Monday, May 21, 2018

Why We Should be Skeptical About Guaranteed Jobs

The idea of a national job guarantee (JG) is about to go mainstream. The concept is far from new, but for the first time in decades, it is being endorsed by politicians with national stature. Sen. Bernie Sanders has promised to submit a legislative proposal. Other Democratic presidential hopefuls are showing interest. Academics, including Levy Economic Institute’s L. Randall Wray and Pavlina Tcherneva, have provided detailed blueprints for a national JG program.

No one denies that it would be nice if everyone who wanted to work could find a job, but before we start to beat the drum for a full-bore national job guarantee, we need a reality check. In a recent post, my  Niskanen Center colleague  Samuel Hammond outlined three reasons to be skeptical:
  1.     The private sector is better at allocating labor than public bureaucracies.
  2.     A JG program would be too easily politicized.
  3.     Other active labor-market policies, including wage subsidies, would work better than a JG.
These are valid points. Let me add three more reasons to be cautious about a national job guarantee.

4. Don’t exaggerate the pool of eligible candidates

As of April 2018, some 6 million people were officially unemployed, that is, counted as not working but actively looking for work. However, not all of those would be candidates for public-service jobs. Both in good times and bad, many of the unemployed are merely on temporary layoff or engaged in short spells of unemployment between jobs. At present, 33 percent of unemployed workers have been out of work for 5 weeks or less and another 31 percent for 5 to 14 weeks. Even in a bad year like 2010, nearly 40 percent of the unemployed were out of work for 14 weeks or less. Providing short-term in-and-out jobs for the temporarily unemployed is not the purpose of a JG. Even if offered such jobs, most of the short-term unemployed would probably prefer to keep looking for something more suited to their skills and interests.

Friday, May 18, 2018

Crop Insurance Should Die, Yet It Lives On

As I post this, Congress is debating the farm bill renewal. In a rational world, it would eliminate or greatly scale back our absurd system of crop insurance, but it appears that once again, the program will live on.

Insurance plays an essential role in any market economy. By spreading losses among members of a group with similar exposure, insurance encourages people to take prudent risks while protecting them from financial ruin in case they are the unlucky ones. But not all insurance is equal. Sometimes, rather than representing the public interest, a public insurance program can come to represent a special interest subsidy in disguise. Crop insurance, the multi-billion-dollar government subsidy that lies at the heart of the farm bill that is now working its way through Congress, is a case in point.

Let’s take a look at the strange economics of crop insurance, and what can be done to fix it.

Crop losses are not an insurable risk

The problems of crop “insurance” begin with the fact that crop losses are not really an insurable risk. Crop insurance violates three of the most important rules that economists have developed to identify which risks are insurable and which are not.

Sunday, May 6, 2018

The Role of Preventive Care in Healthcare Reform


“Remember the old saying that ‘an ounce of prevention is worth a pound of cure’?” asks United Healthcare. “Maintaining or improving your health is important – and a focus on regular preventive care, along with following the advice of your doctor, can help you stay healthy … Routine checkups and screenings can help you avoid serious health problems, allowing you and your doctor to work as a team to manage your overall health, and help you reach your personal health and wellness goals.”

You would think that a private insurer, on the hook for big claims down the road if preventive measures did not catch health problems early, would know, if anyone did. Popular opinion seems to agree. Readers of some of my own earlier healthcare posts have often offered opinions such as, “A couple hundred dollars of preventive medicine will prevent tens to hundreds of thousands of dollars being spent,” and, “Anyone who has ever visited a physician knows that preventive care is cheaper in the long run.”

But there is more to the story. Yes, healthcare reform needs to get preventive care right, but preventive care by itself will not make us healthier and cut national healthcare spending. Here are some of the issues.

Thursday, April 12, 2018

Why a Balanced Budget Amendment Would Be Profoundly Destabilizing

This week the House is expected to vote on a balanced budget amendment (BBA), introduced by Bob Goodlatte (R-VA), chairman of the Judiciary Committee. The amendment would require federal budget outlays to equal receipts each year.

Subjecting fiscal policy to rules, rather than allowing it to be driven purely by political impulse, would be a good idea, but not if the rules are the ones envisioned by this amendment. Far from stabilizing the economy, this kind of BBA would radically destabilize it, leading to dizzier booms and deeper recessions. Here is why.

How the budget affects the business cycle, and vice versa

To see why a balanced budget amendment would undermine stability, we need to understand how the budget affects the business cycle, and how the business cycle affects the budget. When we look at the pattern of federal receipts and outlays over time, as shown in the following chart, we see a lot of ups and downs. Where do they come from?

Wednesday, April 11, 2018

Trump Signs Executive Order on Work Requirements. Why Such Requirements Have Failed in the Past

On Tuesday, President Donald Trump signed an executive order directing all federal agencies to review and strengthen work requirements for all federal poverty programs, including Medicaid, food stamps, housing, and others. The preface to the order invokes familiar rhetoric:
The United States and its Constitution were founded on the principles of freedom and equal opportunity for all.  To ensure that all Americans would be able to realize the benefits of those principles, especially during hard times, the Government established programs to help families with basic unmet needs. Unfortunately, many of the programs designed to help families have instead delayed economic independence, perpetuated poverty, and weakened family bonds.  While bipartisan welfare reform enacted in 1996 was a step toward eliminating the economic stagnation and social harm that can result from long-term Government dependence, the welfare system still traps many recipients, especially children, in poverty and is in need of further reform and modernization in order to increase self-sufficiency, well-being, and economic mobility.
Conservatives have hoped for years that shouting “Get a job!” loudly enough will induce people now on public assistance either to enter the workforce, or if not, to quietly fade from view. Although work requirements have proved ineffective time and again, hope dies last.

There are better ways to address the problems of our broken social safety net. Here are some points I have made in previous posts:
  • The new executive order invokes the 1996 welfare-to-work reforms as a success story, but a careful review of the results shows that the effects of those reforms were disappointingly small.
  • The main reason that work requirements have small effect on actual work behavior is that a majority of low-income people who can work already do work. Most of those who do not have paid jobs are working as unpaid caregivers, in school, or hampered by physical and mental health problems.
  • Where requirements are introduced simply as a stick to drive people to work, they fail. To the extent they are successful, they must be backed up by substantial investment in training, job placement, and one-on-one counseling to cajole people into overcoming personal problems that may make them unattractive to employers. If state and federal governments are unwilling to invest in the administrative infrastructure needed to run work requirement programs well, they will do more harm than good.
  • Often the biggest barriers to self-sufficiency are the punitive benefit reduction rates and other implicit and explicit marginal taxes on low-income workers. This earlier post provides details and explains how programs could be redesigned to reduce work disincentives.
The continuing conservative hope is that shouting “Get a job!” loudly enough will induce people now on public assistance either to the workforce, or if not, to quietly fade from view. Hope dies last.

Reposted from NiskanenCenter.com

Guaranteed Jobs, Hungarian Style

In a recent blog post, Niskanen Center’s Samuel Hammond expressed skepticism about the idea of job guarantees. In his view, such policies do not attack the real problem, they are easily politicized, and, as active labor market policy, are inferior to wage subsidies for private sector jobs.

To see how guaranteed jobs work out in practice, we need look no farther than Hungary, where Prime Minister Viktor Orban has made the replacement of welfare by workfare a centerpiece of the claimed Hungarian economic miracle that helped him win re-election in last Sunday's election.

Writing recently for The New York Times, Patrick Kingsley and Benjamin Novak provide an overview of job guarantees, Hungarian style. Their article, which focuses on a small village in which 73 of 472 residents participate in the program, makes an effort to show both the positive and negative side of workfare. They note that although the guaranteed jobs pay only about half the minimum wage, that is twice what participants previously received in unemployment benefits. Participants told them that the pay, although minimal, was enough to make a difference. The program has also brought some small but welcome improvements in the town’s infrastructure.
“This little bit of money goes a long way in this village,” said Eva Petrovics, 60 who helps to clean the village nursery school. “The fridge is full now.”
The program has also helped to spruce up the village. Since 2012, workfare participants have built a small bridge, added a drainage system, and renovated the town hall and sports fields.
However, there are downsides to workfare, too. Hammond’s concerns about politicization seem to have been borne out. Kingsley and Novak note that the program have made participants more dependent on Orban’s Fidezs party, which is expected to retain power in this weekend’s election, and on the town’s mayor, who determines job assignments.

Moreover, despite better drainage and tidier soccer fields, workfare participants do not really put in all that much time doing useful work. Often, they report to work for an hour or so and then go home. There is especially little to do in winter.

Popular though it may be in the Hungarian countryside, Orban’s workfare policy has many critics, both in Hungary and in Western Europe. Annam├íria Artner is a Senior Research Fellow at the Centre for Economic and Regional Studies of the Hungarian Academy of Sciences. Writing for the progressive website Social Europe, headquartered in London, Artner maintains that
The implied threat of the punitive workfare regime is effectively sweeping the unemployed under the carpet. The unemployment insurance system in Hungary, introduced in the early 1990s following the transition to a market economy, effectively no longer exists.
Reposted from NiskanenCenter.com.


Wednesday, April 4, 2018

Why the "Sound Money" Components of Popular Economic Freedom Indexes Should Be Used with Caution

Institutions matter. Economists of the classical period knew that well. In recent years, economists have increasingly included institutional variables in their empirical work. The economic freedom indexes from the Fraser Institute and the Heritage Foundation have been among the most widely used institutional indicators.

The purpose of an economic freedom index, according to Heritage, is to “document the positive relationship between economic freedom and a variety of positive social and economic goals.” Many studies support that claim, finding that countries with high economic freedom scores are, in fact, more prosperous and dynamic than those that are less free. However, not all aspects of economic freedom turn out to be equally important. In earlier posts, I have been critical of the components of the economic freedom indexes that focus on the size of government and regulation. Here, I take on those that focus on price stability—the Fraser “Sound Money” component and the Heritage “Monetary Freedom” component.

I find that these price stability components add little to our understanding of economic freedom. Furthermore, because they incorporate an exaggerated fear of even moderate inflation, an attempt to achieve maximum price stability, as defined by these indicators, would be less likely to bring prosperity than to undermine it.

Is price stability an institution or a policy outcome?

The first problem with the Fraser and Heritage price stability indicators is that they do not really measure economic freedom in the sense that it underlies other components of the indexes. Robert Lawson, a senior member of the team that publishes Fraser’s Economic Freedom of the World reports, once wrote that an economic freedom index is, or should be, only that—“not an index of economic growth policies, efficient government provision of public goods, macroeconomic stabilization policies, or ideal income distribution policies.” If so, then the sound money indicators, as indexes of the success of monetary policy, are just what an economic freedom index should not be.