Casey Mulligan's New Book, The Redistribution Recession, Says The Government's Response To Those Hurt By The Recession, Deepened The Recession

University of Chicago Economics Professor Casey B Mulligan's has a new, forthcoming book about the recent recession, The Redistribution Recession: How Labor Market Distortions Contracted the Economy.Mulligan cites economic evidence and analyses for his conclusion that the government's response to the recession of extending and creating benefit programs to help those hurt by the slowing economy, unintentionally deepened the recession and increased its severity.

From Amazon's description of Casey B Mulligan's forthcoming book:

Redistribution, or subsidies and regulations intended to help the poor, unemployed, and financially distressed, have changed in many ways since the onset of the recent financial crisis. The unemployed, for instance, can collect benefits longer and can receive bonuses, health subsidies, and tax deductions, and millions more people have became eligible for food stamps.

Economist Casey B. Mulligan argues that while many of these changes were intended to help people endure economic events and boost the economy, they had the unintended consequence of deepening-if not causing-the recession. By dulling incentives for people to maintain their own living standards, redistribution created employment losses according to age, skill, and family composition. Mulligan explains how elevated tax rates and binding minimum-wage laws reduced labor usage, consumption, and investment, and how they increased labor productivity. He points to entire industries that slashed payrolls while experiencing little or no decline in production or revenue, documenting the disconnect between employment and production that occurred during the recession. The book provides an authoritative, comprehensive economic analysis of the marginal tax rates implicit in public and private sector subsidy programs, and uses quantitative measures of incentives to work and their changes over time since 2007 to illustrate production and employment patterns. It reveals the startling amount of work incentives eroded by the labyrinth of new and existing social safety net program rules, and, using prior results from labor economics and public finance, estimates that the labor market contracted two to three times more than it would have if redistribution policies had remained constant.

In The Redistribution Recession: How Labor Market Distortions Contracted the Economy,Casey B. Mulligan offers hard evidence to contradict the notion that work incentives suddenly stop mattering during a recession or when interest rates approach zero, and offers groundbreaking interpretations and precise explanations of the interplay between unemployment and financial markets.

Official Statistics Overstate US Poverty Rate By 3-4 Times: US Poverty Rate Is 4-5 Percent And Not 15 Percent:

From Bloomberg, "Poverty, Inequality Aren’t as Bad as You Think" by the Editors:

Poverty isn’t as high as the U.S. government says it is. The reason is that federal programs, supported by Democrats and Republicans alike, have dramatically reduced poverty and, by extension, income inequality.

To understand why, let’s look at what the numbers don’t show. The Census Bureau doesn’t count safety-net benefits, including food stamps, housing aid, school lunches and other noncash transfers. Adding the cash value of food stamps alone would lower the poverty population by 3.9 million people. Census data also overcompensate for inflation by ignoring discount prices at big-box outlets such as Wal-Mart Stores Inc., where many low-income families shop. The figures don’t even factor in Medicare and Medicaid benefits.

Most Overlooked

But tax credits are the most overlooked numbers of all. One, the Earned Income Tax Credit, is refundable, meaning that some low-income breadwinners get a check from the Internal Revenue Service even if their earnings are so small that they owe no income tax. Counting that tax credit would decrease the number of people living in poverty by another 5.7 million.

The Census Bureau defines a family of four with income less than $23,021 as impoverished. But a better portrait of poverty in America would count all government benefits and tax credits, raising many households’ income considerably. An even truer picture of deprivation would measure consumption (how much a household spends on rent, autos, food and other items) rather than income (how much a household admits to bringing home in earnings). Incomes are unreliable because people are reluctant to reveal how much they make. They are less reticent when asked if they have television sets, cars and air conditioning, or if they eat out and go to movies.

When adjusted for these flaws, the level of poverty is much lower, says a new paper by economists Bruce D. Meyer at the University of Chicago and James X. Sullivan at the University of Notre Dame. Instead of 15 percent, it is only 4 percent to 5 percent. And instead of being higher than it was in 1980, poverty has declined by two-thirds.[Emphasis added.

Meyer and Sullivan in their paper state:

Official poverty statistics suggest that poverty has increased over the past forty years. This claim is inconsistent with our results which show substantial improvements in income based poverty over the past forty years and even larger improvements in consumption based poverty, especially in the last decade. These poverty results are corroborated by other indicators of well-being for those with low income such as increases in car ownership and evidence of improved living conditions including larger living units that are more likely to have air conditioning and other features. While the deficiencies in the official poverty measure have been the subject of much previous research, most poverty scholars still rely on the official measure as the definitive measure of trends in poverty and draw important conclusions based upon it.

Also, see the Brookings article, "Poverty Has Fallen Much More than Previously Thought: Consumption a Better Measure than Income; We are Winning the War on Poverty, New Research Asserts."

CBO Director Presentation On Federal Spending and Taxes

CBO Director Doug Elmendorf's Presentation, "Choices for Federal Spending and Taxes" at the University of Michigan, September 20, 2012:

Choices for Federal Spending and Taxes: CBO Director Doug Elmendorf's Presentation at the University of Maryland from Congressional Budget Office

Mitt And Ann Romney 2011 Tax Return

All 379 pages of Mitt And Ann Romney's 2011 Tax Return, Form 1040.

A copy of the return follows:
Mitt and Ann Romney 2011 1040

Incentives And Tax Credits To Buy Hybrid And Electric Cars Does Not Reduce Gasoline Use Or Greenhouse Gas Emissions: CBO Report

Federal tax credits and incentives to buy electric and hybrid cars and trucks do not reduce gasoline use and automotive greenhouse gas emissions due to the interplay between the incentives and the existing US government's mandated automobile manufacturers Corporate Average Fuel Economy [Cafe] standards for new vehicles.

CAFE standards require auto manufacturers to achieve an average level of fuel economy. Incentives that increase the sales of hybrid and electric vehicles, which have above average fuel economy, allow automobile and truck manufacturers to sell more vehicles that have below mandated average fuel economy, while still meeting the required US government's average fuel economy mandates. As car manufacturers sell more above average fuel economy hybrids and electric vehicles, they sell more below average fuel economy vehicles. The result is that the total gasoline use and greenhouse gas emissions for the total vehicle sales remains the same with and without the incentives that increase the sale of hybrids and electric vehicles.

From CBO, "Effects of Federal Tax Credits for the Purchase of Electric Vehicles" September 2012:

Comparing the Tax Credits with Other Recent Subsidy Programs in the Transportation Sector
CBO compared the effects of the current tax credits in reducing gasoline use and greenhouse gas emissions with the effects of three other recent subsidy programs aimed at the transportation sector: federal tax credits for the purchase of traditional hybrid vehicles, which were in effect until 2011; federal tax credits, most of which have expired, for companies that blended biofuels with petroleum fuels; and the 2009 “Cash for Clunkers” program, which made payments to people who traded in eligible lower-fuel-economy vehicles for higher-fuel-economy vehicles. Like the current credits for electric vehicles, the credits for traditional hybrids did not reduce gasoline use or greenhouse gas emissions in the short term, because sales of those high-fuel-economy vehicles allowed vehicle manufacturers to sell more low-fuel-economy vehicles and still comply with CAFE standards. By contrast, the other two programs did reduce total gasoline use and greenhouse gas emissions in the short term. The biofuel credits lowered the emissions of vehicles already purchased, and “Cash for Clunkers” raised the average fuel efficiency of all vehicles in operation (by reducing the number of less fuel-efficient older vehicles in favor of those with higher fuel economy). [Emphasis added.]

30 To 40 Percent Of Obese People Have Same Mortality Risk As People Of Normal Weight

From "Obese Can Be Metabolically Healthy and In Good Shape" on ScienceBlog:

"Obesity is associated with a large number of chronic diseases as heart diseases or cancer. However, there is a group of obese people that do not suffer the metabolic complications associated with obesity", the author of the study, Prof. Francisco B.Ortega, explains.***Prof. Ortega et al. observed in their study that between 30-40% of obese patients were metabolically healthy. "We made two findings: firstly, metabolically-healthy obese people exhibited better cardiorespiratory fitness –or aerobic fitness-. Secondly, this subgroup has a lower mortality risk rate for heart disease or cancer than other obese people, and has the same mortality risk than people of normal weight."

3 Of 4 Venture Capital Backed Start-Ups Fail

From The Wall Street Journal, "The Venture Capital Secret: 3 Out of 4 Start-Ups Fail" by Deborah Gage:

... now there is evidence that venture-backed start-ups fail at far higher numbers than the rate the industry usually cites.

About three-quarters of venture-backed firms in the U.S. don't return investors' capital, according to recent research by Shikhar Ghosh, a senior lecturer at Harvard Business School.***There are also different definitions of failure. If failure means liquidating all assets, with investors losing all their money, an estimated 30% to 40% of high potential U.S. start-ups fail, he says. If failure is defined as failing to see the projected return on investment—say, a specific revenue growth rate or date to break even on cash flow—then more than 95% of start-ups fail, based on Mr. Ghosh's research.

Failure often is harder on entrepreneurs who lose money that they've borrowed on credit cards or from friends and relatives than it is on those who raised venture capital.***Overall, nonventure-backed companies fail more often than venture-backed companies in the first four years of existence, typically because they don't have the capital to keep going if the business model doesn't work, Harvard's Mr. Ghosh says. Venture-backed companies tend to fail following their fourth years—after investors stop injecting more capital, he says.

Of all companies, about 60% of start-ups survive to age three and roughly 35% survive to age 10, according to separate studies by the U.S. Bureau of Labor Statistics and the Ewing Marion Kauffman Foundation, a nonprofit that promotes U.S. entrepreneurship. Both studies counted only incorporated companies with employees. And companies that didn't survive might have closed their doors for reasons other than failure, for example, getting acquired or the founders moving on to new projects. Languishing businesses were counted as survivors.

Thomas Sowell On Redistribution

From Townhall.com, "The Fallacy of Redistribution" by Thomas Sowell:

In theory, confiscating the wealth of the more successful people ought to make the rest of the society more prosperous. But when the Soviet Union confiscated the wealth of successful farmers, food became scarce. As many people died of starvation under Stalin in the 1930s as died in Hitler's Holocaust in the 1940s.

How can that be? It is not complicated. You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth -- and that future wealth is less likely to be produced when people see that it is going to be confiscated.

iPhone Development Reduces GDP Until The Final Product Is Released

From supply and demand (in that order) blog,"The iPhone5 and Consumer Spending" by Casey B. Mulligan:

the development of Apple products reduces consumption before the release, because the people working on the coming products are not available to produce consumer goods during that time.

Much of the development work on the iPhone 5 did not, before its release, count as investment or G.D.P. (G.D.P. is the sum of public and private consumption and public and private investment). The national accounts treat research and development activities as intermediate inputs, which means that they are subtracted from revenue for the purpose of determining a corporation’s contribution to national production.

This same is true for, say, Apple’s legal expenses in developing patents (many of which are discussed on the Mactech Web site) and license terms for their new product.

These development activities appear as G.D.P. only when the product is completed and sold. If the product is not valuable, it will not sell and will not count for much, although national consumption could still rise if upon project completion the developers move out of development and into the production of consumer goods.

Environmental Regulations Decreased Manufacturing Productivity And Output By $21 Billion Per Year, About 8.8 Percent Of Corporate Profits

Air quality regulations decrease US manufacturing sector productivity. A decline in manufacturing productivity leads to lower wage increases to workers, higher product costs, lower corporate profits and lower employment.

From the abstract to "The Effects Of Environmental Regulation On The Competitiveness Of Us Manufacturing" by Michael Greenstone, John A. List and Chad Syverson, NBER Working Paper 18392:

ABSTRACTThe economic costs of environmental regulations have been widely debated since the U.S. began to restrict pollution emissions more than four decades ago. Using detailed production data from nearly 1.2 million plant observations drawn from the 1972-1993 Annual Survey of Manufactures, we estimate the effects of air quality regulations on manufacturing plants’ total factor productivity (TFP) levels.***... produce a 4.8 percent estimated decline in TFP for polluting plants in regulated areas. This corresponds to an annual economic cost from the regulation of manufacturing plants of roughly $21 billion, about 8.8 percent of manufacturing sector profits in this period.

From the body of the paper:

The economic costs of environmental regulations have been widely debated since the U.S. began to restrict pollution emissions more than four decades ago through the Clean Air and Water Acts.***TFP declines by 4.8 percent for polluting plants in nonattainment counties. This corresponds to an annual economic cost from the regulation of manufacturing plants of roughly $21 billion in 2010 dollars. This translates into a loss of more than $450 billion over the studied period.***Are these TFP losses big? They correspond to annual lost output in the manufacturing sector of about $20.8 billion in 2010 dollars. This is roughly 8.8 percent of average manufacturing sector profits over this period. It is noteworthy that the estimated costs are substantially larger than the costs borne by workers in polluting industries (Walker 2012). At least in the case of the Clean Air Act and the manufacturing sector, it seems reasonable to conclude that the claim that environmental regulations are costless or even beneficial for the regulated is contradicted by the available data.

CBO Estimates Of The 30 Million Non-Elderly Uninsured In 2016, About 6 Million Will Have To Pay The Penalty For Lacking Health Insurance

from The Congressional Budget Office (CBO), "Payments of Penalties for Being Uninsured Under the Affordable Care Act:"

The Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT) have estimated that about 30 million nonelderly residents will be uninsured in 2016, but the majority of them will not be subject to the penalty tax. Unauthorized immigrants, for example, who are prohibited from receiving almost all Medicaid benefits and all subsidies through the insurance exchanges, are exempted from the mandate to obtain health insurance. Others will be subject to the mandate but exempted from the penalty tax—for example, because they will have income low enough that they are not required to file an income tax return, because they are members of Indian tribes, or because the premium they would have to pay would exceed a specified share of their income (initially 8 percent in 2014 and indexed over time). CBO and JCT estimate that between 18 million and 19 million uninsured people in 2016 will qualify for one or more of those exemptions. Of the remaining 11 million to 12 million uninsured people, some individuals will be granted exemptions from the penalty because of hardship, and others will be exempted from the requirement on the basis of their religious beliefs.

After accounting for those who will not be subject to the penalty tax, CBO and JCT now estimate that about 6 million people will pay a penalty because they are uninsured in 2016 (a figure that includes uninsured dependents who have the penalty paid on their behalf) and that total collections will be about $7 billion in 2016 and average about $8 billion per year over the 2017–2022 period. Those estimates differ from projections that CBO and JCT made in April 2010: About two million more uninsured people are now projected to pay the penalty each year, and collections are now expected to be about $3 billion more per year.

Northeast Facing Weaker House Prices Due To Rise In Serious Delinquencies

From Bloomberg, "New Jersey Housing Suffers as Defaults Exceed Nevada: Mortgages" by John Gittelsohn and Prashant Gopal:

Serious delinquencies as of June 30 were up 6 percent from a year earlier in New York, Connecticut and Maryland, and up 5 percent in Pennsylvania and the District of Columbia, the Washington-based Mortgage Bankers said on Aug. 9. The rate fell by 27 percent in Arizona, 24 percent in California and 14 percent in Nevada, among states worst hit by the housing crisis.

Shadow Inventory

"Shadow inventory is falling in much of the country -- except for the Northeast," said [Mark] Zandi [chief economist at Moody’s Analytics Inc.] "The implication is that house prices will be much weaker in the Northeast in coming years as these distressed properties eventually get sold."

The US Bailout Investment In GM Lost $15 Billion On A Market Value Basis

From The Wall Street Journal, "Treasury Motors: If GM is 'roaring back,' why won't Obama sell our shares?"

But the Administration is refusing GM's stock buyback because it would mean losing billions of dollars on this "investment." The auto maker's shares are trading around $24, which is not merely a tumble from the November 2010 IPO price of $33 but means the government would lose $15 billion if it sold today.

GM's share price needs to hit $53 for the U.S. to break even.

Chart Showing How Quantitative Easing Works: Wall St Journal

From The Wall Street Journal, Real Time Economics Blog, "How Quantitative Easing Works:"

Source: The Wall Street Journal

FDIC Director Calls For Rejection Of Basel III Capital Rules As Too Complex And Fundamentally Flawed

From "Back to Basics: A Better Alternative to Basel Capital Rules" by Thomas M. Hoenig, Director, Federal Deposit Insurance Corporation, delivered to The American Banker Regulatory Symposium; Washington, DC, September 14, 2012:

After reading the entire 1,000-plus page proposal, I would encourage the Basel Committee and the international regulatory community to step back and rethink the Basel capital standards.***Basel III is intended to be a significant improvement over earlier rules. It does attempt to increase capital, but it does so using highly complex modeling tools that rely on a set of subjective, simplifying assumptions to align a firm's capital and risk profiles. This promises precision far beyond what can be achieved for a system as complex and varied as that of U.S. banking. It relies on central planners' determination of risks, which creates its own adverse incentives for banks making asset choices.

The poor record of Basel I, II and II.5 is that of a system fundamentally flawed. Basel III is a continuation of these efforts, but with more complexity. It also is more prolific since it applies across all banking firms. Directors and managers will have a steep learning curve as they attempt to implement these expanded rules. They will delegate the task of compliance to technical experts, and the most brazen and connected banks with the smartest experts will game the system.***It is time for international capital rules to be simple, understandable and enforceable.

I understand where the proposal stands today and how much has been invested in drafting Basel III, but I believe the Committee should agree to delay implementation and revisit the proposal. Absent that, the United States should not implement Basel III, but reject the Basel approach to capital and go back to the basics. By doing so, we can focus on efforts that will create a well-managed, well-capitalized, well-regulated financial system that actually supports economic growth.

Cheap Coal Supplanted By Cheaper Shale Natural Gas: Cleaner Air And Lower Electricity Prices Thanks To Fracking

From The Wall Street Journal, "Coal-Fired Plants Mothballed by Gas Glut" by Rebecca Smith:

Coal has been losing ground to natural gas ever since a boost in shale-gas production sent the price of natural gas tumbling four years ago. But now the natural-gas price advantage is beginning to affect the coal units that seemed most protected from the shift. Many of these plants have the latest environmental upgrades and are often close to coal deposits.

The reason: With natural gas priced below $3 per million British thermal units, down from about $8 in 2008, many gas-fueled plants can make electricity for about two cents a kilowatt hour, less than half what it costs to run many coal units, said Julien Demoulin-Smith, director of utilities research at UBS Securities LLC in New York.

"This marks another iteration of the way in which natural gas is displacing coal," said Mr. Demoulin-Smith. He said he expects the trend to become more pronounced in coming months as companies seek ways to cut their operating costs, especially those selling power into deregulated markets in the Northeast, Midwest, California and Texas, where power prices are very low because there is no pricing floor.

The Best Government Economic Plan Is No Government Intervention

From TownHall.com, "An Economic 'Plan'?" by Thomas Sowell:

For the first 150 years of this country's existence, the federal government felt no great need to "do something" when the economy turned down. Over that long span of time, the economic downturns were neither as deep nor as long lasting as they have been since the federal government decided that it had to "do something" in the wake of the stock market crash of 1929, which set a new precedent.

One of the last of the "do nothing" presidents was Warren G. Harding. In 1921, under President Harding, unemployment hit 11.7 percent -- higher than it has been under President Obama. Harding did nothing to get the economy stimulated.***The 11.7 percent unemployment rate in 1921 fell to 6.7 percent in 1922, and then to 2.4 percent in 1923. It is hard to think of any government intervention in the economy that produced such a sharp and swift reduction in unemployment as was produced by just staying out of the way and letting the economy rebound on its own.

Immigrant Parents' Education Level Before Coming To US Is The Most Important Factor For Predicting Their Children's Success In US: Logical Conclusion Is Adult Literacy Programs For Parents Could Improve Children's Educational Outcomes And Aid Children's Success In US

From "Parents’ education before migrating tied to children’s achievement" on ScienceBlog:

Immigrant parents’ education before migrating is more strongly tied to their children’s achievement in the United States than any other social, economic, or linguistic parental attribute, either before or after migration. That’s the conclusion of a new study in a special section of the September/October 2012 issue of Child Development on the children of immigrants.

The study was carried out by researchers at the Pennsylvania State University.***According to [Suet-ling] Pong [professor of education and sociology at the Pennsylvania State University and the study’s lead author], the results raise the possibility that adult literacy programs to increase education levels of immigrant parents could have benefits in both parents’ and children’s generations. [Emphasis added.]

See my October 25, 2010, post on this blog, "Improving Mother's Literacy Improves Disadvantaged Child's Academic Performance." A different researcher reach a similar conclusion about parent literacy programs improving the educational outcomes of children.

A Lingering Chicago Teachers' Strike Has Potential To Be Obama's Waterloo And Cost Him A Second Term

Obama is between a rock and a hard place in Chicago. The 26,000 unionized Chicago public school teachers have gone on strike, closed the schools and left 350,000 young children without classes and an education just as the school year was about to begin.

Despite the $1 billion deficit in the school system's operating budget, Democratic Mayor Rahm Emanuel, President Obama's former chief of staff, offered the teaches a 16 percent pay raise.

If the Chicago strike is not settled quickly and Obama stays on the sidelines, Obama will face the prospect of losing the support of mothers of school children and unionized labor, especially public school teachers, across the country.

If Obama tries to mediate a settlement, he will face sharp criticism for allowing a 16 percent raise to the teachers while there is a Chicago school system budget deficit and for allowing the extra money to go to raises instead of to the hiring of more teachers for smaller class size.

Parents know that Republicans favor school choice, school vouchers and would not tolerate a public school teachers' strike. Strikes do not happen when teachers know children are no longer bargaining leverage and hostages because parents with school choice and vouchers can switch their children into non-striking schools.

A lingering Chicago teachers' strike can force Obama to show his true priorities about education, unions and fiscal restraint. Once Obama is involved and linked to the strike, any solution will upset future Obama voters. If Obama, plays 'present' and stays on the core issue sidelines of the strike, future Obama voters will find him not really serious about education, domestic policy and unacceptable as a second term US leader and president.

If Obama gets involved, even just through public statements, large blocs of voters will see a lack of his support for their position (raises, fiscal restraint, children, education) as a reason to not vote for him. The strike, however resolved, will come up in Romney campaign ads and in the presidential debates. Romney can afford to offend unionized labor in the hope of getting mothers and others on board.

The timing of the strike just a few weeks before the presidential election, and before the debates, could not have been worse for Obama. The Chicago teachers' strike has the potential to do to him what the financial crisis did to McCain in 2008. McCain was leading in the election polls over Obama until the financial crisis occurred.

From The New York Times, "Teachers’ Strike in Chicago Tests Mayor and Union" by By Monica Davey:

CHICAGO — This city found itself engulfed on Monday by a sudden public school strike that left 350,000 children without classes, turned a spotlight on rising tensions nationally over teachers’ circumstances, and placed both the powerful teachers’ union and Mayor Rahm Emanuel in a risky, politically fraught standoff with no clear end in sight.***The strike, Chicago’s first in 25 years and the first in a major city in a half-dozen years, also revealed a rift between unions and Mr. Emanuel, a Democrat and former chief of staff to President Obama, raising the prospect that a lingering strike in the president’s hometown might become an issue in a presidential election year when Democrats depend on the backing of labor.***Mr. Obama on Monday issued no specific reaction to the strike. Jay Carney, the White House press secretary, said: "His principal concern is for the students and families who are affected by the situation. And we hope that both sides are able to come together to settle this quickly and in the best interest of Chicago’s students."***School officials said they had made significant concessions in the contract talks, including what would amount to a 16 percent increase for teachers over four years despite what is expected to be a $1 billion deficit in the system’s operating budget next year.***But on Monday, union officials seemed to suggest that the dispute was larger, and included other issues related to benefits, how to calculate raises based on experience level, training days for teachers, and more.

Free Market Works Just Fine For Health Care

From PJ Media, "In Top Journal, Obamacare Boosters Push ‘Global Spending Target’ Which is the very definition of 'rationing,' the word they aren't supposed to say" by Paul Hsieh, MD:

The free market also works in health care. Consider "calcium scoring" heart scans, which measure how much calcium is deposited in the coronary arteries. Recent studies have shown these to be one of the safest and most reliable ways to measure one’s risk of future heart attack.

These calcium scoring scans do not require a doctor’s order and are not typically covered by insurance. Because patients generally pay out of pocket, motivated consumers shop around. Over time, normal market forces have dramatically driven down their price. Several years ago, they cost $500; now some centers offer them for under $100. This pattern of rising quality and falling prices can and should be the norm in all of health care.