tag:blogger.com,1999:blog-14823242362039639442024-02-22T00:55:59.268-08:00The Ornery EconomistThis blog publishes the views of Dr. Randall Pozdena, a Portland, Oregon-based economist. They are personal views on economic policy and related matters. The views expressed should not be blamed on any employers, family members, friends, or organizations.
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(Benjamin Franklin, 1730)Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comBlogger18125tag:blogger.com,1999:blog-1482324236203963944.post-27631852391006723162021-09-27T20:36:00.009-07:002021-09-28T13:32:28.635-07:00Social Democracy: The Takeover of Private Markets<p><br />Historically, conservative economists like myself see the private, market-oriented economic system as the best way to improve the well-being and opportunities for our fellow Americans. Adam Smith’s 1776 book, The Wealth of Nations, made the first comprehensive case for the superiority of private markets with private capital as the means of achieving the greatest welfare from the economy’s scarce resources. Consquently, Smith is sometimes called the Father of Capitalism. </p><p>Smith argued that one could confidently rely on private markets because, in following their own self interest, private producers have the strongest incentive to discover and produce what consumers want. Smith was distrustful of leaving the management of the economy to government both because of its lack of motivation and because of the inevitable loss of personal liberty. As he put it in these thoughts: </p><p><i>“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” </i></p><p><i>“I have never known much good done by those who affected to trade for the public good.”</i></p><p>In 1950, the French-born economist Gérard Debreu proved Smith’s intuition mathematically by showing that a competitive, private markets would yield a stable economy. His proof, using topology and other advanced mathematical demonstrations, won him the Nobel Memorial Prize in Economic Sciences in 1983. (It is officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.)</p><p>Socialism, in contrast, asserts some inherent advantage from giving control of the economy to government rather than the marketplace. Unnlike capitalism, socialism has offered no scientific justification for either its stability or efficiency. It relies on the false premise that a bureaucratic system can better determine people’s needs than the people themselves.</p><p>It is also the case that most true socialist experiments have failed, including the UK, Israel, India and the Soviet Union. Most justifications of its modern use are ad hoc and political in nature. This quote from the socialist US politician Alexandria Ocasio-Cortez, illustrates the vagueness of the claims articulated in its favor: </p><p><i>“To me, what socialism means is to guarantee a basic level of dignity. It's asserting the value of saying that the America we want and the America that we are proud of is one in which all children can access a dignified education.”</i></p><p>Nonetheless, many western countries, including the US, have parts of their economies that are essentially “socialized”. K12 education in the US is one of our most prominent examples. The balance between use of a private market economy (capitalism) or a government command-and-control economy (socialism) is reflected in the extent of taxation. As the name implies, a free market economy is one that is guided by “the invisible hand”. A more socialized economy relies on the explicit guidance of the very visible hand of government. Thus, notions of a democracy that advances individual freedom conflict with use of the socialist path. </p><p>Alexis de Tocqueville, the 19th century French historian and political writer, stated the conflict this way: </p><p><i>“Democracy and socialism have nothing in common but one word, equality… while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.” </i></p><p>In my view, the virtues of liberty and efficiency that attend market capitalism more than compensate for any disparities that may occur in market outcomes. Despite the imbalances among individuals that may arise, everyone can enjoy a higher standard of living than would otherwise be the case. In extreme cases of income disparity, re-distributional assistance can be provided by tax policy and voluntary aid. Conversely, a case can be made that regulating equality of outcomes retards the standard of living for everyone though adverse effects on work behavior. </p><p>The current emphasis in political circles on the supposed inequality of the US household income distribution are intentionally—or ignorantly—distorting the data. Specifically, critics of the current distribution of income in the US ignore the fact that households with high shares of income also pay disproportionately-high shares of income taxes. When after-tax income is studied, it reveals that the US actually has the most progressive distribution of net income after taxes of any OECD country, as we have shown in a previous blog. However, these facts are ignored by progressive critics of the US economy. They would rather continue to assert that the most successful households are “failing to pay their fair share” of taxes. </p><p>At the same time, critics fail to note that socializing a marketplace tends to create inefficiency and disparity. Indeed, the most inefficient and dysfunctional sectors of the US economy are those that are dominated by government-provided or controlled services. This includes the K12 public school system, the highway system, the public health system, and public housing. </p><p>All of these are either inefficient government monopolies, or heavily regulated to the point of restricting and distorting supply. This calls into question to logic of diverting funds from the private sector to the government sector to improve the equity or efficiency of a marketplace. </p><h3 style="text-align: left;">Taxes and Social Democracy</h3><p>Nevertheless, many European economies embrace socialism to varying degrees. Many characterize themselves as social democracies—i.e., a democracy with some socialized aspects. Social democracies do not own or directly control all of the industries or sectors of production, as did the Soviet Union. Many businesses are free to operate with relative freedom and under private ownership. Thus, they are not true socialist economies. </p><p>However, inevitably, the greater the share of GDP taken by government through taxation, the smaller is the influence of private sector decision forces. The decision process in government enterprises lacks the self-disciplining forces that makes the private market so efficient and productive. Social democracies are thus readily distinguished by their high tax burdens and the attendant loss of private market efficient. The purpose of this blog post is to illustrate the different degrees to which countries have avoided or embraced the insertion of government authority over the private markets. </p><p>Of course, it is also possible to use regulation to interfere with private market forces without levying taxes or owning enterprises. Many social democrat countries select to do so, however, in addition to employing high levels of taxation. This is because there are limits to taxation, and regulating behavior is a more occult way to exert control over the private sector. </p><p>Regulation can be very insidious because it is not necessarily subject to the same scrutiny and oversight as is a change in tax policy. In Sweden and France, for example, nearly 100 percent of wages are set by collective agreement of unions and the government rather than set privately in the marketplace. </p><p>As a first approximation, however, it is interesting to compare the total share of Gross Domestic Product (GDP) that is diverted from the private sector in the US versus Sweden versus the average OECD country. Figure 1 displays the GDP shares by type of tax for each of these three examples. </p><h4 style="text-align: left;">Figure 1: Tax Revenues as a Percent of GDP for US, OECD, and Sweden, 2018</h4><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2j1lq6FgAyuWDyS-CzEVFQABY0btlzXrYk4prgWSVgSLjlSnNrYecmYn_T39kQx_PsuOI5_KUMYBRMD0gAyqmoy5n28tWxO_lnk9856wo1DBphto1J3ohqE6V4Yh5X8lwEEgvmVJna1s/s1842/Horizontal+Merge+INV.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="474" data-original-width="1842" height="145" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2j1lq6FgAyuWDyS-CzEVFQABY0btlzXrYk4prgWSVgSLjlSnNrYecmYn_T39kQx_PsuOI5_KUMYBRMD0gAyqmoy5n28tWxO_lnk9856wo1DBphto1J3ohqE6V4Yh5X8lwEEgvmVJna1s/w566-h145/Horizontal+Merge+INV.png" width="566" /></a></div><br /><p><br /></p><div class="separator" style="clear: both; text-align: center;"><br /></div><div>For the US, the share of GDP diverted from private sector to government control via federal taxes is only 25 percent of US GDP, with personal income taxation being the largest instrument at approximately 10 percent of GDP. </div><div><br /></div><div>By comparison, the average OECD country (inclusive of the US) diverts through taxes about 35 percent of GDP from the private to the public sector via taxation. </div><div><br /></div><div>Finally, at about 45 percent of GDP, Sweden directs one of the largest shares of GDP of any developed country from the private sector to the public sector via taxation. Only France currently directs a larger share of GDP to its public sector. </div><div><br /></div><div>The US, of course, is not free of socialization of what could be private market activity. The US K12 school system, for example, is effectively a public monopoly that lacks the features of competition, choice, and consumer authority that we believe is key to getting the most out of a good or services. </div><div>Similarly, although most health care services in the US are provided privately, the US subsidizes some health care (e.g., Medicare and Medicaid). In addition, the operation of the Veterans Health Administration and its extensive hospital network is both publicly funded and government operated. Its fiscal year 2022 budget is anticipated to be approximately $269.9 billion. </div><div><br /></div><div>However, at least half of the 17.7 percent of US GDP related to health care in 2019 was funded and/or operated by the private sector. Medicare and Medicaid (and the aforementioned VHA are the exceptions. Similarly, higher education receives 2.6 percent of GDP, through both the private sector and the public sector. </div><div><br /></div><div>The bottom line is that the US stands out amongst OECD countries in its resistance to diverting private financial resources to the public sector. It is therefore no coincidence that of the 53 countries for which OECD data on GDP per capita is available for 2019, only Luxembourg, Ireland, Switzerland and Norway have higher per capita GDP than the United States. Sweden’s GDP is 16 percent lower than the US, the 19-country EURO area is 27 percent lower than the US, and the OECD membership itself averages a GDP per capita that is 34 percent lower. </div><div><br /></div><div><span style="font-size: x-small;">Selected citations</span></div><div><div><span style="font-size: x-small;"><br /></span></div><div><span style="font-size: x-small;">Debreu, Gerard (1972). Axiomatic Analysis of Economic Equilibrium, Cowles Foundation Monographs Series, Yale University Press. </span></div><div><span style="font-size: x-small;"><br /></span></div><div><span style="font-size: x-small;">Mladina, Peter (2020). The Economic Performance of Socialism, University of California, Los Angeles. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3522297</span></div></div><div><br /></div><p><br /></p><br /><p><br /></p><br /><p><br /></p><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><br /><p><br /></p>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-45090641763977647262021-08-24T19:08:00.001-07:002021-08-24T19:21:11.381-07:00Dumbing Down Oregon K12 Graduates<p><span style="color: #444444; font-family: georgia;">Oregon has scrapped the requirement that graduating seniors show basic proficiency in reading, writing and math in order to receive a high school diploma. With the passage of Senate Bill 744 last month, the graduating class will not have to demonstrate this minimal competency. A spokesperson for the Governor said she adopted the policy to benefit “Oregon’s black, Latino, Latina, Latinx, Indiginous, Asian, Pacific Islander, Tribal, and students of color.” </span></p><p><span style="color: #444444; font-family: georgia;">The idea appears to be that, because some minorities “do not test well”, it is better to forever stigmatize their entire graduating class with a second-rate diploma and education experience. The students are potentially missing out on an opportunity to learn. As research reviewed in the Scientific American in 2015 revealed, testing offers an important means of learning. The positive effects of the mental retrieval process involved in preparing for and taking tests has 100 years of research support. </span></p><p><span style="color: #444444; font-family: georgia;">The poor quality and ineffectiveness of the Oregon K-12 school system should not come as a surprise to Oregonians. The US News’ Best States rankings for 2021, place Oregon’s school system quality at a paltry 35 out of 50. Oregon’s Adjusted Cohort Graduation Rate (ACGR) of only 80 percent ranks it as 37th, beaten out by Louisiana at 36th. </span></p><p><span style="color: #444444; font-family: georgia;">Graduation rates are well known to be statistically important indicators of student performance and prospects. By this criterion, Whites and Hispanic students have higher ACGR graduation rates than Blacks, at 81.3, 76.2, and 70.0 percent, respectively. All three rates are exceeded by Asians with a graduation rate of 92.0 percent. </span></p><p><span style="color: #444444; font-family: georgia;">The performance of Asian students inconveniently belies the common woke claim that minorities’ performance and opportunities have been uniformly held back by some sort of racism instituted by the "privileged class" of Oregon society. If this were so, then Asians’ consistent outperformance of Whites would not be observed. The fact that such disparate performance is observed in the same school system suggests that other forces may be at work to make the school experience nadequately responsive to student differences. </span></p><p><span style="color: #444444; font-family: georgia;">On the student side, the disparate performance can arise from family or other background influences that vary by student. But it may also be the case that the school system is overly homogenous in its curriculum, teaching methods, or in other structural ways. During the Covid-19 pandemic, the Oregon school system proved itself to be blatantly and obviously unable to adjust to a different set of circumstances. Meanwhile the parochial and private schools largely remained open and functional. </span></p><p><span style="color: #444444; font-family: georgia;">Policies like SB 744, are just ruses to paper over Oregon public school failings. Oregon should, instead, encourage more flexibility in the provision of K-12 education services. This would obviate the need for neo-racism programs to create the illusion of caring for the students. </span></p><p><span style="color: #444444;"><span style="font-family: georgia;">The Netherlands, with its much more diverse population than Oregon provides a useful model. The Netherlands allows largely unrestricted entry of private and parochial schools. Most are supported by capitation payments made by the State. They are free to implement their own curricula and teaching methods. Consistency is maintained only by proscribing certain minimum school sizes, compulsory “core” subjects, and by testing learning outcomes on those core subjects. The Netherlands has schools run by </span></span><span style="color: #444444; font-family: georgia;"><span style="caret-color: rgb(68, 68, 68);">government, too. But the private competition sets the pace for the whole system. </span></span></p><p><span style="color: #444444;"><span style="font-family: georgia;">It is clear that diversity of providers is a successful model. Two-thirds of Dutch schools were privately run in 2009. Their PISA score is consistently higher than Sweden, Denmark, Germany, Belgium, Switzerland, Australia, Norway, and the United States. Instead of moving the goal posts via such things SB 744, Oregon should advance real reform. That starts by allowing unfettered private entry, and letting parents use of the current per-student public payments, <i>pari </i></span></span><span style="color: #444444; font-family: georgia;"><i>passu</i><i style="caret-color: rgb(68, 68, 68);">, </i><span style="caret-color: rgb(68, 68, 68);">to pay for a</span> better education for their kids. </span></p>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-83807254212949768592021-08-04T13:56:00.007-07:002021-08-04T14:10:08.644-07:00Focus on Income Inequality: Is it Misleading Policy Makers?<p><span style="font-family: georgia;">A popular press refrain is that the US suffers from income inequality. Progressive politicians translate this to a call for high income households to pay their “fair share” in taxes. This blog evaluates the current degree of income inequality and addresses the notion that making the tax system more progressive would redress this issue. </span></p><p><span style="font-family: georgia;">The primary source of income inequality measures is the US Census Bureau and Bureau of Labor Statistics. They use the Current Population Survey (CPS) data to regularly measure and report household incomes by quintile. These data give the press and the public the widely quoted measure of income inequality in our economy. Figure 1 presents the most recent 4 years of the reported, mean household income, by quintiles, and the top 5 percent of the distribution. </span></p><h4 style="text-align: left;"><span style="font-family: georgia;">Figure 1. Mean Income, by Quintile, in Current Dollars (from US Census: Table H-3)</span></h4><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUeVzTD2m_u5IUYUcLIYaiPpdLlkGplqGzom4sVN9GiGYVOSnZqAgeQu0cOzB3NFUclp36rO_CSCb5xcGWH8wrbQGOvp7-5x-k9O3nvf5r_A2nVYzvPdfAbCUr0JrhOfpwkCI1wp8kJHE/s948/Table+1+INV.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="224" data-original-width="948" height="115" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUeVzTD2m_u5IUYUcLIYaiPpdLlkGplqGzom4sVN9GiGYVOSnZqAgeQu0cOzB3NFUclp36rO_CSCb5xcGWH8wrbQGOvp7-5x-k9O3nvf5r_A2nVYzvPdfAbCUr0JrhOfpwkCI1wp8kJHE/w489-h115/Table+1+INV.png" width="489" /></a></div><br /><span style="font-family: georgia;"><br /></span><p></p><p><span style="font-family: georgia;"><br /></span></p><p><span style="font-family: georgia;"><br /></span></p><p><span style="font-family: georgia;"><br /></span></p><p><span style="font-family: georgia;">The ratio in 2019 of the highest quintile to the lowest is about 17, a number that is seen by many proponents of the income disparity movement as excessive. That one-fifth of US households should earn 17 times that the lowest fifth is proof, to such critics, that a largely free market economy produces “unfair” outcomes. There are numerous reasons why this comparison is naive, at best.</span></p><p><span style="font-family: georgia;">For one thing, this tabulation is of households and thus does not speak directly to the incomes of individual workers. Each quintile has 25,000 households. Households in the lowest income quintile have fewer people in them and more individuals reporting zero earnings. On the other hand, there are 4.5 times as many earners in the highest income household quintile as in the lowest income household quintile. </span></p><p><span style="font-family: georgia;">Additionally, the Census does not include income received by the lowest quintile households through many, existing redistributive programs. This includes such major programs as “negative taxes” such as the Earned Income Tax Credit (EITC), the value of food stamps, medical care, rental assistance, or other existing free or subsidized services targeting low income households. John F. Early, a former assistant commissioner of the Bureau of Labor statistics, estimated in 2018 that as a result of these omissions, the incomes of the lowest quintile households are understated by “a factor of two or more”. </span></p><p><span style="font-family: georgia;">Most importantly, the Census data does not account for taxes paid by households with taxable income. Focusing on the distribution of income without accounting for the associated tax liability exaggerates the disparity of financial resources available to the various household quintiles. Taxes paid by higher income households reduce those households’ disposable incomes. Failure to credit the redistributions of the income households’ tax revenue to lower income households exaggerates further the appearance of income disparity. The greater is the redistribution from high income households to lower income households, the more progressive a tax system is said to be. On these grounds, the US tax system is one of the most progressive in the world. </span></p><p><span style="font-family: georgia;">Although income is concentrated in the top percentile groups, tax paying responsibility is even more concentrated. This concentration of both incomes and taxes is illustrated in Figure 2. The greater concentration of the share of taxes paid than the shares of income is the signature of tax progressivity. In the US case, a very small fraction of tax payers pay virtually all of federal income taxes, and their tax share is significantly greater than their revenue share. Moreover, both distributions are very different from a perfectly equal share (each household has the same income), which is represented by the Flat Distribution line in the Figure 2 graphic</span></p><p><span style="font-family: georgia;"></span></p><h4 style="text-align: left;"><span style="font-family: georgia;">Figure 2. Distribution of Taxable Income and Tax Obligations in the US, 2019</span></h4><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiflGsfhSinAhA7WFmxETW8owqlbVrmpvTyTUAV8rvui0zuo7BJX3Ky-w9gRmx-AVCzpzX7uXeuiEwvQHj6k1HleF_nlG9trBnyED50WysA2WtPkdkkJGh4JvghuStSgYf6QrmNdmXtng4/s1714/Graphic+2+inv.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1240" data-original-width="1714" height="297" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiflGsfhSinAhA7WFmxETW8owqlbVrmpvTyTUAV8rvui0zuo7BJX3Ky-w9gRmx-AVCzpzX7uXeuiEwvQHj6k1HleF_nlG9trBnyED50WysA2WtPkdkkJGh4JvghuStSgYf6QrmNdmXtng4/w409-h297/Graphic+2+inv.png" width="409" /></a></div><p style="text-align: left;">For example, while the top 3 percent of households earn 30 percent of all income, they pay 53 percent of all taxes. Similarly, the top 10 percent of households earn 47 percent of all income, but pay 71 percent of all taxes. </p><p style="text-align: left;">As Figure 2 illustrates, a perfectly “fair” system— where income and tax obligations were equal for all (displayed in the figure as a flat distribution)— would result in the need to shift a huge portion of the total tax burden onto lower income households. Presently, all of households together that are below the 50th percentile income bear only 3 percent of the total federal income tax burden. </p><div>Different countries address the equity issue differently, trading off concentration of income against concentration of taxation. Figure 3 reveals this tradeoff for 23 OECD countries using income and tax system data from a 2008 OECD report. </div><div><br /></div><h4 style="text-align: left;">Figure 3. The Tradeoff between Income Equality and Tax Progressivity</h4></div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkJaHCHiWiusWwMtKwRCRcNtZUyy7-Y583cNUORZf5UevmpCTZZjyfVMqSZTUK34Uzr5elH5X1Yae8jwwwB5MMWhSy1Zi4yKMiSv-FotpK9WGbaZdNeMpNmjN3d5ZHBroAIy3CH8rlOL4/s1588/Taxation+offsets+Inequality+Inv.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1112" data-original-width="1588" height="292" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkJaHCHiWiusWwMtKwRCRcNtZUyy7-Y583cNUORZf5UevmpCTZZjyfVMqSZTUK34Uzr5elH5X1Yae8jwwwB5MMWhSy1Zi4yKMiSv-FotpK9WGbaZdNeMpNmjN3d5ZHBroAIy3CH8rlOL4/w416-h292/Taxation+offsets+Inequality+Inv.png" width="416" /></a></div><p style="text-align: left;">From Figure 3, there is a clear tendency for there to be a trade-off, in practice, between income concentration and taxation progressivity. Countries like the US and Ireland, for example, have noticeably unequal distributions of income, but compensate for this by also having highly progressive income taxation structures.</p><p style="text-align: left;">Conversely, although no country has a perfectly equitable income distribution (i.e., an inequality index of zero on the X-axis), the ones that come closest, such as Switzerland, Iceland, Sweden and Denmark, are associated with unprogressive tax structures. However, that approach, especially when coupled with the need to fund government monopolies in the provision of medical care, education, child care, etc., results in the need to broaden the tax base. The result is that low income households often end up facing high tax rates. Poor and low income households in Sweden, for example, face very high total income tax rates (in the range of 60 percent). This results in relatively low standards of living as measured by private consumption spending. </p><div><p style="text-align: left;">This approach seems to be favored by the Biden Administration, which plans to introduce a $3.5 trillion social welfare “infrastructure” plan. To pay for the plan, the Biden administration has stated its intent to raise marginal income and capital gains tax rates significantly on households with incomes in excess of $400,000 dollars. However, by my estimates, in 2018, this group of taxpayers was already paying approximately three-quarters ($5.5 trillion) of all federal income taxes. <br /></p><p style="text-align: left;">Even assuming that the spending plans are accurate, therefore, we can expect middle- and low-income households will have to be taxed at higher rates in order to finance the planned spending. It is difficult to estimate how much additional taxation of lower income households will have be to be. Increasing the progressivity of the tax system may not necessarily make the distribution of income more equitable. <br />Indeed, the economy can adjust so as to defeat the aims of tax reform. For example, as Laura Jackson and her colleagues at the Federal Reserve Bank of St. Louis have pointed out, when tax progressivity increases, the bottom of the income distribution and the economy as a whole may initially benefit. This is because lower income households benefit from an increase in disposable income because of the income transferred from higher income households. </p><p style="text-align: left;">However, the increased marginal tax rates levied on high income households may have adverse effects on investment and employment of others. As higher income households save, invest and employ less, there will be less taxable income to tax. To maintain the high Federal spending, the tax base will have to expand to lower income households.</p><p style="text-align: left;">This may explain why, in Figure 3, there are no countries that, in equilibrium, are able to simultaneously maintain both a progressive tax system and equality of income before taxes. In my view, the emphasis on disparities of income alone, without considering taxation, misleads policy makers. </p><div style="text-align: left;">_____________</div><div><br /></div><div>Sources: </div><div><br /></div><div><span style="font-size: x-small;">US Census Bureau, Historical Income Tables: Income Inequality, Table H-3, April 04-04-2021. https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-income-inequality.html</span></div><div><span style="font-size: x-small;"><br /></span></div><div><span style="font-size: x-small;">OECD (2008), Growing Unequal? ISBN 978-92-64-044180-0, Table 4.5. Alternative measures of progressivity of taxes in OECD countries, 2008. </span></div><div><span style="font-size: x-small;"><br /></span></div><div><span style="font-size: x-small;">Early, J.F. (2018). “Reassessing the Facts about Inequality, Poverty, and Redistribution”, Policy Analysis, CATO Institute, Number 839.</span></div><div><span style="font-size: x-small;"><br /></span></div><div><span style="font-size: x-small;">Jackson, Laura E.; Otrok, Christopher; and Owyang, Michael T. (2019). “Tax Progressivity, Economic Booms, and Trickle-Up Economics.” Federal Reserve Bank of St. Louis Working Paper 2019-034A.</span></div><div><span style="font-size: x-small;"><br /></span></div><div><span style="font-size: x-small;">IRS, Statistics of Income Division, October 2020</span></div></div>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-50860436375958739282021-07-30T20:40:00.001-07:002021-08-24T20:44:59.037-07:00Collective Bargaining and Employment Discrimination <p><span style="color: #444444; font-family: georgia;">Economists have long held the view that discrimination in hiring is best controlled by markets that are competitive. The rationale is that competition in the product markets will make employers cost-conscious, and that competition in the labor market will focus employers on job applicants’ workplace productivity. </span></p><p><span style="color: #444444; font-family: georgia;">Employers may harbor some biased views of job seekers based on race, sex, age or other external features. However, such employers will be punished in the competitive product market if bias leads them to turn away productive workers. The punishment will take the form of lost of sales and revenues to their competitors who don’t discriminate. The resulting lower profits ultimately leads inability to compete and closure of the affected firms. </span></p><p><span style="color: #444444; font-family: georgia;">This automatic disciplinary process is thwarted if regulatory interventions create excess labor supply conditions. A minimum wage or a wage determined by collective bargaining are both attempts to administratively elevate the wage above its competitive level. The result of the higher wages will be increased unemployment and greater latitude to discriminate. The resulting excess labor supply allows employers to express their bias without economic cost. Bias against a given sex or race of worker does not have to be strong to, nonetheless, create significant disparities in employment. </span></p><p><span style="color: #444444; font-family: georgia;">This is particularly important to current policy. The Biden administration has pledged to increase the number and power of unionized labor. In addition to making American industrial products less competitive on world markets, this amplifies the power of public sector unions. Teachers’ unions, for example, use the teachers’ union dues payments to underwrite campaigns for left-leaning politicians and teachers. This, in turn, sustains the public school monopoly and the poor quality of K12 education that results. Mr. Biden has pledged to eliminate charter schools (which generally are non-union) because they outperform the more costly unionized public schools.</span></p><p><span style="color: #444444; font-family: georgia;">As noted earlier, a side effect of unionized wage-setting is that it makes discrimination in hiring more likely. Indeed, as Nobel-Laureate economist Gunnar Myrdal observed in his 1944 book, <i>An American Dilemm</i>a, “…the fact that the American Federation of Labor as such is officially against racial discrimination does not mean much. The Federation has never done anything to check racial discrimination exercised by its member organizations.” The same could be said about teachers’ union opposition today to public funding of private schools for black students.</span></p><p><span style="color: #444444; font-family: georgia;">In 2019, Lincoln Quillian et al. published a detailed study of job discrimination across 8 countries using actual data on the outcome of job applications by white versus non-white applicants. This affords an opportunity to illustrate the impact of unionization on discrimination because the influence of unions on wages varies significantly across countries. The study used data from 200,000 job applications to determine whether the minority applicants experienced a lower rate of callback than their otherwise-similar white jobseekers. In low discrimination countries the minority applicants experienced callback rates were about 25 percent lower than white applicants. In the high discrimination countries, the minority applicants were treated 4 times more negatively than white applicants. </span></p><p><span style="color: #444444; font-family: georgia;">For each country, a discrimination score was developed as a ratio of the number of applications that must be submitted by a minority applicant to expect an equal chance of a callback as a white applicant. Figure 1 illustrates a general tendency for counties with high levels of collective bargaining to have high levels of discrimination. In contrast, as the regression line in Figure 1 illustrates, countries with lower levels of collective bargaining tended to lower levels of discrimination as well. </span></p><p><span style="color: #444444; font-family: georgia;">The simple correlation across all countries in the sample is approximately +50%, which implies a moderate positive relationship between unionization and discrimination. An oft-used alternative measure of the degree of discrimination is the unemployment rate of the minority applicant to that of a white applicant. That correlation from that approach is less persuasive. The observed correlation is typically +20%, which is much weaker than the correlation displayed here. </span></p><h4 style="text-align: left;"><span style="color: #444444; font-family: georgia;">Figure 1: Correlation between Collective Bargaining and Discrimination</span></h4><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjfTJq9CHW6VKm6r4CLe8l1CvGqYS5n8ZuShj_sYUcTl2jMPZCo_08AaO1BDomC3q6GzI_H5nEcXmS_-DHrAJ329_cdQqCcuBlbKVv488YxKiFG9uti-YuNvOOgiT2e8KG0r5VFBe8Fd0U/s1550/Graphic+of+Unionization+inv.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1124" data-original-width="1550" height="307" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjfTJq9CHW6VKm6r4CLe8l1CvGqYS5n8ZuShj_sYUcTl2jMPZCo_08AaO1BDomC3q6GzI_H5nEcXmS_-DHrAJ329_cdQqCcuBlbKVv488YxKiFG9uti-YuNvOOgiT2e8KG0r5VFBe8Fd0U/w424-h307/Graphic+of+Unionization+inv.png" width="424" /></a></div><span style="color: #444444;">The authors had expected that the mainly socialist-leaning European countries would perform better than countries like the US, with less elaborate labor regulations. In fact, as argued earlier, such intrusions create exactly the conditions in which job discrimination is expected to thrive. Indeed, Sweden and France, display the highest rates of discrimination, and also had the highest shares of wages determined by collective bargaining. </span><p></p><p><span style="color: #444444; font-family: georgia;">Norway, the Netherlands, and Belgium received low discrimination scores, despite the large share of wages that are subject to collective bargaining. However, the small labor markets limited the number of applications that the researchers could study. The US cohort f applicants had data from 73,000 applications whereas the number of applications available for study were only 3,500 to 6,000 for these three smaller countries. In fact, the researchers considered the scores statistically insignificant. They are plotted in Figure 1 for completeness sake and also because, within the group, higher rates of collective bargaining seem to be associated with relatively higher discrimination rate scores. This observation, however, does not survive testing for statistical robustness, however.</span></p><p><span style="color: #444444; font-family: georgia;">The German markets, with only about 50 percent of wages subject to collective bargaining fit the hypotheses some what better and, infant their discrimination score is not testable different from the US score. The low (12 percent) collective bargaining percentage of the US is consistent with our competitive and relatively unregulated labor and product markets. It is ironic that politicians who otherwise would describe themselves as progressive would embrace policies that will likely encourage greater unemployment and discrimination of minority workers. </span></p><p><span style="caret-color: rgb(68, 68, 68); color: #444444; font-family: georgia;"><span style="font-size: x-small;">Sources:</span></span></p><p><span style="font-size: x-small;"><span style="color: #444444; font-family: georgia;">Quillian, Lincoln, Anthony Heath, Devah Pager, Arn- finn H. Midtbøen, Fenella Fleischmann, and Ole Hexel. 2019. “Do Some Countries Discriminate More than Others? Evidence from 97 Field Experiments of Racial Discrimination in Hiring.” <i>Sociological Science</i> 6: 467-496 </span> </span></p>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-64960696813253110542021-07-08T18:28:00.027-07:002021-07-22T17:56:14.342-07:00 Standard of Living: US vs. Social Democracies<p><span style="font-family: georgia;">The US economic and political system is under attack by left-wing politicians and academics who find fault both with our free-market economy and the Constitution that guides our public policies and legal systems. Now in place, the Biden administration appears be adopting policies that are antithetical to these key aspects of our society. The left, it seems, believes we would be better off if we relied instead on socialist approaches whereby government exerts direct and granular control over more aspects of our lives. </span></p><p><span style="font-family: georgia;">Some of the discussion focuses on publicly provided services, such as education and public health care. As an economist, I agree that both sectors are underperforming in the US, but would argue that the problems arise from <i>too much public</i> sector control—not too little. It is certainly not because we spend too little in these areas. In 2018, for example, the U.S. spent 16.9 percent of gross domestic product (GDP) on health care, nearly twice as much as the average OECD country. Similarly, In 2017, we spent $12,800 per student on public education. This is the second-highest of any country in the world. </span></p><p><span style="font-family: georgia;">Switching to a model with even more government involvement and spending is thus hard to justify. Rather, the inept government intervention in both markets should be addressed by greater privatization and competition. For example, our public school system is a monopoly run for and by its unionized management and labor. It should be replaced by one where parents and their students are in practical and financial control, and have choices about where and what the students learn. During the Covid-19 pandemic, parents got front row, video access to the biased and corrupt state of education in US K12 classrooms. </span></p><p><span style="font-family: georgia;">Similarly, our health system would benefit from removal of the government policies that constrain the supply of health care workers, raise the cost of drug development, make the cost of care opaque, and couple insurance access to employment. Again, all of these changes would bring more, not less, competition and pricing discipline to health care. The vaunted, government run health care monopolies are not the solution. Direct regulation of doctor salaries, for example, may bring down cost superficially, but notoriously impose costs in the form of queues for service and rationing of access. </span></p><p><span style="font-family: georgia;">In most other parts of the economy, such competitive supply and pricing prevails. In so doing, market reigns, the free market elevates our high standard of living. We can easily demonstrate that our greater use of private markets affords the average American a much higher standard of living than other developed countries. Measuring the “standard of living” can be done at various levels of granularity, such as measuring the number of rooms in one’s house, the number of automobiles owned, televisions owned, food eaten, etc. But the simpler and more agnostic approach is to measure the annual dollars that are able to be spent by households on consumption. Doing so on a per capita basis helps adjust the measure for differences in family size. </span></p><p><span style="font-family: georgia;">There are some challenges in measuring the standard of living this way across multiple countries. For example, countries use different currencies whose variable values have to be considered. In addition, the supply conditions of specific goods and services vary greatly across countries. A commodity that is very costly to purchase in one country may be cheap to obtain in another. The goal is to normalize these variable factors and achieve so-called Purchasing Power Parity (PPP). The basic idea of PPP is to use the prices of specific goods to compare the absolute purchasing power of the individual countries' currencies </span></p><p><span style="font-family: georgia;">The purpose of this blog is to do just such measurements for the various countries so the comparisons can be made with that of other developed economies. The Biden administration’s policies seem to be modeled on increasing socialization of the economy. Thus, I have drawn the sample from OECD member economies, some of which are modeled on this philosophy. We can then see whether consumers perform better or worse under a socialized regime versus a private market regime such as ours. </span></p><p><span style="font-family: georgia;">The resulting measures of consumer spending use the International Dollar as the unit of value after adjustment of their original currency. Since the International Dollar measure is available benchmarked to 2011, I obtain the nominal measures (of consumer spending, exchange rates and PPP) in that year for each country. The US dollar is the currency to which exchange rates and PPP adjustments are benchmarked and thus the US CE needs no adjustment. The adjusted results for others are presented graphically in Figure 1. </span></p><p><span style="color: #444444; font-family: georgia;"></span></p><h4 style="text-align: left;"><span style="color: #444444; font-family: georgia;"><span style="caret-color: rgb(68, 68, 68);">Figure 1. Annual Consumer Spending, Per Capita, in 2011 International Dollars</span></span></h4><h4 style="text-align: left;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh8xOQugt_wAIAUUdgJVHTOk3uYUex7Pxs4id6iF8RWX1QG53XSRXaNo8fWY_Yav80AfZDHoGJJYLut5-U2lgx1CKpgutkU4soxr6il58a0WQ8KgzxKA8y7BWueZjSg_R-jyhyphenhyphenOeasnSQE/s1652/Graphic+1+Inv.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1114" data-original-width="1652" height="422" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh8xOQugt_wAIAUUdgJVHTOk3uYUex7Pxs4id6iF8RWX1QG53XSRXaNo8fWY_Yav80AfZDHoGJJYLut5-U2lgx1CKpgutkU4soxr6il58a0WQ8KgzxKA8y7BWueZjSg_R-jyhyphenhyphenOeasnSQE/w626-h422/Graphic+1+Inv.png" width="626" /></a></div></h4><div><span style="font-family: georgia;"><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div style="color: #444444;"><br /></div><div>Note that the USA consumption spending value, at over $34,000 per capita, dominates the value of the other listed countries. This is because our market-oriented economic system, has low household taxation, in addition to efficient and competitive markets. This leaves the household with greater personal consumption opportunities. </div><div><br /></div><div>Since the Biden administration seems preoccupied with the welfare of black Americans, I use the example of black Americans to illustrate this effect. A measure of consumer expenditures per capita for black Americans is available from the Bureau of Labor Statistics (BLS). It is developed from Consumer Expenditure (CE) Surveys by combining surveys from the years 2010, 2011 and 2012. I can compare it with the survey data for other countries which are in 2011 International Dollars. </div><div><br /></div><div>Based on CE data, combined from 2010 to 2012, black households’ annual expenditures averaged $36,149, which was 79.8 percent of their average income before taxes. The average household size is 2.6 persons, with the result that US African Americans in 2011 enjoyed consumer expenditures per capita of approximately $14,000. </div><div><br /></div><div>Thus, the average black American consumer enjoys, by this measure, a standard of living that is in the range of 13 of the 42 nations studied, including Denmark, Norway, and Sweden, all of whom are social democrats politically. This demonstrates that social democracy and its associated high tax rates limit private opportunities for a higher standard of living. (Low income Swedes, for example, face a total tax rate of over 60 percent). This finding also demonstrates that American households of all races would be better off supporting the adoption of private market reforms of markets such as K12 education and healthcare that suffer today from public sector mismanagement.</div><div><br /></div><div><span style="font-size: x-small;">Sources: </span></div><div><span style="font-size: x-small;"><br /></span></div><div><span style="font-size: x-small;">Reginald A. Noël, “Income and spending patterns among Black households,” Beyond the Numbers: Prices and Spending, vol. 3, no. 24 (U.S. Bureau of Labor Statistics, November 2014), https://www.bls.gov/opub/btn/volume-3/income-and-spending-patterns-among- black-households.htm </span></div><div><span style="font-size: x-small;"><br /></span></div><div><span style="font-size: x-small;">OECD (2021), Household spending (indicator)</span></div><div><span style="font-size: x-small;"><br /></span></div><div><span style="font-size: x-small;">OECD (2021), Household disposable income (indicator). </span></div><div><span style="font-size: x-small;"><br /></span></div><div><br /></div></span></div><br /><p><br /></p>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-59017467555259131722021-07-05T17:30:00.217-07:002021-07-22T20:06:08.918-07:00Police Shootings: Statistics, Opinions, and Game Theory <p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; text-align: left;"><span style="-webkit-font-kerning: none;"><span style="font-family: georgia;">After the death of Mr. George Floyd at the hands of Minneapolis police officers, the press emphasis on the race of the victim was immediate. The death was, to many, confirmation that that there was a consistent pattern of biased treatment of black individuals in encounters with law enforcement. The Floyd incident did not involve a shooting; Mr. Floyd died while being restrained through a knee-hold by the involved officer. Nonetheless, press accounts tended to conflate the event with the police shootings issue. </span></span></p>
<p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px; text-align: left;"><span style="font-family: georgia;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p>
<p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; text-align: left;"><span style="-webkit-font-kerning: none;"><span style="font-family: georgia;">The event sparked protests and riots in 550 cities and damages (according to insurers) of $1 billion or more. Although the cruelty of the Floyd event may have been enough to spark such a response, it seems likely that the representation of police shootings as evidence of persistent and structural racial bias played a key part. The press accounts of the statistics of policy shootings was draw from numerous sources, but relied significantly on the use of the Washington Post (WP) newspaper’s shootings database. For example, the infographic in Figure 1 was produced and widely disseminated by the Statista service. It used data from the Washington Post shootings database from 2015 through May 28, 2020</span><span style="font-family: Helvetica Neue;">. </span></span></p><h4 style="text-align: left;"><span style="-webkit-font-kerning: none; font-kerning: none;"><b>Figure 1. Infographic on U.S. Police Shooting rates, by Race, June 2020</b></span></h4><p style="font-size: 10px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="-webkit-font-kerning: none;"><b><span style="font-family: georgia;"></span></b></span></p><div class="separator" style="clear: both; text-align: center;"><b><span style="font-family: georgia;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiycvnSIzevBGb_jjRWNngH2GLKT2uEHhv_c7lBwxW-TJ-4hAfzG81LE-5IWMkEK78B8ZZdCcfu5ys0QOyN006cSnr9oldxJlBhyphenhyphennHCQtSA1Ei9SMs01qc6dUgaCLnYeelBL0_8A5gRXw0/s780/Original+Statista+chart+inv.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="780" data-original-width="728" height="391" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiycvnSIzevBGb_jjRWNngH2GLKT2uEHhv_c7lBwxW-TJ-4hAfzG81LE-5IWMkEK78B8ZZdCcfu5ys0QOyN006cSnr9oldxJlBhyphenhyphennHCQtSA1Ei9SMs01qc6dUgaCLnYeelBL0_8A5gRXw0/w365-h391/Original+Statista+chart+inv.png" width="365" /></a></span></b></div><b><span style="font-family: georgia;"><br /></span></b><p style="text-align: left;"><span style="color: #4c4c4c; font-family: georgia;">As the graphic indicates, the total number of police shooting deaths, by race, in the 2015 to 2020 time span of the database, averaged approximately 1,000 per year. Notably, there were almost twice as many White as Black shooting victims. However, Statista normalized the rates across race by dividing the absolute number of deaths by the estimated population of each. The graphic then reports the rate on a per million population basis. (Note: Statista allows reproduction of its infographics as long as proper attribution is made to the company.)</span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; text-align: left;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia;">As a result, the rate for Black victims is nearly three times that of White persons and almost 50 percent larger than for Hispanic persons. Although use of a per capita or population averaging scheme is common, it is usually employed when population is the factor most likely to generate variation that needs to be accounted for. For example, when studying the importance of the restaurant industry by city, it makes sense to adjust for the size of the individual cities’ by population. This is because population is likely a main determinant of demand for restaurant services. </span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px; text-align: left;"><span style="font-family: georgia;"><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px; text-align: left;"><span style="font-family: georgia;">This is not so in the context of police shootings. Police actions occur in the setting of violent activity and affect very specific populations. That is why the per capita involvement in violent victimization settings is very different by race, as revealed by the violent victimization survey of the Bureau of Justice statistics (BJS). </span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none;"><span style="font-family: georgia;">According to the 2010 to 2015 BJS survey, the per capita violent crime rate—the number of violent crimes committed by persons of a given race divided by its population—is very different by race. That of Blacks is 950 percent that of Whites. That of Hispanics is about 140 percent of that of Whites. This is contrary to the measure presented in Figure 1 which implicitly assumes that police contact with the citizenry is random across the entire population. When this is incorporated in an infographic such as Figure 1, a very different picture inevitable emerges. Specifically, it appears that almost exactly one person is killed for every thousand persons of a given race, irrespective of whether their race is Black, White or Hispanic. </span></span></p><p style="color: #4c4c4c; font-family: Georgia; font-size: 11px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></p><h4 style="text-align: left;"><span style="-webkit-font-kerning: none; font-kerning: none;"><b>Figure 2. U.S. Police Shooting rates, by Crime Rate by Race, June 2020</b></span></h4><p style="font-family: "Helvetica Neue"; font-size: 10px; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><b></b></span><br /></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOUqWRMlvPalqb-_glzrC3EPiRObSci6d43W8KrdT0D3-9C9tx5ZfZCyUdQKTZ7o9u88aiD-K1e9WLwavCYFzbXaXhwNPEdoPwKqUC-IHNV2tU2XwPvMrDvHeuSubA9BG8jVAvOarYAgY/s788/By+violent+crime+rate+inv.png" style="clear: left; float: left; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="782" data-original-width="788" height="374" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOUqWRMlvPalqb-_glzrC3EPiRObSci6d43W8KrdT0D3-9C9tx5ZfZCyUdQKTZ7o9u88aiD-K1e9WLwavCYFzbXaXhwNPEdoPwKqUC-IHNV2tU2XwPvMrDvHeuSubA9BG8jVAvOarYAgY/w377-h374/By+violent+crime+rate+inv.png" width="377" /></a></div><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none;"><span style="font-family: georgia;">This result is contrary to the widely accepted notion represented in Figure 1 which implies a significant tendency toward police shooting of black individuals. It is likely that the Statista analysis, which likely was widely used in press reporting and internet communications, amplified the stereotype of police bias against minorities. The simple per capita approach is commonly used by others, such as <a href="http://PoliceScoreCard.org"><span style="-webkit-font-kerning: none; color: #4c4c4c; font-stretch: normal; line-height: normal;">PoliceScoreCard.org</span></a> (2021). </span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia;">The Statista analysis, by using a simple, population adjustment to the raw statistics, is of no practical use in evaluating the underlying issue of racial disparity in police shootings. The implication of Figure 2 is that the crime rate—by itself— is an important determinant of police behavior. The finding of a nearly identical shooting rate by race across the three races says that evidence of racial bias in police shootings has to be sought elsewhere. </span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia;">To that point, there are other studies that report finding bias using other data or using other methods, such as Ross (2015). Other studies focus on other dimensions of the interactions of civilians with the police, such as vehicle stops and searches, use of handcuffs, use of non-lethal methods, and specific circumstances such as whether the civilian was armed or not. There are also studies that use shootings data that report finding little or no bias, such as Johnson et al. (2019), and when police decisions to shoot are studied via simulations, such as Correll et al. (2007). </span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia;">The ambiguous state of the literature is because of the ambiguous nature of the phenomena being studied. An encounter of a civilian and a police officer is a classic instance of what economists call a “game theory” problem. Specifically, an active encounter of a putative criminal with police puts the two parties in a setting that triggers brinkmanship behavior. The putative criminal has a goal of besting the police in order to gain a positive outcome (getting away with a monetary reward or freedom from some punishment), while the police hopes to best the criminal and thereby be rewarded by preserving personal or citizen safety, life or property.</span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia;">The escalation of effort is the path to one party prevailing. However, this escalation is what makes extreme outcomes like killing your opponent likely. This is because neither party understands fully (a) what the other party has at stake or (b) how extreme the other party will act. As the economists Dixit and Nalebuff point out in their research on strategic behavior, this uncertainty or risk raises the likelihood of catastrophic events even when the mutual intent of the parties is to act rationally. Put differently, the two parties have to use what information they have or can detect in the behavior of the other to disambiguate what is likely to happen.</span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia;">It is naïve to think that the parties lack some statistical opinion of the likely behavior or capabilities of the other. The dramatically higher violent crime rate of Blacks is part of the statistical baggage that police bring to the encounter, leading to an expectation of a more difficult interaction. Similarly, if the surveys by the <i>Gallup Center on Black Voices</i> are accurate, Blacks have a 50 percent higher probability than Whites of having experienced police in their neighborhood, and fewer than 1 in 5 expects to be treated respectfully (versus 56 percent of Whites). Thus, both parties are arguably in an already-escalated, defensive state when the encounter occurs. </span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: georgia;"><span style="-webkit-font-kerning: none; font-kerning: none;">The implications for policy are not trivial. Both groups have to exhibit different behaviors so that more conciliatory interactions are expected of each other. The work of Corman et al. (2002) and Miller et al. (2004) using the experience of New York City in the 1990s is that increased police presence can provide both better service to the community and improve mutual familiarity of citizens and police</span><span style="-webkit-font-kerning: none; font-stretch: normal; line-height: normal;">. </span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia;">The one policy that seemingly will absolutely nothelp in this regard is unfunding and reducing police presence. The surveys done by Gallup's Center on Black Voices reveal that, though there are important trust issues to resolve, most Blacks value a police presence. Indeed, the Gallup survey report by Saad (2020) reveals that fully 81 percent of Blacks desire the same or greater police presence. Unfortunately, the current unfunding programs seem to aggravate neighborhood crime levels and discourage retention of all police staff, including those for whom better community relationship development would be welcome. </span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia;">Sources:</span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia; font-size: x-small;">Ross CT (2015) A Multi-Level Bayesian Analysis of Racial Bias in Police Shootings at the County-Level in the United States, 2011–2014. PLoS ONE 10(11): e0141854. doi:10.1371/journal. pone.0141854 </span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia; font-size: x-small;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia; font-size: x-small;">D. J. Johnson, T. Tress, N. Burkel, C. Taylor, J. Cesario, Officer characteristics and racial disparities in fatal officer-involved shootings. Proc. Natl. Acad. Sci. U.S.A. 116, 15877–15882 (2019)</span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia; font-size: x-small;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="font-family: georgia; font-size: x-small;"><span style="-webkit-font-kerning: none; font-kerning: none; text-decoration: underline;"><a href="https://policescorecard.org">https://policescorecard.org</a></span><span style="-webkit-font-kerning: none; font-kerning: none;">, July 2021. “Key Findings, 8,768 killings by police, Based on population, a Black person was 2.9x as likely and a Latinx person was 1.4x as likely to be killed by police as a White person in America from 2013-20. </span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia; font-size: x-small;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia; font-size: x-small;">Joshua Correll, Bernadette Park, Charles M Judd, Bernd Wittenbrink, Melody S Sadler, and Tracie Keesee, “Across the thin blue line: police officers and racial bias in the decision to shoot </span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia; font-size: x-small;">“ J Pers Soc Psychol. June 2007.</span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia; font-size: x-small;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia; font-size: x-small;">Avinash K. Dixit and Barry J. Nalebuff: <i>Thinking Strategically</i>, W.W Norton, pp. 205–222 (1991).</span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia; font-size: x-small;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia; font-size: x-small;">Saad, Lydia, “Black Americans Want Police to Retain Local Presence,” Gallup Center on Black Voices, August 5, 2020</span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia; font-size: x-small;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia; font-size: x-small;">Corman, Hope and Naci Mocan, “Carrots, Sticks and Broken Windows,” NBER Working Paper No. 9061 July 2002 </span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px; min-height: 12px;"><span style="font-family: georgia; font-size: x-small;"><span style="-webkit-font-kerning: none; font-kerning: none;"></span><br /></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none; font-kerning: none;"><span style="font-family: georgia; font-size: x-small;">
</span></span></p><p style="color: #4c4c4c; font-stretch: normal; line-height: normal; margin: 0px;"><span style="-webkit-font-kerning: none;"><span style="font-family: georgia; font-size: x-small;">Miller, Joel, Robert C. Davis, Nicole J. Henderson, John Markovic, Christopher W. Ortiz, “Public Opinions of the Police: The Influence of Friends, Family, and News Media,” an independent report to the US Institute of Justice, May 2004 2001-IJ-CX-0038 </span></span></p><div><span style="-webkit-font-kerning: none; font-kerning: none;"><br /></span></div>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-80676660969643736202021-07-01T20:04:00.000-07:002021-07-01T20:04:51.771-07:00Update on Light Bulb Bans<p><span style="color: #444444;">For more than a decade we have all been lectured on the virtues of changing lighting technology. The standard, tungsten (incandescent) lighting has been challenged by compact fluorescent lights (CFLs) and bulbs based on light emitting diodes (LEDs). Here is a typical, effusive projection:</span></p><p><i><span style="color: #444444;">CFLs are four times more efficient than standard, incandescent bulbs and last nine to thirteen times as long. If everyone bought just one CFL and replaced their old standard bulb, America would save $8 billion in energy costs, prevent the burning of 30 million pounds of coal, and save greenhouse gas emissions equal to two million cars. Convert all the bulbs and the savings would be in the tens of billions of dollars.</span></i></p><p><span style="color: #444444;">The US government Energy Star program makes similar claims: </span></p><p><span style="color: #444444;"><i>ENERGY STAR estimates that if efficient lighting were used throughout the country, the nation's annual demand for electricity would be cut by more than 10%. This would save ratepayers nearly $17 billion in utility bills</i>.</span></p><p><span style="color: #444444;">Sounds good, but should there be a comprehensive ban on incandescent lighting? The short answer is, "not necessarily". In fact, they make little sense in a cool climate, either from an energy conservation, environmental or consumer cost standpoint. Ironically, the movement to ban incandescent bulbs is, in fact, in limbo as this is being written. </span><span style="caret-color: rgb(68, 68, 68); color: #444444;">The restrictions were to go into effect for all US states on January 1, 2020. </span></p><p><span style="color: #444444;">But in October 2019, the US Department on Energy (USDOE) decided that the regulatory target--a so-called General Service Lamp (GSL)-- was not clearly-enough defined and, in effect, stopped the federal ban on incandescent bulbs. State and local regulation of the GSLs is in limbo, with some states already restricting incandescents and others still planing to do so. Some of these parties sued the USDOE, and the case is currently in the </span><span style="caret-color: rgb(68, 68, 68); color: #444444;">Second Circuit Court. This makes this update timely. </span></p><h4 style="text-align: left;"><span style="color: #444444;">The Forgotten Physics</span></h4><p><span style="color: #444444;">A 60 watt incandescent bulb does, indeed, use about four times the energy to produce roughly equivalent illumination, in lumens, of a compact fluorescent (CFL) or an LED bulb. As the table below indicates, the lumens per watt of household size bulbs shows that a CFL provides about 40 more lumens and an LED 50 more lumens per watt. Put differently, approximately 75 percent of the power consumed by the incandescent bulb does not produce light, relative to the two other bulb technologies.</span></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggyF_g_z-M_3xcrpPXrPc6-1FoXQPpQDXHxakGRlLeHFRXClyu3BcJAxw-6Oo_HO_kukC3BupJynj2pnNMqNUkKrFN-ZjPDVhTcOX9yVtuDaLki8xPaxJrBV-GiVqObQvF-SoD9Y-Yb1c/s812/From+Clipboard+inv.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="442" data-original-width="812" height="230" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggyF_g_z-M_3xcrpPXrPc6-1FoXQPpQDXHxakGRlLeHFRXClyu3BcJAxw-6Oo_HO_kukC3BupJynj2pnNMqNUkKrFN-ZjPDVhTcOX9yVtuDaLki8xPaxJrBV-GiVqObQvF-SoD9Y-Yb1c/w423-h230/From+Clipboard+inv.png" width="423" /></a></div><span style="color: #444444;">In addition, relying on incandescent bulbs over time requires more bulb replacement. A normal incandescent bulb is currently about a fifteenth the life of an LED, given the total lumen-hours of the respective technologies. This means that one can save three quarters of one’s lighting energy budget by switching to LED lighting. </span><p></p><p><span style="color: #444444;">However, contrary to the simplistic logic that energy that does not provide lighting is “wasted”, physics tells us that energy is conserved and does not simply disappear. In particular, virtually all of the “extra energy” that is used by an incandescent bulb is dissipated as infrared radiation or convection heat. </span></p><p><span style="color: #444444;">In other words, the incandescent light bulb is heating--as well as lighting-- the room. Thus, if the lighting is in a space that must be heated, whether or not this energy lost is a "waste" or not depends upon the climate and heating conditions. If the house is heated, by a gas or electric furnace, the excess heat produced by the light bulb reduces the net demand on these heating systems. This is called the Heat Replacement Effect. </span></p><p><span style="color: #444444;">Since three quarters of the energy of an incandescent bulb is available to replace the central heating energy, the economics of this effect can be large, even considering the higher number of incandescent bulbs required over the LEDs. Over the 25,000 hour life of an alternate, cold LED lighting system, for example, the heat energy produced by the incandescent bulb (45 watts per hour) has a value of about $170 at 15 cents per kilowatt hour (assuming that to be the cost of space heating energy. This is more than enough to eliminate the higher total cost of the incandescent. </span></p><p><span style="color: #444444;">Thus, in cold and mild climates, at least, there may be no effect on either the cost of electricity to the consumer, or the amount of greenhouse gasses emitted in the production of the electricity used. Indeed, since high latitude climates also are darker and require lighting, the incandescent bulb may be an effective way to deliver warmth closer to the user of the lighting system. </span></p><p><span style="color: #444444;">On balance, in cool climates where buildings are heated during low-light seasons of the year, it is not at all obvious that a blanket policy of banning incandescent bulbs makes either economic or environmental sense. They may make sense in regions where additional air conditioning load would be required to offset the incandescent bulbs' heat, but those of us in the coastal northwest should think twice. </span></p><p>Sources:</p><p><span style="font-size: x-small;">Shahzad, K. <i>et al., </i>(2015). Comparative Life Cycle Analysis of Different Lighting Devices, Chemical Engineeering Transactions, VOL. 45l</span></p><p><span style="font-size: x-small;">The Heat Replacement Effect, UK Market Transformation Programme, BNX05, Updated: 19/09/2007, www.mtprog.com </span></p><p><span style="font-size: x-small;">Scott Anderson, A state by state look at light bulb bans as of 6/30/21. https://insights.regencylighting.com/state-light-bulb-bans</span></p><p><br /></p><p><br /></p>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-62964038004301445922021-06-27T13:55:00.028-07:002021-07-01T13:33:18.362-07:00Women's Wages Redux <p><span style="color: #444444;">It is a widely held view that women are discriminated against in wages and employment in the marketplace. When I first published research on this subject in 1984, the statistic often cited was that women earned on average less than two-thirds of what their male counterparts earned. In addition, other statistics showed that women were not evenly represented in all occupations. For example, women held over 95 percent of nursing and secretarial positions, but less than a third of the jobs in engineering, construction and the technical professions. </span></p><p><span style="color: #444444;">Such statistics were commonly used as evidence of widespread discrimination against women in the marketplace. Now, nearly 40 years later, gender disparity in wages (the “gender gap”) is still seen as a phenomenon of discrimination. The US Census, in 2019, measured the female wage at 84 percent of the male wage—up significantly from the 66 percent of 40 years ago.. </span> </p><h4 style="text-align: left;">Figure 1: Trends in Male and Female Wages</h4><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkw6VwET5UjFRYDCfrufT8Ji4An4eq-0UP0oGPfGRabEOY_afWkkgmYyuwNUIE4b56_EmT4UBGtdqLc5DLId9JplfUvrwhKwQLQWuTvGn2RtRdhv3MWJXjuZbiOwGQQ95mYj8hR09TyqM/s1620/Trend+Graphic+Inv.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1150" data-original-width="1620" height="281" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkw6VwET5UjFRYDCfrufT8Ji4An4eq-0UP0oGPfGRabEOY_afWkkgmYyuwNUIE4b56_EmT4UBGtdqLc5DLId9JplfUvrwhKwQLQWuTvGn2RtRdhv3MWJXjuZbiOwGQQ95mYj8hR09TyqM/w395-h281/Trend+Graphic+Inv.png" width="395" /></a></div><p><span style="caret-color: rgb(68, 68, 68); color: #444444;">This was mostly a consequence of the increase in female labor force participation in this period. Nonetheless, the mantra remains in vogue that wage discrimination is the cause of the remaining gender gap in wages.</span><span style="caret-color: rgb(68, 68, 68); color: #444444;"> </span><span style="color: #444444;">Indeed, a 2017 Pew Research Center survey reported that 42 percent of working women said they had “experienced gender discrimination at work” and “one-in-four employed women said they had earned less than a man” doing the same job. US Census staff, in a 2020 survey study, seem to attribute the gap to biases in occupation. This blog argues that true discrimination was an overstated cause of the wage gap 40 year ago when I first studied it, and remains so today. This blog is not about wage differences. It is about true discrimination, which involves employers who are biased to the point they are willing to sacrifice productivity and profits by overpaying men or failing to hire qualified women. </span></p><p><span style="color: #444444;">The reasons that I am dubious about the role of discrimination is simple. First, in a competitive labor and product market, competition exerts strong forces to punish such discrimination. If a firm truly could hire females who were exactly as productive as males and save 15 to 40 percent of its wage costs in doing so, that firm would have a serious cost advantage over its competitors. According to the NYU Stern database of 7,000 US firms, the median rate of profit is just 6 percent. Prejudiced employers, by failing to economize on labor, would be driven out of the marketplace by more profitable, unprejudiced employers. </span></p><p><span style="color: #444444;">Second, gender differences in pay can also arise, of course, because of readily measurable, objective differences in factors that make males and females differentially productive. Such factors include education, specific job experience, specific training, tenure in the work force, and other so-called human capital characteristics. Numerous studies have found that such differences in human capital endowments explain much of the Census-defined gender wage gap. The study by Blau and Kahn is one of many such recent studies. </span></p><p><span style="color: #444444;">The third factor is that the wage gap is the consequence of voluntary choices. I believe it is unreasonable to expect that wages, labor force participation, and the complexion of careers are unaffected by voluntary behavioral differences of the the genders. Ofek and Haim and this author demonstrated decades ago that the interruption of employment (by either males or females) results in a depression of wage rates by 5 to 10 percent, for each year of interruption. Interrupting paid employment to have and raise children is a voluntary behavior that is particularly important to women, and bound to influence wages and careers.</span></p><h4 style="text-align: left;">Voluntary Behavior: Is this the Last Word in the Wage Gap Debate?</h4><p><span style="color: #444444;">In 2018, Bolotnyy and Emanuel, obtained confidential data on the activities and time billings of male and female transit drivers at the Massachusetts Bay Transportation Authority (MBTA). The MBTA’s transit operators are all covered by the same employment agreement. The seniority of the genders is the sole determinant of work opportunities. Thus, men and women face the same choices among “schedules, routes, vacation days, and overtime hours, among other amenities.” In other words, there is virtually no opportunity for management to discriminate in favor of one gender over the other.</span></p><p><span style="color: #444444;">Nevertheless, a weekly earning gap persists. Specifically, female operators earn only 89 percent of that of the male operators. This wage gap is eerily close to the wage gap found by others in more complex and discretionary settings after controlling for human capital and work interruption differences. </span><span style="color: #444444;">Detailed examination of the causes for the persistence of the wage gap suggest that women have different preferences. Relatively speaking, women appear to dislike working weekends, holidays, and split shifts more than men. Women also trade off the desirable routes against desirable schedules in different ways. All of these and other behaviors have a link to operator compensation and, thus, to the appearance of a wage gap. </span></p><p><span style="color: #444444;">On balance, the authors explain the persistence of a wage gap by the fact that women appear to value time and flexibility more than men. Both of these aspects of voluntary behavior could be common to many job settings. Additionally, because promotion is based on tenure only in the MBTA setting, the study fails to support the common view that the female wage gap exists because managers apply differential and discriminatory promotion standards to men and women. Indeed, if voluntary behavior has such a significant effect on relative male-female wages in the MBTA setting, the common assertion that such wage gaps observed elsewhere are due to discrimination deserves serious reconsideration. </span></p><p style="text-align: left;"><span style="font-size: x-small;">Sources:</span></p><p><span style="font-size: x-small;">Mincer, Jacob, and Iliam Ofek, 1982. “Interrupted Work Careers: Depreciation and Restoration of Human Capital,” The Journal of Human Resources, Vol. 17, No. 1, pp. 3-24. </span></p><p><span style="font-size: x-small;">Pozdena, Randall. 1984. “Women’s Wages” Weekly Letter, Federal Reserve Bank of San Francisco, June 8, 1984.</span></p><p><span style="font-size: x-small;">Blau, Francine D., and Lawrence M. Kahn. 2017. "The Gender Wage Gap: Extent, Trends, and Explanations." Journal of Economic Literature, 55 (3): 789-865 </span></p><p><span style="font-size: x-small;">Pew Online Survey, Gender discrimination comes in many forms for today’s working women, December 14, 2017 https://www.pewresearch.org/fact-tank/2017/12/14/gender-discrimination-comes-in-many-forms-for-todays-working-women/</span></p><p><span style="font-size: x-small;">Bolotnyy V, Emanuel N. (2020). Why Do Women Earn Less Than Men? Evidence from Bus and Train Operators. Harvard University Working Paper, </span></p><p><span style="font-size: x-small;">Foster, Thomas B., Marta Murray-Close, and Lean Christin Landivar. 2020. “An Evaluation of the Gender Wage Gap Using Linked Survey and Administrative Data,” US Census Bureau for Bureau of Labor Statistics, November, 2020. </span></p><p><span style="font-size: x-small;">Gender pay gap in U.S. held steady in 2020 | Pew Research Center, accessed 5/31/21. </span></p>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-80745764391028312422021-06-26T18:06:00.093-07:002021-06-28T19:47:42.203-07:00Capitalism and the Climate<p><span style="color: #444444;"><span style="font-family: georgia;">It is a commonly repeated urban myth that our capitalist system is to blame for the accumulation of carbon dioxide in the atmosphere. Some environmentalists believe this is justification for creating an omnipotent system of regulation to deal with atmospheric carbon accumulation. This is argued to be a more direct way of reducing carbon accumulation than relying on the market. </span></span></p><p><span style="color: #444444;"><span style="font-family: georgia;">In reality, of course, that belief is based on erroneous premises. First, no one seeks to use energy just to be wasteful. Energy is not used for its own sake. That is, energy is not a consumption good that provides users with benefits directly. Rather, it provides users mobility, light, heat, etc. for our homes, transportation, and industrial and agricultural activities—the things that a society wants. In the end, these activities power the economy and yield the gross domestic product that represents the aggregate improvement in well-being that Americans are seeking. Hence, no private sector party actually wants to use energy and emit carbon at all, let alone excessively. </span></span></p><p><span style="color: #444444;"><span style="font-family: georgia;">Second, the market economy demonstrably does an exquisite job in rationing the use of energy. A simple look at the trends in economic activity, energy use, and carbon emissions has been very effective in using energy efficiently. In the figure below, we can easily see the evidence of the market’s ability to spare the use of energy in the economy, and with it, produce less and less carbon emissions as it does so. </span><span style="font-family: georgia;">The graphic presents data from the 72 year period from 1949 to 2021. In that time, total GDP in real terms has increased by a factor of 9 times, while the use of energy in the economy has increased by a factor of only 3 times. </span></span></p><h4 style="text-align: left;"><span style="color: #444444;"><span style="font-family: georgia;">Figure 1. Trends in GDP, Energy and CO2</span></span></h4><p><span style="color: #444444;"></span></p><div class="separator" style="clear: both; text-align: center;"><span style="color: #444444;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEib6GF2bWC4gzj49yuAtEMzavKi4i5bQaHHrP6e52M4HxJMo71uYLLZ2RVETAiXbNWN5BTMtiIegJHJBZdMJ9vK_i6vE_6NxfVjL7-BH1OzrKJZg8SZJLlpqxbuCdvJnoWEqG4-tm4NO1g/s1912/Graph+1+inv.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1390" data-original-width="1912" height="285" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEib6GF2bWC4gzj49yuAtEMzavKi4i5bQaHHrP6e52M4HxJMo71uYLLZ2RVETAiXbNWN5BTMtiIegJHJBZdMJ9vK_i6vE_6NxfVjL7-BH1OzrKJZg8SZJLlpqxbuCdvJnoWEqG4-tm4NO1g/w391-h285/Graph+1+inv.png" width="391" /></a></span></div><span style="color: #444444;">Mathematically, that implies an increase in economic growth of 3 percent per annum on a continuous, compounded basis, versus an increase in energy use of only 1.5 percent per annum. Hence, the energy efficiency of US GDP production has grown in real terms by 1.2 percent per annum, continuously over 70 years. </span><div><span style="color: #444444;"><span style="caret-color: rgb(68, 68, 68);"><br /></span></span></div><div><span style="color: #444444;"><span style="caret-color: rgb(68, 68, 68);">Meanwhile, the economy has been increasingly sparing of carbon emissions. The so-called energy intensity of the US economy has fallen by a factor of 4 over that same 70 period. </span></span><div><span style="color: #444444;"><span><br /></span></span></div><div><span style="color: #444444;"><span>Thus, the tonnage of carbon emissions per dollar of US GDP has fallen by 2 percent per annum on a continuous, compound basis since 1949. It has done this, almost exclusively on its own by economizing on use of carbonaceous fuels and shifting away from more emissive economic sectors. </span></span></div><div><span style="caret-color: rgb(68, 68, 68); color: #444444;"><br /></span></div><div><span style="caret-color: rgb(68, 68, 68); color: #444444;">By implication, any premature acceleration in energy use—beyond the rate at which efficient opportunities are available—would likely reduce GDP. If better efficiency opportunities were available, the profit oriented market would have taken advantage of it. That is, profit seeking would have accelerated even more had doing so not led to the reduction of economic output. Conversely, forcing the reduction in energy use prematurely would have reduced profit and/or output. This is a complex and subtle calculation that only a crowd of private million market participants can make successfully. Government has yet to prove emulate market efficiency through administrative means. </span><div><p></p><h4 style="text-align: left;"><span style="caret-color: rgb(68, 68, 68); color: #444444;">Figure 2. US Energy Efficiency Trend, 1949-2049 </span></h4><p><span style="caret-color: rgb(68, 68, 68); color: #444444;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbTG2vSRuK7iWFQcx_sKvGKi3vnyKV1Vtc7GXeWFUj_QszU0RTVAeXaX2mz5MDXlmfSBe_bk07f6rZAsQ-_9PKiIMijAd_h0Y-5M8cJ3CryTaHyb3L-88ojwl1_2-dd4LzNbEerWddfDc/s1740/Graph+2+inv.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1232" data-original-width="1740" height="275" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbTG2vSRuK7iWFQcx_sKvGKi3vnyKV1Vtc7GXeWFUj_QszU0RTVAeXaX2mz5MDXlmfSBe_bk07f6rZAsQ-_9PKiIMijAd_h0Y-5M8cJ3CryTaHyb3L-88ojwl1_2-dd4LzNbEerWddfDc/w388-h275/Graph+2+inv.png" width="388" /></a></div><span style="color: #444444;"><div><span style="color: #444444;"><br /></span></div>Climate scientists are urging that reduction in carbonaceous energy use be accelerated. This is to avoid pushing the natural systems that regulate the earth’s temperature beyond a tipping point leaves natural systems in an unstable state. This is a possibility, of course, because the atmospheric temperature is not directly part of the calculus that the private market uses to make its calculations. However, it is interesting to note that admittedly simple projections of tons of CO2 per dollars of real GDP in the future below suggest that the US can reach near zero net carbon before 2050 without government intervention. </span><div><span style="color: #444444;"> </span><div><span style="color: #444444;">Indeed, the historic trend suggests that on that track today on its own. </span><span style="caret-color: rgb(68, 68, 68); color: #444444;">Even if that 70-year trend is a statistical artifact, a simple market-oriented nudge by a revenue-neutral carbon tax could be used to accelerate the reduction in use of carbonaceous fuels at least impact to the economy. A recent study by economists at Columbia University confirms that conclusion. Specifically, the use of a revenue neutral carbon tax has the virtue of using the tools of the engine of capitalism—pricing and profit, but without heavy-handed government intervention. Rather, the return of the revenue to the general public in a tax-revenue dividend leaves the wealth of the payers of tax largely undiminished and thus the economy relatively undistorted. </span><span style="caret-color: rgb(68, 68, 68); color: #444444;">Such a tax is in place in British Columbia and has been proposed in the US Congress. </span></div><div><span style="caret-color: rgb(68, 68, 68); color: #444444;"><br /></span></div><div><span style="caret-color: rgb(68, 68, 68);">Sources</span><span style="caret-color: rgb(68, 68, 68); color: #444444;">:</span></div><div><div><span style="font-size: x-small;"><br /></span></div><div><span style="font-size: x-small;">Noah Kaufman, et al., An <span style="caret-color: rgb(68, 68, 68);">Assessment of the Energy, Innovation and Carbon Dividend Act, Columbia Energy Policy Center, </span>November 6, 2019, </span><span style="caret-color: rgb(68, 68, 68); font-size: small;">https://www.energypolicy.columbia.edu/research/report/assessment-energy-innovation-and-carbon-dividend-act</span></div><div><span style="caret-color: rgb(68, 68, 68); font-size: small;"><br /></span></div><div><span><span style="caret-color: rgb(68, 68, 68); font-size: x-small;">https://www.un.org/sg/en/content/sg/articles/2020-12-11/carbon-neutrality-2050-theworld’s-most-urgent-mission</span></span></div></div><div><div><p></p><p><span style="color: #444444;"></span></p><div class="separator" style="clear: both; text-align: center;"><span style="color: #444444;"><br /></span></div><span style="color: #444444;"><br /><span style="font-family: georgia;"><br /></span></span><p></p><p> </p></div></div></div></div></div></div>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-29107762108481621822021-05-31T14:16:00.006-07:002021-06-27T14:55:28.836-07:00Yes, Mr. Biden, Debt does Matter<p><span style="color: #444444;">On May 28, 2021, the Biden administration proposed its $6 billion budget. This is a level of federal spending that has not been seen since WWII years. As was widely expected, the expansion of the budget involves a significant expansion of the nation’s safety net programs. They are incorporated in Biden’s American Jobs Plan and American Families Plan. The budget proposal assumes that these social programs will be funded by new taxes on high, personal incomes and corporations. </span></p><p><span style="color: #444444;">Other elements involve spending on “infrastructure”, which the Administration has defined so broadly that it is not clear exactly what spending in this area will comprise. It includes conventional notions of infrastructure, such as roads and other transportation capital expenditures, but also includes such programs as child care, universal pre-school education, free community college and national, paid leave programs. His administration has already embraced subsidizing the purchase of electric vehicles, expanding broadband internet coverage, building a network of EV charging stations, and subsidizing other climate-change initiatives. </span></p><p><span style="color: #444444;">Some of Biden’s advisors embrace the tenets of the controversial Modern Monetary Theory (MMT). The MMT argues that a country with its own currency need not concern itself with excessive deficit spending and accumulation of debt. Rather, it argues that by issuing debt in its own currency, there is little to worry about. The associated expenditures will grow the economy fast enough to be able to afford the cost of carrying this debt. Few economists subscribe to the notion that one can grow an economy that is financed by debt alone. </span></p><p><span style="color: #444444;">There is no explicit mention of the adoption of the MMT notions in financing this budget. However, Biden's own budget proposal assumes that approximately $14.5 trillion in additional debt will be accumulated in the first decade alone. Thus, it is important to know what the effect of increased debt will be. </span></p><p><span style="color: #444444;">The amount of debt is conventionally measured as the debt-to-GDP ratio to account for a country's borrowing capacity. In the figure below, I have plotted the OECD’s measure of the ratio of debt to GDP for 33 OECD countries. To avoid potential distorting effects of the Covid-19 pandemic, I use the 2018 measure of the debt measure. In 2018, the US debt-to-GDP ratio was 136.2 percent. I have plotted the cross section of these ratios against the corresponding, compound annual growth rate of each of the countries’ economies. </span></p><h4 style="text-align: left;"><span style="color: #444444;">Figure 1. Excessive Debt Slows Economic Growth</span></h4><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9RiytVxbqOJjliicEhbY2zv_sAcoF_g0b-GXb-MAEdDiyOeDAXBiXlMcfPmtML16Bb1iImxlknHITV6WIfD9-HBG0OUfOfTLZdA60Qh3ZNq3bWgIoWIzGOooXaXN8XR2s7C4jE7CiY4o/s2028/Revised+Graphic+2+Inverted.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1130" data-original-width="2028" height="336" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9RiytVxbqOJjliicEhbY2zv_sAcoF_g0b-GXb-MAEdDiyOeDAXBiXlMcfPmtML16Bb1iImxlknHITV6WIfD9-HBG0OUfOfTLZdA60Qh3ZNq3bWgIoWIzGOooXaXN8XR2s7C4jE7CiY4o/w605-h336/Revised+Graphic+2+Inverted.png" width="605" /></a></div><br /><span style="color: #444444;"><br /></span><p></p><p><span style="color: #444444;"><span style="caret-color: rgb(68, 68, 68);">The data and the exponential trend line fit to the data reveal a strong negative relationship between higher debt-to-GDP ratios and the growth rate of the economy. (The simple trend explains almost 70 percent of the variation among the countries.) If this statistical link between the debt measure and GDP growth is accurate, the US economy will be slowed by the addition of $1.4 trillion in debt each year for the next decade. </span></span></p><p><span style="caret-color: rgb(68, 68, 68); color: #444444;">Specifically, if the market perceives that the $14.5 trillion in additional debt were added all at once (or to an economy growing slowly) the result would be a reduction in the GDP growth rate that is lower than current growth by 3.7 percent of today's growth rate. As the Japanese case illustrates, even an economy that has a 250 debt-to-GDP ratio ekes out some growth. However, the addition of too much indebtedness can start a vicious cycle whereby the higher debt handicaps economic growth which, in turn, amplifies the burden of debt. In this scenario the US, like Japan, could suffer a long period of weak or zero real growth. </span></p><p><span style="caret-color: rgb(68, 68, 68);">Data source:</span></p><p><span style="caret-color: rgb(68, 68, 68);"><span style="font-size: x-small;">OECD (2021), Gross domestic product (GDP) indicator. doi: 10.1787/dc2f7aec-en (Accessed on 25 May 2021)</span></span></p>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-14871603470097866882021-04-19T14:49:00.049-07:002021-06-28T19:38:48.942-07:00Workers in Countries with High Taxes Provide Less Labor<p><span style="color: #444444;">The Biden administration’s social spending plans are not fully articulated, but constitute a major addition to the $2.2 trillion Covid-19 pandemic relief package supported by the Trump administration a year ago. The American Rescue Plan passed win March 2021 has already added $1.9 trillion to that total. It provided relief funds for states, local governments, tribes and US territories. It also provided helicopter cash to individual Americans, enlarged unemployment insurance benefits and enlarged federal housing subsidies. </span></p><p><span style="color: #444444;">A second and third plan are in the wings waiting to be fully articulated. The second is the American Jobs Plan, focused on a very generously-defined concept of infrastructure spending. This plan has an estimated price tag of $2.3 trillion. Biden has rejected the use of user charges to finance even the genuine, infrastructure projects. At the moment, his aim is to finance this catch-all program with through increased taxation of domestic and multi-national corporations. </span></p><p><span style="color: #444444;">The third plan is the American Families Plan, with an estimated price tag of $1.8 trillion. One trillion is direct spending and the rest likely will take the form of targeted tax credits and enlargement of the IRS. The list of programs supported by this plan is huge, including subsidized child care, medical and family leave programs. health insurance assistance, free universal pre-school, free community college education to immigrants as well as citizens. These would be paid for by redistributive tax levies on those with high incomes and capital gains. </span></p><p><span style="color: #444444;">The Biden plans thus represent an increase in spending of $6 trillion A long literature on taxes and labor supply suggests that there will be a reaction of workers to any tax levies needed to fund these plans. However, these studies do not roll up the impact of higher taxes to the national level. </span></p><p><span style="color: #444444;">The purpose of this post is to present an examination of the impact of higher taxes nationwide. It uses a cross section of national data developed by the Organization for Economic Cooperation and Development (OECD). The OECD membership is comprised of most of the major, western countries. We use OECD data in this study to measure the national impact of increased taxation. </span></p><p><span style="color: #444444;">Specifically, the OECD periodically measures the tax burden on the typical worker by constructing the so-called Tax Wedge—the percentage of the typical worker’s income that is usurped by government levies. The OECD measure is based on the percentage tax exposure of a household comprised of a single individual, without children, at the income level of the average worker. In 2011, the tax wedge ranged from 7 to 55 percent across the 33 countries for whom data is available. </span></p><p><span style="caret-color: rgb(68, 68, 68); color: #444444;">The microeconomic theory of policy impacts on individual workers postulates that the worker will withhold supplying labor services if taxed on these services. The graphic below plots, by the size of the tax wedge, the annual average number of hours that the workers will spend working. </span><span style="color: #444444;">The data used is the 2011 tax wedge and the 2018 labor hours supplied, by country. </span></p><h4 style="text-align: left;"><span style="caret-color: rgb(68, 68, 68); color: #444444;">Figure 1. Taxes Reduce Workers' </span><span style="color: #444444;"><span style="caret-color: rgb(68, 68, 68);">Willingess to Supply Labor</span></span></h4><p><span style="caret-color: rgb(68, 68, 68); color: #444444;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgpwWdXDgGHQ4AbBp9NUZVKmKzW4S6bZdqYrQ58ohUIF0Umkpn34ClqKvjq8eEIFmMrEJjJd1-QdyqhhM33ZTzSTuIh8NdKMtdivc-3ppeMsPmpA_YQHUU97zPslSWg0UWUHZB7Ctnh2mY/s1710/Updated+Tax+Wedge+Graphic+Inv.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1148" data-original-width="1710" height="390" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgpwWdXDgGHQ4AbBp9NUZVKmKzW4S6bZdqYrQ58ohUIF0Umkpn34ClqKvjq8eEIFmMrEJjJd1-QdyqhhM33ZTzSTuIh8NdKMtdivc-3ppeMsPmpA_YQHUU97zPslSWg0UWUHZB7Ctnh2mY/w580-h390/Updated+Tax+Wedge+Graphic+Inv.png" width="580" /></a></div><span style="color: #444444;">The choice of 2018 for the work-hours data is not critical. In general, tax policy evolves sufficiently slowly that all we need is data that is later than the year in which the tax wedge is measured. Use of earlier years does not change the findings. There is considerable variability in the data. However, a</span><span style="color: #444444;">s</span><span style="caret-color: rgb(68, 68, 68); color: #444444;"> the figure reveals, in general, the higher the tax wedge, the lower is the number of hours that workers offer the economy. The experience of countries with large spending programs is that the ultimate incidence of the tax burden ends up being borne significantly by the average worker. </span><div><span style="caret-color: rgb(68, 68, 68); color: #444444;"><br /></span></div><div><span style="caret-color: rgb(68, 68, 68); color: #444444;">The countries with the largest tax wedges tend to be European social-democratic countries. Across all of the countries, the average annual hours worked varies dramatically. The US worker, at 1800 hours per year, works approximately 30 percent more that workers in the most highly taxed countries. Statistically, for a given percentage increase in the tax wedge, hours worked decline by 20 percent of of that increase. </span><span style="color: #444444;"> </span><div><p></p><p><br /></p></div></div>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-47884191260427014252021-04-06T14:59:00.006-07:002021-06-27T15:20:49.037-07:00Capital Gains Tax Increase: Another Bad Biden Idea, Part 2<p><span style="color: #444444;">It appears that the Biden administration has three goals in raising the US capital gains tax rate from 20 to 43 percent. The first, of course is to punish successful people who are clever enough to acquire assets that appreciate. As his old boss, Barack Obama once argued, it is better that everyone be poor than tolerate a policy that allows differences in standards of living, even if everyone is better off. The goal is not to raise revenue, because his advisors, at least, know the facts that I set out in Part 1. Raising capital gains tax rates does not generate more income. It almost certainly generates less, especially in settings, iike the US, where individuals and firms are already paying taxes on other forms of income. </span></p><p><span style="color: #444444;">Second, Biden seems to have a desire to simply be remembered as an extremist along the lines of FDR. This involves doing dumb things that make him appear a big, important man in policy, and hopefully, history. I say this with some confidence because the country with the highest capital tax in modern times has been Denmark, at 42 percent. Thus, Biden’s odd choice of 43 percent is simply an infantile effort to stand out. What a man. </span></p><p><span style="color: #444444;">Third, his administration has plans, as his Secretary of the Treasury has stated, to try to create a worldwide tax cartel among other countries. The idea is to talk them into fixing a high, minimum rate so that there cannot be “a race to the bottom” through competition in the rate levied. In economics terms, of course, trying to fix the capital gains tax worldwide at a higher rate is actually a race to the bottom of capital investment and growth. </span></p><p><span style="color: #444444;">Sending Secretary Yellen around the world on such a goofy mission is unlikely to be successful. The 28 large OECD economies has a wide range of rates. The mean rate is around 14 percent, less even than our current 20 percent. This is due in part to the fact that nine of the countries have a zero rate. Belgium, the Czech Republic, Korea, Luxembourg, Netherlands, New Zealand, Slovenia, Switzerland and Turkey have had zero rates in modern times. Another 60 percent of the countries have a rate of 28 percent or lower, and only 5 are in excess of that rate. Denmark, France, Finland, Ireland and Sweden make up this group, but if one looks closer, some of them have lower tax rates on other sources of income. France is one country that is in the midst of tax reform and unlikely to sign on to Biden and Yellen's tax cartel. That kind of accommodation to avoid suppression of jobs and capital appears nowhere in Biden’s plans. </span></p><p><br /></p>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-90308059537815759822021-04-01T15:16:00.001-07:002021-06-27T15:19:46.921-07:00Capital Gains Tax Increase: Another Bad Biden Idea, Part 1<p><span style="color: #444444;">It was announced today that the Biden administration wants to raise the capital gains tax to 40 percent from its current, 20 percent at the federal level. As you can imagine, he is on a hunt for a way to pay for the Sanders/D.O.C. socialist promise bomb to which he has strapped himself. He could just have Janet Yellen (US Treasurer) and Fed chief Powell get money in the new (unproven and dangerous) Modern Monetary Theory (MMT) way. But that would not accomplish the goals of his keepers. </span></p><p><span style="color: #444444;">He also has to find some way to hurt those darn successful folks by getting his hands on their income. After, who do they think they are? Just because they work hard running businesses and pay most of everyone else’s taxes, doesn’t mean that there isn’t another way to wave the equality flag. So, he or some of his keepers resurrected the nearly decennial idea of raising the capital gains rate. </span></p><p><span style="color: #444444;">As you know, the capital gains tax is applied to realized capital gains that may be lurking in your investment portfolio, or real estate, or other assets else that grows in value, free of exposure to the tax. When you sell the assets, as many retired people are doing today with the accumulated conventional IRA balances, or when they die, the Tax Man wants his taste. It annoys whose who think they deserve to spread your wealth around to their friends, that you get to choose when the gains are realized when sold. No matter that much of the gains may be purely embedded inflation, or that you may also have financed and managed a business. </span></p><p><span style="color: #444444;">No matter, also, that even 25 years ago, it was known that it is not just rich that invest. Indeed, a NASDAQ exchange survey found just those that held stock were very driverse: 43 percent of the adult population did so; 47 percent of women did so; 55 percent of those younger that 50 did so; and 50 percent weren’t even college graduates. You know the demographics today are even more diverse. Old gray-beards don’t try putting the short-squeeze on trades in their a compupter game stock. The important thing is that a capital gains transaction put folks money in play, and affords Joe the opportunity to snatch-and-grab some of that. </span></p><p><span style="color: #444444;">So, the economists Sarin, Summers, Zidar, and Zwick in 2021, crafted a paper (unrefereed) that asserts that the scoring of the revenue potential of such a move could be more remunerative than others had found. Scoring is the review by the OMB of such aspects of fiscal efforts. They did not report that the OMB’s revenue scoring in the 1990s, in practice, was off by a factor of 2 every year. In this case, they had scored the effect of cutting the capital gains tax. However, the fact that cutting the capital gains tax underestimated revenues strongly suggests that an increase in the rate is likely to have the reverse experience, and underproduce revenue and throttle investment. </span></p>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-91984897791928833092021-03-30T15:21:00.002-07:002021-06-27T15:34:25.640-07:00Mortality Risk of Men vs. Women: Implications for a Vaccination Plan<p><span style="color: #444444;">On January 15, 2021, the Oregon Governor announced a revised Covid-19 vaccination sequencing plan that includes vaccination of Oregon’s seniors. Phase 1a of the State’s plan qualified health care workers to receive vaccines, as well as those in long-term care settings. Individuals in this phase are currently being vaccinated. </span></p><p><span style="color: #444444;">The first group to qualify under Phase 1b of the plan will be teachers and childcare providers, on January 25th. Beginning Feb. 8, seniors are scheduled to be eligible for vaccination in four additional groups: seniors 80 and older first; followed later by seniors who are 75 and older; then seniors who are 70 and older; and lastly, Oregonians 65 and older. </span></p><p><span style="color: #444444;">According to the latest information from the Oregon Health Administration, due to vaccine supply constraints, it will take 15 or more weeks (instead of the planned 5 weeks) to vaccinate the five Phase 1b groups—assuming supplies materialize.</span></p><p><span style="color: #444444;">Given the uncertainty of vaccine supplies, it is crucial that the focus of vaccination reflect accurately the Covid-19 mortality risk faced by seniors. Unfortunately, the current plan implicitly assumes that the risk of death from Covid-19 for seniors increases only with age. Thus, the vaccination sequencing focusses on the most elderly first. This ignores completely the fact that gender is far more important, in terms of focusing on relative risk exposure, than simply age per se. </span></p><p><span style="color: #444444;">Although men and women are at similar risks of infection by Covid-19, men are far more likely to be killed by it. For example, a recent worldwide meta-analysis of over 3 million Covid-19 cases found that men are almost 3 times more likely than women to require admission to an intensive care unit (ICU). The same study found men to be 1.4 times as likely to die from Covid-19, on average across all age groups. </span></p><h4 style="text-align: left;"><span style="color: #444444;">Age-Specific Relative Risks</span></h4><p><span style="color: #444444;">But such average risk measures conceal the higher risks that gender adds at every age cohort. There are approximately 600,000 Oregon men in the 4 senior cohorts tabulated below. As the table indicates, male seniors face a mortality risk that is as much as 3.3 times that of their female counterparts. This pattern is true nationally, but is especially stark in the Oregon data. </span></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjsAAdZkAZzh9websEf13Q67tcXqINMyTA5yXOdJG4P7Oh_Dcp_zpdGBj3IfH_RkDNb2Cn27kLXWpD1LPt3CdcCy78zT2QJZZKzjAghAZEOkvlBgjoGW3rZ10bVAJhMHdyM3LDjF4JANuc/s578/Risk+Rates.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="392" data-original-width="578" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjsAAdZkAZzh9websEf13Q67tcXqINMyTA5yXOdJG4P7Oh_Dcp_zpdGBj3IfH_RkDNb2Cn27kLXWpD1LPt3CdcCy78zT2QJZZKzjAghAZEOkvlBgjoGW3rZ10bVAJhMHdyM3LDjF4JANuc/s320/Risk+Rates.png" width="320" /></a></div><span style="color: #444444;">Using the US data, the male/female mortality ratios on an age-weighted basis is approximately 1.72 across the whole population. It is interesting to compare this population-wide measure to similar measures by race and ethnicity groups. Some are known to face greater risks than non-hispanic white persons. Indeed all but the Asian group have higher risks—by about 50%—than non-Hispanic white persons at a population level. However, the risk ratios are not as stark as male/female ratios of seniors by age group. </span><p></p><h4 style="text-align: left;"><span style="color: #444444;">Benefits of Gender Adjustment of Mortality Rates</span></h4><p><span style="color: #444444;">At present, there is implicitly higher priority given to lower-risk individuals because of the reliance on age-based prioritization alone. Correcting this gender-based disparity will improve the focus on some of the most at-risk Oregonians, which is the objective of the immunization plan. </span></p><p><span style="color: #444444;">Doing so will benefit not, however, benefit just the vaccinated men. For example, vaccinating senior men will benefit all users of hospital and ICU capacity. Since men are almost 3 times more likely to require scarce and costly hospital ICU services, a vaccine that eliminates men’s risk of infection and hospitalization will reduce these burdens. </span></p><p><span style="color: #444444;">Everything else being equal, vaccination of a senior male will reduce ICU and hospital services demand by three times that of a vaccinated female of similar age. This benefits all potential hospital patients—both Covid-19 and non-Covid-19 patients, and affected ethnic males who also may comprise the senior male group. </span></p><p><span style="color: #444444;">Incorporating gender in the prioritization process will help to address another health disparity. There are several biological reasons that Covid-19 is more dangerous to men. These same factors appear to be associated with men’s relatively short life expectancy. On average men have a 5-year disadvantage in life-span over women, independent of Covid-19. Indeed, there are already about 90,000 fewer Oregon men than women in the senior cohorts identified in this study. Prioritizing men for Covid-19 helps to offset that health disparity to some degree. </span></p><p><span style="color: #444444;">Ideally, the rationing of vaccines and associated sequencing of vaccinations would be unnecessary. However, there are long delays anticipated for receipt of vaccine supplies. Elderly men will pay the price of the poor design of the vaccination plan. </span></p>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-84094388481432823242021-03-05T15:42:00.001-08:002021-06-27T15:45:00.465-07:00Use Masks, not Lock Downs, to Stop the Covid-19 Pandemic<p><span style="color: #444444;">When the Coronavirus arrived in the US, there was a rush by the public to acquire face masks. After all, the Coronavirus was a pathogen that caused disease by getting into the lungs by inhalation or by touching contaminated hands to the mouth, nose, or eyes. Face masks have the potential to filter particles and to deter touching one’s hands to the face. Wearing face masks thus seems a natural thing to do. </span></p><p><span style="color: #444444;">However, health policy officials chastised them and told them to stop buying masks. For example, the US Surgeon General tweeted on February 29, 2020, saying: </span></p><p><span style="color: #444444;"><i>“Seriously people - STOP BUYING MASKS! They are NOT effective in preventing the general public from catching Corona virus, but if healthcare providers can’t get them to care for the sick patients, it puts them and our communities at risk!”</i>~Dr. Jerome Adams, US Surgeon General. </span></p><p><span style="color: #444444;">Apparently, health "experts" believed that transmission to others involved symptomatic individuals with viral particles in their sneezes and coughs. The resulting sharp bursts of droplets contaminate the hands and belongings of the affected individual and collect on doorknobs, furniture, clothing and other surfaces. Hence, initially the public was only advised to wash hands and disinfect contaminated surfaces. </span></p><p><span style="color: #444444;">The snag in this logic is that virus transmissions from asymptomatic, but infected individuals, had been identified in the case of Coronavirus (Rothe et al. 2020), and found to be as much as 80 percent of all infections of others (Li et al. 2020). In March 2020, a summary of research on the mobility and characteristics of flu particles was published in the journal Aerosol Science and Technology. That literature made it clear that the Covid-19 particles of symptomatic and asymptomatic people were of the appropriate small size and persistence in the air to be inhaled deeply into the respiratory tract.</span></p><p><span style="color: #444444;">This is precisely the set of circumstances, of course, that wearing a mask to protect the wearer could have great benefit. The virus particles (or an important share of them) could be kept from entering the respiratory tract of the wearer. The importance of having the public wear masks is that the masks affect a pandemic at the virus’ first point of contact with people. Therefore, masks have the potential to immediately arrest the process that can cause the number of cases and deaths to grow out of control. </span></p><p><span style="color: #444444;">Health officials chose, instead, to practice social distancing. Unfortunately, this has meant shutting down many business and social activities. Some activities can be replicated by internet conferencing, but in the US, social distancing resulted in the closure of schools and increased the nation's unemployment rate to over 14 percent.</span></p><p><span style="color: #444444;">Japan’s experience with Coronavirus was very differemt. The Japanese public have a tradition of wearing masks every fall influenza season. Japan services this need by manufacturing 1.3 billion masks per year. At this writing, Japan has only one Coronavirus case for every 13,000 persons, versus the US with one per 500 persons. Japan also has a much lower death rate, at one death per 666,000 persons versus one death per 58,600 persons in the US). By these metrics, whatever the Japanese are doing is 26 to 77 times the US approach. </span></p><p><span style="color: #444444;">In addition, of course, the Japanese are not bearing the economic disruption that the US, the UK and others are suffering from the comprehensive social distancing policies. In contrast, at the theoretical extreme, effective masking could, by itself, not only control further spreading or rebound infections by Covid-19, but also control potential de novo or mutant airborne influenzas. Thus, a combination of comprehensive use of masks, frequent, periodic random testing to monitor the level and distribution of infection, and careful screening of US border crossings may be all that is needed going forward. It is also policy that can be activated and deactivated to quickly adjust to conditions.</span></p><p>Sources: </p><p><span style="font-size: x-small;">Asadi, Sima, N. Bouvier, A. S. Wexler, W. D. Ristenpart. 2020. “The Corona Virus Pandemic and Aerosols: Does COVID-19 Transmit via Expiratory Particles?” The Journal of Aerosol Science and Technology; Li, R., S. Pei, B. Chen, Y. Song, T. Zhang, W. Yang, and J.Shaman. 2020. “Substantial Undocumented Infection Facilitates the Rapid Dissemination of Novel Coronavirus (COVID-19).” Science. Rothe, C., M. Schunk, P. Sothmann, G. Bretzel, G. Froeschl, C. Wallrauch, T. Zimmer, V. Thiel, C. Janke, W. Guggemos, et al. 2020. “Transmission of 2019-nCoV Infection from an Asymptomatic Contact in Germany.” The New England Journal of Medicine. 382 (10):970–1.</span> </p>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-22054838697189914302008-02-13T16:39:00.213-08:002021-06-27T17:42:53.268-07:00Looking Back at the Mortgage Mess and Great Depression: Who was to Blame?<span style="color: #444444;">The subprime mortgage crisis and the deep recession that followed was in the new night and day at the time. Almost universally, the press traces the problems to the greed of mortgage lenders and Wall Street investment bankers. A <span style="font-style: italic;">Sixty Minutes</span> episode on CBS, for example, at the time intimated that lax rapacious bankers had drawn unwitting wannabe homeowners into purchases and mortgage structures they could not afford. Worse yet, the default rates were highest among precisely among minority and central city borrowers. </span><div><span style="color: #444444;"><br /></span></div><div><span style="color: #444444;">Charges of predatory lending--intentionally targeting those who could ill-afford financial adversity--still fly fast and furiously. Cities with concentrations of low-income and protected class borrowers (such as Cleveland and Baltimore), still speak about sleezy lenders and others. Fingers point at bankers, appraisers, the Wall Street investment bankers and rating agencies.
But is this really the whole, or even the most important part, of the story? Are we mesmerized by the fire and forgetting to look for the matches? </span></div><div><span style="color: #444444;"><br /></span></div><div><span style="color: #444444;">The irony in the predatory lending story is that, not much more than a decade ago, the popular, political view of mortgage lenders was very different. In the 1980s and 1990s, the widely-held view was that mortgage lenders discriminated against the poor and stifled urban redevelopment by refusing to lend in run-down neighborhoods. It was widely alleged that mortgage lenders discriminated against women and minorities, and against central city neighborhoods. (The latter form of alleged discrimination was called "redlining".) Indeed, the Community Reinvestment Act, passed in 1977 at President Carter's urging, memorialized these suspicions in law. </span></div><div><span style="color: #444444;"><br /></span></div><h4 style="text-align: left;"><span style="caret-color: rgb(102, 102, 102); color: #444444; font-weight: bold;">Was the CRA the First Match that Lit the Great Recession?</span></h4><div><span style="color: #444444;"><br /></span></div><div><span style="color: #444444;">Later in the 1990s, in pursuing alleged violators of the CRA, President Clinton was so convinced of lender bias that he even dispatched "testers" to pose as vulnerable home buyers to catch the bankers in the act of discrimination. His Comptroller of the Currency, Eugene Ludwig, sent fleets of inspectors into banks, looking for disproportionate patterns of lending. I, personally, defended a prominent west coast against these allegations. Not only was their no evidence off discrimination against protected classes, I found evidence the white buyers were statistically underrepresented once we could the full details in individual claims. Ludwig ultimately, as I understand it, apologized in <span style="caret-color: rgb(102, 102, 102);">front of the Bank's board. </span></span></div><div><span style="color: #444444;"><br /></span></div><div><span style="color: #444444;">Note that it is exactly the borrowers whose gains are ascribed to CRA who, subsequently, suffered the greatest financial distress. The Office of the Comptroller of the Currency itself summarized the effect of the CRA as follows:
<span><i>Under its impetus, banks and thrifts have opened new branches, provided expanded services, <span>adopted more flexible credit underwriting standards</span>, and made substantial commitments to state and local governments or community development organizations to increase lending to underserved segments of local economies and populations. (Emphasis added.)</i> </span></span></div><div><span style="color: #444444;"><br /></span></div><div><span style="color: #444444;">
A later retrospective study of CRA's effect, done by Federal Reserve System economists, confirms that CRA regulation had an effect: "...a majority of surveyed institutions engaged in some lending activities that they would not have in the absence of the CRA.." However, the same study found that a "significant minority of institutions incurred losses conducting some of their marginal CRA-related lending activities." In other words, lending to marginal borrowers under pressure of CRA was not financially viable. </span></div><div><span><span style="color: #444444; font-weight: bold;"><br /></span></span></div><div><span style="color: #444444;">Today, most economists believe that the mortgage discrimination assumed by the CRA was never a demonstrated reality. If one accepts this view, the CRA and its implementing regulations thus constituted a selective tax on the profits of regulated mortgage lenders. The special sanctions and additional costs imposed on regulated mortgage lenders undoubtedly provided some impetus for lending to move into unregulated capital markets. It also provided impetus for their efforts to package the mortgages for the market in a way that might dilute the risk of the poor quality mortgages being generated by the industry. </span></div><div><span style="color: #444444;"> </span></div><h4 style="text-align: left;"><span style="color: #444444;"><span style="font-weight: bold;">Did the Fed Light the Second Match?</span> </span></h4><div><span style="color: #444444;"><br /></span></div><div><span style="color: #444444;">The Fed lit the second match via the steep yield curve that lasted nearly four years (a policy period referred to as the "Greenspan Put"). Low cost credit, and rising home prices, made buyers, lenders, investment bankers, rating agencies, and investors alike, complacent.
The securitization of a pool of mortgages provides investors in those securities with credit risk diversification, but not protection from systematic risk. That is, if the odd borrower defaulted, or a housing market got weak her or there, mortgage-backed securities would buffer the bad loans with the good, the weak markets with the strong. It was clear that there was a systematic bias of toward lending money to <span style="caret-color: rgb(102, 102, 102);">households</span> with poor credit; the home-ownership rate ballooned. If something affected all markets in the same direction, the values of the underlying mortgages, their housing asset security and securities backed by the mortgages would move synchronously--down. </span></div><div><span style="color: #444444;"><br /></span></div><div><span style="color: #444444;">The shock that did it was the abrupt end of the Greenspan Put. The Fed Funds rate was raise as quickly and as far as it had been depressed after 2000. By 2005-2006, the yield curve was flat or negatively sloped, and the short-long borrowing and investing opportunity was gone. In addition, the advantage of a security backed by a diversified pool of weak credits became a liability. Diversity become synchrony, and the pooling and stripping of the mortgage credits became a source of opaqueness. </span></div><div><span style="color: #444444;"><br /></span></div><h4 style="text-align: left;"><span style="color: #444444;">The Third Match</span></h4><div><span style="color: #444444;"><br /></span></div><div><span style="color: #444444;">Thus, there were policies that, in my view, constitute the two "matches" in this scenario. One is the intervention of the CRA regulations, These regulations were tantamount to a mandate to make low-quality loans and were amplified by the<span style="caret-color: rgb(102, 102, 102);"> Clinton and others' do-gooding</span> belief that the market was discriminatory. The third match was the see-saw monetary policies of the Federal Reserve. The tendency of the Fed, under Greenspan, to manage soft landings, and to engineer real-sector recoveries, is a mistaken policy. </span></div><div><span style="color: #444444;"><br /></span></div><div><span style="color: #444444;">Greenspan understood that the "democratization" of mortgage credit carried risks. He expressed his concern a speech in San Francisco as early as 1997, he expressed concern about subprime mortgage trends. Unfortunately, like so many in the regulatory environment, the political correctness of CRA and lending to weak credits, coupled with the Fed's focus on micro-managing the economy, apparently made him turn a blind eye.</span></div><div><span style="color: #444444;"><br /></span></div><div>Useful Sources: </div><div><span style="color: #666666;"><br /></span></div><div><span> </span><a href="http://www.federalreserve.gov/BoardDocs/Speeches/1997/19971011.htm">http://www.federalreserve.gov/BoardDocs/Speeches/1997/19971011.htm</a></div><div><span face="arial, sans-serif" style="background-color: white;"> </span><a href="http://www.usc.edu/schools/sppd/lusk/research/pdf/wp_2003_1016.pdf" style="font-family: arial, sans-serif;">http://www.usc.edu/schools/sppd/lusk/research/pdf/wp_2003_1016.pdf</a></div><div><br /></div>Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-91551348401797545842007-11-13T16:31:00.000-08:002008-02-13T17:35:47.092-08:00The Hazards of the Rush to be GreenThe public and policy makers are responding to the daily drumbeat of events reported as consequences of global warming. Every especially-warm day, picture of a melting glacier, drought report, etc. adds to the enthusiasm to contain <a href="http://en.wikipedia.org/wiki/Greenhouse_gas">greenhouse gas (GHG)</a> emissions, especially carbon dioxide emissions. The loudest call is for regulation of offending activities and subsidy of non-offending activity.<br /><br />From an economist's perspective, this thrust is a virtual recipe for failure. It is highly likely that, not only will we not meet goals of reduced GHG emission, but we will in the process of trying, actually make GHG emissions worse than they otherwise would have been.<br /><br />How can this be? Read on.<br /><br /><span style="font-weight:bold;">The Political Economy of Regulations</span><br /><br />Regulation is based on the notion of "market failures", i.e., that the private market mishandles certain resource allocation activity, requiring government to intervene manually and properly redirect resource allocation. In reality, of course, the failure is not of private markets, but rather the failure of government to support even the existence of certain markets.<br /><br />The economy needs government to provide the supporting legal framework in order for private markets to function. Government has neglected to support markets in air, water, noise and most other resources that constitute the natural environment. Indeed, the Environmental Protection Act actually forbids consideration of benefits versus cost in environmental analyses such as environmental impact studies (EIS). In so doing, the Environmental Protection Act effectively denies the relevance of markets. Again, not a market failure but a governmental failure.<br /><br />Viewed from this perspective, calling in government to act in lieu of private markets is a bit like asking the guy who was supposed to build the safety nets to run the circus high-wire act. Without any market values or benefits and costs to balance, regulation in the environmental arena can only be arbitrary and capricious. Obviously, this is the perfect setup for a regulation to, in the end, do more harm than good.<br /><br /><span style="font-weight:bold;">Subsidies: The Three-Card Monty of Environmental Policy</span><br /><br />The other, general approach to steering the economy to a green future is the subsidy. Hybrid vehicle purchases enjoy tax subsidies, as do solar panel installations, biofuel manufacturing, wind power farms, compact fluorescent light bulbs, etc. Like the sidewalk con of Three-Card Monty, these policies create the illusion that some costs disappear when, in fact, they do not.<br /><br />Subsidizing a product that would otherwise not be deemed cost-effective by the marketplace risks making the economy less efficient--not only in productivity terms, but also in GHG accounting terms. A solar panel based on solid crystalline silicon cells, for example, likely uses more energy to manufacture, transport, install and operate than it will ever save over its lifetime. Subsidizing such a product and, thereby increasing its use, therefore actually increases, rather than decreases, the amount of conventional energy used in the economy. If conventional energy sources emit GHGs (which they do), then GHG emissions go up, rather than down, through the effect of such subsidies.<br /><br />Proponents will argue that public subsidies are needed temporarily in order to transform the market and increase penetration of the product. In other words, market participants are too stupid to recognize a good thing without prescient government lighting the way. In fact, of course, private markets make huge investments and take huge risks on unproven technologies every day. The cell phone, Apple computers, Microsoft software,iPods, medicines, the video recorder, jet skis, the automobile, the skyscraper, and a million other products arose primarily from risk-taking capital sources. The notion that there is a silver-bullet energy technology out there that is languishing because of lack of risk-taking capitalists is simply foolish.<br /><br />Subsidies, by their very nature, bias the economy toward the production of goods that waste resources at the expense of the production of goods that use them more sparingly.<br /><br /><span style="font-weight:bold;">Cap and Trade, Carbon Offsets and other Quasi-Market Schemes</span><br /><br />The green frenzy is not without its attempts to mimic real markets through <a href="http://en.wikipedia.org/wiki/Emissions_trading">trading schemes</a>. So-called cap-and-trade schemes cap the carbon emissions of a group of producers. As long as some producers caps are not binding, they can sell their excess rights to emit CO2 to another producer whose cap is binding its behavior.<br /><br />There is, indeed, a market created in cap-and-trade schemes. However, the caps are arbitrary regulatory constructs, the stringency of which is determined in a political economic context. Most cap-and-trade schemes have loose caps that reflect the relative political influence of the capped entities.<br /><br />Carbon offsets are another method intended to stimulate carbon-sparing activities, such as planting carbon-sequestering trees. Al Gore and Land Rover users can then obtain absolution for their carbon emitting activities by buying carbon offsets. Unfortunately, it is virtually impossible to determine the validity of the carbon-offset arithmetic, or even whether the firm selling the carbon offsets is doing anything different than it would have done in absence of the offset program. Would the tree farmer have planted the trees anyway? Would the landfill have controlled its GHG emissions anyway?<br /><br /><span style="font-weight:bold;">The Market is Working Where it is Allowed to Do So</span><br /><br />As long as an input to a production process costs money, businesses have an incentive to be sparing in its use. Indeed, the <a href="http://intensityindicators.pnl.gov/total_highlights.stm">energy-intensity</a> of the US economy (BTU per dollar of GDP) has been declining steadily for as long as we have data available. Higher energy prices may accelerate this trend, but only if the energy-sparing technologies available to the firm are, themselves, not energy intensive. If they are, then there may be no cost advantage to adopting the new technology.<br /><br />Ironically, the best way to move quickly toward energy-saving technologies is for a firm, individual or country to be wealthy enough that they can afford to abandon still-useful old technologies in favor of the new. If GHG policies have the effect of impairing personal or corporate wealth, therefore, the turnover of technology wil slow. Those who say that we are just going to have to live more simply, etc., forget this important fact.<br /><br />Recent trends in energy consumption confirm this notion. Those who embraced the Kyoto Protocols in 1997 such as European Union members, have energy use that is growing more rapidly than US energy use on a per capita basis. While Europe was imposing regulatory constraints on its industry and subsidizing massive solar panel farms (especially in <a href="http://www.wired.com/science/discoveries/news/2001/07/45056">Germany</a>), the US was turning over its capital stock.<br /><br />Maybe that is why a recent article in <a href="http://www.nature.com/nature/journal/v449/n7165/pdf/449973a.pdf">Nature</a> declared Kyoto a failure:<br /><br /><span style="font-style:italic;">The Kyoto Protocol is a symbolically important expression of governments' concern about climate change. But as an instrument for achieving emissions reductions, it has failed1. It has produced no demonstrable reductions in emissions or even in anticipated emissions growth.</span><br /><br />In a future post, I will discuss some things that actually might be worth doing.Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.comtag:blogger.com,1999:blog-1482324236203963944.post-27833238990241540802007-07-06T15:41:00.000-07:002007-07-11T12:23:46.958-07:00The Health Care Crisis: Who is to Blame and How to Fix ItThe accepted wisdom today is that the private marketplace cannot be relied upon to provide health care. At the heart of most critques of our existing system is the belief that the problem lies with the private market and its greedy health insurers, drug companies and providers.<br /><br />Senator Ted Kennedy (D-Massachusetts) has been an opponent of every market-oriented reform, despite the fact that the track record of his preferred, government-centric policies has been so poor. Medicare costs, for example, have evolved to be four times the 1965 estimates. Presidential aspirant Congressman Dennis Kucinich (D-Ohio) goes further, asserting baldly that profit making enterprise have no place in the health care system. Finally, the subtext of Michael Moore's muckumentary "Sicko" is that the current system is heartless, cruel and ineffective.<br /><br />In reality, the problem with the US health care system is that there is too little, rather than too much, private marketplace involvement. This situation, in turn, can be traced to the clumsy interventions by government over the past sixty years. These interventions have marginalized the role of the consumer in the health care market. In fact, the role of the consumer has been so marginalized that it bears little resemblence to the paradigm of the private market in economics. In that paradigm, the consumer, having a personal stake in the outcome, exercises discipline over the sellers of services. Without this discipline, the price and quality of service is indeterminate.<br /><br /><strong>The Clumsy Hand of Government</strong><br /><br />The first government intervention that hastened the exit of consumer sovereignty occurred as a side effect of other economic interventions in World War II. Specifically, price and wage controls handicapped firms' ability to compete for labor. Firms found a loophole in these controls. The regulators had neglected to include the value of labor benefits, such as insurance, in the regulated wage. Moreover, the Internal Revenue Service had neglected to include the value of such benefits in the definition of taxable income. <br /><br />Firms began offering health insurance as a workaround to wage controls. By the time that the IRS woke up to what was happening, employer provision of this benefit was widespread and the inadvertent exemption from taxation was memorialized in law. The effect on consumer behavior was profound. The consumer no longer perceived the cost of health insurance directly as a personal cost. The illusion was created that health insurance was a cost to the employer, not the worker. And because it enjoyed special tax treatment, the package of compensation was tilted away from wages toward health insurance benefits. <br /><br />The second government intervention was to compel, over the years, ever-greater comprehensiveness of the coverage offered by employers. The result was that coverage was expanded to procedures that have little actuarial justification for being insured. Instead of being a mechanism for protecting the consumer against financial and physical catastrophe (like fire insurance, by analogy), health insurance also became a payment mechanism for routine services. By analogy, the fire insurance policy was extended to insuring for the cost of common home repairs and maintenance.<br /><br /><strong>The Loss of Consumer Discipline</strong><br /><br />The separation of the consumer from the purchase of health services was now nearly complete. The price of service was now of little interest to the consumer who enjoyed the price illusion of insurance coverage. Without the consumer to restrain them, provider costs grew more rapidly. This lead directly to the death spiral of private market health care: consumer indifference led to higher provider costs, which led to higher insurance premium until, finally, employers could not justify providing insurance. <br /><br />The uninsured and elderly now faced health care costs that had been ballooned by decades of insured consumers' indifference to price. Undaunted by its own culpability for this state of affairs, government vainly sought for more governmental solutions: Medicare, Medicaid, and subsidies for those whom they (government) had put in this pickle in the first place. <br /><br /><strong>Fixing It</strong><br /><br />What should be done? There are several, simple elements to restoring sanity in the health care system. All, in one way or another, re-insert the consumer into the marketplace:<br /><br />1. Eliminate the employer as the provider of health insurance. The illusion continues today that, somehow, emplyer-provided health insurance is costless to the worker. The employer could be removed from the process by removing employer-coverage mandates where they exist and eliminating the special tax treatment of employer-provided insurance. <br /><br />2. Mandate the consumer to acquire a standard, catastrophic care policy. Insurers would compete to provide catastrophic policies based on price and features, with risk rating differentiated only by sex and age, not by pre-existing condition. Consumers be offered favored tax treatment for policy premium expenses for catastrophic plans only. Poor consumers would be offered premium assistance for the basic policy. <br /><br />3. Encourage the consumer to husband funds for non-catastrophic costs of care. The existing Health Savings Account (HSA) could be the basis for this encouragement.<br /><br />Adoption of these policies would enhance price competition in insurance and in health care provision. Unlike most other proposals, it reduces, rather than increases, government's involvedment in the marketpalce. Government's role would be limited to defining the method for ensuring that consumers obtained the basic policy, and for devising the assistance scheme for the poor. Government, ever the clumsy mischief maker, will be tempted to compel a definition of the basic policy that re-introduces the problems of comprehensive coverage. To pander to some constituencies, politicians will press to broaden uselessly the definition of who obtains premium assistance. These tendencies, too can be contained:<br /><br />1. The funds for providing premium assistance to the poor could be raised from an pro-rata excise tax on the insurance plan premiums. This would give consumers a stake in establishing reasonable limitations on the amount of and eligibility for assistance.<br /><br />2. Politicians' temptation to morph the catastrophic plan into a comprehensive plan by limiting the amount and the growth rate of the policy premium qualifying for tax favored treatment. This, too, would give consumers a stake in having access to affordable plans.<br /><br /><strong>Not a Radical Proposal</strong><br /><br />Some of the basic features of this proposal are already in place in Switzerland. The State of Massachusetts passed (under former Republican governor and current presidential candidate, Mitt Romney) a related, though flawed proposal. Finally, here in Oregon, the legislature passed Senate Bill 329, The Healthy Oregon Act. It is scheduled to convene an expert panel to determine how to best provide universal access to insurance. Oregon's track record of micro-management of the health care sector does not bode well, but it is conceivable that a market-oriented proposal like that offered here could emerge. <br /><br />For more detail on my proposal, you can look on the <a href=" http://www.cascadepolicy.org">Cascade Policy Institute</a> website.Randall Pozdenahttp://www.blogger.com/profile/09395615880667584251noreply@blogger.com