Wednesday, January 10, 2018

How the Administration Gets the “Three R’s of Deregulation” Exactly Backwards

In a recent short post for the Harvard Business Review,  I proposed that regulatory reformers should be guided by “Three R’s”:
  • Retain regulations that support the basic rules of a market economy. Those include regulations that protect property rights, ensure that contracts are honored, and protect against common law harms like fraud, negligence, and nuisance.
  • Replace regulations that have legitimate aims but also have harmful unintended consequences.
  • Repeal regulations that are motivated primarily by the manipulation of public policy for private gain (rent seeking).
An article by Lisa Friedman in today’s New York Times illustrates how the Trump administration has gotten the three R’s exactly backwards. It details efforts by coal baron Robert E. Murray, a Trump mega-donor, to overturn a broad array of regulations on the coal industry. Be sure to read the full text of Murray’s wish list, which the EPA and the Department of Energy are systematically implementing.

Rather than retaining regulations that support common law property protections against harmful pollution, Murray wants to repeal them outright. His recommendations do not stop at carbon emissions but also include harmful local pollutants like ozone. To compete the picture, he wants to get rid of mine safety regulations.

Some of the regulations that Murray objects to are open to legitimate criticism. For example, he does not like Obama-era support for clean coal technology, about which many environmentalists also express skepticism. He also does not like subsidies for wind and solar energy. My own recommendation, in line with my second “R,” would be to replace the clean coal requirements and renewable energy subsidies with a simpler, more effective carbon tax.

Finally, rather than seeking repeal regulations that are motivated primarily by rent seeking, Murray indulges in open rent seeking of his own. Can it be viewed as anything other than rent seeking when an energy producer seeks to lower his own operating costs by insisting that downwind property owners absorb his output of noxious wastes without compensation?

Reposted from

Tuesday, January 9, 2018

Why We Spend So Much on Healthcare and Get So Little for Our Money?

We often hear that we, in United States, spend more on healthcare than other high-income countries, but get less for our money. A report from the Commonweath Fund, “Mirror, Mirror 2017”, is among many pieces of research to reach that conclusion.  Just why is U.S. healthcare spending so high and performance so low? What are the realistic options for reformers? One of the report’s key charts provides an excellent framework for discussing what it calls “flaws and opportunities for better U.S. healthcare.” 

Why is U.S. healthcare spending so high?

To understand why U.S. healthcare spending is so high, we can begin by asking, , “High relative to what?” After all, as one of the wealthiest countries in the world, we spend more than others on a lot of things. The question is whether U.S. healthcare spending is higher than we would expect it to be even when we take our generally high standard of living into account.

Monday, January 8, 2018

The Three R's of Effective Regulatory Reform

With tax cuts now a done deal, Republicans are turning to regulatory reform to give economic growth a further boost. There, they may find more bipartisan support. Past reforms of airlines, rail, and trucking regulation were, after all, set in motion by Democrats. 

Today, there is significant Democratic support for reform of financial regulation, especially as applied to smaller community banks. Overregulated small businesses can be found in every Congressional district, red or blue.
But while regulatory reform could be a big boost if it is done right, indiscriminate deregulation could do more harm than good.

Blanket deregulation won’t help

Many conservatives and libertarians seem to think the only good regulation is a dead regulation. If that were true, it should be possible to quantify regulation and measure the harm it does. However, attempts to do so have not been particularly successful.

Thursday, January 4, 2018

Some in Congress are Still Trying to Open Banking Service to Canabis Businesses

 As California joins the list of states that have legalized recreational marijuana, limited access to banking services continues to be a problem for producers, retailers, and other businesses in this rapidly growing sector. Because marijuana businesses cannot, in most cases, open bank accounts, accept credit cards, or make electronic payments, the sector remains largely cash based, with all the drawbacks that entails. The problem is felt by businesses that deal in medical as well as recreational cannabis.

Charlie Wilson, whose company Green Bits provides management and compliance services to marijuana-related business, puts it this way in a recent post for The Hill:
There is overwhelming evidence that electronic transactions are more secure, faster and more transparent than dealing only in cash. Yet this highly regulated industry is more difficult to monitor precisely because it is all cash. And oversight will only become more difficult with continued rapid growth and as more states legalize cannabis.
Several attempts have been made to remedy the situation. In April, Rep. Ed Perlmutter (D-CO), along with several co-sponsors, introduced the Secure and Fair Enforcement Banking Act (SAFE Banking Act), a reintroduction of legislation that had been introduced but languished in earlier Congresses. There was some hope that provisions of the act would be folded into the recently passed tax bill, but that did not happen. Not to be discouraged, just before Christmas, Rep. Andy Barr (R-KY) introduced a similar bill, the Industrial Hemp Banking Act, as stand-alone legislation.

All of these bills seek to remove federal barriers to provision of banking services. Among other provisions, they would prevent the FDIC from denying deposit insurance to banks that service cannabis-related businesses, prevent federal banking agencies from penalizing banks that conduct such businesses, and make it easier for banks to accept cannabis-related assets as collateral for loans.
Safe banking for marijuana businesses is a bipartisan cause, as the sponsorship of the above-cited bills makes clear. Now what is required is to translate popular support for legalization into Congressional action. As Marijuana Majority points out, “Bad laws change when good people speak up.”

Reposted from Niskanen Center

Sunday, December 10, 2017

Yet Another Sign of a Stronger Labor Market: Increases in Job Leavers and Reentrants

The headline unemployment level remained unchanged at 4.1 percent in November, but a closer look at the underlying data shows signs of increasing strength of the labor market. One such indication is the continued rise in the number of job leavers and reentrants. For slightly different reasons, workers in both categories can be considered voluntarily unemployed, in contrast to job losers, whose unemployment is unambiguously involuntary.

For full details and chart, see my exclusive post on SeekingAlpha.

Monday, December 4, 2017

In Search of the Elusive Effects of the Regulatory State

The Trump administration is at war with the regulatory state. The fight is most intense at the Environmental Protection Agency (EPA), where Administrator Scott Pruitt is reportedly accompanied by armed guards even within the EPA building, but the Departments of Energy, Transportation, Interior and others are doing their bit. The Consumer Financial Protection Bureau is the latest agency to come under attack. Should we cheer all this on?
Certainly, the quality of the country’s regulatory regime does matter. As the Niskanen Center’s Will Wilkinson, puts it,
Whether a country’s market economy is free—open, competitive, and relatively unmolested by government — is more a question of regulation than a question of taxation and redistribution. . .

If we want to encourage freedom and prosperity, we should pay more attention to easing the grip of the regulatory state.
Still, before we take an axe, Pruitt-style, to anything that looks like it might be a regulation, it would be nice to have some actual evidence to show the degree to which regulation undermines our freedom and prosperity, and some data to help us prioritize the worst regulations for early excision. The popular indexes of economic freedom from the Heritage Foundation and the Fraser Institute, both of which have components that purport to quantify the regulatory burden, would seem like a good place to look. What follows is a summary of what we can learn from those indicators, and some thoughts about how they might be improved. 

Friday, November 24, 2017

The High Cost of Healthcare: Is it Really Just the Prices?

Uwe Reinhardt, the eminent health care economist, who died last week, spent his career diagnosing the ills of the U.S. medical system and suggesting remedies. One of his most famous articles, written with colleagues Gerard F. Anderson, Peter S. Hussey, and Varduhi Petrosyan, bore the trenchant title, “It’s the Prices, Stupid.” In it, Renhardt and his co-authors concluded,
In 2000 the United States spent considerably more on health care than any other country, whether measured per capita or as a percentage of GDP. At the same time, most measures of aggregate utilization such as physician visits per capita and hospital days per capita were below the OECD median. Since spending is a product of both the goods and services used and their prices, this implies that much higher prices are paid in the United States than in other countries. But U.S. policymakers need to reflect on what Americans are getting for their greater health spending. They could conclude: It’s the prices, stupid.
Yes, our health care is plagued by high prices, with the cost of some new cancer treatments approaching a million dollars. However, as an article by Katie Hafner and Griffin Palmer in Tuesday’s New York Times details, it is not always just the prices.

Hafner and Palmer explore the rapid increase in the treatment of older Americans for skin cancer. To some extent, the increase can be explained by demographics—the aging of a generation that grew up with no clue that exposure to the sun’s rays could be anything but beneficial. However, demographics alone cannot explain why the number of biopsies for skin cancer that were billed to traditional Medicare Part B has risen 55 percent over the past decade, despite a small drop in that program’s enrollment.

The article zeros in on the role of private dermatology clinics, the largest of which is Advanced Dermatology and Cosmetic Surgery. The growth of ADCS has been fueled, in part, by an investment of $600 million by Harvest Partners, a private equity firm. ADCS makes heavy use of physician assistants to perform thousands of biopsies and treatments. The authors question the adequacy of supervision of the assistants by qualified MDs (as required by law). They report the opinion of independent specialists who characterize ADCS treatments as far too aggressive, especially for cancers that are unlikely to be fatal, and for patients who are near the end of their lives from other causes.

This examination of a single specialty raises the obvious question: Is it still just the prices, stupid, or are other factors also at work?

Although the New York Times story on dermatology is largely anecdotal, it fits in with another line of evidence that suggests that high U.S. healthcare expenditures are driven by demand, not just by higher prices per quantity supplied. Some of that evidence in question is laid out in a long, data-packed post by the anonymous author of the blog Random Critical Analysis (RCA). (If you don’t want to spend an hour working through RCA’s original post, Tyler Cohen has a brisk summary here.)

RCA maintains that although U.S. healthcare spending seems way out of line with that of its OECD peers when stated relative to GDP, it is not nearly so far out of line when compared to consumption. After all, as RCA points out, health care is a “superior good” with high income elasticity. In plain Englsih, that means Americans, like people all over the world, tend to devote a higher percentage of their total consumption spending to health care as their standard of living rises.

Although there are a few countries that have higher per capita GDP than the United States, there are none that have higher per capita consumption. Part of the reason is that Americans don’t save much. Another reason is that the United States runs a trade deficit, which makes its consumption larger as a share of GDP compared to countries that export a lot, like Germany or Norway. RCA also adjusts consumption data to reflect cross-national differences in the share of goods and services that are paid for by government but consumed by individuals.

As John Cochrane points out in a comment on his own blog, the scandal is not that we spend so much on healthcare, but that we don’t get more for our money. Our high propensity to consume health care should not curb, but rather, should spur our search for reforms that could increase the efficiency of our healthcare system.

Based on notes previously posted at