Economic Freedom, Not Government Programs, Key to Reducing Poverty

By Adam B. Summers.

"People have struggled with how best to deal with poverty since the earliest societies, but the answer is apparent if we merely look to history.

From the Renaissance to the Industrial Revolution to modern times, poverty has been most radically and rapidly alleviated whenever people are free to work in an occupation of their choosing, keep the fruits of their labors, acquire and maintain private property, and rely on a stable legal system to protect their personal and economic freedoms.

In recent decades, this age of relatively free enterprise and global trade has resulted in an unprecedented reduction in poverty.

This may come as a surprise to many who have heard the narrative, popular in the media and certain circles of academia, which claims that not only are the rich getting richer, but the poor are getting poorer.

Indeed, when a survey by Hans Rosling for Gapminder asked people whether the portion of the world’s population living in extreme poverty had a) almost doubled, b) stayed about the same, or c) almost halved over the last 20 years, only 5 percent of Americans correctly answered that it had been virtually cut in half.

According to World Bank estimates, the portion of those living in extreme poverty, defined as living on less than $1.90 a day, has steadily declined from 36 percent in 1990 to 10 percent by 2015 (and an estimated 8.6 percent in 2018)—the lowest level in recorded history.

In all, 1.1 billion people rose out of extreme poverty in just a quarter-century—a tremendous achievement!

Moreover, 80 percent of those who remain in extreme poverty are concentrated in Sub-Saharan Africa and South Asia, primarily in countries typified by war, corruption and a lack of economic liberty.

These results are bolstered by various freedom indexes, such as the Fraser Institute’s annual Economic Freedom of the World (or its Human Freedom Index, which includes measures of personal freedom in addition to economic freedom).

Such studies consistently show an incredibly strong correlation between nations that offer greater economic and personal freedom and desirable traits like higher per-capita income and economic growth, lower levels of poverty, greater life expectancy, lower infant mortality rates, greater equality between the genders and generally higher levels of happiness. 

So while many focus on the next government program that they are sure will be the silver bullet to alleviate poverty, the best solution is to simply create the conditions that allow people to thrive by eliminating government laws and regulations that exacerbate poverty by restricting economic and personal liberties."

Fact-Check: 41% of Retirees “Can’t Cover Basic Needs,”Says The Elder Index

By Andrew Biggs of AEI.

"CBS News, CNBC, The Boston Globe, Reuters and others have repeated the National Elder Economic Security Index’s claim that 41% of all retirees nationwide are “economically insecure.” According to the Elder Index, a project of several Massachusetts-based gerontology groups,  53% of single retirees nationwide and 27% of retired couples cannot “cover basic needs … including shelter, medical care, food, and transportation.” 

But are 4-in-10 retirees really unable to afford even a basic standard of living? It’s time for a fact-check.

The Elder Index’s logic is pretty reasonable. It first determines how much a retiree household should expect to spend on Housing, Food, Transportation, Healthcare, and Miscellaneous spending. Then, it uses Census Bureau survey data to calculate how many households have a total income sufficient to meet these thresholds. If not, the Elder Index classifies it as economically insecure.

The problem is with how the Elder Index sets these spending thresholds. For food costs, the Elder Index uses the USDA’s “thrifty” food plan, which is designed to provide adequate nutrition at minimum cost. It’s hard to argue with that.

But for housing, the Elder Index looks at the median costs paid by renters or homeowners in an area. For transportation, the Elder Index calculates costs based on the average number of miles driven by retirees. For healthcare, the Elder Index looks at the average cost of Medicare premiums, a Medigap supplementary policy and out-of-pocket health costs. The Miscellaneous spending category is set at 20% of the total, so it effectively follows the other categories.

 

Here’s the problem: by definition, half of the population spends below the median and more than half spends below the average. Half pay less than the median housing cost, but that doesn’t mean their housing is inadequate. More than half pay less than the average cost for transportation, but perhaps they have a less expensive car or drive fewer miles. And much more than half pay less than the average healthcare costs, because the average is skewed by a small number of patients with very high costs. Moreover, about one-fifth of retirees receive health coverage from Medicaid, which covers their Medicare premiums, co-pays, prescription drugs and other costs. They don’t need to cover the same out-of-pocket costs as middle or higher-income retirees.

In other words, the Elder Index sets its spending thresholds in such a way that almost pre-determines that a lot of retirees will be deemed economically insecure. Unless we live in a Lake Wobegon world where every retiree’s income is above average, someone has to fall below the spending thresholds set by the Elder Index. But simply having a below-average income doesn’t make a retiree economically insecure.

The Elder Index has an additional problem: the Census Bureau survey data it uses significantly understates retirees’ true incomes, which can be measured using IRS data. Many retirees responding to household surveys mistakenly fail to report the incomes they receive from pensions, 401(k)s and IRA accounts, so much so that the median retiree income reported in IRS data may be up to 30% above what those same households report in government surveys. Even at low income levels, household survey data understate true retiree incomes by at least 10 percent.

So the Elder Index both overstates retirees’ costs of living and understates the incomes retirees have to pay these costs.

But is there a better way?

One option is to look at poverty rates. According to 2017 Census Bureau research, 6.7% of Americans aged 65 and over in 2012 had incomes below the poverty threshold, down from 9.7% in 1990. The Supplemental Poverty Measure calculates poverty differently and finds that 13.5% of retirees were in poverty in 2019, though the data don’t extend far enough back to determine trends. But either way, neither imply that 40% of retirees are economically insecure.

A second approach simply asks retirees to assess their own retirement income security. Nearly 8-in-10 retirees tell Gallup that they have enough money, not merely to survive, but “to live comfortably.” Likewise, only 5% of retirees tell the Federal Reserve’s Survey of Household Economics and Decisionmaking that they are “finding it hard to get by,” with another 16% saying they are “just getting by.” Fully 79% of retirees say they are “doing okay” or “living comfortably.” Unless retirees are deluding themselves, it’s hard to square these figures with the Elder Index’s conclusion that over 4-in-10 are economically insecure.

The Elder Economic Security Index has too many technical flaws to tell us much of value about how retirees today are faring. And it’s inconsistent with retirees themselves tell us. So it’s Factcheck: False on the Index’s claims.

But here’s the bigger question: Why do studies, invariably concluding that Americans have vastly undersaved for retirement, find such uncritical coverage in the news media? Most of the media coverage of these studies is single-source, meaning that the article simply repeats the study’s claims but doesn’t contact any other sources for comment. That’s a no-no for journalists, and these “retirement crisis” studies illustrate why: it’s really easy for a reporter who’s not a subject-matter expert to overlook the shortcomings of a study and simply repeat its frightening conclusions, even if on second glance those conclusions are unreasonable. That’s why reporters need to contact multiple sources and editors need to demand that they do. The news media suffers from tight budgets and understaffing today, but their job is too important for it to be done badly."

Globalization and Technology: Raising Wages and Quality of Life for Even More US Workers

See Fail or Flourish: American Workers, Globalization, and Automation by Daniel Griswold of Mercatus.

"The conventional narrative states that most American workers are falling behind and that trade and technology share most of the blame. To address this situation, some policymakers on the right and on the left are calling for increased taxes, tariffs, and regulation. Daniel Griswold rejects both the conventional narrative and the proposed solutions. In “Fail or Flourish: American Workers, Globalization, and Automation,” he argues that (1) most workers are getting ahead and (2) there are better ways to help those who are not.

Rising Worker Wages and Living Standards in a Changing Economy

Despite claims that their wages are stagnating, the majority of American workers is better off today than in previous decades. Trade and technological innovation have increased US productivity, driving up wages and living standards for most workers.

·       Real median household income has increased from $53,251 in 1973 to $63,179 in 2018.

·       Real hourly compensation for US workers has risen by more than 50 percent between 1973 and 2018.

·       Technology and global trade have made goods more affordable. This has increased living standards for workers.

·       There has been a rise in workplace safety. Between 1991 and 2017, workplace deaths have decreased by 30 percent and workplace injury and illness by 69 percent.

·       The US economy has created large numbers of new jobs in the service sector that pay higher wages than many of the manufacturing jobs that have been lost. This job creation includes almost 20 million net new jobs in higher-paying service sectors such as business and financial services, management, construction, healthcare, and education.

Helping Workers Left Behind in Today's Labor Market

US economic policy should not seek to regulate or slow the underlying market forces that have delivered higher living standards and job opportunities for the majority of workers. Instead, it should help extend the benefits of a dynamic labor market to a significant minority of working-age Americans who have become detached from the labor market as well as those whose real wages have declined.

Helping US workers who are not getting ahead in today’s economy will require reform in a range of areas, including the following:

·       Encouraging and enabling workers to fill the jobs that are being created through changes in unemploy­ment insurance, job training, and income-support programs

·       Enacting sentencing reform to decrease rates of incarceration

·       Deregulating occupational licensing to reduce barriers to employment

·       Relaxing land use regulations that may hinder the ability of displaced workers to relocate to areas with more opportunities

·       Expanding educational and job-retraining opportunities, including alternatives to four-year colleges"

Scott Sumner vs. Paul Romer on the soaring rate of opioid deaths (& regulation in general)

See Paul Romer's second critique of economics. Excerpt:

"The rest of the essay does indeed focus on arguments claiming that deregulation in pharmaceuticals and finance led to big problems.  Unfortunately, the arguments are vague and unpersuasive.  He begins by blaming drug deregulation for the soaring rate of opioid deaths, which recently reduced life expectancy in the US.  But how was this caused by “deregulation”?  The worst of the opioid crisis occurred after the government tightened regulations on drugs like Oxycontin, and people switched to (highly regulated!) alternatives like heroin and fentanyl.  It was actually regulations forcing these drugs into the underground economy where there are no quality controls that prevented people from getting safe doses of those alternatives, and overdose deaths soared as a result.

But let’s say I’m wrong, and that the approval of Oxycontin was the core mistake here.  What does that decision have to do with “deregulation”?  After all the FDA does regulate drugs like Oxycontin.  Here’s Romer:

Imagine making the following proposal in the 1950s: Give for-profit firms the freedom to develop highly addictive painkillers and to promote them via sophisticated, aggressive, and very effective marketing campaigns targeted at doctors. Had one made this pitch to the bankers, the lawyers, and the hog farmer on the Board of Governors of the Federal Reserve back then, they would have rejected it outright. If pressed to justify their decision, they surely would not have been able to offer a cost-benefit analysis to back up their reasoning, nor would they have felt any need to. To know that it is morally wrong to let a company make a profit by killing people would have been enough.

Unless I’m missing the point, this seems like a very weak argument.  First, in the 1950s there weren’t even restrictions on cigarette use.  People were more tolerant of risk back then.  Second, the whole argument for “regulation” is that average people can’t make intelligent decisions on what drugs to buy, and thus we need experts at the FDA to determine what’s appropriate.  And yet Romer contemplates asking the Board of Governors at the Fed what they think of Oxycontin.  What does this example show?  Why would the Fed regulate drugs?  Maybe Romer merely meant that if you ask average people with no expertise in health care, like Fed officials, they’d see the obvious foolishness of approving Oxycontin.  But then why not use average people in the example, why Fed officials?  I don’t get it.

I don’t think that it’s even true that Oxycontin was obviously a foolish drug to approve. If it was, why did the FDA approve it?  More importantly, if Romer’s correct then he’s actually making an argument for getting rid of the FDA and letting average people decide what is safe.  Maybe we could have a referendum on whether to approve Oxycontin, instead of having the decision made by the “experts”, by the “philosopher kings” at the FDA.  Romer is engaging in a sort of populism here, which doesn’t seem entirely sincere to me.  Regulation of drugs is inherently paternalistic, it’s elitist. But that’s what Romer wants, isn’t it?

He also doesn’t explain why if Oxycontin should never have been approved, the FDA did not see what was (he thinks) obvious to ordinary people.  And what exactly is the argument here—that painkillers should not be sold?  What about cancer victims in extreme pain?  Or is the argument that it should not have been widely prescribed?  But that’s a failing of the medical profession, not economists promoting “deregulation”. (I use scare quotes, because the health care industry has most certainly not been deregulated.)  We could punish doctors who overprescribe Oxycontin, but that regulation has produced horrible side effects.  So what’s the plan?

To summarize, it seems weird to blame “deregulation” for problems in a highly regulated industry, which might have been caused by regulators who often refuse to approve new drugs making a bad choice in a particular case (Romer’s view) and might have been caused by the regulations themselves, which pushed people into even more dangerous drugs (my view.)

The DEA is one of the most evil organizations in American history, presiding over a war on drugs that has put 400,000 Americans in prison and resulted in countless deaths. Foreign countries like Mexico have been destabilized, and murder rates have skyrocketed.  The DEA is also a major abuser of the human rights of American citizens, stealing their money and breaking into their homes and shooting innocent people. But Romer discusses the DEA as if it’s a force for good:

And when the Drug Enforcement Administration finally tried to limit the distribution of these painkillers, pharmaceutical companies launched a massive lobbying effort in favor of a bill in Congress that would strip the DEA of the power to freeze suspicious narcotics shipments by drug companies. It is a safe bet that these lobbyists made their arguments to Congress in the language of growth, incentives, and the danger of innovation-killing regulations. The push succeeded, and the DEA lost one of its most powerful tools for saving lives.

And then there’s this:

Of course, during earlier eras, regulators allowed many industries to profit massively from products known to be harmful; Big Tobacco is the most obvious example.

Is Romer actually saying that cigarettes should be banned?  How did prohibition of alcohol work?  How about the prohibition of pot, cocaine and heroin?  If you are going to argue against deregulation, pointing to the set of regulations called the war on drugs is absolutely the last place you want to go.

Then Romer mentions Greenspan’s support for deregulation of finance, which he later regretted.  But actual experts on regulation of financial regulations (and Greenspan is most certainly not an expert) understood that FDIC, too-big-to-fail, the GSEs and other regulations were creating moral hazard, leading to way too much risking taking in the financial sector.  Numerous free market economists (including me) pointed this out.  After the banking crisis of the 1980s (almost entirely created by FDIC and FSLIC), there was an increase in regulation.  I argued (correctly) that we had not solved the problem and that it was only a matter of time until it happened again.  Of course Dodd-Frank also failed to address this issue.  Regulations encourage risk-taking.  True deregulation would reform FDIC so that banks didn’t use insured deposits to make risky loans.

Then there’s an example of some unethical behavior at Goldman Sachs, which seems to have nothing to do with economists promoting deregulation.  It’s sort of thing you normally get in a left wing essay—anything bad that happened in a country called “capitalist” shows the evils of capitalism.  I don’t think Romer accepts the left wing critique of capitalism, but he is using their sloppy arguments in parts of this essay.  Financial firms also engage in unethical behavior in regulated systems.  Even worse, the activity Goldman Sachs engaged in was “regulated”.  They had to pay a massive fine for violating these regulations.  Regulation can never stop all unethical behavior; at best it can punish this behavior.  And that’s what happened here.  The system worked; bad behavior was punished.

Not surprisingly, there is no discussion of how monetary policy created the Great Recession.  But even economists who disagree with Romer suffer from the same blind spot on monetary policy.  More importantly, there’s no evidence that deregulation played a significant role in the crisis.  Actual examples that people occasional cite, such as repeal of Glass-Steagall, did not have any significant impact on the crisis.

Here’s Romer’s conclusion:

The alternative is to make honesty and humility prerequisites for membership in the community of economists. The easy part is to challenge the pretenders. The hard part is to say no when government officials look to economists for an answer to a normative question. Scientific authority never conveys moral authority. No economist has a privileged insight into questions of right and wrong, and none deserves a special say in fundamental decisions about how society should operate. Economists who argue otherwise and exert undue influence in public debates about right and wrong should be exposed for what they are: frauds.

Economists like Deirdre McCloskey have pointed out that most economists have a simplistic and almost cartoonish view of ethical issues in economics.  Economists talk about “positive” and “normative” issues with little understanding of the difficult philosophical issues involved in defining these terms.  It sounds nice to say that economists should stick to positive issues and stay out of normative issues.  But what does that even mean?

Romer is famous for advocating charter cities (similar to Hong Kong), which are free of burdensome regulations (consider the irony). I am pretty confident that if Romer were forced to explain why economists advocating deregulation are engaged in “normative economics” and economists advocating charter cities are engaging in “positive economics”, he would have a difficult time drawing a meaningful distinction.  McCloskey would have a field day with this essay.

Romer’s a great economist, but I think he got out of his area of expertise in this essay.  Of course you could say the same about my rebuttal.  But if even a non-expert like me sees obvious flaws, imagine how an expert on deregulation or normative economics would react to Romer’s essay."

John Tierney on the ‘plastic panic’ that provides no benefits except to let green activists impose their preferences on others

From Mark Perry.

"In today’s Wall Street Journal, John Tierney explains how “Plastic Bags Help the Environment” and why banning them provides no benefit other than to let green, virtue-signaling activists lord their preferences over others. Here’s a slice:

Single-use plastic bags aren’t the worst environmental choice at the supermarket — they’re the best. High-density polyethylene bags are a marvel of economic, engineering and environmental efficiency. They’re cheap, convenient, waterproof, strong enough to hold groceries but thin and light enough to make and transport using scant energy, water or other resources. Though they’re called single-use, most people reuse them, typically as trash-can liners. When governments ban them, consumers buy thicker substitutes with a bigger carbon footprint.
Once discarded, they take up little room in landfills. That they aren’t biodegradable is a plus, because they don’t release greenhouse gases like decomposing paper and cotton bags. The plastic bags’ tiny quantity of carbon, extracted from natural gas, goes back underground, where it can be safely sequestered from the atmosphere and ocean in a modern landfill with a sturdy lining. If the goal is to reduce carbon emissions and plastic pollution, we can take some obvious steps: Repeal misguided plastic-bag bans.
Green activists have the power to impose their preferences now that environmentalism is essentially the state religion in progressive strongholds. They can lord it over the modern merchant class and corporations desperately trying to curry social favor. The plastic panic gives politicians and greens the leverage to shake down companies afraid that they’ll be regulated out of business.
Most important, the plastic panic gives today’s elites a renewed sense of moral superiority. No matter how much fuel politicians and environmentalists burn on their flights to international climate conferences, they can still feel virtuous as they issue their edicts to grocery shoppers.

Related: I’ve featured John Tierney before on CD including these posts: 1) “John Tierney on the war on science from the supposed ‘party of science’“, 2) “Recommended reading for Earth Day 2017: ‘Recycling is garbage’ from the NYT in 1996 – it broke hate mail record,” and 3) “John Tierney in NY Times: Recycling was ‘garbage’ in 1996, it’s still that way today, and the future looks even worse.”"

The Best Case Against Breaking Up Amazon

By Veronique de Rugy.

"The New York Times published this excellent argument why we shouldn’t break up Amazon. It boils down to this: Amazon is a genius at giving consumers what they want, and because it faces a ton of competition, the company innovates like crazy. All that’s missing from this piece is the argument that government’s ineptitude at running Amtrak and the postal service, along with a great deal of other evidence of political operatives’ failure to achieve their goals, should make us skeptical of the ability of bureaucrats to break up Big Tech. Here are some choice excerpts from the article:

“Amazon is a genie of consumerist wishes, and it keeps growing more irresistible.”

“As a fervent Amazon customer, I love that its platform keeps getting more convenient.”

“[E]ven as Amazon gets bigger, it still faces relentless competition in the retail business, and is therefore not slowing in any obvious way to act like a lumbering monopoly of yore. The company keeps innovating — and as it does, the possible harms critics have long warned about may look increasingly distant to its customers.”

“What consumers may come to see in Amazon, instead, is what I’ve started to notice — it’s an inescapable, all-consuming retail paradise.”

“Amazon is pushing a level of speed, convenience, and selection in shopping that millions of customers are integrating into their daily lives.”

 

“Amazon is a trillion-dollar retailing phenomenon that has transformed almost everything about the way Americans shop, but sometimes it seems to operate as a charitable operation for well-off consumers who just want to try out this or that high-priced consumer fancy.”

Exactly! Did I mention that the author is sympathetic to the idea of breaking up Big Tech? But he worries that if Amazon continues to be so good, it will become harder and harder to make the political case to break it up. You can’t make this stuff up."

Little Havana’s Parking-Free Renaissance: In Miami, flexible zoning regulations free development

By Nolan Gray of Mercatus. Excerpt:

"Changes adopted to the Miami zoning code five years ago are bearing fruit. As reported by the Miami Herald, a 2015 amendment to the code exempted certain lots under 10,000 square feet from the city’s multifamily and commercial-parking requirements, which otherwise force developers to provide more parking than people might actually need. As of early 2020, developers are catching on, with a small apartment renaissance brewing in East Little Havana.
The Miami reforms show what’s possible when cities get out of the way of housing markets. East Little Havana was, until recently, a neighborhood of vacant lots, modest bungalows, and garden apartments, in many cases elevated above a ground-floor parking lot. But with Miami housing costs surging and the region’s central business district only a few miles east, land costs within the neighborhood have been steadily rising.

When city leaders overhauled Miami’s zoning code in 2009, an effort that culminated in the new code known as Miami 21, planners envisioned an East Little Havana of eight- to 12-story mixed-use buildings. Yet a contradictory set of standards in the code made this type of development prohibitively difficult to implement. Under the old standard of 1.5 parking spaces per unit, developers had to set aside 488 square feet of parking per apartment, increasing the amount of space required for a typical two-bedroom unit from 900 feet to 1,388 square feet.

Where would all this extra parking go? In a neighborhood characterized by modest 7,500-square foot lots, the cheapest option—a large surface lot, tucked behind the building—was physically infeasible. That left small developers with two options: build one of Miami’s infamous parking podiums (cellars are unwise in the flood-prone city), or purchase, demolish, and pave neighboring properties. Either would have undermined the walkability that planners envisioned for East Little Havana. The added off-street parking would also raise housing costs. According to one estimate, a surface parking space can drive up the cost of housing by as much as $10,000; when built in a parking garage, the space can add to housing costs by as much as $50,000. These additional costs would make the proposed developments prohibitively expensive.

Under the revised ordinance, developers will enjoy flexibility to set the amount of parking based on what they believe is necessary to lease out or sell the space. With much of the affected area well-served by buses and comfortably within walking and bicycling distance from key business districts like Brickell, dedicated off-street parking has proved to be less needed than politicians and planners had previously assumed."