Amazing

How else could we say it?

MANDEL: "We all know that state and local government finances are a mess. This chart helps explain why."

Chart is here.

Key paragraph:

Now, I’m not anti-government, by any means. But this trend is disturbing. In times of crisis and economic struggle, government workers should not be getting bigger pay increases than the private sector. The domestic private sector has really been struggling for a decade, both in terms of job and pay. But the public sector kept paying higher compensation.

The arithmetic is very clear. State and local governments can’t keep funding higher wages and better benefits for their workers, while the private sector struggles. As a wise man once said, you can’t wring blood from a stone. And you can’t ask troubled taxpayers to pony up bigger pay gains for government workers than they are getting themselves.

Hat tip to Marginal Revolution.

Proposition 13 is not a good target for California's failures

The time to blame Proposition 13 for California's status as a failed state has long passed. The public understands this; the ruling elite refuses to believe it in the slightest.

Is it possible that California's pro-13 majority, denounced for decades as shortsighted and greedy, is actually on to something? The reason people refuse to believe that California's taxpayers keep too much money and its tax collectors don't get enough is, as Brown now says, that there's "so little confidence in state government."

The core of that distrust is the belief that California's public sector suffers not from the lack of money but from the failure to use the ample funds it does receive efficiently and beneficially. There's no shortage of facts about the revenue and spending sides of government, California-style, to justify that suspicion.

California, in the first place, is not a state with low taxes. It's not even a state with especially low property taxes. In 2007, the year of the most recent Census Bureau data comparing state finances, California's state and local governments levied $1,141 in property taxes per capita, less — but only 11% less — than the corresponding average, $1,288, for the 49 other states and the District of Columbia.

If we broaden the view to look at all taxes (property, income, sales and excise taxes) paid to state and local governments by individuals and corporations, California's governments received $4,731 per resident, 14% more than the $4,160 average outside California. Only eight states and the District of Columbia had a higher per capita tax burden.

Not only is California a high-tax state, it is even more conspicuously a high-revenue state. Things that aren't taxes, such as fees for government services, often have a high degree of "taxiness," as Stephen Colbert might say. The Golden State, routinely described as desperately short of funds because of Proposition 13, brought in $12,776 per capita in governmental income from all sources — taxes, fees, federal aid, charges for government-administered insurance and revenue from government-owned utilities — in 2007. Only three states and the District of Columbia received more.

On revising state constitutions, the shorter the better?

An interesting post at Marginal Revolution:

Using public choice economics, how might we redesign the Constitution of California? Lawmakers from both parties have proposed this idea, plus there were (failed) attempts to call a new constitutional convention through a referendum. Did you know that the operative constitution from 1879 is the third longest in the world, after Alabama and India?

I see a few options on the table:

1. Eliminate the 2/3 legislative majority required to pass a new budget.

2. Eliminate popular referenda.

3. Move closer to a Swiss-like "veto only" system for referenda.

4. Eliminate the power of referenda to authorize state-level expenditures.

5. Cap state-level expenditures.

6. Regulate state treatment of pensions more strictly, to encourage fiscal responsibility.

7. Amend the constitution to make it harder to...amend the constitution.

As Tyler notes California has the third longest constitution in the world. Reformers should aim for shorter, distinct Constitutions that affirm limited government. I think California needs to eliminate popular referenda that mandate the legislature to spend on specific programs.

Wall Street Journal on Obama's new PLA rule

WALL STREET JOURNAL: "We'd list more but newsprint is expensive."

Only 15% of the nation's construction workers are unionized, so from now on the other 85% will have to forgo federal work for having exercised their right to not join a union. This is a raw display of political favoritism, and at the expense of an industry experiencing 27% unemployment. "This is nothing but a sop to the White House's big donors," says Brett McMahon, vice president at Miller & Long Concrete Construction, a nonunion contractor. "We've seen this so many times now, and how many times does it have the union label? Every time."

It's also a rotten deal for taxpayers. White House economist Jared Bernstein blogged that these agreements "significantly enhance the economy and efficiency of Federal Construction projects." In fact, the carve-outs put an end to open, competitive federal bidding, which means higher project costs. They also mean taxpayers must finance the benefits and work rules of union members.

Mr. Bernstein could check all this with the Department of Veterans Affairs, which last year commissioned an independent study showing the Obama project labor agreements would likely raise the VA's construction costs for hospitals by as much as 9% in three of five markets—Denver, New Orleans and Orlando. In two others, New York and San Francisco, the study predicted a mixture of small cost increases and small cost savings.

The study reported "strong evidence to suggest that the result of a PLA [project labor agreement] that dictates work rules, double benefits, team structure and activities on non-union type contractors will be that production costs will increase—given these union-related requirements." It also rebutted a favorite liberal argument that such agreements lead to less labor strife, noting that there are "many examples for projects where there have been strikes but also no strikes—unrelated to whether or not a PLA is in place."

The Veterans study mirrors academic work showing that project labor agreements raise the costs of construction by 10% to 20%. The Beacon Hill Institute at Boston's Suffolk University in 2006 investigated the costs of building 126 Boston-area schools. It found project labor agreements raised winning bids for school construction projects by 12% and actual construction costs by 14%.

Boston's Big Dig, Seattle's Safeco field, Los Angeles's Eastside Reservoir project, the San Francisco airport, Detroit's Comerica Park—all were built under PLAs marked by embarrassing cost overruns...

Recent Beacon Hill Institute publications on Project Labor Agreements:

BHI Survey: Overwhelming majority of state voters oppose a key feature of Project Labor Agreements

Cato Journal: Why PLAs are not in the public interest

Project Labor Agreements on Federal Construction Projects: A Costly Solution in Search of a Problem

Cow tax and tax administration in Massachusetts

Move afoot to repeal the cow tax in Massachusetts.

“For me to go out and count every chicken that is moving or standing still is a lot of work,” said Ms. Dumont.

ROBERT SAMUELSON:

Should the United States someday suffer a budget crisis, it will be hard not to conclude that Obama and his allies sowed the seeds, because they ignored conspicuous warnings. A further irony will not escape historians. For two years, Obama and members of Congress have angrily blamed the shortsightedness and selfishness of bankers and rating agencies for causing the recent financial crisis. The president and his supporters, historians will note, were equally shortsighted and self-centered -- though their quest was for political glory, not financial gain.

Let's be clear. A "budget crisis" is not some minor accounting exercise. It's a wrenching political, social and economic upheaval. Large deficits and rising debt -- the accumulation of past deficits -- spook investors, leading to higher interest rates on government loans. The higher rates expand the budget deficit and further unnerve investors. To reverse this calamitous cycle, the government has to cut spending deeply or raise taxes sharply. Lower spending and higher taxes in turn depress the economy and lead to higher unemployment. Not pretty.

Repeal Davis-Bacon? One way to save money

DAMON W. ROOT of Reason Magazine takes on the rent-seekers:

For nearly 80 years, contractors working on federally funded construction projects have been forced to pay their workers artificially inflated wages that rip off American taxpayers while lining the pockets of organized labor. The culprit is the Davis-Bacon Act of 1931, which requires all workers on federal projects worth more than $2,000 to be paid the "prevailing wage," which typically means the local union wage.

Here's what happens. Unskilled construction workers possess one clear advantage over their skilled, unionized competitors: They're willing to work for less money. But Davis-Bacon destroys that advantage. After all, why would contractors working on a federal project hire any unskilled workers when the government forces them to pay all of their workers what amounts to a union wage? Contractors make the rational choice and get their money's worth by hiring skilled unionized labor even when the project calls for much less.

Davis-Bacon is a blatant piece of special-interest, pro-union legislation. It hasn't come cheap for taxpayers. According to research by Suffolk University economists, Davis-Bacon has raised the construction wages on federal projects 22 percent above the market rate.

BHI's research on the prevailing wage.
Related material here.

Rush Limbaugh cites BHI op-ed

Rush Limbaugh, the master of EIB, cites today's National Review Online op-ed by David Tuerck and Grover Norquist on the false promise of jobs in the Patient Protection and Affordable Care Act (PPACA).

WABC 3/18/2010 12:13:50 PM: ...What is up with Grover Norquist look at it from has a piece up today at national review online good though they budget for MSN at the health-care legislation will cost up to 700,000 jobs but will let you and that doesn't include the doctors were such are probably the auto of stories about nurses want to quit hospitals around the country hospitals rather than the original that's on top of the all know what this means yet is this just happened the national Council of rows of dosage of their opposition to the health-care bill setting immigration restrictions which disallow undocumented workers combined coverage on this federal money or troops you learned earlier support for the gangs is not as congenital as the label for a dog of a transfer payment for giveaways for our people and on the 21st of some to the immigration privately delivered until the storm Washington in the hope that quarter million people there or a big march and rally demanding illegal immigration amnesty on the day there theoretically would be voting on the health-care bill I stumbled up in the morning and helped her build file that they have the votes in the heavily actual numbers of the deadly when it was revealed as a woman or a everyday lives they have told you has been about dispiriting you depressing to hear that it's a lost cause but you give up regulators locally defined today they just gobble down about the only form of the CBO but they're no closer than they were and that's what all this means all this trickery while the chicanery all this behind the scenes look on the effort to create momentum word doesn't exist balder asking the president to delay his departure some to later in the week and reason are doing that is because the people who have the votes on something by somebody and it's going to complicate the summit is what's what's...

BHI releases study on jobs and Obamacare

The Patient Protection and Affordable Care Act will destroy jobs not create them. That's the finding of a new study from the Institute.

No relief! States increase sales taxes

FORBES: U.S. Sales Tax Rates Hit Record High

During 2009 seven states and the District of Columbia raised sales tax rates, with one jurisdiction--North Carolina--actually doing it twice. Only four states hiked rates in 2008 and only one in 2007. Given state budget problems, the 2009 state sales tax increases aren't surprising. States have also been raising income tax rates on the wealthyand on corporations and boosting excise taxes on alcohol and tobacco. With states now facing record budget shortfalls, more tax increases seem likely.

State level sales tax generally accounts for only about two-thirds of the total sales tax bill. The rest comes from levies assessed by counties, municipalities, Indian tribes and special-purpose taxing districts funding mass transit, urban renewal and even stadiums. Among lower level jurisdictions such as counties and towns, Vertex counted 649 new or increased sales tax rates during 2009 and just 192 reductions.

The result is a wide range of combined sales tax rates across the country. At the bottom: 0%, found in all of Delaware and New Hampshire, and most of Montana, Oregon and Alaska. The country's highest rate now is 12%, in the tiny portion of tiny Arab, Ala., (population 7,500) sticking into Cullman County. The rest of the northern Alabama town, in no-sales-tax Marshall County, pays just 8%.

Right now Chicago has the highest big-city rate, 10.25%. But in a move forced by Cook County lawmakers, the rate is scheduled to drop on July 1 to 9.75%, matching that of Los Angeles. In New York City the total bite is 8.875%. Other high big-city rates include San FranciscoandSeattle(9.5%), New Orleans (9%), Houston, Dallas and Charlotte (8.25%), Las Vegas (8.1%) and Philadelphia and Atlanta (8%).

BHI Survey: Don't mandate key feature of PLAs

A poll conducted by the Suffolk University Political Research Center for the Beacon Hill Institute shows that Massachusetts voters, while holding a favorable impression of organized labor, oppose a key feature of a union-only Project Labor Agreements that have received the imprimatur of the Obama administration. Project Labor Agreements, which are often applied to public construction projects such as the Big Dig, require that all workers be hired through union halls.

Opposition to the idea of requiring construction contractors to hire through union hiring halls runs counter to voters’ otherwise sympathetic attitudes to unions. The same survey showed that a majority (52%) of Massachusetts voters have a favorable opinion of unions. It also found that only 19% of voters believe that public sector union workers are overpaid.

The requirement that construction contractors hire their workers through union hiring halls is opposed by almost every segment of the electorate. Eighty‐eight percent (88%) of Republicans, 76% of Independents and 52% of Democrats oppose the requirement. Even among households with union members, 59% are opposed. Opposition is consistent across voters segmented according to age, gender, race and attitudes toward candidates for governor and the U.S. Senate. Only the 15% of voters who have a "very favorable" view of unions support the requirement.

Press release.
Cross-tabs.

More from the Boston Herald.

Up in smoke: Cigar taxes to hurt local businesses

Governor Patrick wants to raise state taxes on cigars.

Jetmira Kaziu is the COO of Cigar Masters, a cigar bar and lounge in the Back Bay. As a smoking bar, by law, at least 60 percent of its revenues must come from tobacco sales. Kaziu is worried that if the excise tax increase passes, she will feel like she’s stealing from her customers because they could easily get their favorite cigars cheaper elsewhere. Maintaining that 60-percent requirement would be difficult.
Glance: Cigars Taxes

“We are in between two states, New Hampshire, which doesn’t have any tax, and Rhode Island, which has just a 50-cents tax,” Kaziu said.

“So that means that all my customers, they’ll buy their regular cigars from the states next to us or probably go online and buy them, and as such we might even go out of business … and obviously the employees thrown out on the street in this economy is not such a viable thing to do.”

Joe Corrado, a 24-year old bartender, is a regular at Cigar Masters. He’s there a couple times a week, spending $30-50 a week, and he says if the excise tax hike passes, he would still most likely be a fixture in the bar, but his habits would change.

“Where I’m smoking $10 to $12 cigars now, I might bump down to the lower grades,” he said. “Or alternatively, I have aunts and uncles and friends that make frequent trips to New Hampshire, 40 minutes away or less, they make a day of it and stock up for the month.”

The governor acts as if the law of diminishing returns doesn't apply to state tax revenues.

Plight of the states: What happens when the feds stopping sending money?

Edward Glaeser:

I don’t think that states should cut spending now, but I’m not happy with the idea that the federal government is stepping in and eliminating the states’ need to handle their own obligations. In principle, states can create sufficient rainy-day funds and allow for sensible borrowing during economic downturns. Moreover, handling state budget shortfalls with federal bequests creates all manner of oddities.

As a watchdog, CBO fails

Former BHI intern, SUNY-Albany PhD candidate and owner of the Sociological Imagination, Josh McCabe doubts whether the Congressional Budget Office (CBO) lives up to its reputation as a fiscal watchdog, particularly when it comes to health care.

In reality, the CBO is underestimating their underestimation. Skopol’s fiscal watchdogs must be asleep on the job. Evidence from my home state of Massachusetts confirms my view that healthcare costs will only vastly increase if the package passes. Despite the fact that Obama is basically proposing a federal version of the plan already in place in Massachusetts, nobody likes to talk about the Massachusetts healthcare experiment for partisan reasons. Republicans don’t want to talk about it because it was pushed by then Republican Governor Romney while Democrats don’t want to talk about it because it’s largely a failure. Despite assurances otherwise, the number of new coverage mandates has continued to expand and now Governor Patrick wants to institute ad hoc price controls on insurance rates because nothing has been done to curb rising costs.

Read the whole blog entry.

Thanks to a rap tune, Hayek is hot again!

Hayekians, along with a few fly girls, strike back: In the long run, it's your theory that's dead



I'm sure the success of this viral video was not designed.

More on the making of this video with creator and economist Russ Roberts here.

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.

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?

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

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

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.

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.

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

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
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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?

Association Health Plans hold the answer for small business

Is it time for Association Health Plans? GLOBE: Relief in state health plan sought

President Obama’s vision for overhauling the nation’s health care looks remarkably like the landmark plan Massachusetts launched three years ago, but in one striking difference he would exempt many small businesses from having to contribute to workers’ insurance coverage.

For those small businesses that do provide insurance, Obama’s plan would offer tax credits to offset costs and would create an exchange where employers could buy coverage at competitive prices - two key things Massachusetts has not done.

The differences underscore a sore spot for many small business owners in Massachusetts, who have been lobbying for relief under the state’s law, saying insurance has become unaffordable.

Obama said in his speech to the nation Wednesday night that his overhaul would exempt 95 percent of small businesses - those with fewer than 50 workers - from having to pay for workers’ health insurance.

But in Massachusetts’ overhaul, businesses with the equivalent of 11 or more full-time workers must offer coverage or pay a penalty - a requirement that has chafed at many small business owners who say they lack the buying clout of big businesses to bargain for cheaper insurance rates. Small business owners say they have had to shoulder double digit annual increases in their premiums in recent years, typically higher than the 7 percent to 9 percent increases larger businesses have faced.

A 1996 state law prohibits small businesses from negotiating as a group.

Yesterday, Governor Deval Patrick said publicly for the first time that he backs efforts to change that law.

“That [law] is wrong in my view, and it needs to be changed,’’ Patrick said in a conference call with reporters.

Pending legislation would allow businesses with 50 or fewer employees to form a nonprofit consortium to bargain for cheaper rates.

Back in 2005, the institute release a study highlighting the benefits of allowing small businesses to develop association health plans.

It found that

- a small group purchasing pool has the potential to: provide coverage to an estimated 10,258 firms, of which 4,273 did not previously offer insurance;

- extend coverage to 83,575 enrollees, of which 24,822 were previously uninsured workers and their dependents;
reduce the number of uninsured workers by 14,687, and

- reduce the burden of uncompensated care by $47.6 million

However, such plans were met (and will continue to be met) with resistance from large insurance companies in the Bay State.

Press release June 28, 2005

Here is the full study.

Herbert Spencer's Bad Rap

A closer look: Herbert Spencer reconsidered.

Bad news on the poverty rate

It was bound to happen:

U.S. poverty rate hits 11-year high.

It's almost official: Recession over

Jay Fitzgerald reporting on the Federal Reserve's Beige Book release highlighting slight economic improvement, particularly in New England.

The Boston district is seeing minor economic gains in a number of sectors.

“Retailers, manufacturers, and software and IT service providers, while still reporting mixed results, are more confident about their companies’ and the economy’s eventual recovery,” the report said.

A sign that some businesses might be ready to start hiring, at least part-time workers, would be found in interviews with temp firms, the report said. “Staffing firms cite an uptick in activity,” the report said.

The number of residential homes sold has increased, though overall prices continue to fall, the report said. One big sore spot is commercial real estate, which remains “very soft.”

Clunker!

On the hook: "Taxpayers face heavy losses on auto bailout". Can't say we are surprised.

Dropping to number 2!

Should we worry? World Economic Forum: U.S. drops to second in competitiveness index.

Switzerland knocked the United States off the position as the world's most competitive economy as the crash of the U.S. banking system left it more exposed to some long-standing weaknesses, a report said on Tuesday.

The World Economic Forum's global competitiveness report 2009/2010 showed economies with a large focus on financial services such as the U.S., Britain or Iceland were the losers of the crisis.

The U.S. as the world's largest economy lost last year's strong lead, slipping to number two for the first time since the introduction of the index in its current form in 2004.

"We have been expecting for some time that it may lose its top-position. There are a number of imbalances that have been building up," said Jennifer Blanke, Head of the WEF's Global Competitiveness Network.

"There are problems on the financial market that we were not aware of before. These countries (like the U.S. and Britain) are getting penalized now," she said.

The end of the recession?

BRIAN WESBURY:

"Today’s data should end, once and for all, any notion that the US is still in recession."

There is no French free lunch when it comes to health care

Guy Sorman writing in City Journal:

It may indeed seem free, or close to free, for an American tourist receiving treatment in an emergency; as a French taxpayer, however, I paid a heavy price for Paretsky’s husband’s treatment. And you, my American reader, did too.

How much? France’s costly national health insurance is mostly financed by taxes on labor. A Frenchman making a monthly salary of 3,000 euros will pay approximately 350 of them (deducted by his employer) for health insurance. Then the employer will add approximately 1,200 euros, making the total monthly cost to the employer of this individual’s services not 3,000 euros but 4,200. High labor costs in France affect not only consumer prices but also unemployment rates, since employers are reluctant to pay so much for low-skill workers. Economists agree that unemployment rates and the cost of national health insurance are directly related everywhere, which partly explains why even in periods of economic growth, the average French unemployment rate hovers around 10 percent.

Sometimes it works the other way

WSJ:

HOUSTON -- Farouk Shami, a Palestinian-born hairdresser who built a $1 billion manufacturing company around a popular line of hair irons, is moving all of his production of hand-held appliances from China to a sprawling new factory here.

The move flies in the face of conventional wisdom, which says gadgets like this are best made in a low-cost country. But, he says, outsourcing has led to a loss of control over manufacturing and distribution.

"We'll make more money this way -- because we'll have better quality and a better image," says the 66-year-old, who says his company, Farouk Systems Inc., spends about $500,000 a month fighting counterfeits, most of which he says originate in China. The company collects the fake products and tracks the source, and then brings action in China to shut down illegal producers.

Mr. Shami figures having production under his nose will help him control quality and inventory, and also fight the fakes, since imported irons will automatically be suspect. He sells in 104 countries, but the U.S. represents over 60% of the company's sales.

"I think you're starting to see more manufacturers rethinking outsourcing," says Daniel Meckstroth, an economist at the Manufacturers Alliance/MAPI, a public policy and research group based in Arlington, Va., calling a June speech by General Electric Co. CEO Jeffrey Immelt, where he said that overseas outsourcing had gone too far and that U.S. companies needed to expand domestic production, a "bellwether of what's happening in manufacturing."

Broken windows theory in action: Cash for clunkers!

BRIAN WESBURY applies the "broken windows" fallacy to Cash for Clunkers:

The basic problem with cash for clunkers is that it uses the old “broken windows” theory of economic activity. Everyone who lives in a hurricane zone knows that typically people are never busier than right after a major storm. Roofs need to be replaced, while damage to vegetation, glass, power lines, boats, etc., all require overtime to repair. All that activity gets counted in GDP.
 
But everyone also knows the storm was a bad thing, destroying property that was built at a cost in the first place. Sure, everyone is as busy as a beaver, but they’re just busy replacing what they had, not actually improving their standard of living.

A wealth tax for the deficit?

ARNOLD KLING:

Other countries that have defaulted have not had the option of enacting wealth taxes. When you are in a banana republic with shaky government finances and you have a lot of wealth, you send that wealth over to the United States, where your government cannot get to it. That "safe haven" motive is what keeps the dollar so strong. Anyway, by the time the banana republic gets around to enacting a wealth tax, all the wealth has fled the country and there is nothing left to tax. So the banana republic defaults.

Will it be "U-shaped" or "V-shaped"?

NOURIEL ROUBINI in the FINANCIAL TIMES:

There are also now two reasons why there is a rising risk of a double-dip W-shaped recession. For a start, there are risks associated with exit strategies from the massive monetary and fiscal easing: policymakers are damned if they do and damned if they don’t. If they take large fiscal deficits seriously and raise taxes, cut spending and mop up excess liquidity soon, they would undermine recovery and tip the economy back into stag-deflation (recession and deflation).

But if they maintain large budget deficits, bond market vigilantes will punish policymakers. Then, inflationary expectations will increase, long-term government bond yields would rise and borrowing rates will go up sharply, leading to stagflation.

Another reason to fear a double-dip recession is that oil, energy and food prices are now rising faster than economic fundamentals warrant, and could be driven higher by excessive liquidity chasing assets and by speculative demand. Last year, oil at $145 a barrel was a tipping point for the global economy, as it created negative terms of trade and a disposable income shock for oil importing economies. The global economy could not withstand another contractionary shock if similar speculation drives oil rapidly towards $100 a barrel.

In summary, the recovery is likely to be anaemic and below trend in advanced economies and there is a big risk of a double-dip recession.

Infant mortality and health care reform

STEVE CHAPMAN:

"A lot of things could be done to keep babies from dying in this country. But the health care 'reform' being pushed in Washington is not one of them."

Federal minimum wage laws hurt those who need help!

Steve Chapman in Reason:

The suspension of disbelief required to support the minimum wage will only take you so far. It's impossible to deny that if it were illegal to pay someone less than a mere $36 an hour, a lot of jobs would vanish. But a small dose of poison is still po ison, and in this case it's being administered to a patient who is already ill.

Introducing the sociological imagination.

Josh McCabe, former BHI intern, has a new blog, The Sociological Imagination that will try to drag both economists and sociologists closer to each other.

Josh McCabe is a first year PhD student at the State University of New York at Albany where I'm sure he'll drag his teachers closer to the world of Austrian economics.

Hat tip: Organizations and Markets

The sound of wind in Texas felt like a good idea

The bloom is off the rose! T. Boone Pickens's wind farm dreams meet the gale force of reality.

Plans for the world's largest wind farm in the Texas Panhandle have been scrapped, energy baron T. Boone Pickens said Tuesday, and he's looking for a home for 687 giant wind turbines.

Pickens has already ordered the turbines, which can stand 400 feet tall — taller than most 30-story buildings.

"When I start receiving those turbines, I've got to ... like I said, my garage won't hold them," the legendary Texas oilman said. "They've got to go someplace."

Pickens' company Mesa Power ordered the turbines from General Electric Co. — a $2 billion investment — a little more than a year ago. Pickens said he has leases on about 200,000 acres in Texas that were planned for the project, and he might place some of the turbines there, but he's also looking for smaller wind projects to participate in. He said he's looking at potential sites in the Midwest and Canada.

In Texas, the problem lies in getting power from the proposed site in the Panhandle to a distribution system, Pickens said in an interview with The Associated Press in New York. He'd hoped to build his own transmission lines but he said there were technical problems.

STAMPing out our critics

No matter how hard they try, BHI's critics in Pennsylvania still
don't have a handle on STAMP.

New financial industry rules are self-defeating

In a recent letter to the Boston Herald, BHI Koch Summer Fellow Andrew Dabrowski thinks more rules don't make for better rules.

The Herald’s criticism of the new financial regulation package simply fails to go far enough (“Regulation history,” June 21). Suffice to say, there are many, many new rules, and very few of them will do anything substantial.

Does anyone really believe that the same tired government agencies will be able to manage ever more responsibility? Far from helping the American consumer, these new regulations will further restrict banking activity. Putting the brakes on the financial industry should be the last thing the economy needs. Obama’s regulation will fail to modernize the financial regulatory system, leaving it open to future disaster.

Ideally, the new rules should have centralized regulation by eliminating the legions of individual regulators. I don’t necessarily argue for a single agency, but rather for fewer, more effective institutions.

WSJ publishes letter from BHI Koch Summer Fellow

Last week the Wall Street Journal published a letter to the editor from BHI Koch Summer Fellow Alex Weckenman. Here's the entire letter:

Messrs. Rivkin and Casey argue that a public healthcare plan violates the privacy rights established in Roe v. Wade. But where is the violation of privacy?

Roe v. Wade.prevents the government from limiting access to abortion on the grounds that the decision to abort is a private matter best left to the woman. That same logic may prevent government from limiting access to the type of treatment that a patient deems most suitable. But the existence of a public plan does not preclude access to private insurance. Those that disagree with the government plan are free to pursue whatever private alternative they choose.

Government restrictions on access to private care are the real privacy rights violations. For example, the ban on interstate purchases of health insurance, like a ban on abortion, limits an individual's autonomy on a deeply personal issue.

Alex Weckenman
Boston

BHI on Green Jobs

Green Jobs a Cost, Not Benefit, to the National Economy

Academic Study Finds Critical Economic Flaws and Assumptions in Previous Reports

BOSTON, MA – Recent studies forecasting the potential economic benefits of government green job programs are critically flawed and erroneously promote these jobs as a benefit, according to a report released today by The Beacon Hill Institute (BHI) at Suffolk University.

The economic analysis reviewed the primary claims of three of the most influential green jobs studies and found serious economic flaws in each.

“Contrary to the claims made in these studies, we found that the green job initiatives reviewed in each actually causes greater harm than good to the American economy and will cause growth to slow,” reported Paul Bachman, Director of Research at the Beacon Hill Institute, one of the report’s authors.

The studies reviewed by BHI include:

* The United Nations Environment Programme, International Labor Organization, International Trade Union Confederation’s Green Jobs Initiative, “Green Jobs: Towards Sustainable Work in a Low-Carbon World.”

* The Center for American Progress, “Green Recovery: A Program to Create Good Jobs and Start Building a Low-Carbon Economy.”

* The U.S. Conference of Mayors, “U.S. Metro Economics: Current and Potential Green Jobs in the U.S. Economy” prepared by Global Insight.

The authors of the BHI critique identified a fundamental error in each of these studies, specifically "counting the creation of a green job as a benefit and rationale for its proposed program in and of itself.”

The BHI study also stresses that “Jobs -- green or otherwise -- are not benefits but are instead costs. If the green job is a net benefit it has to be because the value the job produces for consumers is greater than the cost of performing the job. This argument is never made in any of these three green jobs studies.”

The executive director of the Beacon Hill Institute and co-author, David G. Tuerck, went further, noting that “these studies are based on arbitrary assumptions and use faulty methodologies to create an unreliable forecast for the future of green jobs.

“It appears these numbers are based more on wishful thinking than the appropriate economic models, and that must be taken into consideration when the government is trying to turn the economy around based on political studies and the wrong numbers,” Tuerck said.

According to BHI, the results of the study also show estimates on how a state-based cap and trade policy will negatively impact both job growth and wages. One specific critique involves job creation in the state of Indiana, where previous reports did not take increased energy costs from a “cap and trade” system into consideration when looking at job creation. In that case, BHI developed a computable general equilibrium (CGE) model and found that contrary to previous studies, Indiana would lose more than 18,000 jobs in 2009, up to nearly 29,000 job losses in 2011, and that real disposable income would be cut by nearly $1 billion in 2009 and close to $1.5 billion in 2011.

The authors concluded by noting that further economic analysis is needed before governments move forward on green job initiatives. “All three green jobs studies we reviewed are riddled with economic errors, incorrect methods, and dubious assumptions. Economic policy should not be based on such faulty analysis. Serious economic studies of costs and benefits are desperately needed before the adoption of any green jobs proposal.”

For more information and the full study, please visit www.beaconhill.org.

WSJ: Cap and Trade Fiction

WALL STREET JOURNAL skewers Waxman-Markey and the CBO.

... Congressional Budget Office did an analysis of what has come to be known as the Waxman-Markey bill. According to the CBO, the climate legislation would cost the average household only $175 a year by 2020. Edward Markey, Mr. Waxman's co-author, instantly set to crowing that the cost of upending the entire energy economy would be no more than a postage stamp a day for the average household. Amazing. A closer look at the CBO analysis finds that it contains so many caveats as to render it useless.

For starters, the CBO estimate is a one-year snapshot of taxes that will extend to infinity. Under a cap-and-trade system, government sets a cap on the total amount of carbon that can be emitted nationally; companies then buy or sell permits to emit CO2. The cap gets cranked down over time to reduce total carbon emissions.

To get support for his bill, Mr. Waxman was forced to water down the cap in early years to please rural Democrats, and then severely ratchet it up in later years to please liberal Democrats. The CBO's analysis looks solely at the year 2020, before most of the tough restrictions kick in. As the cap is tightened and companies are stripped of initial opportunities to "offset" their emissions, the price of permits will skyrocket beyond the CBO estimate of $28 per ton of carbon. The corporate costs of buying these expensive permits will be passed to consumers.

The biggest doozy in the CBO analysis was its extraordinary decision to look only at the day-to-day costs of operating a trading program, rather than the wider consequences energy restriction would have on the economy. The CBO acknowledges this in a footnote: "The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap."

The hit to GDP is the real threat in this bill. The whole point of cap and trade is to hike the price of electricity and gas so that Americans will use less. These higher prices will show up not just in electricity bills or at the gas station but in every manufactured good, from food to cars. Consumers will cut back on spending, which in turn will cut back on production, which results in fewer jobs created or higher unemployment. Some companies will instead move their operations overseas, with the same result.

When the Heritage Foundation did its analysis of Waxman-Markey, it broadly compared the economy with and without the carbon tax. Under this more comprehensive scenario, it found Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill's restrictions kick in, that number rises to $6,800 for a family of four by 2035.

Note also that the CBO analysis is an average for the country as a whole. It doesn't take into account the fact that certain regions and populations will be more severely hit than others -- manufacturing states more than service states; coal producing states more than states that rely on hydro or natural gas. Low-income Americans, who devote more of their disposable income to energy, have more to lose than high-income families.

BHI's work on cap-and-trade can be found here.