Monday, January 9, 2017

Labor-market growth turns negative, with many coincidences

Below is an index of hours worked per person, which reflects both the amount of employment and the number of hours that employees work up through Dec 2016. It shot up when the Emergency Unemployment Assistance program was finally canceled. Its growth was especially slow when the new health care law began to penalize employers. Over the most recent twelve months, the trend is (infinitesimally) negative.

Sunday, January 8, 2017

Getting rid of ACA subsidies is easy, politically and economically

The conventional wisdom is that creating a subsidy program creates a sense of entitlement that, via political pressures, prevents it from being phased out later. This wisdom applies, perhaps, to a number of federal programs.

But the Affordable Care Act's premium assistance subsidies (technically, they are "tax credits" administered with the personal income tax) are different because, unlike beneficiaries of Social Security, Food Stamps, and so many others, a recipient of a premium assistance subsidy must also pay SOME OF HIS OWN MONEY. Many of them are doing so because of the individual mandate, which could be eliminated with little political cost. With the individual mandate gone, these people would voluntarily forgo their subsidy in order to keep their own money.

A few states have already seen something like this with their Medicaid program -- asking program participants to pay a small part of the overall cost -- and many participants voluntarily exited.

In addition, the rules setting minimum benefits could be eliminated. Some of those previously receiving subsidies would rather get a plan with fewer benefits but also requiring less of their own money (I wrote about them in my book). They too would voluntarily exit the ACA's premium assistance program.

Yet another step would be to cap the subsidy at the DOLLAR AMOUNT that persons with the same income and same state of residence were ACTUALLY RECEIVING during the Obama administration. The amount that the recipient would have to pay out of pocket would be the difference between the premium and that dollar amount. As premiums inevitably rise over time, that amount increases and participants would continue to voluntarily exit the program, never to return.

(A more dramatic version of this would be to cap the subsidy at the dollar amount that the SAME PERSON ACTUALLY RECEIVED during the Obama administration).

Presumably, exit from the subsidy program would not be random -- those whose participation had been more costly to the insurance plan would differentially remain in the program. As they did so, premiums would further rise above what they would have been with the ACA intact, which would further increase what participants have to pay out of pocket, and thereby further encourage voluntary exit.

Approaches like this not only make political sense, they make economic sense. Why should the American taxpayer pay, say, $200/month for a person's insurance coverage when that person himself is unwilling to pay $50/month for it? The answer: the primary beneficiaries of the subsidies are health providers (more paying demand for what they sell) and high-income Democrats (feel good when the official statistics say that coverage rates are high), and it need not be not politically unpopular to take away what is effectively a subsidy to health providers and high-income Democrats yet advertized as something else.

As with many things about the ACA, the conventional wisdom is wrong.

Thursday, December 22, 2016

Popular vote count: directions of causality

I live in Illinois, where it was well-known that Mrs. Clinton's votes would far outnumber Mr. Trump's.

This fall, I did not see any Trump-for-president ads on local TV or in local newspapers. Perhaps the absence of Trump ads was to be expected, because the Trump campaign saw no electoral-vote gain by advertising here.

But I saw MANY Clinton-for-president ads. If Trump ads would not affect electoral votes, then why would Clinton ads?

One could argue, even without the benefit of hindsight, that the Clinton campaign was wasting ad dollars in Illinois. But my view is that Clinton did expect non-Illinois electoral votes from advertising IN Illinois because of the campaign donations that it would induce.

Of course Trump supporters are arguing that Mr. Trump would have won the popular vote, if it were the relevant metric, because he would have campaigned differently.

But my point here is different: that the popular vote is an indicator of campaign style. The Clinton campaign's style was campaign-cash intensive and EVERY state's cash is valuable even in an electoral-college contest. As long as eliciting donations is correlated with eliciting votes, the campaign-cash intensive candidate should be getting a lot of votes in non-swing states.

The Trump-campaign's style was rally intensive. It's more difficult to move, say, an Illinois rally's results to Ohio than it is to take Illinois cash to buy Ohio ads. So it's no surprise that the rally-intensive candidate focused his appearances in the swing states whereas the cash-intensive candidate campaigned more nationally.

Monday, December 12, 2016

New Law Interacts with the ACA

The "21st Century Cures Act" has passed Congress and is presumed to get a signature from President Obama. Among other things, it changes rules for employer healthcare payments and thereby has important interactions with the ACA, especially the degree to which the latter reduces employment and productivity.

But the ACA may not last. So the effects of the 2CCA are largely unknown because they depend on the unknown (if any) replacement of the ACA.

Saturday, November 26, 2016

Cuban education lags

It is probably true that Communist Cuba destroyed its education system less than it destroyed other things.  But if you look on an absolute scale, the average education of the Cuban population has been lagging.

Some of the lag is due to the fact that Communism either killed or drove away comparatively educated people. But if that is masking Castro's success, that's no success!

Update: The Barro-Lee data say that, as of the year 2000, the majority of adults in Cuba had NOT graduated high school.  At the same time, the majority of adults in Puerto Rico HAD graduated high school (Table 5-3 of this book).

Thank you Fidel!

For making Puerto Rico look like paradise.

Journalists today will be making excuses like "Cuba is doing OK compared to developing countries."  They wouldn't dare make those comparisons to parts of the United States, because we ought to expect better.

Thanks to a Communist system, Cuba left the ranks of developED countries.  In contrast, nearby Puerto Rico far outpaced Cuba while the latter was practicing Communism.  In 1950, both were former Spanish colonies and had annual GDP per capita of about $350.  In 2014, Puerto Rican GDP per capita was more than quadruple Cuba’s.  And a number of people escaped Cuba to begin a new life in Puerto Rico, with hardly anyone doing the reverse.

And this chart does not count the fact that, by comparison to Puerto Rico, so much of what a Cuban produces goes to the government rather than the workers.

It is quite irrelevant that there are some African countries doing worse than Cuba.

See also my podcast with Russ Roberts and written observations on Communist Cuba.

Update.  Gross national income takes out some of the "effect" of mainland businesses (arguably Cuba would have enjoyed mainland investment too, if it had taken another path), but is available for fewer years.  The chart below adds those in orange -- bottom line for GNI is 3-4 times rather than 4-5 times.

Saturday, November 5, 2016

The media has been in the bag for Clinton, Obama, and Lincoln too

Even just in my own areas of expertise -- labor markets and health care -- it is easy to see how reporters and editors of "the news" have been promoting Democratic-party policies.  It's not just convenient ignorance about how incentives work.  Many times they know very well but are silent about it for fear of blemishing the narrative, even while proclaiming to their readers that they tell the whole story.

But this is nothing new.  As Harold Holzer found,

Lincoln alternately pampered, battled, and manipulated the three most powerful publishers of the day: Horace Greeley of the New York Tribune, James Gordon Bennett of the New York Herald, and Henry Raymond of the New York Times.

Lincoln authorized the most widespread censorship in the nation’s history, closing down papers that were “disloyal” and even jailing or exiling editors who opposed enlistment or sympathized with secession. The telegraph, the new invention that made instant reporting possible, was moved to the office of Secretary of War Stanton to deny it to unfriendly newsmen.
As long as the government controls significant resources, the consumers of media will want to know what the government is doing, and the government will sell access to that information to "newsmen" in exchange for favorable coverage.

It isn't merely about changing a specific journalist's mind.  It is also about helping those who are already inclined favorable to earn more profits than those inclined otherwise.  Media market entry and exit takes care of the rest.

Friday, November 4, 2016

Slow growth coincident with Obamacare

Below is an index of hours worked per person, which reflects both the amount of employment and the number of hours that employees work up through Oct 2016. It shot up when the Emergency Unemployment Assistance program was finally canceled. Its growth was especially slow when the new health care law began to penalize employers.

These are just coincidences, and more likely have something to do with Russia.

Monday, October 24, 2016

Robert Tollison

Today is a sad day: Robert Tollison passed away at the young age of 74. Here he is on the left:

He published many articles and books ... it is difficult to cite a favorite but I really like Politicians, Legislation, and the Economy.

The Upside-down Economics of Regulated and Otherwise Rigid Prices

Although not always highly visible outside of Communist countries, price regulations apply to a large fraction of economic transactions, even in the United States.  There are, of course, controls on apartment rents and taxi fares in major cities, and minimum wages for low-skill workers.  A number of states regulate interest rates on loans with usury laws and the federal government regulates interest and insurance rates with redlining prohibitions and antidiscrimination rules. Outside the state of Nevada, the price of sex is legislated to be zero.  Basic telephone and cable TV rates are regulated.  Price controls are the norm in the health sector, which by itself is already a sixth of the U.S. economy.  Much modern research on business cycles features “sticky” prices, and the technology sector includes several markets with natural constraints on monetary prices: these are not exactly regulated prices but potentially share many of their economic characteristics.
One view is that price regulations are, in the neighborhood of the unregulated price, more redistributive than they are socially costly even though they reduce the quantity traded. For example, a price ceiling is supposed to create a benefit for buyers that almost offsets the loss it imposes on sellers.  A number of studies have qualified these incidence and efficiency presumptions, noting that in addition to reducing supply, price ceilings may harm consumers by allocating the good to low-value customers (Barzel 1997, Glaeser and Luttmer 2003) or wasting consumer resources through queueing and search costs (Bulow and Klemperer 2012, Deacon and Sonstelie 1985).  But product-quality changes, which have been widely documented and explicitly considered in a few of the previous models of price regulation, are another concern.  Using a more general model of the technologically possible quality-quantity tradeoffs, our paper shows how a price ceiling imposed on a competitive market may increase the quantity traded, benefit producers at the expense of consumers, and have worse than first-order effects on efficiency – solely because the regulation affects non-price product attributes.  We also concisely characterize the features of tastes and technology that lead to such outcomes.
Practically all goods and services have non-price dimensions (hereafter, “quality”), with sellers often spending considerable amounts as they attempt to make their product more attractive to buyers. Non-price product attributes provide markets considerable scope for complying with a price ceiling without necessarily trading less quantity.  Take apartments, for which it is sometimes said that the purchase price of land and structure equals the expected present value of the rental income to be received from tenants.  In fact, about half of the revenues obtained from tenants is spent on short-run variable inputs rather than financing the structure’s purchase or construction.  Figure 1 shows the claims on national tenant-occupied housing output for 2006, as reported by Mayerhauser and Reinsdorf (2007).  Almost half of housing output went to intermediate goods and services (e.g., banking, realtor and advertising activities) and depreciation (a proxy for normal repairs and maintenance).  Another five percent went to labor (largely management), and about three percent went to compensate landlords for holding vacant units.  Landlords could adjust any of these items in order to reduce the ratio of costs to revenue.

Price ceilings have, in many real-world instances, increased quantity by reducing quality.  One is the case of doctor appointments, where ceilings on the price per visit have sometimes resulted in patients’ visiting the doctor more frequently for the same health condition.  As Frech (2001p. 338) puts it, Japanese patients “are often told to come back for return visits.  And, even injections of drugs were often split in half to make two visits necessary.”  Cuba, among other places, has ceilings the retail prices of eggs and other grocery items.  Even though the grocery-price ceilings are far below what the retail prices would be, the grocery quantities sold are not.  Instead, groceries there are sold in large containers and without refrigeration and other retail amenities.[1] Another example is the case of rent control of pre-war premises in Hong Kong, which appears to have increased the number of leases and perhaps even the number of square feet under lease as tenants engaged in partial subletting and landlords rented to “rooftop squatters.”  Elsewhere, rent control appears to increase the fraction of apartments that are under lease.
The quality-quantity tradeoff may be the source of these results. Holding expenditure constant, a price ceiling prohibits low quantities.  Take retail grocery sales.  Absent regulations, suppliers spend resources to preserve, cull, and promptly deliver their produce inventories so that the consumer receives fresh items.  With a price ceiling set on, say, a per-ounce basis, suppliers cut down on their quality-enhancing expenditures and thereby reduce the fraction of the groceries obtained by the consumer that is edible.  Consumers with a price-inelastic demand for edible groceries purchase more total groceries because the survival rate of purchased groceries is reduced by the price ceiling.  A variety of goods from apartments to light bulbs to doctor appointments have this feature that the unregulated market serves customers with less, but more expensive, quantity because that quantity is efficiently managed to provide the maximum value for the customer’s dollar.  Our model does not assume that controlled goods necessarily have such ease of substitution between quality and quantity, but these examples begin to show why the textbook predictions may not be reliable.
Even if a price ceiling does not increase the quantity sold, changes in non-price product attributes mean that the impacts of a ceiling on quantity and the surplus of buyers and sellers have little to do with the supply and demand for the controlled good by comparison to not having/producing the good at all.  On the demand side, it is not the same when price falls by regulation as when it changes due to a reduction in the marginal costs of producing the services delivered by the controlled good.  On the supply side, it is not the same when price falls by regulation as when it falls due to a reduction in the buyers’ marginal willingness to pay for the services delivered by the controlled good.  Even when the curves are properly adjusted to reflect changes in non-price attributes, the usual supply and demand diagram is not necessarily suitable for welfare analysis.
To the extent that supply slopes up, producers tend to benefit, relative to the unregulated allocation, from the increase in quantity and lose from the reduction in quality.  Indeed, we find a simple supply-elasticity condition that indicates whether a price ceiling net redistributes from consumers to producers, or vice versa.  For some of the same reasons, the possibility for producer gains is still present even when the equilibrium quantity impact of a price ceiling is not positive.
For conciseness, the scope of price regulations considered here is limited in three ways.  First, the rest of this paper refers to ceilings, but not floors.  Our framework applies to price floors too, but ignoring them removes numerous provisos, inversions, etc., from the discussion.  Also, the contrast between our results and previous ones are less subtle with ceilings than floors.  Second, we do not consider price ceiling regulations that also specify the amount supplied. Third, this paper features regulation-induced changes in non-price attributes that, holding price and expenditure constant, primarily affect the services consumers receive from the controlled good, rather than affecting the resources that the consumer has available for consuming other goods. The featured case encompasses the examples cited above: the price regulation is misspecified in the sense that it normalizes expenditure with a quantity (say, ounces of produce received from a retailer) that is different from what consumers ultimately value from the controlled good (edible ounces of produce).  In the latter model, not treated in this paper, the price regulation is misspecified in that some of the expenditure on the controlled good occurs downstream of the price regulation, so that compliance is achieved by moving production downstream.
In formulating a competitive hedonic model with a variable quantity but a lack of heterogeneity among producers and consumers, our goal is ease of exposition.  As with the textbook analysis of price ceilings and other public policies, we view the competitive case as a helpful starting point that focuses on tastes and technology, which by themselves have interesting and subtle features.  Instead, the standard hedonic-model framework with unit demand must be extended to allow for variable quantity in order to highlight quality-quantity tradeoffs that occur in the marketplace.  Having a homogenous group of consumers (producers) allows us to show that quality adjustments are distinct in principle from the question of who consumes (produces) in the regulated market, respectively.  Market power and heterogeneity can be added later, and we presume that doing so will only enrich the already surprising range of market outcomes that come from quality adjustments by themselves.

[1] Take eggs.  Expressed as a ratio to the price received by producers in the U.S. market (there is no reliable data for the Cuban producer prices because the Cuban government has vertically integrated the production chain), U.S. retail egg prices are about 3 whereas the Cuban retail price is controlled at about 4/3.  Controlled Cuban eggs are sold in trays of 30 without lids or refrigeration (Mulligan 2016) while Cuban egg consumption per capita is at the world average and above that in comparable countries such as the Dominican Republic. 
This paper was updated at in January 2017. The June 2016 version is here.