Friday, December 30, 2011

2012 Bailout-Free Ford F-150 Named Motor Trend Truck of the Year

Motor Trend Magazine has named the 2012 Ford F-150 truck of the year.  Motor Trend calls the recently redesigned F-150 "a Truck for all reasons."  Motor Trend was particularly impressed by Ford's "Ecoboost" V-6 engine (new in 2011 models), which boasts both improved gas mileage (22 MPG on the highway), 365 Horsepower and 420 foot pounds of torque.  For a photo of the Ecoboost, go here.  No wonder the Ford F-150 maintains is position as the best-selling vehicle in the United States, despite ill-advised federal bailouts of rivals Chevrolet and Chrysler.   Quality, it seems, still matters.

Thursday, December 29, 2011

Bill Gates' Quest For Profit Might Help China Turn Green

Greedy Planet Savior?

As previously explained on this blog, China is the world's largest emitter of greenhouse gasses, even though its overall GDP is half or less than that of the USA.  As also explained in that post, some project that China's production of greenhouse gasses will double by 2030.   Almost a year ago this blog also called attention to China's under-reliance on nuclear power for electricity generation.  As explained then, coal-fired plants account for a disproportionate share of China's electricity compared to various Western nations and Japan.  Indeed, as also reported then, China, with the second largest economy in the world, ranks 9th in nuclear generation of electricity, behind such nations as Canada, Ukraine and South Korea. At the same, the post reported, China enthusiastically embraces nuclear power for military purposes, e.g., the propulsion of submarines. The post concluded as follows:

"If China is truly serious about moving to a clean energy economy, it should get with the (nuclear) program."

Recent reports suggest that China may in fact be getting more serious about civilian uses of nuclear power. In particular, Bill Gates and a start-up company, Terrapower, are developing a new line of nuclear reactors, called "travelling wave reactors," that will run mainly on spent uranium. (For a description of how such a reactor would work, go here.)   According to a recent report in the South China Morning Post, Gates and Terrapower are in talks with the Chinese government about jointly developing the reactor in cooperation with the Chinese National Nuclear Corporation.  Put another way, a profit-oriented entrepreneur is helping a Statist nation turn green in a way that could perhaps prevent undue damage to the climate.  Of course, even if Gates is successful, some will still scrutinze whether he gives enough to charity!

Tuesday, December 27, 2011

Lower Tax Brazil Overtakes Higher Tax Britain

Now Number Six

Brazil has apparently passed Great Britain to become the sixth largest economy in the world measured by GDP, according to this article in the UK Guardian.  (The United States is first, followed by China, Japan, Germany and France.)  Of course, Brazil's population of 203 million is more than three times that of Britain, with the result that Britain's per capita GDP is more than triple that of Brazil.  The Guardian article mentions several factors that it says account from Brazil's strong GDP growth relative to that of Britain.  For instance, Brazil has been exporting heavily to China, itself a rapidly growing economy.  Moreover, the banking and credit crisis in Britain, Europe and the United States has slowed the British economy as well as that of some of its trading partners.

The Guardian story leaves out another possible explanation for the divergence between British and Brazilian growth rates, namely, tax policy.  For, as previously reported on this blog, Brazil's top income tax rate is less than 30 percent, compared to a top rate of 50 percent in Great Britain.  (The top British rate, it should be noted, is the fourth highest in Europe, behind only Sweden, Denmark and the Netherlands.  In 2009, by contrast, Britain had the 13th highest rate in Europe.)  While Brazil has relatively high payroll taxes, one source reports that its tax to GDP ratio is nonetheless significantly lower than that of Britain's.  According to a previous article in the Guardian, some economists in Britain have contended that Britain's high tax rates are rendering the country less competitive internationally and slowing its growth.  Brazil's most recent triumph may be "exhibit A" supporting this assertion.  Nations rarely tax their way to prosperity.

Higher Minimum Wages Won't Stimulate the Economy

Ptolomey:  Thought Sun Revolved Around the Earth

CNN Money: Thinks Higher Minimum Wages Increase GDP

A recent story on CNN Money reports that several states are about to raise their minimum wages.  The story repeats as "news" (and not opinion) the oft-made claim that raising the minimum wage will stimulate the economy and thus increase Gross Domestic Product.

According to the story:

"What's more, the increases could be a mini-boost for the economy.  The expected rise in consumer spending as a result of the wage increases would add $366 million to the nation's gross domestic product and lead to the creation of more than 3,000 full-time jobs."


"Increasing minimum wage is a key form of local stimulus," said Paul Sonn, legal co-director at NELP. "It helps front-line workers whose wages have been stagnant and falling by putting more money into the pockets of low income families who then spend the money at local businesses."

Both economic theory and empirical evidence have long falsified such claims.  Take theory first.  Yes, raising wages by coercive fiat will increase the income of some workers.  At the same time, such increases will reduce the income of other workers to zero, by inducing firms to eliminate their jobs and also to hire fewer workers in the future.  Wages, after all, are the price of a particular input --- labor --- and increasing the price of one input, whether that input is steel, labor or electricity, will cause firms to substitute to other inputs and thus reduce their purchases of the now more expensive input.  Moreover, to the extent that firms continue to employ some of the more expensive input, their costs will rise, thereby reducing their output, further reducing their use of the input in question.  Thus, raising the minimum wage above market levels will cause firms to employ less labor, by reducing their output and using less labor per unit of remaining output than before the increase.

Now consider the empirics.  As a nation, we have already experimented with using artificially-inflated wages  as a tool for increasing GDP and thus stabilizing the macroeconomy.   As previously explained on this blog (go here and here), legislation passed during the New Deal artificially raised wages, purportedly as a method of enhancing the "purchasing power" of employees and thus stimulating the macroeconomy.  The legislation did not, however, have its intended effect.  Instead, artificially high wages choked off economic recovery by increasing firms' costs, reducing their output and fostering unemployment, as workers expended resources searching for those scarce jobs that remained.  Indeed, according to one study, reported here, New Deal policies that artificially raised wages deepened the Depression and prolonged it by seven years.

The story also helps illustrate the downside of over-reaching Federal regulation.   As the story notes, there is also a federal minimum wage, currently equal to $7.25 per hour.  (There is an exception for the first 90 days of employment for juveniles --- $4.25 per hour --- so long as employment of the juvenile does not displace an adult worker.)    That wage edict applies to any employee working in interstate commerce or working for a firm, no matter how local, with $500,000 in gross sales.   Thus, federal law creates a wage floor, even in those states (and there are five) with no minimum wage whatsoever or those with minimum wages lower than that set by the national government.   As a result, states that wish to compete with other states for labor and capital by eliminating their minimum wages or, for instance, adopting differential wages for youth greater than 90 days, will find such a policy thwarted by the "one-size fits all" federal floor on wages, a floor that applies equally in Manhattan, New York and Moscow, Idaho.  Competitive federalism suffers when the national government asserts a regulatory monopoly over matters properly left to the states.

Saturday, December 24, 2011

Christmas Story Marathon in Less than 16 Hours!

A New Furnace ........
Tomorrow TBS will renew one of this nation's most important Christmas traditions --- its 24 hour Christmas Story Marathon.  For the schedule see the TBS Christmas Story website.

In honor of the upcoming marathon, here are the ten best lines from the movie, in this blogger's estimation.

1. You used up all the glue on purpose!  (Mr. Parker)

2.  Nottafinga!   (Mr. Parker)

3.  Some men are Baptists, others Catholics; my father was an Oldsmobile man.  (Ralphie as an adult) (Narrating)

 4.  Fra-gee-lay. That must be Italian.  (Mr. Parker)

5.  Uh, I think that says FRAGILE, dear.  (Mrs. Parker)

6.  My father's spare tires were only tires on the academic sense. They were round,and had once been made of rubber.  (Ralphie as an adult) (Narrating)

7.  My old man was one of the most feared furnace fighters in Northern Indiana.  (Ralphie as an adult) (Narrating)

8.  In the heat of battle my father wove a tapestry of obscenities that as far as we know is still hanging in space over Lake Michigan.  (Ralphie as an adult) (Narrating)

9.  My mother was trying to insinuate herself between us and the statue.  (Ralphie as an adult) (Narrating)

10.  Hey Dad! I bet you never guess what I got you for Christmas! (Ralphie)
       A new furnace?  (Mr. Parker)

       He he, that's a good one Dad!  (Ralphie).


Friday, December 23, 2011

Competitive Federalism Punishing California

Economic Dynamo
Not So Much
A recent Op-ed by George Will adduces additional evidence vindicating a fundamental choice by those who framed and ratified the Constitution, namely, the decision to limit the power of the National Government and thus to divide regulatory authority between the National Government and the States.  According to James Madison's Federalist 51, this division of power between the central and various state governments, along with the separation of powers between judicial, executive and legislative branches at the national level, ensures that a "double security arises for the rights of the people."  Madison apparently recognized that competition between states for productive citizens and capital would deter a state from infringing on the rights of its citizens who, if dissatisfied with their state's laws, could move to other states.  Thus arose a system of competitive federalism, whereby each state can attempt to attract labor and capital by offering regulatory regimes and thus institutional frameworks most conducive to free market wealth creation and job creation. 

California has not been doing well in this competitive struggle as of late.  Once considered a land of opportunity, the state experienced a net outflow of citizens in 2008.  The state's unemployment rate currently stands at over 11 percent, one of the highest in the nation.  Will's Op-ed calls attention to part of California's problem, namely, a plethora of unduly burdensome regulations that inhibit the creation and expansion of businesses and thus job creation.  Will focuses on the plight of CKE, Inc., which owns the Hardees and Carl's Jr. fast food chains.  Each such restaurant creates 25 jobs, Will reports.  According to Will, these and other "California restaurants are governed by 57 categories of regulations."  Moreover, Will goes on to explain that:

"CKE has about 720 California restaurants, in which 84 percent of the managers are minorities and 67 percent are women. CKE has, however, all but stopped building restaurants in this state because approvals and permits for establishing them can take up to two years, compared to as little as six weeks in Texas, and the cost to build one is $100,000 more than in Texas, where CKE is planning to open 300 new restaurants this decade."

Simply put, California has apparently made it all but impossible to open a new restaurant, while Texas facilitates the creation of these businesses and the jobs they bring.  That is to say, California stands in the way of voluntary arrangements that improve the welfare of consumers who would voluntarily patronize new restaurants and the employees who would work there.  If California were to replicate similar regulatory strategies with respect to other industries, many California residents would have little choice but to move elsewhere to locate employment, and residents of other states would decline to immigrate to California in the first place.  It's not much of a stretch to surmise that a portion of California's high unemployment rate results from these sorts of regulations.

Of course, some regulation is critical to a well-functioning free market and the welfare of a polity's citizens.   No state would or should win the struggle for labor and capital contemplated by our constitutional design  by embracing the state of nature as its regulatory philosophy.  Even the most ardent libertarians properly endorse "police power" regulation that implements the ancient principle "Sic utere tuo ut alienum non laedas," viz. "use what is yours so as not to injure another's."  States that leave their citizens at the mercy of predatory commercial tactics, such as the sale of impure food or fraud will lose citizens and investment just as surely as those that impose unduly burdensome regulations that prevent market entry or otherwise interfere with bona fide economic liberty.  There is, however, no indication that, say, delaying market entry by two years is necessary to protect the public from such predatory behavior.  Instead, such permit requirements function as a barrier to entry, plain and simple, protecting incumbent firms and limiting consumer choice.

Unfortunately, the system of competitive federalism that is punishing California and rewarding Texas is not self-enforcing but is instead constantly under attack.  As federal regulatory power expands, the space for competition between states contracts, rendering such regulatory competition a less effective tool for enhancing the welfare of citizens.  If, say, the central government imposes one model of "health insurance reform," on every citizen in the nation, then states cannot compete with each other to provide reforms that meet the needs of their own citizens.  Moreover, if the national solution is suboptimal, citizens can only avoid the resulting reform by emigrating to another country, hardly a plausible option for most people.  Unfortunately, proponents of the most recent "health care reform," overlooked this downside of  a "one-sized fits all" centralized plan.

William and Mary Announces 2012 Football Schedule

Can William and Mary Keep the Cup?

William and Mary has announced its football schedule for the fall of 2012.  The Tribe will play the usual list of CAA opponents, including James Madison, Delaware, New Hampshire, Villanova, Old Dominion and Maine.  The Tribe will also play the Penn Quakers for the sixth time ever (the Tribe leads the series 4-1) and the first time since 1995, when the Tribe defeated a # 22 Penn team 48-34 at Zable stadium.  (This blogger was in attendance; the game, as I recall, was punctuated by rain showers.)  As always, the Tribe will end the season playing for the Capital Cup, pictured above, against intra-state and CAA rival the University of Richmond.  This is the oldest rivalry in the South; the teams first played in 1898 and have played each year except 1900, 1902 and 1943, for a total of 119 games.  The Tribe leads the series 61-55-5 and has won the last two outings.   (See here for a description of the rivalry and a summary of the scores from each game over the years.)

Other highlights include the opening game, against ACC powerhouse Maryland   This blogger was in attendance when the Terps defeated the Tribe 27-14 in 2006, Maryland's first win in the series.  (William and Mary had prevailed in the teams' two previous meetings.)  The last time William and Mary defeated an FBS opponent was in September, 2009, when, as previoulsy described on this blog (this blogger was in attendance) the Tribe bested UVA, in Charlottesville, 26-14.

Here is the schedule.  All games take place on Saturday; game times will be announced as the season approaches.  Games marked by an asterisk are against CAA conference opponents.

Sept. 1  at Maryland

Sept. 8 Lafayette

Sept. 15 at Towson *

Sept. 22 Delaware *

Sept. 29 Georgia State (Family Weekend) *

Oct. 6 at Penn

Oct. 13 at James Madison *

Oct. 27 Maine (Homecoming) *

Nov. 3 at New Hampshire *

Nov. 10 at Old Dominion *

Nov. 17 Richmond *

Wednesday, December 21, 2011

Subsidy For Chevy Volt Keeps Growing


As previously reported on this blog, President Obama justified the ill-advised bailout of General Motors and Chrysler by claiming that the debt-financed federal ownership of these two companies would encourage the production of "green" automobiles, like the electric-powered Chevrolet Volt pictured above. (Whether such cars really are that green is a separate question; as explained previously the manufacture of batteries for such vehicles exhibits a large carbon footprint.)

A recent study described here suggests that the bailout is just the tip of the subsidy iceburg.  The study emphasizes that state-ownership of General Motors did not, in fact, suffice to encourage production of cars like the Volt. Instead, in addition to the cost of the GM bail out itself ($14 Billion), various government agencies have showered GM with Volt-related subsidies that equal between $50,000 to $250,000 per car produced. (The exact figure will depend upon whether GM satisfies certain performance criteria attached to some of the subsidies.)  Even taking the more conservative estimate, i.e., $50,000 per car, the Volt, with a sticker price of $40,000, costs a total of $90,000 per car, compared to a mere $82,000 for the "Car designed by Homer Simpson," pictured above, featured in "Oh Brother Where Art Though," episode 15 of Season 2.  (The episode and the car Homer designed insightfully illustrated the consequences of ignoring scarcity when making important economic decisions.  The car flopped and the company making it failed.  Apparently the writers did not imagine a bailout.)   It seems unlikely that the benefits of the Chevy Volt justify these costs.

Monday, December 19, 2011

Saab Files for Banktruptcy

What, No Bailout?

The Chicago Tribune reports that SAAB has filed for bankruptcy. As previously reported on this Blog, General Motors sold its stake in SAAB to Spyker, a manufacturer of high-end sports cars, for $74 million, in 2010. (GM had paid $725 million to buy a partial and then complete interest in SAAB and then ran the company into the ground. What a terrific return in investment!) Unfortunately, SAAB was not able to recover from GM's "stewardship" of its classic brand. Moreover, unlike GM, which received an ill-advised bailout, SAAB will apparently receive no such taxpayer handout. In fact, as reported on this Blog at the time, Sweden rejected calls for such a bailout the last time SAAB was in trouble.

Wednesday, December 14, 2011

If This is Fairness ......

In a CNN Op-ed, Professor Julian Zelizer urges the Democratic Party to make economic fairness to the middle class the centerpiece of its political agenda as the 2012 election approaches. Zelizer sees an analogy to his own characterization of the party's strategy during the 1930s. Quoting another historian, Zelizer claims:

"This is a familiar strategy for the Democratic Party. During the 1930s, according to the historian Lizabeth Cohen, the Democratic Party fought for a vision of moral capitalism whereby government and other institutions, such as unions, would lessen some of the suffering that could be inflicted in the free-market economy."

Zelizer's history is a little out of date. Despite the rhetoric, 1930s Democrats in fact fought for a vision of state-enforced cartelization, including the cartelization of labor, that, when implemented, both deepened and lengthend the Depression. (Many 1930s Democrats also fought to defend Segregation, hardly an example of "fairness to the middle class." Though it should also be noted that, during post-New Deal World War II, FDR issued executive orders banning racial discrimination in factories making weapons and ammunition for the military.) That vision first came to fruition in the 1933 National Industrial Recovery Act ("NIRA"), the centerpiece of FDR's New Deal. The NIRA encouraged industries to proposed so-called "Codes of Fair Competition," which, if approved by the President, would have the binding force of law. Such codes imposed express price fixing, output limitations, barriers to entry and/or various practices that facilitated anticompetitive collusion. Moreover, industries could only obtain approval of such codes if they agreed to pay minimum wages and allowed their employees to join unions --- labor cartels --- that then bargained for higher wages.

Of course, the Supreme Court unanimously invalidated the NIRA in Schechter Poultry Corp. et al. v. United States, reversing the criminal conviction of a small corporation and several of its middle class owners. (The Roosevelt Administration had indicted the defendants on 60 counts of violating an NIRA code. Violations included failure to pay minimum wages (that is, employing too many workers) and --- get this --- allowing customers to select individual chickens for purchase, contrary to the code requirement that the defendants and their rivals sell chickens in blocks.) Ironically, the Supreme Court would later declare so-called "block booking" (requiring customers to purchase an entire package of movies, for instance, unlawful per se under Section 1 of the Sherman Act.) The Court unanimously held that the Act was an unconstitutional delegation of authority to the Executive Branch and that application of the statute to the defendants exceeded the scope of Congress's power under the Commerce Clause. After the decision, Justice Brandeis sought out a lawyer from the Department of Justice and asked him to convey a message to FDR:

“This is the end of this business of centralization, and I want you to go back and tell the president that we're not going to let this government centralize everything."

Congress responded to Schechter by passing the National Labor Relations Act, which empowered individual employees to form unions --- labor cartels --- and thereby drive wages above free market levels.

Of course, proponents of centralization (both then and now) claim that expanding the power of the National Government will somehow encourage economic recovery and thus full employment. But the data show otherwise. For instance, President Obama's first Chair of the Council of Economic Advisors, Christina Romer, concluded that the NIRA raised prices and wages and thus slowed economic recovery. See Christina D. Romer, Why Did Prices Rise in the 1930s?, 59 J. Econ. Hist. 167, 187-93, 197 (1999). More recently, two UCLA economists, Harold Cole and Lee Ohanian, concluded that various New Deal policies, particularly those that artificially raised wages, both deepened and lengthened the Great Depression. Indeed, these scholars conclude that FDR's New Deal prolonged the Depression by seven years. Finally, in 1999, this blogger argued that 1930s state and federal policies that raised wages likely exacerbated the Depression, by thwarting the process of ordinary macro-economic adjustment. See Alan J. Meese, Will, Judgment and Economic Liberty: Mr. Justice Souter and the Mistranslation of Liberty, 41 William and Mary L. Rev. 3, 48-49 (1999). (I hasten to add that unlike Drs. Romer, Cole and Ohanian, this blogger's arguments were purely theoretical and did not rest upon the sort of sophisticated econometric analysis deployed by these economists.) That is to say, FDR's policies deprived millions of middle class or potentially middle class Americans access to employment, hardly a "fair" result or exemplar of "moral capitalism." Indeed, the NIRA, with its coercive limits on price, wages and output was hardly capitalism, moral or otherwise

To be sure, some New Deal policies ameliorated the plight of unemployed Americans. For instance, the Work Progress Administration ("WPA") provided jobs for millions working on parks and various forms of public infrastructure. Ironically, many who took such jobs were unemployed because other New Deal policies, such as the NIRA and NLRA, eliminated jobs these individuals might otherwise have obtained. As Richard Epstein has observed, coercive interference with free labor markets and resulting unemployment often gives rise to offsetting policies designed to ameliorate the human cost of such misguided policies. Speaking of the New Deal, Epstein has observed:

"[I]n 1935, American labor law created a system of collective bargaining whereby employees bargain with a single voice. That system allows unions to seek, and often obtain, monopoly profits for their members. That system in turn reduces the number of workers hired by the unionized firms. So what is to be done with the excess workers? They should be shepherded into job-training programs, funded by the public, which would allow them to reenter the labor force with other jobs."

The WPA, of course, was an example of such a countervailing program only made necessary by antecedent and unjustified interference with free markets that destroyed middle class private sector jobs.

Hopefully today's Democrats have a different conception of "fairness to the middle class" that that which apparently animated the NIRA, NLRA and similar New Deal policies.

Sunday, December 11, 2011

Does Tenure Increase The Cost of Higher Education?

A recent essay in the New York Times entitled "The End of Tenure" reviews two books critical of modern higher education. The complaints summarized by the review are familiar, and they include:

1) Higher education costs too much, and tuition keeps rising faster than inflation.

2) Tenured faculty at some elite universities do not teach enough, leaving much of the teaching to be done by adjuncts and other faculty who are not on the tenure track.

3) Student debt is rising by leaps and bounds and is unsustainable.

4) Faculty conduct research that is of little practical relevance, a claim that, if true, implies that the social cost of additional teaching by such faculty members is relatively low.

No doubt at least some of these claims are exaggerated. For instance, recent data also published in the Times suggests that horror stories about students graduating with, say, $100,000 in debt are few and far between. Indeed, these data show that 90 percent of students who borrowed to obtain their bachelor's degree graduated with less than $40,000 in debt. Moreover, some of those individuals who emerged with more than $40,000 in debt presumably chose to attend private universities instead of less expensive public institutions, thus undermining somewhat any complaint about resulting debt burdens. (A North Carolina resident who could have attended UNC Chapel Hill but matriculates at Wake Forest or Duke instead should not be heard to complain about his or her resulting debt burden.) Also, the tuition announced by a college or university is merely a sticker price and does not reflect financial aid that schools provide in the form of discounts for students who demonstrate financial need and/or academic merit.

What though about the claim, implied by the very title of the essay, that the institution of academic tenure is partly responsible for these woes? This is not a new claim --- earlier this year a legal academic argued that proponents of academic tenure for law school faculty were insufficiently sensitive to the fact that the institution of tenure increases the cost of law school. Does the institution of academic tenure make college more expensive, reduce access to higher education and pump up student debt?

Certainly not. After all, eliminating tenure and the job security that tenure brings would make academic positions less attractive than before, with the result that schools would have to raise salaries to attract high quality faculty. Moreover, if eliminating tenure led to greater faculty turnover, schools would presumably incur additional costs searching for and replacing departing faculty. In short, other things being equal, eliminating tenure would increase college tuition, reduce access to college and further add to student indebtedness.

While the institution of academic tenure might have some shortcomings, any propensity to raise the cost of higher education is not one of them.

Saturday, December 10, 2011

More Evidence that Compelled Support for Unions Thwarts Job Creation

Not so friendly to job creation and wages

Mr. Republican. Fought Trade Union Excesses and Bolstered Competitive Federalism

A recent study by the National Institute for Labor Research concludes that Right-to-Work states experience higher employment growth, enhanced economic growth and enhanced wages compared to those states that allow unionized firms to require all their employees to pay union dues, even if the employee declines to join a union. As previously explained on this blog, the Taft-Hartley Act of 1947 empowers states to become Right-to-Work states, thereby opting out of provisions in the 1935 National Labor Relations Act that originally allowed firms to compel employees, under threat of termination, to pay such dues against their wishes. Thus, the Act helps facilitate competitive federalism, whereby states offer different menus of background regulatory and tax policy in their efforts to woo industry that is free to locate in any of 50 states and numerous foreign countries. Co-authored by Ohio Senator Robert Taft (also known as "Mr. Republican"), pictured above, the statute followed a Republican landslide in 1948. Strangely, many of the Law's opponents referred to it as the "slave labor law," a bizarre appellation given the Act's effort to enhance the autonomy of individual employees and protect all employees against union excesses.   Maybe "Johnny Friendly," the fictional leader of a corrupt union, portrayed in "On the Waterfront" by Lee Cobb (pictured above) would have characterized the law in this way!

In particular, the study finds that:

1) Between 2000 and 2010, private sector employmnt in Right-to-Work states rose .3 percent, while it fell by over 5 percent in other states.

2) During the same period, real manufacturing GDP grew over 18 percent in Right-to-Work states but just over 8 percent in other states.

3) During the same period, the compensation of employees in the private sector rose 11.3 percent in Right-to-Work states, while compensation of employees in other states rose only 0.7 percent.

Of course, the study does not by itself establish that a state's embrace of Right-to-Work status will thereby, other things being equal, enhance economic growth and job creation. For one thing, right to work status may correlate with other variables that encourage economic growth, such as a political culture within a state hostile to over-regulation and burdensome taxation. (Indeed, the study finds that the average "tax freedom day" in Right-to-Work states is April 6, compared to April 14 in other states.) If so, then superior economic growth may be the result of an overall regulatory and tax environment conducive to economic growth, of which Right-to-Work status is merely one element. Moreover, large economic events unrelated to labor regulation and trade unionism that affect a few states who happen to fall into one category or the other could produce employment effects that coincidentally correlate with Right-to-Work status. The results are nonetheless interesting and reflect the sort of empirical work necessary to test competing hypotheses about the impact of Right-to-Work status.

Saturday, December 3, 2011

Do Health Care Systems Determine Life Expectancy? Of Course Not!

Would Americans Be Healthier in Greece?

England's Daily Mail has produced a misleading attack on the U.S. Healthcare system, blaming the "system" for Americans' relatively low life expectancy. The article, based on a study from the Organization for Economic Cooperation and Development, reports that the USA ranks 28th in life expectancy, because Americans live on average "only" to age 78.2, behind countries such as Chile and Greece (the home of the hooliganism pictured above), with Japan, Spain and Switzerland taking first through third place respectively. The article attributes the gap between the US and other developed nations to a comparatively poor US health care system. The article also notes that the US spends more per person on health care than any other nation. This line of criticism is not new; at least one University maintains a website making a similar claim.

The article's argument falls wide of its intended mark. In any society, longevity depends upon any number of factors, of which the quality of health care is but one. Such factors include the prevalence of accidental death and homicide, the prevalence of unhealthy habits like smoking and excessive drinking, and cultural norms regarding diet and exercise. Indeed, according to one source, the 2008 homicide rate in the United States, 5.22/100,000, was more than ten times higher than that in Japan (.45/100,000), more than five times higher than in Spain (.91/100,000), and more than seven times higher than in Switzerland (.72/100,000). According to another source, America's per capita rate of death from automobile accidents is more than twice that of Japan and Spain and also larger than that of Switzerland as well. If, as seems likely, most victims of homicides and automobile accidents are significantly younger than the nation's average life expectancy, then such differences explain at least part of the gap between life expectancy in the United States and that in other countries. Any comparison of the outcomes produced by different health care systems would have to control for the numerous other independent variables that impact life expectancy.

Moreover, differences in accidental deaths and homicides also highlight another fallacy in the Daily Mail's argument, namely, the treatment of health care expenditures as an exogenous variable that "causes" death at particular ages. In fact, such causation may in many cases flow in the opposite direction. After all, many homicides and accidental deaths themselves result in significant health care expenditures. So do accidents and/or shootings and stabbings that do NOT result in death. Thus, any analysis seeking to isolate the impact of health care expenditures upon longevity, other things being equal, would have to treat health care expenditures as a variable driven in part by other independent variables. For all we know, such an analysis could conclude that the US Health Care System is more efficient than suggested by the Daily Mail's simplistic analysis.