Monday, August 24, 2015

The Economic Ramifications of Defunding Planned Parenthood

Planned Parenthood has been making the news again. First, it had to do with the videos released by the Center for Medical Progress where Planned Parenthood officials are nonchalantly talking about selling fetal parts for medical research. The videos were heavily edited, at least in part because the unedited versions amounted to twelve hours, but they brought up some ethical quandaries. The videos were made to depict Planned Parenthood callously talk about the negotiating price of fetal body parts as if they were mere commodities, and at the very least, it was successful in the sense that it merited attention. This, of course, resulted in a political predicament putting Planned Parenthood's funding under greater scrutiny. The Senate made a failed attempt to defund Planned Parenthood, and even some states have made the move to cut off state funding to Planned Parenthood. Per its 2013-2014 annual budget, $528.4 million of its $1,303.4 million budget, or 40.5 percent of its budget, comes from government funding. Removing some or all of this government funding would surely curtail Planned Parenthood operations. Although Roe v. Wade is still law of the land, it does still bring up questions of whether the government should be funding such activities.

Proponents of Planned Parenthood argue that we shouldn't go after Planned Parenthood because their primary directive is to provide health care services. According to Planned Parenthood, 3 percent of services provided are abortion services. Even assuming that the "3 percent statistic" is true, it is still misleading because it assumes that all services are created equal. Providing a pap smear, pregnancy test or condom are all considered Planned Parenthood services. 3 percent of abortion services amount to 327,653 abortions. With 2,700,000 Planned Parenthood customers that came into Planned Parenthood that year, that would mean that 12 percent of Planned Parenthood patients received abortions.

By the letter of the law, Planned Parenthood cannot receive federal funding for purposes of abortions. Planned Parenthood receives 13 percent of Title X funding, which amounts to $37.23 million. While government funding technically be spent on abortions, money is fungible, which is to say that government spending on other services frees up other money to be spent on abortions. The applicable economic term is the crowding out effect. While there are no studies specifically about Planned Parenthood and the crowding out effect, this phenomenon generally takes place in the health care industry (see hereherehere, and here), as well as for religious charities.

This does not even account for the percent of Planned Parenthood funding that go towards abortion services because Planned Parenthood does not provide that information. While they are not required to do so, providing such transparency would help with a clearer picture of Planned Parenthood operations. If we wanted to get an estimate of how much Planned Parenthood makes on abortions, we could. According to the Guttmacher Institute, which is a semi-autonomous policy institute of Planned Parenthood, a first-trimster abortion cost $480 and an abortion after 10 weeks cost $504 in 2011-2012. Even if we pick the lower figure of $480 and don't adjust for inflation, that would put the figure at $157,273,440. This conservative estimate would mean that 12 percent of its total budget comes from abortion expenditures. However, government money cannot be used on abortions, so we cannot consider that part of the equation. That would boost the percent of Planned Parenthood's abortion-based revenue to 20 percent of total revenue. If we remove private donations and contributions from the equation, that would mean that 40 percent of private revenue sales originate from abortion. Based off of these calculations, we can surmise the prevalence of the crowding-out effect as a result of government funding, as well as the prevalence of abortion services to Planned Parenthood operations.

As interesting as it is to put some of these data in context, it still doesn't answer a question: What would happen if the government completely stopped funding Planned Parenthood this very second? Does this mean that removing its government funding would be the end of women's health services as we know it? The short answer is "no." The longer answer is that it would make it without government funding. For one, it derives 30 percent of its revenue from private donations and contributions. Also, other health service facilities have historically been able to function without the constant subsidization. The argument assumes that Planned Parenthood could not function without government funding. What is more is that proponents present the argument as if there would be no more abortions or women's health care if Planned Parenthood lost this funding.

According to the Guttmacher Institute, 51 percent of pregnancies (3.4 million pregnancies) are unwanted, and 40 percent of those pregnancies are terminated by abortions. Doing the math, that would mean that 1.36 million pregnancies are terminated by abortion. With Planned Parenthood only performing 327,653 abortions, that means that over a million abortions, or 76 percent of abortions, are provided by clinics that are not Planned Parenthood affiliates.

If you want to get an abortion or health care services, you can go almost anywhere. The United States has over 1,100 Federally Qualified Health Centers. In total, the country has over 9,000 health centers, which outnumbers the 669 Planned Parenthood clinics. While Planned Parenthood likes to toot its own horn as a champion in reproductive rights, we need to remember something. Planned Parenthood is like any other business: it wants to preserve, and even augment, its market share and $1.4 billion in net assets. Removing government funding would threaten Planned Parenthood's self-preservation, plain and simple. If we were to remove government funding of Planned Parenthood right now, not only would Planned Parenthood have to find ways to adjust to the funding alteration, but there would still be plenty of other options for women looking for these services. Anything else would be a scare tactic through emotional arguments and misleading statistics.

Friday, August 21, 2015

Enforcing Massive Deportation Would Be Massively Foolish Policy

Presidential election season seems to be getting earlier and earlier over time. Not only that, it is one of those moments where "candidates say the darnedest things." Take Donald Trump as an example. He wants to deport all the undocumented immigrants in this country. Trump is playing the "blame the recently arrived immigrants" card, which is almost as old as American politics itself. The question here is where Trump's idea of mass deportation would actually work or not.

Let's just reflect for a minute on what this would actually mean if we were to implement that sort of policy. It would mean taking financial resources and hundreds upon hundreds of government man-hours to find, apprehend, legally process, transport the individuals to their country of origin, and rigorously enforce border control to make sure none of them cross over again. Especially considering that such anti-immigration policies push labor to the underground markets, it makes me wonder about feasibility of being able to track most, if not all, these undocumented immigrants. There is a question of the policy's popularity (CBS poll and Gallup vs Rasmussen). Even if popularity didn't matter and the incoming president were to enforce a law requiring mass deportation, it would cost a lot of money.

It's not only the Left-leaning Center for American Progress who puts a hefty price tag [of $114 billion] on such a policy, not to mention the social and emotional damage it would cause communities. The Right-leaning American Action Forum actually puts an even higher price tag of $400-600 billion. Reducing the labor market like that would also shrink the economy by $1.6 trillion over a twenty-year time span. When Alabama instituted its own version of Trump's proposal, it cost the Alabama economy $11 billion. The U.S. Department of Agriculture estimated that it would reduce agricultural output by 5 percent and American wages by 1 percent. To think that mass deportation would help with employment rates is also ludicrous since the states with the highest Hispanic populations have a Hispanic population that exceeds the unemployment rate for those states, which means that even if everyone born in the U.S. took their jobs, there would still be considerable unemployment.

The other issue with Trump's idea is the assumption that having these people in the country is a problem, and it's not. This does not even account for the fact that 87 percent of undocumented workers don't have a serious criminal record or that the undocumented immigrant population has plateaued since 2007. The truth of the matter is that more legal immigration would boost the economy. I could make an argument for open borders, but the point of the matter is that the system isn't broke because of not enough enforcement, but making too much of an effort to enforce. We make it so hard to enforce that we have not provided a clear path for those who want to work here contribute to the American economy and society. Using an enforcement-only policy is as costly as it is counterproductive. Instead of using nativist rhetoric to invoke anti-immigrant sentiment, which isn't going to help the GOP win the Hispanic vote, how about making an actual attempt at immigration reform that would boost the economy?

Tuesday, August 18, 2015

Are We Kidding Ourselves About the Effectiveness of the Child Tax Credit?

The cost of raising children seems to increase ever higher. CNN posted an article last year saying that it costs an average of $245,000 to raise a child, which says nothing of the cost of college. This hits hard for those who cannot afford the cost of raising children, which brings up the question of poverty amongst children. The people over at the Left-leaning Center for American Progress (CAP) came up with an idea to help alleviate child poverty: expand the Child Tax Credit (CTC).

A question to start off: what is the CTC? The CTC is a flat-dollar tax benefit offered to help offset the costs of child rearing that has been part of the United States tax code since 1997. Essentially, one can receive a deduction of up to $1,000 per child. Since it is a flat-dollar tax, the tax is relatively progressive since families with lower incomes experience a larger percentage change in after-tax income. Under the Obama administration, the CTC was made more refundable, which is to say that it is easier for those who do not owe taxes to receive the tax credit. Now that we have a brief description of the CTC, is it a good idea?

First, there is the matter of the fiscal cost of the tax credit. As I illustrated when criticizing other tax breaks during this past Tax Day, this tax credit costs $57B per annum. This would make it the country's sixth largest tax break, according to the Joint Committee on Taxation. It is estimated to cost $550B over the next ten years. The Treasury Inspector General also found in 2011 that over a five-year period, the IRS experienced $4.2B of costs in fraud from unauthorized workers claiming credits under the CTC. It's a fraud rate somewhere slightly below 2 percent, but it's still worth pointing out.

Can there be an argument that the benefits justify the costs? Although one can argue that having children is a blessing, it is still a choice to incur more expenses. People make choices to incur more expenses all the time. Why should we favor families with children over those who do not? Is the government the proper authority to determine how many children we should have? Doesn't that defeat the idea of horizontal equity in the tax code? Does the EITC, along with state and local tax codes, not already incentivize enough child rearing?

But wait: there is the argument of social costs. By implementing the CTC, one increases the external benefits to society. The Center for Budget and Policy Priorities claims that it has protected 3.1 million children from poverty. I feel skeptical about that claim since it is very likely that the CTC does not provide the short-term consumption stimulus that one would expect (Michel and Ahmed, 2012). Plus, the phase-out threshold of the CTC could very well disincentivize work (see study [Raschke, 2012] in which that took place for working males in Germany after their child credit was enacted). While economic theory would tell us that a subsidy would lead to greater consumption of something (e.g., raising children), the truth is that there is very little substantive research on how the CTC affects taxpayer behavior, especially since it is simultaneously acting in concert with the Earned Income Tax Credit (Congressional Research Service [CRS], p. 8).

The CTC is a departure from "conventional" policy practices since it does not distinguish between family size or socio-economic status. It is a tax exemption that has cost a half trillion dollars over the past decade and needlessly complicates the tax code (CRS, p. 9) in some attempt to subsidize the act of raising children. We should be weary of a CTC expansion, and at the very least, the CTC could use some reform: Make uniform the definition of a child for the CTC as one who is 19 or younger, lower the benefit received from the CTC, reduce computational complexity by offering more uniform benefits (especially since complexity of the tax code with the CTC makes it more difficult for lower-income households file for the CTC), or make the tax non-refundable.

Removing the credit without an offset in taxes would be politically unsavory. According to the Tax Foundation, if the CTC were eliminated and the revenue were used to reduce rates, we would see tax rates decrease by 4.8 percent. We could follow Canada's example and implement a Tax-Free Savings Account (also known as a universal savings account). If the payroll tax makes raising more children burdensome, à la Marco Rubio, then let's reform the payroll tax. We could come up with all sorts of policy reform that indirectly affect the cost of raising families, whether we're talking about feel-good environmental policy that causes energy prices to skyrocket, employer-sponsored health insurance, or Social Security and Medicare. I would be a fan of reforming the tax code so that we can incentivize economically productive activity. That way, Americans, regardless of whether they choose to raise children or not, can better afford to "live the American dream."

Thursday, August 13, 2015

Chinese Yuan Devaluation: Will Things Change for the Better?

Recently, the Federal Reserve Bank of San Francisco commented on China's macroeconomic slowdown, albeit with some optimism towards the end. Shortly after the release of the Fed's report does China decide to devalue its currency: the yuan (¥). The devaluation, which was nearly at 4 percent, was the biggest devaluation in the past twenty years. The analysts over at Goldman Sachs believe that China is devaluing its currency in attempts to jumpstart its economy with a de facto stimulus because it makes Chinese exports cheaper while imports to China become more expensive.

What is interesting about this particular round of devaluation is that China is also allowing for more market forces in the currency market, not less. For one, China announced that it will set its daily reference rate to "the closing rate of the inter-bank foreign exchange market on the previous day," which is significant because it's no longer at the sole discretion of the central bank. China presumedly does this in the hopes that the IMF will add the yuan to its basket of reserve currencies.

Before continuing with my second point, let's consider previous accusations of China being a currency manipulator. I wrote on China's status as a currency manipulator late last year, and I came to three main takeaways: 1) any country with a central bank manipulates currency on some level, 2) China cannot keep up with its currency manipulation, and 3) it doesn't have the impact on America that naysayers think it does. Oh, and let's not forget that in spite of the manipulation, at least China is helping out the American consumer by making Chinese exports cheaper.

That being said, what makes this devaluation different is that China relaxed its monetary policy and allowed for market forces to devalue the yuan, which is different from previous intervention from China's central bank (中国人民银行). This lack of government interventionism, at least in this case, should change the tone for certain individuals running for presidential office launching accusations of "currency manipulator," although it very well might prevent the United States' Federal Reserve Bank from raising its interest rates (Keep in mind that back in May, the IMF stated that the yuan is not undervalued).

For me, it is more disturbing why China took the route of devaluation. On the whole, the yuan had been appreciating in the past five years, so let's remember what preceded China's announcement earlier this week. I think this was realized on the stock market because one did not see the volatility that would have been expected if this fact were forgotten. However, with issues in the euro zone and a lackluster recovery in the United States, demand for China's exports isn't what it used to be. It is not because of Chinese monetary interventionism in this instance (although Southeast Asia and the Euro zone will probably take a hit), but because of the slack in the global economy.

China allowing for some market forces to lead is a step in the right direction. We'll see if China sticks to its commitment to allow for currency market liberalization or reverts back to putting a leash back on its monetary policy as soon as it is inconvenient for China. In either case, China still has a while to go before its currency becomes internationalized. Until China liberalizes its economy, I'm afraid we'll see China continue to ride on a monetary roller coaster.

Tuesday, August 11, 2015

India Pornography Ban Gets the Shaft: Should We Ban Internet Porn?

Disclaimer: This blog entry does not contain any pornographic images or links to pornographic websites. This blog entry is merely a discussion on the merits of the arguments surrounding Internet pornography.

Last week, the Indian government banned pornography in an effort to protect public morality, which is ironic considering that India invented the Kama Sutra. Only days later did the government receive enough pressure to reverse the ban. Child pornography is still banned in India, like it is throughout the world, which it should be because children are not at an age of consent. The same goes for why pornography with non-consenting adults should also be banned.

As for the rest of pornography, the Indian people were up in arms about pornography being banned in India. This brought me to an important question: Is it the government's business to ban pornography?

The Religious Right gets anal and prudish about these hot-button issues. They sure aren't beating around the bush when they say that pornography incites sexual violence, ruins marriages, messes with the brain, and is quite addictive.  I can find some studies to the contrary. For example, pornography does not increase sexual violence. If anything, it might decrease it (Diamond, 2009). A Dutch study (Hald et al., 2013) with an ample sample size at how sexually explicit material affects the brain on adolescents and young adults; it showed that only a small percentage are affected by pornography. Additionally, the Dutch study showed a correlation between high dissatisfaction with life and pornography usage. There is also the question of whether pornography desensitizes or whether pornography is the manifestation of a high libido (Kühn and Gallinat, 2014).

This topic is so titillating for researchers that there are no shortage of studies on either side of the the argument. Pornography does not have strong enough causation for societal woes. Pornography can be a symptom of issues, whether those are symptoms of bad marital relations, culture, or personal issues. In a free society, personal responsibility is key.  While there might be a select few with legitimate addiction issues, compulsion is not the same as an addiction. Much like with marijuana, we should treat those who have legitimate addiction issues as a health one. Why compound the issue with criminal and legal issues, as well? In those cases, treat sex addiction like a health issue and move on. Also, if pornography were causing an increase in sexual violence, we would have seen the increase of sexual violence with the increased prevalence in Internet [pornography]. However, the rates of domestic violence and rape have been decreasing over the past two decades. I would postulate that much like with video games, pornography creates a substitution effect for those who would have acted upon their predilections otherwise.

As a libertarian, I believe it's none of the government's business whether someone is watching porn. If there are social costs, we treat sex addiction due to pornography as a health issue, not as a criminal one. If the social of pornography are overall negligible, then why impose costs on individuals who benefit from pornography? If there is a net benefit, all the more reason the government should not be cocksure in imposing its prudish, paternal sense of morality on those who want to enjoy pornography. As long as the actors in the pornography are acting on their own volition, and as long as the viewers of the pornography are of legal age, who cares what consenting adults do behind closed doors?

Thursday, August 6, 2015

The Clean Power Plan: Just Another EPA Power Grab?

Earlier this week, Obama passed the Clean Power Plan (CPP), which some are calling his most ambitious climate change plan yet. In simplest terms, here is what the plan entails. The Environmental Protection Agency (EPA) has set carbon emissions goals for each state to reach by 2030. States have to submit their plans by 2018 and start implementing by 2022. If a state does not submit their own plan, the EPA will step in and implement one of their own. One of the nice, touted features about the plan is that it provides the states with flexibility: more efficient technology, coal plant upgrades, increasing the amount of renewable energy in one's portfolio, and more, provided that they meet the EPA's carbon reduction goals by 2030. While the EPA's default is that the states emit a certain amount on a "rate-based" limit (i.e., how much carbon is emitted per megawatt hour), there is also the option to convert that goal into the carbon tonnage equivalent. The EPA estimates that it will lead to climate and health benefits with a social benefit of $55-93 billion by 2030. Flexibility to create net social benefit while addressing a global problem, what's there not to like?

For one, it's a gross violation of constitutional bounds, including the Tax and Spend Clause (Article I, Section 8), as well the Tenth Amendment. Lawrence Tribe, one of the original environmental law professors, agrees on its unconstitutionality. But let's say that constitutional jurisprudence doesn't matter. As the centrist Brookings Institution points out, the CPP has major equity issues since some states are expected to cut back at significantly higher levels than others (see below). Most state environmental agencies, some of which are from blue states, think that the goals are too unfeasible. The unfeasibility is not just on a domestic level, but also the international level. The EPA is doing this under the tenuous assumption that the United States will lead by example and inspire others to cut back on carbon. I'm very skeptical about that claim. China's not going to cut back. Nor are India and Japan. For the United States to justify its actions, it would have to considerably outweigh the carbon increases of other major emitters.

A study from NERA Economic Consulting shows that the CPP could increase energy prices up to 17 percent. Keep in mind that the study was commissioned by organizations that oppose the CPP, which is why I want to draw your attention to the Energy Information Administration May 2015 report, that shows a 4 percent increase in energy prices. Even better, the EIA estimates compliance costs to be $1.3T in lost GDP between 2020 and 2030. The Heritage Foundation puts those costs as high as $2.5T, along with increased electricity costs and unemployment.

This doesn't even get into what I think about the social cost of carbon. I have discussed it before, not to mention that the Reason Foundation released a study on the social cost of emission earlier today. I have an even more fundamental question: why doesn't the EPA provide an estimate of the amount by which the CPP will reduce the global climate? It's a crucial fact upon which one can begin to tout benefits of the CPP. Without it, the estimates are pure guesswork, so why the omission? The EPA has made such estimates before, so it's reasonable to assume the EPA is capable of making estimates. Since the EPA neglected to provide such vital information, the Cato Institute gave it a go. Using MAGICC, a climate modeling system developed in part with EPA support, Cato found that it would only decrease global temperatures 0.02ºC. The International Energy Administration (p. 37) projects that temperatures will increase to 4.2ºC by 2100. The IEA also warns that in order to avoid climate change catastrophe, we would need to reduce the temperature increase to 2ºC, which would be a 2.2ºC difference. Since the CPP would only reduce the global temperature by 0.02ºC, that would only be 0.9 percent of what is required to avert this catastrophe (i.e., 0.02/2.2=0.9%). Even EPA Administration McCarthy agrees that the impact itself will be minimal (see below; entire testimony is here).

Even if you assume that the need to fight climate change is 100 percent justified, even if you use the EPA's social cost of carbon, and even if you use a climate change model used by the EPA itself, what you get is a set of regulations that do next to nothing to stop climate change while imposing all sorts of costs on the American economy and the American people. The costs are clear, the benefits are negligible at best. Meanwhile, I hope the states end up fighting with the EPA and taking it to court in the upcoming years.