Mercatus Site Feed http://mercatus.org/feeds/home/publication/freedominthe50states.org en Does Your Supermarket Own Part of Your Income? http://mercatus.org/expert_commentary/does-your-supermarket-own-part-your-income <h5> Expert Commentary </h5> <p class="p1"><span class="s1">You work and get paid. To whom do your after-tax earnings belong? Do they all belong to you or does some portion of them belong to the neighborhood grocer whose store you patronize? Who should have first dibs on the money you've earned: you or the auto dealer who sold you the last car you bought?</span></p> <p class="p1"><span class="s1">In both cases the correct answer indisputably seems to be “you.” But not so fast. Typical discussions of trade policy imply that the answers are “the grocer” and “the auto dealer.”</span></p> <p class="p1"><span class="s1">When politicians promise to raise tariffs on imports, they are promising to penalize you for spending too little of your money on products sold by domestic suppliers. The presumption is that domestic suppliers of steel, of textiles or of tires are entitled to a portion of your income. And if you, by buying goods from foreign suppliers, refuse to turn over that portion of your income to domestic suppliers, you must pay a penalty.</span></p> <p class="p1"><span class="s1">Clearly, supporters of tariffs believe that certain domestic producers have a higher claim on some portion of your income than you have.</span></p> <p class="p1"><span class="s1">Does there exist a legitimate justification for this belief? I think not, for none of us supposes that when we patronize a merchant we thereby encumber ourselves with an obligation to continue to patronize that merchant indefinitely.</span></p> <p class="p1"><span class="s1">Suppose that a new supermarket — call it “Jack's” — opens up nearby. Upon your entering Jack's for the first time, the owner informs you that a condition of your shopping at his store is that you must continue, each and every week from here on in, to spend at his store an amount of money that equals the amount of money that you'll spend on your first visit to the store. Would you accept? Surely not.</span></p> <p class="p1"><span class="s1">While nothing in law or ethics prevents Jack from demanding those terms, you'd find it intolerably burdensome to saddle yourself with such a legal obligation.</span></p> <p class="p1"><span class="s1">In fact, while it would be valuable for Jack to secure such a legally enforceable promise from you, he doesn't demand it because he knows that you'd not grant it. Or Jack knows that he'd have to offer to you something remarkably valuable in return, such as his contractual commitment to always charge you prices dramatically lower than those charged by rival supermarkets.</span></p> <p class="p1"><span class="s1">So in reality the deal is that by shopping at Jack's supermarket, you incur no obligation to continue to do so. If Jack wants your continued patronage, he must earn it.</span></p> <p class="p1"><span class="s1">Eventually an even newer supermarket opens just outside of town. This one's owned by Jill. Jill's selection is better and her prices are lower than Jack's. So you start shopping at Jill's supermarket.</span></p> <p class="p1"><span class="s1">Unhappy with your choice, Jack successfully lobbies the city council to slap a special tax on you for every dollar's worth of groceries that you buy from Jill's. You're penalized by the state for spending your money as you choose. The implicit premise behind this special tax is that Jack has a right to a portion of your income.</span></p> <p class="p1"><span class="s1">There is no difference whatsoever between this special tax and a tariff on imports.</span></p> http://mercatus.org/expert_commentary/does-your-supermarket-own-part-your-income Fri, 26 Aug 2016 17:24:40 -0400 Politicians Deserve Some Blame For Urban Decline http://mercatus.org/expert_commentary/politicians-deserve-some-blame-urban-decline <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Presidential candidate Donald Trump <a href="https://www.theguardian.com/us-news/2016/aug/22/donald-trump-inner-city-crime-war-zone-hillary-clinton"><span class="s2">recently tried to appeal to black voters</span></a> by making the case that Democrats have taken them for granted and ruined the cities in which they live. He highlighted the high <a href="https://fred.stlouisfed.org/graph/?g=6Kim"><span class="s2">unemployment rate of black youth</span></a> and criticized the subpar schools, located primarily in inner cities, which many of them attend.</span></p> <p class="p1"><span class="s1">It’s true that many of America’s declining cities—St. Louis, Pittsburgh, Cleveland, Detroit—have had Democratic mayors for the most of the last 60 years. But this doesn’t necessarily mean that Democrats are solely to blame for the plight of America’s cities.</span></p> <p class="p1"><span class="s1">To get an idea of the dominance of Democrats in cities, the table below contains population and mayor data for 12 large Rust Belt cities. The second column shows the period analyzed for each city, inclusive of the range years. I focus on the latter half of the 20</span><span class="s3"><sup>th</sup></span><span class="s1"> century since that’s when urban decline became a big issue in the U.S. The periods don’t perfectly overlap across cities due to the differences in the timing of local elections.</span></p> <p class="p1"><i style="font-family: inherit; font-weight: inherit; background-color: white;"><img src="http://mercatus.org/sites/default/files/millsapbls.png" width="575" height="249" /><br />Source: Author’s research and U.S. census data.</i></p> <p class="p3"><span class="s1">Many of these cities are associated with urban decline and rightly so: eight of them lost more than 30% of their population, and St. Louis lost nearly 60% from 1950 to 2000. But a few of the cities—Toledo, Columbus, and Indianapolis—were actually larger in 2000 than in 1950.</span></p> <p class="p3"><span class="s1">That being said, it’s easy to look at this data and come to the same conclusion as Trump <a href="http://www.baltimoresun.com/news/opinion/oped/bs-ed-bad-democrats-20150702-story.html"><span class="s4">and others</span></a>: Democratic politicians have ruined cities. Most of these cities had Democratic mayors for the bulk of this period, as shown in columns three through six (the numbers in the Dem and Rep columns are unique mayors). For example, St. Louis, Pittsburgh, and Chicago had zero Republican mayors and Baltimore only had one. Only Columbus and Indianapolis had Republican mayors more than 50% of the time.</span></p> <p class="p3"><span class="s1">But a lot was going on over this 50 plus year period and it would be misleading to put the blame on one political party. Perhaps the same outcomes, or worse, would have occurred if Republicans had been in charge. This small data set doesn’t tell us what a Republican counterfactual would look like.</span></p> <p class="p3"><span class="s1">Or it could be reverse causation: declining cities elect more Democrats rather than Democrats cause cities to decline. Automation drastically increased the productivity of manufacturing workers during this period. And while this increased the wages of those who kept their jobs, it displaced many others. Democrats’ proclivity for redistribution, a larger social safety net and more government programs may appeal to people who think that economic opportunity is declining in their city. Or perhaps people who prefer Democrats for some other reason choose to locate in cities.</span></p> <p class="p3"><span class="s1">Regardless, the secular trend of increased automation, the <a href="http://www.jstor.org/stable/25098858?seq=1#page_scan_tab_contents"><span class="s4">construction of the interstate highway system</span></a> that decreased travel costs, the subsequent movement of manufacturing jobs from cities to the suburbs and migration towards warmer climates with <a href="http://www.nber.org/papers/w13071"><span class="s4">more economic opportunities and cheaper housing</span></a> all contributed to the population decline of northern cities.</span></p> <p class="p1"><span class="s1">But if local politicians don’t deserve all of the blame, they shouldn’t be exonerated either. Local government policies play an important role in the success or failure of a local economy and thus local politicians, regardless of party or intensions, deserve some of the blame when cities struggle.</span></p> <p class="p1"><span class="s1">Policies that interfere <a href="http://neighborhoodeffects.mercatus.org/2015/07/20/education-innovation-and-urban-growth/"><span class="s2">with specialization and innovation</span></a>, the comparative advantages of cities, contribute to a city’s decline. Excessive permitting and licensing can hurt small businesses <a href="http://www.citylab.com/navigator/2016/07/street-vendor-protests-new-york-food-carts/492869/"><span class="s2">such as food cart vendors in New York City</span></a>. Austin’s costly fingerprint regulations caused Uber to leave the city, and though <a href="http://www.cnbc.com/2016/08/18/what-happened-in-austin-after-uber-and-lyft-got-up-and-left.html"><span class="s2">other companies have tried to fill the gap</span></a>, users report that they are more expensive, harder to use and suffer from a shortage of drivers. Meanwhile, Santa Monica <a href="http://www.latimes.com/local/lanow/la-me-ln-santa-monica-airbnb-conviction-20160713-snap-story.html"><span class="s2">is fining Airbnb hosts</span></a> who want to use their own property to earn extra income. These innovation-stifling regulations send a bad message to aspiring entrepreneurs.</span></p> <p class="p1"><span class="s1">Other municipal-level regulations such as restrictive land use controls make it<a href="http://news.hjnews.com/business/business-owners-lose-appeal-in-providence-land-use-dispute/article_bc3e278c-618a-54e3-afae-809ebf81e1ba.html"><span class="s2"> difficult for small businesses to operate</span></a>. A <a href="http://www.forbes.com/sites/adammillsap/2016/07/05/all-15-minimum-wages-are-not-equal/#45fe761e635f"><span class="s2">high minimum wage</span></a> increases the cost of doing business and <a href="http://q13fox.com/2015/04/28/owner-of-pizza-shop-says-new-minimum-wage-law-is-forcing-her-to-close/"><span class="s2">can result in closures.</span></a> City officials who make it difficult for small businesses and new companies to operate by implementing these and similar policies harm their local economies.</span></p> <p class="p1"><span class="s1">Underfunded municipal pensions <a href="http://www.bondbuyer.com/news/markets-buy-side/why-the-municipal-pension-crisis-will-worsen-1110871-1.html"><span class="s2">are also a problem</span></a> in many cities. Detroit had to cut retiree benefits <a href="http://mercatus.org/expert_commentary/cities-shiny-fake-future-collapses"><span class="s2">as part of its bankruptcy</span></a> since its officials routinely made promises they didn’t keep. As pension liabilities grow, cities like Scranton, PA are forced to contribute more of their revenue towards paying retired workers who are no longer providing municipal services. This <a href="http://thetimes-tribune.com/news/school-pensions-drive-property-taxes-1.2081459"><span class="s2">results in higher costs</span></a> for the basic services that residents expect and contributes to urban decline.</span></p> <p class="p1"><span class="s1">Urban politicians have certainly been dealt a tough hand, but the answer is not to increase the cost of doing business or interfere with innovation in their cities. And failing to fully fund their increasing pension liabilities only exacerbates the problem by hampering the provision of basic services and necessitating higher taxes. All of these things makes a city a less attractive place to live, and the politicians who supported and continue to support such policies deserve some of the blame for their fate.</span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> http://mercatus.org/expert_commentary/politicians-deserve-some-blame-urban-decline Fri, 26 Aug 2016 17:18:19 -0400 Keeping People Working: The Leading Economic Policy Challenge of Our Time http://mercatus.org/expert_commentary/keeping-people-working-leading-economic-policy-challenge-our-time <h5> Expert Commentary </h5> <p class="p1"><span class="s1">It is becoming increasingly clear that reforming federal policies to keep people in the workforce is the primary economic policy challenge of our time. Americans’ future quality of life will depend on our getting this right.</span></p> <p class="p1"><span class="s1">Americans’ standards of living, and indeed our economic power as a nation, are reflections of our productive output. Only that which we produce can be transmuted into desirable things ranging from the goods that we buy and consume privately, to the public goods that we share, to the strength of our defenses in a dangerous world. While a great deal of our public policy debate focuses on how <a href="http://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality"><span class="s2">national wealth is distributed</span></a>, we cannot distribute what we don’t have. More fundamentally, it is our economic output that determines the quality of life Americans can enjoy.</span></p> <p class="p1"><span class="s1">Our economic growth is basically a function of two primary factors: how many Americans are working, and how productive we are during the hours we work. It is straightforward to understand that the more productive we are, the more wealth we will have together. Indeed, a graph of recent annual growth in <a href="http://www.bea.gov/national/Index.htm"><span class="s2">Gross Domestic Product</span></a> (GDP) shows that it is generally higher when our <a href="http://www.bls.gov/news.release/pdf/prod3.pdf"><span class="s2">productivity</span></a> grows faster. Thus a good deal of our prosperity comes from Americans learning to work faster, better, smarter and more efficiently. (Note: multifactor productivity incorporates not only labor productivity but also output on capital services; the GDP decline of 2008-09 arose primarily from decline in the latter.)</span></p> <p class="p1"><img height="431" width="575" src="http://mercatus.org/sites/default/files/cb1.png" /></p> <p class="p2"><span class="s1">As striking as the correlation is between productivity growth and total economic growth, employment growth is perhaps even more important. To be productive, Americans must work. Assuming given levels of productivity, the more Americans who are working, the more wealth our society generates. A similar graph comparing recent annual GDP growth with annual changes in <a href="http://data.bls.gov/cgi-bin/surveymost"><span class="s3">total employment</span></a> renders this relationship inescapable. Our economic output generally rises (and falls) with the numbers of Americans in jobs.</span></p> <p class="p2"><img height="431" width="575" src="http://mercatus.org/sites/default/files/cb2.png" /></p><p class="p2"><span style="font-size: 12px; background-color: white;">This relationship is why discussions of the economy often focus on the </span><a style="font-size: 12px; background-color: white;" href="http://www.bls.gov/cps/cps_htgm.htm"><span class="s3">unemployment rate</span></a><span style="font-size: 12px; background-color: white;">, long defined as the percentage of Americans seeking work who are unable to secure it. In recent years it has become increasingly apparent that the health of the labor market isn’t measured solely by the unemployment rate, but must account for the total numbers of Americans making themselves available for work. A quick glance shows that the growth of this available </span><a style="font-size: 12px; background-color: white;" href="http://data.bls.gov/cgi-bin/surveymost"><span class="s3">labor force</span></a><span style="font-size: 12px; background-color: white;"> is a strong determinant of the numbers of those employed.</span></p> <p class="p2"><img height="431" width="575" src="http://mercatus.org/sites/default/files/cb3.png" /></p> <p class="p1"><span class="s1">Indeed, total labor force growth and employment growth tend to move quite closely together. The rare exceptions are years like 2008 and 2009 when unemployment rates suddenly changed.</span></p> <p class="p1"><span class="s1">A quick look at this last graph shows that even though the unemployment rate has recovered from the recent recession, we have reason for continuing concern. Our total labor force – i.e., those available for employment – is no longer growing as fast as it formerly did. If we want to continue to experience improvements in our living standards as previous Americans did, this is something we must fix.</span></p> <p class="p1"><span class="s1">What is behind our sluggish workforce growth? A number of things:</span></p> <ul class="ul1"> <li class="li2"><span class="s1">Americans are spending a higher percentage of our lives out of the workforce collecting benefits from various retirement programs. This is largely because of our inadequate response to demographic change; even as longevity has increased, the <a href="http://economics21.org/html/slowing-down-social-security%E2%80%99s-retirement-age-increase-292.html"><span class="s3">age of first eligibility</span></a> for such benefits as Social Security (62) and Medicare (65) has not. As a result, <a href="http://www.bls.gov/mlr/1999/12/art1full.pdf"><span class="s3">labor participation among seniors</span></a></span><span class="s2"> </span><span class="s1">is lower today than it was a half-century ago, even though we generally lead longer, healthier lives.</span></li> <li class="li2"><span class="s1">Various federal benefit programs are proving to be poorly designed in the sense of applying high marginal tax rates to employment earnings. Basically, this means individuals receive substantial benefits if they lack paying work, but lose them as they receive job income. This results in people making the rational decision to have less work and earnings than they otherwise would. A prominent example is the Affordable Care Act, which has been shown by the <a href="http://www.cbo.gov/sites/default/files/cbofiles/attachments/45010-breakout-AppendixC.pdf"><span class="s3">Congressional Budget Office</span></a> and academic economists like <a href="http://mercatus.org/publication/affordable-care-act-and-new-economics-part-time-work"><span class="s3">Casey Mulligan</span></a> to be driving many people out of the workforce.</span></li> <li class="li2"><span class="s1">Other factors are not fully understood. To take but one example, it is widely documented that workforce participation has long been declining among <a href="https://www.whitehouse.gov/sites/default/files/page/files/20160620_cea_primeage_male_lfp.pdf"><span class="s3">young adult males</span></a>. We do not have a single, agreed-upon explanation for this persistent participation decline.</span></li> </ul> <p class="p1"><span class="s1">Policy corrections to these various causes of labor participation decline will need to be implemented if the United States is to <a href="http://www.nytimes.com/2016/08/15/opinion/wisdom-courage-and-the-economy.html?_r=0"><span class="s2">resume the economic growth rates</span></a> that made us the leading economic power in the world. We simply can no longer afford to have our largest federal retirement, health care and income security programs shifting people out of the workforce who, based on their health, age, skills and general inclination, would otherwise be working. Lawmakers will have no choice but to confront these realities at some point, and would do well to do so sooner rather than later.</span></p> <p class="p1"><span class="s1">It is important to understand that corrections would generally tend to benefit individual program participants. This is because, while the current designs of programs from the ACA to Social Security often induce workforce withdrawal, the temporary inducement often comes at the cost of the individual’s long-term interest. For example, retiring on <a href="http://www.cnbc.com/2015/08/11/the-biggest-social-security-mistake-women-make.html"><span class="s2">Social Security at age 62</span></a> reduces one’s annual benefits and increases the risk of outliving one’s savings and experiencing poverty in old age. Similarly, those who bypass employment to receive substantial subsidies like those in the ACA often do so at the cost of skill development that would otherwise result in <a href="https://www.whitehouse.gov/sites/default/files/docs/wh_report_addressing_the_negative_cycle_of_long-term_unemployment_1-31-14_-_final3.pdf"><span class="s2">higher wages later</span></a>.</span></p> <p class="p1"><span class="s1">Only if we surmount our labor force participation challenge will we be able to successfully address other economic policy desires such as higher living standards, lower poverty, and sound federal government finances. For these and other reasons, re-orienting federal policies to keep people in the workforce is likely to remain the pre-eminent economic policy challenge of our time.</span></p> http://mercatus.org/expert_commentary/keeping-people-working-leading-economic-policy-challenge-our-time Fri, 26 Aug 2016 17:11:11 -0400 Federal Railroad Agency Way Off-Track in Approach to Safety http://mercatus.org/expert_commentary/federal-railroad-agency-way-track-approach-safety <h5> Expert Commentary </h5> <p class="p1"><span class="s1">The Federal Railroad Administration (FRA) <a href="http://thehill.com/policy/transportation/291589-railroads-get-funding-boost-for-technology-to-prevent-train-accidents"><span class="s2">recently announced that Amtrak and select railroads around the country</span></a> would be awarded $25 million to help implement positive train control technology. Positive train control (PTC) — mandated by the Railroad Safety Improvement Act of 2008 and subsequent regulations issued by the FRA — consists of adding GPS, computers and software to trains and railroad systems that automatically intervene to stop unsafe train movements. In theory, operator errors that lead to train collisions, derailments due to unsafe speeds or railway worker injuries would be a thing of the past, thanks to the automation of safety rule enforcement.</span></p> <p class="p2"><span style="font-size: 12px; background-color: white;">The idea of using automation to reduce accidents caused by human error has a proven track record across all modes of transportation. Nevertheless, the FRA recently </span><a style="font-size: 12px; background-color: white;" href="https://www.regulations.gov/document?D=FRA-2014-0033-0001"><span class="s2">proposed</span></a><span style="font-size: 12px; background-color: white;"> a rule requiring that train crews consist of at least two people, which largely ignores the potential safety gains from automation as well as investments in capital and maintenance. While it may be tempting to assume that two is always better than one, a more careful analysis of the historical causes of safety improvements in rail transportation indicates that track and equipment expenditures are much more important to safety than crew size.</span></p> <p class="p1"><span class="s1">The FRA's misguided and disjointed regulatory policy not only risks hindering further development of innovative technologies that can deliver greater safety, but it could also create a less-safe operating environment by deflecting scarce resources from known safety-enhancing uses like track maintenance to unproven uses.</span></p> <p class="p1"><span class="s1">Although one-person crews are currently relatively rare, the FRA believes that one-person crews are inherently more dangerous than two-person crews. In fact, the FRA believes this so fervently that it used the phrase "FRA believes" or "FRA further believes" at least 67 times in its documents proposing the new regulation. The problem, of course, is that regulating based on a belief does not necessarily lead to positive outcomes, such as improved safety, and the FRA offers no evidence to substantiate this belief.</span></p> <p class="p1"><span class="s1">Even worse, the proposed rule may not simply fail to achieve any improvements in safety; it may actually reduce safety and hinder the development of better, safer technology and equipment.</span></p> <p class="p1"><span class="s1">Still, it's easy to understand some of the FRA's logic. After all, why wouldn't two people create a safer train operation, when compared to just one? Why examine statistical evidence, when that would just slow down the implementation of a rule that is a self-evident win for safety?</span></p> <p class="p1"><span class="s1">Indeed, the FRA didn't let a little thing like data get in the way. As it noted in its proposed rule, the FRA "does not currently collect sufficient data related to the size of a train crew nor do accident reports investigations generally address the size of a crew in order for [the] FRA or any entity to definitively compare one-person operations to multiple person operations." The agency proposed the rule anyway, heedless of whether there was an issue in the first place or whether the new regulation might create unintended consequences that are even worse than the "solution" brought by the proposed rule.</span></p> <p class="p1"><span class="s1">There are several flaws with the FRA's approach: For one, consider the role of the human operator in other modes of transportation. Many decades ago, the introduction and widespread adoption of autopilot precipitated a 90 percent reduction in the pilot-attributable crash rate, according to a recent <a href="https://ark-invest.com/research/autonomous-vehicle-safety#fn-7907-2"><span class="s2">report</span></a>. Automobile safety has likewise improved because of the intelligent-driver technology introduced in recent years, such as lane-departure warnings, pedestrian detection and automatic emergency braking.</span></p> <p class="p1"><span class="s1">The advent of completely driverless cars offers even more promise, primarily by reducing human error — which, according to the U.S. Department of Transportation, accounts for <a href="https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/812115"><span class="s2">94 percent of crashes</span></a>. By cutting back on operator error, driverless cars could save as many as 21,700 lives and reduce the number of crashed by over 4 million annually, according to a <a href="https://www.enotrans.org/wp-content/uploads/2015/09/AV-paper.pdf"><span class="s2">study</span></a> from the Eno Center for Transportation.</span></p> <p class="p1"><span class="s1">Similarly, railroad safety has dramatically improved over the past few decades. The total number of train accidents on the systems of the major freight railroads fell from over 11,000 in 1978 to 1,867 in 2013, even while revenue ton-miles — a metric of train usage — doubled. <a href="http://link.springer.com/article/10.1007%2Fs11151-016-9525-0"><span class="s2">In a study that I recently published with my colleague Jerry Ellig</span></a>, we found that most of this tremendous gain in safety is attributable to the removal of economic regulations that deterred investment in equipment and track and improvements in operational practices.</span></p> <p class="p1"><span class="s1">The demonstrably positive relationship between safety and investment in equipment and track maintenance raises the issue of unintended consequences. Any regulation — even a safety regulation — that deters investment in those areas that have driven the improvements in safety for decades could have the perverse effect of increasing the accident rate. By requiring a greater expenditure on labor (despite lacking any evidence that such expenditures would improve safety), the proposed rule could financially constrain some railroads from making other safety-improving investments.</span></p> <p class="p4"><span class="s1">As I wrote in a public interest comment filed with the agency</span><span class="s3">:</span></p> <p class="p1"><span class="s1">"Any credible estimation of the net effect of the proposed rule would need to consider losses to safety caused by an induced diminution of track and equipment maintenance or other safety-enhancing investments. Given the proven record of maintenance and infrastructure investments on safety rates ... this proposed rule may not only be ineffective in reducing accident rates, but it may also actually increase the net accident rate."</span></p> <p class="p1"><span class="s1">The FRA's approach in proposing the train crew size rule exactly contradicts the logic of the most significant regulation issued by the FRA in decades: PTC. While PTC represents an effort to reduce human error by automating the enforcement of speed limits and other operational rules, the FRA's crew size rule could deter further automation.</span></p> <p class="p1"><span class="s1">Like auto accidents, most railroad accidents that occur these days are primarily caused by operators' mistakes or oversight. A regulation that permanently requires a minimum crew size of two — especially when there is no evidence that one-person crews are less safe — can only stand in the way of further reductions in accidents caused by human error.</span></p> http://mercatus.org/expert_commentary/federal-railroad-agency-way-track-approach-safety Fri, 26 Aug 2016 17:00:33 -0400 Nations Can Be Startups, Too http://mercatus.org/expert_commentary/nations-can-be-startups-too <h5> Expert Commentary </h5> <p class="p1"><span class="s1">The virtues of business startups have led to many a success story. These enterprises start with clean slates. They embody the focused and often idiosyncratic visions of their founders. The successful ones grow faster than their competitors. Even after they become larger and more bureaucratic, these companies often retain some of the creative spirit of their startup origins.</span></p> <p class="p1"><span class="s1">It is less commonly recognized that some nations, including many of the post-World War II economic miracles, had features of startups. For instance, Singapore started as an independent country in 1965, after it was essentially kicked out of Malaysia and suddenly had to fend for itself. Lee Kuan Yew was the country’s first leader, and he embodied many features of the founder-chief executive: setting the vision and ethos, assuming responsibility for other personnel, influencing the early product lines in manufacturing and serving as a chairman-of-the-board figure in his later years.</span></p> <p class="p1"><span class="s1">United Arab Emirates has been another startup nation, winning its independence from the U.K. in 1971 and becoming one of the most stable and prosperous Arab countries. This building process included taking in remarkable numbers of immigrants, generating new financial centers and innovating in a political structure of seven semi-autonomous Emirates.</span></p> <p class="p1"><span class="s1">Israel, Taiwan, Hong Kong, Cayman Islands, Estonia, and South Korea could also be thought of as startup nations. Most emerged from war, civil war, the evolution or dissolution of a prior imperial or colonial relationship, or some combination of those factors. In each case there was a chance to start anew and to have founders impose a distinct vision on a new political unit. Just as we doubt that Bill Gates could have founded and grown Microsoft within the confines of the older IBM, so did the success of Estonia require freedom from the Soviet Union and Russia.</span></p> <p class="p1"><span class="s1">The world today seems to have lower potential for startup nations. This is in part because international relations are more peaceful and also because most colonial relationships have receded into the more distant past. Those are both positive developments, but the corresponding downside is not always recognized, namely fewer chances for reshuffling the pieces.</span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><span class="s1">In Latin America there haven’t been many recent border changes or significant wars, and we also don’t find many startup nations.</span></p> <p class="p1"><span class="s1">The Caribbean is perhaps a better bet, as its <a href="http://www.guardian.co.tt/business/2016-07-20/imf-predicts-economic-decline-caribbean-result-brexit"><span class="s2">economic decline</span></a> may spur more experimentation. Imagine Cuba giving economic freedom to a province, successful nation-building in Haiti, or Trinidad deciding to do medical care or retirement homes really well.</span></p> <p class="p1"><span class="s1">Some version of Kurdistan, centered in what is currently part of Iraq, sometimes is tagged as a candidate for a startup nation, or at least a startup region without full political autonomy. It has a lot of the pieces of the formula, including a citizenry deeply interested in economic success, but the surrounding region remains volatile and it is hard to guarantee secure property rights to foreign investors, at least for now.</span></p> <p class="p1"><span class="s1">A lot of borders changed in eastern Europe and central Asia in the 1990s, and it’s not obvious that these are the final, once-and-for-all territorial divisions. And so along with the risk of conflict, there is on all sides of Russia also potential for greater economic dynamism. Imagine Kazakhstan extending the &nbsp;<a href="http://www.kaznexinvest.kz/en/SEZ/economic_zones.php"><span class="s2">special economic zone experiments</span></a> it has set up to attract investment, Azerbaijan becoming a hub for dealing with Turkey and Iran, Russia deciding it will lose parts of its East to China if it doesn’t use radical economic experiments to settle them, or the Chinese economic colonization of the Silk Road carving out new semi-autonomous regions.</span></p> <p class="p1"><span class="s1">Finally, Africa may be the most important site for future startup nations. There are plenty of countries, and often the borders don’t match linguistic and ethnic groups very closely. Many current nations that were stable at low levels of per capita income may give rise to independence movements as citizens are increasingly empowered. Africa is also the region with the greatest population growth and likely to see the biggest changes over the next few decades. It would be surprising if the continent were to avoid territorial and border changes altogether.</span></p> <p class="p1"><span class="s1">To paraphrase John Cleese from Monty Python, the startup nation concept isn’t dead, it’s just resting. Whether in business or in politics, the compelling logic of the startup just isn’t going away.</span></p> http://mercatus.org/expert_commentary/nations-can-be-startups-too Fri, 26 Aug 2016 16:57:18 -0400 Ranking Freedom, One State at a Time http://mercatus.org/expert_commentary/ranking-freedom-one-state-time <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Which states in our union are the most tolerant of marijuana and guns? Which interfere the least with your life? Which are likelier to hand out special goodies to politically connected companies? Those are some of the questions answered by economists Will Ruger and Jason Sorens in the 2016 edition of their study "Freedom in the 50 States."</span></p> <p class="p1"><span class="s1">Their ranking of the states in the U.S. in terms of freedom is based on three public policy dimensions affecting economic, social and personal freedoms. Sorens, a lecturer in the government department at Dartmouth College, and Ruger, vice president of research and policy at the Charles Koch Institute, scored more than 200 policies, including things such as gambling restriction, trans fat bans, the audio recording of police, occupational licensing restrictions, mandated family leave and the ability of couples to enter into private contracts.</span></p> <p class="p1"><span class="s1">According to their open-source methodology, in 2014 the freest states were New Hampshire, Alaska and Oklahoma, while New York, California and Hawaii ranked the least free. In terms of just one indicator, South Dakota, Idaho and Tennessee are the freest economically and New York, California and Hawaii the least. And personal freedoms are best served in New Mexico, Colorado and Nevada, with Kentucky, Texas and Alabama ranking the least free.</span></p> <p class="p1"><span class="s1">It's valuable to know how free your state is. I, for instance, value freedom for its own sake, so I'm interested in knowing that Virginia, where I live with my two school-age daughters, ranks 21st in the overall index. I also enjoy knowing that the state isn't too bad on fiscal issues, that its land use freedom is decent, that it has no minimum wage, that it's one of the best states for gun laws, that it has too many government employees and that it's in serious need of criminal justice reform because it has one of the highest incarceration rates in the country, even controlling for crime rates.</span></p> <p class="p2"><span style="font-size: 12px; background-color: white;">The rankings also deliver important lessons for lawmakers. In Virginia, Sorens and Ruger write, "victimless crime arrest rates are about average. Asset forfeiture is virtually unreformed, and local police frequently circumvent it anyway with equitable sharing. The state's approach to cannabis producers and consumers is draconian." They suggest that the state reform "sentencing for nonviolent offenses with an eye to reducing the incarceration rate to the national average in the long term."</span></p> <p class="p1"><span class="s1">The report shows that when controlling for climate and other variables, all three dimensions of freedom are positively correlated to migration, but the results are exceptionally strong for economic (fiscal and regulatory) freedom. Edition after edition of the "Freedom in the 50 States" index confirms that people tend to move to economically freer states because economic freedom tends to be a fairly good indicator of prosperity. More economic growth usually means more jobs, and that attracts people.</span></p> <p class="p1"><span class="s2">The lesson for lawmakers is that if you want to attract productive people to your state or if you want to lose fewer productive taxpayers, you'd better implement policies that trigger economic growth and create jobs.</span><span class="s1"> In 2014, New York's net migration was negative 11.2 percent. California was negative 4.9 percent, and Hawaii was negative 3.3 percent.</span></p> <p class="p1"><span class="s1">That raises the question of why so many people still live in the least free states. The fact is that when it comes to where people choose to live, intrinsic characteristics of a state weigh heavily in the decision. Among the factors that keep people in less-than-free places are jobs, family, friends and city amenities. There's a certain stickiness to states that has nothing to do with how free these places are.</span></p> <p class="p1"><span class="s1">The federal tax and regulatory systems are incredibly burdensome and can weigh on us all more than most state policies, which can hinder interstate mobility. However, there are times when that stickiness isn't so important — for example, when you are younger, are looking for a job and haven't settled anywhere yet or when you're about to retire. (Net migration in Florida was 10 percent in 2014.)</span></p> <p class="p1"><span class="s1">The bottom line is — whether you value freedom intrinsically or you're a lawmaker who wants to improve your state's economic outlook or slow down out-migration — you're better off knowing where your state stands so you know what to do. "<a href="http://freedominthe50states.org/">Freedom in the 50 States</a>" will help you achieve this goal.</span></p> http://mercatus.org/expert_commentary/ranking-freedom-one-state-time Fri, 26 Aug 2016 16:54:18 -0400 Social Capital and Social Learning after Hurricane Sandy http://mercatus.org/publication/social-capital-and-social-learning-after-hurricane-sandy <h5> Publication </h5> <p>The post-disaster context is one characterized by profound uncertainty. Those affected by the storm, or earthquake, or flood, must determine what strategies to pursue in response to the disaster and must find ways to coordinate their recovery efforts with others in their community. Ex ante it is not clear what strategies will be most effective. If communities are to recover after a disaster, community members must engender and engage in a process of social learning involving experimentation, communication, and imitation. This paper explores the post-disaster social learning process. Specifically, we focus on the importance of social capital in facilitating social learning after a disaster, including facilitating community members’ ability to communicate their desire to return, to assess damage, to overcome barriers to rebuilding through collective yet voluntary action, and to learn from and imitate others’ successes. Focusing on how this process took place after Hurricane Sandy in Rockaway, New York, especially within the Orthodox Jewish community, we examine how community groups (a) adapted existing organization structures and (b) created new procedures and imitated the successful actions of others in order to spur recovery.</p><p>Find the article at <a href="http://link.springer.com/article/10.1007/s11138-016-0362-z">SpringerLink.</a></p> http://mercatus.org/publication/social-capital-and-social-learning-after-hurricane-sandy Thu, 25 Aug 2016 11:27:30 -0400 ACA Medicaid Expansion Enrollees 49% More Expensive Than Projected http://mercatus.org/video/aca-medicaid-expansion-enrollees-49-more-expensive-projected <h5> Video </h5> <iframe width="560" height="315" src="https://www.youtube.com/embed/G5HISc13EXc" frameborder="0" allowfullscreen></iframe> <p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;">In a new video, Mercatus Center Senior Research Fellow Brian Blase discusses a report from the Department of Health and Human Services that finds Medicaid enrollees who gained coverage through the Affordable Care Act cost almost 50 percent more, on average, than the government projected just one year ago.</p><p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;">Why were the projections so far off?</p><p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;"><b>CONTACT&nbsp;<b>Camille Walsh at&nbsp;<a href="mailto:cwalsh@mercatus.gmu.edu" style="font-size: 12px; color: #666699;">cwalsh@mercatus.gmu.edu</a>&nbsp;t</b>o schedule an interview with Brian Blase to discuss his findings about the costs of Medicaid expansion.</b></p><p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;"><a href="http://mercatus.org/expert_commentary/cost-medicaid-expansion-far-exceeds-initial-estimates" style="font-size: 12px; color: #666699; text-decoration: underline;">Cost of Medicaid Expansion Far Exceeds Initial Estimates</a>&nbsp;<br /><i>Philadelphia Inquirer</i>&nbsp;| August 15, 2016&nbsp;</p><p style="padding-left: 30px; font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;">Brian Blase considers a new government report that reveals Medicaid enrollees who gained coverage through the ACA cost almost 50 percent more, on average, than the government projected just one year ago.</p><p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;"><a href="http://mercatus.org/expert_commentary/government-report-finds-aca-medicaid-enrollees-much-more-expensive-expected-0" style="font-size: 12px; color: #666699;">Government Report Finds That ACA Medicaid Enrollees Much More Expensive Than Expected</a>&nbsp;<br /><i>Forbes&nbsp;</i>| July 20, 2016</p><p style="padding-left: 30px; font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;">Brian Blase considers the Department of Health and Human Services' (HHS) annual report that finds the Affordable Care Act's Medicaid expansion enrollees are nearly 50% more expensive than HHS projected.</p><div class="field field-type-text field-field-embed-code"> <div class="field-label">Embed Code:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> &lt;iframe width=&quot;560&quot; height=&quot;315&quot; src=&quot;https://www.youtube.com/embed/G5HISc13EXc&quot; frameborder=&quot;0&quot; allowfullscreen&gt;&lt;/iframe&gt; </div> </div> </div> http://mercatus.org/video/aca-medicaid-expansion-enrollees-49-more-expensive-projected Thu, 25 Aug 2016 10:08:41 -0400 Free Trade: Principles, Myths, Prospects http://mercatus.org/events/free-trade-principles-myths-prospects contact@mercatus.org (Mercatus.org) <h5> Events </h5> <p>While the United States has a 70-year history of free trade, not everyone agrees that the benefits outweigh the costs. The debate on free trade has been brought to center stage with the Trans-Pacific Partnership Agreement, a watershed moment which will decide where the US and major countries around the world go next with trade.</p><p>Please join the Mercatus Center at George Mason University on October 6 for the inaugural event of the <b><a href="http://mercatus.org/expert_commentary/mercatus-center-launch-program-american-economy-and-globalization">Program on American Economy and Globalization</a></b> hosted by Mercatus Scholars and Co-Directors <b><a href="http://mercatus.org/donald-j-boudreaux">Donald J. Boudreaux</a></b> and <a href="http://mercatus.org/daniel-griswold"><b>Daniel Griswold</b></a>. The keynote speech will be given by <b><a href="https://www.dartmouth.edu/~dirwin/">Douglas Irwin</a></b> of Dartmouth College and author of <i>Free Trade Under Fire</i>.</p><p>The panel discussion will focus on Congress and the Trans-Pacific Partnership Agreement, identifying areas of agreement and opportunities to strengthen the existing proposal to benefit economies around the world. Distinguished panelists include <b><a href="http://www.nam.org/Contact/Staff/Linda-Dempsey/">Linda Dempsey</a></b> of the National Association of Manufacturers, <b><a href="http://www.progressivepolicy.org/people/staff/ed-gerwin/">Ed Gerwin</a></b> of the Progressive Policy Institute, and <b><a href="https://ustr.gov/about-us/biographies-key-officials/edward-gresser-austr">Edward Gresser</a></b>, Assistant United States Trade Representative for Trade Policy and Economics.</p><div style="position: absolute; left: -10000px; top: 17px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste">The event will address long-standing questions about free trade, such as:</div><div style="position: absolute; left: -10000px; top: 17px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste"></div><div style="position: absolute; left: -10000px; top: 17px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste">* How does trade affect manufacturing?</div><div style="position: absolute; left: -10000px; top: 17px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste"></div><div style="position: absolute; left: -10000px; top: 17px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste">* What does an $800 billion trade deficit mean and does it matter?</div><div style="position: absolute; left: -10000px; top: 17px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste"></div><div style="position: absolute; left: -10000px; top: 17px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste">* How do small and medium-sized enterprises benefit from trade?</div><div style="position: absolute; left: -10000px; top: 17px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste"></div><div style="position: absolute; left: -10000px; top: 17px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste">* Why is free trade important to middle class Americans?</div><div style="position: absolute; left: -10000px; top: 17px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste"></div><div style="position: absolute; left: -10000px; top: 17px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste">* What have been the effects of trade agreements? Is NAFTA, and other agreements like it, a disaster or a success?</div><div style="position: absolute; left: -10000px; top: 17px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste"></div><div style="position: absolute; left: -10000px; top: 17px; width: 1px; height: 1px; overflow: hidden;" id="_mcePaste">* What are the geo-strategic effects of trade; is trade important to diplomacy and safety?</div><p>The event will address long-standing questions about free trade, such as:</p><ul><li><span style="font-size: 12px; background-color: white;">How does trade affect manufacturing?</span></li><li><span style="font-size: 12px; background-color: white;">What does an $800 billion trade deficit mean and does it matter?</span></li><li><span style="font-size: 12px; background-color: white;">How do small and medium-sized enterprises benefit from trade?</span></li><li><span style="font-size: 12px; background-color: white;">Why is free trade important to middle class Americans?</span></li><li><span style="font-size: 12px; background-color: white;">What have been the effects of trade agreements? Is NAFTA, and other agreements like it, a disaster or a success?</span></li><li><span style="font-size: 12px; background-color: white;">What are the geo-strategic effects of trade; is trade important to diplomacy and safety?</span></li></ul><p>This event will be interactive and have Q&amp;A during each session. The first 70 attendees will receive a copy of <i>Free Trade Under Fire</i> (4th ed.) by keynote speaker Douglas Irwin.&nbsp;</p><p>Lunch will be provided. Please let us know of any dietary restrictions.</p><p><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-weight: normal; background-color: white;"><i>Please RSVP as seating is limited.&nbsp;</i></span><i>Questions? Contact Jen Campbell at <b><a href="mailto:jcampbell@mercatus.gmu.edu">jcampbell@mercatus.gmu.edu</a></b> or 703-993-4967. Please see <b><a href="http://mercatus.org/sites/default/files/Directions_to_United_States_Capitol_Complex_1.pdf">these directions</a></b>&nbsp;to easily access the event room.</i></p><p>AGENDA</p><p>INTRODUCTION and OVERVIEW</p><ul><li><span style="font-size: 12px; background-color: white;"><b><a href="http://mercatus.org/donald-j-boudreaux">Donald J. Boudreaux</a></b>, Senior Fellow, Mercatus Center&nbsp;</span></li><li><b><a href="http://mercatus.org/daniel-griswold">Daniel Griswold</a></b>, Senior Research Fellow, Mercatus Center</li></ul><p><span style="font-size: 12px; background-color: white;">KEYNOTE</span></p><ul><li><span style="font-size: 12px; background-color: white;"><a href="https://www.dartmouth.edu/~dirwin/"><b>Douglas Irwin</b></a>, John Sloan Dickey Third Century Professor in the Social Sciences, Department of Economics, Dartmouth College</span></li></ul><p>PANEL: Congress and the Trans-Pacific Partnership Agreement</p><ul><li><span style="font-size: 12px; background-color: white;"><b><a href="http://www.nam.org/Contact/Staff/Linda-Dempsey/">Linda Dempsey</a></b>, Vice President of International Economic Affairs, National Association of Manufacturers</span></li><li><span style="font-size: 12px; background-color: white;"><b><a href="http://www.progressivepolicy.org/people/staff/ed-gerwin/">Ed Gerwin</a></b>, Senior Fellow, Trade and Global Opportunity, Progressive Policy Institute</span></li><li><span style="font-size: 12px; background-color: white;"><b><a href="https://ustr.gov/about-us/biographies-key-officials/edward-gresser-austr">Ed Gresser</a></b>, Assistant United States Trade Representative for Trade Policy and Economics, Office of the United States Trade Representative</span></li></ul><p>Moderator: <a href="http://mercatus.org/donald-j-boudreaux"><b>Donald J. Boudreaux</b></a>, Senior Fellow, Mercatus Center</p><p>CLOSING REMARKS</p><ul><li><span style="font-size: 12px; background-color: white;"><b><a href="http://mercatus.org/daniel-griswold">Daniel Griswold</a></b>, Senior Research Fellow, Mercatus Center</span></li></ul><p><b><a href="http://mercatus.org/sites/default/files/Directions_to_United_States_Capitol_Complex_1.pdf">Click here for directions.</a></b></p><p><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-weight: normal;"><i>This event is free and open to the general public. This event has been planned in accordance with the widely-attended event exception to congressional gift rules and government ethics memoranda.</i></span></p> http://mercatus.org/events/free-trade-principles-myths-prospects Fri, 26 Aug 2016 11:57:49 -0400 Midnight Regulations Illustrate Larger Problems with the Regulatory Process http://mercatus.org/publication/midnight-regulations-illustrate-larger-problems-regulatory-process <h5> Publication </h5> <p class="p1"><b>Midnight Regulations Have Lower-Quality and Less Transparent Analysis</b></p> <p class="p2"><span style="font-size: 12px; background-color: white;">The phenomenon known as “midnight regulation”—a surge of regulation that occurs at the end of presidential terms between Election Day and Inauguration Day—is well documented. The Obama administration could issue </span><a href="http://mercatus.org/research/midnight-regulations/potential" style="font-size: 12px; background-color: white;">50 or more midnight regulations</a><span style="font-size: 12px; background-color: white;"> before the president leaves office. One major concern with midnight regulations is that they will be ineffective or excessively costly, because they are not thought through as carefully as other regulations.&nbsp;</span></p> <p class="p3"><a href="http://mercatus.org/sites/default/files/Ellig-Midnight-Regulation-chart-1-v1-copy.jpg"><img src="http://mercatus.org/sites/default/files/Ellig-Midnight-Regulation-chart-1-v1-copy.jpg" width="575" height="444" /></a></p><p class="p3"><span style="font-size: 12px; background-color: white;">The Mercatus Center’s </span><a href="http://www.mercatus.org/reportcard" style="font-size: 12px; background-color: white;">Regulatory Report Card</a><span style="font-size: 12px; background-color: white;"> demonstrates that regulations finalized during the most recent midnight period, at the end of the Bush administration, are accompanied by less thorough and less transparent analysis than other regulations. For more than three decades, a series of presidential executive orders have required federal agencies to conduct a regulatory impact analysis (RIA) to identify the problem they are trying to address, assess its significance, examine a wide range of alternatives to solve the problem, and assess the benefits and costs of the alternatives. The Regulatory Report Card assessed the quality of RIAs for “economically significant” prescriptive regulations proposed from 2008 through 2013.</span></p> <p class="p1">Two major Report Card categories—Analysis and Openness—evaluate how well the agency analyzed the key topics an RIA is supposed to cover and how accessible, understandable, and well-documented the RIA is. As the chart shows, the Bush administration’s midnight regulations had lower scores both for Analysis and for Openness. Pre–June 1 midnight regulations were proposed before the administration’s self-imposed deadline of June 1 and finalized between Election Day and Inauguration Day. Post–June 1 midnight regulations were proposed after the June 1 deadline and finalized between Election Day and Inauguration Day.<span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1">The fact that midnight regulations had less thorough and less transparent analysis, even in an administration that tried to prevent midnight regulations, suggests they are a serious problem.<b style="font-family: inherit; font-style: inherit; background-color: white;">&nbsp;</b></p> <p class="p1"><b>Obama Administration Vulnerable to Midnight Regulation</b><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><span class="s1"><a href="http://mercatus.org/sites/default/files/publication/WP0806_RSP_Midnight_Regulations.pdf">Scholarly research</a></span> on midnight regulation demonstrates that the midnight effect usually occurs at the end of every presidential term—not just when a president is leaving office. The next chart shows the Obama administration’s regulations that could have been midnight regulations if the election of 2012 had turned out differently. It shows that these regulations have lower scores both for Analysis and for Openness. The problems with midnight regulation—less thorough and less transparent analysis—plague administrations of both parties.</p> <p class="p3"><a href="http://mercatus.org/sites/default/files/Ellig-Midnight-Regulation-chart-2-v1 copy.jpg"><img src="http://mercatus.org/sites/default/files/Ellig-Midnight-Regulation-chart-2-v1 copy.jpg" width="575" height="444" /></a></p><p class="p3"><b style="font-family: inherit; font-style: inherit; background-color: white;">Midnight Regulation Illustrates a Larger Problem</b></p> <p class="p1">The final chart compares the Bush administration’s midnight regulations with the Obama administration’s potential midnight regulations. Both sets of regulations have less thorough and less transparent analysis than other regulations. But the average Analysis and Openness scores for non-midnight regulations are hardly stellar. The best average score—for Openness in the Obama administration—would still earn no better than a “D.”</p> <p class="p1">Midnight regulations are a problem, but the overall poor quality of regulatory analysis is the elephant in the room.</p> <p class="p3"><a href="http://mercatus.org/sites/default/files/Ellig-Midnight-Regulation-chart-3-v1 copy.jpg"><img src="http://mercatus.org/sites/default/files/Ellig-Midnight-Regulation-chart-3-v1 copy.jpg" width="575" height="444" /></a></p> http://mercatus.org/publication/midnight-regulations-illustrate-larger-problems-regulatory-process Wed, 24 Aug 2016 10:42:57 -0400 Transportation Taxation Without Representation http://mercatus.org/expert_commentary/transportation-taxation-without-representation <h5> Expert Commentary </h5> <div style="box-sizing: inherit;" class="ad-in-text-target"><p class="p1"><span class="s1">Earlier this month, Massachusetts became the 35th state to pass ride-hailing legislation to regulate so-called transportation network companies like Uber and Lyft. Much of the law is the same standard boilerplate used by other states, but Massachusetts' law has some new and frustrating twists.</span></p> <p class="p1"><span class="s1">Gov. Charlie Baker, who first proposed the legislation, said that it would ensure that Massachusetts remained a leader in innovative new technologies, but the governor and the Massachusetts legislature missed a major opportunity to be truly innovative. The Massachusetts law prohibits local jurisdictions from implementing their own licenses for ride-hailing firms or requiring them to pay fees – but it could have done the same for taxicabs and limos and applied the same regulations to all transportation service providers.</span></p> <p class="p1"><span class="s1">For example,&nbsp;<a href="http://www.star-telegram.com/news/local/community/fort-worth/article86557452.html"><span class="s2">Fort Worth, Texas</span></a>&nbsp;and&nbsp;<a href="http://www.floridatoday.com/story/news/2015/11/12/melbourne-levels-playing-field-uber-taxis-limos/75582478/"><span class="s2">Melbourne, Florida</span></a>&nbsp;recently enacted laws that more or less apply equally to all for-hire drivers. Instead of following their lead, Massachusetts' law simply offers another carve-out for a specific kind of service provider in the transportation industry, rather than creates a truly level playing field for all transportation services.</span></p> <p class="p2"><span class="s1"><a href="http://www.usnews.com/opinion/articles/2016-08-22/massachusetts-uber-law-is-taxation-without-representation">Continue reading</a></span></p></div><div style="box-sizing: inherit;"><div style="box-sizing: inherit; color: #333333; font-family: Roboto, 'Helvetica Neue', Helvetica, Arial, sans-serif; font-size: 16px; font-style: normal; font-weight: normal; line-height: 24px; background-color: #ffffff;" id="test-div"></div><div style="box-sizing: inherit; display: flex; color: #333333; font-family: Roboto, 'Helvetica Neue', Helvetica, Arial, sans-serif; font-size: 16px; font-style: normal; font-weight: normal; line-height: 24px; margin-bottom: 0.9375rem !important; background-color: #ffffff;" class="reverse display-block-for-small-only block-normal flex-media"></div></div> http://mercatus.org/expert_commentary/transportation-taxation-without-representation Tue, 23 Aug 2016 11:39:37 -0400 Time to Tear down the Walls to Healthcare http://mercatus.org/expert_commentary/time-tear-down-walls-healthcare <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Politicians looking for a way to break through the stale healthcare debate in Washington are missing something obvious: Republicans — many of whom still pine for the Reagan Revolution — need only to finish what their former standard-bearer started. Democrats need only to follow through on a current Obama administration policy. And these two policies are one and the same.</span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p3"><span class="s1">As Salim Furth and Reece Brown have recently <a href="http://dailysignal.com/2016/08/12/finish-what-reagan-started-end-con-laws/"><span class="s2">explained</span></a>, nearly 30 years ago President Ronald Reagan convinced Congress to repeal its mandate that states in our union restrict the provisions of healthcare services through certificate-of-need (CON) programs. For the preceding decade, these little-known, yet hugely significant programs required providers to demonstrate that a community "needed" their services before they could open a practice, offer a new line of services, or invest in certain devices or technology.</span></p> <p class="p1"><span class="s1">Repealing the mandate made sense. <a href="http://www.usnews.com/opinion/articles/2016-05-16/certificate-of-need-laws-only-complicate-health-care-and-stifle-competition"><span class="s2">As I've previously described</span></a>, the process for granting permission is based on complex formulas, administrative hearings and a bureaucratic process that tends to look like high-stakes litigation. In most instances, current providers are notified of an application and invited to challenge would-be competitors' applications. This can end up taking years and costing hundreds of thousands of dollars before a provider is granted permission to make such straightforward purchases as an MRI machine.</span></p> <p class="p1"><span class="s1">While the programs were a burden on expanding the provision of healthcare in America, and present formidable barriers for new entrants to the provider market and those seeking care, the programs were justified as a way to control costs, increase charity care, protect rural hospitals and guarantee quality.</span></p> <p class="p1"><span class="s1">And, however well-intentioned the idea of CON laws were, they seem to prove one Reaganism to be true: "Government is not the solution to our problem; government is the problem." <a href="http://mercatus.org/research/published_research/3818"><span class="s2">As my Mercatus Center colleagues and I have been detailing for several years</span></a>, these programs have failed on all accounts.</span></p> <p class="p1"><span class="s2"><a href="http://mercatus.org/publication/health-spending-reined-in-CON-laws">Our most recent paper on this topic</a></span><span class="s1">, by economist James Bailey, suggests that these laws have not only failed to control costs, but are actually increasing them. He finds that, contrary to their intended purpose, CON laws raise overall healthcare spending by as much as 5 percent for physician care. In addition, he finds that CON laws increase overall Medicare spending by 6.9 percent.</span></p> <p class="p1"><span class="s1">And what happens when states repeal these laws? <a href="http://mercatus.org/publication/health-spending-reined-in-CON-laws"><span class="s2">They experience overall reductions in healthcare spending by 0.8 percent per year</span></a>, leveling out to a 4 percent drop after year five.</span></p> <p class="p1"><span class="s1">This is what Reagan saw nearly three decades ago: Rigging the market does not lead to consumer benefits. The Obama administration agrees and has raised a <span class="s2"><a href="https://www.ftc.gov/system/files/documents/advocacy_documents/joint-statement-federal-trade-commission-antitrust-division-u.s.department-justice-certificate-need-laws-south-carolina-house-bill-3250/160111ftc-doj-sclaw.pdf">number of concerns</a>&nbsp;</span>about CON laws across America.</span></p> <p class="p1"><span class="s1">There is only one problem: While the federal mandate was repealed, the laws had already been passed in nearly every state. And bad policy, especially one that creates the types of winners and losers that CON programs do, can be difficult to undo.</span></p> <p class="p1"><span class="s1">As of today, these barriers remain. Thirty-five states continue to implement these programs to the detriment of both new entrants as well as those seeking care. But what President Reagan started 30 years ago can be easily carried out by policymakers across the country today. If only they'd be willing to tear down these walls.</span></p> http://mercatus.org/expert_commentary/time-tear-down-walls-healthcare Tue, 23 Aug 2016 11:34:09 -0400 Risky Investments Hurt Alabama Pension Program http://mercatus.org/expert_commentary/risky-investments-hurt-alabama-pension-program <h5> Expert Commentary </h5> <p class="p1"><span class="s1">In "<a href="http://www.al.com/opinion/index.ssf/2016/08/the_truth_behind_the_big_money.html"><span class="s2">The truth behind the big money efforts to change pensions in Alabama</span></a>," (August 1 "Guest Voices) Tom Krebs makes two excellent points: Public sector employees deserve a secure retirement, and risky investments are no way to guarantee Alabama's pension holders what they've earned.</span></p> <p class="p1"><span class="s1">I agree with Mr. Krebs. Indeed, my research on Alabama's pension situation drives these points home. Importantly, another lesson of finance – don't value a guaranteed pension based on risky assets – continues to elude the Retirement Systems of Alabama, with predictable results.</span></p> <p class="p1"><span class="s1">Mr. Krebs cites numbers showing the pension plans are doing well, but recent returns suggest otherwise. According to the RSA's audited report in 2015, "a poor finish to the fourth fiscal quarter wiped out decent gains," returning only 1.04&nbsp;percent, 1.05&nbsp;percent&nbsp;and -0.54&nbsp;percent&nbsp;for the three plans—well below RSA's annual target of 8&nbsp;percent.</span></p> <p class="p1"><span class="s1">Returns over the last ten years have also fallen short at between 5.16&nbsp;percent&nbsp;and 6.1&nbsp;percent, reflecting the volatility of the RSA's investments.</span></p> <p class="p1"><span class="s1">When investment returns aren't enough, who foots the bill? Of the $2.26 billion in TRS revenues in 2015, only a sliver came from investment income while 83 percent came from the pockets of Alabama employees and their employers.&nbsp;</span></p> <p class="p1"><span class="s1">One important correction: Mr. Krebs implies that the Mercatus Center does directed research. That is not the case. Our research is independent, peer-reviewed, and held to the highest standards of academic excellence.</span></p> <p class="p1"><span class="s1">Public policy research should generate thoughtful discussion. We are always happy to be part of such conversations.</span></p> http://mercatus.org/expert_commentary/risky-investments-hurt-alabama-pension-program Tue, 23 Aug 2016 11:28:53 -0400 Don't Buy the Ex-Im Lie http://mercatus.org/expert_commentary/dont-buy-ex-im-lie <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Don’t be fooled by lawmakers who tell you that government subsidy programs like the Export-Import Bank are necessary for the economy to create jobs. This is the whopper peddled by Rep. Charlie Dent (R, PA) in a recent article for the <i>Lebanon Daily News</i>.</span></p> <p class="p1"><span class="s1">There are plenty of bad arguments for why taxpayers should continue to subsidize large corporations via the Ex-Im Bank, but none are more misleading than Dent’s claim that&nbsp;“the bank provides financial protections, such as capitol guarantees, for American exporters looking to do business abroad […] where private sector banks are unable to provide the needed assurance.”</span></p> <p class="p1"><span class="s1">This is simply factually incorrect. Most of Ex-Im’s beneficiaries are powerful corporations, not capital-strapped firms. The main foreign and domestic beneficiaries of Ex-Im do not need the government to get access to capital. What’s more, foreign governments often benefit.&nbsp;Many Ex-Im beneficiaries include state-owned companies such as Pemex, the Mexican oil and gas giant, and Air Emirates, the airline of wealthy United Arab Emirates.</span></p> <p class="p1"><span class="s1">On the domestic side, 64 percent of Ex-Im financing benefits 10 large corporations and 40 percent benefits Boeing. Think about that. The primary reason the Ex-Im Bank exists appears to be to promote the specific welfare of a handful of corporations.</span></p> <p class="p1"><span class="s1">These large corporations that benefit from Ex-Im don’t want to lose their perks. They have every incentive to lobby for the Bank to continue.</span></p> <p class="p1"><span class="s1">But normal people matter too. It is critical that we consider the unseen victims of political privilege who pay for these benefits.</span></p> <p class="p1"><span class="s1">First, these victims are taxpayers who now bear the risk for $140 billion in liabilities. No matter what Mr. Dent claims, should the economy turn south and enough companies default on these loans, you Pennsylvanians will be on the hook. Remember Fannie Mae and Freddie Mac? They were solvent before they weren’t, too.</span></p> <p class="p1"><span class="s1">Second, these victims are consumers who pay higher prices for the purchase of subsidized goods. That includes Pennsylvania exporters who use Boeing planes to sell their goods abroad and face inflated costs as a result of the subsidies.</span></p> <p class="p1"><span class="s1">Third, these victims are unsubsidized firms competing with subsidized ones. Not only do they pay higher financing costs, but they also lose out when private capital flows to politically-privileged firms regardless of the merits of their projects. Unfortunately, we will never see the Pennsylvania businesses that could have been. We will never hear from the Pennsylvania workers whose wages weren’t raised or whose jobs disappeared because of unfair competition from Ex-Im-backed firms. Sadly, some people are victimized multiple times: first as taxpayers, then as consumers, then as competitors or workers, and finally as borrowers.</span></p> <p class="p1"><span class="s1">Rep. Dent wants to make you believe that without Ex-Im, Pennsylvanian exports would collapse. Not true. Quite the contrary: Most businesses in Pennsylvania face unfair competition from the subsidized companies thanks to Ex-Im. According to the International Trade Administration, Pennsylvanians exported $39.4 billion of merchandises in 2015. Only $486 million of that was backed by Ex-Im, or roughly 1 percent of all Pennsylvania exports. Pennsylvanians are doing great on their own. Needless to say, Pennsylvania exports wont collapse without Ex-Im.</span></p> <p class="p1"><span class="s1">Rep. Dent also writes that between 2011 and 2015, 246 businesses in the state sought financing from Ex-Im. That’s an average of 49 companies a year. According to the International Trade Administration, on any given year, some 15,600 companies export from the state. It means that over 99.9 percent of companies in Pennsylvania export without any government favors.</span></p> <p class="p1"><span class="s1">These subsidies might be a good deal for those who get them, but most Pennsylvanians will find it unfair that the profits of the winners of this arbitrary government selection come at the expense of the hundreds of thousands of unsubsidized firms, employees, and consumers. Subsidized businesses should not matter more than unsubsidized firms in the Keystone State merely because they happen to have friends like Rep. Dent in Washington. We must end the Export-Import Bank to help the 99.9 percent.</span></p> http://mercatus.org/expert_commentary/dont-buy-ex-im-lie Tue, 23 Aug 2016 11:24:34 -0400 Comment on Proposed Rule on Arbitration Agreements, 12 CFR Part 1040 http://mercatus.org/publication/comment-proposed-rule-arbitration-agreements-12-cfr-part-1040 <h5> Publication </h5> <p class="p1"><span class="s1">BACKGROUND&nbsp;</span></p> <p class="p1"><span class="s1">The Bureau of Consumer Financial Protection (the Bureau) proposes a rule to prohibit mandatory arbitration agreements in consumer financial-product or service contracts. The Bureau bases its proposed rulemaking on findings from its 2015 study, which was mandated by Congress under Section 1028(a) of the Dodd-Frank Act.</span></p> <p class="p1"><span class="s1">In a new public interest comment for the Mercatus Center at George Mason University, University of Virginia law professor Jason S. Johnston, George Mason University law professor Todd J. Zywicki, and Mercatus Center senior policy writer Michael P. Wilt examine the Bureau’s proposed rule and findings, and they demonstrate that the Bureau’s data and analysis are often inconsistent, inadequate, and flawed.&nbsp;</span></p> <p class="p1"><span class="s1">Because of flaws in the methodology and data, the Bureau’s 2015 study should not be used as the basis for any regulatory proposal to limit the use of consumer arbitration. Furthermore, regulatory efforts to limit the use of arbitration will likely leave consumers worse off. A deeper analysis of the Bureau’s data shows that arbitration is, in reality, relatively fair and successful at resolving a range of disputes between consumers and providers of consumer financial products.&nbsp;</span></p> <p class="p1"><span class="s1">KEY FINDINGS&nbsp;</span></p> <p class="p1"><span class="s1">The Bureau’s proposed rulemaking makes several flawed assumptions and comparisons between arbitration and class-action litigation. Arbitration is an efficient and beneficial means of dispute resolution. Its procedural setup is more informal, quicker, and easier for consumers to use, and hiring counsel to represent a claim in arbitration is usually unnecessary. Litigation, on the other hand, can be expensive, time consuming, and complex, and it usually requires hiring an attorney. The comment letter finds several flaws in the proposed rulemaking’s analysis:&nbsp;</span></p> <p class="p1">&nbsp;</p><ul><li><span style="font-size: 12px; background-color: white;"><i>The Bureau’s proposed rulemaking incorrectly compares class-action settlements with arbitral awards. </i>This is a methodologically flawed means of comparison because most arbitrations settle, just as most consumer class actions settle.&nbsp;</span></li><li><span style="font-size: 12px; background-color: white;"><i>The Bureau paints a misleading picture of class-action litigation outcomes. </i>Typical settlements result in very small payouts ($32 per class member), while class-action attorneys are often the big winners; attorneys collected $424 million during the Bureau’s study period of 2010–2012.&nbsp;</span></li><li><span style="font-size: 12px; background-color: white;"><i>The Bureau should have excluded class actions that did not involve financial products or services subject to mandatory arbitration.</i> The inclusion of debt-collection cases and the simultaneous exclusion of ATM notice-failure cases biases the Bureau’s sample.&nbsp;</span></li><li><span style="font-size: 12px; background-color: white;"><i>The market’s solution for inaccurate charges works better than arbitration or litigation.</i> The Bureau’s survey of consumers shows that consumers prefer to simply change credit cards if the provider does not satisfactorily resolve a dispute, rather than litigate or arbitrate.&nbsp;</span></li><li><span style="font-size: 12px; background-color: white;"><i>Consumers perform better in arbitration than in litigation. </i>The Bureau’s data indicate that consumers have higher rates of overall success in arbitration and that arbitrations are resolved within a matter of months.&nbsp;</span></li><li><span style="font-size: 12px; background-color: white;"><i>The Bureau did not adequately consider the costs of its proposal. </i>Economic theory predicts that over time, financial-services providers will pass on the costs of the arbitration ban to their consumers.&nbsp;</span></li><li><span style="font-size: 12px; background-color: white;"><i>The Bureau did not consider less restrictive alternatives to banning mandatory arbitration.</i> The Bureau should reassess its proposal in light of successful consumer arbitration clauses such as AT&amp;T’s, which provides thousands of dollars in liquidated damages and no filing fees.&nbsp;</span></li></ul><p>&nbsp;</p> <p class="p1"><span class="s1">RECOMMENDATION&nbsp;</span></p> <p class="p1"><span class="s1">The proposed arbitration rules are not in the public interest and will not protect consumers as intended and required under the Dodd-Frank Act. The Bureau should go back to the drawing board, conduct a proper study with accepted econometric methodology, consider less restrictive alternatives, and reconsider its decision to impose new regulations that will inhibit an efficient and effective means of dispute resolution.</span></p> http://mercatus.org/publication/comment-proposed-rule-arbitration-agreements-12-cfr-part-1040 Wed, 24 Aug 2016 16:38:28 -0400 ACA and the Increasing Politicization of Health Care http://mercatus.org/expert_commentary/aca-and-increasing-politicization-health-care <h5> Expert Commentary </h5> <p class="p1"><span class="s1">The Affordable Care Act (ACA) has <a href="http://www.usnews.com/opinion/articles/2016-08-11/obamacare-gave-rise-to-the-health-care-mergers-its-advocates-oppose"><span class="s2">produced</span></a> massive consolidation among health care providers, largely the result of hospitals merging and large hospital systems taking over private doctor practices. In response and in an apparent attempt to improve their negotiating position with the consolidated providers, four of the five major for-profit health insurance companies have proposed mergers: Aetna with Humana and Cigna with Anthem. The Department of Justice (DOJ) <a href="http://www.nytimes.com/2016/07/22/business/dealbook/us-sues-to-block-anthem-cigna-and-aetna-humana-mergers.html?_r=0"><span class="s2">has moved</span></a> to block the mergers, citing a growing threat to health care market competition.</span></p> <p class="p1"><span class="s1">Before making that decision, the DOJ asked Aetna, and likely the other insurers as well, how DOJ action to challenge the merger would affect the insurer’s decision to participate in the ACA exchanges. Aetna CEO Mark Bertloni <a href="http://big.assets.huffingtonpost.com/AetnaDOJletter.pdf"><span class="s2">wrote</span></a> in reply:</span></p> <p class="p2"><span class="s1">The President asked us to take a long-term view when this law went into effect, and, unlike many others, we have stayed the course and worked constructively to make the public exchange market work. The acquisition of Humana puts Aetna in a significantly better position to continue and expand its support.</span></p> <p class="p2"><span class="s1"><b><i>Unfortunately, a challenge by the DOJ to that acquisition and/or the DOJ successfully blocking the transaction would have a negative financial impact on Aetna and would impair Aetna’s ability to continue its support, leaving Aetna with no choice but to take actions to steward its financial health. …</i></b></span></p> <p class="p2"><span class="s1"><b><i>Although we remain supportive of the Administration’s efforts to expand coverage, we must also face market realities. … We have been operating on the public exchanges since the beginning of 2014 at a substantial loss. … Our ability to withstand these losses is dependent on our achieving anticipated synergies in the Humana acquisition. …</i></b></span></p> <p class="p2"><span class="s1"><b><i>Our analysis to date makes clear that if the deal were challenged and/or blocked we would need to take immediate actions to mitigate public exchange and ACA small group losses. Specifically, if the DOJ sues to enjoin the transaction, we will immediately take action to reduce our 2017 exchange footprint.</i></b></span></p> <p class="p1"><span class="s1">In other words, Aetna’s position is that it would continue to participate in the exchanges, despite the fact that they were a money losing proposition, if a favorable decision on merging with Humana was forthcoming so the insurer would have extra synergies, i.e. profits, elsewhere. The inescapable and disturbing implication here is that due to the ACA, important decisions affecting health care markets, made both by government and by private companies, are now increasingly becoming a function of political negotiations and DOJ market concentration calculations.</span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><span class="s1"><b>Providing Insurers with Taxpayer Funds to Prop up the ACA</b></span></p> <p class="p1"><span class="s1">While I worked for the House Committee on Oversight and Government Reform in 2014, we obtained and released <a href="http://oversight.house.gov/wp-content/uploads/2014/07/WH-Involvement-in-ObamaCare-Taxpayer-Bailout-with-Appendix.pdf"><span class="s2">communications</span></a> between top White House officials and insurance company executives, which demonstrated the close relationship between the Obama administration and health insurers. For example, in the spring of 2014, the CEO of CareFirst, Chet Burrell, <a href="http://oversight.house.gov/wp-content/uploads/2014/07/WH-Involvement-in-ObamaCare-Taxpayer-Bailout-with-Appendix.pdf"><span class="s2">exchanged</span></a> numerous emails with senior presidential advisor Valerie Jarrett, asking that the administration allow tax money to flow through the ACA risk corridor program. Burrell warned Jarrett of “an unwelcome surprise” and that premiums would increase upward of 20% if risk corridors were made budget neutral. Jarrett forwarded the information to the administration’s top health care staffers, telling Burrell that “the policy team is aggressively exploring options.” Eventually, Jarrett <a href="http://oversight.house.gov/wp-content/uploads/2014/07/WH-Involvement-in-ObamaCare-Taxpayer-Bailout-with-Appendix.pdf"><span class="s2">told</span></a> Burrell that the administration had given the industry 80% of what it requested.</span></p> <p class="p1"><span class="s1">More recently, the administration has provided billions of dollars above what the law allows to insurers participating in the ACA. In May, a federal judge <a href="http://www.forbes.com/sites/theapothecary/2016/05/12/judge-rules-administration-illegally-delivering-funds-to-insurers-participating-in-obamacare/#26312c26182b"><span class="s2">ruled</span></a> that the Obama administration’s payments to insurers through its cost sharing reduction program are unconstitutional because Congress never appropriated the funding. (I discussed this program and the decision in depth <a href="http://www.forbes.com/sites/theapothecary/2016/05/12/judge-rules-administration-illegally-delivering-funds-to-insurers-participating-in-obamacare/#26312c26182b"><span class="s2">here</span></a>.) These payments likely exceeded $7 billion in 2014 and 2015 combined, and the administration continues to make them. The administration is also <a href="http://thehill.com/policy/healthcare/276451-gop-lawmakers-press-obamacare-official-on-illegal-payments"><span class="s2">diverting</span></a></span><span class="s2"> </span><span class="s1">billions of dollars in funds in reinsurance program contributions to insurers, funds that are legally required to be deposited in the U.S. treasury. (Doug Badger of the Galen Institute discussed this issue in depth <a href="http://www.dougsbriefcase.com/blog/will-hhs-get-away-with-a-3-5-billion-heist/"><span class="s2">here</span></a>.) Given how <a href="http://www.forbes.com/sites/theapothecary/2016/03/16/obamacare-enrollment-year-3-summary-increase-in-mandate-penalty-has-not-improved-risk-pools/#4fb93add189e"><span class="s2">poorly</span></a> the ACA exchanges are performing relative to projections, the situation would likely be far worse without the administration delivering billions of dollars in unlawful payments to insurers on top of the enormous front-end subsidies that insurers are receiving.</span></p> <p class="p1"><span class="s1"><b>Conclusion</b></span></p> <p class="p1"><span class="s1">The ACA has led to significant consolidation among providers through the health care market and is producing a severe adverse selection spiral in many states’ individual health insurance markets. Despite substantial subsidies—well in excess of $10 billion thus far beyond what the law allows—many insurance companies, faced with massive losses, have either collapsed or are exiting the exchanges. Now, exchange participation decisions are reportedly being made contingent upon DOJ decisions with respect to corporate mergers. What a mess! Now more than ever, we need to depoliticize health care and create transparent marketplaces where insurers heed the wishes of customers rather than government officials.</span></p> http://mercatus.org/expert_commentary/aca-and-increasing-politicization-health-care Fri, 19 Aug 2016 11:06:47 -0400 ACA on the Brink http://mercatus.org/expert_commentary/aca-brink <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Outside the legal challenges it previously faced, the Affordable Care Act has never been as threatened as it is right now.</span></p> <p class="p1"><span class="s1">President Barack Obama’s signature law has so destabilized the individual market for insurance that three large companies have announced they are better off not participating in the exchanges.</span></p> <p class="p1"><span class="s1">Aetna earlier this week announced it will exit 11 of the 15 states where it has offered plans through ACA exchanges, while UnitedHealthcare plans to exit 30 of its 34 states, and Humana is pulling out of 88 percent of the counties where it offered coverage.</span></p> <p class="p1"><span class="s1">While these big players are cutting their ACA losses, they’re fortunate enough to have other business lines to fall back on. Without those buffers, the new health insurance cooperatives that started with funding through the ACA have mostly collapsed. To date, 16 of 23 have failed, taking billions of dollars in taxpayer loans with them.</span></p> <p class="p1"><span class="s1">As insurers exit and fold, the choices available to people will plummet next year. Before Aetna’s announcement, there were at least 650 counties with only one insurer slated to offer exchange coverage. After Aetna’s decision, it’s possible that there will be more than 1,000 counties with just one insurer and several counties without any.</span></p> <p class="p1"><span class="s1">Insurers were hopeful that the ACA could offer a major profit opportunity for them. They were set to receive tens of billions of dollars in several types of government subsidies as well as the enactment of an unprecedented federal penalty if people failed to purchase their product. Washington delivered the subsidies — in some cases more than Congress authorized — and the penalty survived a major constitutional challenge. But, the law is producing large insurer losses and significant instability in the individual market. Why?</span></p> <p class="p1"><span class="s1">The explanation is simple: The coverage is extremely unattractive to the vast majority of potential buyers.</span></p> <p class="p1"><span class="s1">Every plan covers an extensive list of services, some of which are unwanted, and the plans generally have very large premiums and deductibles.</span></p> <p class="p1"><span class="s1">For example, the cheapest unsubsidized bronze plan (covering about 60 percent of expected health care expenses) available to a family in Winston-Salem, N.C., has a yearly premium of $11,760 and a $13,700 deductible. The cheapest unsubsidized silver plan (covering about 70 percent of expected health care expenses) has a yearly premium of $13,872 and a $10,000 deductible. In addition to high premiums and deductibles, far fewer doctors and hospitals are covered by exchange plans relative to other types of plans.</span></p> <p class="p1"><span class="s1">As a result, only two groups of people are buying plans to a significant extent: The first group includes single people with income below about $24,000, who receive very large subsidies to reduce premiums and deductibles. The second group includes people who expect to use a lot of health care services.</span></p> <p class="p1"><span class="s1">The rest of potential buyers, generally middle-class people without insurance through the workplace, are making an economically rational decision to remain uninsured. For the most part, the ACA has made them much worse off. The only plan they can buy is expensive and provides low value relative to the price. And they must pay higher taxes to finance the law’s massive new spending. This includes the penalty for remaining uninsured, which is expected to equal about $1,000 for the typical payer in 2016.</span></p> <p class="p1"><span class="s1">Another key problem that worsens the viability of the exchanges is that people have figured out how to game the new rules. Since the ACA requires insurers to offer coverage to applicants without varying premiums based on their health, the law incentivizes people to wait until they are sick to purchase coverage. Controls put in place by the law and by regulators to minimize this behavior have not worked thus far.</span></p> <p class="p1"><span class="s1">The Obama administration has attempted to prop up insurers with as much taxpayer money as possible, including roughly $7 billion in payments in 2014 and 2015 that a federal judge ruled unconstitutional because the funds were not appropriated by Congress. The subsidies and corporate welfare have not worked. As choices diminish and premiums soar — they’re likely to rise by an average of 25 percent next year — people will rightly demand change.</span></p> <p class="p1"><span class="s1">The change shouldn’t be more corporate welfare, subsidies, mandates and rules. Instead, policymakers could repeal the law’s insurance market regulations and allow people to purchase plans that appeal to them. As demonstrated throughout the rest of the economy, letting people make decisions uninhibited from Washington rules and complicated subsidy structures will almost certainly lower prices and increase quality throughout the health care market.</span></p> http://mercatus.org/expert_commentary/aca-brink Fri, 19 Aug 2016 10:57:54 -0400 Getting More Out of State Transportation Infrastructure Spending http://mercatus.org/publication/getting-more-out-state-transportation-infrastructure-spending <h5> Publication </h5> <p class="p1"><span class="s1">The federal role in highway spending is expected to get smaller because fuel tax revenues are decreasing and Congress is holding off on raising the federal gas tax rate. Meanwhile, states are not getting the most out of their highway spending. Traffic congestion plagues urban areas, and simply investing in highways and transit will not be enough to fix the problem.&nbsp;</span></p> <p class="p1"><span class="s1">A new study for the Mercatus Center at George Mason University discusses general principles that can help states maximize the value they get from their highway spending. While no two states are identical, policymakers can still learn from one another by observing what works and using the same general principles to create reforms that work for their states.&nbsp;</span></p> <p class="p1"><span class="s1">THE TRANSPORTATION PROBLEMS STATES FACE&nbsp;</span></p> <p class="p1"><span class="s1">States face a number of problems related to transportation funding and management, including costly regulations at all levels of government, competing spending priorities, asset management issues, and competing goals in urban areas. As the chart below demonstrates, decisions about highway and transit funding are affected by interactions among all levels of government.&nbsp;</span></p> <p class="p1"><span class="s1"><b>Regulations Increase Project Costs&nbsp;</b></span></p> <p class="p1"><span class="s1">States must comply with all federal regulations if they want to receive transportation funding. Regulations are also imposed by the state governments themselves. For example, states often implement prevailing wage laws, which prevent less-skilled labor from working on projects, and give preferential treatment to in-state firms even when out-of-state firms would be cheaper.&nbsp;</span></p> <p class="p1"><span class="s1"><b>Surface Transportation Funding Flows among Levels of Government: Spending on Highways and Transit, 2012&nbsp;</b></span><a href="http://mercatus.org/sites/default/files/SurfaceTransportationfunding990.jpg"><img src="http://mercatus.org/sites/default/files/SurfaceTransportationfunding990.jpg" width="575" height="377" style="font-size: 12px; background-color: white;" /></a><br /><span style="font-size: 12px; background-color: white;"><a href="http://www.pewtrusts.org/en/research-and-analysis/analysis/2015/02/24/funding-challenges-in-highway-and-transit-a-federal-state-local-analysis">Source: Pew Charitable Trusts, “Funding Challenges in Highway and Transit: A Federal-State-Local Analysis,” February 24, 2015.&nbsp;</a></span></p> <p class="p1"><span class="s1"><b>Different Transportation Modes Compete for Scarce Government Funds&nbsp;</b></span></p> <p class="p1"><span class="s1">Policymakers must identify whether mass transit or highway construction offers the greatest benefits and lowest costs:&nbsp;</span></p> <ul class="ul1"> <li class="li4"><span class="s1">Ideally, funding is allocated based on marginal benefits and costs, but—because there is no “market price” for a stretch of highway—calculating marginal benefits and costs is difficult.&nbsp;</span></li> <li class="li4"><span class="s1">Most transportation projects involve something supplied by the government, which makes it difficult to determine how much of the costs incurred by a government agency should be allocated for each project.&nbsp;</span></li></ul><p><b style="font-family: inherit; font-style: inherit; background-color: white;">Political Considerations Affect How Much Is Spent on Transportation&nbsp;</b></p><p><b style="font-family: inherit; font-style: inherit; background-color: white;"></b><span style="font-size: 12px; background-color: white;">Funding decisions are also influenced by interest-group lobbying instead of by benefits and costs. Costs of favored projects are often underestimated while their benefits are overestimated. This is prominent in the case of rail construction:&nbsp;</span></p><ul class="ul1"><li class="li4"><span class="s1">Federal subsidies for rail transit expansion make expanding rail transit less costly for local transit agencies than expanding bus service. Because local costs for expanding are relatively low, cities are inclined to take advantage of this federal funding.&nbsp;</span></li> <li class="li4"><span class="s1">Therefore, many cities focus on rail systems even when these incur high costs (considering both federal and local costs) and expanding them brings only small increases in rail use.&nbsp;</span></li> </ul><p><b style="font-family: inherit; font-style: inherit; background-color: white;">Asset Management Tends to Be Reactive&nbsp;</b></p><ul class="ul1"> </ul> <p class="p1"><span class="s1">States should be proactive rather than reactive about asset management. While funding is scarce, they should focus on preventive maintenance to extend projects’ lives rather than spending more later to replace worn-out infrastructure.&nbsp;</span></p> <p class="p1"><span class="s1"><b>Urban Development Goals Must Be Balanced&nbsp;</b></span></p> <p class="p1"><span class="s1">Transportation plans must foster the kind of development people would choose for themselves rather than imposing the plans of policymakers. For example, instead of emphasizing the expansion of rail transit, policymakers should aim to reduce road congestion for drivers (e.g., by congestion pricing).&nbsp;</span></p> <p class="p1"><span class="s1">OPTIONS FOR REFORMING FUNDING AND MANAGEMENT&nbsp;</span></p> <p class="p1"><span class="s1"><b>Change the State Political Culture and Institutions&nbsp;</b></span></p> <p class="p1"><span class="s1">Politics will be the driving factor in how transportation funding is used as long as governments control road funding. Combining state funding with another source of funding can help alleviate this problem.&nbsp;</span></p> <p class="p1"><span class="s1"><b>Institute Tolling&nbsp;</b></span></p> <p class="p1"><span class="s1">Drivers could pay tolls that vary as demand for the road varies to help alleviate congestion. How- ever, there’s large popular opposition to congestion tolls, which are viewed as another tax, and a regressive one at that. Tolls may be more politically acceptable if they replace fuel taxes, which are also regressive.&nbsp;</span></p> <p class="p1"><span class="s1"><b>Permit Public-Private Partnerships&nbsp;</b></span></p> <p class="p1"><span class="s1">Firms can lease highways from governments and fund them through tolls or state payments. However, this may enable firms to influence government decisions about transportation to be in their favor rather than in the interests of the voters using the roads. To avoid such an outcome, states could pass legislation that would prevent the government from making any agreements to limit the construction of competing modes of transportation.&nbsp;</span></p> <p class="p1"><span class="s1"><b>Change the Source of Management and Funding&nbsp;</b></span></p> <p class="p1"><span class="s1">Federal funding can be provided in block grants, allowing state transportation departments greater discretion about how they use funds. Requiring local governments, rather than state governments or the federal government, to fund public transit systems and roads used primarily by local residents may provide better incentives for the efficient management of this infrastructure.&nbsp;</span></p> <p class="p1"><span class="s1">CONCLUSION&nbsp;</span></p> <p class="p1"><span class="s1">States face a variety of challenges related to transportation funding and management. This means that policymakers must consider solutions that give better incentives to all parties involved. Limiting the federal role in transportation spending to interstate highway funding would be a start. Granting local governments and private companies greater control over transportation spending would go further toward encouraging development shaped by resident preferences.&nbsp;</span></p> http://mercatus.org/publication/getting-more-out-state-transportation-infrastructure-spending Tue, 23 Aug 2016 13:21:34 -0400 Small-Business Financing after the Financial Crisis: Lessons from the Literature http://mercatus.org/publication/small-business-financing-after-financial-crisis-lessons-literature <h5> Publication </h5> <p class="p1"><span class="s1">Small businesses feature prominently in the US economy because they employ about 50 percent of the workforce and pay about 50 percent of American wages. Also, small businesses are often a source of innovative ideas that can drive growth. To the extent that access to finance plays a role in bringing those ideas to the real economy, small-business finance remains important for the future of the economy. Yet new financial regulations arising from the Dodd-Frank Act that were intended to stabilize the banking industry after the 2008 financial crisis may be unintentionally limiting small businesses’ access to credit.&nbsp;</span></p> <p class="p1"><span class="s1">In a new study from the Mercatus Center at George Mason University, researchers Stephen Matteo Miller, Adam Hoffer, and David Wille provide a review of the latest academic research into the major sources of capital used by small businesses in the United States and summarize the major trends and challenges that small-business owners face in obtaining capital today.&nbsp;</span></p> <p class="p1"><span class="s1">THE IMPORTANT ROLE OF FINANCIAL SERVICES&nbsp;</span></p> <p class="p1"><span class="s1">Bank credit plays an important role in the capital structure of US small businesses both at the time of startup and as the small business matures.&nbsp;</span></p> <p class="p1"><ul><li><span style="font-size: 12px; background-color: white;"><i>Owner capital is not the only source of financing for new businesses. </i>This statement runs contrary to standard theories of small-business financing, which predict that the owners of new firms are limited in their access to traditional loans, forcing them to rely on their own capital and financing from their family and friends.&nbsp;</span></li><li><span style="font-size: 12px; background-color: white;"><i>New business owners obtain credit from banks.</i> But while owner equity is indeed an important source of capital for these small firms, especially at the time of startup, research shows that small-business owners are able to obtain credit from the traditional 2 banking industry in the form of both consumer financial products (like credit cards) and business loans.&nbsp;</span></li></ul></p> <p class="p1"><span class="s1">The financial services industry thus plays a vital but underappreciated role in financing small firms—a role that has important implications for how new financial regulations may be impacting small-business owners’ access to credit.&nbsp;</span></p> <p class="p1"><span class="s1">SMALL-BUSINESS FINANCING REMAINS WEAK AFTER THE 2008 FINANCIAL CRISIS&nbsp;</span></p> <p class="p1"><span class="s1">Small-firm financing still remains less robust than before the Great Recession. Surveys of smallbusiness owners show, at best, a mixed picture of small-business owners’ use of capital today and their expectations for access to financing in the future. Small-business lending in particular is still well below its precrisis peak, even as total business lending has fully recovered. The proportion of small-business owners who say they are always turned down for credit is still above its average before the crisis.&nbsp;</span></p> <p class="p1"><span class="s1">While the uneven recovery in small-business financing may reflect weaker demand for capital, recent research indicates that postcrisis financial regulation is an important factor impacting small businesses’ access to financing, particularly bank credit.&nbsp;</span></p> <p class="p1"><span class="s1">KEY FINDINGS: THE UNINTENDED CONSEQUENCES OF FINANCIAL REGULATION&nbsp;</span></p> <p class="p1"><span class="s1">Dodd-Frank was intended to stabilize the banking industry after the crisis, but new regulations arising from it may be unintentionally limiting small businesses’ access to credit. Recent studies on this topic point to at least three ways in which these regulations impact small-business financing:&nbsp;</span></p> <p class="p1"><ul><li><span style="font-size: 12px; background-color: white;"><i>There are higher compliance costs at banks.</i> Increased scrutiny, mandatory changes to banks’ capital structure, and regulatory uncertainty have made small-business lending less profitable relative to other types of lending.</span></li><li><span class="s1" style="font-size: 12px; background-color: white;"><i>There is a disproportionate impact on small banks. </i>While small banks were supposed to be shielded from the&nbsp;</span><span style="font-size: 12px; background-color: white;">higher costs of new financial regulations, surveys of small-business executives show they are still spending more on compliance. This is a concern because banks with under $10 billion in assets issue about half of all small-business loans in the United States.&nbsp;</span></li><li><span style="font-size: 12px; background-color: white;"><i>There are increased costs of credit.</i> There is evidence that new regulatory burdens are increasing the costs of credit for the small-business owners who do obtain it, particularly the costs of the consumer financial products that many small firms rely on like personal loans and credit cards.&nbsp;</span></li></ul></p> <p class="p1"><span class="s1">As a result, a new FinTech industry is emerging, composed of entrepreneurs who are facilitating financing through new digital intermediaries. Start-ups offering so-called marketplace lending, peer-to-peer lending, and crowdfunding are increasingly courting small-business owners as banks retreat from this market. But pending regulation of this new industry will dictate how much of a role it will play in small-business financing in the future.</span></p> http://mercatus.org/publication/small-business-financing-after-financial-crisis-lessons-literature Tue, 23 Aug 2016 08:42:03 -0400 Promising More of Everything -- Except for Growth http://mercatus.org/expert_commentary/promising-more-everything-except-growth <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Hillary Clinton recently laid out her plan for the economy, which boils down to more government, more spending, more taxes, more regulations and more red tape. It translates into more debt and less growth. Some of the most outrageous provisions of her plan are those that target U.S. corporations abroad.</span></p> <p class="p1"><span class="s1">To be fair, Clinton's policies are very similar to those of President Barack Obama. They both want to prevent U.S. companies from leaving the country through a process called inversion. They both also fundamentally misunderstand the reasons behind inversions and try to fix the perceived problem by treating the symptoms rather than the causes.</span></p> <p class="p1"><span class="s1">The reason companies engage in inversions (usually by merging with a foreign firm to pay taxes abroad instead of at home) is obvious to most economists: U.S. companies doing business overseas are put at a terrible disadvantage because of our punishing corporate income tax system. The United States has the highest rate of all the Organization for Economic Cooperation and Development countries (35 percent at the top federal level and close to 40 percent when you add state taxes), including all the big welfare states in Europe.</span></p> <p class="p1"><span class="s1">The United States also taxes income on a worldwide basis. This means that a U.S. company operating in Ireland pays the Irish rate first on its Irish income and then will pay the U.S. rate minus the tax paid in Ireland when it brings the income back to the United States. Contrast that with a French competitor doing business in Ireland. The French company pays the low Irish rate of 12.5 percent, period. To cope with the penalty or to try to remain competitive, U.S. companies are either not bringing their income back to the United States (there's supposedly $2 trillion of earned U.S. income abroad) or performing inversions.</span></p> <p class="p1"><span class="s1">As it happens, there is wide bipartisan support to reform the corporate income tax. But it wouldn't happen under a President Clinton. Her plan would change a key rule to make it more difficult to invert. Another portion of her plan would limit the deductibility of interest when it is supposedly used as a tool to avoid American taxes. Never mind that it would be up to the government to decide when the use of such a deduction would be appropriate or not.</span></p> <p class="p2"><span class="s1">&nbsp;</span></p> <p class="p1"><span class="s1">Another provision is an "exit tax" on companies that relocate outside the United States without first repatriating earnings kept abroad. This one is particularly awful because it amounts to demanding a ransom from companies when they decide that enough is enough and that the survival of their business requires them to effectively change their citizenship.</span></p> <p class="p1"><span class="s1">Interestingly, Clinton may have gotten this authoritarian idea from her husband, who enacted a law in 1996 that imposes an exit tax on people who decide to move abroad and change their citizenship to avoid the same punishing tax system. It's worth noting that the United States is one of the very few countries taxing individuals on worldwide income.</span></p> <p class="p1"><span class="s1">What's stunning is that Clinton's refusal to reform the corporate income tax doesn't fit well with her claim that she wants to help American workers and that she cares about rejuvenating left-behind communities, such as Detroit. The economic literature shows that workers are shouldering the burden of the corporate income tax.</span></p> <p class="p1"><span class="s1">Writing in The Wall Street Journal, the American Enterprise Institute's Kevin Hassett and Aparna Mathur note, "Our empirical analysis, which used data we gathered on international tax rates and manufacturing wages in 72 countries over 22 years, confirmed that the corporate tax is for the most part paid by workers." In a piece appropriately called "The Cure for Wage Stagnation," they also cite works by the University of Michigan and Harvard University, among others. For instance, they write, "In (a) 2009 paper, (Kansas City Fed economist Alison) Felix and co-author James R. Hines of the University of Michigan discovered that the effects of lower tax rates are especially strong for union workers."</span></p> <p class="p1"><span class="s1">You would think that Clinton would be more favorable to helping low-income Americans and union workers in particular. If she were, the way to go would be to reform the corporate income tax, not to arbitrarily prohibit companies from moving to where tax laws are less punitive.</span></p> http://mercatus.org/expert_commentary/promising-more-everything-except-growth Wed, 17 Aug 2016 17:17:50 -0400