Jefferson Policy Journal

Tax Cuts Likely to Lead to Records for Recovery

Posted on January 10, 2018 by matt ohern

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Sometimes it’s hard to believe that this expansion is already more than 8 years long–only 18 months short of the record 120-month expansion that occurred from March 1991 to March 2001.
A few analysts are concerned about a recession occurring over the next year or two. From our view, the tax cuts and reform just passed by Congress and signed into law by President Trump increases the probability that this expansion will enter the record books.
Real gross domestic product (GDP), the broadest indicator of economic activity, is expected to expand by 2.3 percent in 2017 according to our forecasts after growing just 1.5 percent in the prior year.
Next year is stacking up to produce the fastest growth of this recovery as we see it. We expect real GDP to advance 3.0 percent in 2018 and 3.3 percent in 2019.
Most economists have increased their outlook for growth over the next two years, in large part, due to the tax cuts and reform, but the expectations vary based on their assumptions about how businesses and consumers will react to the tax cuts.
We expect the reduction in the corporate tax rate will enable businesses to invest more in computers and equipment which will enhance productivity. This will initially increase employment for businesses making these goods. It will also eventually lead to wage gains for workers who are now more productive.
The increased wages, employment, and individual tax cuts will all lead to more consumer spending. With consumer spending making up about two-thirds of GDP, consumers are an important factor in economic growth.
The state and Richmond metro area will also benefit from the faster national growth. When the final employment numbers are in, we expect Virginia employment to increase 1.4 percent in 2017 and 1.5 percent in 2018. That compares to 1.5 percent and 1.2 percent in the nation—the slower growth in 2018 is largely due to slower labor force growth.
We expect the Richmond metro area to continue to grow slightly faster than the state and nation. Employment is expected to grow 1.6 percent in 2017 with health care adding almost 3,000 jobs. Also adding over 2,000 jobs is a sector called administrative and support and waste management and remediation services. The growth in this sector is mainly driven by firms that provide temporary help services and professional employer organizations.
Looking ahead to 2018, we expect employment in the Richmond metro area to advance by 1.7 percent with health care continuing to provide the largest number of new jobs.
(This article first ran in the Richmond Times Dispatch on January 1, 2018)
Chmura
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Can’t Win for Losing

Posted on January 10, 2018 by matt ohern

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If we continue to burn coal to generate electricity, we might destroy the Earth’s capacity to support life. If we switch to natural gas, then fracking might poison the water and set our faucets on fire. Biomass sounds good, but burning it also releases carbon dioxide into the atmosphere. Hydroelectric power requires dams, which destroy fish habitat. Solar panels take up too much space, and are too expensive to power a nation.
That leaves wind power, one of today’s favorites. But as we know, wind turbines chop up eagles and bats and migratory birds. Some people say the noise causes bizarre health problems. And now, there is another reason even wind may not work. Two new studies claim that man-made global warming is actually causing the wind to diminish significantly in some areas.
As one reporter wrote, wind energy is supposed to help fight climate change, but “climate change is fighting back.” Both studies conclude that estimates of wind energy’s potential may be flawed, because our use of energy is reducing the wind itself. As one of the authors put it, “Assessments of wind energy resource are usually based on today’s climate, rather than taking into account that anthropogenic greenhouse gas emissions continue to modify the global atmospheric circulation.”
These are real, serious scientific studies. The first was published November 24 in Nature Scientific Reports by three Harvard researchers, and the second, authored by three researchers in Boulder, was published December 11 in Nature Geoscience.
As the Washington Post wrote this week, “The world is turning more and more to renewable sources of energy… to fight climate change. But what if climate change itself alters the distribution of wind, or sunlight… or river flows, and so changes or even shrinks the potential of these energy sources?” It just seems that we can’t win for losing. No source of energy is without problems, so what are we to do?”
I admit to feeling a little cynical about this today, because last night’s freezing cold wind messed up my Christmas lights, and I spent half the night outside in a frigid gale trying to put a little Christmas tree back together. So when I hear that the dreaded climate change may lead to warmer temperatures and less wind, I’m completely on board. In fact, it makes me want to stand outside with an aerosol can pointed at the atmosphere to make sure I’m doing my part to help.
The genuine skeptic will recognize, however, that there is a much larger question raised by these studies – and the scores of others that will surely follow, as long as there are government grants to university researchers. That is, will there ever be any source of energy upon which everyone can agree?
The answer is no, because not everyone shares that lofty goal. Instead, many activists are united by the notion that mankind’s presence is always bad for the environment. People are not part of the environment in this theory; they are an intrusion that should be stopped whenever and wherever possible. That requires government control, and nothing has more potential to provide that control than the concern about global warming. If everything mankind does can be said to affect the climate, then climate regulators would be able to regulate everything mankind does. So, climate regulators fund scientific studies, which inevitably back this view (he who pays the fiddler calls the tune). Such studies generate public concern, and public policy will follow.
Note a critical distinction in the two new wind studies. This wind reduction is not happening the same everywhere, but is especially noticeable in the two countries that have spent by far the most money developing wind energy – China and the U.S. Some readers might infer that it’s OK to continue investing in wind power in other countries, but may not be as effective here.
That hints eerily at similar policies that result in logging, drilling, mining, and manufacturing in other countries, so we can “protect” our own domestic resources. Those activities impact the environment anywhere, of course, but our conscience remains clear if we export those consequences elsewhere.
Some Americans may want to return to an earlier lifestyle, where they keep a milk cow and a couple hogs, raise beans in their own backyards, and eat year-round by canning a cellar full of mason jars. Me, I prefer grocery stores, cars, and comfortable homes powered by affordable energy. And if that results in slightly warmer temperatures and a little less wind, I’m probably OK with that.

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Reform Healthcare Here in Virginia

Posted on December 27, 2017 by matt ohern

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The Thomas Jefferson Institute for Public Policy recently released a Handbook on Healthcare Reform, a collection of 17 essays by practitioners and public policy specialists offering reforms for healthcare in Virginia (here).
The essays focus on several issues, including three issues likely to come before the General Assembly in January: Medicaid expansion, reform of Certificate of Public Need laws and the urging people to find the best price for health care through “Right to Shop” laws.
Governor-elect Northam made Medicaid expansion a priority during his campaign. But expansion should not come without the application for federal waivers that could provide better outcomes for patients and encourage healthier behaviors by Medicaid beneficiaries – actions successfully taken by other states and could be improved upon here in Virginia.
In addition, there is a clear case for eliminating Virginia’s outmoded Certificate of Public Need law, which serves only to eliminate a competitive healthcare environment and drive up costs for patients and insurance companies alike. Competition can force down prices and provide more quality as has been seen over and over again in our economy.
The greater of use, and less restrictions, of tele-medicine makes good sense in today’s world. In our 21st century world we are offered multiple video, monitoring and communications platforms in nearly every industry and patients should not have to be limited in their care by outmoded laws passed when fax machines were the epitome of ‘high technology.
This new Handbook and Healthcare Reform (here) also encourages legislative and regulatory solutions giving Virginians “Right to Shop” tools to seek better healthcare pricing. New Hampshire gave state employees tools and incentives to find better prices. With three years of education and outreach under its belt, this New Hampshire program has produced over $12 million in savings with over $1 million paid out to patients as rewards for saving money in their healthcare services.
Dr. Hal Scherz, a well-respected Pediatric Urologist from Atlanta who founded “Docs 4 Patient Care” worked with the Jefferson Institute in putting this Handbook together. He said,
“Patients should be in charge of the healthcare decisions affecting them and their families. They are better suited to make these decisions than government or insurance companies. The role of government in healthcare, whether federal or state, should be to ensure that opportunities exist for patients to obtain the best care for the best value; not to distort the healthcare system by picking winners and losers as it has chosen to do for decades by favoring special interests over patients.”
Those of us who believe the answer to reforming our health care system does not lie in more government involvement and regulations, but in less government, have an obligation to make our case with creative policy solutions that will provide better care at less cost for Virginians.
When we released this important addition to the healthcare debate, Dr. Scherz, pointed out the underlying the problem with reform our healthcare system when he stated,
“As a physician who has been in surgical practice for 30 years and as a self-taught healthcare public policy expert for the past decade, it is painfully obvious that the problems in healthcare in America are not intrinsic to the healthcare being delivered, but instead are the result of government regulation and bureaucracy being imposed on it, and by favored treatment to special interests who profit handsomely and have a vested interest in preserving the status quo.”
The losers in an overly regulated healthcare system such as ours is the patient who pays more than he or she should and who could benefit from a more competitive system.
This newly released Handbook on Healthcare Reform provides just some of the ideas that can be implemented at the state level to create a better healthcare system than we have today. It is a blueprint for reform for those truly interested in reforming our healthcare system.
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Are Metrorail and Virginia Railway Express Really Worth $600 Million a Year to Virginia?

Posted on December 27, 2017 by matt ohern

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The Northern Virginia Transportation Commission (NVTC) issued a press release on September 5 of this year claiming that “Metrorail and Virginia Railway Express (VRE) boost state revenues by $ 600 million (here). This “revenue boost” shows that Virginia’s investment in rail transit provides a 250 percent return on investment, according to the press release. The NVTC is charged with the funding and stewardship of those two agencies in Virginia, so this claim may not be completely unbiased.
The press release is being used to argue that, based on the “boost” in tax revenues, Metro and VRE are good investments for Virginia taxpayers and warrant additional funding. The information contained in the press release does not justify those claims. Unfortunately, the “study” announced in the press release is not available from the NVTC website nor has it been provided to the NVTC Commissioner who requested I review this “study” although the Executive Summary is available. This article will address the particular claim that Metrorail and VRE boost state revenues by $600 million, ignoring the many other issues involved in assessing the benefits of providing further funding to the agencies nor concerns about Metro governance.
The “study” finds that Metrorail and VRE are responsible for 130,500 jobs and 85,000 households deciding to locate in Northern Virginia.   They argue that, absent Metrorail and VRE, many jobs and households would be relocated outside Northern Virginia because of the added traffic congestion resulting from a shutdown of the two systems.
Undoubtedly Metro and VRE do reduce congestion somewhat, but the premise that without them economic development in the area would halt or even decline is patently absurd. The easiest proof is that ridership on Metro has declined from 750,000 a day in 2008 to 639,000 a day in 2016 without any apparent slowdown in the local economy or reduction in tax revenue.
People and businesses choose locations based on many factors including housing prices, school quality, taxes, the quality of the labor pool and, of course, transportation options. A slight increase in travel time (the study estimated about a 5% increase) would make the area somewhat less attractive. On the other hand, the current tax burden of supporting the systems and any further increases to fund their ever increasing costs makes the area less attractive. Virginia (state and local) contributes about $282 million a year to Metro according to the FY 16 budget (here) that works out to nearly $1500 for every rider. (page 2, NVTC report 665,000 Metrorail riders, 30% live in Virginia which equals about 200,000 daily VA riders.)
The heart of the study is the “finding” that if Metrorail and VRE were removed, traffic congestion would increase. This is certainly true, with about 200,000 Virginians riding Metro every day, some thousands from DC and MD commuting to jobs in VA and 20,000 VRE riders. The study models the impact of those trips as if they were shifted from Metrorail to existing bus service & highways. They estimate that if trip times remain the same, travelers will make 5% shorter trips, a fancy way of saying travel times will increase about 5%.
It is impossible to evaluate the methodology and assumptions used in these models without the complete study. However, it is likely travel times increase by some non-trivial amounts and the results seem reasonable.   The problem is the study’s implicit assumption that as a result of the increase in travel times 130,500 jobs and 85,000 households will relocate from Virginia. Further, they estimate that “the land use supported by Metrorail and VRE generates over $600 million in general fund revenues”. The study does not provide information on how they got from lost jobs and households to the $600 million, but notes that “this is 3 to 4 percent of the $18.2 billion collected in the state in fiscal 2016”.   Absent some explanation of the methodology, that number appears questionable. And remember, this assumes these jobs and households would be lost in the face of a 5% increase in the average commute time of 30 minutes, less than 2 minutes (though rail riders undoubtedly have longer average commutes than most others).
Now, let us consider the flaws in these assumptions. First, if Metrorail were to shut down, VA could invest another $300million or so a year in better roads and bus service, which may well eliminate the loss of jobs and households by ameliorating the congestion. Secondly, the distribution of jobs and residences reflects the existing transportation system. In its absence, some people and jobs would move to optimize their location in the new environments, also mitigating the impact, especially as time passes – it would take some time for these changes. Zoning changes could also mitigate the impact.
They also seem to take credit for development around Metro stations. While partially correct in some areas, Tyson’s was a major employer before Metro arrived and current rail ridership is only about 7000 a day, probably less than 10% of employment in the area. Closing Metro might lead to another Tyson’s Corner being created in other areas with equally good highway access.   Route 28 is a good example of significant development without rail access but good highway access.
If bus service were improved, much of the high rail ridership in Arlington and Alexandria could be captured. It should be noted that the large number of Federal employees riding Metrorail are heavily subsidized. If that subsidy were eliminated or cut, ridership and hence presumed transit benefit, would drop. Indeed, future federal support of Metro and VRE should not be taken for granted as Virginia may have to bear even more of the subsidy burden, further reducing any benefits to the state.
None of this addresses the biggest Metro problem – the drop in ridership. Ridership in 2008 was about 750.000 a day; in 2016 it was 639,000, even though the Silver line came on line (and 2 stations in MD). Based on the study’s assumptions, that drop in ridership should have halted all growth in jobs and housing in the area, since traffic would have become much worse – but it didn’t. That proves the error of their model assumptions, overlooking changes people make to respond to removal of a transit option.
Further, they ignore all the factors working against Metro regaining ridership, including growth in alternate work schedules, telework, availability of Uber and Lyfft, and the advent of autonomous vehicles.
Without seeing the full report, it must be concluded that this is clearly something put together to support increased funding for a failing Metro system. Funding that will have to be increased regularly in the future unless major changes are made in how Metro operates.
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Fewer Young People, More Geezers Working These Days

Posted on December 27, 2017 by matt ohern

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The percentage of young people (ages 16 to 25) participating in Virginia’s workforce has been sliding over the past 15 years, while the percentage of old-timers (65 years or older) in the workforce has been increasing.
The percentage change of geezers in the workforce increased 59% between 2001 and 2016, according to data published by the Demographics Research Group of the University of Virginia on the StatChat blog. By contrast, the percentage of the working 20- to 24-year-olds slid 11%, while the percentage of teenagers (ages 16 to 19) tumbled 24%.

The percentage of young people (ages 16 to 24) enrolled in school has been rising steadily since 1960. The big change in Virginia has been a marked decline in the percentage of students who are working while in school, as seen in the graph below. StatChat sees this as a good thing:
A greater proportion of teens are now choosing not to work in order to dedicate more of their time to school studies and to non-work-related extracurricular activities, perhaps to gain a competitive advantage in admission to postsecondary educational programs.
That’s one explanation. Another is that young people today don’t have the same work ethic as their elders. Members of the most affluent generation in American history would prefer to spend more time finding themselves, “giving back,” or following their bliss than submitting to the grind of a regular job. That’s not true of all young people, some of whom work very hard, but I have a hunch that it’s fair as a generalization.

The Demographics group did not proffer an explanation of why more seniors are working, but I’ve got a hunch. Baby Boomers may have been a hard-working generation, but they weren’t very frugal. The cohort now reaching retirement age did not do a very good job of saving for retirement. Now Boomers are finding they have to work longer to make ends meet. Just a hunch.
(This article first ran in Bacon’s Rebellion on December 21, 2017)
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