Tariffs reduce the range of consumer and intermediate varieties available to an economy which causes a reduction in economic welfare

From Cafe Hayek.

"from page 49 of the 2015 Fourth Edition of Dartmouth economist Douglas Irwin’s excellent book, Free Trade Under Fire (footnote deleted; link added):

Is there systematic evidence that tariffs reduce the range of consumer and intermediate varieties available to an economy?  Can we be sure that this reduction in variety of goods is costly to economic welfare?  A growing body of evidence suggests that the answer is yes.  For example, over the past three decades, the number of varieties imported by the United States has increased by a factor of four.  The number of countries supplying each imported good has doubled.  As a result, according to one study, consumer welfare is about 2.6 percent of GDP higher over this period [1972-2001] simply due to the gains from variety."

Prostitution Reduces Rape

From Alex Tabarrok.

"A new paper in the American Economic Journal: Economic Policy by Bisschop, Kastoryano, and van der Klaauw looks at the opening and closing of prostitution zones (tippelzones) in 25 Dutch cities.

Our empirical results show that opening a tippelzone reduces sexual abuse and rape. These results are mainly driven by a 30–40 percent reduction in the first two years after opening the tippelzone. For tippelzones with a licensing system, we additionally find long-term decreases in sexual assaults and a 25 percent decrease in drug-related crime, which persists in the medium to long run.

Cunningham and Shah studied decriminalization of indoor prostitution in Rhode Island and found very similar results.

We exploit the fact that a Rhode Island District Court judge unexpectedly decriminalized indoor prostitution in 2003 to provide the first causal estimates of the impact of decriminalization on the composition of the sex market, rape offenses, and sexually transmitted infection outcomes. Not surprisingly, we find that decriminalization increased the size of the indoor market. However, we also find that decriminalization caused both forcible rape offenses and gonorrhea incidence to decline for the overall population. Our synthetic control model finds 824 fewer reported rape offenses (31 percent decrease) and 1,035 fewer cases of female gonorrhea (39 percent decrease) from 2004 to 2009.

In addition a working paper by Riccardo Ciacci and María Micaela Sviatschi studies prostitution in New York and also finds that prostitution significantly reduces sex crimes such as rape:

We use a unique data set to study the effect of indoor prostitution establishments on sex crimes. We built a daily panel from January 1, 2004 to June 30, 2012 with the exact location of police stops for sex crimes and the day of opening and location of indoor prostitution establishments. We find that indoor prostitution decreases sex crime with no effect on other types of crime. We argue that the reduction is mostly driven by potential sex offenders that become customers of indoor prostitution establishments. We also rule out other mechanisms such as an increase in the number of police officers and a reduction of potential victims in areas where these businesses opened. In addition, results are robust to different data sources and measures of sex crimes apart from police stops.

It’s become common to think that rape is about power and not about sex. No doubt. But some of it is about sex. Quoting Ciacci and Sviatschi again:

We find evidence consistent with the fact that potential perpetrators substitute towards indoor prostitution establishments instead of engaging in sex crimes….This mechanism is in line with a survey of men who had purchased sex from women in London. About 54% of these men stated that if prostitution did not exist then they would be more likely to rape women who were not prostitutes. This belief was clearly held by one man who even stated: “Sometimes you might rape someone: you can go to a prostitute instead” (Farley et al., 2009).

In short, a wide variety of evidence from different authors, times and places, and experiments shows clearly and credibly that prostitution reduces rape. This finding is of great importance in considering how prostitution should be rationally regulated."

It’s Not Fake News. Corporate Tax Reform Can Deliver Higher Paychecks to Households

By Aparna Mathur of AEI.

"The Council of Economic Advisers recently published a report reviewing several academic economic papers studying the incidence of the corporate income tax on worker wages. Over the last decade, a relatively new empirical literature has emerged to study this question, which consistently finds that a significant burden of the corporate income tax is borne by workers. The CEA report specifically cites a study published by the Federal Reserve Bank of Kansas City, and shows that the results from that study imply that a 1 percent increase in the U.S. state corporate income tax rate would lead to about a 0.1 to 0.2 percent decline in average wages. A mechanical application of that result shows that the proposed corporate tax rate cut in the Republican tax plan from 35 to 20 percent (a decline of 42 percent in rates) would lead to an approximately 4 to 8 percent increase in average wages. With average wages at approximately $50,000, as per data from the Bureau of Labor Statistics, this roughly implies a $2000 to $4000 increase in wages.

This analysis has come under a lot of criticism because it sounds implausible that the average household would benefit so much from a corporate rate reduction. While the exact amount of the benefit is obviously debatable, the controversy surrounding the number has also sparked an interesting back-and-forth between economists, policymakers and other individuals following this debate. Here are the basic points that need to be understood as we tackle corporate tax reform.

Can a corporate tax cut lead to higher wages?

Yes. While there may be a wide range of estimates about the magnitude of the impact, most studies that have investigated the relationship between corporate tax cuts and wages find a strong negative link. Simply put, higher taxes drive away capital investments from the U.S., which reduces workers’ productivity and lowers their wages.  Workers thereby bear part of the “incidence” of the corporate tax. The empirical research reviewed in the CEA paper quantifies this effect. Some papers find that between 45 and 75 percent of the incidence of the corporate income tax is on workers. An analysis by William Randolph at the Congressional Budget Office puts the number at 70 percent. Government agencies such as the CBO and the Treasury assume a smaller share of the incidence on workers, at 18 to 25 percent. A recent report from the Tax Foundation suggests an incidence closer to 50-50. All of this suggests that workers could get a big boost from corporate tax cuts.

How much of an increase in wages could you get?

In terms of dollars, the CEA review suggests an elasticity of -0.1 to -0.2, implying that a 1 percent reduction in the tax rate would lead to an approximate 0.1 to 0.2 percent increase in wages. Some other studies, although not specific to the U.S., also find the elasticity of total wages to total corporate tax revenue near -0.1, while others find elasticities that are larger. The differences in estimates arise because of differences in the data, geographic regions, and time periods covered. While some studies use firm-level data, others use cross-country analysis. Yet others have studied differences across states within a country. As noted in the example in the introduction, if these elasticities apply to the U.S., households could see wage increases that could vary from roughly $2000 (if the elasticity is -0.1) to $4000 or higher in the long run.

Theoretically, can a $1 reduction in revenue lead to a more than $1 increase in wages?

This question has intrigued economists and many others reading the report. The CEA report shows that workers would on average gain $2000-$4000, which, with 150 million workers, means an aggregate gain of $300 billion to $600 billion. The static corporate tax revenue loss, however, is only $133 billion. How is it possible to transfer more money to workers than the loss in corporate tax revenue? For a theoretical exposition, see Greg Mankiw’s recent blog and Arnold Harberger’s original 2006 paper, which started the debate about corporate tax incidence in an open economy.
But intuitively, the logic is straightforward: when you cut the corporate rate, the burden of taxation on firms and workers goes down. Some papers suggest that this might lead to a direct increase in wages if workers have greater bargaining power and are able to claim some share of the higher after-tax profits. But the more interesting impacts occur over the longer term.

Firms that already plan to invest in the U.S. will expand their investments, contributing to a higher capital stock, higher worker productivity and higher wages. Moreover, in a globalized economy there is an additional international investment effect. As recent empirical evidence suggests, multinational firms deciding where to locate their investments will more likely invest in a relatively lower tax country. These pressures are intensified in open economy settings where global capital is highly mobile. An increase in multinational investment in the U.S. increases the demand for workers, leading to an increase in wages.

However, all of these effects are likely to take time, and therefore the wage increases will take years to materialize. But the actual impact on worker wages is not just the mechanical reduction in the share of the tax borne by workers; it also includes the economic changes that a more competitive U.S. economy would bring. So it is indeed possible that the benefit to workers of a $1 loss in corporate tax revenue is more than just $1 in the long-run, through a reduction in what economists call the “deadweight loss” of a tax.

Could families actually get $4000 more in their paychecks at some point?

While the empirical literature suggests this is indeed possible, in practice a lot would depend upon how the overall tax package is framed, not just the corporate tax cut. If the tax package adds $1.5 trillion to the government debt, the additional debt will crowd out private investment, reduce the growth impact and limit the wage increase. Moreover, a deficit-financed tax cut may increase the likelihood of a tax increase at some point, which may create uncertainty and discourage investment and hiring. In addition, if other aspects of the tax package constrain investment or hit middle class households, then household incomes may not increase significantly.

Further, it would also depend upon the types of investments that are made, the types of jobs that are created and whether workers are readily able to match with these positions or upgrade their skills sufficiently to match productively with the new capital investments. So a lot needs to fall into place for us to reap the full benefits of moving the U.S. corporate tax code to one that is more in line with the rest of the developed world. But while it may seem out of reach, we owe it to ourselves to adopt the right set of policies that will get us there.

It’s not surprising that there is a tremendous amount of skepticism about the promise of corporate tax reform. After all, we haven’t had a major change to the corporate tax code for almost 30 years, so we cannot be sure about what to expect from such a move. Further, since the U.S. is a large economy, the international investment impact of corporate tax reform may be lower, though clearly not negligible, relative to small countries like Ireland and Switzerland. I think the best approach is to be cautious and to proceed down this path in a manner that opens up the most possibilities for our workers and for our economy. Evidence from around the world suggests that countries that do so tend to help middle class workers through higher wages. As a country, we are all invested in the goal of helping working families. A corporate tax rate cut is a policy that might help us get there. Let’s do it right."

Q: What nation on Earth has reduced its carbon emissions more than any other?

From Mark Perry.

"Inconvenient Answer: According to climatologist Dr. Patrick Michaels, it’s “the good old USA, and that’s because we’ve been substituting natural gas for coal for power generation” as can be seen in the top chart above, which shows that CO2 emissions from electric power generation in the US last year were the lowest in 28 years, going all the way back to 1988. How often is that reported in the media?

Update: Bottom chart above shows total US CO2 emissions, which were the lowest during the January-June period this year since 1992, 25 years ago.

In the video below, Dr. Patrick Michaels, director of the Center for the Study of Science at the Cato Institute and author of the book Lukewarming: The New Climate Science that Changes Everything, offers a current assessment of the political debate over climate change. He explains how the free market is allowing natural gas to be substituted for coal  worldwide at a rate that will achieve a lower level of global warming than would occur with strict adherence to the regulations of the Paris Accords."

The Wages of Corporate Taxes

WSJ editorial.

"There is a long and legitimate debate about who pays corporate taxes. Corporations essentially collect taxes that are ultimately paid by someone else: a combination of workers in lower wages, customers in higher prices, or shareholders in lower after-tax returns.

For many years the dominant belief was that shareholders bore the biggest burden, but this has changed in recent decades with new research on the impact of capital mobility in a global economy. While labor is relatively immobile, especially across national borders, capital can go whereever it wants with relative ease.

U.S. companies have taken advantage of this reality by investing more abroad in lower-tax countries. The benefits accrue to Irish or Singaporean workers whose jobs are created by that capital investment. In his speech at the TPC, Mr. Hassett noted that in 1989 the average statutory corporate tax rate in the OECD was 43%—compared with 39% for the U.S. Today the average corporate tax rate for the Organization of Economic Cooperation and Development—a proxy for the industrialized world—is 24%.

Yet the combined average U.S. federal and state rate is still 39%. By making the U.S. rate competitive in a global market, capital will flow back to the U.S. for new investment. Much of that investment will go to increase worker productivity, which would boost wages.

What really angers the liberals is that, in a paper released this month by the White House, Mr. Hassett collected years of economic evidence to make the case that cutting the U.S. rate to 20% would raise average wages by $4,000 to perhaps more than $9,000. Outrageous, says Mr. Summers.

But Mr. Hassett isn’t alone. Economist Laurence Kotlikoff wrote on these pages last week that the GOP framework would “raise real wages by 4% to 7%, which translates into roughly $3,500 a year for the average working household.” Other economists have found the increase closer to $1,000. Still others say it’s higher, but the debate is over the magnitude of the raise, not the fact that American workers will benefit if the U.S. cost of capital falls.

In their blogs, economists Casey Mulligan of the University of Chicago and Greg Mankiw of Harvard dissect Mr. Summers’ academic arguments in rigorous detail, and Mr. Mulligan does him the service of citing some of his earlier work. In a 1981 paper Mr. Summers referred to “the increase in gross wages which results from the increased capital intensity arising from eliminating capital taxation.”
In his response, Mr. Summers has grabbed for the lifeline that a small economy like Ireland has no relevance to America and that Britain saw no increase in wages after it cut the corporate tax rate. But the corporate tax rate isn’t the only factor in the cost of capital, and the U.K. partially offset the benefit of the rate cut with other tax changes. And until Brexit, the U.K. economy was still one of the strongest in Europe.

Other large economies are also cutting their corporate rates, and Emmanuel Macron wants to cut the French rate to 25% from 33%. In his paper Mr. Hassett points out that wage growth has been far greater since 2013 in the 10 developed countries with the lowest statutory tax rate compared with those with the highest"

Casey Mulligan and Tomas Philipson On Cutting Corporate Tax Rates

See A Turnabout on Corporate Taxes: Economists who favored rate cuts under Obama suddenly deny they’d result in higher wages.

"In 2015, Democrat Chuck Schumer and Republican Rob Portman co-sponsored a Senate bill to reduce the top corporate tax rate, which is the highest of any of the 35 countries in the Organization for Economic Cooperation and Development. “Our international tax system,” Mr. Schumer argued back then, “creates incentives to send jobs and stash profits overseas, rather than creating jobs and economic growth here in the United States.” Bill Clinton in 2016 said he regretted raising the corporate rate to its current level.

Yet President Trump’s Council of Economic Advisers (of which one of us is a member) is now being accused of partisanship and unscientific analysis. Last week the council released a report using standard and widely accepted methods of the economics profession to find that cutting the corporate tax rate from 35% to 20% would raise the wage income of an American household by an average of $4,000 within a 10-year time-frame.

The critics include Mr. Summers and Jason Furman, who served as chairman of the CEA under Mr. Obama—both of whom backed cutting the corporate tax rate during Mr. Obama’s presidency. Their main methods of criticism include qualitative introspection—the world works this way because I think so—without reference to a supporting scientific base. Other arguments use economywide times-series correlations—taxes are not as bad because both taxes and America grew in the 1990s—omitting other variables driving them, such as the explosion of the internet. Neither method is accepted by the economics profession.

One of the few substantive quantitative points they raise is that they believe the government will receive $200 billion less in corporate tax revenue if the corporate rate drops from 35% to 20%. They write: “We see from the CEA estimates that they predict American households will receive two to three times this amount in the form of higher incomes! That’s impossible!” That’s a fundamental misunderstanding of the CEA paper—and, more important, of how the economy works. Not only is it possible, it happens every single time.

This argument also contradicts several decades of standard tax analysis. To illustrate, consider a $1 million tax on airline tickets. People wouldn’t fly, so no government revenue would be collected—and thus the harm of the tax would be infinitely as large as the revenue. Likewise, a tax cut in which the expansion of the base exactly offset the reduction in the rate would have no revenue effect, so society’s gain from the cut would be infinitely larger than the revenue loss.

In the standard economic framework, including Mr. Summers’s own work, the long-run loss in revenue to the government is always less than the addition to workers’ wages, because resources are freed up to engage in more productive activities.

The gains to factors from a tax cut is always more than 100% of the loss in Treasury revenues, but how much larger? Standard economic models of capital investment predict it’s 200% to 300% of revenue losses—as a $4,000 wage increase implies. That is supported by many different strands of the literature and why economists Edward Lazear (a CEA chairman under George W. Bush ) and Laurence Kotlikoff, a father of many organizations’ tax models, among others, find worker wage effects similar to those found by CEA. Nevertheless, according to Mr. Summers, anyone using these standard models—which includes Mr. Summers in his own work—is “dishonest, incompetent, and absurd.”

Messrs. Summers and Furman now belatedly acknowledge that standard economic analysis vividly contradicts their initial proclamations. So they have tried to backtrack by saying that basic economics omits “complex issues” and so must now be irrelevant. But these so-called complex issues are not new. Nor are they complex. Nor do they change our analysis and conclusions. Economists Robert Hall and Dale Jorgensen first analyzed these issues in 1967, and improvements of that literature have been used by CEA in both past and recent analysis.

Among these issues, the economists profession is fully aware that the corporate tax favors—among other things—investments that are debt financed, have quicker depreciation, or can be assigned to foreign jurisdictions. All these distortions by the corporate tax code suggest larger, not smaller, output expansions per dollar of revenue by the proposed tax reform.

The Obama economists go on to favor the current corporate tax rate because, although most corporations are not monopolies, the corporate tax is absorbed by those that are. Widely accepted facts contradict that argument. In particular, economists have mountains of evidence that monopolies are a problem as they withhold production to raise prices. This means that too little capital and labor get used in their industries compared with the rest of the economy, and that too little is used in the economy overall. Thus, keeping the corporate tax only exacerbates this labor underutilization."

Rent control increases rent, the ultimate unintended consequence

Via Jeremy Horpedahl on Twitter.

"The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco ∗

Rebecca Diamond†, Tim McQuade‡, & Franklin Qian§ October 11, 2017

Abstract In this paper, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants, landlords, and the rental market as a whole. Leveraging new micro data which tracks an individual’s migration over time, we find that rent control increased the probability a renter stayed at their address by close to 20 percent. At the same time, we find that landlords whose properties were exogenously covered by rent control reduced their supply of available rental housing by 15%, by either converting to condos/TICs, selling to owner occupied, or redeveloping buildings. This led to a city-wide rent increase of 7% and caused $5 billion of welfare losses to all renters. We develop a dynamic, structural model of neighborhood choice to evaluate the welfare impacts of our reduced form effects. We find that rent control offered large benefits to impacted tenants during the 1995-2012 period, averaging between $2300 and $6600 per person each year, with aggregate benefits totaling over $390 million annually. The substantial welfare losses due to decreased housing supply could be mitigated if insurance against large rent increases was provided as a form of government social insurance, instead of a regulated mandate on landlords."

Monstrous Modern Mercantilism

From Don Boudreaux.

"In his most recent column, George Will attacks “the radiating mischief of protectionism.”  Some slices:

What a tangled web we weave when first we practice to deceive ourselves into believing that corporate welfare can be seemly.
….
Bombardier is indeed subsidized to a fare-thee-well. The Canadian government subsidizes the Montreal-based company, as does the province of Quebec. But the U.S. government essentially provides Boeing with its own financial institution: The company is by far the largest beneficiary of what is known as “Boeing’s Bank” — the misbegotten Export-Import Bank. It provides cheap loans to Boeing’s overseas customers, lowering the real prices they pay. In 2014, 68 percent of the bank’s long-term loan guarantees — its primary business — was on Boeing’s behalf. Boeing also benefits from government contracts — 23 percent of its 2016 revenue; the Defense Department is its largest customer — and from state governments’ incentives worth billions (e.g., $8.7 billion from Washington state).
Nevertheless, the Commerce Department, succoring Boeing with compassionate conservatism, imposed an astonishing 219.63 percent tariff on imports of Bombardier’s C Series, supposedly to compensate for subsidies the company receives, and another 79.82 percent as punishment for not charging Delta, a U.S. airline, more. This 299.45 percent duty — Boeing had suggested 160 percent — would quadruple the planes’ price, effectively closing the U.S. market to them, thereby threatening Bombardier’s survival.

DBx: Do read the entire column.
In this, the 21st century, 17th-century mercantilism – a toxic mix of economic ignorance, grotesque hypocrisy, and cronyism – remains alive and well and supported by partisans left and right."

The glyphosate scandal:Bounty hunting lawyers lie behind a distortion of science

From Matt Ridley.

"Bad news is always more newsworthy than good. The widely reported finding that insect abundance is down by 75 per cent in Germany over 27 years was big news, while, for example, the finding in May that ocean acidification is a lesser threat to corals than had been thought caused barely a ripple. The study, published in the leading journal Nature, found that corals’ ability to make skeletons is “largely independent of changes in seawater carbonate chemistry, and hence ocean acidification”. But good news is no news.

And bad news is big news. The German insect study, in a pay-to-publish journal, may indeed be a cause for concern, but its findings should be treated with caution, my professional biologist friends tell me. It did not actually compare the same sites over time. Indeed most locations were only sampled once, and the scientists used mathematical models to extract a tentative trend from the inconsistent sampling.

Greens were quick to use the insect study to argue for a ban on the widely used herbicide glyphosate, also known as Roundup, despite no evidence for a connection. Glyphosate is made by Monsanto and sometimes used in conjunction with genetically modified crops.

Their campaign comes to a head this Wednesday in Brussels, where an expert committee of the European Commission will decide whether to ban glyphosate. The European parliament has already voted to do so, though its vote carries no weight. The committee will probably defer a decision until December, amid signs that the commission is getting fed up with the way French politicians in particular demand a ban in public then argue against it in private.

The entire case against glyphosate is one “monograph” from an obscure World Health Organisation body called the International Agency for Research on Cancer, which concluded that glyphosate might cause cancer at very high doses. It admitted that by the same criteria, sausages and sawdust should also be classified as carcinogens.

Indeed, pound for pound coffee is more carcinogenic than the herbicide, with the big difference that people pour coffee down their throats every day, which they don’t glyphosate. Ben & Jerry’s ice cream was recently found to contain glyphosate at a concentration of up to 1.23 parts per billion. At that rate a child would have to eat more than three tonnes of ice cream every day to reach the level at which any health effect could be measured.

The IARC finding is contradicted by the European Food Safety Authority as well as the key state safety agencies in America, Australia and elsewhere. The German Federal Institute for Risk Assessment looked at more than 3,000 studies and found no evidence of any risk to human beings at realistic doses: carcinogenic, mutagenic, neurotoxic or reproductive. Since glyphosate is a molecule that interferes with a metabolic process found in all plants but no animals, this is hardly surprising.
Meanwhile, glyphosate has huge environmental benefits for gardeners and farmers. In particular, it is an alternative to the destructive practice of ploughing to control weeds. It allows no-till agriculture, a burgeoning practice that preserves soil structure, moisture and carbon content, enabling worms and insects to flourish, improving drainage and biodiversity while allowing the high-yield farming that is essential if we are to feed humanity without cultivating more land. Organic farmers rely on frequent tillage."

Has Industry Concentration Increased Price and Restricted Output? (maybe not)

From Tyler Cowen.

"That is part of the title of a new paper by Sharat Ganapati, here is the abstract:

American industries have grown more concentrated over the last few decades, driven primarily by the growth of the very largest firms. Classical economics implies that this should lead to hikes in prices, reduction in output, and decreases in consumer welfare. I investigate forty years of data from 1972-2012 using publicly available market shares and price indices for both the manufacturing and non-manufacturing sectors and find mixed evidence. Manufacturing concentration increases are indeed correlated with slightly higher prices, but not lower output. However concentration increases are correlated with increases in productivity, offsetting a large portion of the price increase. In contrast, non-manufacturing concentration increases over the last twenty years are not correlated with observable price changes, but are correlated with increases in output.

In other words, the output restrictions are not there.  The amazing thing is that, over the last few years, I have seen a few dozen journalists and also economists handle this question, without ever asking much less trying to answer this question (Noah Smith being an exception)."

Labor’s Share of GDP: Wrong Answers to a Wrong Question

By Alan Reynolds.

"A recent paper by David Autor of MIT, Lawrence Katz of Harvard and others, “The Fall of the Labor Share and the Rise of Superstar Firms,” begins by posing a mystery: “The fall of labor’s share of GDP in the United States and many other countries in recent decades is well documented but its causes remain uncertain.”  They construct a model to blame it on U.S. businesses that are too successful with consumers.

Five broad industries, they found, became more dominated by fewer firms between 1982 and 2012: retailing, finance, wholesaling, manufacturing and services. But those aren’t industries at all, much less relevant markets: they’re gigantic, diverse sectors. Is all manufacturing becoming monopolized? Really? Census data ignores imports, but why ruin this bad story with good facts.

Noah Smith at Bloomberg ran an audacious headline about this tenuous paper: “Monopolies drive down labor’s share of GDP.” Smith writes that, “The division of the economy into labor and capital is one place where Karl Marx has left an enduring legacy on the economics profession.” He goes on to claim that “at least since 2000 – and possibly since the 1970s – capital has been taking steadily more of the pie.” Yet, Jason Furman and Peter Orszag found “the decline in the labor share of income is not due to an increase in the share of income going to productive capital—which has largely been stable—but instead is due to the increased share of income going to housing capital.” Depreciation and government, they noted, also gained an increased share (i.e., grew faster than labor income.)
President Obama’s Council of Economic Advisers, under Jason Furman, nonetheless worried that the 50 [!] largest firms in just 10 “industries” (if you can imagine retailing and real estate to be industries) had a larger share of sales in 2012 than in 1997 (using Census data that excludes imports). They concluded that, “many industries may be becoming more concentrated.” Noah Smith, Paul Krugman and many others have suggested that this nebulous “concentration” allowed monopoly profits to rise at the expense of the working class, supposedly explaining labor’s falling share of GDP during the high-tech boom. A quixotic search for even one actual example of monopoly soon morphed into advice about using unconstrained antitrust to constrain Amazon, which is apparently feared to have monopoly profits invisible to the rest of us.

Research that starts with such a meaningless question as “labor’s share of GDP” was never likely to lead us to any profound answers. Workers do not receive shares of GDP – they receive shares of personal or household income.  

Contrary to popular confusion, dividing employee compensation (wages and benefits) by GDP does not measure how a capitalist private economy (e.g., “superstar firms”) divides income between labor and capital. Most obviously, the government makes up a huge share of GDP, including nonmarket goods like defense and public schools. Nonprofits also account for a lot of GDP, with no obvious payout to labor or capital. Less obviously, depreciation makes up another huge share of GDP, including wear and tear on public highways and bridges as well as private equipment, homes, and buildings. The “imputed rent on owner-occupied homes” is another large piece of GDP. Asking if labor is getting a fair share of defense, depreciation and imputed rent is a truly foolish question. Net private factor income would be a better gauge than GDP, for the purpose at hand, but still flawed. 
The ratio of compensation to GDP uses the wrong numerator as well as an untenable denominator. Labor income must add the labor of self-employed proprietors.

When people say “labor’s share is falling,” they surely mean income people receive from work has not kept up with income people (often the same people) receive from property: dividends, interest, and rent. But, that crude Piketty-Marx labor/capital dichotomy ignores another increasingly important source of personal income: namely, government transfer payments from taxpayers to those entitled to cash and in-kind benefits.


The first graph shows shares of income from labor, property, and transfers. The property share peaked at 21.1% in 1984-85, as the Fed kept interest rates very high, but averaged 19.3% and was 19.4% in 2016 (after dropping to 17.8% in 2009).  The labor share averaged 66.5% but was 63.3% in 2016 even though property owners’ share was virtually flat. What went up? Transfer payments. Transfers rose from 11.7% of personal income in 1988 to 17.4% in 2016. Personal income that has been growing persistently faster than income from work has not been income from property (since the 1980s), but income from Social Security, Disability, Medicare, Medicaid, EITC, TANF, SNAP, SSI, UI, and so on.

Some might object that personal income leaves out retained corporate profits. But profits not paid out as dividends add to people’s income only if they are reinvested wisely enough to lift the value of the firm and thus generate capital gains. Personal income excludes capital gains because national income statistics measure flows of income from current production, not asset sales. That is also true of GDP, adding another reason to discard GDP as the basis of comparison.

However, Congressional Budget Office reports on the distribution of income do include realized capital gains when assets are sold (turning wealth into income).

The second graph shows that labor’s share of household income is highest in deep recessions (77.5% in 1982, 76.2% in 2009) and lowest at cyclical peaks (70.6% in 2000, 68.3% in 2007). The higher labor share in recessions does not mean recessions are good for workers, of course, but that they are even worse for business and investors. Those who equate a higher labor share of income (e.g., during recessions) with higher real income for workers are making a basic and very large mistake.

Capital income was highest in the early 1980s because the Federal Reserve kept interest rates very high, and capital income (dividends, interest, and rent) has shown no upward trend since then. Dividends and rent are up, but interest income is down.

Capital gains rose at specific times, but there has been no upward trend. There was a spike in capital gains in 1986 because the tax on gains jumped to 28% the following year. Realized gains also rose for four years after the capital gains tax was brought back down to 20% in 1997, and again after the capital gains tax was cut to 15% in mid-2003.

The white space at the top is important because it increases by four percentage points from 1990 (15.3%) to 2016 (20.3%) while labor’s share fell by 2.5 percentage points (from 75% to 72.5%). That white space is transfer payments: income from neither labor or capital. As the first graph showed, labor’s somewhat smaller share of income is not because of any sustained rise of capital income or capital gains. It is because of a sustained rise in the share of income from transfer payments and a sustained fall in the labor force participation rate.

Meanwhile, household income from owning a closely-held private business doubled since 1986: from 4% of household income in 1986 to 8% in 2013. That reflects the well-known shift of income from corporate to “pass-through” entities after 1986 as the top individual tax rate became even lower than the corporate tax rate (1988-92) or about the same dropped to the same as the corporate rate (35% 2003-2012)) or lower. That did not mean that “business” grabbed a bigger share at the expense of “labor,” but that a larger share of business income shifted from corporate to personal data.

The frequently repeated angst about “the fall of labor’s share of GDP in the United States” is based on a serious yet elementary misunderstanding of both labor income and GDP. “Labor’s share of GDP” is fundamentally nonsensical, because so much of GDP (depreciation, defense, etc.) could not possibly be paid to workers, and because the measure of labor income is too narrow (excluding the self-employed).

Labor’s share of the CBO’s broadly-defined household income also fell (unevenly) because the share devoted to transfers rose, but also because the share moved from corporate to household accounts (and individual tax returns) also rose. Business income counted within CBO’s household income has increased its share of such income since the Tax Reform Act of 1986, but that just reflects a change in organizational form from C-Corporation to pass-through status.

Labor’s share of personal income fell mainly because the share devoted to government transfer payments rose. Labor’s share of GDP fell for other reasons (rising shares going to housing, government, and depreciation), but it is a fundamentally misconstrued statistic used to rationalize irresponsible remedies to an illusory problem of “monopolies.”"

Don’t Blame Us Libertarians for School Choice Disappointment

By Neal McCluskey of Cato.

"The headline of Megan McArdle’s latest Bloomberg View piece stings, at least for a libertarian whose job is to advance educational freedom: “We Libertarians Were Really Wrong About School Vouchers.”

Ouch! But to this I say: Speak for yourself!

To be fair, I don’t know how things work for big-time columnists, but there’s a good chance McArdle didn’t pen her own headline. Pubs need clicks, and the shrewd marketeers at Bloomberg were no doubt well aware that such an inflammatory header would draw in all roughly ten professional libertarian school choicers, boosting readership by huge hundredths of a percent. And it is worth saying: While I’m not sure you would call them libertarians, John Chubb and Terry Moe’s Politics, Markets, and America’s Schools was seminal in launching the modern choice movement, and they did assert that choice would be a “panacea.” If that is what libertarians expected from the tiny choice programs we’ve gotten so far, yes, we were wrong. But that is not what libertarians should have expected.

The fact is we have not even come close to getting what we need—real, broad freedom, which McArdle and lots of libertarians call “the market.” (I’ve decided, by the way, that a “market” is a horrible way to conceptualize what libertarians want, because it implies education is all about efficient financial transactions. What we want is full-on human freedom.) None of the voucher, charter, scholarship tax credit, or education savings account programs we have gotten have even come close to a free market, as many libertarians have been decrying for decades.

How far are we? Thankfully, you don’t have to dig into old books to find out—we give you the lowdown in Educational Freedom: Remembering Andrew Coulson, Debating His Ideas (available in free PDF version or wherever fine books are sold)! Andrew was a leading critic of the kinds of hamstrung programs many choice supporters lauded for years—a few thousand kids with small vouchers here, public charter schools there—and the book contains multiple chapters examining what is needed for a true free market. As the Heartland Institute’s George Clowes lays out:

• Parental choice of school
• Direct parental financial responsibility
• Freedom for educators to establish different types of schools
• Explicit competition among educators
• The profit motive for educators (and the need for a reliable revenue stream)
• Universal access (including low- and high-income families)
• Per-pupil funding comparable to the public schools, with the funding following the child

Man, are we far from a market! Charter schools cannot teach devotional religion and are part of the same state standards-and-testing accountability regimes as traditional public schools, cramping how meaningful a choice they can be, or how free their educators. Meanwhile, full per-pupil funding rarely makes its way out of traditional public schools and into charters, and establishing a new school can often be an excruciating and ultimately futile effort.

How about private school choice programs? The good news, at least in theory, is “private” means “real choice,” with schools free to teach whatever they want, how they want. And they come closer than charters, with religion allowed, and sometimes no state testing-based accountability. But some programs require state testing and boot schools that don’t get good grades—Indiana has about 35,000 voucher students, and those rules—and others have less stringent requirements, but testing nonetheless. Even more handicapping is that choice programs are usually poorly funded relative to the public schools and have mandated or de facto enrollment caps due to eligibility requirements or funding limits. In DC, for instance, a voucher is worth around a third of what is spent per-pupil in the public schools (and significantly less than charters) while enrollment is capped at about 2,000 students by the program’s budget. And allowing the profit motive to work is seen as the Mark of Cain, even though it is the lynchpin for taking quality and innovation to scale.

As a libertarian it is easy to get depressed, but only because we’ve barely scratched the surface of freedom. Indeed, the evidence even from this sad state of affairs strongly suggests freedom works. For one thing, Andrew Coulson analyzed the “market-ness” of education systems around the world—where school choice is often embraced more warmly than the home of Cowboy Capitalism—and he found that the more market-like a system, the better the outcomes. We have seen that in the U.S., too, where the “gold-standard” research has typically found that choice delivers slightly better test scores, and much higher graduation rates, at a fraction of the cost of traditional public schools. Even the research McArdle cites to help explain why choice has turned out to be a bummer—a study of centrally managed choice among only public high schools in New York City—suggests that the schools people choose produce better academic outcomes. It’s just that parents seem to prefer schools because they have better performing students rather than explicitly greater learning gains. But it turns out that signal works: “We find preferences are positively correlated with both peer quality and causal effects on student outcomes.”

Of course, what should ultimately thrill libertarians—and everyone else—about choice is not test bumps or dollars saved, but that it is the only education system that lets all people pursue what they believe is important in education without having to impose their views on everyone else, or live under the constant threat of having someone else’s values imposed on them. It is the only education system consistent with a truly free and equal society.

Megan McArdle is absolutely right to be disappointed that we are not where we need to be in education. But that is not because libertarian ideas are a bust. It is because we are so far from seeing them fully implemented."

Female homicide rate dropped after Craigslist launched its erotic services platform

Sex workers have long argued that online erotic services platforms make their jobs safer. A new study proves it.

By Noah Berlatsky. Excerpts:

"The September 2017 study, authored by West Virginia University and Baylor University economics and information systems experts, analyzes rates of female homicides in various cities before and after Craigslist opened an erotic services section on its website. The authors found a shocking 17 percent decrease in homicides with female victims after Craigslist erotic services were introduced.

The data does not provide a single clear explanation as to why female homicide rates drop so steeply, Scott Cunningham, one of the paper’s authors, told ThinkProgress. It’s possible, for example, that when Craigslist opens erotic services ads, some women in abusive domestic situations decide to become sex workers, move out, and so escape violent homicide at the hands of their spouses or boyfriends.

The most likely explanation, though, Cunningham says, is that sex workers simply make up a huge percentage of female homicide victims. When sex workers are safer, female homicide rates drop significantly.

Cunningham and the paper’s other authors, Gregory DeAngelo and John Tripp, analyzed online escort review sites in order to try document the movement of sex workers to indoor locations. They found that after Craigslist introduced erotic services pages, client reviewers mentioned lower prices and lower satisfaction — a sign that lower-priced street workers were moving indoors and receiving reviews for the first time.

Once sex workers move indoors, they are much safer for a number of reasons, Cunningham said. When you’re indoors, “you can screen your clients more efficiently. When you’re soliciting a client on the street, there is no real screening opportunity. The sex worker just has to make the split second decision. She relies on very limited and complete information about the client’s identity and purposes. Whereas when a sex worker solicits indoors through digital means, she has Google, she has a lot of correspondence, she can ask a lot of questions. It’s not perfect screening, but it’s better.” 

There’s some evidence that other crimes are decreased by online advertising as well. Kristen DiAngelo, executive director of the peer sex worker advocacy organization Sex Worker Outreach Project (SWOP) Sacramento, pointed to a study conducted by the organization in 2015. Researchers interviewed 44 sex workers on the street and, of those workers, 18 percent said they had moved outdoors following the closing of SFRedbook. 

“Of that 18 percent, almost every one of them had been raped since they’d been out there,” DiAngelo told ThinkProgress. “We had been asking them ‘have you been raped?’ but there was a point where I wanted to say, ‘Have you been raped yet?’ because it was just that prevalent.”

DiAngelo also believes that easy access to online ads makes trafficking less likely, rather than more likely. On the street, women are visible; it’s easy for pimps and traffickers to find them. Online, DiAngelo says, “women can run their own business and predators don’t have immediate access to them.” 

Maxine Doogan, founder of the California-based Erotic Service Providers Union, added that online ad providers like Craigslist and Backpage also improve safety because they provide access to steadier work and more affluent clients. Shutting down the sites “makes people desperate for money,” she told ThinkProgress."

In theory, closing down advertising is supposed to reduce exploitation of women. In practice, when resources are taken away from people living on the edge of poverty, they have fewer options and are less able to protect themselves.

For all these reasons access to the Internet can transform the experience of sex work. Young women who have been able to screen clients using sites like Craigslist, “almost feel like this is a safe job because they have these tools,” DiAngelo said.

Sex workers report that free online advertising makes them safer. There is now data showing that erotic services ads significantly decrease female homicide rates. So, will law enforcement back down and allow these sites to operate again?"

Time to Eliminate Hidden Taxpayer Support of Union Activities

By Trey Kovacs of CEI.

"Tax dollars should exclusively support the public’s business. But a Mackinac Center for Public Policy open records request show this is not the case in Michigan. According to the Michigan Civil Service Commission’s response to the records request, “Michigan is paying 20 state employees annual salaries totaling more than $1.2 million to do union work on a full-time basis.”

More than just these 20 employees use release time. Some only spend part of their day on union activities rather than state work.

Worse, this wasteful practice is not limited to state employees. Another $3 million of taxpayer dollars are frittered away by Michigan school districts, by allowing about 100 employees to conduct union business while being paid by taxpayers.

This practice, known as release time, permits state and local employees to perform union business instead of the public duties they were hired to do. Normally, release time provisions are negotiated into public employee unions’ collective bargaining agreements with government entities.
Unfortunately, Michigan is far from the only state or government supplying government unions with this subsidy.

At the federal level, civil servants spend 3.4 million hours on union business, costing taxpayers at least $162.5 million in FY 2014.

Some progress has been made this session of Congress to bring transparency to the practice of release time, or official time as it is called by the federal government. The House passed H.R. 1293, sponsored by Representative Dennis Ross (R-Fla.), which requires the Office of Personnel Management to submit an annual report on the practice of “official time.” The bill passed out of the Senate Homeland Security and Governmental Affairs Committee on July 26, 2017.

The Competitive Enterprise Institute has submitted a number of public records requests on the subject in Florida, Connecticut, Texas, and Missouri. These states have spent millions of dollars paying for release time. Even more egregious than the dollar amount is the activity that is performed on release time.

In Texas, Austin Fire Department public employees were granted release time to attend a “Retirement BBQ,” “fishing tournament,” and “Retirement Party.”

In Missouri, release time funded union political activity. Missouri Communication Workers of America (CWA) members spent release time participating in “Lobby Day, Jefferson City,” an event organized by the CWA and other public-employee unions to lobby legislators. And on Lobby Day, the CWA sent 10 members on release time to the state Capitol, where they lobbied legislators to vote against right to work and paycheck protection laws.

In Florida, local governments—Miami-Dade County, the City of Tampa, and the City of Jacksonville—do not even keep track of what activity release time employees do.

There is no public benefit from allowing government employees to perform union business on the taxpayer dime. Congress and state governments around the country should figure out a way to eliminate this wasteful practice."

The Dangers Posed by Behavioral Economics

By James Broughel of Mercatus.

"Last week, Richard Thaler won the Nobel Prize in economic sciences for his pioneering work in the field of behavioral economics. His research applies insights from a different field — psychology — by focusing on various “cognitive biases” that explain how people’s behavior deviates from that of the purely rational beings in economic models.

Dr. Thaler’s contributions to the field of economics should be celebrated. However, the value of behavioral economics in a public policy context is more nuanced. There are some clear benefits, but there are dangers as well.

An example of a cognitive bias is the “endowment effect.” After walking past a furniture shop, you might be willing to pay up to $100 for the table you see in the shop window. But after you’ve taken it home for a week, you refuse to sell the table to your neighbor for anything less than $200. In other words, ownership sometimes changes the value that people place on items. Such behavior seems to defy what traditional economic models would predict, which is that an item’s usefulness to a person is what matters, rather than who owns it.

Countless quirks like this have been identified by researchers, and governments are beginning to take advantage of these quirks when designing policies. One policy application of behavioral economics is to make enrollment into certain programs, such as organ donation, automatic. People can always opt out if they want to, but if people are enrolled by default, more tend to participate.

In response to such findings, former President Obama issued an executive order in 2015 encouraging government agencies to look for ways to incorporate behavioral science insights into their policies and programs. He created a Social and Behavioral Science Team with a similar mission.

Alongside some positive policy developments, however, there are warning signs. Behavioral economists such as Dr. Thaler are quick to criticize the assumption that people act rationally. But, ironically, many of these same scholars hold up perfect rationality as an ideal against which real-life human decisions should be judged. Any deviation from perfect rationality, the logic goes, is grounds for government regulation. It would seem to follow that any decision people make could justify regulation.

Consider a bachelor deciding whether to propose to his long-time girlfriend. Several cognitive biases will make it more likely that he proposes, even if it is a poor decision. The bachelor might be overly attached to his girlfriend due to the endowment effect. He might be too optimistic about the prospects of marriage, given that so many marriages end in divorce. Or, he might choose to marry his girlfriend out of sheer inertia, when in fact he should be exploring his options.

But we should not forget about the cognitive biases that may discourage the bachelor from proposing, even if marriage is actually in his best interests. He might remember his own parents’ divorce, a salient event in his life clouding his judgment. He might place too much weight on what he loses in marriage, such as the freedom to date other women, and downplay the gains from having a life partner and perhaps also a family. Or, he might simply procrastinate and put off proposing, putting his relationship at risk and postponing the benefits of marriage.

Whatever choice the bachelor makes, one can cherry pick from a list of more than 180 cognitive biases to argue that it was a bad decision.

Sound like a silly example? Perhaps, but regulators and academics are already criticizing the public’s decisions in a similar manner. Behavioral rationales have been put forth to justify the regulation of everything from payday loans to sugary drinks and even home appliances.

Behavioralists often point to “present bias” — putting too much emphases on the present relative to the future — in such cases. In the context of payday loans, borrowers might later regret agreeing to a high interest rate. With sugary drinks, Coca Cola drinkers might downplay the health repercussions of obesity. With home appliances, maybe consumers should be willing to pay more upfront for energy efficient appliances if in the long run they save money through lower utility bills.

These arguments may have some validity. But which behavioral biases are being ignored in these cases? Perhaps some people have an irrational aversion to debt. Perhaps some are overconfident that future energy prices will be high. Cognitive bias is real, but no regulator has all of the pertinent information about peoples’ purchasing decisions.

Take, for example, recent regulations setting energy and fuel efficiency standards for appliances and automobiles. Energy usage is certainly a legitimate concern, but according to the federal government’s own analyses, these rules will produce negligible environmental benefits for Americans. They are justified instead primarily because they “correct” the supposed irrationality of U.S. consumers and businesses.

President Trump would be wise to set boundaries on the government’s use of behavioral economics. President Obama’s executive order failed to make the important distinction between using behavioral science insights to address real problems in the marketplace — such as a shortage of organs available for transplants — and using behavioral findings to correct supposed cognitive biases found in the public. The president could repeal this order, or he could ask the Office of Management and Budget to issue guidance that clarifies this distinction.

Behavioral economics has made valuable contributions to the social sciences, which is why Richard Thaler’s Nobel is well-earned. But this research also poses dangers, depending on how it is applied. The government should put reasonable limits on the use of behavioral economics to help prevent the abuses that will inevitably occur in the hands of overzealous regulators."

The truth about Easter Island: a sustainable society has been falsely blamed for its own demise

By Catrine Jarman. She is a PhD researcher in Archaeology and Anthropology, University of Bristol. Excerpt:

"The ecocide hypothesis centres on two major claims. First, that the island’s population was reduced from several tens of thousands in its heyday, to a diminutive 1,500-3,000 when Europeans first arrived in the early 18th century.

Second, that the palm trees that once covered the island were callously cut down by the Rapa Nui population to move statues. With no trees to anchor the soil, fertile land eroded away resulting in poor crop yields, while a lack of wood meant islanders couldn’t build canoes to access fish or move statues. This led to internecine warfare and, ultimately, cannibalism.

The question of population size is one we still cannot convincingly answer. Most archaeologists agree on estimates somewhere between 4,000 and 9,000 people, although a recent study looked at likely agricultural yields and suggested the island could have supported up to 15,000.

But there is no real evidence of a population decline prior to the first European contact in 1722. Ethnographic reports from the early 20th century provide oral histories of warfare between competing island groups. The anthropologist Thor Heyerdahl – most famous for crossing the Pacific in a traditional Inca boat – took these reports as evidence for a huge civil war that culminated in a battle of 1680, where the majority of one of the island’s tribes was killed. Obsidian flakes or “mata’a” littering the island have been interpreted as weapon fragments testifying to this violence.

However, recent research lead by Carl Lipo has shown that these were more likely domestic tools or implements used for ritual tasks. Surprisingly few of the human remains from the island show actual evidence of injury, just 2.5%, and most of those showed evidence of healing, meaning that attacks were not fatal. Crucially, there is no evidence, beyond historical word-of-mouth, of cannibalism. It’s debatable whether 20th century tales can really be considered reliable sources for 17th-century conflicts.

What really happened to the trees

More recently, a picture has emerged of a prehistoric population that was both successful and lived sustainably on the island up until European contact. It is generally agreed that Rapa Nui, once covered in large palm trees, was rapidly deforested soon after its initial colonisation around 1200 AD. Although micro-botanical evidence, such as pollen analysis, suggests the palm forest disappeared quickly, the human population may only have been partially to blame.

The earliest Polynesian colonisers brought with them another culprit, namely the Polynesian rat. It seems likely that rats ate both palm nuts and sapling trees, preventing the forests from growing back. But despite this deforestation, my own research on the diet of the prehistoric Rapanui found they consumed more seafood and were more sophisticated and adaptable farmers than previously thought.

Blame slavers – not lumberjacks

So what – if anything – happened to the native population for its numbers to dwindle and for statue carving to end? And what caused the reports of warfare and conflict in the early 20th century?

The real answer is more sinister. Throughout the 19th century, South American slave raids took away as much as half of the native population. By 1877, the Rapanui numbered just 111. Introduced disease, destruction of property and enforced migration by European traders further decimated the natives and lead to increased conflict among those remaining. Perhaps this, instead, was the warfare the ethnohistorical accounts refer to and what ultimately stopped the statue carving.

It had been thought that South Americans made contact with Rapa Nui centuries before the Europeans, as their DNA can be detected in modern native inhabitants. I have been involved in a new study, however, led by paleogeneticist Lars Fehren-Schmitz, which questions this timeline. We analysed Rapanui human remains dating to before and after European contact. Our work, published in the journal Current Biology, found no significant gene flow between South America and Easter Island before 1722. Instead, the considerable recent disruption to the island’s population may have impacted on modern DNA.

Perhaps, then, the takeaway from Rapa Nui should not be a story of ecocide and a Malthusian population collapse. Instead, it should be a lesson in how sparse evidence, a fixation with “mysteries”, and a collective amnesia for historic atrocities caused a sustainable and surprisingly well-adapted population to be falsely blamed for their own demise."

The unintended consequences of Europe’s net neutrality law after one year

By Roslyn Layton of AEI.

"The EU’s law “laying down measures concerning open internet access” came into force in 2016. After a year with the law on the books, telecom regulators across Europe have submitted compliance reports to the supervisory Body of European Regulators for Electronic Communications (BEREC) and the European Commission. While no bad internet service providers (ISPs) or violations have emerged, a regulatory bureaucracy is growing because of the law. A new report analyzes experiences across some 30 European countries and describes the unintended consequences. Here are three.

Speed measurement: Valuing convenience over accuracy

The EU’s law requires disclosure of network speeds and empowers national regulators to implement measures of network assessment. Speed may be the least important parameter in measuring a user’s quality of experience, but many regulators like to regulate it because it provides the appearance of objectivity. Measuring network speed is difficult for a variety of reasons, including the defining of end points and differences in terminating device and applications. Network providers spend millions of dollars annually on measurement. Speed cannot be guaranteed without a quality of service guarantee or prioritization, but these are unwittingly prohibited by most net neutrality rules.

BEREC’s goal is to promote a regulatory regime based on crowdsourced measurement tools. While it recognizes that these tools are inaccurate and scientifically uncertified to measure speed, BEREC states that it prefers the “convenience” of these measures because they are user generated. BEREC’s ostensible goal is for users to generate complaints on missed speed targets using the questionable crowdsourced measures. These would be automatically forwarded to the regulator, which could then penalize the ISP accordingly.

If a speed disclosure regime is the goal, this can be managed through a country’s competition authority under contract enforcement. Having a specialized regulator to do this task is a waste of resources. If anything, this is an argument to transition net neutrality to competition authorities.

Invasion of privacy

BEREC may want to crowdsource speed measurement, but it also wants to retain the ability to surveil networks to ensure that ISPs are not conducting so-called non-neutral traffic management. It seems a perversion of the concept of a free and open internet that governments monitor networks to ensure that ISPs are doing nothing wrong. The nature and extent of BEREC’s proposed surveillance could violate users’ privacy, but then again, the EU’s new privacy regulation, the General Data Protection Regulation, does nothing to protect Europeans from privacy invasions conducted by government.
More generally, net neutrality rules force users to value all content the same, unwittingly give undesired content (violent material, personally and politically subjective material, pornography, malvertising, etc.) the same value as desired content and may well violate the European Convention on Human Rights. Articles 8, 9, and 10 protect privacy and family life, freedom of thought, and freedom of expression. Similar to the First Amendment in the US, European governments are restricted in interfering in these rights and in a person’s freedom to receive and impart information. Net neutrality appears to violate these tenets, as it empowers regulators to control the price and transmission of internet data, depriving users the freedom to contract. As I describe in my recent paper, Voice Over Internet Protocol co-inventor and Vonage co-founder Dan Berninger is suing the Federal Communications Commission (FCC) at the Supreme Court because users on his Hello Digital platform are unable to speak, since the ability to ensure signal quality is prohibited by the Open Internet Order.

No new innovation

The stated goal of the EU legislation is to protect end users and promote innovation. In addition to the problem of violating Europeans’ privacy, there is no evidence that new internet innovation has resulted from the EU rules. I’ve discussed this in a recent AEI paper on whether net neutrality stimulates innovation. Europe continues to fall behind the US and East Asia. No European company has appeared on Mary Meeker’s internet trends report for years, while Chinese internet companies gain an increasing foothold.

Many Europeans are dissatisfied with the EU, as the victories of protest parties in elections show. The European Commission and Parliament made a gamble to regulate net neutrality and roaming in the same legislation, on the desperate hope that the EU could translate Europeans’ love of the internet and mobile communications into love of EU government. Unwittingly, it seems that this law adds additional bureaucracy and unintended consequences that deter the stated goals of the rules.

Policymakers, especially the FCC, should take heed of the European experience and be emboldened to restore internet freedom — a regime that keeps the government’s hands off the internet, protects users from government surveillance, and allows entrepreneurs the quality of service they need to launch innovation."

These Doctors Got Fed Up With Insurance. Now They Treat Their Patients Like Valued Customers.

The “direct primary care” movement is attracting physicians sick of red tape. And it’s transforming the doctor-patient relationship.

By Mark McDaniel of Reason.

"One of the most profound changes brought about by the Affordable Care Act is that it drove thousands of independent doctors to throw in the towel and join large hospital networks. This is particularly true of primary care doctors. As the rules involving medical records, billing codes, and prior authorizations have gotten more complex, physicians find they can't survive without joining large health care networks. And they're becoming increasingly demoralized.

Today there's a small but growing movement of doctors who are opting out of the traditional health care system by no longer accepting insurance. This new approach is is called "direct primary care," but it's essentially a throwback to an era before insurance companies were responsible for covering routine services like ear infections or strep cultures.

When companies like Aetna, Blue Cross, and Oxford started signing the checks for even minor health care expense, it had a destructive impact on the doctor-patient relationship. The direct primary care movement is an attempt to reverse the damage.

Dr. Ryan Neuhofel, who's been running his own direct primary care practice in Lawrence, Kansas since 2011, has a page on his website that lists the cost of each procedure, which the patient, not the insurance company, actually pays.

Need an x-ray? That's $25 to 40, along with a monthly subscription fee that runs from $35 for minors to $130 for a family of four.

Most direct primary care practices charge a monthly subscription fee. It allows them to offer other services, like answering patient phone calls, text messages, or even having appointments over Skype—services that our insurance-dominated system doesn't allow for.

"Because I'm membership supported if someone calls me and says, 'hey, I have a rash,' they can send a picture," Neuhofel says.

Removing the interference of third parties changes the dynamic between patients and their doctors.
"We're able to be creative in meeting their needs," Neuhofel says. "[We are] able to give them transparency in pricing, and redesign the entire health care experience around what patients really need."

Direct primary care physicians are able to charge less than traditional practices because the lack of coding and billing means they don't need to hire support staff.

The direct primary care movement is a way of opting out of an industry that's dominated by a cartel of hospital and insurance companies, thus insulating doctors and patients from policies crafted on Capitol Hill.

But there are some changes to the tax code that could speed adoption. The IRS doesn't allow patients to use their tax-deductible Health Savings Accounts to pay direct primary care doctors. In fact, just having a direct primary care subscription disqualifies individuals from contributing to an HSA at all. Dr. Neu and others have been meeting with lawmakers and proposing legislation that would change this.

"We're not living off the reservation just because we're cowboys," Neuhofel says. "We're doing it so we can provide great care, but at the same time we need to figure out how we integrate with the larger health care system."

Your Favorite Tax Break Isn’t as Great as You Think

Tax specialists of different political leanings are in surprising agreement about the poor design of top breaks

By Laura Saunders of The WSJ. Excerpts:

"none of these beloved tax breaks rates higher than a B-minus, according to an informal survey of specialists at the Tax Foundation, the Tax Policy Center and the Committee for a Responsible Federal Budget. We asked them to grade the breaks for cost effectiveness and averaged the results."

"When it comes to the federal budget, these tax breaks matter because their forgone revenue comes to about $1.3 trillion annually, according to the Tax Foundation. That’s almost as much as the individual income tax raises"

There’s surprising agreement among tax specialists of different political leanings about the poor design of top breaks. They even agree about some fixes—unrealistic as these may be. Here are their thoughts.

Employer-provided health insurance and medical care. Employers embraced this break during World War II to circumvent wage controls. Now it’s a behemoth, costing $228 billion annually.

Critics give this break a D-plus, saying it helps drive up health-care costs, encourages overconsumption of medical care and impedes a market for individual insurance. Some workers don’t switch jobs because of health coverage.

Mr. Goldwein suggests replacing the current benefit with a tax credit—a fixed-dollar offset for each taxpayer. Initially it would lose the same revenue as the current break, but then grow more slowly than inflation.

Capital gains. The lower rate for long-term capital gains reaps praise for lessening double taxation of corporate profits and encouraging investment.

Critics say the benefit goes mostly to the top 1% and it’s an engine for tax shelters. The capital-gains exemption at death—the “step up”—prompts investors to refrain from selling. Grade: B-minus.

Kyle Pomerleau, policy director at the Tax Foundation, wishes taxpayers could get a tax deduction when they invest, but then owe tax on sales at ordinary rates—with no step-up at death. He thinks this would encourage investment and discourage manipulation.

State and local tax deductions. Opinions on these write-offs differ widely. Some experts grade them C-plus because they encourage state and local governments to provide services, while others give them a flat F, saying they unfairly subsidize locales with higher earners and higher taxes, encouraging bloated government. Average grade: D.

Len Burman, a Tax Policy Center economist and former Treasury Department official during the 1986 tax reform, opts for a C+. But even he would repeal them. In his dreams, he’d put the revenue in a federal “rainy day” fund to help states through temporary economic crises.

Mortgage interest deduction. Our experts all gave this break a D. They think it raises house prices, creating a barrier to entry, and encourages people to buy larger houses than they would otherwise.

Possible corrections: Limit the benefit to one home instead of the current two. In addition, encourage lower-income buyers by turning the deduction into a tax credit of, say, 15% of the interest on a mortgage of up to $500,000.

Charitable-donation deduction. This write-off gets a C-plus. While it encourages worthy charitable giving, some experts think it’s a double subsidy because nonprofits don’t pay taxes. The ability to donate appreciated assets, such as stock, without owing capital-gains tax also encourages gaming, critics say.

Several experts would restrict worthy causes to exclude, say, athletic teams or wealthy universities. This would be hard, because worthiness is often the eye of the beholder."

Globalization did not lead to an intensification of poverty-just the opposite

From Cafe Hayek.

"From pages 297-298 of the 2015 Fourth Edition of Douglas Irwin’s indispensable volume, Free Trade Under Fire (footnotes deleted; link added):

"Time and experience demonstrated that globalization did not lead to an intensification of poverty.  Instead, expanding world trade proved to be an escalator for bringing poor people out of poverty.  Between 1990 and 2011, the portion of the world’s population living in poverty fell from 36 to 15 percent, according to the World Bank.  The International Labor Office reported that the number of workers in the world earning less than $1.25 a day has fallen to 375 million in 2013 from 811 in 1991.  The past two decades have seen extraordinary progress in poverty reduction in the developing world.  Who should get the credit, the Millennium Development Goals of the United Nations and other international aid agencies?  Not quite.  As The Economist put it, “The MDGs may have helped marginally, by creating a yardstick for measuring progress, and by focusing minds on the evil of poverty.  Most of the credit, however, must go to capitalism and free trade, for they enable economies to grow – and it was growth, principally, that has eased destitution.”"

 

No factual evidence to support claims that many markets are becoming dominated by near-monopolies

Antitrust for Fun and Profit: The Democrats’ Better Deal (Part 3). Excerpt:

"This continues Part 1 and Part 2 of my critique of the arguments for aggressive antitrust activism offered in Steven Pearlstein’s Washington Post article, “Is Amazon Getting Too Big,” which is largely based on a loquacious law review article by Lina Kahn of the Google-funded “New America” think tank.

My previous blogs found no factual evidence to support claims of Pearlstein and Kahn that many markets (which must include imported goods and services) are becoming dominated by near-monopolies who profit from overcharging and under-serving consumers.

Yet the wordiest Kahn-Pearlstein arguments for more antitrust suits against large tech companies are not about facts at all, but about theories and predictions.

Kahn makes a plea for preemptive punishment based on omniscient futurism. “The current market is not always a good indication of competitive harm,” she writes.  Antitrust enforcers “have to ask what the future market will look like.” But how could antitrust enforcers’ predictions about what might or might not happen in the future be deemed a crime or a cause for civil damages?  If the law allowed courts to levy huge fines or break-up companies on the basis of prosecutors’ predictions of the future, the potential for whimsical damages and political corruption would be almost limitless.

We have already experienced extremely costly federal (and European) antitrust cases based largely on incredible predictions about “what the future market will look like” – mostly obviously in the cases against IBM and Microsoft.

IBM was the subject of 13 years of antitrust “investigation” (harassment) before the suit was finally dismissed “without merit” in 1982.  My first article about antitrust was a 1974 critique of the IBM case in Reason magazine which remains the best explanation (aside from this book) of what I mean about antitrust being “for fun and profit.”

Pearlstein imagines “it was the government’s aborted prosecution of IBM … that made Microsoft possible.”  But IBM’s decision to offer three operating systems for the PC and allow Microsoft to sell MS-DOS to Compaq had nothing to do with the government’s antitrust crusade against IBM.  That crusade was a well-funded project of Control Data, Honeywell, NCR and Sperry Rand – competitors of IBM’s who hoped to do better in court than they had with customers."