Mercatus Site Feed en A Disruptive Innovation Like Uber Is Not 'Spontaneous Deregulation' <h5> Expert Commentary </h5> <p class="p1"><span class="s1">A recent article in the Harvard Business Review reviewed the vulnerabilities and response options for incumbents in traditional industries — such as taxi operators — when challenged by a platform-based system, such as Uber or Airbnb. Central to the article by Benjamin Edelman, professor at Harvard Business School, and Damien Geradin, of Tilburg University and George Mason University School of Law (where I also teach), is their term, "spontaneous private deregulation." It's a catchy phrase, and it partly conveys the importance of regulation as an explanation of the rise of disruptive innovators.</span></p> <p class="p3"><span class="s1">The term may work well to describe the perception of incumbents. Yet from a broader perspective that considers not only incumbents but also new businesses, entrepreneurs and consumers, a more appropriate term is "regulatory bricolage," because disruptive innovation often occurs where old regulations are in need of serious repairs.</span></p> <p class="p1"><span class="s1">As a description of how companies in the platform economy innovate, spontaneous deregulation is a misnomer. Innovation is almost never spontaneous. Instead, innovation typically arises as an entrepreneur's solution to a problem — hence the old saw, "Necessity is the mother of invention." It's true that platforms are often most noticeable in those industries where antiquated regulatory schemes have held back innovation, often for decades. But platforms' primary innovation is not dependent on regulation or "spontaneous deregulation." A platform facilitates transactions, and to be successful, it must reduce the cost of buying and selling a good or service. Smartphones have facilitated the entry of platforms into many areas of life, but market-making platforms predated both the internet and telephony itself: Stock markets, auction houses and poker tables are all platforms.</span></p> <p class="p1"><span class="s1">The innovation of platforms does not depend upon "spontaneous deregulation." One of the primary innovations delivered by platforms is the facilitation of transactions. In a broad sense, web-based platforms act like market makers: They connect sellers with buyers. In the cases of Uber or Airbnb, the buyers are customers who want to rent idle capital or hire the services of others on a short-term contract, and the sellers are those who own that idle capital. A platform company that facilitates transactions between buyers and sellers, such as Uber, can only be successful if there are sufficient buyers and sellers using the company's service, regardless of the preexisting regulatory environment. There's no doubt that the market-making function of companies that are successful in this space produces value to the economy by reducing search and transaction costs.</span></p> <p class="p1"><span class="s1">A second innovation delivered by modern platforms is the rating system. Rating systems like the ubiquitous five-star systems offer information on individuals' quality of service for the consideration of consumers, incentives for complete effort and an outlet for reporting problems and issues. If you give your Uber driver a poor rating, the effect is nearly instantaneous: Uber responds and asks for details about what happened. Do you have faith that lodging a complaint about a taxi driver would elicit similar responsiveness?</span></p> <p class="p1"><span class="s1">But perhaps the greatest innovation delivered by platforms involves forcing improvements to regulatory systems in certain cities and states. Terms like "spontaneous deregulation" may convey the incumbent's viewpoint, just as the better-known term, "regulatory arbitrage," can describe part of the innovative new platform's business strategy. Those perspectives don't capture the big picture.</span></p> <p class="p1"><span class="s1">Disruptive platforms can crystalize society's focus on policies that were holding back innovation, and produce <a href=""><span class="s2">entrepreneurial solutions</span></a> to problems that aging regulatory schemes either created or failed to solve. As we've seen from Austin to Paris, incumbents often protest that a platform system creates an unfair situation by permitting competitors to "flout regulations." However, if those regulations only served the incumbents' interest, rather than the public interest, then the disruptive innovator is actually performing "regulatory bricolage" in the public interest — effectively repairing the broken pieces of regulatory code that have held back the industry.</span></p> <p class="p1"><span class="s1">For example, many regulations, like occupational licensing requirements or taxi medallion systems, directly deter business formation by making it more difficult to legally establish new enterprises. While the rationale behind these regulations is typically to guarantee a minimum quality of service, <a href=""><span class="s2">empirical studies</span></a> of these regulations rarely find such an effect. On the other hand, occupational licensure certainly raises the cost of entry. To the would-be entrepreneur who wants to open a hair salon, the legal requirements of hundreds of hours of training, a minimum number of years of education, and the successful completion of a written and theory exam may be simply insurmountable. Similarly, acquiring a taxi medallion in New York City before the advent of Uber and Lyft would have cost you <a href=""><span class="s2">over $1 million</span></a>, just for the right to legally transport others in your car. Less entry means less competition, which affects not only quality but also innovation and prices.</span></p> <p class="p1"><span class="s1">This logic does not only apply to hair salons or dentists. Every car owner, for example, is a potential competitor with taxi companies. But prior to Uber, Lyft and other transportation platforms, the car owner who tried to use that resource to operate a legal livery service often discovered that many other resources — especially, time — would be required to jump through prohibitively costly hoops before she could legally do so.</span></p> <p class="p1"><span class="s1">While the normal forces of supply and demand always apply, regulations and other public policies can affect the choice to leave useful buildings and equipment idle — another reason why the term "spontaneous" is a bit misleading. While the inventors of platforms like Uber and Airbnb deserve enormous credit for lowering the cost of entry and improving competition in the passenger transportation and short-term rental industries, to some degree those companies' success depended upon regulatory barriers to entry in the first place.</span></p> <p class="p1"><span class="s1">In fact, the common theme across all those industries where a market-making platform has been extremely successful is that regulations protecting incumbents helped create the opportunity for disruption in the first place. Instead of being characterized in a negative light, platforms that identify regulatory failures, and deliver innovative solutions, should be praised for performing the "regulatory bricolage" that regulators should have done long ago.</span></p> Fri, 01 Jul 2016 16:03:31 -0400 Medicaid Fails the Poor <h5> Expert Commentary </h5> <p class="p1"><span class="s1">This year’s biggest state budget fight involved funding for Alabama Medicaid. The legislature overrode Governor <a href=""><span class="s2">Robert Bentley</span></a>’s veto to pass a General Fund budget with almost $100 million less in funding than the governor requested. Budget fights over Medicaid should come as no surprise, as it is the largest item in Alabama’s General Fund budget, even though we decided against the<span class="s2"><a href=""> Affordable Care Act</a>&nbsp;</span>expansion and have very strict eligibility conditions for poor adults.</span></p> <p class="p2"><span class="s1">I recently completed a study for the <a href=""><span class="s3">Mercatus Center </span></a>at George Mason University on the sources of growth of Medicaid over the past&nbsp;50 years. Perhaps the most revealing thing I learned while conducting this study is how dramatically our enormously costly Medicaid system fails America’s poor.</span></p> <p class="p2"><span class="s1">Medicaid and Medicare were established in 1965 as part of Lyndon Johnson’s Great Society to provide health insurance for the poor, disabled, and elderly. Both programs I think were the inevitable product of earlier policy decisions tying health insurance to employment. Employer-paid benefits were not treated as taxable income for employees, strongly encouraging employers to offer health insurance to employees and their families. But this also left persons without jobs without insurance, creating the need for government insurance for the retired, disabled, and poor.</span></p> <p class="p2"><span class="s1">Although Medicaid is commonly described as insurance for low-income children and adults, almost two thirds of total spending is for the disabled and elderly. States accomplish this in part by underfunding care for low-income recipients. Medicaid features the lowest reimbursement rates for doctors and hospitals for covered treatments of any insurer, including Medicare. In addition, billing Medicaid is lengthy and time-consuming for healthcare providers. Not surprisingly, doctors try to avoid Medicaid patients; one third of doctors would not accept new Medicaid patients in 2011-12. Medicaid patients often face long waits when able to schedule appointments.</span></p> <p class="p2"><span class="s1">The problem is widely recognized. Oregon Senator Ron Wyden once called Medicaid a “caste system” limiting the access of poor Americans to the health care they desire. Health economist Robert Graboyes notes that, “For low-income Americans, Medicaid yields poor coverage, poor care, and poor medical outcomes.”</span></p> <p class="p2"><span class="s1">How bad are these outcomes? A <a href=""><span class="s3">University of Virginia</span></a> study found that Medicaid patients had higher in-hospital mortality, longer hospital stays, and higher costs, controlling for age and other risk factors, than patients with private insurance, Medicare, and even the uninsured. Other studies from leading universities find similar results.</span></p> <p class="p2"><span class="s1">Medicaid recipients also use emergency rooms more frequently because of the difficulty they experience scheduling appointments. Affordable Care Act proponents hoped that expanded insurance coverage would reduce healthcare costs by getting patients to see doctors before their health worsened and they went to emergency rooms. Medicaid’s inadequate reimbursement rates thwart this hope.</span></p> <p class="p2"><span class="s1">Why does Medicaid deliver so little for low-income Americans? One factor is what I’ve previously called in this column the “spend but don’t tax” attitude among politicians. “Tax and spend” politicians want to spend lots of our money on things that they, their constituents, and special interest groups want. Politicians win votes and campaign contributions for the next election by spending our money. Tax and spenders are willing to raise taxes to fund this.</span></p> <p class="p2"><span class="s1">Spend but don’t tax politicians want to spend and keep taxes low to score points with fiscal conservatives. These politicians want to have their cake and not pay for it. Medicaid exemplifies the consequences. Politicians take credit for providing health insurance for the poor; we constantly hear that Alabama Medicaid serves one million Alabamians. Most voters are too busy with their lives to take the time to learn how Medicaid fails to deliver its promise. Big government on the cheap is often an election-winning formula for politicians, but costly for America.</span></p> <p class="p2"><span class="s1">How the federal government disperses money to states also contributes to the problems of Medicaid, as my study for the Mercatus Center found. Consequently reform could both contain Medicaid’s cost and improve the quality of healthcare for low income Alabamians. I’ll say more about potential reform next time.</span></p> Fri, 01 Jul 2016 15:42:14 -0400 Catfish, the Other Cronyism Meat? <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Cronyism is the ugly marriage between special interest groups and politicians, which results in an abuse of the government's power to grant special privileges to a few winners — for example, unfairly preventing competition or doling out subsidies and bailouts at the expense of taxpayers. Though cronyism is always outrageous, the way cronies go about achieving their goals is sometimes oddly funny. Case in point: the government's changing the definition of catfish to classify the fish as — wait for it — meat, not seafood.</span></p> <p class="p1"><span class="s1">As Patrick Mustain reports in Scientific American, Sen. Thad Cochran, R-Miss., included an amendment in the 2008 farm bill designating catfish as a "species amenable to" the Federal Meat Inspection Act, which "requires appointment of inspectors to examine and inspect all meat food products prepared for commerce." The 2014 farm bill made this silly amendment official.</span></p> <p class="p1"><span class="s1">As a result, from now on, catfish and a few other species of fish will be inspected by the U.S. Department of Agriculture's Food Safety and Inspection Service rather than by the Food and Drug Administration's seafood inspection program. All other seafood will continue to be inspected by the FDA.</span></p> <p class="p1"><span class="s1">Does it really matter who inspects what fish? Yes, because the cost to develop the new program will be $14 million and the ongoing annual cost during the transition phase will be $2.5 million. The USDA's inspections are also much more burdensome and frequent than the FDA's.</span></p> <p class="p1"><span class="s1">Is that extra scrutiny necessary because catfish carry a high risk of causing food poisoning? Nope. Advocates for the rules will point to recent USDA "discoveries" of chemical residue in catfish, but that finding doesn't hold water. In May 2012, the Government Accountability Office noted that the USDA catfish program "would cause duplication and inefficient use of resources" because "as many as three agencies — FDA, FSIS, and (the National Marine Fisheries Service) — could inspect facilities that process both catfish and other types of seafood." That's insane because in 2013, the GAO also found that catfish are a low-risk food and that safety wouldn't be enhanced by switching inspections from the FDA to the USDA.</span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><span class="s1">A look at who is behind this rule tells you all you need to know about how misguided it is. During the public comment sessions, the domestic catfish farming industry was very vocal about the need for more regulations and oversight of their business. This seems odd because it's not often that one hears of an industry clamoring for more regulations — that is, of course, unless it has a financial interest in doing so.</span></p> <p class="p1"><span class="s1">For years, domestic catfish producers were getting hammered by competition coming from China and Vietnam. Those same catfish farmers understood that unlike the FDA inspection program, the USDA inspection program has a separate "equivalency" test for imports, which adds a layer of regulations only on imports and could take countries years to implement. In the meantime, they'd be completely barred from the U.S. market. Domestic catfish farmers love that. Also, 94 percent of U.S. farm-raised catfish is raised in Alabama, Arkansas, Louisiana and Mississippi, hence the interest of Sen. Cochran to push this misguided regulation on catfish.</span></p> <p class="p1"><span class="s1">Unfortunately, there are many losers in this scenario. First, the reduced competition faced by catfish farmers guarantees that the price for the fish (or should I say meat?) will go up. Second, catfish processors are on the losing side of the USDA inspection rule because most of them process other seafood — and now they'll have to comply with the USDA rules and the FDA rules. Third, taxpayers will have to foot an expensive bill for a duplicative rule that will achieve little except artificially boosting the profits of a few domestic catfish farmers. Finally, non-catfish industries will suffer as a result of the trade retaliation against this catfish protectionism.</span></p> <p class="p1"><span class="s1">There is, however, some light at the end of the tunnel. As Heritage Action for America's Dan Holler recently told me, "the choice between consumers and well-connected parochial special interests should not be difficult for Republican leaders. With a presidential signature likely and a clear majority of House Republicans in support of overturning the ... rule, now is the time to act." But will they?</span></p> Fri, 01 Jul 2016 15:34:07 -0400 Mercatus Scholars on Independence Day, Freedom, Red Tape, and Immigration <h5> Expert Commentary </h5> <p class="p1"><span class="s1">This Fourth of July, Mercatus Center scholars <a href="">Daniel Griswold</a> and <a href="">Richard Williams</a> each have op-eds in Tribune Content Agency papers nationwide, looking at the issues of immigration and bureaucratic red tape through the lens of Independence Day.</span></p><p class="p1" style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-weight: normal; font-style: normal; font-size: 12px;">Daniel Griswold wrote:</span></p><blockquote style="font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><p class="p1" style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;"><span class="s1" style="font-size: 12px;">When America's Founding Fathers declared their independence more than two centuries ago, they not only claimed freedom for themselves and their fellow countrymen but they also claimed it for those who had yet to arrive at our shores --the waves of future immigrants and their descendants.</span></p><p class="p1" style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;"><span class="s1" style="font-size: 12px;">The founders understood that an openness to immigration was essential to the fledgling nation's success. Included in the "long train of abuses" they declared against the king of Great Britain on July 4, 1776, was that "He has endeavoured to prevent the Population of these States; for that Purpose obstructing the Laws for Naturalization of Foreigners; (and) refusing to pass others to encourage their Migration hither."</span></p><p class="p1" style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;"><span class="s1" style="font-size: 12px;">Since that first Fourth of July, America has become home to millions of immigrants who share our blessings of liberty -- more than 80 million immigrants since official records began in 1820. These immigrants came and continue to come and enjoy the same inalienable rights to life, liberty and the pursuit of happiness that our founders declared to be the rightful inheritance of all mankind.</span></p><p class="p1" style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;"><span class="s1" style="font-size: 12px;"><a href="" style="font-size: 12px;">Continue reading</a></span></p><div></div></blockquote><p>Richard Williams wrote:</p><blockquote><p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;" class="p1"><span class="s1" style="font-size: 12px;">The Fourth of July is marked by Americans all across the country celebrating our nation’s independence with firework displays and backyard barbecues. And yet, in the 240 years since we declared our independence from Great Britain, we have slowly built up a government bureaucracy that limits the very freedom we celebrate each year.</span></p><p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;" class="p1"><span class="s1" style="font-size: 12px;">As Thomas Jefferson once wrote, reminding Americans to be just as wary of our own government as we were of the British crown, from which we gave up so much to be separate:</span></p><p style="font-size: 12px;" class="p1"><span class="s1" style="font-size: 12px;">“When all government, domestic and foreign, in little as in great things, shall be drawn to Washington as the center of all power, it will render powerless the checks provided of one government on another and will become as venal and oppressive as the government from which we separated.”</span></p><p style="font-size: 12px;" class="p1"><span style="font-weight: normal; font-style: normal;"><a href="">Continue reading</a></span></p></blockquote> Fri, 01 Jul 2016 14:38:29 -0400 On July Fourth, Immigrants Remind Us All of the Value of Freedom <h5> Expert Commentary </h5> <p class="p1"><span class="s1">When America's Founding Fathers declared their independence more than two centuries ago, they not only claimed freedom for themselves and their fellow countrymen but they also claimed it for those who had yet to arrive at our shores --the waves of future immigrants and their descendants.</span></p> <p class="p1"><span class="s1">The founders understood that an openness to immigration was essential to the fledgling nation's success. Included in the "long train of abuses" they declared against the king of Great Britain on July 4, 1776, was that "He has endeavoured to prevent the Population of these States; for that Purpose obstructing the Laws for Naturalization of Foreigners; (and) refusing to pass others to encourage their Migration hither."</span></p> <p class="p1"><span class="s1">Since that first Fourth of July, America has become home to millions of immigrants who share our blessings of liberty -- more than 80 million immigrants since official records began in 1820. These immigrants came and continue to come and enjoy the same inalienable rights to life, liberty and the pursuit of happiness that our founders declared to be the rightful inheritance of all mankind.</span></p> <p class="p1"><span class="s1">Immigration continues to stir controversy, as it has in decades past. But Americans should pause on this Fourth of July to consider the contributions that immigrants and their children have made to the core values we celebrate on Independence Day.</span></p> <p class="p1"><span class="s1">Most immigrants come from countries where citizens do not enjoy the freedoms that we take for granted. Many of them have suffered under governments that stifle economic initiative and other basic liberties. For those immigrants and their families, America represents a life-changing opportunity to live in a country where they can realize their full potential and serve others in a market economy.</span></p> <p class="p1"><span class="s1">Almost every American has witnessed first-hand the work ethic of immigrants -- whether they are engineers and nurses or landscape gardeners and cab drivers. Many of our most successful technology startup companies were founded by immigrants. One recent study found that two-thirds of the students who won high-profile competitions in science, technology, engineering and math were the children of immigrants.</span></p> <p class="p1"><span class="s1">Immigrants have also contributed to the defense of liberty by supporting and serving in the U.S. military. In the American Civil War, 18 percent of the Union Army was comprised of immigrants -- most from Germany and Ireland. Of the select group of soldiers who have won the Congressional Medal of Honor since 1861, 20 percent, or more than 700, were born outside the United States.</span></p> <p class="p1"><span class="s1">Today, America's active duty military includes 65,000 immigrants -- with Mexico and the Philippines as the top countries of origin. Foreign-born men and women in uniform bring with them critical language skills and cultural knowledge in service to our nation. About 12 percent of all U.S. veterans are immigrants or the children of immigrants.</span></p> <p class="p1"><span class="s1">As America has proven since its birth, freedom is both a precious commodity and an unlimited resource: It's precious in that most people around the world still do not enjoy the full political, civil and economic freedom they deserve as human beings. It's unlimited in that one person's newfound freedom as an immigrant to the United States does not by necessity diminish the freedom of those of us who already live here.</span></p> <p class="p1"><span class="s1">In practice, immigrants enhance our freedom as they have done throughout American history. Immigrants remind us daily of the freedom and opportunity that America offers. They bring with them new ideas, skills and an entrepreneurial spirit. They join with us in paying the taxes and enlisting in the Armed Forces to defend our liberties from those who would take them away.</span></p> <p class="p1"><span class="s1">May all Americans, current and aspiring, enjoy a happy Fourth of July!</span></p> Fri, 01 Jul 2016 13:24:43 -0400 Time to Celebrate Red, White, Blue — Not Red Tape <h5> Expert Commentary </h5> <p class="p1"><span class="s1">The Fourth of July is marked by Americans all across the country celebrating our nation’s independence with firework displays and backyard barbecues. And yet, in the 240 years since we declared our independence from Great Britain, we have slowly built up a government bureaucracy that limits the very freedom we celebrate each year.</span></p> <p class="p1"><span class="s1">As Thomas Jefferson once wrote, reminding Americans to be just as wary of our own government as we were of the British crown, from which we gave up so much to be separate:</span></p> <blockquote><p class="p1"><span class="s1">“When all government, domestic and foreign, in little as in great things, shall be drawn to Washington as the center of all power, it will render powerless the checks provided of one government on another and will become as venal and oppressive as the government from which we separated.”</span></p></blockquote> <p class="p1"><span class="s1">The absence of self-governance was precisely what ignited a revolution in the American colonies. It wasn’t the taxation of tea that caused Colonial outrage; it was the fact that the favored British company, the East India Company, got a tax break.</span></p> <p class="p1"><span class="s1">Americans feel disconnected from the decisions made within the confines of the Washington, D.C., beltway. Most people (three out of four) express this fragmentation by responding negatively to the question of whether the government is on “the right track.” Jefferson, while not anticipating the specific rise of hundreds of bureaucracies populated by hundreds of thousands of administrative officials, got it right when he presaged the powerlessness of trying to check such a huge nonelected bureaucratic entity.</span></p> <p class="p1"><span class="s1">It’s important to note that these agencies were originally created with an important purpose — solving problems. But as we’ve gotten away from evidence-based rulemaking, these bureaucracies have exploded, making it impossible for Americans to keep up. Agencies pass 3,000 to 4,000 new rules every year, far more than any one person could comprehend.</span></p> <p class="p1"><span class="s1">The agencies have become so robust that they operate almost entirely outside the control of the president and Congress. And the last major agency we got rid of was way back in 1978, the Civil Aeronautics Board, while President Jimmy Carter was in office. The last time Congress passed serious legislation to allow the public to gain more control over the bureaucracies was 70 years ago. It’s called the Administrative Procedure Act. It was supposed to make agencies seek comment from the public and then listen to their concerns about proposed regulations.</span></p> <p class="p1"><span class="s1">There is a long history of agencies passing regulations that help some businesses at the expense of consumers, workers and competitors. Sometimes it’s the larger firms employing regulatory attorneys that can interact with the bureaucracy and get them to pass regulations that hurt smaller competitors. Other times it’s the consumer and environmental advocates who rotate in and out of the bureaucracies and have excess influence in convincing the agencies to pass regulations that they’re passionate about. But those regulations too often either don’t help to solve problems or have unintended consequences that they simply don’t care about.</span></p> <p class="p1"><span class="s1">The courts can help oversee agencies, though they’re burdened by a past decision that says when ordinary people challenge how an agency has interpreted a law written by Congress, the courts must “defer to the agencies.”</span></p> <p class="p1"><span class="s1">The checks and balances set forth in our Constitution have long been neutralized by bureaucracies, and they now threaten the fundamental liberties that we fought so hard to obtain. They don’t produce any real products (like tea) that we can toss overboard in protest, and we don’t have a popular vote to get rid of them. What we do have is an elected legislature which — after 70 years of relenting to bureaucratic buildup — needs to take back its powers to check these agencies, restore our liberties and rid us of the red tape.</span></p> Fri, 01 Jul 2016 13:20:36 -0400 Early Days of Internet Offer Lessons for Boosting 3D Printing <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Even in its relative infancy, <a href=""><span class="s2">3D printing</span></a> has created an enormous list of possibilities: <a href=""><span class="s2">dental aligners</span></a> to straighten your teeth, <a href=""><span class="s2">unique toys</span></a> for your children, inexpensive <a href=""><span class="s2">custom prosthetics</span></a> for people with limb deficiencies, and restoring lost or destroyed <a href=""><span class="s2">cultural artifacts</span></a>. It can also be used to create <a href=""><span class="s2">untraceable firearms</span></a> and an endless supply of <a href=""><span class="s2">copyright infringements</span></a>.</span></p> <p class="p2"><span class="s1">Just as when the internet developed, 3D printing is opening doors to amazing opportunities and benefits – as well as some undeniable dangers. Also called “additive manufacturing,” 3D printing’s enabling of truly decentralized, democratized innovation will challenge traditional legal, economic and social norms. Potentially faulty products and <a href=""><span class="s2">counterfeit goods</span></a> are again among the leading concerns. Some people are already <a href=""><span class="s2">calling for preemptive regulation</span></a> of 3D printing on those grounds.</span></p> <p class="p2"><span class="s1">But we must be patient and cautious, rather than rash and worried, when creating laws and rules governing this new method of innovation. As scholars who have studied technology policy issues, my collaborator Adam Marcus and I <a href=""><span class="s2">propose allowing wide experimentation without regulations or restraint</span></a>, a concept we call “<a href=""><span class="s2">permissionless innovation</span></a>.” As problems develop, they can be dealt with as reality, not hypotheticals.</span></p> <p class="p2"><span class="s1">We have a roadmap for this approach to technology innovation because it’s the same one the Clinton administration adopted two decades ago for the internet. Its 1997 <a href=""><span class="s2">Framework for Global Electronic Commerce</span></a> said the U.S. government intended that “the private sector should lead [and] the Internet should develop as a market-driven arena not a regulated industry.” The goal was to “encourage industry self-regulation” and “minimal government involvement or intervention” so as to “avoid undue restrictions on electronic commerce,” the administration argued.</span></p> <p class="p3"><span class="s1"><b>Huge benefits</b></span></p> <p class="p2"><span class="s1">In the case of the internet, the results of this openness speak for themselves. Once policymakers gave digital innovators an unambiguous green light to experiment with new technologies and business models, U.S.-based information technology firms quickly became household names across the world. <a href=""><span class="s2">As Vint Cerf</span></a>, one of the fathers of the internet, wrote:</span></p> <blockquote><p class="p4"><span class="s1">“The Net prospered precisely because governments – for the most part – allowed the Internet to grow organically, with civil society, academia, private sector and voluntary standards bodies collaborating on development, operation and governance.”</span></p></blockquote> <p class="p2"><span class="s1">Booz &amp; Company’s <a href=""><span class="s2">annual survey</span></a> of the world’s most innovative companies reveals that eight of the top 10 are based in the United States. Most of them are involved in computing, software, or other internet-based technologies. But the more important success story involves the countless small digital <a href=""><span class="s2">innovators that are always popping up</span></a> to provide exciting new gadgets and services.</span></p> <p class="p2"><span class="s1">Additive manufacturing can benefit from that same sort of vision – if today’s lawmakers are willing to once again embrace permissionless innovation.</span></p> <p class="p3"><span class="s1"><b>Properly assigning legal responsibility</b></span></p> <p class="p2"><span class="s1">One concrete way policymakers can achieve that goal is to take another page from the early days of the internet. In the Telecommunications Act of 1996, lawmakers created <a href=";#39;"><span class="s2">legal protections for websites that hosted content</span></a> created by others. This was like telling the owner of a public bulletin board that she couldn’t be sued if someone posted something bad on it. This move <a href=""><span class="s2">helped encourage</span></a> more vibrant online speech and commerce.</span></p> <p class="p2"><span class="s1">A <a href=""><span class="s2">similar liability shield</span></a> may be needed for 3D printing intermediaries, to ensure that the threat of excessive litigation doesn’t chill innovation. Device makers and website operators that host <a href=""><span class="s2">blueprints for 3D-printed objects</span></a> shouldn’t be held responsible for what others do with those designs.</span></p> <p class="p2"><span class="s1">Neither should the manufacturers of 3D printers be held liable if an average citizen uses them to create weapons or medical devices that cause harm to others. People who use 3D printers to cause harm should be responsible for any damage, not the creators of the general-purpose technologies.</span></p> <p class="p2"><span class="s1">A variant of that liability protection may also be needed against intellectual property-related claims. Luckily, we can again build upon existing internet law, which frees sites like YouTube and Flickr, which depend on user-contributed content, from copyright infringement liability, as long as they obey the <a href=""><span class="s2">Digital Millennium Copyright Act</span></a> of 1998.</span></p> <p class="p2"><span class="s1">Under the DMCA, so long as online intermediaries promptly block or remove allegedly infringing material from their systems when they receive notification about it, they cannot be sued for having a role in any copyright violation. It wouldn’t be surprising to see that “notice-and-takedown” process extended to 3D printing services and platforms.</span></p> <p class="p2"><span class="s1">At present the landscape is unclear, with neither regulation nor a promise to be cautious about introducing it.</span></p> <p class="p3"><span class="s1"><b>Preparing the ground for real innovation</b></span></p> <p class="p2"><span class="s1">Of course, problems will arise, but when they do, we should not leap to introduce regulation for 3D printing. First, we should apply existing laws – those governing contracts and property rights, and fighting fraud, for example. Also, the Federal Trade Commission and state attorneys general have broad consumer protection powers to police “unfair or deceptive acts or practices” that may occur.</span></p> <p class="p2"><span class="s1">Educational efforts will also be essential. For better or worse, any efforts to regulate 3D-printed creations will be extremely difficult to enforce; solutions beyond regulation will be needed. Industry, non-profits and government bodies can work together to craft sensible guidelines for appropriate uses of these technologies. Lessons for students could explain the dangers associated with building certain 3D-printed applications that might have potentially dangerous societal impacts, including weapons or counterfeit products. Industry could also develop voluntary best practices and developer guidelines.</span></p> <p class="p2"><span class="s1">In the end, there is more reason for optimism than pessimism when it comes to additive manufacturing. Like the internet before it, 3D printing is another important generative technology. It can unleash the creativity of the next generation of innovators and spawn entirely new, life-enriching products and services in the process. We should focus at least as much on protecting the possibilities of innovation as we do on safeguarding ourselves from potential harm.</span></p> Thu, 30 Jun 2016 13:53:30 -0400 Conversations with Tyler: A Conversation with Joseph Henrich ( <h5> Events </h5> <p class="p1"><b>PARTICIPANTS</b><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><a href="">Tyler Cowen </a>– Holbert L. Harris Chair of Economics, George Mason University<span style="background-color: #b0b0b0;"><br /></span><span style="font-size: 12px; background-color: white;"><a href="">Joseph Henrich</a> – Professor of Human Evolutionary Biology, Harvard University</span></p> <p class="p1">&nbsp;<b style="font-family: inherit; font-style: inherit; background-color: white;">**Select VIP Seating Available for Media**</b></p> <p class="p1">Contact Bob Ewing, director of media relations<span style="background-color: #b0b0b0;"><br /></span><span style="font-size: 12px; background-color: white;">703.993.4960 (office), 202.494.2567 (mobile),&nbsp;</span><a href="" style="font-size: 12px; background-color: white;"></a><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1">Joseph Henrich, an expert on the evolution of human cooperation and culture, will join Tyler Cowen for a wide-ranging dialogue as part of the Mercatus Center’s <i>Conversations with Tyler</i> event series.&nbsp;</p> <p class="p1">Henrich’s research has challenged the typical narrative about human evolution to show how our collective brains – our ability to socially interconnect and learn from one another – is the driving factor behind our evolutionary success. Henrich presents these compelling arguments in his latest book, <i>The Secret of Our Success: How Culture is Driving Human Evolution, Domesticating Our Species, and Making Us Smarter</i> (2015).</p> <p class="p1">Co-author of <i>Why Humans Cooperate: A Cultural and Evolutionary Explanation</i> (2007), Henrich’s research seeks to discover the role of culture in shaping our evolution; how evolutionary theory can help us understand how we learn and transmit culture; the role of war and conflict in the evolution of cooperation and sociality; what factors drive innovation and cultural evolution; and ultimately what has allowed humankind to flourish over other species.&nbsp;</p> <p class="p1">Henrich earned his MA and PhD in anthropology from University of California at Los Angeles. He currently teaches at Harvard University as a professor of human evolutionary biology. Additionally, he holds the Canada Research Chair in Culture, Cognition, and Coevolution at the University of British Columbia where he is also a professor in the psychology and economics departments and co-director of the Human Evolution, Cognition and Culture Centre.</p> <p class="p1"><i style="font-family: inherit; font-weight: inherit; background-color: white;">For questions about the event, please contact Julie Burden at&nbsp;</i><a href="" style="font-size: 12px; background-color: white;"><span class="s1"><i></i></span></a><i style="font-family: inherit; font-weight: inherit; background-color: white;">.</i></p> <p class="p6"><b>About Tyler Cowen</b></p> <p class="p7"><span style="font-size: 12px; background-color: white;">Cowen is a world-renowned professor of economics, coauthor of the popular economics blog&nbsp;</span><i style="font-family: inherit; font-weight: inherit; background-color: white;">Marginal Revolution</i><span style="font-size: 12px; background-color: white;">,&nbsp;cofounder of the award-winning online educational platform&nbsp;Marginal Revolution University, and chairman of the Board at the Mercatus Center at George Mason University.&nbsp;</span><i style="font-family: inherit; font-weight: inherit; background-color: white;">Bloomberg Businessweek&nbsp;</i><span style="font-size: 12px; background-color: white;">profiled Cowen as “America’s Hottest Economist,”&nbsp;</span><i style="font-family: inherit; font-weight: inherit; background-color: white;">Foreign Policy&nbsp;</i><span style="font-size: 12px; background-color: white;">named Cowen one of the “Top 100 Global Thinkers,” and an&nbsp;</span><i style="font-family: inherit; font-weight: inherit; background-color: white;">Economist</i><span style="font-size: 12px; background-color: white;">&nbsp;survey counted Cowen as one of the most influential economists of the last decade.&nbsp;</span></p> <p class="p6"><b>About the&nbsp;Conversations with Tyler&nbsp;Event Series</b></p> <p class="p8"><span style="font-size: 12px; background-color: white;">The Mercatus Center’s&nbsp;Conversations with Tyler&nbsp;series hosts world-class thought leaders to discuss how ideas, cutting-edge research, and applied economics can bring solutions to society’s most pressing problems.</span></p> <p class="p3">&nbsp;</p> Wed, 29 Jun 2016 15:21:01 -0400 The Brexit Comes At A Steep Price <h5> Expert Commentary </h5> <p class="p1"><span class="s1">British voters delivered a shock to global markets on Thursday with their 52-48% vote to leave the European Union. When the turmoil subsides, more sober-minded Brits may come to regret their decision to abandon their four-decade membership in the continental-sized common market.</span></p> <p class="p1"><span class="s1">For now, Great Britain remains a full member of the EU. Once it initiates its exit under Article 50 of the Lisbon Treaty, divorce proceedings could take as long as two years. Meanwhile, Britain remains the world’s fifth largest economy, a nation open to the world and a natural ally of the United States.</span></p> <p class="p1"><span class="s1">In the longer run, leaving the EU could take a toll on Britain by reducing its trade, investment and, yes, migration ties to the rest of Europe. On migration, the leave side was shameless in whipping up fears about an unchecked inflow from other EU countries. In fact, immigration has been an important component of Britain’s relative economic success.</span></p> <p class="p1"><span class="s1"><b>Post-Brexit Britain may suffer on both jobs and free trade</b></span></p> <p class="p1"><span class="s1">As a member of the EU, Britain enjoys one of the best growth rates and lowest unemployment rates in Europe. In the past three years, while the country has accepted 700,000 immigrant workers from other EU countries, its economy has created another 1 million jobs for native British workers. EU immigrants in Britain are not the poor huddled masses displayed on pro-leave billboards. They are on average better educated than native workers, with 130,000 of them working for the National Health Service as doctors, nurses and care workers. And if a non-EU Britain denies free entry to EU citizens, the status of the 1.2 million Britons working on the continent will be in jeopardy.</span></p> <p class="p1"><span class="s1">A post-Brexit Britain will also lose its duty-free access to the EU market, which buys about half its exports. It can negotiate a trade agreement with the EU, but France and Germany may prove to be difficult negotiating partners. If the UK wants to join Norway and Switzerland as members of the European Free Trade Association as a non-EU member, it will also need to accept the open movement of labor and make a financial contribution to the EU—which backers of the leave vote would find hard to swallow.</span></p> <p class="p1"><span class="s1">Without open access to the huge EU internal market, Britain will be a less attractive place for U.S. companies to invest. Major U.S. multinationals such as Chase Bank are already planning to shift thousands of jobs to France and other EU member states where the domestic business climate may not be as friendly but where they are still inside the huge EU common market.</span></p> <p class="p1"><span class="s1"><b>EU could become even more centralized and bureaucratic</b></span></p> <p class="p1"><span class="s1">The United States can do itself a favor by negotiating a separate free-trade agreement with Britain once it leaves the EU. Such a treaty should come together easily, given Britain’s pro-trade leanings and strong historic ties to the United States. In the longer run, trade will continue to flow across the Atlantic and the English Channel relatively unfettered because of the enormous mutual benefits from existing commercial ties. Just as Britain needs its EU neighbors to prosper, so too, does the EU need Britain to prosper.</span></p> <p class="p1"><span class="s1">More worrying is the institutional impact of Brexit. With Britain out, the EU could become even more centralized and bureaucratic. Externally, its trade relations with the United States will probably become more prickly without Britain’s pro-market and pro-American influence. Within the UK, an independent Scotland may become irresistible. The 62% of Scots who voted to remain in the EU will plausibly argue that they should not be dragged out against their will.</span></p> <p class="p1"><span class="s1">Despite what some commentators claim, this was not a vote against “global capitalism.” Most Britons want their nation to remain an important player in the global economy, with all the opportunity and influence it provides. It was instead a vote of frustration against an EU bureaucracy that was rightly seen as infringing on British sovereignty. The EU elites have only themselves to blame. If serious reforms do not follow, other member states may start heading for the exit as well.</span></p> Wed, 29 Jun 2016 11:25:39 -0400 Hensarling Bill Gives Credence to 'Capital Is King' <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Announcing his plan to overhaul the Dodd-Frank Act, House Financial Services Committee Chairman Jeb Hensarling signaled agreement with a growing list of policymakers and scholars who argue that the best way to prevent another financial crisis is to embrace simpler, higher capital requirements rather than other prescriptive regulations that just burden banks and limit economic growth.</span></p> <p class="p1"><span class="s1">The very first section of the&nbsp;<a href=""><span class="s2">Financial CHOICE Act</span></a>&nbsp;offers banks an "off-ramp" from existing regulatory requirements for those firms meeting a new "well-capitalized" standard. The threshold for obtaining the exemption is a 10% leverage ratio, in which a firm's capital is measured against its assets without any risk weights affecting the calculation.</span></p> <p class="p1"><span class="s1">To be clear, Hensarling is proposing a more rigorous capital standard than any in recent U.S. history. While banks today must comply with a leverage ratio, capital requirements used both by U.S. regulators and in the Basel Committee largely favor risk-based capital ratios,&nbsp;<a href=""><span class="s2">which factored in the recent crisis</span></a>. Not only does the Hensarling off-ramp cast off the risk-based method, but his proposed leverage ratio is higher than under current regulation.</span></p> <p class="p1"><span class="s1">For example, the U.S. "gold-plated" version of the Basel Committee's non-risk-based leverage ratio for large banks is just 6% (and 5% for holding companies). Hensarling's proposal favors a tougher hurdle, requiring large banks interested in the off-ramp to raise more capital or further simplify their balance sheets. Many community banks, however, would have less trouble meeting the standard if they have not already.</span></p> <p class="p1"><span class="s1">Yet from a broader perspective, the legislation shows a growing realization that stronger capital requirements alone may have been a more effective, and simpler, solution to regulatory reform than the prescriptive regulatory approach implemented by Dodd-Frank.</span></p> <p class="p1"><span class="s1">That line of thinking is echoed in a recent&nbsp;<a href=""><span class="s2">article</span></a>&nbsp;(co-authored by one of us) arguing that if Dodd-Frank had stopped at sections 606 and 607, which effectively require financial holding companies to maintain "well-capitalized" instead of "adequately capitalized" levels, that might have been a sufficient starting point for reform.</span></p> <p class="p1"><span class="s1">A Richmond Fed&nbsp;<a href=""><span class="s2">study</span></a>&nbsp;argues that prior to the establishment of the Federal Deposit Insurance Corp., state regulators often used capital requirements, which increased with the size of the local population, as a barrier to entry. As capital requirements began to fall in the late 19</span><span class="s3"><sup>th</sup></span><span class="s1">&nbsp;century, the number of banks in the U.S. ballooned from about 10,000 in 1900 to almost 31,000 in 1921. Many of the new entrants failed over the next decade, and the number of banks declined back to just over 14,000 by the time the FDIC was established.</span></p> <p class="p1"><span class="s1">Moreover, market discipline requires measuring capital at market value, whether capital consists of equity or long-term debt. Unfortunately, the current regulatory capital framework measures capital at book value, which can mask the actual solvency of a financial institution, as bank capital serves more as a balance-sheet entry than a source of funding.</span></p> <p class="p1"><span class="s1">None of this is to say that Hensarling's efforts represent a "silver bullet." If there's one consensus about the U.S. federal financial regulatory regime, it is that it was imperfect both pre- and post-Dodd-Frank. Policymakers will always face challenges trying to prevent "the next crisis" armed only with the knowledge of what "the last crisis" looked like.</span></p> <p class="p1"><span class="s1">It's entirely possible, for instance, that many large, entrenched financial institutions that have already invested significant resources into Dodd-Frank compliance will simply opt to stay within a more familiar regulatory environment.&nbsp;</span></p> <p class="p1"><span class="s1">But it's nevertheless promising that years of scholarship on bank capital appear to be reaching ready,&nbsp;<a href=""><span class="s2">bipartisan audiences</span></a>. Higher capital requirements have the potential to move the burden of financing risky banking activities from taxpayers to bank shareholders. Simpler capital requirements help balance the playing field between large firms that can game a complex system and small firms that can compete on customer service but not on regulatory expertise.</span></p> Wed, 29 Jun 2016 11:09:52 -0400 Adam Millsap Discusses Pennsylvania's Fiscal Ranking on PMA Perspective <h5> Video </h5> <iframe src="" width="640" height="360" frameborder="0" webkitallowfullscreen mozallowfullscreen allowfullscreen></iframe> <p><a href="">FY 2016-17 Budget Preview</a> from <a href="">PMA Perspective</a> on <a href="">Vimeo</a>.</p> <p class="p1"><span class="s1">This week on PMA Perspective, just days before the fiscal deadline of June 30, Adam Millsap examines Pennsylvania’s current budget negotiations and forecast where the debate is headed. PMA’s Carl Marrara hosts an interview with Adam Millsap, a research fellow with the Mercatus Center at George Mason University to review their most recent study, “Ranking the States by Fiscal Condition,” in which Pennsylvania ranks 39th. In the studio, David N. Taylor hosts a newsmaker interview with PA State Representative Seth Grove (R-196), a sitting member on the House Appropriations Committee and Chair of the House Taxpayer Caucus. The show concludes with “Final Word” commentary from PMA’s Chairman of the Board, Mr. Fred Anton.</span></p><div class="field field-type-text field-field-embed-code"> <div class="field-label">Embed Code:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> &lt;iframe src=&quot;; width=&quot;640&quot; height=&quot;360&quot; frameborder=&quot;0&quot; webkitallowfullscreen mozallowfullscreen allowfullscreen&gt;&lt;/iframe&gt; &lt;p&gt;&lt;a href=&quot;;&gt;FY 2016-17 Budget Preview&lt;/a&gt; from &lt;a href=&quot;;&gt;PMA Perspective&lt;/a&gt; on &lt;a href=&quot;;&gt;Vimeo&lt;/a&gt;.&lt;/p&gt; </div> </div> </div> Wed, 29 Jun 2016 10:53:59 -0400 Another Year Brings Similar Warning From Medicare Trustees About Program's Finances <h5> Expert Commentary </h5> <p class="p1"><span class="s1">In 2015, Medicare financed health care services for&nbsp;an estimated 55 million people at a total cost of nearly $650 billion. Last week, Medicare’s trustees—Treasury Secretary Jack Lew, Health and Human Services Secretary Sylvia Burwell, Labor Secretary Thomas Perez, and Acting Social Security Commissioner Carolyn Colvin—submitted the annual <a href=""><span class="s2">report</span></a> of the program’s finances. Although the program’s finances have slightly deteriorated, not much has changed from last year’s report.</span></p> <p class="p1"><span class="s1">The insolvency date of the Hospital Insurance (HI)/Part A trust fund was moved up two years to 2028; according to the report, “[a]s in past years, the Trustees have determined that the fund is not adequately financed over the next 10 years.” But the payroll tax financed HI trust fund is just one part of Medicare, and Medicare’s other parts continue to claim increasing amounts of general tax revenue. Once again, the trustees have sounded an alarm that policymakers should enact legislation to deal with Medicare’s “substantial financial shortfall…sooner rather than later to minimize the impact on beneficiaries, providers, and taxpayers.”</span></p> <p class="p1"><span class="s1"><b>Medicare’s Upward Trajectory</b></span></p> <p class="p1"><span class="s1">As baby boomers turn 65 en masse, the trustees project that Medicare spending as a percentage of the economy will significantly increase over the next decade. The trustees estimate Medicare’s spending path under two scenarios—current law and an illustrative alternative scenario. The trustees’ illustrative scenario projects the hypothetical results of Congress overriding Medicare cost constraints in current law that many believe could threaten provider payments and enrollee benefits.</span></p> <p class="p1"><span class="s1">In 2015, Medicare expenditures equaled 3.6% of GDP. Under current law, the trustees project Medicare spending to grow to 5.6% of GDP in 2040 and 6.0% of GDP in 2090. Under the illustrative scenario, Medicare spending is expected to grow to 6.2% of GDP in 2040 and 9.1% of GDP in 2090. The trustees warn that action is needed under any scenario, however. According to the report, “[g]rowth under any of these scenarios, if realized, would substantially increase the strain on the nation’s workers, the economy, Medicare beneficiaries, and the Federal budget.”</span></p> <p class="p1"><img src="" alt="Figure I.1--Medicare Expenditures as a Percentage of the Gross Domestic Product under Current Law and Illustrative Alternative Projections" width="575" height="460" /></p> <p class="p1"><span class="s1"><b>Medicare Increasingly Relies on General Tax Revenue</b></span></p> <p class="p1"><span class="s1">The following table compares the sources of Medicare’s financing in 2005 and 2015. It shows that general revenue now provides 42.4% Medicare’s income, up from 33.2% in 2005. Most of the general revenue finances Medicare Part B (physician and outpatient services) and Part D (prescription drugs), a relatively new Medicare benefit started in 2006, although general revenue is also now needed to finance Part A’s deficit. Using their current law assumptions, the trustees project that by 2030, general revenue will provide nearly half of Medicare’s total income and payroll tax revenue will provide less than 30%.</span></p> <p class="p1"><img src="" alt="Changes in Medicare Financing Over 10 Years" width="575" height="172" /></p> <p class="p1"><span class="s1">At the end of 2007, the Part A trust fund contained $326 billion. After 8 consecutive years of deficits, the amount left in the trust fund has been reduced to $194 billion at the end of 2015. The trustees project that the trust fund will be depleted in 2028, two years earlier than the depletion date projected in last year’s report. Because Part A finances are approaching insolvency, the estimated trust fund depletion date can vary by several years depending on relatively small changes in both the underlying economic data and assumptions about various growth rates. In this year’s report, a slightly lower assumption for both near-term inflation and inflation-adjusted wage growth lowered projected payroll tax revenues and thus the projected near-term HI trust fund balance.</span></p> <p class="p1"><span class="s1">Importantly, while many consider the trust fund an accounting gimmick since Washington long ago spent payroll tax surpluses, it has legal importance. Without a positive balance in the Part A trust fund, Medicare’s administrators lack the authority to finance full benefits as outgoing payments can be financed only at the levels of incoming receipts. Such a scenario would likely result in significant payment reductions to health care providers.</span></p> <p class="p1"><span class="s1"><b>Current Law Medicare Projections Likely Too Rosy</b></span></p> <p class="p1"><span class="s1">In their report, the trustees make clear their current law assumptions are based on a relatively optimistic set of assumptions. According to the trustees, “[t]he methodology for projecting Medicare finances assumes a substantial long-term reduction in per capita health expenditure growth rates relative to historical experience, to which the cost reduction provisions of the [Affordable Care Act] and MACRA would add substantial further savings.”</span></p> <p class="p1"><span class="s1">The trustees discuss the reasons that this assumption is uncertain. For example, physician bonuses and payments in MACRA expire in 2025, “resulting in a significant one-time payment reduction for most physicians.” The trustees believe that physician payment rates will continue to be a significant issue, particularly in the long term under current law.</span></p> <p class="p1"><span class="s1">According to the trustees, health care productivity adjustments in the ACA are the most important cost-reduction component underlying their current law projections. According to trustees, these adjustments, which increase Medicare rates largely as a function of economy-wide productivity improvements rather than on the rising costs of medical goods and services, “will occur as the ACA requires.” Mainly as a result of these adjustments, the trustees project that hospital prices will grow at just under inflation and physician and outpatient service prices will grow annually at about 1% less than inflation over the next decade. Large long-term savings are projected as these productivity adjustments are assumed to compound annually.</span></p> <p class="p1"><span class="s1">In Mercatus <a href=""><span class="s2">research</span></a>, health care experts James Capretta and Joe Antos raise the concern that the lower adjustment factor, compounded year-after-year, will lead to such low provider payment rates that many doctors will stop treating Medicare beneficiaries. In fact, the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) <a href=""><span class="s2">projects</span></a> that by 2040, half of all hospitals, 70% of skilled nursing facilities, and 90% of home health agencies will be losing money each year. These projections also show that Medicare payments will only be 40% of what private insurers pay in 75 years.</span></p> <p class="p1"><span class="s1">The repeated short-term doc fixes, followed by MACRA, indicate that Congress often caves to pressure from providers to increase payment rates subject to formulaic cuts, like those contained in the ACA. Rather than continuing the exercise of tightening and loosening Medicare’s price controls, policymakers should consider adopting policies that allow market forces to improve the quality of the services delivered to Medicare recipients and to lower prices over time.</span></p> <p class="p1"><span class="s1"><b>Conclusion</b></span></p> <p class="p1"><span class="s1">Yet again the Medicare trustees have made clear that Medicare’s financing path is unsustainable and have called on policymakers to act. This is true even under the assumption that the ACA’s cost control measures remain in place by future policymakers. Putting Medicare on a sustainable trajectory will involve tradeoffs, but the earlier policymakers act the better the likely outcome for taxpayers, workers, beneficiaries, and providers.</span></p> Thu, 30 Jun 2016 13:43:40 -0400 Community Revival in the Wake of Disaster Book Panel ( <h5> Events </h5> <p>Rebounding after disasters like tsunamis, hurricanes, earthquakes, and floods can be daunting. How do residents of these communities gain access to the resources they need to rebuild while overcoming the collective action problem that characterizes post-disaster relief efforts?</p> <p>Please join the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University for a panel discussion featuring Hayek Program Senior Fellow Virgil Storr and his new book <a href=""><i>Community Revival in the Wake of Disaster: Lessons in Local Entrepreneurship</i>.</a></p> <p>In this book, Storr and his co-authors Stefanie Haeffele-Balch and Laura Grube argue that entrepreneurs, conceived broadly as individuals who recognize and act on opportunities to promote social change, fill the critical role of helping communities overcome the obstacles to rebound after disaster. Using examples of recovery efforts following Hurricane Katrina in New Orleans, Louisiana, and Hurricane Sandy in Rockaway, New York, the authors demonstrate how entrepreneurs promote community recovery by providing necessary goods and services, restoring and replacing disrupted social networks, and signaling that community rebound is likely and, in fact, underway. They argue that creating space for entrepreneurs to act after disasters is essential for promoting recovery and fostering resilient communities.</p> <p>We will be pleased to hear from author&nbsp;<b><a href="">Virgil Storr</a>,</b>&nbsp;as well as panel chair <b><a href="">Peter Boettke</a></b>&nbsp;and commenters&nbsp;<b><a href="">Daniel Aldrich</a></b>, <b><a href="">Lori Peek</a></b>, and<b> <a href="">Emily Chamlee-Wright</a></b>.</p> <p>For any further questions, please contact Elizabeth Leibundguth at <a href=""></a>.</p><p><a style="font-size: 12px; background-color: white;" href=""><b>Virgil Storr</b>,</a><span style="font-size: 12px; background-color: white;"> Senior Research Fellow, Senior Director, Academic and Student Programs and Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics, Mercatus Center at George Mason University.</span></p> <p class="p1"><span class="s1"><b><a href="">Peter Boettke</a></b>, Vice President and Director, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics, Mercatus Center at George Mason University.</span></p><p><b><a href="">Daniel Aldrich</a></b>, Professor of Political Science and Co-Director of the <a href="">Security and Resilience Studies Program </a>at <a href="">Northeastern University</a>.</p><p class="p1"><span class="s1"><b><a href="">Lori Peek</a></b>, Associate Professor in the <a href=""><span class="s2">Department of Sociology</span></a> and Co-Director of the <a href=""><span class="s2">Center for Disaster and Risk Analysis</span></a> (CDRA) at&nbsp;<span class="s2"><a href="">Colorado State University</a>.</span></span></p> <p class="p2"><b><a href="">Emily Chamlee-Wright</a></b>, Provost and Dean at Washington College in Chestertown, Maryland. Dr. Chamlee-Wright is the lead researcher for Phase I of the Mercatus Center&nbsp;<a href="">Gulf Coast Recovery Project</a><span class="s2">&nbsp;</span>and the socio-cultural category of research.</p> Fri, 01 Jul 2016 15:23:11 -0400 Can Urbit Reboot Computing? <h5> Expert Commentary </h5> <p class="p1"><span class="s1">It's a common complaint that <a href=""><span class="s2">"computing" is broken</span></a>. Whether the concern is government <a href=""><span class="s2">surveillance</span></a>, invasive <a href=""><span class="s2">advertising and malware</span></a>, <a href=""><span class="s2">censorship by private and&nbsp;public bodies</span></a>, or the general&nbsp;<a href=""><span class="s2">gulf between user control and control of users</span></a>, many worry&nbsp;that our amazing network of networks has been <a href=""><span class="s2">slowly atrophying</span></a> for some time. But a project called&nbsp;<a href=""><span class="s2">Urbit</span></a>&nbsp;aims to overcome this—by getting humans to start&nbsp;<a href=""><span class="s2">thinking more like Martians</span></a>.&nbsp;</span></p> <p class="p1"><span class="s1">Why is a reboot necessary? The incentives and arrangements developed during the early days of the internet haven't exactly scaled well. Much of our digital infrastructure forces us to rely faceless third parties—Internet Service Providers, software developers, cloud servers, platform administrators, domain-name registrars—in order to connect with others. No one person can presently provide all or most of these functions for themselves. Instead,&nbsp;we each must trust this conglomeration of faraway bureaucracies—in addition to the&nbsp;<a href=""><span class="s2">often-rascally governments</span></a> that oversee the whole operation.</span></p> <p class="p1"><span class="s1">As a result, our&nbsp;computing experiences will only be as good as this federation of virtual landlords is virtuous. Alas: <a href=""><span class="s2">virtue is not exactly "in" online</span></a>.</span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><span class="s1">Some&nbsp;developers are <a href=""><span class="s2">seeking to transcend our internet feudalism</span></a> by <a href=""><span class="s2">minimizing the number of third parties</span></a> one must patronize to participate in digital society. Open-source operating systems like <a href=""><span class="s2">Linux</span></a> allow people to take more control over their own computers. <a href=""><span class="s2">Bitcoin</span></a> substitutes trust in a single payment processor for trust in a cryptographically secure, peer-to-peer network.&nbsp;<a href=""><span class="s2">BitTorrent</span></a>, similarly, allows individuals to share files using a distributed network that cannot be immediately shut down by targeting any one&nbsp;entity. And several new <a href=""><span class="s2">projects</span></a> aim to <a href=""><span class="s2">extend this logic to personal computing</span></a>&nbsp;more generally.&nbsp;There's&nbsp;<a href=""><span class="s2">OpenBazaar</span></a>, a distributed marketplace platform that wants to be the "<a href=""><span class="s2">Bitcoin of Amazon</span></a>"—a censorship-resistant e-commerce protocol that empowers buyers and sellers to transact peacefully without a middleman. There's the InterPlanetary File System, or IPFS, which would operate as a kind of <a href=""><span class="s2">BitTorrent for the World Wide Web</span></a>.</span></p> <p class="p1"><span class="s1">But there is only one project that aims&nbsp;to just start this whole networking thing completely from scratch. It's an "operating function"&nbsp;called <a href=""><span class="s2">Urbit</span></a>, and it is by far the most fascinating and bizarre of these attempts&nbsp;to reboot computing.</span></p> <p class="p1"><span class="s1"><b>Inside the Urbit&nbsp;Universe</b></span></p> <p class="p1"><span class="s1">Urbit is brought to you by a man named Curtis Yarvin and a&nbsp;company named <a href=""><span class="s2">Tlon</span></a>.&nbsp;Much of the commentary about Urbit has&nbsp;focused on&nbsp;the unorthodox political opinions of Yarvin, who is better known in some circles by his nom de plume, Mencius Moldbug. As Moldbug,&nbsp;Yarvin has penned fiery condemnations of democracy, extolled the&nbsp;virtues of&nbsp;historic monarchies,&nbsp;and found himself as a philosophical&nbsp;leader&nbsp;for&nbsp;the budding "neoreactionary" movement. But Urbit is perhaps even more intriguing than its radical creator.&nbsp;</span></p> <p class="p1"><span class="s1">Urbit is a software stack comprised of roughly five major parts: an operating system (Arvo), two kinds of programming languages that interact together (Nock and Hoon), a network (Ames), and you, the dear user. Combined, this system seeks to distill computing into its lightest and purest possible form, leaving the user in control of more processes than previously afforded.</span></p> <blockquote><p class="p1"><span class="s1"><i>Arvo:</i> Microsoft has Windows, Apple has Mac OS, and Urbit has Arvo. This is the "<a href=""><span class="s2">kernel</span></a>" upon which the entire system runs. Arvo starts with a self-compiling command and a&nbsp;basic input/output system. It is quite small, written in roughly 600 lines of the native programming language, Hoon. For frame of reference, Windows 7 is written in about <a href=""><span class="s2">40 million lines of code</span></a>. Arvo is small because it is intended to "grow" with a&nbsp;user's event history.</span></p><p class="p1"><span class="s1"><i>Nock and Hoon:</i> This is the DNA of Urbit, and in true Urbit fashion, it is radically different from the object-oriented programming languages most familiar to laypeople. For the techies out there, Nock is a virtual machine and high-level language that compiles Hoon and is a little bit like <a href=""><span class="s2">Lisp</span></a>. Hoon is a functional programming language that is a little bit like <a href=""><span class="s2">Haskell</span></a>. They're quite odd, but totally groovy if you're into the challenge of learning abstract code. For the non-techies out there, all you need to know is that Nock and Hoon comprise the language of Urbit.</span></p><p class="p1"><span class="s1"><i>Ames:</i> This is the "Urbit network," an encrypted peer-to-peer&nbsp;protocol and namespace. It is here that an&nbsp;Urbit user shapes her identity and interacts with the vast universe of this cyberspace. Unlike in the current system, where you have many digital identities—your IP address and various screennames that may or may not connect to your "real" self—your address <i>is</i> your identity in Ames.&nbsp;</span></p><p class="p1"><span class="s1"><i>Starstuff (you):</i> And what are "you" in Urbit? You are a plot. A plot is a 128-bit number that serves as your identity and your address. There are many kinds of plots in Urbit, of different sizes and importance, yet all celestial. The hierarchy is as follows: There are the 8-bit "galaxies" of one syllable;&nbsp;two-syllabled, 16-bit "stars"; the 32-bit, 4-syllable "planets"; 64-bit and 8-syllable "moons"; and finally the 128-bit, 16-syllable "comets." All of these plots map to services and functions that already exist in the current system.</span></p></blockquote> <p class="p1"><span class="s1">As the Urbit&nbsp;<a href=""><span class="s2">white paper explains</span></a>, galaxies and stars comprise the network infrastructure, planets are like personal servers, moons are like clients, and comets are like cheap little bots. Control tiers up the hierarchy: Galaxies can issue stars, stars can issue planets, planets can issue moons, and moons can issue bots. A detailed analysis of the law and context guiding these identities in Urbit deserves a separate article, but this is the universe of Urbit in a nutshell.</span></p> <p class="p1"><span class="s1">Urbit has been <a href=""><span class="s2">in the works for at least six years</span></a>, and despite the <a href=""><span class="s2">mystery and strangeness</span></a> pervading the previously available documentation, <a href=""><span class="s2">it does indeed actually exist</span></a> as a testnet and can be <a href=""><span class="s2">downloaded</span></a> and <a href=""><span class="s2">run by any interested parties</span></a>. Or, if you'd rather merely dip your toes into this unparalleled experiment in Martian programming, you can jump into the <a href=""><span class="s2">chat</span></a> to politely pick the brains of the star-men&nbsp;of Urbit.</span></p> <p class="p1"><span class="s1"><b>Declaration of Digital Independence&nbsp;</b></span></p> <p class="p1"><span class="s1">By now, this is probably all sounding pretty zany. The Tlon developers will <a href=""><span class="s2">proudly tell you that it is</span></a>. But when you parse through the underlying values that guide the system, a rather libertarian ethos begins to emerge. Consider Tlon's&nbsp;<a href=""><span class="s2">statement of principles</span></a>:&nbsp;</span></p><blockquote><p class="p1"><span class="s1">We believe that general-purpose computing is an essential tool to unlock the power of individual creativity.</span></p><p class="p1"><span class="s1">We believe that ownership, privacy and control don't need to be sacrificed in exchange for usability, accessibility and reliability.</span></p><p class="p1"><span class="s1">We believe in the power of the informed crowd to develop and maintain software, through the IETF principles of sincerity and rough consensus. The ability of the engineering community to govern itself through republican forms is not an abstract theory; it's a proven fact.</span></p><p class="p1"><span class="s1">We believe in both free speech and individual accountability. We believe that a healthy network is one with diverse and well-defined communities, and clear, user-controlled, boundaries between public and private space.</span></p><p class="p1"><span class="s1">We believe that no software system can replace human trust and communication. Dialogue, judgment and governance are essential to communities of all scales. Code and law can reduce conflict in the common case; they can never handle all exceptions.</span></p></blockquote> <p class="p1"><span class="s1">If the Founding Fathers were computer programmers <a href=""><span class="s2">designing a new digital republic</span></a>, their Declaration of Independence might look a bit like the Urbit manifesto.&nbsp;</span></p> <p class="p1"><span class="s1">As a republic, the "government" of Urbit has one task: "promoting, preserving and protecting Urbit." But in doing so, Yarvin and fellow developer Galen Wolfe-Pauly point out, Urbit should "never fall under any kind of central control."</span></p> <p class="p1"><span class="s1">Much of the&nbsp;language in Urbit's statement of principles reads as if it could have been written by Murray Rothbard himself (indeed, Yarvin frequently cites such luminaries of liberty as <a href=""><span class="s2">Ludwig von Mises</span></a> and <a href=""><span class="s2">John Perry Barlow</span></a> as his personal intellectual influences). But "liberty" is not a homogeneous concept. It's important to note that Urbit approaches the problem of "centralized computing" from a radically different position than many of the other projects described above, such as&nbsp;Bitcoin.&nbsp;</span></p> <p class="p1"><span class="s1">As the <a href=""><span class="s2">Urbit white paper</span></a> explains, "Bitcoin is a trust-free system; Urbit has a central trust hierarchy"—the nested system of galaxies and heavenly bodies outlined above.&nbsp;However, the initial hierarchy baked into the Urbit platform—namely, the preliminary "crowdsale" of galaxies—may raise eyebrows among "<a href=""><span class="s2">scamcoin</span></a>"-watchdogs in the cryptocurrency community.</span></p> <p class="p3"><span class="s1">&nbsp;</span></p> Tue, 28 Jun 2016 11:37:05 -0400 New York Politicians Should Stay out of the Private Sector's Way <h5> Expert Commentary </h5> <p class="p1"><span class="s1">New York state politicians think they can and should pick winners and losers in the private sector. But their record is clear: They’re really good at picking losers.</span></p> <p class="p1"><span class="s1">Before the legislative session ended, lawmakers had the opportunity to open up the state to thriving businesses, but they didn’t. They decided to continue picking which industries and businesses succeed or fail. When Albany tries to select winners, New Yorkers always lose.</span></p> <p class="p1"><span class="s1">First, state lawmakers wrapped up the 2016 legislative session without resolving how ridesharing companies like Uber and Lyft can expand outside of New York City, missing their chance to bring in much-needed jobs and better services.</span></p> <p class="p1"><span class="s1">This alone would be a cause for concern, since it denies New Yorkers one of the sharing economy’s most successful industries. But, Albany wasn’t finished. The Legislature also passed a bill preventing Airbnb users from advertising entire apartments for rent for less than 30 days.</span></p> <p class="p1"><span class="s1">On its face, it may look like the Legislature is trying to chase business out of the Empire State. But this isn’t an anti-business crusade. Airbnb, Uber and Lyft are just part of the wrong industry.</span></p> <p class="p1"><span class="s1">While lawmakers were busy building roadblocks for the sharing economy, they were also giving hundreds of millions of taxpayer dollars to other ventures. New York is willing to hand out $50 million a year in tax subsidies for music and video-game producers and $420 million for TV and film production.</span></p> <p class="p1"><span class="s1">Picking winners and losers is certainly bad governance. New York is also extremely bad at it.</span></p> <p class="p1"><span class="s1">Businesses that receive Albany’s financial support have a tendency to flop. The state has spent hundreds of millions to support General Electric, a notoriously flighty company that tends to chase tax privileges. GE’s Durathon battery plant in Schenectady, a recipient of 2013’s “JOBS Now” capital funding, closed down in 2015. Albany doubled down, committing another $50 million to convince GE to put another factory in Utica. Not exactly a shining record of success.</span></p> <p class="p1"><span class="s1">Economic growth, we’re told, will follow these investments. But private-sector employment in the state grew at barely half the average US rate during the last year. And what’s more, most of this job growth was limited to New York City and its suburbs.</span></p> <p class="p1"><span class="s1">Bringing jobs and opportunity upstate is not as difficult as Albany makes it look, but ongoing efforts to stifle the sharing economy show that lawmakers are more interested in playing politics than setting sound policy.</span></p> <p class="p1"><span class="s1">Expanding ridesharing across New York would provide new job opportunities, as it has done nearly nationwide.</span></p> <p class="p1"><span class="s1">Taxi drivers in Rochester and Albany have protested bringing ridesharing to areas outside New York City, claiming passengers are less safe riding with Uber and Lyft, and that they cannot adequately provide for disabled passengers.</span></p> <p class="p1"><span class="s1">Albany seems to be receptive to these arguments. Yet it’s becoming increasingly clear it shouldn’t be.</span></p> <p class="p1"><span class="s1">In addition to providing passengers with safety features unavailable in taxis — pictures of drivers, maps of the trip, ETAs, driver ratings, vehicle descriptions and license-plate numbers — recent research shows that competition from Uber makes taxis better. Using data from the New York City Taxi and Limousine Commission, Georgetown’s Scott Wallsten notes that the rate of consumer complaints about taxis decreases as ridesharing becomes more common.</span></p> <p class="p1"><span class="s1">The best thing for upstate taxi passengers may be Uber’s expansion outside of New York City. Reforms must embrace the changes that are already taking place and allow cab companies to improve, rather than entrench their outdated business practices.</span></p> <p class="p1"><span class="s1">All New Yorkers — not just city dwellers — deserve the opportunity to choose the type of services they pay for, whether it’s who picks them up, where they stay or where they work. And New Yorkers deserve the economic boost that the sharing economy provides.</span></p> <p class="p1"><span class="s1">Unfortunately, lawmakers appear to have missed their chance, and they will have to wait until next year. It’s time Albany realized picking winners and losers is easier than they’ve made it. They don’t have to pick at all. They just have to get out of the way.</span></p> Tue, 28 Jun 2016 11:19:34 -0400 ACA Enrollees Twice As Expensive As Other Individual Market Enrollees <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Rather than stabilizing in 2016 as many experts predicted, the Affordable Care Act (ACA) is <a href=""><span class="s2">leading</span></a> to large premium hikes and less choice and competition in the individual insurance market as plans prove unattractive to relatively young, healthy, and middle-class people. In order to achieve a better understanding of the ACA’s impact, a new Mercatus Center working <a href=""><span class="s2">paper</span></a>&nbsp;compared insurers’ performance selling individual Qualified Health Plans (QHPs) with three other markets: the individual non-QHP market, the small group QHP market and the small group non-QHP market.</span></p> <p class="p1"><span class="s1">My co-authors, Doug Badger of the Galen Institute, Ed Haislmaier of the Heritage Foundation, Seth Chandler of the University of Houston&nbsp;and I make two key empirical findings. First, individual market QHP enrollees had average medical claims nearly double the average claims for individual non-QHP market enrollees in 2014. Second, individual market QHP enrollees were about 25% more expensive than enrollees in small group QHPs.</span></p> <p class="p1"><span class="s1">In both the individual and small group markets, QHPs—plans that satisfy the multitude of ACA requirements and are certified to be sold on exchanges—are essentially the same and are governed by nearly identical regulations. Comparing the performance of insurers in the individual QHP market with their performance in&nbsp;these other&nbsp;markets provides information about the ACA and its impact.</span></p> <p class="p1"><span class="s1">Our findings show that the individual QHP market exhibited significant adverse selection (a disproportionately high percentage of less healthy enrollees in the insurance risk pool) in 2014—despite premiums that were artificially lower because of a large back-end subsidy program geared toward this market. The findings suggest that the small group market, which contains features that limit adverse selection, initially weathered the ACA’s torrent of regulations and price controls while the individual market did not. Since insurers’ losses selling individual market QHPs more <a href=""><span class="s2">than doubled</span></a> from 2014 to 2015, adverse selection appears to be worsening as implementation moves forward.</span></p> <p class="p1"><span class="s1"><b>ACA Plans Spending Significantly More than Non-ACA Plans</b></span></p> <p class="p1"><span class="s1">The following table shows per enrollee premium income, per enrollee medical claims, the loss ratio (medical claims divided by premium income) and enrollment (average monthly number of enrollees) in 2014 for the four markets described above. The data is from the 174 insurers that offered QHPs in both the individual and small group market in 2014. Small group market enrollees generally consist of workers at firms with no more than 50 workers and their covered dependents.</span></p> <p class="p1"><img src="" alt="Insurers' Performance across Different Markets in 2014" width="575" height="229" /></p> <p class="p1"><span class="s1">In the individual market, non-QHPs consist of grandfathered plans (plans in existence before the ACA became law that were allowed to continue), grandmothered plans (plans that came into existence after the ACA became law that the administration allowed to continue for several years after the <a href=""><span class="s2">uproar</span></a> caused by 5 million people receiving cancellation notices), and ACA-compliant non-QHPs.</span></p> <p class="p1"><span class="s1">Individual market QHP enrollees incurred nearly $5,000 in average medical claims in 2014—93% more than the roughly $2,600 in average medical claims incurred by people enrolled in individual market non-QHPs. The substantial medical claims paid by individual market QHPs resulted in large losses despite insurers taking in premium income, largely consisting of government subsidy payments, of about $1,400 more per enrollee for their individual market QHPs than for their individual non-QHPs. The 110% loss ratio for individual market QHPs does not account for administrative expenses, which generally amount to about 15% to 20% of premiums.</span></p> <p class="p1"><span class="s1"><b>Individual ACA Market Experiencing Adverse Selection</b></span></p> <p class="p1"><span class="s1">In 2014, individual market QHPs benefitted from a government reinsurance program that paid insurers 100% of the cost of claims for enrollees incurring bills between $45,000 and $250,000. Insurers received $7 billion in reinsurance payments in 2014, but the program is scheduled to end after 2016. In a previous <a href=""><span class="s2">paper</span></a>, my co-authors and I estimated that insurers would have had to raise premiums 26%, on average, to meet their expenses in 2014 without the reinsurance program and assuming no additional selection effects from the higher premiums.</span></p> <p class="p1"><span class="s1">Even though premiums were depressed in 2014 because of the reinsurance program, individual QHPs still did not attract a sufficient number of younger and healthier enrollees to create a stable risk pool. Based on <a href=""><span class="s2">data</span></a> released from the House Committee on Oversight and Government Reform, insurers’ 2014 and 2015 individual QHP risk pools skewed much older than expected. In fact, about 50% more people over the age of 55 enrolled, as a share of the risk pool, than insurers expected.</span></p> <p class="p1"><span class="s1">People near retirement spend about five times more on healthcare, on average, than young adults, but the ACA prevented insurers from charging the oldest members of the risk pool more than three times the amount they charged young adults. The higher percentage of older people in the risk pool increased both average premium income and average claims. Since the ACA results in insurers losing money, on average, on older enrollees, an older risk pool than expected partially explains why insurers suffered significant losses on individual market QHPs despite receiving average premium income that was nearly $1,400 greater than average premium income for their individual market non-QHPs.</span></p> <p class="p1"><span class="s1">Since insurers did reasonably well selling small group QHPs in 2014, features of the employer-based insurance system seem important for the ACA’s insurance market changes to function without generating severe adverse selection. In general, risk pools for employment-based coverage are less prone to selection effects, as employment decisions by both firms and workers are typically made based on factors other than a worker’s health status. Moreover, the criteria for special enrollment—which has been <a href=""><span class="s2">abused</span></a> by people in the individual QHP market who anticipate significant medical claims—are clearer and more easily verified in an employer group plan.</span></p> <p class="p1"><span class="s1"><b>Conclusion</b></span></p> <p class="p1"><span class="s1">Insurers’ loss ratio in the individual QHP market was about a third higher than the loss ratio in each of the other three markets. The higher loss ratio was driven by much higher average medical claims for the individual QHP market, and indicates that insurers did not enroll enough younger and healthier consumers to create a balanced risk pool in 2014. Comparing results across markets suggests that the ACA’s rules and price controls may be incompatible with a well-functioning individual market.</span></p> <p class="p1"><span class="s1">Large premium increases both in 2016 and 2017 will further reduce&nbsp;the attractiveness of individual market QHPs to younger and healthier enrollees, particularly individuals who do not qualify for large subsidies. Without significant revision to the ACA that makes insurance more attractive to younger and healthier people and that significantly reduces the incentive for people to wait until they are sick to purchase coverage, the individual market looks increasingly likely to morph into a highly subsidized high risk pool.</span></p> Wed, 29 Jun 2016 10:11:36 -0400 The Perks of a Privatized Metro System <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Something interesting happened following Metro’s single-tracking and long-term shutdowns.</span></p> <p class="p1"><span class="s1">Lyft started offering discounted rides to Washington commuters. With these discounts, the ride sharing giant joins FedEx, Underwriters Laboratories, private schools, passport expeditors, and many other businesses to become one more private-sector company offering to fix the blunders&nbsp;of&nbsp;a public-sector enterprise. According to market skeptics, this isn’t the way it’s supposed to work – Lyft is a profit-seeking entity. And according to conventional wisdom, profit-seeking companies jump at opportunities to exploit in pursuit&nbsp;of&nbsp;the almighty dollar. With Metro on the ropes and thousands&nbsp;of&nbsp;commuters stranded, conditions are perfect for services like Lyft to charge the absolute maximum the market will bear. Why then are they cutting their price in half?</span></p> <p class="p2"><span style="font-size: 12px; background-color: white;">It turns out that market skeptics are partly right.</span></p> <p class="p1"><span class="s1">Private companies don’t drive prices down and quality up. Just look at Comcast, whose prices only go up while every other price in the tech world keeps going down. According to its own customers, Comcast’s customer service rivals that&nbsp;of&nbsp;the DMV. The private sector doesn’t bestow a magical ability to deliver high quality at low prices. Market proponents and skeptics alike know that Comcast is more like the DMV than Netflix because Comcast faces little competition. Yet neither does competition bestow a magical ability to deliver high quality at low prices.</span></p> <p class="p1"><span class="s1">Metro is but one example. Metro faces all sorts&nbsp;of&nbsp;competition from walking to bikes to private cars to carpools to taxis, Uber, and Lyft. Yet Metro’s service has become so poor as to become – quite literally – non-existent. It turns out that the magic formula is the&nbsp;<i>combination</i>&nbsp;of&nbsp;competition and private enterprise.</span></p> <p class="p1"><span class="s1">Corporations do seek the almighty dollar, but market skeptics go off the rails when they conclude that the correct response is to replace private sector profit-seekers with government. The quest for this almighty dollar is a powerful drive that can be harnessed for good – provided it is complimented by competition. In a competitive environment, the way profit-seeking companies make money is by providing what consumers want at the lowest possible price. This is why Lyft is dropping its prices 50 percent as Metro cuts service. Lyft is a profit-seeking company that faces stiff competition. By cutting its price, Lyft hopes to encourage Metro’s customers to try Lyft. And if those people judge that Lyft delivers a price and quality that Metro can’t, they’ll stay with Lyft even after the metros stop catching fire.</span></p> <p class="p1"><span class="s1">The private sector is composed&nbsp;of&nbsp;sometimes selfish, sometimes altruistic, sometimes brilliant, always fallible humans – the same that comprise the public sector. Lyft might be run by heartless people who care only about making money. Or, Lyft might be run by principled people who care about providing a fair service at a fair price.</span></p> <p class="p1"><span class="s1">As with the public sector, the reality is likely somewhere in the middle. The folly in replacing private business with government enterprise is that the public sector only achieves the common good when, by happy accident, it is mostly composed&nbsp;of&nbsp;altruistic people. The beauty&nbsp;of&nbsp;a competitive free market is that it doesn’t matter whether the people comprising the private sector are altruistic or selfish. Regardless&nbsp;of&nbsp;their motivations, competition forces Lyft’s people to behave as if they care about providing a fair service at a fair price. Because the moment they stop, their customers will move on to Lyft’s competitors.</span></p> <p class="p1"><span class="s1">Competition has gotten us halfway to solving the problem that is Metro. We’ll get the rest&nbsp;of&nbsp;the way when we&nbsp;privatize&nbsp;it. Until we get that combination&nbsp;of&nbsp;competition and private enterprise, Metro will continue to fail.</span></p> Tue, 28 Jun 2016 10:39:56 -0400 United States Is the World’s Leader in International Arms Sales <h5> Publication </h5> <p class="p1">This week’s charts look at global arms transfers using data produced by the Stockholm International Peace Research Institute (SIPRI). The first chart shows that the United States was responsible for a third of total global arms exports from 2011 to 2015. The United States and Russia combined were responsible for 58.0 percent of all international arms sales over that same period.</p><p class="p1"><img height="575" width="575" alt="Top Arms Exporters, 2011-2015" src="" /></p> <p class="p1">The second chart shows the top 10 foreign purchasers of US arms. The leading recipient was Saudi Arabia at 9.7 percent, followed closely by the United Arab Emirates at 9.1 percent of total US arms exports. <a href="">According to SIPRI</a>, “The USA delivered major weapons to at least 96 states in 2011–15, a significantly higher number of export destinations than any other supplier.”</p> <p class="p2"><img height="575" width="575" alt="Top Purchasers of US Arms, 2011-2015" src="" /></p> <p class="p1">The third chart shows the top 10 arms-producing and military services companies in the world as of 2014. Not surprisingly, the United States dominates with seven companies in the top ten. U.S. companies Lockheed Martin and Boeing came in first and second place, respectively. Indeed, only one non-American company makes the top six.</p> <p class="p2"><img height="431" width="575" alt="Top 10 Arms-Producing and Military Services Companies, 2014" src="" /></p> <p class="p1">Regardless of one’s view of the desirability of the United States and its companies dominating the global arms scene, the situation still calls to mind President Dwight Eisenhower’s prescient warning in his <a href="">1961 farewell address to the nation</a>:</p> <blockquote><p class="p3">This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence—economic, political, even spiritual—is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.</p><p class="p3">In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.</p></blockquote> Tue, 28 Jun 2016 10:52:08 -0400 How Brexit Will Impact the Global Economy <h5> Expert Commentary </h5> <p class="p1"><span class="s1"><a href="">David Beckworth</a></span><span class="s2">, economist and research fellow at the Mercatus Center, joined Federalist Radio to discuss Britain’s exit from the EU and how it will impact the global economy. <a href=""><span class="s1">Dr. Desmond Lachman</span></a>, resident fellow at the American Enterprise Institute, also explained some of the reasons why the UK voted the way they did.</span></p> <p class="p1"><span class="s2">The “Brexit” decision, in some ways considered a populist uproar, comes as a shock to elites all over the world. “Globalization has been integrating our world more and more, really since the 1980’s it’s been accelerating, and I think its bringing some of this tension,” Beckworth said. “One of the biggest mistakes that the EU elites made was handling of the Eurozone crisis.”</span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><span class="s2">We have already seen financial markets and currencies damaged since the vote last week. “I’m afraid that is very likely to continue because what’s also occurred is the UK’s politics has been turned into to turmoil,” Lachman said. “If we do have economic setbacks there and trouble in their financial markets, it’s difficult to see how that’s not going to impact the United States.”</span></p><p class="p1"><a href="">Listen here</a></p> Mon, 27 Jun 2016 18:15:41 -0400 A Balanced Bipartisan Compromise for Strengthening Retirement Security <h5> Expert Commentary </h5> <p class="p1"><span class="s1">The Bipartisan Policy Center’s <a href=""><span class="s2">Securing Our Financial Future</span></a> offers a new set of recommendations to strengthen Americans’ retirement income security.&nbsp; The full report can be found <a href=""><span class="s2">here</span></a> and an executive summary <a href=""><span class="s2">here</span></a>. A useful compendium of graphical information about the recommendations can be found <a href=""><span class="s2">here</span></a>, and an affecting video on the financial challenges facing Americans can be viewed <a href=""><span class="s2">here</span></a>.&nbsp;</span></p> <p class="p1"><span class="s1">The report was developed by the BPC’s 19-member Commission on Retirement Security and Personal Savings, co-chaired by former Senator Kent Conrad (D-ND) and Jim Lockhart, former principal deputy commissioner of the Social Security Administration (SSA).&nbsp; I served as one of the commission members and was deeply impressed by the co-chairs’ leadership and process acumen, as well as by the other commission members and an exceptionally capable team of staff.&nbsp;</span></p> <p class="p1"><span class="s1">As the commission included experts holding a wide range of policy views, a consensus report was only possible because its work was relentlessly data-driven, and because the co-chairs skillfully incorporated &nbsp;input from the entire commission to forge balanced compromise.&nbsp; It is fashionable in political circles to characterize genuine compromise as containing something for everyone to dislike; a more accurate description in this case is that compromise would lead to far better results than either left or right would receive under the status quo.</span></p> <p class="p1"><span class="s1">The commission’s recommendations were organized into six main themes:</span></p><ol><li><span class="s3" style="font-size: 12px; background-color: white;">Improve access to workplace retirement savings plans</span><span class="s1" style="font-size: 12px; background-color: white;">, largely by making it easier for employers to offer plans and to enroll workers in them, and by simplifying the decisions facing participants.&nbsp;</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Promote personal savings for short-term needs and preserve retirement savings for older age</span><span class="s1" style="font-size: 12px; background-color: white;">, largely by making it easier for workers to manage, shift and maintain savings between their various retirement accounts.</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Reduce the risk of outliving savings</span><span class="s1" style="font-size: 12px; background-color: white;">, largely by facilitating the offering of retirement plan distribution options that would provide income over a retiree’s full lifetime.</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Facilitate the use of home equity for retirement consumption</span><span class="s1" style="font-size: 12px; background-color: white;">, largely through the use of reverse mortgages.</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Improve financial capability among all Americans</span><span class="s1" style="font-size: 12px; background-color: white;">, largely by implementing the recommendations of the President’s Advisory Council on Financial Capability, and by clarifying the nomenclature used in key government programs such as Social Security.</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Strengthen Social Security’s finances and modernize the program</span><span class="s1" style="font-size: 12px; background-color: white;">, by balancing its income and expenditures, and by targeting its benefits more directly on needy households.</span></li></ol> <p class="p1"><span class="s1">The commission <a href=""><span class="s2">report</span></a> provides full details of the recommendations in all six areas. &nbsp;Here I will focus on Social Security, where my expertise is concentrated.&nbsp; The BPC Social Security recommendations involve far more details than can be covered here.&nbsp; However, they can be roughly defined by the following general parameters:</span></p><ol><li><span class="s3" style="font-size: 12px; background-color: white;">The proposals would strengthen Social Security finances through a roughly 50/50 blend of changes to revenues and costs </span><span class="s1" style="font-size: 12px; background-color: white;">(per the <a href=""><span class="s2">Social Security Chief Actuary</span></a>, 54% revenues vs. 46% cost containment).&nbsp; Under current law, per Urban Institute projections, Social Security costs would rise from 4.8% of GDP today to roughly 6.2% of GDP by 2034 when the program’s combined trust funds would be depleted and benefits reduced by roughly 22%. Afterwards the financing gap would continue to grow, with eventual costs (6.4% of GDP) being only 73% funded by income (4.7% of GDP) at the end of the valuation period.&nbsp; Under the commission proposals costs would instead rise more gradually to 5.8% of GDP (at the peak of baby boomer retirements in the mid-2030s) and stabilize thereafter, hovering around 5.5% of GDP for most of the mid-21</span><span class="s4" style="font-size: 12px; background-color: white;">st</span><span class="s1" style="font-size: 12px; background-color: white;"> century.&nbsp; The biggest revenue changes would be increases in the Social Security payroll tax rate (from 12.4% to 13.4%) and wage base (to $195,000 by 2020).&nbsp; The biggest cost containment mechanism would be a gradual indexing of the normal retirement age to national longevity gains, rising by one month every two years starting in 2022.&nbsp; Per convention this was counted by the commission as a benefit constraint although in practice, an individual receives higher annual benefits if he/she delays his/her initial benefit claim.&nbsp; The second largest cost containment provision would be to link annual COLAs to the chained Consumer Price Index (C-CPI-U), so that they more closely track national price inflation.</span></li></ol><p class="p2"><b style="font-family: inherit; font-style: inherit;">Figure 1: After the Baby Boomers Retire, the Commission Proposals Would&nbsp;Stabilize Social Security Costs/Revenues as a Share of GDP</b></p><p class="p2"><b style="font-family: inherit; font-style: inherit;">&nbsp;</b><img src="" alt="Figure 1: After the Baby Boomers Retire, the Commission Proposals Would Stabilize Social Security Costs/Revenues as a Share of GDP" width="575" height="375" style="font-size: 12px;" /><span style="font-size: 12px; background-color: white;">&nbsp;</span></p><p class="p1" style="padding-left: 30px;"><span class="s1"><b>&nbsp;</b></span><span class="s3" style="font-size: 12px; background-color: white;">2. Under the commission proposals, real per capita benefits would grow substantially.</span><span class="s1" style="font-size: 12px; background-color: white;">&nbsp; Under current law, program costs would grow at rates beyond that which revenues can finance, resulting in sudden benefit reductions upon trust fund depletion.&nbsp; Under the commission proposals individuals would be spared these benefit reductions, allowing seniors’ Social Security benefits and total disposable income to both grow steadily relative to price inflation.</span></p><p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;" class="p1"><span class="s1" style="font-size: 12px;"><b>Figure 2: Projected Average Disposable Income (in $2015) for Individuals 62 and Older</b></span><b style="font-family: inherit; font-style: inherit; background-color: white;">&nbsp;</b></p><p><img src="" alt="Figure 2: Projected Average Disposable Income (in $2015) for Individuals 62 and Older" width="575" height="365" /></p><p class="p1" style="padding-left: 30px;"><span class="s3" style="font-size: 12px; background-color: white;">3. The commission proposals would target benefit growth on low-income households and significantly reduce elderly poverty.</span><span class="s1" style="font-size: 12px; background-color: white;">&nbsp; For example, a two-earner couple born in 1993, in the bottom income quintile, working for 40 years with equal earnings, would receive benefits 63% higher than could be paid under current law.&nbsp; Those in the second income quintile would receive a 49% benefit increase.&nbsp; Not only would these benefits be substantially higher than could be paid under current law, they are even higher (24% and 12% higher, respectively) than the current-law benefit formula that is significantly underfunded.&nbsp; Because of this faster benefit growth for low-income households, senior poverty levels would be substantially lower under the commission proposals not only than under current law – but even relative to an imaginary scenario in which all of Social Security’s currently unfinanced benefits were somehow fully funded.</span></p><p class="p1"><span class="s1" style="font-size: 12px; background-color: white;">&nbsp;</span><b style="font-family: inherit; font-style: inherit; background-color: white;">Figure 3: Senior Poverty Would Be Markedly Reduced Under the Commission Proposals</b></p><p class="p1"><img src="" alt="Figure 3: Senior Poverty Would Be Markedly Reduced Under the Commission Proposals" width="575" height="356" style="font-size: 12px; background-color: white;" /></p><p class="p1"><span class="s1"><b>Figure 4: Projected Lifetime Social Security/SSI Benefits for Workers Born in 1993</b></span></p><p class="p1"><img src="" alt="Figure 4: Projected Lifetime Social Security/SSI Benefits for Workers Born in 1993" width="575" height="186" style="font-size: 12px; background-color: white;" /></p><p class="p1" style="padding-left: 30px;"><span class="s3" style="font-size: 12px; background-color: white;">4. Returns on work would be higher under the commission proposals.</span><span class="s1" style="font-size: 12px; background-color: white;">&nbsp; It is often extremely difficult to design proposals that would provide substantial support for low-income individuals while also providing adequate returns as individuals engage in paid employment.&nbsp; Figure 4, however, shows that throughout the income spectrum, individuals would receive larger increases under the proposals the more years that they work.&nbsp; This is in sharp contrast with current law, in which <a href=";pg=PA164&amp;lpg=PA164&amp;dq=Blahous+Social+Security+returns+on+work+seniors&amp;source=bl&amp;ots=lhfaSxS3zV&amp;sig=znCJNla3ZS9-YsOL98syrF0jfjc&amp;hl=en&amp;sa=X&amp;ved=0ahUKEwiMzIeQ-LvNAhWFqB4KHahaD8c4ChDoAQhEMAY#v=onepage&amp;q=Blahous%20Social%20Security%20returns%20on%20work%20seniors&amp;f=false"><span class="s2">returns on work decline dramatically</span></a> for seniors, at precisely the point in their lives when they must make decisions as to whether to remain in the workforce.&nbsp; The commission proposals would accomplish this by reforming the benefit formula to accrue benefits with additional years of work rather than basing benefit levels solely on career average earnings.</span></p> <p class="p1"><span class="s1">The BPC retirement security commission proposals reflect a roughly 50/50 compromise between left and right as to how to shore up the finances of Social Security.&nbsp; All program participants would benefit from the stabilization of program finances, with the largest gains accruing to low-wage workers.</span></p> Mon, 27 Jun 2016 11:14:55 -0400