Tuesday, May 19, 2015

Robert Reich Is Wrong on Minimum Wage...Again!

Sometimes, it astounds me how smart men can act so stupidly. Robert Reich is one of those men. Here is a man who was a Rhodes scholar, earned his J.D. from Yale, taught at Harvard, and served in three presidential administrations. The man clearly has good credentials, yet I have to wonder when he pontificates on something like minimum wage. This isn't the first time he's gotten it so wrong. He made a video last year about why we need the minimum wage, and I called him out on it. The video he released a couple weeks ago (see below) shows that he's at it again. What did Reich say that was so off-base that I have to call it cringeworthy?

Let's go through his video claim-by-claim:

1. We see a growth in the working poor, some working 60 or more hours a week. "Some." What a vague qualifier. Let's get a more precise figure by looking at Bureau of Labor Statistics (BLS) data from 2014. 13 thousand minimum wage workers work 60 hours or more, which means that only 0.4 percent of minimum wage workers are working this grueling amount.

2. If the minimum wage from 1968 kept up with inflation, it would be worth $10 today. This might seem like a fair argument. However, let's take a look at the minimum wage over a longer period of time. The Pew Research Center actually published a 2014 study that looks at the inflation-adjusted minimum wage going back to its inception during the Fair Labor Standard Act of 1938.

Notice anything interesting? In terms of inflation-adjusted dollars, 1968 was the year during which minimum wage was at its peak. Historically speaking, the minimum wage was seldom as high as Reich would like for us to believe.

3. If it kept up with the added productivity of the American worker, it would be $21.72. This figure comes from a study conducted by the Left-leaning Center for Economic and Policy Research. However, this study suffers from the same aforementioned selection bias of making 1968 the base year to determine minimum wage policies. Even if we use the 1968 starting point, there is an issue with the way inflation is measured. As Manhattan Institute scholar Scott Winship points out, using the CPI-U to measure inflation overstates prices. Not only is there a substitution effect of goods, but the quality of goods changes over time, which increases purchasing power. As an example, a 1982 Apple computer versus one now is not only slower, but took more work-hours to earn enough money to pay the computer off. The two goods are qualitatively different. As such, a chained CPI or the personal consumption expenditure (PCE) method is preferred by the CBO and other governmental entities. And let's not forget that workers' wages are determined by marginal productivity, not average productivity.

4. When we put money in the pockets of the majority of minimum wage workers who are adult breadwinners, they turn around and spend it, which creates demand and jobs for all of us. It's a virtuous cycle. If the minimum wage is purely a "virtuous cycle," then it's reasonable to ask why we shouldn't raise the minimum wage to $50 or $100 per hour since it will be circulated back into the economy right away. What Reich seems to forget is that by raising the minimum wage, employers will respond accordingly since increased wages mean a smaller profit margin. Employers can adjust either by cutting hours and/or benefits, passing the cost on to the customer, or automating services.

5. Minimum wage workers aren't teenagers earning pocket money. About half are 35 or older. Most are women, and many are key breadwinners for their families. Let's take another look at that BLS data from 2014 to see if Reich is correct. While it's true that most minimum wage workers are not 19 and younger (only about a fifth are), it's equally untrue that about half are 35 or older (Table 7). If you do the math with the figures, about 29 percent of minimum wage workers are 35 or older (ibid). Minimum wage workers tends to be under 25, have a high school degree or less, have never been married, and work part-time. Also, 2.5 percent of workers age 25 and older earn the minimum wage, so it's not like we have a society full of minimum wage workers, which is the picture that minimum wage proponents like to paint.

6. And don't believe scaremongers who tell you that a $15 minimum wage will cause employers to cut unemployment. Reich is either forgetting or ignoring that there is an elasticity for the demand of labor, which is the responsiveness of employers in wage changes, most notably in terms of the amount of workers the employers keep employed as a result of said wage increase. Since labor has a cost, it's inconceivable that labor, especially low-skilled, is so inelastic. If you don't want to believe me or the "scaremongers" (his word, not mine), then believe the Congressional Budget Office (CBO) 2014 study that shows that an increase from $7.25 to $10.10 would cause an estimated 500,000 unemployed individuals as a result (CBO, 2014, p. 1).

7. When the minimum is raised, more are brought into the potential pool of employees. This cuts back on turnover, which saves more money. Reich very well might have confused correlation with causation. As for turnover, the lower turnover rate might have something to do with the fact that employers are disincentivized to hire more workers precisely because of the minimum wage hike (Neumark and Wascher, 2008Meer and West, 2013).

8. Employers who don't pay enough to lift their employees out of poverty are indirectly subsidized by the rest of us......through food stamps, Medicaid, etc. Arindrajit Dube, an economist who is a proponent of the minimum wage, disagrees with Reich by saying that such assistance does not have that effect, but actually increases a worker's reservation wage and contracts the labor supply. So as appealing as it might sound to say that means-tested assistance (e.g., food stamps) are subsidies to the poor since they supposedly cannot earn a decent wage, that is not the case.

Reich says that the decent thing to is raise the minimum wage to $15 an hour. A decent thing to do is have a discussion that takes both the costs and benefits of minimum wage into consideration. The real decent thing to do, though, is to not cause higher unemployment for those who you claim that you're helping.

"One of the great mistakes is to judge policies and programs by their intentions rather than their results." -Milton Friedman

Thursday, May 14, 2015

Fetal Viability Has Improved, But Does That Change the Abortion Debate?

Since the case of Roe v. Wade (1973), the legalization of abortion has been highly contentious. During this case, the notion of viability played an important role because the Supreme Court ruled that a woman had the right to an abortion up until the fetus was viable. Even during the third trimester, the Court ruled that late-term abortions were determine on a state-by-state basis.

At the time of the ruling, fetal viability was placed at the third trimester. Earlier studies show that earlier viability might not have been a possibility (Stoll et al., 2010; Fellman et al., 2009). However, a new study by the New England Journal of Medicine (Rysavy et al., 2015) very well might test Roe v. Wade. According to this study, 23 percent of fetuses were able to maintain viability outside of the womb at 22 weeks, which is not only six weeks earlier than the statute in the Roe v. Wade case, but is also earlier than the medical community had previously believed.

With improved medical technology, I would imagine that viability takes place earlier in the gestation period. Even so, I find the viability argument to be bothersome. Although viability is legally defined as one's ability to live outside of the womb, it can be expanded to mean, in more general terms, "the ability to live, grow, and develop." Let's say that an individual is on life support and can only be viable if on machinery and the help of others caring for that individual. Does that person lose their sense of viability? By this definition of viable, no one is truly viable because we all need external aid and support throughout our lives. Being connected to a body is not the same thing as being part of that body, and using such a definition should not define humanness or whether someone is worth protecting.

Even if I am personally perturbed by this standard, viability is still the legal definition set by the court system. If those who are against abortion want to prevent more abortions from taking place, then they have to change the law or work within the confines of the current legal criteria. At this juncture, it's looking like the latter approach is the most viable. Many states already ban abortions once the fetus is viable. Although the United States is one of seven countries that allow elective abortion beyond the twenty-week mark, that very well might change soon, especially since the House passed the Pain-Capable Abortion Act yesterday, which will ban elective abortions after 20 weeks. In the grand scheme of things, I have to wonder how much that will change the overall abortion rate. After all, only 1.2 percent of abortions take place at the 20-plus week mark of gestation. From a pro-life stance, this is a step in the right direction because it affirms a societal responsibility to protect life. However, in the grand scheme of things, it still doesn't do much to change the overall tone of the abortion debate.

Tuesday, May 12, 2015

Privatized Air Traffic Control: Ready for Take-Off

The sky is the limit, or so goes the saying. What has seemingly reached its limit is putting up with the government's control of air traffic control. Representative John Mica (R-FL) recently introduced legislation that would lead to greater privatization of air traffic control. In response, the Center of American Progress, which is the Left's equivalent of the Heritage Foundation, wrote a piece entitled "4 Essential Questions About Air Traffic Control Privatization." The four questions were as follows:
  1. If the current system works well, why change it?
  2. Who is going to pay for it?
  3. What about NextGen (which is a satellite-based system of navigation) implementation?
  4. How would privatization affect aviation policy?
The author of the piece assumes that a) the Federal Aviation Administration (FAA) is working well, and b) that air traffic control is so important or complex that only government can handle it. Addressing the second point first, we already live in a world in which multiple countries, many of them developed (e.g., Canada, Germany, United Kingdom), already have successfully either a public-private partnership or privatized air traffic control. Even though basic comparative politics teaches us that each country has a unique political system, it's a safe bet that there are enough countries as case studies from which we can learn how to apply learned lessons to an American privatization model. Case in point: a 2014 report from the Government Accountability Office (GAO), in which a majority of major aviation industry stakeholders said that privatization was indeed implementable.

Let's return to the first assumption about the FAA working well. Contrary to what some believe, the FAA's monopoly on air traffic control doesn't function well (Poole, 2013). The GAO keeps lambasting the FAA for its incapability to implement NextGen, as well as a certain ineptness for protecting airplanes from cyber attacks. NextGen is something that the FAA has been trying to implement for years now, and not only are they behind schedule, but the FAA is also over-budget. The FAA also rations flights by delay on a first-come, first-serve basis, which creates all sorts of overcrowding. The Department of Transportation found that privately-run contract towers are significantly cheaper to run that those of the FAA.

Even better, the FAA can't even secure adequate funding. Not only is FAA funding marred by political considerations, but the 7.5 percent airline excise tax becomes more inefficient as airline ticket prices drop over time. Instead of using user-tax funding that is a) subject to annual Congressional approval and b) not connected to subsequent appropriations, we can shift over to direct user charges, charges that flow directly to the provider (Poole, 2013, p. 42) and allows for issuing revenue bonds based on their revenue stream. There were those who were worried that Canadian airline tickets would increase as a result of such privatization, but that didn't end up happening. Instead, Canadian air traffic control considerably improved

Air traffic control is more complex than it has been in the past. We don't need an inflexible, slow-moving bureaucratic agency managing something as important as air traffic control. We don't need air traffic control technology that operates on a computer system from the 1990s and radar technology from the mid-twentieth century. Many countries have privatized their air traffic control with better implementation of technological development and a decrease in congestion-related delays as a result. How about the United States joins the modern world by privatizing its air traffic control?

Originally published at The Citizen Scholars.

Thursday, May 7, 2015

Parsha Emor: Being Accountable with the Omer

Counting numbers. It can be so boring that people count sheep to help them fall asleep. If counting is such a yawn, why would G-d make counting the Omer a mitzvah (Leviticus 23:15-17)? Traditionally speaking, the Omer was to commemorate the barley harvest (ibid., 25:10-17) by giving the omer offering, during with they counted the Omer. In a calendrical sense, the counting of the Omer and the barley harvest took place at a time that signifies change. The harvest represented a change in agricultural seasons in which one enjoyed the fruits of one's labor. Even without the sacrificial system, the Omer still has an eternal message for us.

Passover represents the liberation from Egypt, whereas Shavuot represents the receiving of Torah at Mount Sinai.  The Omer is the link between the two holidays (Sefer HaChiniuch). To go from liberation to responsibility: it is something we can all experience as individuals, which can explain why we personally count the Omer for ourselves (Ramban's commentary on Leviticus 23:15). In order to be able to accept responsibility of Torah, our ancestors had to become cognizant of their free will and develop it in a way to serve G-d. We reenact this process by counting. However, it's not a simple act of counting. It is an act of consciousness, a mindfulness that with each day, we get closer to figuratively receiving the Torah.

The freedom that was gained during the Exodus only has meaning because we are able to exert our free will. Our free will provides us with the ability to develop our characters and grow. It is the very thing that separates human beings from slaves. Free will is also the premise behind the Kabbalistic practice of counting the Omer by focusing on the sefirot. Each day during the Omer starkly reminds us that we can ascend upwards with our character development by focusing on something as seemingly mundane as counting and turning it into something divine. Every day during the Omer, we have the potential to take a journey of introspection and spiritual refinement like our ancestors did when they prepared for receiving the Torah at Mount Sinai. In summation, the Omer is a way of emphasizing that each day counts, a lesson we can take with us and apply to the rest of the year.

Monday, May 4, 2015

A Look at TANF and Whether the Government Should Be Providing Welfare

Living in poverty can be one of those soul-crushing conditions of life. Living paycheck to paycheck while struggling to provide the bare essentials for you and your family is a challenge. Within about the past century, government has inserted itself into an increasingly active role to alleviate poverty through the mechanism of providing various forms of welfare. In an American context, we really start to see this during the New Deal, and then see it stepped up a notch during Lyndon B. Johnson's War on Poverty. In 1996, America enacted a series of welfare reforms to help ultimately scale back on the aggrandized scope of government that evolved over the years. One such reform was Temporary Assistance for Needy Families (TANF).

TANF was created as a block grant to states in order to provide indigent families with time-based cash assistance. The reason TANF was created as temporary welfare was that the work requirements were meant to incentivize people to get off welfare and live more self-sufficient lives. I had to wonder about TANF's efficacy after reading a report from the Government Accountability Office (GAO) that was released last week about TANF and a Congressional Budget report from January 2015 that analyzed TANF. Some key findings from the GAO report:

  • Between 1997 and 2014, the number of families who received TANF funds decreased from 3.9 million families to 1.5 families (GAO, p. 2). 87 percent of the decline was attributed to a change in the eligibility requirements (p. 3). 
  • Only 66 percent of funds were directly used for providing cash assistance to low-income families. The remainder goes to other forms of aid, which is to say that TANF is a flexible funding stream for unintended uses (p. 3). The competing priorities put strain on TANF funds for their intended use (p. 10). 
  • Many states have reduced their caseload in order to meet their work participation rate. As a result, states have only engaged a third of work-eligible cash assistance families in work activities (p. 4-5). 
  • Using certain job readiness and training activities disincentivizes long-term employment (p. 11).
  • The lack of program evaluations limits the incentive to try new methods to improve upon the system (p. 11). 

These findings seem to support what the Left-leaning Center on Budget and Policy Priorities says about TANF, at least in part. CBPP put out a list of five TANF-related facts, one of which was few of TANF funds go to cash assistance for poor families. Their other gripe is that TANF has provided assistance to fewer and fewer families over time (see below), although I can assure CBPP that TANF was mostly responsive during the Great Recession.

While this claim is technically true (CBO, p. 8), it is misleading because it gives the misimpression that the government is doing less to help those in need, particularly since the Great Recession. If we want to answer the question of whether the government is doing enough, then we need to look at the question in the larger context of the welfare system as a whole. Most families on TANF receive other welfare benefits, including Medicaid, food stamps, and the earned income tax credit (CBO, p. 18; see below).

Libertarian think-tank Cato Institute published a study in August 2013 showing how the welfare system as a whole creates a disincentive to find work because the benefits are lavish enough. The fact that welfare benefits can pay more than minimum wage in 35 states, and can exceed a $15 per hour job is baffling, especially when considering that welfare benefits are tax-exempt.

I bring up the welfare system as a whole not only because we should look at TANF in a greater context, but also because it should give us serious doubts and reservations as to whether the government can tackle poverty without created serious unintended consequences. This criticism can easily be lobbed at TANF.

TANF was supposed to a poster child for welfare reform because it was supposed to combine both a short-term safety net and long-term employment prospectives. As Manhattan Institute scholar Diana Furchtgott-Roth brought up in her excellent study on welfare in America, even with statutory work requirements, 22 states had effective work requirements of zero (Furchtgott-Roth, p. 9). It's no wonder that HHS has had such a low success rate with keeping workers gainfully employed.

At the most, the government should provide a temporary safety net that provides cash assistance until families can get back on their feet so they can boost the worker-participation rate. Per the aforementioned CBO report, there are certain reforms we can implement in order to turn TANF into what it was intended to be back in 1996. We can change the amount we fund TANF (CBO, p. 25). We can link TANF funding to the unemployment rate and/or inflation, or find better ways to be more responsive to high bouts of unemployment to deal with counter-cyclical demand (ibid). There is the option of shortening the time limit for which one can receive TANF benefits since the average family stays on TANF for two years (Furchtgott-Roth, p. 9). With the effects that long-term welfare have on families and individuals, I would be in favor stricter limits of receiving assistance. Since workforce requirements were a important part of the 1996 welfare reform, we need to maintain stricter work requirements. Looking at TANF standards, community service programs, vocational education, and searching for a job count as work. These lax standards exacerbate the effects of the loopholes and exemptions that states use to maintain TANF work requirements.

The fact that TANF's efficacy is so far off from what it intended to do should make us all stop and think of whether government should be in charge of providing welfare to the people. While I think it would be great if we can reach a point at which private charity could replace the welfare system, I would settle for a TANF program that actually provides enough of an incentive to get families off of welfare sooner than later.

Wednesday, April 29, 2015

Can America Afford Obamacare's Cadillac Tax?

With Tax Day and Tax Freedom Day being over, one would think that the time for dealing with taxes is done. It isn't, at least in Congress. Apparently, there is a provision in the Affordable Care Act (ACA), better known as Obamacare, that is so bad that the Democrats just introduced a bill to repeal it. What can be that bad? The Cadillac tax.

The Cadillac tax is an ACA-induced excise tax that is supposed to take into effect in 2018. The excise tax is a 40 percent tax targeted at employer-based health insurance premiums that exceed $10,200 for individuals and $27,500 for families. By taxing high-cost health care plans, the goals of the Cadillac tax are to curtail health care spending growth while financing the recent expansion of health care coverage. Are those goals being met?

Well.....one of the advantages is that the Cadillac tax is supposed to add $85B to the federal revenue between 2016 and 2025, according to the Congressional Budget Office (CBO). CBO budgetary projections tend to be rosy, so it's not surprising that just months earlier, the CBO estimated the generated tax revenue to be at $149B, which is a $67B difference. While $85B is a lot of cash for us mere mortals, this is but drops in the bucket for the federal government. First, $85B over 10 years is still $8.5B per annum. Second, and even more noteworthy, is that Obamacare is going to cost the American people $1,707B. Last time I checked, $85B < $1,707B, so people shouldn't even bother making the fiscal solvency argument here. Also, isn't it nice to be reminded that Obamacare is going to cost much more than the $900B Obama promised back in 2009? The threshold for the tax is only set to increase by the Consumer Price Index (CPI) + 1 percent, which is to say that the Cadillac tax will cover more plans over time because of the high health care inflation.

At least it's cutting health care costs? With a 40 percent tax, you think that would be enough of an incentive to cut back on health care consumption, right? It very well might. But to quote Thomas Fiery over at the Cato Institute:

"To be sure, the public worries about the rising cost of health care. But that doesn't mean that we should embrace any policy that lower that cost; otherwise, we would simply outlaw surgery and cancer treatments. Instead, what people want is to pay no more than they have to for the health care they want. Put more carefully, people want greater efficiency in health care (that is, more bang for their buck), not a cap or threshold tax on the care they receive."

A better question we should ask ourselves is if it even matters if the Cadillac tax raises tax revenue or curtails health care spending. And let's forget tax code complexities for a moment. If there is a 40 percent tax on what the government perceives to be ridiculously high premiums, then you better believe employers are going to react negatively. The tax is assessed on the overall value of health care benefits involved, which will hit both employee and employer contributions. As the Economic Policy Institute brings up, premiums are not just affected by the cost of a procedure, but also age of the workforce and size of the firm. Or to refer to the American Enterprise Institute, the tax's regressive nature is poorly targeting middle-class and poor individuals whose plans aren't necessarily exorbitant. The CBO predicted that the end-result will be higher deductibles and/or employers no longer contributing to health and flexible spending accounts. The American Health Policy Institute (AHPI) also found that in 2018 to 2024, 12.1 million employees would either experience an average of $1,050 increase in payroll taxes or a $6,150 decrease in health care benefits. As for the increased threshold I mentioned earlier, AHPI predicts that by 2031, it will cause the average family health care plan to hit that threshold.

The Committee for a Responsible Federal Budget lauds the Cadillac tax because it's an indirect way of dealing with the issues of employer-based health insurance. If you want to deal with the problems of employer-based health insurance, how about trying to deal with it more directly? As I brought up a couple of weeks ago, employer-based health insurance is the worst tax break this country has to offer.  Enact health care vouchers, cap the tax exclusion (see hereherehere, and here), create need-adjusted tax credits (Miller, p. 16), create more neutrality by allowing out-of-pocket health care expenses and individual insurance to be tax deductible, or eliminate the tax exclusion all together and enact a paid-claims tax (Bipartisan Policy Center, p. 77-82). Instead of attempting to solve a problem by causing an arguably even bigger problem, how about getting at the root of the problem by taking the bull by the horns?

Monday, April 20, 2015

BP Oil Spill at 5: Reflecting on Costs and Benefits of Offshore Drilling

Today is the five-year anniversary of the BP oil spill, also known as the Deepwater Horizon oil spill. On April 20, 2010, BP's Deep Horizon oil rig exploded, thereby releasing more than 100 million gallons of oil into the Gulf of Mexico over an 87-day period, and caused the death of 11 individuals. Although the Department of Interior has already enacted certain regulations, it is going to enact new regulations in regards to blowout preventers, which are an oil rig's last line of defense in preventing such oil spills, in light of the five-year anniversary. Interestingly enough, Obama is looking to expand offshore drilling in the Atlantic. I'm not only surprised at the Obama administration's support for such expansion, but also that 56 percent of the country supports expanding offshore drilling. While it's unintentional, I think we're seeing the government trying to strike a balance between the economy and the environment.

No one likes to see animals covered in oil or entire ecosystems affected by Big Oil. Even with the infrequency of oil spills (Bureau of Ocean Energy Management) or the fact that most oil that enters the ocean is due to natural seepage [and not oil spills], people don't like the fact that oil spills have such a negative environmental impact. I don't either because oil spills create negative externalities, which means that without some sort of intervention, oil companies bear hardly any of the cost while passing them along to third parties. One also has to consider the damage it does to coastal tourism revenue, businesses that depend on a healthy ecosystem in coastal areas, increased carbon emissions, regulatory costs, or how more offshore drilling could increase maritime disputes.

Just because their are costs to offshore drilling doesn't mean we should automatically dismiss offshore drilling. By applying that nirvana fallacy, we would have to reject any existing sources of energy because there are costs. It would be nice to switch over to renewable energy, but neither wind nor solar powder have the capacity, scale, or sufficiently low price to provide energy that oil or coal can.

As studies from organizations such as the Palmetto Policy Forum, the Fraser Institute, or Northern Economics show, economic benefits exceed costs, which is something we cannot ignore as we try to provide for the world's demand for energy consumption. Other studies, such as those from the Wilson Center or Resources for the Future, exercise more caution by saying "drill, but regulate more heavily."

Why am I not explicitly saying whether or not more drilling is a good idea on the whole? For one, it's still too soon to tell the full extent of the damage done by the BP oil spill. It took over a decade to figure out how much damage was done by the Exxon Valdez oil spill of 1989. The second reason, and even more important reason, is that there is no clear-cut, simple answer to the question. The answer is more case-by-case because one has to factor in the depth drilled, the ecosystem surrounding the oil rigs, the extent of regulation by the given governing body, the amount of oil spilled or seeped, and the amount of actual extractable oil.

Since privatizing oceans is difficult due to international maritime law, I don't see a feasible scenario in which government does not play a role in regulating oil companies to make sure we can avoid another BP oil spill. I also don't see a feasible scenario that doesn't involve oil being a major player in the world's energy portfolio. Whatever the outcome may be, I hope that it ends up being good both for the economy and the environment.