Tag Archives: Incentives Matter

North Carolina Unemployment Benefits: Governor

Pat McCrory

North Carolina Cuts Unemployment Benefits

About a week ago I posted on North Carolina’s unemployment dilemma:

By itself, the news is good news, heck, even GREAT news.  But it rarely is “by itself”:

Economists say the fast drop in the unemployment rate could be because so many people have become discouraged, are giving up on finding a job and are no longer being counted.

The state’s population of working-age adults who are looking for jobs shrank by 111,000 in 2013.

This is, of course, the same phenomenon that nation republicans use to knock Obama.  There the big story is that the national labor force participation rate has plummeted to lows that we haven’t seen in decades.

While the unemployment rate in North Carolina is dropping, there is significant reason to believe that this is due to folks dropping out of the labor force.

Governor McCrory Interview

While the drop in the unemployment rate is largely due to a reduction of folks in the labor force, Governor McCrory has an answer:

While I agree that the rate is subject to the numbers in the work force, the fact that the work force is dropping nationally is important.  I’ll have to go back and dig through the state numbers, but if the labor force participation rate loss didn’t change as a result of the end of benefits, you can’t blame the law.

UI isn’t meant to be a social welfare program – in theory it’s INSURANCE that is meant to carry over an individual for a discreet amount of time.

Democrats Support Freedom

Statue of Liberty

What Is Freedom – What Is Liberty

According to democrats, freedom is being able to live off the labor of others:

Democrats aren’t buying a Congressional Budget Office report finding that President Obama’s healthcare overhaul could cost the economy millions of jobs over seven years.

The nonpartisan office said the loss of the equivalent of 2.3 million full-time jobs could result from Americans adjusting their hours and employment in response to new healthcare options.

While Republicans said the findings show Obamacare is damaging the economy, Democrats argue any reduction in jobs would reflect the greater freedom the bill gives Americans.

“What we see is that people are leaving their jobs because they are no longer job-locked,” House Minority Leader Nancy Pelosi (D-Calif.) told reporters after House votes Tuesday afternoon. “They are following their aspirations to be a writer; to be self-employed; to start a business. This is the entrepreneurial piece. So it’s not going to cost jobs. It’s going to shift how people make a living and reach their aspirations.”

Pelosi said she hadn’t “fully” seen the report, but, “this was one of the goals. To give people life, a healthy life, liberty to pursue their happiness. And that liberty is to not be job-locked, but to follow their passion.”

Democrats have jumped the shark.

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Obamacare: Incentive To Remain Poor

Carrot and StickLiberal Policies And Noble Intentions

I don’t buy into the notion that liberals are trying to enact policy that effectively enslaves the very people they mean to help – almost to a person the liberals that I know truly have the best interests of humanity in their heart.

They’re wrong – of course.  But they are well intentioned.

However, that doesn’t change the fact that those policies are, at their core, poisonous to the very segment of the population they mean to help.

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Obamacare in One Picture

Impact of Obamacare

Via Coyoteblog

The immediate impact of the legislation is due to the fact that it wasn’t until Christmas eve in the middle of a snowstorm that the democrats wheeled a dying 117 year old man to vote that this was a done deal.

Unemployment Benefits: A Rational Course

I’ve long been an opponent of the unemployment policy usually advocated by our government.  In my moments of most extreme Libertarian I can make the case for no unemployment benefit system at all.  People, understanding that they won’t have a program to fall back on will make efforts to protect against the downside.  This might take the form of more aggressive saving or, perhaps, not getting fired in the first place.

However, not all terminations are due to performance, many are due to economic conditions out of the control of the employee.  Further, it’s unlikely that I’d be able to prevail in my rather “draconian” response to unemployment.  So, knowing that benefits are going to be provided, how best to work within the system to create the best outcome?

Other than its existence, I have two problems with unemployment benefits:

  1. The benefit too closely approximates the typical wage.
  2. The duration of the program is too long.

The system creates the wrong incentives.  In the first place, it reduces the value of working.  For example, if I lose my $10 an hour job and can pull $325 in benefits, the marginal value of me returning to work is $75.  [Maybe $125 or so – I seem to remember the first fifty is “free.]  So the value of working 40 hours moves from $400 to $75.  An hourly rate of $1.88.  In the second place, the system is built with the incentive to delay returning to the workplace until the benefits expire.

So, what to do?

It seems to me that if I had bought into building a system that worked, that is I agreed to set aside the ideology and build a program I might not 100% agree with, I would first define the goals.  It might go like this:

  1. Provide folks assistance to get through the transition to the next job.
  2. Return folks to the workforce as soon as possible.

And the method I would use to build the program that solves both of these goals would be this:

  1. Determine the mean time to return to work without the debilitating incentive of making money while not working.
  2. Pay the unemployed a lump sum regardless of employment status.
    1. Either literally pay the individual a lump sum in the form of one check.
    2. Guarantee weekly benefits for the duration of the identified mean regardless of employment status.

This satisfies the [dubious] requirement of the government providing assistance in the face of adversity while also removing the perverse incentive not to return to the workforce.  In fact, it might actually provide the incentive to return more quickly; who can pass-up on “double dipping.”


Oil Spills – Oil Companies – BP

BP has been issued a bill for the oil spill in the Gulf back in 2010:

NEW ORLEANS — BP said Thursday that it will pay $4.5 billion in a settlement with the U.S. government over the disastrous 2010 oil spill in the Gulf of Mexico and plead guilty to criminal charges related to the deaths of 11 workers and lying to Congress.

The day of reckoning comes more than two years after the nation’s worst offshore oil spill. The figure includes nearly $1.3 billion in criminal fines — the biggest criminal penalty in U.S. history — along with payments to certain government entities.

The settlement, which is subject to approval by a federal judge, includes payments of nearly $2.4 billion to the National Fish and Wildlife Foundation, $350 million to the National Academy of Sciences and about $500 million to the Securities and Exchange Commission. The SEC accused BP of misleading investors by lowballing the amount of crude spewing from the ruptured well.

Now, I’m all for BP having to pay for the cleanup to all agencies that were harmed by the spill.  I think that allowing companies to poison rivers that does nothing to harm the company is a moral hazard that creates problems for everyone.*

And I don’t mind that government sets the amounts of those fines.  What I DO object to is the nature in which these fines are arrived at; politics, deal making and more than likely cronyism.

If we want to protect ourselves from oil spills we have to acknowledge two things:

  1. We can not prevent a spill from ever happening again.  The only thing that we can hope for is to increase the mean time between failure and decrease the meant time to repair.
  2. What we really object to is the damage done by the spill, not that there was a spill per se.  Therefore, if we can quantify the dollar cost to restore the damage, we should be alright with the transfer of that cost.

If we’re able to do this, and codify it so that the rules are clear and understandable, the oil companies will understand this and include it in their business models.  In fact, I suspect that the fines will be significantly high that those companies will have to take out insurance policies to protect them in the event of a spill.  And this is a good thing.

See, if the oil company requires insurance they’ll have to get it from another company that sells insurance.  These insurance companies, being rational, will not issue said policy UNLESS the oil company can demonstrate adequate safety processes.   In short, the insurance will drive increased safety and prevention.  And it will do it in a mostly free market way.  Today prevention agencies are government run and filled with execs from oil companies that are named based on politics.  These agencies aren’t adequate in writing and enforcing the rules.  But if insurance companies are in charge of that, we can be MORE sure that the whole thing is more modern and appropriate.

So, hell yeah BP should pay.  But the fine should have been known and predictable up front.  If it was, I claim that the next oil spill will occur further in the future than it otherwise would and be restored much quicker and wit less overall damage to the environment.

* I do NOT object to the poisoning of rivers that DOES harm the polluter.  In this case “rivers” is the name I’m giving to the general environment.

Elections Have Consequences

It’s simple, really.  When there is an incentive to save money, there should be no surprise that incentives will drive behavior.  Consider Community College of Allegheny County:

To Community College of Allegheny County’s president, Alex Johnson, cutting hours for some 400 temporary part-time workers to avoid providing health insurance coverage for them under the impending Affordable Health Care Act is purely a cost-saving measure at a time the college faces a funding reduction.

But to some of the employees affected, including 200 adjunct faculty members, the decision smacks of an attempt to circumvent the national health care legislation that goes into effect in January 2014.

“It’s kind of a double whammy for us because we are facing a legal requirement [under the new law] to get health care and if the college is reducing our hours, we don’t have the money to pay for it,” said Adam Davis, an adjunct professor who has taught biology at CCAC since 2005.

Temporary part-time employees received an email notice from Mr. Johnson on Tuesday informing them that the new health care act defines full-time employees as those working 30 hours or more per week.

As a result, the college as of Dec. 31 will reduce temporary part-time employee hours to 25 per week. For adjuncts, the workload limit will be reduced from 12 to 10 credits per semester.

The decision affects only temporary part-time employees and not permanent part-time employees who already are eligible to participate in the college’s health care plan.

My hope is that the folks impacted voted for Obama; you should reap the rewards of the decisions you make.

But that’s not all:

Darden Restaurants Inc. — parent of the Red Lobster, Olive Garden and Capital Grille eateries in Colorado and elsewhere — is cutting back hours of workers at some of its locations in an apparent effort to reduce insurance costs related to the new health-care reform law.

The Orlando, Fla., Sentinel newspaper reports that the Orlando-based company (NYSE: DRI) “has stopped offering full-time schedules to many hourly workers in at least a few” of its locations.

The Sentinel quotes the company as saying it plans to limit employees at some restaurants in four unidentified markets to 28 hours a week. Darden said the move is intended “to help us address the cost implications health care reform will have on our business.”

Under the federal Affordable Care Act, the health-reform law that some call Obamacare, companies with at least 50 employees must provide health insurance, starting in 2014, to all those who work at least 30 hours a week. Those that don’t will pay a penalty.

I suspect that this will play out across America more and more.  As the ramifications of electing Obama continue to see the light of day, more and more we are going to see this reaction by business.  Fewer people hired, higher ratios hired as part time employees, more efforts to drive productivity by more and more automation.

It really is important to understand that there really aren’t solutions; only tradeoffs.

Want healthcare?  Lose jobs.  Sacrifice growth, accept higher unemployment.

If you voted for Obama, this is on you.  This is what you wanted, this is what you explicitly put into motion.

We warned you.



A Him – Part II

I’ve seen this going around my Facebook.  Thought I’d repost:

Let’s get one thing clear.

  1. I care for the people less fortunate.
  2. The government has no role in that caring.

Okay, that’s two, but the second is important.  The government has a role.  And that role is to act as the referee in disputes.  It is to make sure that we all face the same rules and laws.  Sure, there is a cost in maintaining a government, so we tax to pay for it.  But that role of government is not meant to take money from those who have it and just flat out GIVE it to those who don’t.

When that role is given to the government, bad things happen.  Really bad things.

It creates incentives that aren’t natural.  People begin to look for ways to avoid paying their taxes and people begin to look for ways to maximize their TAKE of people’s taxes.  Neither system works well.

When people slide around money to avoid taxes, the revenues realized aren’t as high as expected, so taxes are raised.  While generating the income, it increases the incentive to defraud the government.  This further punishes the honest man at the benefit of the crook.  Further, taxes relieve a man of his property.  What the government takes is first private property.

People forget this.

The money being taken first belonged to someone who earned it.  Confiscation of that property should be done with significant reluctance.

Most importantly, by taking one man’s property and giving it to another, the second man is less incented to earn his own.  Life becomes simply a series of cons and loopholes meant to get through today.  We lose the productivity of the second man and the power of the money had it been spent in more productive ways.

We lose on both sides.

Some highlights:

  1. 0:08  Do you need a tissue?
  2. 0:26 – You can’t find no job they give you money to live on.
  3. 0:44 – The furrowed brow.  This will be a hilarious recurring theme.
  4. 1:12 – I spent it on myself.
  5. 1:35 – The you’re stealing that money.  BOOM!
  6. 1:36 – No!  See tissue above.
  7. 2:32 – $22,000!  Per year!
  8. 3:15 – My conversation is rent…
  9. 3:24 – I’m 21.
  10. 4:24 – I’m me!
  11. 4:30 – That’s what were creating.
  12. 4:49 – Sending this tape to Congress.
  13. 5:00 – As taxpayers, we have spent at least $70,000.
  14. 5:10 – I appreciate that Judge Judy…Note he can’t keep a straight face.
  15. 5:45 – $70,000 right down the sewer.

I’m not sure if the end makes me laugh or cry.  She was actually suing him for rent.

Incentives Matter: The Nanny State

Don’t think that incentives matter?

Don’t think that government programs that enlarge the nanny state don’t result in poor behavior?

Think again.

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