Monthly Archives: October 2018

Climbing Up: Economic Mobility In the U.S.

29 Monday Oct 2018

Posted by in Inequality, Markets, Redistribution

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One of the great sacred cows of current economic discourse is that U.S. living standards have been stagnant for decades, coincident with a severe lack of economic mobility (I know, those are goats!). These assertions have been made by people with the training to know better, and by members of the commentariat who certainly would not know better. But Russ Roberts has a great article on the proper measurement of these trends and how poorly that case stacks up. I have made some of the same points in the past (and here), but Roberts’ synthesis is excellent.

Those who insist that income growth has languished or even declined in real terms over the past 40 years have erred in several ways. They usually ignore non-wage benefits (for which workers often receive favorable tax treatment) and other forms of income. Roberts notes that income tax returns leave about 40% of income unreported, and a lot of it goes to individuals in lower income strata. In addition, the studies often use flawed inflation gauges, fail to adjust correctly for various demographic trends in the identification of “households”, and most importantly, fail to follow the same individuals over time. The practice of taking “snapshots” of the income distribution at two different points in time, and then comparing the same percentiles from those snapshots, is inappropriate for addressing the question of income mobility. Instead, the question is how specific individuals or cohorts have migrated across time. Generally incomes grow as people age through their working lives.

Roberts discusses some studies that follow individuals over time, rather than percentiles, to see how they have fared:

From a study comparing the 1960s and the early 2000s:

“… 84% earned more than their parents, corrected for inflation. But 93% of the children in the poorest households, the bottom 20% surpassed their parents. Only 70% of those raised in the top quintile exceeded their parent’s income.”

 In another study compared children born in 1980:

“… 70% of children born in 1980 into the bottom decile exceed their parents’ income in 2014. For those born in the top 10%, only 33% exceed their parents’ income.”

Another study finds:

“The children from the poorest families ended up twice as well-off as their parents when they became adults. The children from the poorest families had the largest absolute gains as well. Children raised in the top quintile did no better or worse than their parents once those children became adults.”

The next study cited by Roberts compares adults at two stages of life:

“The study looks at people who were 35–40 in 1987 and then looks at how they were doing 20 years later, when they are 55–60. The median income of the people in the top 20% in 1987 ended up 5% lower twenty years later. The people in the middle 20% ended up with median income that was 27% higher. And if you started in the bottom 20%, your income doubled. If you were in the top 1% in 1987, 20 years later, median income was 29% lower.”

And here’s one more:

“… when you follow the same people, the biggest gains go to the poorest people. The richest people in 1980 actually ended up poorer, on average, in 2014. Like the top 20%, the top 1% in 1980 were also poorer on average 34 years later in 2014.”

These studies show impressive mobility across the income distribution, but is it still true that overall incomes have been flat? No, for reasons mentioned earlier: growth in benefits and unreported income have been dramatic, and inflation measures used to “deflate” nominal income income gains are notoriously poor. When the prices of many goods are expressed in terms of labor hours, there is no doubt that living standards have advanced tremendously. It is all the more impressive in view of the quality improvements that have occurred over the years.

The purported income stagnation and lack of mobility are also said to be associated with an increasingly unequal distribution of income. The OECD reports that the distribution of income in the U.S. is relatively unequal compared to other large, developed countries, but the definitions and accuracy of these comparisons are not without controversy. A more accurate accounting for incomes after redistribution via taxes and transfer payments would place the U.S. in the middle of the pack. And while measures of income inequality have trended upward, consumption inequality has not, which suggests that the income comparisons may be distorted.

Contrary to the oft-repeated narrative, U.S. living standards have not stagnated since the 1970s, nor have U.S. households been plagued by a lack of economic mobility. It’s easy to understand the confusion suffered by journalists on these points, but it’s horrifying to realize that such mistaken interpretations of data are actually issued by economists. Even more disappointing is that these misguided narratives are favorite talking points of class warriors and redistributionists, whose policy recommendations would bring-on real stagnation and immobility. That’s the subject of a future post, or posts. For now, I’ll let it suffice to say that it is the best guarantee of mobility is the preservation of economic freedom and opportunity by limiting the size and scope of government, creating a more neutral tax code, and encouraging markets to flourish.

The Non-Trend In Hurricane Activity

18 Thursday Oct 2018

Posted by in Global Warming, Hurricanes

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People are unaccountably convinced that there is an upward trend in severe weather events due to global warming. But there is no upward trend in the data on either the frequency or severity of those events. Forget, for the moment, the ongoing debate about the true extent of climate warming. In fact, I’ll stipulate that warming has occurred over the past 40 years, though most of it was confined to the jump roughly coincident with two El Ninos in the 1990s; there’s been little if any discernible trend since. But what about the trend in severe weather? I’ve heard people insist that it is true, but a few strong hurricanes do not constitute a trend.

The two charts at the top of this post were created by hurricane expert Ryan N. Maue. I took them from an article by David Middleton., but visit Maue’s web site on tropical cyclone activity for more. The last month plotted is September 2018, so the charts do not account for Hurricane Michael and the 2018 totals are for a partial year. The first nine months of each year typically accounts for about 3/4 of annual tropical cyclones, so 2018 will be a fairly strong year. Nevertheless, the charts refute the contention that there has been an upward trend in tropical cyclone activity. In fact, in the lower chart, the years following the 1990s increase in global temperatures is shown to have been a time a lower cyclone energy. Roy Spencer weighs in on the negative trend in major landfalling hurricanes in the U.S. and Florida stretching over many decades.

Warren Meyer blames ‘”media selection bias” for the mistaken impression of dangerous trends that do not exist. That is, the news media are very likely to report extreme events, as they should, but they are very unlikely to report a paucity of extreme events, no matter how lengthy or unusual the dearth:

“Does anyone doubt that if we were having a record-heavy tornado season, this would be leading every newscast?  [But] if a record-heavy year is newsworthy, shouldn’t a record-light year be newsworthy as well?  Apparently not.” 

It so happens that 2018, thus far, has seen very close to a record low number of tornadoes in the U.S.

Meyer also highlights the frequent use of misleading statistics on the real value of damage from natural disasters. That aggregate value has almost certainly grown over the years, but it had nothing to do with the number or severity of natural disasters. Meyer explains:

“Think about places where there are large natural disasters in the US — two places that come to mind are California fires and coastal hurricanes. Do you really think that the total property value in California or on the US coastline has grown only at inflation? You not only have real estate price increases, but you have the value of new construction. The combination of these two is WAY over the 2-3% inflation rate.”

Recent experiences are always the most vivid in our minds. The same is true of broad impressions drawn from reports on the most recent natural disasters. The drama and tragedy of these events should never be minimized, and the fact that there is no upward trend in cyclone activity is no consolation to victims of those disasters. Still, the media can’t seem to resist the narrative that the threat of such events is increasing, even if it can’t be proven. Indeed, even if it’s not remotely correct. Reporters are human and generally not good at science, and they are not immune to the tendency to exaggerate the significance of events upon which they report. A dangerous, prospective trend is at once scary, exciting, and possibly career-enhancing. As for the public, sheer repetition is enough to convince most people that such a threat is undeniable… that everybody knows it… that the trend is already underway. The fact is that the upward trend in hurricane activity (and other kinds of severe weather) is speculative, not real.

Injecting Competition Into Health Care

12 Friday Oct 2018

Posted by in competition, Health Care, Uncategorized

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Competitive pressures in U.S. health care delivery are weak to nonexistent, and their absence is among the most important drivers of our country’s high medical costs. Effective competition requires multiple providers and/or substitutes, transparent prices, and budget-conscious buyers, but all three are missing or badly compromised in most markets for health care services. This was exacerbated by Obamacare, but even now there are developments in “retail” health care that show promise for the future of competition in health care markets. The situation is not irreversible, but some basic policy issues must be addressed.

John Cochrane maintains that the question of “who will pay” for health care, while important, has distracted us from the matter of fostering more competition among providers:

“The discussion over health policy rages over who will pay — private insurance, companies, “single payer,” Obamacare, VA, Medicare, Medicaid, and so on — as if once that’s decided everything is all right — as if once we figure out who is paying the check, the provision of health care is as straightforward a service as the provision of restaurant food, tax advice, contracting services, airline travel, car repair, or any other reasonably functional market for complex services.”

We face a severe tradeoff in health care: how to provide for the needs of more patients (e.g., the uninsured, or a growing elderly population) without driving up the cost of care? As a policy matter, provider resources should not be viewed as fixed; their quantity and the efficiency with which those resources are utilized are responsive to forces that can be harnessed. Fixing the supply side of the health care market by improving the competitive environment is the one sure way to deliver more care at lower cost.

Fishy Hospital Contracts

Cochrane discusses some anti-competitive arrangements in health care delivery, quoting liberally from an article by Anna Wilde Mathews in The Wall Street Journal, “Behind Your Rising Health-Care Bills: Secret Hospital Deals That Squelch Competition“:

“Dominant hospital systems use an array of secret contract terms to protect their turf and block efforts to curb health-care costs. As part of these deals, hospitals can demand insurers include them in every plan and discourage use of less-expensive rivals. Other terms allow hospitals to mask prices from consumers, limit audits of claims, add extra fees and block efforts to exclude health-care providers based on quality or cost.”

Mathews’ article is gated, but Cochrane quotes enough of its content to convey the dysfunction described there. Also of interest is Cochrane’s speculation that the hospital contract arrangements are driven largely by cross subsidies mandated by government:

“The government mandates that hospitals cover indigent care, and medicare and medicaid below cost. The government doesn’t want to raise taxes to pay for it. So the government allows hospitals to overcharge insurance (i.e. you and me, eventually). But overcharges can’t withstand competition, so the government allows, encourages, and even requires strong limits on competition.”

The Role of Cross Subsidies

In this connection, Cochrane notes the perverse ways in which Medicare and Medicaid compensate providers, allowing large provider organizations to charge more than small  ones for the same services. Again, that helps the hospitals cover the costs of mandated care, regulatory costs, and the high administrative and physical costs of running large facilities. It also creates an obvious incentive to consolidate, reaping higher charges on an expanded flow of services and squelching potential competition. And of course the cross subsidies create incentives for large providers to lock-in business from insurers under restrictive contract agreements. Such acts restrain trade, pure and simple.

Cross subsidies, or building subsidies into the prices that buyers must pay, are thus an impediment to competition in health care, beyond the poor incentives they create for subsidized and non-subsidized buyers. So the “who pays” question rears it’s head after all. When subsidies are necessary to provide for those truly unable to pay for care, it is far better to compensate those individuals directly without distorting prices. That represents a huge policy change, but it would also help restore competition.

Competitive Sprouts

John C. Goodman provides a number of examples of how well competition in health care delivery can work. Most of them are about “retail medicine”, as it’s been called. This includes providers like MinuteClinic (CVS), LASIK and cosmetic surgery, concierge doctors, and “retail” surgical services. Goodman also mentions MediBid, a platform on which doctors bid to provide services for patients, and Ameriflex, which matches employers with concierge doctors. These services, which either bypass third-party payers or connect employer-payers with competitive providers, are having a real impact on the ability of patients to obtain care at a lower cost. Goodman says:

“I am often asked if the free market can work in health care. My quick reply is: That is the only thing that works. At least, it is the only thing that works well.”

Conclusion

Some of the most pernicious Obamacare cross subsidies have been dismantled via elimination of the individual mandate and allowing individuals to purchase short-term insurance. Nonetheless, U.S. health care delivery is still riddled with cross subsidies and excessive regulation of providers, including all the distortions caused by third-party payments and the tax code. Many buyers lack an incentive for price sensitivity. They face restrictions on their choice of providers, they don’t know the prices being charged, and they often don’t care because at the margin, someone else is paying. Fostering competition in health care delivery does not necessarily require an end to third-party payments, but the cross subsidies must go, employers should actively seek competitive solutions to controlling health care costs, price transparency must improve, and consumers must face incentives that encourage economies.

The Court and Kavanaugh

08 Monday Oct 2018

Posted by in Supreme Court

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There are both great and hysterically negative expectations for Brett Kavanaugh’s seating on the Supreme Court, depending on one’s perspective. The changes are likely to be much less dramatic than many think, however, according to Glenn Reynolds in his Sunday column. As he says, most cases before the Supreme Court are decided by easy majorities, and that won’t change. On split decisions, Kavanaugh will be less of a “swing vote” than Anthony Kennedy, no doubt, and he will have influence over the choice of cases to be heard by the Court because the selection of a case requires only four justices.

Reynolds thinks Kavanaugh is not as conservative as partisans hope or fear. For example, Reynolds believes he is unlikely to vote to overturn Roe vs. Wade, when and if that question comes before the Court. There may be shifts on narrower questions, such as an earlier definition of fetal viability (in recognition of improved medical technology) and greater protection against arrangements that facilitate illegal funding of abortions by federal taxpayers. Reynolds acknowledges, however, that Kavanaugh is a stronger advocate of Second Amendment rights than Kennedy, so those protections are less likely to be eroded.

Reynolds’ also notes a shift that is likely to take place in legal academia:

“Strange new respect for judicial minimalism. As Harvard Law professor Adrian Vermeule remarked, ‘Law review editors: brace for a tidal wave of legal academic theories supporting judicial minimalism, Thayerianism, and strong — very strong — theories of precedent. Above all: the Court must do nothing without bipartisan agreement, otherwise it is illegitimate.’ The past half-century’s enthusiasm for judicial activism will vanish, as legal academia turns on a dime to promote theories that will constrain the court until a left-leaning majority returns, at which point they’ll turn on a dime again.”

That is all too likely. My liberal friends insist that the four justices on the left are free of political bias. Don’t laugh! I’ll be happy if Kavanaugh, as a justice, sticks to his traditional originalist philosophy on constitutional interpretation. I’m under no illusion that the left side of the bench takes the original meaning of the Constitution seriously.

My own concerns about Kavanaugh have to do with his earlier work in the Bush White House on issues related to national security, including work on the PATRIOT Act. In fairness, that work took place at a time when the horrors of 9/11 were still fresh in our minds. However, years later he wrote a favorable judicial opinion on metadata collection by the government. It’s disturbing that Kavanaugh has ever shown a willingness to relinquish the rights to privacy and due process as a routine matter of national security. The founders’ intent was to protect individual rights from the threat of tyranny, so they expressly limited the power of government through the Constitution. Those who would claim that threats to national security are so compelling as to supersede individual rights are perhaps the very tyrants the Constitution was meant to foil. Nevertheless, my hope is that Kavanaugh, having come face-to-face with those who would prefer to deny privacy and due process rights when it suits them, has gained additional respect for these protections.

School Discipline, Disparate Impact, and Disparate Justice

05 Friday Oct 2018

Posted by in Discrimination, Education, Uncategorized

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Sad to say, there are racial disparities in victimization by misbehavior in schools, and African American children are the most victimized in terms of their safety and academic environment. Yet since 2014, the Department of Education (DOE) has been enforcing rules against “disparate impact” in school disciplinary policies, often aggravating that victimization. In a paper entitled “The Department of Education’s Obama-Era Initiative on Racial Disparities in School Discipline: Wrong For Students and Teachers, Wrong on the Law“, authors Gail Heriot and Alison Somin expose these unfortunate policies and the distortion of actual law they represent. These policies and actions are presumed by the DOE and the Office of Civil Rights (OCR) to be authorized under Title VI of the Civil Rights Act of 1964, but Heriot and Somin show that Title VI is not a disparate impact law and that enforcement of strictures against disparate impacts exceed the authority of the OCR.

When are disciplinary policies discriminatory? Disparate treatment occurs when a student from a “protected class” is punished more severely than other students for an identical misdeed. That is obviously discriminatory and unfair. A disparate impact, however, is a statistical difference in the punishments meted out to a protected class relative to others, which is not prima facie evidence of discrimination. Given consistent application of disciplinary policies — identical treatment for all classes under those policies — disparate impact is possible only when there are differences in the actual behavior of students across classes. Of course, such a difference does not mean that the protected class is “less worthy” in any absolute sense; instead, it probably indicates that those students face disadvantages that manifest in misbehavior in greater proportion within a school environment. The consequences of refusing to punish that behavior are bad for everyone, including and perhaps especially the miscreants themselves.

Disparate impact enforcement rules are fundamentally flawed, as Heriot and Somin explain. Almost any decision rule applied in business or other social interaction has a disparate impact on some parties. Defining qualifications for many jobs will almost always involve a disparate impact when protected classes lack those skills in greater proportion than unprotected classes. In schools, such rules lead to more lenient disciplinary policies or a lack of enforcement, either of which are likely to bring even greater disciplinary problems.

In schools with large minority populations, these perverse effects penalize the very minority students that the DOE hopes to protect. And they often have harsh consequences for minority teachers as well. Walter Williams bemoans the difficulties faced by many teachers:

“For example, after the public school district in Oklahoma City was investigated by the OCR, there was a 42.5 percent decrease in the number of suspensions. According to an article in The Oklahoman, one teacher said, ‘Students are yelling, cursing, hitting and screaming at teachers, and nothing is being done, but teachers are being told to teach and ignore the behaviors.’ According to Chalkbeat, new high school teachers left one school because they didn’t feel safe. There have been cases in which students have assaulted teachers and returned to school the next day. …

An article in Education Week earlier this year, titled ‘When Students Assault Teachers, Effects Can Be Lasting,’ discusses the widespread assaults of teachers across the country: ‘In the 2015-16 school year, 5.8 percent of the nation’s 3.8 million teachers were physically attacked by a student. Almost 10 percent were threatened with injury, according to federal education data.'”

To state the obvious, this undermines the ability of teachers do their jobs, let alone enjoy teaching. For many, quitting is an increasingly tempting option. And Williams, an African American, goes on to say “… when black students are not held accountable for misbehaving, they are set up for failure in life.”

When it comes to misbehavior, equalizing discipline by subgroup is almost certain to be unjust. And disparate impacts are almost certain to be a byproduct of a just disciplinary system when other social forces lead to differences in preparation for schooling. When the focus is placed on a by-product of Justice, rather than justice itself, as when disparate impacts are penalized or prohibited, everyone loses. It obviously harms unprotected classes, but ultimately it harms protected classes even more harshly by subjecting them to degraded school environments, less educational opportunity, and fewer rewards in life.

The “Judicial Temperament” Ruse

02 Tuesday Oct 2018

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“Judicial temperament” applies to situations in which an impartial third party is or would be acting as a judge, weighing evidence that might support one side of a case or the other. It cannot apply to one of the parties to a dispute or allegation of wrongdoing, nor can it reasonably be inferred in other matters from the attitude or statements of one of the first two parties with respect to the accusation. Of course, an individual accused of a misdeed for which they KNOW they are innocent can be expected to react angrily. That would be natural and understandable, and it has nothing to do with the individual’s judgement in other realms. Any victim of wrongdoing has a right to be angry, and a false accusation is no exception.

Christine Blasey Ford has accused Brett Kavanaugh of a sexual assault that she says took place 36 years ago when the two were in high school, but without corroboration of any kind. The Left has characterized Kavanaugh’s righteous indignation as a “temper tantrum” unbefitting a Supreme Court Justice. “Oh, but why are you so angry?”, they ask. Really.

Assuming that he is indeed innocent of the charge, and there are many reasons to doubt its veracity, Kavanaugh’s reaction was well-justified. The allegation was unveiled by the minority on the Senate Judiciary Committee at the eleventh hour as they prepared to vote on bringing his name to the floor of the Senate for confirmation. A much earlier disclosure was possible and would have permitted an investigation weeks before the Committee hearings. Not only that, the minority presumed his guilt, he was called “evil” by one senator, he received death threats against his family, and he was forced to field a host of probative questions about his teenage scribblings in a high school yearbook. Only a Vulcan would greet such sabotage of character with equanimity, and I’ll gladly give Kavanaugh a pass on it. I mostly enjoyed his fire and emotional at the hearing last Friday.

Another dimension of judicial temperament is impartiality. The meaning of that term can be manipulated, of course. For example, one’s views on constitutional interpretation are at the very root of many political disagreements, yet when convenient, some pretend that the two are mutually exclusive. Shall we disqualify anyone with a specific constitutional philosophy? Does it somehow depend on which seat is open? Of course not.

On the other hand, Kavanaugh voiced what many knew to be true at the hearing last Friday: the Leftist minority on the Committee had prepared an ambush to destroy him. He also noted the possibility of lingering resentment for his role on Ken Starr’s staff investigating the Clintons in the 1990s. Perhaps Kavanaugh was unchaste to express what was obvious, and the Left has seized on those statements as evidence of a disqualifying political bias. But again, he stated what he knows to be true.

Kavanaugh’s is widely viewed as an impartial jurist, and he has a history of collegiality with judicial peers from across the political spectrum. As Randy Barnett states at the link above:

“His 300 opinions have been thoughtful and well reasoned. His reasoning has repeatedly been adopted by majorities of the Supreme Court. He gets high marks from, well, from everyone for his intelligence, decency, and judicial temperament.”

It is my conviction that Kavanaugh would rely on his legal scholarship and constitutional philosophy, as he has in the past, in deciding his positions on issues that come before the Court, rather than hearing cases with a view toward malice against particular individuals or one end of the political spectrum. I also believe he is wise enough to know that he should recuse himself in cases of obvious personal conflict. The charge that he lacks judicial temperament is an additional attack based on his judicial philosophy, and it is an opportunistic attempt to discredit him on the basis of his strong and understandable response to a smear campaign.