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IP: Ranking the World's Economies

Mark Elliot- February 12, 2016

We live in a world of innovation, but how that innovation is harnessed and protected varies greatly around the world. The patents that lead to breakthrough medical treatments are protected differently in the United States than they are in India. Laws nurturing the development of creative content are implemented and enforced differently in the United Kingdom than they are in China. And trademarks that signal a trusted brand are protected differently in Vietnam than in Indonesia.

That's why the U.S. Chamber of Commerce's Global Intellectual Property Center developed the International IP Index, now in its fourth edition. This year's report, "Infinite Possibilities," ranks the IP environments in 38 economies around the world based on 30 criteria critical to innovation, such as patent, copyright, and trademark protections; enforcement; and engagement in international treaties. The United States ranks first, while Venezuela receives the lowest overall score.

IP protections truly do create infinite possibilities to unleash greater economic growth, stimulate job creation, and spark greater innovative activity. As detailed in the new report, countries that rank high on the International IP Index tend to fare better economically.

For example, high-ranking countries are more likely to attract venture capital, private equity funding, and foreign investment. Particularly in countries facing an economic downturn, like Brazil, the need to attract foreign investment is at a premium. Taking incremental steps to strengthen the IP environment helps to bolster the legal and regulatory framework, in turn giving investors assurances their innovations will be protected.

As new investment flows into a country, the economy itself is strengthened. Countries with a robust IP system have nearly triple the workforce concentrated in knowledge-intensive sectors and, on average, 2.5 times the research-and-development-focused personnel.

The creation and sustenance of these jobs helps continue a country's growth on the trajectory to becoming a truly knowledge-based economy. IP, after all, is the framework that takes a concept scribbled on the back of a napkin to an actual product in the market, which has a myriad of benefits for domestic consumers. Consumers in high-ranking countries have 30 percent greater access to the most recent technological developments.

These are a few of the benefits identified in the latest report, but the possibilities of a strong IP regime to economies around the world are infinite. It's important for policymakers in Washington and around the world to understand the significance of a strong IP environment, not only to an economy but to a society at large. The International IP Index is a tool to help make that case.

Mark Elliot is executive vice president of the U.S. Chamber of Commerce's Global Intellectual Property Center.

Why I Would Buy a Smart Gun

Robert VerBruggen- February 11, 2016

Over at our sister site RealClearScience, Tom Hartsfield has a piece called "Smart Guns Are Stupid Technology." That's what "science would say," he writes.

I share many of his concerns, and I think mandating smart guns is a bad (and probably unconstitutional) idea. But he goes too far in opposing any "gun that is hamstrung by special technological conditions to fire." In fact, I could see myself buying a smart gun one day. Here's why.

The idea of a smart gun is that it can fire when an authorized person is holding it, but not otherwise. The current versions of these guns are pretty awful — the most hyped one, for example, requires the user to wear a special watch in order for the gun to work. For that clunky setup you'll pay about $1,800. (The Glock 17, a very nice gun, goes for one-third of that amount.) Oh, and it's a .22-caliber, a size more suited to squirrel hunting than self-defense.

I wouldn't trade my decade-old Ruger 9mm for that, even at no charge. But I would trade some chance of not being able to use my gun in an emergency for a greater assurance that the gun wouldn't fire in the wrong hands. In fact, Hartsfield himself encourages people to make that tradeoff — he advises storing guns somewhere they're "hard to find," with the safety on if one is available, which will be a problem if someone breaks in at night and you don't wake up until they're close.

I'm worried about three situations where an unauthorized person could fire my gun. One, a child — such as my own — could get hold of it. Two, someone could steal the gun, and that person would of course be a criminal. And three, in the event I use the gun in self-defense, someone could wrestle it away from me.

None of these problems can be completely addressed with current storage methods. You might forget to return a gun to its proper location immediately after carrying or practicing with it; a criminal could break into a safe, or steal the whole safe and deal with it later; and storage is irrelevant when you're wrestling with an assailant over the weapon. Smart guns hold out the promise of solving these issues.

I'm especially drawn to the idea of a gun that would be useless to a burglar, or even one with a security system that would be difficult to disable. Most criminals who pack heat aren't gun nuts; some don't even know how to load their weapons. Criminals usually don't carry guns they stole personally, but many procure weapons on the black market, and hundreds of thousands of guns are stolen each year in the United States.

Exactly how big of a risk would I take for a gun with these capabilities? I will say that this scenario, which leads Hartsfield's article, isn't high on my list of concerns:

The power has been out for two months. Word of mouth, around the FEMA depots, says it should be back soon. That's what they said last month too. Suddenly, in the wreckage of your home, you hear the footsteps of a band of looters. You reach for your gun, but it won't unlock because its battery died last week...

Here are some features I would demand, though. One, it can't require me to wear a device to activate it. Two, it must reliably recognize me — no technology works exactly 100 percent of the time, but if people who buy the gun say it fails even once on a typical trip to the range, I'm out. Three, it has to be available in an actual self-defense caliber. Four, if it relies on a battery, it must have a good system for warning me to recharge or change it. And five, it must be affordable when compared with non-smart alternatives.

If I ever decide to replace my current gun, and if guns are available that meet these conditions, I very well may get a smart gun. A lot of other gun owners say they'd consider a smart gun too.

Some of the backlash against smart guns is justified. Again, it will be some time before they're good enough and cheap enough to be a serious option. And New Jersey didn't do anyone any favors when it passed a law banning the sale of non-smart guns as soon as smart guns become available. (That law remains on the books, though the state's attorney general has decided that the .22-caliber described above doesn't trigger it.)

But smart guns are not inherently a bad idea. One day, they will likely present a tradeoff that's acceptable to many people.

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

Ride-Sharing Saves Time, Money, and Lives

Jesse Hathaway- February 11, 2016

After months of delays, the office of New York City mayor Bill de Blasio released a long-awaited "impact study" examining the effect of Uber — a popular "peer-to-peer economy" business connecting drivers and riders — on the city's traffic-flow patterns.

The study, conducted by McKinsey & Company, a global management consulting firm, found that Uber and other transportation-network companies "have not driven the decline in Central Business District speeds that the City has recently experienced."

Instead, the impact study found traffic congestion to be primarily the result of factors such as "inadequate space at the curb for trucks and delivery vehicles" and "blocking lanes for construction of buildings, subways, underground utility infrastructure, or road repairs."

The first shots in city lawmakers' war on ride-sharing were fired in in January 2014, when the city's Taxi and Limousine Commission demanded to see Uber's private data on consumers' trip routes and other proprietary information. When Uber refused, the commission partially shut down the company's operations. Uber appealed, and the commission suspended the ban later that month.

Over the summer, de Blasio, the recipient of more than $500,000 in campaign donations from the taxicab industry, fought publicly with Uber, penning an article proclaiming that "no company's multi-billion-dollar political war chest gives it a blank check to skirt vital protections and oversight for New Yorkers."

But the mayor retreated unexpectedly in August, dropping plans to restrict the number of new drivers Uber would be allowed to hire. In return, Uber agreed to provide the tracking data that city regulators wanted for their impact study.

De Blasio's hypothesis was that Uber's growth has added to the city's traffic congestion, but the impact study found otherwise.

In addition, using data collected from Uber records, Manhattan Institute research fellow Jared Meyer discovered that the rise of the sharing economy actually improved the lives of New York City residents. Consumers in underserved or economically depressed boroughs — away from the city's airports and downtown areas — had the highest increases in demand for UberX, the company's basic service tier.

Not only do the benefits provided by Uber outweigh the costs imagined by the service's opponents, but academic research suggests Uber may be a literal lifesaver for some consumers. A study published by Temple University, written by assistant professor Brad Greenwood and associate professor Sunil Wattal, studied how the availability of Uber affects alcohol-related vehicular homicide rates.

Studying two California cities over a five-year period, Greenwood and Wattal found a "significant drop in the rate of alcohol-related vehicular homicides after the introduction of Uber." Scaling the data up to the national level, they estimated that making Uber available everywhere would save 500 lives and enhance public welfare by $1.3 billion annually.

Lawmakers in every city and state, not just New York City, should empower consumers and enterprising individuals to trade freely and voluntarily among themselves. By doing so, they would save huge amounts of money, preserve hundreds of lives, and spur economic development.

Instead of trying to hold back the wave of the future, lawmakers should allow consumers to reap the economic and societal benefits of the peer-to-peer economy's rising tide.

Jesse Hathaway (e-mail) is a research fellow with the Heartland Institute.

The Single-Payer Sacrifice: 11.6 Million Jobs

Yevgeniy Feyman- February 11, 2016

Democratic candidate Bernie Sanders recently released his health-care plan: a government-run single-payer system for the U.S., similar to what many European countries have. Criticism of the plan has so far focused on its lack of political feasibility, but there is an even more important reason to be wary: Accounting for costs and tax increases, it would reduce labor supply by 11.6 million. In a struggling economy, with tepid wage growth, hurting employment should be the last thing on any politician’s agenda.

The plan truly promises everything under the sun. Not only will everyone be able to get any medical treatment needed — with no cost at the point of service — but the plan won’t require a terribly high tax increase. The funding mechanism boils down to an increase in payroll taxes: an “income-based premium” of 2.2 percent for individuals and a tax of 6.2 percent on employers. Because economists, as well as the non-partisan Congressional Budget Office and the Joint Committee on Taxation, recognize that the "employer share" of payroll taxes is mostly borne by workers in the form of lower wages, this translates to an 8.4 percentage point increase overall.

These elements of the plan were the first to draw criticism. Not only do most single-payer countries fund their health-care systems with higher taxes on the middle class, but they also typically exclude a variety of services and drugs from coverage. Without being able to say no to some expensive drugs and services, the government would have a tough time driving down prices.

But perhaps the most stinging rebuke came from veteran health economist Kenneth Thorpe of Emory University. In Thorpe’s estimation, Sanders’ plan would require a total tax hike of 20 percentage points, and would cost $1.1 trillion more each year than the campaign has estimated. This is at least partly because the government would have to pay more than Medicare’s low rates to keep doctors and hospitals in the system, and making health care free at the point of delivery would also increase use of health-care services.

These criticisms alone should make Sanders’ plan a nonstarter. But that’s not the end of the laundry list of problems with the proposal.

Few economists would dispute that tax rates can affect people’s decision to work. The higher a person’s marginal tax rate, the bigger the disincentive to work more; a 50 percent rate, for instance, means that earning another dollar nets only an extra 50 cents. This is what economists call the “substitution” effect.

But there is a countervailing effect as well. As you pay more in taxes, you may want to try to maintain your previous standard of living, and thus decide to work more. This is called the “income effect.”

The ultimate effect of taxes on the workforce depends on which of these forces is stronger. The CBO, for instance, has come to the conclusion that the Affordable Care Act’s combination of taxes, tax credits, and mandates will reduce full-time equivalent employment (one full-time equivalent employee works 40 hours per week; two part-time workers equal one full-time equivalent) by about 2 million in 2025.

As it turns out, the ACA’s many taxes are relatively insignificant compared with those in the Sanders plan. Applying the CBO’s approach and assumptions, along with tax data from the National Bureau of Economic Research, to the Sanders plan indicates that the campaign’s assumed taxes would reduce employment by 4.9 million full-time equivalent workers in 2025. Not an insignificant number.

When we take Thorpe’s more realistic assumptions and apply the same approach, the fully-implemented plan reduces employment by a whopping 11.6 million full-time equivalent workers. Under these assumptions, the average marginal tax rate would grow from around 22 percent to 42 percent, while the average total tax rate would increase from 11 percent to 31 percent. At the upper end of income, total tax rates would be far beyond 50 percent. And none of this factors in state and local taxes.

Of course, some of drop in employment might be considered “voluntary.” Some would stop working because they no longer needed to be employed to receive health insurance — escaping "job lock," as House Minority Leader Nancy Pelosi once put it. But others would simply find it meaningless to put in extra hours or look for more lucrative positions when so much of their earnings get sucked away as taxes.

For employers, this would all mean a large increase in hiring costs, too. Sure, as Sanders’ campaign likes to remind us, employers would no longer pay for private health insurance. But economists also recognize that health insurance is a form of compensation. And if you cut health insurance (with or without raising taxes), wages must in turn go up.

Sanders might be correct that health-care reform is unfinished. There remain many problems with the ACA that must be addressed and many problems that the ACA left untouched. But it’s quickly becoming apparent that the Sanders plan for American health care is the wrong way to fix these problems and offers a bad deal for workers.

Yevgeniy Feyman is a fellow and deputy director of health policy with the Manhattan Institute.

The E-Cigarette Barn Door Is Open

Edward Anselm- February 10, 2016

The health of America's 42 million smokers, whose lives will be cut short an average of ten years by their continued use of combusted cigarettes, is being held hostage by government inaction.

Public-health officials agree that e-cigarettes have a role in reducing the burden of illness; while e-cigarettes are not safe, they are a much less harmful way of delivering the nicotine to which smokers are dependent. They can help smokers quit — even, sometimes, smokers who didn't take them up with that intention. Failing that, they reduce the harm of continued nicotine consumption.

Both the Food and Drug Administration and the Centers for Disease Control know this, yet have done precious little to address the new technology — either to encourage smokers to switch, or even to regulate e-cigarettes in a serious and reasonable manner. They have been preoccupied by their war on nicotine, regardless of the source.

Television ad campaigns against smoking are a prime example of how federal agencies approach the subject. While these advertisements are effective, especially with young people, they leave millions who could be helped to quit smoking untreated.

These agencies express concern that positive messages about e-cigarettes could encourage young people to try them. This is a reasonable worry. But although some young people have taken up e-cigarettes in recent years, this is largely due to an absence of regulation — while some states have banned sales to minors, many have not yet formally taken action.

Better regulations could address this concern, but that does not seem to be a priority for policymakers. The government has spent the last five years, for example, developing protocols to evaluate and regulate the safety of e-cigarettes. The draft guidelines are so onerous that it would take several years and millions of dollars for any e-cigarette product to be approved. And after many years of reports of children being poisoned after accessing their parents' nicotine, it was only this year that Congress passed legislation requiring that e-cigarettes and the devices used to refill them be made childproof.

Fortunately, smokers who want to reduce their risk of tobacco-related disease are not waiting. Reuters reports that 10 percent of adults now use electronic cigarettes. One prominent health activist has attributed the recent decline in cigarette smoking, which has reached a new low of 15.3 percent, to this increased use of e-cigarettes. Two recent surveys of physicians find that half report their smoking patients ask about e-cigarettes; one in three doctors recommend them for harm reduction or cessation.

Progress on controlling smoking has been more substantial in the United Kingdom. In 2015, Public Health England published a systematic review of the available literature on the health and safety implications of electronic cigarettes, concluding their use is about 95 percent safer than smoking. The authors recommend that smokers who have tried other methods of quitting without success be encouraged to switch to e-cigarettes. In addition to helping with cessation, switching could reduce smoking-related disease, death, and health inequalities. The report added that there is no evidence so far that e-cigarettes act as a route to smoking for children or non-smokers.

These conclusions were based on several well-designed studies that show e-cigarettes to be as effective as nicotine patches as a cessation tool. In addition, one in seven e-cigarette users reduce their daily cigarette consumption by 50 percent or more.

England's National Health Service now dispenses select electronic cigarettes as part of routine smoking-cessation interventions. A 2015 article published in Addiction Research and Therapy describes how adding e-cigarettes has increased the program's appeal, cost-effectiveness, and efficacy.

Here in the U.S., the FDA and CDC's concerns about the impact of e-cigarettes on young people certainly is appropriate, but that does not excuse the agencies' failure to promote evidence-based interventions for adult smokers.

Edward Anselm is medical director of Health Republic Insurance of New Jersey and a senior fellow of the R Street Institute. 

Corporatize Air Traffic Control: A Democrat's Case

Dorothy Robyn- February 9, 2016

On Wednesday, the House Transportation Committee will consider Chairman Bill Shuster's bill to transfer the air traffic control system from the Federal Aviation Administration to a non-profit corporation that the FAA would regulate at arm's length. Key House Democrats oppose what they view as "privatization."

This is not a battle that Democrats should wage. President Clinton tried to shift air traffic control to a government corporation two decades ago — part of a long-running FAA-reform effort I participated in as a special assistant to the president for economic policy — and 60 countries have corporatized their systems since 1987. Even U.S. air traffic controllers, who rejected similar proposals in the past, support the Shuster bill.

Air traffic control is not an inherently governmental function, as the actions of those 60 countries demonstrate. Although keeping planes safely separated is a complex and critical task, it is a purely operational process that follows well-established rules. Like running an airline or manufacturing a Boeing 787, air traffic management can be performed effectively by a non-governmental entity as long as it is subject to oversight by FAA safety regulators, whose job of setting and enforcing the rules is inherently governmental.

Because the air traffic control system is a business-like operation, the federal government is poorly suited to running it. Commissions have studied the FAA in depth, and there is a broad consensus on the problem. Air traffic management is a 24/7, technology-intensive service "business" trapped in a regulatory agency that is constrained by federal budget rules, burdened by a flawed funding mechanism, and micromanaged by Congress and the Office of Management and Budget.

To paraphrase James Carville, "It's the incentives, stupid." Because it relies on appropriated funds, the FAA views Congress rather than aircraft operators — and the traveling public — as its customer, and Congress intervenes in decisions large and small. For example, members concerned about the loss of jobs in their district have long blocked FAA plans to consolidate aging and inefficient facilities that would save hundreds of millions of dollars a year.

 The FAA's funding mechanism compounds the governance problem. Air traffic control is paid for largely through an ad valorem ticket tax on passengers rather than a cost-based charge on aircraft operators, whose scheduling decisions and operational practices determine the workload on the system. This indirect funding mechanism distorts aircraft operators' decisions and lessens the FAA's incentive to respond to the needs of its real customers.

The budget process is another major constraint. Because the federal government lacks a capital budget, the FAA cannot borrow against annual receipts to fund long-term investments in new technology.

These problems are most evident in the FAA's long-running struggle to deploy new technology that would improve efficiency and make air travel safer. When it undertook to modernize the air traffic control system in 1981, the FAA estimated that the work would cost $12 billion and take a decade to complete. Thirty-five years and $56 billion later, many controllers still keep track of aircraft using paper strips. Outdated technology limits the capacity of the system, contributing to all-too-common flight delays and helping to explain why the FAA's cost per unit of service has gone up by more than 70 percent since 1997.

Corporatization of air traffic control makes sense for another reason: safety. Historically, civil aviation authorities in most countries both operated and regulated air traffic control, leading to potential conflicts of interest. Safety experts, including the International Civil Aviation Organization, have long called for the two functions to be separated to prevent such conflict — a major reason that so many countries have moved air traffic control to an independent (corporate) entity. The United States is one of the few advanced countries in which air traffic control continues to be operated and regulated by the same agency.

Because air traffic control is a natural monopoly, most countries transfer it to a government corporation, which provides commercial flexibility while avoiding the potential for monopoly abuse. Although this approach works well elsewhere, where such entities are politically insulated, in this country, government corporations such as Amtrak and the U.S. Postal Service have politically appointed boards, and their decisions are subject to continued "oversight."

Rep. Shuster's bill adopts an alternative approach — a private, non-profit corporation modeled after Canada's highly respected provider of air traffic services, Nav Canada. Similar to user cooperatives in the utility sector, Nav Canada is run by its major stakeholders, whose self-interest drives them to keep costs low. Its user charges are one-third lower than the ticket tax they replaced in 1998, while the system is handling 50 percent more aircraft with 30 percent fewer employees. Nav Canada has fully modernized its equipment and now sells its hardware and software to other providers.

 Opponents of the House bill include groups who benefit from flaws in the existing system — business jet owners, who are subsidized by the current charging scheme; Delta Air Lines, whose efficient Atlanta hub provides a competitive advantage because of capacity constraints elsewhere; and congressional appropriators, who control the allocation of revenue generated by (distortive) aviation taxes. Their ill-founded criticism of the bill only reinforces the need for reform.

The opposing camp also includes Democrats on the Transportation Committee who, while not defending the current system, resist removing it from the federal government, seemingly on principle. Last fall, Rep. Peter DeFazio, the ranking member, proposed to move the entire FAA into a government corporation — a fundamentally flawed option that would corporatize even the inherently governmental parts of the FAA.

Democrats should not treat this as a principled fight over "privatization." Controllers support the Shuster bill because they like Canada's user co-op approach to air traffic management, which rewards productivity and involves controllers intimately in the technology modernization process. Aircraft operators and consumers also benefit. Had Nav Canada existed in 1995, I suspect that it, rather than New Zealand's government corporation — the best model at the time — would have been the prototype for the Clinton administration's corporatization proposal. With the problems that prompted that proposal having gotten only worse over the last 20 years, an idea that made sense then should be even more compelling now.

Dorothy Robyn was a special assistant to the president for economic policy from 1993 to 2001; her responsibilities included aviation policy.

Economic Liberty: Down in America, Up in Texas

Dean Stansel & Vance Ginn- February 9, 2016

Economic freedom in America has steadily declined for the past 15 years as the role of the federal government has expanded rapidly. However, the situation is worse in some states than in others — as noted in the latest "Economic Freedom of North America" (EFNA) report, of which one of us is a coauthor.

The most economically free states have per capita incomes 7 percent above the national average; the least free states have income 8 percent below the average. The contrasts are especially clear among the four largest states, which account for over one-third of the U.S. population.

New York and California are ranked last and next to last in economic freedom, respectively, while Texas and Florida are tied for third (behind only sparsely populated New Hampshire and South Dakota). Their economic performances also stand in sharp contrast. In recent years, population has grown twice as fast in Texas and Florida as it has in New York and California. Employment and income have grown faster in Texas and Florida as well. Levels of income inequality have remained about the same in Texas and Florida, despite their having far fewer costly redistributionary policies.

This is not a new phenomenon. Historical data in this year's report shows that Texas and Florida have been in the top five for economic freedom since 2005, and in the top eight since 1981 (when the data set starts). New York has never ranked higher than 48th, and California has been above 40th only twice, both times ranking 39th.

It's no coincidence that Texas and Florida have thrived while New York and California have not. High levels of taxes, spending, and regulations make it more difficult for entrepreneurs to be successful. When entrepreneurs cannot expand their businesses and hire new workers, everyone is hurt, not just the rich.

There have been over 130 papers by independent researchers using the EFNA index. The vast majority of those have found that higher economic freedom is associated with a host of positive outcomes, for example higher incomes, faster income growth, and more entrepreneurial activity. Similar research has been done using country-level data with the same basic conclusion: Countries with more economic freedom tend to have more prosperous economies.

Texans have reason to be pleased, but as was once said, "The price of liberty is eternal vigilance." While the state ranks near the top of the EFNA list by having a relatively limited-government philosophy, there's plenty of room for improvement.

Being one of only nine states without an individual income tax substantially benefits Texans and must be maintained. However, Texas is one of only four states to impose the terribly burdensome business margin tax, which is similar to a gross-receipts tax. As a result, the Tax Foundation ranks Texas as 41st nationwide on corporate taxes in their State Business Tax Climate Index. Texas also ranks quite poorly for sales taxes and property taxes (37th for each) in the EFNA report. Restraining government spending so that these taxes can be reduced would help Texas be even more competitive with other states.

Taxpayer-funded corporate subsidies also limit Texas' full potential. The Texas Economic Development Act is a property-tax abatement initiative of $1.6 billion over ten years that reduces tax liability and provides tax credits for companies that build facilities and create new jobs. The breadth of these programs is expansive, including the Texas Enterprise Fund, the Economic Development Bank, Arts Organization Grants, and others. Texas taxpayers would be wealthier if less money was spent on these initiatives, which often provide big giveaways to huge corporations while leaving small businesses to fend for themselves — corporate welfare at its worst.

Finally, in the Mercatus Center's "Freedom in the 50 States" report, Texas ranks only 24th for regulatory freedom. One reason is stringent occupational-licensing requirements; the Institute of Justice ranks Texas as having the 17th most burdensome set of them. These regulations protect existing businesses from new competition, and they make it harder for low-skilled workers to find employment. They should be dramatically scaled back.

Texas' successful economic model is one that other states and federal lawmakers would be wise to follow. But even Texas could do far better.

Dean Stansel is a research associate professor at the O'Neil Center for Global Markets and Freedom in SMU's Cox School of Business. Vance Ginn is an economist in the Center for Fiscal Policy at the Texas Public Policy Foundation. The Texas Public Policy Foundation will hold an event on this issue and more that will be livestreamed today at 12:30 p.m. Eastern.

Puerto Rico Can Move Forward Without Congress

Rachel Greszler- February 9, 2016

Congress and the president have proposed various federal interventions and bailouts to save the cash-strapped and economically troubled commonwealth of Puerto Rico. Treasury Secretary Jack Lew sent a letter to Congress last month claiming that "only Congress can enact the legislative measures necessary to fully resolve this problem."

Yet the island is working within its own laws to solve its own problems. Last week, the commonwealth released a proposal to reduce and restructure its debts while implementing economic reforms to help improve its chances of recovering.

Why would Puerto Rico move forward when it could hold out for a federal bailout? Perhaps the people realize they would likely have to give up a significant degree of self-governance in exchange for a bailout. Maybe the commonwealth recognizes that the federal government is hardly a model for fiscal restraint. Or perhaps it believes it has a better understanding of its own problems and potential solutions than the federal government does.

Whatever the reason behind it, Puerto Rico's action shows that Congress is not the island's only hope.

Under the proposal, the commonwealth would restructure $49.2 billion of its roughly $72 billion in debt. Bondholders of the affected debt would receive $26.5 billion in Base Bonds and $22.7 billion in Growth Bonds.

Base Bonds would include improved credit protections such as a commonwealth guarantee and statutory liens and pledges on certain revenues (including the sales and use tax and up to $325 million in annual petroleum tax revenues). Interest payments on Base Bonds would not begin until 2018 (and would rise from 3 percent in 2018 to 5 percent in 2021 and beyond), and principal payments would begin in 2021.

The Growth Bonds, on the other hand, would have little security, as they would not be payable until 2026, and even then only if the island's revenues exceed a specified level.

For bondholders as a whole, this means each dollar in debt would be replaced with 56 cents of debt with a more certain repayment and 44 cents of debt with less certain repayment. However, some bondholders would receive more than others. General Obligation bondholders would receive about 72 cents on the dollar, Sales Tax Revenue bondholders would receive about 49 cents, and the remaining bondholders would get an average of 39 cents on the dollar.

Not all bondholders are part of the proposed deal; those owning several types of debts are excluded. However, these excluded bondholders may work out separate restructuring agreements; one group — the Puerto Rican Electric Power Authority, or PREPA — has already proposed an agreement that is awaiting the legislature's approval.

If most bondholders accept the proposal, and if it is accompanied by successful economic reforms, the island's debt payments could fall from 36 percent of revenues to 15 percent. But getting substantial buy-in from bondholders — who have called the proposal "not credible" and "not serious" — will not be easy.

Some bondholders view this as an opening offer, and may head to the negotiating table in hopes of working out a more palatable deal.

Others, however, are likely holding out hope that Congress will step in and grant Puerto Rico retroactive access to Chapter 9 bankruptcy as an alternative way to discharge and restructure some of its debt. But creditors who bought Puerto Rican debt did so knowing that it was not subject to Chapter 9 bankruptcy. Changing the rules of the game midway through amounts to nothing more than picking winners and losers through a process that has proven neither fair nor equitable in the past.

Proponents of granting Puerto Rico access to Chapter 9 bankruptcy portray it as a cure to the island's woes. But the commonwealth's resources are what they are, with or without Chapter 9 bankruptcy. Creditors are going to receive haircuts. The only thing Chapter 9 bankruptcy would change is who receives what.

If Congress wants to help improve Puerto Rico's chances of recovery, it can start by exempting the island from the federal minimum wage, which drives up labor costs, suppresses formal labor-force participation, and reduces taxable income; exempting Puerto Rico from the maritime Jones Act, which increases shipping costs and reduces the island's competitiveness; and granting the island more flexibility in administering federal welfare benefits so that welfare isn't more advantageous than work.

But as this recent proposal shows, Puerto Rico already has a way to negotiate its debts without congressional intervention. Congress should allow Puerto Rico to pursue its own negotiations with creditors, carry out its own fiscal control board if it so chooses, and implement its own Fiscal and Economic Growth Plan.

Rachel Greszler is a senior policy analyst for economics and entitlements in the Center for Data Analysis at the Heritage Foundation (

Robert Reich Gets Broadband Wrong

Doug Brake- February 8, 2016

There's an old parlor game called "telephone" in which someone says something to one person who then repeats it to the next person and so on. By the time the message gets back to the originator, it is garbled beyond all comprehension.

Robert Reich's new book Saving Capitalism reads like the last message in a game of telephone on the topic of broadband policy. He starts with distorted perceptions of the U.S. broadband market — the endnotes confirm the role of Harvard professor Susan Crawford, who stridently opposes for-profit broadband, in Reich's thinking — and then twists them even more to promote his campaign for a Bernie Sanders-esque "democratic socialism."

Let's start with broadband speed and prices. Crawford argued in Captive Audience — a tract advocating government-owned broadband networks — that U.S. speeds ranked only the 22nd-fastest in the world, and that our prices were among the highest. We were actually in the top 10 for speed, and in fact our lower-end services were among the world's most affordable. But when Reich takes his turn in the game of telephone, he goes even further, lamenting that "the United States ha[s] some of the highest broadband prices among advanced nations, and the slowest speeds."

This simply isn't true.

Reich complains about the price of "high-speed" broadband, ignoring the fact that the United States has remarkably low entry-level prices; the International Telecommunications Union of the United Nations consistently ranks the United States in the top three best countries for entry-level broadband prices. This progressive pricing — whereby wealthier Americans pay more for the fastest speeds, essentially subsidizing cheaper, entry-level broadband — is something you would expect a progressive like Reich to embrace.

Reich is even more wrong on speed. His claim that we have "the slowest speeds" has no basis in fact, and the sources he cites don't support it. Even the more modest claim that the United States has relatively slow speeds compared with other advanced nations isn't true. Research that my colleagues and I have conducted (along with many other studies) shows that the United States does remarkably well on broadband speed, especially considering its large size and low population density (which greatly increase the cost of building networks). If individual states were ranked, instead of the U.S. as a whole, they would take six out of the top ten spots.

Overall, we are in the middle of the pack among advanced nations. There's no reason to rest on our laurels, but the notion that our broadband policy is off track simply is not borne out by the facts.

In his campaign to expand government and shrink business, Reich also asserts that we are facing a "cable monopoly" that justifies government entering the broadband business. Reich appears to have bought Crawford's warning of a "looming cable monopoly" hook, line, and sinker, going so far as to drop the "looming." He asserts that cable operators "exemplify the new monopolists" of the capitalism he seeks to save.

Crawford's "looming monopoly" proclamation was a prediction, and one that turned out to be wrong. Between Google Fiber looking more and more like a serious business every day, and the aggressive response from telco companies investing in their own fiber networks, the last five years of broadband buildout is a success story for competition.

Reich is also incorrect that broadband profits are high. Back in 2013, investment analyst Craig Moffet pointed out that the gross margins on cable broadband are considerably higher (around 90 percent) than on the traditional cable video offering (where they are more like 60 percent). Crawford and her acolytes have had a field day with this "90 percent profit margin," willfully ignoring that gross margin is a precise financial metric that disregards all the investment and expenditures necessary before a company is able to offer a product. Moffet's point was a narrow one: that cable TV is costlier to offer than broadband when operators have to purchase video rights. Looking at more appropriate metrics, return on cable investment is more like 4 percent to 8 percent, which is about the same as the average profit margin of all U.S. companies, hardly evidence of unconstrained monopoly power in action.

But by the time Reich gets a hold of this picture, the industry is portrayed as an encrusted monopoly that is sitting back and harvesting profits from Americans' wallets, while doing nothing to improve the countries' networks. In Reich's words, cable companies have "tubes in the ground" that are "slower" than they should be. This is a strange stance, especially when by the FCC's measure broadband speeds more than tripled from 2011 to 2014.

Nit-picking over things like gross margins may seem pedantic, but for those of us trying to figure out good policy to promote the growth of efficient, high-speed broadband networks, it is incredibly frustrating to watch these issues get systematically distorted. In a time when everyone loves to hate their cable company and selling stories of inequality is big business, otherwise legitimate debates quickly spin out of control. Reich's faulty analysis of broadband policy is the latest offender, where facts simply no longer seem to matter.

Doug Brake is a telecommunications policy analyst at the Information Technology and Innovation Foundation, a think tank focusing on the intersection of technological innovation and public policy. Follow him on Twitter: @DBrakeITIF.

Washington's 'Dark Matter' Regulations

Clyde Wayne Crews Jr.- February 8, 2016

In a recent Gallup poll, Americans named the government as the top problem facing our nation for the second year in a row — government beat out the economy, immigration, unemployment, and even terrorism. The public is frustrated with everyone from President Obama to members of Congress to politicians in general.

This isn't surprising, considering that 2015 was a banner year for government interference in Americans' lives without their assent; the Obama administration issued 39 regulations for every law approved by Congress. And that ratio wasn't a fluke. The average ratio of regulations to laws under George W. Bush was 17:1, less than half of Obama's 35:1 record. Annually, federal regulations now cost the economy about $1.9 trillion.

The president hasn't been shy about his willingness to use his "pen and phone" when Congress won't pass the laws he wants. But formal regulations and executive orders are just part of his strategy. In addition, as I detail in a new report for the Competitive Enterprise Institute, his administration has often worked through what I call "dark matter": proclamations in the form of guidance documents, memoranda, bulletins, manuals, circulars, and even blog posts.

Under the Administrative Procedure Act, most federal regulatory agencies must follow guidelines for proposing and establishing regulations. This includes public notice of a proposed rulemaking and a period for the public to submit comments. The APA also created a process for federal courts to review these agencies' actions and decisions.

But when the executive branch uses dark matter, federal agencies circumvent Congress, the American people, the courts, and essentially all oversight. Such proclamations are not supposed to be legally binding, but if you're a small-business person awaiting a permit or approval, they're hard to ignore — assuming you can find where they're published.

According to White House data, there have been 222 executive orders since 2008, but 472 executive memoranda ranging from the mundane to the weighty. Other dark-matter items, including guidance documents and other notices from the hundreds of federal agencies, are much more slippery. No one even knows how many federal regulatory agencies there are, who works for them, or what they cost American taxpayers. Agencies' public presentations of guidance and their effects are all over the place.

Agencies have voluntarily acknowledged at least 580 "significant" guidance memos — those with impacts of at least $100 million annually. Perhaps the most shocking volume of dark matter comes in the form of "public notices" that have appeared in the Federal Register: a whopping 524,251 since 1994, dwarfing the 777 executive orders published during that time. Most public notices may be trivial, but policymakers really don't know what's all in there. Not all guidance documents or other dark matter appear in the Federal Register.

Congress needs to get a handle on the extent of regulatory dark matter and what it costs us. At the root of the problem of regulatory overreach is Congress' dereliction of its constitutional legislative power. To address this, Congress should require a vote on all costly and controversial agency rules — including dark matter — before they become binding on you and me.

At the very least, Congress, and future presidents, need to assert that all decrees by federal agencies matter, not just those acknowledged and published as real "rules." Dark matter needs to receive at least the same administrative scrutiny as ordinary rules — which themselves could use greater oversight.

The Constitution isn't perfect, but it's better than a pen and phone.

Wayne Crews is vice president for policy and director of technology studies at the Competitive Enterprise Institute, and author of the new report "Mapping Washington's Lawlessness: A Preliminary Inventory of ‘Regulatory Dark Matter.'"

The Nuances of the Ferguson Effect

Robert VerBruggen- February 5, 2016

According to the "Ferguson Effect" theory, police became demoralized and timid following the death of Michael Brown — and the subsequent protests — in August of 2014. Other incidents, such as that involving Freddie Gray in Baltimore in April of 2015, only worsened matters. Crime rose.

As I pointed out last September, this theory makes a prediction: The protests were heavily focused on race, so cities with higher black populations should have had greater increases in crime. Presumably, police worry less about setting off a public-relations nightmare when they interact with white civilians.

I tentatively confirmed this using data FiveThirtyEight had collected from 60 cities. Those numbers covered most of 2015 and the same period in 2014, and they suggested a 16 percent increase in homicides — an increase that was indeed somewhat concentrated in cities with high black populations. The effect wasn't dramatic, but it was there.

A new academic study, using data from 81 cities and focusing on the year before and after Ferguson, argues against the existence of a widespread Ferguson Effect — but it also confirms my findings on race and homicide. From the abstract (emphasis mine):

No evidence was found to support a systematic post-Ferguson change in overall, violent, and property crime trends; however, the disaggregated analyses revealed that robbery rates, declining before Ferguson, increased in the months after Ferguson. Also, there was much greater variation in crime trends in the post-Ferguson era, and select cities did experience increases in homicide. Overall, any Ferguson Effect is constrained largely to cities with historically high levels of violence, a large composition of black residents, and socioeconomic disadvantages.

Cities with declining homicide trends were, on average, about 12 percent black, just below the national figure. Those that experienced flat trends or modest increases were 18 percent black. And the cities with the biggest increases were 35 percent black.

The authors themselves are hesitant to tie this to changes in policing, though, offering a different way of viewing the correlation:

What is important about these cities is that they had much higher crime rates before Ferguson, which in turn may have primed them for increases in crime. Cities with post-Ferguson increases in crime tended to have a higher proportion of black residents, lower socioeconomic status, and more police per capita—important macro-level correlates of crime rates (Pratt & Cullen, 2005; Sampson, 2012). Simply put, these other predictors of crime rates lead to questions that may inhibit any ability to attribute crime increases specifically to the Ferguson Effect in these cities.

The biggest question is this: If these cities were "primed ... for increases in crime," what besides the Ferguson Effect actually set off the increases? At the very least, it's an odd coincidence that homicide rose specifically in heavily black cities after Ferguson.

I should also note that some are troubled by the implications of this theory. Indeed, you could use it to argue for censorship, or for ignoring police abuses. I'm not particularly tempted by this line of reasoning — the right to protest is sacrosanct, and we should always try to find the truth, even when it makes us uncomfortable.

That includes the truth about cops. It also includes the truth about anti-police sentiment.

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

The State Department's Transparency Problem

Brett D. Schaefer- February 5, 2016

The State Department is reluctant to share information. Over the last few years, we’ve seen incomplete and painfully slow compliance with congressional subpoenas and stubborn refusals to answer questions from journalists. The department has even blocked the release of documents sought under the Freedom of Information Act (FOIA).

But State’s unreliable commitment to transparency extends beyond protecting its reputation or playing partisan games. I reached this conclusion during a recent effort to research historical employment trends at the department.

On the surface, State appears very transparent. In the appendix to its annual Congressional Budget Justification, it publishes lots of verbiage, numbers, and details on its resources, including Civil Service and Foreign Service employees. However, these details are spread throughout the document, with information on different bureaus and offices contained in different sections, making it difficult to tell whether the data are complete. This is key, because in recent years, the State Department has not publicly provided details on the exact total number of its employees.

The closest tally is provided in Appendix 1:

The Department operates more than 275 embassies, consulates, and other posts worldwide staffed by nearly 46,000 Foreign Service Nationals and almost 13,700 Foreign Service employees. ... A Civil Service corps of roughly 11,000 employees provides continuity and expertise in performing all aspects of the Department’s mission.

While informative, the data are rounded and presented in general terms. This also occurs in the State Department’s FY 2015 Agency Financial Report, which provides only a bar graph of State Department employees in the thousands with no specific totals.

Seeking an alternative source, I went to the U.S. Office of Personnel Management, which maintains the “FedScope” database on all civilian employment for the federal government. But the FedScope data for the Department of State only raised more questions. For instance, although employment data for other cabinet level agencies were available, FedScope reported no State Department employment data in September 2015. In September 2014, FedScope reported that State only had 23 employees in foreign countries, which is obviously incorrect. Strangely, this inaccuracy occurred in every year back to 2006.

When asked about these discrepancies, OPM responded: “The reason for the drop in the numbers is because the State Department stopped providing data on Foreign Service Personnel in March 2006. The State Department has all together stopped providing us with any data since June 2015.”

It was not always this way. The State Department’s FY 2005 Performance and Accountability Report provides detailed data on the total employment of Foreign Service Nationals, Foreign Service, and Civil Service. Then, State reported that it had 28,294 full-time permanent employees, including 8,964 Foreign Service Nationals, 11,238 Foreign Service, and 8,092 Civil Service employees.

An inquiry to the State Department asking for similar specific data for more recent years was puzzling and frustrating. The department provided more information for 2015 when I asked, though not at the level of detail provided in the 2005 report. The exact same data for other years were available only through a FOIA request.

Capitol Hill staffers report that the State Department has been similarly reluctant to provide them with this type of employment and personnel data. To my knowledge, State has provided no reason for the decision to stop providing overall employment data in its public documents or, shockingly, to other parts of the federal government whose mission and responsibilities involve federal employment matters.

Privacy and security concerns are not plausible. After all, the data are simply aggregates. Individual information is not provided. Moreover, other parts of the federal government involved in national security, including the Department of Defense, provide employment data to OPM.

It is possible, although hard to believe, that the State Department actually does not possess this information. Any institution with a payroll should be able to provide aggregate employment numbers for various broad employment categories. If the State Department does not possess or cannot provide this basic information, it would indicate disturbing managerial incompetence.

Most likely the State Department simply does not want to share this information. This secretiveness seems to be a cultural problem at the State Department.

If this is true, it raises troubling concerns. First, this opacity impedes the efforts of Congress to fulfill its oversight responsibilities, particularly efforts to reform, restructure, or modernize the State Department.

More fundamentally, however, it undermines trust. Why should Congress or the American public trust that the State Department is being forthright on controversial or politically charged matters like the Iran deal, Benghazi, or climate negotiations when it won’t even share something as common, basic, and non-political as employment data?

Brett Schaefer is the Heritage Foundation’s Jay Kingham Senior Research Fellow in International Regulatory Affairs.

Colleges Fail Two-Thirds of Students

Preston Cooper- February 4, 2016

Presidential candidates have talked up college as an important pathway to the middle class. Sen. Bernie Sanders has even called for making public colleges and universities tuition-free. But these ideas ignore a harsh reality in the American higher-education system: Only one-third of college enrollees graduate within six years and then get jobs requiring college degrees.

That is the conclusion of my new report in the Manhattan Institute's Issues 2016 series. Only 59 percent of four-year college students graduate within six years. Those who graduate face an additional hurdle — only 56 percent of recent college graduates work in a job that requires a college degree (though the figure for all college graduates is 67 percent, suggesting some underemployed graduates move up later in their careers).

Multiplied together, these numbers suggest that only 33 percent of students who enter college emerge with both a degree within six years and a relevant job soon after graduation. This is the true crisis in higher education, and one policymakers must address before they offer up more taxpayer money to colleges.

Encouraging more students to attend college may worsen the already-poor graduation rate. The new students attracted by free college are likely to attend institutions where graduation rates are lower, such as community colleges (where 40 percent graduate) or four-year colleges with open enrollment (where just 34 percent do).

Failing to graduate is a major cause of financial hardship — student-loan delinquency rates among dropouts are four times higher than among graduates, despite dropouts' having less debt. Additionally, the years that dropouts spend in college are years in which they cannot pursue other career paths, such as apprenticeships.

Those who do graduate face a weak labor market. Recent college graduates have no guarantee of landing a job that requires a college degree. This is not a death sentence — some of the jobs that do not require degrees pay quite well. But if students do not need college degrees to obtain the jobs they'll end up in, why invest in expensive diplomas in the first place?

Field of study is strongly associated with a graduate's likelihood of underemployment. Only 20 percent of engineering students are underemployed, compared with 63 percent of leisure and hospitality students. Currently, colleges have no incentive to guide students toward the career paths with the greatest chances of success. They get their tuition dollars regardless of a degree's economic value.

Before shuffling more students through the higher-education system, policymakers should consider some basic economics. When the supply of college graduates outpaces the number of jobs requiring a degree, the investment value of college falls. This is what has happened in European countries with free college systems. A recent college graduate in the United States can expect to earn 65 percent more than someone with only a high-school degree. In Denmark, which has free college, the comparable earnings premium is only 12 percent.

Reforming higher education in America must start with cleaning up the messes that already exist. Colleges must face accountability measures to incentivize them to raise graduation rates and improve career outcomes for students. Lowering barriers to college enrollment without addressing these other issues would fail the students who need their colleges to do better, and fail the taxpayers who would be left holding the bill.

Preston Cooper is a policy analyst at the Manhattan Institute. You can follow him on Twitter here.

GOP Congress' Budget Hits Reality Hard

John R. Graham- February 4, 2016

The Congressional Budget Office's recent budget update revealed a dramatic deterioration in the federal government's finances. The cumulative deficit over the next ten years, through 2025, is now estimated to add up to $8.5 trillion. Just last August, the number was $7 trillion.

The CBO itself notes that "about half of the $1.5 trillion increase stems from the effects of laws enacted since August." In other words, this is the work of the 114th Congress, in which Republicans hold the majority in both chambers for the first time in the Obama presidency.

Republican apologists assert that Congress' powers to shrink the government are limited as long as President Obama is in office. This is true. So, let's see where Congress can go from here.

First, the increase in the deficit is almost entirely due to lower tax revenues, not increased spending. In this respect, the Republican-majority Congress has held the line. The federal government will spend about $48.9 trillion over the next ten years and take in about $40.4 trillion in revenues.

However, there is a lot of gimmickry written into the recent tax cuts — revenue will probably be even lower than the CBO's baseline scenario suggests. (Fortunately, the CBO also estimates alternative scenarios that include these more realistic prospects.) Many of the tax breaks last only one or two years, and as a result, they have little impact on the ten-year period. However, in reality, these tax breaks tend to be repeatedly extended.

For example, Congress imposed moratoria on three Obamacare taxes: an excise fee on health insurance, an excise tax on medical devices, and the so-called "Cadillac" tax on expensive employer-based health plans. According to the letter of the law, these three moratoria will add about $40 billion to the deficit. However, if these taxes are deferred through 2025, the cumulative deficit will grow another $239 billion.

So, the question is: Will the Republican-majority Congress follow its tax cuts with spending cuts? Last April, it signaled it would, via a budget resolution passed by both the House and the Senate. Congress had not passed a budget resolution in many years, so this was an important step.

The budget resolution does not actually control any spending. But the CBO has concluded that if the resolution's provisions were enacted as legislation, they would reduce the deficit by roughly $5 trillion through 2025 relative to the current-law baseline. Importantly, the fiscal improvement would come almost entirely from cutting spending.

The budget resolution itself was overshadowed by its focus on defining so-called "reconciliation" language for the repeal of Obamacare.

The result of that language was a bill passed in December that would have repealed Obamacare if the president had signed it. Republican leadership signaled this was a big win, even holding an "enrollment ceremony" at which Speaker Ryan signed the bill in quasi-presidential fashion.

CBO estimated that Obamacare repeal would reduce the deficit by roughly half a trillion dollars over the next ten years. Almost half that improvement is due to economic growth that would increase tax revenues. This would certainly be a positive development. However, even if it won the president's signature, the repeal of Obamacare would achieve less than 10 percent of the cumulative deficit reduction targeted in the budget resolution.

The Republican majority in Congress has shown it can cut taxes. Whether it can cut spending in line with its promises will have to wait until the next president takes office.

John R. Graham is a senior fellow at Independent Institute and a senior fellow at the National Center for Policy Analysis.

Robert VerBruggen- February 3, 2016

It's fashionable to slam 401(k)s — and similar tax breaks for retirement savings — as a handout to the rich. People with higher incomes pay higher tax rates, and therefore benefit more from such perks. If you're in the 35 percent tax bracket, for example, you save 35 cents for every dollar you shelter from the IRS; if you're in the 10 percent bracket, you save just 10 cents.

Not so fast, says Peter J. Brady, an economist for the Investment Company Institute (the trade association for American investment funds) who has published a free e-book on the retirement system. The critics' argument misses two key features of 401(k)s, Brady writes: The retirement plans merely defer taxation, rather than eliminating it entirely; and they're part of a much bigger retirement system that includes Social Security. On the whole, Brady finds, the retirement system is progressive.

Brady analyzes retirement subsidies by simulating the lives of six imaginary Americans. Each earns a different annual salary, ranging from $21,000 to $243,000. All of them, however, aim to replace 94 percent of their earnings in retirement, so they save money in a 401(k) as needed to supplement their Social Security. (The richest investor manages to replace just 85 percent, owing to the contribution limit.) To see how these workers would have fared without government retirement benefits, Brady runs alternative scenarios where retirement savings are placed in taxable investment accounts instead.

401(k)s actually have three different effects. First, contributions reduce the saver's taxable income in the year they're made — the effect that critics fixate on. But second, interest that accumulates is not immediately subject to the income tax. (Brady argues that this actually equalizes the incentive to save between rich and poor: Otherwise, the income tax provides a disincentive for the rich to save. With a 25 percent income tax, a 6 percent rate of return becomes a 4.5 percent rate of return.) And third, distributions during retirement are taxed, which disproportionately affects the rich. Brady's poorest simulated investor pays no income tax at all in retirement.

When all the effects are considered, the apparent unfairness of 401(k)s is diminished, though hardly eliminated:

Interestingly, in Brady's simulations, the rich benefit more because they save a lot more money, not because of their higher tax rates. Social Security replaces 67 percent of income for the poorest worker, but only 17 percent for the richest, so tax deferral plays a much larger role in the retirement plans of wealthier workers.

Which brings us to Brady's other key point: Tax deferral is just one part of the retirement system. When Social Security is brought into the analysis, it's clear that the poor actually gain the most, at least relative to their incomes:

Building on this observation, Brady cautions against worrying too much about the progressivity of any one component of our tax-and-transfer system. It's fine for a program to be regressive if that's what's necessary to achieve an important goal, so long as the system as a whole is satisfactorily progressive. (This is reminiscent of a point often made in an even broader context by the liberal Citizens for Tax Justice: While federal income taxes are quite progressive, state tax systems are often regressive. The two act in tandem to create a system that's not as progressive as you might think.)

At an event celebrating the book's debut, William Gale of the Brookings Institution laid out several criticisms of Brady's work, two of which are especially important. First, Brady's simulations overstate the system's progressivity in some ways — for example, they assume all workers save as much as they need to (up to the contribution limit) to replace 94 percent of their income, but in reality the poor and middle class are more likely to undersave or to lack benefits like 401(k)s. And second, progressivity is a rather weak demand to place on a retirement system; the true question might be whether the system is progressive enough.

Regardless, Brady lands some heavy blows upon critics of the retirement system. Apparently, it's not as bad as some thought. His book — which covers a lot of ground not explored above — is worth a close look.

Robert VerBruggen is editor of RealClearPolicy. Twitter: @RAVerBruggen

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