January 2012

Harvard’s Jeffrey Miron Explains Why the Stimulus Package Failed

by Hans Bader on October 31, 2010 · 12 comments

in Economy, Stimulus to Nowhere

Harvard economist Jeffrey Miron explains why the $800 billion stimulus package failed in a recent article.

What’s interesting about Dr. Miron’s critique is that he shows how the stimulus was a failure even if you take for granted liberal assumptions about economic policy (such as Keynesian economic theory), since it was so badly designed and executed that it failed to achieve its goals, spending wastefully while failing to revive the economy.  Indeed, the stimulus was so poorly tailored to the economy (and the goal of reducing unemployment) that Miron concludes that it was designed to reward politically connected “constituencies” and special-interest groups, like public-employee unions, rather than being focused on ”economic stimulus.”

Other Harvard economics professors like Robert Barro have also criticized the stimulus package. Barro called it “the worst bill that has been put forward since the 1930s.”  Former Obama economic advisor Martin Feldstein, a Harvard professor who is a big believer in stimulus packages in principle, said that the stimulus designed by Obama and congressional Democrats was “poorly done”

Much stimulus money has been wasted.  It has gone to prisoners and dead people, wasteful welfare spending, abandoned bridges to nowhere, and unnecessary government buildings.  The stimulus subsidized foreign green jobs and wiped out jobs in America’s export sector.

The “’stimulus’ is not the road to economic recovery. It’s the problem, not the solution, writes Nobel Prize winning economist Vernon L. Smith.” Other Nobel Laureates like Gary Becker have also criticized the stimulus package.  200 economists signed a statement publicly opposing the stimulus package in an ad published in the Washington Post and New York Times.

Civil Rights Commission: Administration Lied About Who Dropped Voter Intimidation Case

by Hans Bader on October 29, 2010 · 1 comment

in Legal, Personal Liberty, Politics as Usual, Sanctimony, Zeitgeist

The U.S. Commission on Civil Rights has found that political appointees, not career Justice Department lawyers, made the decision to drop a voter intimidation case against two black panthers after the Justice Department had already won a lawsuit against them by default.  That contradicts claims made by the Obama administration and its civil-rights chief, Tom Perez.

Earlier, a career Justice Department lawyer, Chris Coates, testified that under the Obama administration, the Justice Department has a policy of systematically ignoring voter intimidation and voting-rights violations when the perpetrator is a minority.

The case arose out of intimidating behavior by members of the bigoted New Black Panther Party outside a Philadelphia polling place.

The testimony by Coates, a former ACLU lawyer hired by the Justice Department under the Clinton administration, “supported earlier accusations made by J. Christian Adams,” a former Justice Department lawyer:

Adams had told the commission that DOJ officials “over and over and over” showed “hostility” to prosecution of voter-intimidation cases involving “black defendants and white victims.”

Adams testified that Associate Attorney General Thomas J. Perrelli, a political appointee, himself overruled a unanimous recommendation for continued prosecution by Adams and his associates of voter intimidation of white voters by members of The New Black Panthers at a Philadelphia polling place in 2008.

Adams had also testified that Julie Fernandes, a deputy assistant general in the Civil Rights Division in charge of voting matters, told Voting Section leadership that the Obama administration would not file election-related cases against minority defendants — no matter what the alleged violation of the law.

Coates verified Adams’ testimony about Fernandes, and also said he had been “specifically instructed” by Loretta King, acting assistant attorney general for civil rights, “not to ask any other applicants whether they would be willing to, in effect, race-neutrally enforce the VRA (Voting Rights Act).”

The Washington Post recently ran an interesting story about “deep divisions” and internal infighting at the Justice Department about whether to enforce the civil-rights laws “without regard to race,” even in cases where the perpetrator may be a member of a minority group — like the Ike Brown case in Mississippi, where a black political boss violated the voting rights of many whites as well as a few blacks. (Lawyers who worked on that case during the Bush Administration ended up being harassed by left-wing colleagues who did not believe that the civil-rights laws should be enforced when the perpetrator is a minority.  A relative of one of those lawyers who worked in the Justice Department was also harassed.)

The Supreme Court has ruled that voting rights protect people of all races, not just members of historically disadvantaged groups.

Washington State Ballot: Cracking Open the Wine and Spirits Market

by Angela Logomasini on October 29, 2010 · 2 comments

in Nanny State, Personal Liberty

This election day, Washington State voters will have to decide on two different ballot initiatives dealing with alcohol regulation (#1100 and #1105). The first will open the market to competition at all levels — allowing competition necessary to reduce prices, make shopping more convenient, and increase consumer choice. The second goes halfway, forgoing many benefits offered by the first. (A helpful chart comparing the two initiatives can be found in this Washington Policy Center study.)

Both initiatives would essentially privatize spirit sales, but 1100 would also eliminate government pricing schemes for all alcohol that currently bar retailers from offering discounts. In addition, it breaks the state-imposed three-tier system by eliminating regulations that keep retailers from buying wine directly from wineries around the world rather than buying it all through wholesalers. Initiative #1105 would privatize spirits (which is good!) but  keeps three-tier mandates intact and also includes harsh taxes and regulations that will keep prices high.

Tackling three-tier mandates–as 1100 would do — is critically important.  Three-tier mandates serve wholesalers and bureaucrats well — at the expense of everyone else. They ensure that retailers cannot simply buy direct from wineries and then pass savings onto consumers. It also means, if wholesalers don’t want to carry certain wines, retailers can’t offer them.

Initiative 1100 was originally developed and promoted by Costco, which wants to buy direct and offer steep discounts to consumers. Opponents suggest that means the initiative is designed to undermine small retailers and wineries to benefit “big box” stores. That’s ridiculous. Costco isn’t asking for special privileges. It’s asking for opportunity to compete.

Voluntary contracts and competition drives market players toward arrangements that ultimately benefit consumers, and that’s what 1100 is all about. This system gives everyone a fair-and-equal shot, whereas government regulations favor the politically organized. If Costco wins in an open market, it will win because it meets consumer demands.

Costco won’t be the only business that wins. A more open marketplace will raise the best businesses to the top. It will help wineries and retailers — large and small — explore new opportunities for marketing products.

And an open marketplace won’t destroy wholesalers or the three-tier system; it would simply base that system on voluntary contracts rather than mandates. Competition for contracts will reward those wholesalers that provide the best service and eliminate those dependent on governmental guarantees. California and D.C., for example, do not have three-tier mandates, yet wholesalers play a critical role based on voluntary market arrangements.

Still, opponents of both initiatives–a good portion of which includes wholesalers–have suggested that privatization and rational market arrangements will undermine public health and promote alcohol abuse. Concerns about alcohol misuse are certainly important they have no bearing on economic organization of the marketplace, nor could they ever justify government-created monopolies. Social problems should continue to be addressed by other means, such as checking identification and private social services to help abusers.

In fact, the data shows that states with more open economic arrangements do not suffer from more alcohol-related problems. For example, a study published by the Virginia Public Policy Institute compares data from 18 “control states” (where at least some kinds of alcohol is sold only in government stores) and 32 “license states” (states where all alcohol is sold in private shops). The researchers found no difference between the two approaches in terms of alcohol-related health and social problems.

Specifically, they found that between 2001-2005 the number of per-capital alcohol-related deaths, binge drinking incidents, and drunk-driving cases were roughly the same among the states, regardless of where the alcohol was sold. In other words, government ownership of any portion of the industry does not improve public health and safety. The Commonwealth Foundation drew similar conclusions in an analysis of the data that produced in 2009.

This Reason Foundation study underscores some of the other fallacies associated with “temperance”-based arguments favoring regulation. In addition, check out Tom Wark’s blog, Fermentation, for helpful information on the initiatives and problems associated with three-tier mandates.

Image: Wine at California Costco Store, by Willscrlt’s photostream on Flickr.

On Google: If It Ain’t Broke, Don’t Fix It!

by Alex Schibuola on October 29, 2010

in Tech & Telecom

Scores.org has a post suggesting that Google is a monopoly because its “tentacles tap into sizable market shares” referring to the search engine, map services, YouTube, Android, Gmail, and Chrome. The accusations rest on suggestive grievances and a superficial analysis of Google.

They protest that a search of “email” on Google shows Gmail first and then Yahoo! Mail, and that Google searches show only Google Maps, not MapQuest or Yahoo! Maps. This is like accusing a restaurant of being a monopoly because they don’t show their competitors’ menus.

Besides, are Google users harmed by first seeing Google Maps or Gmail? Seattle is still west of Chicago on Google Maps, and Gmail still sends and receives emails, just like Yahoo!. These matters are peripheral though; the true superficiality of monopoly accusations comes from mistaking Google users as Google’s customers.

Real customers pay. Google users don’t. Users are inputs in Google’s production process. Google’s true output is ad space. A monopoly, weakly defined, exists when a firm dominates the supply of an output. Google’s revenues do not come from their search engine, YouTube, Gmail, etc. directly. If Google is a monopoly it is because they restrict the supply of ad space to charge a higher price.

But to control the supply of ad space on the web, Google must draw as many users as possible. Absent of a government granted monopoly right, to maintain market superiority Google must provide superior services to users.

If Google actually is a monopoly, the result is that consumers are exposed to less advertising. The economic loss is that less advertising leads to less trade between users and advertisers who would have advertised on Google, but could not afford to because of the monopoly price.

The monopoly case for Google is weak and superficially generated. Considering their resounding success the alternative rationale for monopoly accusations against Google is far more plausible: their competitors are seeking to use the government to curtail it because they can’t keep up.

In this world there are two ways to supplant a superior competitor: (1) produce a more superior product or (2) get the government to knock them down a notch — by forcing them to compete “fairly.” In the former the consumers benefit from innovation, in the latter consumers lose because innovation is stifled. Lesson of the story is that if it ain’t broke, don’t fix it!

The Rise of Negative Campaigning?

by Ryan Young on October 29, 2010

in Politics as Usual

A lot of people think this year’s election is historically nasty. Then again, people said much the same thing in 2008. And in 2006. And in 2004, 2002… every year, actually.

Pundit hyperbole is nothing new. Neither are attack ads. Negative campaigning is at least as old as the campaign itself. Politics is an inherently nasty business. The pursuit of public office causes people to do and say things they would never dream of if they didn’t have that signature powerlust that separates politicians from decent human beings.

This short video from Reason.tv shows some highlights from the not-so-friendly 1800 presidential race between Thomas Jefferson and John Adams. I think the glowing red eyes are my favorite part.

Afternoon Links: October 29, 2010

by Nicole Ciandella on October 29, 2010

in Zeitgeist

1. Dev Patel and Pam Anderson star in a short film shot entirely with a smartphone camera.

2. PETA will foot the bill for Lindsay Lohan’s rehab if she agrees to “rid [her]self of one more toxic substance: meat.”

3. From Gothamist: “Broke Guy Faces $2,000 Fine for Collecting Recyclables.”

4. 65% of the American public want to get rid of everyone in Congress and start over.

5. Is the FDA standing in the way of the camel milk industry?

Hospital Cost-Shifting Leads to More Expensive Car Insurance

by Michelle Minton on October 29, 2010

in Insurance

Lawmakers’ policies are making your car insurance higher than it should be. Rather than solving the problems that government intervention is causing, however, politicians would rather blame “greedy” insurance companies and institute more interventionist policies.

For Michigan residents, the situation is particularly precarious. In the last decade the state has lost nearly a million residents, lost thousands of businesses, and likely witnessed greater economic rot than many other states throughout the economic downturn.

In CEI’s newly released joint study with the Mackinac Center, “Reforming Michigan’s Auto Insurance Industry,” Professor Gary Wolfram of Hillsdale College and Joseph Olson, the former Michigan insurance commissioner, nail down some of the reasons why Michigan drivers pay the second highest premiums in the nation.

Much of the paper focuses on the state’s mandatory purchasing of unlimited personal insurance protection (PIP). Because Michigan is also a “no-fault” state, the possible cost for each driver is unknown to insurance companies and potential unlimited — they could end up paying out millions of dollars, regardless of the driving abilities of their customers. (In no fault states, drivers are limited in their ability to sue for recovery of non-economic losses, such as damages for pain and suffering. In return for this limitation, the driver’s insurance company pays for economic losses, such as medical expenses and lost wages, regardless of who was at fault.)

Now the Insurance Research Council (IRC) has released a new paper documenting how the reimbursements from public health insurance programs (i.e., Medicare and Medicaid) have prompted hospitals to shift costs to automobile insurance companies. This has resulted in a nationwide rise in auto injury claim costs and has forced insurance companies to scrutinize and negotiate hospital bills prior to payment.

When applying the conclusions of the IRC study in conjunction with the CEI/Mackinac paper, it provides strong evidence in support of the claim that publicly funded programs, which are limited and have low reimbursement rates, have serious and expensive consequences on the cost of private insurance.

“The conventional wisdom is that hospitals aggressively seek to shift costs from public insurance programs to private payers such as auto insurance companies,” said Elizabeth Sprinkel, Senior Vice President of the IRC. “With this study, we now have information on the magnitude of cost shifting and a better understanding of the need for supportive state laws and effective tools that will enable auto insurers to pay hospitals appropriately and help control auto injury claim costs,” said Sprinkel.

With the recent individual health care mandate (aka Obamacare) on its way, the consequences of this cost-shifting could have dire consequences for a state like Michigan, where costs are potentially unlimited.

From the CEI/Mackinac study:

A major weakness in Michigan’s auto insurance system is the requirement for consumers to purchase unlimited personal injury protection, for several reasons. First, as any economist will attest, people respond to incentives. Once third-party payment is introduced, and there is no limit on how much the third party must pay, then there is every incentive for health care providers to choose expensive methods for treating injury, and there is no incentive for the patient to restrain expenditures.

Insurance Information Institute President Robert Hartwig, in testimony before the Michigan House Insurance Committee, showed that Michigan’s high insurance premiums are being driven by rising medical costs associated with auto accidents. The average no-fault PIP claim rose by more than 250 percent from 1998 to 2007, reaching $31,383. Given the incentives by medical care providers to use expensive treatments, it is a problem that the state has no constraints on costs, such as medical fee schedules and treatment protocols.

Because Obamacare forces all residents to purchase some type of insurance, it is very likely that the flood of new Medicare and Medicaid subscribers will increase the strain on the program and decrease the amount of reimbursement. As a result, hospitals will continue shifting costs onto private insurance companies — like auto insurers. The potential increase in costs and increases in premiums could be astronomical.

Obamacare to Wipe Out 800,000 Jobs Through Work Disincentives

by Hans Bader on October 29, 2010

in Deregulate to Stimulate, Economy, Employment, Healthcare, Regulation

Obamacare is going to wipe out 800,000 jobs through its disincentives to work.  That contrasts sharply with false claims by House Speaker Nancy Pelosi (D-Calif.) that the new health care law would create jobs,  ”400,000 of them almost immediately.” That 800,000 lost jobs “is 50% more than all the people who work for GM, Ford, and Chrysler combined,” yet the Congressional Budget Office regards it as a “small amount” compared to the overall labor force.  To some people, the glass is always half full.

As we discussed earlier, it was the Congressional Budget Office’s own report that showed that Obamacare discourages work and thus shrinks the economy.  Obamacare was so poorly drafted that some people are massively punished for working and earning more.  One hypothetical 62-year old lost $7,836 in tax credits for a $22 increase in income, resulting in a 35,618 percent marginal tax rate on that additional income.  Who would work longer hours, or seek to earn more, if they end up with less take-home pay at an income of $55,000 than $46,000 — as is true for some people under Obamacare?

As noted earlier, the new healthcare law raises taxes on the middle-class and investors,  reduces lifesaving medical innovation, and drives up health insurance premiums.  It also will bankrupt many “small to midsize” medical-device manufacturers, driving up unemployment.

The Stealthy Public Pension Time Bomb

by Ivan Osorio on October 29, 2010

in Bailout Watch, Economy, Employment, Labor, Regulation

As state and local government budgets have come under increasing stress, greater public attention has come to focus on government employees’ compensation. This greater scrutiny has led to public anger over public employees’ generous compensation (along with their iron-clad job security). Naturally, this has put public employee unions and their allies on the defensive. Some have responded with publications that essentially retort, “It ain’t so!” In The American, Andrew Biggs of the American Enterprise Institute, responds to that defense. As he notes, a significant such study, by the Center on Wage and Employment Dynamics (CWED) at the University of California-Berkeley, makes an important miscalculation:

The basic problem with CWED’s treatment of benefits is that it assumes data showing what employers currently pay toward benefits is equal to what employees will actually receive. In the short-term, this assumption is fine, since many employee benefits are consumed today. But in the public sector, a large share of compensation is deferred to retirement in the form of pension benefits and retiree health benefits. The CWED study significantly underestimates the value of deferred benefits.

As many people are aware, public sector defined-benefit pension plans are significantly underfunded. Using private sector accounting standards, which is necessary to make apples-to-apples comparisons, the typical public pension is less than 50 percent funded. When pensions are underfunded, compensation from pensions is underestimated.

Thus, although the CWED study argues that California’s public sector employees receive pension benefits equal to 8.2 percent of their total compensation, that’s not exactly true. Their data actually shows that California public employers are paying 8.2 percent of employee compensation toward pensions, but that is only around half what employers should be paying. And since public pension benefits are guaranteed, that extra amount will be paid sooner or later. A good guess of true public pension compensation is to divide the reported pension contribution of 8.2 percent by the 50 percent funding level of California pensions, producing a value for promised pension benefits of 16 percent of compensation. This increases the 2 percent pay advantage that the CWED study already acknowledges to a public sector pay premium of around 10 percent.

So, in addition to threatening state and local government finances — and thus by extension taxpayers — public employee pension underfunding also partly obscures the real cost of public employee compensation. For government employee unions and the elected officials they support, this politically convenient, since they simply pass on the cost to future taxpayers, while mitigating current taxpayers’ wrath. For some insight into how they do this, it’s worth reading the study by Biggs and Eileen Norcross of the Mercatus Center (who’s also a former CEI Warren Brookes Journalism Fellow), on the public pension underfunding crisis, published by Mercatus. In a word, public pension managers have been overestimating investment returns for years. They focus on New Jersey as a case study.

The state reports that its pension systems are underfunded by $44.7 billion, when liabilities are discounted at the 8.25 percent annual return that New Jersey predicts it can achieve on funds’ investment portfolios.

However, when plan liabilities are calculated in a manner consistent with private sector accounting requirements, methods that economists almost universally agree are more appropriate, New Jersey’s unfunded benefit obligation rises to $173.9 billion. This amount is equivalent to 44 percent of the state’s current GDP and 328 percent of its current explicit government debt.

Such unrealistic investment return expectations lead to further underfunding. One necessary first step to alleviate this situation, Biggs and Norcross note, is honest accounting.

In addition to understating funding requirements, using a high discount rate to value public pension liabilities encourages plan managers to invest in higher risk portfolios in order to target the expected rate of return, producing bad incentives in the management of pension assets. Instead, financial theory suggests pensions should be discounted according to the lower risk (and lower return) Treasury bond rating of 3.5%.

Government employee unions are a formidable political force. However, the public pension underfunding problem is so large now that public support for reforms to get states out of the red finally has a good chance of carrying the day, as it did in Utah. As Utah State Senator Dan Liljenquist, who helped design and enact a major pension reform in his state noted recently at a Mercatus event (where Biggs and Norcross also presented): “This is not a conservative-versus-liberal issue, this is a reality issue.”

For more on public sector unions, see here and here.

For more on pensions, see here.

Angela Logomasini On The Risk of BPA

by Marc Scribner on October 29, 2010

in Video

[youtube:http://www.youtube.com/watch?v=iGUlyLPSXAY 285 234]

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