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The Lighthouse is the weekly email newsletter of the Independent Institute.
Subscribe now, or browse Back Issues.

Volume 16, Issue 4: January 28, 2014

  1. The Federal War on Work
  2. Obamacare’s Perverse Incentives
  3. Affordable Housing: Rhetoric versus Reality
  4. P. J. O’Rourke on the Baby Boom Generation – Oakland, Calif., 2/13/14
  5. New Blog Posts
  6. Selected News Alerts


1) The Federal War on Work

Official unemployment statistics, published monthly by the appropriately named Bureau of Labor Statistics, reflect the number of jobseekers who can’t find jobs. But this focus is overly narrow and neglects an important problem with the labor market today: the fall in the share of the population that is actually looking for work. This decline began at least as far back as 2000 but worsened during the Great Recession, thanks in large part to the federal government. In a recent op-ed for Investor’s Business Daily, economist Richard K. Vedder, a senior fellow at the Independent Institute, calls attention to the problem and identifies some of the government policies that have contributed to the decline.

Before identifying these policies, Vedder helps put the issue in perspective by quantifying the income unrealized as a result of the declining proportion of Americans who work. Had the share of the working population not begun to fall in 2000, he writes, “the annual national output today would be over $2,500 per person higher—over $10,000 for a family of four.” Median household income wouldn’t have dropped, the number of additional workers would exceed the current number of unemployed, and economic output would have increased at an average annual rate of 3 percent or more, rather than the anemic 2 percent that has prevailed this century.

Which federal policies have led to this decline? Vedder prefaces the discussion by noting that his list is hardly exhaustive. Nor does he attempt to identify which policies have been the worst for jobs. Rather, think of Vedder’s Big Six list of job killers as programs that should be reconsidered if we are to restore the American workforce to healthy and sustainable levels. They include: (1) extended unemployment benefits (under the now-expired extension, unemployment benefits covered 73 weeks, compared to 39 weeks during most recessions and 26 weeks during non-recessionary periods); (2) food stamps (which served 47.6 million Americans in October 2013, compared to 17.1 million in 2000); (3) higher marginal tax rates (about 43 percent today, if one includes Obamacare-related taxes, compared to 35 percent ten years ago); (4) Social Security Disability (which now assists 11 million Americans, compared to 4 million in 1990); (5) federal student financial aid (Pell Grants go to 9 million college students today, compared to fewer than 4 million in 2000); and (6) hikes in the federal minimum wage. Taken in their totality, these benefits have either raised the opportunity cost of job hunting or, in the case of the minimum wage, discouraged the hiring of low-skilled workers. “No nation ever achieved greatness when vast potions of its productive workforce were idle,” Vedder writes. “American will not regain its economic vitality until it ends this war on work.”

Federal Government Has Declared War on Work, by Richard K. Vedder (Investor’s Business Daily, 1/17/14)

Out of Work: Unemployment and Government in Twentieth-Century America, by Richard K. Vedder and Lowell E. Gallaway

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2) Obamacare’s Perverse Incentives

Under the Affordable Care Act, insurers face several obstacles to achieving their desired profitability. One obstacle is the requirement that they insure anyone who signs up; another is that they charge all customers the same premium rate. These provisions create perverse incentives for insurers to make their plans more appealing to low-cost—i.e., healthier—customers, and less appealing for those with costly chronic health problems. In his latest op-ed for the Wall Street Journal, Independent Institute Senior Fellow John C. Goodman explains how insurers seem to be doing this.

“In structuring the plans they offer on the Obamacare exchanges,” Goodman writes, “the insurers apparently assumed that the healthy will choose the plan they buy based on its price, while ignoring other features of the plan. It makes sense: If I am healthy why wouldn’t I shop for the lowest price? If I later develop cancer, I can move to a plan that has the best cancer care. By law, these plans will be prohibited from charging me more than the premium paid by a healthy enrollee.”

One way for insurers to hold down their costs has been to offer limited provider networkers in the plans they sell through the Obamacare exchanges, compared to the larger networks available through their traditional plans. This cost-control measure, however, won’t be enough to contain costs as cities with unfunded healthcare liabilities begin to send their retired former employees to the exchanges. Detroit, for example, plans to send 10,000 retirees to Michigan’s Health Insurance Marketplace. “In sum: A lot of high-cost patients are about to enroll through the exchanges,” Goodman continues. “This will force up premiums further for all other buyers.”

The Obamacare Carnival of Perverse Incentives, by John C. Goodman (The Wall Street Journal, 1/23/14)

Priceless: Curing the Healthcare Crisis, by John C. Goodman

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3) Affordable Housing: Rhetoric versus Reality

“Affordable housing” has long been a campaign word for activist politicians. Unfortunately, too many have promoted this noble-sounding goal through counterproductive means. In particular, so-called “inclusionary zoning”—regulations that require builders to sell some units at below-market prices—has been a disaster for homebuyers, as economics professor and Independent Institute Research Fellow Tom Means explains in the Sacramento Business Journal.

“The ordinance is like a tax on new housing because it forces builders to sell some units at significantly lower prices or to pay an in-lieu fee, reducing overall revenues,” Means writes. “The supply of new housing will decrease, causing prices to increase.... Overall prices rise and new home production falls, placing homes out of the reach of many middle-class families.”

Lawmakers who wish to support subsidized housing should avoid the temptation of “inclusionary zoning.” Means suggests that they consider the use of housing vouchers and down-payment assistance for lower-income buyers. “Regardless, any solutions for providing subsidized housing should be paid by all taxpayers rather than singling out new homebuyers.”

‘Inclusionary Zoning’ Is a Mistake, by Thomas Means (Sacramento Business Journal, 12/6/13)

Below-Market Housing Mandates as Takings: Measuring their Impact, by Edward J. López, Edward P. Stringham, and Thomas Means

Housing America: Building Out of a Crisis, edited by Randall G. Holcombe and Benjamin Powell

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4) P. J. O’Rourke on the Baby Boom Generation – Oakland, Calif., 2/13/14

“To address America’s baby boom is to face big, broad problems,” writes political humorist P. J. O’Rourke. “We number more than 75 million, and we’re not only diverse but take a thorny pride in our every deviation from the norm (even though we’re in therapy for it). We are all alike in that each of us thinks we’re unusual.”

Are baby boomers more self-absorbed than any other generation in American history? What gave rise to their defining ethos, and what are their leading cultural and political legacies? And why has their narcissism given us so much to laugh at?

Please join us on Thursday, February 13, as the Independent Institute hosts P. J. O’Rourke at its headquarters in Oakland, Calif. The author of numerous bestsellers, O’Rourke will discuss his latest work of wit and wisdom, The Baby Boom: How It Got That Way...And It Wasn’t My Fault...And I’ll Never Do It Again.

Christopher Buckley, author of Thank You for Smoking, writes: “O’Rourke’s Baby Boom may just be his best book ever. Teems with heart and humor—much of it laugh out loud, or as the post-boomers would say, LOL—as well as with his trademark brilliant social commentary. A terrific American memoir, in tone a beguiling mix of Jean Shepherd and ‘Animal House’.”

If you’re a P. J. O’Rourke fan who has never heard the libertarian-leaning quipster in person, reserve your spot as soon you can—tickets to the laugh-fest are selling quickly!

Who: P. J. O’Rourke, author of The Baby Boom: How It Got That Way...And It Wasn’t My Fault...And I’ll Never Do It Again

When: Thursday, February 13, 2014
Reception and Book Signing: 6:00 p.m.
Program: 7:00 p.m.

Where: The Independent Institute, Oakland, Calif. (Map and Directions)

Tickets: Overflow Room: $20 ($15 for Members)

OR $40 Special Admission includes one copy of The Baby Boom ($35 for Members). Books ordered will be distributed at the event. If you order a book and do not attend, we will ship the book to you.

More event details

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5) New Blog Posts

From The Beacon:

From MyGovCost News & Blog:

Playing Bridge with Taxpayers’ Money
K. Lloyd Billingsley (1/27/14)

To Whom Does the U.S. Owe Money?
Craig Eyermann (1/24/14)

Ethical Crimes Waste Taxpayer Dollars
K. Lloyd Billingsley (1/22/14)

We’re Number 3!
Craig Eyermann (1/21/14)

You can find the Independent Institute’s Spanish-language website here and blog here.

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6) Selected News Alerts

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