Archives: 04/2019

The Fight over Particulate Matter

The EPA and conventional air pollution regulations are back in the news. NPR reported that the seven-member Clean Air Scientific Advisory Committee (CASAC), which provides the EPA with technical advice for National Ambient Air Quality Standards, is “considering guidelines that upend basic air pollution science.” But NPR’s oversimplified depiction of a settled scientific debate ignores real misgivings about the science that has justified the regulations and provides an opportunity to ask questions about the proper role of science in public policy.

The pollutant in question is particulate matter (PM), tiny particles or droplets emitted from power plants, factories, and cars. The EPA contends that PM with diameters smaller than 2.5 micrometers, about 3 percent of the size of a human hair, is the most harmful because the particles can be inhaled deep into the lungs. Along with five other criteria pollutants, the Clean Air Act requires that the EPA periodically prepare an analysis that “accurately reflects the latest scientific knowledge” on the health effects of PM exposure. It must then set air quality standards “requisite to protect the public health…allowing an adequate margin of safety.”

Whether one favors leaning towards caution and setting stringent pollutant standards or is skeptical of the efficacy of air quality rules and worries about the costs of the regulations, PM is important. On the one hand, the supposed harms of PM are high. One (contested) study claimed that 2005 levels of PM caused about 130,000 premature deaths per year, which would put PM as the sixth leading cause of death in the United States after strokes. On the other hand, the regulations are expensive. Between 2003 and 2013, EPA regulations accounted for 63–82 percent of the estimated monetized benefits and 46–56 percent of the costs of all federal regulations. The benefits of reducing PM specifically are 90 percent of the monetized benefits of EPA air regulations, meaning PM rules play an outsized role in the justification for many of the costliest federal regulations.

No matter which side of the debate one is on, it would seem important that the EPA have a rational standard-setting process that properly weighs both the possible reduction in the harms of PM and the potential costs. Unfortunately, that is not the case.

The scientific evidence of the harms of PM is much more uncertain than many observers claim and the conflict over what we do and do not know about the effects of PM has existed for decades. The evidence of negative health effects of PM is primarily two studies published in the 1990s, the Harvard Six Cities Study (SCS) and the American Cancer Society Study (ACS). As I have previously noted,

The SCS has been the subject of intense scientific scrutiny and much criticism because of results that are biologically puzzling. The increased mortality was found in men but not women, in those with less than high school education but not more, and those who were moderately active but not sedentary or very active. Among those who migrated away from the six cities, the PM effect disappeared. Cities that lost population in the 1980s were rust belt cities that had higher PM levels and those who migrated away were younger and better educated. Thus, had the migrants stayed in place it is possible that the observed PM effect would have been attenuated.

Furthermore, a survey of 12 experts (including 3 authors of the ACS and SCS) asked whether concentration-response functions between PM and mortality were causal. Four of the 12 experts attached nontrivial probabilities to the relationship between PM concentration and mortality not being causal (65 percent to 10 percent). Three experts said there is a 5 percent probability of noncausality. Five said a 0-2 percent probability of noncausality. Thus 7 out of the 12 experts would not reject the hypothesis that there is no causality between PM levels and mortality.

Protectionism for Taxis at Logan Airport

In March,

the Massachusetts Port Authority revealed details of a plan to increase pickup fees for ride-hail trips from $3.25 to $5, and riders would have to pay the $5 to be dropped off at the airport. Massport would charge riders $2.50 if they agreed to share their Uber or Lyft ride.

Under the same plan, Massport would also require travelers to walk from the terminals to the airport’s central parking garage for pickups and drop-offs.

Crucially,

The changes would not apply to the taxi industry, which would still have direct access to the terminals.

The official justification is that Uber and Lyft create congestion at the terminals.  That argument is unpersuasive: if congestion is a problem, any policy response should apply to taxis too.

These policies are indeed misguided and worth changing.

Punishing Housing Providers for Racial Imbalances They Didn’t Cause Will Only Lead to More Racial Bias

The federal Fair Housing Act (“FHA”) makes it unlawful to discriminate based on race (among other categories) in the sale, rental, and financing of housing. Four years ago, in a case called Texas Department of Housing v. Inclusive Communities Project, the Supreme Court determined that the FHA allows certain claims based on “disparate impact”—meaning that tenants don’t need to prove discriminatory intent behind housing policies, only an adverse effect on members of their protected class, even if it was the unintended result of an otherwise neutral policy.

Enter Waples Mobile Home Park in Fairfax County, Virginia. Waples rents primarily to Hispanic tenants, but, to avoid violating federal immigration policy, it requires all community residents to provide their social security numbers or otherwise show proof of legal immigration status. Several current and former tenants filed an FHA complaint against Waples, alleging that this policy has a racially disparate impact. Why? Because most undocumented people in Fairfax County are Hispanic.

Although the trial court threw out the lawsuit, the U.S. Court of Appeals for the Fourth Circuit resurrected it. According to the court, a mere showing of statistical disparity is enough to establish a valid claim. But, as the Supreme Court in Inclusive Communities emphasized, “[w]ithout adequate safeguards … disparate-impact liability might cause race to be used and considered in a pervasive way and ‘would almost inexorably lead’ governmental or private entities to use ‘numerical quotas,’ and serious constitutional questions then could arise.” One of those important safeguards, called the “robust causality” requirement, makes sure that housing providers aren’t punished for racial imbalances they didn’t cause. 

Waples is not, and cannot, be responsible the geographic distribution of undocumented individuals within the United States. It simply isn’t the park’s fault that most undocumented people in Fairfax County happen to be Hispanic. Its policy of requiring tenants to provide proof of immigration status thus could not have “caused” a disparate impact. Allowing FHA claims based on this sort of coincidence would destroy the Inclusive Communities safeguards and shift the burden to housing providers to prove the absence of discrimination. Doing so will only undermine the core purpose of the FHA—to decrease racial bias in housing decisions—by encouraging more race-based decision-making among housing providers for fear of being sued. 

Raise the Minimum Purchase Age for Tobacco?

Some lawmakers think this is a good idea:

Senate Majority Leader Mitch McConnell, R-Ky., announced he will introduce national legislation to raise the minimum age for people buying tobacco products from 18 to 21.

But evidence from the U.S. and elsewhere suggests the MPA-21 for alcohol has had minimal impact on drinking or driving fatalities among 18-20 year olds.  And rampant evasion teaches young adults that rules are made to be broken, thereby breeding disrespect for the law.

A MPA-21 for tobacco will suffer the same fate. Worse, it would be one more step down the slippery slope toward tobacco prohibition.  What could possibly go wrong? 

 

To Become an American, Prove You Haven’t Smoked Pot

One requirement for immigrants to naturalize and receive U.S. citizenship is that they affirmatively demonstrate “good moral character.” America’s nanny staters have decided that consuming marijuana in any form is, well, immoral. The Trump administration decided this week to clarify further that it is still immoral to use, share, sell, or manufacture marijuana that is legal at the state level. The updated guidance states:

An applicant cannot establish good moral character (GMC) if he or she has violated any controlled substance-related federal or state law or regulation of the United States or law or regulation of any foreign country during the statutory period… . Classification of marijuana as a Schedule I controlled substance under federal law means that certain conduct involving marijuana, which is in violation of the CSA, continues to constitute a conditional bar to GMC for naturalization eligibility, even where such activity is not a criminal offense under state law.

For example, possession of marijuana for recreational or medical purposes or employment in the marijuana industry may constitute conduct that violates federal controlled substance laws. Depending on the specific facts of the case, these activities, whether established by a conviction or an admission by the applicant, may preclude a finding of GMC for the applicant during the statutory period.

The new guidance goes even further:

Note that even if an applicant does not have a conviction or make a valid admission to a marijuana-related offense, he or she may be unable to meet the burden of proof to show that he or she has not committed such an offense.

In other words, even if an immigrant attempting to become an American has never been convicted of using marijuana and won’t admit doing so, they could still be denied U.S. citizenship. It is important, you understand, that immigrants learn about American traditions. Obviously, those traditions do not include smoking marijuana—despite one of the highest use rates in the world—while they do include Kafka-esque bureaucracy.

Don’t Assume That Gay Couples Face Mortgage Discrimination

A study by Iowa State researchers that has gotten some media attention at places like NBC News finds that mortgage lending to same-sex applicant pairs is associated with higher rates of loan rejection and slightly higher interest rates. The study is already being cited in support of the Equality Act, a bill that, among many other provisions expanding the scope of federal law, would extend the federal Fair Housing Act to cover sexual orientation. 
 
There are reasons, however, to approach the findings with caution. To begin with, lenders currently have an economic incentive to underwrite loans correctly and compete for all profitable business. Beyond that, studies that find positive (even if thin) evidence of discrimination tend to get reported and amplified heavily, while those with null results get ignored.
 
The first point to get on the table here is that same-sex couples are decidedly *not* distributed randomly across all sorts of neighborhoods. In particular, in common observation, male couples have long tended to be overrepresented in neighborhoods that are undergoing various stages of renovation, often associated with upward movement of real estate values. Some of these neighborhoods are run-down or even crime-ridden when the same-sex couples start moving in. Some have finished the process of “arriving” and have become pricey and desirable (although the gay couples might choose to move on at or before that point). 
 
There are at least two possible mechanisms by which these neighborhoods could have higher mortgage denial rates for reasons unrelated to any animus on the part of lenders: they might include more marginal/troubled neighborhoods in the early stages of comeback (which will have higher default rates for multiple reasons). Separately, renovators have different needs in the mortgage market than those who buy new (or buy fully renovated).  Loans in comeback neighborhoods might be exposed to the complications of renovation by being, for example, hybrid construction loans, multi-family, residential-plus-commercial, or lacking in conventional amenities such as off-street parking. 
 
One transaction I know about from firsthand experience, for example, was nonconforming in several of these ways: it was a construction loan premised on the idea that a large chunk of cash was going to fix up the old house, it was a two-unit, and one of the units was commercial. Such a loan is often hard to place in the conventional mortgage market, which is geared toward standard servicing and packaging for resale into predictable secondary markets, as favored by mass lenders and mortgage servicers. The alternative, as in the case I know about firsthand, can mean turning to an individualized deal on slightly less favorable (but still fair and competitive) terms.  
 
Sure enough, if you turn to the write-up at Iowa State, you find that it reaches quite a significant conclusion that goes unmentioned in the more popular NBC report:  
 
“What they found was somewhat surprising. In neighborhoods with more same-sex couples, both same-sex and different-sex borrowers seem to experience more unfavorable lending outcomes overall. The researchers say the findings should raise enough concern to warrant further investigation.”
 
In other words, the study itself leaves gay couples’ higher turn-down rate looking like something of an artifact: the observable result was linked instead to the neighborhoods where they take out mortgages. Incidentally, the researchers were able to control for some variables such as types of mortgage, which did allow them to take into account some of the differences that could be observed and quantified. But just as surely, especially working with data sets gathered for other purposes, they could not control for all the ways one neighborhood (or for that matter one individual loan) differs from another. 
 
These are not findings on which one would want to premise any new legislation restricting liberty of contract. 

Leaving High-Tax Connecticut for Low-Tax Florida

The exodus of the wealthy from high-tax Connecticut continues, according to the Wall Street Journal:

After four years on the market, and three price cuts, a stately Colonial-style home on Greenwich, Conn.’s tony Round Hill Road is being sold in a way that was once unthinkable in one of the country’s most affluent communities: It is getting auctioned off. Once asking $3.795 million, the four-bedroom property will be sold May 18 with Paramount Realty USA for a reserve price of just $1.8 million.

Seller Isaac Hakim, a real-estate investor, said it is time to move on …. Many wealthy New Yorkers are opting to live in the city, rather than in the suburbs. Some of the wealthiest, like Mr. Hakim, have decamped to Florida in search of more favorable tax rates.

… Owners who paid top dollar for their homes in the Fairfield County town in the mid- to late-2000s are routinely selling for less than they paid. Dramatic price cuts are the order of the day.

… Starwood CEO Barry Sternlicht, a former Greenwich resident, declared it to be the worst housing market in the country. “You can’t give away a house in Greenwich,” he said while speaking at an investment conference. Mr. Sternlicht’s company has since relocated from Greenwich to Miami Beach, Fla.

Data from both the Census Bureau and Internal Revenue Service have long shown that Americans are, on net, moving from higher-tax states such as Connecticut to lower-tax states such as Florida. The 2017 Tax Cuts and Jobs Act (TCJA), which capped state and local tax deductions, has likely strengthened these existing migration patterns.

These patterns are shown in the chart below. Each blue dot is a state. The vertical axis shows the mid-2017 to mid-2018 Census net interstate migration figure as a percentage of state population. The horizontal axis shows state and local household taxes as a percentage of personal income. The red line shows the fitted relationship between the two variables.

On the right, most of the high-tax states have net out-migration. On the left, nearly all the net in-migration states have household tax loads of less than 8.5 percent of personal income.

The TCJA should be a wakeup call for out-migration states such as Connecticut. Such states need to reduce their taxes and trim their government costs. News articles reveal that the wealthy are taking a hit on selling their Connecticut homes. But the whole state takes a hit when highly productive people and their businesses decamp for tax-friendlier locations.

I profile some of the other wealthy expatriates from Connecticut here.

A new study published by NBER summarizes the latest international evidence on tax-induced mobility.

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