Month: April 2015

Time to “Uberize” the Transportation Economy

This week marks the beginning of a 120-day “pilot project” by the City of Portland to allow private car-sharing companies such as Uber and Lyft to legally compete with cab companies. Given the consumer demand for such services, there is little doubt that the Portland experiment will become permanent.

Cab services have long been heavily regulated. Detailed rules governed every facet of operation, including rates, dispatching, and―most importantly―the number of cabs allowed in the city. Although justified as “protecting the public interest,” the system was really designed to protect cab companies from new competition.

This model is now being swept aside by the dual forces of technological innovation and entrepreneurial success. Goodbye taxi cartel, hello freedom.

Unfortunately, the roads that we all use are still run as a government monopoly. As with the old taxi cartel, if state officials decide that no more highways will be built, consumers are stuck with a shortage of service. And in fact, that decision has already been made. The last new highway in the Portland region opened in 1982. There are no plans for a new one.

Ultimately, this model can’t work. As Portland grows, we will need new roads. Encouraging the road-building “Ubers” of the world to provide these services is the next logical step in the growth of the regional transport economy.

Read Blog Detail

Low-Income Scholarship Recipients “Highly Successful” in High School and Beyond

The Friedman Foundation for Educational Choice just released an exploratory study examining the graduates of the Children’s Scholarship Fund Baltimore. CSF Baltimore is a privately funded scholarship program helping low-income children in the Baltimore area to attend the tuition-based elementary schools of their parents’ or guardians’ choice. CSF Baltimore is a partner program of the New York-based Children’s Scholarship Fund.

According to the study:

“The study found that CSFB elementary scholarship recipients had indeed been highly successful in their post-elementary educational achievements. Nearly all CSFB alumni contacted had graduated from high school in four or fewer years after eighth grade―97 percent to be exact. This high percentage is nearly identical to tracking studies completed with Children’s Scholarship Fund programs in other metropolitan areas (Philadelphia, Charlotte, and Toledo). The percentage is much higher than the national high school graduation rate of 70 percent, and higher than the Baltimore City Public School (BCPS) graduation rate of 38 percent to 64 percent.”

Children’s Scholarship Fund partner programs empower students to overcome challenges through a strong foundation in their K-8 education. As these children grow up, studies show that the philanthropic investments made in their education―combined with the initiative, dedication, and involvement of parents and teachers―is paying off for tens of thousands of children who now have a better chance at success in high school, college, careers, and life.

Read Blog Detail

Alternative Paths to College Education: First Learn a Job

By William B. Conerly, Ph.D.

The old advice about college isn’t working anymore. College graduates (as well as “quituates”) face poor job prospects in many cases, as well as high student debt. A college degree is not the meal ticket it once was, especially unfortunate at the time when loans have to be paid off. Young men and women need to consider an alternate path.

I wrote an article for Forbes that got a great deal of attention: “The Six Courses That Will Make Any College Grad Employable.” That advice is still right for a student in college, but let’s address the younger person: Maybe you should not go to college right away.

University professor and social critic Camille Paglia made some very pointed comments about college in a recent Reason TV interview. (The entire interview is long and somewhat rambling, but Paglia makes strong points about the weakness of the current higher education model.) She said that young people need to learn how to make a living.

An alternative model is to get job skills first, then head to college for a broader perspective on the world through science, history, and literature. Here’s how that might work.

There are many jobs that pay decent money with just a little training. The health professions have many, such as phlebotomist (the person who draws blood for tests). Many computer-related jobs can be had with a year or two of applied schooling, or even disciplined self-study. Local community colleges have counselors who are familiar with training requirements for different jobs. The construction trades have apprenticeships with a three-to-five-year path of paid work plus free training, ending in journeyman certification in a trade. Instead of getting out of college with debt, the apprentice ends with no debt, work experience, and a job.

My parents feared that if I didn’t go to college straight from high school, I’d never go, or at least never finish. My father got two years of college under his belt before military service in World War II. When the war was over, he had a wife and family and never went back to school. He didn’t want that to happen to me or my siblings. However, back in the 1950s a college degree was a meal ticket. To acquire one, the student needed some combination of brains, ambition, and family connections, all relevant to career success. There were so few college grads that to have a degree was very distinctive. Today, degrees are much more common and thus mean much less.

Even the most talented high school students should consider going out on their own before heading to college. My parents ran into financial difficulties just as I was finishing high school, and I received no money from them. I probably had a better relationship with them than any of my classmates had with their parents. The difference was that I could do as I pleased, but I sought their counsel and advice. They acknowledged that they had no say-so, because they were not footing the bills. We got along quite well in my college years.

I was very motivated to study economics and make a career in the field, but many others go to college without such a clear goal. College is simply too expensive, though, for a find-yourself experience. You can find yourself with positive cash flow working a job.

After the young person has a starting job, it’s time to think about education. It’s not easy to work full time and go to school part-time, but plenty of people do it. Starting a family later in life helps. Learning a construction trade makes a lot of sense for an 18-year-old. Working in hard labor makes less sense 30 years later. Before the body objects to carrying heavy loads, it’s time to transition to carrying a clipboard. More schooling gets the tradesman into management, estimating, or sales.

“Follow your passion” is common advice, but often dangerous advice. If your passion is finance or computer programming, I heartily agree. One can make a good living while having fun. If, however, your passion is Roman history, it’s going to be very tough. The solution is to find a way to earn a living while keeping your passion as a hobby. I know people who work full time and paint in their spare time. One guy, whom I’ve written about regarding business models in art, is transitioning from art-as-a-hobby to art-as-a-profession. He is making the transition with both money in the bank and a good head for business, which help tremendously to succeed as an artist.

A technical writer I once worked with quit her corporate job to wait tables in a restaurant. I was mystified, but she explained that the job had been great for producing volumes of boring text, which helped her write clear prose. But it was time for her to pursue her passion of writing fiction, the next great American novel. She needed to make money, but have more time for her own writing. She also needed a job that was less intellectually challenging, so that she could go home to a pretty cerebral activity. Waiting tables fit the bill. It has a fairly high hourly rate, but bad hours and part-time work. Jobs like this work well for people trying to balance passion and money.

One final way to look at college uses an economist’s approach. Some purchases are consumer goods, motivated by pleasure. Think movies, party dresses, vacations. Other purchases are investment goods. For a company, this includes factory equipment, trucks, or office buildings. For a family, an investment might be a washing machine (avoiding putting quarters in a laundromat), a basic car (to get to work in), or a house (to avoid paying rent). Borrowing money for an investment can be okay, but borrowing for a pure consumption good is not smart. Now, what is college? A person majoring in engineering is buying an investment good. A person studying Russian literature is buying a consumption good. Borrowing for a pure consumption good does not make sense.

This advice is doubly important for the poorly performing student. College requires even more self-discipline than high school. Unless there is a major change, the poor high school student becomes not a college graduate but rather a flunktuate.

College is great for some people just out of high school, and great at a later time for others, and a very bad idea for yet others. Every high school student should consider work options before embarking on an expensive college experience.


 

William B. Conerly, Ph.D. is the principal of Conerly Consulting, an economic and financial consulting firm, and chairman of the board of Cascade Policy Institute, Oregon’s free market research center. A version of this article was originally published on Forbes.com.

Read Blog Detail

Make Medical Providers Compete on Price as Well as Quality

By Roger Stark, MD, FACS

The method doctors and hospitals are paid for their work is undergoing gradual but relentless change. Providers traditionally have been compensated on a fee-for-service basis, where they receive a specific amount of money for a specific visit or medical procedure. This is how other highly trained professionals, like lawyers, dentists, auto mechanics, and architects are paid—they receive a fee for service rendered.

The main argument offered against allowing doctors to charge for their services is that it leads to overutilization and increases healthcare costs. Doctors are accused of ordering more visits, extra tests, and unnecessary operations simply to pad their incomes.

From an economic standpoint, the fundamental difference with health care is the third-party payer system in the United States. The overwhelming majority of health care in this country is paid for by employers or the government, with money channeled through heavily regulated insurance companies. In other economic activities, consumers pay directly for a product or service and consequently become savvy shoppers who can take advantage of marketplace competition. In health care, patients are largely barred from shopping and have become isolated from true costs they incur.

Third-party payers were disinterested until healthcare costs and utilization exploded. Now, the payers, and not patients or providers, are attempting to change the payment model by imposing wage and price controls on doctors and hospitals. Patients are not seeking these caps, they are cost-control efforts by the entities that have to pay the bills.

A second argument against doctor fees is it discourages the use of “integrated care,” by which patients are placed in some type of provider-group that controls all aspects of their care. These integrated groups have many different names, including medical homes and accountable care organizations (coordinated care organizations in Oregon). In reality, they are simply various forms of the health maintenance organizations (HMOs).

HMOs may or may not provide integrated care but, through force, they can hold down healthcare costs. HMOs decrease healthcare costs by using a gatekeeper system where clinical decisions are weighed against budgets. Various types of HMOs are strongly encouraged or outright mandated in the Affordable Care Act.

The idea of pay-for-performance is becoming popular with payers, regulators, and policymakers. The reason is that they, not patients or doctors, decide what “performance” means and how much the “pay” will be. Providers get paid a higher amount if they meet certain quality measures that are determined, in many cases, by non-clinician policymakers or other regulators.

Results with the pay-for-performance model over the past 15 years have been varied. There is no clear evidence its defined quality measures decrease patient complications, improve care, or predictably lower costs. It does increase the regulatory and compliance burden on providers, however. In reality, most hospitals have been improving quality measures and the patient experience without pay for performance.

What is a real and meaningful solution to the provider reimbursement problem?

First, solve the third-party payer problem by removing employers and the government as payers of most health care. Allow patients, working with their providers, to make their own medical decisions and control their own healthcare dollars. Change the tax code and allow individuals to take the same health insurance deduction employers now receive. Use government programs such as Medicare and Medicaid as safety-net plans for low-income people. Reform or repeal the vast new system of government controls imposed by the Affordable Care Act.

Second, allow more competition in the health insurance industry by eliminating many of the government benefit mandates. Let patients decide what insurance plans are best for them and allow them to purchase plans across state lines. Encourage the use of health-savings accounts and low-cost, high-deductible insurance plans.

Third, increase the use of high-risk pools for high-use and high-cost patients.

Fourth, pass meaningful tort reform so providers don’t feel the need to order extra tests out of fear of lawsuits.

Finally, encourage more price transparency in the system and allow providers to compete on price as well as quality, just as professionals do in other parts of our economy.

The most important person in the healthcare system is the patient, not cost-conscious employers or distant government bureaucrats. The patient, as a consumer of health care, should determine the value and quality of services received and how much doctors should be paid to provide them.


 

Dr. Roger Stark is a health care policy analyst at Washington Policy Center in Seattle, Washington and a retired physician. He is a guest contributor for Cascade Policy Institute, Oregon’s free market public policy research center. A version of this article originally appeared in The Seattle Times.


 

Read Blog Detail

America’s 2015 Tax Bill? It’s 31% of the Work Year

Tax Freedom Day arrives this year on April 24, six days later than it was two years ago. Tax Freedom Day is a calendar-based measure of Americans’ cumulative tax bill. It is calculated as the day on which Americans have worked long enough to pay all their taxes. Americans will have worked 114 days to earn enough money to pay this year’s combined federal, state, and local taxes. These taxes include personal income taxes, payroll taxes, corporate income taxes, and property and sales taxes.

However, this is only what Americans actually pay, not what government spends. According to the nonpartisan Tax Foundation, “Since 2002, federal expenses have surpassed federal revenues, with the budget deficit exceeding $1 trillion annually from 2009 to 2012 and over $800 billion in 2013….If we include…annual federal borrowing, which represents future taxes owed, Tax Freedom Day would occur on May 8….”

Americans currently pay more in taxes ($4.85 trillion) than they do on food, clothing, and housing combined. The saying goes, you should “work to live, not live to work.” But the more government grows, the more Americans are working less to live and more to pay for runaway government spending. That leaves fewer resources to invest in the real engines of economic growth: private sector businesses that create jobs and produce goods and services for a market fueled by Americans’ hard-earned purchasing power.

Read Blog Detail

Oregon’s Minimum Wage Debate: Disadvantaged Youth Are Crucial Issue

The Oregon legislature is considering raising the minimum wage over the next few years from $9.25 per hour to as much as $15. What the minimum wage means for disadvantaged youth should be the central question of this controversial topic. Plenty of middle- and upper-class teenagers take their first jobs at the minimum wage, working part-time or summers. I don’t much care whether they make five dollars an hour or ten or fifteen. They’ll be fine.

There are also some older people working at low-skilled jobs. A higher minimum wage doesn’t really solve their problem, which is low skills. However, many people parlay on-the-job learning into higher-paying jobs. Combine that with some more education and these folks should be all right.

Disadvantaged teenagers and youth in their early 20’s concern me, however. For them, the minimum wage is a big issue.

When my own kids were going out to their first job interviews, their mother and I prepped them well. We both had experience in job interviews and we helped our kids succeed at theirs. Many disadvantaged youth lack parents with good work experience themselves, so they go into their first job interview with no coaching. Which kid do you figure gets the job? It’s usually not the teenager who stares at his shoes instead of the manager’s eyes, who stammers and is unsure of himself and is surprised by simple questions.

Put this into a business context. Suppose you are trying to sell a product that looks inferior on the outside. You are sure that your product’s functionality is as good as the better-looking competitors, but yours doesn’t present itself as well. What would you do?

A business manager’s first thought might be to cut the price. Other approaches are to offer free samples, introductory discounts, special coupons, and so forth. These marketing techniques could get buyers to try your product.

The disadvantaged youth is not allowed to do any of these things. The wage cannot be lower than the legal minimum, no unpaid work is tolerated by our laws, no discounting or trial offers are allowed. The kid who interviews poorly is in trouble.

This is the worst kind of trouble for both society and the young person. We need disadvantaged youth to get jobs and learn the soft skills every employer wants: following instructions, getting along with others, serving customers. The first job is vital for learning those skills. (I recall learning a lot in my first job: to get along with people I didn’t much like, to take direction from a boss I didn’t respect, and to accept that I had to do the worst tasks because I was the newest employee. These were all valuable lessons.)

To help disadvantaged youth, we need to let them compete. That means a low or zero minimum wage. Employers will provide more coaching and help for workers just starting out if that’s what it takes to get workers at a low wage. And that is exactly what will help disadvantaged youth in the long run.

Read Blog Detail

Government-Imposed Minimum Wage Increases Don’t Work for Oregon Small Businesses

The concept that everyone should earn at least some government-mandated minimum wage is politically very appealing. It’s almost the classic example of taking from the few and giving to the many. “The few” in this case are portrayed as rich businessmen who could never spend all the money they have, so what’s wrong with making them pay their workers a little more? Now, proponents of raising Oregon’s minimum wage are trying to convince us that somehow such policy is actually good for small business owners.

A recent report from the Oregon Center for Public Policy claims that a higher minimum wage works for small businesses by giving them “more of what they need most: customers with money.”

In reality, raising the minimum wage would only benefit small businesses if owners didn’t mind depleting their own savings or investment funds in order to support higher labor costs. Otherwise, they would have little choice but to raise prices, which would harm all their customers, especially those on the lower rungs of the economic ladder.

And, because minimum wage laws actually cut off those lower rungs on the economic ladder, younger, less educated, and less experienced workers will be even less likely to get or keep the very jobs they need to be customers in the first place. They may spend their unemployment checks, but those checks won’t go as far once prices are raised to cover the higher labor costs that a boost in the minimum wage imposes.

The argument that a higher minimum wage pumps more money into the economy assumes that the resulting pay increases are somehow “new money.” In reality, much if not all of that “new money” will be offset by a corresponding loss of savings or investment funds that otherwise would contribute to more economic growth and hiring more workers.

Just because low-wage workers are likely to quickly spend any wage increases doesn’t mean that on balance that’s good for small business. Taken to its logical conclusion, that would mean small business owners, and everyone else, should never save and invest for the future, but immediately spend every dollar they earn also. If this behavior really benefitted the economy, why are we seemingly so concerned about the dismal rate of saving and investing for retirement among Oregonians? Couldn’t small businesses benefit even more by encouraging everyone to spend all their income right now?

Another set of arguments for raising the minimum wage include the assumptions that higher wages “motivate employees to work harder;” “attract more capable and productive workers;” “lead to lower turnover, reducing the cost of hiring and training new workers;” and “enhance quality and customer service.”

While higher wages may lead to the benefits stated above, if business owners believe that is the case then they should be willing and eager to raise wages whenever possible. The fact that minimum wage proponents want to force business owners to reap these benefits weakens their case.

Finally, there is a real irony in the campaign to boost Oregon’s minimum wage. Minimum wage laws conspicuously leave out a class of individuals who don’t get a paycheck from someone else, but hopefully get one from themselves. Self-employed people, small business owners, and entrepreneurs trade a steady paycheck for the opportunity to be their own boss. They often risk everything―their homes, their savings, all their assets―to build a business that might someday earn them a much higher paycheck than they could ever earn working for someone else.

But, while building a business, many entrepreneurs actually earn less than the minimum wage. They may actually have negative earnings, dipping into savings or borrowing money to keep their doors open and pay their employees. And yet, if these risk-takers hire anyone to help them make their dreams come true, government says they must pay those workers at least $9.25 per hour in Oregon today, and perhaps as much as $15 per hour in the near future.

So, while business owners are free to do a lot of things, and take a lot of risks, one thing they cannot do is hire anybody for less than the minimum wage, even if they are earning less than that themselves. Of course, this may not be a winning argument politically.

It’s easier to demonize supposedly “rich” business owners than to tell workers and job seekers the uncomfortable truth that to be employed in a successful business they must produce as much or more value than they wish to be paid.

Proponents of raising the government-mandated minimum wage know that they have little to lose and much to gain politically by telling young, less educated, and less skilled workers that they deserve to be paid more, and it’s only greedy business owners standing between them and the higher wages they desire.

Let’s just hope that if another bump in Oregon’s minimum wage results in some workers losing their jobs and others not getting hired in the first place that they place the blame for their troubles where it belongs―not on employers, but on those who promised them higher wages but couldn’t deliver because economic reality stood in the way.

Read Blog Detail

Portland Set to Approve Public Shaming of Building Owners

For members of the Portland City Council, the end always justifies the means.

Their current obsession is energy use in commercial buildings. On April 15 the Council likely will approve a regulation to require the owners of such buildings to: (1) monitor energy consumption; (2) calculate an “energy use intensity” score; and (3) file annual reports with the city.

Advocates claim that this will be good for building owners. It will give them information they would never get without prodding by bureaucrats, and provide market recognition for high-performing buildings.

In fact, this is just an effort to shame building owners and tenants into adjusting their behavior to conform to the political edicts of City Hall. Commercial buildings consuming “too much” energy will receive a Scarlet Letter and be harassed by bureaucrats and activists into expensive energy conservation retrofits, many of which will make no financial sense.

Energy consumption is a private matter. The Portland City Council should stand down on this proposal and leave people alone.

Read Blog Detail