Sunday, October 16, 2016

President Clinton's "Crazy Affordable Care Act" Results in Higher Costs and More Part-time Jobs

In 2010, Congress and the Obama Administration passed the Affordable Care Act (ACA). At the time, its chief supporter, President Obama, argued that the ACA would incentivize hospitals and primary physicians to deliver better health outcomes at lower costs to a greater share of the U.S. population.

As implemented, the ACA demands that companies with more than 49 workers either provide health insurance to all employees working 30 hours or more weekly, or pay a stiff penalty.

The result, businesses have incentive to reduce worker weekly hours below 30. Not surprisingly, since passage of the ACA, the share of all U.S. workers working part-time, but wish to work full-time, has more than doubled.

Regarding cost, the evidence is even more discouraging. At a compound annual rate, health insurance expenditures for individuals and families grew by 6.1% yearly six years before ACA adoption and by a much higher 8.9% annually for the six years after ACA.

But the worst is yet to come. According to Barclays' analysis of rates, the average national health insurance premium will soar by 24.2% for 2017. Arizona will lead the way with an increase of 68.1% with other states not far behind such as Illinois at 43.9%, Iowa at 31%, Florida at 17.7%, Colorado at 20.2%, North Carolina at 20.4% and Pennsylvania at 23.6%.

Likewise, the percentage of counties being served by two or fewer insurers in the federal exchanges will rise to 39% from only 14% this year.

Due to diminished competition among insurance companies, Americans can expect to suffer from even higher growth rates in prices in the years ahead. It may be a bitter pill, but President Bill Clinton's recent statement that the ACA is "the craziest thing in the world" appears to be closer to truth than fiction. Ernie Goss

Thursday, September 15, 2016

Is Obama the Economic Anti-Reagan? Reagan Faster Overall & Wage Growth; Obama Swifter Profit Growth

In 2015, Obama's former campaign manager Jim Messina said, "President Obama in many ways has helped start the same kind of political revolution that Reagan did 30 years ago."

Both presidents inherited recessions but the two leaders are markedly different in terms of fiscal policy responses. Conservative commentator Charles Krauthammer insists that Obama seeks to be the anti-Reagan.

During the first 7.5 years of their terms, as a percent of gross domestic product (GDP), Obama increased federal taxes by 3.5%, while Reagan reduced federal taxes by 2.1%. And, in terms of federal spending as a percent of GDP, Obama expanded federal outlays by 0.03%, but Reagan reduced federal spending by 10.0%. As a result of superior economic growth during the Reagan era, the federal debt as a percent of GDP expanded at a slower 17.0% pace under Reagan than the more rapid 27.8% gain under Obama.

Not only have Obama's taxing and spending policies been in sharp contrast to Reagan's, his economic outcomes have likewise been very different. After 7.5 years, Obama's economic gains exceeded Reagan's in the following areas:

1. The U.S. unemployment rate declined by 2.9 percentage points compared to 1.9 percentage points for Reagan.
Business profits, as a share of GDP, expanded by 3.7 percentage points during Obama's tenure compared to a weaker 1.9 percentage points under Reagan.

2. The U.S. stock market advanced by 133% in contrast to a weaker 100% during the Reagan era.
Metrics in which Reagan's economic performance in his first 7.5 years bested Obama were:
U.S. GDP expanded by 27.3% versus 15.3% for Obama.

3. U.S. non-farm jobs grew by 16.1% in contrast to Obama's more tepid 9.7%.
Wages as a share of GDP advanced by 2.1% during the first 7.5 years of the Reagan term, but declined by 1.8% during Obama's first 7.5 years.

Metrics in which Reagan's economic performance in his first 7.5 years bested Obama were:
1. U.S. GDP expanded by 27.3% versus 15.3% for Obama.

2. U.S. non-farm jobs grew by 16.1% in contrast to Obama's more tepid 9.7%.

3. Wages as a share of GDP advanced by 2.1% during the first 7.5 years of the Reagan term, but declined by 1.8% during Obama's first 7.5 years.

Thus, historical U.S. economic performance data support the hypothesis Obama's policies as well as economic outcomes have indeed been anti-Reagan.
Ernie Goss

Friday, August 19, 2016

Super Rich Meet in Omaha and Propose Tax Hike: Highest Bracket Already Pays Six Times the Rate of the Middle

Millionaire Hillary Clinton and billionaire Warren Buffet met in Omaha earlier this month to trumpet higher income tax rates on upper income earners. Ignoring the data, the two super-rich, joined by income laggards Dallas Maverick owner Mark Cuban and former New York Mayor Michael Bloomberg, argue that levying higher tax burdens on workers in the top income bracket will reduce income inequality.

However between 1980 and 2013 when income inequality, as measured by the Gini Coefficient expanded by 22.2%, the share of federal income taxes paid by the highest one-fifth of earners rose from 64.7% to 88.0% while the share paid by the lowest one-fifth declined from +0.1% to -4.0% (i.e. tax rebates greater than tax payments). Even the middle income’s share dropped from 10.7% to 3.9% over the 33 years.

The reasons that taxing high income individuals more heavily does not reduce income inequality are that excessively high tax rates on high income:
1) discourage individuals from pursing higher education and training to increase income;
2) encourage individuals to reduce work efforts and to increase leisure activity;
3) restrain small business formation and risk taking by entrepreneurs seeking greater financial returns;
4) incentivize individuals to spend excessively on goods and services that are deductible from taxes and;
5) encourage high income individuals to move to lower tax nations.

But unfortunately for the economy, envy economics, as evidenced in Omaha in August, remains a viable political tool by generating votes and self-righteous smugness from its devotees.

Ernie Goss

Wednesday, July 13, 2016

Taxpayers Need to Shine Light on Solar Energy

In 1982 as a graduate research student at the Department of Energy’s (DOE) Oak Ridge National Laboratory, I worked on solar energy projects. At the time, the goal was to replace fossil fuels with solar energy in the production of electricity. As an infant industry, it was argued that all solar needed was short-term taxpayer subsidies to become competitive with its elder rivals. However after 34 years and massive taxpayer subsidies, the industry still cannot compete cost-wise with rival energy sources in pro-ducing electricity.

The latest DOE data show that in 2013 taxpayers showered solar energy with $4.4 billion in subsi-dies for a mere 19 million megawatt hours (MWH) of electricity production, or one-half of one percent of total electricity usage for the year. That works out to $23 per MWH when the average retail price for electricity was only $13 per MWH. In addition to these subsidies, the federal government invested in scores of failed solar energy firms including $535 million in Solendra, $1.5 billion in Sun Edison, and even $2.7 billion in Spanish solar energy giant, Agengoa.

Despite the subsidies and excessive costs per MWH, advocates argue that solar energy remains an infant industry that needs taxpayer funds and regulatory coddling. If the goal is to reduce CO2 emissions from coal-fired electricity generation, a better approach is to introduce a carbon tax taking the decision making out of the hands of market meddling politicians, and putting it into the hands of individuals and investors with “skin in the game.”
Ernie Goss

Tuesday, June 14, 2016

Trans Pacific Partnership A Winner for U.S.: Politicians, Left and Right, Are Wrong

When politics and economics collide, economics comes up roadkill. Take the case of the Trans Pacific Partnership (TPP). More than 99% of economists support this trade pact, yet 100% of individuals still in the race for the U.S. presidency are opposed to opening up Asian markets to U.S. manufacturers, businesses and farmers via TPP.

In October 2015 in Atlanta, the Obama Administration reached agreement with Japan, Vietnam and nine Pacific Rim nations to reduce trade barriers to produce the largest trade pact in the nation's history.

Due to reductions in trade restrictions, the USDA estimates that implementation of TPP will expand U.S. sales abroad by $130 billion annually. According to my calculations, if agriculture accounts for its historic share of U.S. exports, TPP would boost agricultural sales by $8.4 billion, and U.S. net farm income by approximately $1.0 billion in one year alone.

The deal, however, requires Congressional approval and both Democrats and Republicans have finally found something they agree on----rejection of TPP, economic jingoism, or what I will call "economic tomfoolery."

In 2015, the U.S. was the second largest exporting nation, behind only China. In that same year, the U.S. worker was the most productive on the face of the earth. Slinking into protectionism by rejecting fair and free trade agreements only subsidizes the less productive, and slows overall economic prosperity. Ernie Goss.

Tuesday, May 17, 2016

Healthy Job Growth, Unhealthy Economic Growth: More Regulations Contribute to Weak Economy

Without even a hint of irony, President Obama last week sold, and even trumpeted, his administration's economic accomplishments to the national press. But much like Arthur Miller's Willie Loman, or Meredith Wilson's Harold Hill, the sales job stands in stark contrast to reality.

True, government data shows the U.S. unemployment rate stood at a healthy 5.2 percent with more than 200,000 jobs created each month over the past two years. On the other hand, government data indicated that the overall economy expanded at an annualized pace of only 1.4% for the final quarter of 2015 and a 0.5% rate for the first quarter of 2016. This seemingly inconsistent data, that is solid job growth and lousy overall economic growth, can be reconciled by peeking behind the headline data.

Since the economic recovery began in July 2009, GDP growth expanded at the slowest pace of any 7-year period since 1947. The brisk job growth has been in part-time, low wage and/or low productivity occupations and industries. For example, over the past two years, a reduction in the average hourly work week resulted in effective job losses of almost 420,000. Furthermore, output per worker since the beginning of the economic recovery is roughly one-third the long-term U.S. average. As a result, average percentage gains in compensation are now approximately 56% of the long-term average.

But there has been one area of vigorous growth---regulations. According to the Wall Street Journal, the Obama Administration is responsible for six of the top seven years of red-tape creation in the nation's history. This is good for economists and lawyers, but not for other workers.
Ernie Goss

Thursday, April 21, 2016

Environmentalism Starves Zimbabweans: GMOs the Latest Target of Anti-Science Zealots

The severe drought and three million starving citizens did not prevent the Zimbabwe government from rejecting food aid earlier this year. What accounts for this hazardous government policy? Zimbabwe now blocks any food aid that includes genetically-modified-organism (GMO) ingredients.

Sounding like a European Greenpeacer, Joseph Made, the Zimbabwe Minister of Agriculture declared that "The position of the government is very clear. We do not accept GMOs as we are protecting the environment from the grain point of view." But the science examining GMOs is more conclusive than research behind Made's baseless position. Since appearing in the lab three decades ago and in supermarkets in 1994, 1,700 peer-reviewed safety studies have been published focusing on human health and the environmental impact of GMOs. The scientific consensus from this research is that existing GMOs are no more or less risky than conventional crops.

Furthermore according to the U.S. Department of Agriculture, farmers using GMOs generally use less insecticide, obtain higher yields, and save farmer production time. As a result of its advantages, GMOs accounted for almost half of total land used to grow all U.S. crops in 2013.

African policymakers should look to science, not European environmental Luddites for food policy.

Ernie Goss