Mercatus Site Feed http://mercatus.org/feeds/home/wp-login.php/publication/gapsandgrowth en Can Urbit Reboot Computing? http://mercatus.org/expert_commentary/can-urbit-reboot-computing <h5> Expert Commentary </h5> <p class="p1"><span class="s1">It's a common complaint that <a href="https://blog.archive.org/2015/02/11/locking-the-web-open-a-call-for-a-distributed-web/"><span class="s2">"computing" is broken</span></a>. Whether the concern is government <a href="http://www.popsci.com/edward-snowden-internet-is-broken"><span class="s2">surveillance</span></a>, invasive <a href="https://www.washingtonpost.com/news/the-switch/wp/2015/10/15/amid-the-adblockalypse-advertisers-apologize-for-messing-up-the-web/"><span class="s2">advertising and malware</span></a>, <a href="https://motherboard.vice.com/read/pirate-bay-founder-peter-sunde-i-have-given-up"><span class="s2">censorship by private and&nbsp;public bodies</span></a>, or the general&nbsp;<a href="https://www.gnu.org/philosophy/keep-control-of-your-computing.en.html"><span class="s2">gulf between user control and control of users</span></a>, many worry&nbsp;that our amazing network of networks has been <a href="https://medium.com/message/everything-is-broken-81e5f33a24e1#.qoa6pwcs0"><span class="s2">slowly atrophying</span></a> for some time. But a project called&nbsp;<a href="http://urbit.org/"><span class="s2">Urbit</span></a>&nbsp;aims to overcome this—by getting humans to start&nbsp;<a href="https://moronlab.blogspot.com/2010/01/urbit-functional-programming-from.html"><span class="s2">thinking more like Martians</span></a>.&nbsp;</span></p> <p class="p1"><span class="s1">Why is a reboot necessary? The incentives and arrangements developed during the early days of the internet haven't exactly scaled well. Much of our digital infrastructure forces us to rely faceless third parties—Internet Service Providers, software developers, cloud servers, platform administrators, domain-name registrars—in order to connect with others. No one person can presently provide all or most of these functions for themselves. Instead,&nbsp;we each must trust this conglomeration of faraway bureaucracies—in addition to the&nbsp;<a href="http://thewebindex.org/wp-content/uploads/2014/12/Web_Index_24pp_November2014.pdf"><span class="s2">often-rascally governments</span></a> that oversee the whole operation.</span></p> <p class="p1"><span class="s1">As a result, our&nbsp;computing experiences will only be as good as this federation of virtual landlords is virtuous. Alas: <a href="http://www.pewinternet.org/files/2014/10/PI_OnlineHarassment_102214_pdf1.pdf"><span class="s2">virtue is not exactly "in" online</span></a>.</span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><span class="s1">Some&nbsp;developers are <a href="http://brewster.kahle.org/2015/08/11/locking-the-web-open-a-call-for-a-distributed-web-2/"><span class="s2">seeking to transcend our internet feudalism</span></a> by <a href="http://nakamotoinstitute.org/trusted-third-parties/"><span class="s2">minimizing the number of third parties</span></a> one must patronize to participate in digital society. Open-source operating systems like <a href="https://en.wikipedia.org/wiki/Linux"><span class="s2">Linux</span></a> allow people to take more control over their own computers. <a href="http://mercatus.org/publication/bitcoin-primer-policymakers"><span class="s2">Bitcoin</span></a> substitutes trust in a single payment processor for trust in a cryptographically secure, peer-to-peer network.&nbsp;<a href="https://en.wikipedia.org/wiki/BitTorrent"><span class="s2">BitTorrent</span></a>, similarly, allows individuals to share files using a distributed network that cannot be immediately shut down by targeting any one&nbsp;entity. And several new <a href="http://redecentralize.org/interviews/"><span class="s2">projects</span></a> aim to <a href="http://www.economist.com/news/business/21700642-slew-startups-trying-decentralise-online-world-reweaving-web?fsrc=scn%2Ftw%2Fte%2Fpe%2Fed%2Freweavingtheweb"><span class="s2">extend this logic to personal computing</span></a>&nbsp;more generally.&nbsp;There's&nbsp;<a href="https://openbazaar.org/"><span class="s2">OpenBazaar</span></a>, a distributed marketplace platform that wants to be the "<a href="http://www.coindesk.com/openbazaar-live-version-bitcoin-market/"><span class="s2">Bitcoin of Amazon</span></a>"—a censorship-resistant e-commerce protocol that empowers buyers and sellers to transact peacefully without a middleman. There's the InterPlanetary File System, or IPFS, which would operate as a kind of <a href="https://en.wikipedia.org/wiki/InterPlanetary_File_System"><span class="s2">BitTorrent for the World Wide Web</span></a>.</span></p> <p class="p1"><span class="s1">But there is only one project that aims&nbsp;to just start this whole networking thing completely from scratch. It's an "operating function"&nbsp;called <a href="http://urbit.org/"><span class="s2">Urbit</span></a>, and it is by far the most fascinating and bizarre of these attempts&nbsp;to reboot computing.</span></p> <p class="p1"><span class="s1"><b>Inside the Urbit&nbsp;Universe</b></span></p> <p class="p1"><span class="s1">Urbit is brought to you by a man named Curtis Yarvin and a&nbsp;company named <a href="http://tlon.io/"><span class="s2">Tlon</span></a>.&nbsp;Much of the commentary about Urbit has&nbsp;focused on&nbsp;the unorthodox political opinions of Yarvin, who is better known in some circles by his nom de plume, Mencius Moldbug. As Moldbug,&nbsp;Yarvin has penned fiery condemnations of democracy, extolled the&nbsp;virtues of&nbsp;historic monarchies,&nbsp;and found himself as a philosophical&nbsp;leader&nbsp;for&nbsp;the budding "neoreactionary" movement. But Urbit is perhaps even more intriguing than its radical creator.&nbsp;</span></p> <p class="p1"><span class="s1">Urbit is a software stack comprised of roughly five major parts: an operating system (Arvo), two kinds of programming languages that interact together (Nock and Hoon), a network (Ames), and you, the dear user. Combined, this system seeks to distill computing into its lightest and purest possible form, leaving the user in control of more processes than previously afforded.</span></p> <blockquote><p class="p1"><span class="s1"><i>Arvo:</i> Microsoft has Windows, Apple has Mac OS, and Urbit has Arvo. This is the "<a href="https://en.wikipedia.org/wiki/Kernel_(operating_system)"><span class="s2">kernel</span></a>" upon which the entire system runs. Arvo starts with a self-compiling command and a&nbsp;basic input/output system. It is quite small, written in roughly 600 lines of the native programming language, Hoon. For frame of reference, Windows 7 is written in about <a href="http://www.informationisbeautiful.net/visualizations/million-lines-of-code/"><span class="s2">40 million lines of code</span></a>. Arvo is small because it is intended to "grow" with a&nbsp;user's event history.</span></p><p class="p1"><span class="s1"><i>Nock and Hoon:</i> This is the DNA of Urbit, and in true Urbit fashion, it is radically different from the object-oriented programming languages most familiar to laypeople. For the techies out there, Nock is a virtual machine and high-level language that compiles Hoon and is a little bit like <a href="https://en.wikipedia.org/wiki/Lisp_(programming_language)"><span class="s2">Lisp</span></a>. Hoon is a functional programming language that is a little bit like <a href="https://en.wikipedia.org/wiki/Haskell_(programming_language)"><span class="s2">Haskell</span></a>. They're quite odd, but totally groovy if you're into the challenge of learning abstract code. For the non-techies out there, all you need to know is that Nock and Hoon comprise the language of Urbit.</span></p><p class="p1"><span class="s1"><i>Ames:</i> This is the "Urbit network," an encrypted peer-to-peer&nbsp;protocol and namespace. It is here that an&nbsp;Urbit user shapes her identity and interacts with the vast universe of this cyberspace. Unlike in the current system, where you have many digital identities—your IP address and various screennames that may or may not connect to your "real" self—your address <i>is</i> your identity in Ames.&nbsp;</span></p><p class="p1"><span class="s1"><i>Starstuff (you):</i> And what are "you" in Urbit? You are a plot. A plot is a 128-bit number that serves as your identity and your address. There are many kinds of plots in Urbit, of different sizes and importance, yet all celestial. The hierarchy is as follows: There are the 8-bit "galaxies" of one syllable;&nbsp;two-syllabled, 16-bit "stars"; the 32-bit, 4-syllable "planets"; 64-bit and 8-syllable "moons"; and finally the 128-bit, 16-syllable "comets." All of these plots map to services and functions that already exist in the current system.</span></p></blockquote> <p class="p1"><span class="s1">As the Urbit&nbsp;<a href="http://media.urbit.org/whitepaper.pdf"><span class="s2">white paper explains</span></a>, galaxies and stars comprise the network infrastructure, planets are like personal servers, moons are like clients, and comets are like cheap little bots. Control tiers up the hierarchy: Galaxies can issue stars, stars can issue planets, planets can issue moons, and moons can issue bots. A detailed analysis of the law and context guiding these identities in Urbit deserves a separate article, but this is the universe of Urbit in a nutshell.</span></p> <p class="p1"><span class="s1">Urbit has been <a href="https://moronlab.blogspot.com/2010/01/urbit-functional-programming-from.html"><span class="s2">in the works for at least six years</span></a>, and despite the <a href="http://alexkrupp.typepad.com/sensemaking/2013/12/a-brief-introduction-to-urbit.html"><span class="s2">mystery and strangeness</span></a> pervading the previously available documentation, <a href="http://urbit.org/docs/"><span class="s2">it does indeed actually exist</span></a> as a testnet and can be <a href="https://github.com/urbit/urbit"><span class="s2">downloaded</span></a> and <a href="http://urbit.org/docs/using/setup/"><span class="s2">run by any interested parties</span></a>. Or, if you'd rather merely dip your toes into this unparalleled experiment in Martian programming, you can jump into the <a href="http://urbit.org/stream/"><span class="s2">chat</span></a> to politely pick the brains of the star-men&nbsp;of Urbit.</span></p> <p class="p1"><span class="s1"><b>Declaration of Digital Independence&nbsp;</b></span></p> <p class="p1"><span class="s1">By now, this is probably all sounding pretty zany. The Tlon developers will <a href="https://moronlab.blogspot.com/2010/01/urbit-functional-programming-from.html"><span class="s2">proudly tell you that it is</span></a>. But when you parse through the underlying values that guide the system, a rather libertarian ethos begins to emerge. Consider Tlon's&nbsp;<a href="http://urbit.org/posts/principles/"><span class="s2">statement of principles</span></a>:&nbsp;</span></p><blockquote><p class="p1"><span class="s1">We believe that general-purpose computing is an essential tool to unlock the power of individual creativity.</span></p><p class="p1"><span class="s1">We believe that ownership, privacy and control don't need to be sacrificed in exchange for usability, accessibility and reliability.</span></p><p class="p1"><span class="s1">We believe in the power of the informed crowd to develop and maintain software, through the IETF principles of sincerity and rough consensus. The ability of the engineering community to govern itself through republican forms is not an abstract theory; it's a proven fact.</span></p><p class="p1"><span class="s1">We believe in both free speech and individual accountability. We believe that a healthy network is one with diverse and well-defined communities, and clear, user-controlled, boundaries between public and private space.</span></p><p class="p1"><span class="s1">We believe that no software system can replace human trust and communication. Dialogue, judgment and governance are essential to communities of all scales. Code and law can reduce conflict in the common case; they can never handle all exceptions.</span></p></blockquote> <p class="p1"><span class="s1">If the Founding Fathers were computer programmers <a href="https://medium.com/@urbit/design-of-a-digital-republic-f2b6b3109902#.1g8fp88c3"><span class="s2">designing a new digital republic</span></a>, their Declaration of Independence might look a bit like the Urbit manifesto.&nbsp;</span></p> <p class="p1"><span class="s1">As a republic, the "government" of Urbit has one task: "promoting, preserving and protecting Urbit." But in doing so, Yarvin and fellow developer Galen Wolfe-Pauly point out, Urbit should "never fall under any kind of central control."</span></p> <p class="p1"><span class="s1">Much of the&nbsp;language in Urbit's statement of principles reads as if it could have been written by Murray Rothbard himself (indeed, Yarvin frequently cites such luminaries of liberty as <a href="https://unqualified-reservations.blogspot.com/2010/02/from-mises-to-carlyle-my-sick-journey.html"><span class="s2">Ludwig von Mises</span></a> and <a href="https://medium.com/@urbit/design-of-a-digital-republic-f2b6b3109902#.1g8fp88c3"><span class="s2">John Perry Barlow</span></a> as his personal intellectual influences). But "liberty" is not a homogeneous concept. It's important to note that Urbit approaches the problem of "centralized computing" from a radically different position than many of the other projects described above, such as&nbsp;Bitcoin.&nbsp;</span></p> <p class="p1"><span class="s1">As the <a href="http://media.urbit.org/whitepaper.pdf"><span class="s2">Urbit white paper</span></a> explains, "Bitcoin is a trust-free system; Urbit has a central trust hierarchy"—the nested system of galaxies and heavenly bodies outlined above.&nbsp;However, the initial hierarchy baked into the Urbit platform—namely, the preliminary "crowdsale" of galaxies—may raise eyebrows among "<a href="http://altcoins.com/scamcoins"><span class="s2">scamcoin</span></a>"-watchdogs in the cryptocurrency community.</span></p> <p class="p3"><span class="s1">&nbsp;</span></p> http://mercatus.org/expert_commentary/can-urbit-reboot-computing Tue, 28 Jun 2016 11:37:05 -0400 New York Politicians Should Stay out of the Private Sector's Way http://mercatus.org/expert_commentary/new-york-politicians-should-stay-out-private-sectors-way <h5> Expert Commentary </h5> <p class="p1"><span class="s1">New York state politicians think they can and should pick winners and losers in the private sector. But their record is clear: They’re really good at picking losers.</span></p> <p class="p1"><span class="s1">Before the legislative session ended, lawmakers had the opportunity to open up the state to thriving businesses, but they didn’t. They decided to continue picking which industries and businesses succeed or fail. When Albany tries to select winners, New Yorkers always lose.</span></p> <p class="p1"><span class="s1">First, state lawmakers wrapped up the 2016 legislative session without resolving how ridesharing companies like Uber and Lyft can expand outside of New York City, missing their chance to bring in much-needed jobs and better services.</span></p> <p class="p1"><span class="s1">This alone would be a cause for concern, since it denies New Yorkers one of the sharing economy’s most successful industries. But, Albany wasn’t finished. The Legislature also passed a bill preventing Airbnb users from advertising entire apartments for rent for less than 30 days.</span></p> <p class="p1"><span class="s1">On its face, it may look like the Legislature is trying to chase business out of the Empire State. But this isn’t an anti-business crusade. Airbnb, Uber and Lyft are just part of the wrong industry.</span></p> <p class="p1"><span class="s1">While lawmakers were busy building roadblocks for the sharing economy, they were also giving hundreds of millions of taxpayer dollars to other ventures. New York is willing to hand out $50 million a year in tax subsidies for music and video-game producers and $420 million for TV and film production.</span></p> <p class="p1"><span class="s1">Picking winners and losers is certainly bad governance. New York is also extremely bad at it.</span></p> <p class="p1"><span class="s1">Businesses that receive Albany’s financial support have a tendency to flop. The state has spent hundreds of millions to support General Electric, a notoriously flighty company that tends to chase tax privileges. GE’s Durathon battery plant in Schenectady, a recipient of 2013’s “JOBS Now” capital funding, closed down in 2015. Albany doubled down, committing another $50 million to convince GE to put another factory in Utica. Not exactly a shining record of success.</span></p> <p class="p1"><span class="s1">Economic growth, we’re told, will follow these investments. But private-sector employment in the state grew at barely half the average US rate during the last year. And what’s more, most of this job growth was limited to New York City and its suburbs.</span></p> <p class="p1"><span class="s1">Bringing jobs and opportunity upstate is not as difficult as Albany makes it look, but ongoing efforts to stifle the sharing economy show that lawmakers are more interested in playing politics than setting sound policy.</span></p> <p class="p1"><span class="s1">Expanding ridesharing across New York would provide new job opportunities, as it has done nearly nationwide.</span></p> <p class="p1"><span class="s1">Taxi drivers in Rochester and Albany have protested bringing ridesharing to areas outside New York City, claiming passengers are less safe riding with Uber and Lyft, and that they cannot adequately provide for disabled passengers.</span></p> <p class="p1"><span class="s1">Albany seems to be receptive to these arguments. Yet it’s becoming increasingly clear it shouldn’t be.</span></p> <p class="p1"><span class="s1">In addition to providing passengers with safety features unavailable in taxis — pictures of drivers, maps of the trip, ETAs, driver ratings, vehicle descriptions and license-plate numbers — recent research shows that competition from Uber makes taxis better. Using data from the New York City Taxi and Limousine Commission, Georgetown’s Scott Wallsten notes that the rate of consumer complaints about taxis decreases as ridesharing becomes more common.</span></p> <p class="p1"><span class="s1">The best thing for upstate taxi passengers may be Uber’s expansion outside of New York City. Reforms must embrace the changes that are already taking place and allow cab companies to improve, rather than entrench their outdated business practices.</span></p> <p class="p1"><span class="s1">All New Yorkers — not just city dwellers — deserve the opportunity to choose the type of services they pay for, whether it’s who picks them up, where they stay or where they work. And New Yorkers deserve the economic boost that the sharing economy provides.</span></p> <p class="p1"><span class="s1">Unfortunately, lawmakers appear to have missed their chance, and they will have to wait until next year. It’s time Albany realized picking winners and losers is easier than they’ve made it. They don’t have to pick at all. They just have to get out of the way.</span></p> http://mercatus.org/expert_commentary/new-york-politicians-should-stay-out-private-sectors-way Tue, 28 Jun 2016 11:19:34 -0400 ACA Enrollees Twice As Expensive As Other Individual Market Enrollees http://mercatus.org/expert_commentary/aca-enrollees-twice-expensive-other-individual-market-enrollees <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Rather than stabilizing in 2016 as many experts predicted, the Affordable Care Act (ACA) is <a href="http://mercatus.org/publication/downgrading-affordable-care-act-aca-unattractive-health-insurance-and-lower-enrollment"><span class="s2">leading</span></a> to large premium hikes and less choice and competition in the individual insurance market as plans prove unattractive to relatively young, healthy, and middle-class people. In order to achieve a better understanding of the ACA’s impact, a new Mercatus Center working <a href="http://mercatus.org/publication/affordable-care-act-turmoil-large-losses-individual-market-portend-uncertain-future"><span class="s2">paper</span></a>&nbsp;compared insurers’ performance selling individual Qualified Health Plans (QHPs) with three other markets: the individual non-QHP market, the small group QHP market and the small group non-QHP market.</span></p> <p class="p1"><span class="s1">My co-authors, Doug Badger of the Galen Institute, Ed Haislmaier of the Heritage Foundation, Seth Chandler of the University of Houston&nbsp;and I make two key empirical findings. First, individual market QHP enrollees had average medical claims nearly double the average claims for individual non-QHP market enrollees in 2014. Second, individual market QHP enrollees were about 25% more expensive than enrollees in small group QHPs.</span></p> <p class="p1"><span class="s1">In both the individual and small group markets, QHPs—plans that satisfy the multitude of ACA requirements and are certified to be sold on exchanges—are essentially the same and are governed by nearly identical regulations. Comparing the performance of insurers in the individual QHP market with their performance in&nbsp;these other&nbsp;markets provides information about the ACA and its impact.</span></p> <p class="p1"><span class="s1">Our findings show that the individual QHP market exhibited significant adverse selection (a disproportionately high percentage of less healthy enrollees in the insurance risk pool) in 2014—despite premiums that were artificially lower because of a large back-end subsidy program geared toward this market. The findings suggest that the small group market, which contains features that limit adverse selection, initially weathered the ACA’s torrent of regulations and price controls while the individual market did not. Since insurers’ losses selling individual market QHPs more <a href="http://www.forbes.com/sites/theapothecary/2016/05/11/new-report-suggests-massive-insurer-losses-in-2015-on-obamacare-as-health-care-spending-explodes/#3e225f2a4a63"><span class="s2">than doubled</span></a> from 2014 to 2015, adverse selection appears to be worsening as implementation moves forward.</span></p> <p class="p1"><span class="s1"><b>ACA Plans Spending Significantly More than Non-ACA Plans</b></span></p> <p class="p1"><span class="s1">The following table shows per enrollee premium income, per enrollee medical claims, the loss ratio (medical claims divided by premium income) and enrollment (average monthly number of enrollees) in 2014 for the four markets described above. The data is from the 174 insurers that offered QHPs in both the individual and small group market in 2014. Small group market enrollees generally consist of workers at firms with no more than 50 workers and their covered dependents.</span></p> <p class="p1"><img height="229" width="575" alt="Insurers' Performance across Different Markets in 2014" src="http://mercatus.org/sites/default/files/ACAblase1.jpg" /></p> <p class="p1"><span class="s1">In the individual market, non-QHPs consist of grandfathered plans (plans in existence before the ACA became law that were allowed to continue), grandmothered plans (plans that came into existence after the ACA became law that the administration allowed to continue for several years after the <a href="http://www.cnn.com/2013/11/07/politics/obama-obamacare-apology/"><span class="s2">uproar</span></a> caused by 5 million people receiving cancellation notices), and ACA-compliant non-QHPs.</span></p> <p class="p1"><span class="s1">Individual market QHP enrollees incurred nearly $5,000 in average medical claims in 2014—93% more than the roughly $2,600 in average medical claims incurred by people enrolled in individual market non-QHPs. The substantial medical claims paid by individual market QHPs resulted in large losses despite insurers taking in premium income, largely consisting of government subsidy payments, of about $1,400 more per enrollee for their individual market QHPs than for their individual non-QHPs. The 110% loss ratio for individual market QHPs does not account for administrative expenses, which generally amount to about 15% to 20% of premiums.</span></p> <p class="p1"><span class="s1"><b>Individual ACA Market Experiencing Adverse Selection</b></span></p> <p class="p1"><span class="s1">In 2014, individual market QHPs benefitted from a government reinsurance program that paid insurers 100% of the cost of claims for enrollees incurring bills between $45,000 and $250,000. Insurers received $7 billion in reinsurance payments in 2014, but the program is scheduled to end after 2016. In a previous <a href="http://mercatus.org/publication/affordable-care-act-2014-significant-insurer-losses-despite-substantial-subsidies"><span class="s2">paper</span></a>, my co-authors and I estimated that insurers would have had to raise premiums 26%, on average, to meet their expenses in 2014 without the reinsurance program and assuming no additional selection effects from the higher premiums.</span></p> <p class="p1"><span class="s1">Even though premiums were depressed in 2014 because of the reinsurance program, individual QHPs still did not attract a sufficient number of younger and healthier enrollees to create a stable risk pool. Based on <a href="https://oversight.house.gov/wp-content/uploads/2014/07/WH-Involvement-in-ObamaCare-Taxpayer-Bailout-with-Appendix.pdf"><span class="s2">data</span></a> released from the House Committee on Oversight and Government Reform, insurers’ 2014 and 2015 individual QHP risk pools skewed much older than expected. In fact, about 50% more people over the age of 55 enrolled, as a share of the risk pool, than insurers expected.</span></p> <p class="p1"><span class="s1">People near retirement spend about five times more on healthcare, on average, than young adults, but the ACA prevented insurers from charging the oldest members of the risk pool more than three times the amount they charged young adults. The higher percentage of older people in the risk pool increased both average premium income and average claims. Since the ACA results in insurers losing money, on average, on older enrollees, an older risk pool than expected partially explains why insurers suffered significant losses on individual market QHPs despite receiving average premium income that was nearly $1,400 greater than average premium income for their individual market non-QHPs.</span></p> <p class="p1"><span class="s1">Since insurers did reasonably well selling small group QHPs in 2014, features of the employer-based insurance system seem important for the ACA’s insurance market changes to function without generating severe adverse selection. In general, risk pools for employment-based coverage are less prone to selection effects, as employment decisions by both firms and workers are typically made based on factors other than a worker’s health status. Moreover, the criteria for special enrollment—which has been <a href="http://www.politico.com/story/2016/01/gaming-obamacare-insurance-health-care-217598"><span class="s2">abused</span></a> by people in the individual QHP market who anticipate significant medical claims—are clearer and more easily verified in an employer group plan.</span></p> <p class="p1"><span class="s1"><b>Conclusion</b></span></p> <p class="p1"><span class="s1">Insurers’ loss ratio in the individual QHP market was about a third higher than the loss ratio in each of the other three markets. The higher loss ratio was driven by much higher average medical claims for the individual QHP market, and indicates that insurers did not enroll enough younger and healthier consumers to create a balanced risk pool in 2014. Comparing results across markets suggests that the ACA’s rules and price controls may be incompatible with a well-functioning individual market.</span></p> <p class="p1"><span class="s1">Large premium increases both in 2016 and 2017 will further reduce&nbsp;the attractiveness of individual market QHPs to younger and healthier enrollees, particularly individuals who do not qualify for large subsidies. Without significant revision to the ACA that makes insurance more attractive to younger and healthier people and that significantly reduces the incentive for people to wait until they are sick to purchase coverage, the individual market looks increasingly likely to morph into a highly subsidized high risk pool.</span></p> http://mercatus.org/expert_commentary/aca-enrollees-twice-expensive-other-individual-market-enrollees Tue, 28 Jun 2016 11:10:38 -0400 The Perks of a Privatized Metro System http://mercatus.org/expert_commentary/perks-privatized-metro-system <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Something interesting happened following Metro’s single-tracking and long-term shutdowns.</span></p> <p class="p1"><span class="s1">Lyft started offering discounted rides to Washington commuters. With these discounts, the ride sharing giant joins FedEx, Underwriters Laboratories, private schools, passport expeditors, and many other businesses to become one more private-sector company offering to fix the blunders&nbsp;of&nbsp;a public-sector enterprise. According to market skeptics, this isn’t the way it’s supposed to work – Lyft is a profit-seeking entity. And according to conventional wisdom, profit-seeking companies jump at opportunities to exploit in pursuit&nbsp;of&nbsp;the almighty dollar. With Metro on the ropes and thousands&nbsp;of&nbsp;commuters stranded, conditions are perfect for services like Lyft to charge the absolute maximum the market will bear. Why then are they cutting their price in half?</span></p> <p class="p2"><span style="font-size: 12px; background-color: white;">It turns out that market skeptics are partly right.</span></p> <p class="p1"><span class="s1">Private companies don’t drive prices down and quality up. Just look at Comcast, whose prices only go up while every other price in the tech world keeps going down. According to its own customers, Comcast’s customer service rivals that&nbsp;of&nbsp;the DMV. The private sector doesn’t bestow a magical ability to deliver high quality at low prices. Market proponents and skeptics alike know that Comcast is more like the DMV than Netflix because Comcast faces little competition. Yet neither does competition bestow a magical ability to deliver high quality at low prices.</span></p> <p class="p1"><span class="s1">Metro is but one example. Metro faces all sorts&nbsp;of&nbsp;competition from walking to bikes to private cars to carpools to taxis, Uber, and Lyft. Yet Metro’s service has become so poor as to become – quite literally – non-existent. It turns out that the magic formula is the&nbsp;<i>combination</i>&nbsp;of&nbsp;competition and private enterprise.</span></p> <p class="p1"><span class="s1">Corporations do seek the almighty dollar, but market skeptics go off the rails when they conclude that the correct response is to replace private sector profit-seekers with government. The quest for this almighty dollar is a powerful drive that can be harnessed for good – provided it is complimented by competition. In a competitive environment, the way profit-seeking companies make money is by providing what consumers want at the lowest possible price. This is why Lyft is dropping its prices 50 percent as Metro cuts service. Lyft is a profit-seeking company that faces stiff competition. By cutting its price, Lyft hopes to encourage Metro’s customers to try Lyft. And if those people judge that Lyft delivers a price and quality that Metro can’t, they’ll stay with Lyft even after the metros stop catching fire.</span></p> <p class="p1"><span class="s1">The private sector is composed&nbsp;of&nbsp;sometimes selfish, sometimes altruistic, sometimes brilliant, always fallible humans – the same that comprise the public sector. Lyft might be run by heartless people who care only about making money. Or, Lyft might be run by principled people who care about providing a fair service at a fair price.</span></p> <p class="p1"><span class="s1">As with the public sector, the reality is likely somewhere in the middle. The folly in replacing private business with government enterprise is that the public sector only achieves the common good when, by happy accident, it is mostly composed&nbsp;of&nbsp;altruistic people. The beauty&nbsp;of&nbsp;a competitive free market is that it doesn’t matter whether the people comprising the private sector are altruistic or selfish. Regardless&nbsp;of&nbsp;their motivations, competition forces Lyft’s people to behave as if they care about providing a fair service at a fair price. Because the moment they stop, their customers will move on to Lyft’s competitors.</span></p> <p class="p1"><span class="s1">Competition has gotten us halfway to solving the problem that is Metro. We’ll get the rest&nbsp;of&nbsp;the way when we&nbsp;privatize&nbsp;it. Until we get that combination&nbsp;of&nbsp;competition and private enterprise, Metro will continue to fail.</span></p> http://mercatus.org/expert_commentary/perks-privatized-metro-system Tue, 28 Jun 2016 10:39:56 -0400 United States Is the World’s Leader in International Arms Sales http://mercatus.org/publication/united-states-world-s-leader-international-arms-sales <h5> Publication </h5> <p class="p1">This week’s charts look at global arms transfers using data produced by the Stockholm International Peace Research Institute (SIPRI). The first chart shows that the United States was responsible for a third of total global arms exports from 2011 to 2015. The United States and Russia combined were responsible for 58.0 percent of all international arms sales over that same period.</p><p class="p1"><img height="575" width="575" alt="Top Arms Exporters, 2011-2015" src="http://mercatus.org/sites/default/files/armschart_0.png" /></p> <p class="p1">The second chart shows the top 10 foreign purchasers of US arms. The leading recipient was Saudi Arabia at 9.7 percent, followed closely by the United Arab Emirates at 9.1 percent of total US arms exports. <a href="http://books.sipri.org/files/FS/SIPRIFS1602.pdf">According to SIPRI</a>, “The USA delivered major weapons to at least 96 states in 2011–15, a significantly higher number of export destinations than any other supplier.”</p> <p class="p2"><img height="575" width="575" alt="Top Purchasers of US Arms, 2011-2015" src="http://mercatus.org/sites/default/files/armschart2.png" /></p> <p class="p1">The third chart shows the top 10 arms-producing and military services companies in the world as of 2014. Not surprisingly, the United States dominates with seven companies in the top ten. U.S. companies Lockheed Martin and Boeing came in first and second place, respectively. Indeed, only one non-American company makes the top six.</p> <p class="p2"><img height="431" width="575" alt="Top 10 Arms-Producing and Military Services Companies, 2014" src="http://mercatus.org/sites/default/files/armschart3.png" /></p> <p class="p1">Regardless of one’s view of the desirability of the United States and its companies dominating the global arms scene, the situation still calls to mind President Dwight Eisenhower’s prescient warning in his <a href="http://coursesa.matrix.msu.edu/~hst306/documents/indust.html">1961 farewell address to the nation</a>:</p> <blockquote><p class="p3">This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence—economic, political, even spiritual—is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.</p><p class="p3">In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.</p></blockquote> http://mercatus.org/publication/united-states-world-s-leader-international-arms-sales Tue, 28 Jun 2016 10:52:08 -0400 How Brexit Will Impact the Global Economy http://mercatus.org/expert_commentary/how-brexit-will-impact-global-economy <h5> Expert Commentary </h5> <p class="p1"><span class="s1"><a href="https://twitter.com/DavidBeckworth">David Beckworth</a></span><span class="s2">, economist and research fellow at the Mercatus Center, joined Federalist Radio to discuss Britain’s exit from the EU and how it will impact the global economy. <a href="https://www.aei.org/publication/global-shock-after-uk-exit-vote/"><span class="s1">Dr. Desmond Lachman</span></a>, resident fellow at the American Enterprise Institute, also explained some of the reasons why the UK voted the way they did.</span></p> <p class="p1"><span class="s2">The “Brexit” decision, in some ways considered a populist uproar, comes as a shock to elites all over the world. “Globalization has been integrating our world more and more, really since the 1980’s it’s been accelerating, and I think its bringing some of this tension,” Beckworth said. “One of the biggest mistakes that the EU elites made was handling of the Eurozone crisis.”</span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><span class="s2">We have already seen financial markets and currencies damaged since the vote last week. “I’m afraid that is very likely to continue because what’s also occurred is the UK’s politics has been turned into to turmoil,” Lachman said. “If we do have economic setbacks there and trouble in their financial markets, it’s difficult to see how that’s not going to impact the United States.”</span></p><p class="p1"><a href="https://soundcloud.com/fdrlst/how-brexit-will-impact-the-global-economy">Listen here</a></p> http://mercatus.org/expert_commentary/how-brexit-will-impact-global-economy Mon, 27 Jun 2016 18:15:41 -0400 A Balanced Bipartisan Compromise for Strengthening Retirement Security http://mercatus.org/expert_commentary/balanced-bipartisan-compromise-strengthening-retirement-security <h5> Expert Commentary </h5> <p class="p1"><span class="s1">The Bipartisan Policy Center’s <a href="http://bipartisanpolicy.org/library/retirement-security/"><span class="s2">Securing Our Financial Future</span></a> offers a new set of recommendations to strengthen Americans’ retirement income security.&nbsp; The full report can be found <a href="http://cdn.bipartisanpolicy.org/wp-content/uploads/2016/06/BPC-Retirement-Security-Report.pdf"><span class="s2">here</span></a> and an executive summary <a href="http://cdn.bipartisanpolicy.org/wp-content/uploads/2016/06/BPC-Retirement-Security-Executive-Summary.pdf"><span class="s2">here</span></a>. A useful compendium of graphical information about the recommendations can be found <a href="http://cdn.bipartisanpolicy.org/wp-content/uploads/2016/06/BPC-Retirement-Security-Challenges.pdf"><span class="s2">here</span></a>, and an affecting video on the financial challenges facing Americans can be viewed <a href="http://bipartisanpolicy.org/library/retirement-security/"><span class="s2">here</span></a>.&nbsp;</span></p> <p class="p1"><span class="s1">The report was developed by the BPC’s 19-member Commission on Retirement Security and Personal Savings, co-chaired by former Senator Kent Conrad (D-ND) and Jim Lockhart, former principal deputy commissioner of the Social Security Administration (SSA).&nbsp; I served as one of the commission members and was deeply impressed by the co-chairs’ leadership and process acumen, as well as by the other commission members and an exceptionally capable team of staff.&nbsp;</span></p> <p class="p1"><span class="s1">As the commission included experts holding a wide range of policy views, a consensus report was only possible because its work was relentlessly data-driven, and because the co-chairs skillfully incorporated &nbsp;input from the entire commission to forge balanced compromise.&nbsp; It is fashionable in political circles to characterize genuine compromise as containing something for everyone to dislike; a more accurate description in this case is that compromise would lead to far better results than either left or right would receive under the status quo.</span></p> <p class="p1"><span class="s1">The commission’s recommendations were organized into six main themes:</span></p><ol><li><span class="s3" style="font-size: 12px; background-color: white;">Improve access to workplace retirement savings plans</span><span class="s1" style="font-size: 12px; background-color: white;">, largely by making it easier for employers to offer plans and to enroll workers in them, and by simplifying the decisions facing participants.&nbsp;</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Promote personal savings for short-term needs and preserve retirement savings for older age</span><span class="s1" style="font-size: 12px; background-color: white;">, largely by making it easier for workers to manage, shift and maintain savings between their various retirement accounts.</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Reduce the risk of outliving savings</span><span class="s1" style="font-size: 12px; background-color: white;">, largely by facilitating the offering of retirement plan distribution options that would provide income over a retiree’s full lifetime.</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Facilitate the use of home equity for retirement consumption</span><span class="s1" style="font-size: 12px; background-color: white;">, largely through the use of reverse mortgages.</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Improve financial capability among all Americans</span><span class="s1" style="font-size: 12px; background-color: white;">, largely by implementing the recommendations of the President’s Advisory Council on Financial Capability, and by clarifying the nomenclature used in key government programs such as Social Security.</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Strengthen Social Security’s finances and modernize the program</span><span class="s1" style="font-size: 12px; background-color: white;">, by balancing its income and expenditures, and by targeting its benefits more directly on needy households.</span></li></ol> <p class="p1"><span class="s1">The commission <a href="http://cdn.bipartisanpolicy.org/wp-content/uploads/2016/06/BPC-Retirement-Security-Report.pdf"><span class="s2">report</span></a> provides full details of the recommendations in all six areas. &nbsp;Here I will focus on Social Security, where my expertise is concentrated.&nbsp; The BPC Social Security recommendations involve far more details than can be covered here.&nbsp; However, they can be roughly defined by the following general parameters:</span></p><ol><li><span class="s3" style="font-size: 12px; background-color: white;">The proposals would strengthen Social Security finances through a roughly 50/50 blend of changes to revenues and costs </span><span class="s1" style="font-size: 12px; background-color: white;">(per the <a href="https://www.ssa.gov/OACT/solvency/BPC_20160609.pdf"><span class="s2">Social Security Chief Actuary</span></a>, 54% revenues vs. 46% cost containment).&nbsp; Under current law, per Urban Institute projections, Social Security costs would rise from 4.8% of GDP today to roughly 6.2% of GDP by 2034 when the program’s combined trust funds would be depleted and benefits reduced by roughly 22%. Afterwards the financing gap would continue to grow, with eventual costs (6.4% of GDP) being only 73% funded by income (4.7% of GDP) at the end of the valuation period.&nbsp; Under the commission proposals costs would instead rise more gradually to 5.8% of GDP (at the peak of baby boomer retirements in the mid-2030s) and stabilize thereafter, hovering around 5.5% of GDP for most of the mid-21</span><span class="s4" style="font-size: 12px; background-color: white;">st</span><span class="s1" style="font-size: 12px; background-color: white;"> century.&nbsp; The biggest revenue changes would be increases in the Social Security payroll tax rate (from 12.4% to 13.4%) and wage base (to $195,000 by 2020).&nbsp; The biggest cost containment mechanism would be a gradual indexing of the normal retirement age to national longevity gains, rising by one month every two years starting in 2022.&nbsp; Per convention this was counted by the commission as a benefit constraint although in practice, an individual receives higher annual benefits if he/she delays his/her initial benefit claim.&nbsp; The second largest cost containment provision would be to link annual COLAs to the chained Consumer Price Index (C-CPI-U), so that they more closely track national price inflation.</span></li></ol><p class="p2"><b style="font-family: inherit; font-style: inherit;">Figure 1: After the Baby Boomers Retire, the Commission Proposals Would&nbsp;Stabilize Social Security Costs/Revenues as a Share of GDP</b></p><p class="p2"><b style="font-family: inherit; font-style: inherit;">&nbsp;</b><img src="http://mercatus.org/sites/default/files/fig1blahous.png" alt="Figure 1: After the Baby Boomers Retire, the Commission Proposals Would Stabilize Social Security Costs/Revenues as a Share of GDP" width="575" height="375" style="font-size: 12px;" /><span style="font-size: 12px; background-color: white;">&nbsp;</span></p><p class="p1" style="padding-left: 30px;"><span class="s1"><b>&nbsp;</b></span><span class="s3" style="font-size: 12px; background-color: white;">2. Under the commission proposals, real per capita benefits would grow substantially.</span><span class="s1" style="font-size: 12px; background-color: white;">&nbsp; Under current law, program costs would grow at rates beyond that which revenues can finance, resulting in sudden benefit reductions upon trust fund depletion.&nbsp; Under the commission proposals individuals would be spared these benefit reductions, allowing seniors’ Social Security benefits and total disposable income to both grow steadily relative to price inflation.</span></p><p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;" class="p1"><span class="s1" style="font-size: 12px;"><b>Figure 2: Projected Average Disposable Income (in $2015) for Individuals 62 and Older</b></span><b style="font-family: inherit; font-style: inherit; background-color: white;">&nbsp;</b></p><p><img src="http://mercatus.org/sites/default/files/fig2blahous.png" alt="Figure 2: Projected Average Disposable Income (in $2015) for Individuals 62 and Older" width="575" height="365" /></p><p class="p1" style="padding-left: 30px;"><span class="s3" style="font-size: 12px; background-color: white;">3. The commission proposals would target benefit growth on low-income households and significantly reduce elderly poverty.</span><span class="s1" style="font-size: 12px; background-color: white;">&nbsp; For example, a two-earner couple born in 1993, in the bottom income quintile, working for 40 years with equal earnings, would receive benefits 63% higher than could be paid under current law.&nbsp; Those in the second income quintile would receive a 49% benefit increase.&nbsp; Not only would these benefits be substantially higher than could be paid under current law, they are even higher (24% and 12% higher, respectively) than the current-law benefit formula that is significantly underfunded.&nbsp; Because of this faster benefit growth for low-income households, senior poverty levels would be substantially lower under the commission proposals not only than under current law – but even relative to an imaginary scenario in which all of Social Security’s currently unfinanced benefits were somehow fully funded.</span></p><p class="p1"><span class="s1" style="font-size: 12px; background-color: white;">&nbsp;</span><b style="font-family: inherit; font-style: inherit; background-color: white;">Figure 3: Senior Poverty Would Be Markedly Reduced Under the Commission Proposals</b></p><p class="p1"><img src="http://mercatus.org/sites/default/files/fig3blahous.png" alt="Figure 3: Senior Poverty Would Be Markedly Reduced Under the Commission Proposals" width="575" height="356" style="font-size: 12px; background-color: white;" /></p><p class="p1"><span class="s1"><b>Figure 4: Projected Lifetime Social Security/SSI Benefits for Workers Born in 1993</b></span></p><p class="p1"><img src="http://mercatus.org/sites/default/files/fig4blahous.png" alt="Figure 4: Projected Lifetime Social Security/SSI Benefits for Workers Born in 1993" width="575" height="186" style="font-size: 12px; background-color: white;" /></p><p class="p1" style="padding-left: 30px;"><span class="s3" style="font-size: 12px; background-color: white;">4. Returns on work would be higher under the commission proposals.</span><span class="s1" style="font-size: 12px; background-color: white;">&nbsp; It is often extremely difficult to design proposals that would provide substantial support for low-income individuals while also providing adequate returns as individuals engage in paid employment.&nbsp; Figure 4, however, shows that throughout the income spectrum, individuals would receive larger increases under the proposals the more years that they work.&nbsp; This is in sharp contrast with current law, in which <a href="https://books.google.com/books?id=V7Q-zZjbrfIC&amp;pg=PA164&amp;lpg=PA164&amp;dq=Blahous+Social+Security+returns+on+work+seniors&amp;source=bl&amp;ots=lhfaSxS3zV&amp;sig=znCJNla3ZS9-YsOL98syrF0jfjc&amp;hl=en&amp;sa=X&amp;ved=0ahUKEwiMzIeQ-LvNAhWFqB4KHahaD8c4ChDoAQhEMAY#v=onepage&amp;q=Blahous%20Social%20Security%20returns%20on%20work%20seniors&amp;f=false"><span class="s2">returns on work decline dramatically</span></a> for seniors, at precisely the point in their lives when they must make decisions as to whether to remain in the workforce.&nbsp; The commission proposals would accomplish this by reforming the benefit formula to accrue benefits with additional years of work rather than basing benefit levels solely on career average earnings.</span></p> <p class="p1"><span class="s1">The BPC retirement security commission proposals reflect a roughly 50/50 compromise between left and right as to how to shore up the finances of Social Security.&nbsp; All program participants would benefit from the stabilization of program finances, with the largest gains accruing to low-wage workers.</span></p> http://mercatus.org/expert_commentary/balanced-bipartisan-compromise-strengthening-retirement-security Mon, 27 Jun 2016 11:14:55 -0400 Daniel Griswold Discusses the Brexit Vote on C-SPAN http://mercatus.org/video/daniel-griswold-discusses-brexit-vote-c-span <h5> Video </h5> <iframe frameborder='0' width='512' height='330' scrollable='no' src='http://www.c-span.org/video/standalone/?411218-5/washington-journal-daniel-griswold-brexit-vote'></iframe> <p class="p1"><span class="s1">Daniel Griswold talked about the fallout from the United Kingdom’s vote in favor of leaving the European Union.</span></p><div class="field field-type-text field-field-embed-code"> <div class="field-label">Embed Code:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> &lt;iframe frameborder=&#039;0&#039; width=&#039;512&#039; height=&#039;330&#039; scrollable=&#039;no&#039; src=&#039;http://www.c-span.org/video/standalone/?411218-5/washington-journal-daniel-griswold-brexit-vote&#039;&gt;&lt;/iframe&gt; </div> </div> </div> http://mercatus.org/video/daniel-griswold-discusses-brexit-vote-c-span Tue, 28 Jun 2016 16:31:52 -0400 Brexit http://mercatus.org/features/brexit contact@mercatus.org (Mercatus.org) <h5> Feature </h5> <p><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal; font-weight: normal; background-color: #ffffff;">Mercatus Center scholars weigh in on the United Kingdom's historic vote to leave the European Union, examining the impetus behind the vote and the potential future repercussions.</span></p> http://mercatus.org/features/brexit Fri, 24 Jun 2016 14:54:45 -0400 Mercatus Center Scholars Weigh in on Brexit http://mercatus.org/expert_commentary/brexit <h5> Expert Commentary </h5> <p>Mercatus Center scholars weigh in on the United Kingdom's historic vote to leave the European Union, examining the impetus behind the vote and the potential future repercussions.</p><p><b><a href="http://www.mercatus.org/david-beckworth">David Beckworth</a> <span style="font-size: 12px; background-color: white;">discusses the role central banks played in the Brexit with <a href="http://www.bloomberg.com/news/videos/2016-06-27/did-the-ecb-plant-the-seed-that-grew-into-brexit">Bloomberg's Matt Miller, Joe Weisenthal and Scarlet Fu on "What'd You Miss?"&nbsp;</a></span></b></p><p><iframe src="http://www.bloomberg.com/api/embed/iframe?id=pjkB9GqVQFGruUWhD0U2ZQ" allowscriptaccess="always" frameborder="0" height="330" width="512"></iframe></p><p><b><a href="http://www.mercatus.org/david-beckworth">David Beckworth</a> <a href="https://soundcloud.com/fdrlst/how-brexit-will-impact-the-global-economy">j</a><span style="font-size: 12px; background-color: white;"><a href="https://soundcloud.com/fdrlst/how-brexit-will-impact-the-global-economy">oined Federalist Radio</a> to discuss <a href="http://thefederalist.com/2016/06/27/radio-how-brexit-will-impact-the-global-economy/">Britain’s exit from the EU and how it will impact the global economy.</a></span></b></p><p><b><a href="http://mercatus.org/daniel-griswold">Daniel Griswold</a> appeared on C-SPAN to discuss&nbsp;<span style="font-size: 12px; background-color: white;">the fallout from the United Kingdom’s vote in favor of leaving the European Union.</span></b></p><p><object id="cspan-video-player" classid="clsid:d27cdb6eae6d-11cf-96b8-444553540000" codebase="http://fpdownload.macromedia.com/pub/shockwave/cabs/flash/swflash.cab#version=9,0,0,0" align="middle" height="330" width="512"><param name="allowScriptAccess" value="true" /><param name="movie" value="https://static.c-span.org/assets/swf/CSPANPlayer.1434395986.swf?pid=411218-5" /><param name="quality" value="high" /><param name="bgcolor" value="#ffffff" /><param name="allowFullScreen" value="true" /><param name="flashvars" value="system=http://www.c-span.org/common/services/flashXml.php?programid=445954&amp;style=inline&amp;version=2014-01-23" /><embed name="cspan-video-player" src="https://static.c-span.org/assets/swf/CSPANPlayer.1434395986.swf?pid=411218-5" allowscriptaccess="always" bgcolor="#ffffff" quality="high" allowfullscreen="true" type="application/x-shockwave-flash" pluginspage="http://www.macromedia.com/go/getflashplayer" flashvars="system=http://www.c-span.org/common/services/flashXml.php?programid=445954&amp;style=inline&amp;version=2014-01-23" align="middle" height="330" width="512" title="Adobe Flash Player"></embed></object></p><p><b style="font-family: inherit; font-style: inherit; background-color: white;"><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: inherit; font-weight: bold; background-color: #ffffff;">Richard Williams appeared on </span><span class="s1" style="font-size: 12px; background-color: white;">the <a href="http://mercatus.org/podcast/2016/06/24/richard-williams-john-gambling-radio-show-new-york">John Gambling Radio Show (New York)</a> to&nbsp;</span><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal; background-color: #ffffff;">discuss the Brexit vote's relationship to EU regulations.</span></b></p><p class="p1"><b><a href="http://mercatus.org/daniel-griswold">Daniel Griswold</a> appeared on the <a href="http://mercatus.org/podcast/2016/06/24/daniel-griswold-wvlk-radio-kentucky">Kruser and Krew radio show on WVLK Radio (Kentucky)</a> to discuss the historic Brexit vote.</b></p><p class="p1"><b style="font-family: inherit; font-style: inherit; background-color: white;"><span class="s1"><a href="http://mercatus.pr-optout.com/Tracking.aspx?Data=HHL%3d8344%3d9-%3eLCE59.61%3a%26SDG%3c90%3a.&amp;RE=MC&amp;RI=4406508&amp;Preview=False&amp;DistributionActionID=30924&amp;Action=Follow+Link">David Beckworth</a></span><span class="s2"> has this to say about&nbsp;Brexit causing the biggest global monetary shock since 2008&nbsp;at his <a href="http://mercatus.pr-optout.com/Tracking.aspx?Data=HHL%3d8344%3d9-%3eLCE59.61%3a%26SDG%3c90%3a.&amp;RE=MC&amp;RI=4406508&amp;Preview=False&amp;DistributionActionID=30923&amp;Action=Follow+Link"><span class="s1">blog</span></a>:&nbsp;</span></b></p> <blockquote><p class="p1"><span class="s1">Brexit is the biggest global monetary shock since 2008. This could be the tipping point that turns the existing global slowdown of 2016 into a global recession. Here is why.</span></p><p class="p1"><span class="s1">First, Brexit is adding further strength to an already overvalued dollar.&nbsp;The trade weighted dollar&nbsp;had appreciated roughly 25 percent between mid-2015 and early-2016. That is a very sharp increase in so short a time. It has come down some, but not much as seen in the figure below (red line):</span></p><p class="p1"><span class="s1"><img height="265" width="575" src="http://mercatus.org/sites/default/files/fred.JPG" /></span></p><p class="p1"><span class="s1"><a href="http://macromarketmusings.blogspot.com/2016/06/brexit-biggest-global-monetary-shock.html">Continue reading</a></span></p></blockquote><p class="p1"><span class="s1"><b><a href="http://mercatus.org/scott-sumner">Scott Sumner</a>&nbsp;discusses how the Brexit is not about Britain at the Library of Economics and Liberty's <i>Econlog:</i></b></span></p><blockquote><p class="p1"><span class="s1">I'm seeing a lot of confusion about the implications of Brexit. Here are two common misconceptions:</span></p><p class="p1"><span class="s1">1. Some people see it as a real shock, whereas it's primarily a monetary shock.</span></p><p class="p1"><span class="s1">2. Some see it affecting Britain's economy by disrupting trade, whereas it actually hurts the eurozone more, by depressing expected NGDP growth. The real effects are often overstated; Norway and Switzerland do fine outside the EU.</span></p><p class="p1"><span class="s1">In some respects, this is quite similar to the British decision to leave the gold standard in September 1931. That decision also hurt the continent of Europe more than Britain (indeed in that case it actually helped Britain.)</span></p><p class="p1"><span class="s1"><a href="http://econlog.econlib.org/archives/2016/06/brexit_is_not_a.html">Continue reading</a></span></p></blockquote><p class="p1" style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><b style="font-family: inherit; font-style: inherit; background-color: white;"><a href="http://mercatus.org/richard-williams" style="font-size: 12px;">Richard Williams</a><span style="font-size: 12px;">, in&nbsp;</span><a href="http://mercatus.org/expert_commentary/overregulated-britain" style="font-size: 12px;">his piece for US News &amp; World Reports</a><span style="font-size: 12px;">, discusses overregulation as motive for the Brexit:</span></b></p><blockquote style="font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><p class="p1" style="font-size: 12px;"><span class="s1" style="font-size: 12px;">Is the "Brexit" – the possible departure of the U.K. from the European Union – a major sign of a populist revolt against bureaucracy? It&nbsp;<a href="http://globalriskinsights.com/2016/03/brexit-better-britain/" style="font-size: 12px;"><span class="s2" style="font-size: 12px;">would seem so</span></a>, and the warnings of potential consequences seem dire.</span></p><p class="p1" style="font-size: 12px;"><span class="s1" style="font-size: 12px;">Some argue that if the United Kingdom leaves the EU, then there will be a bureaucratic regulation-fest to make sure that no area currently regulated goes&nbsp;<a href="http://www.independent.co.uk/news/uk/politics/eu-referendum-brexit-would-prompt-regulationfest-of-replacing-brussels-bureaucracy-leading-lawyers-a6927746.html" style="font-size: 12px;"><span class="s2" style="font-size: 12px;">unregulated</span></a>. But that would be nothing new for those long suffering under the weight of British regulations as ably chronicled in the humorous yet depressing book, "<a href="https://www.amazon.com/How-Label-Goat-Regulations-Strangling/dp/1905641567/ref=sr_1_2?ie=UTF8&amp;qid=1466257182&amp;sr=8-2&amp;keywords=how+to+label+a+goat" style="font-size: 12px;"><span class="s2" style="font-size: 12px;">How to Label a Goat: The Silly Rules and Regulations That Are Strangling Britain</span></a>."</span></p><p class="p1" style="font-size: 12px;"><span class="s1" style="font-size: 12px;">Many argue that Britain would be fiscally at risk, yet a&nbsp;<a href="http://mercatus.org/publication/cumulative-cost-regulations" style="font-size: 12px;"><span class="s2" style="font-size: 12px;">recent paper</span></a>&nbsp;from the Mercatus Center at George Mason University shows that, if we had frozen regulations in the United States at the 1980 level, each person in the nation would be $13,000 richer today. The British government believes that the cost of just the top 100 EU regulations is about $<a href="http://openeurope.org.uk/today/blog/whats-best-way-cutting-33-3bn-burden-eu-red-tape/" style="font-size: 12px;"><span class="s2" style="font-size: 12px;">47 billion</span></a>. If Britain were to leave, someone would actually have to ensure that there wouldn't be a free-for-all for those who favor regulating everything imaginable.</span></p><p class="p2" style="font-size: 12px;"><span class="s1" style="font-size: 12px;"><a href="http://www.usnews.com/opinion/articles/2016-06-20/expect-more-brexit-style-sentiments-if-regulations-arent-reformed" style="font-size: 12px;">Continue reading</a></span></p></blockquote><p class="p1" style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;"><b>And in&nbsp;<a href="http://reason.com/archives/2016/06/22/the-brexit-vote-is-a-referendum-on-the-e" style="font-size: 12px;">his piece for Reason Magazine</a>, he writes:</b></p><blockquote style="font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><p class="p1" style="font-size: 12px;"><span class="s1" style="font-size: 12px;">How many people does it take to change a lightbulb in England? Depends on what the European Union (EU) says.</span></p><p class="p1" style="font-size: 12px;"><span class="s1" style="font-size: 12px;">A priest in Suffolk, England used to hire a man to climb a ladder to change his lightbulbs. That was fine until the European Union Working at Heights Directive banned this activity so that now the priest must spend&nbsp;1,700 pounds (about $2,000).</span></p><p class="p1" style="font-size: 12px;"><span class="s1" style="font-size: 12px;">In the next seven years, they added an additional 12,000 regulations (about 1,700 per year). The vast majority of them (only about 1 in 200) have no analysis of the likely impacts. This is problematic as the costs of EU regulations are estimated to be above&nbsp;<a href="http://openeuropeblog.blogspot.com/2009/04/how-many-of-our-laws-are-made-in.html" style="font-size: 12px;"><span class="s2" style="font-size: 12px;">70 percent</span></a>&nbsp;of the costs of all regulation.&nbsp;</span></p><p class="p1" style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;"><a href="http://mercatus.org/expert_commentary/brexit-vote-referendum-european-union-s-thousands-stifling-regulations" style="font-size: 12px;">Continue reading</a></p></blockquote><p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span class="s1" style="font-size: 12px; background-color: white;"><b style="font-size: 12px;"><a href="http://mercatus.org/daniel-griswold">Daniel Griswold</a></b></span><span class="s2" style="font-size: 12px; background-color: white;"><b>, Director of the Program on the American Economy &amp; Globalization, had this to say on leaving a free-trade zone:&nbsp;</b></span></p><blockquote style="font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><p class="p1" style="font-size: 12px;"><span class="s2" style="font-size: 12px;">Both sides are exaggerating the consequences of Britain's vote on Thursday whether to stay in the EU. And both sides have good and not-so-good arguments to back their case. All things considered, there is probably more risk for Britain in leaving the huge free-trade area on its doorstep than in remaining and working for reform within the EU.</span></p></blockquote> http://mercatus.org/expert_commentary/brexit Mon, 27 Jun 2016 18:32:06 -0400 Ryan Is Right to Tackle Federal Regulations, but We Must Look at State and Local, Too http://mercatus.org/expert_commentary/ryan-right-tackle-federal-regulations-we-must-look-state-and-local-too <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Earlier this month, Speaker <a href="http://thehill.com/people/paul-ryan"><span class="s2">Paul Ryan</span></a> (R-Wis.) and House Republicans announced a <a href="http://www.speaker.gov/press-release/a-better-way"><span class="s2">series of policy proposals</span></a> to create "a confident America, where everyone has the chance to go out and succeed no matter where they start in life." The goals of this initiative, "<a href="http://abetterway.speaker.gov/"><span class="s2">A Better Way</span></a>," are certainly admirable. A major focus of the proposals released so far concern removing barriers to opportunity and upward mobility through reforming federal regulations and increasing congressional oversight of federal agencies. However, while this a good place to start, the barriers that exist at a federal level are only a small piece of the puzzle.</span></p> <p class="p2"><span class="s1">In fact, the most pervasive barriers to opportunity are not a product of federal regulations or agencies. Instead, state and local governments are responsible for most of what stands in the way of individuals finding meaningful work in today's economy. This, like the issues that Ryan has highlighted so far, is something that Congress has the power to combat in a significant way.</span></p> <p class="p1"><span class="s1">Disregarding the role of state and local governments will leave much of the problem unchanged. Only when Washington takes fundamental reform at a state-level seriously will everyone have a genuine chance to go out and succeed in the manner that Ryan has suggested.</span></p> <p class="p1"><span class="s1">Take, for example, occupational licensing and other regulatory barriers — such as <a href="http://mercatus.org/site-search?search=%2522certificate%2520of%2520need%2522"><span class="s2">certificate-of-need laws</span></a> — that obstruct competition and impede the entry to markets. Almost exclusively carried out at a state and local level, these barriers act to protect those already in an industry from increased competition. Often, they are enforced long after their initial justifications have evaporated (if they ever really existed in the first place). All of this is done at the expense of the opportunity for those seeking to practice their chosen profession. As a <a href="http://ij.org/wp-content/uploads/2015/04/licensetowork1.pdf"><span class="s2">recent report</span></a> from the Institute for Justice finds, these burdens fall particularly on minorities, those of lesser means and those with less education.</span></p> <p class="p1"><span class="s1">As if it wasn't bad enough that the growth in occupational licensing has gone unchecked for nearly five decades — approximately 5 percent of the workforce needed a license to work in 1950, while more than 25 percent requires a license today — Congress is directly responsible for some other state-level barriers that act to compound these problems. It was Congress that initially <a href="http://mercatus.org/publication/40-years-certificate-need-laws-across-america"><span class="s2">required states to pass certificate-of-need laws in the mid-1970s</span></a>, which require doctors and other providers to <a href="http://www.usatoday.com/story/opinion/2014/10/14/health-care-certificate-of-need-cartel-innovation-column/17272613/"><span class="s2">receive permission</span></a> from the state before they may open, expand or invest in their practice. Although Congress no longer requires states to enforce these laws (and hasn't since the mid-1980s), nearly two-thirds of states continue to use these laws to limit both the opportunities for those seeking to work in healthcare and increase the costs for those seeking care.</span></p> <p class="p1"><span class="s1">Breaking down these barriers would go a long way toward helping those in poverty and creating opportunities for those looking for work. In fact, by focusing on these impediments to competition, a twofold benefit could be achieved: opportunity becomes realized easier and life becomes more affordable.</span></p> <p class="p1"><span class="s1">But what can Congress do about state-level barriers? The principles of federalism certainly require a lighter touch when it comes to federal influence over state and local governments. However, this does not mean that Congress is powerless. Reinvigorating federal competition policy via the Federal Trade Commission (FTC) could go a long way toward fighting anticompetitive state-level policies, which has been a focus of the FTC's advocacy and litigation for decades. Moreover, while the most recent installment of the policy proposals discusses exercising the power of purse over state agencies, the same could be said for using federal funds to influence pro-competitive reforms at a state level. After all, in the case of certificate-of-need laws, this was how Congress got states to pass them in the first place.</span></p> <p class="p1"><span class="s1">Besides, expanding these efforts in this way may actually bridge partisan divides. The proposals have been <a href="http://www.usatoday.com/story/news/politics/2016/06/07/paul-ryan-starts-unveiling-plan-better-gop/85535902/"><span class="s2">criticized by Democrats</span></a> as failing to tackle the real issues at hand, but it does not have to be a partisan effort. Reforming barriers to work and opportunity is an issue that the <a href="https://www.whitehouse.gov/the-press-office/2016/06/17/fact-sheet-new-steps-reduce-unnecessary-occupation-licenses-are-limiting"><span class="s2">Obama administration has taken up</span></a> over the past year. In the White House's most recent <a href="https://www.whitehouse.gov/sites/default/files/docs/licensing_report_final_nonembargo.pdf"><span class="s2">report on occupational licensing</span></a>, in which the administration explains the damaging effects of occupational licensing, it concludes that "[t]he stakes involved are high, and to help our economy grow to its full potential we need to create a 21st century regulatory system — one that protects public health and welfare while promoting economic growth, innovation, competition, and job creation." This statement could have very easily been included in any of the policy reports released so far by Ryan.</span></p> <p class="p1"><span class="s1">There seems to be little disagreement that our current regulatory approach is standing in the way. And the push for reform should be a bipartisan effort. However, the focus should be on not only returning balance and accountability between the separate branches of the federal government. It should also ensure that every level of government is held accountable. Working toward that end is a good first step toward finding a better way.</span></p> http://mercatus.org/expert_commentary/ryan-right-tackle-federal-regulations-we-must-look-state-and-local-too Mon, 27 Jun 2016 11:10:12 -0400 Affordable Care Act Turmoil: Large Losses in the Individual Market Portend an Uncertain Future http://mercatus.org/publication/affordable-care-act-turmoil-large-losses-individual-market-portend-uncertain-future <h5> Publication </h5> <p class="p1"><span class="s1">The Affordable Care Act (ACA) significantly altered the rules governing health insurance, especially in the individual market. While the law has increased the number of people with health insurance, lower-than-expected enrollment in the new health insurance exchanges and significant insurer losses have resulted in substantial premium increases and insurer withdrawals from state markets. These negative outcomes cast increasing doubt on the ACA and its long-term sustainability.</span></p> <p class="p1">A new study for the Mercatus Center at George Mason University uses 2014 data from the Department of Health and Human Services to analyze the performance of 174 insurers who offered qualified health plan (QHP) coverage to both individuals and small groups (generally firms with fewer than 50 workers). The study finds that, despite substantial subsidies, insurers suffered larger losses selling QHPs in the individual market than they did selling nearly identical policies in the small group market. These losses were driven largely by the fact that the population that enrolled in individual QHPs had much higher claims costs than the population enrolled in small group QHPs, or the population enrolled in either individual or group non-QHPs (i.e., plans in place before the ACA exchanges launched and ACA-compliant plans that are not certified as QHPs).</p> <p class="p1"><span class="s1">This study is the second in a series examining the ACA’s performance using the same dataset.&nbsp;</span></p> <p class="p3">KEY POINTS</p> <ul class="ul1"> <li class="li4">Individual QHPs had loss ratios (medical claims divided by premium income) of 110 percent. These were significantly higher than the loss ratios for group QHPs (82 percent) and individual non-QHPs (83 percent), both of which were well within the historic norm for health insurance plans.</li> <li class="li4">These losses came as the result of per-enrollee medical claims that were 24 percent higher for individual QHPs than for group QHPs and 93 percent higher for individual QHPs than for individual non-QHPs.</li> <li class="li4">The large losses came despite the ACA targeting the individual QHP market with significant subsidies, particularly payments through the reinsurance program equal to 20 percent of premium income. The reinsurance program is set to expire after 2016, which will undoubtedly cause premiums to rise as insurers strive to reach profitability.</li> <li class="li4">These results indicate that the ACA’s regulations may be unsuitable for the individual market. This situation could pressure policymakers to revise or reverse some of the changes made by the ACA.</li></ul> <p class="p3">BACKGROUND</p> <p class="p1">The ACA required that insurers participating in the individual market offer coverage to any applicant, but restricted the insurers’ ability to charge premiums that reflect applicants’ likely expenditures. These requirements make individual insurance significantly more expensive for relatively young and healthy people and create incentives for individuals to delay purchasing coverage until they anticipate needing medical care. To offset these incentives, the ACA provided income-related subsidies for people purchasing exchange coverage and imposed a tax penalty on those without the required coverage.</p> <p class="p1">Since the ACA’s changes introduced greater uncertainty into the individual market, the law established a temporary reinsurance program for insurers offering ACA-compliant plans in the individual market, in addition to the risk adjustment and temporary risk corridor programs available to insurers offering QHPs in both the individual and group markets. The reinsurance program compensates insurers for a large share of expenses incurred by “high risk individuals,” financed by fees on nearly everyone with private insurance.</p> <p class="p3">SUMMARY</p> <p class="p1">Individual QHPs suffered significantly larger losses than both individual non-QHPs and group QHPs despite significant subsidies that boosted premium income in the individual QHP market.</p> <ul class="ul1"> <li class="li4">Total revenue per enrollee (before risk corridor claims) was $5,484 for individual QHPs but only $4,812 for group QHPs. This disparity was driven largely by subsidies from the reinsurance program that totaled 20 percent of individual QHP premium income.</li> <li class="li4">Insurers received average reinsurance payments of $915 per enrollee, on net, for their individual QHPs in 2014. For group QHPs, however, insurers had to pay into the reinsurance program an average of $61 per enrollee.</li> <li class="li4">Insurers would have needed roughly 31 percent higher average premiums to have covered their expenses selling individual QHPs in 2014 without the reinsurance program. This suggests that large premium increases will be necessary, because (1) enrollees are more costly than expected and (2) the reinsurance program expires at the end of 2016.</li> </ul> <p class="p1">Individual QHPs had loss ratios of 110 percent, compared to loss ratios for group QHPs and individual non-QHPs of 82 percent and 83 percent, respectively. The large losses for individual QHPs were driven by high medical claims.</p> <ul class="ul1"> <li class="li4">Insurers’ average per-enrollee medical claim for individual QHPs was $4,973, much higher than the average per-enrollee medical claim of $2,581 for individual non-QHPs and $4,007 for group QHPs.</li> <li class="li4">In proportional terms, enrollee medical claims for individual QHPs were 24 percent higher than for group QHPs and 93 percent higher than for individual non-QHPs.</li> <li class="li4">The dramatically different experiences of nearly identical plans in the two QHP markets may be explained by features of group coverage that limit adverse selection pressures resulting from the ACA’s insurance market rules and premium restrictions.</li> </ul> <p class="p1">The poor performance of individual QHPs relative to group QHPs was generally consistent across insurers, although overall performance varied significantly across insurers, with the new ACA-sponosored cooperatives (co-ops) performing the worst.</p> <ul class="ul1"> <li class="li4">The carrier with a sizeable market share that fared the best in the individual market was Kaiser Permanente, while the co-ops generally had the worst results.</li> <li class="li4">The risk adjustment program produced large losses for group QHPs offered by co-ops, because the co-ops were collectively assessed a risk adjustment payment of $975 per enrollee.</li></ul> <p class="p3">CONCLUSION</p> <p class="p1">Insurers offering both individual and group QHPs fared reasonably well in the group market but generally incurred large overall losses in the individual market. These losses occurred despite large reinsurance payments overwhelmingly benefitting individual QHPs and subsidies that were only available to people purchasing individual QHPs through an exchange. The large losses on individual QHPs did not occur in the group market, suggesting that the ACA’s individual market rules and regulations may be incompatible with a well-functioning insurance market because they trigger significant adverse selection pressure.</p> <p class="p1">Although the reinsurance program significantly lowered individual QHP premiums in 2014, premiums were still not low enough to attract a sufficient number of younger and healthier enrollees to create a balanced risk pool. Preliminary data indicate that insurers’ losses were significantly larger in 2015 than in 2014. These increased losses, coupled with the scheduled expiration of the reinsurance and risk corridor programs, will likely lead to substantially higher premiums in 2017. Yet higher premiums will further reduce the attractiveness of individual QHPs to younger and healthier enrollees, resulting in a market that will appeal primarily to lower-income individuals who receive large subsidies and to people with expensive health conditions. To avoid such an outcome, it is increasingly likely that the individual insurance market changes made by the ACA will have to be revised or reversed.</p> http://mercatus.org/publication/affordable-care-act-turmoil-large-losses-individual-market-portend-uncertain-future Mon, 27 Jun 2016 17:59:18 -0400 The Evolving Role of the USDA in the Food and Agricultural Economy http://mercatus.org/publication/evolving-role-usda-food-and-agricultural-economy <h5> Publication </h5> <p class="p1">Since its inception more than a century and a half ago, the US Department of Agriculture (USDA) has experienced enormous growth in both size and complexity—as has the industry it seeks to serve. Today the USDA is among the largest federal employers and its 2014 budget exceeded $160 billion. Its spectrum of activities span from the protection of rural farm interests to urban food assistance. Consequently, the department is the target of a wide range of interest groups besides farmers, including food assistance advocates and advocacy groups interested in issues such as obesity, animal welfare, food safety, the environment, and more. The disparate agendas of these groups make it difficult for Congress to assemble a unified policy package each time USDA’s programs are due for reauthorization. The latest reauthorization, the Agricultural Act of 2014, was signed into law two years late in February 2015.</p> <p class="p1">In a new study for the Mercatus Center at George Mason University, economist Jayson L. Lusk documents the changes in American agriculture since the USDA’s inception and the expansion of the department’s mission. Much of the USDA’s regulation is outdated, wasteful, and conflicting.</p> <p class="p3">CHANGING INDUSTRY, CHANGING DEPARTMENT</p> <p class="p4">American Farming Has Changed Drastically since 1862</p> <ul class="ul1"> <li class="li5">In 1900, 40 percent of Americans worked on farms. Today, a mere 1 percent do.</li> <li class="li5">Despite massive growth in output, agriculture accounts for less than 1 percent of US GDP today.</li> <li class="li5">Whereas farm households previously earned less than the average US household, today they earn over $20,000 more than the average household and have nearly triple the average household’s net worth.</li> <li class="li5">Farm households today are more financially diversified than in the past and depend on agriculture for less than a quarter of their income.</li> </ul> <p class="p4">The USDA’s Responsibilities Have Also Changed Drastically since 1862</p> <ul class="ul1"> <li class="li5">When the USDA was established in 1862, its stated mission was to collect foreign seeds and distribute them to farmers.</li> <li class="li5">In 1906, Congress passed laws requiring the inspection of meat, poultry, and eggs, and the USDA was tasked with enforcing food safety.</li> <li class="li5">During the Great Depression, the USDA mandated price floors and bought surplus crops. This unintentionally encouraged overproduction, lowering food prices, and the USDA quickly exhausted its $500 million budget.</li> <li class="li5">As part of the New Deal, farmers were given subsidies for not planting crops.</li> <li class="li5">Under Lyndon B. Johnson’s administration, the USDA began to oversee food stamp and commodity distribution programs, and a large increase in spending ensued.</li> </ul> <p class="p4">The USDA’s Outdated Farm Policies Continue to Affect Production</p> <p class="p1">In the United States fewer, larger farms now produce more with less labor than in the past, and farmers are in better financial standing relative to other workers, but USDA farm policy continues to subsidize farmers—often via programs tied to Depression-era polices. For example, it was only in 2015 that the Supreme Court struck down an order from the 1940s regarding raisin marketing, which Justice Elena Kagan described as “the world’s most outdated law.”</p> <p class="p3">THE USDA TODAY</p> <p class="p1">Much of current USDA spending goes toward farm subsidies and food assistance programs such as the Supplemental Nutrition Assistance Program (SNAP).</p> <p class="p1">Farm subsidies can have unintended effects:</p> <ul class="ul1"> <li class="li5">Offering an agricultural subsidy creates an incentive to produce more. In the case of farming, much of the benefit from subsidies is captured by landowners or holders of seed patents rather than by small farmers. The overall result is an inefficient use of resources.</li> <li class="li5">Research suggests that subsidies actually harm some farmers and consumers. By encouraging the production of commodity crops, subsidies reduce fruit and vegetable production, leading to higher prices for consumers.</li> </ul> <p class="p1">Early food assistance programs were designed to alleviate farm surpluses, but there is little evidence that child nutrition, school lunch, or food stamp programs actually increase farm prices:</p> <ul class="ul1"> <li class="li5">It is estimated that for every dollar spent on SNAP, farmers benefit by less than one cent.</li> <li class="li5">However, research suggests that SNAP spending does reduce food insecurity.</li></ul> <p class="p3">ECONOMIC CONSIDERATIONS</p> <p class="p1">Much of the USDA’s activity is justified by the claim that it corrects market failures and ensures that markets remain competitive and do not create unnecessary costs. In fact, most USDA activities have little to do with addressing “unfair” competition. In cases where unfair competition does exist, there are already a variety of federal laws under which victims can sue for redress.</p> <ul class="ul1"> <li class="li5"><i>USDA farm policies sometimes reduce competition in the market.</i> A number of USDA actions, such as marketing orders (regulations), actually seek to promote market power and reduce competition. Some marketing orders allow commodity organizations (essentially trade associations) to control supply, which raises prices and harms consumers. Also, agricultural cooperatives are exempt from antitrust law, even though they coordinate business activities in a way that can reduce competition.</li> <li class="li5"><i>As public choice theory predicts, farm policy is influenced by political interests.</i> The costs of agricultural subsidies are diffused and go unnoticed by taxpayers, but the payouts are concentrated on a smaller, better-organized group of farmers who can lobby for redistributive policies. Research has found that legislators who receive donations from pro-farm groups tend to vote in favor of such redistributive policies.</li> </ul> <p class="p2"><span style="font-size: 12px; background-color: white;">CONCLUSION</span></p> <p class="p1">The size, budget, and responsibilities of the USDA have grown tremendously since its inception. The department today takes on an array of varied and often conflicting tasks. Research suggests that much of the agricultural regulatory apparatus has become outdated as the industry has evolved radically over time. This situation presents opportunities to reform the USDA in order to meet today’s challenges.</p> http://mercatus.org/publication/evolving-role-usda-food-and-agricultural-economy Fri, 24 Jun 2016 10:56:15 -0400 The Brexit Vote is a Referendum on the European Union’s Thousands of Stifling Regulations http://mercatus.org/expert_commentary/brexit-vote-referendum-european-union-s-thousands-stifling-regulations <h5> Expert Commentary </h5> <p class="p1"><span class="s1">How many people does it take to change a lightbulb in England? Depends on what the European Union (EU) says.</span></p> <p class="p3"><span class="s1">A priest in Suffolk, England used to hire a man to climb a ladder to change his lightbulbs. That was fine until the European Union Working at Heights Directive banned this activity so that now the priest must spend</span><span style="font-size: 12px; background-color: white;">1,700 pounds (about $2,000)</span><span style="font-size: 12px; background-color: white;">.</span></p><p class="p3"><span style="font-size: 12px; background-color: white;"> In the next seven years, they added an additional 12,000 regulations (about 1,700 per year). The vast majority of them (only about 1 in 200) have no analysis of the likely impacts. This is problematic as the costs of EU regulations are estimated to be above </span><a style="font-size: 12px; background-color: white;" href="http://openeuropeblog.blogspot.com/2009/04/how-many-of-our-laws-are-made-in.html"><span class="s2">70 percent</span></a><span style="font-size: 12px; background-color: white;"> of the costs of all regulation.&nbsp;</span></p> <p class="p3"><span class="s1">But relative to the pace of regulations put out by the U.S. federal government, the EU could be viewed as highly restrained. In 2015 alone,&nbsp; the United States put out <a href="http://thehill.com/regulation/administration/264456-2015-was-record-year-for-federal-regulation-group-says"><span class="s2">3,378</span></a></span><span class="s2"> </span><span class="s1">rules (with another 2,234 under consideration).</span></p> <p class="p3"><span class="s1">How do we end up with so many regulations, including the ones that may cause a church to close down?</span></p> <p class="p3"><span class="s1">The standard answer in economics is "concentrated benefits and dispersed costs." What that means is that there are always groups—whether they are industry groups or activists groups—who gain a lot from an individual regulation, meaning they get the concentrated benefits. But the people who bear the costs—consumers, small business owners, and workers—generally pay small costs for each individual rule. As the rules add up, so do the costs. The issue is that while ordinary people bear these costs, the incentive for any individual to object to a single regulation is fairly small.&nbsp;</span></p> <p class="p3"><span class="s1">The United States has its own share of stupid rules like specifying the number of <a href="http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=145.135"><span class="s2">cherries</span></a> that must be in fruit cocktail or the <a href="http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=145.180"><span class="s2">11 different allowed ways</span></a> to pack pineapple in a can. And we don't do a very good job at looking at the impact of our rules either, for big or small. Between 2004 and 2013 only 116 out of the 37,000 regulations had estimates of benefits and costs. How about impacts on small businesses? The EPA recently certified that a gigantic rule expanding their jurisdiction over waters in the United States (WOTUS) <a href="https://www.sba.gov/sites/default/files/Final_WOTUS%20Comment%20Letter.pdf"><span class="s2">did not significantly impac</span></a>t small businesses. Farmers appear to <a href="http://ditchtherule.fb.org/"><span class="s2">disagree</span></a> strongly.</span></p> <p class="p3"><span class="s1">It's easy to understand the sentiment behind a "Brexit" when the EU required farmers in the U.K. to buy <a href="http://robinphillips.blogspot.com/2007/05/review-of-how-to-label-goat.html"><span class="s2">£5,000</span></a> machines to label every egg as to when it was laid and the identity of the chicken. (Who knew they all had names?) But go or stay, the problem of regulation will remain in the U.K., just as it will in the United States. However, if the U.K. decides to leave the EU, there are some reforms they could undertake to begin to get control over the regulatory state.</span></p> <p class="p3"><span class="s1">First, set up the system to ensure legislators know what problem they are addressing. Make sure alternative ways to solve the problem are considered and that the benefits of the chosen solution exceeds the costs. This is known as a regulatory impact analysis. Make this a legal mandate, meaning that if an agency doesn't do it, anybody can go to court to stop the rule.</span></p> <p class="p3"><span class="s1">Second, don't pass legislation that gives agencies the authority to pass rules into infinity and with deference on their interpretations from the courts.</span></p> <p class="p3"><span class="s1">Third, sunset the legislation, provide for retrospective review and give the agencies a social budget cost to implement the legislation.</span></p> <p class="p3"><span class="s1">Finally, make agencies accountable to legislators. For really big rules, with a high economic impact, they should have legislative approval.</span></p> <p class="p3"><span class="s1">There are many, many bills before the U.S. Congress right now trying to implement some of these recommendations, but they are stalled. One reason they are stalled goes back to why we get so many of these rules in the first place: concentrated benefits and dispersed people bearing the costs in terms of lost businesses, lower wages and higher prices. If the U.K. does leave the EU, it should take this opportunity for a regulatory reset.</span></p> http://mercatus.org/expert_commentary/brexit-vote-referendum-european-union-s-thousands-stifling-regulations Thu, 23 Jun 2016 11:37:43 -0400 House Republicans Propose Real, Though Incomplete, Medicaid Reform http://mercatus.org/expert_commentary/house-republicans-propose-real-though-incomplete-medicaid-reform <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Medicaid, the joint federal-state program that finances health care and long-term care expenses for disabled and low income individuals, needs fundamental reform. Medicaid <a href="http://www.nber.org/papers/w21308"><span class="s2">provides</span></a> far too many enrollees with relatively little value, <a href="http://www.nationalreview.com/article/313120/medicaid-americas-worst-health-care-program-avik-roy"><span class="s2">produces</span></a> relatively poor outcomes, and <a href="http://www.nber.org/papers/w12858"><span class="s2">crowds out</span></a> private sector coverage.</span></p> <p class="p1"><span class="s1">Many of the program’s problems emanate from the open-ended federal reimbursement of state Medicaid expenditures. Last year, the federal government paid 63% of state Medicaid bills. The current financing structure discourages both states and the federal government from caring much about the value the program delivers and allows interest groups to argue that states should increase Medicaid for the economic stimulus it generates, ignoring that Medicaid spending must be financed by higher federal taxes.</span></p> <p class="p1"><span class="s1">The open-ended federal reimbursement is causing Medicaid to crowd out state priorities such as education, infrastructure, and adequate funding of public sector pensions. The figure below shows how Medicaid has risen as a percentage of state spending over time and how other categories of state spending have declined.</span></p> <p class="p1"><img height="390" width="575" alt="Percentage of Key Categories of State Expenditures, Including Federal Funds" src="http://mercatus.org/sites/default/files/blasemedicaid.jpg" /></p> <p class="p1"><span class="s1">The open-ended federal Medicaid reimbursement has also produced&nbsp;an explosion of federal spending. Between 1990 and 2015, federal Medicaid spending increased from $77 billion (in 2015 dollars) to $350 billion, and program enrollment more than tripled during this period.</span></p> <p class="p1"><span class="s1">For a myriad of reasons, it’s hard to significantly change government programs, even ones that provide a small benefit relative to their cost. Yesterday, the House Republicans’ health care task force released a <a href="http://abetterway.speaker.gov/_assets/pdf/ABetterWay-HealthCare-PolicyPaper.pdf"><span class="s2">blueprint</span></a> for health care reform, which includes Medicaid reform. Fortunately, the Medicaid portion of the blueprint recognizes that the federal government should no longer provide an open-ended reimbursement of state Medicaid spending—the single most important policy change needed for the program.</span></p> <p class="p1"><span class="s1">The task force proposal allows states the choice of a block grant or a per capita allotment and changes federal rules to allow states greater freedom to reform their programs. While more meat needs to be put on the bones of the proposal, the Medicaid component of the health care blueprint shows signs that serious legislation could emerge that would be a vast improvement from the status quo.</span></p> <p class="p1"><span class="s1"><b>The House Republicans’ Medicaid Financing Proposal</b></span></p> <p class="p1"><span class="s1">The Medicaid proposal contained in the task force plan has two central elements: 1) replacing the open-ended federal financing structure with, at states’ option, a per capita allotment or a block grant, and 2) increasing the ability of states to reform their programs and transition people off Medicaid by reducing federal rules and streamlining bureaucracy.</span></p> <p class="p1"><span class="s1">Starting in 2019, the task force plan allows states to receive federal Medicaid funding through block grants, or through per capita allotments, which were proposed in 1995 by then-president Bill Clinton. If states elect the per capita allotment option they will receive an allotment for each enrollee in the four major enrollment groups—seniors, the blind and disabled, children, and non-disabled, working-age adults—with varying allotment amounts for each group.</span></p> <p class="p1"><span class="s1">The proposal indicates that the per capita amounts would be based on the 2016 federal share of expenditures for each category of enrollees, adjusted for inflation. The proposal also indicates that the inflation rate would be less than under current law, but that rate is not specified.</span></p> <p class="p1"><span class="s1">Under the block grant option—the longstanding Republican Medicaid reform position—“funding would be determined using a base year in a manner that would assume states transition individuals currently enrolled in Obamacare’s Medicaid expansion into other sources of coverage.” The proposal further indicates that “states would receive maximum flexibility for the management of eligibility and benefits for non-disabled, non-elderly adults and children” if they select a block grant.</span></p> <p class="p1"><span class="s1">Any Medicaid reform proposal must also specify what will be done with the population made eligible for Medicaid by the ACA. Under the proposal, states that have not yet expanded Medicaid would be prohibited from doing so. This effectively means that the plan would eliminate the enhanced match—the federal government reimburses the ACA expansion population of generally non-disabled, working-age adults at a rate of 100% from 2014 to 2016 and never below 90% thereafter—for states that have not yet expanded. People in those states who would have been covered under the terms of the ACA Medicaid expansion would instead qualify for a tax credit—a core component of the House Republicans’ task force plan—to assist in the purchase of a private insurance plan.</span></p><p class="p1"><span class="s1"></span><span style="font-size: 12px; background-color: white;">The task force plan also allows states that have expanded Medicaid to reduce income eligibility thresholds below the 138 percent of federal poverty level threshold in the ACA or to phase out the expansion by freezing enrollment. People who are no longer eligible for Medicaid in those states, would be eligible for a tax credit to purchase a private plan. The task force also proposes to slowly phase down the enhanced reimbursement rate for the ACA expansion population until it reaches the normal state reimbursement rate in the hopes of “transitioning many of the able-bodied adults from Medicaid into commercial coverage.”</span></p> <p class="p1"><span class="s1">In addition to changing Medicaid’s financing structure, the task force blueprint outlines several ideas for how Republicans would significantly loosen the federal rules governing state programs. I will discuss this aspect of the proposal in a subsequent piece, but, if adopted, these policies would reduce federal rules and bureaucracy and allow states much greater discretion over eligibility requirements as well as plan design, particularly for non-disabled adults.</span></p> <p class="p1"><span class="s1"><b>Evaluating the Medicaid Financing Proposal</b></span></p> <p class="p1"><span class="s1">The three key questions to ask of any Medicaid financing proposal that ends the open-ended federal reimbursement are: 1) what is the level of federal commitment? 2) how are the funds divided among the states? and 3) how are state incentives affected? These questions touch on deep divisions and profoundly affect both states and interest groups. The first question is crucial given that the large and growing federal budget deficits are primarily driven by unsustainable federal commitments through Social Security, Medicare, Medicaid, and the ACA, but I will focus on the last two questions.</span></p> <p class="p1"><span class="s1">For all enrollees except the ACA expansion population, states’ federal Medicaid reimbursement rate is inversely related to states’ per capita income. The idea was to provide greater federal support for poorer states. However, the reality is more complicated as some states, <a href="https://oversight.house.gov/wp-content/uploads/2013/03/Bipartisan-Medicaid-Oversight-Report-Final.pdf"><span class="s2">exemplified by New York</span></a>, have developed sophisticated financing gimmicks to leverage federal funds without actual state contributions. Unfortunately, federal funding is increasingly a function of the creativity of state financing gimmicks.</span></p> <p class="p1"><span class="s1">In addition to different state approaches to financing gimmicks, some states spend a lot more on Medicaid per enrollee than other states. For example, New York <a href="http://kff.org/medicaid/state-indicator/medicaid-spending-per-full-benefit-enrollee/"><span class="s2">spends</span></a> more than three times as much per disabled Medicaid enrollee as Alabama. Although Alabama is a much poorer state, it receives $10,000 less than New York in federal funding per disabled Medicaid enrollee. Grandfathering in existing spending levels, which the task force plan appears to do, should be reconsidered since doing so seems to unjustly award states with high existing spending like New York and punish states with lower existing spending like Alabama.</span></p> <p class="p1"><span class="s1">Moving forward, it is also important to understand the different effects on state incentives produced by block grants and per capita caps. One concern, with per capita allotments is the incentive created for states when they receive additional funding for each program enrollee. This will undoubtedly cause some states, aided by interest groups in those states, to seek to enroll as many people, particularly relatively healthy people, into their programs as possible.</span></p> <p class="p1"><span class="s1">The ability of states to do this for the blind and disabled population is not concerning since those enrollees generally have already gone through a screening process to gain eligibility for a disability program—Supplemental Security Income. Moreover, the phase down in the elevated match for the expansion population does diminish the incentive for states to enroll non-disabled, working-age adults into Medicaid. Moving forward, the task force may consider how to blend per capita caps with block grants to best achieve Medicaid financing reform.</span></p> <p class="p1"><span class="s1">With respect to the ACA Medicaid expansion, the task force approach moves in the right direction. Given the evidence that Medicaid is such a poor program for non-disabled adults in particular, allowing states to move as many non-disabled adults off of Medicaid is sensible. Thus, the decision of the task force to ratchet down the elevated match rate for the expansion population is important. While reducing the elevated rate eliminates the bias against the traditional Medicaid enrollment groups, it will also provide states with an incentive to transition non-disabled, working-age adults off of Medicaid. Of course, it is important to consider the costs of this approach, meaning the task force needs to specify the size of the tax credit.</span></p> <p class="p1"><span class="s1"><b>Conclusion</b></span></p> <p class="p1"><span class="s1">Sensible Medicaid reform must accomplish two aims: reduce the unsustainable trajectory of federal and state Medicaid spending, and produce better outcomes for people most in need of public assistance. The House task force proposal would take steps to accomplish both aims. While much more work needs to be done, this is generally a good start.</span></p> http://mercatus.org/expert_commentary/house-republicans-propose-real-though-incomplete-medicaid-reform Thu, 23 Jun 2016 09:47:02 -0400 Fichtner, Warshawsky on Social Security Trustees Report http://mercatus.org/expert_commentary/fichtner-warshawsky-social-security-trustees-report <h5> Expert Commentary </h5> <p class="p1"><span class="s1">The Social Security annual report, released today, shows that while the projected&nbsp;insolvency date for the combined Old Age, Survivor, and Disability Insurance (OASDI) trust funds remains unchanged at 2034, another year has been lost to inaction. The Obama administration trustees have called for legislators to address the shortfall "as soon as possible."</span></p> <p class="p1"><span class="s1">Mercatus Center senior research fellow <a href="http://mercatus.pr-optout.com/Tracking.aspx?Data=HHL%3d8342%3a3-%3eLCE59.61%3a%26SDG%3c90%3a.&amp;RE=MC&amp;RI=4340977&amp;Preview=False&amp;DistributionActionID=30868&amp;Action=Follow+Link"><span class="s2">Mark Warshawsky</span></a>, a member of the Social Security Advisory Board from 2006 through 2012, said the following in response to the report:</span></p> <blockquote><p class="p1"><span class="s1">The insolvency date for the overall program has not changed from last year, that is, it is now one year closer. &nbsp;With every year that passes, without fundamental reform, we are losing opportunities to responsibly put the program on a sound financial footing and for it to reflect the profound economic changes that have taken place since the program was last reformed in 1983.</span></p><p class="p1"><span class="s1">The unfunded obligation of the program, whether calculated over 75 years or over an even longer horizon, increased more this year than was expected.&nbsp;This is due to a realistic lowering by the Trustees of the future interest rate assumed. Further changes to reflect the best informed views on current and projected economic and demographic conditions, including for future mortality trends—in particular to better consider recommendations by the 2015 technical panel of external experts—no doubt are waiting on the participation of Public Trustees, whose positions are currently vacant. &nbsp;</span></p><p class="p1"><span class="s1">It is unrealistic to simultaneously "ensure solvency for future generations of Americans" while at the same time to "expand and finance improved Social Security benefits" as the Administration is recommending. <i>&nbsp;</i></span></p></blockquote> <p class="p1"><span class="s1">Mercatus Center senior research fellow&nbsp;<a href="http://mercatus.pr-optout.com/Tracking.aspx?Data=HHL%3d8342%3a3-%3eLCE59.61%3a%26SDG%3c90%3a.&amp;RE=MC&amp;RI=4340977&amp;Preview=False&amp;DistributionActionID=30867&amp;Action=Follow+Link"><span class="s2">Jason Fichtner</span></a>, former deputy commissioner and chief economist of the Social Security Administration, notes:</span></p> <blockquote><p class="p1"><span class="s1">I fear the lack of change in the depletion date for Social Security’s combined trust funds will give lawmakers and the public a false sense that the program’s financial problems are less than urgent—that reform can continue to be put off. Such a misunderstanding would lead to grave consequences for beneficiaries of both the disability and retirement programs.</span></p><p class="p1"><span class="s1">Although this report suffered from the lack of oversight by public trustees, it is notable that the administration trustees see the looming problem essentially unchanged.</span></p><p class="p1"><span class="s1">The recent last-minute patch of the financial problems of the DI trust fund should be a wake-up call for those concerned with the OASI retirement trust fund—delaying meaningful reforms only limits the options available.</span></p></blockquote> <p class="p1"><span class="s1">To schedule an interview, please contact:&nbsp;Camille Walsh at (504) 338-8785 or <a href="mailto:cwalsh@mercatus.gmu.edu"><span class="s2">cwalsh@mercatus.gmu.edu</span></a>.</span></p> http://mercatus.org/expert_commentary/fichtner-warshawsky-social-security-trustees-report Wed, 22 Jun 2016 21:51:13 -0400 Los Angeles' New Manufacturing Hub Won't Generate Innovation http://mercatus.org/expert_commentary/los-angeles-new-manufacturing-hub-wont-generate-innovation <h5> Expert Commentary </h5> <p class="p1"><span class="s1">The <a href="https://www.whitehouse.gov/blog/2016/06/20/strengthening-and-celebrating-americas-capacity-innovation"><span class="s2">White House blog announced</span></a> that Barack Obama is engaging in several innovation-themed events during the week of June 20</span><span class="s3"><sup>th</sup></span><span class="s1">. One is the formal announcement of the winner of the ninth&nbsp;<a href="https://www.manufacturing.gov/nnmi-institutes/"><span class="s2">manufacturing hub competition</span></a>: Smart Manufacturing Leadership Coalition in Los Angeles. The coalition will get $70 million of taxpayer money, and <a href="https://www.americamakes.us/membership/why-america-makes"><span class="s2">based on the work of similar winners</span></a> it will be used to create a manufacturing organization that functions as a combination advocacy and networking group and research center that funds projects and engages in workforce education and training.</span></p> <p class="p1"><span class="s1">This sounds like a typical application of government largess aimed at helping the economy grow, but it’s doubtful that it will have much of an effect. Of course <i>something</i> will come out of it – after all they have $70 million to spend – but the impact is unlikely to meaningfully alter California’s or even L.A.’s economy. This is because most government officials are largely unaware of what spawns innovation, and as a result they do the wrong things.</span></p> <p class="p1"><span class="s1">The mindset of many government officials is stuck in the mid-20</span><span class="s3"><sup>th</sup></span><span class="s1">century, a time when most economists believed that physical investment in equipment and factories was the key to economic growth and prosperity. There was some acknowledgement that investing in research and development (R&amp;D) was necessary as well, but it was taken for granted that any useful new ideas would be costlessly integrated into the economy.</span></p> <p class="p1"><span class="s1">With this worldview, giving $70 million dollars to a manufacturing coalition in L.A. seems like a good idea: The coalition will wisely allocate the funds to the “right” researchers and firms working on the “right” projects, those projects will scale and be implemented, the firms will grow and the local economy will benefit.</span></p> <p class="p1"><span class="s1">But real economic growth is not that easy. <a href="http://www.sup.org/books/title/?id=20320"><span class="s2">Sixty years of largely unsuccessful foreign aid</span></a> has taught us that the rules and institutions – both formal and informal – that govern the economy can nurture or obstruct the benefits of new ideas and investment. Many policy makers and government officials accept this reality when it comes to countries, but far fewer recognize that it’s just as true at the local level.</span></p> <p class="p1"><span class="s1">The <a href="http://www.scpr.org/news/2016/06/21/61821/why-la-will-be-home-to-a-new-smart-manufacturing-i/"><span class="s2">Smart Manufacturing Leadership Coalition</span></a> will be primarily investing its resources in firms in the Greater Los Angeles area, an area that by its actions has revealed itself to be hostile towards innovation. For example, the Los Angeles planning commission<a href="http://watchdog.org/268429/los-angeles-officials-regulate-airbnb/"><span class="s2">wants to restrict the use of Airbnb</span></a> by charging homeowners a “hotel tax” and limiting the types of units that can be rented along with the number of days they can be rented.</span></p> <p class="p1"><span class="s1">In fact, Los Angeles’ local government incessantly interferes with the economy. L.A. officials <a href="http://www.foxla.com/entertainment/features/158592806-story"><span class="s2">have increased the minimum wage</span></a> to $15 per hour, <a href="http://www.latimes.com/local/california/la-me-food-study-20150319-story.html"><span class="s2">banned fast food restaurants</span></a> in South L.A., and often<a href="http://www.latimes.com/local/california/la-me-0819-lopez-pizza-20150818-column.html"><span class="s2">drown entrepreneurs in a sea of red tape</span></a>. These actions increase the cost of doing business and create an economic environment full of uncertainty, since one never knows what city officials will do next.</span></p> <p class="p1"><span class="s1">Moreover, California’s state government is also antagonistic towards innovation and entrepreneurship. <a href="http://freedominthe50states.org/"><span class="s2">California is ranked 49</span><span class="s4"><sup>th</sup></span></a>in the Mercatus Center’s Freedom in the 50 states index, which ranks states on measures of economic and personal freedom. It also has one of the worst tax climates in the country: The <a href="http://taxfoundation.org/article/2016-state-business-tax-climate-index"><span class="s2">tax foundation ranks it 48</span><span class="s4"><sup>th</sup></span></a> in its business climate tax index.</span></p> <p class="p3"><span style="font-size: 12px; background-color: white;">California also followed Los Angeles’ lead by increasing the state minimum wage to $15 per hour, </span><a href="http://neighborhoodeffects.mercatus.org/2016/03/30/a-15-minimum-wage-will-excessively-harm-californias-poorest-counties/" style="font-size: 12px; background-color: white;"><span class="s5">which will disproportionally harm the state’s poorer, rural counties</span></a><span style="font-size: 12px; background-color: white;">, and environmental regulations </span><a href="http://www.rsc.org/chemistryworld/2016/06/california-prop-65-controversy-harmful-chemicals" style="font-size: 12px; background-color: white;"><span class="s5">such as Proposition 65</span></a><span style="font-size: 12px; background-color: white;"> have become a source of countless frivolous lawsuits that increase the cost of doing business in the state.</span></p> <p class="p4"><span class="s1">As the <span class="s5"><a href="https://www.whitehouse.gov/blog/2016/06/20/strengthening-and-celebrating-americas-capacity-innovation">White House blog says</a>,</span> “America’s capacity for creativity and invention is a major reason why our economy is the strongest and most durable in the world.” This is <a href="http://www.usnews.com/opinion/articles/2016-05-23/free-speech-is-good-for-the-economy"><span class="s5">an accurate statement</span></a>, but America’s economic success isn’t due to top-down investment in politically favored industries and firms. Instead, America’s ability to innovate is driven by risk-taking entrepreneurs who use their talent and ideas to provide us with new things that improve our lives.</span></p> <p class="p4"><span class="s1">We don’t need to take money out of private hands, funnel it through the inefficient government apparatus and then return it to firms in the form of government grants and subsidies in order to have an innovative economy. What we need are local governments that provide basic goods and services such as infrastructure, a police force and a court system and then get out of the way.</span></p> <p class="p4"><span class="s1">The <a href="http://www.britannica.com/biography/Alcaeus"><span class="s5">Greek poet Alcaeus</span></a> wrote “Not houses finely roofed, or stones of walls well built, nor canals nor dockyards makes the city, but men able to use their opportunity.” The idea that innovative people drive local economies has been echoed by modern urban economists <a href="http://www.city-journal.org/html/new-urban-opportunity-agenda-14111.html"><span class="s5">such as Harvard’s Ed Glaeser</span></a> who has written that “Private entrepreneurs, not public officials, power urban economies.”</span></p> <p class="p4"><span class="s1">To create real economic growth, public policy needs to allow for risky experimentation. There is evidence that urban areas that have an accepting attitude about risk <a href="http://link.springer.com/article/10.1007/s00168-015-0734-5"><span class="s5">are more innovative</span></a>. Cities that want to gain a real competitive edge don’t need a government funded “manufacturing innovation institute.” They need risk-loving individuals who increase a city’s chances of innovating.</span></p> <p class="p4"><span class="s1">One way for a city to attract risk-loving entrepreneurs and foster innovation is to implement a policy of permissionless innovation. <a href="http://mercatus.org/publication/permissionless-innovation-continuing-case-comprehensive-technological-freedom"><span class="s5">In his book</span></a>, researcher Adam Thierer writes that permissionless innovation “is the notion that experimentation with new technologies and business models should generally be permitted by default.” This is an alternative to current city regulatory regimes, such as the one in L.A., that rely on the precautionary principle.</span></p> <p class="p5"><span style="font-size: 12px; background-color: white;">The precautionary principle is based on the idea that because some new products, services, or technologies may cause harm, the creators of these new things need to demonstrate that they are safe before they can be brought to the market. Local regulations that follow the precautionary principle include occupational licensing, business licensing, liquor licensing, and many zoning laws, all of which require entrepreneurs to get government permission before engaging in new endeavors.</span></p> <p class="p4"><span class="s1">Technological innovation is increasing at a faster pace than ever before, but local regulations force innovative entrepreneurs to fit their new products and services into a regulatory system designed for a slower-paced industrial economy rather than our modern, faster-paced service and technology economy.</span></p> <p class="p4"><span class="s1">No amount of federal or state money can overcome a regulatory regime based on the precautionary principle that stifles innovation by limiting the trial-and-error process. Instituting a climate of permissionless innovation is a better, cheaper and conspicuous way for a city to show that it’s truly interested in fostering real innovation.</span></p> <p class="p4"><span class="s1">Novel products and services will always have kinks that need to be worked out, but as Thierer notes, “trying to preemptively plan for every hypothetical worst case scenario means that many of the best-case scenarios will never come about.”</span></p> http://mercatus.org/expert_commentary/los-angeles-new-manufacturing-hub-wont-generate-innovation Tue, 28 Jun 2016 14:10:18 -0400 Unplanned Order http://mercatus.org/expert_commentary/unplanned-order <h5> Expert Commentary </h5> <p class="p1"><span class="s1">One of history's most profound discoveries is that complex, beautiful and immensely useful arrangements often emerge without anyone designing them.</span></p> <p class="p1"><span class="s1">Charles Darwin, of course, famously explained how complex life forms emerge over many generations through trial and error. Each of these life forms is well suited to survive in its environment. Yet no one designed these life forms.</span></p> <p class="p1"><span class="s1">Indeed, the complexity of the natural world is so impressive that many people of faith resist Darwin's theory. They find it difficult to believe that the amazing and magnificent order of the natural world could be the result of anything but the conscious design of a creator.</span></p> <p class="p1"><span class="s1">I don't wish to debate theology or biology. Instead, I want to discuss another complex, beautiful and immensely useful arrangement: the modern economy.</span></p> <p class="p1"><span class="s1">No one designed, or could possibly have designed, this economy. It's true that governments enforce many of the rules that put boundaries on economic activities. But the complexity, size and flexibility of the global market are too vast for it to have been designed by any human mind or any congress of human minds.</span></p> <p class="p1"><span class="s1">Pick up an ordinary pencil. What you hold is the result of the ideas and efforts of literally hundreds of millions of people. The seemingly simple pencil in your hand exists only because some people know how to explore for iron ore while other people know how to transform that ore into steel. Still other people know how to mold that steel into blades for chain saws — chain saws whose motors are built by different people. And then other people use those chain saws to fell trees.</span></p> <p class="p1"><span class="s1">Another few people pilot the boats and drive the trucks to transport the logs to the lumber factory. The sheets of lumber are then somehow made into pencil shafts. Each of these pencil shafts encases a cylinder of “lead” (a mixture of graphite and clay) that enables pencils to do their jobs. Yet producing the “lead” itself demands the efforts of countless other workers — as does the pencil's eraser, as does the aluminum ferrule that keeps the eraser attached to the pencil.</span></p> <p class="p1"><span class="s1">The pencil you hold is the result of the knowledge and efforts of literally hundreds of millions of people, nearly all of whom are strangers to you. Even more remarkable is the fact that only a tiny fraction of the people whose efforts were necessary to put that pencil into your hand had any idea that their efforts would help to produce pencils.</span></p> <p class="p1"><span class="s1">No one designed the economic processes that result in pencils. No one could possibly do so. Yet these processes obviously exist. They exist because they emerged, unplanned, over the years from economic competition guided by market prices.</span></p> <p class="p1"><span class="s1">Long before Darwin explained how order emerges unplanned in the natural world, Adam Smith — a Scottish moral philosopher whose work gave birth to the science of economics — explained how individuals in a society with private property but without any guidance from government act in ways that unintentionally create an economy that is stupendously productive.</span></p> http://mercatus.org/expert_commentary/unplanned-order Wed, 22 Jun 2016 17:24:03 -0400 Reduce the Hurdles to Private Investment in Infrastructure http://mercatus.org/expert_commentary/reduce-hurdles-private-investment-infrastructure <h5> Expert Commentary </h5> <p class="p1"><span class="s1">The Congressional Budget Office has a new report looking at the return of federal investment in transportation and research. The bottom line is that the return is not so much as the private-sector investment. So rather than invest more money in federal investments, let's get rid of all the federal policies that get in the way of the private sector's doing the investing.</span></p> <p class="p1"><span class="s1">First, let's look at the CBO report. Salim Furth of The Heritage Foundation explained in an email to me how this CBO report deserves much credit for "diligently following Congress' new requirement that CBO include macroeconomic feedback effects in its evaluations of major fiscal policy changes." He continued: "This dynamic approach is a lot more work than the alternative, and Director Keith Hall is quietly making CBO more transparent. He's more open to criticism, but that's a benefit in the long run, since it will compel CBO to constantly improve its modeling."</span></p> <p class="p1"><span class="s1">"CBO is very honest about its limitations," Furth added. He noted, for instance, that it admits we know very little about the economic impact of investment in education and research because we lack sufficient empirical evidence. The report also acknowledges major uncertainty in macroeconomic valuation, which leads to a wide range of estimates — sometimes negative, sometimes positive — about the impact of deficit-funded federal investment on the incomes of Americans.</span></p> <p class="p1"><span class="s1">Then there are the things that the CBO says we know. Based on existing literature, the CBO estimates that a 1 percent increase in "public physical capital" — such as highways or airports — leads to 0.06 percent economic growth. It also estimates that though there are positive effects of federal investment on transportation spending, there are also negative ones, mostly because of the 33 cents in private investment decline for every deficit-funded federal dollar spent. For this reason — and for better or worse — the CBO also uses the transportation estimate for federal investment in education and research.</span></p> <p class="p1"><span class="s1">When reading these numbers, I am reminded of a joke about economic estimates by my former colleague Russ Roberts — a fellow at the Hoover Institution. It goes like this: "How do you know macroeconomists have a sense of humor? They use decimal points."</span></p> <p class="p2"><span style="font-size: 12px; background-color: white;">Leaving aside the question of how reliable these estimates really are, the CBO tells us that "productive federal investment has an average annual rate of return of about 5 percent, or half of the agency's estimate of the average rate of return on private investment." In other words, private-sector investments generate more return than those made by the government.</span></p> <p class="p1"><span class="s1">Though directionally correct, this finding is only a modest bow toward reality. There is a large body of research showing how federal investment in transportation is often misallocated because of political pressure, is used inefficiently because the supply and demand are not guided by market prices, and suffers from costly systemic overruns. These problems, in addition to the fact that federal investments often give priority to union labor and follow inefficient requirements, mean that federal investments often have a negative return, not just a lower return.</span></p> <p class="p1"><span class="s1">One important policy implication of the CBO's finding (that the returns from private investments tend to be higher than for government investments) is that to boost economic growth, policymakers should reduce hurdles to private investment in infrastructure — for example, airports. Policymakers should cut marginal tax rates and allow for capital expensing to increase returns for infrastructure investment. They should end federal subsidies to state governments for infrastructure to spur state privatization. They should cut federal regulations that raise costs for building state infrastructure, such as the Davis-Bacon labor rules, and they should cut regulations that restrict state privatization.</span></p> <p class="p1"><span class="s1">And, as the Cato Institute's Chris Edwards notes, they should repeal the tax exemption on municipal bond interest, which stacks the deck against private investment. At the same time, state and local policymakers should cut property taxes on machinery and equipment, which are a major deterrent for businesses to build new factories in many states.</span></p> http://mercatus.org/expert_commentary/reduce-hurdles-private-investment-infrastructure Wed, 22 Jun 2016 17:16:34 -0400 Overregulated Britain http://mercatus.org/expert_commentary/overregulated-britain <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Is the "Brexit" – the possible departure of the U.K. from the European Union – a major sign of a populist revolt against bureaucracy? It <a href="http://globalriskinsights.com/2016/03/brexit-better-britain/"><span class="s2">would seem so</span></a>, and the warnings of potential consequences seem dire.</span></p> <p class="p1"><span class="s1">Some argue that if the United Kingdom leaves the EU, then there will be a bureaucratic regulation-fest to make sure that no area currently regulated goes <a href="http://www.independent.co.uk/news/uk/politics/eu-referendum-brexit-would-prompt-regulationfest-of-replacing-brussels-bureaucracy-leading-lawyers-a6927746.html"><span class="s2">unregulated</span></a>. But that would be nothing new for those long suffering under the weight of British regulations as ably chronicled in the humorous yet depressing book, "<a href="https://www.amazon.com/How-Label-Goat-Regulations-Strangling/dp/1905641567/ref=sr_1_2?ie=UTF8&amp;qid=1466257182&amp;sr=8-2&amp;keywords=how+to+label+a+goat"><span class="s2">How to Label a Goat: The Silly Rules and Regulations That Are Strangling Britain</span></a>."</span></p> <p class="p1"><span class="s1">Many argue that Britain would be fiscally at risk, yet a <a href="http://mercatus.org/publication/cumulative-cost-regulations"><span class="s2">recent paper</span></a> from the Mercatus Center at George Mason University shows that, if we had frozen regulations in the United States at the 1980 level, each person in the nation would be $13,000 richer today. The British government believes that the cost of just the top 100 EU regulations is about $<a href="http://openeurope.org.uk/today/blog/whats-best-way-cutting-33-3bn-burden-eu-red-tape/"><span class="s2">47 billion</span></a>. If Britain were to leave, someone would actually have to ensure that there wouldn't be a free-for-all for those who favor regulating everything imaginable.</span></p><p class="p1"><span class="s1"><a href="http://www.usnews.com/opinion/articles/2016-06-20/expect-more-brexit-style-sentiments-if-regulations-arent-reformed">Continue reading</a></span></p> http://mercatus.org/expert_commentary/overregulated-britain Wed, 22 Jun 2016 12:01:52 -0400