AEIdeas The public policy blog of the American Enterprise Institute Wed, 16 Apr 2014 22:24:33 +0000 en-US hourly 1 The Census Bureau and Obamacare: Dumb decision? Yes. Conspiracy? No. Wed, 16 Apr 2014 22:22:44 +0000 read more >]]> One of the most important goals of Obamacare is to increase the number of people with health insurance coverage. Has it worked?

As we all know, the White House reported that over seven million Americans signed up for private health plans on Obamacare’s newly created and IT-troubled exchanges, and Medicaid enrollment is up by three million since October. So can the White House declare victory and exit the battlefield?

No. Why? Because we don’t know how many of those seven million Americans are newly insured. If, say, five million were on private health plans before Obamacare took effect, had their plans canceled, and subsequently signed up for health insurance through the Obamacare exchanges, then the effect of the law will be to increase health insurance coverage by only two million. That ain’t a lot.

So how will the government know whether Obamacare has worked? It’s simple: The plan was to ask people through statistical surveys whether they had coverage in 2013, 2014, 2015, etc., and compare that to the number in 2012, 2011, 2010, etc. Using multiple years allows you to study the trend over time in health insurance coverage, which really is more important than any one year’s estimate.

This plan was complicated this week because the Census Bureau will change the questions they ask about health insurance in one of their flagship surveys, the Current Population Survey (CPS). The changes to the CPS will make it very difficult to compare Obamacare-affected years with the long series of previous years.

Some on the right have suggested that this change is evidence of a conspiracy — of the White House trying to rig the statistics in such a way that makes Obamacare look more effective than it actually is.

I would be shocked if any such thing was taking place. I see no evidence of a conspiracy here.

1. For several reasons, the current insurance questions in the CPS are badly designed and need to be improved. Efforts to improve the questions have been underway for years — years before anyone in Washington ever heard the word Obamacare.

2. The new survey questions will be used to gather data about 2013. The first year of coverage through the exchanges and Medicaid expansion will occur this year, in 2014. So we can still compare 2013 and 2014. Ideally, we could compare a longer time series. But if this were a conspiracy then you would think the conspirators would have obscured the ability of researchers to make any before-and-after change.

3. As any potential conspirators would surely know, there are several other sources of data that one could use to determine Obamacare’s effect on health insurance coverage. The economist Justin Wolfers suggests Gallup is particularly good — and is free of government influence.

4. Finally, changing a question on the CPS requires a lot of bureaucratic maneuvering. It seems unlikely that the White House could have pulled this off even if it wanted to.

None of this is to say that the Census Bureau’s decision to change to a new methodology in the midst of Obamacare’s rollout isn’t a dumb decision. It is. And Census should have known better. Either the new methodology should be delayed, or the old and the new methodologies should be employed concurrently to ensure comparability across years.

But it’s a long walk from bad decision to conspiracy.

The process of crafting sound public policy requires excellent data. Economists, analysts, and government officials need the best information they can get, and that means the highest quality government statistics. It is crucial that the public trusts the federal statistical agencies, if for no other reason than to ensure the quality of the data being collected.

Census knows this as well as any organization in the country. They should have employed that knowledge, known that Caesar’s wife must be above suspicion, and not changed the health insurance questions on the CPS in what is the most politically volatile year to do so in decades. It may happen that even a year from now suspicion will still cloud the numbers. If so, then everyone loses.

So this decision is evidence of very poor judgment. But until there’s any evidence of a conspiracy, we should not make accusations of conspiracy.

— Michael R. Strain is a Resident Scholar in Economic Policy Studies at the American Enterprise Institute. Previously, he worked for the Census Bureau. You can write to him on Twitter at @MichaelRStrain.

]]> 0
Iran’s UN envoy ploy Wed, 16 Apr 2014 18:59:05 +0000 read more >]]> Last month, Iranian “reformist” president Hassan Rouhani named Hamid Aboutalebi, veteran of Iran’s 1979 hostage taking at the US embassy, to be the Islamic Republic’s new ambassador to the United Nations. In the wake of a bipartisan congressional outcry, the White House now appears likely to deny Aboutalebi a visa.

Here’s the key question: Why did this happen? Aren’t the Iranians looking for rapprochement with Washington? Was it just a bureaucratic snafu in Tehran? Or was it a deliberate plan? Rouhani and the foreign ministry surely knew of Aboutalebi’s background. And almost certainly knew that the nomination of an individual associated with terrorism against US government personnel would be a sensitive issue for the American public and political class. In 2005, the US nearly denied Iran’s newly elected president, Mahmoud Ahmadinejad, a visa to travel to New York for the UN General Assembly after suspicions over his involvement in the 1979 embassy attack. So what was their game? In typical bazaar fashion, the Iranian play was a win/win.

Rouhani and his team likely nominated Aboutalebi with the expectation of a confrontation. If the Obama administration ultimately grants Aboutalebi a visa, the Iranians would rightly claim an extraordinary victory. They would also have reason to judge their nuclear negotiating counterparts as weakened and desperate to pursue negotiations. Win.

Plan B – now being executed – is for Iran to publicly challenge the move as a “violation of international norms.” From Iran’s perspective, challenging the US’s right to deny visas to UN ambassadors has the potential to be a divisive issue between the US and its partners on the Security Council at a critical juncture in nuclear negotiations (to which the UN is a de facto party given its role in monitoring the implementation of the agreements between the P5+1 and Iran). It also deals Iran another card in those nuclear negotiations: Tehran could offer up a withdrawal of Aboutalebi’s nomination as a “concession” during negotiations. Conversely, the spat could serve as a pretext to increase tensions during negotiations, possibly with the intention of breaking them off. Another win.

In short, the Aboutalebi tempest is a shrewd play by the Iranians, likely yet more proof that in negotiations with the Obama administration, there are professionals and there are amateurs.

Follow AEIdeas on Twitter at @AEIdeas.


]]> 1
Medicaid spending is a problem for states even without the ACA – a clarification Wed, 16 Apr 2014 15:10:00 +0000 read more >]]> States can look forward to increasing financing problems as the cost of their Medicaid programs grows. That is true even if they do not expand coverage to everyone with incomes up to 138 percent of the federal poverty level, as called for by the Affordable Care Act, aka Obamacare. I cast too much blame on the new law in my recent analysis of factors that states should consider before they expand their programs. But that does not make expansion the automatically best action to be taken by a state facing fiscal challenges.

Here are the facts, as pointed out by Paul Van de Water of the Center for Budget and Policy Priorities. According to projections from the actuaries at the Centers for Medicare and Medicaid Services, total Medicaid spending will increase by about $400 billion over the next decade—nearly double the program’s spending in 2013.  Alternatively, if the ACA had not been enacted, the actuaries say that Medicaid spending would have increased by about $315 billion. The ACA is not the main reason for the growth in spending.

Effects of the ACA on Medicaid Spending, $ billions

With ACA

Without ACA










Source:  CMS, National Health Expenditure Projections 2012-2022, Tables 3 and 3A,

Moreover, if the federal government lives up to its promise that it will pay most of the additional cost of the Medicaid expansion, most of the additional money will be paid by federal taxpayers. According to the new report from the Congressional Budget Office, the state share of the additional Medicaid spending will total $46 billion between 2015 and 2024. However, CBO justifies this on the grounds that state will be able to make “programmatic and other budgetary changes” to the program to avoid some of the cost. (This is buried in note b of Table 1, if you are looking for it.) In other words, budget trickery.

The question remains, is the Medicaid expansion a good deal for states? Can the states count on the federal government keeping its promise to cover all of the cost through 2016, with later payments not dropping below 90 percent of the cost, regardless of how expensive that becomes? Does it make sense to commit to expansion when the political consequences of pulling back lands squarely on state politicians, even if there are new federal demands and less federal dollars? Or should states insist on more authority to run an important program for the poor in ways that best suit the needs of their people before they agree to more demands from Washington?

]]> 1
Why work is the best weapon in the war on poverty: A Q&A with Robert Doar Wed, 16 Apr 2014 15:01:59 +0000 read more >]]> What’s the best way to reduce poverty and increase economic mobility?

On this episode of Ricochet’s Money & Politics Podcast, I chat with AEI’s  Robert Doar. Before joining AEI, Doar was commissioner of New York City’s Human Resources Administration, the largest local social services agency in the United States. In the podcast, Doar gives his take on what the War on Poverty accomplished and also left undone. Also, he explains why work needs to be at the heart of smartt reform.


We just recently marked the 50th anniversary of the War on Poverty. Where are we now versus fifty years ago?

In terms of material well-being for low-income Americans, because we have significant transfer payment programs that are not counted in the official poverty measure, low-income Americans are doing better. They have more things. They have higher resources and they can consume more products. That’s definitely true, and that can be seen as a success.

On the other hand, if we’re looking at only what low-income Americans can earn or are earning on their own, the last four or five years have been very bad years. And we’ve gone backwards. And so when you look at it from that perspective, which is the way the official measure does look at it, we’re kind of back to where we started at in the late ’60s, which is not good. So they’re materially perhaps better off. We provide a lot of assistance. It’s not counted in the official measure. And in that regard, the official measure overstates their weakness of their material well-being.

But we really want Americans to be independent of public assistance. We want them to be able to earn and work for their own livelihood and not be dependent on government assistance programs. That’s what they want as well. And right now, our economy and our public assistance programs and our public policies are not set up to make them happen as well as they should.

It’s always tough looking at economic figures, either in the middle of a business cycle or right after a recession. So how were we doing on those poverty measures right before the recession?

A lot of people focused on the 50 years of the War on Poverty. I often focus on really 1996 to the present because that’s the post-welfare reform period. We’ve made a transformational change in the way we provided assistance to Americans on welfare where we made real work requirements, real time limits for assistance and real expectations of personal responsibility, which was a big and important change from what we’ve done before.

And what happened was that there were very significant increases in labor force participation for never-married mothers, who were often likely to be on welfare—big jump from roughly 50%  to more than 65%, and remarkable reductions in child poverty so that in the wake of welfare reform, African-American child poverty, for instance, reached its lowest point.

But since about 2000 and a little later, things have sort of crept back up nationally, partly I think due to the weakness of the economy and partly due to a lessening of certain work requirements and an emphasis on self-sufficiency. And, from my perspective, we’re back to where we were nationally. Some cities have done better.  The city that I worked in, New York City, did not see an increase in poverty between 2000 and 2012, while the 20 other largest American cities did.  But I think partly that had to do with the fact that New York City just had a stronger economy than the rest of the country.  And we had stronger work requirements.

The one other big change, Jim, is that—and I think this is good—we’re much more willing to reward work with forms of public assistance that are supports for working people. So the Earned Income Tax Credit, child care assistance, child support enforcement collections, even public health insurance can—when it goes to working individuals—can make work pay and make wages, which have been stagnant, go further in places where the cost of living is too high or makes survival difficult.

So I don’t know if that answers your question, but the frustration I feel about the slowness of this recovery is pretty strong. This is a very weak recovery and it is hurting the poorest Americans the worst.

To what extent is the problem merely one of cranking up GDP growth versus structural reform and better anti-poverty programs? Which is the bigger issue here? 

What we used to always say is that there were three legs to the welfare reform stool that made it stand up and work. And one of them is a stronger economy. The other is strong work requirements. And the third are generous work supports.

My view is that of those three the economy is struggling the most. I do feel there’s been a lessening of our focus on work requirements over the years, although welfare caseloads—strictly cash assistance caseloads—are still much lower than they would have been without welfare reform.

And then on work supports, we’ve been generous with them, but we may have in some cases not enforced the work requirements as strongly as we should in programs that are not cash welfare.

For instance: The food stamp program does not have as strong a work requirement and there are a lot of people that are not taking cash welfare but are taking food stamps. And the extent to which they’re working or being required to work is really an issue. And I think that it’s pretty well documented that the key ingredient for a family, an able-bodied individual is to be in the workforce, is to be getting up, going to work, earning a fair wage, and there’s not enough of that among low-income Americans right now.

I’m curious about the work requirements. What is demanded of people before they get those sorts of assistance? 

Well, if you’re talking about cash welfare, very much is the classic TANF, the old AFTC program, which in New York City the number of recipients had gotten to be 1.1 million in 1995, the requirement is pretty stringent. You need to go to a place where you’re going to be engaged in searching for work and preparing for work and then we want you—we also have a workfare requirement where you can actually do work-like activities in the parks or in city agencies or sometimes in not-for-profit organizations.

And the idea is that if you are receiving cash welfare, then you need to be active and doing something every day. What that does is it gets people in the habit of doing the things that working Americans do, which is very important, establishes a discipline and a way of life which I think is healthier and better and stronger. But if they actually had a job on their own or off the books or somewhere else, they just say, “Well, fine, I don’t need this.  I’ll just go to work.” And so that’s what happens.

Hundreds of thousands of people came into our offices and were in our offices for a while. Or when they saw what they were being faced with, they just walked out of the offices, and we found them hired someplace else, on their own sometimes and sometimes with our help. So in cash welfare, it’s a very strong requirement.

The various other forms of public assistance, the requirements are not so strong.  There’s an expectation. So, for instance, in Medicaid, you can’t eat public health insurance. You can’t use it to pay your rent. And if you don’t get sick, you don’t really use it at all. So the expectation is someone who’s only on Medicaid and on nothing else and is working age population, the expectation is that they’re working. And we believe that’s true because you just can’t survive on Medicaid alone for all of the needs of your household.

Food stamps are a little different. And there, some people are working and some people are not working. And some places in New York City, we had a very work strong requirement for what are called able-bodied adults without dependents, which is a classic bureaucratese language for single individuals without children, who really – there’s no reason why they shouldn’t be working and they’re not in any way disabled.

New York City is one of the few places in the whole country that maintained that work requirement for them. And I think that not only sent a good message about the expectations of people receiving public assistance, but also helps get people in employment because we had programs set up to help them move as rapidly as possible into a paying job.

How typical is the New York City experience and approach to these work requirements versus what you see nationwide?

In the able-bodied issue with food stamps, we were unique. I think we may have been even the only place that maintained a strong able-bodied requirement after President Obama said the whole country could not require that.

Our work welfare requirements—we had probably the biggest what’s called “work experience” program in the country so we were unique in the extent to which we put people into work-like activities in the parks and maintenance and other programs. So that was unique. The emphasis on our work requirement and time limits for federally funded assistance, not unique at all.

If you look at the caseloads, most of the TANF caseloads around the country rose a little bit in the wake of the recession. Ours didn’t really, but they didn’t go anywhere back to where they used to go in the area prior to welfare reform.

So what are the arguments against work requirements or easing work requirements? 

There are two—there’s the old welfare rights arguments, and entitlement rights is that the government owes everybody a basic level of existence regardless of what they do. I don’t think most Americans believe that or agree with that. We certainly didn’t in New York.

Another argument is that there may not be enough work or enough employment opportunities in the community, and that often gets made. I am skeptical about that because at the low end of the wage scale, there are opportunities, and there’s a lot of turnover and churning in that part of the labor market. And if we start using the excuse at least for cash welfare that we’re not going to require people to work because there just aren’t any jobs, that doesn’t mean you can’t engage them in what I call a workfare or work-like activities so that they get into the habit of having a regular daily activity.

But some people think that’s an infringement on their freedom. And then those would be the ones. Lately there has been some commentary that the way to lift people of poverty is just give them more money. But I don’t think that will send the right messages about the importance of work and structuring your life in a way that is productive for not only yourself, but for your community and your family.

AEI’s own Charles Murray has written a lot about what’s been going in working-class America, where you’ve seen less work, higher divorce rates, real dysfunction. What’s going on there? Is it a cultural issue? Is it an economic issue?

I am very distressed and disappointed and sad about the extent to which children are being raised in single-parent families without two married parents. I don’t want to lecture or stigmatize anyone. I just want to be honest about the facts about how to best structure your life so that your children can prosper and flourish in American society.

And the way that should happen is: graduate from high school, get married, and then have children, and raise those children together with a partner who can help you do all the things that parents need to do. It’s not just academic research that shows this, although this most recent, very sophisticated Harvard study that came out about mobility clearly showed that the biggest correlation to lack of mobility was living in communities where there are a lot of single-parent families. And I didn’t think that got enough attention.

But it’s not just academics that feel that way. It’s people—it’s parents. It’s common sense. Raising children is tough enough with two parents married. Raising them on their own and getting them ready for school and getting them ready to prosper and succeed in society is – it’s a commitment when you get married to raise your children so they’re most likely to succeed. So that’s the biggest problem.

And to some extent, American elites, American opinion-makers, American leaders, universities, academics, politicians, whoever leads our country, seems to be afraid to talk about that in an honest way, although they live that way. And that’s another thing that Charles shows in his work: to the extent to which well-educated Americans, college graduates do follow this pattern of life and are structuring their life and they’re having children in the context of marriage, that’s been very successful for them. But we don’t seem to want to preach what we practice.

Well, you mentioned the three legs, which are a growing economy, work requirements, and the third leg — work supports. Tell us a little bit about that. 

I’m glad you brought that up. So the little adage I used to say is being off welfare doesn’t mean you’re off of assistance. And it goes like this: the American people will provide assistance to struggling Americans if they’re working.

It turns out that for economic reasons and other factors, wages at the low end have not kept up with the cost of living or have not grown as rapidly as we’d like to see. And so there are places where what you earn may not be enough for you to be able to afford what you need in order to raise a family successfully.

The biggest one is the Earned Income Tax Credit, which is a federal program that often has the state, and in New York City, we also had a city version, which rewards workers at the low end of the wage scale with an annual refund of up to $5,000. That not only draws them into the workforce, but it makes them feel like staying in the workforce, and it makes work pay.

Childcare assistance for low-income Americans is also fairly common. I know there’s a lot of talk about pre-k, but there are forms of childcare assistance for low-income working families that provide some assistance.

Child support collection isn’t an actual government transfer, but it is a commitment to make sure that the absent parent is providing financial support to the family that he brought into an existence – he or she. It’s usually a guy. And that’s a very important program. It provides an enormous amount of assistance from that absent parent directly into the family household that is raising the children in. And so that’s a big support.

And public health insurance—and this one is where guys on the right get a little nervous. But the extent to which employers are not providing health insurance to people in their workforce who make low wages, workers feel more comfortable staying in the workforce if they can feel comfortable about their health insurance status for themselves and their children. And Medicaid and Child Health Plus and that provision of health care insurance has, I think, allowed working people to not quit the job and go on welfare just to get Medicaid. And I think it’s been better for those families than without.

Those are the big work supports. They are a form of government dependency. They’re not quite self-sufficiency, but that is a sort of recognition of the global forces on the labor markets that have changed the compensation for work so that families at the low end of the wage scale need a little assistance.

And I think Republicans, in my own personal opinion, have to become comfortable with the proper administration of those programs. So let me be clear. Those programs can be abused and dollars can be wasted in many ways, and we want to make sure they’re done correctly. But if they’re done correctly, helping people at the low-end of the wage scale stay working because we’re providing them this additional assistance, it seems to me is consistent with our values.

And do you think we’re doing enough, that the gap between what work pays and what welfare pays is …

That’s a good question. Let me tell you one thing about that. The biggest cost of those by far is the health care insurance. And the extent to which these programs are health care – public health insurance Medicaid program is so much more expensive—is really making it hard to devote other kinds of resources to struggling people.

So if you want my opinion, I’d say we need to provide people avenues to get health insurance. And sometimes we need to subsidize that, but we’ve got to be careful about allowing the health care programs to just bankrupt our country. So there I think we may be doing too much in terms of spending.

In the area of the Earned Income Tax Credit, the weakness with the Earned Income Tax Credit is that it is only focused on households with children in them. There is a single EITC, but it is very small. Single individuals without children in the households get really no benefit from the EITC. I think that’s something we should be thinking about and certainly non-custodial parents, they don’t have a child in the household, they want to work, they want to support their kids. They could use some work support assistance as well.

So I think on the work support side, we need to be careful that we don’t do too much. And then, in other places, I think we could do still more.

When we think about the poor, you often hear the phrase, there’s the deserving poor and the undeserving poor.  Do you see it like that?  Are there people we shouldn’t be helping because they’re not willing to meet whatever societal requirements that we put on them?  Are there people we just shouldn’t help, and they’re on their own?

I don’t really use that phrase in this way, but I do believe that poor Americans, the key to their advancement is going to be that they at least make a step toward self-sufficiency and personal responsibility. And then in return for that step, we provide assistance.

So I ran programs that if you failed to comply with a requirement or you failed to do what you were supposed to do on a certain day, we terminated benefits and we closed cases. And I think you have to have standards and you have to have rules and you have to enforce them because people watch those things very carefully and they respond to that kind of messaging.

And so I don’t divide people between deserving and undeserving. I think everybody is deserving of assistance, but I do say to people who I want to provide assistance to, “I need you to help yourself,” and to act like we shouldn’t say that is very disparaging of the people we’re trying to help.

The greatest surprise in post-welfare reform period was the extent to which people who others had said could not do it did it.  So a lot of times, the people in my business talk about how many people they’ve got jobs for.  The person that gets a job is a person who gets the job.  And labor force participation by never-married single mothers in the wake of welfare reform went up from less than 50% to almost 70% – a remarkable jump. And I think we need to be conscious of the fact that low-income Americans can do the things that we want them to do, but we have to have the guts to ask them and not lower our expectations for what they can achieve.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

]]> 0
Wednesday morning linkage Wed, 16 Apr 2014 15:00:50 +0000 read more >]]> oilweekly1. Chart of the Day: US oil production topped 8.3 million barrels per day last week for the first time in 26 years, going back to April 1988.

2. Markets in Everything: Watch the video above to see “Termite-Inspired Robots That Can Build Houses” – maybe a substitute or complement to 3D-printing?

3. Markets in Everything II: First-ever Pot Vending Machine to debut in Colorado.

4. “Markets” in Everything III: LibriVox provides free public domain audiobooks, with a goal “To make all books in the public domain available, for free, in audio format on the internet.”

5. Markets in Everything…. NOT: Belgium bans Uber, threatens €10,000 fine for each attempted pickup.

6. Markets in Everything… NOT IIIn an attempt to cut costs, Canada Post has announced plans to scrap all home mail deliveries, making Canada the first country in the G20 to be without a door-to-door service.

7. Who’d a-Thunk It? With the paperwork of medical insurance and the bizarre, politically driven inclusions, exclusions and mandates of Obamacare, more and more Texas doctors are opting out of insurance altogether and moving into the growing field called “Concierge Medicine.”

8. VIDEO: In the video below, AEI scholar Dr. Sally Satel discusses the benefits of e-cigarettes for both individuals and the U.S. as a whole.

]]> 13
If we’re not winning in Yemen, are we really winning against al Qaeda? Wed, 16 Apr 2014 12:17:57 +0000 read more >]]> CNN published a video clip featuring two al Qaeda leaders – Nasser al Wahayshi, al Qaeda’s number two and the leader of al Qaeda in the Arabian Peninsula (AQAP), and Ibrahim al Rubaish, a former Guantanamo detainee and AQAP’s shari’a official – speaking to a gathering of over 100 AQAP militants in Yemen. Wahayshi is wanted by the US, and neither Wahayshi nor Rubaish seemed particularly concerned for their safety.

Whether the US missed an opportunity to strike or chose not to act is not clear. (US officials, according to CNN, are not commenting, but acknowledging either way could compromise intelligence collection efforts.)

But the takeaway here is that we’re not winning in Yemen. Leadership attrition through drone strikes has had a limited effect. And a counterterrorism partnership has been unable to actually defeat the group allegedly “ousted” from south Yemen in spring 2012.

There has been no follow-up offensive against AQAP since then. Yemen’s security forces suffer regular casualties at the hands of AQAP fighters. The group’s most recent major attack was on the regional military headquarters in Aden, Yemen’s second-largest city, on April 2. A checkpoint attack credited to AQAP killed a score of Yemeni soldiers the week prior.

The speakers in the video are AQAP militants who had escaped in the February 13, 2014, complex attack on a Sana’a prison. Prisoners were able to obtain explosives and grenades on the inside and then waited for the attack that freed them. At least 19 convicted AQAP militants escaped that day. Five of them spoke in the video, released just six weeks later. There are also faces purposefully obscured in the released footage, which begs the question as to why is protecting their identities so important?

Such an operation to free prisoners is reminiscent of al Qaeda in Iraq’s “Breaking the Walls” campaign in 2012-2013, that allowed it to reconstitute itself there and expand into Syria. This comes at a time when there are rumors of militants returning from the Iraq and Syria battlefield ready to bring their skills to Yemen and a Yemeni who had fought in Iraq was killed in an airstrike. Are we seeing another instance of expertise moving from one al Qaeda group to another?

Wahayshi explicitly threatened the US in this most recent video and his group in Yemen is behind at least three attempts on the US homeland. So tell me, if we’re not winning in Yemen, are we really winning against al Qaeda?

]]> 0
Diamonds aren’t rare, they’re a terrible investment, and good substitutes are now available = diamond cartels aren’t forever Tue, 15 Apr 2014 22:30:10 +0000 read more >]]>

A Carpe Diem regular sent me an email about the Wisconsin-based Diamond Nexus company, which sells both lab-created diamonds and “diamond simulants” at a fraction of the cost of the “earth-mined” versions, see examples below of rings that sell for less than $1,000 with total carats of 1.24 or higher:

diamondsThe company operates a retail location in the Woodfield Mall near Chicago and they’ll soon be adding another retail location in downtown Milwaukee. All of their jewelry products are also available through the Diamond Nexus website, with customer service available by phone and live chat.

According to the company’s website:

Our diamond simulants contain a small amount of carbon along with other chemical components to give the optical appearance of a diamond, in which we can offer them at $149 per carat. Our lab diamonds are pure carbon, making them optically and physically identical to a mined diamond, however, because they have been created in a lab, we can sell them for 50% less than a earth-mined diamond.

In the video above, the company asks shoppers in a mall to compare a mined diamond ring valued at $3,743 to a nearly identical ring with one of the company’s lab diamonds that sells for $549. Even under close inspection with a jeweler’s magnifying glass, nobody could tell the difference between the $3,743 ring and the $549 version. Sure, they’re ordinary people, and not jewelry experts, but if you spend $3,743 on an earth-mined diamond and neither you nor anybody else can tell it’s different than the $549 “generic” substitute, is the extra $3,200 really worth it? Certainly not for me.

The company addresses and debunks seven of the common myths about diamonds, here are three examples:

Myth 1. Diamonds are rare.

There are TRILLIONS of carats of diamonds that will never be mined or sold to consumers. These aren’t some mythical reserves that we don’t know about, these are actual deposits that have been found but left untouched. Why you may ask? Well, if the people that control the diamond trade (we like to call them cartels because, well, they are) were to release all the diamonds they knew about, diamonds would cost pennies. So, being the “smart” people that they are, the cartels artificially hold back supply to drive up demand (read price). I know this doesn’t seem possible in this day and age but sadly it’s true.

2. Diamonds are a good investment. 

Much like a car, the minute you walk out of the store with a diamond, it starts to depreciate in value. A lot of customers come to us after their first marriage because they have gone through the process of trying to sell their expensive diamond ring. What they found out is that they could only get pennies on the dollar for their ring. This is exactly why we don’t think people should have to spend three months salary to get an amazing engagement ring. It’s not an investment, it’s a symbol of love!

3. Only a diamond lasts forever. 

“Only a diamond lasts forever” was meant to make diamonds feel like heirloom jewelry that could be passed down from generation to generation. This is fairly true but to say they’re the ONLY gemstone that stands the test of time is an outright lie. Technology now allows us to engineer lab diamonds and diamond simulants that last just as long as mined diamonds. All of these stones cut glass, are just as hard as a diamond and last just as long, so don’t fall for the advertising hype!

MP: As more diamond substitutes like this become available at a fraction of the cost of “earth-mined” diamonds that also might be “blood diamonds,” and as consumers get educated about the biggest anti-consumer marketing fraud in history, I’ll make this prediction: “Diamond cartels are NOT forever.”


]]> 47
No, it’s not the end of capitalism. An alternative to Thomas Piketty’s ‘terrifying’ future Tue, 15 Apr 2014 20:08:03 +0000 read more >]]> AEI’s Kevin Hassett provided a pointed critique of Thomas Piketty’s new book, “Capitalism in the Twenty-First Century,” Tuesday, telling an audience at the Tax Policy Center that Piketty’s prediction of a “potentially terrifying” future, in which capitalism collapses under the weight of wealth concentration, is not grounded in economic reality. Hassett showed that Piketty’s analysis doesn’t factor in the actual relationship between capital and labor, existing taxes and transfers, the negative effects of a global wealth tax, and the global decline of income inequality resulting from capitalism.

Piketty, a professor at the Paris School of Economics, argues that when the rate of return on capital exceeds economic growth, there is increasing wealth concentration. This dynamic was held at bay during the 20th century by the world wars (which destroyed significant portions of capital stock) and population growth. However, such forces may not occur in the 21st century. If capital accumulation continues unchecked and growth remains slow, Piketty posits that the wealth-income disparity could reach or surpass 19th century oligarchic levels and result in political and social upheaval. He proposes a global wealth tax as the solution to rising inequality.


Hassett, appearing with Piketty, argued that Piketty’s argument rests on the assumption that the elasticity of substitution between capital and labor is greater than 1, which is to say that capital and labor can be easily substituted. This would mean that higher levels of capital accumulation by wealthy people would not reduce the return on capital very much, so that capital share of income would skyrocket.

However, Hassett points out that the elasticities in the economics literature are much lower than Piketty needs to support his story, and even these estimates are high because they exclude structures from the analysis, something Piketty includes. In plain English: if you cannot make a hamburger with a building, then capital and labor cannot easily be substituted for each other, and the collapse of capitalism that Piketty predicts does not occur.

A significant portion, and in some countries the entire amount of the observed increase in capital’s share of national income in Piketty’s data, is attributable to increases in housing.  Indeed, if housing is excluded, the sharp increase in capital is almost eliminated, and the collapse of capitalism he projects disappears. This is especially important because housing cannot be substituted with labor (e.g. people holding umbrellas cannot substitute for houses), which again casts doubt on the idea that the elasticity of substitution of capital and labor is greater than 1. Moreover, Piketty’s entire framework to address the link between capital and growth is based on the idea that capital is like a robot or a machine. But his data are dominated by capital movements that cannot be modeled well by his approach.

In his policy proposals to combat the explosion of wealth that he predicts, Piketty dismisses the “serious efficiency costs” of a wealth tax and its impact on savings. This is especially problematic for him, since the redistributive income taxes he proposes are far more harmful to the economy when the elasticity of substitution between labor and capital is large. Generally, those who support high marginal tax rates do so because they believe that elasticities are small. Piketty’s evidence and policy position, then, are inconsistent with one another. (He also largely dismisses the consumption taxation literature for no clear reason.)

Piketty examines pretax, pretransfer incomes over the past several decades, a time during which the US has massively expanded its transfer programs. Indeed, transfers have increased relative to GDP more than the income share of the top, so ignoring them has a significant impact on the results. When assessing incomes in the US on a post-tax, post-transfer basis, income inequality is much less severe than the levels identified by Piketty. When assessing inequality on the basis of consumption, it is even less pronounced. However, Piketty does not examine consumption inequality. By focusing on only part of the overall story, capitalism appears to be unstable, whereas the political process has produced fairly stable consumption shares through expanded transfers.

Piketty’s view of inequality on a within-country basis fails to acknowledge that capitalism has led to a decline of income inequality globally and has helped lift millions of people out of abject poverty. If the world implements a global wealth tax, as he suggests, we could curb that progress in the developing world and perhaps increase global inequality.

Piketty argues that political power becomes as concentrated as wealth. For him, this is a key reason to aggressively redistribute income. Hassett points out, however, that transfer programs have increased dramatically while incomes have become more concentrated.   If the wealthy and politically powerful were using their political might to increase their own welfare at the expense of others, one would expect to see the opposite pattern.

Piketty’s critiques of capitalism were predicted decades ago by Joseph Schumpeter. Schumpeter predicted that academics would have “a group interest in shaping a group attitude that will much more realistically account for hostility to the capitalist order than could the theory,” and that capitalism would sow the seeds of its own destruction by sending the children of capitalists to universities that bombard them with anti-capitalist propaganda. Hassett argues that this threat to capitalism seems at least as plausible as that mentioned by Piketty.

Hassett’s full powerpoint deck (and charts) can be found here.

Follow AEIdeas on Twitter at @AEIdeas.

]]> 7
VIDEO: Diamond engagement rings are a complete scam Tue, 15 Apr 2014 19:36:25 +0000 read more >]]>

As a follow-up to my recent post about diamonds, which are by far the biggest marketing scam in history, orchestrated by the most successful cartel ever – De Beers – watch the video above titled “Why engagement rings are a scam” (some strong language).

]]> 3
Obama uses statistical fraud to accuse dry cleaners of gender discrimination, just like his fraud about the 23% pay gap Tue, 15 Apr 2014 18:45:49 +0000 read more >]]>

The extent of President Obama’s “revolting pay gap demagoguery” and willingness to spread “statistical frauds” about women’s issues to gain popularity with female voters apparently has no limits. Last week he accused America’s dry cleaners of engaging in systematic and unfair gender discrimination by charging women higher prices than men. Watch the video above as Obama, surrounded by women, says:

We’ll talk about dry cleaners next, right? [Watch all of the women shake their heads in agreement.] I don’t know why it cost more for Michelle’s blouse than my shirt. We got to make sure that America works for everybody.

Obama’s accusation that dry cleaners discriminate against their female customers is based on the same statistical fraud that he uses to attribute the entire 23% unadjusted gender pay gap to gender discrimination by falsely assuming that he’s comparing wages of men and women doing the exact same work. In the case of dry cleaners, Obama’s new statistical fraud is based on the faulty assumption that dry cleaners engage in gender-based discrimination by charging women more than men for having the exact same clothing item cleaned.

Following Obama’s false claims of gender discrimination last Tuesday, the female Executive Director of the National Cleaners Association responded later the same day with this letter to Obama, here’s an excerpt:

Imagine my distress when during your remarks about Pay Fairness, you segued into a smear on the quintessential small business, the dry cleaner, by suggesting you should be targeting them for gender biased pricing. Mr. President, for dry cleaning services, gender pricing is a myth, and we can prove it with the math!

We hope that once you understand the math, you will follow up your national conversation about dry cleaners by publicly correcting the mistaken impression that the media has helped to foster among many Americans, including our First Family.

As an industry, dry cleaners do not charge more for a woman’s shirt than a man’s shirt, they charge more for a hand ironed shirt than they do a machine pressed shirt. If you check your own dry cleaning bill, you’ll find that YOU pay more for the laundering and finishing of your hand ironed tuxedo shirt, than you do for the automated processing of your everyday traditional dress shirt! The price is in the math as calculated by the labor required not the gender of the client!
Simple math. Hand ironing takes more time and requires more skill, and therefore costs the cleaner more to produce. Because it costs more to produce, he charges more for the work.

Hopefully, now that you understand the terrible injustice that has been done to the nation’s dry cleaners, and have made the issue part of the national conversation, you will see how you were misled and take steps to undo the hurt and damage that has been inflicted on fair minded, hard working small businesses.


Nora P. Nealis
Executive Director

Bottom Line: Just like Obama’s wage gap demagoguery implies that companies like Ford Motor Company hire male engineers for $100,000 but then pay women with the same exact credentials and experience a salary of only $77,000, Obama accuses dry cleaners of charging women more than men to have the exact same shirt cleaned and pressed. In both cases (wages and dry cleaning), Obama’s engages in the politically-motivated statistical fraud of comparing apples to oranges, and then uses fraudulent conclusions to appeal to female voters: women are paid less than men for doing the exact same work, and women pay more than men for having the exact same item dry cleaned. Complete false conclusions in both cases.

]]> 91