Gov to Governments: Keep Cutting

Erika RosenbergThis piece first appeared in Mid-Hudson Valley Community Profiles Viewpoints section.

New York State’s local governments were shielded from the fallout of the Great Recession but did not escape unscathed: Though federal stimulus funds postponed the pain, county government spending across the state and in the Mid-Hudson Valley has now been flat or declining for at least two years. Yet governments are under continuing pressure to find efficiencies.

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I’m ready for some Global Warming

Kent GardnerThe Polar Vortex has me thinking about global warming. No, not the reflexive, “How could the world be warming and still post the coldest temps in recent memory?” I’m on board with the scientific consensus on climate change and I’ve a healthy appreciation for the randomness of complex systems.  Most economist & weather forecaster jokes are interchangeable, after all.

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Collateral Damage Revisited: The Minimum Wage

Kent GardnerOnce again, the Congressional Budget Office is weighing in on a current policy debate—in a just-released report, they have sided with the consensus view among economists that an increase in the minimum wage will eliminate jobs: “Most [low wage workers] would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold. But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.” If the minimum wage goes to $9/hour, CBO estimates job loss of about 100,000 in the second half of 2016, relative to what might otherwise have occurred. If the minimum wage rises to $10.10, they estimate the loss at about 500,000 jobs.

Every policy change has good and bad effects. If the goal is to maximize the number of jobs, we should eliminate the minimum wage entirely. But that would open up some workers to a level of exploitation most of us would find unacceptable, so we put up with some degree of job loss in exchange for this protection. And we counter the effects of the minimum wage on labor demand by putting more money into improving the employability of low wage workers, thus boosting the supply of workers who are more productive.

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That’s why we call it “work”

Kent GardnerTwo weeks ago, the Congressional Budget Office stirred up a hornet’s nest with its estimate of the impact of the Affordable Care Act (ACA) on jobs. Here’s the key sentence: “CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive.” The annual reduction is estimated to be a headline-grabbing 2.5 million jobs.  Download the report here.

Critics of Obamacare greeted the news with barely disguised glee: “The CBO says that Obamacare is a job killer,” they crowed. That’s not what it said: “The estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in businesses’ demand for labor.” The jobs aren’t eliminated—workers choose not to fill them.

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Don’t underestimate the role culture plays in the economy

Kent GardnerFew of us make decisions based on a purely rational assessment of our own self-interest. And thank goodness for that! Life with homo economicus, “economic man,” would be dreary indeed. There is a deep tradition in economics that considers the role that “institutions”—defined here as traditions, cultural mores and social organizations—play in society. A cultural value of honesty, for example, contributes to a more efficient economy. Traditions and cultural norms, even without any claim to morality, also bring societal benefit. Laws and explicit rules cannot create a good society unless they are built upon a strong cultural foundation. I illustrate this below in three spheres: the macroeconomy, government, and the firm.

Voluntary Income Tax ComplianceConsider national tax compliance. Americans cheat on their taxes less than citizens of other nations, much less in some instances. The Internal Revenue Service estimates that 83% of taxes owed were paid—and paid on time—in 2012. Contrast that record with Greece, where tax evasion has been called the national pastime: On average, the Greeks pay only 2/3 of what they should. And it isn’t because we hire more tax police. Greece spends four times as much per capita chasing tax cheats. Historically, the Russians have been even worse: Income tax compliance has been at 50%. Without a strong tradition of voluntary compliance, the central government spends more on enforcement and must rely on forms of taxation that are more easily enforced but may be less equitable and, in economic terms, create more inefficiency.

“What about ‘The Wolf of Wall Street’ and the self-dealing that contributed to the financial crisis?” I’m not making a global claim to the moral superiority of the average American. Special interests have successfully lobbied for the insertion of custom tax provisions that make evasion, for some, entirely legal. Transparency International’s Corruption Perception Index places the United States at #19 of 177 countries—not terrible, but not at the top with the Scandinavians and New Zealand. We have a strong compliance culture around taxes, but fall short in countless other spheres.

Culture and tradition also play an important role in the political sphere. This week the Supreme Court heard arguments in National Labor Relations Board v. Noel Canning. This is part of the long running Washington soap opera about presidential appointments—the Senate has been very slow to consider appointments from the Obama White House, fearful of Republican filibuster. Exasperated, the President made a few “recess” appointments—which persist until the next session of Congress—when the Senate was out of town, asserting that the Senate was not simply absent, but in recess. As the Senate was convening pro forma sessions every three days (presumably at the direction of the Majority Leader, Democrat Harry Reid), the Senate argues that it was not in recess. The appointments were therefore unconstitutional.

And we also witnessed the demise of the Senate’s longstanding filibuster rule. Silly rule, really: A senator could delay proceedings as long as he or she could keep talking. As senators are anything if not long winded, talking ad nauseum comes naturally. Only a vote of three fifths of the Senate could shut up the speaker. The minority party needs only 41 seats to threaten the majority with a costly and embarrassing filibuster. So Harry Reid and the Democrats called it off and changed the rule.

Culture and tradition matter. The Senate’s responsibility to consider presidential appointments in a timely fashion—and typically confirm the nominees—reflects deference to the Office of President, regardless of party. The Senate can and should refuse to confirm some appointments, thus nudging the President toward whatever consensus rules in that chamber. But generally the Senate plays nice and the President, for his part, doesn’t abuse the power to make recess appointments, even when the fact of the recess is unambiguous. Deference to tradition would make it unnecessary to rigidly define “recess” or remove the President’s power to act when a recess occurs.

The same principle applies to the filibuster. It may seem to be a silly tradition, but it served as an escape valve when a member of the Senate felt deeply and wanted to make a dramatic statement. The chamber would be nearly empty—the senator was welcome to talk, but other senators didn’t have to listen. And eventually the drama would end and business would resume. Using the filibuster (or threat of one) as a standard operating procedure, however, violated the cultural norm. Deference to tradition allows this “escape valve” to remain in place, a subtle component of the balance of power among the members and between the political parties.

Culture plays a role in the workplace, too. When I arrived at CGR after having been a SUNY college faculty member, I asked about the travel policy. “Be reasonable,” I was told. Reasonable??!! Where’s the list of allowable lodging expense by city? What’s the maximum reimbursement for dinner? A glass of wine is on your own tab, right?

At CGR, we pride ourselves on having fewer rules than large organizations—because we have a culture that respects our mission and engenders mutual respect among the staff. On the rare occasion that this trust is abused, it is apparent to all—and this reinforces the value we all receive from working in an atmosphere of trust and respect.

Culture is the foundation of a good society—and, surprisingly, a competitive economy. We can’t pass enough laws or hire enough cops to overcome consistently self-interested behavior. Preserving a moral code is the job of families, schools, the faith community—even the workplace. A market-based economy can harness our competitive and selfish reflexes to better ends: Markets, like laws, can help protect the community from individual greed. Yet economies can’t survive without a culture that reinforces trust and honorable behavior. No society prospers on self-interest that is limited only by markets or the rule of law.

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Oops about OOPM: You really can’t keep your health plan

Kent GardnerThe Tampa Bay Times Politifact has awarded its coveted “lie of the year” rating to President Obama’s oft-repeated “If you like your health plan, you can keep it” promise. I’m happy to chalk this one up to naiveté and the heat of the political moment(s).

As President Obama has noted, the reason that existing health insurance policies have been cancelled willy-nilly is because the plans don’t measure up to ACA’s standard for coverage. Supermarkets can’t sell unpasteurized milk. Health insurers can’t sell these plans.

It is not immoral to sell or buy noncompliant plans. Many consumers chose noncompliant plans on purpose because they were cheaper. Let’s look at one provision of ACA that has received little coverage—the out-of-pocket maximum (OOPM). ACA initially required that a 2014 individual policy must cover all costs above $6,350 for singles or double this, $12,700, for families (of any size) within the year. That’s the OOPM (now delayed to 2015).

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Should we tax medical devices?

Kent GardnerLike most aging runners, my wife’s knees aren’t what they used to be. Fortunately, there is a solution to this problem—knee replacement has become nearly routine surgery.  The Agency for Healthcare Research and Quality reports 718,000 hospital stays in 2011 were due to “knee arthroplasty” or total knee replacement. The rate per 10,000 population nearly doubled from 1997. Yes, the aging of the population has something to do with the increase—yet even among 65-84 year olds the rate increased by 59% (http://www.hcup-us.ahrq.gov/reports/statbriefs/sb165.jsp). And yes, the rising rate of obesity explains part, but not all, of the trend.

We needn’t look to sophisticated studies for the reason as joint replacement surgery can significantly improve quality of life. A 2011 “meta analysis” of over 100 studies concluded that nearly 90% of artificial knees were still doing the job 10 years after surgery. As these studies necessarily involved surgeries that took place before 2000, results have almost surely improved. For most patients, an artificial knee (or hip) can be expected to last 15-20 years. Recovery time is getting shorter, too. Many patients are back to driving in a month. If you can’t walk without pain, an implant would seem to be an easy choice.  Provided you can convince your insurer to foot the bill.

Which brings us to the cost of artificial joints. Did you wonder why the medical device industry gets its very own tax under the Affordable Care Act? American health care’s dysfunction has enabled the medical device industry to earn very robust profits, thus making it a target for special treatment. Does this tax make sense?

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The Challenge of Matching Jobs and Job Seekers

Kent GardnerThere is nothing more debilitating than unemployment—both for the individual and society. The jobless are deprived of the dignity of work and the community is deprived of the benefit of their labor. We look to workforce development programs and higher education to match jobs and job seekers and, often, to help the unemployed gain the skills that are needed in the workplace.

Recent attention has focused on “middle skills,” those positions requiring some postsecondary technical education and training but not a four year college degree. A recent Harvard Business Review article[*] found that nearly half of new job openings from 2010 through 2020 will be middle-skills positions in fields such as computer technology, nursing, and high-skill manufacturing. Community colleges (such as Monroe Community College) are particularly well suited to addressing the middle skills gap and are exploring how they can best fill that need.

This leads to a reasonably neat policy prescription: If we have willing workers whose skills simply fall short, then the public’s role is to provide a bridge to employment through training. Easy, right? As one of the Rochester area’s most strategic training providers, Monroe Community College is continuously seeking better information on the needs of its market.

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Upstate NY vs. Toronto: A Lesson in Immigration & Tax Policy

Kent GardnerRemember the Fast Ferry connecting Rochester and Toronto? Although the idea failed in execution, connecting with the vibrant “Golden Horseshoe” economy made sense then—and still does today. When we compare Rochester to, say, Charlotte or Atlanta or Austin, we can always blame the snow. But that doesn’t work when we look across the lake. What’s their “secret sauce?”

Job Growth 1996 - 2011We may be separated only by a bit of water and a line on a map, but it is clear that Canada’s Golden Horseshoe Region, powered by Toronto, has prospered while Upstate New York (defined here as Rochester, Buffalo and Syracuse) has just held its own. Although these neighboring regions share much—that climate, access to markets, and transportation infrastructure—since 1996 the Golden Horseshoe added more than a third to its employment base and a quarter to its population.

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Financial Viability of Public Nursing Homes: NY Isn’t Only State Struggling

Erika Rosenberg New York isn’t alone in struggling with the financial viability of its public nursing homes. Across the country, public nursing home operators are weighing their options in an era of diminishing state and federal reimbursement. Many counties, especially those in the Northeast, are choosing to sell, or contract out management of the homes, in order to stem financial losses.

In New York, 92% of homes had operating deficits in 2010, as CGR detailed in our in-depth report, The Future of County Nursing Homes in New York State. Financial pressures have led 8 of the 33 remaining counties with homes to decide to sell them, and another 5 to actively consider it. If all those potential sales actually occurred, New York would be left with 20 counties with nursing homes, down from 40 just 15 years ago.

From 2005 to 2009, half of states had declines in the number of public nursing homes, compared to 28% that had increases (more recent data aren’t yet available).

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