Mercatus Site Feed http://mercatus.org/feeds/home/publication/publication/j-w-verret en The Future of Money: A Conversation Between Tyler Cowen and Cliff Asness http://mercatus.org/events/future-money-conversation-between-tyler-cowen-and-cliff-asness contact@mercatus.org (Mercatus.org) <h5> Events </h5> <p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">This event is part of the Mercatus Center’s&nbsp;</span><i>Conversations with Tyler</i><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">&nbsp;event series.</span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><b>PARTICIPANTS:</b><br /><span style="font-size: 12px;"><a href="http://mercatus.org/tyler-cowen" style="font-size: 12px; color: #666699;">Tyler Cowen</a>, Holbert L. Harris Chair of Economics, George Mason University<br /><a href="https://www.aqr.com/who-we-are/leadership#cliff-asness">Cliff Asness</a>, Co-Founder, AQR Capital Management</span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-size: 12px;"></span><b><span style="text-decoration: underline;">**Select VIP Seating Available for Media**<br /></span></b><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">Contact Bob Ewing, director of media relations, Mercatus Center<br /></span><span style="font-size: 12px;">703.993.4960 (office), 202.494.2567 (mobile),&nbsp;</span><a style="font-size: 12px; color: #666699;" href="mailto:bewing@mercatus.gmu.edu">bewing@mercatus.gmu.edu</a></p><p>Is the financial system encouraging or stifling economic growth and prosperity?</p> <p>Hedge-fund manager Cliff Asness, one of the most influential—and outspoken—financial thinkers, will join Tyler Cowen for a conversation about the policies that will shape the future of finance and money.</p> <p>What role do financial institutions play in fostering economic growth? What kind of financial environment encourages innovation and entrepreneurship? How have financial regulations, including those in Dodd-Frank, affected the economy?</p> <p>As an entrepreneur in the field of finance, Asness has helped shape the national conversation on financial markets and regulation. He is a well-known critic of financial regulations, such as Dodd-Frank, and publicly stated that the 2008 financial crisis was the result of government policies.</p> <p>Asness is also an active philanthropist, giving to many causes and organizations that are innovative in their approach. Most recently, he is known for his giving to support the gay rights movement in New York. He received with his wife, Laurel, the Humanitarian Leadership Award from the International Rescue Committee.</p><p>Join these prominent thinkers as they engage in what is sure to be one of the most important conversations this year on finance, financial regulation, and the future of money.</p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">If you have any questions about this event, please contact Bethany Stalter at&nbsp;</span><a href="mailto:bstalter@mercatus.gmu.edu" style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; color: #666699;">bstalter@mercatus.gmu.edu</a><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">&nbsp;or (703) 993-4889.</span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><b>About Cliff Asness</b><br />Asness is a founder, managing principal and chief investment officer at AQR Capital Management. He is an active researcher and has authored articles on a variety of financial topics for many publications, including </span><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><i>The Journal of Portfolio Management</i></span><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">, </span><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><i>Financial Analysts Journal,</i></span><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"> and </span><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><i>The Journal of Finance</i></span><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">. Prior to cofounding AQR Capital Management, he was a managing director and director of quantitative research for the Asset Management Division of Goldman, Sachs &amp; Co. He is on the editorial board of </span><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><i>The Journal of Portfolio Management</i></span><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">, the governing board of the Courant Institute of Mathematical Finance at NYU, the board of directors of the Q-Group and the board of the International Rescue Committee.<br /></span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><b>About Tyler Cowen<br /></b><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">Cowen is a world-renowned professor of economics, co-author of the popular economics blog Marginal Revolution,&nbsp;co-founder of the award-winning online educational platform&nbsp;Marginal Revolution University, and chairman of the Board at the Mercatus Center at George Mason University.&nbsp;</span><i style="font-weight: inherit;">Bloomberg Businessweek&nbsp;</i><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">profiled Cowen as “America’s Hottest Economist,”&nbsp;</span><i style="font-weight: inherit;">Foreign Policy&nbsp;</i><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">named Cowen as one of the “Top 100 Global Thinkers,” and an&nbsp;</span><i style="font-weight: inherit;">Economist</i><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">&nbsp;survey counted Cowen as one of the most influential economists of the last decade.</span><br /></span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><b>About the&nbsp;<i>Conversations with Tyler</i>&nbsp;Event Series</b><br />The Mercatus Center's&nbsp;<i>Conversations with Tyler</i>&nbsp;series brings world-class thought leaders to the Arlington campus of George Mason University to discuss how ideas, cutting-edge research, and applied economics can bring solutions to society’s most pressing problems.</p> http://mercatus.org/events/future-money-conversation-between-tyler-cowen-and-cliff-asness Thu, 28 May 2015 00:40:01 -0400 2016 Annual Retreat: Advancing Liberty, Creating Change http://mercatus.org/events/2016-annual-retreat-advancing-liberty-creating-change contact@mercatus.org (Mercatus.org) <h5> Events </h5> <p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">Mercatus Center supporters and friends are invited to join us for our 17th Annual Retreat in Naples, FL, co-hosted with the Institute for Humane Studies (IHS).</span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">Hear from a stellar cast of scholars, leaders, and experts. Join senior IHS and Mercatus leadership, other supporters, and key alumni. Enjoy a weekend of important conversation about how to restore freedom and prosperity in America - in sessions, over meals, during breaks, and long into the evening.</span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><a href="https://mercatuscenter.wufoo.com/forms/advancing-liberty-retreat-2016/">Click here to register for the Annual Retreat</a>.</span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"></span><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">If you have questions about this event, please contact Caitlyn Van Orden at (703) 993-4925 or&nbsp;</span><a href="mailto:cvanorden@advancinglibertyretreat.org" style="font-size: 12px; color: #666699;">cvanorden@advancinglibertyretreat.org</a><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">.</span></p> http://mercatus.org/events/2016-annual-retreat-advancing-liberty-creating-change Wed, 27 May 2015 18:46:02 -0400 Bootleggers and Baptists in the Garden of Good and Evil: Understanding America's Entangled Economy http://mercatus.org/video/bootleggers-and-baptists-garden-good-and-evil-understanding-americas-entangled-economy <h5> Video </h5> <p><iframe width="560" height="315" src="https://www.youtube.com/embed/0Uu5KnHAuR0" frameborder="0"></iframe></p><p>Dr. Bruce Yandle gives a Capitol Hill Campus presentation that examined the regulation-entangled U.S. economy.</p> http://mercatus.org/video/bootleggers-and-baptists-garden-good-and-evil-understanding-americas-entangled-economy Wed, 27 May 2015 17:16:53 -0400 Political, Not Operational, Concerns Engineering Amtrak's Fate http://mercatus.org/expert_commentary/political-not-operational-concerns-engineering-amtraks-fate <h5> Expert Commentary </h5> <p class="p1">After the recent Amtrak train crash in Philadelphia, some politicians and pundits used the terrible tragedy to perpetuate the misleading claim that the federal government's passenger rail operation suffers from a lack of taxpayer assistance. This rush to judgment was unsurprising, given that misfortune is sometimes synonymous with opportunity in the eyes of the political class.</p> <p class="p2">Amtrak has a lot of problems, but a lack of federal funding isn't one of them.</p> <p class="p2">It was established in 1970 to help the struggling railroad industry by placing its unprofitable private passenger rail lines under federal control. Amtrak's creators believed that a unified rail network with Uncle Sam in charge would be successful enough that federal funds wouldn't be needed. Its first chairman, David W. Kendall, claimed, "This new system can and will succeed because it unifies for the first time the operation and promotion of the nation's rail passenger service." More than four decades and $44 billion in taxpayer subsidies later ($70 billion when adjusted for inflation), however, Amtrak has yet to deliver a single year of profitability.</p> <p class="p2">While this continued faith in government's ability to heal most wounds with funding is par for the course in Washington, it's time to set the record straight. The reasons for Amtrak's struggles have more to do with its history of poor management than they do with its lack of cash. One need only peruse reports from the Government Accountability Office and Amtrak's own inspector general to see what can go wrong when the discipline of the market is absent. As the IG noted last year, Amtrak "has not consistently used sound business practices in each phase of the capital planning process, including developing sound project proposals with performance measures, learning from the execution and outcome of projects, and controlling unauthorized expenditures."</p> <p class="p2">Amtrak's fundamental problem, however, is the same one that afflicts all government endeavors: Operational decisions are often made on the basis of political concerns rather than sound economic and financial reasoning.</p> <p class="p3">The clearest examples of this are Amtrak's money-losing long-distance passenger routes, which are kept on life support with federal funds because politicians generally prefer to waste other people's money than confront the tiny but vocal minority of people who benefit.</p> <p class="p2">Also, consider this: As reports revealed that the recent crash was caused by the train's going too fast rather than by poor maintenance, everyone's attention shifted to an available technology — positive train control — that would have automatically slowed the ill-fated train down. As it turns out, a 2008 law required that Amtrak and other railroads install PTC by 2015. But whatever the reasons for Amtrak's not having fully met the deadline, the failure to implement the technology shouldn't be blamed on a lack of additional money allocated by Congress for Amtrak. Instead, it should be blamed on Congress' being more interested in funding the next shiny object than it is in funding boring lifesaving technology.</p> <p class="p2">Shortly after the law was enacted, the Obama administration and its congressional allies allocated $8 billion of so-called "stimulus" funds for a nationwide system of high-speed rail. The next year, Congress gave another $2 billion for the endeavor. Never mind the multitude of articles written about the waste of money such investments represent because they have proved to be systematically costlier than officials expect and are generally little-used. It's too bad none of that money went to pay for PTC. Yet many of the people who are now decrying a lack of funding for rail safety are the same people who thought that high-speed rail would be a smart use of other people's money.</p> <p class="p2">In Washington, squandering money and then bemoaning a lack of it is how the game is played. If there is a lesson to be learned from the recent train wreck, it's that too much taxpayer money has been spent on rail, not too little.</p> http://mercatus.org/expert_commentary/political-not-operational-concerns-engineering-amtraks-fate Wed, 27 May 2015 17:06:08 -0400 Time to End the Federal Government's Role in Highway Funding http://mercatus.org/expert_commentary/time-end-federal-governments-role-highway-funding <h5> Expert Commentary </h5> <p class="p1">Once again, Congress has failed to pass a comprehensive transportation funding bill. Instead, it approved -- and sent to the president -- a funding extension that expires at the end of July. House Transportation Committee Chairman Bill Shuster (R-Pa.) is not optimistic that a satisfactory bill can be pieced together by the new deadline and expects yet another temporary extension to pass before the August recess. Our elected officials in Washington appear incapable of playing a constructive role in transportation funding. It’s time to end the federal government’s role in highway financing by shifting the responsibility back to the states.</p> <p class="p1">Members of Congress and the president have failed to agree on a long term transportation funding bill since the last one expired in 2009. This type of policy uncertainty harms the economy. It makes it hard for states and cities to carry out transportation planning. Without firm commitments of future funding, construction companies are less likely to make permanent hires or capital investments. Compounding the highway financing problem is the fact that, instead of focusing on highway construction and maintenance, Congress allocated about a quarter of the highway fund revenues to finance non-highway projects, including recreation trails, scenic overlooks, and bike trails. These are decisions local governments should make. With all this in mind, it seems clear that it is time to put an end to Washington’s role in financing highways by phasing out the federal gasoline tax. State and local governments could then decide on an appropriate gasoline tax based on their transportation needs.&nbsp;</p> <p class="p2">With the completion of the interstate highway system nearly two decades ago, the impact of current transportation investments are felt most at the state and local level. Because recipients of federal funds don’t have to bear the full costs of transportation projects, scarce taxpayer dollars are spent on projects that provide low benefits relative to costs, reducing the potential impact of highway construction on economic activity.&nbsp;</p> <p class="p1">A shift of financial responsibility to the state or local level would give politicians an incentive to consider the total costs of a project before moving forward. With state or local funding, closer scrutiny of projects would eliminate many of the wasteful expenditures of the current federal funding system. We can reduce the incentives to move forward on high cost, low benefit projects if we stop waving federal dollars in front of state and local officials.&nbsp;</p> <p class="p1">Federal transportation dollars often come with strings attached. For example, some funds for road repair are tied to the addition of bike lanes. Local officials have an incentive to go after these funds whether it makes sense or not. Reducing the federal role in transportation funding would introduce a higher degree of accountability and flexibility in spending. If Jackson, Wyoming, wants to spend its tax dollars to build bike trails to attract tourists, it can. If fast-growing Houston, Texas, wants to focus transportation spending on expanding highway traffic capacity, it can, without having the funding tied to unwanted bike lanes.&nbsp;</p> <p class="p1">Another reform the federal government could put in place to improve the efficiency of transportation infrastructure system would be to end the prohibition against tolls on interstate highways. Congestion tolls reduce travel time delays that plague many urban interstate highways. The magnitude of tolls required to reduce peak travel time congestion would provide urban transportation planners with valuable information on the amount and location of additional transportation infrastructure investments, improving the return on highway construction spending.&nbsp;</p> <p class="p1">The Highway Trust Fund has served its purpose. It has financed the construction of the national interstate highway system. Moving forward, In order to improve the nation’s transportation infrastructure, it is time to shift construction, maintenance, and financing decisions back to the states. Greater flexibility and paying the full cost of a project will ensure a wiser use of transportation dollars.</p> http://mercatus.org/expert_commentary/time-end-federal-governments-role-highway-funding Wed, 27 May 2015 17:02:28 -0400 The Retirement Crisis Controversy http://mercatus.org/expert_commentary/retirement-crisis-controversy <h5> Expert Commentary </h5> <p class="p1">There is a raging debate in the think tank world and among some academics that has spilled over to the op-ed pages: the question whether there is a looming retirement crisis for American workers. Both sides of the debate use the same underlying data sets and similar methodological approaches. One side says that most American households are woefully underprepared for retirement and that aggressive government policy, like increasing Social Security benefits or creating new mandatory government-run retirement plans, is needed. The other side says that the assumption-based crisis threat is substantially exaggerated. It contends that not only are no new government programs needed but that the existing ones, like Social Security and government employee pension plans, are them- selves weak reeds that must be repaired and trimmed soon.&nbsp;</p> <p class="p1">Before this debate heated up, a colleague and I addressed the issue comprehensively with a better method than most of the cited studies. We came to the following somewhat paradoxical conclusions. The analysis indeed indicates that many American working households are not on the path to a well-funded retirement, but the solutions to this ‘‘crisis’’ lie in evolving and changing private behavior — longer working lives, higher savings, longer planning horizons, and more efficient investment strategies before and during retirement.&nbsp;</p> <p class="p1"><b>The Retirement Crisis Crowd&nbsp;</b></p> <p class="p1">Among several analysts, the retirement crisis viewpoint is best represented by researchers at the Center for Retirement Research at Boston College, in particular through the periodic National Retirement Risk Index (NRRI) developed there.1 The basic method used is the following: Project a replacement rate (that is, retirement income as a share of pre- retirement income) based on current assets and income for each household in a nationally representative data set; construct a target replacement rate that would allow each household to maintain its pre-retirement standard of living in retirement; and compare the projected and target replacement rates to find the percentage of households at risk of inadequate retirement preparedness. Naturally, the first two steps in this process are based both on data and on many assumptions.&nbsp;</p> <p class="p1">In the NRRI, relevant household assets used to produce retirement income include 401(k) plans and other retirement account assets, other financial wealth, and housing equity, less debt, as reported in the most recent Survey of Consumer Finances (SCF) conducted by the Federal Reserve Board. These assets are projected to retirement based on a stable relationship between wealth-to-income ratios and age evident in SCF data collected over the years. Retirement income is based on the asset conversion rates implicit in estimated prices for inflation- indexed immediate life annuities. For housing, there are two sources of income: the rental value derived from living in the house, and the annuity income converted from a lump sum borrowed from housing equity through a reverse mortgage. Other sources of retirement income include defined benefit pension income and Social Security benefits. Earnings before retirement are calculated by creating a wage-indexed earnings history and averaging these indexed wages over the individual’s lifetime. Interest on debt is subtracted from income, and investment income is added.&nbsp;</p> <p class="p1">In the NRRI, the target replacement rate is generally less than full pre-retirement income, like 75 percent, to account for lower spending on taxes, savings, and mortgages in older ages. These target replacement rates are estimated for different types of households by a few broad demographic and income categories, with consideration of average pension coverage and homeownership.&nbsp;</p> <p class="p1"><a href="http://mercatus.org/sites/default/files/Warshawsky-retirement-crisis.pdf">Continue reading</a></p> http://mercatus.org/expert_commentary/retirement-crisis-controversy Wed, 27 May 2015 16:52:48 -0400 The Export-Import Bank’s Green Portfolio Benefits Familiar Firms http://mercatus.org/expert_commentary/export-import-bank-s-green-portfolio-benefits-familiar-firms <h5> Expert Commentary </h5> <p class="p1">The Export-Import Bank of the United States, the official export credit corporation of the federal government, is <a href="http://mercatus.org/publication/biggest-beneficiaries-ex-im-bank">often criticized</a> for favoring large, politically-connected corporations like Boeing and Caterpillar; for a lack of transparency and accuracy in their <a href="http://www.exim.gov/oig/upload/OIG-Final-Report-Audit-of-Ex-Im-Bank-s-Content-Policy-12-11-13.pdf">data reporting</a>, <a href="http://www.gao.gov/assets/660/654804.pdf">job creation methodology</a>, and <a href="http://www.gao.gov/assets/660/654925.pdf">risk calculations</a>; and for <a href="http://www.nationalreview.com/corner/376826/right-way-help-exporters-kill">unnecessarily</a> <a href="http://www.nationalreview.com/corner/376035/no-us-doesnt-have-subsidize-its-exports-because-other-countries-subsidize-theirs">tilting the scales of competition</a> in the direction of favored industries.</p> <p class="p1">One industry that has enjoyed considerable growth in Ex-Im assistance is the <a href="http://www.exim.gov/about/what">green energy and sustainability sector</a>. Many of the green firms that receive Ex-Im benefits have enjoyed benefits from a number of other federal programs. A comparison of only a few of these programs shows that many firms “double dip” into Uncle Sam’s many corporate welfare programs funded by US taxpayers.</p> <p class="p1">This week’s charts use data from the Export-Import Bank’s <a href="https://explore.data.gov/Banking-Finance-and-Insurance/Export-Import-Applications/a84i-8kb5">dataset</a> on project applications and the <a href="https://explore.data.gov/Banking-Finance-and-Insurance/Export-Import-Applications/a84i-8kb5">Department of Energy</a>’s 1603, 1703, 1705, and ATVM (Advanced Technology Vehicles Manufacturing) loan programs to display green energy- and sustainability-related projects and firms that the Bank funded from FY 2007 to FY 2014, along with the firms that received funding in at least two programs during the same time.&nbsp;</p> <p class="p2"><a href="http://www.economics21.org/commentary/export-import-bank%E2%80%99s-green-portfolio-benefits-familiar-firms">Continue reading</a></p> http://mercatus.org/expert_commentary/export-import-bank-s-green-portfolio-benefits-familiar-firms Wed, 27 May 2015 11:59:01 -0400 Why Letting Ex-Im Bank’s Charter Expire Won’t Lead to Massive Job Losses http://mercatus.org/expert_commentary/why-letting-ex-im-bank-s-charter-expire-won-t-lead-massive-job-losses <h5> Expert Commentary </h5> <p class="p1">The charter of the Export-Import Bank is set to expire on June 30 unless it is reauthorized by Congress. Scare tactics of bank supporters aside, the end of Ex-Im would not mean the loss of thousands of American jobs.</p> <p class="p1">Economists have long understood that subsidies doled out by government credit agencies such as the Ex-Im Bank are not only unnecessary, but that they can actually harm the economy. Yet in their quest to keep the subsidies flowing, proponents of the bank are claiming that failure to reauthorize its charter would lead to massive job loss.</p> <p class="p1">This blatant fear mongering has caused concern among some lawmakers. House Speaker John Boehner only made matters worse on April 30, when he asserted that “there are thousands of jobs on the line that would disappear pretty quickly if the Ex-Im Bank were to disappear.”</p> <p class="p1">First, and fundamentally, export subsidies do not “create” or “support” jobs—they redistribute them from unsubsidized firms to subsidized ones.</p> <p class="p1">Second, the job numbers touted by bank officials are dubious, at best, and have been roundly criticized as misleading by the Government Accountability Office, among others.</p> <p class="p1">Just as important, the biggest beneficiaries of Ex-Im subsidies know full well that their employees and those of their suppliers are perfectly safe in the event the charter is not reauthorized. That’s because Boeing, Caterpillar, General Electric and the like all have billions of dollars of backorders that will keep workers busy for years to come.</p><p class="p1"><img src="http://mercatus.org/sites/default/files/katz-chart_0.png" width="585" height="412" /></p> <p class="p1"><span style="font-size: 11.9999990463257px;">The chart above uses data from the Ex-Im Bank to display some of the top beneficiaries for all Ex-Im Bank transactions between 2007 and 2014, and backlog information from the companies’ annual reports. The blue bars show that the Ex-Im Bank lives up to its nickname of “Boeing’s Bank.” The aviation giant is the biggest beneficiary, by far: the bank has provided $66.7 billion in subsidized financing to foreign purchasers of Boeing planes.</span></p> <p class="p1">General Electric also ranks among the biggest beneficiaries, with $8.3 billion in export assistance, while Bechtel Corp. benefited from $5.2 billion in support. The $2.2 billion in Ex-Im Bank financing that has benefitted Caterpillar was boosted by the $2.7 billion loan guarantee to its subsidiary Solar Turbine Inc.</p> <p class="p1">The red bars show the companies’ backlogs, as reported in their latest annual report. Boeing Co. posted a “record” backlog of $441 billion (in 2013); General Electric Co. recorded a backlog of $261 billion (in 2014); Caterpillar Inc.’s backlog is $16.5 million (in the first quarter of 2015); and Bechtel Corp. posted a “strong” backlog of $70.5 billion (in 2014).</p> <p class="p1">The expiration of the Ex-Im Bank charter will have no effect—none—on the financing of deals that already have been approved. The bank will simply be unable to extend new loans—which is a win for taxpayers who are ultimately on the hook for a total of $140 billion if bank reserves fail to cover defaults.</p> http://mercatus.org/expert_commentary/why-letting-ex-im-bank-s-charter-expire-won-t-lead-massive-job-losses Wed, 27 May 2015 11:54:33 -0400 Why State Legislatures Should Keep Taxing and Spending Committees Separate http://mercatus.org/expert_commentary/why-state-legislatures-should-keep-taxing-and-spending-committees-separate <h5> Expert Commentary </h5> <p class="p1">In inflation-adjusted terms, the U.S. economy is nearly six times larger today than it was in 1950. This is a good thing. But, over the same time period, inflation-adjusted state and local government spending <a href="http://neighborhoodeffects.mercatus.org/2015/05/26/state-and-local-spending-growth-vs-gdp-growth/">has grown</a> more<b> </b>than twelvefold. Since the ultimate source of government revenue is the private economy, this trend is not sustainable nor is it without cost.</p> <p class="p1">Compared with a half century ago, eight more states tax corporate income, 13 more tax personal income and 12 more tax sales. The average of each of these rates has also risen. Among states that tax sales, for example, the rate has more than doubled from<b> </b>2.5 percent in 1958 to more than 5.6 percent in <a href="http://taxfoundation.org/article/state-sales-gasoline-cigarette-and-alcohol-tax-rates">2014</a>. But these increases are not enough to keep up with planned spending. According to <a href="https://web.stanford.edu/~rauh/">various</a> <a href="http://business.troy.edu/JohnsonCenter/Data/Sites/1/media/pension-reform-in-alabama_official-release-version.pdf">projections</a>, state pension promises exceed expected revenues by <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1352608">between</a> $3 trillion and $4 trillion.</p> <p class="p1"><a href="http://www.usnews.com/opinion/economic-intelligence/2015/05/26/why-state-legislatures-should-keep-taxing-and-spending-committees-separate">Continue reading</a></p> http://mercatus.org/expert_commentary/why-state-legislatures-should-keep-taxing-and-spending-committees-separate Wed, 27 May 2015 11:43:32 -0400 Principles for Analyzing Distribution in Regulatory Impact Analysis http://mercatus.org/publication/principles-analyzing-distribution-regulatory-impact-analysis <h5> Publication </h5> <p class="p1">Federal regulatory agencies have been required to produce a regulatory impact analysis (RIA) for major regulations since the early 1980s. The analysis should include an estimate of the expected benefits and costs of the regulatory action (a benefit-cost analysis, or BCA) as well as a description of the parties who are likely to receive those benefits and incur those costs. The latter part of an RIA is known as a distributional analysis, and is not part of a classic BCA. Distributional analysis explores how wealth is redistributed as a result of policy decisions.</p> <p class="p2">Nevertheless, a multitude of executive orders (EOs) and laws emphasize the importance of assessing distributional consequences of policies. For example, the current executive order governing the regulatory review process explicitly mentions “distributive impacts” and “equity” as issues analysts should consider. Other EOs prompt agencies to focus on environmental justice, children, and American Indian tribes, and laws are in place to protect small entities (including small businesses and governments). Employment gains and losses are also distributional consequences of policies, and the Office of Management and Budget (OMB), which sets guidelines for how agencies conduct economic analysis of regulations, further emphasizes distributional concerns.</p> <p class="p2">With the exception of the legally required analysis for small entities (called regulatory flexibility analysis), agencies rarely conduct a general distributional analysis of the parties likely to receive benefits and bear costs. Because many regulations concentrate benefits for small groups while disbursing costs, distributional analysis can help to highlight inequities hidden in BCA. Those who incur the most net costs relative to their income are often those who are less well off, meaning that policies all too often have a regressive effect. Given the seemingly endless growth in regulations, it is time agencies focus more on the distributional repercussions of their rules.</p> <p class="p1"><b>Does Benefit-Cost Analysis Consider Equity?</b></p> <p class="p1">BCA is a tool that analysts use to assess the efficiency of various policy alternatives. A policy maximizes efficiency if the benefits of the chosen policy exceed the costs by the largest amount among all possible policy options. Many economists believe efficiency and equity are distinct concepts that should be considered separately, but in fact equity is actually an inseparable component of BCA. Just as all citizens should receive equal treatment under the law, economists producing BCAs say that all citizens with standing in a BCA receive equal treatment in that analysis. BCA is based on a normative ethical judgment that says the value of one additional dollar of income is equal to all citizens, regardless of whose pocket that dollar goes into. In economics jargon, we say there is constant marginal utility of income across citizens. In this way, equity and BCA are inexorably intertwined.</p> <p class="p2">Some analysts have sought to change the role of equity in BCA; analysts have, for example, assigned weights to different categories of people. These analysts say that if a regulation transfers money from wealthy people to less wealthy people, analysts should give each group a different weight so that even a pure transfer between two people can be seen as a benefit. Transfers of goods from one party to another are typically neutral in BCA because one person’s loss is another person’s gain, with no impact on the overall calculation of “net benefits” (i.e., benefits in excess of costs). Even some government agencies, such as HM Treasury in the United Kingdom, recommend using a weighting scale like this. One problem with weighting schemes is that identifying what the weights should be is an arbitrary decision that is hard to justify on ethical grounds because analysts must treat some citizens as deserving more weight than others.</p> <p class="p2">A better approach is for analysts to present simple, straightforward information to decision makers, i.e., who gets what and who loses what, and to allow the decision makers to make the necessary political decisions about the appropriate course of action. The following principles can help analysts achieve this neutrality when analyzing distributional concerns in RIAs.</p> <p class="p1"><b>Principles for Analyzing Distribution in Regulatory Impact Analysis</b></p> <p class="p1">First, distributional analysis should be part of an RIA but kept separate from a BCA. A BCA tells decision makers whether the benefits of a proposed policy exceed the costs, no matter how they are distributed. A distributional analysis illuminates who receives those benefits and costs (and transfers). Keeping these analyses distinct within the framework of an RIA will ensure that decision makers are aware of these different decision inputs.&nbsp;</p> <p class="p2">Second, analysts should identify groups that are likely to be impacted by the regulation. Distributional analysis may not always be necessary; however, if any of the groups identified as groups of concern in executive orders or laws are impacted by a regulation, this might signal to analysts that further distributional analysis is necessary.&nbsp;</p> <p class="p2">Third, analysts should determine the degree to which a regulation is likely to have regressive or progressive effects.<b> </b>There are several ways that regulations can be regressive. Some regulations impose costs in excess of benefits for the poor, while providing benefits in excess of costs to higher-income people (an example of this appears later in this report). Next, some regulations impose net costs on all groups, but the net costs to lower-income individuals represent a higher fraction of their incomes than the net costs to other groups. For this reason, calculating net effects of policies as a percentage of average subpopulation income is helpful.&nbsp;</p> <p class="p2">There will also be cases where regulations create net benefits to low-income individuals, but the costs the poor pay represent a disproportionate share of their income relative to the costs other groups pay. While perhaps not technically regressive, this category may be undesirable because it redistributes wealth in such a way that lower-income people disproportionately bear the cost of regulation. Similarly, when the benefits of a policy represent a larger fraction of income for wealthy households relative to other groups, regulations are being designed in a manner that caters more to the preferences of the wealthy. This too may be undesirable in some cases. There may also be progressive regulations, which force the wealthy to bear a disproportionate share of the costs, while benefits accrue primarily to the poor.&nbsp;</p> <p class="p2">Fourth, transfers should be included in a distributional analysis. While pure transfers do not affect overall benefits or costs, transfers may still have an important role to play as part of a distributional analysis, especially transfers going to groups that have been singled out for particular consideration.&nbsp;</p> <p class="p2">Fifth, analysts should consider how the tolerance to bear regulatory costs varies across subpopulations. All groups, and especially the poor, have finite resources. If agencies presume a poor person can tolerate paying the same amount for a policy as a wealthy person, policies are likely to make the poor worse off. The level of cost tolerance can be estimated by examining how willingness to pay (WTP) for regulatory benefits changes across groups. For instance, the Environmental Protection Agency and Department of Transportation use estimates of WTP that vary by income for changes that occur across time. Applying this methodology to current citizens for the purposes of distributional analysis also makes sense. In many (but not all) cases, the poor are likely to have a lower tolerance for costs than the wealthy. This is because they are less willing and less able to pay for most benefits of regulation.&nbsp;</p> <p class="p2">Some might be tempted to use population average estimates of WTP across groups in distributional analysis. This is reasonable in cases where a vulnerable population experiences benefits of a regulation, but does not bear any of the costs. Harvard law professor Cass Sunstein gives the example of a disabled worker who pays nothing to make a workplace accessible to the handicapped, but nonetheless enjoys benefits from this policy. If such a worker has a low WTP, based on a low ability to pay, using an average of the entire population’s WTP may make sense. Importantly, this is only true because the individual bears none of the cost. In cases where low-income individuals are forced to pay for regulatory benefits with their own resources, such as when a government mandate improves product quality (while also increasing the price of the product), it makes no sense to value policies higher than a person would voluntarily pay for them. Using population&nbsp;averages in this latter scenario will distort economic analysis, making it more likely that regulations will force people to pay more for policies than they value them to be worth.</p> <p class="p2">In cases where WTP across subpopulations is unclear, say due to data limitations, population average WTP might be used, but a sensitivity analysis, used to describe uncertainties in analysis, should be conducted to determine the degree to which this assumption, when relaxed, changes outcomes across subpopulations.</p> <p class="p1"><b>An Example</b></p> <p class="p1">A simplified hypothetical example of a distributional analysis illuminates these principles further. Imagine that society comprises three types of people. One group consists of high-income people, one group is low-income people, and one group is in the middle. A policymaker is considering whether to implement a regulation intended to reduce contamination in pet food. Let’s say the policy produces a single outcome: fewer pet illnesses. Now, let’s assume people in the wealthy group are willing to pay on average $150 per year to ensure their “designer dogs” don’t suffer salmonella poisoning. The middle-income group will pay on average $100 to protect their golden retrievers, and people in the low-income group will pay up to $50 per year for their mixed-breed dogs. The costs of the policy may fall on pet food producers initially, but we will assume that in the long run all costs are passed from producers to consumers and spread evenly across the three groups.</p> <p class="p1"><img height="138" width="585" src="http://mercatus.org/sites/default/files/Williams-AnalyzingDistributionRIA-MOP-table.png" /></p><p class="p1"><span style="font-size: 11.9999990463257px;">As a first step, the analyst concludes that because some purchasers of pet food are low-income individuals, a distributional analysis is necessary. If these groups consist of identical numbers of individuals, the analyst determines that the total benefits of the proposed policy are likely to exceed the total costs. The analyst could simply multiply the averages for each subpopulation by the number of individuals in the group and take the sum of these values to obtain this information. In theory, the winners of this policy could compensate the losers and everyone would still be better off than they were before the policy was put in place. This type of compensation rarely, if ever, occurs. In American society with millions of individuals and businesses, transaction costs are likely to make it too difficult to identify and redistribute between the winners and losers of policies, particularly given the current number of regulations passed each year.&nbsp;</span></p> <p class="p2">As described above, a well-done distributional analysis will identify the subpopulations a policy affects and present information about their various measures of WTP for regulatory benefits. This allows analysts to determine a unique cost tolerance for each group. Notice that we do not assume that the average per capita cost tolerance across the entire population (in this case, $100) applies to low-income individuals. A poor person generally has a lower willingness and ability to bear costs than a wealthy person. In this example, the low-income group is only willing to pay up to $50 on average for the policy. This is the level at which the members of this group value the policy according to their own preferences and situations, not according to the analyst’s preferences. The typical person in this group is made worse off in our example because he or she might take the $75 spent complying with the regulation and put it toward other more highly valued uses, such as a home security system, healthier food, day care for his or her children, or whatever else he or she cares about. It is not the analysts’ job to question why people might prefer paying for some items (e.g., a home security system) and not others (e.g., complying with a regulation). Each individual in society must make these decisions for themselves and analysts simply report this behavior.</p> <p class="p2">This example is meant to be a simplified version of a distributional analysis. It is not a BCA, which looks at cumulative effects on society and would therefore rely on population average values. As mentioned above, population averages might be used in distributional analysis in instances where a subpopulation bears no cost and has a limited ability to pay for the policy. BCA also ignores transfers, which aren’t included in table 1 but generally should be considered. A more detailed distributional analysis should also convert net effects of the policy into percentages based on the average annual income of each subpopulation. This allows for more meaningful comparison across groups. Employment effects might also be considered. For example, this policy might increase employment for monitors while simultaneously reducing employment for other types of pet food workers.</p> <p class="p1"><b>The Role of Decision Makers</b></p> <p class="p1">RIAs are conducted to inform decisions made by those who are elected or appointed to make decisions. The final decision will involve considering many different factors, including economic efficiency, legal constraints, public opinion, politics, and the distribution of wealth and income.</p> <p class="p2">Decision makers might want to adhere to a decision rule that says analysts should evaluate benefits and costs to those below a particular threshold (e.g., the poverty line) distinctly from the benefits and costs to society more generally. Such a rule might state that only those policies that make both groups better off may be adopted. A similar rule might stop regulations from being adopted that exacerbate income or wealth inequality. These judgments should be made by decision makers who are accountable to the public and to elected representatives of the people, not by analysts. In order to avoid appearing politicized or biased, analysts must provide descriptive information and refrain from incorporating opinions about fair distribution of wealth into their analysis. Those decisions belong entirely to parties more accountable to the public.</p> <p class="p1"><b>Conclusion&nbsp;</b></p> <p class="p1">Recent research suggests agencies rarely conduct general distributional analysis, and when they do, it is often incomplete. Agencies fail to conduct proper analyses despite executive orders and laws that repeatedly draw attention to the importance of the distributional effects of regulations. When preparing RIAs, agency analysts should keep distributional issues separate from issues of economic efficiency, so as not to confuse decision makers about these different decision inputs. Furthermore, analysts should not forget that equity is already a foundational principle of BCA. It is their job to present information about distributional effects of policies, while leaving value judgments about what is a fair distribution of wealth to others who are more accountable to the American people.</p> http://mercatus.org/publication/principles-analyzing-distribution-regulatory-impact-analysis Wed, 27 May 2015 10:04:06 -0400 The Future of Capitalism: A Conversation Between Tyler Cowen and Luigi Zingales http://mercatus.org/events/future-capitalism-conversation-between-tyler-cowen-and-luigi-zingales contact@mercatus.org (Mercatus.org) <h5> Events </h5> <p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">This event is part of the Mercatus Center’s </span><i>Conversations with Tyler</i><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">&nbsp;event series.</span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><b>PARTICIPANTS:</b><br /><span style="font-size: 12px;"><a style="font-size: 12px; color: #666699;" href="http://mercatus.org/tyler-cowen">Tyler Cowen</a>, Holbert L. Harris Chair of Economics, George Mason University<br /><a href="http://www.chicagobooth.edu/faculty/directory/z/luigi-zingales">Luigi Zingales</a>, Robert C. McCormack Distinguished Service Professor of Entrepreneurship and Finance, University of Chicago Booth School of Business</span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-size: 12px;"></span><b><span style="font-size: 12px; text-decoration: underline;">**Select VIP Seating Available for Media**<br /></span></b><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">Contact Bob Ewing, director of media relations, Mercatus Center<br /></span><span style="font-size: 12px;">703.993.4960 (office), 202.494.2567 (mobile),&nbsp;</span><a href="mailto:bewing@mercatus.gmu.edu" style="font-size: 12px; color: #666699;">bewing@mercatus.gmu.edu</a></p><p>Is American capitalism in crisis?</p> <p>Luigi Zingales, one of the world’s foremost thinkers on financial development and capitalism, will join Tyler Cowen for a conversation about the policies that will shape capitalism moving into the future.</p> <p>Zingales’ work sprang from personal experience. He came to the United States from Italy with the great American Dream in mind—if you work hard, you will be successful and build a better life. But his experience led him to ask many questions about the American system of capitalism. With more businesses seeking government handouts than ever before, and capitalism coming into question since the financial crisis, his work has brought to light a shift in what we have come to know as American capitalism.</p> <p>In 2003, Zingales authored the book,&nbsp;<i>Saving Capitalism from the Capitalists</i>, and in 2012, he followed up with <i>A Capitalism for the People</i>—a book that <i>Forbes</i> called “unquestionably insightful and thought-provoking” and the <i>Financial Times </i>noted as a “stimulating” work. Cowen, too, acclaimed Zingales’ <i>A Capitalism for the People </i>as one of the most important books for a “popular audience of non-economists.”</p> <p>Is the free market the best way to improve general welfare? What role should politics play in a free market system? And is there hope for the future? Join us for what will certainly be a personal conversation as two economists discuss these issues and more.</p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">If you have any questions about this event, please contact Bethany Stalter at&nbsp;</span><a style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; color: #666699;" href="mailto:bstalter@mercatus.gmu.edu">bstalter@mercatus.gmu.edu</a><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">&nbsp;or (703) 993-4889.</span></p><p style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;"><b>About Luigi Zingales<br /></b><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">Zingales' research interests span from corporate governance to financial development, from political economy to the economic effects of culture. Currently, he is involved in developing the best interventions to cope with the aftermath of the financial crisis. He also co-developed the Financial Trust Index, which is designed to monitor the level of trust that Americans have toward their financial system. In addition to holding his position at Chicago Booth, Zingales is currently a faculty research fellow for the National Bureau of Economic Research, a research fellow for the Center for Economic Policy Research, and a fellow of the European Governance Institute. He is also the director of the American Finance Association and an editorialist for </span><i style="font-weight: inherit;">Il Sole 24 Ore</i><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px;">, the Italian equivalent of the </span><i style="font-weight: inherit;">Financial Times</i><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px;">. Zingales also serves on the Committee on Capital Markets Regulation, which has been examining the legislative, regulatory, and legal issues affecting how public companies function.</span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><b>About Tyler Cowen<br /></b><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">Cowen is a world-renowned professor of economics, co-author of the popular economics blog Marginal Revolution,&nbsp;co-founder of the award-winning online educational platform&nbsp;Marginal Revolution University, and chairman of the Board at the Mercatus Center at George Mason University.&nbsp;</span><i style="font-weight: inherit;">Bloomberg Businessweek&nbsp;</i><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">profiled Cowen as “America’s Hottest Economist,”&nbsp;</span><i style="font-weight: inherit;">Foreign Policy&nbsp;</i><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">named Cowen as one of the “Top 100 Global Thinkers,” and an&nbsp;</span><i style="font-weight: inherit;">Economist</i><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">&nbsp;survey counted Cowen as one of the most influential economists of the last decade.</span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><b>About the&nbsp;<i>Conversations with Tyler</i>&nbsp;Event Series</b><br />The Mercatus Center's&nbsp;<i>Conversations with Tyler</i>&nbsp;series brings world-class thought leaders to the Arlington campus of George Mason University to discuss how ideas, cutting-edge research, and applied economics can bring solutions to society’s most pressing problems.</p> http://mercatus.org/events/future-capitalism-conversation-between-tyler-cowen-and-luigi-zingales Thu, 28 May 2015 00:42:21 -0400 The Future of Globalization: A Conversation Between Tyler Cowen and Dani Rodrik http://mercatus.org/events/future-globalization-conversation-between-tyler-cowen-and-dani-rodrik contact@mercatus.org (Mercatus.org) <h5> Events </h5> <p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">This event is part of the Mercatus Center’s </span><i>Conversations with Tyler</i><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">&nbsp;event series.</span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><b>PARTICIPANTS:</b><br /><span style="font-size: 12px;"><a style="font-size: 12px; color: #666699;" href="http://mercatus.org/tyler-cowen">Tyler Cowen</a>, Holbert L. Harris Chair of Economics, George Mason University<br /><a href="https://www.sss.ias.edu/faculty/rodrik">Dani Rodrik</a>, Albert O. Hirschman Professor of Economics, Institute for Advanced Study</span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><b><span style="font-size: 12px; text-decoration: underline;">**Select VIP Seating Available for Media**</span></b><br />Contact Bob Ewing, director of media relations, Mercatus Center<br /><span style="font-size: 12px;">&nbsp;703.993.4960 (office), 202.494.2567 (mobile),&nbsp;</span><a style="font-size: 12px; color: #666699;" href="mailto:bewing@mercatus.gmu.edu">bewing@mercatus.gmu.edu</a></p><p>Does globalization—the worldwide movement toward economic, financial, trade, and communications integration—lead to a more prosperous or a more divided and unequal world?</p> <p>Dani Rodrik and Tyler Cowen are among today’s most influential voices on international economics and economic development. Join these thought leaders for a conversation about the future of globalization and whether it will be more harmful or beneficial to the economic growth of developing countries.</p> <p>As globalization has accelerated, some countries have thrived while others have continued to struggle. While globalization has brought more job opportunities in some parts of the world, it has also brought job displacement in others. While access to important medicines has increased, the spread of communicable diseases has also increased. And while the globalization of the Internet has helped bring people out of poverty, some contend that the Internet has led to an increase in cultural conformity.</p> <p>Is globalization responsible for international inequality and cultural conflict? Or is globalization responsible for greater economic prosperity around the globe? What better contributes to the general welfare: trade restrictions or free trade? Can politics be an efficient way to maximize the general welfare?</p><p>Rodrik’s and Cowen’s conversation on this topic is sure to be one of the most important and illuminating in recent years.&nbsp;</p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">If you have any questions about this event, please contact Bethany Stalter at&nbsp;</span><a style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; color: #666699;" href="mailto:bstalter@mercatus.gmu.edu">bstalter@mercatus.gmu.edu</a><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;">&nbsp;or (703) 993-4889.</span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><b style="font-style: normal;">About Dani Rodrik<br /></b><span style="font-style: normal; font-family: Helvetica, Arial, sans-serif; font-size: 12px;">Rodrik is a Turkish economist whose research covers globalization, economic growth and development, and political economy. Prior to joining the Institute for Advanced Study in 2013, he held professorships at Harvard and Columbia. His most recent book, </span><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px;"><i>The Globalization Paradox</i></span><span style="font-style: normal; font-family: Helvetica, Arial, sans-serif; font-size: 12px;">, has been translated into twelve languages. His 1997 book </span><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px;"><i>Has Globalization Gone Too Far?</i></span><span style="font-style: normal; font-family: Helvetica, Arial, sans-serif; font-size: 12px;"> was called “one of the most important economics books of the decade” in </span><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px;"><i>Business Week</i></span><span style="font-style: normal; font-family: Helvetica, Arial, sans-serif; font-size: 12px;">.</span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal;"><b>About Tyler Cowen<br /></b><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">Cowen is a world-renowned professor of economics, co-author of the popular economics blog Marginal Revolution,&nbsp;co-founder of the award-winning online educational platform&nbsp;Marginal Revolution University, and chairman of the Board at the Mercatus Center at George Mason University.&nbsp;</span><i style="font-weight: inherit;">Bloomberg Businessweek&nbsp;</i><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">profiled Cowen as “America’s Hottest Economist,”&nbsp;</span><i style="font-weight: inherit;">Foreign Policy&nbsp;</i><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">named Cowen as one of the “Top 100 Global Thinkers,” and an&nbsp;</span><i style="font-weight: inherit;">Economist</i><span style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;">&nbsp;survey counted Cowen as one of the most influential economists of the last decade.</span><br /></span></p><p style="font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><b>About the&nbsp;<i>Conversations with Tyler</i>&nbsp;Event Series</b><br />The Mercatus Center's&nbsp;<i>Conversations with Tyler</i>&nbsp;series brings world-class thought leaders to the Arlington campus of George Mason University to discuss how ideas, cutting-edge research, and applied economics can bring solutions to society’s most pressing problems.</p> http://mercatus.org/events/future-globalization-conversation-between-tyler-cowen-and-dani-rodrik Thu, 28 May 2015 00:34:58 -0400 The Sharing Economy: Issues Facing Platforms, Participants, and Regulators http://mercatus.org/publication/sharing-economy-issues-facing-platforms-participants-and-regulators <h5> Publication </h5> <p class="p1"><b>I. INTRODUCTION</b></p> <p class="p2">The Mercatus Center at George Mason University is dedicated to advancing knowledge about the impact of regulation on society. As part of its mission, the Mercatus Center conducts careful and independent analyses employing contemporary economic scholarship to assess rulemaking proposals from the perspective of the public interest. Thus, this comment before the Federal Trade Commission (FTC) does not represent the views of any particular affected party or special interest group. Rather, it is designed to assist the commission as it weighs the costs and benefits of regulation that affects the sharing economy. Our comments to the commission are derived from recent Mercatus Center working papers on these issues.<sup>2</sup>&nbsp;</p> <p class="p1"><b>II. THE IMPACT OF THE SHARING ECONOMY&nbsp;</b></p> <p class="p2">In its workshop announcement, the commission asks, <b>“How have sharing economy platforms affected competition, innovation, consumer choice, and platform participants in the sectors in which they operate? How might they in the future?”&nbsp;</b></p> <p class="p2">To understand the impact that the sharing economy has had on competition, innovation, and consumer choice, it is important to define the sharing economy. In its broadest sense, we argue that the sharing economy is any marketplace that uses the Internet to bring together distributed networks of individuals to share or exchange otherwise underutilized assets.<sup>3</sup> Thus, it encompasses all manner of goods and services shared or exchanged for both monetary and nonmonetary benefit. The sectors in which the sharing economy has seen substantial growth—and has created the most disruption—include transportation, hospitality, dining, goods, finance, and personal services.&nbsp;</p> <p class="p2">We have identified five ways the sharing economy is creating value for both consumers and producers:&nbsp;</p> <ol class="ol1"> <li class="li4">By giving people an opportunity to use other people’s cars, kitchens, apartments, and other property, it allows underutilized assets or “dead capital” to be put to more productive use.<sup>4 </sup></li> <li class="li4">By bringing together multiple buyers and sellers, it makes both the supply and demand sides of its markets more competitive and allows greater specialization. </li> <li class="li4">By lowering the cost of finding willing traders, haggling over terms, and monitoring performance, it cuts transaction costs and expands the scope of trade.<sup>5 </sup></li> <li class="li4">By aggregating the reviews of past consumers and producers and putting them at the fingertips of new market participants, it can significantly diminish the problem of asymmetric information between producers and consumers.<sup>6&nbsp;</sup></li><li class="li4"><span style="font-size: 11.9999990463257px;">By offering an end run around regulators who are captured by existing producers, it allows suppliers to create value for customers long underserved by those incumbents that have become inefficient and unresponsive because of their regulatory protections.&nbsp;</span></li></ol> <p class="p2">These factors can improve consumer welfare by offering new innovations, more choices, more service differentiation, better prices, and higher-quality services. In short, as the commission’s workshop notice puts it, “The development of the sharing economy can stimulate economic growth by encouraging entrepreneurship and promoting more productive and efficient use of assets.” Irrespective of <i>how </i>the sharing economy creates value, the revealed preferences of both consumers and producers suggest that it <i>does </i>create a substantial amount of economic value. As the commission notes, “Sharing economy transactions have increased rapidly in recent years, reaching an estimated value of $26 billion globally in 2013, and some estimates predict that the sharing economy will generate as much as $110 billion annually in the near future.”&nbsp;</p> <p class="p2">Much of this value flows to individuals who would otherwise be unable to compete in these markets. For those entering the sharing economy as producers, these new platforms create opportunities to generate income from sources that were historically available only to a select few. In the recent past, only those with access to the capital necessary to build hotels could offer rooms as short-term rentals. But firms such as Airbnb and HomeAway allow individuals to penetrate markets traditionally dominated by large incumbents such as Hilton Worldwide and Marriott International. In 2014, for example, guest stays through Airbnb totaled nearly 22 percent more than Hilton Worldwide.<sup>7</sup> And recent projections estimate that the sharing economy has the potential to increase over twentyfold in terms of revenue by 2025.<sup>8</sup>&nbsp;</p> <p class="p2">As we have noted in our previous research, the increased competition from the continued growth of the sharing economy will have direct, positive effects on consumer welfare.<sup>9</sup> First, and most obviously, these firms give consumers access to a broader range of goods and services. The ease of entry and innovation in the online world mean that new entrants in the sharing economy can provide better options and address consumer needs in ways that more traditional business models cannot. According to surveys, consumers currently take advantage of sharing economy services primarily because they offer better prices, a sense of community, greater convenience, and higher quality.<sup>10</sup> In terms of greater convenience and quality, comparisons of Yelp ratings in almost any major city where ride-sharing firms operate demonstrate overwhelming consumer satisfaction.<sup>11</sup> Moreover, a recent survey of US adults familiar with the sharing economy found that 86 percent agree it makes life more affordable, and 83 percent agree that it makes it more convenient and efficient.<sup>12</sup>&nbsp;</p> <p class="p2">The sharing economy, through its use of the Internet and information technology, also offers consumers more information about products and services, and it empowers consumers to act on that information. Many economists have worried about the existence of information asymmetries between producers and consumers, and they have argued that this asymmetry justifies many consumer protection regulations. However, the Internet largely solves this problem by providing consumers with robust search and monitoring tools so that they may find more and better choices.<sup>13</sup> These tools lower the transaction costs of searching for willing trade partners, haggling with them over terms, and monitoring them for compliance. We will discuss these tools, especially reputational mechanisms, in more detail in section VI.</p><p class="p2"><a href="http://mercatus.org/sites/default/files/Koopman-Sharing-Economy-FTC-filing.pdf">Continue reading</a></p> http://mercatus.org/publication/sharing-economy-issues-facing-platforms-participants-and-regulators Tue, 26 May 2015 12:17:55 -0400 The Rise of Executive Federalism http://mercatus.org/expert_commentary/rise-executive-federalism <h5> Expert Commentary </h5> <p class="p1">Consider, if you will, the administration's controversial initiatives on immigration, marijuana legalization, the No Child Left Behind Act (NCLB) and Common Core academic standards, climate change and "clean power," and the implementation of Medicaid expansion and the Affordable Care Act (ACA): What do they all have in common?</p> <p class="p1">First, they are <i>federalism</i> initiatives that affect states in very significant ways (for their ostensible benefit, or to their demonstrable detriment). Second, Congress has nothing to do with any of this beyond writing checks and issuing press releases. Third, the programs operate at the absolute outer bounds of statutory law, and sometimes outside those bounds.</p> <p class="p1">To an extent, that reflects the present administration's latitudinarian approach to the law. But there's a larger, structural point: Our federalism is practically guaranteed to produce chaotic government. Generalized appeals to the rule of law cannot alone fix that problem. We have to make our federalism less "cooperative."</p> <p class="p1">With very few exceptions (such as tax collection, Social Security, and Medicare), virtually all federal domestic programs are administered by state and local governments, often under one of over 1,100 federal funding statutes (such as Medicaid or NCLB). Since its inception under the New Deal, this "cooperative" federalism has proven stupendously successful in doing what it was supposed to do: expand government at all levels. However, its stability rested on peculiar conditions: private and public affluence, tolerably homogeneous states, and a functioning Congress. Those conditions have all ceased to operate to some extent. This predicament explains the rise of an <i>executive </i>and often extra-legal federalism — a federalism that is run through waivers, edicts, and transfers payments that are barely distinguishable from bribes.</p> <p class="p1"><b>The End of Affluence</b><br /> The point of jointly funded federal conditional spending programs (such as Medicaid) is to increase the demand for government, by lowering the perceived tax price of public programs both at the federal and the state level. The programs are <i>built</i> to demand ever-increasing cash infusions. When that can no longer be done or be taken for granted, the federal-state bargain comes apart. And so it has.</p> <p class="p1">The ACA promised states a <i>100 percent</i> reimbursement for expanding Medicaid. Two dozen states litigated <i>against</i> that largess, and to this day some 20 states refuse to take the money. While ideological resistance to "Obamacare" has contributed to this unprecedented display of resistance, it is also the case that states no longer trust the federal government's promises, for the excellent reason that Medicaid's expansion at the federal level is purely debt-financed. Besides, Medicaid is ruinous to state finances with or without its expansion under the ACA. It is now the single largest state expenditure, eclipsing even spending on education, and it is projected to double again within a decade or so. That will not happen, because it cannot happen.</p> <p class="p1">All the while, the states' costs of matching federal transfers with their own revenue dollars keep rising, chiefly because budget cuts would entail a loss of federal transfers. Unable to raise those revenues, states have responded by racking up debt in off-budget places — foremost, pension and other post-employment benefit accounts. Those debts exceed $5 trillion. They will not be paid, because they cannot be paid. That problem cannot be solved through yet more generous federal transfers. In short, the "cooperative" fiscal game is just about up.</p> <p class="p1"><b>(Un)willing&nbsp;States</b><br /> Cooperative federalism requires willing states — not a few willing states, but well-nigh all of them. Without that, national objectives would go unmet. Thus, federal-state bargains are structured to produce uniform cooperation through some combination of carrots and sticks, coupled with an assurance of state "flexibility" — that is to say, statutorily guaranteed authority to shirk. But that does not work under conditions of severe state heterogeneity. In fact, ideological divisions among states have become sufficiently severe to make large numbers of states defect from existing arrangements and resist any effort to extend them. The ACA is the most obvious example, but there are others — foremost, energy-producing states' resolute resistance to the administration's climate-change programs. And increasingly, the dissident states are acting and litigating as a bloc and a coalition. There again goes "cooperative" federalism.</p> <p class="p1"><b>Congress</b><br /> "Cooperative" federalism is supposed to come from Congress and federal statutes. However, practically <i>nothing</i> comes from Congress these days. The legislature is notoriously divided. It lacks the financial resources to rope recalcitrant states in new federalism bargains (witness the ACA), and it cannot even revisit the bargains embedded in old statutes (such as education programs or the Clean Air Act). Thus, to make federal programs "work" under current conditions, agencies rewrite statutes, issue expansive waivers, and negotiate deals with individual states on a one-off basis. That is how the ACA is being "administered." That is how Secretary of Health and Human Services Sylvia Burwell is trying to expand Medicaid. That is how No Child Left Behind is run. And that is how Environmental Protection Agency is trying to impose its Clean Power Plan: "stakeholder meetings" and assurances of regulatory forbearance for cooperating states; unveiled threats against holdout states. This brand of federalism knows neither statutory compliance nor even administrative regularity. It is <i>executive</i> federalism.</p> <p class="p1">The rise of executive federalism is propelled by very potent forces, and it is robust to partisan politics. Expansive administrative waivers, for example, were pioneered by the Reagan administration (under what was then Aid to Families with Dependent Children); the practice has since spread under Democratic and Republican administrations alike. For now, complaints over lawless executive behavior are the stuff of conservative agitation. However, a Republican president would be under enormous pressure to improvise federalism solutions under unworkable, obsolete, and profligate statutes. The fronts might change quite quickly, even as executive federalism continues its ascent. Further along that path lies the fate of Argentina, which practices an advanced form of executive federalism: corrupt, ruinous, unstable.</p> <p class="p1">What can be done about it? A crucial first step is to stop fighting yesterday's federalism battles over "states' rights" or "block grants" — the latter a convenient and supposedly conservative prescription that is in reality a debt-financed, full-scale waiver policy that allows the executive to exercise yet greater authority and states to spend yet more money they haven't raised. Instead, the time has come to fight today's federalism battles over executive federalism and to prepare for tomorrow's — for example, the sure-to-come question of federal bailouts for major cities and entire states. Could the Federal Reserve recapitalize the state of Illinois? A TARP for states: Would that be constitutional? If so, who would enforce the repayment obligations or promises of fiscal discipline, and how?</p> <p class="p1">Obviously (to my mind), we should resist such novel forms of federal-state "cooperation." We have to make our federalism less ruinous and more lawful. And to that end, we have to make it less cooperative, one program at a time.</p> http://mercatus.org/expert_commentary/rise-executive-federalism Tue, 26 May 2015 10:04:06 -0400 Certificate-of-Need Laws: Implications for Kentucky http://mercatus.org/publication/certificate-need-laws-implications-kentucky <h5> Publication </h5> <p class="p1">Thirty-six states and the District of Columbia currently limit entry or expansion of health care facilities through certificate-of-need (CON) programs. These programs prohibit health care providers from entering new markets or making changes to their existing capacity without first gaining the approval of state regulators. Since 1972, Kentucky has been among the states that restrict the supply of health care in this way, with 18 devices and services—including acute hospital beds, magnetic resonance imaging (MRI) and positron emission tomography (PET) scanners—requiring a certificate of need from the state before the device may be purchased or the service offered.</p> <p class="p1">CON restrictions are in addition to the standard licensing and training requirements for medical professionals, but are neither designed nor intended to ensure public health or ensure that medical professionals have the necessary qualifications to do their jobs. Instead, CON laws are specifically designed to limit the supply of health care and are traditionally justified with the claim that they reduce and control health care costs. The theory is that by restricting market entry and expansion, states will reduce overinvestment in facilities and equipment. In addition, many states—including Kentucky—justify CON programs as a way to cross-subsidize health care for the poor. Under these “charity care” requirements providers that receive a certificate of need are typically required to increase the amount of care they provide to the poor. These programs intend to create <i>quid pro quo</i> arrangements: state governments restrict competition, increasing the cost of health care for some, and in return medical providers use these contrived profits to increase the care they provide to the poor.</p> <p class="p2">However, these claimed benefits have failed to materialize as intended. Recent research by Thomas Stratmann and Jacob Russ demonstrates that there is no relationship between CON programs and increased access to health care for the poor. There are, however, serious consequences for continuing to enforce CON regulations. In particular, for Kentucky these programs could mean approximately 5,782 fewer hospital beds, between 9 and 18 fewer hospitals offering MRI services, and between 22 and 31 fewer hospitals offering computed tomography (CT) scans. For those seeking quality health care throughout Kentucky, this means less competition and fewer choices, without increased access to care for the poor.</p> <p class="p1"><b>The Rise of CON Programs</b></p> <p class="p1">CON programs were first adopted by New York in 1964 as a way to strengthen regional health planning programs. Over the following 10 years, 23 other states adopted CON programs. Many of these programs were initiated as “Section 1122” programs, which were federally funded programs providing Medicare and Medicaid reimbursement for certain approved capital expenditures. Kentucky enacted its first CON program in 1972, two years before the passage of the National Health Planning and Resources Development Act of 1974, which made certain federal funds contingent on the enactment of CON programs, and provided a strong incentive for the remaining states to implement CON programs. In the seven years following this mandate, nearly every state without a CON program took steps to adopt certificate-of-need statutes. By 1982 every state except Louisiana had some form of a CON program.</p> <p class="p1">In 1987, the federal government repealed its CON program mandate when the ineffectiveness of CON regulations as a cost-control measure became clear. Twelve states rapidly followed suit and repealed their certificate-of-need laws in the 1980s. By 2000, Indiana, North Dakota, and Pennsylvania had also repealed their CON programs. Since 2000, Wisconsin has been the only state to repeal its program.</p> <p class="p4">Kentucky remains among the 36 states, along with the District of Columbia, that continue to limit entry and expansion within their respective health care markets through certificates of need. On average, states with CON programs regulate 14 different services, devices, and procedures. Kentucky’s CON program currently regulates 18 different services, devices, and procedures, which is more than the national average. As figure 1 shows, Kentucky’s certificate-of-need program ranks the 16th most restrictive in the United States.</p> <p class="p5"><a href="http://mercatus.org/sites/default/files/Elbarasse-Certificate-of-Need-KY-MOP-chart.png"><img src="http://mercatus.org/sites/default/files/Elbarasse-Certificate-of-Need-KY-MOP-chart.png" width="585" height="420" /></a></p> <p class="p6">Note: Fourteen states either have no certificate-of-need laws or they are not in effect. In addition, Arizona is typically not counted as a certificate-of-need state, though it is included in this chart because it is the only state to regulate ground ambulance services.</p> <p class="p1"><b>Do CON Programs Control Costs and Increase the Poor’s Access to Care?</b></p> <p class="p1">Many early studies of CON programs found that these programs fail to reduce investment by hospitals. These early studies also found that the programs fail to control costs. Such findings contributed to the federal repeal of CON requirements. More recently, research into the effectiveness of remaining CON programs as a cost-control measure has been mixed. While some studies find that CON regulations may have some limited cost-control effect, others find that strict CON programs may in fact increase costs by 5 percent. The latter finding is not surprising, given that CON programs restrict competition and reduce the available supply of regulated services.</p> <p class="p1">While there is little evidence to support the claim that certificates of need are an effective cost-control measure, many states continue to justify these programs using the rationale that they increase the provision of health care for the poor. To achieve this, 14 states make some requirement for charity care within their respective CON programs. This is what economists refer to as a “cross subsidy.”</p> <p class="p1">The theory behind cross-subsidization through these programs is straightforward. By limiting the number of providers that can enter a particular practice and by limiting the expansion of incumbent providers, CON regulations effectively give a limited monopoly privilege to providers that receive approval in the form of a certificate of need. Approved providers are therefore able to charge higher prices than would be possible under truly competitive conditions. As a result, it is hoped that providers will use their enhanced profits to cover the losses from providing otherwise unprofitable, uncompensated care to the poor. Those who can pay are supposed to be charged higher prices to subsidize those who cannot.</p> <p class="p1">In reality, however, this cross-subsidization is not occurring. While early studies found some evidence of cross-subsidization among hospitals and nursing homes, the more recent academic literature does not show evidence of this cross-subsidy taking place. The most comprehensive empirical study to date, conducted by Thomas Stratmann and Jacob Russ, finds no relationship between certificates of need and the level of charity care.</p> <p class="p1"><b>The Lasting Effects of Kentucky’s CON Program</b></p> <p class="p1">While certificates of need neither control costs nor increase charity care, they continue to have lasting effects on the provision of health care services both in Kentucky and in the other states that continue to enforce them. However, these effects have largely come in the form of decreased availability of services and lower hospital capacity.</p> <p class="p1">In particular, Stratmann and Russ present several striking findings regarding the provision of health care in states implementing CON programs. First, CON programs are correlated with fewer hospital beds. Throughout the United States there are approximately 362 beds per 100,000 persons. However, in states such as Kentucky that regulate acute hospital beds through their CON programs, Stratmann and Russ find 131 fewer beds per 100,000 persons. In the case of Kentucky, with its population of approximately 4.4 million, this could mean about 5,782 fewer hospital beds throughout the state as a result of its CON program.</p> <p class="p1">Moreover, several basic health care services that are used for a variety of purposes are limited because of Kentucky’s CON program. Across the United States, an average of six hospitals per 500,000 persons offer MRI services. In states such as Kentucky that restrict hospitals’ capital expenditures (above a certain threshold) on MRI machines and other equipment, the number of hospitals that offer MRIs is reduced by between one and two per 500,000 persons. This could mean between 9 and 18 fewer hospitals offering MRI services throughout Kentucky. The state’s CON program also affects the availability of CT services. While an average of nine hospitals per 500,000 persons offer CT scans, CON regulations are associated with a 37 percent decrease in these services. For Kentucky, this could mean between 22 and 31 fewer hospitals offering CT scans.</p> <p class="p1"><b>Conclusion</b></p> <p class="p1">While CON programs were intended to limit the supply of health care services within a state, proponents claim that the limits were necessary to either control costs or increase the amount of charity care being provided. However, 40 years of evidence demonstrate that these programs do not achieve their intended outcomes, but rather decrease the supply and availability of health care services by limiting entry and competition. For policymakers in Kentucky, this situation presents an opportunity to reverse course and open the market for greater entry, more competition, and ultimately more options for those seeking care.</p> http://mercatus.org/publication/certificate-need-laws-implications-kentucky Tue, 26 May 2015 15:04:31 -0400 The Tip of the Regulatory Iceberg http://mercatus.org/expert_commentary/tip-regulatory-iceberg <h5> Expert Commentary </h5> <p class="p1">In 2014, the government issued 2,400 new regulations, including 27 major rules that may cost $80 billion or more annually. They range from forcing restaurants to list the number of calories in food — even though past experiments have revealed that such measures fail to change consumers' behavior — to reducing consumer choices and increasing energy prices by imposing tighter energy efficiency mandates on the plugs that we use to charge cellphones, laptops and even electric toothbrushes.</p> <p class="p1">These figures can be found in a new paper by Heritage Foundation scholars Diane Katz and James L. Gattuso, in which they tally the number and cost of government regulations over the past six years of President Barack Obama's administration — and show that Washington's control over the economy and Americans' lives is intensifying. According to their count, during the first six years of the Obama administration, the number of new major rules reached 184, but another 126 are in the pipeline. That's more than twice the number imposed by President George W. Bush, who wasn't shy about regulating the economy.</p> <p class="p1">Katz and Gattuso explain, "The cost of just these 184 rules is estimated by regulators to be nearly $80 billion annually." But this is only the tip of the iceberg. Official regulatory costs are vastly underestimated, among other things, because of the large number of rules for which costs have not been fully quantified.</p> <p class="p1">More importantly, it doesn't appropriately account for the businesses, innovations and economic growth that will never exist because of the incessant accumulation of regulations. Take the bureaucrats at the Federal Aviation Administration, who have effectively banned the use of commercial unmanned aerial vehicles, commonly referred to as drones. This and the myriad other questionable drone regulations proposed by the FAA have been widely criticized as arbitrary and nontransparent.</p> <p class="p2">Another example was the FAA's proposal to require drone pilots to obtain the same license as old-school airplane pilots. Thank goodness it appears that the FAA is walking away from this bad idea. But the bottom line is that the FAA has demonstrated its penchant for imposing destructive constraints on this new technology.</p> <p class="p1">Meanwhile, a more hands-off approach to regulating drones in other countries has led to new, exciting commercial uses for drones all over the world. For instance, a startup called Matternet uses drones to deliver critical supplies in places where roads can keep people isolated for months at a time. The potential is huge, considering that over 1 billion people live in such places. Germany's DHL already uses drones to deliver medicine to the small city of Juist on a small island in the North Sea. And a few weeks ago, we saw how the charity GlobalMedic was using drones to help aid relief operations in Nepal after the country was ravaged by earthquakes.</p> <p class="p1">Yet the FAA continues its destructive approach with new proposed rules to further constrain drones that are less than 55 pounds. The rules would, among other things, prohibit them from conducting deliveries and prohibit operation outside the hours of official sunrise and sunset.</p> <p class="p1">In other words, forget about sending medication or food to people in areas where ground travel is not possible, and forget about the 30-minute delivery service Amazon Prime Air — in the United States, that is.</p> <p class="p1">But that's a drop in the bucket compared with dozens of other costly rules, including 13 regulations of the financial system that saw the light of day in 2014. According to Katz and Gattuso, eight of those were the product of Dodd-Frank, an act that was supposed to reduce the risk of a major bank failure but is actually a regulatory burden that cripples small banks while further protecting even larger institutions. In other words, Katz and Gattuso conclude, the need for reform of the regulatory system has never been greater.</p> http://mercatus.org/expert_commentary/tip-regulatory-iceberg Thu, 21 May 2015 11:40:08 -0400 Export Jobs Won’t Disappear Absent Ex-Im Bank http://mercatus.org/publication/export-jobs-won-t-disappear-absent-ex-im-bank <h5> Publication </h5> <p><span style="font-size: 12px;">The charter of the US Export-Import Bank is set to expire on June 30 unless it is reauthorized by Congress. Scare tactics aside, the end of Ex-Im would not mean the loss of thousands of American jobs.</span></p><p><span style="font-size: 12px;">Economists have long understood that subsidies doled out by government credit agencies such as the Ex-Im Bank are not merely unnecessary: they can actually harm the economy. In their quest to keep the subsidies flowing, proponents of the bank are claiming that failure to reauthorize its charter would lead to massive job losses. This blatant fearmongering has succeeded in causing concern among some lawmakers. House Speaker John Boehner only made matters worse on April 30, when he asserted that “there are thousands of jobs on the line that would disappear pretty quickly if the Ex-Im Bank were to disappear.”</span></p><p><span style="font-size: 12px;">First, and fundamentally, export subsidies do not “create” or “support” jobs—they redistribute them from unsubsidized firms to subsidized ones. Second, the job numbers touted by Ex-Im Bank officials are dubious at best and have been roundly criticized as misleading by the Government Accountability Office, among others.</span></p><p><span style="font-size: 12px;">But, just as important, the biggest beneficiaries of the Ex-Im Bank know full well that their employees and those of their suppliers are perfectly safe in the event the charter is not reauthorized. That’s because Boeing, Caterpillar, General Electric, and the like all have billions of dollars of backorders that will keep their workers busy for years to come.<br /></span><br /><span style="font-size: 12px;">This week’s charts use data from the Ex-Im Bank to display the top 10 beneficiaries for all Ex-Im Bank transactions between 2007 and 2014 and the backlog information from the companies’ annual reports. As the data show, the Ex-Im Bank lives up to its nickname of “Boeing’s Bank.” The aviation giant is the biggest beneficiary by far: the bank has provided $66.7 billion in subsidized financing to foreign purchasers of Boeing planes. General Electric also ranks among the biggest beneficiaries, with $8.3 billion in export assistance, and Bechtel Corp. benefitted from $5.2 billion in support. The $2.2 billion in Ex-Im Bank financing that has benefitted Caterpillar was boosted by the $2.7 billion loan guarantee to its subsidiary, Solar Turbine Inc. (also on the top 10 list).</span></p><p><a href="http://mercatus.org/sites/default/files/Cumulative-Exim-Chart-1.png"><img src="http://mercatus.org/sites/default/files/Cumulative-Exim-Chart-1.png" width="585" height="722" /></a></p><p><a href="http://mercatus.org/sites/default/files/Exim-Cumulative-Backlog-Charts-Full.png" style="font-size: 13.5135135650635px;"><i>Click here to download full chart&nbsp;</i></a></p><p><span style="font-size: 12px;">The data also show the companies’ backlogs, as reported in their latest annual reports. Boeing Co. posted a “record” backlog of $441 billion (in 2013); General Electric Co. recorded a backlog of $261 billion (in 2014); Caterpillar Inc.’s backlog is $16.5 million (in the first quarter of 2015); and Bechtel Corp. posted a “strong” backlog of $70.5 billion (in 2014).</span></p><p><a href="http://mercatus.org/sites/default/files/Vero-Backlogs-Exim-chart-2_0.png"><img height="387" width="585" src="http://mercatus.org/sites/default/files/Vero-Backlogs-Exim-chart-2_0.png" /></a></p><p><a style="font-size: 11.9999990463257px;" href="http://mercatus.org/sites/default/files/Exim-Cumulative-Backlog-Charts-Full.png"><i>Click here to download full chart&nbsp;</i></a></p><p><span style="font-size: 12px;">The expiration of the Ex-Im Bank charter will have no effect—none—on the financing of deals that already have been approved. The bank will simply be unable to extend new loans, which would be a win for taxpayers who are ultimately on the hook for a total of $140 billion if bank reserves fail to cover defaults.</span></p><p><span style="font-size: 12px;">Absent subsidies from the Ex-Im Bank, these corporations have production backlogs that will take years to fulfill—some with Ex-Im Bank financing in place and others without. This means that shutting down the Ex-Im Bank will not result in job losses—except, perhaps, among the ranks of lobbyists who are trying to scare members of Congress into maintaining this fount of corporate welfare.</span></p> http://mercatus.org/publication/export-jobs-won-t-disappear-absent-ex-im-bank Tue, 26 May 2015 17:52:09 -0400 How the Internet, the Sharing Economy, and Reputational Feedback Mechanisms Solve the “Lemons Problem” http://mercatus.org/publication/how-internet-sharing-economy-and-reputational-feedback-mechanisms-solve-lemons-problem <h5> Publication </h5> <p class="p1">Government regulation is often explained as consumer protection in cases involving asymmetric information: situations when sellers know more about their product than potential buyers do. Proponents of consumer protection regulations argue that if buyers know sellers can withhold key information about a product, meaning buyers are unable to distinguish between good and bad purchases ahead of time, lower-quality products will dominate the market because consumers will be less willing to make purchases. The fear is that without regulations buyers and sellers will not make beneficial exchanges.&nbsp;</p> <p class="p1">A new study conducted for the Mercatus Center at George Mason University shows that reputational feedback mechanisms—buyers’ and sellers’ abilities to rate one another and share information about their interactions—can help correct these information deficiencies better than traditional regulatory approaches. The Internet and the expansion of the “sharing economy” have provided a solution to the information deficiency problem where regulations have been ineffective. The continued use of outdated regulatory approaches may in fact prove detrimental to consumers.&nbsp;</p> <p class="p2">To read the study in its entirety and learn more about its authors, scholars Adam Thierer, Christopher Koopman, Anne Hobson, and Chris Kuiper, see “<a href="http://mercatus.org/sites/default/files/Thierer-Lemons-Problem.pdf">How the Internet, the Sharing Economy, and Reputational Feedback Mechanisms Solve the ‘Lemons Problem</a>.’”&nbsp;</p> <p class="p1"><b>THE LEMONS PROBLEM&nbsp;</b></p> <p class="p1">George A. Akerlof, winner of the Nobel Prize for his contributions to the economics of information, argued in a 1970 paper that information asymmetries between producers and consumers can lead to the “lemons problem,” in which lower-quality products crowd out higher-quality products because of uncertainty among consumers.&nbsp;</p> <p class="p1">For example, in the used car market, used cars tend to command a low market price because potential buyers are unable to tell whether a used car is good or bad.&nbsp;</p> <ul class="ul1"> <li class="li3">Since buyers are unable to differentiate higher-quality cars (plums) from lower-quality cars (lemons), they are unwilling to pay above the average value. As a result, higher-valued used cars exit the market, the average price declines, and buyers’ willingness to pay decreases as well. </li> <li><span style="font-size: 12px;">Eventually, as the process continues, only a few lemons remain on the market.&nbsp;</span></li></ul><p><span style="font-size: 12px;"><b>CAN GOVERNMENT REGULATION SOLVE THE LEMONS PROBLEM?&nbsp;<br /></b></span><br /><span style="font-size: 12px;">While he admitted that private solutions may emerge to solve information deficiencies, Akerlof argued that government regulation was still necessary. This argument, however, ignores two key facts:</span></p> <ul class="ul1"> <li class="li3"><i></i><i>Regulations can harm consumers. </i>Regulatory measures such as food labels or product safety warnings may seem like fail-safe mechanisms to correct information-based uncertainty. Regulations, however, are not as effective as market solutions, and may harm consumers instead of helping them. Regulators can be influenced by regulated industries, erecting bar- riers to keep out new competition, stifling innovation, and imposing higher prices and reduced quality on consumers. By making it more difficult to do business, regulations can have the unintended consequence of entrenching already-established businesses while closing the market to entrepreneurs with innovative ideas. </li> <li class="li3"><i></i><i>Private institutions can use trust and reputation to help consumers. </i>Akerlof is correct that human nature can produce suboptimal behavior in the absence of effective and efficient mechanisms to induce cooperation among buyers and sellers. But his model fails to account for the use of mechanisms such as trust and reputation, as well as social norms, to boost information-sharing. Centuries of history demonstrate that trust and reputation have been crucial to productive exchanges between consumers and producers.&nbsp;</li></ul><p><span style="font-size: 12px;"><b> KEY FINDINGS: INTERNET AND INFORMATION SYSTEMS SOLVE THE LEMONS PROBLEM&nbsp;<br /><br /></b></span><span style="font-size: 12px;">Modern reputational feedback mechanisms are becoming more sophisticated and, in the process, are offering consumers a louder voice in transactions and improving trust between strangers. These reputational tools can help create more effective, and largely self-regulating, markets that provide more information to more individuals at a lower cost than ever before. The Internet has opened the door to developing and dispersing better information by a variety of methods:</span></p><ul class="ul1"> <li class="li3"><i></i><i>Professional online reviews and ratings. </i>With the advent of the Internet, professional product and service reviews, ratings, and awards, such as those provided by <i>Consumer Reports</i>, shifted to publication online. Specialty product review sites, such as <i>CNET</i>, which reviews technology products, also arose to take advantage of widespread information access via the Internet. </li> <li class="li3"><i></i><i>Average consumer ratings and reviews of businesses. </i>Consumers began to use the Internet for their own reviewing and rating. For example, the significant use of Amazon’s customer feedback and rating system eventually evolved into separate service review platforms such as Yelp, which allow customers to review and rate local businesses.&nbsp;</li> <li><i style="font-family: inherit; font-weight: inherit;">Two-way or interactive review and rating. </i><span style="font-size: 12px;">When two parties that don’t know each other inter- act, such as when an individual sells an item on eBay, a two-way review system is very useful. Both buyers and sellers can leave feedback after every transaction, meaning each gradually develops a feedback profile—a reputational score—based on comments and ratings.&nbsp;</span></li></ul> <p class="p1">The sharing economy, which includes any marketplace that uses the Internet to bring people together to share or exchange otherwise underutilized assets, has taken these reputational feed- back mechanisms to a new level. Sharing economy platforms rely primarily on two types of online reputational feedback mechanisms:&nbsp;</p> <ul class="ul1"> <li class="li3"><i></i><i>Centralized mechanisms. </i>Centralized mechanisms build trust in a third-party platform but not necessarily between the two transacting parties. Examples of such platforms include eBay, which offers a money-back guarantee and a payment clearing system to facilitate transactions, and Airbnb—a website that allows people to rent short-term lodging from private individuals—which tracks all elements of every transaction to develop a trust score for each reservation, flagging suspicious transactions for further review by the company. </li> <li class="li3"><i></i><i>Peer-to-peer mechanisms. </i>Even though a third-party platform may exist, peer-to-peer mechanisms build trust between the two transacting parties directly. In addition to ratings and reviews, technological developments such as blogs, social networking, smartphones, and mobile apps, including geolocation, have made it even easier for all people to have a voice in e-commerce. As a result, companies have become more responsive to consumer demand, establishing their own presence on social media and quickly responding to com- plaints. There are many examples of peer-to-peer interactions in the sharing economy today, where buyers and sellers can rate and review each other and share that information with other parties.&nbsp;</li></ul><p><span style="font-size: 12px;"><b> CONCLUSION <br /></b></span><br style="font-family: inherit; font-style: inherit; font-weight: inherit;" /><span style="font-size: 12px;"> Reputational feedback mechanisms are crucial to the success of the sharing economy. When consumers are empowered to rate providers, they get more and better-quality services than regulation ever offered them. Policymakers should reevaluate traditional regulations aimed at addressing information deficiencies, as the sharing economy has done what regulation could not: improve consumer welfare while encouraging innovation and economic growth.&nbsp;</span></p><ul class="ul1"> </ul> http://mercatus.org/publication/how-internet-sharing-economy-and-reputational-feedback-mechanisms-solve-lemons-problem Wed, 27 May 2015 10:02:17 -0400 Federalism and the Constitution: Competition versus Cartels http://mercatus.org/publication/federalism-and-constitution-competition-versus-cartels <h5> Publication </h5> <p class="p1"><i>This book is available for purchase at <a href="http://www.amazon.com/Federalism-Constitution-Competition-versus-Cartels/dp/1942951078/">Amazon.com</a> and <a href="https://www.createspace.com/5512602">CreateSpace.com</a>.</i></p><p class="p1"><span style="font-size: 11.9999990463257px;">Federalism questions are at the heart of today’s intensely controversial policy debates. From education to disaster relief to health care and insurance, federal arrangements are failing, and the federal structure itself has reemerged as a subject of public debate. Bloated bureaucracies defy reform and governments pursue ever-deeper debt. These debilities loom especially large in times of economic stress and widespread public disaffection.</span></p> <p class="p2">This essay examines the sources and the scope of federalism’s failures. It provides a trenchant, constitutionally grounded analysis with profound implications for a range of current policy debates. Federalism’s restoration requires not merely rebalancing the federal-state relationship through decentralization. Rather, we must restore the structure of federalism to <i>competitive</i> federalism—which encourages states to compete to enhance freedom and economic growth—in response to the rise of <i>cartel</i> federalism, which squashes competition between the states and makes states dependent on the federal government.</p><p class="p1"><b>About the Author</b></p> <p class="p1">Michael S. Greve is a professor of law at George Mason University. Previously, he served as John G. Searle Scholar at the American Enterprise Institute, where he specialized in constitutional law, courts, and business regulation. Before joining AEI, Greve was founder and co-director of the Center for Individual Rights, a public interest law firm specializing in constitutional litigation.</p> <p class="p1">Greve has served as an adjunct or visiting professor at a number of universities, including Cornell, Johns Hopkins University, and Boston College. He was awarded a PhD and an MA in government by Cornell University. Greve also earned a diploma from the University of Hamburg in Germany.</p> <p class="p1">A prolific writer, Greve is the author of numerous scholarly articles and nine books, including <i>The Upside-Down Constitution</i> (Harvard University Press, 2012), <i>Real Federalism: Why It Matters, How It Could Happen </i>(AEI, 2000), and <i>The Demise of Environmentalism in American Law</i> (AEI, 1996). He blogs at libertylawsite.org.</p> http://mercatus.org/publication/federalism-and-constitution-competition-versus-cartels Tue, 26 May 2015 16:06:16 -0400 The Time Has Come for the End of the Ex-Im Bank http://mercatus.org/expert_commentary/time-has-come-end-ex-im-bank <h5> Expert Commentary </h5> <p class="p1">Have you noticed that everyone in the top tier ofRepublican presidential candidates — Ted Cruz,Marco Rubio, Rand Paul, Scott Walker and Jeb Bush— has gone on record against a small New Deal-era crony agency called the Export-Import Bank of the United States?</p> <p class="p1">In fact, Rubio recently came out with all guns blazing against the bank, arguing that it picks winners and losers and shouldn’t be reauthorized once its charter expires June 30. Maybe their commitment to end Ex-Im cronyism and corruption will rub off on their colleagues.</p> <p class="p1">There are several reasons one might want to let the bank expire. First, the Ex-Im Bank exemplifies the kind of government program that benefits well-connected companies by harming unseen victims. Over 60 percent of its activities benefit 10 large and politically connected companies — including Boeing, General Electric and Caterpillar.</p> <p class="p1">Ex-Im credit subsidies have the economic effect of redistributing jobs and prosperity away from the 98 percent of unsubsidized firms, employers and workers and toward large corporations that do not lack for financing opportunities. This means that the bank does not actually increase the net dollar amount of exports.</p> <p class="p1">Ex-Im also imposes damage on 189 American industries by directly subsidizing foreign competition. Consider the list of Ex-Im’s top 10 foreign beneficiaries. We find several rich, state-owned airlines. Emirates, the top airline recipient of Ex-Im largesse, is a state-owned company that uses Ex-Im savings to compete with unsubsidized U.S. airlines. Examples of Ex-Im transactions such as these contributed to an estimated loss of 7,500 U.S. airline jobs.</p> <p class="p1">But it gets worse. The top beneficiary of Ex-Im abroad is Pemex, a Mexican government-owned oil and gas company with a market capitalization of $490 million. Even as the Obama administration does everything it can to penalize U.S. energy companies, Ex-Im extended $7 billion in cheap credit over seven years to the conglomerate. In addition, Pemex has admitted to serious corruption issues, including a contracting process co-opted for the benefit of organized crime.</p> <p class="p1">Questionable Ex-Im deals are quite common. For instance, a Wall Street Journal article recently highlighted two deals totaling over $1 billion for the benefit of the state-owned Russian bank Vnesheconombank. VEB maintains a close business relationship with a major Russian arms dealer responsible for more than 80 percent of Russia’s weapon exports, including shipments to Bashar Assad’s regime in Syria. Because money is fungible, lowering VEB’s financing costs to buy Boeing planes can easily facilitate sales of more weapons to hostile regimes.</p> <p class="p1">Russian companies can no longer receive new Ex-Im subsidies, though taxpayers are still on the hook for $1.5 billion in pre-existing Russian loans. But in order to know whether the bank is actually complying with such country limitations, we need to be able to check its data.</p> <p class="p1">Good luck with that. One-third of Ex-Im foreign transactions are labeled “unknown” in the dataset. This makes it impossible to know whether Ex-Im loans are going to companies in restricted countries committing human rights abuses, such as North Korea and Iran.</p> <p class="p1">It’s hard to trust Ex-Im’s data. The bank has a history of intentionally mislabeling data to artificially increase “small business” numbers. Last year, the bank pulled down the public dataset that I and other watchdogs used to analyze its transactions. The new dataset, posted months later, was scrubbed of critical fields at Chairman Fred Hochberg’s direction. Now we cannot even tell whether companies such as VEB are purchasing bank-financed Boeing jets.</p> <p class="p1">Ex-Im cronyism is unjust and inefficient. But rampant Ex-Im Bank corruption and secrecy are absolutely unacceptable. It remains to be seen whether Republicans in the House of Representatives will use their largest majority since 1928 to stop the bank once and for all as their presidential candidates would like.</p> http://mercatus.org/expert_commentary/time-has-come-end-ex-im-bank Wed, 20 May 2015 09:56:56 -0400