Liberal Economists Discrediting Their Profession

An old econ professor of ours had a bit of a drinking problem. Many years ago, after having had too much to drink, he was standing near the entrance of a conference hotel when he spotted Nobel prizewinner Joseph Stiglitz walking past. Our tipsy professor caused a scene by accosting Stiglitz and shouting “Socialist! You’re a socialist!” over and over.

That was embarrassing. But so is this.

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Caracas, October 11, 2007 (venezuelanalysis.com) – Nobel Prize winning economist and former vice-president of the World Bank, Joseph Stiglitz, praised Venezuela’s economic growth and “positive policies in health and education” during a visit to Caracas on Wednesday.

[…]

He added that while Venezuela’s economic growth has largely been driven by high oil prices, unlike other oil producing countries, Venezuela has taken advantage of the boom in world oil prices to implement policies that benefit its citizens and promote economic development.

“Venezuelan President Hugo Chavez appears to have had success in bringing health and education to the people in the poor neighborhoods of Caracas, to those who previously saw few benefits of the countries oil wealth,” he said.

In his latest book “Making Globalization Work,” Stiglitz argues that left governments such as in Venezuela, “have frequently been castigated and called ‘populist’ because they promote the distribution of benefits of education and health to the poor.”

“It is not only important to have sustainable growth,” Stiglitz continued during his speech, “but to ensure the best distribution of economic growth, for the benefit of all citizens.”

That was in 2007. So how did those ‘populist’ policies pursued by Chavez and approved by Stiglitz work out in the longer term?

Experts say the Venezuelan economy began imploding three years ago, with the collapse of the late President Hugo Chávez’s populist model, which asphyxiated domestic production by tightening controls on the private sector while stocking shelves with imported goods.

But the crisis turned into desperation starting last year, when a plunge in the price of oil slashed the income needed to continue importing the $500 million a month in food that the country requires. The Venezuelan population is now suffering through a level of misery unknown to many generations.

[…]

“We have children who are fainting in schools,” she said. “Hunger has entered the classrooms. There are children dying from malnutrition.”

The refusal by the government of President Nicolás Maduro to release data on the economy and public-health systems makes it difficult to use figures to illustrate the scale of the problem.

But Barrientos emphasized that Venezuelan doctors are starting to see health problems not seen in the country for more than four decades.

Malnutrition and poverty are even more widespread in rural areas, where entire towns lack food products, he added.

“In rural areas, far from urban areas, there are images that we usually see only on Discovery Channel documentaries or photos published in National Geographic,” Barrientos said.

The food shortages add to the problems created by a medicine shortage, which already has caused deaths around the country and created a series of complications for the public-health system.

Venezuela lacks 85 percent of the medicines it needs, leaving many children vulnerable to diseases, like malaria and mange, that were eradicated many years ago and making it difficult to control others like dengue fever.

Keep in mind that Venezuela has historically been a relatively prosperous country by the standards of Latin America. In fact, back in 1980, Venezuela had the highest per capita income in the region. But socialism ruins everything.

These liberal economists are making the rest of us look bad.

Obamacare Entering Death Spiral?

Obamacare operates on the basis of ‘guaranteed issue’ and ‘community rating.’ That means that sick people cannot be denied coverage, nor can sicker people be charged more than healthy people. The system only works if it can overcharge healthy people in order to subsidize sicker people. Healthy people, however, don’t want to be overcharged, so they tend to drop out of the market, leaving only sicker people. To cover the higher costs, insurers are then forced to raise premiums. In a vicious cycle, the higher premiums drive even more relatively healthy people out of the market, until the whole market unravels. This is the ‘community rating’ death spiral.

The death spiral is a real phenomenon observed years ago in New York and other states that adopted community rating. Premiums in New York and New Jersey soared, and Washington State and Kentucky had to back away from community rating as insurers fled the state.

The mechanism in Obamacare that is supposed to prevent the death spiral is the mandate to purchase insurance or pay a fine. That’s what’s supposed to keep healthy people in the market. But the problem is that the tax is too low to compel people to purchase very expensive insurance. The government accepts various ‘hardship’ excuses for not paying the fine at all. Even without a hardship excuse, the range of possible fines runs from about $700 per year to about $2,000. But that’s still cheap compared to paying, say, $500 per month in insurance premiums.

So the fines are too low and…wait for it…raising them would be unconstitutional!! The Roberts Court ‘saved’ Obamacare in 2012 by ruling that the ‘fine’ was not really a fine but a ‘tax.’ A tax, however, cannot be set so high that people can’t avoid it. In legal terms, if the ‘tax’ were set higher, it would become a ‘fine’ which would be unconstitutional. In other words, the Supreme Court ruled that Obamacare is constitutional only if the tax/fine is set too low to be workable!

Now in many parts of the country it’s starting to look like Obamacare markets are starting to unravel. Insurers are losing money and therefore exiting markets in many states and counties. The remaining insurers are asking for huge premium increases. Consider the recent news out of Tennessee, for example.

Tennessee’s insurance regulator proclaimed the state’s Obamacare exchange “very near collapse” Tuesday, after signing off on hefty premium hikes in an extraordinary bid to keep the program afloat.

[…]

The rate approvals, while a tough decision, were necessary to ensure healthcare options in every part of Tennessee when open enrollment begins in November, said McPeak, commissioner of the Tennessee Department of Commerce and Insurance. BlueCross BlueShield of Tennessee [BCBST] is the only insurer to sell statewide and there was the possibility that Cigna and Humana would reduce their footprints or leave the market altogether.

Already 57 of Tennessee’s 95 counties have only one insurer, usually BlueCross BlueShield, willing to sell Obamacare, and that insurer is losing money and considering pulling back.

Chattanooga-based BCBST, the only insurer that’s sold statewide in the first three years of the federal exchange, is estimating that, by the end of 2016, it will have lost close to $500 million in three years. Such losses are unsustainable, said Roy Vaughn, chief communications officer of BCBST.

Obamacare can’t exist unless private insurers are willing to offer it. Desperate to keep insurers in the market, Tennessee’s commissioner approved massive rate hikes.

“I felt like I didn’t have any choice but to allow them to refile their rates,” McPeak said.

  • Cigna asked for and received an average 46.3 percent increase.

  • Humana asked for and received an average 44.3 percent increase.

  • BlueCross BlueShield of Tennessee, which did not refile its request, asked for and received a 62 percent increase.

Most consumers, however, won’t feel these rate increases because they get absorbed by federal tax credits.

“Consumers in Tennessee will continue to have affordable coverage options in 2017. Last year, the average monthly premium for people with Marketplace coverage getting tax credits increased just $2, from $102 to $104 per month, despite headlines suggesting double digit increases,” said Marjorie Connolly, HHS spokeswoman, in a statement.

But that just means that taxpayers had to foot the bill. It appears that Obamacare cannot work without massive taxpayer subsidies, despite the fact that President Obama, when he was promoting his plan back in 2009 and 2010, said repeatedly in public that the program would add “not one dime” to the federal deficit.

Furthermore, if we’re not mistaken, the law stipulates that this year is the last year in which the federal subsides are open ended. After this year, Obamacare subsidies are capped just a bit higher than the growth rate of GDP. The feds, therefore, won’t legally be able to sign off on the kind of massive rate increases needed, for example, to keep insurers in the Tennessee market this year. If costs keep increasing, insurers unable to raise premiums will be on the hook for even greater losses. At that point, Obamacare could be facing a total collapse.

It’s GOOD to be the Senator’s Daughter

Mylan CEO Heather Bresch became the focus of attention this week due to the controversy over the price of Mylan’s EpiPen, a device used by people having allergic reactions. Back in 2007, Mylan sold the EpiPen for $57; the company now charges $300. The device injects about a dollar’s worth of the drug epinephrine.

As the price of EpiPens has soared, so has Bresch’s compensation, rising from $2.45 million in 2007, to over $20 million in 2014.

Bresch started at Mylan in the 1990s as a lowly ‘data entry clerk,’ and rose to become one of the highest-paid CEOs in America. Sounds like a real Horatio Alger story, right? Heather Bresch’s example shows that with enough hard work and pluck anyone can go from data entry all the way to the top, right? Well, maybe not just anyone. Because in late-empire America, it helps to have some political connections.

In 2007, Bresch was named Mylan’s COO. At that time, the company’s press release stated that Bresch had been awarded an MBA degree from West Virginia University in 1998. In reality, she had dropped out without fulfilling the course requirements for the degree. Years later, in 2007, WVU retroactively awarded her a degree. But the degree was fraudulent. WVU officials satisfied the course requirements by making up course grades out of thin air. The president of WVU at that time was Mike Garrison, a former lobbyist for Mylan and Bresch’s high school classmate. In addition, WVU had over the years received $20 million in donations from Mylan’s founder. Oh, and in 2007 Bresch’s father was the governor of West Virginia.

Bresch’s father, Joe Manchin, is now a United States Senator. He has a seat on the Senate Judiciary Committee, which is the body that is going to be investigating Mylan’s price hikes.

Prior to becoming CEO, Bresch’s title at Mylan was “head of government relations.” She has indeed used her expertise at government relations to get legislation favorable to Mylan enacted.

Mylan spent about $4 million in 2012 and 2013 on lobbying for access to EpiPens generally and for legislation, including the 2013 School Access to Emergency Epinephrine Act, according to lobbying disclosure forms filed with the Office of the Clerk for the House of Representatives. Mylan also was the top corporate sponsor of a group called Food Allergy Research & Education that was the key lobbyist pushing for the bill encouraging schools to stock epinephrine auto-injectors, of which EpiPen is by far the leading product.

Mylan is now reportedly in the process of lobbying “in favor of a bill in the Senate that would mandate that all airlines, domestic and foreign, carry at least two packs of epinephrine auto-injectors.”

Recently, Bresch guided the company through a ‘tax inversion’ by reincorporating overseas.

Last year, Mylan, whose main offices are in Pennsylvania, reincorporated in the Netherlands, in what Bresch said was a defensive move against a possible takeover, but which also lowered the company’s tax liability.

And here’s the punchline:

Bresch’s senator father Manchin is on the record as being opposed to tax inversions.

Meanwhile, there’s some concern that lives could be lost if some people can’t afford to buy the EpiPens.

The AMA, the nation’s largest doctors’ group, earlier Wednesday said that “with lives on the line, we urge the manufacturer to do all it can to rein in these exorbitant costs.”

Not exactly what Horatio Alger had in mind.

Government: Only Whistleblowers Get Fired

Anthony Salazar worked at the Los Angeles VA medical center in the ‘engineering service.’ In 2013, he reported that 30 of the center’s 88 motor vehicles were ‘unaccounted for.’ He also reported suspected fraudulent purchases on 10 government credit cards.

As a result, the VA convened an Administrative Investigation Board (AlB) in January 2014 to examine the facts and circumstances surrounding stolen agency vehicles, including whether managerial oversight played a part in the theft of such vehicles. The AlB concluded that managerial oversight contributed to the theft of government vehicles, for which [Engineering Service Chief Robert] Benkeser received a letter of counseling.

Mr. Benkeser then turned around and fired Salazar. This happened even though it’s usually very difficult to fire a federal employee. But in this case, the government managed to get the job done with alacrity. Salazar filed an appeal, but it was denied by the Administrative Judge. The taxpayers have to eat the loss of the 30 vehicles.

Salazar got the boot, but Benkeser still has his job. As do a number of other questionable VA employees.

For example, two felons work in management at the San Juan VA hospital, and a worker in the security office came to work each day with a GPS monitor because she had taken part in an armed robbery, which a spokesman said was irrelevant since it occurred off-duty. At another VA hospital, a nurse’s aide remains on the payroll as he awaits a manslaughter trial in the beating death of a patient.

Seems like the only way to get fired from the bureaucracy is to blow the whistle on government corruption. It’s almost as if government is a criminal enterprise or something.

Abolish the VA and give veterans a voucher for private health insurance.

Olive Oil: Buy Domestic?

One thing I noticed while in Italy a few years ago was how much fresher and tastier their olive oil seemed. Even a cheap bottle from an Italian supermarket gives off a wonderful aroma that wafts out of the bottle as soon as one takes off the cap. Tony just got back from visiting Italy this summer and he brought back a huge haul of olive oil–something like 25 bottles–made from scratch by his family in southern Italy.

Given how good the olive oil is in Italy, it would seem that in the U.S. the thing to do would be to buy olive oil exported from Italy. But that might not in fact be a good idea, because Italy apparently uses the U.S. as a dumping ground for bad oil. Italy gets away with this because…wait for it…Americans generally don’t know olive oil from shinola.

“We call the U.S. the world’s dumping ground for rancid and defective olive oil. We don’t know the difference,” said Sue Langstaff, a sensory scientist who consults for the beer, wine and olive oil industries, among others. Studies have shown that even frequent olive oil consumers in the U.S. don’t know what the extra virgin or cold pressed designations mean, let alone have the ability to taste the difference. And in blind taste tests, consumers often prefer lower-quality olive oils.

Rancidity, for example, isn’t generally a sought after quality in edible products. And yet, when it comes to olive oil in the U.S., people like it. Why? Partly, because rancid olive oil is less bitter than the good stuff. But also, likely because it’s what many of us know and grew up with. It’s what we think olive oil is supposed to taste like.

‘Murica. Where rancid olive oil is actually preferred. And we therefore have a textbook illustration of the gains from trade. Italy keeps the good olive oil, sends Americans the rancid oil, and everyone’s happy!

Anonymous commenter El Sabor Asiático offers some additional information on Italian exports.

Megacorporations like Bertolli are able to bend politicians to their will, which means that much of the “Italian” olive oil that is imported into the U.S. is actually produced in other parts of the world, then passed through Italy to get the “product of Italy” rubber stamp.

Hmmm. The label on my cheap bottle of Kroger brand ‘extra virgin’ oil says: “Packed in Italy with oils of (A) Italy, (B) Spain, (C) Greece, (D) Tunisia. (SEE CAP)” On the cap there’s a code that starts with a number and ends in “ABCD”. So does that mean that the bottle includes oil from all four countries? If so, why mix them? Olive oil is perishable and relatively costly to transport, so why send stuff from Spain to Italy only to be sent ultimately to the USA? Also, what are the proportions from each country? In particular, how much is from Tunisia? Hmmm.

The standard for what can be labeled “extra virgin olive oil” is so lax that it can be cut with low-grade “lamp oil” made from spoiled olives, or even with soy/canola oil. And enforcement of even these lax regulations is so inadequate that fly-by-night producers can pull off fraudulent schemes, make their profit, and disappear.

El Sabor Asiático makes the case for oil from California. The advantage is proximity.

The reason California olive oil is so often superior (when bought in the U.S.) and does well in these kinds of surveys is very simple: olive oil is actually a fruit juice, and extra virgin olive oil is essentially a fresh-squeezed fruit juice. If you think about what happens to fruit juice if it has to travel long distances or is stored for long periods of time, that is similar to what happens to olive oil. (And then imagine how much worse it gets when it’s shipped from South America to Europe and then to the U.S. — and then on top of that the fact that it’s low-grade oil to begin with.) Domestic olive oil producers have a tremendous natural advantage in terms of quality simply because their oil is pressed here and doesn’t need to travel nearly as far as imported oil.

Today in the Kroger I looked for olive oil from California. The selection was rather limited, but Kroger did carry a couple of brands. Prices were reasonable, as a 17 ounce (or so) bottle goes for about 6 or 7 dollars. I picked up a bottle but haven’t tried it yet.

Licensing Locks People Out of Work

Back in the 1950s, only one job in twenty required a license or certification. Now one job in four does. An incompetent doctor or dentist or even truck driver does pose a danger to the public, so there’s an argument for licensure of those professions. The problem, however, is that licensure has expanded to encompass jobs where information asymmetries pose little risk to the consumer. Examples include barbers, pet groomers, and interior decorators. A particularly egregious case concerns hair braiders.

A total of 30 states require braiders to be specifically certified in braiding, or to go even further by obtaining a full license in cosmetology.

In 14 states, aspiring hair braiders are required to attain a license specifically for braiding, and in those states, the number of hours in required training ranges from a low of six in South Carolina to a high of 600 in Oklahoma—nearly four times as many hours as it takes to become an emergency medical technician in the state, according to the Institute for Justice. [Emphasis added.]

That fact is something that should be pondered carefully by anybody who believes that making more laws and regulations will bring more order and reason to society.

Sixteen states, meanwhile, require aspiring hair braiders to attain a cosmetology license, which are often more costly and require a minimum of 1,000 hours of training or education, required in Massachusetts and Wyoming, for example.

South Dakota requires the highest number of training hours, 2,100, for hair braiders to become licensed cosmetologists and practice their craft.

Evidence suggests that the hair braiding requirements are effectively achieving their true purpose, which of course is not to protect consumers, but to prevent people from entering the occupation. Louisiana, which requires 500 hours of training, has just 47 braiders in the whole state. In contrast Mississippi, which repealed its cosmetology requirement a few years ago, has more than 1,200 braiders.

The good news is that a reform movement is working to repeal licensing requirements for hair braiding. This movement, oddly enough, is supported by both the Koch brothers and the Obama White House. The movement has had considerable success in just the last couple of years.

In 2015 and 2016, nine state legislatures—in Arkansas, Colorado, Maine, Texas, Delaware, Iowa, Kentucky, Nebraska, and West Virginia—eliminated licenses for hair braiders.

The following documentary tells the inspiring story of Melony Armstrong, whose quest to operate a braiding salon in Tupelo, Mississippi, was instrumental in eliminating the cosmetology requirement in that state.

Great Moments in Millennial Journalism

Filipovic

Following this advice would mean the end of roughly 3 out of every 5 marriages in America. Very serious!

Nuzzi

After you get to the bottom of that one, let us know how the Clintons came to be worth hundreds of millions of dollars through careers in public service.

Barro1

What’s amazing is that you can have a Harvard degree and presumably never have heard of Tolstoy, Pushkin, Dostoyevsky, Chekov, Solzhenitsyn, Pavlov, Lobachevsky, Stravinsky, Rachmaninoff, Borodin, Tchaikovsky and countless other Russians who made monumental contributions to the legacy of human achievement.

We’ll give the last word, so to speak, to the Russian National Orchestra. (Trigger Warning: The name of this piece is “Marche Slave.“)

Are People Getting Dumber?

Psychologist Michael Woodley claims that, since the Victorian Era, average IQ has fallen by 10-15 points, almost a full standard deviation. Woodley came to this conclusion by measuring reaction times, which correlate with IQ, and comparing his results to measurements made by the famous statistician Francis Galton during the 1880s.

Woodley’s conclusion seems to contradict the Flynn Effect, which is the fact that scores on pencil-and-paper IQ tests have increased in the long term by about 3 points per decade. Woodley argues, however, that IQ tests cannot be used to make comparisons in different time periods. Over time, IQ scores on tests have increased, but this doesn’t necessarily imply that people have gotten smarter; it could be that people have just gotten better at taking standardized pencil-and-paper tests.

Woodley says his results on reaction times are reinforced by results using other measures that correlate with IQ such as repeating digits backwards and (oddly enough) distinguishing between fine gradations of color. These criteria seem relatively immune to the sorts of bias that plague written IQ tests.

The cause of the 10-15 point drop remains a mystery. Woodley says that dysgenic fertility (the tendency for low IQ women to have more children than high IQ women) can account for a loss of only 3 or 4 points during the relevant time span. So about two-thirds of the decline remains unaccounted for. He doesn’t mention it, but it seems to me that the drop in childhood mortality should have had some effect as well. Lower childhood mortality probably implies that more relatively low-IQ children survive to adulthood.

Here’s an interview with Woodley in which he discusses his research. The interview is long and somewhat high-brow, but rewards scrutiny.

The Myth of Food Deserts

By now, most people are familiar with the concept of the ‘food desert,’ a poor neighborhood where residents do not have access to a grocery store selling healthy foods, like fresh fruits and vegetables. Recently, I found myself at a social gathering where the topic of food deserts came up and folks were shocked when I told them that food deserts are a myth. In fact, every serious study that has examined the issue has concluded that food deserts don’t exist.

The theory of food deserts actually has two components. The first is that poor people lack access to stores selling healthy foods. This notion has been promulgated by no less a personage than First Lady Michelle Obama.

“For 10 years,” [Michelle] Obama explained at a speech following her tour of the Fresh Grocer, “folks had to buy their groceries at convenience stores and gas stations, where usually, they don’t have a lot of fresh food—if any—to choose from.”

The second component states that this lack of access accounts for why poor people have unhealthy diets. It follows that if access were expanded, poor people would improve their diets by eating more healthy foods like fruits and vegetables. In short, the ‘food environment’ influences the diets and health outcomes of poor people.

Both components of the food desert theory are contradicted by the evidence. First, it is not true that poor people lack access to grocery stores.

[Dr. Helen] Lee also notes in her study that, on closer inspection, food deserts don’t actually exist in the U.S., at least not as a national problem—on average, poor neighborhoods have more grocery stores than wealthier neighborhoods. Even before Obama’s Healthy Food Financing Initiative was announced in 2010, studies suggested that the food desert explanation for obesity wasn’t right. A report from Department of Agriculture researchers presented to Congress in 2009 also showed more grocery stores in poor neighborhoods. In 2012, USDA researchers crunched the data again and found once more that low-income neighborhoods had more—not fewer—grocery stores.

Second, increasing access to fruits and vegetables doesn’t mean people will buy them. Many studies have in fact found that opening a new store does not cause people to change their diets.

Obesity levels don’t drop when low-income city neighborhoods have or get grocery stores. A 2011 study published in the Archives of Internal Medicine showed no connection between access to grocery stores and more healthful diets using 15 years’ worth of data from more than 5,000 people in five cities. One 2012 study showed that the local food environment did not influence the diet of middle-school children in California. Another 2012 study, published in Social Science and Medicine, used national data on store availability and a multiyear study of grade-schoolers to show no connection between food environment and diet. And this month, a study in Health Affairs examined one of the Philadelphia grocery stores that opened with help from the Fresh Food Financing Initiative. The authors found that the store had no significant impact on reducing obesity or increasing daily fruit and vegetable consumption in the four years since it opened.

That last study refers to the program initiated by Michelle Obama, which apparently accomplished nothing.

The above excerpt was published in Slate in February, 2014. This month’s issue of Scientific American reports on yet another study.

Sadler, Gilliland, and Arku examined the impact of a retail-based intervention in a socioeconomically disadvantaged area of Flint…their research found the introduction of a grocery store in the area did not have a significant impact on fruit and vegetable consumption. Further, there was an increase in the amount of prepared and fast foods consumed during the 17 months the grocery store was open.

Poor people just tend to have lousy eating habits. Maybe cooking classes and more information on nutrition would help, but the focus on ‘food deserts’ is misguided.

Question: If food deserts are a myth, why do we keep hearing so much about them?

Answer: The myth is promoted by shady non-profits as a way to get government grant money.