Archives: June, 2010

The Obama Labor Market

In a recent speech on the economy at Carnegie Mellon, President Obama took great pains to remind us that he inherited an economy that was “shrinking at an alarming rate.”  Of course his implication was that everything wrong with the economy today is George Bush’s fault.  While Bush does deserve considerable blame for current recess, a new working paper by economists at the University of Michigan and the New York and San Francisco Federal Reserve Banks paints a picture of a recession that was on par with previous deep recessions until well into 2009, when the labor market started to deviate, for the worst, from past trends.

For instance the authors find that during the first part of the current recession, labor force participation remained high, despite increasing unemployment, yet starting in May 2009 the labor force participation rate fell at its steepest rate since the 1950s.

The authors also focus on what economists call “Okun’s Law” - which shows a relationship between GDP growth and employment.  Historically Okun’s Law has shown that for every 2% GDP falls below trend, unemployment increases about 1 percent.  Under the Bush half of this recession, that historical relationship continued to hold.  Yet under Obama it broke down, and not in a good way.

The paper also examines the relationship between unemployment and posted job vacancies, called the “Beveridge curve” by economists.  They also find that the Obama economy has been far outside of this historical relationship, so there has been growth in vacancies but little improvement in the unemployment numbers.

The paper offers a description of recent labor market trends, without being able to completely explain why current trends have been so different (and worse) than previous recessions.  The authors do calculate that the extensions in unemployment insurance have likely increased unemployment by between 0.7 and 1.8 percentage points.

The real story, however, which this working paper misses, is that in the Obama economy, massive uncertainty coming from Washington and the increasingly intrusive nature of government is keeping employers from hiring, even when they are expanding output.  President Obama needs to get past the blame game and start moving us back toward a country that rewards private enterprise and values free markets.

Baltimore Police Officer Fires 13 Shots, Kills Unarmed Man

An off-duty Baltimore police officer and a former Marine had a disagreement about the Marine’s advances toward the officer’s girlfriend. The officer ended it with thirteen rounds fired from his service pistol, six hitting the Marine and killing him. Baltimore police have confirmed that the Marine was unarmed. The officer refused a breathalyzer at the scene. (HT Instapundit)

It gets better. The officer was involved in another shooting five years ago, which was determined to have been justified, but the officer was disciplined… for being intoxicated.

I suspect that if your average citizen had defended his significant other’s honor with a dozen or so bullets, he would be in jail. Not so for the officer, who remains on administrative leave.

Of course, anyone recording the exchange that led to the shooting could be prosecuted for a felony under Maryland’s wiretapping law. Just ask Anthony Graber.

Taiwan Cuts Corporate Taxes

From the subscription magazine Tax Notes today:

Taiwan’s Legislative Yuan (parliament), in an attempt to attract foreign investors, on May 28 passed legislation cutting the island’s corporate tax rate from 20 percent to 17 percent, retroactive to January 1…

The lower corporate tax rate will make Taiwan more competitive with its East Asian rivals Singapore, whose rate is also 17 percent, and Hong Kong, whose rate remains slightly lower at 16.5 percent.

The reduced rate ‘will make us even more competitive and will help attract international businesses to set up their headquarters in Taiwan. We believe we’ll see the positive results in the next several years,’ lawmaker Alex Fei of the ruling Kuomintang.

If you were the CEO of an international company that made semiconductor chips, laptops, or other manufactured products, would you locate your next plant in the United States – where the corporate rate is about 40% – or Taiwan where it is less than half of that?

Companies build new factories, buy machines, and hire workers in order to earn after-tax profits. Our government swipes twice as much of those profits as the Taiwanese government, so our economy obviously gets fewer factories and machines and lower wages than otherwise. 

The global business environment is changing, and we need to change with it. I’m not sure why that is so hard for U.S. policymakers to understand.

See here for corporate effective tax rates around the world.

Buy this book to read about the global tax revolution.

The Sleazy Combination of Big Business and Big Government

There’s an article today in the Wall Street Journal showing how already-established companies and their union allies will use the coercive power of government to thwart competition. The article specifically discusses efforts by less competitive supermarkets to block new Wal-Mart stores. Not that Wal-Mart can complain too vociferously. After all, this is the company that endorsed a key provision of Obamacare in hopes its hurting lower-cost competitors. The moral of the story is that whenever big business and big government get in bed together, you can be sure the outcome almost always is bad for taxpayers and consumers.

A grocery chain with nine stores in the area had hired Saint Consulting Group to secretly run the antidevelopment campaign. Saint is a specialist at fighting proposed Wal-Marts, and it uses tactics it describes as “black arts.” As Wal-Mart Stores Inc. has grown into the largest grocery seller in the U.S., similar battles have played out in hundreds of towns like Mundelein. Local activists and union groups have been the public face of much of the resistance. But in scores of cases, large supermarket chains including Supervalu Inc., Safeway Inc. and Ahold NV have retained Saint Consulting to block Wal-Mart, according to hundreds of pages of Saint documents reviewed by The Wall Street Journal and interviews with former employees. …Supermarkets that have funded campaigns to stop Wal-Mart are concerned about having to match the retailing giant’s low prices lest they lose market share. …In many cases, the pitched battles have more than doubled the amount of time it takes Wal-Mart to open a store, says a person close to the company. … For the typical anti-Wal-Mart assignment, a Saint manager will drop into town using an assumed name to create or take control of local opposition, according to former Saint employees. They flood local politicians with calls, using multiple phones to make it appear that the calls are coming from different people, the former employees say. …Former Saint workers say the union sometimes pays a portion of Saint’s fees. “The work we’ve funded Saint to do to preserve our market share and our jobs is within our First Amendment rights,” says Jill Cashen, spokeswoman for the United Food and Commercial Workers Union. Safeway declined to comment. …Mr. Saint says there is nothing illegal about a company trying to derail a competitor’s project. Companies have legal protection under the First Amendment for using a government or legal process to thwart competition, even if they do so secretly, he says.

FLASH: Liberal White House Nominates Liberal Judge!

From the first round of Clinton Library documents regarding Elena Kagan’s White House service, we can now all be shocked – shocked! – that President Obama’s Supreme Court nominee is a liberal.  It’s a mystery why the punditocracy thought someone who despaired at Ronald Reagan’s election, staffed the Michael Dukakis campaign, clerked for Thurgood Marshall, and advised Bill Clinton would be anything else.  But this is what passes for news in Washington these days.

We already knew that the solicitor general was a genial but cautious careerist, rarely expressing her own opinions but forever strategizing over the next rung on the ladder that would take her to her high school dream of sitting on the Supreme Court.  And we knew that she was a moderate legal academic – meaning she sits comfortably to the left of the country as a whole.  Well, now we know that Kagan is a technocrat who is for abortion rights, affirmative action, and campaign finance regulations, but against guns.

Some conservatives may see this as an “a-ha” moment, and rabid progressives may be breathing a sigh of relief.  But really these so-called revelations are not going to change the story, either in terms of the final confirmation vote or in the court of public opinion.

What the media should be asking, and what the American people deserve to know, is how Kagan views the Constitution – especially what limits it places on an out-of-control federal government.  In a prophetic 1995 book review, the nominee expressed frustration at the “vapid and hollow charade” that the confirmation process had become and demanded that both senators and judicial nominees engage in more substantive discussions.  Let’s see if the Kagan hearings meet that Kagan standard.

Why We Need Fewer Public School Jobs, Not More

That’s the topic of a commentary I just wrote at BigGovernment.com, tied to recent efforts to prop up public school employment with another $23 billion bailout. I won’t repeat the text of that post here, but thought the two charts bear repeating. The first shows that employment has grown 10 times faster than enrollment over the past 40 years.

The second chart shows how the total cost of sending a single child through the public school system has changed over the years, along with trends in student achievement.

Dartmouth Withstands the NYT, but the Left Cannot Withstand Dartmouth

Research by scholars at Dartmouth Medical School suggests that Americans waste gobs of money on medical care.  Last week, The New York Times ran a fairly lame critique of the Dartmouth research, by Reed Abelson and Gardiner Harris.  Kate Steadman of Kaiser Health News provides a good synopsis of expert reaction to the story and writes, “Conservative and libertarian health policy bloggers were largely silent, ignoring the debate.”  Although this libertarian wasn’t exactly ignoring the debate, the categorization is largely fair.  More about that in a moment.

Abelson and Harris’s portrayal of the Dartmouth research is completely at odds with my understanding of that research.

Decades ago, Dartmouth researchers stumbled across what may be the best method of detecting wasteful spending in an economic sector as complicated as medicine.  They noticed that patients in some areas consume a lot more medical care than patients in other areas — more office visits (to specialists in particular), more diagnostic tests, more procedures, more hospitalizations, et cetera.  And they began to question whether the patients who consume more care actually benefit from that additional care.  They have therefore spent the past few decades measuring both geographic variation in medical consumption, as well as any benefits for which they can find data.  Do patients in high-spending areas start out sicker than patients in low-spending areas? Do they end up healthier?  Are they more satisfied with their care?  My sense is that the Dartmouth researchers are scientists trying to capture the empirical reality of America’s health care sector.  They have been doing this for a long time, they are very good at it, and they consistently find that a lot of the medical care that Medicare patients consume appears to provide no value.

That finding has drawn intense criticism, not least from health care providers in high-spending areas, whose resource use it calls into question.  Dartmouth researchers have tried to address those criticisms by approaching the issue from whatever angles the data will allow.

  • It is possible, and many critics claim, that high-spending regions spend more because they treat sicker patients.  The Dartmouth folks have therefore controlled for patients’ health status, then measured whether patients in high-spending areas experienced better outcomes.
  • It is certain, as critics also note, that those controls are imperfect.  Dartmouth researchers have therefore controlled for the ultimate outcome — death — by measuring geographic variation in Medicare enrollees’ medical consumption in the last six months of life.  That too is an imperfect strategy, as Reed and Harris note.  It is possible that high-spending regions are doing things that keep some Medicare patients alive and out of that cohort.
  • Dartmouth researchers have compared variations in spending to measures of quality other than health outcomes, including “process” measures that show whether doctors are following evidence-based treatment guidelines.
  • To determine whether patient preferences are driving geographic variation, they have compared consumption patterns to surveys estimating patients’ preferences for more- vs. less-aggressive treatment.

These various strategies consistently show that a large share of medical spending cannot be explained by either patient preferences or better health outcomes.  Indeed, they have even found that higher spending often correlates to lower-quality care.  These findings suggest that perhaps one-third of U.S. health care spending — which amounts to about $700 billion per year, or 5 percent of U.S. GDP — is not making patients any healthier or happier.

These research strategies are not perfect, either individually or in the aggregate, because the data are imperfect and medicine is extraordinarily complex.  (If this stuff could be measured perfectly, it wouldn’t be medicine.)  Furthermore, even if the Dartmouth studies fully controlled for health status and patient preferences, their findings would not prove that all the extra money is being wasted. It may be, for example, that the additional money spent in high-spending areas generates new knowledge that helps save lives  in low-spending areas too.

Nevertheless, this central finding has held up to many different research strategies.  The Dartmouth crowd has produced a sizable and credible body of research that suggests as much as one third of U.S. health care spending — roughly the annual economic output of South Carolina — is little more than a wealth transfer from taxpayers and premium-payers to health care providers and medical suppliers.

Given all this, it was bizarre to see Abelson and Harris claim, “Measures of the quality of care are not part of the formula” (which is untrue), and “Neither patients’ health nor differences in prices are fully considered by the Dartmouth Atlas” (the presence of “fully” makes this claim merely unfair and misleading).  I agree with my left-leaning friends.  This was shoddy journalism.

I have seen only one conservative comment on the Abelson-Harris story.  Since OMB director Peter Orszag invokes the Dartmouth data in his argument for ObamaCare, my conservative friend celebrated Abelson and Harris’s attack on those data.

My conservative friend is in error — but so is Orszag.  As I wrote above, the Dartmouth folks are merely trying to capture what is happening in the world that surrounds us.  So long as the Dartmouth research holds up to scrutiny, advocates of free-market health care reform should embrace it, for two reasons. First, embracing reality is generally a good idea.  Second, the Dartmouth research makes the case for free-market reforms, and against the Obama-Orszag agenda.  The Dartmouth Atlas focuses almost exclusively on the Medicare program, where economists of all stripes acknowledge that government-imposed price and exchange controls, coupled with a lack of patient cost-consciousness, are the driving forces behind persistent excessive spending and a lack of focus on value. (Dartmouth researchers opaquely refer to Medicare’s fee-for-service price and exchange controls as “the current reimbursement system.”) These are not products of the free market.  The wasteful health care spending identified by Dartmouth researchers must be laid squarely at the feet of the Left — or as I affectionately call them, the Church of Universal Coverage.

My conservative friend(s) would do better to respond that a free market can reduce unwarranted variation in health care spending, while government can’t — not in Medicare, and not even in the Veterans Health Administration.