Pandemic Transfers and Poverty

• Meyer, Bruce D., Jeehoon Han, and James X. Sullivan, 2024, “Poverty, Hardship, and Government Transfers” NBER Working Paper no. 33052, October.

In the Spring 2023 Working Papers, I described the history of federal support for poor children and the shift from cash transfers (the Aid to Families with Dependent Children program, 1935–1996) to tax credits offered only to those who work. During the pandemic, the tax credits were temporarily expanded to $3,000 for every child aged 6–17 and $3,600 for every child under 6. In addition, the credit was made fully refundable to those whose credits exceeded their tax obligations. The effect of the temporary expanded tax credit on child poverty and its effect on work effort became an issue in the 2024 presidential campaign, as both Kamala Harris and Donald Trump stumped on maintaining some version of it.

My Spring 2023 Working Papers discussed an article on the child tax credit by University of Chicago professor Bruce Meyer et al. They have now updated that work. They estimate income- and consumption-based poverty rates for the period 2015–2022 to allow examination of pre-pandemic trends, pandemic payments, and their expiration.

The largest component of the $2.7 trillion in pandemic spending was $800 billion in stimulus payments. Unemployment payments increased from $28 billion in 2019 to $581 billion in 2020 and $323 billion in 2021. In comparison, the expansion of the Child Tax Credit cost about $90 billion in 2021.

In the years before the pandemic and in 2020, the patterns for income and consumption poverty were very similar. In 2021 and 2022, however, changes in income and consumption poverty were quite different: Consumption poverty fell less than income poverty in 2021, and then income poverty rose sharply in 2022 while consumption poverty continued to decline.

The authors suggest that recipients saved their pandemic payments and smoothed consumption over time when the payments were eliminated. The current emphasis on the importance of the Child Tax Credit in reducing poverty during the pandemic is misguided. The effects of the stimulus payments and unemployment compensation payments were much larger.

Geography, Health Outcomes, and Selection

• Kaestner, Robert, Ryan Gallagher, and Cuiping Schiman, 2024, “Selection of Movers on Observable Characteristics and the Effect of Place on Health and Healthcare Spending,” SSRN Working Paper no. 4976443, October.

University of Chicago professor Robert Kastner conducts careful empirical work on important policy topics. He previously wrote in Regulation about the effects of additional cigarette taxes on adult smoking behavior (Winter 2014–2015). In the Summer 2024 Working Papers, I described his work examining the effects of “Ban-the-Box” laws on the employment of young Black men.

This paper examines claims in the academic literature about how much geography affects health outcomes. It critiques a research design that makes inferences by comparing health outcomes for those who move to or from an area with those who do not move.

Studies of the effect of place on health and healthcare spending used a limited number of observed variables as controls, such as age, sex, race, and baseline healthcare spending. But such measures are not very good predictors of future spending. A regression of 2016 Medicare spending on age, sex, 27 comorbidities, and dummy variables for 10 deciles of total Medicare spending in 2015 explained only 22 percent of 2016 spending.

Kaestner suggests that existing studies have much unobserved selection that differentiates those who move from those who do not. That biases the estimates of the effects of location on health. Researchers do not conduct a formal analysis of omitted variable bias because the Medicare data that studies use contain few individual characteristics.

According the Kaestner et al.:

The likely bias of previous studies limits their usefulness because the magnitude of the true effect of “place” may differ significantly from the estimated effect. Even the direction of the bias is not known with certainty. Moreover, using the biased estimated effects of “place” to detect possible causes of the effect, for example, the quality of medical care, is likely to be misleading.

Antitrust and Competition

• Francis, Daniel, 2024, “Antitrust Without Competition,” Duke Law Journal 74: 353–439.

What is the goal of antitrust policy? Many would say to preserve competition. New York University law professor Daniel Francis argues that competition is so conceptually diffuse that it is virtually useless as an orienting measure for antitrust in real-world situations. “Competition in antitrust is often little more than a euphemism for the kind of thing that I, the speaker, believe antitrust should permit or promote—even if I will not or cannot explain why,” he writes. Later, he adds:

To put it a little crudely: the fact that a competition standard looks to the untrained eye like a reasonably specific and settled criterion while in fact conferring handy discretion on elite expert technicians to change the underlying standards over time is, at least, not obviously a vote in its favor. (Italics in original.)

Francis argues:

Courts and other actors in the antitrust world often suggest that antitrust doctrine can and should ask: does this behavior, or some specific effect or aspect of it, harm or promote competition? But there is nothing like consensus—among either economic theorists or antitrust courts—about what that question really means: that is, about what evaluative criterion or criteria should be used to answer it.

… Competition is a multidimensional phenomenon, defying easy essentialization, in an ambiguous and contingent relationship with social optimality. Views about competition’s essential dimension(s) differ profoundly: absence of monopoly, headcount, welfare, dynamic innovation, market concentration, and so on have all played a role in the long conversation. (Italics in original.)

These ideas are not new. Francis notes that Harold Demsetz said in 1995:

Even if one could measure competitive intensity along each and every single dimension of competition, our inability to convert units of competitive intensity from one dimension of competition to another makes the general intensity of competition ambiguous and even meaningless.… The Sherman Antitrust Act is logically impossible to carry out if its goal is interpreted as increasing the overall intensity of competition (or reducing the overall intensity of monopoly).… Increasing the intensity of competition (or reducing the intensity of monopoly) is not a feasible goal of antitrust. (Italics in original.)

What should be done about this intellectual incoherence? Francis answers:

Whenever competition or one of its cognates (anticompetitive, procompetitive, competition on the merits, rivalry, whatever) is deployed in antitrust talk, it should be accompanied—or replaced—by a more specific evaluative norm. This approach may, and probably should, involve one or more of the more specific values and criteria mentioned above, such as welfare, market power, or concentration.

Electricity Transmission

• Zheng, Rangrang, Greg Schivley, Patricia Hidalgo-Gonzalez, et al., 2024, “Optimal Transmission Expansion Minimally Reduces Decarbonization Costs of U.S. Electricity,” working paper 2024–2, University of Hawaii Economic Research Organization, February.
• Botterud Audun, Christopher R. Knittel, John Parsons, et al., 2024, “Bridging the Gaps: The Impact of Interregional Transmission on Emissions and Reliability,” NBER Working Paper no. 32996, September.
• Chojkiewicz Emilia, Umed Paliwal, Nikit Abhyankar, et al., 2024, “Accelerating Transmission Expansion by Using Advanced Conductors in Existing Right-of-Way,” Energy Institute at Haas Working paper no. 343, February.

Historically, electricity was generated relatively close to consumers. The exceptions were the links from the large hydro generators in the Pacific Northwest to California and similarly from Quebec hydro to New England and New York. Now there is another exception: Large solar and wind projects are located far from population centers, and to connect them requires transmission expansion.

From 2005 to 2020, US electricity transmission capacity grew by 27 percent. The annual average increase in transmission capacity over 2015–2020 was greater than the annual average over the previous 30 years. But various academic and governmental projections for transmission over the next few decades suggest the “need” for 150–400 percent more transmission capacity.

Economists do not usually talk in terms of “need.” Instead, they ask what combination of generation and transmission investment would minimize investment and operating costs over time. The first two of these working papers use different optimization models to generate estimates.

Zheng et al. consider three future pollution emissions control scenarios between now and 2050: no controls, a $190 per ton carbon price, and a zero carbon emissions requirement. The metric used to measure the benefits of transmission investment is the decrease in the average wholesale price of electricity. In the first scenario with no carbon emission controls, prices decrease by only 0.3 percent. In the third scenario with zero carbon emissions, prices decrease by 4 percent with optimal transmission investment.

Botterud et al. model the effects of the Big Wires Act proposed by Colorado Sen. John Hickenlooper in 2023. The legislation would require that each electricity region have the transmission capacity to transfer at least 30 percent of its peak demand to neighboring regions by 2035, which the authors estimate is a 68 percent increase in interregional transfer capability. Using the same metric as Zheng et al. (decrease in wholesale price of electricity) Botterud et al. report: “Our results lead to similar limited decreases, but the annual total system cost savings we obtain is in the order of $487 million to $3.21 billion. This is a relatively small percentage of total system cost but still large in absolute, annualized terms.”

Chojkiewicz et al. propose replacing existing transmission lines with advanced composite core conductors that can carry approximately twice as much power as conventional conductors and locating renewable energy sources near existing lines. The use of existing transmission towers and rights-of-way avoids the land acquisition and permitting processes that impede the construction of new lines.

So, expanding transmission is important, but less so than many people believe. And existing transmission can be reconfigured to increase capacity.

OMB Guidelines for Cost–Benefit Analysis

• Viscusi, W. Kip, 2024, “Why OMB’S Social Welfare Function Is Not Society’s Social Welfare Function,” SSRN Working Paper no. 4927129, August.

In November 2023, the Office of Information and Regulatory Affairs (OIRA), a branch of the Office of Management and Budget, issued a revised Circular A‑4 that instructs agencies that propose significant new regulations how to evaluate their costs and benefits. The circular was last revised in September 2003.

The Fall 2023 issue of Regulation contained a special section evaluating potential changes to Circular A‑4, including the introduction of equity considerations. Traditional regulatory cost–benefit analysis ignores equity effects, holding those matters are better addressed through explicit tax-and-transfer programs.

In Fall 2024 I reviewed a paper by New York University law professor Daniel Hemel that further analyzed the distributional emphasis of the Circular A‑4 revision. If redistributive benefits of regulation are now to be considered in OIRA analyses, Hemel argued, the costs of redistribution (the regulatory analogue of deadweight losses from taxation) also must be considered. This is particularly true because Circular A‑4 instructs agencies to evaluate the benefits of redistribution using a statistic that values increased consumption for the poor very highly.

Vanderbilt professor W. Kip Viscusi evaluates, in depth, the redistribution statistic described by Hemel in the context of valuing the benefits of risk regulations that reduce mortality. According to Viscusi, mortality reduction benefits are the largest source of estimated benefits of federal regulation. Regulation of fine particulate matter (PM 2.5), alone, accounts for one-half of the monetized benefits of all federal regulations.

Under the traditional approach that OMB promoted prior to the revision, when public funds are used “to reduce mortality risks, society does not assign a value to these risks based on the individual’s income level.” Instead, agencies used a Value of a Statistical Life of about $12 million for all lives saved regardless of income. Under the revised weighting scheme, benefits to low-income people are valued much more than benefits to high-income people (a 1 percent increase in income reduces the marginal value of benefits by 1.4 percent). The VSL now ranges from only $320,000 for those with household income of $1 million to $55.87 million for those with an income of $25,000.

Viscusi writes:

One might expect that OMB would provide precise documentation of why it chose this value. As far as I can tell, there is no sound empirical basis for the assumption that there is a –1.4 income elasticity of the marginal utility of income. … Ultimately, the choice of the income elasticity of the marginal utility of income appears to be a judgment call by the OMB officials.

Viscusi concludes:

Economists have no special expertise in making judgments on matters such as whether the welfare of steelworkers in Pennsylvania or dairy farmers in Wisconsin should be accorded preference in policy design. Ultimately, these are political decisions. Based on similar reasoning, OMB staff members have no special expertise in assigning different weights to impacts of population groups at different income levels.