Medicare price cuts led to a decline in new product introductions and a decrease inpatent filings

See Quantifying the Super-Villains from Tyler Cowen.

"There is a new paper on this topic:

We investigate the effects of substantial Medicare price reductions in the medical device industry, which amounted to a 61% decrease over 10 years for certain device types. Analyzing over 20 years of administrative and proprietary data, we find these price cuts led to a 25% decline in new product introductions and a 75% decrease in patent filings, indicating significant reductions in innovation activity. Manufacturers decreased market entry and increased outsourcing to foreign producers, associated with higher rates of product defects. Our calculations suggest the value of lost innovation may fully offset the direct cost savings from the price cuts. We propose that better-targeted pricing reforms could mitigate these negative effects. These findings underscore the need to balance cost containment with incentives for innovation and quality in policy design.

By Yunan Ji and Parker Rogers.  Here is a summary tweet storm.  Via Sam Hammond."

Did Inequality Fall Between 1870 and 1910?

By Vincent Geloso. 

"The period from 1870 to 1910, which includes the Gilded Age and Progressive era, is depicted everywhere as one where there was rapid economic growth. This growth is commonly seen as rapidly and unevenly distributed with the poorest 90% enjoying far fewer improvements. 

This popular conception is probably wrong because of the way we are using the existing data on inequality. In fact, inequality between the top 10% and bottom 90% of the income distribution in America most likely declined. 

Let us look at that data. Right now, there are no actual estimates from 1871 to 1909. What there is an estimate in 1870 and another one for 1910. 

The estimate for 1870 comes from the work of Peter Lindert and Jeffrey Williamson. They used what is known as a “social table.” This approach estimates income distribution by assigning average incomes to different social or occupational groups based on historical records, such as census data. It simultaneously provides total national income and income inequality.  That estimate is not disputed, and if anything, it probably understates inequality because of the problems of census underenumeration of the poor. 

The estimate for 1910 is derived from the work of Thomas Piketty in his famed Capital in the 21st Century, and is not directly based on income data. Instead, he used tax records from 1917 to estimate the top 10% and data from 1913 for the top 1%, then backcasted these figures to 1910. 

The problem is that the estimates that Piketty (and his co-author Emmanuel Saez) created for 1913 and 1917 are now known to massively overestimate inequality. In an article in the Economic Journal with Phil Magness, John Moore and Phillip Schlosser and in a companion article with Phil Magness in Economic Inquiry, we corrected for these errors. In fact, we showed that their entire series from 1917 to 1962 was flawed because of the way missing filers were treated, how net income was converted into adjusted gross income, and how they forgot that state and local governments (5% of the workforce with incomes well above the national average income) were not required to file federal taxes until 1938.  

We also discovered that Piketty and his co-authors made an incorrect estimate of total income. They arbitrarily defined total income as 80% of personal income (as reported by national accounts) minus transfers. They justified this by claiming that “the ratio between total gross income reported on tax returns and personal income minus transfers in national accounts has been fairly stable since the late 1940s (around 75-80%).” However, according to their own datasheets, the actual average was 82.7%. While this difference may seem small, a higher proportion reduces the income shares of the rich. Using less arbitrary methods, we found a much larger denominator and, consequently, smaller income shares for the wealthiest groups.

Overall, we found that the income share for the top 10% was 5 percentage points lower than that of Piketty for 1917. If one uses the exact same backcasting method as Piketty did in his book, you also get a lower share of total income going to the richest 10% of Americans. When this is then combined with the estimates of Lindert and Williamson for 1870, we see a significant decline in inequality as can be seen in the figure below. 

This is rich in implications. Consider that economic growth, depending on the data series used, showed that Americans enjoyed income increases that averaged between 1.9% and 2.0% per annum between 1870 and 1910. By that point in history, never had such fast growth been observed. And when there had been growth that nearly matched that one, it was clearly marked by rising inequality. 

Finding that the bottom 90% got a bigger part of the pie implies that the bottom 90% probably saw improvements that were larger than the average gains. Given the numbers I obtained, this means that the income of the poorest 90% increased between 2.0 and 2.2% every year. 

This difference implies that a period often characterized as one of rising capital concentration and inequality was, in fact, not only the fastest and most sustained growth ever observed by that time but also the first in history where the poor saw their incomes grow faster than average, experiencing significant improvements in their standard of living. 

Some contemporary writers of the 19th century noted that there were exceptional gains at the bottom of the income ladder. It seems we overlooked them, in part, because we relied on data that misled us, obscuring the real progress made by those at the lower end of the income  distribution which contemporaries saw with their own eyes."

Immigrant Entrepreneurship: New Estimates and a Research Agenda

Saheel A. Chodavadia, Sari Pekkala Kerr, William R. Kerr & Louis J. Maiden. NBER working paper.

"Immigrants contribute disproportionately to entrepreneurship in many countries, accounting for a quarter of new employer businesses in the US. We review recent research on the measurement of immigrant entrepreneurship, the traits of immigrant founders, their economic impact, and policy levers. We provide updated statistics on the share of US entrepreneurs who are immigrants. We utilize the Annual Business Survey to quantify the greater rates of patenting and innovation in immigrant-founded firms. This higher propensity towards innovation is only partly explained by differences in education levels and fields of study. We conclude with avenues for future research."

Feds Launch Investigation Into Tesla Over a Single Fatality

The National Highway Traffic and Safety Administration is holding vehicles to higher standards than it does drivers

By Jack Nicastro of Reason. 

"The National Highway Traffic Safety Administration (NHTSA) opened an investigation into Tesla on Thursday, reports the Associated Press. Though every preventable death is a tragedy, not every death should trigger a federal investigation and potential recall of overwhelmingly safe technology. The NHTSA's overzealous scrutiny of Tesla's Full Self-Driving (FSD) feature is unwarranted and counterproductive.

The NHTSA lists a total of four crashes in its Office of Defects Investigation (ODI) report. Only one of the crashes involved an injury, which was unfortunately fatal. The November 2023 accident occurred when a Tesla Model Y using FSD collided with a Toyota 4Runner that had stopped to respond to a previous collision on Interstate 17 in Rimrock, Arizona. The accident killed a 71-year-old woman, per A.P.

The ODI report cites "reduced roadway visibility…from conditions such as sun glare, fog, or airborne dust" as contributing to all four crashes involving Tesla FSD. These conditions don't just hinder the functioning of advanced driver-assistance systems (ADAS) but human drivers as well. The collision that the 4Runner had stopped to assist was caused by sun glare, as was the fatal Tesla crash. Both the human drivers and the ADAS system were vulnerable to diminished visibility, but only the latter is the subject of a federal investigation.

This isn't the first time the NHTSA has scrutinized Tesla. The agency began investigating the car manufacturer in August 2021 after 11 collisions involving Tesla's autopilot and first responders occurred between 2018 and 2021. In 2022, NHTSA expanded its investigation, recording 956 crashes "where Autopilot was initially alleged to have been in use at the time of, or leading up to" incidents from January 2018 to August 2023, 29 of which were fatal.

The report concluded that "drivers involved in the crashes were not sufficiently engaged in the driving task" due to insufficient warnings from the autopilot and autosteer features. But the responsibility of driving rests squarely on the operator of the vehicle.

Drivers are often insufficiently attentive to the task at hand—driving a multi-hundred-pound mass of metal and glass—and people are too frequently harmed and killed as a result. One might expect that vehicle fatalities have increased as a consequence of the growing prevalence of ADAS, but that's not the case.

The NHTSA's April 2024 Early Estimate of Motor Vehicle Traffic Fatalities reports 40,990 deaths due to motor vehicle crashes. This number is horrifying at first glance, but represents the "seventh consecutive quarterly decline in fatalities beginning with the second quarter of 2022." Fatalities per 100 million vehicle miles traveled have also decreased, from 1.33 in 2022 to 1.26 in 2023 (the most recent years for which data are available).

Even as ADAS systems have become "increasingly available as standard or optional equipment in many new vehicles across most manufacturers" according to the NHTSA, driving has become safer, not more dangerous. ADAS, like human drivers, are not infallible. And driving, like all other human activities, is not completely safe. However, at what is still a relatively early stage in its deployment, ADAS is associated with safer driving on balance and Tesla's FDS feature should not be recalled due to one fatality."

‘We Have Never Been Woke’ Review: A Symbolic Ideology

Believers in their own reasonableness, the woke ignore evidence that they are more prone than others to rationalize away inconvenient facts.

By Jonathan Marks. He reviews the book We Have Never Been Woke: The Cultural Contradictions of a New Elite by Musa al-Gharbi. Marks is a professor of politics at Ursinus College. Excerpts:

"The most recent awokening, Mr. al-Gharbi tells us, began not in 2015 but around 2011. After 2011, the use of “terms referring to various forms of prejudice and discrimination” surged in popular media outlets. Related shifts in focus occurred in academic research, advertising and entertainment. Meanwhile, affluent, well-educated white liberals—symbolic capitalists are mostly that—began to adopt attitudes we now call woke. For example, they came to perceive “much more racism against minorities than most minorities . . . reported experiencing.” Increasingly, they joined the Democratic Party and became “more militant.”"

"The lineage of symbolic capitalists goes back to the early 20th century, when the sciences, college teaching, journalism and other fields professionalized. Their claim to influence was founded on their expertise and willingness to use it for the common good. The professions that emerged have since justified themselves with the potent combination of moral and intellectual authority, as implied in the Covid-era phrase “follow the science.” If being woke means thinking that one knows and cares more than others about our social ills, especially the plight of the powerless, then symbolic capitalists have always been woke. From the late 1920s to the late ’30s, then again from the mid-’60s to the mid-’70s, symbolic capitalists led protests on multiple fronts, including civil rights, war and economic inequality. The late ’80s and early ’90s produced a mania for “political correctness.” Mr. al-Gharbi argues that the present, fourth, great awokening “is not particularly novel.” It’s “a case of something.”"

"Awokenings happen, according to Mr. al-Gharbi, when the symbolic capitalists’ expectations for a good life are disappointed. Campus antiwar protests took off only after colleges ceased to be a reliable refuge from the draft. Protests also coincided with “a stall in the growth of symbolic capitalist jobs.” In the ’60s, as during earlier great awokenings, symbolic-capitalist protesters sincerely believed they were making common cause with nonelites, whose discontent is also needed to spur a great awokening. But the protesters fought mostly for themselves and stopped fighting when their prospects improved."

"Mr. al-Gharbi’s effort to move proudly analytic symbolic capitalists to analyze themselves is important. He is mainly in the business of describing, not moralizing, but the self-serving blindness of woke symbolic capitalists seems like a moral failing. The idea that moral progress depends on attending to social science is a signature of the knowledge professions. It is, for better or worse, wokeness rightly understood."

William H. Mellor, 1950-2024

He built the Institute for Justice, which defends against government abuses

WSJ editorial. 

"Many young lawyers hope for careers in which they can use the law to promote justice and change lives, but few succeed. One who did was William “Chip” Mellor, who died Friday at 73 years old.

Mellor co-founded and for many years was president of the Institute for Justice, whose causes have often been taken up in these columns. IJ’s mission is to help Americans whose rights are being violated by government. This is the opposite of most public-interest legal shops whose goal is to expand government power over individuals and business.

IJ has been a champion for men and women who lack the resources or political connections to fight unjust or bullying bureaucracies. In the 1990s the Institute took up the cause of natural hair braiding salons serving immigrant communities struggling under state licensing regimes. IJ argued that costly licensing requirements violated small business owners’ right to earn a living. Today 34 states have removed licensing for hair braiding.

Mellor and IJ also represented Hector Ricketts, who drove jitney vans to provide low-cost commuting in New York. When the City Council blocked van licenses to protect public transportation unions, Mr. Ricketts sued with IJ’s support. A state trial court ended the City Council’s veto over van licenses.

IJ has fought abuses of civil forfeiture, which is when government seizes property from people who aren’t charged with a crime; and eminent domain, when the government seizes property without fair compensation. The Institute lost 5-4 on eminent domain at the Supreme Court in Kelo v. New London. But the public backlash from that case has led 47 states to strengthen laws against using eminent domain for private gain.

The firm has brought or intervened in 30 lawsuits to give parents more educational options. Its 2002 Supreme Court victory in Zelman v. Simmons-Harris confirmed that school choice programs that include religious options are constitutional, and the group’s work has helped make possible programs that have awarded more than 4.8 million scholarships.

IJ has won 10 Supreme Court cases, including both it brought in the 2023 term, DeVillier v. Texas on the Fifth Amendment’s takings clause and Gonzalez v. Trevino on the First Amendment protection against government punishment for unpopular speech.

IJ began in 1991 as a start-up with a few colleagues. It now has 66 lawyers and a budget of $47 million. As long as there are marauding governments, IJ will be needed, and the firm has doubled its active docket in the past five years. As a force multiplier for social justice, few nonprofits can match IJ’s results."

Gavin Newsom Raises Gas Prices Again

A new law and tighter rules may drive refiners out of California

WSJ editorial. 

"Is California Gov. Gavin Newsom trying to raise gasoline prices? It’s hard not to wonder after he signed legislation this week that does precisely that. Meantime, his climate regulators next month plan to raise prices even more.

“You’re seeing gas prices drop across the rest of the country, but spike in California,” Mr. Newsom declared on Monday as he signed a bill imposing onerous new mandates on refineries. Oil companies “buy all these ads saying somehow it’s California’s fault. They’ve been manipulating you. They’ve been lying to you.” 

The truth is that California’s gasoline prices are on average $1.47 a gallon higher than the national average owing to its gas taxes—the highest in the country—and environmental regulations, including cap-and-trade and low-carbon fuel standard. High operating costs have spurred seven California refineries to cease production over the last decade. On Thursday, Phillips 66 announced plans to cease operations at its Los Angeles-area refinery, which constitutes about 8% of the state’s refining capacity.

This has contributed to a tight market and price spikes whenever a refinery has problems. California’s new law will require refiners to maintain larger stockpiles of fuel, supposedly to mitigate supply shortages. But even Mr. Newsom’s energy commission warns that the mandate could “increase average prices.”

That’s because refiners will have to spend hundreds of millions of dollars building and maintaining more inventory, which they will have to replenish continuously since gasoline has a shelf life of only a few months. Refineries already maintain about two weeks of supply. Some may shut down to avoid the new and costly burden.

Refinery union leaders warn that the mandate will harm their workers. “Profit employs our members and allows them to feed their families,” they wrote to legislative leaders last week. “It should not be deemed villainous to operate legal and needed industries that turn a profit for shareholders, especially when they employ hundreds of thousands of Californians and contribute billions of dollars in tax revenue.”

Mr. Newsom disagrees. His goal is to drive oil and gas companies out of business, or at least out of the state. California’s oil production has declined about 35% since he entered office in January 2019 and by half over the last decade. Last month he signed a bill letting localities block new wells.

Now the California Air Resources Board (CARB) is preparing to ratchet up the state’s low-carbon fuel standard, which requires refiners to blend increasing amounts of renewable fuels into diesel and gasoline. CARB last September projected that the stricter standard would increase gas prices by 47 cents a gallon next year.

Danny Cullenward of the University of Pennsylvania’s Kleinman Center for Energy Policy last week estimated prices could climb 65 cents a gallon in the near term and by nearly $1.50 by 2035. Stanford University researchers forecast that the combination of the low-carbon fuel standard and cap-and-trade program would raise prices by $1.50 a gallon by 2030.

The kicker is that CARB plans to vote on the rule three days after the election. That’s politically convenient timing for Democrats in close-fought House and legislative races where Republicans have campaigned against the state’s high gasoline prices. While Mr. Newsom vilifies Big Oil, voters are starting to figure out that the real prices villains are in Sacramento."