Mercatus Site Feed http://mercatus.org/feeds/home en FDA's 'Orphan Drug' Designation Warps Medical Research http://mercatus.org/expert_commentary/fdas-orphan-drug-designation-warps-medical-research <h5> Expert Commentary </h5> <p class="p1">With Earth Day and Arbor Day now in our rearview mirror, the countdown to a host of other summertime days of celebration such as Memorial Day, Independence Day and Labor Day can begin. This reminds me of when I was 10 years old, and I complained to my father that there is a Mother’s Day, Father’s Day, Grandparents’ Day, Teacher’s Day and Secretary’s Day, but no Child’s Day. My father exclaimed, “Every day is Child’s Day!”</p> <p class="p1">While we focus a good amount of attention on days like this, it’s worth noting that another special day recently passed us by with little fanfare: Did you know that there is a Rare Diseases Day? It’s Feb. 28. (My friend and health care scholar Bob Graboyes of the Mercatus Center quipped that it should be February 29th. Exactly!)</p><p class="p1"><a href="http://www.usnews.com/opinion/economic-intelligence/2015/04/27/fdas-orphan-drug-designation-warps-medical-research">Continue reading</a></p> http://mercatus.org/expert_commentary/fdas-orphan-drug-designation-warps-medical-research Mon, 27 Apr 2015 16:13:16 -0400 Modernizing the SSDI Eligibility Criteria: A Reform Proposal That Eliminates the Outdated Medical-Vocational Grid http://mercatus.org/publication/modernizing-ssdi-eligibility-criteria-eliminates-medical-vocational-grid <h5> Publication </h5> <p class="p1">The Social Security Administration (SSA) has been awarding benefits through its Disability Insurance (SSDI or DI) program at an increasing rate over the last 10 years. Even after adjusting for changes in the age and gender composition of the working population, we see that larger and larger shares of the workforce have been getting benefits. This has occurred despite evidence from other sources that rates of disability in the working-age and older populations have been stable or have declined. This paper will document the trend and show that a significant cause for it is the fact that older workers are evaluated with considerably eased standards for eligibility under the medical-vocational grid. The grid process uses the applicant’s work ability as a starting point and takes into account age, education, work history, and language skills to evaluate disability claims. This paper will describe the current grid in some detail and demonstrate that it is likely playing a major role in the age- and gender-adjusted increase in DI incidence and prevalence. We propose the elimination of this grid and suggest other intermediate- and long-range eligibility reforms.</p> <p class="p2">Our policy recommendation is to eliminate the medical-vocational grid and replace it with a simpler, fairer, and more uniform eligibility system: that is, the same standards and five-step process currently determining eligibility of those under age 45 should also apply to those above age 45. At the same time, the listing of medical conditions that meet disability requirements needs to be updated frequently and comprehensively. These revisions should be based on the advice of medical, technology, and vocational experts about which disabilities are significant enough to prevent—permanently and commonly—participation in any job in the national labor force, with due and ample consideration of typical and reasonable use of available assistive technologies and practices. As an intermediate step, the current grid criteria concerning age should be increased by five years, roughly matching the increase in longevity over the last few decades.</p> <p class="p3">The SSDI Trust Fund will run out of money by 2016. A commonly proposed, easy solution—transferring payroll taxes from the retirement to the disability fund—misses the timely opportunity to reform the DI system. Age- and gender-adjusted rates of DI incidence and prevalence have increased substantially. Applying for and being on DI unnecessarily is bad for the individual, whose skills atrophy and who stops contributing to society once out of the labor force. It is also bad for the economy, as the wages and creativity of people on DI are lost, and it is bad for the government, which loses the worker’s income and payroll taxes and then must pay out income and health benefits. The current medical-vocational grid, which makes getting DI benefits much easier for middle-aged and older workers, reflects a view of the labor market and disabilities that is old-fashioned and out of date, being based on the industrial economy of the 1950s and 1960s. During that time, physical labor was predominant, and, at least according to the apparent worldview of the grid’s authors, there were classes of workers rigidly divided in opportunity and flexibility by their ages, education levels, and language skills. Moreover, in the 1960s and 1970s, everyone, but especially disabled workers, had considerably shorter life expectancies than they do today. Now disability benefits, increasingly given because of mental illnesses and musculoskeletal ailments, are lasting much longer, thus raising system costs. Moreover, with the gradual application of the 1983 Social Security reforms lowering retirement benefits only to cohorts of nondisabled workers through the rise in the normal retirement age, older workers’ incentive to get on the disability rolls has increased.</p><p class="p3"><a href="http://mercatus.org/sites/default/files/Warshawsky-SSDI-Eligibility-Criteria.pdf">Continue reading</a></p> http://mercatus.org/publication/modernizing-ssdi-eligibility-criteria-eliminates-medical-vocational-grid Mon, 27 Apr 2015 21:22:06 -0400 Costs of Merging Social Security Retirement and Disability Funds http://mercatus.org/expert_commentary/costs-merging-social-security-retirement-and-disability-funds-SSDI <h5> Expert Commentary </h5> <p class="p1">The urgent financing crisis facing <a href="http://www.economics21.org/commentary/social-security-disability-insurance-2015-1-14">Social Security Disability Insurance</a> (DI) is giving rise to suggestions that the DI Trust Fund be merged with Social Security’s larger Old-Age and Survivors Insurance (OASI) Trust Fund. These two components of Social Security have been kept separate thus far since their inceptions. Of the two, DI currently faces the much more immediate (2016) threat of depletion. Combining the two funds would allow disability benefits to be paid from payroll taxes currently earmarked for Social Security retirement benefits. The following factors should be borne in mind if any such policy change is considered.</p> <p class="p1"><b>#1: Historical Rationale for Separate Trust Funds.</b> Social Security’s retirement and disability benefit systems were enacted at different times with separate financing arrangements. Social Security’s old-age benefits were enacted in <a href="http://www.ssa.gov/history/35act.html">1935</a> during the Franklin D. Roosevelt presidency; for roughly the first two decades thereafter Social Security had but one trust fund. Disability insurance was established in <a href="http://www.ssa.gov/history/35act.html">1956</a> during the Eisenhower presidency.&nbsp;</p> <p class="p1">When Social Security was first established, lawmakers assured the public that its retirement pensions would be self-financing, funded by workers’ “<a href="http://www.ssa.gov/history/fdrstmts.html">contributions, not taxes</a>,” and that benefits would not become a drain on the federal budget. When disability insurance was added later, similar promises were made that it would also be self-sustaining, and not siphon funds from Social Security’s retirement program or from the general budget.&nbsp;</p> <p class="p1">The addition of disability benefits to Social Security was intensely controversial. After many years of lobbying by advocates, the House of Representatives included disability benefits in a Social Security bill passed in 1955. The <a href="http://www.ssa.gov/history/pdf/Downey%20PDFs/Social%20Security%20Amendments%20of%201956%20Vol%201.pdf">Senate Finance Committee</a> later stripped the disability provisions from the House legislation, its committee report stating that “paying cash disability benefits to insured workers under the old-age and survivors insurance program would not be desirable.” The committee’s report couched its rationale in terms of protecting Social Security’s primary retirement benefit function, saying that “the old-age and survivors insurance system is on a sound financial basis; your committee strongly believes that it must be kept so and should not be altered by adding a benefit feature that could involve substantially higher costs than can be estimated.”&nbsp;</p> <p class="p1">Supporters of disability insurance responded to these concerns by introducing an amendment (George et al) during Senate floor consideration to finance these benefits through a separate trust fund. As Senator Walter George (D-GA) stated during floor debate:</p> <p class="p2"><i>The moneys for disabled persons will not be commingled in any way with the funds for old-age insurance or for widows and spouses. The contribution income and the disbursements for disability payments will be kept completely distinct and separate. In this way the cost of disability benefits always will be definitely known and the costs always will be shown separately... a separate tax is to be levied to build up a fund which can be easily policed, which can never encroach upon the fund for widows, and for those who reach age 65, and for children and other beneficiaries.</i></p> <p class="p1">These assurances just barely overcame longstanding concerns about potential negative effects of DI on Social Security’s retirement program; the George amendment <a href="http://www.ssa.gov/history/pdf/Downey%20PDFs/Social%20Security%20Amendments%20of%201956%20Vol%201.pdf">passed</a> 47-45.&nbsp;</p> <p class="p1"><a href="http://www.ssa.gov/history/ikestmts.html">President Eisenhower</a>, who had long entertained misgivings about adding a disability component, cited the separate trust fund arrangement in his signing statement as one of the features making the new law acceptable. “A separate trust fund was established for the disability program in an effort to minimize the effects of the special problems in this field on the other parts of the program--retirement and survivors' protection.” The 1957 <a href="http://www.socialsecurity.gov/OACT/TR/historical/1957TR.pdf">trustees’ report</a> (and subsequent reports) similarly echoed that benefits for the disabled would be provided “with a financing arrangement that is separate from the old-age and survivors insurance system.”&nbsp;</p> <p class="p1">From time to time some have opined that the OASI and DI funds could be safely combined. For example, the <a href="http://www.ssa.gov/policy/docs/ssb/v43n2/v43n2p3.pdf">1979 Social Security Advisory Council</a> recommended “the merger of the Old-Age and Survivors’ Insurance Trust Fund and the Disability Insurance Trust Fund into a single fund.” Lawmakers, however, rejected this recommendation on a bipartisan basis when passing the landmark <a href="https://www.govtrack.us/congress/bills/98/hr1900/text">program amendments of 1983</a>. In short, today’s disability insurance system was enacted on the promise that it would be self-financing through a separate trust fund, and would not be permitted to draw from worker and employer contributions made for funding retirement benefits.</p> <p class="p1"><b>#2: The Self-Financing Principle.</b> Merging the OASI and DI trust funds would implicitly require only that Social Security as a whole be self-financing, abandoning the requirement that each of its components be sustainable on its own. Once the principle of self-financing is abandoned for individual components of Social Security it becomes less clear where the line of fiscal responsibility will remain drawn. For example, Medicare’s two components of Hospital Insurance (HI) and Supplementary Medical Insurance (SMI) arguably have more in common with each other than do OASI and DI, in that they serve essentially a single aged population. Yet <a href="http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/downloads/tr2014.pdf">Medicare HI</a> is currently held to a much tighter fiscal standard than its partner SMI, the latter having an open tap on the general federal budget. If self-financing is abandoned for DI, it would become an obvious temptation to also do so for Medicare HI and to mix other functions of the <a href="http://www.ssa.gov/OP_Home/ssact/ssact-toc.htm">Social Security Act</a> as well.&nbsp;</p> <p class="p1">For many decades there was an unshakable bipartisan consensus supporting Social Security self-financing, based on a shared belief that the program’s unique political strength rested on perceptions that it paid its own way. I have <a href="http://mercatus.org/sites/default/files/TheEndofSocialSecuritySelfFinancing_Blahous_v1-1_0.pdf">written</a> about how <a href="http://www.economics21.org/commentary/end-social-security-self-financing-what-next">this commitment has eroded</a> in recent years, threatening the program’s future. Self-financing requires that lawmakers make the tough decisions necessary to balance program income and expenditures. A merger of the trust funds would signify that lawmakers were no longer willing to uphold this ethic for Social Security DI.</p> <p class="p1"><b>#3: The Perception of Earned Benefits.</b> The politics of such a merger would likely be complex and daunting. To date there has been a general acceptance of workers all paying into Social Security disability insurance even though only those who experience a disabling condition withdraw benefits from it. The public thereby grants that individual workers may receive back from disability insurance far more or far less than they put in, requiring only that the program as a whole be self-sustaining.&nbsp;</p> <p class="p1">This contrasts with Social Security’s retirement system, from which participants generally expect to withdraw benefits that in some way reflect the value of their own contributions. The public has long taken a dim view of using Social Security’s OASI fund for any purpose other than paying retirement and survivor benefits. It is not clear whether there would be general acceptance of diverting funds heretofore earmarked for retirees/survivors to finance disability benefits, and thereby reducing benefits payable in retirement.</p> <p class="p1"><b>#4: The Risk of Delaying Necessary Financial Repairs.</b> The DI fund’s currently impending depletion requires that lawmakers enact corrections before the end of 2016. A combined OASDI fund would by contrast not run out until 2033. &emsp;</p> <p class="p1">If a fund merger induces lawmakers to further postpone needed financial repairs, the result would be a disaster for Social Security, potentially a fatal one. <a href="http://www.socialsecurity.gov/OACT/TR/2014/tr2014.pdf">Program trustees</a> (of which I am one) have repeatedly explained that significant further delays are sharply against the interest of program participants, and that strategies for maintaining solvency “would not be feasible if delayed until trust fund reserve depletion in 2033.”</p> <p class="p1">By itself this does not suggest that the two funds could never be merged. The primary danger would come from merging the funds at a time when Social Security still faces a large financing shortfall. This could be avoided by considering a fund merger either after, or in the context of, legislation to close Social Security’s financing gap. The <a href="http://socialsecurity.gov/policy/docs/ssb/v46n7/v46n7p3.pdf">1983 amendments</a> set a precedent in this regard, including various changes to trust fund management along with reforms to achieve solvency.&nbsp;</p> <p class="p1"><b>#5: Transparency versus Opacity.</b> Social Security politics are divisive and difficult in part because the program promises much more in benefits than participant contributions have earned, while there is little transparency as to how income is being redistributed. This effectively causes program costs and tax burdens to rise steadily over time, as individuals demand the full payment of benefits they feel they have earned, even if those benefits are largely subsidized by younger taxpayers, who must experience rising tax burdens and net income losses to finance them.&nbsp;</p> <p class="p1">In my book <a href="http://www.amazon.com/Social-Security-Unfinished-HOOVER-PUBLICATION-ebook/dp/B004HKIE2A/ref=sr_1_1?ie=UTF8&amp;qid=1429970711&amp;sr=8-1&amp;keywords=social+security+the+unfinished+work"><i>Social Security: The Unfinished Work</i></a> I argue that greater transparency would better equip Americans to make informed judgments about how expensive they want the system to become, and what benefit levels would be most equitable. Specifically, I <a href="https://books.google.com/books?id=V7Q-zZjbrfIC&amp;pg=PA112&amp;lpg=PA112&amp;dq=blahous+social+security+roughly+one-third&amp;source=bl&amp;ots=lhbdVEK3BO&amp;sig=7zMsMc3KVPnRmWWyK2sVlxs7530&amp;hl=en&amp;sa=X&amp;ei=GqA7VYGBIIKpNtiSgHA&amp;ved=0CEQQ6AEwBQ#v=onepage&amp;q=redistribution&amp;f=false">explain</a> that only about one-third of each worker’s contribution is earning a benefit for that worker, roughly one-third is redistributed from richer to poorer to provide a safety net, while the remaining one-third is being redistributed from younger generations to older ones, never to be returned under current law.&nbsp;</p> <p class="p1">Mixing the retirement and disability funds would add another layer of opacity to the system, in that it would no longer be explicit even what portion of each individual’s taxes were being used to finance retirement benefits, and what portion for disability benefits.</p> <p class="p1">Merging the OASI and DI trust funds would be a significant departure from lawmakers’ previous promises that the establishment of disability benefits within Social Security would not reduce the funds available for paying retirement benefits. It could also have the adverse effects of further delaying necessary financial repairs, worsening operational opacity and weakening commitment to the self-financing principle. The best time to consider such a merger would be in the context of legislation closing the financing gaps of DI and OASI alike.&nbsp;</p> http://mercatus.org/expert_commentary/costs-merging-social-security-retirement-and-disability-funds-SSDI Mon, 27 Apr 2015 11:40:05 -0400 Certificate-of-Need Laws: Implications for New Hampshire http://mercatus.org/publication/certificate-need-laws-implications-new-hampshire-testimony <h5> Publication </h5> <p class="p1"><i>See updated research: <a href="http://mercatus.org/publication/certificate-need-laws-implications-new-hampshire">Certificate-of-Need Laws: Implications for New Hampshire</a></i></p><p class="p1">January 28, 2015&nbsp;</p> <p class="p1">Representative Frank Kotowski<br /> Health, Human Services &amp; Elderly Affairs Committee New Hampshire House of Representatives&nbsp;</p> <p class="p1">Dear Chairman Kotowski:&nbsp;</p> <p class="p1">Thank you for the opportunity to provide some comments regarding New Hampshire’s certificate-of-need (CON) program. The Project for the Study of American Capitalism at the Mercatus Center at George Mason University is dedicated to advancing knowledge about the effects of government-granted privilege on society. As part of its mission, the program conducts careful and independent analyses that employ economic and legal scholarship to assess legislation, regulation, and taxation from the perspective of the public interest. Therefore, this commentary does not represent the views of any particular affected party but is designed to assist your Committee as it explores these issues.&nbsp;</p> <p class="p1">Attached, please find a research brief by George Mason University economist and Mercatus Center Scholar Thomas Stratmann and me about the effects of CON regulations on the provision of health care services in the state of New Hampshire. Our findings show that continued application of New Hampshire’s CON program, and its restrictions on the provision of health care services within the state, limits the choices available for those seeking quality care. In particular, using the general findings from recent research by Thomas Stratmann and Jacob Russ,1 we estimate that continued application of the state’s CON program has reduced the provision of health care services in the following ways:&nbsp;</p> <ul class="ul1"> <li class="li2">1,300 fewer hospital beds, </li> <li class="li2">7 fewer hospitals offering MRI services, and </li> <li class="li2">9 fewer hospitals offering CT scans.&nbsp;</li></ul><p><span style="font-size: 12px;">Moreover, while New Hampshire’s CON program may have been initially intended to control costs and increase care for the poor, recent research has demonstrated that these goals have never been achieved through CON regulations. There is little evidence to support the claim that certificates of need are an effective cost-control measure, and Stratmann and Russ have found that these programs have no effect on the level of charity care provided to the poor. While controlling health care costs and increasing care for the poor may laudable public policy goals, the evidence is strong that CON regulations are not an effective tool for doing so. Instead, these programs simply decrease the supply and availability of health care services by limiting entry and competition.</span></p><p class="p1">Thank you for giving me the opportunity to provide comments regarding the history and effects of New Hampshire’s certificate-of-need regulations. As we note in the attached paper, this is an opportunity for policymakers in New Hampshire to reverse the course and open the health care market for greater entry, more competition, and ultimately greater choice for those seeking care.&nbsp;</p> <p class="p1">Sincerely,&nbsp;</p> <p class="p1">Christopher Koopman<br /> Research Fellow, Project for the Study of American Capitalism Mercatus Center at George Mason University&nbsp;</p><p class="p1"><a href="http://mercatus.org/sites/default/files/Koopman-Certificate-of-NeedNH-testimony.pdf">Continue reading&nbsp;</a></p> http://mercatus.org/publication/certificate-need-laws-implications-new-hampshire-testimony Mon, 27 Apr 2015 11:30:16 -0400 Suggestions for the New CBO Director http://mercatus.org/expert_commentary/suggestions-new-cbo-director <h5> Expert Commentary </h5> <p class="p1">On February 27 the appointment of Keith Hall as the new director of the Congressional Budget Office was announced. Although we overlapped only briefly as scholars at the Mercatus Center, I know Hall as a serious research economist, a good administrator, and a cool, fair, and open-minded analyst. His prospects for success in this new and challenging role are excellent. I extend to him my congratulations and best wishes. In this regard, I am sharing here evidence on the need for improvements in CBO scoring and analysis; constructive suggestions for ways to achieve more accuracy and transparency; and how government resources can be more effectively used and extended for the CBO’s work.&nbsp;</p> <p class="p1"><b>A. Three Instances of CBO Errors&nbsp;</b></p> <p class="p1">The CBO produces a large volume of regular and one-time studies, reports, and cost estimates (scores), on a wide range of topics, in response to continual congressional legislative demands and interests, often on tight deadlines and in difficult political situations. That its output is nonetheless readable and perceived as balanced is therefore a great accomplishment.&nbsp;</p> <p class="p1">However, that does not say that the work of the CBO is always correct or even necessarily well done. Of course, it would be easy to show that the CBO’s annual macroeconomic forecasts are wrong — all such forecasts will be wrong soon after their publication because the global economy is so complex, and unexpected conditions and situations always arise. It is a cheap shot to criticize the CBO on that basis alone. But still it is plausible and fair to claim that particular CBO scores or analyses are in error at the time of publication because they ignored relevant and available data or information; their authors did not think deeply or creatively about the context or effects of the proposed legislation; or they hued too literally to the mainstream viewpoint despite evidence pointing to contrary outcomes. Moreover, because the CBO is central to the legislative process, its work, especially the scoring of legislative proposals in critical areas, is very important — and therefore, so are the consequences of errors. It is essential to get everything right.&nbsp;</p> <p class="p1">I myself have found three recent instances of CBO errors, not because I was looking for them, but because I was researching the relevant topics — income inequality, long-term care insurance, and employer-provided health insurance — and came across the relevant CBO analysis or score, either contemporaneously or not long after it was published. Although not completely random picks, my negative reviews are a somewhat worrisome indicator of the overall quality of CBO work. To learn whether my inference of more widespread inadequacies is correct, or in any case that an overdue external audit of the CBO is needed, I recommend that a more complete statistical sample of recent CBO scores and analyses should be examined methodically, comprehensively, and thoroughly by a committee of external experts that includes economists and accountants. This committee would include both academics and practitioners who use a wide range of methodological approaches and have different viewpoints. The installation of a new CBO director is an excellent time to embark on this comprehensive review.&nbsp;</p><p class="p1"><a href="http://mercatus.org/sites/default/files/Suggestions-for-the-New-CBO-Director.pdf">Continue reading</a></p> http://mercatus.org/expert_commentary/suggestions-new-cbo-director Mon, 27 Apr 2015 10:16:03 -0400 Operation and Certification of Small Unmanned Aircraft Systems http://mercatus.org/publication/operation-and-certification-small-unmanned-aircraft-systems <h5> Publication </h5> <p class="p1">The Federal Aviation Administration (FAA) is proposing the adoption of specific rules to integrate unmanned aircraft systems (UASs) into the National Airspace System. The proposed rules would, among other things, prohibit small unmanned aircraft from conducting external load operations (i.e., deliveries); prohibit the operation of small unmanned aircraft over people not involved in the operation; prohibit the use of see-and-avoid responsibilities through technological means, such as onboard cameras; and prohibit operation outside of the hours of official sunrise and sunset.</p> <p class="p1">In a <a href="http://mercatus.org/sites/default/files/Dourado-UAS-PIC.pdf">public interest comment</a> published by the Mercatus Center at George Mason University, technology policy scholars Eli Dourado, Ryan Hagemann, and Adam Thierer explain why the FAA’s proposed rules fail to consider all of the benefits of UASs and are an exercise in overly precautionary thinking. Rather than worry about hypothetical harms with relatively low risk, government policy should encourage what is known as “permissionless innovation.” While other countries around the world are already benefiting from unmanned aircraft technology, the FAA’s proposed rules will not allow such innovation to flourish in this country, to the detriment of consumers and the American economy.</p> <p class="p1"><b>Key Findings&nbsp;</b></p> <p class="p1">The FAA does not adequately consider all of the benefits of small UAS technology in accordance with Executive Order 12866:</p> <ul class="ul1"> <li class="li1">The FAA states that the flight characteristics of aircraft carrying external loads pose additional risks. However, the FAA supplies no discussion of the benefits of allowing small unmanned aircraft to conduct external-load operations.</li> <li class="li1">The FAA has not considered the benefits of allowing UASs to operate beyond line-of-sight, only the risks. Technologies are being developed and deployed that address the FAA’s concerns.</li> <li class="li1">The FAA does not consider the benefits of allowing fully or partially autonomous UASs to operate on the basis of a single operator for multiple aircraft. Allowing such a practice would drastically lower the cost of operating a large fleet of unmanned aircraft.</li> <li class="li1">The FAA does not consider the benefits of allowing UAS operations over persons not involved in the operation. Many creative and valuable uses of UASs will likely develop in urban areas, where greater density enables higher benefits from drone-based transportation of goods.</li></ul> <p class="p1">Additionally, the FAA fails to provide clear guidance on UAS activities that have an academic, noncommercial, or humanitarian nature.</p> <p class="p1"><b>Recommendations</b></p> <p class="p1">The FAA’s proposal not to require UAS operators to obtain a commercial pilot certificate and its determination that small UASs should not be subject to airworthiness certification are both sound policy choices. But there are further improvements that must be made to make the FAA’s proposal workable:</p> <ul class="ul1"> <li class="li1"><i>Conduct proper benefit-cost analysis</i>. The FAA should consider the benefits of external load operations, operation beyond line-of-sight, multiple craft operation, operation over noninvolved persons, and nighttime operation. The benefits of these options exceed the costs that the FAA mentions.</li> <li class="li1"><i>Pursue legal remedies in lieu of prohibitions. </i>The FAA should consider how longstanding legal remedies in tort law, such as strict liability, negligence, design defects law, failure to warn, and breach of warranty can address concerns that the FAA is seeking to alleviate through prohibitions.</li> <li class="li1"><i>Adopt rules more quickly</i>. The FAA has a statutory obligation to permanently integrate civil UASs into the airspace by September 30, 2015, pursuant to § 332. The FAA is likely not moving fast enough to meet this obligation.</li> </ul> <ul class="ul1"> <li class="li1"><i>Consider the effect of rules on the economy</i>. The FAA must carefully consider the potential effect of UAS restrictions on the US economy. If it does not, innovation and technological advancement in the commercial UAS space will find a home elsewhere.</li> </ul> http://mercatus.org/publication/operation-and-certification-small-unmanned-aircraft-systems Mon, 27 Apr 2015 10:03:22 -0400 Regulation In the Form of Big Bank Coercion http://mercatus.org/expert_commentary/regulation-form-big-bank-coercion <h5> Expert Commentary </h5> <p class="p1">One of Dodd-Frank's aspirations was increased competition to dilute the power of large financial institutions. The status quo, however, plays right into impatient regulators' hands. It's easy to force changes in the global financial industry by nudging-gently or otherwise-large banks to fall in line with regulators' wishes. Bank regulators are not shy about exercising this kind of control. As convenient as such regulatory strong-arming might seem to be, it sidesteps the regulatory processes designed to ensure accountability, public input, and transparency.</p> <p class="p1">The most recent example-<a href="http://www.wsj.com/articles/regulators-call-for-short-term-loan-changes-to-handle-too-big-to-fail-1429051454"><b>reported</b></a> last week by the <i>Wall Street Journal</i>-is an effort to force contractual changes in securities lending and repurchase (repo) agreements. These short-term borrowing arrangements among financial institutions can aggravate liquidity demands during periods of financial stress. As the Journal's Katy Burne reports, if regulators get their way, "firms trading with a troubled financial institution would agree to temporary waivers of certain contractual rights they currently enjoy, such as the ability to terminate their contracts early, buying regulators and the firm time to arrange a lifeline."</p> <p class="p1">The Financial Stability Board (FSB), a fraternity of financial regulators from different countries, is behind the latest effort. The FSB concocts global regulatory prescriptions for the financial industry. Although the FSB lacks the authority to directly regulate private companies, its members dutifully apply FSB prescriptions in their home countries. The FSB uses a peer review system to ensure follow through. The <a href="http://www.financialstabilityboard.org/about/"><b>FSB explains</b></a> that it "operates by moral suasion and peer pressure, in order to set internationally agreed policies and minimum standards that its members commit to implementing at national level."</p> <p class="p1">U.S. regulators typically adopt regulations that include the FSB standards. The rulemaking process, however, requires regulators-before adopting rules-to solicit and consider public input and to think methodically about whether and how rules will work.</p> <p class="p1">The FSB and its member regulators apparently find these administrative processes tiresome. So they have embraced "voluntary" agreement approach pursuant to which industry members embed FSB prescriptions in their private contracts. No need to bother with rules if all the big banks fall into line without a drop of rulemaking ink being spilt.</p> <p class="p1">The relatively small number of key players in important global financial markets make such non-rulemaking rulemaking possible. Trade groups that represent these banks make the task even easier. Banks and their trade groups have little choice but to work to implement regulators' demands and to smile all the while.</p> <p class="p1">The FSB used such an approach last fall when it arranged for the International Swaps and Derivatives Association to change its standard contract to prevent parties to derivatives contracts from terminating their contracts with a financial institution that regulators are trying to resolve. Mark Carney-Governor of the Bank of England and head of the FSB-<a href="http://www.financialstabilityboard.org/wp-content/uploads/FSB-Chair%E2%80%99s-Letter-to-G20-Leaders-on-Financial-Reforms-Completing-the-Job-and-Looking-Ahead.pdf"><b>explained</b></a> that the 18 bank signatories covered 90 percent of the derivatives market. Convening 18 banks in a trade association backroom and telling them what to do is a lot easier than inviting everyone, including nonbanks, to hash out rules in a public rulemaking process.</p> <p class="p1">There is nothing wrong with regulators and firms thinking creatively, cooperatively, and globally about how to increase financial stability. The changes effected in the contractual agreements may help to keep markets functioning during future financial crises.</p> <p class="p1">But FSB-orchestrated strong-arming of big industry players to modify private contracts is no substitute for legislation or, when appropriate, orderly rulemaking conducted in the public eye. All interested parties deserve an opportunity to raise concerns about major regulatory initiatives, as does Congress-to which financial regulators are supposed to be accountable.</p> http://mercatus.org/expert_commentary/regulation-form-big-bank-coercion Thu, 23 Apr 2015 13:35:01 -0400 Bootleggers and Baptists in the Garden of Good and Evil: Understanding America's Entangled Economy http://mercatus.org/events/bootleggers-and-baptists-garden-good-and-evil-understanding-americas-entangled-economy <h5> Events </h5> <p>The U.S. economy is no longer performing at historic levels of growth.&nbsp;Today, there is a new, slow growth economy entangled with regulation.</p> <p>The Mercatus Center at George Mason University invites you to join Dr. Bruce Yandle, distinguished Mercatus Center adjunct professor of economics at George Mason University, for a Capitol Hill Campus presentation examining the regulation-entangled U.S. economy.</p> <p>Dr. Yandle will</p> <ul><li>Discuss the economy in terms of the <a href="http://www.cato.org/sites/cato.org/files/serials/files/regulation/1983/5/v7n3-3.pdf">Bootlegger/Baptist political model</a>, noting how regulation can be a tool to suppress competition and protect profits; </li><li>Present the adverse effects of command-and-control regulation on small firms and employment growth; and</li><li>Explore the role of the legislative process in alleviating the burden of entangling regulations. </li></ul> <p class="p1">Space is limited. Please register online for this event.&nbsp;</p> <p class="p1">This event is free and open to all congressional and federal agency staff. This event is not open to the general public. Lunch will be provided. Due to space constraints, this event is not open to interns. <i>Questions? Please contact Caitlyn Van Orden, event coordinator, at </i><a href="mailto:cvanorden@mercatus.gmu.edu"><i>cvanorden@mercatus.gmu.edu</i></a><i> or (703) 993-4925.</i></p> http://mercatus.org/events/bootleggers-and-baptists-garden-good-and-evil-understanding-americas-entangled-economy Fri, 24 Apr 2015 10:37:08 -0400 Think Licensing Laws Are Unfair? It Gets Worse http://mercatus.org/expert_commentary/think-licensing-laws-are-unfair-it-gets-worse <h5> Expert Commentary </h5> <p class="p1">The historian James Truslow Adams first coined the phrase "the American Dream" in 1931, to describe Americans' long-standing "belief in the common man and the insistence upon his having, as far as possible, equal opportunity in every way with the rich one." Central to that dream is the chance to start a business for oneself, be one's own boss, and maybe even make a fortune.</p> <p class="p1">Sadly, eight decades later, licensing laws often block people from earning a living or starting new businesses, simply to protect politically powerful companies from competition. Licensing requirements are supposed to ensure that professionals, such as doctors or pharmacists, are qualified and honest — but these laws often do nothing more than create cartels, block the path to economic opportunity, and raise prices for consumers.</p> <p class="p1">Most egregious are laws that require a type of license called a Certificate of Need (CON). Unlike ordinary licenses, CON laws do not require a person to be qualified. Instead, they prohibit anyone from starting a business if the community doesn't "need" it — which means, in reality, if the existing companies don't want competition. That may sound crazy, but it's the law in most states, and it applies to a wide variety of industries — everything from moving companies to taxi businesses to hospitals and even car dealerships.</p> <p class="p1">Any entrepreneur who applies for a CON must first notify all the established firms and allow them to object to his application. The objections need not show that the newcomer is unqualified or dishonest — simply that he would increase competition. And whenever an objection is filed, the applicant must hire a lawyer and attend a hearing, to prove to bureaucrats that a new business is "needed."</p> <p class="p1">It's doubtful that government officials — who typically don't conduct market research — can predict what sort of businesses are "needed," but it gets worse: Most CON laws leave it up to bureaucrats to define "need." The whole process can be expensive and time-consuming, since hiring a lawyer is a big cost for a business just starting out, and there's no way to ensure one will get a license.</p> <p class="p1">Economists have long warned that when government can block economic competition or redistribute wealth, that power becomes a prize in a political contest — a contest in which experienced lobbyists have the advantage over unknown entrepreneurs.</p> <p class="p1">In <a href="http://mercatus.org/publication/state-competitor-veto-laws-right-to-earn-a-living-federal-reform"><b>my new paper</b></a> published by the <a href="http://mercatus.org/"><b>Mercatus Center</b></a>, I explain how CON laws restrict economic opportunity — not to protect the public, but to benefit existing businesses that know how to manipulate the system. I focus on the case of Raleigh Bruner, who tried to start a moving business in Kentucky but didn't have the required CON. In the five years before his company started, 19 applicants for CONs had been protested by movers who openly admitted that they objected solely to block competition. Knowing a hearing would be expensive and take months to resolve, all but three of the 19 applicants simply abandoned their applications or bought CONs from existing companies. (The existing companies never objected to that.)</p> <p class="p1">The three applicants who persisted were refused CONs, regardless of their qualifications, because bureaucrats deemed current moving services "adequate." In one case, officials refused to issue a CON to a man who had been in the business for 35 years, even though the same companies that protested against him testified that he would "make a great mover."</p> <p class="p1">The Constitution's guarantee of "due process of law" <a href="http://www.cato-unbound.org/2012/02/06/timothy-sandefur/why-substantive-due-process-makes-sense"><b>prohibits</b></a> states from using licensing laws solely to benefit cronies. That guarantee, <a href="https://scholar.google.com/scholar_case?q=419+U.S.+565&amp;hl=en&amp;as_sdt=806&amp;case=602626968104745027&amp;scilh=0"><b>as the Supreme Court has explained</b></a>, "forbids arbitrary deprivations of liberty," but a law that blocks some people from practicing a trade merely to increase the profits of those with more political clout arbitrarily violates the right of those less privileged to earn a living. That's why <a href="https://scholar.google.com/scholar_case?q=schware+v.+board+of+examiners&amp;hl=en&amp;as_sdt=806&amp;case=9656421124030669324&amp;scilh=0"><b>the Court declared in 1957</b></a> that licensing laws "must have a rational connection with the applicant's fitness or capacity to practice" the trade. My colleagues at the <a href="http://www.pacificlegal.org/"><b>Pacific Legal Foundation</b></a> and I sued on Bruner's behalf, arguing that Kentucky's CON law deprived him of his constitutional right to earn a living. Last February, a federal judge <a href="https://scholar.google.com/scholar_case?q=bruner+v.+zawacki&amp;hl=en&amp;as_sdt=806&amp;case=17969311784130373979&amp;scilh=0"><b>struck down the law</b></a>, labeling it a "Competitor's Veto" that allowed established firms to "essentially 'veto' competitors ... for any reason at all, completely unrelated to safety or societal costs."</p> <p class="p1">That victory was only the first step. As part of our nationwide campaign against Competitor's Veto laws, my colleagues and I are now challenging CON requirements in <a href="http://www.pacificlegal.org/releases/1-29-15-Pabst-15-309"><b>Montana</b></a>, <a href="http://www.pacificlegal.org/cases/Moving-roadblocks-to-competition-and-free-enterprise-in-Nevada"><b>Nevada</b></a>, and other states, and previous cases persuaded <a href="https://www.youtube.com/watch?v=rzJDEJJJNHM"><b>Oregon</b></a> and <a href="http://www.pacificlegal.org/page.aspx?pid=4154"><b>Missouri</b></a> to repeal similar restrictions. Such laws make no pretense at protecting the public; they exist to protect businesses who don't want to compete economically and want to outlaw entrepreneurship instead.</p> <p class="p1">Yet entrepreneurship is central to the American Dream, and to the Constitution's guarantee of liberty. Abolishing unjust and unconstitutional Competitor's Veto laws would be an important step toward vindicating our nation's promise of equal opportunity for the common man.</p> http://mercatus.org/expert_commentary/think-licensing-laws-are-unfair-it-gets-worse Tue, 21 Apr 2015 10:18:32 -0400 Federal Subsidies to the States Remain High http://mercatus.org/publication/federal-subsidies-states-remain-high <h5> Publication </h5> <p class="p1">State governors and legislators often complain about the federal government’s heavy-handed presence in state and local affairs. Republican state policymakers have been particularly vocal in arguing that Washington should mind its own business and leave each state to its own devices.</p> <p class="p1">While state policymakers don’t appreciate federal policymakers telling them what to do, they are highly dependent on federal tax dollars. As the first chart below shows, 30 percent of the total amount spent by state governments in fiscal year 2014 came from federal sources. That figure is down from the federal “stimulus” high of 35 percent in fiscal 2010, but remains above levels seen in the previous decade.</p> <p class="p2"><a href="http://mercatus.org/sites/default/files/C1-State-Spending-Federal-Shares_0.png"><img height="398" width="585" src="http://mercatus.org/sites/default/files/C1-State-Spending-Federal-Shares_0.png" /></a></p> <p class="p1">The federal government was originally given responsibility for a small, defined list of responsibilities that were national in scope (e.g., providing for the national defense) in the Constitution. The Tenth Amendment made it clear that everything else was supposed to be “reserved to the States respectively, or to the people.” But as the second chart illustrates, the notion that the federal government and the states would have divided spheres of responsibility (i.e., “federalism”) was eviscerated in the 20th century.</p> <p class="p2"><a href="http://mercatus.org/sites/default/files/C2-Fed-Sub-to-State-and-Local.png"> <img src="http://mercatus.org/sites/default/files/C2-Fed-Sub-to-State-and-Local.png" width="585" height="393" /></a></p> <p class="p1">Separated into health and non-health subsidies, the chart shows the dramatic growth in federal subsidies to the states (adjusted for inflation) since 1940. Non-health subsidies have receded a bit in recent years following the conclusion of federal stimulus funding. However, health subsidies continue to reach new highs thanks in part to the expansion of Medicaid under Obamacare. As a whole, federal subsidies to the states will reach a combined $628 billion in fiscal 2015, which is more than the Department of Defense will likely spend this year.</p> <p class="p1">In spite of their complaints about federal overreach, state policymakers are addicted to handouts from Washington because it allows them to spend “free” money instead of asking their constituents to come up with funds via higher taxes. Unfortunately, federal money is not “free,” and the consequence of the federal government’s funding what are properly state and local responsibilities is excessive growth of government at all levels.</p> http://mercatus.org/publication/federal-subsidies-states-remain-high Wed, 22 Apr 2015 10:15:36 -0400 More Data Collection Won't Stop Future Financial Crises http://mercatus.org/expert_commentary/more-data-collection-wont-stop-future-financial-crises <h5> Expert Commentary </h5> <p class="p1"><a href="http://time.com/3693483/obama-restricts-intelligence-data/">National Security Agency data collection</a> has received considerable attention of late, and some have <a href="http://www.thenewamerican.com/usnews/constitution/item/15859-consumer-financial-protection-bureau-nsa-of-the-financial-world">likened</a> the Consumer Financial Protection Bureau’s data collection efforts – like collecting information on 991 million credit card accounts – to those of the NSA. While its director, Richard Cordray, has&nbsp;<a href="http://www.nationaljournal.com/technology/cfpb-director-yes-we-have-data-no-we-re-not-the-nsa-20140128">denied</a>&nbsp;the comparison, this data collection seems excessive and won’t stop future crises.</p> <p class="p1">Having people in government collect information about your credit records and income seems as valid a cause for concern as having people collect information about your telephone calls. (If that doesn’t trouble you, consider the rise in federal government <a href="http://mercatus.org/publication/federal-cybersecurity-breaches-mount-despite-increased-spending">cybersecurity breaches</a> documented by my colleagues, Andrea Castillo and Eli Dourado.)</p> <p class="p1">Maybe the staff at the&nbsp;Consumer Financial Protection Bureau&nbsp;don’t have to collect so much consumer finance data. My colleague, Thomas Stratmann, a professor of economics at George Mason University, observed that the bureau could conduct <a href="http://mercatus.org/sites/default/files/StratmannCFPBStatisticMethods.pdf">thorough analysis with much smaller samples</a>. He found that instead of collecting information on nearly one billion credit card accounts, a sample of about 1 percent of all U.S. credit card accounts would work just as well.</p><p class="p1"><a href="http://www.usnews.com/opinion/economic-intelligence/2015/04/20/more-data-collection-wont-stop-future-financial-crises">Continue reading</a></p> http://mercatus.org/expert_commentary/more-data-collection-wont-stop-future-financial-crises Mon, 20 Apr 2015 16:51:04 -0400 Credit Is a Powerful Tool for American Families http://mercatus.org/expert_commentary/credit-powerful-tool-american-families <h5> Expert Commentary </h5> <p class="p1">Americans have an ambivalent relationship with non-mortgage consumer credit: We all use it, yet we feel as if there is something&nbsp;slightly wrong about it. Should we?</p> <p class="p1">Consumer credit is often thought to be just a way to live beyond one’s means and to shift consumption – to spend today instead&nbsp;of saving for tomorrow. But the assumption that families use credit profligately is misleading. To understand how consumers&nbsp;use credit – and why it is a boon to American families and the economy – it is useful to understand how businesses use credit.</p> <p class="p1">Businesses use it for two basic reasons: to invest in capital goods and to smooth income and expenses. Capital goods generate&nbsp;a stream of benefits over time – for example, a construction company could employ workers with shovels to dig foundations&nbsp;for buildings or buy a backhoe to do the same work and finance it out of the crew’s increased productivity.</p> <p class="p1">Similarly, businesses&nbsp;can use credit to deal with short-term fluctuations in revenue and expenses – a retailer might finance its operations on credit&nbsp;during lean times and then pay it back when profits return and more inventory is needed.</p> <p class="p1">But what is often not appreciated is that households overwhelmingly use credit for the same purposes. Much of our use of consumer&nbsp;credit is for investment purposes, such as to buy a home or to use student loans to increase our human capital and earn a&nbsp;higher-paying job.</p> <p class="p1">But most of our big-ticket expenditures have this same characteristic: cars, refrigerators, televisions and other household&nbsp;durables. Consider, for example, the humble washing machine. Its value is the time and money it saves from not having to schlep&nbsp;to the laundromat every weekend with a pocket full of quarters. Refrigerators save us time-consuming trips to the grocery&nbsp;store or eating out; cars expand our job options. In short, the bulk of non-mortgage consumer credit is used to buy consumer&nbsp;durables that generate a stream of benefits over time.</p><p class="p1"><a href="http://www.washingtonpost.com/news/get-there/wp/2015/04/17/credit-is-a-powerful-tool-for-american-families/">Continue reading</a></p> http://mercatus.org/expert_commentary/credit-powerful-tool-american-families Tue, 21 Apr 2015 10:44:45 -0400 What America's Decline in Economic Freedom Means for Entrepreneurship and Prosperity http://mercatus.org/publication/what-americas-decline-economic-freedom-means-entrepreneurship-and-prosperity-0 <h5> Publication </h5> <p class="p1">The United States’ tepid recovery from the 2008 financial crisis is raising concerns about the future of the American economy. Entrepreneurship—the great driver of widespread prosperity and economic growth—is on the wane. Small business start-ups are down, large corporations’ cash hoards are up, and innovation is threatened as a result.</p> <p class="p1">Why? The most likely culprit is the decline, especially since 2008, of economic freedom in America. The United States is today only the <i>ninth</i> freest nation in the developed world, according to the <i>Economic Freedom of the World: 2014 Annual Report</i>. If the United States were a smaller and less iconic nation, this decline would be less troubling. But given America’s size and historical role in the global economy, the current outpouring of regulations, taxes, and fiscal and monetary irresponsibility from Washington throttle not only the US economy, but the world economy as well. Everyone is made poorer.</p> <p class="p1">The essays in this volume explore this timely issue. Anyone concerned about the current economic malaise will find in these pages a compelling explanation for our troubles and guideposts for reinvigorating economic freedom and entrepreneurship in America and, by extension, the rest of the world.</p><p>Find the entire book at <a href="http://www.fraserinstitute.org/research-news/display.aspx?id=22470">Fraser Institute</a>.&nbsp;</p> http://mercatus.org/publication/what-americas-decline-economic-freedom-means-entrepreneurship-and-prosperity-0 Thu, 23 Apr 2015 17:08:02 -0400 Economic Freedom in the World: Where Does America Stand? http://mercatus.org/events/economic-freedom-world-where-does-america-stand contact@mercatus.org (Mercatus.org) <h5> Events </h5> <p>The tepid, abnormally slow recovery of the U.S. economy after the 2008 recession has generated numerous debates about which government policy or market practice is a culprit or champion.&nbsp; While vigorous, such deliberations have made little progress in changing the status quo.&nbsp; Moving from debate to meaningful action requires a cogent understanding of the underlying causes of our economic malaise and using that knowledge to identify changes that can generate the robust recovery and prosperity that has been uniquely American.&nbsp; The collected essays in <i>What America’s Decline in Economic Freedom Means for Entrepreneurship and Prosperity </i>offers the first cohesive analytic resource on the causes of the dismal economic recovery and what can be done to unlock our nation’s prosperity potential.</p> <p>The Fraser Institute and the Mercatus Center at George Mason University invite you to a panel discussion where we will review the findings of these essays, authored by Liya Palagashvili, Russell Sobel, Robert Lawson, Roger Meiners, Andrew Morriss and Wayne Crews, and edited by Don Boudreaux, which identify entrepreneurship as the principal element for a prosperous economy, and the degree of economic freedom as the element that determines the quantity and quality of entrepreneurship a nation can generate.&nbsp;</p> <p>Since 2000, when the United States was one of the world leaders in economic freedom, its ranking has declined over the past decade as the growth in regulation and other government interventions weakened the rule of law that sustains economic freedom. Learn how this chain of causation works and how reform can restore the elements that propel prosperity.</p> <p>Questions? Please contact Bethany Stalter at <a href="mailto:bstalter@mercatus.gmu.edu">bstalter@mercatus.gmu.edu</a> or (703) 993-4889.<i></i></p> http://mercatus.org/events/economic-freedom-world-where-does-america-stand Thu, 16 Apr 2015 16:41:41 -0400 Occupational Licensing Gone Wild? Why Licensing Is Not Always the Answer http://mercatus.org/publication/occupational-licensing-gone-wild-why-licensing-not-always-answer <h5> Publication </h5> <p class="p1">Chairman Buck, Representative Breaux, and distinguished members of the committee: thank you for inviting me to testify on the subject of occupational licensing and certifications in the state of Indiana.&nbsp;</p> <p class="p1">I am an associate professor of economics in the department of business administration at Saint Francis University. I wrote my doctoral dissertation on the effects of occupational licensing and have also published several papers on the subject. Most of my comments below are based on a recent study I co-authored for the Mercatus Center at George Mason University titled “Bringing the Effects of Occupational Licensing into Focus: Optician Licensing in the United States” (attached). As the state discusses voluntary certification and creation of a registry I hope my comments may help provide context for policy relating to various licensed and certified occupations in the state of Indiana.&nbsp;</p> <p class="p1">Occupational licensing has significantly expanded in both breadth and scope the last several decades, resulting in higher costs of entry for many occupations and also higher prices for consumers. In this testimony, I will focus on the following points:&nbsp;</p> <ol class="ol1"> <li class="li2">Occupational licensing imposes substantial costs, while its benefits are unclear. </li> <li class="li2">A careful examination of the data shows that occupational licensing of barbers and opticians increases the earnings of the professionals without any measurable benefit to consumers. </li> <li class="li2">Occupational licensing is not always the optimal policy choice for regulation of a profession, from the standpoint of consumer protection. Certification might offer a lower cost and more effective regulatory alternative. </li> </ol> <p class="p3"><b>THE SCOPE OF OCCUPATIONAL LICENSING LAWS&nbsp;</b></p> <p class="p1">As of 2006, 29 percent of the workforce in the United States is subject to occupational licensing laws.<sup>1</sup> At least 800 occupations in the United States are subject to occupational licensing in at least one state.<sup>2</sup> The intention of these laws is to signal to consumers that individuals who are licensed meet minimum quality standards. While the intention is honorable, it is not clear that the imposed standards change the quality of service. What is clear is that occupational licensing imposes costs.&nbsp;</p> <p class="p1">Minimum quality standards set by licensing statutes can quickly become the maximum quality standards, as a decline in competition will lead to less incentive to improve and innovate.<sup>3</sup> Licensing imposes standards that are passed on to all customers, despite clear differences in how each customer values the quality of service.<sup>4</sup> It would appear that licensing may not necessarily be in the best interest of consumers for all occupations.&nbsp;</p> <p class="p3"><b>INDIANA’S LICENSING OF LOW-INCOME PROFESSIONS&nbsp;</b></p> <p class="p1">I have reviewed the Indiana Professional Licensing Agency’s report entitled “Establishing a Process for Self-Certification Registration” and largely agree with the economic testimony provided in the report. My contribution to the discussion is a focus on the economic effects of occupational licensing of low-income occupations.&nbsp;</p> <p class="p1">Occupational licensing laws often vary tremendously from state to state with no clear reason. Here I will focus on laws related to two professions: barbers and opticians. Our purpose here is not to identify occupations that would be candidates for deregulation—this is also not the purpose of the proposed Registry of Certified Professions. Instead, our purpose here is to identify the costs of occupational licensing as an institution and make the case that it might not always represent the ideal method of establishing <i>new regulation </i>for a profession from the standpoint of consumers.&nbsp;</p> <p class="p1"><i>Barbers. </i>Aspiring barbers in Colorado, Massachusetts, Missouri, New York, Vermont, and Washington can become licensed with 1,000 hours of training. In Iowa and Nebraska, more than double the number of hours (2,100) is required. Research suggests that tougher barber licensing provisions are associated with higher barber pay (an 11–22 percent premium).<sup>5</sup> For several years, Alabama was the lone state to not license barbers.<sup>6</sup> A recent law, effective in September 2013, reinstituted barber licensing. Curiously, the number of training hours required to be a barber (1,000) is one-third the number of hours required to be a cosmetologist (3,000). The sole difference between cosmetology and barbering as defined by Alabama statutes is that cosmetologists are allowed to perform manicures and pedicures and barbers are not. This strange discrepancy is a microcosm of the arbitrary nature of occupational licensing laws.&nbsp;</p> <p class="p1"><i>Opticians</i>. Unlike barbers, opticians are not licensed in all states. Opticians are able to dispense eyeglasses and contact lenses, but they do not have the authority to diagnose and treat eye diseases or perform eye examinations as ophthalmologists can. For reasons that we can only speculate, there has been little momentum to expand regulation of the profession. Opticians are licensed in 21 states, and as with the other two professions, the requirements to obtain a license vary extensively across states. Opticians in California can obtain licensure without completing any educational requirements, but in bordering Nevada, opticians must complete 1,128 days of education.&nbsp;</p> <p class="p1">In a recent study published by the Mercatus Center at George Mason University, my co-author and I estimated the effect that licensing has had on the earnings of opticians and the quality of service delivered to consumers.<sup>7</sup> We found that in states with licensing statutes, opticians earn from 0.3 to 0.5 percent more per year the statute is in place. We also found that opticians earn approximately 3 percent more per each additional licensing exam and for every additional 100 hours of education required.&nbsp;</p> <p class="p1">Quality of a service is a difficult metric to study, but using vision insurance premiums and optician malpractice insurance rates as a proxy we found there to be little evidence of an increase in quality. If licensure was associated with a higher quality of care from licensed opticians, this would allow them to charge higher prices and result in higher vision insurance premiums. We found the opposite: premiums were $14.16 in licensed states compared to $14.34 in unlicensed states. To supplement this finding we analyzed malpractice insurance rates. If optician licensing was increasing the quality of service, we hypothesized that state malpractice insurance premiums in unlicensed states should have been higher than in licensed states to compensate insurers for additional risk. We found that malpractice rates were exactly the same across both licensed and unlicensed states (except for the Commonwealth of Virginia, which was $25 higher and the only exception).&nbsp;</p> <p class="p1">Our inability to observe differences in the quality of optician services provided to consumers between licensed and unlicensed states also manifests itself in the Texas certification program. Texas does not require opticians to be licensed, but rather gives opticians the option of obtaining certification from the Texas Opticians Registry. After examining the public records of the Texas Opticians Registry, we discovered that only 2.8 percent of opticians in Texas are certified. This low participation rate implies that consumers do not see a difference in quality between the certified and the uncertified opticians: most opticians in Texas choose to not obtain certification and the vision services market appears to function normally.&nbsp;</p> <p class="p3"><b>CONCLUSION&nbsp;</b></p> <p class="p1">In our examination of occupational licensing of two low-income occupations, licensing increases the earnings of professionals without providing a measurable benefit to consumers. For many occupations not currently regulated in states, occupational licensing may not serve as an ideal means of protecting consumers. For newly regulated occupations, certification may serve as a lower cost option for providing consumers the necessary protection from incompetent or unscrupulous professionals.&nbsp;</p> http://mercatus.org/publication/occupational-licensing-gone-wild-why-licensing-not-always-answer Tue, 21 Apr 2015 11:13:07 -0400 State Government Becoming Increasingly Affordable http://mercatus.org/expert_commentary/state-government-becoming-increasingly-affordable-florida <h5> Expert Commentary </h5> <p class="p1">Fiscal horror stories from populous states like Illinois, California and New Jersey are becoming all too common these days, but Florida’s finances have yet to make the front pages of the national news. In an era when state governments are growing, and many strain to merely pay for past commitments, Florida has stood out for its fiscal responsibility.</p> <p class="p1">In a comprehensive new study published by the Mercatus Center at George Mason University, I document just how remarkable this is. The Sunshine State certainly has policy areas of concern — including homeowners insurance, land use regulation, pension accounting and rising health care costs. But for two decades, we’ve had a balanced budget without raising taxes, and have in many cases cut them.</p> <p class="p1">Florida’s state government appropriations as a percentage of Gross State Product (GSP) peaked in the 1994-95 budget at 11.86 percent. In the two decades since, this number has steadily declined to 10.38 percent in 2000, 9.89 percent in 2007, and 9.26 percent in 2014.</p> <p class="p1">State government employment shows a similar trend, peaking at 1.25 percent of the state’s population in 1995, and declining to 0.95 percent by 2012, the lowest percentage in the nation. In his latest budget, Gov. Scott has proposed cutting more than 1,000 state jobs — most, but not all, of which are vacant today. This move has spurred controversy, but critics and advocates agree that Florida's state government has taken a fiscally conservative turn over the last few decades.</p> <p class="p1">While other states (and the federal government) grappled with ways to raise taxes and maintain spending growth, Florida chose to live within its means, holding the line on taxes and reducing spending to match the decline in revenues.</p> <p class="p1">Our well-deserved reputation as a small-government state leads some to argue that we lose out on government services, so not everyone is happy about this. But while we are spending less on state government, are we really getting less?</p> <p class="p1">As a Floridian with three children who graduated from Florida high schools, and two who attend our state universities, I have been satisfied with the quality of their education. I sometimes get tied up in traffic, but don’t find our congestion (or other public services) worse than big-spending states like California, New York or Illinois.</p> <p class="p1">Regardless, Florida’s government seems to be giving its citizens a good deal. Spending less for what you get is desirable. Critics can argue that we should spend more, and in specific cases, they may have an argument. But we should be grateful that our leaders have resisted the spending temptations that are so harmful in other states.</p> http://mercatus.org/expert_commentary/state-government-becoming-increasingly-affordable-florida Tue, 21 Apr 2015 12:04:03 -0400 U.S. Regulations and Taxes Stifling Entrepreneurs http://mercatus.org/expert_commentary/us-regulations-and-taxes-stifling-entrepreneurs <h5> Expert Commentary </h5> <p class="p1">The current state of entrepreneurship is receiving considerable attention as debate simmers around questions of business dynamism in the United States. According to a <a href="http://www.gallup.com/businessjournal/180431/american-entrepreneurship-dead-alive.aspx">Gallup article</a>, the U.S. has dropped to 12th among developed nations in terms of business startups. Economists also recently <a href="https://www.aeaweb.org/articles.php?doi=10.1257/jep.28.3.3">found</a> evidence for this downward trend in business activity and attribute it to diminished incentives for entrepreneurs to start new firms.</p> <p class="p1">This raises some questions: What exactly are the factors leading to the decline in business activity in the United States? And what can be done to revive the American entrepreneurial environment?</p> <p class="p1">Economists identify the costs imposed on entrepreneurs by the regulatory environment as one of the most important influences on business dynamism. Where regulations make it difficult to start and operate businesses, entrepreneurs have a difficult time bringing new ideas and innovations to fruition. Promising entrepreneurs who face burdensome regulations might opt out of doing business or decide to take their ideas to countries with more favorable business climates.</p> <p class="p1"><a href="http://www.usnews.com/opinion/economic-intelligence/2015/04/15/us-regulations-and-taxes-stifling-entrepreneurs">Continue reading</a></p> http://mercatus.org/expert_commentary/us-regulations-and-taxes-stifling-entrepreneurs Wed, 22 Apr 2015 11:22:11 -0400 The Key to Reviving the U.S. Economy: New Book Explains the Importance of Economic Freedom and Entrepreneurship for U.S. Economic Growth http://mercatus.org/expert_commentary/key-reviving-us-economy-new-book-explains-importance-economic-freedom-and <h5> Expert Commentary </h5> <p class="p1">Why did the U.S. economy recover so slowly from the 2008 recession?&nbsp; What lessons have economists learned that can encourage economic growth in the future?&nbsp;</p> <p class="p1">A new book jointly published today by the&nbsp;Fraser Institute of Canada in conjunction&nbsp;with the Mercatus Center at George Mason University offers the answers.</p> <p class="p1">“The United States was once considered the land of opportunity, where entrepreneurs such as Henry Ford, Ray Kroc and Steve Jobs improved standards of living by providing new products and services at prices people were willing and able to pay,” said Donald J. Boudreaux, senior fellow at both the Fraser Institute and the Mercatus Center, and editor of <i>What America’s Decline in Economic Freedom Means for Entrepreneurship and Prosperity.</i></p> <p class="p3"><b>*Read the </b><a href="http://www.usnews.com/opinion/economic-intelligence/2015/04/15/us-regulations-and-taxes-stifling-entrepreneurs"><b>U.S. News&nbsp;&amp;&nbsp;World Report</b></a><b> column*</b></p> <p class="p1">Comprised of five essays by U.S. economists, the book connects the dots between entrepreneurship, economic freedom, and economic growth, detailing their interrelated roles in America’s sluggish economic recovery:</p> <p class="p1"><b>Liya Palagashvili of New York University and George Mason University</b> begins by detailing how&nbsp;entrepreneurship is central for both economic growth and long-term prosperity.</p> <p class="p1"><b>Russell Sobel of The&nbsp;Citadel&nbsp;</b>builds on Palagashvili’s chapter, providing further details on the relationship between entrepreneurship, high levels of economic freedom, and growth. As Sobel explains: “More economic freedom results in higher prosperity precisely because it results in higher levels of entrepreneurial activity.”</p> <p class="p1"><b>Robert Lawson of Southern Methodist University</b> examines the current situation in the United States.&nbsp; According to the Fraser Institute’s annual <a href="http://www.freetheworld.com/"><i>Economic Freedom of the World Index </i></a>(co-written by Lawson), economic freedom in the U.S. has dramatically fallen from its global rank of second in 2000 to 14<sup>th</sup> today.</p> <p class="p1">Lawson writes: “To a large degree, the United States has experienced a significant move away from rule of law and toward a highly regulated, politicized, and heavily policed state.”</p> <p class="p1"><b>Robert Meiners of the University of Texas at Arlington and Andrew P. Morris, Dean of Texas A&amp;M University School of Law&nbsp;</b>examine the role&nbsp;of the U.S. legal system and how special interests corrupt the legal and economic framework.&nbsp; They also explain the impact of regulation and the economy.</p> <p class="p1"><b>Clyde Wayne Crews, Jr. of the Competitive Enterprise Institute </b>captures the extent to which U.S. regulation has reached prodigious levels, writing: “Such examples scale down to the Consumer Product Safety Commission’s proposed window blinds regulation to FDA’s regulation of a serving size of breath mints.”</p> <p class="p1"><b>Donald Boudreaux of the Fraser Institute and Mercatus Center at George Mason University</b> concludes by noting that although American entrepreneurship is in decline, it is possible to reverse the trend:</p> <p class="p1">“For generations, American entrepreneurs and small business owners have played a vital role in our economy. But today that role is being diminished. The results can be seen in the lagging economic recovery since 2008.</p> <p class="p1">“The warning signs are all about us but it’s not too late to reverse course. Start with a simpler, understandable tax code, fewer regulations, greater enforceability of contracts – in short, put an end to government stifling of entrepreneurs and small businesses.”</p> <p class="p1">The Fraser Institute is an independent Canadian public policy research and educational organization.&nbsp;The Mercatus Center at George Mason University is the world’s leading university source for market-oriented ideas–&nbsp;bridging the gap between academic ideas and real-world&nbsp;problems.</p> http://mercatus.org/expert_commentary/key-reviving-us-economy-new-book-explains-importance-economic-freedom-and Thu, 23 Apr 2015 16:51:29 -0400 Evaluating the Ex-Im Bank Based on the Facts http://mercatus.org/events/evaluating-ex-im-bank-based-facts <h5> Events </h5> <p>As the deadline for reauthorization of the Export-Import Bank of the United States draws near, Congress is faced with a choice of whether to keep the Bank or allow its charter to expire. Policymakers are carefully reconsidering the assumptions, mission, and activities of the federal government’s official export credit corporation in order to make an informed, fact-based decision.<o:p></o:p></p> <p>The Mercatus Center at George Mason University invites you to join Dr. Veronique de Rugy, senior research fellow for the Mercatus Center, for an examination of the justifications supporting continued authorization of the Bank and the economic realities of those claims.<o:p></o:p></p> <p>Space is limited. Please register online for this event.<o:p></o:p></p> <p>This event is free and open to all congressional and federal agency staff. This event is not open to the general public. Lunch will be provided. Due to space constraints, please no interns.&nbsp;<i>Questions? Please contact Caitlyn Van Orden </i>at<i> </i><a href="mailto:cvanorden@mercatus.gmu.edu"><i>cvanorden@mercatus.gmu.edu</i></a>.<o:p></o:p></p> http://mercatus.org/events/evaluating-ex-im-bank-based-facts Wed, 22 Apr 2015 10:52:47 -0400 Illustrating Retirement Income for Defined Contribution Plan Participants: A Critical Analysis of the Department of Labor Proposal http://mercatus.org/publication/illustrating-retirement-income-defined-contribution-plan-participants-critical-analysis <h5> Publication </h5> <p class="p1">Devising the best retirement income strategies is a challenge facing all Americans with individual retirement accounts. The Department of Labor recently proposed that personal retirement accounts include an illustration of the retirement income producible from the assets in the account through an immediate life annuity. This is a step toward helping people who are making decisions about saving for retirement and managing their assets during retirement, but the proposal can and should be improved.&nbsp;</p> <p class="p1">A new study for the Mercatus Center at George Mason University is the first to rigorously assess the details of the proposed regulation using empirical methodology widely accepted in the financial industry and comparing the proposed illustration to the Social Security statement. The regulation would require all defined contribution plans to inform their participants of the life annuity income equivalents of the current and projected balances in their individual accounts. The study examines several changes the Department of Labor can make to improve its proposal.&nbsp;</p> <p class="p2">To read the study in its entirety and learn more about its author, economist Mark J. Warshawsky, please see “<a href="http://mercatus.org/sites/default/files/Warshawsky-Retirement-Income.pdf">Illustrating Retirement Income for Defined Contribution Plan Participants: A Critical Analysis of the Department of Labor Proposal</a>.”&nbsp;</p> <p class="p1">SUMMARY&nbsp;</p> <p class="p1">When workers retire, they will have to manage their financial accounts in a responsible manner. Even for those with experience and understanding of personal financial management, it can be a daunting task to ensure that the money saved will be spent wisely and will still be around many years into the future. One way to assist workers who are planning their investment and spending choices is to provide an income illustration based on the funds in their account and projected to be in their account at the time of retirement.&nbsp;</p> <p class="p1">The Social Security Administration already provides such personalized information about the projected annual Social Security retirement benefits that workers can expect to receive if they retire at various claiming ages. This statement, automatically mailed to all covered workers every five years (and now available online), is designed to be used as part of the broader retirement income planning process.&nbsp;</p> <p class="p1">The Department of Labor’s proposed regulation would require defined contribution retirement plans to provide a similar statement, showing workers the income they could claim from their account at certain periods of time. Empirical analysis shows that the proposal could be effective if it incorporates some key improvements. There are several ways in which Department of Labor should make the statement more informative and relevant to workers as they plan their retirement and their retirement income strategies.&nbsp;</p> <p class="p1">KEY RECOMMENDATIONS&nbsp;</p> <p class="p1">The Department of Labor can improve its proposal in several ways:&nbsp;</p> <ul class="ul1"> <li class="li3"><i></i><i>Make the illustrations inflation-indexed. </i>The proposal should reflect an inflation-indexed life annuity rather than a nominal fixed annuity. </li> <li class="li3"><i></i><i>Base the illustrations on annual income. </i>The illustration should be based on annual rather than monthly income, consistent with the way salaries and many financial reports are structured. </li> <li class="li3"><i></i><i>Show a survivor annuity. </i>The proposal should show individual and joint-and-67%-to-survivor life annuity rates at the normal retirement age to all workers, rather than individual and joint-and-50% contingent rates just for married workers. Many insurers offer joint-and-67%- to-survivor life annuities, while joint-and-50% contingent options are not typically offered. </li> <li class="li3"><i></i><i>Use gender-distinct illustrations. </i>The illustrations should be provided on a gender-distinct rather than a gender-neutral basis (unless a gender-neutral annuity is offered within the plan). Few annuities are currently offered on a gender-neutral basis. </li> <li class="li3"><i></i><i>Provide data for several retirement ages. </i>The illustration should show older workers projections for several retirement ages, like the Social Security statement does. </li> <li class="li3"><i></i><i>Provide the illustrations annually. </i>The illustrations need not be provided more frequently than annually, which is the same frequency that the Social Security Administration pro- vides such personalized information to its participants. </li> <li class="li3"><i></i><i>Use the 10-year Treasury rate. </i>The assumed 7 percent investment return for projecting account balances forward is too high; illustrations should use the 10-year Treasury con- stant maturity rate instead. </li> <li class="li3"><i></i><i>Include IRAs. </i>The proposal should include individual retirement accounts. </li> </ul> <p class="p1">CONCLUSION&nbsp;</p> <p class="p1">The Department of Labor is on the right path when it proposes to require the illustration of the expected lifetime income that a 401(k) account can produce when its owner retires. However, its proposal can be improved to produce a more useful illustration for retirement planning and the selection of a retirement income strategy.&nbsp;</p> http://mercatus.org/publication/illustrating-retirement-income-defined-contribution-plan-participants-critical-analysis Thu, 16 Apr 2015 10:32:41 -0400