​​But cryptocurrencies are also exceptionally volatile over much shorter periods of time. ​Day-to-day price fluctuations of cryptocurrencies eclipse those of traditional currencies, stocks, and precious metals, and do so consistently across assets and time periods. This phenomenon is not entirely driven by the longer-term ups and downs reported in headlines. Bitcoin, Ethereum, and other cryptocurrencies frequently exhibit daily price drops during bull markets and increases during bear markets far in excess of traditional assets. The interactive chart below provides one way to visualize this day-to-day volatility—the daily percentage increase or decrease in price in U.S. dollars from the previous day. 

This interactive tool allows the reader to investigate the phenomenon of day-to-day volatility for different cryptocurrencies, traditional assets, and time periods. During the period 2018–2022, Bitcoin’s average daily change (​​measured as the absolute value of the percentage change from the previous day) was 2.87%, versus the Euro (0.34%), pound (0.43%), and yen (0.35%). Other major cryptocurrencies, such as Ethereum (3.76%), Ripple (4.04%), and Dogecoin (4.55%), exceed Bitcoin’s already-high fluctuations. 

The table below presents this statistic for each asset or index tracked by the data tool. 

Why is the day-to-day volatility of cryptocurrencies important? 

Despite much public discussion about cryptocurrencies as speculative investments or world-changing technology, their success ultimately hinges on widespread adoption as currencies—including as a medium of exchange. Day-to-day volatility creates exchange rate risk over short periods of time. This creates problems for a currency’s usefulness as a medium of exchange if one or both parties to the transaction need to quickly move their money into a different currency. Either the buyer or seller, or both, must take this exchange rate risk, increasing the transaction cost and, ultimately, the price. 

To date, the use of cryptocurrencies as a medium of exchange has taken off in only a small number of market niches, most notably dark net markets where mostly illicit goods are for sale. A 2018 article reported that Bitcoin’s high short-term volatility was adding to the cost and lowering the number of transactions on such platforms. 

There are likely multiple causes for the unusually high volatility of cryptocurrencies. While more widespread adoption may be part of the solution, other likely causes are structural and follow directly from the way cryptocurrencies are designed. Large banks and other financial firms hold huge reserves of traditional currencies, and stocks have market makers, both serving to smooth out short-term volatility and make exchange markets more liquid. Bitcoin, on the other hand, eschews large central intermediaries by design.   

Solutions lie in further entrepreneurial innovation, and that process is already well underway. Bitcoin’s ​​Lightning Network is designed to facilitate faster transactions at a larger scale. Stablecoins, pegged in value to fiat currencies like the dollar or other assets, eliminate high day-to-day volatility by design. They can be used to keep money in the crypto ecosystem—protected from short-term fluctuations and, in theory, easier and faster than traditional fiat currencies--to exchange with Bitcoin or Ethereum. However, their relative novelty opens the door for long-tail risk as well as fraud. 

These and other avenues carry some promise to address day-to-day volatility and make cryptocurrencies more viable for everyday use. But innovation must continue. The Lightning Network and Stablecoins both introduce the scope for large financial intermediaries and dependence on the fiat system that crypto pioneers sought precisely to avoid. Furthermore, the much larger number of people not yet sold on crypto may see these as further complications to already convoluted and risky alternatives to fiat. 

The crypto community must turn away from ​​voices such as Bitcoin maximalists that say the perfect solution is already in hand, and keep innovating and experimenting.  ​Regulators ​could do great harm by making rules that ossify this still-developing technology or cut off as-yet unrealized solutions that only a market process of discovery can deliver. 

We hope that the interactive tool provided here, which offers an intuitive way to visualize the phenomenon of day-to-day volatility in cryptocurrencies, will play a part in opening the conversation and potential for fresh ideas. 

Methodology 

We selected the top 10 cryptocurrencies by market capitalization from CoinMarketCap in addition to FTX’s FTT token. The top 10 cryptocurrencies include seven traditional cryptocurrencies and three stablecoins. We did not include the latter, which track the day-to-day volatility of fiat currencies by design, in the interactive chart, but do report their average daily changes in the summary table. Daily price and exchange rate data are sourced from Yahoo Finance via the R library quantmod. The only modification to the original source data occurred for the Ruble to Dollar data (RUBUSD=X). On Jan. 1, 2016, the original value appears to be off by a factor of 100, this value is divided by 100. Additionally, on June 13, 2022, and July 18, 2022, the adjusted close is outside of the bounds of the high and low—and inconsistent with historical data on the close price from The Wall Street Journal. These two values were replaced with the open price from the following day.

Daily percent change values are calculated from the percent change from the previous trading day’s adjusted close price. Our comparison of daily changes across different types of currencies and assets presents a challenge because different assets trade according to different schedules. Stocks trade on exchanges with daily opening and closing times and close on weekends and certain holidays. Traditional foreign exchange markets stay open around the clock, Monday through Friday, but close on weekends, and this is further complicated by time zones and different holidays globally. Cryptocurrencies trade continually.  

There is subjectivity inherent in addressing this issue. We chose to limit our analysis to the trading days of our traditional stock indices (S&P 500 & Russell 2000), which align with New York Stock Exchange trading days, and use reported adjusted close as the price. While this eliminates a small amount of data from the sample for cryptocurrencies, we conducted robustness checks and confirmed this does not drive our results about persistent differences in day-to-day percent changes. 

The post Examining day-to-day crypto volatility and why it’s important appeared first on Reason Foundation.

But the real bombshell came two weeks later when FTC Commissioner Christine Wilson made a self-described “noisy exit” from the commission in the form of a Wall Street Journal op-ed on Feb. 14. It wasn’t Khan’s overhaul of antitrust law that Wilson said drove her out–the commission is bipartisan and dissent is commonplace. It was Khan’s alleged “disregard for due process and the rule of law” and “abuses of government power,” Wilson wrote, that prompted her, the lone Republican commissioner. to leave the FTC. (Noah Phillips, the commission’s other Republican, resigned in October 2022.) 

Wilson cites in detail Khan’s refusal to recuse herself from the commission’s failed bid to block Meta’s acquisition of Within. Before she joined the FTC, Khan had argued Meta (at the time named Facebook) should not be allowed to make any further acquisitions. Wilson says she objected to Khan’s refusal to recuse herself on both due process and ethical grounds but was overruled by the Democratic commissioners and Khan herself. Wilson made a similarly futile attempt to object to the recently proposed FTC blanket ban on non-compete clauses in employment contracts. 

The FTC is not an organization intended to be adversarial to the companies under its regulatory purview, but rather a neutral arbiter of whether any harm would come from mergers and other conduct it scrutinizes.  

More information regarding the rule violations alleged by Wilson is likely forthcoming. But those who have followed the antitrust philosophy of Khan and her allies on the progressive left should have little trouble connecting the dots between their antitrust goals and the wrongdoings alleged by Wilson. Fundamental to Khan’s vision is the scope and necessity for “good” government power to act as a check on bad “concentrated private power.” 

Khan ignited the left’s newfound interest in antitrust with a 2017 paper critical of the widely adopted consumer welfare standard (which focused on prices) as weak and overly permissive to mergers. Her Yale Law Review article took aim at Amazon, specifically its capacity for predatory pricing to harm competitors and vertical integration to compete with sellers on its own platform. Amazon was but one example. The point was encouraging a much more active use of antitrust enforcement to check what Khan and others believed was the outsized influence of large corporations—a point driven home by the title of Columbia Law professor, and Khan ally, Tim Wu’s book, The Curse of Bigness. 

Under this logic, the potential bad conduct by large private firms is limited only by one’s imagination. And prior to its ascendance in the Biden administration, the movement alternately known as “hipster antitrust,” “break up big tech,” and New Brandeisianism put its imagination to work. In addition to product market monopoly, there was labor market monopsony, vertical restraints, coercion and gatekeeping, and (as in the case of Meta and Within) power in predicted markets of the future. Perhaps the starkest case of this movement believing big is bad is their belief in the threat of market power to democracy. Some on the left have argued that large corporations, through their money, could boost certain political campaigns (likely to candidates who disagree with such hyperactive use of antitrust enforcement). 

None of these scenarios are implausible, but they remain hypothetical. Rather than clarify the types of conduct deemed anti-competitive, a long and expanding list for regulators to scrutinize is de facto discretionary power. In effect, the New Brandeisians sought to move from the consumer welfare standard of antitrust enforcement to the standard that mandates companies compete in the manner that regulators would like them to. 

Khan’s goal of restraining the growth and dynamism of American business as an end unto itself was on full display in Nov. 2022 when the U.S. Securities and Exchange Commission issued new policy guidance regarding its role under Section 5 of its charter to prohibit “unfair” competition. Claiming a mandate that went beyond antitrust legislation and court precedent, the commission stated that it could take action against competitive conduct deemed “coercive,” “exploitative,” “abusive,” or “restrictive,” leaving these terms subjective and undefined.

It was, as Wilson noted in her resignation op-ed, an “I know it when I see it” approach. Wilson’s concerns about due process and the rule of law appear well-founded. 

Khan now faces the public allegations that, in her first year as FTC chair, she waged war on the perceived specter of concentrated private power by concentrating an unprecedented amount of public power for herself and friendly FTC commissioners.

Thus far, her efforts have almost entirely failed. The tides could turn as neither Republicans nor Democrats appear eager to bury their respective hatchets with big tech. But the biggest name in the movement once sarcastically labeled the hipster antitrust movement as a throwback to the days before the consumer welfare standard has instead garnered criticism and a high-profile resignation for allegedly neglecting legal norms that have stood far longer tests of time.

The post FTC Chair Lina Khan’s consolidation of power is a feature of her approach to antitrust, not a bug  appeared first on Reason Foundation.

But last October, Fitch Ratings warned that “tax revenues from July through September 2022 grew at a median rate of 7.6%” year-over-year in other states, “with only California reporting a [year-over-year] decline” in tax revenues. In other words, all 49 other states saw tax revenues increase. Then, in November, California’s nonpartisan Legislative Analyst’s Office predicted a massive state budget shortfall this year because “income tax payments for 2022 so far have been notably weaker than 2021, likely due in part to falling stock prices.”

Newsom’s budget proposal aims to meet California’s balanced budget requirement without drawing from the state’s reserve funds by making some spending cuts along with various deferments. Nevertheless, Republicans like State Sen. Roger Niello, R-Fair Oaks, offered some cautious praise on that front. “Republicans fought to fill the rainy day fund, and we applaud today’s commitment to not tap into it,” Niello said when the budget was unveiled.

The most significant cuts aim to trim the climate change spending package passed last year, upsetting many progressives and climate change activists. “California can’t afford a short-sighted budget,” Mary Creasman, chief executive officer of California Environmental Voters, said. “To further delay these investments will further compound the climate crisis and the cost of inaction will be far worse.”

State Sen. Scott Wiener, D-San Francisco, was similarly concerned about potential cuts to mass transit projects. “While I fully understand the tough choices we have to make, we must not let our public transportation systems go over the impending fiscal cliff and enter a death spiral — where budget shortfalls lead to service cuts that lead to ridership drops that lead to further budget shortfalls and service cuts,” Wiener said.

Wiener is correct: The state must make tough choices. But one easy choice should be to kill the high-speed rail project once and for all. Over 14 years ago, a 2008 high-speed rail due diligence study by Reason Foundation and the Howard Jarvis Taxpayers Foundation found the travel times promised to voters that year were unachievable, the construction timeline was off by decades, and the price would likely rise to over $80 billion in 2008 dollars. Those predictions have all proven true.

The latest cost estimate for the high-speed rail system is $113 billion, the system is still decades away, and the only major construction is in the Central Valley—a far cry from the full San Francisco to Los Angeles system promised voters, and even if it is ever built the system won’t offer true high-speed rail speeds. As the Los Angles Times reported, the rail authority still claims it will hit promised travel times but:

The premise hinges on trains operating at higher speeds than virtually all the systems in Asia and Europe; human train operators consistently performing with the precision of a computer model; favorable deals on the use of tracks that the state doesn’t even own; and amicable decisions by federal safety regulators.

On high-speed rail, It is time for Newsom and the state to admit failure and stop wasting taxpayers’ money. Newsom would also be wise to encourage every state agency to look for opportunities to utilize public-private partnerships that can improve quality, increase accountability, and lower costs.

Public-private partnerships can shift costs and financial risks from the government, i.e., taxpayers, to the private sector, especially on significant infrastructure projects like highways and airports. And industries from information technology to emergency medical services to recycling have numerous quality private providers available.

In addition to helping solve the immediate budget crisis, public-private partnerships have lasting benefits. The private sector tends to be more likely to embrace performance measures, ensure ongoing maintenance schedules are adhered to, invest in technological upgrades and modernization efforts that can further reduce costs, and bring highly specialized knowledge and expertise to solve problems plaguing a bloated bureaucracy.

While the $22.5 billion state budget deficit is troubling, it was also predictable. Great economic times don’t last forever. California’s big spending has continued to grow, as has its overregulation and maze of rules. Rather than solving the state’s biggest problems, the government has made most of them worse.

Gov. Newsom should take this opportunity to start to eliminate regulations stifling things like infrastructure and housing projects and right-size government by pushing performance-based measures and public-private partnerships that can help produce the outcomes Californians deserve.

A version of the column first appeared in the Orange County Register.

The post Cutting California’s budget deficit and reforming state government appeared first on Reason Foundation.

Federal Trade Commission Chairwoman Lina Khan, tapped by President Joe Biden to lead the agency last year, hopes to preside over the most significant change of course for U.S. antitrust policy in decades. She and others belonging to the New Brandeisian school of antitrust advocate a more aggressive stance toward mergers than has been seen in decades. This advocacy is making the FTC’s case against Meta a case to watch as it may offer a preview of the FTC’s new strategy, as well as its potential success in court.

When Facebook rebranded as Meta in Oct. 2021, the company signaled a change in its strategic outlook. Meta began investing heavily in virtual reality (VR) technology, which is expected by many to grow rapidly over the next decade. Today, Meta has already entered markets for VR hardware, social platforms, and games. As part of that strategy, Meta announced last year that it would acquire Within, developers of the VR fitness app Supernatural, for $400 million. A large tech company acquiring a niche startup in a nascent, fast-developing market is not an unusual event. Along with fitting Meta’s strategy, startups like Within often consider such buyouts successful outcomes of their entrepreneurial ventures.  

The Federal Trade Commission’s July 2022 announcement that it was blocking the acquisition reflects the more aggressive antitrust approach Khan is taking. The FTC press release says:

The complaint alleges that Meta is a potential entrant in the virtual reality dedicated fitness app market with the required resources and a reasonable probability of building its own virtual reality app to compete in the space. But instead of entering, it chose to try buying Supernatural. Meta’s independent entry would increase consumer choice, increase innovation, spur additional competition to attract the best employees, and yield other competitive benefits. Meta’s acquisition of Within, on the other hand, would eliminate the prospect of such entry, dampening future innovation and competitive rivalry. 

This theory of harm departs significantly from the consumer welfare standard, which Khan and fellow advocates of antitrust reform blame for a more permissive stance on mergers in the past several decades. The FTC’s theory of harm to future competition in the potential market for virtual reality fitness apps applies similar logic: fewer competitors and higher market concentration lead to higher prices. But the traditional consumer welfare standard refers to actual consolidation and competition in existing, definable markets. The FTC’s future-competition theory is an exercise in speculation. 

The Federal Trade Commission’s complaint tries to define a “dedicated VR fitness app” market. Meta’s court filing in response calls that market a piece of “litigation fiction,” noting that subsequent to its initial complaint, the FTC raised its count of five competitors in that imagined market to nine. Meta’s response further states: 

Every relevant competitor who will testify – including representatives of three of the FTC’s claimed in-market apps and one that is poised to enter – will state that there are many other VR and non-VR fitness alternatives available to consumers beyond the nine cherry-picked apps that comprise the FTC’s gerrymandered market. And even the FTC’s invented market is neither oligopolistic nor even “concentrated” in any meaningful respect. It is robustly competitive with many competitors jockeying for consumers’ attention and more entering all the time. 

Meta also asserts it had no plans to create and offer its own fitness app prior to the Within deal and will call industry witnesses to testify that a self-designed VR fitness app from Meta was not widely expected. 

While the FTC’s theory of harm to future competition is perhaps plausible, court precedent requires hard evidence of an existing market mechanism by which an acquisition reduces competition. In rapidly evolving high-tech markets, the ultimate structure of a market still far from maturity is impossible to project even in broad terms, let alone up to the evidentiary standards of a U.S. court. 

Nearly all observers agree the odds of winning the case are not in the FTC’s favor.  For example, an Aug. 2022 commentary in Fortune magazine by Gary Shapiro, president and chief executive officer of the industry trade group Consumer Technology Association, called the FTC’s case against Meta “laughable.”

A recent article from The New York Times states: “Given how novel the F.T.C.’s argument is, it’s unclear if the agency will succeed in blocking Meta’s deal.”

Khan herself may tacitly agree her agency is unlikely to win the case, as it has been reported that Khan suggested at an April 2022 conference that cases should be brought to push the frontiers of current law, adding: “I’m certainly not somebody who thinks that success is marked by a 100 percent court record.”

Bringing cases virtually nobody believes the FTC can win, at significant cost to taxpayers—not to mention both large tech firms and startups—seems to be a poor organizing principle around which any presidential administration would build its competition policy.  

The New York Times article that quotes Khan on her agency not being afraid to lose cases suggests that even a losing effort against Meta may, in the long term, push public, legislative, and court opinion in a direction more favorable to blocking mergers under a future-competition theory of harm. 

However, Khan’s FTC may also have broader strategic goals in mind. The FTC has taken nine actions against mergers and acquisitions in its first year under Khan, a level of activity far above preceding administrations. These actions seem designed to test antitrust law with multiple theories of harm. The FTC attempted to block an acquisition by Illumina, makers of gene-sequencing products, of a small startup in a market where Illumina does not currently compete. And in another ongoing effort, the FTC is trying to block Microsoft (maker of Xbox consoles) from buying game developer Activision under a vertical foreclosure theory of harm that courts have generally not accepted. 

Perhaps Khan’s goal in bringing losing cases to court, in addition to testing specific novel theories of harm, is simply to create a chilling effect on mergers overall. If partners in potential mergers and acquisitions attach a higher probability of being challenged in court, this increase in expected cost could depress merger and acquisition activity overall.  

Khan and her allies would likely consider this a win. They often take as a starting point the fact that a permissive approach to mergers in the last 40 years has led to a dramatic increase in corporate power and that such power is harmful to workers, consumers, and other stakeholders, even potentially subverting the democratic process. (Other economists vigorously debate this premise and assert that concentration has not meaningfully risen with time.) 

Courts can render surprising verdicts, and the consensus opinion that the FTC is unlikely to win its challenge is no guarantee. But even if one assumes the case will ultimately fail, the opposition of Khan to high merger and acquisition activity overall makes the trial worth watching closely. If the court battle is lengthy, expensive, and laden with appeals, even a loss by the FTC could have a chilling effect on future mergers. But if the FTC is dealt a quick and decisive loss, it may be Khan and others like her who feel the chill. 

The post Can the FTC block technology mergers based on future market predictions?   appeared first on Reason Foundation.

President Biden’s announcement prompts a look at the fascinating economics of the rapidly-evolving U.S. cannabis industry. As of this writing, 19 U.S. states and the District of Columbia have legalized recreational or adult-use cannabis, while 19 more have legalized the medical use of cannabis products. Sales from those legal markets reached $25 billion in 2021, with that number expected to grow substantially in the coming years. 

The U.S. cannabis industry is characterized by explosive growth, innovation, entrepreneurship, and extremely rapid proliferation in the number of products available. These features make it resemble the initial booms often seen in high-technology markets. However, the U.S. cannabis industry is also characterized by heavy-handed, highly inconsistent, and sometimes arbitrary regulation and taxation among the 19 states that have gone the full distance of legalizing adult use. The collision of these two factors is producing unusual results that should be of interest to economists for many reasons.  

As the market matures, the regulatory regime currently in place threatens to stifle producers and retailers from offering affordable products and products consumers want. It also threatens to impede further progress in criminal justice reform and much-needed changes of course in the war on drugs. 

A Bubble Inflates 

The dramatic reductions in cannabis prohibition at the state level over the last decade seem to have sparked an entrepreneurial boom in experimentation that may look familiar to those who remember the wild-west days of the early internet or the more recent explosion in cryptocurrencies and blockchain-based applications. 

Even two decades ago, cannabis enthusiasts who purchased the product from a dealer or friend were more likely than not to simply identify the product as marijuana. Savvy customers and growers were aware of broad distinctions, such as the two major subspecies of the cannabis plant, indica and sativa, and that cannabis from different sources might have different effects, smells, and tastes. Most marijuana sold on the black market was entirely unlabeled, so the best consumers could do in determining what was in their bag was an educated guess. The black market in marijuana was highly lucrative, but innovating and differentiating products were often not. 

A baby boomer who experimented with marijuana in their youth before putting the substance down might be surprised to walk into today’s regulated medical and recreational facilities, where they would be faced with the choice of dozens or hundreds of so-called strains produced by selective breeding in the also-booming cultivation market. Choices for cannabis flower alone might include strains with names like Ghost Train Haze, Girl Scout Cookies, Facewreck, and yes, even Sleepy Joe. 

While most consumers agree different strains can have different effects and tastes, the descriptions at one’s local legal dispensary can be extremely detailed but also highly subjective, without any single or a small number of trusted sources to verify or standardize these claims. We are told, for example, that for Ghost Train Haze, “low doses are conducive to concentration and creativity, but you may notice some cerebral haziness as you smoke more.” Girl Scout Cookies marijuana apparently “catapults you into a wave of euphoria and tingles that encapsulate your body with very little effort. These ultra-powered buds will have you questioning space and time, while utterly gluing you to your seat.” 

Just how many strains are there in 2022? Industry watchers appear to have lost count. “Over 700” is a figure often cited in the media. Cultivator and distributor Cresco Labs, on its blog, puts the number at “over 1,000.” Popular cannabis site Leafly lists over 3,600 known strains in its database. 

We still haven’t discussed the equally explosive proliferation of other types of cannabis products. Vaping (with parallels to a phenomenon in the nicotine market), has become popular through a wide array of different devices. Concentrates, relatively new on the scene, have become a major part of regulated dispensaries’ businesses, offering a host of different highly concentrated forms of THC potent enough that they are often not recommended for inexperienced users. Edibles, once associated with brownies made in a friend’s kitchen using leftover pot, are booming as well, with accurately labeled THC content and available as hard candy, gummies, chocolate, and beverages, to name a few. Finally, along with this boom has come a vast proliferation of cannabis accessories, from regular glass and water pipes to all manner of devices to vaporize cannabis flowers, THC oil, and concentrates. 

Many will look at this exponential growth in cannabis varieties accompanied by vague or dubious information about effects, not to mention a steady stream of new and expensive gear, and immediately think “bubble.” They are most likely correct. However, this needn’t be a bad thing or a sign of egregious errors made by entrepreneurs or investors. Entrepreneurs must experiment and compete in the market to learn what products consumers most want. 

But while the peculiar combination of U.S. cannabis legalization along with heavy-handed regulation may have been conducive to the experimentation phase of market discovery, the different regulatory hoops firms must jump through in different states may present big problems as the newly legal market attempts to consolidate what it has learned from this initial experimenting. 

A Discovery Process Interrupted  

The specific regulations and taxes that cannabis vendors face differ widely among the 19 states where cannabis use is currently fully legal. While some states have done a far better job at allowing a dynamic and affordable market than others, a constant is that cannabis is not yet treated like any other consumer product. 

Even classic so-called vice products like tobacco and alcohol, heavily regulated, can be found in special sections of gas stations, grocery stores, and Walmart (in most states). Consumers may have to show identification and navigate quirky legacy rules in some states, like not purchasing alcohol on Sundays. But shopping for alcohol and tobacco still mostly resembles the shopping experience to which American consumers are accustomed. 

In virtually all states with legal recreational cannabis, the only way to buy that legal product is through dispensaries, usually small businesses that have gone through the state’s detailed if not arduous licensing process. Smoke and vape shops often specializing in selling all those new accessories usually do not qualify, and your local grocery store or Walmart will likely not have a cannabis section in any state any time soon. 

While sales taxes charged by states are highly varied, they almost always exceed those charged on virtually any other product. Tax regimes by states are a labyrinth of different rules and formulae, making comparisons difficult. Reason Foundation’s Geoff Lawrence and Spence Purnell estimated an apples-to-apples comparison of the taxes someone would pay on a pound of marijuana bought at retail, and the differences across states are striking. Illinois, the highest-taxed state at the time, charged more than double the tax of Michigan, only a short drive away. 

Tax rates are not the only reason for high state-to-state variation in prices. Even before state tax, Lawrence and Purnell’s estimates of retail prices are higher in Illinois than in Michigan. What explains this gap beyond sales tax? 

Michigan’s licensing process for legal marijuana dispensaries is far more open than Illinois’. The somewhat startling result is that Illinois has 110 retail stores working with 21 growers, while Michigan has close to 500 recreational marijuana stores working with over 1,000 growers. As The Chicago Tribune notes, Illinois may have had the best of intentions in its highly micromanaged licensing process, but has failed in practice: 

“Illinois was the first state to open a legal recreational market through legislation. That meant that lawmakers could write the law to promote greater diversity. But the law allowed a few existing medical cannabis companies to dominate the market. They got a nearly three-year head start selling adult-use pot while social equity applicants were delayed.” 

Both states appear to be taking steps to moderate their licensing processes, albeit in different directions. In July 2022, Illinois issued 185 new recreation licenses, in theory, more than doubling such dispensaries in the state, though those businesses are yet to open. Meanwhile, Michigan recently proposed a moratorium on new marijuana business licenses due to prices plummeting below levels where the business model can be sustained. Michigan’s cannabis consumers will still be served, though. In the fall of 2021, Ann Arbor, home of the University of Michigan, already had 24 operating dispensaries, while Champaign-Urbana, home of the University of Illinois, had four dispensaries. 

States are only now beginning to take steps to integrate cannabis with the existing retail market. Licensed dispensaries are almost all the same business type—small storefronts offering little or no shopping experience and highly restricted from selling non-cannabis products. This may be starting to change. Circle K and Green Thumb Industries recently announced a partnership to open medical dispensaries alongside 10 convenience stores in Florida. Leveraging both economies of scale and scope, such businesses may be far better equipped at times to service fast-growing cannabis markets at lower prices. 

This patchwork of fragmented state markets with high and complicated taxation and heavy-handed restrictions on who may and may not enter the industry will likely become a bigger problem as cannabis continues to become mainstream, more states legalize, and the market matures. It may have been relatively conducive to an experimental “wild west” phase of a market discovery process, but whether through bursting bubbles or smaller and slower corrections, a phase of consolidation is needed for a well-functioning market that provides affordable products that consumers want. 

Consider also the impact of sticking with a heavy-handed state-by-state regime on issues of criminal justice and equal access. In 2021, a whopping 70 percent of cannabis transactions in Illinois remained on the illicit market. Especially in the states that have legalized it but have high taxes and prices, many cannabis users simply cannot afford current legal marijuana prices at dispensaries. This population is also more likely to receive unfair outcomes in the criminal justice system. More small storefront dispensaries help, but especially as experimentation turns to consolidation, offering cannabis products at lower prices may be best handled by the types of businesses, like large retailers in many states that keep liquor in a special section and check IDs. 

President Biden has no power to harmonize or end state regulations, but the changes he announced at a national level are an occasion to take a hard look at how cannabis markets in the United States are evolving. Moving marijuana to a regulatory regime similar to alcohol will likely face substantial resistance. Some states will not want to appear soft on crime and drug use, let alone give up large sales tax rates. Cannabis growers and dispensary owners, who have often taken on an organic and localist aesthetic—and have now become the privileged licensed class in the industry—will howl at the thought of trying to compete with Walmart offering a budget line of marijuana. 

Progress related to marijuana legalization has been undeniable in recent years, and Biden’s announcement was a welcome one for cannabis users and entrepreneurs, as well as many others who care about criminal justice reform and ending the war on drugs. Ad hoc state markets, over-taxed and over-regulated, may have been the appropriate first phase for cannabis legalization in the United States, but a market that looks more like other products will soon be indispensable.  

The post Cannabis markets: Growth, innovation, and burdensome regulation  appeared first on Reason Foundation.

Occupational Licensing Reduces Consumer Benefits from Online Platforms 

“The share of U.S. workers required to hold an occupational license has exploded from around 5% in 1950 to 25% in 2020,” writes Reason Foundation’s Vittorio Nastasi. Occupational licensing has a documented history of limiting competition and stifling innovation while making certain classes of professionals into protected classes. Nastasi reviews recent literature pointing to yet another negative impact of occupational licensing: making it harder to use the online platforms that rate home improvement contractors. Using data from the popular home improvement site Angi’s HomeAdvisor, a Harvard researcher estimated that a recent New Jersey pool contractor licensing law resulted in customers becoming 16% less likely to find at least one qualified contractor on the site, with an overall negative impact of licensing as high as 25%. As Nastasi notes, licensing, in this case, squanders some of the benefits buyers and sellers can enjoy from online platforms. 

ESG Investing Violates Fiduciary Duty in Public Pension Plans 

Investing based on environmental, social, and governance (ESG) standards is a hot topic. Reason Foundation Senior Fellow Richard Hiller argues that ESG investing must be subject to clear fiduciary standards for public pension funds, so they first ensure secure retirement benefits for their members and limit costs to taxpayers. Hiller points out the important differences between individual investors, who are free to pursue any investment strategies—such as boycotts of companies and industries for ESG or activist reasons— they want and pension systems, whose advisors have a fiduciary duty to pursue the best strategies to maximize returns. When public pension fund managers make decisions based on ESG or any other political motivations, they violate that fiduciary duty, Hiller writes. 

NEWS & NOTES 

STATE GOVERNMENT 

West Virginia University Seeks Potential Energy P3: Inframation News revealed that West Virginia University released a request for proposals (RFP) for financial advisors to assist in developing a public-private partnership (P3) for the school’s utility systems, including energy and chilled water facilities. According to the RFP’s language, the school “envisions some form of public/private partnership, whether in the form of a concession agreement, design-build-finance-operate-maintain agreement, or some other transactional structure.” 

Hawaii Rejects P3 for Aloha Stadium: After three years of planning and millions spent on the project, Hawaii Gov. David Ige revealed he would reject using a public-private partnership to redevelop Aloha Stadium near Honolulu. Instead, a state agency (The University of Hawaii has been mentioned, though a final decision is still pending) will pursue the project itself with $350 million set aside by the state legislature earlier this year, according to the Ige administration and the state’s Department of Business, Economic Development, and Tourism. 

LOCAL GOVERNMENT 

Mississippi City Begins Outsourced Public Works: This month, the city of Petal, Mississippi, began a contract with Alabama-based ClearWater Solutions to take over most of the duties of the town’s public works division. Aside from solid waste management, which WastePro handles for the city in a separate contract, the ClearWater contract will cover all other division functions, including water and sewer operations, as well as road and fleet maintenance. Town aldermen voted to enter into the contract in August, citing difficulties in hiring and keeping employees, performance and compliance issues, as well as rising costs of pensions and health insurance.     

Towamencin Faces Vote That May Make Sewer Sale Illegal: In November, residents in Towamencin Township, Pennsylvania, will vote on a referendum that could potentially void a pending sale of the city’s sewer system to NextEra Energy for $115 million. Supporters of the referendum hope that by creating a home rule charter, the sale of the sewer system could be canceled, but admit the strategy “hasn’t been tested yet.” In May, town supervisors approved the deal, which still awaits an approval decision by the Pennsylvania Public Utility Commission. 

Economic Study Shows Benefits of Police Work Outsourcing: A report by the Montreal Economic Institute showed how large American cities can save taxpayers money by delegating non-critical police functions to private employees. By outsourcing a combination of administrative work and traffic enforcement, the study found that Los Angeles, Miami, and Milwaukee could annually save anywhere from $31 million, Milwaukee’s low estimate, to over $350 million, Los Angeles’ high estimate. The authors also cite the advantages of competitive bidding to ensure those functions are handled by the most capable and accountable actors. 

Texas City Releases RFP for Publicly-Owned Waterfront Parcel: The city of Beaumont, Texas, released a request for proposals to seek a purchaser and developer for 555 Main Street, a 2.7-acre downtown lot that sits on the Neches River waterfront. The city is providing $25 million for the project and also cleaned up a rail yard site to facilitate the purchase. Attracting economic development is a primary concern the city says. Beaumont’s population doubled from 1940–1960 but has mostly remained stagnant for the past 60 years. 

FEDERAL GOVERNMENT 

U.S. Air Force Releases Microreactor RFP: The United States Air Force released an RFP for a pilot program dedicated to creating a nuclear microreactor at Eielson Air Force Base in Alaska. The Air Force hopes to develop microreactors for its more remote installations, citing their adaptability to changing conditions and ability to operate independently from the power grid. The microreactor resulting from the project will be privately owned and operated. 

QUOTABLE QUOTES 

“Our (Public Employees Retirement System), we pay 17.4 percent on that, which kind of hurts us,” Ducker said in a previous story. “And we’ve noticed over the last year or so that we’re losing people that are going into construction and other jobs that are just able to pay more…So the privatization could be a good thing for some of the employees because they would get a pay increase. It’s tough when you’re paying folks $15 and $16 an hour, and other municipalities and private entities are paying $19 to $22 an hour.” 

—Petal Mayor Tony Ducker on the decision to outsource the city’s public works division 

“(T)he reality of policing in the United States is that we have asked police to take on more and more responsibilities that are increasingly far removed from critical policing tasks.” 

—From “Enhancing Public Safety While Saving Public Dollars with Auxiliary Private Security Agents” by the Montreal Economic Institute

“I am concerned that we spent three years and $25 million to get to this point, and we were all ready to go. And here we are two months before the end of their term, they’re saying that they somehow have a miraculously better idea to hasten this project?” 

–Hawaii State Sen. Glenn Wakai on the decision not to pursue a P3 for the redevelopment of Aloha Stadium 

“The release of the RFP for the Eielson AFB micro-reactor is a critical next step in furthering the development and deployment of reliable and clean energy technology at Department of the Air Force installations. This program is extremely important to mission assurance and sustainment in the face of climate change and continued national defense threats, and demonstrates the department’s commitment to ensuring our installations have a safe, reliable supply of energy, no matter their location.” 

– Deputy Assistant Secretary of the Air Force for Environment, Safety, and Infrastructure Nancy Balkus on a pilot program to develop a nuclear microreactor at Eielson Air Force Base

The post Privatization and Government Reform News: Impact of occupational licensing, ESG investing, and more appeared first on Reason Foundation.

Every Nobel announcement is understandably followed by media coverage and acclaim from the recipients’ colleagues, students, and admirers. But this year’s prize has also been met with more immediate and direct criticism than usual. Economists are never shy in expressing their disagreements, but the macroeconomics of banking and financial crises is a particularly stark example.

The debate over this year’s prize is really a continuation of the fiercest and most consequential debate among economists in recent times. The failures of Bear Stearns and Lehman Brothers and the subsequent Great Recession were billed by some as a failure of the economics profession. In the years leading up to the crisis, one leading group of academic macroeconomists did not focus on the banking and financial system in their research, instead solving complicated mathematical models where government policies like taxation and the consumption and saving decisions of individuals determined outcomes in the wider economy. In the wake of the Great Recession they were criticized for deemphasizing the role of banking crises, but they were far from the only leading voices in academia. This year’s prize winners, focusing explicitly on the role of banking in the economy, wrote papers considered highly influential since the 1980s, and Bernanke began leading the Fed just before the crisis erupted.

Economists celebrating this year’s prize generally think that policymakers should have foreseen problems at the big banks in the years leading up to the Great Recession, and did not do enough to soften the blow early on in the crisis. They view the work of this year’s winners as justification for the bank bailouts ultimately put into place. Critics of this year’s prize winners, many of whom opposed those bailouts, are skeptical that the highly technical academic work truly captures the dynamics of banking crises in the real world.

A Model Bank Run

Diamond and Dybvig (often abbreviated “D-D”) won their Nobel prize primarily for their paper “Bank Runs, Deposit Insurance, and Liquidity,” published in the Journal of Political Economy in 1983. The paper attempts to apply rigorous game-theoretic modeling to bank runs and financial crises. The highly stylized model features two types of economic agents: savers who demand liquidity and borrowers who take out long-maturity loans to invest. D-D show that equilibrium is possible that looks, in broad strokes, like a bank run. Too many savers demand their deposits back and create a situation where the financial institution at the center cannot satisfy all withdrawals. The work has been used as justification for government intervention such as deposit insurance.

Praise for D-D often focuses on how influential the work has been in academia and policy circles. Zhiguo He and Yueran Ma, colleagues of Diamond at the University of Chicago’s Booth School of Business, call his work “the perfect balance between practical relevance and academic rigor.” Ricardo Reis of the London School of Economics says, “the lesson that a lender of last resort and fiscal backstops are needed to prevent runs has been internalized across the board.” Cato Institute Senior Fellow George Selgin, a critic of the D-D model, notes that at “well over 12,000 Google citations and counting, it’s certainly among the most cited academic papers in economics, let alone in the sub-discipline of monetary economics.”

Critics like Selgin and Larry White of George Mason University see very limited value in what we can learn from a stylized game-theoretic model of bank runs and similar financial crises, where history and institutional details can teach us more than equations. In his 1999 book The Theory of Monetary Institutions, White notes that the D-D model fails to capture the essential features of the basic deposits and loans that fuel most banks. In a 2020 two-part article on the site Alt-M, Selgin offers several critiques of D-D, including that the various types of equilibria they find depend on knife-edge assumptions. One of these issues is a “sequential service constraint,” where D-D require their modeled bank to satisfy the requests of depositors to get their money back on a first-come, first-served basis but exempted a public deposit insurer from this rule.

Commercial banks, not to mention highly complex modern financial institutions like the ones that failed in the Great Recession, have an uncountable number of institutional details poised to dramatically alter the results of any game-theoretic model. Selgin underscores the need for monetary economists to take history and institutional details seriously by quoting Sir John Hicks:

“Monetary theory is less abstract than most economic theory; it cannot avoid a relation to reality, which in other economic theory is sometimes missing. It belongs to monetary history in a way that economic theory does not always belong to economic history.”

Bernanke and Bailouts

The name Ben Bernanke will surely be the most familiar to readers of this year’s three recipients. As Federal Reserve Chairman during the great recession, Bernanke played among the leading roles in engineering the bailouts of Lehman Brothers and other financial institutions. Bernanke’s prize, unlike the prize awarded to Diamond and Dybvig, is for a work of economic history. More accurately, it is for one notorious episode of economic history.

Also published in 1983, “Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression” argued that bank runs had a causal impact on worsening the Great Depression, as “the resulting higher cost and reduced availability of credit acted to depress aggregate demand.” Therefore, propping up specific institutions could help mitigate future crises’ effects. Sound familiar?

Bernanke begins by characterizing his result as “complementary to that of Friedman and Schwartz, who emphasized the monetary impact of the bank failures.” Friedman and Schwartz famously and influentially argued that the Federal Reserve failed to act as a lender of last resort, precipitating a dangerous drop in the money supply. Bernanke does not explicitly argue against that conclusion, framing his work as “focusing on non-monetary (primarily credit-related) aspects of the financial sector.”

In praise of Bernanke and his prize, Paul Krugman argues that the work was “a tacit rejection of Milton Friedman.” Krugman considers this a good thing—Bernanke’s view of bank failures as a specific cause of the crisis “was dramatically validated in the 2008 financial crisis.” Moreover, Krugman writes that Bernanke “understood what was going on, and the Fed stepped in on an immense scale to prop up the financial system.”

Writing in the Wall Street Journal after this year’s prizes, Hoover Institution research fellow David Henderson also sees Bernanke’s work as not being in harmony with the seminal contribution of Friedman and Schwartz. But, unlike Krugman, Henderson does not view this as praiseworthy:

“The difference between the Bernanke and Friedman/Schwartz views was that Mr. Bernanke thought providing more liquidity during a crisis wasn’t enough; he emphasized the importance of salvaging particular financial intermediaries, even if some of them arguably should have gone bankrupt. While his academic work on this issue was deep and impressive, it, unfortunately, caused him, as Fed chairman, not to focus on liquidity during the financial crisis.”

The 2022 Nobel Committee unequivocally endorsed both the value of activist central banking and the view that our standard economic toolkit can reveal clear and generalizable interventions when banking crises loom. Many Reason Foundation readers may find themselves opposed to this view and may look to the critiques levied by White, Selgin, and Henderson to offer much insight. These critics of the 2022 prize winners do not see the problem as bad economics, but rather as the limitations of even good economics when one must make policy in the real world.

Henderson notes the depth and impressiveness of Bernanke’s academic work but posits that it caused him to focus on one aspect of the 2008 crisis at the expense of others. Selgin echoes these sentiments when he writes that “my beef isn’t with Diamond and Dybvig per se. It’s with those who assume that their model supplies adequate grounds for government intervention in banking.” 

The formal models and highly focused work of academics can inform banking policy, but too often such work instead creates the sort of tunnel vision that could lead even Nobel-caliber economists to questionable conclusions.

The post Three economists receive Nobel for hotly debated work on banking and financial crises appeared first on Reason Foundation.

New Medi-Cal Amendment Ensures More Expensive Ambulance Rides 

A recently passed amendment to California’s Medicaid program, Medi-Cal, is set to raise the average cost of an ambulance ride from about $120 per trip to over $1,000 per trip without justification. Local California fire departments were a large advocate for the change, which they seem to see as a potential financial windfall if they are can shift emergency medical services (EMS) to be under the purview of their departments. In a new article in the Orange County Register, Reason Foundation’s Austill Stuart explains why the Medi-Cal amendment will hurt taxpayers and how it could potentially disrupt EMS services across California.  

Jackson’s Water System Problems Need Long-Term Commitments 

The residents of Jackson, Mississippi, had already been without drinkable water for weeks when the city’s water and sewer systems failed amid major flooding last month. While the boil advisory has been lifted and service has mostly returned, Jackson’s water infrastructure problems remain, including malfunctioning equipment in the city’s treatment facilities and a lack of personnel capable of operating and maintaining the equipment itself, according to a recent U.S. Environmental Protection Agency inspection report. The city has deep financial problems, too. Jackson’s bond rating is barely investment grade, and it has lost over 14% of its residents over the last 10 years. The situation is so bad that a bipartisan mix of officials agree that an entity other than Jackson should operate the city’s water systems, with Mississippi Gov. Tate Reeves suggesting privatization as an option. In a new article, Reason Foundation’s Austill Stuart examines the depths of Jackson’s water problems, why the city is likely going to require private capital and solutions to address them, and how to best protect taxpayers.  

Long Overdue Reforms to the FDA Regulation of New Drugs Could Save Lives 

“There are few areas of public policy where the results have been as diametrically opposed to the intentions as pharmaceutical regulation in the United States,” writes Reason Foundation’s Managing Director of Drug Policy Geoffrey Lawrence in a recently released policy brief on how to reform the Food and Drug Administration. The paper includes recommendations on how to reform the FDA, streamline the drug approval process, use pharmaceuticals approved by the European Union, reduce prescription drug costs, and help achieve the broad public goal of improving the lives and health of all Americans.

Uneven Progress Toward Transparent and Machine-Readable Financial Reporting In Florida 

The Florida Division of Auditing and Accounting released a business reporting language taxonomy that local governments can use to release their financial reports digitally. A 2018 Florida House Bill mandated XBRL as a necessary common standard. But after the bill’s passage, the Government Finance Officers Association said it “opposes efforts to mandate the use of specific technologies by state and local governments for financial reporting and disclosure.” In a recent commentary, Senior Policy Analyst Marc Joffe explains why XBRL is the best fit for financial reporting by local governments and how it can help provide taxpayers and policymakers with data in a consistent and usable manner to increase transparency and accountability. 

Keep Congress Away from College Football  

While college football players can now earn money from their name, image, and likeness (NIL), the National Collegiate Athletic Association continues to cling to the “amateur” status of players. This long-outdated idea has reached the point of being a fairy tale, allowing universities and their athletic departments to rake in billions of dollars annually in revenue, as Reason Foundation Director of Education Reform Aaron Garth Smith describes in a recent commentary. The NCAA knows its rules may be on shaky legal grounds, which is why it is lobbying Congress for a federal policy that would preserve the NCAA’s strong grip while keeping players from reaching their full market potential.

NEWS & NOTES 

STATE GOVERNMENT 

Puerto Rico Chooses Partner for Cruise Ports Public-Private Partnership: In August, the Puerto Rico Ports Authority (PRPA) selected Global Ports Holdings as its partner for a 30-year concession of the San Juan Cruise Port. The deal includes an initial $75 million payment to the PRPA and $350 million in capital investments in the port by the company to improve services and expand capacity. 

Hawaii Modifies Resort RFP Action to Exclude Sale: Earlier this month, the Hawaii Board of Land and Natural Resources modified an action it made in July to disallow a sale of state properties, opting instead for a lease. The Hawaii Department of Land and Natural Resources (DLNR) wants to tear down or renovate a waterfront hotel and a nearby condo building, but funds are not available for the project or for an environmental assessment and impact statement (EIS). Therefore, a long-term lease is seen as the only way to attract developers to fund both the EIS and the renovation work. DLRN staff canceled a previous request for qualifications/proposals process for the project last year after it couldn’t fully verify the financials of its preferred proponent. 

LOCAL GOVERNMENT 

Los Angeles Jail Diversion Program Shows Promising Results: The Rand Corporation recently released a report evaluating the early results of the Los Angeles County “Just in Reach Pay For Success” (JIR PFS) program, which provides permanent supportive housing (PSH) for individuals eligible for diversion from jail. In early results, participants spent an average of 24 fewer days in jail compared to a control group. The Los Angeles County Department of Corrections oversees the program, which was originally started in 2017 and is funded by $10 million from the Conrad Hilton Foundation and United Healthcare. Success payments are based on maintaining a 92% and 90% PSH retention rate after six- and 12-month intervals, respectively, and a 42% jail avoidance rate for participants over two years. 

Miami-Dade Releases $10 Billion Downtown Redevelopment RFP: Miami-Dade County released a request for proposals in August for a $10 billion downtown redevelopment project. The county is providing 17 acres of land adjacent to most of the county government’s offices. It hopes to find partners to develop potentially 17-to-24 million square feet in a combination of housing, offices, retail, parking, a transit terminal, and a minimum of 2.5 acres of green spaces. The chosen developer for the project would pay the county to lease the land for up to 99 years.   

Annapolis Closes on Parking and City Dock P3: Earlier this month, the city of Annapolis and the Maryland Economic Development Corporation reached financial close with Annapolis Mobility and Resilience Partners on a $70 million public-private partnership that includes renovations to a downtown parking garage and the Annapolis City Dock. The parking improvements will be procured as a design-build-finance-operate-maintain project. For the dock, the work will be design-build-finance and includes a raised seawall and storm surge barriers as well as green spaces to capture stormwater.  

Pittsburgh Announces Micro-mobility Pilot: The city of Pittsburgh, Carnegie Mellon University, and mobility services provider Spin announced the creation of a pilot program to provide micro-mobility solutions to low-income workers. The pilot program will provide 50 selected individuals free access to public transit, bikes, scooters, and zip cars in a year-long test. This program is intended to track socioeconomic progress and will compare results to a 50-person control group evaluated by Carnegie Mellon. The Richard King Mellon Foundation is providing $200,000 for the funding alongside $50,000 from Spin. 

Baltimore Starts Guaranteed Income Pilot Program: In August, Baltimore revealed it had started processing payments to individuals in its Baltimore Young Families Success Fund. A group of 200 individuals is scheduled to receive monthly cash payments of $1,000 for two years in exchange for participating in interviews and answering surveys about their experiences. Local nonprofit the CASH Campaign of Maryland and personal finance portal Steady will provide operational support for the city’s project, which will be evaluated by Johns Hopkins and is being funded by $4.8 million in American Rescue Plan Act funds as well as grants from private donors.  

New Jersey Town Forced to Outsource Animal Control After Resignations: Last month, two animal control officers in Stafford Township, New Jersey, resigned, leading the town to temporarily outsource the town’s animal control services to A-Academy. The contract, which Mayor Greg Myhre made clear is an “emergency decision,” will last until the end of the year. 

QUOTABLE QUOTES 

“The Just in Reach Pay for Success program appears to significantly reduce participants’ use of many county services…The program may provide a feasible alternative—from a cost perspective—for addressing homelessness among individuals with chronic health conditions involved with the justice system in Los Angeles County.” 

—Sarah B. Hunter, lead author of a Rand Corporation Report about Los Angeles County’s “Just in Reach” jail diversion program, in a press release.

The post Privatization and Government Reform News: Expensive ambulances, Jackson’s water crisis, FDA reform, and more appeared first on Reason Foundation.

California’s Proposition 1 would add an amendment to the state constitution (Section 1.1, Article 1) prohibiting the state from interfering “with an individual’s reproductive freedom in their most intimate decisions, which includes their fundamental right to choose to have an abortion and their fundamental right to choose or refuse contraceptives.”

The amendment was drafted and passed by both houses of California’s state legislature in response to the U.S. Supreme Court’s May 2022 Dobbs v. Jackson Women’s Health Clinic decision overturning Roe vs. Wade and other precedents. The ballot initiative must pass with a two-thirds majority to be added to the state constitution.

Fiscal Impact

The California Legislative Analyst’s Office found that Proposition 1 would have no fiscal impact because California’s law already provides these rights. Critics and opponents of the amendment as drafted have proposed scenarios in which adding this right to the state constitution would cost the state more due to litigation, potentially broader interpretations of abortion rights than exist by current law, and the provision of abortions to patients from other states. No estimates of these costs have been circulated, and we discuss such scenarios.

Arguments in Favor

Arguments in favor of the amendment come from advocates of abortion rights and are targeted to the majority of California residents that polls show favor abortion rights and oppose the U.S. Supreme Court’s Dobbs v. Jackson Women’s Health Clinic decision. Most of the state’s prominent Democrats, including Gov. Gavin Newsom and majority leaders in the state legislature, have endorsed the amendment, along with groups such as Planned Parenthood Affiliates of California, The League of Women Voters of California, and the California Medical Association.

Proponents argue that while abortion rights are already a part of California law, enshrining them in the state constitution would add another layer of protection. State Assembly Speaker Anthony Rendon’s endorsement is representative of almost all California Democratic officials: “We know from history that abortion bans don’t end abortion. They only outlaw safe abortions. We must preserve the fundamental reproductive rights of women here in California because they are under attack elsewhere.”

While the political nature of the short and simply worded amendment is often used by opponents to dismiss it, many endorsements and op-eds favoring the amendment also suggest Proposition 1 appeals to the state’s majority voters on political grounds. Gov. Newsom says, “California will not sit on the sidelines as unprecedented attacks on the fundamental right to choose endanger women across the country.”

Arguments Against

Arguments against Proposition 1 fall into two distinct categories. The first are straightforward arguments by those who oppose abortion. The California Republican Party, California Conference of Catholic Bishops, and prominent pro-life groups oppose the amendment on grounds familiar to the debate about abortion that has unfolded over several decades.

The second category of arguments against Prop. 1 are best characterized as pragmatic arguments targeted to pro-choice voters. They begin by arguing the amendment will be of limited benefit, as California law already protects abortion rights, and express concerns that adding these protections to the state constitution could entail additional costs and, potentially, new lines of attack on, or risks to, Californians’ abortion rights.

Of particular concern to these pragmatic opponents of Prop. 1 is the very simple wording of the amendment, which some fear could be interpreted by California’s courts as enshrining a broader right to abortion than California, as well as now-overturned precedent in Roe v. Wade, allow. California’s current law places limits on abortion at the point of fetal viability, whereas the wording of the proposed amendment simply refers to the “fundamental right to choose to have an abortion.” 

If state courts were to hear a case and rule that the new amendment enshrines a right to all abortions, late-term abortions could be legalized in California. This could be of concern to generally pro-choice California voters, opponents of the amendment argue, for several reasons. First, many who support abortion rights generally may not support late-term abortions. In a San Francisco Chronicle column, Joe Matthew notes recent polling indicating that 70 percent of Californians oppose late-term abortion, numbers almost as high as Californians’ supporting abortion rights earlier in a woman’s pregnancy.

A June 2022 article by legal scholars Allison MacBeth and Elizabeth Bernal urged top-ranking state Democrats to add technical language to the amendment referencing past national legal doctrine—specifically “Griswold v. Connecticut, Roe v. Wade, or Planned Parenthood v. Casey.” The authors argue that citing earlier precedent would effectively limit late-term abortions, while not clarifying the language of the amendment could create a new way for abortion opponents to mount a challenge in federal courts.

The authors of the official argument against Prop. 1 also express concern about California becoming a “’sanctuary state’ for thousands, possibly millions of abortion seekers from other states, at a staggering cost to taxpayers.”

Discussion

Many ballot initiatives in California and other states require the informed voter to familiarize themselves with details of fiscal policy and regulation that are not usually at the forefront of political debate, and on which voters may not have strong opinions when walking into the voting booth. California’s Proposition 1 is just the opposite.

Almost all American voters are familiar with this issue, and most Californians will vote according to whether they believe it should be legal for a woman to get an abortion. Recent polling confirms that a majority of Californians consider themselves pro-choice and that, as of this writing, Prop. 1 seems very likely to pass. California’s pro-life voters are likely to vote against Prop. 1 in overwhelming numbers.

California’s pro-choice voters must decide if there are costs or risks to enshrining the language of the proposed amendment in their constitution. The benefits, from a pro-choice perspective, are the reduced risk of a future state judiciary overturning abortion rights, as well as the political benefits pro-choice voters attach to this contentious issue. While quantifying these benefits is not possible, pro-choice voters must weigh them against the costs laid out by those favoring abortion rights but no constitutional amendment.

It is plausible if not likely that the amendment will create new ground for legal maneuvering and political engagement for pro-life activists in California and nationwide. However, those arguing this point broadly undercut the foundations of the argument that pro-choice voters should not support the amendment—that Californians’ abortion rights are already safe. Pro-choice arguments against the amendment appear to simply ignore that political and legal resistance will continue in the absence of an amendment as well as if it is passed. California is already a political and legal lightning rod for this contentious issue. If we can learn one thing from this seemingly circular argument, it is that activists, lawyers, and energized voters on both sides of the issue will find a way to keep these battles alive not just in California but in all 50 states.

The specific concern about the amendment’s language possibly being flawed is potentially of more concern to pro-choice voters. Opening up new battlegrounds on the particularly hot-button issue of late-term abortions could very likely complicate matters in the future. Citing legal precedents as Allison MacBeth and Elizabeth Bernal proposed may have foreclosed that possibility. Instead, California’s top Democrats and pro-choice groups appear to have opted instead for a simple statement of purpose.

A more carefully worded amendment may have served the dual purpose of preventing legal battles in state court (with the amendment itself) as well as federal courts (with the more precise language). But once again, the idea that either side would simply give up in any scenario, especially in the nation’s largest and most progressive state, is not credible. With future political and legal battles almost guaranteed no matter the amendment’s fate, pro-choice voters may simply value the statement in itself.

Voters’ guides for other propositions on California’s 2022 ballot.

The post California Proposition 1 (2022): Amends the state constitution to protect abortion rights, guarantee reproductive freedom appeared first on Reason Foundation.

Innovators in Action: Rethinking K-12 Transportation

Whether K-12 transportation is handled in-house or outsourced to private companies, it typically uses large school buses that can often hold 50 or more students. In rural areas especially, traditional school buses can be unnecessarily costly as larger, often-unfilled, and less fuel-efficient vehicles struggle to handle routes where students live further apart. In Arizona, a state grant program aimed at improving K-12 school transportation had many rural families concerned about their lack of flexibility and options. State Senator Sine Kerr, a dairy farmer who represents a rural district, saw an opportunity to help fix the problem by allowing the use of smaller passenger vans—those carrying 15 or fewer passengers—to transport students. In June, her efforts resulted in the legislature passing and Gov. Doug Ducey signing Senate Bill 1630, which allows K-12 students to be transported in passenger vans. In addition to being more fuel efficient, easier to maintain, and less costly, the vans do not require a commercial driver’s license (CDL) to operate. In a recent Innovators in Action interview with Reason Foundation’s Christian Barnard and Ari DeWolf, State Sen. Kerr discusses the new law, how it addresses concerns with safety and gives schools and families more efficient options, and how urban and suburban school districts plan to utilize the legislation’s flexibility.  

States Need Forward-Thinking Approaches to Meet Water Demands

With Arizona’s recent passage of a water infrastructure financing law, Senate Bill 1740, the state is helping ensure Arizonans have access to adequate drinking water and sanitary sewer conditions going forward. As the Bureau of Reclamation demands additional cuts in water allotments to states that rely on the Colorado River, it is important that states give local governments the tools and funding they need to pursue agreements and projects with private and public entities to secure water rights, as well as building resiliency and diversifying sources to prepare for changing climate conditions and increased demand from growing populations. In a new commentary, Austill Stuart highlights Arizona’s legislation as an example that other states should take into consideration as securing water rights becomes more difficult and projects become more expansive.

Changing the Conversation on New Highway Tolls

Due to a combination of the improved fuel efficiency of cars and public and political resistance to tolling and gas tax increases, policymakers and transportation agencies face increased difficulty in financing the needed reconstruction and expansion of highway systems, especially ones with bridges, tunnels, and other expensive assets. Many highways and bridges are nearing the end of their original useful lives and operating capacities. In this column, Reason’s Robert Poole explores these road funding debates, examines multiple recent examples of opponents stopping potential toll-financed projects, and outlines why tolling and mileage-based user fees are likely to provide a more stable, sustainable means of building and maintaining highways going forward.

Housing Regulations Increase Prices, Hurt Young Homebuyers

Homeownership was already becoming historically difficult for younger Americans before inflation rose to levels not seen in decades, prompting the Federal Reserve to raise interest rates, which makes it more difficult for homebuyers. State and local governments have long contributed to the housing problem in two key, related ways: excessive regulatory costs and restricting new housing supply. In a new post, Reason’s Vittorio Nastasi details recent research and trends in housing affordability and reforms that local governments can implement to reduce barriers to homeownership.

NEWS & NOTES

LOCAL GOVERNMENT

NYC Seeks New Ferry Operator After Audit Report Reveals Massive Expense Underreporting: The comptroller for New York City released an audit report in July revealing that the New York City Economic Development Corporation (NYCEDC) underreported expenses for operating ferry routes. Between July 2015 and the end of 2021, the comptroller’s office found NYCEDC should have reported $758 million in ferry-related expenses but only reported $534 million, an undercounting of over 40%. NYCEDC also dramatically understated its taxpayer subsidies per trip over the six-and-a-half-year period, including $8.59 per trip instead of $12.88 last year. In response to the comptroller’s findings, NYCEDC has agreed to issue a request for proposals (RFP) to find a new ferry operator. NYCEDC also noted in its response that it feels it “accurately and properly enforces” its ferry operating contract agreement, but would look to address other reporting issues in its next contract.

NYC Announces New Homelessness P3: In July, New York City Mayor Eric Adams announced the creation of the Homeless Assistance Fund, an $8 million public-private partnership (P3) between the city and over 60 local businesses and nonprofits. The effort seeks to offer support networks to homeless people with an emphasis on outreach and location. The public-private partnership represents an extension and expansion of the “Connect to Care” initiative created by local nonprofit Breaking Ground.

Fort Lauderdale Cancels Shared Government Center With Broward County: In July, the city of Ft. Lauderdale canceled its pursuit of a project to build a government complex to be shared with Broward County, according to an email from Fort Lauderdale City Manager Chris Lagerbloom sent to Infralogic. After planning on a joint project with the county for several years to replace the existing city hall and Broward County Government Center East, Ft. Lauderdale plans instead to pursue a standalone city hall building through a separate procurement.

Wichita Creates New Golf Course Oversight After Privatization Rejection: In July, the Wichita City Council approved an ordinance to create a board of governors that would replace the current advisory committee in overseeing the city’s four municipal golf courses. The change was recommended after the city council voted 5–2 to reject the privatization of the four courses earlier this year. Unlike the advisory committee, which reported to the Wichita Board of Park Commissioners (that recommended privatization), the board of governors would report directly to the city council.

Monterey Water Utility Releases Microgrid RFP: Monterey, California, public water utilities Monterey One Water and the Monterey Regional Waste Management District released a request for qualifications/proposals (RFPQ) looking for qualified firms to provide consulting services concerning the feasibility of potential microgrid and renewable energy projects. The two agencies seek three major objectives from the projects: to find the best use of waste products derived from agency activities (such as waste-to-energy, composting materials, or fertilizer), to enable an energy microgrid that includes “islanding” capabilities—where smaller energy generation and storage sources (referred to as “distributed generators”) feed the larger grid in the event of power plant outages—and to assess the integration of renewable generation sources and energy sources. Responses to the RFPQ were due at the beginning of August, and the agencies hope to announce contracts next month that will be implemented in October.

Louisiana Parish May Pursue P3 for New Jail: At the encouragement of Lafayette Mayor-President Josh Guillory, the Lafayette Parish Council voted 4–1 to approve a resolution that allows the parish to potentially partner with a private firm to build, finance, and maintain a new jail. The parish sheriff’s office would operate the jail. The parish plans on releasing an RFQ for the potentially 25-to-40-year project later this month and selecting a development partner in October.

Florida County Cancels Broadband Contract: Last month, Jackson County, Florida, canceled a contract with private firm P3 Group to build out broadband capability in a “middle mile” project. The cancelation occurred in response to plans by P3 Group to change major provisions of the contract, including using wireless instead of installing a fiber network and applying for grant funding instead of 100% private financing. The county plans to solicit bids in the near future.

Indiana City Finalizes Broadband Contract: In July, the city of Boonville and AT&T reached financial close on a project to install a fiber network with over 4,000 access points around the city. AT&T expects the $4.4 million project to be completed by Jan. 2024.

STATE GOVERNMENT

Connecticut Launches $75 Million P3 for Small Business Development: In July, Connecticut Governor Ned Lamont announced a $150 million small business P3 that will provide low-interest loans of $5,000 to $500,000 to small businesses and nonprofits in the state. Dubbed the Connecticut Small Business Boost Fund, recipient firms will be required to employ no more than 100 people and have less than $8 million in annual revenues. The state will provide half of the funding ($75 million) initially, hoping to increase the program’s size through additional private investments to reach the $150 million total.  

Alaska University Issues RFQ for Utilities Systems: Earlier this month, the University of Alaska–Fairbanks issued a request for qualifications to find a partner to operate, maintain, and invest in its energy and utility systems in a 50-year agreement. The school hopes to receive an up-front payment as well as transfer the risks of maintaining safe and reliable systems, which include energy generation and distribution, water, sewer, compressed air, and steam.

QUOTABLE QUOTES

“Walt Whitman waxed poetic about New York City’s ferries, but EDC’s [Economic Development Corporation’s] responsibility is to provide adequate oversight and report accurately. For a successful 21st-century ferry system, we need more transparent reporting, better cost controls, and a new RFP to operate the system.”  

–New York City Comptroller Brad Lander in a press release on NYC Economic Development Corporation underreporting ferry expenditures

“The P3 Group presented a change in the proposal from potential fiber to wireless, as well as alternative funding avenues. The P3 Group’s original proposal was to bring 100 percent financing to the project. At the July 26, 2022 Board meeting, the P3 Group proposed a completely new strategy for broadband by way of a wireless solution rather than fiber optic cable. They also proposed to go after grant funding rather than 100 percent financing.”

–A Jackson County press release cited in the Dothan Eagle on ending a municipal broadband contract

The post Privatization and Government Reform News: Rethinking K-12 transportation, water needs, and more appeared first on Reason Foundation.

Legal scholar Lina Khan, among the movement’s thought leaders, now chairs the Federal Trade Commission. Her 2017 article “Amazon’s Antitrust Paradox” outlines the basic economic rationale cited by those concerned that the size of today’s leading internet platforms stifles market competition: 

For the purpose of competition policy, one of the most relevant factors of online platform markets is that they are winner-take-all. This is due largely to network effects and control over data, both of which mean that early advantages become self-reinforcing. The result is that technology platform markets will yield to dominance by a small number of firms…Network effects arise when a user’s utility from a product increases as others use the product. Since popularity compounds and is reinforcing, markets with network effects often tip towards oligopoly or monopoly. 

Published the same year as Khan (2017), antitrust economists David Evans and Richard Schmalensee distill both technical academic work and historical experience into a concise and convincing rejection of Khan’s basic argument: 

Unfortunately, the simple network effects story leads to naïve armchair theories that industries with network effects are destined to be monopolies protected by insurmountable barriers to entry, and media-friendly slogans like “winner-take-all.” 

The authors conclude that New Brandeisians have not caught up with mainstream economists’ more sophisticated understanding of network effects. They are correct, but this critique does not go far enough. The realities of internet platforms and associated technology have radically altered the competitive landscape and point toward an even stronger rejection of New Brandeisian thinking. 

Telephones and VCRs 

Evans and Schmalensee argue that economists’ “view of network effects evolved from a seminal economic contribution to a set of slogans that don’t comport with the facts.” Two of the first industries where economists identified and studied network effects, landline telephone service and VCRs, remain canonical examples of the phenomenon: 

“A telephone was useless if nobody else had one. A telephone was more valuable if a user could reach more people. Economists called this phenomenon a direct network effect; the more people connected to a network, the more valuable that network is to each person who is part of it.” 

VCRs illustrate the phenomenon of indirect network effects. Two incompatible technical standards (VHS and Betamax), “roughly comparable in cost and performance,” competed for consumers in the early market for VCRs. More consumers adopting a given standard incentivized sellers of video tapes to provide more offerings using that standard. The early industry is widely believed to have reached a tipping point in favor of VHS, which dominated the home movie market until the introduction of DVDs. 

Antitrust concerns arise in cases where “winning” firms or technical standards reach a critical mass and become locked in. Potential new entrants must build large consumer bases to become competitive, a highly risky proposition for entrepreneurs and investors alike. The result is significant market power, where the incumbent can set high prices and leverage its power in markets for complimentary products. Both direct and indirect network effects provide opportunities for anticompetitive behavior by a dominant incumbent that further hinders entrants from becoming big. 

Khan and fellow New Brandeisians such as Columbia University law professor Timothy Wu draw heavily from these basic early examples of direct and indirect network effects when they argue that online platforms are “winner take all” and market competition is an insufficient check on the power of winning firms.  

Old Models and New Reality 

Evans and Schmalensee survey later work by economists on network effects that call these basic stories into question. For example, users of a given online platform interact in many different ways, blurring the line between direct and indirect network effects and casting doubt on the idea that sheer size is a ticket to unstoppable market dominance. Facebook began as a platform specifically targeting college students. The restaurant reservation platform OpenTable succeeded when it began focusing on connecting diners and restaurants in specific cities. Evidently, there are many paths for new entrants to build large user bases, and much scope for dominant incumbents to fail to innovate and make strategic errors. 

But one can go further than Evans and Schmalensee in criticizing the New Brandeisians’ applications of early network-effect theory to today’s online platforms. A fundamental change took place when “high tech” industries went from telephones and VCRs to e-commerce, social networking, and online search. In the former cases, market entry required large investments in physical capital, such as laying telephone lines and building factories. Similarly, consumers often faced large upfront hardware costs to “join a new network,” such as buying a new VCR or telephone. 

The economics of internet platforms and many online businesses present a different competitive reality. Utilizing already-existing physical infrastructure (broadband and wireless data transmission) and user hardware (computers and smartphones), new entrants face vastly lower startup costs. Platform users face almost no upfront costs at all. In the cases of telephones and VCRs, the upfront hardware costs for consumers were so high relative to the benefits of adoption that economists often called them “switching costs.” In contrast, those reading this article may have windows currently open to Facebook, Google, and Zoom. They may switch between applications for the same function on a regular basis, or use them simultaneously for different purposes. 

Note the last name on that list. Since 2017, New Brandeisians have maintained a steady drumbeat that Facebook and Google’s user bases would prevent innovation and new entry in applications already offered on their platforms, leaving users stuck with inferior services shielded from competition. During the same period, Zoom has gone from a mostly-unknown startup to a market leader in virtual meeting platforms, eclipsing offerings from Facebook and Google. 

Evans and Schmalensee recognize the significance of reduced upfront user costs when they observe that “network effects can work in reverse.” They cite the now-famous list of once dominant platforms, such as Friendster and MySpace, that went from being portrayed as nearly unstoppable in the media to digital ghost towns in only a few years’ time. This “churn” in leading online platforms is indeed among the most salient critiques of the New Brandeisian antitrust approach.  

Evolution Beats Intelligent Design 

Network effects only “tip markets toward monopoly or oligopoly” when competitors and consumers face high up-front costs to creating and joining new networks. Many successful online ventures, including some of today’s members of the “big tech” club, began as much smaller projects by garage-sized startups and hobbyists. The primary threat of entry faced by today’s big-tech platforms is not from well-capitalized startups with business models nearly identical to the big players. The bigger threat comes from new innovators that dominant firms cannot identify and effectively fight off, often because such innovators do not yet realize they are that competitive threat. 

This dramatically different type of competition stems from the radical uncertainty of a new and still-evolving business model. This perspective is more commonly associated with Austrian economics than the mathematical models and statistical analyses forming the basis of Evans and Schmalensee’s critiques. But combining these two ideas suggests network effects in today’s digital industries may actually fuel competition over time instead of stifling it. 

The large stock of potential entrepreneurs and their ability to experiment and quickly pivot their business models to learn what consumers want and how to provide it fuels a learning process that leads to new ideas that eventually overtake the best guesses of even the sharpest big-tech CEOs.

Ever wonder why the brand names of so many of today’s tech giants have become words in common usage, such as Googling a topic, “friending” someone, or more recently, “zooming” one’s colleagues? Verbs for these platform services often did not exist before today’s large firms invented the services they provide. In most cases, these inventions were borne not from a single big idea, but learned in a process of experimenting, tinkering, and ultimately competing.  

Online platforms grow and succeed through evolution rather than intelligent design. End results are not fully planned but far more robust for precisely this reason. Today’s giants benefitted from similar competitive processes, and given the difference in the way network effects interact with the digital world’s radically different cost structure, one struggles to find a reason the process will cease to happen. 

The basic but somewhat outdated logic of the earliest network-effects industries studied by economists forms a central pillar of New Brandeisians’ aggressive stance toward big tech. On their own, mainstream antitrust economists like Evans and Schmalensee, as well as Austrian economists focused on dynamic innovation and entrepreneurship, each offer serious challenges to those who would break up today’s giants. Combining the ideas of both critics reveals the notion of “winner take all” in online platforms as unsound economic thinking. 

The Promise of Entry 

The novel competitive realities of online platforms and other e-commerce markets convincingly reject New Brandeisian thinking. But those who wish to see the behavior of big tech through rose-colored glasses or reject antitrust policy out of hand will also be disappointed. The highly important and still-evolving platform industry raises many questions, but seriously considering these questions requires dispensing with antitrust thinking that amounts to little more than applying ideas about 20th century industrial giants to 21st century tech giants. 

The evolutionary process that yields a steady stream of new and unexpected challengers is far from unique to internet-era competition. One sees echoes of these ideas in Clyde Christensen’s “The Innovators’ Dilemma,” which provides numerous examples of disruptive technologies (like DVDs versus VCRs) that dominant firms using the old technology could neither foresee nor effectively compete with. The unique cost structure and rapid pace of change in online markets is not a new phenomenon, but one that is sped up to the point old models of competition no longer apply. 

The process of rapid innovation and learning almost inevitably gives “winners” considerable market share for at least a short period of time. This, along with the unique capabilities of online platforms to serve consumers but also influence society, deserves careful thought. Antitrust economists used to speak of the idea that monopolists could be disciplined by the “threat of entry.” The uncertainty, fast-moving innovation, and large pool of ideas that characterize online platforms make new competition over time less a threat and more a promise. 

The post What the movement to break up big tech gets wrong about our digital economy  appeared first on Reason Foundation.

Annual Privatization Report: Aviation 

For over three decades, Reason Foundation has published its Annual Privatization Report, a thorough examination of government contracting and public-private partnerships at all levels of government. The report has long provided valuable information to bring greater accountability, competition, innovation, and transparency into how governments partner with the private sector in delivering public services. This month, Reason released the Annual Privatization Report 2022: Aviation, authored by Senior Transportation Policy analyst Marc Scribner. This report reviews developments in the United States and worldwide regarding private-sector participation in airports, air traffic control, and airport security. 

Arizona Legislation Aims to Secure Water-Supply Future with Public-Private Partnerships 

The Arizona State Legislature ended its session with a major win for the public-private partnership approach to major infrastructure investment, setting aside $1 billion over the next few years for water projects and overhauling the state agency tasked with providing water to ensure robust and mutually beneficial collaboration with the private sector for many years to come. In a recent Arizona Republic op-ed, Reason Foundation’s Austill Stuart and Leonard Gilroy explain how the P3 model addresses a key dilemma for a large and fast-growing state whose farmers are already facing haircuts in water supplies resulting from drought conditions in the Colorado River. Private investors can assume much of the up-front costs and risks in building the considerable infrastructure required, while the state government and rate-paying water consumers face more predictable and consistent costs. 

Michigan Budget Includes XBRL Provision, Funding  

Michigan’s 2022–2023 state budget proposal includes a provision requiring the state’s Treasury Department to begin the process of migrating local government financial reporting to machine-readable form. Unlike publicly listed companies, the Municipal Securities Rulemaking Board requires U.S. state and local governments to disclose financials in .pdf documents, impeding the collection of government financial data. The Michigan XBRL provision follows House Bill 1073 in Florida, which requires some machine-readable financial reporting. But while the Florida bill only applies to a type of financial report used by agencies in Florida, the Michigan provision applies to reports filed by government agencies in most states, in addition to Michigan, making duplication easier. The bill’s language is expected to result in a partnership between the Michigan Treasury Department and the University of Michigan’s Center for Local, State, and Urban Policy which has already been working on machine-readable government financial standards in connection with the city of Flint.  

Government, Not Private Enterprise, Failed Flint 

The tragic water quality crisis suffered by the people of Flint, Michigan, has been linked to the deaths of 12 residents and the illnesses of dozens more. Reason Foundation Senior Policy Analyst Marc Joffe writes that “the biggest failures in Flint were made by the government,” not private water companies. “It is important to recognize that government officials have managed Flint’s water system since 1912 and made the decisions, or failed to make the decisions, that triggered the water crisis,” Joffe writes. He also urges public and private actors to follow best practices to ensure citizens get full transparency and accountability from private water providers and for governments to conduct meaningful oversight.

NEWS & NOTES 

STATE GOVERNMENT 

Court Rules Arizona’s Inmate Health Care Services Violates Constitution: In a June ruling, U.S. District Judge Roslyn O. Silver found the standard of inmate health care services overseen by the Arizona Department of Corrections, Rehabilitation and Reentry (ADCRR) violates 8^th Amendment protections against “cruel and unusual” punishment. Codefendants ADCRR and contracting partner Centurion were cited as overseeing a prisoner health care program that “failed to provide, and continue to refuse to provide, a constitutionally adequate medical care and mental health care system for all prisoners.” While staffing has consistently fallen short of maximum levels, the plaintiff inmates assert that Centurion knew that the low staffing levels that ADCRR agreed to would be insufficient to deliver adequate care. The court now must appoint an individual to create an injunction to bring services back to a constitutionally-acceptable level. 

LOCAL GOVERNMENT 

Denver Extends Pay-for-Success Supportive Housing Program: The city of Denver announced its Supportive Housing Social Impact Bond (pay-for-success) initiative would be retained and extended through a new initiative dubbed “Housing to Health” (H2H), which began in July. The program includes nearly $12 million from private funders, along with up to $6.3 million from the US Treasury to deliver comprehensive supportive housing services for up to 125 chronically homeless persons. A federal Social Impact Partnership Pay for Results Act grant of up to $5.5 million will be dependent on whether federal health care and incarceration costs are reduced among the chosen population over a seven-year period. The Urban Institute received a separate grant to evaluate the program at its 2029 conclusion. 

Philadelphia Expands Homelessness Partnership Initiative: Philadelphia announced an expansion of its “Shared Public Spaces” initiative—a partnership between local civic organizations, businesses, and government to find humane solutions to reducing chronic homelessness in the city. Its leaders noted a 38% drop in homelessness in its Center City District since 2019 through efforts that include employment offers, showers, and laundry services. Chronic homelessness counts by police have shown dramatic falls in parts of the city since the program started. 

Colorado Springs Transitions Community Center to P3: Last month, Colorado Springs announced it had halted a search for a new private operator for the city’s Westside Community Center and would convert the city-owned community center into a public-private partnership. The proposed P3 plan includes city operational staff as well as staff and resources for partnered organizations for services at the center, which the city plans to start choosing in September. After implementation, Colorado Springs expects the center’s budget to almost quadruple—from around $100,000 to nearly $375,000. The P3 arrangement replaces the nonprofit Center for Strategic Ministry, which had run the center under contract since 2010 when the city first sought an outside operator. 

Mississippi City Seeks Public Works Outsourcing Contract: In June, the Petal Board of Aldermen voted in favor of receiving non-binding proposals for firms to operate the Mississippi city’s public works department. Proponents are hoping that the move could help Petal tackle the rising costs of providing guaranteed retiree pension and health care benefits for its workers. Public employee retention has been a problem, too, with the city losing workers to higher-paying jobs, so local officials feel privatizing the department could produce a workforce that would be better equipped and better paid. 

New Jersey City Rescinds Sewer Concession: In June, the Pleasantville City Council voted 4–3 to abandon a concession agreement of the city’s sewer system to Bernhard Capital Partners. The deal called for Bernhard to operate the sewer system and collect user charges from customers for 39 years, with the New Jersey city receiving an upfront $15 million payment as well as $57.1 million guaranteed in capital investments over the agreement’s term. The city’s initiation of the termination likely means it must compensate Bernhard for up to $1.5 million in expenses made from pursuing the deal. Pleasantville previously terminated negotiations with New Jersey American Water in 2019 before the present attempt at an agreement, for which New Jersey American Water and Plenary groups were also shortlisted alongside Bernhard. 

Oregon County Courthouse Reaches Financial Close: The Clackamas County Board of County Commissioners voted 4–1 to approve a public-private partnership to develop a new county courthouse facility. A Fengate-led consortium—which beat out shortlisted teams led by Plenary and Balfour Beatty—will design, build, finance, operate, and maintain the $300 million, 258,000 square foot facility for 39 years. County officials expect the deal to reach financial close in August. 

QUOTABLE QUOTES   

“Denver’s Social Impact Bond program proved we can break the cycle from streets to emergency rooms to jails and back to the streets for our residents facing chronic homelessness, and we’re going to expand those efforts. Our community is incredibly fortunate to have such strong partnerships among funders, providers, and other government organizations. This is a proven strategy of providing housing first with the right supports in place for people to exit homelessness, remain housed, and prosper. Together, we’re making this innovation possible.” 

—Denver Mayor Michael B. Hancock, on the city’s Pay-for-Success supportive housing program and the announcement on its expansion via the Housing to Health Initiative 

“Our [Public Employees Retirement System], we pay 17.4 percent on that, which kind of hurts us. And we’ve noticed over the last year or so that we’re losing people that are going into construction and other jobs that are just able to pay more…So the privatization [of the Petal Public Works Department] could be a good thing for some of the employees because they would get a pay increase. This isn’t something that should cost anybody employment, and there would be a few positions that [the city] would need to retain as well.”

—Petal Mayor Tony Ducker, quoted in a June 2022 article on exploring the outsourcing of the city’s public works services to a private firm 

The post Privatization and Government Reform News: Trends in aviation, Arizona water P3s, and more appeared first on Reason Foundation.

We might expect to find one or more interest groups guarding economic and political power while everyone else in the industry is squeezed, but child care has no clear suspects. Unlike big tech or big pharma, there is no group of ‘big child care’ companies setting high prices or leveraging the power to get government regulation to stifle small startups because there’s not enough money in it. There is no workers’ union resisting change. While current regulation is overly complicated, costly, and burdensome, there is no bureaucracy whose power and jobs stem from the status quo.

The White House made child care a marquee item in its Build Back Better plan at a projected cost of over $200 billion. President Joe Biden’s proposal focuses primarily on subsidizing existing licensed child care options for low- and middle-income households and subsidizing providers in areas where supply is too low.

Debates over big-ticket plans like the Build Back Better proposal often force us into familiar political tribes, crowding out fresh thinking and innovative ideas on a small scale. However, a more detailed look at the many tradeoffs young parents face and the many arrangements they make to care for their young children shows how critical informal arrangements are and how daycare is the right option only for some people some of the time. By engaging local communities and research across multiple fields, there is scope to facilitate more access to this informal sector that should interest both sides of the Build Back Better debate.

Parents prioritize the basic care of young children above virtually anything else. Maintaining a safe, positive, well-monitored environment around the clock for infants and toddlers, and to a lesser, but still significant, degree, for older children is not a matter of if, but how. We often bundle this necessity in our definition of child care with other vital services such as early-childhood education, but the distinction is important. What many call America’s child care crisis is not a crisis of children not receiving essential care but rather what must be sacrificed to provide it.

Care, especially for the youngest children, must be provided 24 hours per day by one or both parents at home, or children need to be sent to daycare or placed in the care of others—often family members, close friends, and neighbors. The latter category is often called the informal sector of childcare, which is a part of the problem often lost in policy debates, but just as prominent for all parents as daycare.

When they are fortunate enough to have the suitable options, parents often choose “informal” care over a daycare center. An illustrative example is Sen. Elizabeth Warren, herself the author of a childcare plan for her 2020 presidential campaign that was similar to the Build Back Better plan being pushed by the Biden administration.

Before detailing her plan, Sen. Warren told a personal story of struggling to find adequate and affordable care for her young children while starting as a law professor. At her wits’ end, she called her aunt, unsure of what to do. Warren says:

Then Aunt Bee said eleven words that changed my life forever: “I can’t get there tomorrow, but I can come on Thursday.” Two days later, she arrived at the airport with seven suitcases and a Pekingese named Buddy — and stayed for 16 years.

Warren’s dilemma is one to which many young parents likely relate, whether starting promising careers or simply needing work to make ends meet. And while Warren may have been unusually lucky, the importance of one’s close social ties—family and friends—in caring for children while balancing life’s other demands is quite common.

Ensuring basic care for children can cause not just parents but other close relatives and friends to reshuffle their major life decisions, further underscoring the paramount importance modern society places on caring for young children. Warren and those personally close to her were prosperous and stable enough to shift resources such that a young mother didn’t have to choose between her children’s well-being and her career.

Not everyone is so fortunate. Families and close friends in poorer communities put similar importance on helping young parents care for children, but the help provided either by a single family member or many people chipping in is more likely to entail sacrificing other near-essential activities. Missed days of work and lost opportunities for education and career development become more likely in groups where those sacrifices hurt the most, further entrenching people in poverty.

Close social bonds also often come with trust and intimacy between parent and caregiver that arm’s-length daycare centers cannot match. Familiar relationships allow richer assessments of quality and safety than rules written down by a center or its regulators. Parents often seek to mimic these relationships even in informal childcare arrangements where they don’t already know the person well. Live-in nannies effectively become part of a family, and parents are more likely to trust neighbors’ children to babysit at a younger age than a babysitter they do not know.

Center-based care and arrangements built on close personal ties are imperfect substitutes. Some informal arrangements, as well as parents staying home, have uniquely desirable attributes. While this fact alone does not preclude center-based care as a viable model, the competition daycare centers face from these many arrangements plays a part in explaining the strained business model center-based providers face.

Many other goods and services historically produced in the home are now mostly supplied in the market. But child care, especially basic care for young children, lacks significant economies of scale. Few services are more labor-intensive.

Whether one agrees with the caregiver-child ratios that states impose on child care centers, there are only so many one-year-olds who can be put in a room and effectively monitored without needing more help. There is also little scope for center-based providers to invest and differentiate themselves.

Over-regulation of licensed child care is one symptom of this “trust gap.” Without the understanding naturally found in close personal relationships, busy families need to be able to find information to help them verify the quality and safety of potential center-based providers. If federal and state governments didn’t create these rules by edict, market forces would likely induce providers to develop them in some form.

Such rules might better reflect what some parents want, especially when the rules are allowed to meaningfully vary across providers. But they would still be rules on a piece of paper, inevitably falling short of the level of comfort parents find in child care from people they know. High prices and low-profit margins at daycare centers are a difficult stalemate to break.

The graph below presents two critical insights:

Percentage of U.S. children participating in center-based child care by family income:

The original chart, reprinted from Equitable Growth, is titled, “Low-income children disproportionately miss out on center-based care.” This disparity is significant and almost certainly driven by high costs.

The chart’s high-income results are equally informative because high costs are not the only thing keeping Americans from putting their kids in daycare centers. Informal arrangements, big and small, appear to play a significant role in the childcare decisions of all parents.

Center-based child care sometimes fits some families’ needs, and affordability is but one of several factors limiting the viability of this model. The White House’s $225 billion plan in the Build Back Better proposal primarily focuses on helping parents pay for expensive center-based care. The subsidy fully covers daycare costs for low-income families and gradually phases out up to 2.5 times a state’s median income. The remaining child care money in the plan is mainly set aside for more subsidies–payments to providers to address supply issues in neighborhoods judged to be underserved.

Nowhere does the plan claim to realize cost savings, as “Medicare For All” proponents often promise. Nowhere does the plan promise to create higher quality child care than the often-useful but inherently limited center-based model. The only major change to the licensed center-based model that President Biden and Sen. Warren call for is higher pay and educational requirements for center workers, which is almost sure to increase costs for families and force some very qualified child care workers out of jobs.

Large federal spending on center-based and other licensed daycare will not solve the childcare crisis. Informal childcare is just as important to many parents and has some benefits that centers cannot replicate—which the data on income and center usage confirm.

The best way to facilitate relationship-based care in poor communities would be to ease people’s overall financial strain. Giving parents more-flexible help to find what works for them in the market or from family and personal connections will reliably lead to better outcomes than the government prescribing a few subsidized options.

As of this writing, the Biden administration is trying to keep its big-ticket child care plan on the table rather than getting the 2021 child tax credit, which expired, reinstated. The child tax credit was a help to low-income families, so rather than moving the child care policy in the right direction, the president’s plan is likely doubling down on the wrong one.

Searching for a magic-bullet national policy to strengthen informal care is tempting, but finding a way for a bureaucracy to avoid turning the unique benefits of personal relationships into costly top-down regulation is unlikely. In this case, national or state policy may not be the best way for civil society to contribute its resources and energy. But the informal sector is at least as large and important to parents as a daycare, and its results strain low-income parents disproportionately.

On a small scale, there are many promising ideas and the scope to implement and develop many more. For example, a southeast Detroit pilot program finds promising results from making educational, advisory, and problem-solving resources available to informal child care providers. The providers self-report that the biggest benefits stemmed from activities where they were put into groups and could interact informally rather than simply receiving instruction.

Another recent study shows opportunities to build social capital across informal networks of parents and providers and finds that single mothers plugged into these networks have an easier time returning to work than mothers using daycare centers.

The fundamentally bottom-up nature of this change, the very thing that makes it promising for new ideas bridging old partisan gaps, also creates big challenges in policy terms. Encouraging informal child care networks, advising non-profits on best practices and innovations, and presenting these informal networks as an often-desirable alternative to daycare is challenging in today’s political environment and difficult to scale at the state and national level.

While the significant taxpayer investments subsidizing both parents and providers of center-based care are an essential topic for public debate, the focus on the largest ticket items can distract policymakers and stakeholders from many important small ideas and improvements that could be made. And those policies will continue to be needed, whether some form of Biden’s Build Back Better plan passes or not.

The post Child care policy debates need more focus on the prominent role that informal care plays appeared first on Reason Foundation.

In the current House and Senate showdown, Sen. Joe Manchin (D-WV) has emerged as the crucial centrist “swing vote.” Sen. Manchin recently proposed sweeping changes to the still-new child tax credit, including reducing the ceiling for eligible families dramatically—to only those earning under $60,000 per year—and adding a work requirement for recipients.

Last month on CNN, Sen. Manchin said the tax credit had “no work requirements whatsoever” and asked, “Don’t you think, if we’re going to help the children, that the people should make some effort?” This sentiment surrounding work requirements has proven politically potent for decades and, at least at first pass, seems to be built on economic common sense. These concerns also resonate with many people right now because during the COVID-19 pandemic unemployment insurance benefits became more generous and many are observing a shortage of workers, especially in service industries.

However, recent history shows that work requirements for cash assistance to poor Americans often work much better as political sloganeering than as real programs. For example, the Temporary Assistance for Needy Families (TANF) program, instituted in the mid-1990s, added work requirements to the cash assistance program formerly known as American Families with Dependent Children (AFDC). Despite persistent conventional wisdom that benefits should be tied to a willingness to work, the benefits of this major shift were modest and uneven. The results were so weak as to indicate if the ultimate policy goal is helping families emerge from poverty in robust and self-sustaining ways, unconditional benefits may be a better solution.

The same would likely be true of Sen. Manchin’s proposed child tax credit reforms, which should be rejected even in the current climate of labor shortages in some sectors. The “get a job” mentality Manchin imposes, when put into practice, would only result in cosmetic improvements to employment rates and the size of the welfare state. In addition to fewer monthly checks, Manchin’s proposed reforms are a step back in our thinking and framing of debates regarding poverty and work.

The Same Mistakes

In our complicated welfare system, consisting of dozens of programs combining various cash and in-kind benefits with an array of differing eligibility and behavioral requirements, calculating the cash impact of the child tax credit on the “average” recipient family is difficult. But what emerged following this spring’s earlier round of legislative wrangling was a tax credit that differed from other assistance programs currently on the books in three important ways:

• Eligibility for families with higher incomes than existed in other assistance programs;
• A lack of requirement that any member of the family be working or looking for work;
• A simpler and less bureaucratic system.

Sen. Manchin’s proposed changes take aim at the first two characteristics of the child tax credit. However, his lack of specifics obscure the fact that even a well-designed approach to rolling back those first two characteristics impacts the third. Based on past welfare reforms, Manchin’s requirements would mean a system with a bigger bureaucracy that is far more expensive to run and rife with benefit cliffs and loopholes with unintended consequences.

Eligibility for a means-tested program is always more complicated than earnings above or below a single number. How many earners does the family have? What income gets counted? What about other benefit programs? Beyond the income ceilings, do benefits phase out gradually or simply fall off a “benefit cliff?” Beyond the $60,000 figure, Manchin has not answered these questions.

The current child tax credit begins phasing out benefits at higher incomes: $112,500 for single parents and $150,000 for joint filers. It then phases out very gradually, with partial benefits available to single parents and couples earning as much as $200,000 and $400,000, respectively.

Many frame this eligibility over wider income brackets as “paying people not to work.” That isn’t quite correct. Beneficiaries are being paid, which impacts work and other life decisions, but their work decisions on the margin are left to them as free decision-makers with richer knowledge about themselves and their circumstances than policymakers have. Steep benefit cliffs at lower income thresholds are where policy actually impacts those marginal decisions more sharply and creates top-down disincentives to work.

The work requirement called for by Sen. Manchin adds additional bureaucratic strain. The Internal Revenue Service (IRS) can issue checks directly, but a major bureaucratic undertaking is needed to determine who is and isn’t working, is or isn’t looking for a job, and does or doesn’t have some exemption or extenuating circumstance.

Manchin’s direct, yet also vague, call for a “work requirement” for the child tax credit is therefore problematic over his other proposed changes. The experience of the TANF program is instructive, as it was born when such a work requirement was added to the federally-funded but state-administered AFDC cash assistance program. In the years following the change, welfare rolls were cut by several million recipients but the bureaucracy and overall spending only grew. 

Different Results

The shortage of service workers as the nation tries to emerge from the COVID-19 pandemic might appear to some supporters of work requirements as further evidence of their importance. In the wake of extended unemployment benefits and the introduction of the child tax credit, it can look to many like we are indeed paying people not to work. But this story becomes more complicated when viewed as millions of heterogeneous individuals and jobs in a complex economy.

Based on an interview with Indiana University economist Kyle Anderson, Indianapolis Star reporter Binghui Huang writes that the “reasons range from fear of COVID-19, child care needs at home, mismatch of skills between the worker and the job, changing career interests and early retirement.”

We should instead approach the labor shortages currently observed as a question similar to the general supply-chain dislocations also in the news. Indeed, unfilled jobs and cargo ships stuck outside ports are two aspects of the same problem. Writing for Reason Foundation, Marc Scribner illustrates step-by-step a scenario of “cascading impacts” from COVID-19 that lead to such problems in product markets. Scribner is rightly concerned about big policy gestures making the problem worse:

“With the public and businesses feeling the impacts of supply chain problems and news stories already scaring parents that their Christmas toys may not arrive in time for the holidays, politicians are likely going to continue wanting to show they are doing something about the problem by holding summits with business and labor leaders, appointing “czars,” and engaging in other photo opportunities to present the illusion that they can solve these problems. But the reality is supply chain problems are largely out of policymakers’ control and almost certain to continue through 2022. Markets and businesses will adjust but not on a dime.”

Counseling patience in today’s political and media environment may be an uphill climb, but Scribner is exactly right about both the product and labor markets. COVID-19 hit the complex system of our modern economy with countless shocks. In both product and labor markets, the bottom-up process of finding a robust new normal has no shortcuts. 

All the more reason for assistance to workers that is dependable and does as little as possible to distort specific decisions on the ground. Both the left and right are attracted to policies designed to make people do what they think people should do, but avoiding this trap is good advice both in our peculiar current set of affairs and in general. We have seen enough examples of the futility of more top-down micro-managed approaches to expect different results.

The post Sen. Manchin’s proposed reforms to the child tax credit would be a step back in fighting poverty appeared first on Reason Foundation.

The expanded child tax credit will impact more than just low-income families, with the credit gradually phasing out for families with incomes between $112,500 and $400,000. The Biden administration intends to extend the monthly child tax credit payments from one year to five and this provision is a part of the American Families Plan, which is now being debated by Congress.

The American Rescue Plan and American Families Act touch on so many friction points in ongoing debates over economic policy—poverty, welfare, basic income, COVID-19, federal stimulus funds, government debt and deficits—that a full accounting of the proposal’s pros and cons is beyond the scope of one article. Instead, this article will focus on the child tax credit’s use as an anti-poverty measure.

President Biden is correct that the tax credit will be of significant help to low-income families, though using deficit spending means especially high costs for federal taxpayers as a whole. However, to further improve lives and strengthen families, we must significantly change the way we understand, measure, and respond to poverty.

Slashing Poverty Rates, Lifting Incomes

Proponents of the new child tax credit claim the program will slash poverty rates and lift millions of children out of poverty. President Biden said the payments could be “life-changing for so many families,” while Vice President Kamala Harris called July 15 “the day the American family got so much stronger.” Sen. Michael Bennet (D-CO) called the plan “the single biggest blow to child poverty in American history.”

The Center on Poverty and Social Policy (CPSP) at Columbia University projects that if the longer-term American Families Act is passed, the result in would be a 47.4 percent reduction in the U.S. child poverty rate in 2022.

This calculation uses a poverty rate defined by the U.S. Census Bureau’s Supplemental Poverty Measure (SPM), which attempts to account for not just income, but tax credits and non-cash welfare benefits like Medicaid, along with geographic variations in the cost of living. The Census Bureau began publishing the SPM in 2011, but in previous work, the CPSP estimated a historical series back to the early 1960s. The chart below shows the SPM-derived child poverty rate by year:

The graph clearly illustrates that overall economic conditions greatly impact the child poverty rate, with increases coinciding with the recessions of the early 1980s and 1990s as well as the great recession. The drop in poverty the American Families Plan is projected to cause follows these historical trends.

In the five years following 1964, when President Lyndon Johnson’s “War on Poverty” began, the child poverty rate fell from 23 percent to 14 percent. Most of Johnson’s new programs were new entitlements for lower-income Americans, such as Medicaid and education programs like Head Start and Pell grants. These benefits, along with general economic expansion, put many formerly poor children over the poverty line.

Another large decrease in the child poverty rate took place in the 1990s when the earned income tax credit tripled and work requirements for benefits changed. This meant the unconditional cash benefits of the New Deal-era, like Aid for Families with Dependent Children, turned into the welfare-to-work Temporary Assistance for Needy Families (TANF) program. The drop in poverty is likely due in part to some people entering the workforce, as well as another period of widespread economic expansion.

There is some dissonance between these historical and projected slashings of the poverty rate versus a simple “eye test” or facts on the ground when we observe poverty in the United States today. Despite the fact that poverty, as measured by the SPM, is nearing an all-time low, there are great concerns and debates about economic inequality. There are also understandable tensions in many poor communities over overcriminalization, failed policing practices and other undeniable racial and economic disparities have reached a boiling point in recent years. Similarly, the closure of many factories coupled with an increase in opioid-related deaths has also put a spotlight on poverty in small towns and rural areas.

As we repeatedly try to “lift” millions out of poverty, why does the issue of poverty itself become even more politically contentious, and for some families and communities even more entrenched?

What’s Missing From the Poverty Discussion

We have a “birds’ eye view problem” in the way we observe, understand, and debate issues related to poverty.

We speak of millions being lifted from poverty because government benefits happen to raise millions of incomes above a line that, even with the adjustments made in the Supplemental Poverty Measure, remains to a great extent arbitrary. We rely on these top-line aggregate statistics for economic policy and they can be informative and often necessary in a country with a population of more than 300 million. However, the focus on these poverty statistics leads to viewing groups of millions of individuals as two-dimensional and homogenous.

An extra few thousand dollars per year going to low-income parents may be a great help to them. Unfortunately, when it is then reported that data shows millions of individuals have been pushed over the poverty line, many seem to believe that this means millions of families’ problems have been solved.

Likewise, the idea that unconditional welfare benefits discourage self-sufficiency on a cultural level suffers from the same birds’ eye view problem. In research I am currently conducting I find that the work-based welfare reforms of the 1990s were of limited benefit and that shifting people from unemployed poor to working poor had done little by itself to reduce poverty.

What’s missing from the national discussion on poverty becomes clearer when we think about economic and general prosperity in our own lives. In policy discussions, especially those relating to the poor, we often treat jobs as ends unto themselves. But many readers, considering their own careers, should have no trouble understanding work and jobs as means to broader—if hard to quantify—ends, such as a meaningful and productive life that benefits not just ourselves but our families and numerous others in our communities and networks.

Social capital can at times feel like a buzzword. But for many of us, its value becomes clear when we consider the role our many overlapping networks of relationships—family, friends, professional connections, neighborhoods and communities, groups of common interest—have played in our career path and more traditional measures of prosperity. To view this primarily as nepotism or cronyism misses the point. I would wager heavily that most readers found the opportunity that became their current job due to people they know, perhaps an explicit tip from a friend or basic knowledge of an industry and its firms gradually developed and shared among colleagues at one’s previous job.

Unfortunately, since the mid-20th century developments in both urban and rural poor communities have destroyed wealth, job opportunities, human capital, and the bonds and networks that fuel social capital. Urban, mostly black, communities have experienced a litany of terribly misguided if not malicious government policies including redlining, slum clearance, the building of housing projects, and hugely disparate incarceration rates.

Small towns and rural areas have similarly seen the loss of factories and the jobs that not only paid them but were often the institutions their communities were built around. These rural trends are the result of global forces that most economists agree are long-term positive but involve struggles and transitions for some that in this case have unfolded over decades.

People Lifting People

This more complex understanding of poverty may actually sound a note of highly cautious optimism for the reformed child tax credit as an unconditional welfare benefit. First, this perspective may reduce concerns that the new credit takes us back to the bad old days when handouts bred welfare dependency among the poor. Given all the other terrible, concurrent government policy, along with manufacturing towns being swept up in global trends, our approach to welfare policy appears to fall dramatically on the list of reasons we still haven’t won President Lyndon Johnson’s war on poverty.

Second, helping people meet basic needs without behavioral requirements or endless bureaucracy may free up time and resources for people to cultivate the kinds of personal, business, social, and community relationships that only they can build and are essential to robust prosperity. That’s why some economists would like to see many more of the nearly hundred welfare programs, most of which are weighed down by requirements and bureaucracy, replaced with similar cash aid. But such reforms would likely provoke significant resistance from both the left and right and are more realistic as a long-term goal.

Luckily, there are other possibly more immediate and feasible ways to enable and empower poor Americans to build the robust prosperity only they can create from the bottom up. Writing in Reason, Angela Rachidi and Naomi Schaeffer-Riley provide a lengthy list of unnecessary regulations that disproportionately impact the poor and need reform—health insurance flexibility, occupational licensing reform, childcare and zoning regulations, to name just a few.

We can lift incomes and slash poverty rates, and we can help people whose communities have been robbed of capital of all kinds. But we need to stop, as much as possible, restraining the hands of those trying to lift themselves out of poverty in a meaningful and lasting way.

The post Reconsidering the Way We View and Measure Poverty appeared first on Reason Foundation.