September 28, 2017

The Jones Act is Protectionist Bullshit, Which Always does Real Harm to Real People

    The Jones Act is some protectionist bullshit from 1920. The stupid law requires maritime commerce between US ports, or intra-national shipping, to be carried out by US built and flagged vessels crewed by US citizens and permanent residents, or pay high tariffs. As a result, intra-national shipping is expensive and inefficient, resulting in higher prices for consumers. The justification, beyond handouts for politically connected businessmen, for the Jones Act is to ensure that the US has domestic ship yards, ships, and crews should a war that interrupts international shipping break out. This is a much less significant worry than in 1920: the prospect of a global conventional war reaching US shores is slight, the US has dozens of allies to rely on, and could just buy ships with international crews should they be needed. The cost of the Jones Act relative to its fuzzy supposed benefits is immense.

     Each of the main requirements of the Jones Act undermines the supposed usefulness of the others. The requirement that the ships be 
expensively built in the US means fewer US flagged ships and therefore fewer US crews. The requirement that the ships be expensively US flagged means fewer US built ships and fewer US crews. The requirement that the ships be expensively crewed by US citizens and permanent residents means fewer US built and flagged ships. In this way, the Jones Act illustrates the damaging inefficiency of trade barriers generally.

     Because of the increased cost due to the Jones Act, intra-national shipping companies are loath to build new ships and rather push aging ships to their limits, to the detriment of efficiency and safety of their crews. The result is slower, smaller, less fuel efficient, and less technologically advanced ships. The ships would suck in war anyway. Alexis Madrigal has a great podcast series called “Containers” about shipping in general and the huge impact of standardized shipping containers in particular. Episode 5 is about the Jones Act, and the fateful journey of a US ship bound for Puerto Rico from Florida that never made it.

     This highlights perhaps the most damaging aspect of the Jones Act. For the continental US, it means greater use of trains and trucks rather than more opportunities for crews and shipping companies. Puerto Rico has no other practical option for receiving goods from the mainland. The result is much higher prices for Puerto Rico’s on average poorer residents, to the relative benefit of well-off owners of US shipping capital. The real human cost of the Jones Act has been on vivid display after Puerto Rico was hit by Hurricane Maria. Aid and supplies from the mainland have to use small, slow US ships to take it to Puerto Rico at high cost, adding unnecessarily to Puerto Rico’s human misery. 


     It took Trump a week to waive the Jones Act for shipping to Puerto Rico, and he only waived it after significant backlash and only for 10 days. The delay was partly politics as the Jones Act is protectionist bullshit, which he loves, and partly that Trump is a bigot who doesn’t care about brown people, even if they are American citizens. The Jones Act only puts Americans first if you don’t count Puerto Ricans, who, again, are American citizens.



And he's a news article with numbers and studies/economists cited/quoted.

September 21, 2017

West African Spring

     Back in 2011-12-ish, large protest movements swept the Middle East and North Africa, collectively referred to as the Arab Spring. They started in Tunisia after a 26 year old street vendor named Tarek al-Tayeb Mohamed Bouazizi set himself on fire in protest over police confiscating his supplies, fining him, and otherwise harassing him for just trying to work for a living. The dictator of Tunisia fled the unrest with a plane-load of stolen money. Tunisia’s post-Arab Spring democracy has been shaky, but survived. As is well known, the other countries rocked by large protest movements were less lucky.

     To many, the Arab Spring was a huge disappointment and confirmed predispositions against democracy and/or Islamic/religious parties. But taking a wider view of the world, one finds many other relative success stories of people-power leading to democracy, as it did in Tunisia. One region in particular stands out to me: West Africa. Whereas the Arab Spring arose quickly and spread like wildfire, the West African Spring has smoldered on for nearly a decade, or longer if you include the democratic transitions of Liberia and Sierra Leone (or even longer if you include democratic transitions in Ghana and Nigeria), slowly passing from country to country. Like the Arab Spring, not every uprising has been peaceful or successful. But I think it argues against those who would prefer the illusory stability of autocrats.





     A potential starting point could be Côte d'Ivoire, aka Ivory Coast. In 2010, Côte d'Ivoire held elections that were supposed to happen in 2005. The incumbent, Laurent Gbagbo lost, but cried foul and his buddies on the Supreme Court nullified enough votes for him to be declared the winner. International observers, the UN, and most nations recognized Gbagbo’s opponent, Alassane Ouattara, to be the winner. The elections were part of a peace deal that ended the First Ivorian Civil War in 2002. The fighting was generally between the rebel north and the south of the country. After Gbagbo refused to step down, the Second Civil War started up, essentially a continuation of the previously frozen conflict. UN and particularly French (the former colonial power) military forces intervened on the side of the rebels whose leader they deemed won the election. The conflict ended in 2011 with Ouattara assuming the presidency.

     As far as I remember Gbagbo is now on trial at the International Criminal Court. Ouattara was re-elected in 2015. Côte d'Ivoire’s democracy remains untested by a transition of power, and military units occasionally mutiny over demands for higher pay but it’s a start.

     Pro-democracy street protest then hit Senegal in 2012. Senegal has been a democracy since (re-)independence in 1960, has never suffered a coup, and has had transitions of power between political parties. However, in 2012 the two-term then-president Abdoulaye Wade, decided the constitutional term limits he helped to bring about did not apply to him and would only apply to his successors. His buddies on the Supreme Court (notice a pattern?) agreed with him. Outraged Senegalese took to the streets in protest. The opposition united behind a single candidate, Macky Sall, who had fallen out with Wade, and won on a platform of kicking that fool out of office.

     In 2014, pro-democracy protests hit Burkina Faso for a similar reason as in Senegal, though Burkina Faso was no democracy. Its 27 year “president” Blaise Compaoré, had previously agreed to constitutional changes that included term limits that would have removed Compaoré as a candidate in the next election. Like Wade, Compaoré got cold feet about leaving power and announced he wouldn’t. But widespread street protests eventually took him down and a transition government took power and scheduled elections for October 2015. 


    In September 2015, a military coup, led by the Regiment of Presidential Security (aka the former president’s goons), attempted to take control and captured the leaders of the transitional government. But Burkinabés weren’t having that shit. Again they took to the streets in protest. A combination of those protests and the rest of Burkina Faso’s army advancing on the capitol convinced the coup leaders to free their prisoners and publicly apologize a few weeks after seizing power. Elections were held the following November, and Roch Marc Christian Kaboré won them.

     Just over a year later, in December 2016, in what was supposed to be a sham election in The Gambia (yes, “The” is part of its name) led to a pro-democracy uprising. In the lead up to the election a senior member of the opposition, Solo Sandeng, was taken into police custody and somehow went missing (the police tortured him to death). Another lead opposition figure was arrested in the protests that followed. It seemed the president, His Excellency Al-Haji Dr. Yahya A.J.J. Jammeh (yes, that was his title and is his name)
[1] was trying to eliminate opponents in the run up to the election.

     The opposition united behind a single candidate, Adama Barrow, who was a relative unknown, which was perhaps a strength in terms of being underestimated and therefore not imprisoned or killed by the state. The election commission ran an honest election. Either Jammeh was over-confident of his popularity or election officials took a huge risk in defying him. Barrow won a plurality of the vote and Jammeh shockingly conceded. In retrospect in appears he did that to buy time to make sure the military would back him staying on. Once he had all the pieces in place, Jammeh went back on his word and announced he’d be staying. 


    The Gambia’s only neighbor, Senegal, wasn’t trying to have that. Jammeh had always been an annoyance to Senegal and this was the perfect chance to remove him. With Senegal’s leadership, the Economic Community of West African States (ECOWAS) urged Jammeh to leave and threatened military intervention if he didn’t. Come inauguration day, Barrow was sworn in in The Gambia’s embassy in Senegal, and ECOWAS troops entered Gambian territory. In the end Jammeh left for exile in Equatorial Guinea, with a plane load of stolen cash (a lot of patterns here), and Barrow is now president.

     And presently in Togo there is a large pro-democracy protest movement that has taken to the streets, risking violent repression. They are demanding term limits to be reintroduced and for the current president, Faure Gnassingbé, who followed his dad as president in a disputed election result, step down. Gnassingbé is on his third term, having decided term limits weren’t for him. Former West African heads of state, including Ghana’s former military dictator, who eventually stepped down in a transition back to democracy, have urged him to make reforms to the constitution that protesters are asking for. But unfortunately ECOWAS has been largely silent, as its current chairman is Gnassingbé himself.

     The momentous transition to democracy in West Africa reminds me of the democratic transition in Latin America. It is incomplete and took a long time, but Latin America is overwhelmingly democratic where it used to be overwhelmingly authoritarian. May the slow smoldering burn of the West African Spring continue to claim more dictators and give rise to, or in many cases a return to, more democracies.




September 15, 2017

The National Flood Insurance Program Part II: Solutions?

Continued from part I. So what’s the solution? If you only look at the economics it sounds pretty simple. There’s the laissez faire get the government out of flood insurance period option. But the private insurance market already went down in a death spiral for reasons I explained in part I. Better mapping, modeling, and forecasting could potentially alleviate the issues that created the death spiral, but it’s still the least likely action for the government to take.

(On a side note, the federal government used to have a physical flood model for the Mississippi River. It was literally a miniature, yet massive, outdoor scale model of the river basin’s topography. Water would be sent through the model and they’d see where it flooded. The feds switched over to computer models not because they were more accurate (in fact they weren’t, at least at first), but because the computer model was cheaper and could run simulations much faster. The podcast 99% Invisible has an interesting 
episode about it.)

Anyway, there are a variety of options to improve the government program, which might even encourage the revival of the private market, at least for supplemental coverage. The NFIP could use up to date maps based on future expected risk, and price based on that risk. Buy out repeatedly flooded properties and return them to nature. Give discounts for flood mitigation, which would eliminate the moral hazard of insuring risky properties. And if people want to pay less they can lobby their local government to implement zoning rules (which Houston lacks) and other projects to reduce flood risk. Localities could be helped in this with federal matching dollars for local mitigation programs, similar to other infrastructure projects (after all, the federal government will pick up part of the tab for floods eventually). Presently, in order to purchase flood insurance the locality the property is in must have a flood mitigation plan, but clearly this has been inadequate and favors better resourced localities. In Maryland, we have something that opponents derisively call the “rain tax”, which taxes property owners based on the impervious square footage of their properties. Such a tax, in theory, internalizes the negative external costs of a property generating storm water runoff, incentivizing private sector mitigation solutions. An insurance mandate may help enlarge the risk pool, but given correlated risks it would also increase payouts.

Undoubtedly these fixes will cause many people to be priced out of owning property in the most risky areas, but that’s the whole point. Less development in such areas would make everyone else safer from floods. And an actuarially sound government run insurance scheme would still charge less than private insurers. Speaking of which, get rid of the role of private insurers in selling, assessing and processing claims.

But of course, asking the feds for money is easier and more immediately rewarding than demanding local flood mitigation programs. And past reforms have been watered down by popular demand. I think the Federal Reserve is a good model for addressing these issues. A lot of government agencies could benefit from such a set up. The fed has been indefinitely authorized by congress and left to make its own decisions about how to achieve legislated goals, often unpopular ones that significantly impact people’s lives. Its board has representation from member branches chosen by member banks as well as political appointees. The fed makes mistakes, but by design nearly all of its mistakes are the result of the general economic consensus being wrong rather than special interests or dumb politicians. Also the fed is audited regularly. So give the NFIP, among others, as strong a mandate and institutional design rather than rely on congressional whims at every five yearly re-authorization.

Alas there is more than economics to everything. Repeatedly flooded properties are clustered in a few states, namely Texas, Louisiana, Florida, New Jersey, and New York. This means policy changes will have large concentrated effects. Just as the costs will not be distributed evenly geographically, they will almost certainly not be distributed evenly across race and income. While property owners tend to be more well off than non-owners, renters will face higher costs if their landlords do. Some properties in greater flood risk, such as beach-front, are pricier for it, while others are made less valuable. An example is New Orleans, it would be perhaps the most heavily impacted community by any changes to the NFIP. The city’s poorest residents live in its most flood prone areas, which are un-coincidentally the most predominantly black. This is generally true for the poor and minorities in cities the world over. This has prompted calls based on environmental and social justice to preserve the affordability of the program in order to preserve poor and minority communities.

In part to address these concerns, Omri Ben-Shahar and Kyle Logue examine the distributional effects of the NFIP and Florida’s state run property insurance program, named Citizens. Crucially, Citizens publishes data on actual rates paid by flood policy holders and the actuarially sound risk-based rates, allowing the researchers to measure the size of subsidies. Unsurprisingly, inland policy holders are overpaying, while the closer you get to the beach the larger the subsidy gets. The authors use data on median home values by zip code and insurance policy caps as proxies for wealth. A property owner cannot take out a policy that pays out more in one flood event than the property is worth, suggesting it is a good proxy for individual level home values. With each proxy the results are generally the same: both the dollar amount and percentage of subsidy increase with wealth. Because Florida’s program is very similar to the NFIP, their results are externally valid.

According to FEMA data from 2006, the average NFIP policy holder pays between 35 – 40% of the full risk premium. Of course those closest to the water pay much less. And 23% of coastal properties with flood insurance are not primary residences, aka mostly vacation homes. Such second, third, and so on homes are worth more 
on average than flood insured primary residences. The largest subsidies go to rich people who don’t even live in the flood zone. Like all subsidies, while poor people may depend on them, the majority of the benefit goes to the well off. Figure 3, below, from Ben-Shahar and Logue’s paper displays this nicely. The relatively wealthy are the largest subsidy recipients, but as the scatter plot shows, many less affluent people benefit too. While the rich can absorb the increased cost of eliminating the subsidy, or heaven forfend, live in fewer houses, it is the poor who will be priced out of living in certain areas. Again, this detrimental impact on the poor would likely be felt greatest in black neighborhoods of New Orleans.



However, the current program is a horribly inefficient and expensive way to benefit the coastal poor. And such calls ignore both the cost of subsidies born in part by the inland poor and the opportunity cost of wasteful spending. The most obvious change would be to not subsidize non-primary residences. Subsides on insurance could be means tested (which would add administrative costs). Or the cap for payouts could be lower, which would only impact the richest policy holders. And if people want more coverage they could buy private coverage. That is generally how the UK’s healthcare system works: public health insurance for all, but if you want fancier coverage there’s a private market for it. Sure the private flood insurance market collapsed here, but policy changes like this could encourage it to come back. Or my favorite option, eliminate all subsidies everywhere for everyone that can’t be justified on the basis of positive externalities and just give poor people money, preferably in the form of a basic income that phases out as income increases, perhaps modeled off the Refundable Earned Income Tax Credit.

This is similar to arguments I’ve made for free trade. Yes, there will be some concentrated losses for particular communities even though there are net benefits in aggregate. But that means helping those communities cope is easily affordable. There’ll still be displacement and adjustment, but letting the program lumber on as it is will only give more money to the rich at the expense of the poor and increase the number of people, poor and otherwise, who are put in the path of danger by subsidizing unsafe development. Basically, the reasons for putting off the reckoning will only be made worse as time goes on. The cheapest and least disruptive option is to fix the system now.


PS here's a good article about what Louisiana is doing to try to stop sinking into the Gulf. 

September 13, 2017

The National Flood Insurance Program Part I: The What?

2017 has been quite the hurricane season so far for North America, and we’re only on L. This season illustrates a long running trend for hurricanes hitting the US. There have been gradually fewer overall, but a greater number of major hurricanes, defined as category 3 and above. Without action from congress, this season will break the bank at the National Flood Insurance Program (NFIP). For most of its history, the NFIP took in more money in premiums than it paid out. That changed after Katrina, which added over $15 billion in debt, and was made worse by Sandy. These two hurricanes account for nearly all the NFIP’s pre-2017 debt.

Rather than do anything about it at the time, congress increased NFIP’s borrowing authority, from $1 billion to $25 billion. Before Harvey and Irma, the NFIP’s debt stood at around $24 billion. Allowing the NFIP to accumulate more debt was stupid because it did nothing to reduce the underlying cost of the program while adding the cost of interest payments on that debt. 


It may seem odd that a capitalist country like the US has a government run insurance scheme (but not for healthcare thank god (that’s sarcasm, though the shambles the NFIP is in isn’t too confidence inspiring)). Private insurers stopped providing flood insurance a while ago, with many leaving the market after the Great Mississippi Flood of 1927 (which I wrote about here). So the government filled the gap.

A government run flood insurance scheme can work in theory. With just one insurer, the risk pool is larger and more diverse than with multiple smaller insurers. Because the government doesn’t have a profit-motive, the monopoly power of a single insurer is not used to raise prices and reduce supply as a private monopoly would. But the NFIP does not work.
Some of the reasons are not unique to the NFIP. Insurance works best for non-correlated, predictable, and rare risks; floods don’t fit any of those criteria. Risk is correlated: if your neighbor’s house is inundated in a flood yours is very likely to be as well. The weather is not very predictable. And because of where development has occurred – near bodies of water – flood damage is not rare and is becoming even less so. 

Additionally, due to the amount of chance involved, individuals may lack the information, or even the ability, to rationally calculate their personal risk. If they underestimate this risk, they will irrationally conclude that insurance is too pricey and forego it even if it is priced correctly from the market’s point of view. These same issues explain why private health insurance markets seem to death spiral. And handing flood insurance back to the private sector will not fix these problems. Though one key difference between flood and health insurance is that there are positive externalities to better health, which justify public subsidy, whereas there are no external benefits to anyone from someone being able to live in a bigger house closer to the ocean than they otherwise would. This means, in purely economic terms, there is no justification for the government running a flood insurance program. But fat chance of them getting out of the business and letting people lose everything in a storm.

There are also many well-known obvious problems that are unique to the way the NFIP is set up. Most obviously, it doesn’t charge enough in premiums to cover its payouts and does not charge homeowners based on the true risk of their property flooding. This ends up subsidizing development in flood prone areas, further increasing the cost to the NFIP. 
The NFIP grandfathers in low rates for current customers when it raises rates, pushing the cost onto new development. The NFIP uses old flood maps and averages estimated risk across flood districts, underestimating risk for the most vulnerable properties in particular. The NFIP does not factor in future expected risk, say from erosion or sea level rise. So even if it charged based on present risk with up to date maps, it would be underpricing based on future expected payouts. Congress tried to address some of these issue in 2012, but property owners were outraged that they wouldn’t continue to get as big of handouts from the government for living in flood prone areas and congress mostly watered down the reforms (pun intended).

Another problem is that properties that do flood are simply rebuilt in the same place. Repeatedly flooded properties account for 1% of NFIP insured properties and 25 to 30% of payouts – equivalent to half the program’s debt. 75% of these properties have done nothing to mitigate future risk. In some cases, owners have received payouts totaling many times the value of the property.
And the job of selling, assessing, and processing claims for flood insurance is still in the hands of private sector insurers for some reason (cause they have lobbyists and bribe – I mean donate to the campaigns of – lawmakers). The private companies get paid per claim, giving them the incentive sell to the riskiest properties, maximize the number of claims, and assess damages as quickly as possible. Basically, repeatedly flooded properties are cash cows for them and they don’t want that problem fixed.

The NFIP must be re-authorized by congress this September. They will either have to increase FEMA’s budget and basically accept that the federal government is paying the $24 billion debt or increase NFIP’s borrowing authority. Neither will fix the long-term problems, and I bet congress won’t implement reforms that will. On the plus side, there’s only about a month and a half of Hurricane Season left to go. 


Part II

September 5, 2017

Trump's Dad was a Piece of Shit Racist Too

I don't know how I missed this story from February 2016, but it appears Donald Trump's dad, Fred Trump, passed his racist views on to his son, in addition to the money. Fred Trump was arrested while marching in a KKK rally in Queens, NY for failing to disperse when ordered to by police.

When asked about this in February of 2016, Donald gave a very convincing and not at all suspiciously repetitive denial:

"He was never arrested. He has nothing to do with this. This never happened. This is nonsense and it never happened...This never happened. Never took place. He was never arrested, never convicted, never even charged. It's a completely false, ridiculous story. He was never there! It never happened. Never took place."

So it looks like being a bigoted piece of shit runs in the family. No wonder Trump thinks "very fine people" march with the KKK.