No PLA for new Rockland school project

The Rockland School Building Committee has voted to turn down a request to slap a PLA on a new school project in town.

The Patriot Ledger:

The school building committee had a wealth of information for weighing the pros and cons, Chairman John Rogers said.

“A lot of Rockland people pay taxes and are not in the union; they deserve a crack at a cut of (the project),” said Rogers, who described himself as “not anti-PLA.”

Rogers said he voted in favor of a project labor agreement for redevelopment of the South Weymouth Naval Air Station several years ago, when he was serving on the board overseeing the redevelopment. He believes the school-project circumstances are different.

He said he was concerned about whether the committee would be able to successfully defend itself if it approved a project labor agreement and that approval was challenged in court.

A previous court decision suggests that the court would analyze the complexity, duration and size of the project.

“The cost of legal fees to defend a court challenge was also a consideration for committee members,” Rogers said.

“Union people can still bid on the project,” he said.

More from the Brockton Enterprise.

Cato Journal publishes BHI research on Project Labor Agreements

The latest issue of Cato Journal dedicated to current labor issues is now out and it includes the latest from BHI: "Why Project Labor Agreements Are Not in the Public Interest" by executive director David G. Tuerck.

Unemployment rate takes a dip: 9.7%

Small, but welcome, improvement:

The unemployment rate fell from 10.0 to 9.7 percent in January, and nonfarm payroll employment was essentially unchanged (-20,000), the U.S. Bureau of Labor Statistics reported today. Employment fell in construction and in transportation and warehousing, while temporary help services and retail trade added jobs.

More coverage.

Laffer throws Obama a curve

No rosy scenario:

Arthur Laffer, creator of the Laffer Curve that showed how low tax rates boost economic growth, is warning anyone who will listen that the economy is headed for a “train wreck” in 2011 that will make the current recession look tame by comparison.

The famed economist, whose supply-side, tax-cutting policies enacted by President Reagan in 1981 put the economy on a record-breaking, 25-year economic trajectory of growth and prosperity, is telling Americans not to be lulled by sporadic signs of growth this year, because the economy is headed for a sharper decline next year when tax rates are expected to jump sharply, sending the economy into a new tailspin.

“It will make the decline in U.S. output from 2010 to 2011 worse than the decline in output in 2008 and 2009 which will catastrophic,” Laffer said in an interview with HUMAN EVENTS.

Explaining the Shadow Budget

Director of Research Paul Bachman describes the Shadow Budget and its application to the Commonwealth of Massachusetts in an interview with Jim Musser of the Mercatus Center.

The "Shadow Budget" is part of a proposal outlined in BHI's latest study, Massachusetts Fiscal Policy: The Legend v. the Facts.

The study also hypothesizes how the Commonwealth of Massachusetts would have performed it a Tax and Expenditure (TEL) were in place since 1999.

Economists voice support/opposition to Big Ben's reappoinment

Of course economists have an opinion in favor of Ben Bernanke on one hand and opposition on the other hand.

Why do economists disagree?

Spiking again! Mass. unemployment

Latest unemployment data for Massachusetts. Not good.

The unemployment rate in Massachusetts rose to 9.4 percent in December, breaking a two-month streak of declining unemployment and bucking national trends, according to a release by the Executive Office of Labor and Workforce Development.

David Tuerck interview with WORLD Magazine

David Tuerck explains Massachusetts and its reputation

I don’t think a shift is taking place. First, Attorney General Martha Coakley is a terrible campaigner and Brown is an attractive guy. Also, as I said, President Obama went farther to the left than the union rank-and-file would have liked. Keep in mind that Massachusetts approved Proposition 2½ over 25 years ago and that puts a strong limit on property taxes. We also voted to cut the income tax eight years ago. When we have a statewide issue—like this one—Massachusetts can go to the right.

Stossel updates Ricardo

JOHN STOSSEL

When Nixon was president, we imported 25 percent of our oil. Since then, our "leaders" have wasted billions on subsidies for alternative energy. The result? Today we import nearly 70 percent of our oil.

Terrible as that sounds, I say, "So what?" Interdependence is just fine! And journalist Robert Bryce, author of Gusher of Lies: The Dangerous Delusion of Energy Independence, agrees. He'll be my guest on Stossel tonight (Fox Business Network, 8 Eastern, and again Friday at 10).

Bryce points out that while Saudi Arabia and Iran are oil exporters, they are gasoline importers. "If even Saudi Arabia and Iran are energy interdependent, why wouldn't we be?" he says. "Energy interdependence" is just a way of saying "division of labor" and "comparative advantage."

Our biggest foreign oil suppliers are Canada and Mexico. Do they threaten us? Venezuela or Iran might, but they need the oil money. They would hurt themselves if they tried to cut us off.

Even if they did try, we'd still get their oil. All the world's oil ends up in the same bathtub. The dictator sells to someone who sells to someone who will then sell to us. Chasing energy "independence" is pointless. Free trade is better. It makes us richer and more secure.

Let's add a little economics to health care economics

Veronique de Rugy: Economists have shown that if a good’s price is zero or decreasing, then the demand for this good will likely increase. In 2008, consumers were only directly responsible for 11.9 percent of total national healthcare expenditures, down from 43 percent in 1965, according to new data from the U.S. Department of Health and Human Services. This means that someone other than consumers pays roughly 88 percent of all healthcare costs, giving consumers little incentive to mind costs and much incentive to over-consume

The Beige Book is out.

Here's the write-up on the economy for the Boston district of the Fed. The bank's report strikes a cautious outlook.

First District business contacts report that activity has picked up in recent months. For retailers and some advertising and consulting firms, the pickup has led to flat to positive year-over-year sales, while manufacturers' revenues mostly remain below year-earlier levels. A couple of commercial real estate contacts see very modest improvement while others remain downbeat; residential real estate sales (but not prices) are up substantially in response to the 2009 new homebuyers' tax credit. Prices are generally said to be stable, except for selected metals prices, which are reported to be rising. With some exceptions, First District business respondents say employment is level or up slightly; some firms intend to raise pay levels modestly in 2010. The outlook remains cautious.

New proposed sheet metal apprenticehip rules fail efficiency test

BHI Executive Director David G. Tuerck presented testimony before the state's Board of Examiners for Sheet Metal Workers. The board is considering a proposal that will increase the ratio of three (3) sheet metal workers to one (1) apprentice. Does this make economic sense?

At a hearing of the board in Springfield, BHI argued:

These changes are, by any account, a step in the wrong direction. The national unemployment rate for construction workers currently stands at 19%. The prevailing wage law creates rigidities in construction wages that already make it impossible to relieve this problem by reducing labor costs for public projects. This new regulation will simply increase labor costs and thus further aggravate the current unemployment problem in construction.

The regulation will have adverse long-run effects as well. It effectively restricts labor supply for sheet metal workers at a time when experienced workers are reaching retirement age in greater numbers than before. By attempting to shift the composition of the workforce from younger to older workers, the regulation promises ultimately to invite labor scarcities and escalating labor costs.

Entire testimony is available at www.beaconhill.org.

Do taxes matter?

Apparently for retailers in Massachusetts this past holiday season. Business is down!

Holiday sales at local merchants dropped 2.6 percent compared with the same period in 2008, the third straight year of declines in Massachusetts, according to a survey released yesterday by the Retailers Association of Massachusetts.

Results of the 2009 survey of 3,100 business owners were in line with the association’s projection of a 3 percent drop for November and December sales. That comes on top of a 7 percent plunge during the same months in 2008.

Some businesses, including jewelers and home goods shops, saw a small uptick in Christmas sales, but the recession, coupled with an increase in the state’s sales tax, made it another tough year for Massachusetts merchants, according to Jon Hurst, president of the Retailers Association of Massachusetts.

“Retailers were more prepared this year with lower inventories and lower expectations,’’ Hurst said. “This year’s decline isn’t as bad as 2008, but that was really the worst holiday season that the retail sector had seen in a long time.’’

Research firm ShopperTrak yesterday reported that sales across the country rose 1.7 percent for the 2009 holiday shopping season while traffic at shopping centers dropped 2.9 percent for the same period. Winter weather also seemed to take a toll in New England, with BJ’s Wholesale Club blaming a severe snowstorm before Christmas for taking away sales.

Hurst and other local merchants suggested Massachusetts fared worse than other states because of the sales tax increase. State lawmakers hiked the sales tax in August to 6.25 percent from 5 percent.

BHI's analysis of last year's tax hike is here.

Impending chaos the result of EPA new power on GHG?

It's not just business that wants to slow down the Environmental Protection Agency and its new rules to regulate greenhouse gases under the Clean Air Act. States want the EPA to take another look.

A growing number of state regulators are urging the Obama administration to slow the rollout of proposed federal rules curbing industrial greenhouse-gas emissions, saying the administration's approach could overwhelm them with paperwork, delay construction projects and undercut their own efforts to fight climate change.

The concerns echo some criticisms that business groups -- including the American Petroleum Institute and the National Association of Manufacturers -- have voiced about the potential consequence of new regulations, though the states generally don't challenge the legality of the proposed regulations, as some business groups have. Indeed, many state regulators continue to say they support the Environmental Protection Agency's effort to regulate greenhouse gases. Their concerns, they say, have more to do with how quickly such rules should be phased in, and how to pay for an expansion in regulatory oversight at a time when their budgets are in the red.

Regulators from around the U.S., including Kansas, Pennsylvania, Florida and California, are calling on the EPA to go slowly with its new rules, and in some cases warning that they lack funding to regulate some of the new emissions sources that would be covered.

The states' warnings vary in urgency, with some saying the EPA's proposal can be easily tweaked and others urging the agency to reconsider the proposal, predicting dire consequences. South Carolina regulators, in a letter to EPA dated Dec. 23, said the proposal will cause chaos and warned that many construction projects -- and jobs -- are at risk.

Read: BHI's Comments on Regulating Greenhouse Gas Emissions under the Clean Air Act;
Advanced Notice of Proposed Rulemaking RIN 2060-AP12

Robert Pozen on TARP

Robert Pozen:

The lesson from these transactions is clear. If the Treasury bails out large banks in the future, it should demand the same terms as those received by sophisticated institutional investors. Some of the rescued banks will become profitable, while others will become insolvent. Taxpayers need to maximize their gains on the successful turnarounds to compensate for their losses on the bailouts that inevitably fail.

Pozen, chairman of MFS Investment Management, is the author of Too Big to Save: How to Fix the U.S. Financial System

Unemployment claims change little

Making the way for job growth?

Fewer than 435,000 Americans filed for first-time unemployment claims last week, the second week in a row that claims have been this low in more than a year.

The trend suggests that the economy is nearing the point when job growth will outstrip job loss in the US economy. But economists are cautious about the report released Thursday by the US Department of Labor because of the enormous variation between the seasonally adjusted and unadjusted numbers.

For the week ended Jan. 2, 434,000 Americans filed for first-time benefits (a sign they've just lost a job). That was up only 1,000 from the week before, when counted on a seasonally adjusted basis and economists had been expecting a rise to 440,000.

But because unemployment tends to peak around this time, government statisticians smooth this data so that the numbers can be compared week to week. In actuality, nearly 646,000 Americans filed for benefits last week, according to the unadjusted data.

Press release from DOL.

Those expensive public pensions

http://www.cato.org/pubs/tbb/tbb-59.pdf

Chris Edwards thinks state and local governments can realize large savings by trimming compensation packages for public employees.

Still good news: U.S. Economy Grew at 2.2%

GDP revised slightly downward. Bloomberg: U.S. Economy Grew at 2.2% Annual Rate Last Quarter

The 2.2 percent increase in gross domestic product from July through September compares with a 2.8 percent gain previously reported by the Commerce Department in Washington.

Improved consumer spending combined with a record drop in stockpiles this year will promote increases in production that may keep the world’s largest economy growing well into 2010. At the same time, companies such as Dell Inc. point to gains in business investment that signal growing confidence the expansion will continue.

“We are really starting to see the mechanisms for a sustained recovery come into place,” said Robert Dye, a senior economist at PNC Financial Services Group in Pittsburgh. “We are starting to see investment numbers come back.”

R.I.P. Paul Samuelson

Paul Samuelson has died at the age of 94. Ed Glaeser:

He was an immortal among dismal scientists: one of the mighty trio, along with Kenneth Arrow and Milton Friedman, who dominated post-war economics, the great formalizer of the field.

Friedman’s policy insights may have been more radical and significant; Arrow’s genius may have produced more beautiful gems of economic theory. But it was Samuelson who gave economists our toolbox — the mathematical methods that define our field — and the magnitude of that gift made him an indispensible economist.

More from Marginal Revolution.

Mario Rizzo wishes "to strike a discordant note."

A very nice primer: Quantitative easing explained

For economists who have doubts: Quantitative easing explained!

Are progressive income taxes a stable source of revenue?

RealClearMarkets - State Taxes Produce Wild Revenue Swings

More surprising, but ultimately logical, are the results from states with flat income taxes. The usual expectation is that flat taxes will produce more stable revenues than progressive income taxes that rely disproportionately on high earners. This is because high income people tend to have volatile incomes that move sharply with overall economic performance.

However, five of the seven states with flat taxes saw income tax revenue drops above the 11.4% national average. While Pennsylvania and Utah outperformed most states with drops under 9%, Indiana's flat tax saw a 20.3% drop in collections, and the four others ranged from 11.7% to 14.3%. Meanwhile, New York and New Jersey (which have graduated income taxes that rely heavily on high-income taxpayers) saw revenue drops under 9%.

Progressives will point to these results as evidence that graduated taxes do not promote revenue instability. They are wrong. What has happened is that states with flat income taxes have resisted political impulses to raise income taxes. Meanwhile, states with sharply graduated taxes have tended to impose (often sharp) income tax hikes for the current fiscal year. If states like New York and New Jersey hadn't raised taxes, their revenue performance would be among the worst in the country.

No state with a flat tax raised its income tax this year. However, eight states with graduated income taxes raised rates: Connecticut, California, Delaware, Hawaii, New Jersey, New York, Oregon and Wisconsin. Most of these personal income tax increases were in the form of new or increased "Millionaire's Taxes", which contrary to the name may be imposed on incomes as low as $125,000. The sole exception is California, which raised tax rates across the board including in its millionaire bracket.

In New Hampshire: 'A real win for the principle of fair and open competition '

Bid process marked by PLA stopped:

MANCHESTER -- Dick Anagnost went to bed Thursday night believing the nine years he invested in bringing a new Job Corps Center to the city was coming close to fruition.

He woke up yesterday not so sure.

That's when he learned the U.S. Department of Labor canceled the bid process for the 160,000-square-foot center planned off Dunbarton Road. The estimated cost of the project is $35 million.

"It'll be a terrible blow if this thing goes away," said Anagnost, chairman of the New Hampshire Job Corps Task Force.

Anagnost said he spent most of yesterday trying to find out when or if the bid process would restart. He also said he called on the help of the state's four legislators in Washington, D.C.

The Labor Department's decision came a day short of one month after North Branch Construction of Concord filed a protest with the Government Accountability Office. North Branch decried the Labor Department's requirement for a Project Labor Agreement (PLA) that the contractor contends mandates following union rules and paying into union benefit funds as a condition for bidding on the project.

The Associated Builders and Contractors, which represents 25,000 merit shop construction and construction-related firms that employ more than 2 million people, is supporting North Branch in its legal battle.

"This is a real win for the principle of fair and open competition in government procurement," said North Branch attorney Maurice Baskin of Venable LLC. "It is no coincidence that the Department of Labor canceled its unlawful PLA mandate the day before the agency was required to file a response to our bid protest. We demonstrated that there was no justification for imposing a PLA on this project and that the PLA mandate violated the Competition in Contracting Act and other long-standing federal procurement requirements."

North Branch filed the protest contending that most contractors in the state are non-union and the PLA would prevent them from working on the project.

"We are not anti-union," Ken Holmes, president of North Branch Construction in Concord, said in a statement at the time the protest was filed. "We work with union and non-union contractors, but the preponderance of contractors in New Hampshire are non-union. This knocks all of them out of the ball game.

The Beacon Hill Institute has published several extensive studies undermining the claims that Project Labor Agreements save taxpayers money. The latest can be found here.

Latest economic news in Massachusetts

The unemployment rate dips slightly to 8.9%

Holiday sales are expected to fall 3%.

Even Hollywood thinks state tax credits for movie-makers or subsidies for mega-stars are a bit dubious.

And of course the latest horror stimulus horror story; missing the mark. Globe: “People are scratching their heads because some of this doesn’t make sense. Studying pollen during the Viking Age isn’t going to create a lot of jobs and help the economy."

The dead hand on your television

It, of course, was only a matter of time. APNEWS: California targets TVs to lower electricity demand.

SACRAMENTO, Calif. (AP) - The most power-hungry television sets could soon be banned from store shelves in California as state energy regulators on Wednesday consider a first-in-the nation mandate intended to lower electricity demand.

If adopted, the regulations will require televisions sold in California to be more energy efficient beginning in 2011. The requirement would be tougher in 2013, with only one-quarter of the TVs on the market currently meeting that standard.

Energy commissioners say TVs account for about 10 percent of a home's electricity use. The concern is that the energy draw will rise by as much as 8 percent a year as consumers buy larger televisions, add more to their homes and watch them longer.

Some manufacturers say implementing a power standard will cripple innovation, limit consumer choice and harm California retailers because consumers could simply buy TVs out of state or order them online.

The standards would apply to all TVs up to 58 inches, allowing increasing power use for larger TVs.

For example, all new 42-inch television sets must use less than 183 watts by 2011 and less than 116 watts by 2013. That's considerably more efficient than flat-screen TVs placed on the market in recent years.

A 42-inch Hitachi plasma TV sold in 2007 uses 313 watts while a 42-inch Sharp Liquid-crystal display, or LCD, TV draws 232 watts, according to Energy Commission research. LCDs now account for about 90 percent of the 4 million TVs sold in California annually.

Industry representatives have said the standards would force manufacturers to make televisions that have poorer picture quality and fewer features than those sold elsewhere in the U.S.

California has previously led the nation in setting efficiency requirements for dishwashers, washing machines and other household appliances as a way to address the state's growing electricity demand.

So goes California, so goes the nation.

Where is the inflation?

It's there lurking according to this sketch by Veronique de Rugy:

Besides placing undue faith in the Fed’s ability to time perfectly any necessary anti-inflationary measures, the consensus suggests that the nation’s central bank now has the heretofore undiscovered ability to increase the money supply without creating inflation. If true, this would be an important new development, since inflation has long been rightly vilified for destroying entrepreneurship and long-term economic growth. But if false, this conceit could prove dangerous indeed. And it’s probably false.

Treasurer Cahill to address BHI's Competiveness Event

State Competitiveness Report
Keynote Speaker
Timothy Cahill,
Treasurer and Receiver General of the Commonwealth of Massachusetts

Wednesday, December 16, 2009 - 9:00 a.m

Sargent Hall
First Floor Function Hall, Suffolk University Law School
120 Tremont Street
Boston, MA 02108
RVSP - phone: 617-573-8750;
e-mail: compete@beaconhill.org


Sponsored by:
THE BEACON HILL INSTITUTE &
THE DEPARTMENT OF ECONOMICS at SUFFOLK UNIVERSITY

A jobless recovery?

Federal Reserve Bank of Philadelphia: Economy to grow but job growth will lag.

"The U.S. economy will grow over each of the next five quarters, according to 41 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters see real GDP growing at an annual rate of 2.7 percent this quarter. On an annual-average over annual-average basis, forecasters see real GDP falling 2.5 percent in 2009 before rebounding in each of the following three years. Real GDP will grow 2.4 percent in 2010, 3.1 percent in 2011, and 3.3 percent in 2012. As the table below shows, these estimates are a bit higher than those the forecasters projected in last quarter's survey.

The labor market looks weaker now than it did three months ago. Unemployment is now seen at an annual average of 9.3 percent in 2009 and 10 percent in 2010, before falling to 9.2 percent in 2011 and 8.3 percent in 2012. These estimates mark upward revisions from the forecasters' previous projection. Likewise, growth in jobs looks weaker. The forecasters see nonfarm payroll employment falling at a rate of 160,000 jobs per month this quarter and 35,000 jobs per month next quarter. Both estimates mark downward revisions from the previous survey. The forecasters see jobs beginning to grow in the second quarter of 2010. Over the second half of the year, jobs will grow at a rate of 150,000 per month. The forecasters' projections for the annual average level of nonfarm payroll employment suggest job losses at a monthly rate of 427,000 in 2009 and a further loss of 70,000 per month in 2010.

Growth looks like this: 3.5%

REUTERS:

WASHINGTON - The U.S. economy grew in the third quarter for the first time in a year, beating market expectations, as consumer spending and new home-building rebounded, signaling the end of the worst recession in 70 years.

The Commerce Department, in its first estimate of third-quarter gross domestic product on Thursday, said the economy grew at a 3.5 percent annual rate, the fastest pace since the third quarter of 2007, after contracting 0.7 percent in the April-June period.

The growth pace in GDP, which measures total goods and services output within U.S. borders, was above market expectations for a 3.3 percent rate. The economy last grew in the second quarter of 2008.

"Better than expected GDP is confirming that the Great Recession has ended," said Kevin Flanagan, fixed-income strategist for Global Wealth Management at Morgan Stanley in Purchase, New York.

"The question going forward is, is this more of a statistical recovery or are we going to get some meaningful momentum on a sustained basis."

More analysis here.

2009 Nobel Prize

Professor Ben Powell supplies his thoughts on both the 2009 Nobel Prize and a grad discussion board about the topic as well as some further reading material. Enjoy!

Sorry I'm a bit slow on this but I was out of the country until last night and am only now reading the commentary on this year's nobel prize winners Lin Ostrom and Oliver Williamson. I was shocked and thrilled to see this year's announcement. Williamson was not a surprise at all but I would have expected him to share the prize with Alchien or Demsetz. Instead by awarding it with Elinor the committee has highlighted a commonality in that both of them illustrating how to generate institutions to improve economic outcomes. In Williamson's case, it's the reason for the firm. In Elinor's it's the spontaneous generation of rules governing the commons and the reason why many top down solutions don't work. In both cases these should be conceived of as institutions embedded in the market or more broadly, civil society.

The reason I'm writing to the grad students specifically (and cc'ing the faculty) is because of the very troubling grad student blog (and very popular) I read this morning (warning, comments in it are vulgar and sexist):

The crux of their complaints seem to be that Elinor shouldn't have one because:
1) They never read her in their grad education
2) She hasn't published in many "top" economics journals
3) She's trained in political science and therefore not capable of doing economics.

This is a VERY sad state of affairs. They instead should feel ashamed of the lack of breadth of their own reading and their narrow focus outside of the broader tradition of political economy. Elinor asks some of the biggest "big think" type questions about institutions that should have a major impact in one's thinking on economic development especially but many other things as well. Her main publications have been books rather than econ journals and she's influenced some of the other big thinkers in economics (for instance 2002 Nobel winner Vernon Smith). Her work doesn't collapse neatly into a max subject to type framework or other training these grad students have got. Instead of seeing this as a limitation of their models they see it as a limitation of what is interesting. This is very shallow thinking and blinds them to important questions. I'm glad I work in a place that does have some appreciation for a more broad tradition of political economy.

I encourage you all to get some knowledge of Ostrom (and Williamson but if you've done any IO you'll be familiar with him anyway, or perhaps should be regardless of field since he is the world's most cited economist). Here are a few excellent blog posts or op-ed's by accomplished economists who will give you a general sense of her work. If you want to read her own writing her most influential book is "Governing the Commons" but that is rather high cost. There was just a nice symposium in the Journal of Economic Behavior and Organization that summarizes the bloomington school and includes a contribution from her:
June 2005 57(2), "Polycentric Political Economy: Essays in honor of Elinor and Vincent Ostrom" that would be a lower cost intro.

At a minimum check out some of the following:

David Henderson's WSJ op-ed:

Vernon Smith's Forbes column:

Paul Romer's Blog:

Alex Tabborak's blog:

Peter Boettke's Blog:

And Peter Klein on Williamson

Congrats to Ostrom and Williamson and happy reading to all of you.

At 9.3

U.S. 9.8% MA 9.3%. Make of it what you will.

A morning Email

Before I had my first cup of coffee today, an interesting E-mail chain had formed. Starting with the following quote, curtosy of Professor Jonathan Haughton, a lively debate was set off. Professor David Tuerck, Professor Ben Powell, Alfonso Sancez-Penalver and I, both of BHI, weigh in on the subject of universal health care.

Just this weekend I came across this quote from Hayek (chapter 9 in The Road to Serfdom):

“Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance — where, in short, we deal with genuinely insurable risks — the case for the state’s helping to organize a comprehensive system of social insurance is very strong.”

Is this not a case for universal health coverage of some sort (and for some conditions)?

Jonathan Haughton
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Yes, it is. And I would say, sadly so. Of course, Hayek is talking about a state run insurance system as opposed to the single-pay system to which we are headed. Nevertheless, he did himself no good by succumbing to this one urge to recommend a statist solution.

David G. Tuerck
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Agreed. You can find further, misguided, quotes from him in the Constitution of Liberty. I think these off the cuff concessions are inconsistent with the body of his work on knowledge and competition as a discovery procedure.

Ben Powell
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Perhaps. I see a somewhat different problem, which I am a bit surprised that he didn't address: some sickness really is not the fault of the individual - alzheimer's, Type 1 diabetes, and the like. But what about illness that results from personal choices - lung cancer (from smoking), Type 2 diabetes (from obesity), for instance. A key problem from an insurance perspective would be how to distinguish between these. In other worlds, how to insure against serious problems that are not one's fault without creating too much of an incentive to go easy on prevention.

Of course we already have universal health insurance (thanks to Ronald Reagan!), in that emergency rooms may not deny care to those who need it. That's appropriate, but one can't help thinking that it is a hugely inefficient way to provide such coverage - it is financed in haphazard fashion (mainly as cross-subsidies from our tax-favored health premia).

Jonathan
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
I keep thinking that, aside from the best solution, which would be complete government withdrawal from health care, the government should just take care of people who are sick through no fault of their own and who can't pay for their very expensive health care. This is the "high risk pool" of uninsurable people with chronic, unpreventable problems. It should ignore everyone else. People who go to emergency rooms could be chased down and made to pay for their care, and if they can't or won't pay, the hospitals could pass that cost along to the rest of us. In a rational market, young people could contract for health insurance now at rates that reflect the cost of their health care as they get older. By the way, I suspect that emergency room care is pretty efficient. I've gone to the emergency room at least three times to get a quick prescription for bronchitis and gladly paid the premium rather than wait for my doctor to see me. 'We could expand the availability of health clinics, too.

People who don't pay for insurance until they are middle age and then come down with some predictable middle-age disease have nothing to complain about. They rolled the dice and now they're out of luck. The key is health insurance available to the young, who are usually healthy, that they are guaranteed to keep even when they get older and sicker. I would rather let private charity take care of people in the high risk pool than give the government the job of caring for them, but that much government involvement I could take.

David
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Having read all these messages you are almost selecting what the government should cover instead of whether the government ought to cover. Going down that path opens a lot of questions that are not easy to answer. You mentioned before lung cancer from cigarette smoking. It is true that more patients of lung cancer are cigarette smokers but there has not been a definite scientific proof that smoking cigarettes causes lung cancer. What happens with patients of lung cancer that don't smoke? Even if it were to be proofed that smoking somehow caused lung cancer, what if the patient smoked in his 20s but had lung cancer in his 30s, what if he had it in his 40s, 50s or 60s? Continuing with cancer, what is considered to be the individual's fault? As we know cancer patients' descendents are at a higher risk of getting cancer. Is this the fault of the individual? Should the individual pay for the sins of the parents?

Having individually tailored insurance is not effective, either privately or publicly. The high risk patients may not be able to afford the insurance so the low risk patients are the ones who pay for the others' risks. Unless there is some risk poolin, insurance is not affordable by a lot of people. If you want the government to cover these high risk uninsurable patients, this funding is done via taxes. Why shouldn't it be done with a general private insurance plan? In the private plans they take into account whether you present a higher and lower risk at the time they issue the plan, so at least it is somewhat tailored. Private, for profit, companies have a higher incentive to look into a plead for free insurance from the people that claim to not afford the insurance they need.

The real question is, however, should we have universal insurance? The problem of answering yes to this question is that there are people who cannot afford it. How do they get it then? This may lead to government intervention, which is inefficient since government administration is not as efficient as private. The problem with answering no to that question is that some people cannot have their sicknesses treated. There are nonprofit health practices, but I'm not sure if they would cover open heart surgery.

Not a topic to be easily solved.

Alfonso Sanchez-Penalver
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
I agree there has to be risk pooling; otherwise why bother with insurance. But if one forces everyone to buy insurance, this represents a very regressive tax. A solution would be to provide everyone in the country with (say) a $4,000 health insurance voucher, and people could pay more for fancier coverage; but this provides an incentive for insurance companies to spend a lot of money figuring out ways to not insure high-risk individuals - surely a directly unproductive activity. Increasingly, I get pulled toward some sort of "basic medicare for everyone" solution with fairly high copayments, with scope for individuals to buy additional coverage (private hospital rooms, lower deductibles, etc.).

David may be right that emergency room service may not be as inefficient as all that; but if we were to encourage more "doc in a box" outfits, a lot of the relatively routine stuff could be handled more cheaply. More generally, I think we need to address restrictive practices in medical education and practice (excess certification; requiring a bachelor's degree before strating medical school; limited use of nurse practitioners and nurses for routine stuff).

On a related, but different issue; if a generic drug is available for, say, $20, and the brand drug costs, say, $50, why do insurance companies not limit reimbursements to ($20 - deductible)?

Jonathan
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The core problem here is that health insurance as it currently exists is no longer insurance, but prepaid health care. Insurance is a contract voluntarily arrived at according to terms voluntarily agreed upon in which the person insured is promised benefits, given a specified, adverse turn of events. Moral hazard makes it uneconomical for such contracts to cover events over which the insured has control. That's why my car insurance doesn't cover oil changes, tire rotations and minor accidents. Also, to be economical, insurance must cover events that occur with increasing probability over the lifetime of the insured, provided the insured buys into the insurance when he is young. In this respect, health insurance is exactly like life insurance.

So what's wrong with the status quo? For one thing, mandated benefits mean that I am insured against the cost of taking my Nexium, this for a condition that I could alleviate by the simple expedient of eating fewer spicy foods - the equivalent of insuring my car against damage due to not changing my oil. The second problem is the push to insure people against "pre-existing conditions." It is one thing if a patient is 22 and poor and has a pre-existing chronic problem like ALS. It's another thing if the patient comes down with diabetes at age 50, when he is wealthy but hasn't bothered to buy insurance. In my judgment, both patients should have to turn to charity for help. Presumably, a charity will take more pity on the first patient than on the second. But it doesn't matter since contributions to charity are voluntary. On the other hand, since I'm only 99% conservative, I'd be willing to go along with using taxpayer dollars to help the first patient, as long as I didn't have to help the second.

Anything wrong here?

David
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You bring a good point. Here's my question, what should happen to the 50 year old who is poor, not wealthy, and comes down with diabetes? I believe in your mind you have a clear path where people are born poor and end up wealthy, but this is not necessarily the case. Even when it is, you are saying that in you 1% liberal mind, the government who is primarily financed by those wealthy 50 year olds to cover the 20 year old case... why? Well... because the 50 year old can afford to pay himself!!! Why should he have to when he is paying more taxes than the 20 year old??? That would be making him pay twice for insurance. That one percent mind of yours is very liberal!!!

Alfonso
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My question on this, is in relation to what should insurance actually cover, regardless if its by the state or a private company. If I found out tomorrow that I was going to have a child, would I take out an insurance policy to pay for his or her first car in 16 years? Or would I start a small savings account, and put cash aside here and there. I know today that in 50 years time I will inevitably have medical issues. Should the insurance plan that I have cover there medical costs that I know will occur? Should I just expect insurance to cover actual random events (car crash injury, ect?) or above a certain expected level?

Mickey Head

Look to history for the bright upside

Nathan Fisk in today's Christian Science Monitor: Why the US will survive this recession.

Then, as in 2008, America's most prominent financial institutions collapsed or nearly failed under the weight of speculative promises. Yes, the devastation is remarkably similar, but so is the cure.

From the Panic of 1837 to the Great Depression of the 1930s to the difficulties of 1969 and '70 when the cost of living jumped 15 percent, American ingenuity has consistently beat back economic calamity.

In 1837, it was the individuals who cast their vision forward who succeeded. Tough times spur recovery.

The time is ripe for American genius to surge. We must shed the idea that our government can buy us out of a depression or somehow use a new tariff or tax to encourage growth.

Rather, we must turn to our ingenuity and the audacious independence unique to our nation – and change the course of America.

A heavy social safety net

This will strain the entire concept of social security. Reuters: Half of babies born in rich world will live to 100

[Researchers] said huge increases in life expectancy -- of more than 30 years -- had been seen in most developed countries over the 20th century.

And death rates in nations with the longest life-expectancy, such as Japan, Sweden and Spain, suggest that, even if health conditions do not improve, three-quarters of babies will live to celebrate their 75th birthdays.

"But should life expectancy continue to improve at the same rate, most babies born in rich nations since 2000 can expect to live to 100 years," they wrote.

The researchers, who pooled and analysed data from several international studies, said they wanted to explore "a common view" that a big rise in the proportion of older people would come as a result of helping an increasing number of frail and ill people survive longer -- with huge personal and societal costs.

But they found that even though many people who live to age 85 have chronic diseases such as diabetes and arthritis, they have only become frail and disabled at a later stage, essentially postponing frail old age instead of extending it.

"This apparent contradiction is at least partly accounted for by early diagnosis, improved treatment, and amelioration of prevalent diseases so that they are less disabling," they wrote.

"People younger than 85 years are living longer and, on the whole, are able to manage their daily activities for longer."

Project labor agreements on federal projects are not a good idea

While not as prominent as the push for union card check elections, anti-competitive Project Labor Agreements are a significant part of President Obama's pro-labor agenda. Last February the President signed an executive order encouraging the use of union-only projects on efforts valued over $25 million. The problem is that PLAs are costly and counterproductive.

A new BHI report, Project Labor Agreements on Federal Construction Projects: A Costly Solution in Search of a Problem reviews the rationale for PLAs on federal projects and finds it wanting.

BOSTON, MA – A new study released today by the Beacon Hill Institute (BHI) finds that Project Labor Agreements (PLAs), which will be permitted under an executive order from President Obama, will significantly increase construction costs on federal projects while doing nothing to protect the interests of federal taxpayers. The executive order reverses a prohibition on PLAs that was in effect during the Bush Administration.

The purpose of the BHI study, which is entitled Project Labor Agreements on Federal Construction Projects: A Costly Solution in Search of a Problem, was to determine whether the reversal of this prohibition is in the interest of federal taxpayers.

PLAs are agreements with contractors that establish the rules to be followed by firms that bid on construction projects. PLAs typically require a contractor to hire workers though union hiring halls, require non-union workers to pay dues for the length of the project and force contractors to abide by union rules on pensions, work conditions and dispute resolution.

In February, President Obama issued Executive Order 13502, which allows executive agencies to require contractors to use PLAs on federal construction projects costing $25 million or more. The federal government’s deadline for accepting comments on the order is September 23, 2009.The purpose of a PLA is to assure labor “peace” during construction projects.

But a review by BHI of federal construction projects during the Bush Administration found no instances of labor disputes that resulted in significant project delays or increased costs.“Our examination of the record produces no evidence of any systematic connection between the absence of a PLA, on the one hand, and cost overruns or delays caused by labor disputes, on the other,” said David G. Tuerck, one of the authors of the study and Executive Director of the Beacon Hill Institute. Therefore, the justifications offered by the Obama Administration for reinstating PLAs are not supported by the evidence.

The full report can be obtained here.

A veritable list for economics studentts

Something for everyone on this very useful list of the 100 Best Blogs for Economics Students.

My favorite is Marginal Revolution.

If it walks like a duck...

CHRISTIAN SCIENCE MONITOR:

'You get into a lot of semantics here,” says Eric Toder, an expert at the nonpartisan Tax Policy Center in Washington. But he says if money is owed to the IRS, “I supposed you would call that a tax."

Mass. foreclosures on the decline - Boston Business Journal:

On the mend?

BBJ: "Mass. foreclosures on the decline."

That's a little more than spare change

The president's cap-and-trade idea will hurt working families

The Obama administration has privately concluded that a cap and trade law would cost American taxpayers up to $200 billion a year, the equivalent of hiking personal income taxes by about 15 percent.

A previously unreleased analysis prepared by the U.S. Department of Treasury says the total in new taxes would be between $100 billion to $200 billion a year. At the upper end of the administration's estimate, the cost per American household would be an extra $1,761 a year.

A second memorandum, which was prepared for Obama's transition team after the November election, says this about climate change policies: "Economic costs will likely be on the order of 1 percent of GDP, making them equal in scale to all existing environmental regulation."

Why Richard Epstein is a genius

Separating the heat from the light, Richard Epstein praises his University of Chicago colleague and Obama appointee Cass Sunstein before intellectually burying him.

"Sunstein is by any fair account the most prominent, versatile and influential left-of-center legal academic in the U.S. His nomination has been supported, sensibly enough, by The Wall Street Journal, which also sees him correctly as one of the more conservative players in the Obama administration. But apparently, its wise counsel did not slow down key Republican senators who held up his nomination on at least three separate occasions, in part because of their worries that his view on hunting and animal care make him an extremist on animal rights.

Regrettably, they seem more influenced by the caricature of his position on the American Conservative Union Web site and Glenn Beck's brutal hosing this past July that also denounced Sunstein for his passionate support of Franklin D. Roosevelt's Second Bill of Rights. This sad tale has been well recounted by David Weigel in the Washington Independent. Therefore, it is perhaps no surprise that Sunstein's was confirmed was by the embarrassingly narrow vote of 57-to-40.

These unseemly outbursts of ignorant incivility have ripped at our country's frayed political fabric. One oft-neglected cost of these hysterical tactics is that they discredit ordinary academics, like myself, who strongly disagree with the views that Sunstein has so consistently and elegantly defended. Quite simply, it is to be drowned out by the childish arguments of my supposed allies. The correct political stance is to give President Obama wide latitude in choosing his subordinates, and then to dispute them on the key substantive issues.not"

But of course then there are the problems with Sunstein's long-nourished fantasy, a Second Bill of Rights, rounding out FDR's expansive use of government to drown out the fear from wants far and wide.

... it is Roosevelt's treacherous transformation of human aspirations into enforceable legal rights. There are two enormous gaps in that chain of reasoning. First, it does not specify the persons who must bear the correlative duties to this expanded set of rights. Nor can we duck this problem by imposing the obligations on the state or government, which consists, of course, of all those original right bearers in a different capacity.

So in the end we can't maintain the universality of Roosevelt's claim: We have to distinguish between those of us who count as "the people" and everyone else, those who don't really count at all. If we all have the rights to decent jobs, then workers have the right to form unions, regardless of the consequences to employers, shareholders and the public at large. If farmers have the right to a decent living, the rest of us have to suffer Roosevelt's deadly double of agricultural subsidies and state-sponsored crop cartels.

A second difficulty is as acute as the first. Who fills in the content of the right by telling us what counts as a decent price or a remunerative wage? In a world of major uncertainty, these questions have no fixed answer. But in a political setting, we devised schemes then to assure living wages to autoworkers, only to see Roosevelt's rickety structure comes crashing down on our heads. But do we learn humility from failure? Of course not, if we think that now is the time to implement a regime of positive rights to health care--oops, to health care insurance--funded by punitive and self-destructive taxes on the rich.

In short, there is no way to translate Roosevelt's--or Sunstein's vision--into sustainable social practices. But that's just what the First Bill of Rights can do with its bloodless protection of private property and freedom of contract, speech and religion. Now we can specify the correlative duties with precision: keep off the property of others, and don't meddle in their agreements. Follow these rules and you can stimulate investment and reward hard labor. By keeping our aspirations modest, we can keep our achievements high--which is why we don't want to undermine the first Bill of Rights by adopting the second.

When will people learn that there are only negative rights, not positive rights and the U.S. Constitution derives its power from the former, not the latter?