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Mercatus scholars apply economic analysis to the issues of the day

Social Security is in Crisis

by Jason J. Fichtner on July 31, 2014

The 2014 Social Security Trustees report showed a continuation of the current trend toward insolvency of both of its trust funds. As in the previous two years, the Trustees estimate that Social Security's combined retirement and disability trust funds will become exhausted in 2033, less than 20 years from now.

Regrettably, the lack of change in the combined trust funds' insolvency dates will likely lull some into a false sense of security that the program's finances are now stable. But the truth is that Social Security is simply advancing down the path toward insolvency.

In short, the Trustees report underscores that the Social Security crisis isn't only real, it’s already upon us.

The Trustees now estimate that the 75-year financial shortfall for the combined trust funds is $10.6 trillion in present-value terms. That's a lot of money.

...

Why We Should Scrap Mortgage Interest Deductions

by Jason J. Fichtner, Jacob Feldman on July 31, 2014

The mortgage interest tax deduction is often justified as promoting homeownership among the middle class and supporting industries that employ middle-class workers. The deduction also has broad public support: a recent survey found that six out of ten Americans oppose its elimination.

But such support is misplaced. Over 64% of the MID tax benefits go to tax filers earning more than $100,000, according to our new study released through the Mercatus Center at George Mason University. While the upper middle class does benefit from the deduction, the vast majority of the dollar benefits go to higher-income taxpayers. Little to no dollar benefits go to low-...

The Export-Import Bank Socializes Risk for Private Benefit

by Veronique de Rugy on July 31, 2014

One reason that governments grow fast without many obstacles is because the benefits of expansion are concentrated on a few while the costs are spread among millions.

Program beneficiaries have strong incentives to coordinate and protect their privileges. Average Americans, on the other hand, simply do not have the time or information to organize enough opposition to defeat these programs. They might bear the costs of government expansion, but individual programs only cost each American a few tax dollars here and there. Fighting for reform is simply not worth it. Bad programs proliferate, then, because cronyism pays more than stewardship.

The Export-Import Bank is a prime example of this dynamic. There is no policy justification for this corporatist program. Economists have long known that these kinds of...

Dodd-Frank's Birthday Marred By Its Many Inadequacies

by Hester Peirce on July 30, 2014

Financial reform debates rarely dwell long on the purposes financial markets serve. Instead policy debaters move quickly from cursory diagnoses to regulatory remedies. As a consequence, the reforms that these discussions produce often inadvertently impede the proper functioning of the markets. An impaired financial industry can have deep and devastating effects on people far away from Wall Street and Washington.

The financial industry exists to serve consumers and companies that need to manage their risks and finance homes, educations, retirements, production, and innovation. The regulatory framework within which the financial industry operates can affect the industry's ability to effectively meet those needs. Many people simply assume that, on balance, more regulation will make financial markets function better. For example, 60 percent of the respondents in a Better Markets...

Misleading Minimum Wage Statistics

by Donald J. Boudreaux, Liya Palagashvili on July 28, 2014

Earlier this month, President Obama seized upon fresh data from the Labor Department to argue for a higher minimum wage. According to the president and a subsequent Associated Press report, the 13 states that raised their minimum wages in January of this year are now enjoying, on average, faster job growth than the other 37 states.

The conclusion that Obama (and each of the many media outlets that breathlessly repeated this finding) wants us to draw is that a higher minimum wage not only does not price some workers out of jobs, it positively enhances workers’ job prospects. As the president theorized, "When … you raise the minimum wage, you give a bigger chance to folks who are climbing the ladder, working hard.”

Not so fast.

Basic economics teaches that forcing up the price of something makes people less willing to buy that something. This reasoning, for example, is behind the administration’s recent hike in tariffs...

Blahous, Fichtner on Medicare and Social Security Trustees Report

by Charles Blahous, Jason J. Fichtner on July 28, 2014

The Medicare and Social Security annual report, released today, shows that the insolvency date for the Social Security Old Age and Survivors Insurance (OASI) trust fund is now 2034, one year earlier than estimated in last year’s report, while the insolvency dates for the Social Security Disability Insurance (DI) trust fund (2016) and the combined trust funds (2033) remain unchanged.

Mercatus Center senior research fellow Charles Blahous, a public trustee for Medicare and Social Security, said the following in a letter with fellow public trustee, Robert Reischauer:

“[T]he adverse consequences of delaying necessary corrections in both [Medicare and Social Security] are beginning to be realized. The most immediate financing threat facing either program is the impending depletion of Social Security...

Export-Import Bank Benefits Big Businesses, Not Small Ones

by Andrea Castillo on July 27, 2014

Stanford L. Levin’s commentary, “The Export-Import Bank is good for business” (July 18), would be more accurately titled “The Export-Import Bank is good for businesses with friends with Washington.”

It is simply not true that “the St. Louis metropolitan area benefits greatly” from the Ex-Im Bank. In fact, Ex-Im contributed to less than 0.63 percent of St. Louis-area exports from 2007 to 2014. The bank benefited roughly 1.5 percent of all Missouri exports and 1.38 percent of all Illinois exports at the same time.

It is also incorrect to claim that Ex-Im helps small business. The bank’s records suggest that less than 0.4 percent of small-business jobs and less than 0.03 percent of small businesses benefit from its subsidies. The business of Ex-Im is clearly big business.

By subsidizing their competitors, Ex-Im places the over 99 percent of unsubsidized St. Louis exporters and over 98 percent of unsubsidized Missouri and...

Social Security Disability Insurance's Effect on Labor Force Participation

by Keith Hall on July 25, 2014

The labor force participation rate for the prime working-age population — those between 25 and 54 years old — has been declining in the U.S. since 1997. One of the big reasons is a rise in the disability rate, which hit a record 5.2 percent in 2013. Since the start of the Great Recession, the withdrawal rate due to disability has accelerated. In fact, 90 percent of the labor force decline for those who were in their prime working ages for the entire six-year span was from disability. Most of this — three quarters — was from those receiving Social Security Disability Insurance (SSDI) benefits.

In 2007, 83 percent of the prime working-age population was in the labor force and accounted for over two-thirds of our total labor force. Today, after six years of recession and weak recovery, labor force participation by this group has plummeted. Nearly five million out of the 125 million of them dropped out of the labor force. But why? How much of this is due to...

Dodd-Frank at War with Itself

by Hester Peirce on July 25, 2014

A lot has happened in the four years since Dodd-Frank became law. Many rules were proposed, approved and implemented, and many more are on their way. As rules are adopted, however, it becomes even clearer than it was when Dodd-Frank became law that it does not live up to its official name -- the Wall Street Reform and Consumer Protection Act. Dodd-Frank is keeping regulators busy and causing companies to endure costly changes, but the promised reform and protection are not materializing. It is time to admit defeat and rethink our strategy.

Reassessing our approach requires us to answer a fundamental question: What problem are we trying to solve? We certainly do not want to experience another financial crisis, the attendant costs to taxpayers, job losses and home foreclosures. But...

Regulation by Stealth: Time to Re-Examine Federal Agencies

by John D. Graham , James Broughel on July 22, 2014

In recent weeks, President Barack Obama announced plans to use executive authority to implement immigration reforms in absence of cooperation from Congress. House Speaker John A. Boehner also announced plans to initiate a lawsuit designed to check the president's power to take unilateral executive actions. Given this tension, it's a good time to consider how exactly the executive branch is able to implement policy without congressional consent.

The executive branch has many devices at its disposal if it decides to act unilaterally. Indeed, executive branch regulatory agencies evade Congress and other accountability checks seemingly all the time. For instance, agencies issue guidance documents, policy memoranda and other similar documents. Some of these are necessary, but some elicit behavioral changes by the public that look a lot like how regulations work.

For example, in 2012, then-Secretary of Homeland Security Janet Napolitano...

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