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Niskanen Notes

October 18, 2017

The Reliability of the Picketty Data

by Karl Smith

Richard Sutch attempted to reproduce the data found in Thomas Picketty’s Capital in the 21st Century. The abstract is brutal.

This exercise reproduces and assesses the historical time series on the top shares of the wealth distribution for the United States presented by Thomas Piketty in Capital in the Twenty-First Century….. I conclude that Piketty’s data for the wealth share of the top 10 percent for the period 1870 to 1970 are unreliable. The values he reported are manufactured from the observations for the top 1 percent inflated by a constant 36 percentage points. Piketty’s data for the top 1 percent of the distribution for the nineteenth century (1810–1910) are also unreliable. They are based on a single mid-century observation that provides no guidance about the antebellum trend and only tenuous information about the trend in inequality during the Gilded Age…This article does not question Piketty’s integrity

That’s from the published version. I don’t have easy access to the text, but the text from a 2015 Working Paper version is even more harsh. The working paper abstract is slightly different, and in particular doesn’t contain the disclaimer at the end, so there may have been some working out of differences.

Nonetheless, the following seem worth quoting from Sutch 2015, on aggregating one level up from the “bedrock” series on the percentage of wealth in the U.S. held by the top one percent in 20th century:

Since [Picketty] felt that the SCF data is more reliable than the estate data he chose to adjust the Kopczuk-Saez series upward to link with the SCF data and then to switch from the adjusted estate data to the SCF data at the earliest possible date, 1962. Kopczuk and Saez warn in this context that “patching together data from different sources is a perilous exercise” [2004: 479]. However, characteristic of his bold approach to the topic, Piketty did exactly that in a process he described as “homogenization” [Piketty, “Technical Appendix,” 2014b: 56-58].

Picketty’s series on wealth in 19th century is interpolated from two data points. Sutch describes how the first data point is derived

Piketty cites the source for the 1870 observation as Lee Soltow [1975: Table 4.2, 99] as reported by Peter Lindert [2000: Table 3, 188]. Soltow’s findings were based on an idiosyncratic “spin sample” drawn from the physical microfilms of the census enumerations. Soltow marked a spot on the glass screen of the microfilm reader, turned the crank a half turn, and sampled the individual whose name fell on the marked spot provided it identified a male 20 years old or older. He proceeded in this fashion through all 1,761 rolls of microfilm for the 1870 census [Soltow 1975: 4-5]!

And the second:

Piketty cited “Shamas (sic) 1993 and Lindert 2000” as his sources [Piketty spreadsheet TS10.1, also see Piketty and Zucman 2014: 17]. But neither Carole Shammas nor Lindert give a figure for 1810 [Shammas 1993, Lindert 2000]. Here is my best guess. Piketty started with Alice Hanson Jones’ estimate for 1774 for all households, 16.5, which is found in Lindert [2000: Table 3, 188].17 Piketty then rounded that off to 17. He then turned his attention to the 1860 free adult males figure for total assets in Lindert (referencing Soltow again). To obtain an estimate for net worth of a household he applied the ubiquitous 1.2 adjustment multiplier. He then read a figure for 1810 off a straight-line interpolation between 1774 and 1860. Following that procedure I get 24.5, which Piketty rounded to 25.

Sutch is even less forgiving regard Picketty’s ten percent writing:

When examining Piketty’s data for the trend of the top ten percent of the distribution it is difficult to be forgiving. The first point to make is that Piketty apparently thinks that his trend for the top 10 percent is more reliable than his trend for the top one percent.

at least in part because:

For 1870 Piketty reports Soltow’s number taken from Lindert, 71 percent, but without applying the 1.2 multiplier that he used on the top one-percent wealth share, which consistency suggests he should have done.19 Had he done so, his 1870 figure would be 85.2 percent of the wealth in the hands of the top 10 percent. But that figure implies there was a fall in the wealth share between 1870 and 1910. So much for the “well-established fact that wealth in the United States became increasingly concentrated over the course of the nineteenth century” [Piketty 2014: 347].

While I am sure that Picketty genuinely intends to paint and accurate picture, I have long shared Sutch’s frustrations.

October 17, 2017

More Power to the Women—Especially the Immigrants

by Kristie De Peña

Most workplaces in the United States now know to at least pay lip service to gender equality and equal pay. Even so, progress is cripplingly slow; for example, 50 percent of men think women are “well represented” in leadership in companies if just 1 in 10 women are senior leaders.

Adding race into the mix makes for even more dismal results. According to the Women in the Workplace 2017 report published by LeanIn.Org and McKinsey, on the whole, women of color are severely underrepresented in leadership, falling behind white men, men of color, and white women in nearly every category of measured success.

According to results from the study, for example, Senior Manager/Director positions are occupied primarily by white men (54 percent), followed by white women (26 percent), and men of color (13 percent); bringing up the rear are women of color, who occupy just 8 percent of these positions.

Understudied are the impacts of these disparities on immigrant women in the workplace, many of whom are women of color, and who may have to overcome additional hurdles, like a language barrier.

Learning more about this issue is critical to economic and social prosperity in America, especially since the number of female entrants continues to eclipse their male counterparts. Since 1960, the female foreign-born population has increasingly exceeded the male population. Only 13 percent of these women work as professionals in the U.S., even though 32 percent of them worked as professionals in their home country.

Enormous potential lies in promoting opportunity for the increasing number of female immigrants, especially those already trained in professional occupations. In 2010, immigrant women comprised 40 percent of all immigrant business owners, and 20 percent of women business owners in general. In fact, immigrant women are more likely to own their own business than American-born women.

Immigrant women are also the drivers of naturalization in their families, and are increasingly the heads of those families. Between 1990 and 2015, there was a 192 percent increase in female-led immigrant households.

To ignore this powerful subset of women, or to fail to provide opportunities for these women to excel in the workplace, is short-sighted and foolish. Pursuing gender equality and diversity in the workplace makes for a more dynamic, prosperous, and welcoming nation for everyone. Let’s do better.

October 17, 2017

The Upshot’s Analysis of GOP Tax Framework is Much More Helpful than the TPC’s

by Karl Smith

In the National Review, Brandon Arnold and I defended CEA Chairman Kevin Hassett’s criticisms of the Tax Policy Center (TPC)’s analysis. In my view, the TPC was premature in its analysis and made assumptions that cast the entire idea of tax reform in partisan terms. In contrast, the Upshot Blog at the New York Times has analysis up today that not only admits that there is much we don’t know, but also creates several extremely useful simulations about how choices yet to be made would affect the ultimate distribution of the tax burden.

In particular, they consider reforms to the Child Tax Credit:

There are other ways to make the child tax credit more generous to these families. If the credit were fully refundable, or applicable against both income and payroll taxes — which virtually every working person pays regardless of income — more families would benefit.

There have been several plans over the years to do exactly that with the child tax credit, from both Republicans and Democrats. Below we model an idea based on a 2015 proposal from Senators Marco Rubio and Mike Lee, though it may not reflect their latest thinking. The Rubio-Lee proposal called for an additional $2,500 per child tax credit that would not be refundable but could be used to offset both income and payroll tax liability.

The charts they provide are truly informative and work together as package. Consequently, I can’t take a really good snippet, and strongly encourage you to read the whole post.

October 17, 2017

Who Wins and Who Loses from the Mortgage Deduction in the Latest Tax Plans?

by Ed Dolan

A few weeks ago, I wrote a post titled “Time to Repeal the Mortgage Deduction.” One of the big arguments against the deduction is that, far from being a break for the middle class, households earning $125,000 a year and higher get 87 percent of the benefits. Now, according to an analysis by Laura Kusisto of the Wall Street Journal, Congress is floating a tax reform plan that would keep the deduction but make it even more lopsidedly favorable to the rich.

The latest proposal would preserve the mortgage deduction, at least on paper, but narrow the appeal of itemizing by doubling the standard deduction. According to data from Zillow, cited by Kusisto, it now pays to itemize, on average, only for homeowners with houses worth more than $305,000, or 30 percent homes. If the standard deduction were doubled, the breakeven point would rise to $801,000, or about 5 percent of homes.

Who would be the winners and losers from these changes? To answer, we need to consider the effect on home prices as well as the effect on taxes. Kusisto cites a study by PricewaterhouseCoopers that says average home prices would fall by 10 percent without the mortgage deduction, with most of the effect felt by lower-priced homes. In that case, the effects would break out as follows:

Middle-class homeowners who stay in their current homes would not be greatly affected. What they lost from the mortgage deduction they would gain back from the higher standard deduction.
Middle-class first-time home buyers would be winners. They would gain both from the higher standard deduction and from lower prices on starter homes.
Middle-class families who sell their homes without buying another (for example, to move to assisted living) would be the biggest losers. Loss of the mortgage deduction would erode gains from the higher standard deduction, while the sales value of their homes would drop.
High-earners with expensive homes and enough deductibles to itemize would be little affected one way or the other.
Realtors and mortgage lenders who earn a percentage on the price of each new home would be losers.

October 13, 2017

Irrational Exuberance, Innovation & AntiTrust

by Karl Smith

Some observations to string together:

In 1992 the Federal Trade Commission began investigating Microsoft for potential abuses of its monopoly power. The concern was that the dominance of the Windows operating system allowed Microsoft to squeeze all of the profits out of the hardware industry and slowly devour each segment of the software industry. WordPerfect had fallen to MS Word, Louts 1-2-3 to MS Excel. Microsoft’s ever sprawling empire would soon leave little room for anyone else to make money.

In the mid to late 1990s, these concerns lost popular support in the wake of a start-up boom in IT. That boom was fueled largely by a massive run-up in the stock prices of tech and especially internet related firms. Entrepreneurs and early investors could expect to earn quick, massive fortunes IPOing companies that had yet to define their business model, let alone turn a profit.

The conventional wisdom at the time was that this was an irrational and unsustainable bubble. When stock prices came crashing down in the winter of 1999, it seemed that the conventional wisdom had been proved correct.

Eugene Fama, however, disagreed:

The word “bubble” drives me nuts. For example, people say “the Internet bubble.” Well, if you go back to that time, most people were saying the Internet was going to revolutionize business, so companies that had a leg up on the Internet were going to become very successful.

I did a calculation. Microsoft was an example of a corporation that came from the previous revolution, the computer revolution. It was hugely profitable and successful. How many Microsofts would it have taken to justify the whole set of Internet valuations? I think I estimated it to be something like 1.4.

Nearly two decades after the dot-com crash Microsoft has an operating profit of roughly $20 billion; Google, $21 Billion; Facebook, $10 Billion.

Fama, it would seem, was right.

What about the Federal Trade Commission?

Perhaps the dot-com boom proved that tech is a fundamentally contested space in which profits are always available innovators. But, if not, and Microsoft (and by extension Google and Facebook) are only profitable by virtue of monopoly rents, the lesson is, paradoxically, much the same. In that case it was the lure of monopoly rents that spurred an investment boom so massive that it toppled Microsoft’s dominance. The very bigness that threatens small rivals creates a juicy target.

October 13, 2017

Lessons from Obamacare: Live by the Kludge, Die by the Kludge

by Ed Dolan

A kludge is “a workaround or quick-and-dirty solution that is clumsy, inelegant, inefficient, difficult to extend and hard to maintain.” (Wikipedia) Originated by engineers, the term has been picked up enthusiastically by public policy wonks. Niskanen Center’s Steven Teles argues that the U.S. government is so prone to kludges that it has become a kludgeocracy.

Obamacare is the mother of all kludges. Born of the praiseworthy intention to provide universal access to healthcare, it is struggling because it is an ill-fitting combination of three approaches to universal healthcare access: Expansion of Medicaid, mandates for employer sponsored insurance, and subsidized individual policies sold on insurance exchanges.

The first component was mauled when the Supreme Court determined that states could opt out of Medicaid expansion. The decision was close. Better drafting might have saved the day.

Yesterday, President Trump struck at two other vulnerabilities of the Obamacare kludge.

First, he announced new rules that will let small businesses band together in associations to purchase insurance. That actually sounds like a good thing, and in and of itself, it is. The problem is with the way association insurance will interact with other parts of the kludge. Some association policies may offer only skimpy coverage, and, by siphoning off some healthy individuals, association policies will put upward pressure on premiums for everyone else.

Second, Trump announced that the government would withdraw its appeal of Burwell, a case that challenges the cost sharing reduction (CSR) payments that help low-income households meet out-of-pocket healthcare costs. More bad drafting: One section of the original ACA allows such payments, but another section appears to prohibit them. When a lower court struck down CSR payments, the Obama Administration appealed, but now that the appeal is withdrawn, the lower court ban on CSR will apparently stand and payments will stop. Some insurers are likely to exit the ACA marketplaces as a result.

The antidote to kludgeocracy is found in another great engineering principle: KISS (Keep It Simple, Stupid). Let’s hope the drafters of the next healthcare bill keep KISS in mind.

October 12, 2017

Regulatory Mandates and Tax Incentives are not Nudges

by Karl Smith

Joseph Bast, president of the Heartland Institute, has a column excoriating recent Nobel Laureate Richard Thaler, behavioral economics in general, and the idea of nudges in particular. He writes

…thousands of people die every year in car accidents that would not have been fatal but for the light-weighting of vehicles to meet the government’s fuel economy rules (called CAFE standards). In this case, Thaler’s “nudge” philosophy is actually killing people every day.

But wait, there’s more. Obama’s war on fossil fuels” was based on the assumption that people need to be “nudged” to buy renewable fuels, even though such fuels cost five times as much as fossil fuels and are unreliable. Obamacare, Common Core curriculum mandates, and a massive tax code that uses thousands of exemptions and credits to “nudge” us into doing or not doing thousands of different things are more examples of public policies justified by “behavioral economics.”

I am actually sympathetic to the idea that ‘nudges’ can themselves be dangerous) see Kevin Bryan’s excellent post at A Fine Theorem). However, the items Bast mentions are in no way nudges. They are heavy-handed regulation and tax incentives. They are not based in behavioral economics, but in the paternalistic traditions that have been with us as least as long as government and almost certainly longer. Curriculum mandates are about as ‘nudge-y’ as arranged marriage.

What would the nudge version of the policies look like? Nudging folks toward fuel economy would be a policy that requires automobile dealers to give customers a test drive in the hybrid version of a vehicle, unless the customer specifically requests the non-hybrid version. Nudging curriculum standards might require that homeschool parents be sent a Common Core curriculum guide by default, unless they select some other option.

The idea, is that you make the default or low attention choice, the choice that policy makers would prefer. This can still go awry. The more you think folks make decisions without thinking about them, the more critical emergent standards and norms are to the functioning of society. Replacing those with intentional nudges weakens the selection mechanism process which those norms and standards evolve.

October 12, 2017

Who are the Biggest Losers from the ACA?

by Ed Dolan

In a post on Kaiser Health News, Julie Rovner discusses the plight of a forgotten slice of the population who are the biggest losers from the ACA. These are people who buy insurance in the individual market but earn too much to qualify for premium subsidies.

And no, these are not all millionaire lawyers in private practice and billionaire day-traders who work from laptops in their beach-side condos. The upper income limit for ACA subsidies is 400 percent of the poverty line, which comes to just $64,000 for a family of two. That hits ordinary working couples who would like to take early retirement, people working part-time who have outside income, and self-employed professionals. Even Uber drivers can make $64,000 a year if they work hard enough.

Rovner’s post highlights the case of a married couple from Raleigh, N.C., both in their late 50s, who work as private consultants to the energy industry. When their premiums reached $1,600 a month, with $7,500 deductible for each of them, they decided to forego insurance altogether.

Rovner calculates that there are about 7.5 million such people. That is less than 3 percent of the population, but they constitute 43 percent of those who buy insurance in the individual market.

These same 43 million who are the big losers from the ACA would be among the big winners from Universal Catastrophic Coverage. UCC, as I have explained elsewhere, has potential appeal to both conservatives and liberals. As premiums rise ever higher for unsubsidized shoppers in the individual market, the constituency for UCC can only grow.

October 11, 2017

The Way Stephanie Kelton Talks About Budget Deficit Politics is Mostly Wrong

by Karl Smith

In an Op-Ed in the New York Times, Stephanie Kelton – perhaps now the most famous proponent of Modern Monetary Theory – argues that the way the public thinks about budget deficits is mostly wrong. She writes

Should we invest a trillion dollars in our crumbling infrastructure, offer Medicare for All or pass the biggest tax cut in the country’s history?

Propose any of these, and the first question on everyone’s lips will be, “How are you going to pay for it?” The reason is simple: Lawmakers are obsessed with avoiding an increase in the deficit.

Most readers will find this a stunning claim and with good reason. Over the last 40 years the budget deficit has waxed and waned, largely in response to the state of the economy. It’s only general trend has been to grow larger.

Recently, however, Republican’s have indeed fretted over whether their Obamacare Repeal or Tax Reform Proposals will be deficit neutral. As, Kelton writes

Politicians of both parties should stop using the deficit as a guide to public policy. Instead, they should be advancing legislation aimed at raising living standards and delivering the public investments in education, technology and infrastructure that are critical for long-term prosperity.

Right now, anything ambitious requires a score from the Congressional Budget Office. A “bad” score — one that adds to projected budget deficits — can easily doom good legislation because lawmakers are told that their math doesn’t add up. And that’s a problem.

CBO scores may doom legislation, not because lawmakers fear being reprimanded on their arithmetic, but because deficit-neutral budgetary changes are immune to the 60-vote threshold otherwise necessary to carry major legislation through the US Senate. It is precisely because 60 Senators cannot agree on how to raise American living standards that the budget deficit is practical concern at all.

Proponents of Modern Monetary Theory make too much of political invectives against piling up debt. As GOP congressman Mark Walker lamented, what politicians really mean is that they just don’t like the proposal under consideration.

“It’s a great talking point when you have an administration that’s Democrat-led,” said Representative Mark Walker, Republican of North Carolina and the chairman of the Republican Study Committee, a group of about 150 conservative House members. “It’s a little different now that Republicans have both houses and the administration.”

Likewise, if the public came to embrace deficits this would do little to change, the nature of the debate. Rather than accusing one another of irresponsibly passing on bills to the next generation, politicians would simply claim that proposals they didn’t like squandered the potential economic benefits of the budget deficit on useless boondoggles or tax cuts for the rich.

October 11, 2017

A lone note of sanity on compensation for kidney donors

by Samuel Hammond

Yesterday, Gizmodo asked a handful of doctors and bioethicists about permitting the sale of kidneys. For the most part, it was another classic instance of medical professionals hand waving about human dignity and altruistic motivation, including this high-density bologna from Tarik Jašarević of the World Health Organization:

Payment for cells, tissues and organs is likely to take unfair advantage of the poorest and most vulnerable groups, undermines altruistic donation, and leads to profiteering and human trafficking. Such payment conveys the idea that some persons lack dignity, that they are mere objects to be used by others.

I took on each of these objections in my paper in defense of compensating bone marrow stem-cell donors. They apply equally to compensation for kidney donors, as the great Sally Satel will tell you. For now, though, I want to simply highlight the Gizmodo contribution from Dr. Arthur Matas, Professor of Surgery and Director of the Renal Transplant Program at the University of Minnesota, Minneapolis:

There’s no data that donation goes down [when selling kidneys is legalized]… And I would argue that if the total number of donations goes up, who cares? Maybe you’re eliminating some of the people who feel pressure to donate because there’s no other choice. That’s why I’ve always argued that we need to do a trial to find out some of these things; if the total number of donations goes down, then the answer is clear. But what if the total number of spousal or relative donations went down ten percent, and the total number of donations went up three hundred percent. Would it matter?

Ask for the data! This is what a true scientist ought to say. The dirty little secret of the WHO’s ideological opposition to compensation for organ donors is that it traces back to extremely thin and ideologically motivated research from the 1970s — specifically, Richard Titmuss’s influential book The Gift Relationship, which argued that payment to blood donors would crowd-out altruistic donors based on anecdotes, donor questionnaires, and his mere speculation. Hard data from field experiments, on the other hand, demonstrates that many compensation models undoubtedly induce far more donors than they dissuade.

Hat-tip to the inimitable Frank McCormick for sharing this article with me. McCormick is a co-author of “A Cost-Benefit Analysis of Government Compensation of Kidney Donors” (2015). From the abstract:

From 5000 to 10 000 kidney patients die prematurely in the United States each year, and about 100 000 more suffer the debilitating effects of dialysis, because of a shortage of transplant kidneys. To reduce this shortage, many advocate having the government compensate kidney donors. This paper presents a comprehensive cost-benefit analysis of such a change. It considers not only the substantial savings to society because kidney recipients would no longer need expensive dialysis treatments—$1.45 million per kidney recipient—but also estimates the monetary value of the longer and healthier lives that kidney recipients enjoy—about $1.3 million per recipient. These numbers dwarf the proposed $45 000-per-kidney compensation that might be needed to end the kidney shortage and eliminate the kidney transplant waiting list. From the viewpoint of society, the net benefit from saving thousands of lives each year and reducing the suffering of 100 000 more receiving dialysis would be about $46 billion per year, with the benefits exceeding the costs by a factor of 3. In addition, it would save taxpayers about $12 billion each year.

October 11, 2017

Chicago’s Soda Tax: R.I.P.

by Ed Dolan

Many cities have tried soda taxes—special taxes on sugary drinks—as a means of fighting obesity and, at the same time, raising revenue for worthy causes, such as education, hospitals, or public health. Berkeley, CA, was among the first to institute such a tax. Philadelphia, Seattle, Chicago, and many others followed.

Soda taxes, like other “sin taxes” on alcohol or tobacco, are supposed to pay a double dividend—raise revenue and reduce harmful externalities. There is theoretical support for the concept, but in practice, soda taxes draw strong opposition. Bottlers and distributors hate soda taxes, as do consumers. Such opposition has now killed Chicago’s soda tax.

Despite purported public health benefits, many economists are skeptical of soda taxes. Among the reasons:

Soda taxes are regressive. The poor pay proportionately more of the tax since they consume proportionately more sugary beverages.
Some jurisdictions have linked soda tax revenue to specific expenditure categories, like education or public health—a practice that is generally considered to be poor tax policy.
Soda taxes are too narrow—if taxation of sugary drinks is justified, why not tax all sugar?

The bottom line: Soda taxes, at best, are an imperfect instrument of public policy. Many economists and tax policy experts will greet the demise of Chicago’s soda tax with cries of “Rest in peace!”

Follow this link for a more detailed discussion of the economics of a soda tax in slideshow format.

October 5, 2017

How important is increasing the Child Tax Credit?

by Samuel Hammond

A new analysis released by Senator Marco Rubio’s office this morning illustrates how important increasing the Child Tax Credit’s size and refundability is to the overall impact of tax reform on middle- and working-class families:

ctc-rubio

The analysis is a straightforward look at how the Big Six tax reform framework would affect lower and middle income families assuming no CTC increase (the red line), compared to the Lee-Rubio-Ivanka Trump plan of doubling the CTC and applying refundability to payroll taxes (the Green line). Rubio’s office took the extra step of showing what that means for working families in different occupations:

ctc-rubio2

As I’ve noted previously, the Lee-Rubio-Ivanka plan would also help the very poor by beginning refundability at the first dollar on. Right now, the CTC has a $3,000 minimum earning requirement before it begins to phase in. Payroll refundability would eliminate that minimum, meaning someone making $3,000 per year would get about $460 back (0.153*3000) instead of $0 as is presently the case.

In August, Senator Rand Paul wrote an op-ed in which he said he’d “favor a large cut of at least 15% for every taxpayer.” The Lee-Rubio-Ivanka CTC reform would do just that, including for the majority of Americans who pay more in payroll tax than income tax. That’s perhaps why Senators Rob Portman and John Thune appear to be coming around to the plan.

With the launch of ExpandTheChildTaxCredit.com on Tuesday, it’s been great to see the conversation around tax reform finally begin to acknowledge the importance of the CTC to tax reform’s passage, and the opportunity it presents to do a lot of good for the working poor:

Forbes:

In addition to policymakers, DC-based think tank, the Niskanen Center, has spearheaded a coalition of liberal and conservative groups to push for the expansion with a new website, ExpandTheChildTaxCredit. Niskanen has been especially vocal about child welfare being cash-based…

Vox:

On the politics side, Trump “has always talked about the forgotten American worker,” Hammond said, and “the places where he has the base of his support are the sorts of places where people pay the majority of their taxes to the payroll tax system.” A plan that helps working families that don’t make enough to owe income tax would be a much easier sell for him than one that only benefits higher-income people.

Wall Street Journal:

“The tax framework, the way it’s laid out, makes the entire thing hinge on the child tax credit,” said Samuel Hammond, an advocate for the credit who is an analyst at the libertarian Niskanen Center. The debate over the credit also is a window into the trade-offs Republicans are weighing as they try to make good on promises of a booming economy and middle-class tax cuts.

The Atlantic:

The new child-poverty figures come as bipartisan support is building for an expansion of the Child Tax Credit, an expansion that could potentially reduce the child-poverty rate even further. … This month, a prominent group of conservative think tanks and scholars—among them Ramesh Ponnuru of the National Review, the Family Research Council, and the Niskanen Center— launched a campaign to increase the size of the credit as well.

October 5, 2017

Trouble Paying Your Medical Bills? You’re Not Alone.

by Ed Dolan

Writing for Axios, Drew Altman gives us the latest on who’s having trouble paying their medical bills. The answer, it turns out, is most of us.

Here is a chart he presents, based on survey data from the Kaiser Family Foundation:

Some of this, perhaps, is not all that shocking. After all, we do live in a world of trade-offs. If you have to put off a vacation to pay for a new car, isn’t it reasonable that you might do the same to pay for a new knee? Or dip into savings? Or work extra hours?

But some of the trade-offs seem more troublesome. For example, 59 percent of people reported that they didn’t just dip into savings, but used up all or most of their savings. For 26 percent, that meant taking money out of long-term savings, presumably retirement funds. If a quarter of the population has to choose between financial security in retirement or paying current medical bills, we might be justified in wondering if something is wrong with our social safety net. Much the same if people can pay their medical bills only by borrowing at the astronomical interest rates charged by payday lenders.

Wasn’t Obamacare supposed to fix all this? Yes, but, as Altman tells us,

The share of the public reporting problems paying their medical bills has not moved much in recent years. The Affordable Care Act has extended coverage and better financial protection to tens of millions, but it doesn’t have much of an impact on affordability beyond people covered by the Medicaid expansion and the marketplaces.

In the far larger employer-based health insurance sector, deductibles and other forms of cost sharing have been growing about five times faster than wages, and deductibles have been growing especially sharply for people who work for smaller employers.

Yes, something is definitely wrong with our social safety net.

October 3, 2017

America vs. “America First”

by Matthew Fay

At the center of Donald Trump’s 2016 presidential campaign was the idea that the world is taking advantage of the United States. Poor trade deals, immigration, and military alliances were screwing over American workers and taxpayers. Trump’s views on these issues were summed up in a simple phrase: “America First.” Despite being a throwback to the pre-World War II isolationist movement, Trump suggested that the slogan meant his foreign policy decisions would be treated as transactions in which mutual benefits were irrelevant and the United States would come out on the better end of the deal.

A number of foreign policy analysts who wish to see America’s liberal internationalist foreign policy come to an end credited America First with enabling his victory last November. Public opinion suggests otherwise.

A report released yesterday by the Chicago Council on Global Affairs shows that immigration, trade, and alliances are all very popular among the American people. The public’s views of alliances are particularly interesting:

Americans have repeatedly rated alliances as one of the most effective ways for the United States to achieve its foreign policy goals since the question was first asked in 2014. Today, the US public is more convinced than ever of their importance. Americans rate maintaining existing alliances as the most effective foreign policy tool, with 49 percent responding “very effective” (Figure B), followed by maintaining US military superiority (47%) and building new alliances with other countries (36%).

Americans also express confidence in Asian and European allies to deal responsibly with world problems, and solid majorities favor maintaining or increasing the US military presence in the Asia-Pacific (78%), Europe (73%), and the Middle East (70%). A slightly larger majority now (69%) compared with a year ago (65%) say NATO is essential to US security. And for the first time, majorities of Americans are willing to use US troops to defend South Korea if it is invaded by North Korea (62%) or if NATO allies like Latvia, Lithuania, or Estonia are invaded by Russia (52%).

The most specific wish that President Trump has for NATO is for allied countries to contribute more to collective defense; he and other administration officials have advocated for withholding US commitment to defend allies until they have paid more. But a majority of Americans think that NATO allies should be convinced to do their part through persuasion and diplomatic channels (59%) rather than threatening to withhold the US security guarantee to NATO allies to get them to pay more for defense (38%).

Given these views, it is clear that Americans appreciate the advantages that alliances bring. Majorities say that alliances with Europe and East Asia (60% each) are either mutually beneficial or mostly benefit the United States, and 48 percent say the same about alliances in the Middle East.

These numbers are in line with a similar report released last year by the Chicago Council.

The findings are interesting given what scholars have found about public opinion and foreign policy. While there is some debate, the prevailing theory is that public opinion on foreign policy—like domestic—is a product of “elite cues” broken down by partisan worldview. As president and leader of the Republican Party, Republican voters and at least some independents should have followed his lead as far as America’s alliances are concerned. Yet they have not.

Writing at his Washington Post blog, political scientist Daniel Drezner sees the Chicago Council’s findings as part of a larger trend in Trump’s presidency:

[I have] repeatedly stressed the degree of presidential impotence across all areas of Trump’s presidency. He cannot get Congress to do what he wants. He cannot get other countries to do what he wants. He cannot even get his own executive branch to necessarily do what he wants.

In response, Trump’s populist supporters like to argue that these other actors are thwarting the will of the people. When it comes to foreign policy, however, Trump’s policy instincts do not reflect some deep-seated groundswell for radical change. It is the president’s own policy instincts that are out of step. He has, in his customary witless manner, made liberal internationalism great again.

The good news is, as Drezner notes, there is not latent hostility toward American engagement in the world among the public. The better news is, even if there were, Donald Trump appears to be too weak and inept of a president to exploit it.

October 2, 2017

Pax Sinica: What Is To Be done?

by Karl Smith

Tyler Cowen reminds me of an issue I used to think a lot about.

…for the first time in my life time, in a way the first time ever, America finally has a peer country. The Soviet Union was a peer with its nuclear weapons but not in general. But in terms of human talent, GDP, China right now is in most ways a peer country to the United States. We’re not ready for that, mentally or emotionally.

It’s been too long since I have given the issue deep thought, but I used to be of the mind that the peaceful transfer of hegemony from the United States to China was the project of the 21st century. Now, at that time I thought that increasing income would lead naturally to liberal democracy, that the United States would be increasingly a Pacific Rim country – 100+ million people in the corridor from Seattle to San Diego – and that the handoff would be akin to that between Britain and the US, after WWII.

None of that has come to pass.

Perhaps most vexing is the seeming disinterest either the Chinese people or the Chinese state have for democratic reform. Can we turn over the world order over to a authoritarian state? My gut response is maybe, sort of.

China as the preeminent military and industrial power, forwardly deployed and heavily invested across the Eastern Hemisphere in close alliance with a Untied States that is the dominate naval and financial power seems in principle workable to me. However, there is a long way from here to there both culturally and geopolitically. It means, not least of all, that we view China as our natural and most important ally, assisting it where we can in establishing itself on the world stage. This is especially important for developing a sense of mutual respect with the Chinese populace. When it comes to geopolitics, I think authoritarian regimes are in some ways more sensitive to popular opinion than democracies.

October 2, 2017

States Take Action on Drug Prices Where Feds Fear to Tread

by Ed Dolan

In an earlier post, I noted that healthcare will never be affordable without action on prices. With the arrival of the million-dollar pill expected any day, drug prices are a major part of the picture. Little is being done in Washington to rationalize drug pricing, nor would passage of the various failed GOP reform bills have helped much. But there is good news, too. As Kaiser Health News reports, states are taking action where the federal government is not. In this area, at least, the much-touted model of the states as laboratories of reform may actually be working.

State efforts focus on various aspects of the problem of drug pricing. Transparency bills aim to require pharmaceutical companies to detail a drug’s production and advertising costs when they raise prices over certain thresholds. Cost-limit measures would cap drug prices charged by drug makers to Medicaid or other state-run programs, or limit what the state will pay for drugs. Supply-chain restrictions include regulating the roles of pharmacy benefit managers or limiting a consumer’s out-of-pocket costs.

The KHN article gives details and summarizes the state of play with this clever graphic:

September 29, 2017

The Neoliberalism of Bill Kristol

by Karl Smith

Bill Kristol, while interviewing Tyler Cowen, gives a stirring defense of what I think of as Modern Neoliberalism. Queued up for you below at the 1:15:18 mark. The subject is the Khan academy and online learning in general.

September 29, 2017

Collusion Among Employers is Crime Against the Free Market

by Karl Smith

I’ve spilled quite a few pixels defending the modern U.S. economy from charges of rampant monopoly power. My point has always been that market contestability mattered more than the size or profitability of the companies. Now courtesy, of Rachel Abrams at the New York Times, comes a report of explicit efforts to limit the contestability of labor markets.

Some of fast-food’s biggest names, including Burger King, Carl’s Jr., Pizza Hut and, until recently, McDonald’s, prohibited franchisees from hiring workers away from one another, preventing, for example, one Pizza Hut from hiring employees from another.

The restrictions do not appear in a contract that employees sign, or even see. They are typically included in a paragraph buried in lengthy contracts that owners of fast-food outlets sign with corporate headquarters.

Yet the provisions can keep employees tied to one spot, unable to switch jobs or negotiate higher pay. A lack of worker mobility has long been viewed as contributing to wage stagnation because switching jobs is one of the most reliable ways to get a raise.

As always, I hold that there is some economic rational for this…but this sure looks like a contract in restraint of trade. Moreover, the arguments in favor are less than compelling.

Turnover rates are high in the industry, and maintaining a talented work force requires investing in training and recruitment. Prohibiting franchisees from hiring one another’s workers protects that investment, said Stuart Hershman, a lawyer with the firm DLA Piper. He estimated that he had drafted hundreds of franchise agreements, many of which contained some kind of recruitment prohibition.

“There has never been, ever, any intention, by drafting this type of provision, to restrict employee mobility, restrict wage competition, or suppress employee pay,” Mr. Hershman said.

Defending your investment by restraining competition is precisely the goal of collusion. It only works through restricting wage competition. The very reason why noncompete agreements need to be signed between the worker and the individual employer is so that employers are forced to compete over whether or not they force employees to sign noncompete agreements!

Nor is this analogous to consider all workers as part of the big corporate family. The very reason for offering franchises is that the monitoring costs of running a massive multi-location corporation would be higher than simply letting an independent franchisee run the local show. In particular, it would be key to hire and retain good store managers. This makes the defendants case particularly compelling.

Ms. D was promoted to department manager, she said, and the next step would have been for her to fly to Illinois to attend “Hamburger University,” where McDonald’s runs its management-training programs. But the training was canceled when she got pregnant, she said in her suit, and the promotion never came.

She was frustrated, she said, and tried to take a job at a different McDonald’s, but was blocked because of the no-hiring rule. “That’s what hurt the most,” she said.

September 28, 2017

How much tax reform could carbon fund?

by Joseph Majkut

Yesterday, the Big 6 released their proposed framework for tax reform, including big rate cuts for corporate and personal income. Details on how this array of cuts and reductions will be paid for are mostly absent. That absence probably betrays a discomfort about the lack of available options for either eliminating popular tax breaks or raising alternative sources of revenue.

Even though reports hold that the conversations going on now do not include a carbon tax, one ought to be part of the conversation. As legislators and advocates try to craft an acceptable bargain that can get through a fractious Congress, levying a meaningful price on carbon would draw the attention of Democrats. It would also go a fair bit toward funding the personal and corporate income taxes that the Bix 6 have in their sights.

How much money is on the table? The numbers are in the trillions. The chart below shows the revenue that a prospective carbon tax would raise, across a wide range of carbon tax rates, over the first 10 years. Thanks to a new modeling tool from Marc Hafstead at Resources for the Future, we can get a rough estimate of new revenues from a carbon tax on fossil fuel use. The following chart shows the first 10 years of revenue from a carbon tax that would start from 10 dollars per ton (of CO2) to 50 dollars per ton and increase at a rate of 2 percent above inflation.

In this chart, the gross revenue has been scaled down by 25 percent, an accounting practice that a new carbon tax would encounter at the Congressional Budget Office to account for how the incidence of the carbon tax would decrease revenues from other taxes (a haircut that is distinct from any rate adjustments due to a tax swap). Based on decisions made by Congress, however, the net carbon tax revenue could be higher if the prospective carbon tax was levied on industrial sources of greenhouse gas emissions as well, as this model only calculates revenues for fossil fuels.

The main point here is that a carbon tax in the neighborhood of $25 per ton would unlock just about a trillion dollars of revenue to fund a tax reform package. With trillions of dollars of cuts to fund, legislators should stop looking for change in the couch and see what is coming out of exhaust pipes.

September 28, 2017

Great Graphics for Understanding Tax Debate

by Ed Dolan

Our hard-working and much-maligned mainstream media are doing a great job in providing easy-to-understand background on the tax reform debate.

On Wednesday, the Washington Post ran this fantastic image. This single graphic shows the distribution across the income spectrum of all the main personal income tax exemptions and deductions. But don’t look just at my static screen shot—check out the original with its interactive features.

Earlier Niskanen Center posts treat two of the biggest deductions in detail. One discusses the mortgage interest deduction, which not only favors upper-income families (as the WaPo image shows) but violates standard principles of tax economics and serves no socially useful purpose. Another argues that the charitable deduction, which is also skewed toward the wealthy, does little to help the needy and brings in less than a dime of new charitable giving for each dollar cost to the federal budget. A third post presents the case for including expansion of child tax credits as an element of broader tax reform.

Missing from the diagram: preferential taxation of investment income and reform of the corporate tax. You can find information about these in another great set of tax-reform graphics from the New York Times.