Monthly Archives: September 2015

Environmental News

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1. From the Boston Globe.

The research, published this week in Nature, drew on global satellite imagery and more than 400,000 sample counts from forests around the world in order to estimate that there are currently 3.04 trillion trees on earth. This is 750 percent more than the previous best estimate, which was 400 billion.

Pointer from Tyler Cowen. Even though the estimate of the number of trees may be much higher, I gather that this does not necessarily change estimates of the total biomass of trees. Otherwise, I would say that the inputs to climate models might need some adjustment.

2. From Katherine Mangu-Ward.

The Blue Ocean Society for Marine Conservation is just one organization among many that claim that more than 1 million birds and 100,000 marine mammals and sea turtles die each year from eating or getting entangled in plastic.

Morris and Seasholes reconstructed an elaborate game of statistical telephone to source this figure back to a study funded by the Canadian government that tracked loss of marine animals in Newfoundland as a result of incidental catch and entanglement in fishing gear from 1981 to 1984. Importantly, this three-decade-old study had nothing to do with plastic bags at all.

Overall, the five-cent bag tax appears to be a case of regulatory miscalculation.

The Welfare State, Europe and America

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Michael Tanner and Charles Hughes write,

In Austria, Croatia, and Denmark, the effective marginal tax rate for someone leaving welfare for work was nearly 100 percent, meaning that a person would gain virtually no additional income from working. In another 16 countries, individuals would face an effective marginal tax rate in excess of 50 percent.

Benefits in the United States fit comfortably into the mainstream of welfare states. Excluding Medicaid, the United States would rank 10th among the EU nations analyzed, more generous than France and slightly less generous than Sweden. Thirty-five states offer a package more generous than the mean benefit package offered in the European countries analyzed.

In my view, the key goal of reform should be reducing the marginal tax rate. This can be done either with a high level of benefits (in which case the budget cost is very high, and people with relatively high incomes will still be receiving benefits) or a low level of benefits (in which case we are looking for charities or local governments to fill in gaps). I prefer the latter approach.

You can look at my old posts on universal benefits or flexible benefits, often in the category “Setting Economic Priorities.” I once wanted to do a project that would try to put something like that on the agenda for the 2016 election campaign. That looks like something that would have been doomed, seeing how the campaign is actually shaping up. It looks as though the Republicans are going to have to spend so much time talking economic nationalism with respect to Mexico and China that even if they win the Presidency, they will have no economic policy mandate whatsoever.

Chris Edwards on Government Failure

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He writes,

Consider Medicare. Under Parts A and B, the government pays doctors and hospitals a set fee for
each service provided. That encourages them to deliver unnecessary services because they make more money the more services they bill. As an example, investigations have found that doctors are ordering many unneeded drug tests for seniors.

I think that someone with an opposing viewpoint would say that even though government initiatives are not executed flawlessly and that adverse side effects do occur, the intentions of the programs are good and the positive outcomes are sufficient to outweigh the problems. As Edwards puts it,

It is true, however, that just because a federal policy creates unintended collateral damage does not automatically mean that the overall policy is a failure. Some federal interventions do generate higher benefits than costs. The important thing is that policymakers look beyond the intended effects of their programs and consider how people and businesses may respond in negative ways over the longer term.

As I see it, those of us who are concerned about government failure have to get over the following hurdles with those who disagree.

1. Lead them to think beyond the intention heuristic. “Support for education” sounds good, but that does not automatically justify every government program intended to improve education.

2. Scrutinize the actual design and execution of government programs, rather than assume that both are flawless.

3. Track the cost of government programs. This includes the direct cost paid by taxes, but it also includes the indirect cost of market distortions, including (as Edwards points out) the deadweight loss from taxation.

4. Take into account the organizational dynamics of government programs. That is, agencies and programs tend to persist well beyond the point where they have served a useful purpose.

5. Take into account the public choice aspect of government programs.

Even so, I still do not think that we will get very far. I think that the supporters of Obamacare are aware to some extent of the way that each of these issues has affected the program (perhaps not so much with issue 3). And yet they are very enthusiastic about Obamacare, and they insist that it is working.

Bryan Caplan vs. Sociologists on the Labor Market

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He writes,

The chief failure in labor markets is that wages tend to be too high, leading to durably high unemployment.

Why? Mostly because so many workers view employers with resentment and suspicion. To contain this resentment and suspicion, employers compress wages and avoid wage cuts even when there’s high unemployment. The unintended effect is to make unemployment far higher – and hence more traumatic – than it needs to be, especially for the least-skilled. It’s the Tinkerbell Principle at work. Involuntary unemployment, free labor markets’ chief shortcoming, exists largely because workers believe that free labor markets are bad for workers.

Several links omitted. Read the whole post. I think it could provoke a lot of useful discussion.

For the most part, Bryan challenges the view that in the boss-employee relationship, the boss takes advantage of higher status and power. That is the way I think that sociologists view labor markets.

Bryan writes,

Everyone talks as if bosses have the better end. But talk is very different from action. If everyone were trying to start their own businesses and hire workers, that would count as “acting as if bosses have the better end of the deal.” Most workers, however, make no effort to become entrepreneurs. You could object that most workers don’t have the money to open their own businesses, but most rich workers make no effort to become entrepreneurs either.

Almost nobody likes having a boss. But going out on your own is risky and stressful, so most people put up with it. Still, I think that one could argue that in the workplace, this fact gives bosses the sort of power that sociologists impute to them.

From this point of view, the best public policy to support workers would be to make it easier to go out on your own. Starting your own business can be daunting from the standpoint of paperwork: getting a license, filling out tax forms, etc. Also, health insurance is much more subsidized for large businesses, particularly those that do business in more than one state. If government were to take its thumb off the scale, perhaps the “exit option” would be more valuable to employees, which would raise their bargaining power in the workplace.

Just as almost nobody likes having a boss, Bryan would turn that around and ask whether anybody likes having employees. Employees grouse and they malinger. Public policy also could mitigate this by improving the “exit option” for bosses, that is by make it easier to screen potential employees and easier to fire those who fail to perform.

Richard V. Reeves on Inequality

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He writes,

Most journalists, scholars and policy wonks are members of the upper middle class. This undoubtedly influences their (OK, our) treatment of inequality. Those of us in the upper middle class typically find it more comfortable to examine the problems of inequality way up into the stratosphere of the super-rich, or towards the bottom of the pile among families in poverty or with low incomes. It is discomfiting to think that the inequality problem may be closer to home.

Pointer from Mark Thoma.

I recommend the entire Reeves piece. Readers of Robert Putnam, Charles Murray, and this blog will not be surprised that

the gaps by income in family structure are striking. There are more never-married than married adults (aged 35 to 40) in the bottom 40 percent of the income distribution (37 percent v. 33 percent). In the top quintile, the picture is reversed: a large majority of household heads (83 percent) are married, while just 11 percent have never been married

Reeves’ concern:

Efforts to increase redistribution, or loosen licensing laws, or free up housing markets, or reform school admissions can all run into the solid wall of rational, self-interested upper middle class resistance. This is when the separation of the upper middle class shifts from being a sociological curiosity to an economic and political problem.

He links to a piece from Reihan Salam several months ago.

Take away the mortgage interest deduction from a Koch brother and he’ll barely notice. Take it away from a two-earner couple living in an expensive suburb and you’ll have a fight on your hands. So the upper middle class often uses its political muscle to foil the fondest wishes of egalitarian liberals.

The latter, of course, coming largely from the upper middle class.

Brink Lindsey and Steve Teles like to point out that there are policies available that, contra an old book from Arthur Okun, could both reduce inequality and improve economic efficiency. However, these are the policies on which the upper middle class is dug in.

Against the Null Hypothesis

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Andrew Flowers reports on the Chetty, et al study showing differences in teacher value added,

Their numbers are being replicated in many different settings. Even in Rothstein’s paper critiquing their method, he replicated their results using data from North Carolina public schools. “I’m not aware of another area of social science where there has been so much replication, in such a short time, and they’ve all found the same result,” Kane said. On the consistency of replicability, Staiger said “it’s just astounding, actually.” Even Rothstein grants this: “Replication is an extremely important part of the research process … I think this is a great success, that these very complex analyses are producing similar results.”

We’ll see. My money is still on the null hypothesis.

We Don’t Make Things Any More

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Justin Fox writes,

The U.S. economy has grown so much during that period that people now are still buying more physical stuff than they did in 1950. Still, there are signs of a plateau.

Pointer from Tyler Cowen.

This follows a chart showing that the share of consumer spending going to goods has dropped from 60 percent in 1950 to 30 percent today.

One of the many reasons that the U.S. is not going to go back to the economy of the 1950s is that physical goods are less important to people now than they were then.

Alex Tabarrok on Urban Planning

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He writes,

In addition to transport arteries, I would also mention the importance of setting aside space and access points for sewage, electricity, and information arteries. It’s not even necessary that government provide these services or even the plan itself (private planning of large urban areas is also possible) but a plan has to be made. By reserving space for services in advance of development, developers and residents can greatly improve coordination and maximize the value of a city.

I think there is some truth to this, but it is more complicated. Planning is something that never stops. What is the plan for the planning process? How do you keep the planning process from being captured by NIMBYism or other rent-seeking forces? How do you keep it from becoming stifling? How do you enable a city to adapt to new circumstances?