t people without disabilities whose earning capacity is equally low also qualify for an exemption?

So by exempting people with disabilities from the minimum wage, Congress actually discriminates against the non-disabled — those who cannot work under the auspices of a 14(c) permit — and favors people with disabilities.

By continuing to exempt people with disabilities from the minimum wage, Congress reveals its implicit awareness of the minimum wage’s negative effects on the least productive people. Yet to end all exemptions means to disadvantage people with disabilities in the workplace who already have a hard enough time finding work. Finally, to repeal the minimum wage altogether and allow everyone to negotiate wages freely would mean to admit a seventy-five-year long mistake that harmed thousands, if not millions, of unskilled laborers over the past half-century who found themselves unemployed at some time or another."

Global Warming Blog On EPA And Mercury

See American Lung Association Manipulates ‘Maternal Instinct’ to Sell EPA Power Grab by Marlo Lewis. Excerpt:

"Fact check time. First, mercury emissions from power plants do not poison anyone’s air. When mercury emissions deposit in soils and water bodies, bacteria can transform inorganic mercury (Hg) into methylmercury (CH3Hg), an organic compound that can bioaccumlate in aquatic food webs. In theory, American women who consume hundreds of pounds of self-caught (non-commercial) fish from the most contaminated water bodies can damage the cognitive and neurological development of their unborn children. However, in the 24 years since Congress tasked EPA to study the health risks of mercury, the agency has not identified a single child whose learning or other disabilities can be traced to prenatal mercury exposure due to maternal fish consumption. But even if mercury in fish were a significant health hazard, it would still be false to claim that power-plant mercury emissions poison the air kids breathe.

The case is somewhat similar for arsenic. Inhalation is a “route of exposure” but mainly as an occupational hazard at certain types of industrial facilities that emit arsine gas. For the general population, which includes children, the main route of exposure is ingestion of contaminated food or water.

More importantly, carbon dioxide (CO2), the substance targeted by EPA’s Clean Power Plan, is non-toxic to humans and animals at multiple times today’s atmospheric concentration (~400 parts per million) or any level reasonably anticipated for centuries to come.

What’s more, CO2 is a basic building block of the planetary food chain, and rising concentrations boost plant productivity, water-use efficiency, and resistence to environmental stresses, conferring multi-trillion dollar benefits on global agriculture.

At most, the Clean Power Plan would reduce atmospheric CO2 concentrations by a few parts per million by century’s end. What biological difference could that make to babies, when their exhaled breath contains about 40,000 parts CO2 per million?"

Richard Epstein On Teacher's Tenure In California

See A Win For Students. Excerpt:

"Judge Treu’s decision struck down three essential pillars of the standard teacher’s union contract. It first took aim at the standard California teacher’s contract, which awards tenure after as little as 16 months of services. It next gave a thumbs down to the elaborate procedural devices a school district has to go through to dismiss a teacher for incompetence. As Student Matters reports: “Out of 275,000 teachers statewide, 2.2 teachers are dismissed for unsatisfactory performance per year on average, which amounts to 0.0008 percent.” Finally, Vergara nixed the current “last in, first out” seniority system, under which the only grounds for dismissing a teacher is the reverse order in which they are hired, wholly without regard to classroom performance and subject matter need. All of these practices undercut the effectiveness of student education and waste taxpayer dollars. This is why educational professionals like Secretary of Education Arne Duncan are supporting the California decision, to the immense dissatisfaction of Randi Weingarten, President of the American Federation of Teachers."

Suppressing Competition from Migrant Doctors

From Jeffrey Miron of Cato.

"The claim for physician licensure is that it protects consumers from “quacks;”  it is just a coincidence that licensure also reduces competition and raises doctors’ incomes!  In this case, the strength of licensing should be similar across states, and licensure requirements should determine whether a prospective doctor is competent, not whether a U.S. native or a migrant. 

Recent research by Brenton Peterson, Sonal Pandya, and David Leblang (University of Virginia), however, finds the opposite:

Licensure regulations ostensibly serve the public interest by certifying competence, but they can simultaneously be formidable barriers to entry by skilled migrants. From a collective action perspective, skilled natives can more easily secure sub-national, occupation-specific policies than influence national immigration policy. We exploit the unique structure of the American medical profession that allows us to distinguish between public interest and protectionist motives for migrant physician licensure regulations. We show that over the 1973–2010 period, states with greater physician control over licensure requirements imposed more stringent requirements for migrant physician licensure and, as a consequence, received fewer new migrant physicians. By our estimates over a third of all US states could reduce their physician shortages by at least 10 percent within 5 years just by equalizing migrant and native licensure requirements.

Little evidence suggests that professonal licensure promotes quality or protects the public, but arbitrary discrimination against migrant physicians (many trained in the United States!) is particularly insane.  As are all restrictions on high-skill (or other) immigration."

Income inequality is falling, globally

The poor are getting less poor

From Matt Ridley. Excerpts:

"in Britain wealth inequality probably did inch up between 1980 and 2010, but not by as much as Piketty had claimed, though it depends on which data sets you trust.

Well, knock me down with a feather. You mean to say that during three decades when the government encouraged asset bubbles in house prices; gave tax breaks to pensions; lightly taxed wealthy non-doms; poured money into farm subsidies; and severely restricted the supply of land for housing, pushing up the premium earned by planning permission for development, the wealthy owners of capital saw their relative wealth increase slightly? Well, I’ll be damned."

"good part of any increase in wealth concentration since 1980 has been driven by government policy, which has systematically redirected earning opportunities to the rich rather than the poor."

"we pay double or treble the going rate for land-hungry projects such as wind, wood and solar energy, all of which results in rewards going to the owners of property."

"even Piketty’s figures show that British wealth inequality is only back to where it was in the mid-1960s, when the top 10 per cent of people held about 70 per cent of the wealth. The figure dipped to about 60 per cent in 1980, having peaked at 90 per cent in 1910."

"the widespread assumption that income inequality has also been shooting upwards is plain wrong: in this country, in terms of disposable income, the gap between the well paid and the poorly paid has been going down. Top salaries have certainly rocketed, but so has the turnover of people getting them — as has the turnover of people in the lowest income bracket. And once you take into account tax and benefits, the Office for National Statistics confirms that the Gini coefficient (an income distribution index) of inequality in this country is actually lower now than it was 25 years ago (though it’s higher than it was 35 years ago in the confiscatory tax regime of the 1970s)."

"the recent ONS bulletin entitled The Effects of Taxes and Benefits on Household Income, 2011/12 finds that the highest-earning 20 per cent of British households earned 14 times as much as the lowest earning 20 per cent before tax and benefits — but just four times as much after tax and benefits. These measures cut the average income of the top 20 per cent from £78,300 to £57,300, while they raise the average income of the bottom 20 per cent from £5,400 to £15,800. "

"every economist I speak to agrees that global income inequality is falling, even before you take into account tax and benefits."

"For a quarter of a century people in poor countries have been getting rich faster than people in rich countries have been getting richer."

"Mozambique’s economy is 60 per cent larger than it was in 2007; Italy’s is 6 per cent smaller."

"that nowhere in the world, with the possible exception of North Korea and Somalia, are the poor getting poorer. The percentage of the world’s population living on $2 a day (corrected for inflation) has halved since 1990 — a truly unprecedented change (see here). Any increase in wealth inequality or pre-tax income inequality in Britain or America is caused by the rich getting disproportionately richer, not by the poor getting poorer."

The Antitrust Book Boomerang

A federal judge unwisely stepped in on Amazon's side, and now we're seeing the results.

WSJ article by L. Gordon Crovitz. Excerpts:

"The main impact of the antitrust case the government brought last year against Apple was to entrench Amazon as the all-powerful online retailer, enabling it to engage in business practices available only to dominant players."

"Amazon has blocked advance orders of Hachette books,"

"It raised prices on Hachette books. It's telling customers that delivery for print books from Hachette will take weeks and is recommending books from other publishers instead."

"Under its preferred "wholesale model," retailers like Amazon, not publishers, set prices. Amazon negotiates different revenue splits with different publishers and "co-op" fees to promote particular books.

When Apple launched the iPad to compete with Amazon's Kindle, it made the business innovation of substituting the wholesale model with a simple revenue share with publishers—the "agency model.""

"It wanted publishers to control pricing so as to encourage product development in e-books. For apps and games, Apple lets developers set the price and takes a flat 30% of sales. Apple offered e-book publishers the same deal."

"Judge Denise Cote dictated the outcome by ruling against Apple. She acknowledged that the agency model is common in many industries but insisted publishers be subject to Amazon's wholesale approach"

"Amazon is happy to use its court-mandated leverage to re-establish control over pricing and the retailer-publisher relationship. Amazon uses e-books as loss leaders to boost sales of its profitable Kindles and Amazon Prime subscriptions. Amazon reportedly wants a larger revenue share for discounted e-books"

"In ruling against Apple, Judge Cote assured that her ruling would "restore competition" in the e-book market. Instead, Amazon's market share has soared"

"Some book authors want the Justice Department to go after Amazon now, but a better approach would be to get out of the way."

"Publishers should also be able to develop higher-priced premium e-books with audio, video and Web links. They rarely do because Amazon sets prices too low to make them commercially viable.

Judge Cote is learning that the pace of change on the Internet embarrasses anyone arrogant enough to claim to know which technologies or business models must be used."

Carbon-Income Inequality

Obama's new energy rule is a huge tax on the poor and middle class.

WSJ editorial. Excerpts:

"The EPA's goal is to cut carbon emissions by 30% by 2030 from near-peak 2005 levels, which will inevitably raise the price of electricity and thus all other goods down the energy chain. The 645-page rule is targeted at the 1,000 or so U.S. fossil fuel power plants, but it more or less orders states to adopt cap and trade or a carbon tax. 

A Democratic Congress debated and rejected this anticarbon program in 2010, and there isn't a chance it could get 50 Senate votes now. But no matter, the EPA claims the authority for this sweeping power grab by pointing to an obscure clause of the 1970 Clean Air Act called Section 111(d) that runs merely a few hundred words and historically has been applied only to minor pollutants, not the entire economy.

The new rule is unprecedented because EPA is supposed to regulate "inside the fenceline," meaning that its command-and-control powers are limited to individual energy generator sources. The agency can tell America's 3,000 or so fossil-fuel power units to install on-site technology like scrubbers to reduce pollution, but not beyond."

"The agency recently rejected state plans to reduce regional haze before they are even formally proposed and revoked permits it had previously approved.

The EPA also claims that by some miracle the costs of this will be negligible,"

"the government is essentially creating an artificial scarcity in carbon energy. Scarcities mean higher prices, which will hit the poor far harder than they will the anticarbon crusaders who live in Pacific Heights. The lowest 10% of earners pay three times as much as a share of their income for electricity compared to the middle class."

"The EPA plan will also redistribute income from economically successful states to those that have already needlessly raised their energy costs. The New England and California cap-and-trade programs will get a boost, while the new rule punishes the regions that rely most on fossil fuels and manufacturing:"

"Notably, these plant retirements may endanger the reliability of the electrical grid. This winter's cold snap showed that traditional power is essential to keeping the lights and heat on, and the risk of rolling blackouts is real as the EPA re-engineers the system.

The irony is that all the damage will do nothing for climate change. Based on the EPA's own carbon accounting, shutting down every coal-fired power plant tomorrow and replacing them with zero-carbon sources would reduce the Earth's temperature by about one-twentieth of a degree Fahrenheit in a hundred years."

The Blue-State Path to Inequality

States that emphasize redistribution above growth have a wider gap between lower and higher incomes.

WSJ article by Stephen Moore And Richard Vedder. Mr. Moore is chief economist at the Heritage Foundation. Mr. Vedder, a professor of economics at Ohio University, is the co-author with Lowell Gallaway of "Out of Work: Unemployment and Government in Twentieth-Century America" (Independent Institute updated edition, 1997). Excerpts:

"The income gap between rich and poor tends to be wider in blue states than in red states."

"According to 2012 Census Bureau data (the latest available figures), the District of Columbia, New York, Connecticut, Mississippi and Louisiana have the highest measure of income inequality of all the states; Wyoming, Alaska, Utah, Hawaii and New Hampshire have the lowest Gini coefficients. The three places that are most unequal—Washington, D.C., New York and Connecticut—are dominated by liberal policies and politicians. Four of the five states with the lowest Gini coefficients—Wyoming, Alaska, Utah and New Hampshire—are generally red states. 

In the Northeast, the state with the lowest Gini coefficient is New Hampshire (.430), which has no income tax and a lower overall state tax burden than that of its much more liberal neighbors Massachusetts (Gini coefficient .480) and Vermont (.439). Texas is often regarded as an unregulated Wild West of winner-take-all-capitalism, while California is held up as the model of progressive government. Yet Texas has a lower Gini coefficient (.477) and a lower poverty rate (20.5%) than California (Gini coefficient .482, poverty rate 25.8%). 

Do the 19 states with minimum wages above the $7.25 federal minimum have lower income inequality? Sorry, no. States with a super minimum wage like Connecticut ($8.70), California ($8), New York ($8) and Vermont ($8.73) have significantly wider gaps between rich and poor than those states that don't."

"In general, the higher the benefit package, the higher the Gini coefficient. States with high income-tax rates aren't any more equal than states with no income tax. The Gini coefficient measures pretax, not after-tax income, and it does not count most sources of noncash welfare benefits. Still, there is little evidence over time that progressive policies reduce income inequality."

"The two of us have spent more than 25 years examining why some states grow much faster than others. The conclusion is nearly inescapable that liberal policy prescriptions—especially high income-tax rates and the lack of a right-to-work law—make states less prosperous because they chase away workers, businesses and capital."

"The states that lost the most taxpayers (as a percent of their population) were Illinois, New York, Rhode Island and New Jersey. 

When politicians get fixated on closing income gaps rather than creating an overall climate conducive to prosperity, middle- and lower-income groups suffer most and income inequality rises." 

"The Gini coefficient for the United States has risen in each of the last three years and was higher in 2012 (.476) than when George W. Bush left office (.469 in 2008), though Mr. Bush was denounced for economic policies, especially on taxes, that allegedly favored "the rich.""

The Rush to Expand the VA

From the Cato Institute.

"The Senate voted 93-3 on Wednesday to expand health care spending for veterans. Under the Senate bill, veterans would be able to access health care services from facilities outside the Department of Veterans Affairs (VA) system. 

The headlines from the last few weeks clearly illustrate the need to reform this massive system, but the Senate’s rushed plan would dramatically increase veterans’ health care spending without tackling needed fundamental reforms.

Just before the vote, the Congressional Budget Office (CBO) released a preliminary estimate of the bill’s costs. Because of the hurried nature of introduction and debate, CBO was not able to fully review and estimate costs.

CBO says that the new program would increase spending by $35 billion over 10 years. But that doesn’t tell the full story. CBO expects initial set-up of the new program would take several years with veteran enrollment ramping up over time. And the bill just authorizes the new spending until 2016. So it appears that the CBO estimate of $35 billion just includes the cost over the first three years.

Over the longer term, CBO estimates that added annual spending would be $50 billion a year. So if the current bill is enacted and the added spending extended in the future, it would raise federal spending by about $385 billion over the next decade, as illustrated in the chart below the jump.

 

The $385 billion figure is likely conservative because it assumes that costs stay flat over time. But as more veterans enroll and health care costs increase, the figures could grow larger. CBO says that its estimates are “highly uncertain,” which is one reason why the Senate’s rush to push the bill through was so irresponsible.

The VA is already the fifth largest federal agency. If the new spending is made permanent, VA’s total budget would grow by about one-third and VA health care spending would roughly double.

During debate on Wednesday, several senators raised concern over the dramatic increase in VA spending without any offsetting cuts, but 75 senators swiftly brushed it aside. Allowing any debate about large expansions of government is apparently out of style in the Senate. But what’s needed in the VA is fundamental restructuring, not an ill-planned gusher of new spending.

Political crises are always the most dangerous time for the growth of government. The VA crisis is proving to be no different."

Global Warming And Heat Related Deaths

From the Cato Institute.

"A week ago, the White House released a report on the health consequences of global warming that was meant to supplement and reinforce the heath benefit claims made during the roll-out of new Environmental Protection Agency regulations aimed at reducing carbon dioxide emissions from existing power plants.
Those claims, which border on the bizarre, were met with a great deal of pushback—and deservingly so.
The supplemental White House report didn’t make things better. Take for example, how they handle extreme heat events and heat-related mortality.

To say that we are disappointed with how the White House/EPA presents the data on heat-related mortality is an understatement. No matter how many times we point out—through official means, op-eds, blogs posts, etc.—that they are mishandling the data to such an extent that they present the opposite conclusion from that reached in the scientific literature, it never gets better.

In fact, it seems to be getting worse.

Below the jump, in its entirety, is the section on heat waves from the new White House report, The Health Impacts of Climate Change on Americans:



Figure 1. Observed U.S. temperature change (source: White House report).
Notice that there is not a single study cited that links changes in heat waves to changes in heat-related mortality. Instead, it is strongly implied that increasing heat will lead to increasing deaths. We can’t think that any reader would reach the opposite conclusion given the White House discussion and presentation. And yet, that is precisely the case that scientific study after scientific study finds. Despite rising heat, fewer American’s die from heat-related causes (when properly adjusted, of course, for population increases and changes in age stricture).

But such information is nowhere to be found in the White House report. Instead, the section on extreme heat events shows a map of temperature trends across the United States and then goes on to say that extreme heat causes death, leading the readers to a false conclusion.

Here is a similar but more complete presentation from a scientific study looking at trends in temperature and trends in heat-related mortality across the United States.



Figure 2. Annual heat-related mortality rates (excess deaths per standard million population on days in which the decadal-varying threshold apparent temperature (AT) is equaled or exceeded) by city and decade, and long-term trend in summer afternoon AT. Each histogram bar indicates a different decade: from left to right, 1960s–1970s, 1980–1989, and 1990–1998. Decades without histogram bars exhibit no threshold ATs and no heat-related mortality. Decades with gray bars have mortality rates that are statistically significantly different from the decades indicated by black bars. The average excess deaths across all 28 cities is shown at the lower left. AT trends are indicated beneath each city abbreviation (from Davis et al., 2003).

The map in Figure 2 shows trends in summer time apparent temperature (AT)—a combination of heat and humidity—indicated by the small symbol under each city and explained by the right-hand legend. It indicates basically the same thing as the White House map—that summer temperatures are on the rise across the country. But this map also superimposes the trends in heat-related mortality on the trends in temperature (the bar charts for each city).

What it shows is that annual heat-related mortality was on the decline across the United States from the mid-1960s through the late 1990s (the end of the data used in this study). More recent studies confirm that the downward trend in heat-related mortality has continued even in the face of rising temperature (can you say “adaptation”?).

This more complete presentation of the data tells the exact opposite story than the one that the White House (mis)leads you to believe.

You have to ask yourself why the White House finds it necessary to lead you away from the best science in order to drum up support for its energy policies (another example here)."

More patients flocking to ERs under Obamacare

Article by Laura Ungar of the Courier-Journal. Excerpts: 

 "Norton Hospital has seen its packed emergency room become even more crowded, with about 100 more patients a month.

That 12 percent spike in the number of patients — many of whom aren't actually facing true emergencies"

"That's just the opposite of what many people expected under Obamacare,"

"many hospitals in Kentucky and across the nation are seeing a surge of those newly insured Medicaid patients walking into emergency rooms."

"Nationally, nearly half of ER doctors responding to a recent poll by the American College of Emergency Physicians said they've seen more visits since Jan. 1"

"Experts cite many reasons: A longstanding shortage of primary-care doctors leaves too few to handle all the newly insured patients. Some doctors won't accept Medicaid. And poor people often can't take time from work when most primary care offices are open, while ERs operate round-the-clock and by law must at least stabilize patients.

Plus, some patients who have been uninsured for years don't have regular doctors and are accustomed to using ERs, even though it is much more expensive. Others have let illnesses and injuries fester so long they have become emergencies."

"A report from the Robert Wood Johnson Foundation said the average ER visit costs $580 more than a trip to the doctor's office."

"Studies have shown that Medicaid patients were among the most frequent ER users before health reform, and becoming newly insured only increases ER use by giving an avenue to get treatment to patients who had been forgoing care because they couldn't afford it."

"A 2007 issue brief from the Kaiser Family Foundation said Medicaid patients made up 9 percent of the general population at the time but accounted for 15 percent of emergency visits. Researchers concluded that the most frequent users weren't substituting ERs for primary care, but rather suffered from chronic conditions and required more health care in general."

"getting covered under Oregon's 2008 expansion of a Medicaid program for uninsured adults increased ER use by 0.41 visits per person, or 40 percent relative to visits among a control group."

"Claims data from Passport Health Plan, a Louisville-based Medicaid managed-care organization, separates out the newly insured, and suggests they are slightly more likely to use emergency rooms than traditional Medicaid patients."

"A workforce capacity study conducted for the state by Deloitte Consulting last year found that Kentucky needed 3,790 more doctors, including 183 more primary-care physicians, to meet pre-ACA demand. Under the law, it said the state may need to add an additional 284 primary-care physicians by 2017. Complicating matters, a quarter of Kentucky's primary-care doctors could be ready to retire within five years, the report said."

"While primary care may be difficult to find, emergency rooms cannot turn anyone away."

"Mason said letting nurse practitioners practice and prescribe on their own also may help by giving people another treatment alternative."
.

The Lose-Lose Tax Policy Driving Away U.S. Business

There's a good reason why American companies are sitting on $2 trillion in unremitted foreign earnings.

WSJ article by Michelle Hanlon. She is an accounting professor at MIT's Sloan School of Management. Excerpts:

"The U.S. corporate statutory tax rate is one of the highest in the world at 35%. In addition, the U.S. has a world-wide tax system under which profits earned abroad face U.S. taxation when brought back to America. The other G-7 countries, however, all have some form of a territorial tax system that imposes little or no tax on repatriated earnings."

"U.S. corporations have developed do-it-yourself territorial tax strategies. They accumulate foreign earnings rather than repatriate the earnings and pay the U.S. taxes. This lowers a company's tax burden, but it imposes other costs.

For example, U.S. corporations hold more than $2 trillion in unremitted foreign earnings, a substantial portion of which is in cash. This is cash that currently can't be reinvested in the U.S. or given to shareholders. As a consequence, companies are borrowing more in the U.S. to fund domestic operations and pay dividends. Another potential effect is that companies invest the earnings in foreign locations.

In short, our international tax policy encourages U.S. multinational corporations to keep cash abroad, borrow more in the U.S. and invest more in foreign locations than they otherwise would."

"Some firms have taken the next logical step to stay competitive with foreign-based companies: reincorporating as foreign companies through cross-border mergers."

GAO Study Finds Little Decline in Competition on U.S. Air Routes

Government Study Examined Five-Year Period of Major Airline Consolidation

WSJ article by Jack Nicas. Excerpts:

"A government study concluded that there was relatively little decline in competition on U.S. air routes during a recent five-year period of airline consolidation, in part crediting the rapid expansion of discount carriers."

"On the 37 most-traveled U.S. routes, traversed by about 83 million fliers a year, the number of airlines providing nonstop or connecting service decreased to an average of 4.3 in 2012 from 4.4 in 2007, the GAO found. The report counted only airlines with more than 5% of the market on the given routes. On the 9,379 smallest city pairs, also traveled by 83 million passengers, the average number of competitors decreased to 3 in 2012 from 3.3 in 2007."

"markets maintained competition in part because low-cost airlines expanded rapidly into busy markets.

The average number of discounters in each of the 37 busiest city pairs increased to 2.3 in 2012 from 1.7 in 2007, the report said."

"The GAO also said that while mergers can eliminate a competitor on many routes, they also can create new connections. The 2010 United-Continental merger, for example, created a new option for fliers between Fargo, N.D., and Amarillo, Texas, through a stop in Denver, the report said."

The Latest Student-Loan Charade

Having induced $1 trillion in debt, Democrats now want to write it off.

WSJ Editorial. Excerpts:

"Pay As You Earn program. This gift from taxpayers caps monthly student-loan payments at 10% of a borrower's discretionary income, regardless of how much the borrower owes. Even better, the borrowers have their debts entirely forgiven after 20 years—or merely 10 years if they work in government or nonprofits."

"The program used to be closed to people who borrowed before October 2007, or who have not borrowed since October 2011, but now Mr. Obama is by regulatory fiat opening the giveaway to older borrowers too.

And whereas the White House budget said expanding Pay As You Earn would cost more than $7 billion in the first year, White House domestic policy director Cecelia Munoz said Monday on MSNBC that expanding the program will now save money."

"Elizabeth Warren's bill to allow borrowers to refinance their old federal or private loans into new government loans at lower rates.

The Congressional Budget Office says the Warren bill would increase federal spending by $58 billion over a decade. But as CBO has repeatedly warned, its official scores by law must underrate the risk of defaults in such federal loan programs, so who knows what this latest election-year pander to young voters will ultimately cost. 

Ms. Warren aims to pay for the new spending with one more tax increase—in this case the " Buffett Rule," which seeks to make Americans earning more than $1 million in income pay at least 30% of it to the IRS. Never mind their legal deductions or charitable contributions."

"the common political secret of the Obama and Warren proposals—they aren't aimed at aspiring college students hoping to matriculate but rather at former undergrads who are now suffering the economic hangover from Mr. Obama's previous policies."

"student debt outstanding has nearly doubled since 2007 to more than $1 trillion."

"among recent college graduates age 22-27, a full 45% were underemployed in 2013,"

"when the cost of defaults and debt forgiveness finally comes due, it will be paid by all taxpayers, including those who didn't go to college."

Book Review: 'Why Government Fails So Often' by Peter H. Schuck

Government's best practice is to set goals and arrange incentives so society's knowledge can be put to use by its dispersed possessors.

WSJ review by Yuval Levin. Excerpts: 

"Examining a vast array of federal policy disappointments from the early republic to today (with an emphasis on our present welfare state), Mr. Schuck argues that the endemic failure is a consequence of the nature of modern government."

"it is evidence about human beings living together and so must be analyzed with an appreciation of the diversity of social forms and the complexity of human motivations. That appreciation allows Mr. Schuck to avoid the twin temptations of social science: nostalgia and utopianism.

To be successful, he argues, a public policy has to get six things right: incentives, instruments, information, adaptability, credibility and management. The federal government tends to be bad at all of these. Take Medicare, a popular program. By paying a set fee for each service, it creates perverse incentives for doctors to perform more of them. Then, by using the instrument of price controls to limit costs, it creates shortages. By setting those prices administratively, it denies itself the information that only the interplay of supply and demand can offer. By imposing a mid-1960s insurance model on American medicine, it makes the health-care system inflexible. By relying on payment cuts that Congress routinely puts off, it makes a joke of its own fiscal projections. And by abiding billions in fraud, it invites waste and abuse."

"Especially insightful are his discussions of the fundamental dysfunction of the federal bureaucracy. Mr. Schuck argues (echoing Hayek) that it is essentially impossible for centralized managers to consolidate information to the degree necessary to manage complex social systems, and bureaucracies respond to failure by demanding even more power. This assertion of authority, precisely because it is poorly informed, further distorts the system, making it even harder to control. Think of the unintended consequences of airline and trucking rules before the late 1970s deregulation, for instance, or of what ObamaCare is now doing to the health-insurance system. The proper sphere of the central government, Mr. Schuck argues, is to set goals and arrange incentives so that society's knowledge can be better put to use by its dispersed possessors."

""When one compares government and market provision of essentially the same services," he writes, "the inescapable conclusion is that the market almost always performs more cost-effectively.""

"private companies are often an important cause of government's failures by, for instance, drawing away the best managers, using political contributions to influence policy or devoting their efforts to simply staying several steps ahead of regulators.

Alongside a lengthy list of federal failures, Mr. Schuck points to some notable successes—from the Homestead Act (1862) and the GI Bill (1944) to the interstate highway system (1956), the earned income tax credit (1975) and welfare reform (1996). What unites them is that they did not try to manage success so much as establish the circumstances for it."

"But without a doubt, Mr. Schuck's survey will make painful reading for American progressives. Their worldview depends on a degree of government competence that is simply unattainable. "The relationship between government's growing ambition and its endemic failure," he concludes, "is rooted in an inescapable structural condition: officials' meager tools and limited understanding of the opaque, complex social world that they aim to manipulate.""

"crafting policies as simple and incremental as possible. As Alexander Hamilton put it in Federalist 70, "a government ill executed, whatever it may be in theory, must be, in practice, a bad government.""