Tag Archives: New York

Why U.S. Air Transportation Policy is Anti-Santa

Watch this video:

Now consider the following:

  1. WestJet is a Canadian airline.
  2. This would seem to be yet one more example of a foreign airline providing superior service relative to U.S. domestic airlines.
  3. According to the U.S. Department of Transportation, U.S. law has long-banned foreign air carriers from serving solely domestic routes, thus:

Air France could not carry a Los Angeles-originating passenger on a one-way flight from LA to New York. However, it could carry the passenger from LA to New York if the passenger had a through Air France ticket to Paris and, following a stopover in New York, boarded another Air France flight to Paris.

Ergo, an outdated protectionist measure may be keeping you from the best flight ever.

What the Affordable Care Act Can Teach Us about Government Failure

Most people probably believe that the recent failures of the Affordable Care Act (ACA) are an anomaly, and that most areas the federal government involves itself in, from education to transportation, operate quite smoothly, or at least adequately well. This belief is misguided, however, and the issues we see from the ACA should not be viewed as anomalies. Problems like unintended consequences of policy, privilege granting to special interests, adverse selection in insurance markets, and other issues, are widespread in countless areas of public policy. It just so happens that we usually fail to associate the pernicious effects of laws with their source: public policy.

First, public policies create many unintended consequences. People will change their behavior in response to altered incentives from policies and when these behavior changes are not anticipated by lawmakers, unintended consequences occur. As an example, the ACA has altered incentives for many employers. Business owners are now likely to cut worker hours and keep their staffs under 50 employees in order to avoid paying penalties imposed by the law. The intention was that people will get insurance through their jobs, while a result is that many people will lose their jobs or work fewer hours.

A similar effect occurred after passage of the Americans with Disabilities Act. This well-intentioned Act of Congress was supposed to level the playing field for disabled workers by requiring that businesses with disabled workers provide accommodations, such as wheelchair access. The Act also sought to prevent discrimination of disabled workers, such as firing someone for having a disability. The reality once the law was in place was very different, however. Economists have found that the law was followed by a steep decline in employment among disabled workers, likely because of increased costs associated with hiring them, exactly the opposite result the law intended. Perhaps the most famous unintended consequence of all is the fact that minimum wage laws actually hurt low skilled workers.

A lot of these effects, while unintentional, are actually quite predictable and any good economist should be able to identify potential unintended consequences before a law is even implemented. So why do these policies get adopted? A big reason is because special interests have enormous influence in shaping policy. The Affordable Care Act literally has provisions allowing handouts to insurance companies to make up for losses they face in the new government health insurance exchanges. Unfortunately, cronyism like this shapes policy at all levels. For example, a recent USDA regulation will require additional food safety inspection of imported catfish. This may sound like a sensible idea, until one finds out there is no evidence of a significant problem from tainted catfish. The new program was actually lobbied for by domestic catfish producers who wanted to hurt their foreign competitors by driving up the price of imports, all at the expense of American consumers.

A final problem created by the Affordable Care Act relates to adverse selection in insurance markets. Adverse selection occurs because of information problems between buyers and sellers of insurance. Healthy people may have trouble signaling that they are a low risk to insurers, and so the healthy drop out of insurance markets when insurers don’t offer them a low priced product that serves their needs. This can lead to mostly sick people signing up for insurance coverage, while the healthy decide to go without coverage. Over time this leads to higher prices, causing more healthy people to decline coverage and the pool of insured to become ever sicker.

The ACA creates this problem through community rating requirements and other regulations, like guaranteed issue, that don’t allow insurance companies to price policies based on the riskiness of the applicant. As insurance premiums rise (because of regulations and because insurance companies must cover many new services), more and more healthy people will find these policies unattractive. The insurance pool will become ever sicker over time. To avoid this problem, the ACA includes a mandate that everyone purchase insurance. However, it is far from clear whether the current mandate is strong enough to prevent adverse selection problems from taking place.

This problem is hardly new. New York State passed extremely strict community rating regulations several decades ago. This led to higher premiums and lots of young, healthy people dropping out of the insurance pool. I should know, I lived in New York and went without insurance for most of my 20s. The prices of policies were simply too high for me to justify paying.

The list of government failures likely to result from the Affordable Care Act is too long for one blog post. The ACA also has regressive effects that tend to favor the wealthy at the expensive of the middle class, and the law will add to moral hazard problems in our healthcare system (i.e. people over-utilizing medical services or not taking adequate care of themselves because the costs of their behavior are passed on to others).

The ACA may have serious problems, but it works great as a teaching device. Nearly every day we see another example of government failure in action.  Maybe once Americans see the effects of the ACA, they will look more closely at the effects of other policies as well.

New York’s Population Challenge

Last week at City Journal, Aaron Renn explored the New York region’s loss of domestic residents since 2000. He demonstrates that one of the world’s economic powerhouses is falling victim to the trend of domestic outmigration that New York state is seeing. Between 2000 and 2010, the New YOrk region lost 2 million domestic residents and they took with them billions of dollars of income. In Freedom in the 50 States, Will Ruger and Jason Sorens rank New York as the country’s least-free state based on its regulatory and tax regimes. They point to its tax burden — the highest in the nation —  and indebtedness as a factors contributing to the state losing 9-percent of its domestic population on net since 2000. Renn also posits that high tax rates are a leading cause for residents leaving New York City, many of them moving to Sun Belt states.

While the New York City region is only maintaining a positive population growth rate through births and international immigration, it’s far from the case that no one is willing to suffer its high tax rates in exchange for the city’s economic dynamism and cultural amenities. Rather the city’s exorbitant rental rates demonstrate that millions of people are willing to pay a premium to live in the region in spite of city and state policies that hamper economic development.  The vacancy rate for apartments is below 2-percent, well under many estimates for the natural vacancy rate. While lower taxes at the state and municipal levels in the New York region would reduce the flow of domestic outmigration at the margin, they would also increase competition for the city’s coveted apartments.

Are New York City’s amenities so desirable that its policymakers don’t need to worry about losing more residents to other states than they’re gaining? Its own not-so-distant history indicates that even the Big Apple is susceptible to the ravages of population loss. From 1950 to 1980, the city’s population fell from 7.9 million to 7 million, with most of that loss occurring in the 1970s. This time period corresponded with sharp increases in crime and the city’s famous default. These are predictable consequences of urban population decline, particularly in indebted cities where a decrease in tax base equates with inability to meet obligations to creditors .

While pursuing policy reforms designed to boost the state’s competitive standing to attract businesses and residents is a key piece of ensuring the city does not fall prey to population exodus, perhaps most importantly, city policymakers should examine their land use restrictions that limit would-be residents from moving to the city. Over the past decade, New York’s housing stock has grown only 5.3% in the face of the highest rental rates in the country for much of this time period. Historic preservation, density restrictions, and an onerous review process prevent the city’s housing stock from growing to meet demand.

Renn points out that most of New York’s domestic inmigration comes from midwestern cities and college towns across the country. Presumably many of these new residents are early in their careers and are on the margin of being able to afford New York rents. If New York housing were more attainable, more American young people would select the city as the starting place for their careers and it would attract more of the foreign immigrants essential to maintaining the city’s diversity and innovation. Ed Glaeser explains that those states that are successfully attracting more residents, like Texas and Georgia, are also those in which developers are able to build more housing with fewer restrictions. By allowing more housing in New York City and the surrounding areas, policymakers would both protect their tax base and help to maintain the city as a center of innovation and economic growth. In their effort to retain citizens — and particularly high-income retirees — New York City and New York state policymakers will need to revisit their punishing tax schemes. But at least as importantly they should focus on allowing those residents who would like to move to the city for economic and cultural opportunities to be able to afford to do so.

 

 

 

 

Are you ready for some (subsidized) football?

This weekend marks the start of the NFL season, and with it comes the fanfare and attention that being the most lucrative professional sport in America has come to demand.  However, this success has fueled the lucrative stadium financing deals that have been secured by these teams over the past 20 years, often at the expense of taxpayers.

Olympic Stadium London - Anniversary (Blended)Take, for example, the stadium deal given to the Cincinnati Bengals by Hamilton County in Ohio. Still the most lucrative subsidy in the history of professional football, taxpayers were left paying 94 percent of the $449.8 million tab. This amount doesn’t include other costs in the generous lease, such as the agreement by the county to cover all of the costs of operation and capital improvements. The lease also leaves taxpayers on the hook to fund projects that have not even been invented yet, such things as “ticketless entry systems,” “stadium self-cleaning machines,” and even “holographic replay machines.”

The Cincinnati Bengals are certainly not alone in getting these sorts of publicly-funded gifts. The Buffalo Bills recently obtained $95 million in subsidies for stadium upgrades.  In return, the state of New York will be given a luxury suite to promote the sorts of corporate handouts that the state can give to other businesses.  Meanwhile, the Atlanta Falcons will receive $200 million from the city of Atlanta toward a new stadium, funded through bonds backed by the city’s hotel-motel tax.  The Kansas City Chiefs and the Carolina Panthers have also recently received generous taxpayer-funded stadium deals.  The list goes on.  Nearly every NFL stadium built since 1997 has received some public funding.

And what do these deals really do to promote economic development?  Almost nothing.  According to economists Robert Baade and Victor Matheson, researchers looking into the economic impact of new sports facilities “have almost invariably found little or no economic benefits.”  This should come as no surprise to economists and policymakers.  Dennis Coates and Brad Humphreys have surveyed the literature and found “a great deal of consistency among economists doing research in this area. That . . . sports subsidies cannot be justified on the grounds of local economic development, income growth or job creation.”

Why, then, do politicians continue to hand out these privileges at the taxpayers’ expense? One answer is that these sports teams are well-connected and well-organized, giving them an inherent lobbying advantage over a multitude of unorganized taxpayers.  For example, the owner of the Miami Dolphins has created an active political group to attack lawmakers he blames for a failed measure to provide taxpayer support for a $350 million upgrade to Sun Life Stadium.

Another possible explanation is that people love their hometown teams, and most politicians are eager to associate themselves with anything that appears popular.  Even if that means giving these teams handouts at the taxpayers’ expense.

So as the football season begins and continues to play out over the next 6 months, you ought to take some time to enjoy your hometown team.  Odds are, you are already paying for it.

Will The EPA’s Environmental Justice Agenda Backfire?

In May, the Environmental Protection Agency (EPA) proposed new guidelines for incorporating “environmental justice” into its rulemaking procedures. Environmental justice is the idea that all people, regardless of income or race, should be treated equally with respect to environmental laws, regulations and policies. Sounds pretty good, right? Unfortunately, it’s not quite as simple as waving a magic wand and making low income and minority communities cleaner and safer. Instead, EPA’s new guidelines may have unintended effects that harm the very people they are supposed to protect. Perversely, the poor may end up paying for a cleaner environment they won’t get to enjoy, while wealthier people enjoy it instead.

In the new guidelines, the EPA talks at length about how lower income and heavily minority areas are often correlated with environmental problems and a whole host of health risks. It may be that the poor are less politically organized than wealthier people and interest groups. Perhaps for this reason there are companies that purposefully pollute in poor and minority neighborhoods because the companies know they can get away with it. That seems plausible.

But there may be other reasons that poor people tend to live in more polluted areas. For example, the poor may move to polluted areas because those areas are less expensive to live in. I myself am a case in point.

When I was in my younger twenties, I tried to make a go at being a musician in New York City. I spent most of my time practicing with my band, so I generally worked odd jobs at off hours, living month to month and paycheck to paycheck. That way I could focus most of my time on music. When I first moved to New York, I lived in the Lower East Side of Manhattan. Then I moved to Harlem because it was cheaper. Finally, to save even more money, I moved to Greenpoint, a neighborhood in northern Brooklyn.

Most people don’t know this, but Greenpoint sits over one of the largest oil spills in North American history. In fact, there was a sign down the road from my house that signaled the end of my street was a “dumping station” where there was a physical pipe coming out of the ground dumping waste into a river, Newtown Creek. You could literally smell the oil in the air.

So why would I live like this? I paid $480 a month for a gigantic room with huge bay windows in a 3-bedroom apartment that was $1,300 a month in total, dirt cheap by NYC standards. My two roommates, also musicians, paid even less in rent than I did. We knew it wasn’t the best neighborhood; we weren’t stupid. We just thought the tradeoff was worth it.

So what does the EPA think will happen if it cleans up a neighborhood like Greenpoint? Would starving artists like myself and my old roommates benefit as we are finally freed from the exploitation of evil oil companies? Maybe, maybe not. The reasoning should be obvious to anyone who has ever lived in New York City.

Greenpoint is prime real estate situated extremely close to Manhattan. When the neighborhood gets cleaned up, real estate prices will rise as wealthier people, who previously wouldn’t tolerate the pollution, move in. Rents will go up as well. Those who own land will be better off, and some of them may currently be poor. But most low income people rent and don’t own property. Those people will have to move out as the area gets more expensive, or if they stay they will face a higher cost of living. Perhaps if they move, they will choose another polluted area to live in. Almost certainly, they will have a much longer commute if they work in Manhattan like I did.

The point of this story isn’t to say we should never clean up polluted areas. We should. But the EPA shouldn’t claim it is helping low income and minority populations when it is far from clear that they are the primary groups that will benefit from EPA rules. Regulations claiming to help the poor can be highly misleading if analysts don’t make an attempt to forecast (and analyze retroactively) adjustments in human behavior that result from regulatory changes.

There’s even more to the story. While the benefits to low income groups as a result of regulations justified on the basis of “environmental justice” can be highly uncertain, the costs are all too real. Costs of regulations are often spread evenly across everyone in society, much like the costs of regressive sales taxes are spread evenly across everyone who purchases a taxed product, and this includes the poor. We could end up in a perverse situation where the poor are actually paying to gentrify their own neighborhoods.

This is far from the only problem with the EPA’s new environmental justice guidelines, but it may be the most perverse. If the EPA really wants to help the poor, the agency should pay closer attention to changes in prices and human behavior that will result from its actions. The EPA should also seek feedback from, and provide detailed information on expected benefits and costs to, impacted communities before moving forward with a regulation. Otherwise, the EPA could be wasting a whole bunch of time with little to show for its efforts.

Freedom in the 50 States and Migration

In last month’s publication of Freedom in the 50 StatesWill Ruger and Jason Sorens point to net domestic migration as an indicator that Americans demonstrate their preferences for more libertarian states by where they choose to live. They explain, ”

In each case, the bivariate relationship between freedom and migration is positive. However, it is strongest for fiscal freedom and weakest for personal freedom.”

The authors go on to use regression analysis to control for some of the other variables that likely cause people to move from one state to another:

We also try a regression specification including state cost of living from 2000, as estimated by political scientists William D. Berry, Richard C. Fording and Russell L. Hanson.7 This is an index variable linked to a value of 10 for the national average in 2007, the last date for which a value is available. There is some concern that this variable is endogenous to freedom. For instance, it correlates with the Wharton land-use regulation variable at r = 0.67, implying that strict land-use regulation drives up the cost of living. It also correlates with fiscal freedom at −0.35, perhaps implying that taxation can also drive up cost of living.

Finally, we also try including growth in personal income from 2000 to 2007 from the Bureau of Economic Analysis, adjusted for change in state cost of living from Berry, Fording, and Hanson. This variable is even more clearly endogenous to economic freedom, as well as to migration (more workers means more personal income). Nevertheless, we want to put the hypothesis that freedom attracts people to the strictest reasonable tests.

With this more in-depth analysis, the authors find that the three types of freedom they study — fiscal, regulatory, and personal — are all positively associated with net migration (PDF p. 97). In particular, the relationship between land use regulation and migration strikes me as an interesting one. States with the strictest land use regulations prevent in-migration by disallowing new housing development. According to Census data, New York City grew by about 2-percent between 2000 to 2010, including natural growth and foreign immigration. This is a significant slowdown from the 1990s. While the Big Apple wouldn’t be expected to attract new residents through libertarian policies, it does offer many economic and cultural opportunities that people might value. Ed Glaeser explains that by preventing new development, city- and state-level restrictions have prevented more people from being able to move to New York City:

The high prices that persist in New York City suggest that the demand for city living isn’t falling. Case-Shiller data, which captures the metropolitan area rather than the city, shows that the New York area’s prices have risen by 67 percent since 2000 (32 percent in real terms), more than any metropolitan area in the sample except Los Angeles.

But the combination of economic strength and high prices need not lead to population growth if an area doesn’t build many more units. In that case, high housing demand leads only to higher prices — not more people.

[…]

The Bloomberg administration has worked hard to allow more building, but the recent Census numbers seem to suggest that a combination of slow growth and continuing high prices implies that New York’s barriers to building, such as a complex zoning code and ever more Historic Preservation Districts, are still shutting out families that would like to move to the city.

This is just one city-level example, but New York City demonstrates that locations with the strictest land use regulations are not just discouraging in-migration with policies that limit residents’ freedom, they are also preventing people from moving to their jurisdictions by restricting growth in housing stock.

Third Edition of Freedom in the 50 States

Today the Mercatus Center released the third edition of Freedom in the 50 States by Will Ruger and Jason Sorens. In this new edition, the authors score states on over 200 policy variables. Additionally, they have collected data from 2001 to measure how states’ freedom rankings have changed over the past decade. While several organizations publish state freedom rankingsFreedom in the 50 States is the only one that measures both economic and personal freedoms.

Ruger and Sorens have implemented a new methodology for measuring freedom. While previously the authors developed a subjective weighting system in which they sought to determine how significantly policies limited the freedom of how many people, in this edition they have use a victim-cost method, assigning a dollar value to each variable that restricts freedom measuring the cost of restricting freedom for potential victims. The authors’ cost calculations are designed to measure the value of the states’ freedom for the average resident. Since individuals measure the cost of policies differently, readers can put their own price on each freedom variable on the website to find the states that best match their subjective policy preference.

In addition to an overall freedom ranking, Freedom in the 50 States includes a breakdown of states’ Fiscal Policy Ranking, Regulatory Ranking, and Personal Freedom Ranking. On the overall freedom ranking, North Dakota comes in first followed by South Dakota, Tennessee, New Hampshire, and Oklahoma.  At the bottom of the ranking, New York ranks worst by a significant margin, with rent control and burdensome insurance regulations dragging down its regulatory freedom score. New York is behind California at 49th, then New Jersey, Hawaii, and Rhode Island.

The authors note that residents respond to the costs of freedom-reducing policies by voting with their feet. Between 2000 and 2011, New York lost 9% of its population to out-migration. In addition to all types of freedom being associated with domestic migration, the authors find that regulatory freedom in particular is associated with states’ growth in personal income. They conclude:

Freedom is not the only determinant of personal satisfaction and fulfillment, but as our analysis of migration patterns shows, it makes a tangible difference for people’s decisions about where to live. Moreover, we fully expect people in the freer states to develop and benefit from the kinds of institutions (such as symphonies and museums) and amenities (such as better restaurants and cultural attractions) seen in some of the older cities on the coasts.

[…]

These things take time, but the same kind of dynamic freedom enjoyed in Chicago or New York in the 19th century — that led to their rise — might propel places in the middle of the country to be a bit more hip to those with urbane tastes.

Local control over transportation: good in principle but not being practiced

State and local governments know their transportation needs better than Washington D.C. But that doesn’t mean that state and local governments are necessarily more efficient or less prone to public choice problems when it comes to funding projects, and some of that is due to the intertwined funding streams that make up a transportation budget.

Emily Goff at The Heritage Foundation finds two such examples in the recent transportation bills passed in Virginia and Maryland.

Both Virginia Governor Bob McDonnell and Maryland Governor Martin O’Malley propose raising taxes to fund new transit projects. In Virginia the state will eliminate the gas tax and replace it with an increase in the sales tax. This is a move away from a user-based tax to a more general source of taxation, severing the connection between those who use the roads and those who pay. The gas tax is related to road use; sales taxes are barely related. There is a much greater chance of political diversion of sales tax revenues to subsidized transit projects: trolleys, trains and bike paths, rather than using revenues for road improvements.

Maryland reduces the gas tax by five cents to 18.5 cents per gallon and imposes a new wholesale tax on motor fuels.

How’s the money being spent? In Virginia 42 percent of the new sales tax revenues will go to mass transit with the rest going to highway maintenance. As Goff notes this means lower -income southwestern Virginians will subsidize transit for affluent northern Virginians every time they make a nonfood purchase.

As an example, consider Arlington’s $1 million dollar bus stop. Arlingtonians chipped in $200,000 and the rest came from the Virginia Department of Transportation (VDOT). It’s likely with a move to the sales tax, we’ll see more of this. And indeed, according to Arlington Now, there’s a plan for 24 more bus stops to compliment the proposed Columbia Pike streetcar, a light rail project that is the subject of a lively local debate.

Revenue diversions to big-ticket transit projects are also incentivized by the states trying to come up with enough money to secure federal grants for Metrorail extensions (Virginia’s Silver Line to Dulles Airport and Maryland’s Purple Line to New Carrolton).

Truly modernizing and improving roads and mass transit could be better achieved by following a few principles.

  • First, phase out federal transit grants which encourage states to pursue politically-influenced and costly projects that don’t always address commuters’ needs. (See the rapid bus versus light rail debate).
  • Secondly, Virginia and Maryland should move their revenue system back towards user-fees for road improvements. This is increasingly possible with technology and a Vehicle Miles Tax (VMT), which the GAO finds is “more equitable and efficient” than the gas tax.
  • And lastly, improve transit funding. One way this can be done is through increasing farebox recovery rates. The idea is to get transit fares in line with the rest of the world.

Interestingly, Paris, Madrid, and Tokyo have built rail systems at a fraction of the cost of heavily-subsidized projects in New York, Boston, and San Francisco. Stephen Smith, writing at Bloomberg, highlights that a big part of the problem in the U.S. are antiquated procurement laws that limit bidders on transit projects and push up costs. These legal restrictions amount to real money. French rail operator SNCF estimated it could cut $30 billion off of the proposed $68 billion California light rail project. California rejected the offer and is sticking with the pricier lead contractor.

 

 

 

 

Distinguishing between Medicaid Expenditures and Health Outcomes

As the LA Times reports, the Obama administration has vowed not to approve any cuts to Medicaid during budget negotiations:

Preserving Medicaid funding became even more crucial to the Obama administration after the Supreme Court ruled last summer that states were not required to expand their Medicaid coverage. Administration officials are working hard to convince states to expand and do not want any federal funding cuts that could discourage governors from implementing the law.

“There is a big irony,” said Ron Pollack, executive director of Washington-based Families USA, a leading Medicaid advocate. “The fact that the Supreme Court undermined the Medicaid expansion is now resulting in greater support and a deeper commitment to making sure the program is not cut back.”

Paying for Medicaid remains a major challenge for states. The program has been jointly funded by states and the federal government since it was created. And many states, including California, Illinois and New York, have had to make painful cutbacks in recent years to balance their budgets by reducing physician fees and paring benefits, such as dental care.

However, protecting Medicaid spending — without changing incentives for the healthcare industry or patients — does not necessarily mean improved health outcomes for beneficiaries. As of 2011, nearly one-third of doctors said that they would not accept new Medicaid patients because they are losing money on those who they do see, indicating not only a lower quality of care for Medicaid patients compared to those on private insurance, but reduced access to care. Under the current Medicaid structure, states are incentivized to spend more to receive larger federal matching funds grants, but at the same time federal requirements limit opportunities to improve quality of care through innovation.

The State Health Flexibility Act proposed by Representative Todd Rokita (R-IN) proposes a way to change these incentives. Under the State Health Flexibility Act, state funding for Medicaid and the Children’s Health Insurance Program would be capped at current spending levels. At the same time, states would be released from many federal Medicaid mandates and instead would have the flexibility to determine eligibility and benefits at the state level. Rokita proposed this bill last year, and parts of the bill made it into the House budget.

While this bill seems unlikely to make any progress under the current administration, it mirrors reforms proposed by at least one democratic state governor. Oregon’s Governor John Kitzhaber, a former emergency room doctor, received a Medicaid waiver in 2011 to receive a one-time $1.9 billion payment from the federal government to close the state’s Medicaid funding gap. In exchange, he promised to repay this money if the state failed to keep Medicaid costs growth at a rate two-percent below the rest of the country. Kitzhaber sought to achieve this by allowing local knowledge to guide cost savings. The Washington Post reports:

Oregon divided the state into 15 region and gave each one a set amount to care for each patient. These regions can divvy their dollars however they please, so long as patients hit certain quality metrics, like ensuring that adolescents get well-care visits and that steps are taken to control high blood pressure.

The hope is that each of the 15 regions, known as coordinated care organizations, will invest only in the most cost-effective health care. A behavioral health worker who can prevent emergency admissions becomes a lot more valuable, the thinking goes, when Medicaid funding is limited.

While the Oregon plan is not a block grant — the federal government has not capped the amount that it will provide to the state — it does share some similarities with the State Health Flexibility Act. The state and its designated regions have a strong incentive to provide their Medicaid recipients better health outcomes at lower costs because if they fail the state will have to repay $1.9 billion to the federal government. Additionally, the state and the regions have the freedom to find cost savings at the level of patients and hospitals, which isn’t possible under federal requirements.

This Week in Economic Freedom

It’s been a promising week for supporters of freer markets as several states and municipalities have taken steps toward deregulation and consumer choice. Here’s a roundup of some new developments:

1. Washington state is making headlines by being the first state (and first place globally) to legalize recreational marijuana. This policy change comes after recent polls indicate that most Americans favor legalizing marijuana. Of course what remains to be seen  is how the federal government will respond to this change in state law. The U.S. Attorney General’s office has issued a letter stating that marijuana remains illegal under federal law in these states and under the Obama administration the office has aggressively prosecuted medical marijuana dispensaries that are legal under states’ laws.

2. In Michigan right to work legislation looks poised to pass. The change would make it legal for employers to pay workers who choose not to be union members. James Sherck explains the political calculus behind this potential policy change:

Republicans have large majorities in both houses of the state legislature. Until now, however, Governor Rick Snyder has insisted right to work was not on his agenda. But today he changed his tune and called for the legislature to pass the bill — Snyder’s support removes the last obstacle to right to work passing in Michigan.

How did this happen? For one, unions badly miscalculated. They tried to amend the state constitution to preemptively ban right to work and attempted to elevate union contracts above state law. Michigan voters roundly rejected the proposal, but the debate put the issue on the public’s agenda.

Unsurprisingly, Michigan unions strongly oppose this change and are currently rallying against this potential change.

3. In Washington, DC City Council took two steps toward greater economic freedom. On Tuesday, the DC Council passed legislation allowing Uber, a popular sedan service which customers use their cell phones to book, to continue operating in the city. The new legislation legalizes “digital dispatch” and permits this new type of service that fits between taxis and traditional car services. Uber still faces legal challenges in San Francisco, Boston, Toronto, New York, and Chicago. Also on Tuesday, DC joined its neighbors Maryland and Virginia with legal Sunday liquor sales. As is so often the case with regulation,  many liquor store owners supported the status quo of mandatory Sunday closings. Store owners testified that they appreciated the mandatory day off and worried that the policy change would allow competitors to cut into the profits of stores that choose to close on Sunday.