The Department of Veterans Affairs (VA) is the fifth largest agency measured by spending. Looking at estimated outlays for 2014, VA spending of $151 billion comes in behind the Department of Health and Human Services at $958 billion, the Social Security Administration at $914 billion, the Department of Defense at $593 billion, and the Department of Treasury (mainly interest costs) at $469 billion. See Table 4.1.
Figure 1 below shows that VA spending has tripled since 2000. Figure 2 shows the breakdown of VA spending by function. Interestingly, the largest function is not hospital and medical care, but income security. Within income security, the largest item is compensation paid to veterans for disabilities incurred in, or aggravated during, active military service. (Figure 2 based on calculations from database here).
The Obama administration’s most recent budget summary for the VA is here. It promises “high quality and timely health care services” and “improvements in efficiency and responsiveness.”
The Obama budget also notes: “The Nation has a solemn obligation to take care of its veterans and to honor them for their service and sacrifice on behalf of the United States.”
The Federal Trade Commission has unanimously recommended that Congress should pass a law regulating “data brokers.”
Congress passed a law regulating credit bureaus forty-plus years ago, and the results aren’t particularly impressive.
Thomas A. Firey
Advocates of this election cycle’s call to raise the minimum wage have had little success so far. The country’s long-struggling economy has made federal lawmakers hesitant to increase the cost of entry-level jobs. (Let’s dispense with the falsehood that “there’s no solid evidence that a higher minimum wage costs jobs.”)
To combat that hesitancy, the advocates are trying a new argument: raising the federal minimum wage, they say, will boost the economy.
Harold Meyerson, for one, floats this idea in his latest Washington Post column:
By putting more money into the pockets of the working poor—a group that necessarily spends nearly all its income on such locally provided basics as rent, food, transport and child care—an adequate minimum wage increases a community’s level of sales and thereby creates more jobs.
This idea raises the question: did previous federal minimum wage increases boost the economy? Below is a list of all federal increases since the modern Fair Labor Standards Act (FLSA) minimum wage law was adopted in 1977, along with notes on what subsequently happened to the economy:Legislation date Phase-in dates Economy 1977 Amendments 1/1/1978 Economy enters recession, 1/1980 1/1/1979 1/1/1980 1989 Amendments 4/1/1990 Economy enters recession, 7/1990 4/1/1991 1996 Amendments 10/1/1996 U.S. Real GDP grows 4.5% in 1997, 4.4% in 1998, and 4.8% in 1999 9/1/1997 2007 Amendments 7/24/2007 Economy enters recession, 12/2007 7/24/2008 7/24/2009
Going back further, the economy also entered recessions during the phase-ins of the two previous minimum wage increases, under the 1966 and 1974 FLSA Amendments. So, during five of the last six federal minimum wage increases, the nation fell into recession.
Now, perhaps the minimum wage increases did stimulate the economy in each of those years, but the stimulus was not enough to overcome the problems that brought on the recessions. Heck, perhaps the ‘96–’97 wage increase was the sole cause of the economic boom of the late 1990s.
But probably not.
It seems far more likely that mandating a small wage increase for a small group of workers who work a small number of hours will not have much stimulatory effect on the economy. It may not even be enough to counterbalance the negative economic effects of would-be workers who can’t find—or lose—their jobs because of the mandated increase.
Daniel J. Mitchell
Two years ago, there was a flurry of excitement because MarketWatch journalist Rex Nutting crunched annual budget numbers and proclaimed that Barack Obama was the most fiscally conservative president since at least 1980.
I looked at the data and found a few mistakes, such as a failure to adjust the numbers for inflation, but Nutting’s overall premise was reasonably accurate.
As you can see from the tables I prepared back in 2012, Obama was the third most frugal president based on the growth of total inflation-adjusted spending.
And he was in first place if you looked at primary spending, which is total spending after removing net interest payments (a reasonable step since presidents can’t really be blamed for interest payments on the debt accrued by their predecessors).
So does this mean Obama is a closet conservative, as my old—but misguided—buddy Bruce Bartlett asserted?
Not exactly. A few days after that post, I did some more calculations and explained that Obama was the undeserved beneficiary of the quirky way that bailouts and related items are measured in the budget.
It turns out that Obama’s supposed frugality is largely the result of how TARP is measured in the federal budget. To put it simply, TARP pushed spending up in Bush’s final fiscal year (FY2009, which began October 1, 2008) and then repayments from the banks (which count as “negative spending”) artificially reduced spending in subsequent years.
So I removed TARP, deposit insurance, and other bailout-related items, on the assumption that such one-time costs distort the real record of various administrations.
That left me with a new set of numbers, based on primary spending minus bailouts. And on this basis, Obama’s record is not exactly praiseworthy.
Instead of being the most frugal president, he suddenly dropped way down in the rankings, beating only Lyndon Baines Johnson.
That explains why I accused him in 2012 of being a big spender—just like his predecessor.
But the analysis I did two years ago was based on Obama’s record for his first three fiscal years.
So I updated the numbers last year and looked at Obama’s record over his first four years. And it turns out that Obama did much better if you look at the average annual growth of primary spending minus bailouts. Instead of being near the bottom, he was in the middle of the pack.
Did this mean Obama moved to the right?
But I don’t care who gets the credit. I’m just happy that spending didn’t grow as fast.
I’m giving all this background because I’ve finally crunched the mostrecent numbers. If we look at overall average spending growth for Obama’s first five years and compare that number to average spending growth for other recent presidents, he is the most frugal. Adjusted for inflation, the budget hasn’t grown at all. That’s a very admirable outcome.
What what about primary spending? By that measure, we get even better results. There’s actually been a slight downward trend in the fiscal burden of government during the Obama years.
This doesn’t necessarily mean, to be sure, that Obama deserves credit. Maybe the recent spending restraint in Washington is because of what’s happened in Congress.
I’ve repeatedly argued, for instance, that sequestration was a great victory over the special interests. And Obama vociferously opposed those automatic budget cuts, even to the point of making himself a laughingstock.
But don’t forget that TARP-type expenses can mask important underlying trends. So now let’s look at the numbers that I think are most illuminating. Here’s the data for average inflation-adjusted growth of primary spending minus bailouts.
As you can see, Obama no longer is in first place. But he’s jumped to third place in this category, which is an improvement over prior years and puts him ahead of every Republican other than Reagan. Given that all those other GOPers were statists, that’s not saying much, but it does highlight that party labels don’t mean much.
My Republican friends are probably getting irritated, so I’ll share one last set of numbers that may make them happy.
I cranked the numbers for average spending growth, but subtracted interest payments, bailouts, and defense outlays. What’s left is domestic spending, and here are the rankings based on those numbers:
Reagan easily did the best job of restraining overall domestic discretionary and entitlement outlays. Bill Clinton came in second place, showing that Democrats can preside over reasonably good results. And Richard Nixon came in last place, showing that Republicans can preside over horrible numbers.
Obama, meanwhile, winds up in the middle of the pack. Which is probably very disappointing for the president since he wanted to be a transformational figure who pushed the nation to the left, in the same way that Reagan was a transformational figure who pushed the nation to the right.
K. William Watson
Dip maker Sabra claims that its competitors’ hummus is not “hummus-y” enough. To help consumers tricked by this horrible deception, Sabra has petitioned the Food and Drug Administration to regulate the definition of hummus. That definition just happens to coincide with the products that Sabra already sells.
I’m not an expert on hummus or the hummus business, but my guess is that many people like the idea of eating hummus more than they like the taste of traditional hummus. The result has been a proliferation of dips that contain some of the characteristics of hummus but otherwise appeal more to American tastes (such as Red Lentil Chipotle Hummus with Poblano Pepper & Corn Topping). Sabra wants the government to mandate what portion of a dip’s ingredients must be traditional hummus ingredients before a company can market that dip as hummus.
These development in the hummus industry are eerily reminiscent of recent attempts by the U.S. olive oil industry to “protect” consumers from its European competitors. The U.S. manufacturers have been trying to portray Italian olive oil as tainted and inherently untrustworthy. The U.S. firms want the federal government to impose new labeling and testing requirements on olive oil that would insulate the U.S. market and benefit domestic producers, who currently hold less than 2% of market share.
Last year, Sallie James and I wrote a Cato policy analysis identifying some red flags that can help us identify protectionist regulations. Two of the most obvious ones are industry support of the proposed regulation and lack of a plausible theory of market failure. Basically, if a firm is asking the government to make the firm better serve its own customers for their own good, don’t believe it. The firm is looking for something else—probably to disadvantage its competition.
One of the best ways to get the government to stifle your competition is to frame your anticompetitive policy preference as advancing some altruistic public cause. The altruistic cause in the hummus case seems to be protection from tasty dips that are not made by Sabra.
Tim Cavanaugh at National Review astutely points out that Sabra, which is owned by PepsiCo and is by far the largest provider of retail hummus, is much more capable of dealing with the compliance burdens of FDA regulation than its competitors. He notes, “The claim that getting the FDA involved will promote a ‘spirit of fairness’ is a crock. And the crock is not filled with hummus.”
Hopefully, Sabra will decide to dedicate itself to making and marketing competitive products–something it apparently does well–and stop trying to regulate away its competitors.
Two years ago, a thorough, bipartisan Senate report concluded that the federally subsidized information-sharing hubs known as “fusion centers,” long billed as a “centerpiece of our counterterrorism strategy,” were in fact an expensive boondoggle. Despite being funded by the Department of Homeland Security to the tune of hundreds of millions of dollars over a decade, the centers produced no useful counterterror intelligence and often focused instead on local law enforcement matters unrelated to any legitimate national security purpose.
Confirming that judgment, the New York Times has obtained documents showing how numerous regional fusion centers circulated “threat analysis” reports related to the Occupy Wall Street movement. As the Times reports, many centers circulated memoranda “sometimes describing arrests or disruptive tactics, but often listing apparently lawful, even routine activities” including campus lectures on grassroots organizing and classes on “yoga, faith & spirituality.” One example of intelligence sharing: Officials in Boston apprised the Washington, D.C. fusion center that 15 protesters were headed for the nation’s capital via bus, though reassured them that none of the activists were “known to be troublemakers.” Other reports consisted of little more than searches for “Occupy” copied and pasted from Twitter.
To be clear: There’s nothing inherently illegitimate about a local police department keeping tabs on large upcoming public gatherings–including protests–for prosaic reasons of public safety and traffic management (though it is hard to think of a legitimate reason for them to take official notice of specific individuals speaking on political topics). What’s absurd is that the federal government is throwing “homeland security” funds at institutions that, having proven hilariously incapable of making any contribution to counterterror efforts, instead busy themselves trawling Google for information about political rallies.
Setting up local law enforecement officials to play “intelligence analyst” in a toy spy agency is, as these documents show, a recipe for the very creepiest sort of mission creep—with databases of peaceful political activities classed as “potential threats.” But even leaving aside any concerns about First Amendment–chilling effects, there’s simply no reason for the federal government to be footing any of the bill for local police functions. If, as it seems, fusion centers serve no real homeland security purpose, let’s shut them down and assume municipal cops are perfectly capable of carrying out traditional crowd control functions without help from Washington.
For as long as I can remember, conservatives have been bemoaning “moral decline” in America. The reality may be different, as I’ve noted before. And now comes P. J. O’Rourke with a similar reflection. P. J., who has moved from editing an underground newspaper in the ’60s to writing for conservative magazines to cultivating a reputation as a curmudgeon, has a new book titled The Baby Boom: How It Got That Way (And It Wasn’t My Fault) (And I’ll Never Do It Again).
Talking with P. J. about the book, Will Pavia of the Times of London notes (gated page):
I’m not sure [the baby boomers were] better or worse than the current crop of American teenagers, to judge from some of the things they post on YouTube. O’Rourke disagrees. “I would say there has been a considerable improvement in public morality. It’s probably been going on since the anti-slavery movement at the beginning of the 19th century.” He gives the example of his own son, Cliff.
“Admittedly, he goes to a little private day school. You know, a gentle place. I don’t think he’s ever been in a fight nor shown any desire to be. Nor have I seen his friends get in fights; it’s not just him. It’s definitely a less violent world, a more tolerant world.”
Less violence and more tolerance is a pretty good slice of morality. Steven Pinker, author of The Better Angels of Our Nature: Why Violence Has Declined, backs up O’Rourke’s intuition in the New York Times:
It’s easy to focus on the idiocies of the present and forget those of the past. But a century ago our greatest writers extolled the beauty and holiness of war. Heroes like Theodore Roosevelt, Winston Churchill and Woodrow Wilson avowed racist beliefs that today would make people’s flesh crawl. Women were barred from juries in rape trials because supposedly they would be embarrassed by the testimony. Homosexuality was a felony. At various times, contraception, anesthesia, vaccination, life insurance and blood transfusion were considered immoral.
TransForm, a smart-growth group in Oakland, has analyzed California’s household travel survey data and made what it thinks is an important discovery: poor people drive less than rich people. Moreover, poor people especially drive less than rich people if the poor live in a high-density development served by frequent transit (that is, a transit-oriented development or TOD).
According to TransForm’s report, poor households who live in TODs drive only half as much as poor households who live away from TODs, while rich households who live in TODs drive about two-thirds as much as rich households who don’t live near TODs (see figure 1 on page 7).
Based on this, TransForm proposes that California build lots of “affordable housing” in the TODs, then herd encourage poor people to live in the TODs. Apparently, TransForm’s thinking is that moving poor people into TODs will have the greatest effect on driving, energy consumption, and greenhouse gas emissions. Putting “more affordable homes near transit … would be a powerful and durable GHG reduction strategy,” says TransForm (emphasis in the original).
Unfortunately, TransForm’s proposal is grounded on a seriously flawed analysis and morally questionable reasoning. First, TransForm has committed a simple arithmetic error when it concludes that the best greenhouse-gas reduction strategy would be to focus on low-income people. Though the data show rich people in TODs drive only a third less than rich people away from TODs, the rich drive so much more than the poor that the greatest impact would come from herding the rich into the TODs.
According to TransForm’s data, poor households in TODs drive about 21 fewer miles per day than poor households away from TODs. But rich people in TODs drive 29 miles less than rich people away from TODs. Thus, if you believe TransForm’s numbers, the best greenhouse-gas reduction strategy would be to coerce encourage rich people to live in TODs.
However, I don’t believe TransForm’s numbers because TransForm has made the classic error of ignoring self-selection. That is, people of all incomes who want to drive less are more likely to live in TOD-like places, while people who want to drive more are more likely to live away from TOD-like places (which are typically the most congested and least auto-friendly).
Note that all of TransForm’s numbers measure miles of driving and other factors per household, not per person. Households in TODs tend to have no children, while households with children are far more likely to live away from TODs. It’s a mistake to think that, because people who want to drive less tend to live in TODs, getting people who want to drive more to live in TODs will lead them to drive much less than they do. As economist David Brownstone concludes, after taking self-selection into account, the effect of urban form on driving is “too small to be useful” in reducing greenhouse gas emissions.
TransForm’s third error is in failing to calculate the costs of its “powerful and durable GHG reduction strategy.” Developable land in the San Francisco Bay Area is very costly, and land in the city and suburban centers that make up the region’s TODs and potential TODs is the most expensive of all. Buying that land, building housing on it, and selling or renting it at “affordable” prices is going to require huge subsidies. If I believed in the TOD strategy at all, this would be one more reason to focus on the rich, rather than the poor, as any necessary subsidies would be much smaller. But I suspect that even herding the rich into TODs would end up costing thousands of dollars per ton of abated greenhouse gas emissions, while McKinsey & Company says that anything that costs more than about $50 per ton is a waste of money.
Perhaps most embarrassing, TransForm’s herd-the-poor approach to reducing greenhouse gas emissions is condescending (or worse). California’s SB 375, a law promoting TODs, imposed an affordable housing mandate that is supposed to be as strong as its greenhouse-gas-reduction mandate, so TransForm poses this idea as one that will solve both problems. But it really won’t, partly because the state simply can’t afford the billions of dollars in subsidies that would be required to build tens of thousands of “affordable” units of housing in Bay Area TODs.
Poor people are politically weak, so the idea of packing them into cramped apartments isn’t going to have as much pushback as a proposal to coerce the rich to live in TODs. While poor people themselves are politically weak, California low-income housing groups are politically powerful, and they would be only too happy to accept huge state subsidies to build low-income housing in TODs or anywhere else.
The average dwelling unit in a TOD is about half the size of an average dwelling unit in the suburbs. People who are transit-dependent are less than half as mobile as people who have cars. Cramming poor families into dense housing and limiting their mobility is prescription for keeping them poor.
If TransForm wants to advocate a policy that really would make housing affordable, it should demand that Bay Area counties abandon the urban-growth boundaries that have confined 98 percent of the people in the region to just 17 percent of the land. And if TransForm really wants to target carbon emissions, it should focus on making housing and cars more energy efficient, which is a far more efficient strategy of reducing carbon emissions than trying to get people to live in apartments and take transit.
Instead, TransForm promotes the “pack-‘em-and-stack-‘em” strategy that has obsessed urban planners for the last three or four decades. We know this strategy doesn’t work: between 1980 and 2012, the population density of the San Francisco–Oakland–San Jose urban areas grew by 55 percent, yet per capita transit ridership fell by a third and per capita driving grew by 5 percent.
Aside from the fact that this strategy doesn’t work, its moral problems seem to go right past the “progressives” who support it. It’s like a movie in which poorly educated villagers are ready to riot about some frightening event, when someone—probably the perpetrator—points at a persecuted minority and yells, “They’re the ones who did it—get ‘em!”
Sadly, the California politicians who passed SB 375 are all too likely to fall for this line of thinking.
A small measles outbreak recently made national news, yet another testament to our progress in eradicating disease. Measles is serious stuff. It leads to hacking cough, a spotty rash, and sometimes, death. The disease is so contagious that it will infect nine out of ten unvaccinated people exposed. The outbreak started when a Christian mission brought the disease back from the Philippines. The infected passed it along to several Americans who refused to get vaccinated or those too young to be vaccinated.
Contagious, deadly diseases like measles were once common, even among the wealthiest. For example, King Louis XIV of France lost his son, grandson, great-grandson, and brother to smallpox. Smallpox used to kill some 400,000 Europeans annually in the late 18th century, and in the 20th century alone, it claimed hundreds of millions of lives across the globe.
Now, these diseases are rare and cause far fewer deaths:
In this recent measles outbreak, only 68 people were infected. Despite the low number, that constitutes an 18-year high of measles infections in the United States. And that number may have been lower if doctors hadn’t misdiagnosed their patients, which occurred because the disease is so unusual nowadays. This is all good news. That such a small outbreak makes national news and constitutes an 18-year high is a testament to the human progress we have made in eradicating disease.
Ted Galen Carpenter
Prominent foreign policy practitioners in both political parties now denounce the notion that we should expect major countries in the international system to establish and defend spheres of influence in their immediate neighborhoods. Condoleezza Rice, George W. Bush’s secretary of state, made that point explicitly in response to Moscow’s 2008 military intervention in Georgia. She scorned the notion of Russian primacy along the perimeter of the Russian Federation as the manifestation of “some archaic sphere of influence.” Secretary of State John Kerry embraces similar views. In November 2013, he even declared that “the era of the Monroe Doctrine is over,” thus rhetorically renouncing a U.S. foreign policy staple that is nearly two centuries old. Following Russia’s annexation of Crimea, Kerry asserted that “you don’t in the twenty-first century behave in nineteenth century fashion” by invading a neighbor.
As I argue in a recent article in Aspenia Online, that attitude is both unrealistic and hypocritical. While geographic factors are not as important to national security as they once were, they are far from being irrelevant. Barging into the neighborhood of another major power is still going to be viewed as a menacing act, regardless of any reassurances that the intruding country might give.
Moreover, the current U.S. position is more than a little hypocritical. Washington has firmly resisted Russia’s attempt to re-establish even a limited sphere of influence in Eastern Europe or Central Asia. Likewise, the United States has rebuffed China’s bid to establish a dominant role in the South China Sea. Yet Washington has intervened militarily as recently as the 1980s (Grenada and Panama) or even the 1990s (Haiti) within its traditional sphere of influence in the Western Hemisphere. U.S. leaders also have looked on benignly as a key ally, France, has repeatedly intervened in its former colonial holdings in Africa. Washington’s highly selective opposition to spheres of influence threatens to damage relations with Moscow, Beijing, and other capitals.
The United States and its allies need to adopt a more realistic and accommodating policy. Whether U.S. policymakers wish to acknowledge it or not, spheres of influence still play a important role in international affairs, and will continue to do so in the coming decades.
Instead of attempting to defy that reality, U.S. leaders should focus on getting major powers to exercise more subtlety in managing their spheres of influence. That goal at least has a reasonable prospect of being achieved. Such an approach might not fulfill idealistic aspirations regarding international behavior, but it would be a workable arrangement to minimize great power tensions. The current U.S. stance is doing the opposite.
In the months and years after the 9/11 disaster, federal policymakers did what they usually do after crises: they increased spending and seized more power. At the Bush administration’s urging, Congress created the Department of Homeland Security in 2002 as a complex amalgamation of 22 different federal agencies.
President Bush promised that DHS would “improve efficiency without growing government,” while creating “future savings achieved through the elimination of redundancies inherent in the current structure.” The DHS would promote “operational efficiencies,” “better asset utilization,” “targeted, effective programs,” etc, etc.
It did not turn out that way. Bush’s promise of creating a lean, efficient DHS was just empty rhetoric. DHS’s budget tripled from $18 billion in 2002 to $57 billion by 2013 (Table 4.1). The DHS workforce expanded from a huge 163,000 employees in 2004 to an even larger 193,000 by 2013.
A small bit of good news is that taxpayers may be spared the costs of a planned DHS Taj Mahal. From the Washington Post yesterday:
The construction of a massive new headquarters for the Department of Homeland Security, billed as critical for national security and the revitalization of Southeast Washington, is running more than $1.5 billion over budget, is 11 years behind schedule and may never be completed, according to planning documents and federal officials.
It looks like gridlock was the taxpayers’ benefactor in this case:
…the capital region’s largest planned construction project since the Pentagon — has become a monumental example of Washington inefficiency and drift. Bedeviled by partisan brawling, it has been starved of funds by both Republicans and Democrats.
Bigness and centralization rarely lead to quality and efficiency in government. So let’s hope that this Bush-era project is laid to rest and that policymakers start focusing on those “future savings” that we were promised.
Now that forest fires are in the news, someone noticed that President Obama has proposed a new way of funding wild firefighting. Instead of borrowing from its fuels treatment funds when the Forest Service exhausts its regular fire-fighting budget, Obama wants to let the agency draw upon a new “special disaster account” that is “adjusted each year to reflect the 10-year average cost of responding to such events.”
Treating excessive firefighting costs by giving the Forest Service more money makes as much sense as attempting to suppress forest fires by throwing gasoline on them. In case you don’t hear the sarcasm, it makes no sense at all.
Obama is focusing on the wrong problem, the drawdown of funds intended for fuel treatments. The real problem is the incentives the Forest Service has to spend wildly on firefighting.
As far as I know, no democracy has given any government agency a blank check to accomplish any goal–except the Forest Service for fighting fires. Even the Pentagon was given budgets for fighting World War II, the Cold War, and other wars. But in 1908, Congress gave the Forest Service a blank check for firefighting, saying the agency could spend as much as it needed to suppress fires, and Congress would reimburse it later.
Congress repealed the blank-check law in about 1978, leading to eight years of relatively modest spending on firefighting. But after two serious fire seasons in 1987 and 1988, Congress reimbursed the agency’s firefighting debts, and since then it has muddled about, not knowing what to do. Obama’s new proposal puts the agency firmly back in the blank-check mode.
The president has underscored his support for excessive spending by allowing the Forest Service to buy four new air tankers, including a DC-10. The agency already had access to a DC-10, but rarely used it because it wasn’t cost-effective. Now it will have two white elephants on its hands.
Contrary to popular belief, firefighting has not grown more expensive because of anthropogenic climate change. The nation actually suffered worse droughts in the 1930s than in the last decade, and there is no evidence, in the forests at least, that recent fires are due to anything but cyclical climate changes.
Nor are costs high because of new houses in the woods, or wildland-urban interface as fire people call it. Protecting these homes only requires treatment, either in advance of the fire through landscaping and home design or as fires approach through application of fire retardant, of the homes themselves and land within 150 feet of the homes. Anything the Forest Service does beyond that 150 feet is neither necessary nor sufficient to protect homes that are themselves untreated.
Instead, lots of acres burn because the Forest Service now places firefighters well behind the fire lines and has them back burn everything between them and the fire lines. In some fires, close to half the acres burned are back burns.
Meanwhile, costs are high because the Forest Service knows it has what amounts to a blank check, so it makes no effort to save money. As I explain in this Cato paper, the only solution is to “divorce the agency from Congress’s blank check.” One way to do this might be to have national forests join state fire protection districts by paying an annual per-acre fee, and then letting the states worry about fire fighting. They would have much stronger incentives to control fire at the lowest, rather than the highest, possible cost.
The president’s concern that the Forest Service might hamper its fire prevention efforts by having to borrow from those funds to suppress fires is touching but needless. As shown by previous fires, Congress could fully fund fire prevention and fuel treatment programs for years without reducing the number of homes destroyed by fire each year. In fact, Congress is so willing to do anything to protect homes that the Forest Service practically depends on a few houses burning down each year to keep the money flowing.
The Forest Service should educate homeowners about what they need to do to defend their homes from fire. Beyond that, what people actually do is between them and their insurance companies, which for too long have indirectly relied on the blank check to keep their costs down. Getting firefighting decisions out of the hands of federal agencies may be the only way to let this happen.
I know, not exactly a shocking revelation! Nevertheless, here’s an article from today’s Washington Post:
With much of the focus on Obamacare now on how much individual premiums could increase next year, a new analysis suggests there’s one way to keep them in check — more competition. That’s the conclusion of a new report from economists Leemore Dafny, Christopher Ody and Obamacare architect Jonathan Gruber.
If every insurer that had sold individual policies in 2011 participated in Affordable Care Act insurance marketplaces this past year, average premiums for a benchmark exchange health plan would have been 11.1 percent lower in 2014, the economists found.
Big insurance companies generally took a cautious approach to the new exchanges in 2014, limiting their participation in the health-care law’s first year amid concerns about too many sick patients signing up for coverage. The Affordable Care Act exchanges were created as a way for people to buy their own insurance if they couldn’t find affordable options elsewhere, like through an employer.
The Affordable Care Act exchanges are supposed to fuel competition in the individual market, which hasn’t traditionally been all that competitive. Before the health-care law, a single insurer covered more than half of the individual market in 30 states, according to the Robert Wood Johnson Foundation.
A point I’ve been trying to make for a while is that there is a large untapped source of competition out there which could help lower prices: foreign insurance companies. With or without ObamaCare, American consumers would be better off with more companies in the market, and the nationality of those companies does not matter. Unfortunately, my sense is that foreign companies are not all that interested in entering the U.S. health insurance market. Maybe it’s too daunting a prospect (it’s a highly regulated market), or maybe they just haven’t thought of it. In case it’s the latter, I’m going to keep putting the idea out there, in the hopes that it reaches the right person.
The Center for Immigration Studies (CIS) released a new report claiming that there is no STEM worker “shortage”* after looking at the small wage gains in STEM occupations since 2000. CIS has a history of using poor methodology and data in their reports (see here, here, here, and here), but assuming that they did everything correctly this time, their results don’t tell us much for two reasons.
First, they don’t compare wage changes for STEM occupations with all other occupations.
Total real (2012 dollars) median annual wage growth for each of the three big STEM occupations was higher than for the median for all occupations from 2001 to 2012. Real wages for computer occupations grew by 2.05 percent, real wages for architecture and engineering occupations grew by 5.77 percent, and real wages for science occupations grew by 3.55 percent. Those gains look low until you realize that real wages for all occupations actually decreased by 0.94 percent. Compared to all occupations, wages for STEM occupations grew while attracting large numbers of immigrants.
Source: Occupational Employment Statistics, Bureau of Labor Statistics. http://www.bls.gov/oes/tables.htm.
Second, the CIS study ignores the dynamic economic effect of halting STEM immigration or what stopping STEM immigration years ago would have done to the economy. The dynamic (general equilibrium) effects of kicking out STEM immigrants or halting their flow would be to shrink the economy and diminish wage, employment, productivity, and economic growth.
*CIS and others use the word “shortage” incorrectly.
Former Treasury Secretary Larry Summers’ review of Thomas Piketty’s Capital in The Twenty-First Century, claims that Mr. Piketty and Emmanuel Saez have documented, “absolutely conclusively, that the share of income and wealth going to those at the very top—the top 1 percent, .1 percent, and .01 percent of the population—has risen sharply over the last generation, marking a return to a pattern that prevailed before World War I.” That statement is false.
Paul Krugman’s review “Why We’re in a New Gilded Age,” claims that “since 1980 the one percent has seen its income share surge again—and in the United States it’s back to what it was a century ago.” That statement is false.
A Pew Research Center report on the same data was titled, “U.S. income inequality, on rise for decades, is now the highest since 1928.” That too is false.
First of all, the Piketty and Saez estimates do not show top 1 percent income shares nearly as high as those of 1916 or 1928 once we use the same measure of total income for both prewar and postwar data.
Second, contrary to Summers, there is no data from Piketty, Saez or anyone else showing that the top 1 percent’s share of wealth “has risen sharply [if at all] over the last generation” – much less exhibited a “return to a pattern that prevailed before World War I.”
Dealing first with income, it is interesting that the first graph in Piketty’s book is about the top 10 percent – not the top 1 percent. Saez likewise writes that “the top decile income share in 2012 is equal to 50.4%, the highest ever since 1917 when the series start.” That is why President Obama said, “The top 10 percent no longer takes in one-third of our [sic] income – it now takes half.” A two-earner New York City family of six with a pretax income of only $110,000 would be in this top 10 percent, and they are certainly not taking “our” income. Regardless whether we examine the Top 10 percent or Top 1 percent, however, it is absolutely dishonest to compare the postwar estimates with prewar estimates.
The Piketty and Saez prewar estimates express top incomes as a share of Personal Income, after subtracting 20% to account for tax avoidance. Postwar estimates, by contrast, express top incomes as a share of only that fraction of income that happens to be reported on individual income tax returns – rather than being unreported, in tax-free savings or assets, or sheltered as retained corporate earnings.
Transfer payments are not counted as income in either series (as though federal cash and benefits were worthless); this distinction is inconsequential for the prewar figures but increasingly important lately. “Total income” as Piketty and Saez define it accounted for just 61.8 percent of personal income in 2012, down from 67 percent in 2000.
The line in my graph shows the top 1 percent’s share of income as reported by Piketty and Saez. The bars below the line restate top 1 percent shares on a the same consistent basis for all years since 1929 (the earliest available) as a share of what we’ll call “modified personal income” (MPI) – PI minus 20%. Measured on such a comparable basis, the Top 1% share was still 18.2% in 1929 but only 13.2% in 2011.
The 11-13 percent income shares of the top 1 percent since 1988 are not remotely close to the 18.6% Piketty-Saez estimate for 1916 or the record 19.6 percent estimate for 1928. The top 1 percent’s share of MPI did jump to 14.9% in 2012, but that was a fluke. As Saez explained, “part of the surge of top 1% incomes in 2012 could be due to income retiming to take advantage of the lower top tax rates in 2012 relative to 2013 and after… . Retiming of income should produce a dip in top reported incomes in 2013.”
Using modified personal income as the base for both prewar and postwar income shares, the Top 1% share clearly spiked upward after the 1986 Tax Reform, and then fluctuated cyclically between 11 and 13 percent from 1988 to 2011, averaging 12.3 percent.
The fact that few high incomes were reported on individual tax returns from 1932 to 1980 – when top tax rates were 63-91 percent – is entirely consistent with the evidence on “elasticity of taxable income.” [$] It should be no surprise that much more income was reported [$] on individual tax returns when tax rates on high salaries and unincorporated businesses dropped to 28 percent in 1988, or when tax rates on dividends and capital gains fell to 15 percent in 2003. That is exactly what the evidence should lead us to expect.
As Piketty, Saez and Stantcheva explain, “There is a clear negative overall correlation between the top 1% income share and the top marginal tax rate: (a) the top 1% income share was high before the Great Depression when top tax rates were low (except for a short period from 1917 to 1922), (b) the top 1% income share was consistently low between 1932 to 1980 when the top tax rate was uniformly high, (c) the top 1% income share has increased significantly since 1980 after the top tax rate has been greatly lowered. This … suggests that the overall elasticity of reported incomes is high.”
In other words, if top tax rates had not been prohitively high in 1917-22 and 1932-1980 the top 1 percent would have earned and reported much more income and paid more taxes. If tax rates had not been greatly reduced in 1983, 1988 and 2003, the top 1 percent would now be reporting much less income and paying fewer taxes.
What about Wealth – the defining topic of Piketty’s book? Summers conflates wealth and income – claiming Piketty and Saez have shown “absolutely conclusively, that the share of income and wealth [emphasis added] going to those at the very top … has risen sharply over the last generation.” On the contrary, a 2004 paper by Saez and Wojciech Kopczuk found the top one percent’s share of wealth was 38.1% in 1916, 40.29% in 1930, 25.25% in 1960 and 20.79% in 2000.
As they explained, “Top wealth shares … are much lower today than in the pre–Great Depression era… . Findings from the Survey of Consumer Finances … also display hardly any significant growth in wealth concentration since 1995… . Our composition series suggest that by 2000, the top one percent wealth holders do not hold a significantly larger fraction of their wealth in the form of stocks than the average person in the U.S. economy, explaining in part why the bull stock market of the late 1990s has not disproportionately benefited the rich.”
Those who claim the top one percent’s share of total income is now as high as it was in 1916 or 1928 have been deceived by the fact that Piketty and Saez patched together two time series based on different measures of total income. Those who claim the top 1 percent’s share of wealth is now as high as it was in 1916 or 1928 are seriously misinformed or lying.
The calendar of saints sets aside this day, May 20, as the feast of St. Bernardine of Siena, famous across Renaissance Italy for his impassioned sermons against what he saw as the luxury, vice and corruption of his times, especially usury (the lending of money at interest). While opposition to usury has faded in the West – we now recognize interest-charging as a foundation stone of capitalism and modern economics generally – Bernardine is still invoked on behalf of such causes as relief from respiratory ailments, help for compulsive gamblers, the welfare of the California city of San Bernardino, and, of interest here, the fields of advertising and public relations. The scope of public relations is often taken to include lobbying, and it’s as a forerunner of modern lobbyists that Bernardine appears in a tale, fanciful or otherwise, told a century ago:
A comic incident throwing light upon Bernardine’s attitude toward usurers is reported in an old chronicle. While preaching at Milan, he was often visited by a merchant who urged our saint to inveigh so strenuously against usury as to render it obnoxious in the eyes of all. On making inquiries, however, the latter ascertained his visitor to be himself the greatest usurer of the place, whose action in this matter was prompted by a wish to lessen the number of his competitors by inspiring them with a wholesome horror of the trade.
Our own era, as we know, is one in which moralistic attacks on gambling have been secretly backed by nearby casino proprietors who don’t want the competition, in which “the estate-planning industry [has lobbied] hard against a [reduced federal] estate tax, which would kill its costly tax-avoidance schemes,” and in which various energy producers quietly assist environmental and NIMBY resistance to projects advancing competing sources of energy. My colleague Chris Edwards has compiled many more examples. You have to wonder whether much has really changed since Bernardine’s time.
Over at See Thru Edu, I’ve got a post weighing in on the plague of college graduation speech controversies, asking why taxpayers should have to subsidize any college speech. A taste:
As a basic matter of free-speech principle and logic, everyone, left or right, should object to subsidizing higher ed. Why? Perhaps Smith president Kathleen McCartney, as quoted by faculty members concerned about the action against Christine Lagarde, captured the reason best: “An invitation to speak at a commencement is not an endorsement of all views or policies of an individual or the institution she or he leads. Such a test would preclude virtually anyone in public office or position of influence. Moreover, such a test would seem anathema to our core values of free thought and diversity of opinion.”
Check out the rest right here!
Marian L. Tupy
Today marks 141 years since the U.S. government issued Levi Strauss & Co. a patent for the first blue jeans. Back in 1873, the jeans cost $13.10, which would be $251.18 in 2013 dollars.
If you go on Levi’s website today, you will be able to purchase their original-model 501 jeans for $68 and the Levi corporation will ship your new purchase anywhere in the United States for free.
That’s a 73 percent reduction in real price. That’s capitalism. That’s progress.
You can find more on prices over time at www.humanprogress.org.
Daniel J. IkensonThe Washington Post reported this morning that the U.S. government is “charging members of the Chinese military with conducting economic cyber-espionage against American companies.” According to the story, Attorney General Eric Holder will “announce a criminal indictment in a national security case,” naming members of the People’s Liberation Army. If you will recall, cyber-security, cyber-espionage, and cyber-theft of trade secrets and other intellectual property belonging to American businesses started becoming prominent sources of friction in the U.S.-China relationship about 18 months ago before suddenly dropping off the front pages 11 months ago to make way for revelations of domestic spying by the U.S. National Security Agency. Somehow, the notion that Chinese government-sponsored cyber-theft broached a red line lost some of its luster after Americans learned what Edward Snowden had to share about their own government. But today the issue of Chinese cyber-transgression is back on the front pages. Never before – according to the Washington Post – has the U.S. government leveled such criminal charges against a foreign government. The U.S. rhetoric has been heated and, just this afternoon, the Chinese government responded by characterizing the claims as “ungrounded,” “absurd,” “a pure fabrication,” and “hypocritical.” While the U.S. allegations may be true, given well-publicized U.S. cyber-intrusions, it isn’t too difficult to agree with the “hypocritical” characterization either. Perhaps that’s why the U.S. government is attempting to distinguish between cyber-espionage, which is conducted by states to discern the intentions of other governments – and is, from the U.S. perspective, fair play – from “economic” cyber-espionage, which is perpetrated by states or other actors against private businesses and is, from the U.S. perspective, completely unacceptable. It’s not too difficult to understand why the United States has adopted that bifurcated position. The Washington Post quotes a U.S. government estimate of annual losses due to economic cyber espionage at $24-$120 billion. That is an enormous amount of loss. But the figure is impossible to verify since just about all the information from which it derives is classified. Even if it were verifiable, who is to blame for such loss? The Chinese government may be complicit and, if so, should be asked to make amends. Chinese companies or individuals may be guilty and, if so, should be prosecuted for violating specific laws. But let’s not let the victims off the hook so easily. Under the doctrine of “fool me once shame on you, fool me twice shame on me,” how is it possible for profit-maximizing U.S. companies to be so reckless and cavalier about protecting their assets, especially when these alleged losses accrued over a period of time? Theft – including intellectual property theft – is a fact of life, and it is the responsibility of property owners to do their parts to reduce the incidence of theft. If that means incurring greater private costs to make illegal downloading or duplication more difficult, so be it. If it means investing in extra cybersecurity measures to protect trade secrets, do it. If it means taking executive communications off the main server and onto a dedicated, impenetrable network without access to the internet, c’est la vie. The primary beneficiaries of intellectual property are its owners. Companies owning patents, copyrights, and trade secrets – not the taxpaying public – benefit financially from the use of that intellectual property. Why, then, should the taxpaying public – instead of the direct beneficiaries of intellectual property – be called upon to flip the bill when it comes to enforcing intellectual property rights? Perhaps, you may think, I’m getting ahead of myself. How has the taxpaying public been asked to flip the bill, you wonder? Well, before these bilateral cyber-tensions were defused temporarily by the NSA revelations, it looked like cyber-espionage would become the single most important issue in the U.S.-China trade and economic relationship for the foreseeable future. U.S. congressional committees and executive agencies were effectively blacklisting Chinese telecom companies, and legislation was passed into law forbidding U.S. agencies from purchasing Chinese information technology systems. Those actions might have merited a Chinese challenge at the World Trade Organization on the grounds that the United States was violating its market access commitments. However, WTO members are permitted under Article XXI of the General Agreement on Tariffs and Trade to act in accordance with their own national security interests, even if that means suspending tariffs and other market access concessions. To demonstrate that banning Chinese IT products was a matter of national security – which the United States might be compelled to do if there were a WTO case – the United States might want to point to other efforts it has made to dissuade Chinese actions that threaten U.S. national security. So that brings us to the criminal case brought today by the Justice Department. It’s tough to imagine that lodging today’s complaint will do much more than build a case record that the United States is taking measured steps to address a perceived problem, which would ultimately make the case for banning Chinese imports of telecom products more defensible from a WTO perspective. That’s where the cost of enforcement is socialized. In this atmosphere of distrust, where allegations based on classified or other unverifiable information have to suffice for the closest thing to the truth, only blanket solutions that curtail Americans’ economic freedoms, such as trade and investment restrictions, can prevail. That outcome subsidizes IP holders and benefits U.S. companies that will fare better in the absence of Chinese competition. We need to find a more reasonable solution than this. It should start with our insistence that companies do a better job of protecting their own interests.
Peter Van Doren
On May 15 the FCC announced a proposed rule that would govern the relationship between content providers and internet service providers. Consumer groups argued the proposed rule was not strong enough because it did not ban differential arrangements between them.
The underlying economic issues are several. Should the government concern itself with the relationship between the “creators” of things and the “transporters” of them? In particular should economic profits go just to the creators of things? Is it “wrong” for the transporters to extract some as well? What if a creator of content and a transporter want to vertically integrate or enter into a long-term contract to end the costly dispute between them over the division of any economic profits? Should such arrangements be forbidden because of the possibility such an entity would refuse to transport the content of a different creator?
These issues are not new. In fact they first arose between railroads and the creators of “content” i.e. farmers, mines, steel mills etc. in the 19th century. The political resolution of these issues was the Interstate Commerce Act of 1887. It took about one hundred years for the experiment in transportation common carrier rate regulation to end. Scholars have concluded that rate regulation raised rather than lowered transportation prices. And the public has come to the same conclusion because in the quarter century since the end of transportation rate regulation, prices have decreased dramatically. For a discussion of the rise and fall of transportation regulation see this article by Thomas Gale Moore.
In “Antecedents to Net Neutrality” Bruce Owen explicitly makes the link between the concerns of traditional transportation common carrier regulation and the contemporary notion of “Internet neutrality.” Net neutrality policies could be implemented only through detailed price regulation, an approach that failed to improve consumer welfare in the transportation sector. History thus counsels against adoption of most versions of net neutrality. Christopher Yoo has written a detailed history of how difficult common carriage regulation was to implement in traditional telecommunications regulation. A shorter version will appear in the summer issue of Regulation.
The public debate over net neutrality also does not reflect the increased variation in the price and quality of its services that already exists. Innovations such as private peering, multihoming, secondary peering, server farms, and content delivery networks have caused the Internet’s traditional one-size-fits-all architecture to be replaced by one that is more heterogeneous. Related, network providers have begun to employ an increasingly varied array of business arrangements and pricing. These changes reflect network providers’ attempts to reduce cost, manage congestion, and maintain quality of service. Policy proposals to constrain this variation risk harming these beneficial developments.