Smearing South Dakota

The state has attracted financial services. The horror. The horror.

 
WSJ editorial.

"Few things anger progressives more these days than the thought that somewhere someone’s savings are out of government’s reach. Witness the attacks on South Dakota, of all places, which has become the target of a false narrative of corruption with the political goal of expanding taxes over generational savings.

The commotion follows publication in the press this month of the Pandora Papers, a trove of data on more than 29,000 private financial accounts. Poring through the assets of the rich and famous, reporters pointed out that more than $360 billion is held in the form of trusts in the Mount Rushmore State.

This was enough for the left to brand South Dakota the Cayman Islands of the Badlands. A Washington Post headline condemned the state’s appeal to “wealthy foreigners and tainted money.” The New Republic proclaimed “South Dakota Is a Moral Sewer and Should Be Abolished.” Who knew Pierre and Sioux Falls were crime capitals?

The state’s offense seems to be that it has become a destination for the financial industry, including trusts held by foreigners. Trust assets in the state have increased more than fourfold in the past decade. The Pandora Papers revealed 81 foreign trusts in the state, more than twice as many as second-place Florida.

What the critics like to bury in these stories is that a trust is a legitimate financial vehicle under federal tax law. A trust is a legal relationship in which an owner gives an asset to another person or entity who keeps or uses it for another’s benefit. They are typically created to protect assets or reduce taxes, especially estate taxes. Trust companies vet all clients, foreign and domestic, to comply with rules from the federal Financial Crimes Enforcement Network.

“There is no evidence in the Pandora Papers documents that any of the foreigners with trusts in the United States sheltered criminal proceeds,” concedes the Washington Post in paragraph 18 of its main story on the not-so-rogue state.

The growth of trusts in South Dakota is part of its successful effort over decades to attract a financial services industry. The state has no income tax and relatively low capital requirements for trusts. Some banks moved their credit-card businesses to the state after it lifted a cap on interest rates.

In 1983 the state let trusts be held indefinitely after death, making it a refuge for families seeking to transfer savings across generations. Since 1997 it has had a task force on trusts to recommend reforms when needed. The federal Bureau of Economic Analysis reports that finance accounted for 19% of South Dakota’s economic output in 2020.

All of this sounds like a policy success in the best tradition of American federalism, and that’s the real reason progressives are unhappy. They dislike tax and regulatory competition that lets businesses and investors locate in the friendliest climes. As with the Biden Administration’s global minimum tax, progressives want to stigmatize states that break from the high-tax and heavy-regulation Washington preference.

Congratulations to South Dakotans for their policy success, and perhaps the publicity will attract more trust business."

 

 

 

Tarring School Vouchers With the Segregationist Brush

Virginia lawmakers of differing views on integration united behind school choice to outmaneuver ‘Massive Resistance’ hard-liners

Letter to WSJ.

"When segregationist lawyer John S. Battle Jr. charged that tuition grants would expedite the integration of Virginia’s public-school system, he unintentionally validated the logic behind Milton Friedman’s arguments for school choice. Daniel Kuehn would have us wave away Battle’s commentary, however, declaring it “out of step with most segregationists” (“The Segregationist History of School Choice,” Letters, Oct. 22).

This assessment would have likely surprised James J. Kilpatrick, the arch-segregationist editor of the Richmond News Leader whom Mr. Kuehn enlists as a counterexample to my op-ed “School Choice’s Antiracist History” (Oct. 19). In March 1959, Kilpatrick used his newspaper to bring Battle’s arguments to statewide attention, declaring in a bombastic headline: “Private Schools Are Linked to ‘Engulfment’ by Negroes.”

Other segregationists took notice. “Do you realize that every desk vacated by a white child in a public school means one more desk that may be occupied by a negro child?” queried the chairman of the Virginia Assembly’s education committee. Robert Williams, the head of Virginia’s largest teachers union, heralded Battle’s approach to the “grave problem with which we are now confronted.” These and other segregationist converts to Battle’s arguments against school choice are unsurprising, given that Battle was the state’s leading litigator against NAACP integration lawsuits. 

Battle’s position was not universal among segregationists. When tuition grants (vouchers) passed in 1959, they enjoyed the support of antisegregationist lawmakers such as John A.K. Donovan and moderate segregationist “cushioners,” who saw private schools as a “safety valve” to slow the process of integration. Mr. Kuehn’s commentary obscures the purpose of this unusual coalition: These legislators came together to outmaneuver the hard-line segregationist “massive resisters,” who resolved to openly defy Brown v. Board of Education (1954). Voucher advocates such as Friedman looked to the program’s results rather than its “somewhat intermingled” intentions. He correctly predicted that tuition grants would accelerate integration as they grew in popularity.

For the alternative, consider Virginia’s Arlington County, which declared itself “unalterably opposed” to the use of “tax monies for tuition in private schools” and borrowed from Battle’s playbook to sidestep a paper commitment to desegregate. In 1960 NAACP attorneys grilled Arlington’s school board chairman on the holdup. He answered by reiterating the board’s policy: “No child shall be required to attend a school in which that child becomes a racial minority.”

Phillip W. Magness

Great Barrington, Mass."

 

 

Heather Cox Richardson's False History (Hoover raised, not reduced taxes during the Depression)

By David Henderson. 

"Historian Heather Cox Richardson, on her public Facebook page on October 28, 2021, wrote a long post about the Great Depression, Herbert Hoover, and FDR.

Her story about Hoover’s tax policy is false.

She writes:

President Hoover knew little about finances, let alone how to fix an economic crisis of global proportions. He tried to reverse the economic slide by cutting taxes and reassuring Americans that “the fundamental business of the country, that is, production and distribution of commodities, is on a sound and prosperous basis.” But taxes were already so low that most folks would see only a few extra dollars a year from the cuts, and the fundamental business of the country was not, in fact, sound. When suffering Americans begged for public works programs to provide jobs, Hoover insisted that such programs were a “soak the rich” program that would “enslave” taxpayers, and called instead for private charity.

What in fact did Hoover do? The opposite. Here are some excerpts from  economist Steve Horwitz in “Hoover’s Economic Policies,” in David R. Henderson, ed.  The Concise Encyclopedia of Economics.

First, on taxes on imports, aka, tariffs:

Even those with only a casual knowledge of the Great Depression will be familiar with one of Hoover’s major policy mistakes—his promotion and signing of the Smoot-Hawley tariff in 1930. This law increased tariffs significantly on a wide variety of imported goods, creating the highest tariff rates in U.S. history. While economist Douglas Irwin has found that Smoot-Hawley’s effects were not as large as often thought, they still helped cause a decline in international trade, a decline that contributed to the worsening worldwide depression.

Second, on his massive increase in income tax rates:

On top of these spending proposals, most of which were approved in one form or another, Hoover proposed, and Congress approved, the largest peacetime tax increase in U.S. history. The Revenue Act of 1932 increased personal income taxes dramatically, but also brought back a variety of excise taxes that had been used during World War I. The higher income taxes involved an increase of the standard rate from a range of 1.5 to 5% to a range of 4 to 8%. On top of that increase, the Act placed a large surtax on higher-income earners, leading to a total tax rate of anywhere from 25 to 63%. The Act also raised the corporate income tax along with several taxes on other forms of income and wealth.

If you want to know more about how income tax rates increased at each level of income, go here. Before the web existed, the go-to guy who documented income tax rates at each income level from the early 1900s to the late 1980s was the late Joe Pechman of the Brookings Institution. Fortunately, the Tax Foundation has made that so much easier."

Details in BLS report suggest that the ‘gender earnings gap’ can be explained by age, marital status, children, hours worked, etc.

From Mark Perry.

"The Bureau of Labor Statistics (BLS) releases an annual report every year on the “Highlights of Women’s Earnings.” Since the BLS report actually analyzes both men’s and women’s earnings, one might ask why the report isn’t simply titled more accurately “Highlights of Earnings in America”? Here’s the opening paragraph from the most recent BLS report “Highlights of Women’s Earnings in 2020” that was released last month (September 2021):

In 2020, women who were full-time wage and salary workers had median usual weekly earnings that were 82.3 percent of those of male full-time wage and salary workers. In 1979, the first year for which comparable earnings data are available, women’s earnings were 62 percent of men’s. Most of the growth in women’s earnings relative to men’s occurred in the 1980s (when the women’s-to-men’s ratio went from 64 percent to 70 percent) and in the 1990s (when the ratio went from 72 percent to 77 percent). Since 2004, the women’s-to-men’s earnings ratio has remained in the 80 to 83 percent range.

How do we explain the fact that women working full-time last year earned 82.3 cents for every dollar men earned according to the BLS? Here’s how the National Committee on Pay Equity (NCPE) explains it:

The wage gap exists, in part, because many women and people of color are still segregated into a few low-paying occupations. Part of the wage gap results from differences in education, experience, or time in the workforce. But a significant portion cannot be explained by any of those factors; it is attributable to discrimination. In other words, certain jobs pay less because they are held by women and people of color.

Let’s investigate the claim that the gender pay gap is a result of discrimination by looking at some of the data on wages and hours worked by gender and by marital status and age in the BLS report for 2020:

1. Among full-time workers (those working 35 hours or more per week), men were more likely than women to work a greater number of hours (see Table 5).

a. For example, 19.6% of men working full-time worked 41 or more hours per week in 2020, compared to only 10.2% of women who worked those hours, meaning that men working full-time last year were nearly twice as likely as women to work 41 hours per work or more. 

b. Further, men working full-time were also 2.3 times more likely than women to work 60+ hour weeks: 4.3% of men worked 60 hours per week or more in 2020 compared to only 1.9% of women who worked those hours.

c. Also, women working full-time were more than twice as likely as men to work shorter workweeks of 35 to 39 hours per week: 7.7% of full-time women worked those hours in 2020, compared to only 3.6% of men who did so.

What’s especially interesting is that men working 35-39 hours per week last year earned only 92.4% of what women earned working those same hours ($600 median weekly earnings for men vs. $649 for women), i.e., there was a 7.6% gender earnings gap in favor of female workers for that cohort. Using the standard political and gender rhetoric of groups like the National Committee on Pay Equity, couldn’t that earnings premium for women be mostly explained by gender discrimination against men in the labor market for employees working 35-39 hours per week? That is, to be consistent shouldn’t the claim here be that “certain jobs pay less because they are held by men”?

2. Another way to adjust for the significant gender difference in average hours worked is to compare the “median hourly earnings of wage and salary workers paid hourly rates” instead of the “median usual weekly earnings of full-time wage and salary workers.” In 2020, the median hourly earnings of women ($15.22) were 85.7% of the median hourly earnings of men ($17.75), representing a gender hourly earnings gap of 14.3%. Therefore, nearly 20% (3.4 percentage points) of the 17.7% gender weekly earnings gap disappears just by comparing median hourly earnings instead of median weekly earnings.  

3. Although not reported by the BLS, I can estimate using its data that the average workweek for full-time workers last year was 41.3 hours for women and 42.8 hours for men. Therefore, the average man employed full-time worked 1.50 more hours per week in 2020 compared to the average woman, which totals to an average of an additional 75 male work hours per year compared to the average full-time female worker.

Comment: Because men work more hours on average than women, some of the raw earnings gap naturally disappears just by simply controlling for the number of hours worked per week, an important factor not even mentioned by groups like the National Committee on Pay Equity. For example, women earned 82.3% of median male earnings for all workers working 35 hours per week or more in 2020, for a raw, unadjusted pay gap of 17.7% for all full-time workers. But for those workers with a 40-hour workweek (more than three-quarters of all full-time female workers), women earned 87.4% of median male earnings, for a smaller pay gap of only 12.6% (see chart and Table 1). Therefore, once we control only for one variable – hours worked – and compare men and women both working 40-hours per week in 2020, almost one-third (5.1 percentage points) of the raw 17.7% pay gap reported by the BLS for full-time workers disappears.

4. The BLS also reports in Table 1 that for young workers ages 16-24 years, women earned 94.7% of the median earnings of their male counterparts working full-time reflecting a 5.3% gender earnings gap for that age cohort last year. Once again, controlling for just a single important variable – age – we find that more than two-thirds (12.4 percentage points) of the overall 17.7% unadjusted raw earnings gap for all workers disappears for young workers.

5. The BLS reports that for full-time single workers who have never married, women earned 94.0% of men’s earnings in 2020, which is a gender earnings gap of only 6% (see Table 1 and chart above), compared to an overall unadjusted pay gap of 17.7% for all workers in that group. When controlling for marital status and comparing the earnings of unmarried men and unmarried women, two-thirds (11.7 percentage points) of the raw 17.7% earnings gap is explained by just one variable (among many): marital status.

6. In Table 7, the BLS reports that for full-time single workers with no children under 18 years old at home (includes never married, divorced, separated, and widowed), women’s median weekly earnings of $819 were 93.7% of the weekly earnings of $874 for their male counterparts in that cohort (see chart above). For this group, once you control for marital status and children at home, we can explain nearly two-thirds (11.4 percentage points) of the unadjusted 17.7% gender earnings gap.

7. From Table 1 in the BLS report, we find that for married workers with a spouse present, women working full-time earned only 78.5% of what married men with a spouse present earned working full-time in 2020 (see chart). In contrast, female workers who have never been married earned only 6% less on average than their male counterparts, which is only one-third of the 17.7% unadjusted gender earnings gap. Therefore, BLS data show that marriage has a significant and negative effect on women’s earnings relative to men’s, but we can realistically assume that marriage is a voluntary lifestyle choice, and it’s that personal decision, not necessarily labor market discrimination, that contributes to at least some of the gender earnings gap for married full-time workers with a spouse present.

8. Also from Table 7, married women (with spouse present) working full-time with children under 18 years at home earned 78.5% of what married men (spouse present) earned working full-time with children under 18 years (see chart). Once again, we find that marriage and motherhood have a significantly negative effect on women’s earnings; but those lower earnings don’t necessarily result from labor market discrimination, they more likely result from personal family choices about careers, family-friendly and flexible workplaces, commute time, child care, and the number of hours worked.

Bottom Line: When the BLS reports that women working full-time in 2020 earned 82.3% of what men earned working full-time, that is very much different from saying that women earned 82.3% of what men earned for doing exactly the same work while working the exact same number of hours in the same occupation, with exactly the same educational background and exactly the same years of continuous, uninterrupted work experience, and with exactly the same marital and family (e.g., number of children) status. As shown above, once we start controlling individually for the many relevant factors that affect earnings, e.g., hours worked, age, marital status, and having children, most of the raw earnings differential disappears. In a more comprehensive study that controlled for all of the relevant variables simultaneously, we would likely find that those variables would account for nearly 100% of the unadjusted, raw earnings differential of 17.7% for women’s earnings compared to men as reported by the BLS. Discrimination, to the extent that it does exist, would likely account for a very small portion of the raw 17.7% gender earnings gap.

For example, a comprehensive 2009 study from the Department of Labor (“An Analysis of Reasons for the Disparity in Wages Between Men and Women”) came to the following conclusion (emphasis added):

This study leads to the unambiguous conclusion that the differences in the compensation of men and women are the result of a multitude of factors and that the raw wage gap should not be used as the basis to justify corrective action. Indeed, there may be nothing to correct. The differences in raw wages may be almost entirely the result of the individual choices being made by both male and female workers.

Final thought: Consider these definitions:

Wage: A payment of money for labor or services usually according to contract and paid on an hourly, daily, or piecework basis.

Earnings: Money obtained in return for labor or services.

Using the definition of “wage” above, the claim of a “gender wage gap” implies for many (like the NCPE) that women are paid lower hourly or daily wages than men when they are working side-by-side for the same company doing the exact same job with the same educational and work backgrounds.

Language and words are important. And that’s why I think it’s important and more accurate to refer to a “gender earnings gap” rather than a “gender pay gap” or “gender wage gap.” Note that the NCPE uses the terms “gender wage gap” and “wage gap” 12 times on just the Q&A page of its website and more than 20 times on its main website. The Department of Labor study also used the term “raw wage gap.” The underlying assumption with that language (“gender wage gap”) is that there is one hourly (or weekly or monthly) wage paid to men and a lower hourly (or weekly or monthly) wage paid to women working side-by-side their male counterparts doing the exact same job when both have the exact same educational and work backgrounds, etc.

Switching to using the term “gender earnings gap” broadens the concept of earnings differentials by gender, and more accurately allows for the reality that women are usually making the same hourly (or weekly) wage as men doing the exact same job. But men often “earn” more on average than women because men are working longer hours on average, performing different jobs than women, working in jobs that are physically more rigorous (construction), working in jobs that are more dangerous (logging) and in more hostile work environments (oil rigs workers), involve longer commute times and may be less flexible and less family friendly. So I think it’s time to completely scrap the term “gender wage gap” and replace it with the more accurate “gender earnings gap.” Unfortunately, a Google search reveals that there are 30 times more results for the term “gender wage gap” (more than 2 million results) than for “gender earnings gap” (62,000)."

 

Liberal Think-Tank Says Biden Plan Will Cause Childcare Costs to Skyrocket

From The Association of Mature American Citizens (AMAC).

"A prominent liberal think tank has discovered a glaring red flag at the heart of Biden’s $3.5 trillion reconciliation bill. In a report posted last week, Matt Bruenig, founder and director of the People’s Policy Project, revealed that the Democratic child care plan embedded in Biden’s “Build Back Better” bill would increase the cost of child care for millions of middle-class families by an average of more than $13,000 per year. In response, Democrats are now actively working to discredit Bruenig and his findings.

One of the supposed benefits of Biden’s multi-trillion dollar bill constantly touted by the administration has been the promise of expanded access to affordable child care for middle-class families with young children across the country. Simultaneously, they have also promised to improve wages for childcare workers. To that end, under the Democratic plan, child care workers would have their income increased, via taxpayer subsidies, to match that of elementary school teachers – amounting to a staggering 138 percent increase. In addition, middle-class families would also receive subsidies via a “sliding-scale income-based copayment.” Families who meet certain income criteria would pay a certain amount and the federal government would pay the rest.

According to the liberal think tank, this is where the problems arise. Under the Biden plan, if a family makes as much as one dollar above the median household income (roughly $67,000 in 2020), they will lose all subsidies. As a result, average families would be forced to pay unsubsidized and massively inflated prices for basic childcare. According to Bruenig, the unsubsidized price of childcare would go from $15,888 per year to $28,970 per year under the Biden plan. For families just above the median income level in their state, such an increase would be devastating, as they would be forced to pay the entire unsubsidized cost.

The “scale” would be removed three years after the plan is implemented, opening up subsidies to all families. Until that time, however, Bruenig predicts:

There will be many dual-earning couples who cannot afford child care if both of them continue to work but could afford childcare if one of them quit their job and thereby brought their family income below the eligibility cutoff. Normally people who quit jobs to take care of their kids do so in order to save the money they’d have to spend on child care. Under this plan, they have to quit their job in order to afford child care!

If the experience of Obamacare and subsequently skyrocketing healthcare premiums teaches us anything, it’s that whatever the government subsidizes to make it “affordable” soon becomes dramatically more expensive.  

Bruenig, a leftist, does offer several “solutions” as to how Democrats could supposedly fix the issue he points out in their plan. Democrats, however, would have none of it. Apparently they want a quick political win now, even if it means catastrophe for American families later. Within days of Bruenig publishing his report, Democratic partisans pounced on him. A Politico story suggested Democrats were working to “dull a dagger aimed — from the left, of all places — at their much-touted plan to make child care more affordable for American families.” Advocates for the Biden plan called Bruenig’s argument “illogical” and “not based on a close reading.” Conservative think tanks, like the Heritage Foundation and CATO Institute, have raised similar concerns to Bruenig’s. Democrats have gotten away with summarily dismissing them as “partisan” – but they can’t do that so easily with one of their own.

Bruenig has faced such an extreme backlash to his report that he has been forced to write not one, but two follow-up pieces defending his argument. While he acknowledges the critics, he points out that no one has refuted the crux of his argument: that the Biden plan will increase the cost of child care for many middle class families

As negotiations drag on over the bill, Democrats may be forced to slash the $3.5 trillion price tag by as much as $1.6 trillion. While the child care credit will likely remain in the bill, some analysts predict that the size of the subsidies will decrease. However, the hostility Democrats have demonstrated toward a fellow progressive for even questioning the effectiveness of the program further calls into question just how much scrutiny the various provisions of the bill have faced. Other aspects of the bill may have similar issues. For months, Democrats have failed to effectively explain to the American people what exactly is in the bill. Perhaps major flaws like this one are the reason why."

A diversity mandate is not necessarily the answer to fighting racism

From Freakonomics. Excerpt:

 "if discrimination can be costly for firms, what sort of benefits are created by diversity?

CALDER-WANG: This is a good question.

Sophie Calder-Wang is an economist at the Wharton School at the University of Pennsylvania. She and two co-authors — Paul Gompers and Kevin Huang — recently published a study examining this question.

CALDER-WANG: The particular setting is an M.B.A. program at Harvard Business School. From 2013 to 2016, they ran a course which asked students to form small teams of entrepreneurial startups. What is curious is that the first time they launched this class, instead of asking people to form their own teams, the course administrator had this idea of, “Why don’t we just sort people into teams using a computer algorithm so that we can make sure every team have a balanced ratio of men to women, of minorities and whatnot?” In 2014, 2015, they scrapped the computer algorithm and said, “People, you can form your own teams by your own choice.”

DUBNER: Thank you, H.B.S., for setting up a beautiful experiment for me, right? I mean, it is very close to the real world, even though it is a class and not an actual startup. It’s as close as you could get, really, yeah?

CALDER-WANG: Yeah. Obviously there are some differences. But, they actually get graded by a panel of judges, which is comprised of their own section leader, their faculty advisor, and a number of industry judges who are actually practitioners in V.C. and entrepreneurship. So the grades should give you some resemblance of what actually matters in these fund-raising rounds in startups.

DUBNER: And what sort of startup ideas are they coming up with?

CALDER-WANG: Folks come up with businesses that are pretty similar to a typical early-stage startup, but less fleshed-out.

DUBNER: So Uber for X, Y, and Z, let’s say.

CALDER-WANG: Yeah, exactly. Airbnb for dogs.

What Calder-Wang would be measuring, then, was the performance of groups that were assembled by the algorithm versus groups where the members chose themselves.
The Harvard Business School data that she analyzed covered four years of students.

CALDER-WANG: This was basically 1,000 students each year. So, 4,000 students in total. Each team is about five to six people. So you wind up with something like 1,000 teams, which in the realm of firm-level outcomes is a decent sample. I know in the world of big data, 1,000 is tiny.

DUBNER: But in the world of most academic experiments, this is gigantic.

CALDER-WANG: Yeah, exactly.

DUBNER: How do you control for intelligence and talent and connections?

CALDER-WANG: We control, for lack of a better word, the ranking of their undergraduate institutions. We control for whether they have worked in the startup sector before. And to the extent that you think a certain demographic group is just disproportionately more prepared than other groups, we actually can also control for just the fraction of, say, white students.

DUBNER: What about GMAT scores? Are you including that?

CALDER-WANG: If you can help me convince the administration to share with us the GMAT scores — we’re working on that because we want to make sure the errors are not biased.

The student population was a relatively diverse mix of men and women from various ethnic and racial backgrounds. Calder-Wang found that when students could choose collaborators for themselves, the groups were significantly less diverse than when the algorithm created intentionally diverse groups. Given how human beings work, you probably don’t find this surprising. So how did the organically chosen groups perform, compared to the randomly assigned groups — or what Calder-Wang calls the “forced diversity” groups?

CALDER-WANG: What we find in a randomly assigned cohort, one standard deviation increase in diversity leads to about 15 percent degradation in their performance, whereas in the organic formation teams, one standard deviation increase in diversity is only about three to five percent degradation in performance.

DUBNER: So we’re talking about a three to five times difference.

CALDER-WANG: Yes.

In other words, when people were allowed to choose on their own:

CALDER-WANG: When people were allowed to choose on their own, diverse teams performed just fine. The problem lies when you are forced to work together in the diverse team. And that’s why I’ve manufactured this word “forced diversity,” as opposed to organic diversity. We always have this notion that diversity might lead to better performances and we were actually fairly annoyed because we found the coefficient to be negative.

DUBNER: What are we to make of this finding? I mean, what are the mechanisms by which those teams do worse?

CALDER-WANG: What we are finding is when people are matched with teams that are the same in terms of both gender and ethnicity, these teams do much better than teams that mismatch on both dimensions, or on either dimensions, actually. It’s not like one subgroup is the biggest culprit, as far as we can tell. Now, I’m sure communication is a component to it, but at that point, I’m also guessing.

DUBNER: I have to say, when I read your research and then I read, let’s say, The Wall Street Journal talking about how American firms in particular are moving toward what I guess I would now call, thanks to you and your research, “forced diversity” — let me just read to you here: “An analysis released in June found that nearly 75 percent of new independent directors at companies in the S&P 500 are women or belong to a racial or ethnic minority.” So that’s a massive jump. “Furthermore, Nasdaq has recently required that listed companies need to meet certain minimum targets for the gender and ethnic diversity of their boards or explain in writing why they aren’t doing so.” Now, I think most people would look at that movement and say, “Well, it’s about time,” right? “Too much business has been too white and male for too long at the exclusion of other groups who want to be there.” But when I read your paper, I think, “Uh-oh, things might not turn out the way people are hoping they turn out.” And maybe all we’re getting here is window dressing that’s going to lead to bad results that’s going to have a backlash. So, what do you predict?

CALDER-WANG: This paper is not meant to bash any sort of mandated diversity policies, but just to highlight one potential negative consequence. We clearly have inequality in outcome. But in an attempt to address the inequality of outcome, I think we are a little bit lazy to think about what is the cause that actually lead to the inequality of the outcome. So these board policies that required increased representation from women or from underrepresented minorities is an attempt to change the outcome without being very thoughtful in understanding the cause and to actually remove the cause. I would like to spend more time to think about not necessarily how to achieve equality of outcome by manipulating the outcome, but rather to unearth the path towards us achieving some form of equality or opportunity and to find out what changes in the existing institutions and the framework can be done to achieve that."

"Diversity and Performance in Entrepreneurial Teams

55 Pages Posted: 21 Aug 2021 Last revised: 27 Oct 2021

Sophie Calder-Wang

University of Pennsylvania - The Wharton School

Paul A. Gompers

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Kanyuan (Kevin) Huang

University of California, Los Angeles (UCLA), Anderson School of Management, Students

There are 2 versions of this paper

Date Written: October 25, 2021

Abstract

We study the role of diversity on the performance of entrepreneurial teams by exploiting a unique experimental setting of over 3,000 MBA students who participated in a business course to build startups. First, we quantify the strong selection based upon shared attributes when students are allowed to choose teammates. Team formation based upon shared endowed demographic characteristics such as gender, race, and ethnicity is stronger than team formation based upon acquired characteristics such as education and industry background. Second, when team memberships are randomly assigned, greater racial/ethnic diversity leads to significantly worse performance. Interestingly, the negative performance effect of diversity is partially alleviated in cohorts where teams are formed voluntarily. Finally, we find that teams with more female members performed substantially better when their faculty section leader was female. These findings suggest that policy interventions targeting greater diversity should consider match-specific qualities in forming teams to prevent the potential negative impact of diversity. Our results on vertical diversity suggest that capital allocators could also play an important role in the mentoring and advising of minority entrepreneurs.

Keywords: Diversity, Gender, Minorities, Entrepreneurship

JEL Classification: J1, J15, J16, M12, M13, M14"

Biden Suddenly Loves Frackers

After waging war on the industry, Biden wants its help to reduce gas prices

WSJ editorial. 

"Falling poll numbers concentrate the presidential mind, and the result can be startling. Look no further than this nominee for headline of the year from Politico this week: “ Biden team asks oil industry for help to tame gas prices.”

Stranger things have happened, but we can’t recall one. For nine months President Biden has been pursuing policies to squeeze oil-and-gas producers to limit production and eventually go out of business. Having begged OPEC in vain to boost oil production, Mr. Biden is now having to suffer the humiliation of beseeching an American industry he vilifies as destroying the planet to save the day.

***

This is the politics of falling job approval. Crude oil prices have doubled since the November election, and this week closed above $80 a barrel. This has flowed into gasoline prices paid by voters, with the national average for a gallon up more than $1. A federal agency is warning that Americans who use natural gas for heat could pay 22% to 50% more this winter.

A Reuters report says the White House is now “speaking with U.S. oil and gas producers” about “helping to bring down rising fuel costs.” Politico adds that this “outreach” to the oil industry is “an awkward shift.” No kidding, and it’s worth going down the list of ways this Administration has tried to punish U.S. producers.

At a presidential debate last year, Mr. Biden said he would “transition away from the oil industry.” His first day in office, Mr. Biden revoked the permit for the Keystone XL pipeline, which was supposed to carry oil from Canada and the Bakken Shale to refineries on the Gulf Coast. A week later he issued an order placing a moratorium on new oil-and-gas leases on federal lands and waters.

A court blocked that moratorium, but the Interior Department got the presidential message. It approved a mere 171 drilling permits on federal lands in August, down 75% from April. The Biden Administration also moved to suspend existing leases in Alaska’s Arctic National Wildlife Refuge, and it initiated a fresh review of Alaska’s National Petroleum Reserve that could put it off limits as well. Get it—a “petroleum reserve” will be off limits for petroleum.

Mr. Biden also signed a Congressional resolution that vitiated the Trump Administration’s regulation on methane leaks from fossil-fuel production. The White House probably will replace it with a stringent standard that will make fracking more expensive.

The Administration is also unleashing financial regulators against the industry. The Federal Reserve and other bureaucracies are looking to impose new rules on “climate-related financial risk,” as a May order from Mr. Biden put it. The purpose is to close off sources of funding and raise the cost of capital for the industry, and it’s succeeding.

The Federal Energy Regulatory Commission, which oversees natural-gas pipelines, has signaled it probably will start requiring a climate study before approving even the smallest infrastructure upgrades. That will raise the bar for worthy projects, while creating costs for climate mitigation. As one sign of the regulatory gantlet, two different proposed pipelines in the past two years have won a case at the Supreme Court and then been canceled anyway.

Progressives in Congress, meantime, want to use the Democratic reconciliation bill to punish the industry by doing away with expensing for intangible drilling costs, the oil depletion allowance and more. The bill’s Clean Electricity Performance Program is expressly designed to punish fossil fuels, including natural gas. Mr. Biden and his party have sent signals that are loud and clear, in accord with the larger cultural message that fossil fuels are the new tobacco and the world doesn’t need them.

***

That isn’t true, as Mr. Biden is finding out the hard way. Despite all the subsidies for renewables, fossil fuels provide about 80% of America’s energy, and high prices weigh on consumers and the economy. The White House says rising energy costs are a global problem, and that’s true in part. As the economy began to revive from the pandemic, it was only natural, and in fact a good sign, that demand for energy would rebound.

But the U.S. has been the world’s leading oil producer and thus a major player in global supply and demand. American crude-oil production in March 2020 was 12.8 million barrels a day, per the Energy Information Administration. That fell sharply when Covid hit, and now it’s barely inching back up. July’s output was only 11.3 million barrels a day, more than 10% below the pre-pandemic trend.

In other words, this is Mr. Biden’s energy crisis. Given the pressure from his wealthy climate donors and the left, he is never going to yell “drill, baby, drill.” But if Mr. Biden is serious about wanting U.S. producers to help reduce prices at the pump and at home, he will change his punitive policies. Progressives will be upset, but his poll numbers might go up."

The Monetary Bathtub Is Overflowing

Many economists say inflation is transitory. It will be persistent

By John Greenwood and Steve H. Hanke. 

"The consumer-price index has risen 5.4% over the past 12 months. President Biden says we are facing a temporary bout of price increases caused by supply-chain glitches and bottlenecks that are themselves temporary. But while supply-chain problems affect prices of specific commodities, they have little effect on the overall price level if monetary growth is stable. The problem is that monetary growth in the U.S. has been anything but stable.

“Inflation is always and everywhere a monetary phenomenon,” Milton Friedman said. Inflation isn’t caused by temporary supply-chain disruptions. Take Japan during the 1979-80 oil crisis: Oil prices surged, but consumer prices remained stable. In China today, raw-material prices are soaring, but consumer prices have hardly budged. 

To explain what is happening in the U.S. economy, we present the bathtub theory of money and inflation. Money flows into the tub through the faucet. The bathtub has three drains.  

One drains into economic growth—a k a growth in real gross domestic product. Another drains into money that the public wishes to hold relative to its income measured by the ratio M/Py, where M is the money supply, P is the price level, and y is real GDP. Nobel Prize-winning economist Lawrence R. Klein called this one of the five great ratios in economics.

In noninflationary times, the inflow from the faucet roughly equals the outflow through these two drains. But if more money is flowing in than out, the level of money rises. It will eventually reach the overflow, which is the inflation drain. It usually takes about two years for any excess money to show up as inflation.

Let’s take a look at the U.S. bathtub. During the early months of the Covid-19 pandemic, the faucet was wide open. Between December 2019 and August 2021, the U.S. money supply, measured by M2, grew by $5.5 trillion, a stunning 35.7% increase in only a year and a half, driven primarily by the Fed’s purchases of Treasurys and mortgage-backed securities. In light of anticipated Federal Reserve tapering, we estimate that by the end of 2024 the money supply will grow another $5.1 trillion.

Out of the total $10.6 trillion in new money, real GDP growth will drain roughly $1.4 trillion. Another $1 trillion will flow down the money demand drain. Since the amount of money flowing into the bathtub far exceeds the two outflows, the excess money in the tub—around $8.2 trillion—will hit the inflation overflow drain.

The huge monetary expansion—$5.5 trillion already in the bathtub—is starting to reach the overflow. Persistent, not transitory, inflation will be with us for the next two to three years.

Mr. Greenwood is chief economist at Invesco in London. Mr. Hanke is a professor of applied economics at Johns Hopkins University."

 

The West’s Energy Masochism

Putin takes advantage of democratic Europe’s self-defeating climate policies

WSJ editorial.

"With winter fast approaching, Europe finds itself in an energy crisis—and reliant on the tender mercies of Russian strongman Vladimir Putin. It’s a self-induced disaster years in the making.

European natural-gas prices are up more than five times from a year ago, as Asian consumption has risen and supply has tightened around the world. Russia supplies about half of the Continent’s natural gas, which heats homes and powers industry. While Moscow is fulfilling long-term contracts, it is refusing significant spot gas sales. 

Mr. Putin said last week that his country is supplying as much gas as possible, but International Energy Agency chief Fatih Birol estimated this month that Russia could boost exports to Europe by 15%. Several Russian officials have made clear that political concessions would ease the crisis.

“Change adversary to partner and things get resolved easier,” Vladimir Chizhov, the Russian ambassador to the European Union, said this month. “When the EU finds enough political will to do this, they will know where to find us.”

Other Kremlin officials, including Mr. Putin, have hinted that providing regulatory approval for the new Nord Stream 2 pipeline from Russia to Europe would help ease the crisis. Moscow wants the pipeline to deepen Europe’s energy dependence on Russia, as well as deprive Ukraine of lucrative gas transit fees it collects from current gas pipelines.

Konstantin Kosachev, an influential Russian legislator, recently told Bloomberg that “we cannot ride to the rescue just to compensate for mistakes that we didn’t commit.” Give him credit for thuggish honesty.

European leaders have handicapped themselves on energy in the name of pursuing a climate agenda that will have no effect on the climate but is raising energy prices, harming consumers and industry, and is now empowering the bullies in the Kremlin.

The U.K. and EU have pledged net-zero greenhouse gas emissions by 2050, closing coal plants and pouring billions into solar and wind projects. Germany and several other European countries have largely banned fracking. This has transformed European leaders into the equivalent of 16th-century naval explorers, praying for favorable winds and weather as energy prices rise and fall depending on cloud cover and wind conditions.

Germany also hurt itself when Chancellor Angela Merkel chose to eliminate nuclear power in an overreaction to the 2011 Fukushima accident. Germany will phase out its final nuclear station next year. The European Commission is now debating whether to classify nuclear as a sustainable energy source, which could lower financing costs for nuclear projects. But Germany is opposed.

Europe’s willingness to harm itself in the name of unachievable climate goals is one of the greatest acts of democratic self-sabotage in history. Yet Europe’s leaders are heading to the global climate confab next month in Glasgow to increase their energy masochism. And America’s President Biden is eager to join them in abandoning energy security. Mr. Putin must be amazed at his strategic luck."

The GameStop Scandal That Wasn’t

An SEC staff report finds no evidence of market manipulation

WSJ editorial.

"Cleanup in aisle 7! Some days we feel like the grocery store mop brigade wiping up after the political class erupts in a tempest that leaves a mess of falsehoods on the floor. The latest example is the Securities and Exchange Commission staff report that failed to find a scandal in the trading this year in GameStop and other “meme” stocks.

Multiple stocks in January surged in price as retail investors shared bullish tips on social media. “Some in the media directly linked trading activity to the presence of short interest, characterizing trading in GameStop as an act of rebellion intended to humble short-selling professional investors who had allegedly targeted the stock,” says the SEC report published Monday.

Alarmists claimed sophisticated investors were egging on day-traders to squeeze short-sellers, but the report doesn’t show market manipulation. “The underlying motivation of such buy volume cannot be determined,” the report says, adding that “it was the positive sentiment, not the buying-to-cover [of short sellers]” that fueled GameStop’s price spike. In short, blame the madness of crowds.  

Several brokerage firms limited trades of GameStop and other meme stocks as prices became more volatile. Some excitable Members of Congress, including Alexandria Ocasio-Cortez, suggested that the firms were pressured by hedge funds and other commercial partners such as Citadel Securities. There’s no evidence in the report to support this.

The report confirms what brokers said at the time: They were reacting to margin calls and capital charges by the National Securities Clearing Corp. On Jan. 27 “NSCC made intraday margin calls from 36 clearing members totaling $6.9 billion, bringing the total required margin across all members to $25.5 billion,” the report says.

The SEC staff take pains not to emphasize the failure to turn up market manipulation or systemic risks. They know new SEC Chairman Gary Gensler wants to use the meme stock craze to justify more regulation of off-exchange trading and payment-for-order flows, which brokerage firms use to subsidize zero-commissions for retail investors.

But as two Republican SEC commissioners note in a statement, “it does not appear that many conclusions can be drawn from the data.” And the report “finds no causal connection between the meme stock volatility and conflicts of interest, payment for order flow, off-exchange trading, wholesale market-making, or any other market practice that has drawn recent popular attention.”

On to the next non-scandal of prices changing and markets working."

Book Review: ‘Woke Racism’ by John McWhorter

For the left, antiracism is the new religion, and ‘pious, unempirical virtue signaling’ is a form of political activism. 

Woke Racism: How a New Religion Has Betrayed Black America 

By Tunku Varadarajan. Excerpts:

"Mr. McWhorter’s target audience is, precisely, the one that would regard him as racially incendiary. It includes white progressives who have “fallen under the impression that pious, unempirical virtue signaling about race is a form of moral enlightenment and political activism.” Equally, it comprises black people who have succumbed to the “misimpression” that the way to their own salvation lies in “a curated persona as eternally victimized souls.”

Mr. McWhorter’s targets in “Woke Racism” are antiracist crusaders whom he calls the Elect—borrowing a term used by the essayist Joseph Bottum in his book “An Anxious Age” (2014). Mr. McWhorter chooses not to call these people Social Justice Warriors or Inquisitors, deeming those labels “unsuitably dismissive” and “mean,” respectively. He’s not the first to trace the “rootstock” of their ideology to critical race theory. This is a once-fringe belief, now muscling its way into mainstream thought, that every individual’s fate is determined by racial “hierarchy” and power. The theory contends, writes Mr. McWhorter, that a nonwhite in America is “akin to the captive oarsman slave straining belowdecks in chains.”

The Elect, Mr. McWhorter notes, pursue a proselytizing brand of antiracism that has had a particularly harmful effect on academic inquiry, “sometimes strangling it like kudzu.” Bestselling books like Robin DiAngelo’s “White Fragility”—which flagellates white people for their incurable racism—and Ibram X. Kendi’s “How to Be an Antiracist” are the gospels of the antiracist left.

The Elect have a weapon in their arsenal that lends them outsize power. As a result of the “genuine and invaluable change” that has occurred in the modern white American since the Civil Rights movement, “being called a racist is all but equivalent to being called a pedophile.” Those who police our minds for racism believe that Americans who don’t fight to overturn “the systemic pervasiveness of white supremacy” must be regarded as racist themselves. The world of the Elect is “Manichaean,” its fervor “absolutist.” 

How can academics, journalists, CEOs and others combat this new culture of race-based anathema? Mr. McWhorter’s answer is refreshingly non-theoretical. Do not debate the Elect, he counsels, for “they seek not conversation but conversion.” Asking them to heed the post-Enlightenment commitment to free speech is a waste of time. We must “work around” them.

Invoking Alexander Solzhenitsyn—who wrote of the everyday courage needed to resist Soviet oppression—Mr. McWhorter says that America needs “civil valor” to combat the Elect. A critical mass of people must steel itself and start confronting the tormentors. He points to examples where people or corporations have pushed back against woke pressure: Trader Joe’s, the supermarket chain, declined to change its ethnic-oriented branding of certain products after facing accusations of racism (and offering, at first, an apology); hundreds of professors gave their support to Abigail Thompson, a math professor at the University of California, Davis, who refused to comply with “diversity” requirements imposed on her by administrators.

These examples—and others he’s compiled in his book—show us, says Mr. McWhorter, that the Elect can be put in their place if Americans behave like Galileo did before the Inquisition.

Antiracist activists have learned, he says, that they can get what they wish for if they use loudly condemnatory language. After all, no one wants to be shamed as racist on social media—the 21st-century equivalent of being burned at the stake. Mr. McWhorter equips us with some “sample scripts” that might be used in response to antiracist bullies by their beleaguered quarry. An example: “I will not sign this petition, and I don’t care what you call me when I don’t.” Another: “No, we will not refocus our entire curriculum around antiracism. We do not think of battling racism as the most important goal of our program.” Having risen in rebellion, the brave must stand their ground. “Be Spartacus,” Mr. McWhorter says."

How ‘Diversity’ Turned Tyrannical

What began as an effort to hire more minorities has turned into a demand for ideological engagement.

By Lawrence Krauss. 

"The Massachusetts Institute of Technology was supposed to host Thursday’s John Carlson Lecture on climate. MIT’s department of earth, atmospheric and planetary sciences canceled the event because the speaker turned out to have expressed a dissenting opinion—though not about climate science. University of Chicago geophysicist Dorian Abbot argued in a Newsweek piece that universities’ obsession with “diversity, equity and inclusion,” or DEI, “threatens to derail their primary mission: the production and dissemination of knowledge.” If MIT wanted to prove Mr. Abbot’s point, it could hardly have done better. (His lecture will be hosted instead by Princeton’s conservative redoubt, the James Madison Program in American Ideals and Institutions.)

DEI efforts have been under way for decades, but recently they have come to dominate teaching and research agendas, including in the hard sciences. Many scientific disciplines, including my own area of physics, had too few women and minorities in the 1970s and ’80s. Newly established diversity offices developed procedures to counter the possibility that underlying issues might interfere with ensuring both excellence and diversity. As chairman of a physics department in the 1990s, I had to write a statement justifying each appointment we made that went to a white man.

Once entrenched, the DEI offices began to grow unchecked. They became huge and expensive offices not subject to faculty oversight and now work to impose “equity” not only by discriminating in favor of female and minority candidates but by demanding and enforcing ideological commitments from new faculty.

Traditionally, applicants for a science faculty position submit published articles, recommendations from mentors and colleagues, and a statement of their proposed research and teaching interests. University selection committees use this information to assess their qualifications for research and teaching.

Several years ago, one began to see an additional criterion in advertisements for faculty openings. As a recent Cornell ad puts it: “Also required is a statement of diversity, equity and inclusion describing the applicant’s efforts and aspirations to promote equity, inclusion and diversity through teaching, research and service.” This sort of requirement became more common and is now virtually ubiquitous. Of the 25 most recent advertisements for junior faculty that appeared in Physics Today online listings as of Oct. 15—from research institutions like Caltech to liberal-arts colleges like Bryn Mawr, and even in areas as esoteric as quantum engineering and theoretical astrophysics—24 require applicants to demonstrate an explicit, active commitment to the DEI agenda.

This isn’t merely pro forma; it’s a real barrier to employment. The life-sciences department at the University of California, Berkeley reports that it rejected 76% of applicants in 2018-19 based on their diversity statements without looking at their research records. A colleague at a major research institution, who asked to remain anonymous to protect her students, wrote to me: “I have a student on the market this year, agonizing more on the diversity statement than on the research proposal. He even took training where they taught them how to write one. It breaks my heart to see this.” Other colleagues relate that their white male postdocs aren’t getting interviews or have chosen to seek jobs outside academia.

This is happening not only in universities. Last week the Howard Hughes Medical Institute, a biomedical research charity, announced a $2.2 billion initiative aimed at reducing racial disparity, made possible by a contraction in its funding of significant research for senior investigators. The initiative includes $1.2 billion in grants for early-career researchers. Science magazine reports that because antidiscrimination law prohibits disqualifying applicants on the basis of race and sex, the recipients will be chosen based on their “commitment to diversity, equity, and inclusion,” in the words of the institute’s president, Erin O’Shea. How? “Diversity statements,” she says, are “a very promising approach.”

The DEI monomania has contributed to the crisis of free speech on campus. As Mr. Abbot’s cancellation illustrates, even tenured senior faculty aren’t immune. Stephen Porter, a North Carolina State education professor, has sued the school, alleging that it “intentionally and systematically excluded him from departmental programs and activities that are necessary for him to fulfill his job” for speaking out against the DEI agenda.

All this creates a climate of pervasive fear on campus and shuts down what should be an important academic discussion. After I wrote an article in these pages about the intrusion of ideology into science, I heard from faculty around the country who wrote under pseudonyms that they were afraid of being marginalized, disciplined or fired if administrators discovered their emails.

Beyond these fearful faculty members, and talented would-be scientists who will be dissuaded or excluded from academic research, DEI offices are working to indoctrinate incoming students. This year at Princeton, the New York Post reports, freshmen were required to watch a video promoting “social justice” and describing dissenting debate as “masculine-ized bravado.” If such efforts succeed, a new generation of students won’t have the opportunity to subject their own viewpoints to challenge—surely one of the benefits of higher education.

Critics have likened DEI statements to the loyalty oaths of the Red Scare. In 1950 the University of California fired 31 faculty members for refusing to sign a statement disavowing any party advocating the overthrow of the U.S. government. That violated their freedom of speech and conscience, but this is worse. Whereas a loyalty oath compels assent to authority, a DEI statement demands active ideological engagement. It’s less like the excesses of anticommunism than like communism itself.

Mr. Krauss, a theoretical physicist, is president of the Origins Project Foundation. His newest book is “The Physics of Climate Change.”"

 

 

Build Back Better’ Would Sink the Labor Market

The plan would tax those who produce and subsidize those who don’t—a poor recipe for growth

By Casey B. Mulligan and Vance Ginn.

"The two sides of a coin are typically regarded as opposites. In the case of President Biden’s $5 trillion Build Back Better bill, the two sides are actually the same. Both the revenue and expenditure provisions of this agenda will cause substantial decreases in employment. The only difference will be how.

The Build Back Better bill would deliver a double blow to an already disrupted labor market. Most of the explicit tax increases in the agenda directly disincentivize investment, which reduces capital, wealth, wages and employment. Meanwhile, the creation of new (and the expansion of existing) employment-tested and income-tested benefits would increase the implicit tax on working.

The tax increases on both corporate and pass-through business income would reduce wage growth by shifting investment out of the business sector, reducing competition and overall investment, and contributing to lower employment. The tax increases on capital gains, as well as increased corporate taxes on foreign profits, would exacerbate these effects.

The expansion of Affordable Care Act subsidies and paid medical-leave mandates would also reduce employment levels by tying benefits to not working. This and other provisions are gifts to unions, helping them achieve the goal of higher wages through reduced labor supply.

The bill would expand the child tax credit for households that earn no income for a full calendar year. Perhaps the bill’s authors are too young to remember the 1996 welfare-reform law, which demonstrated how sensitive single mothers’ work behaviors are to such disincentives.

Additional subsidies for food, along with medical coverage and housing, decrease as a household earns more income, providing more disincentive for working. The implicit employment and income taxes from a total of 13 such measures would add almost eight percentage points to the marginal tax rate on labor income. Other parts of the bill further reduce the purchasing power of wages by educing competition and raising costs in telecommunications, energy and other products and services, increasing prices in those industries.

After separately estimating the effects of Mr. Biden’s tax hikes, we find large costs to the supply side of the economy. One of us (Mr. Ginn), along with Steve Moore and E.J. Antoni, finds that the explicit tax increases on income, investment and wealth will cost five million jobs over a decade compared to baseline growth. The other (Mr. Mulligan) finds that implicit tax increases on work will cost nine million jobs.

While these two effects may overlap, the Build Back Better agenda is a jobs killer. Pushing these programs further into the budget window may change the headline spending number, but it won’t change the economic damage they will do to the nation.

The president’s plan would be the largest tax-and-spend increase—and disincentive to work—since the introduction of the income tax. It would tax those who produce and subsidize those who don’t. It would encourage dependency on government and punish self-sufficiency. Wealth taxes could exceed 70%, and marriage penalties on small-business owners could exceed $130,000. Families could be hard-pressed to keep farms and businesses after the original owner dies. And the real median household income would fall by $12,000. Meanwhile, lower-income households would see their generous government assistance decline rapidly in the event of even a modest increase in earned income.

Increasing the implicit tax on working has the same effect as a statutory tax increase on income, investment and wealth: decreased employment. With inflation-adjusted private investment having declined for the first two quarters of this year, the nation doesn’t need direct—or indirect—tax increases, especially on investment.

Likewise, with a near-record high 10.4 million job openings in August, the same month there were 8.4 million unemployed, the nation doesn’t need additional disincentives to work. The Build Back Better agenda would hamstring a labor market that remains five million nonfarm jobs below its February 2020 levels and potentially reverse the economic recovery.

Nobel laureate James Tobin was a leading Keynesian economist and key adviser to President Kennedy. He described high-implicit-tax situations as causing “needless waste and demoralization. . . . It is almost as if our present programs of public assistance had been consciously contrived to perpetuate the conditions they are supposed to alleviate.”"

Little evidence that the California paid leave law increased women’s employment, wage earnings, or attachment to employers

By John McCormick of The WSJ.

"The Biden administration has argued that its proposal to spend $225 billion over a decade to offer 12 weeks of paid leave for parenting, family, illness and other needs, worth up to 80% of a worker’s salary, would boost both quality of life and economic output by encouraging more women with children to enter the workforce.

In 2002, California became the first state to enact a paid family leave program. Since July 2004, the Paid Family Leave Act has offered six weeks of partial paid leave, funded by payroll deductions, to attend to the employee’s or a family member’s serious health condition, or to bond with a new child.

The number of annual claims has steadily grown from 154,425 in 2005 (the program’s first full year) to 288,778 in 2020, according to the state’s Employment Development Department.

The White House cites a study of the California program that suggests new mothers who took the leave are, on the whole, more likely to be working nine to 12 months after childbirth, perhaps because those with weaker attachments to the labor force had increased job continuity.

But taking a longer view, a 2019 research paper written by three economists in academia and one at the Federal Reserve Bank of Chicago that used IRS tax data found “little evidence that (the law) increased women’s employment, wage earnings, or attachment to employers.”

Compared with women giving birth in earlier years and in other states, the paper found new mothers using paid parental leave saw “reduced employment by 7 percent and lowered annual wages by 8 percent, six to 10 years after giving birth.”

New mothers with access to the paid leave could expect to receive around $1,833 in wage replacement for one year, the study found, but approximately $25,681 lower earnings over the next decade, for a net 10-year loss of about $24,000."

Lockdowns' High Costs and Murky Benefits

Cato economist Ryan Bourne's new book is a much-needed rejoinder to the obtuse economic reasoning of many pandemic-era policy makers.

By Jacob Sullum of Reason.

"We're not going to put a dollar figure on human life," Andrew Cuomo, a Democrat who was then New York's governor, declared four days after he imposed a statewide COVID-19 lockdown last year. The goal, he explained, was to "save lives, period, whatever it costs."

Ryan Bourne's Economics in One Virus offers a much-needed rejoinder to that morally obtuse position. Bourne, an economist at the Cato Institute, highlights considerations that politicians like Cuomo too often ignored as they decided how to deal with a public health crisis more serious than any the country had faced since the influenza pandemic of 1918. Eschewing unwarranted confidence, Bourne takes no firm position on the cost-effectiveness of mass business closures or stay-at-home orders. But he does insist, pace Cuomo, that cost-effectiveness matters, and he deftly shows how economic reasoning illuminates such issues.

If legislators were determined to "save lives, period, whatever it costs," they would set the speed limit at 5 miles per hour, or perhaps ban automobiles altogether, which would prevent nearly 40,000 traffic-related deaths every year. Those policies seem reasonable only if you ignore the countervailing costs. In public policy, economist Thomas Sowell famously observed, there are no solutions; there are only tradeoffs.

"Logically," Bourne writes, "there must be some negative consequences of government lockdowns, and some point at which they might become self-defeating." To figure out when that might be, policy makers needed to estimate the public health payoff from lockdowns and compare it to the harm they caused.

Contrary to Cuomo's framing of the issue, this is not a matter of weighing "the economic cost" of maintaining lockdowns against "the human cost" of lifting them, as if those categories were mutually exclusive. Even in life-and-death terms, lockdowns had a downside, since they plausibly contributed to a spike in drug-related deaths, discouraged potentially lifesaving medical care, and inflicted financial and psychological distress, neither of which is good for your health. And as Bourne emphasizes, "economic welfare" goes beyond household finances or GDP, encompassing everything people value.

Bourne reviews the literature on the benefits of lockdowns, making several important analytical points. If we want to know whether lockdowns "worked," for example, we need to distinguish between the impact of government-imposed restrictions and the impact of voluntary precautions. An early, highly influential projection by researchers at Imperial College London, which was amplified by the Trump administration, envisioned as many as 2.2 million COVID-19 deaths in the United States based on a counterfactual scenario where "we do nothing." But doing nothing was never a realistic option; by then, people already were responding to the pandemic by changing their behavior.

In addition to all the voluntary cancellations of large gatherings such as conventions and sporting events, smartphone mobility data show that individual excursions fell sharply in early March, weeks before most of the lockdowns. One study that Bourne cites, by economists Christopher Cronin and William Evans, estimated that "non-regulatory responses by individuals and businesses" accounted for "between 74 and 83 percent" of the drop in visits to retailers, entertainment venues, hotels, restaurants, and service businesses. Economists Austan Goolsbee and Chad Syverson found that "legal restrictions" were responsible for less than 12 percent of the decline in "overall consumer traffic."

Since "extensive social distancing was happening prior to government orders," Bourne writes, "it would be wrong to suggest all lives saved compared to 'doing nothing' can be attributed to government policies." He suggests that voluntary adaptation "might explain why cases and deaths across countries implementing very different public health interventions nevertheless followed fairly consistent patterns through much of the spring and summer of 2020."

The importance of private precautions cuts both ways in assessing the cost-effectiveness of lockdowns. It reduces the benefits of such policies, but it also reduces their costs. Since Americans spooked by COVID-19 responded by staying at home more and spending less time and money at brick-and-mortar businesses, those businesses and their employees would have suffered (although not as much) even if states had not restricted their operations or shut them down completely. "It is clear that businesses and much economic activity were shuttering or constrained through changed private behaviors," Bourne notes, "even prior to state-government-mandated business closures and stay-at-home orders."

A proper analysis of lockdowns also has to distinguish between COVID-19 deaths that were prevented and COVID-19 deaths that were merely delayed. While conventional wisdom suggests that lockdowns were most effective at reducing virus transmission early in the pandemic, their impact on mortality was at least potentially bigger later on, when better treatment and vaccines were already available or around the corner. Then again, relatively strict states such as California, which experienced the same winter surge in cases and deaths as states that were frequently criticized as lax, did not see any obvious public health benefit from reimposing restrictions in late 2020.

A couple of natural experiments indicated that lifting lockdowns did not have anything like the disastrous impact that critics predicted. After the Wisconsin Supreme Court overturned that state's lockdown in May 2020, economist Dhaval Dave and his colleagues found, the decision "had little impact on social distancing," and there was "no evidence" one month later that it "impacted COVID-19 growth." (Wisconsin, like the rest of the country, did see a modest increase in new cases later that summer, followed by a surge in the fall and winter.) And while Texas Gov. Greg Abbott, a Republican, was widely condemned for lifting business occupancy limits and a statewide face mask mandate in early March 2021, Dave et al. likewise found "no evidence" that the reopening affected cases or deaths.

Here, too, the lesson is not obvious. As Dave pointed out, removing legal restrictions may have had a smaller impact than imposing them if people tended to stick with cautious habits they adopted during lockdowns.

Several studies that Bourne discusses estimate that U.S. lockdowns had a substantial additional effect on cases and deaths, beyond what was already being accomplished through voluntary changes. Here is how he summarizes a study by a team of Penn-Wharton economists: "Although the private responses did most of the heavy lifting, the combined impact of state stay-at-home orders, school closings, and nonessential business closures across the United States reduced deaths by 48,000 in the first three months of the pandemic." By contrast, a subsequent study by researchers at the University of Chicago, published after Bourne's book, concluded that lockdowns during that period "did not produce large health benefits but also accounted for a small share of pandemic-related economic disruptions."

Assuming that estimates of large effects are credible, there is still the issue of what price was worth paying to avoid those deaths. Cuomo, who asserted that "a human life is priceless" even as he pursued a reckless nursing home policy that probably caused many avoidable deaths, thought even asking that question was a moral affront. But in a world of finite resources where officials routinely and appropriately weigh the cost of lifesaving regulations, the question is unavoidable.

Regulators commonly assume a policy is justified if it costs around $10 million for each death it is expected to prevent. That "value of a statistical life" (VSL) is derived from research on how much extra pay people demand for hazardous work, which involves a relatively young and healthy population. As Bourne notes, this VSL implies that "we should be willing to effectively sacrifice up to 10 percent of all U.S. wealth" (which is roughly five times America's GDP) to "save the lives of just 0.33 percent of the population." But given the age distribution of COVID-19 deaths, which were overwhelmingly concentrated among elderly people with preexisting health conditions, some economists think the VSL in this context should be closer to $3 million, which obviously would make a big difference in estimating the impact of lockdowns.

Fully considered, Bourne thinks, both the costs and the benefits of lockdowns may have run into the trillions of dollars. Even if the latter sum was higher, that does not necessarily mean lockdowns were the best approach, since less sweeping, more carefully targeted policies might have achieved similar results at a lower cost, as several international surveys of COVID-19 control measures have suggested. Bourne does not venture a definitive conclusion.

In addition to considering the merits of lockdowns, Bourne uses the pandemic to illustrate economic concepts such as externalities (the justification for government intervention in this case), marginal analysis (which politicians too rarely applied in judging the wisdom of restricting low-risk activities such as boating and fishing), the price mechanism (which policy makers keen to stamp out "price gouging" tended to ignore), moral hazard (which suggests that some COVID-19 precautions might have counterintuitively encouraged risky behavior), and public choice (which helps explain which businesses got bailouts). Bourne's focus throughout is on smart questions rather than glib answers—an approach frequently missing in the pandemic era's acrimonious debates.

Economics in One Virus: An Introduction to Economic Reasoning Through COVID-19, by Ryan A. Bourne, Cato Institute, 309 pages, $19.95"

Three Myths about Federal Regulation

Patrick A. McLaughlin & Casey B. Mulligan.

"Despite evidence to the contrary, three common myths persist about federal regulations. The first myth is that many regulations concern the environment, but in fact only a small minority of regulations are environmental. The second myth is that most regulations contain quantitative estimates of costs or benefits. However, these quantitative estimates appear rarely in published rules, contradicting the impression given by executive orders and Office of Management and Budget guidance, which require cost-benefit analysis (CBA) and clearly articulate sound economic principles for conducting CBA. Environmental rules have relatively higher-quality CBAs, at least by the low standards of other federal rules. The third myth, which is particularly relevant to the historic regulations promulgated during the COVID-19 pandemic, is the misperception that regulatory costs are primarily clerical, rather than opportunity or resource costs. If technocrats have triumphed in the regulatory arena, their victory has not been earned by the merits of their analysis."

Schumark Hearing Shows That Private Equity Is Not the Problem

By Norbert Michel of Cato.

"Yesterday, I was fortunate to testify before the Senate Banking Committee at a hearing titled How Private Equity Landlords are Changing the Housing Market. I’ve testified before, but yesterday was the first time that I was the only in person witness, a rather odd feeling, to say the least.

Anyway, to sum up my answer to the hearing title: Private equity landlords are not harming the housing market.

For starters, there are not that many of them relative to individual and corporate landlords. All of the witnesses – on both sides – agreed that the overall share of private equity landlords is small. Still, the Democratic witnesses (and Senators) tried to minimize this fact by arguing that private equity firms had bought up large concentrations in narrowly defined markets, such as some zip codes in Atlanta.

That argument might have helped create some good sound bites, but when your side admits (see page 9) that institutional investors are “concentrated in a relatively small number of markets” and that they are “also concentrated in specific market segments within metropolitan areas,” it’s pretty difficult to also argue that they have some sort of monopoly‐​type control or people’s choices.

In fact, one of the witnesses cited a Wall Street Journal article to bolster her point about “monopolization,” but that same article points out that when rents get high, most renters move on. Whether tenants buy their own home or rent elsewhere, the threat of competition is clearly at work – landlords can’t arbitrarily raise rents beyond what most renters can pay without losing tenants.

Two other aspects of the hearing struck me as somewhat strange.

First, several Democratic senators kept referring to the current housing crisis. I have no doubt that American housing markets are not perfect, but where is the crisis? It is true that the overall ownership rate hasn’t really changed much in the last fifty years, but it’s pretty odd to call that a crisis (the rate remains close to average for the developed world).

Of course, if these folks are referring to rapid house price appreciation as a crisis, they have to look no further than the policies that they have been pushing for decades, all of which increase demand and do nothing to increase supply.

Adding insult to injury, the Democratic Senators (and their witnesses) tried to minimize that these supposedly evil institutional investors bought loads of foreclosed homes from federal agencies. That inconvenient fact, of course, points the finger right back at the federal policies that artificially boost demand for housing, particularly those involving Fannie, Freddie, and the FHA.

The last strange part was that I felt like I had stepped back into the policy debates of the early 1900s. To address the alleged crisis, the Democratic members want to expand public housing, provide more rent subsidies, and implement rent control. These are the very same failed policies that progressives started pushing more than a century ago.

Still, as Senators Toomey (R-PA) and Tillis (R-NC) correctly pointed out, about fifty years ago, Congress collectively admitted that warehousing lower‐​income Americans in subsidized housing projects was a horrible idea. That admission even led to the eventual bulldozing of those buildings and an agreement to stop building new housing projects.

The Senators also did American taxpayers a service by explaining that a huge portion of the public housing funds in the reconciliation bill are because Senator Schumer (D-NY) wants to send an extra $40 billion to the New York City Housing Authority. According to Michael Hendrix of the Manhattan Institute, this amount, dubbed the Schumark, represents approximately $250,000 for every family living in public housing in New York City.

It certainly does not say anything good about American politics that, in 2021, members of Congress are vilifying private investors to help them revive public housing. I’d wager that most people living in housing projects don’t feel very grateful."