"Cato scholars (and the vast majority of economists) have long opposed rent control policies, and Sweden’s housing situation — which The Economist reports has just caused Stefan Lofven to become the first Swedish prime minister to lose a no‐confidence vote — provides the latest example of why:
Housing is a sensitive political issue everywhere, but in Sweden it is especially touchy. Over two‐thirds of the country’s municipalities say they have housing shortages. Authorities estimated the total shortfall at 160,000 units in 2018, in a country with 5m dwellings. The price of a villa in Stockholm has risen 19% in the past year. All the country’s rental units, whether public or private, are subject to rent control, making everyone’s rent a matter of government policy.
Housing shortages are, of course, the utterly predictable outcome of a national rent control law. And, to Lofven’s credit, he and several other Swedish politicians are seeking to reform (albeit modestly) Sweden’s system by permitting “free‐market rents on new private developments.” However, opposition from the Left (whose leader — gasp! — “saw this as a dangerous step towards deregulating the entire market”) and messy domestic politics have imperiled those reform efforts. Thus, Mr. Lofven’s job and, more importantly, Sweden’s housing mess remain very much in doubt.
Hopefully, American politicians, many of whom are flirting with rent control mandates yet (presumably) want to keep their jobs, will take note."
Wednesday, June 30, 2021
In Sweden, Rent Control’s Doing What Rent Control Does
Alex Tabarrok On Michael Lewis's Book The Premonition
From Marginal Revolution . Excerpt:
"If there is one central villain in The Premonition, it’s the CDC. Lewis acknowledges that his perspective has changed. In The Fifth Risk, the system (the “deep state” used non-pejoratively if you will) is full of wisdom and power but it’s under threat from Trump. In The Premonition, Trump is an after-thought, at best a trigger or aggravating factor. Long before Trump or the pandemic:
Charity had washed her hands of the CDC. “I banned their officers from my investigations,” she said. The CDC did many things. It published learned papers on health crisis, after the fact. It managed, very carefully, public perception of itself. But when the shooting started, it leapt into the nearest hole, while others took fire. “In the end I was like ‘Fuck you’, said Charity. “I was mad they were such pansies. I was mad that the man behind the curtain ended up being so disappointing.” p. 42
As the pandemic starts the CDC fails repeatedly. At the beginning of the pandemic on January 29 the government had started to repatriate Americans from Wuhan bringing some of them to a National Guard base just outside of Omaha. But shockingly the CDC doesn’t test them for the virus.
Never mind that every single one of the fifty-seven Americans in quarantine wanted to be tested: the CDC forbade it. And [James] Lawler [US Naval Commander and national security coordinator on pandemic response] never understood the real reason for the CDC’s objections…Whatever the reasons, fifty-seven Americans spent fourteen days quarantined in Omaha, then left without having any idea of whether they’d been infected, or might still infect others. “There is no way that fifty-seven people from Wuhan were not shedding virus,” said Lawler. p. 176
Many of the people brought home from China are not even quarantined just told to self-quarantine:
…When local health officers…set out to find these possibly infected Americans, and make sure that they were following orders to quarantine, they discovered that the CDC officials who had met them upon arrival had not bothered to take down their home addresses.
…[Charity] posed a rude question to the senior CDC official moved on the call: How can you keep saying that Americans are at low risk from the virus if you aren’t even testing for the virus. She’d been answered with silence, and then the official move on to the next topic. [p.206-207, italics in original]
And all of this is before we get to the CDC’s famously botched test an error which was amplified by the FDA’s forbidding private labs and state governments to develop their own tests. Charity Dean wanted California to ignore the CDC and FDA and, “blow open testing and allow every microbiology lab to develop its own test.” But Dean is ignored and so by as late as February 19, “Zimbabwe could test but California could not because of the CDC. Zimbabwe!” p. 223. The failure of testing in the early weeks was the original sin of the crisis, the key failure that took a containment strategy ala South Korea and Taiwan off the table.
Lewis’s most sustained analysis comes in a few pages near the end of The Premonition where he argues that the CDC became politicized after it lost credibility due to the 1976 Swine Flu episode. In 1976 a novel influenza strain looked like it might be a repeat of 1918. Encouraged by CDC head David Sencer, President Ford launched a mass vaccination campaign that vaccinated 45 million people. The swine flu, however, petered out and the campaign was widely considered a “debacle” and a “fiasco” that illustrated the danger of ceding control to unelected experts instead of the democratic process. The CDC lost authority and under Reagan the director became a political appointee rather than a career civil servant. Thus, rather than being unprecedented, Trump’s politicization of the CDC had deep roots.
Today the 1976 vaccination campaign looks like a competent response to a real risk that failed to materialize, rather than a failure. So what lessons should we take from this? Lewis doesn’t say but my colleague Garett Jones argues for more independent agencies in his excellent book 10% Less Democracy. The problem with the CDC was that after 1976 it was too responsive to political pressures, i.e. too democratic. What are the alternatives?
The Federal Reserve is governed by a seven-member board each of whom is appointed to a single 14- year term, making it rare for a President to be able to appoint a majority of the board. Moreover, since members cannot be reappointed there is less incentive to curry political favor. The Chairperson is appointed by the President to a four-year term and must also be approved by the Senate. These checks and balances make the Federal Reserve a relatively independent agency with the power to reject democratic pressures for inflationary stimulus. Although independent central banks can be a thorn in the side of politicians who want their aid in juicing the economy as elections approach, the evidence is that independent central banks reduce inflation without reducing economic growth. A multi-member governing board with long and overlapping appointments could also make the CDC more independent from democratic politics which is what you want when a once in 100 year pandemic hits and the organization needs to make unpopular decisions before most people see the danger.
Lewis hasn’t lost his ability to write exhilarating prose about heroic oddballs. Page by page, The Premonition is a good read but the heroes in Lewis’s story were overshadowed by politics, bureaucracy and complacency–systems that Lewis’s doesn’t analyze or perhaps quite understand–and as a result, his hero-centric story ends up unsatisfying as story and unedifying as analysis."
Tuesday, June 29, 2021
Government Pandemic Loans Plagued by Potential $260 Billion in Fraud
The hasty work behind the PPP and other relief loans shows the limits of big government.
"All told, Congress has authorized about $5.9 trillion in spending to address the social and economic fallout from the pandemic, of which $4.32 trillion has been disbursed or committed already. By now, more than a year into this unprecedented burst of spending, there's sufficient hindsight to assess the federal pandemic response, and the early results bode poorly for proponents of "big government."
In a new Cato Institute Legal Policy Bulletin, I describe the Small Business Administration's (SBA) shambolic implementation of two marquee pandemic policies. The first is the $813 billion Paycheck Protection Program (PPP), involving federal loan guarantees, set at a low interest rate (1 percent), which could be forgiven if the borrower spent a certain percentage (about two-thirds) on payroll. The second is the $367 billion Economic Injury Disaster Loan (EIDL) program, which entails loans on favorable terms that are disbursed directly by the government.
Both of those pandemic programs reflect gross expansions of troubled frameworks. The PPP is an extension of the SBA's "section 7(a)" loan guarantee program, which, in the years prior to the pandemic, was an annual presence on the Office of Management and Budget's list of "high priority" programs that warrant greater scrutiny due to their poor stewardship of taxpayer dollars.
Similarly, watchdogs had sounded alarms about core aspects of the EIDL program (including the SBA's assessment of creditworthiness and applicant eligibility) long before COVID-19 plagued us. Despite these repeated warnings, the EIDL program reported its highest-ever improper payment rate of 11.98 percent in the fiscal year before the pandemic, among the worst rates in government.
From this suboptimal baseline, both programs were further stressed by a vastly increased workload. For example, in a "normal" year, the SBA makes about 62,000 loan guarantees, totaling $16.7 billion, under the section 7(a) program; over the first year of the PPP, in comparison, the agency made more than 9 million loan guarantees worth $746 billion. The EIDL program, too, exploded: In the first year of the pandemic, the SBA disbursed about twice as many direct loans as the agency had made over its entire 67-year history before COVID-19.
Overwhelmed, the SBA cut corners to facilitate the flow of public funds out the door. For the PPP, the agency relaxed underwriting controls for lenders, waiving basic documentation requirements like financial statements and income tax returns. The Government Accountability Office faulted this decision, among others, in a report whose blunt title speaks volumes: "COVID-19 Loans Lack Controls and Are Susceptible to Fraud."
Regarding the pandemic EIDL program, the inspector general determined that the SBA "lowered the guardrails," which "significantly increase[ed] the risk of fraud." His office also reported that the SBA for months "ignored" a subcontractor's system for flagging suspicious loans.
To recap, these already troubled programs loosened their existing safeguards to process their unprecedented workload. This is a recipe for disaster and, predictably, the results have been dire.
About halfway through the PPP program, the inspector general warned of "widespread fraudulent activity." By the end of September 2020, his office had received more than 77,000 hotline complaints of potential fraud, and since then, "the numbers continue to rise." In addition to the risks posed by scammers, there is the related risk posed by administrative inefficiency at the SBA. In December 2020, an independent financial statement auditor flagged as potentially improper payments more than 2 million approved PPP loan guarantees, with an approximate value of $189 billion.
Turning to the EIDL, the inspector general has warned of "rampant fraud," and a preliminary assessment conducted by his office flagged more than $77 billion in approved loans that evinced "strong fraud indicators"—or almost 46 percent of the EIDL applications that had been approved up through last October ($169 billion). Of course, the SBA has continued to make loans since then, and accordingly, the inspector general cautioned that "the potential fraud in the COVID-19 EIDL Program has continued to grow."
For both programs (EIDL and PPP), the SBA's response to criticism has been illustrative. Over the past year, various public and private watchdogs have issued a raft of reports that are all in agreement that the SBA's management failures have placed huge sums of taxpayer money at risk. In response, the agency effectively buried its head in the sand. Last October, for example, the inspector general observed that "SBA's management continues to insist that its controls are robust despite overwhelming evidence to the contrary."
In sum, more than $260 billion (and counting) in taxpayer money has been placed at undue risk by administrative bungling at the SBA. To be sure, the federal government faced an extraordinary challenge. Due to the very nature of Congress's intention to quickly aid those affected by the pandemic and its economic effects, federal relief programs were at an increased risk of improper payments. Still, while it may be that some level of waste is acceptable in an emergency, the SBA's miserable performance is beyond the pale, and serves as a stark reminder of the limitations of "big government.""
CDC Reports 51% Increase in Suicide Attempts Among Teenage Girls
Newly released data from the US Centers for Disease Control and Prevention reveal a surge in self harm and hospitalizations from poor mental health among teens in 2020.
By Brett Cooper in FEE. Excerpts:
"Newly released data from the US Centers for Disease Control and Prevention reveal a surge in self harm and hospitalizations from poor mental health among teens in 2020.
Overall, the number of psychiatric-related hospital visits among young people increased 31 percent last year."
"Suspected suicide attempts in girls increased 50.6 percent, compared to a 3.7 percent increase in young men.
As the report concludes, the implications of lockdowns, such as “physical distancing; barriers to mental health treatment; increases in substance use; and anxiety about family health and economic problems” all particularly affected children, contributing to a widespread increase in suicidal thoughts.
A recent Wall Street Journal article completes the picture painted by the CDC by revealing that in California, teenage sucide increased 24 percent, leading to 134 deaths in 2020. In contrast, only 23 California minors died of Covid-19.
Specifically in Oakland, California, hospitals saw a 66 percent increase in teenagers screening positive for suicidal ideation between March and October of 2020."
"Back in April of 2020, JAMA Psychiatry published a report on the possible consequences of quarantine orders, stating that while they might help quell new infections, “the potential for adverse outcomes on suicide risk is high.”"
Threatened rule improves incentives to recover endangered species
Biden administration considering rules that would make it more difficult to protect prairie dogs and other species.
"Several years ago, visitors to southwestern Utah would encounter unusual old-west style “wanted” posters. Instead of a bandit, the “villain” in this poster was the Utah prairie dog, a species whose status and regulation under the federal Endangered Species Act had been a source of frustration and conflict for decades.
Unfortunately, a June 4th announcement from the U.S. Fish and Wildlife Service suggests that such conflicts will soon return to communities across the country, to the detriment of states, landowners and endangered species. The agency stated that it will undo every Endangered Species Act reform completed by the prior administration, including a rule that tailors protections for threatened species.
If finalized, repealing this threatened species rule would be a significant step backward for federal-state cooperation and species recovery.
Once endangered, the Utah prairie dog population gradually recovered from a low of about 3,000 in 1972 to approximately 84,000 in 2016. As the population rebounded, federal regulation of the species paradoxically became stricter, in effect penalizing the state, communities and landowners for contributing to the species’ recovery.
When a federal court held the federal regulation was unconstitutional in 2014, the state of Utah had an opportunity to try a different approach, one that relied on cooperation rather than conflict. Under Utah’s plan, state biologists worked with communities and landowners to address conflicts in residential areas or sensitive places like playgrounds, cemeteries and airports by relocating prairie dogs to public and private conservation lands. Under the federal regulation, such reasonable recovery efforts were illegal without costly and time-consuming federal approvals.
The population continued to increase at an impressive rate under state management — and on lands that could provide a permanent home — while conflict over the species receded.
In 2017, the state wildlife official who led Utah’s effort was selected to run the U.S. Fish and Wildlife Service, the federal agency behind this conflict. Under his management, the agency proposed a significant change to the way it regulates threatened species like the Utah prairie dog, with the goal of empowering other states, communities, and landowners to find similar win-win solutions.
Previously, the Fish and Wildlife Service treated all endangered and threatened species the same, even though threatened species face relatively remote risks compared to endangered species and the statute explicitly sets different approaches to regulating these categories. Decades of experience had shown the folly of this approach.
Because the same burdensome regulations applied even if a species’ status improved from endangered to threatened, private landowners had little incentive to invest money, time and energy in recovery efforts. As most endangered and threatened species depend on private land for habitat, this translated into a recovery rate of only 3%.
Under Fish and Wildlife Service’s new approach, formalized in 2019, instead of automatically applying the strictest regulations available, the agency would tailor regulations to the needs of threatened species. A 2018 report for the Property and Environmental Research Center explained how this change reduces conflict, encourages cooperation, and better aligns the incentives of states and landowners with the interests of rare species.
The logic is simple: Relaxing federal regulations as species recover rewards states and landowners for successful recovery actions. Likewise, the possibility of stricter regulations should species decline and become endangered discourages actions that could harm species.
This tailored approach could deescalate conflict over many species, including Montana’s grizzly bears and Wisconsin’s gray wolves. Efforts to delist these recovered populations have been stymied by political fights and litigation, both exacerbated by the high stakes created by the Fish and Wildlife Service’s prior all-or-nothing approach.
If, instead, federal control gradually receded as species recovered, allowing states to take more and more responsibility over time, we could reduce the stakes of a delisting decision and deescalate political and legal conflict.
Perhaps surprisingly, the policy underlying the tailored approach did not originate with the Trump administration. The shift toward tailored rules for threatened species began during the Obama administration, which recognized the benefits of better incentives to recover species.
Therefore, reversing the threatened species rule would not only upend a reform that provides better incentives for states and landowners to recover rare species — a key principle underlying the Biden administration’s “American the Beautiful” initiative. It would also mean politics triumphing over common sense and almost certainly more litigation.
Ultimately, we should not evaluate Endangered Species Act rules simply on whether they are more or less stringent, but on whether they improve the incentives for landowners and states to recover endangered species.
The 2019 threatened species rule improves incentives. With it under attack, it is critical that states, communities, landowners, and conservationists come to its defense — and that cooler heads at the Fish and Wildlife Service ultimately prevail."
Monday, June 28, 2021
The Global Middle Class Has Tripled in Size Since 2000
And the global upper-middle class doubled
"The BBC buried the lede when it reported that the number of millionaires increased by 5.2 million last year, bringing the total to 56.1 million globally during 2020. The bigger news in the BBC's source—the 2021 global wealth report by the financial services company Credit Suisse—is that membership in the global middle class has exploded over the last two decades.
The report defines the global middle class to include adults whose assets amount to between $10,000 to $100,000. This group, the report says, has more than tripled in size in this century, "from 507 million in 2000 to 1.7 billion in mid-2020. This reflects the growing prosperity of emerging economies, especially China, and the expansion of the middle class in the developing world." Meanwhile, the number of upper-middle class adults—with wealth ranging from $100,000 to $1 million—has more than doubled since 2000, from 208 million to 583 million.
These wealth trends track the trajectory of rising per capita global incomes. Back in 2018, Brookings Institution scholar Homi Kharas and his colleagues reported that half of the world's people lived in households that qualified as middle-class or rich. The Brookings researchers defined the global middle class as people earning, on a purchasing power parity basis, anywhere from $11 to $110 per day.
Brookings also reported that the percentage of people around world living in extreme poverty (defined as living on less than $2 per day per person) dropped from 42 percent of people (1.9 billion) in 1981 to under 8 percent (600 million) in 2018. Sadly, the share of people living in extreme poverty ticked up in 2020 to more than 9 percent (715 million) of the world's population, thanks to the economic effects of the global COVID-19 pandemic. The fall in extreme poverty is likely to stall for the next several years, as the pandemic continues to batter poor countries' economies."
The Bias Narrative versus the Development Narrative: Thinking About Persistent Racial Inequality in the United States
"“Hands up, don’t shoot.” That narrative was heard frequently after Michael Brown was killed by a police officer in Ferguson, Missouri, in 2014, abetting the rise of the Black Lives Matter movement. This was a singular event in the history of racial conflict in America. It would appear that, actually, there was no validity to the “hands up, don’t shoot” story. Rather, Brown attacked the police officer who, fearing for his life, then shot him. Independent investigations by local authorities and the US Justice Department concluded as much. Eyewitnesses have testified to this effect. The fact of the matter is that “hands up, don’t shoot” never happened."
"I am not a big fan of this systemic racism narrative. It is imprecise and those invoking it are begging the question. I want to know exactly what structures, what dynamic processes, they mean, and I want to know exactly how race figures into that story. The people employing that narrative do not tell me this. History, I would argue, is complicated. Racial disparities have multiple causes that interact with one another, ranging from culture, politics, and economic incentives to historical accident, environmental factors and, yes, the acts of some individuals who may be racists, as well as systems of law and policy that are disadvantaging to some racial groups without having so been intended.
So, I am left wanting to know just what they are talking about when they say, “systemic racism.” Use of that phrase expresses a disposition. It calls me to solidarity while asking for fealty, for my affirmation of a system of belief. It frames the issue primarily in terms of anti-black bias. It is only one among many possible narratives about racial disparities, and often not the most compelling one."
"Equity versus equality
What about affirmative action and reparations? Surely, if I believe that racial inequality is rooted in social relations, then I must favor these polices, no? Actually I have concerns—grave concerns—about these policies. I want briefly to give some hint of what it is that I am concerned about, which reveals something about my larger outlook on the age-old American dilemma of racial inequality.
I oppose slavery reparations for two reasons—one principled and the other pragmatic. When the Japanese Americans interred by the Roosevelt administration during the Second World War were finally, in an act of Congress signed into law by Ronald Reagan and presided over by George H.W. Bush, acknowledged as having been wrongly victimized and offered a token reparation payment, it was $20,000 a head for 80,000 people. That was $1.6 billion, paid out of the Treasury—and it should have been paid, in my view. By contrast, there are some 40 million African Americans, and if you take the modern equivalent of 40 acres and a mule, and you bring it forward at a normal rate of return, you are reaching astronomical sums. Maybe it is $100,000 a head, with inflation, for 40 million people. That would be $4 trillion, compared with 80,000 people and $1.6 billion. Some scholars estimate even larger sums, purportedly due to black Americans because of slavery.
Enacting reparations for slavery would create a Social Security scale-of-magnitude fiscal/social policy in America, the benefits from which would be based on racial identity. That, quite simply, is a monumental mistake for our country. It is South Africa-esque. Our government would have to classify people, enact statutes, and administer programs on a massive scale based on race. America ought not go down that path even if the courts would allow it.
My practical argument is that remedying racial disparities ought to be left as an open-ended commitment. True enough, this problem—due in no small part to our bitter history of slavery and Jim Crow segregation—must be addressed. But, in my view, it would not be the smartest thing in the world for black Americans to cash out that obligation; to have a transaction wherein, metaphorically speaking, we sit on one side of the table with our moral capital, while America sits on the other side with its checkbook, and a transaction is negotiated by means of which a historical “debt” is discharged. We ought not to be in a hurry to commodify that obligation. For then, when confronted with lingering racial disparities, the country can say “you’ve all been paid.”
Rather, what we should do is to take our moral chips, combine them with other like-minded political initiatives, and aim to create a decent society for everyone, whether that concerns healthcare, housing, food security, employment, education, or old-age security. Were these efforts to be sufficiently robust on behalf of everybody, the most pressing concerns about racial disparity (having to do with extreme deprivation) would be ameliorated and we will have lent our moral capital to the right cause—not a racially defined reparation but rather a humanely defined improvement in the quality of the nation’s social contract. Blacks ought not to negotiate a moral separate settlement with America.
One final word about affirmative action. We are now 50 years down the line with this policy. It has been institutionalized. Diversity, Inclusion, Equity, and Belonging: in practice what that means is affirmative action. I have a concern, though, which is that equality of representation, when you are in the most rarified venues of selection, is in competition with equality of respect. I’m specifically referring here to selecting at the 95th percentile—the right tail of the distribution of talents, not the population median.
It is impossible that there would not be post-admissions performance differences by race in students selected at this percentile if racially different criteria of selection are used pre-admission, so long as those criteria are correlated with performance. And, if the criteria—SAT test scores, grades, advance placement tests, quality of essay, letters of recommendation, whatever indicia of performance you want to use—are not correlated with post-admissions performance, then they shouldn’t be used. But they are being used because we all know that they are correlated with post-admissions performance to some degree.
I invite you to look at the data produced by discovery in the Harvard case, for example, to see the huge disparity in academic preparation characteristic of applicant populations by race to Harvard University in recent years. There’s going to be different post-selection performance if those criteria are correlated with performance, and that’s what we see. What is the consequence of that? Either we will acknowledge the difference in post-admissions performance; or we won’t; we’ll cover it up by flattening assessment criteria and, in effect, pretending it’s not there. The dishonesty can be stifling in my view. My point: Right-tail selection plus racially preferential selection is inconsistent with true equality. It will get you representation, perhaps, but it won’t get you equality—at least not equality of respect.
You need a closely approximating parity of performance to get equality of respect. But you’ve applied different levels of selectivity into a highly competitive and elite activity, where the selection criteria are correlated with post-admissions performance, so you’re getting disparities in performance post-admission that you’re not owning up to, or that you’re covering up.
So, many have observed that there are not enough black economists on the faculty of leading universities. We can do better. We should be more diverse and inclusive at the top departments in the country. There should be at least two blacks at each one, let’s say. Maybe I can agree with all of that. But suppose there are just not enough top-flight black economists to go around. (Dare we face this reality?) If “doing better” means making the criteria of selection into this rarified enterprise of academic economics, at the top, depend upon the racial identity of job applicants, then you’re not going to get equality. Instead, you’re going to get some degree of black mediocrity. This fact is currently unsayable.
Here’s what we ought to do instead: devote our efforts to enhancing the development of African American prospects, such that when you apply roughly equal criteria of selection at the right tail, the numbers of blacks selected still goes up based on achievement. You should not increase the number of successful applicants by changing standards to achieve racial parity—that is a huge mistake.
Further, we need not strive for population parity in every pursuit. How can you expect population parity in an enterprise when there are some groups (Asians? Jews?) who are significantly overrepresented? You cannot get population parity in every activity while maintaining equal criteria of selection when all the groups are not feeding into the pool of qualified applicants at the same rate. The permanent embrace of preferential selection in extremely selective, competitive venues by race is a mistake. I can understand its transitional use, historically speaking, but institutionalizing this practice is inconsistent with true equality.
This is why I signed on to the amicus brief some economists put together to support the Asians in their lawsuit against Harvard. Addiction to the use of racial preferences in the most elite of America’s academic venues breaks my heart, to be honest with you, because it is an invitation to mediocrity. It is a kind of bluff and a shell game. At the most exclusive venues of intellectual labor—at a Princeton University, or a Brown University, or MIT, or Caltech—the stuff is hard, and not everybody can do it well. It is hard reading Plato and figuring out what he was talking about. It is hard doing physics, advanced mathematics, chemistry, and other STEM disciplines. That work is difficult. Medical school is hard. Law school is hard. It requires real intellectual mastery to be done effectively. Unfortunately, a proportionate number of African Americans have not achieved that mastery. We can go into the reasons why. History has not been entirely kind to black people. There is blame enough to go around. But the fact remains that, relative to population, fewer blacks have developed this mastery, so we are fewer in the venues where the intellectual work is difficult.
Now, there are two things you can do in the face of that. One is to lower standards so as to increase the representation of African Americans and call that “inclusion.” The other is to face these developmental deficiencies and address them, and I mean address them from infancy. So, this is not laissez-faire. I’m not saying there could be no public initiatives; no educational enrichments, and so on. No summer programs, whatever. We can talk about what things need to be done, but can we first understand what the problem is? If our kids are testing poorly, it is because they do not know the material. If a poor Asian kid living in a three-room apartment with four siblings can ace the test, our kids can do it too. Anybody who does not think so is a racist. They have the “racism of low expectations” about blacks. They write us off. They think we are defeated by history. They patronize us, presuming that we can’t actually perform? “Yes, we can’t” becomes their motto.
But black Americans can perform. We just need to do the work. Give us an opportunity to confront the deficits and redress them, maintaining a level playing field. Do not lower the bar for us and we will measure up in the fullness of time. It may not happen tomorrow, and it may not happen the next day, but it will happen in the fullness of time. I say this as a matter of faith.
Now, I can understand in 1970, with all the rabble-rousing and whatnot, that the universities had to meet the protest halfway and so they did what they did. But we’re now in the year 2021. We’re a half-century past that and we’re laying down a predicate for how it is that we go forward. This “No, it’s not equality; it’s equity” bunk is a surrender in the face of the problem that we face. The problem is to develop black people so that proportionately more of us exhibit the mastery requisite to being successful in these competitive venues.
Consider the brouhaha at the Georgetown Law Center a few months ago. An instructor, unaware that she was being recorded, stated that the poor performers clustering at the bottom of her class were disproportionately black students. She said it upset her. She didn’t know what to do about it, but the black kids were not doing well. Do you know what happened when it was revealed that she had said this? Students and faculty of all races proceeded to declare Georgetown Law to be a racist institution. It was demanded—and the Dean acceded to the demand!—that this lecturer be fired. White faculty were called upon to issue a joint statement acknowledging their white privilege and taking responsibility for the poor performance of the black students in the law school.
Now, here’s what I know: contracts, constitutional law, torts, civil procedure, this is what you study in law school, and that is intellectually demanding work. Writing an effective legal argument is a real skill. What the lecturer was reporting is that the black kids at Georgetown—one of the most elite law schools in the country, disproportionately lack that skill—a predictable consequence of using less rigorous standards when admitting those students.
One might hope that the administration, being so informed, would slap its collective forehead and say, “Oh my God, let’s do something to make sure that our youngsters of color have the requisite skills.” Instead, they retreat behind an “institutional racism” smokescreen. It is patronizing and condescending to blacks to do this, because what they’re saying, in effect, is: “We don’t think you’re going to be able to cut it. But it’s okay. We’ll cover for you.” Such a posture may assuage the guilt of certain parties, but it is profoundly inconsistent with racial equality in its truest and highest sense."
Sunday, June 27, 2021
Your Stolen Tax Records Are News
ProPublica soiled itself with the gimmicky use it made of personal tax data.
By Holman W. Jenkins, Jr.. Excerpts:
"This rationalization comes down to a conceit: a taxpayer’s actual payment in a given year, which ProPublica extracts from the stolen returns, compared against their Forbes unrealized gains reveals what “we’re going to call . . . their true tax rate.”
This is a misuse of the word “true.” So Jeff Bezos paid a tax rate of just 0.98% during years when he paid taxes of $973 million because the unrealized appreciation of his Amazon shares was $99 billion. Follow-up press reports all trumpeted this 0.98% “true” rate but it’s a hypothetical rate based on a hypothetical change in the tax code. At least engage in the thought experiment honestly and recognize that such a tax would also affect the market value of his shares. ProPublica doesn’t because the true tax rate is just a contrivance thrown in to give a role to the stolen documents.
ProPublica’s outgoing chief Richard Tofel claims the piece is “the most important story we have ever published. . . . The findings are extraordinary.”
A more cogent reaction was that of economist and blogger Tyler Cowen : “ProPublica acted unethically, and in fact nothing fundamentally new or interesting or surprising was learned from their act as accessory” to data theft."
The High Costs of a Tax Hike on Dividends
Biden wants to soak the rich, but the middle class will notice when firms return less to shareholders.
By Pinar Cebi Wilber. Ms. Cebi Wilber is executive vice president and chief economist for the American Council for Capital Formation. Excerpts:
"For taxpayers with adjusted gross income of more than $1 million, the proposal would tax qualified dividends—dividends from shares in domestic corporations and certain foreign corporations that are held for at least a specified minimum period of time—at income-tax rates (currently up to 40.8%) rather than the lower capital-gains rates (23.8%). At first sight, it is easy to be distracted by the $1 million figure and surmise that only rich people will be affected, so who cares? But the harms go further than that.
The research we have points to a negative relationship between dividend taxes and dividend payments. A 2005 paper by economists Raj Chetty and Emmanuel Saez looked at the effect of the 2003 dividend tax cuts on dividend payments in the U.S. The authors “find a sharp and widespread surge in dividend distributions following the tax cut,” after a continuous two-decade decrease in distributions. They found that these payments were regular and recurrent, rather than a one-time increase. Firms that were already paying dividends also increased the amount they were paying after the tax cut. That means shareholders of all income levels received more in dividends.
Princeton’s Adrien Matray and co-author Charles Boissel looked at the issue the other way around. In a 2019 study, they found that an increase in French dividend taxes led to decreased dividend payments. Given an increase in dividend taxes, they argued, firms would prefer to keep the money and use it for investment rather than return it to shareholders. Another study from 2011, looking at America’s major competitor, reached the same directional conclusion: A 2005 reduction in China’s dividend tax rate led to an increase in dividend payments.
Thus the effect of a dividend tax increase wouldn’t be limited to millionaires. Internal Revenue Service data show that some 27 million tax filers received qualified dividends in 2018, and more than half had adjusted gross incomes of less than $100,000. Another 27% had an adjusted gross income between $100,000 and $200,000.
Out of $244 billion in qualified dividends distributed, more than 14% went to taxpayers earning less than $100,000. Around 30% were received by taxpayers with incomes below $200,000, and only 40% of qualified dividends were paid to taxpayers with incomes of $1 million or higher."
"In tax year 2018, taxpayers over 55 accounted for 60% of tax returns with qualified dividends, and nearly 80% of all qualified dividends ($193 billion) were paid to this group."
ProPublica’s Plan for a Poorer America
A federal wealth tax would only make it harder for people with big dreams to make them a reality
By Phil Gramm and Mike Solon. Excerpts:
"ProPublica’s report claiming the wealthiest 25 people only pay 3.4% in income taxes contradicts publicly available Internal Revenue Service data on the top 400 income earners showing that they paid on average 32% of their income in federal income taxes, including Social Security and Medicare taxes. That same data show that the very top earners pay an effective income-tax rate of 40.1%. The rate is lower for the top 400 taxpayers because each of these individuals is a unique case in terms of how they earn income and how much they give away.
The stolen IRS data provide the story with voyeur appeal, but it turns out to be a bait-and-switch. ProPublica substitutes a magazine’s estimate of wealth appreciation, which never appears on the stolen tax returns, to falsify income. Using this deception the site calculates its “true tax rate.” ProPublica laments that taxpayers are acting “perfectly legally” in not paying a federal wealth tax, which doesn’t exist.
That wealth is taxed only when converted into income or on death may be an outrage to those in government who want to spend that wealth, but it is a purposeful, enlightened policy that lets wealth work as the nation’s seed corn, making America the richest nation in the history of the world. That wealth in turn makes it possible for the government today to provide $45,000 a year in transfer payments to the average household in the bottom 20% of American earners.
ProPublica highlights Warren Buffett, and they could have picked no better example of how this nation became wealthy. Famous for being the world’s greatest investor—and for living relatively modestly—he uses McDonald’s coupons, works in a cheap office, drives a junker and lives in a house far smaller than what he could afford. No one ever seems to ask: If Mr. Buffett isn’t benefiting from all his wealth, who is? It is at this point in the story that greed causes ProPublica and the Democrats to put their own political aspirations above the public interest.
"Bill Gates reportedly owns only 7% of Microsoft ; American pension funds and mutual funds own most of the rest. Microsoft employs 101,000 people in the U.S. You may not like how rich Mr. Gates is, but as he enriched himself, he enriched all of us as workers, consumers and retirees. Was that a good deal?"
"Proponents of a federal property tax on wealth offer guarantees and protections that they will only tax the superrich like Mr. Buffett, promising not to touch your retirement plan, home, farm or business. But the federal income tax started out only taxing the superrich like John D. Rockefeller. The same politicians who promise to protect you from the federal wealth tax voted to impose income taxes on “wealthy” Social Security retirees with an annual incomes above $25,000. And these are the same politicians who are proposing to tax your businesses and farms at 43.4% when you die, before they take another 40% in death taxes."
Saturday, June 26, 2021
Rising distance between lenders and borrowers, a measure of risk, affected the financial crisis
See Amazing New Facts About the 2007-2009 Global Financial Crisis by John Taylor.
"This week Raghu Rajan spoke at the Hoover Economics Policy Working Group on “Going the Extra Mile: Distant Lending and Credit Cycles” a joint paper João Granja and Christian Leuz. Here is a video of his presentation https://www.hoover.org/events/policy-seminar-raghuram-rajan-1 along with the slides https://www.hoover.org/sites/default/files/going_the_extra_mile.pdf and the paper itself https://www.hoover.org/sites/default/files/going_the_extra_mile_may_3_2021.pdf
Raghu focused on the causes of the Global Financial Crisis of 2007-2009. He brought entirely new data to the question of what caused the crisis. He examined the distance between lender and borrower. Raghu argued that greater distance is a measure of increased risk, holding the technology of making loans, which can provide better information on the probability of repayment, constant. The lower the interest rate–as generated by the federal funds rate which is in turn set by the Fed–the more there is a tendency to go to longer distances and thus increase risks in an effort to preserve profit margins.
Raghu and his colleagues find by this measure that the period leading up to the financial crisis was a period of increased risk taking. A higher federal funds rate set by the Fed would have reduced long distance lending, and thus riskiness of the loans. A higher federal fund rate would have resulted in less risk taking, and would have avoided or at least greatly mitigated the financial pressures which led to the crisis. In this sense, Raghu Rajan argues that a monetary policy closer to what I argued for back in a 2007 paper would have been better.
The following chart of the interest rate illustrates the issue. The chart is from the 2007 paper which I gave at Jackson Hole, “Housing and Monetary Policy,” and published in Housing, Housing Finance, and Monetary Policy, the proceedings of FRB of Kansas City Symposium. I did not use the informative data or the measures that Raghu and his colleagues use now. I simply looked at policy rules and the deviations from the rules. The counterfactual interest rate is what would have been implied by a policy rule. The actual rate is much lower. The conclusion is clear and Raghu’s recent work supports it: a somewhat higher interest rate in 2003-2006 would have been a better approach for the Fed and would have avoided much of the Global Financial Crisis."
