post hoc, ergo time to talk

Adding speculators to the health care speculation

2009-08-24T14:47:00.000-04:00

As much information as there is floating around out there about health care reform, there is even more speculation about what, exactly, the final reform package will look like. Most of the speculation comes from pundits and commentators whose business is speculation. But there's another set of speculators whose activities are scrutinized heavily but whose attitudes I haven't seen mentioned much in coverage of the current debate - shareholders in the status quo.

Let's first lay out some assumptions/facts. The health insurance industry is profitable in its current incarnation. Even the mildest form of health care reform is likely to cut into the profits of health insurance companies somewhat by prohibiting them from denying coverage to people with pre-existing conditions and controlling premium increases. Also, the expectation is that a plan with a public option, the most important and most controversial aspect of strong health care reform, would hurt profitability even more. I think it's safe to say reduced profitability is bad for companies. It is also bad for their investors, who like it when their investments make money for them. Changes in investors' attitudes about particular investments are often reflected in changes in stock prices for particular companies.

This is a Google Finance chart of the performance of four major health insurance stocks since November 3. I think the day before the election is a pretty good reference point since President Obama's campaign made it clear that he was likely to address health care reform aggressively. There is a clear drop in stock prices for these four companies in the days immediately following the election. There is another, smaller dip in mid-January, around Inauguration Day. The other notable decline came it late February and early March, right around the time when President Obama started to make his health care reform plans known in greater detail. These three declines coincide with perhaps the three most optimistic moments in the current health care reform effort.

Since Obama's plans were announced, however, the prices of these health insurance stocks have been steadily rising. The four companies have also separated from each other pretty significantly, but I don't really know what, if anything, that means. As for the general improvement in performance, I think that probably does have some meaning. Since pretty much every rational person expects some kind of health care reform to pass, I think the rise in prices indicates an expectation on the part of traders that the package will be weaker, rather than stronger (i.e. will not include a public option). I don't know how to put a probability on it, but if you like Intrade (which I don't always really like so much), you would probably say the chances of reform including a public option are around 34%.

Looking at markets is only one way of guessing what will happen. These markets only reflect (imperfectly) the expectations of the people who are using them, which is a fairly small portion of the population. Markets don't always work for their intended purposes, let alone as a means of predicting things. In fact, that's the entire point of health care reform. I just thought I'd contribute to the speculation by examining the speculators rather than the bloggers and the bloviators.

New England Journal of Medicine creates progressive tax policy out of thin air

2009-08-21T13:30:00.000-04:00

I and others have previously written that the current tax treatment of employer provided health benefits is regressive. Yesterday, however, I saw this post from the New England Journal of Medicine claiming exactly the opposite, that the tax exemption of employer-provided health insurance is progressive because the benefits received by poorer people with such insurance represent a higher percentage of their incomes than the benefits received by wealthier people.

I have to admit, in my previous thinking about this issue, I hadn't thought about it that way, which I definitely should have, since the progressiveness of a tax (or tax exemption) really is based on costs/benefits as a percent of income, not on their absolute value. However, while I am no longer quite so certain that the exemption of employer-provided health insurance is technically regressive, I certainly do not believe it is, in fact, progressive.

The analysis in the NEJM post focuses only on those who have employer-provided health insurance. As you can see in their table, the percentage of people who get health insurance from their employers increases steadily with income.Consequently, the percentage of people in each income stratum who actually receive the health-benefit tax expenditure also increase with income. That is, more, richer people receive larger sums of money as a result of the current tax treatment of benefits. As such, it would be useful to reconstruct the data to show the benefits to the entire populations of each stratum.

Taking the mean health-benefit tax expenditure for all families as a percentage of mean income for all families, rather than using the numbers based only on people who have employer-paid coverage tells a much different story than the NEJM table does.

As you can see, under this methodology, the benefits received from the current tax structure represent a smaller share of income for the poorest households than they do at higher levels of income (I suspect the smaller percentage seen in the >$99,999 stratum is the result of the lack of an upper bound on that level). When considered this way, it would be impossible to claim that exempting employer-paid health benefits from taxation is progressive. It may not be regressive either, as the data seemingly indicate that the different income groupings benefit from it in approximately equal proportion to income.

The NEJM post is technically correct in its claim that, among those with employer-paid health insurance, the tax exemption is progressive. But its presentation of the data makes its primary deficiency, that it does not address the dramatically lower proportion of poorer families with such coverage, glaringly obvious. Decisions regarding policies like this one should be made based on their potential impact on the entire population.

Notes: Data on mean income for all families are from the U.S. Census Bureau's Current Population Survey, 2006 Annual Social and Economic Supplement.

Also, the NEJM post seems like it could have been reverse-engineered from this study, which looks to be more thoroughly considered.

Dispelling the (relatively) level-headed health care myths

2009-08-20T15:58:00.001-04:00

America's health care debate has, unfortunately, been hindered by distractions like "death panels," Nazi references, and people showing up to town hall meetings heavily armed. Much has been made of these sideshows, and people have spent a lot of time both propagating and countering them (see Fox News and MSNBC, respectively). That they are outrageous has not stopped them from accomplishing what I suspect was their true purpose, to divert the attention of those who would normally counter other seemingly reasonable, but in fact specious, claims about health care reform. Claims like these:

Government health care will lead to rationing: I have news for you: health care is already rationed. If you are already sick or poor, you can't get health insurance. Without insurance, health care can be prohibitively expensive. Consequently, health care is rationed by ability to pay. The proposed reforms would actually reduce this sort of rationing by providing subsidies to those who cannot afford to purchase their own coverage. They would also prohibit all insurers from denying insurance to those with pre-existing medical conditions, ending another form of rationing. That doesn't cover everything, though. Insurance companies currently ration care among those who do manage to get insurance, as well. Companies motivated by profit make decisions to maximize it. Paying for medical treatments cuts into profits. A government health insurance program, free from the profit motive, would have more room to pay for actual health care.

Health care reform will tax all small businesses: This claim is based on the proposed requirement that employers provide health insurance for their employees. First, let's be clear: there is not a single business, small or otherwise, that will absolutely be compelled to pay higher taxes because of this aspect of health care reform. Any business that does the right thing and provides insurance to its employees will not be taxed additionally. According to MediaMatters, businesses that do this will also be rewarded with a tax credit. Even some small businesses that don't provide insurance will see no tax increase. Businesses with payrolls under $250,000 are exempt from the requirement. Above that level, a tax is imposed progressively, reaching a maximum of 8% of payroll for businesses above $400,000.

Doctors entered the profession to make money and will lose their incentives to perform well when a government health insurance program limits their incomes: There are some strong assumptions and some dramatic misrepresentations in this statement. First of all, health care reform will not limit doctors' incomes. The government will not be providing health care by employing doctors, and therefore won't be able to dictate their wages. Doctors who make more money by treating more patients would continue to be able to do so. The pool of patients they see could, in fact, expand, since more people will have insurance and be able to afford medical treatment. Doctors' incentives will not change. Second, this claim overstates the market power a public option would have. If things play out the way these flow charts suggest, the public option would insure about 10 million people. That would make it a substantial competitive force, to be sure, but it would not nearly be large enough to completely overhaul the way doctors get paid, even if that were its purpose. Finally, while the money may be a nice perk, I bet there's a pretty good number of doctors who got into the profession primarily to help people. I'm not saying I'm pinning my hopes for universal health care on the generosity of doctors, but we should probably acknowledge that some of them are good people.

This is obviously not an exhaustive list of dubious assertions about health care reform. If you hear any other questionable claims, let me know. They're kind of fun to examine/debunk.

Barney Frank is the man!

2009-08-19T10:11:00.001-04:00

If there's one thing our government does well, it's... provide insurance?

2009-08-14T15:18:00.001-04:00

One of the sentiments most commonly expressed by those who oppose health care reform (or, to put it more accurately, health insurance reform), goes something like, "If the government can't run [insert unpopular government program here], can we really trust it/do we really want it to run our health care?" Since we're talking about health care, the VA hospital system is often the unpopular program that gets inserted.

But the implication that a government-run health insurance program would be about as well-run as the VA simply because both are government-run programs is off base. By a lot. First of all, the better comparison (in the sense of more accurately representing the truth, not advancing anti-reform arguments) would be between the public option and Medicare, the health insurance program the government already runs. There's a big difference between providing a service and paying for it. Secondly, if you take a look at a list of government programs, some of the best ones are insurance programs.

Let's start with Medicare. Huge majorities of seniors enrolled in Medicare are satisfied with their coverage. If you talk to people who receive Social Security ("retirement insurance"), unemployment insurance, or disability insurance, they might wish their benefits were a little higher, but I bet they'd much rather have their current benefit than nothing. Although it generally operates under the radar, the Federal Deposit Insurance Corporation helps keep the economy going by giving people confidence that their money is safe in banks. Recipients of benefits from the Pension Benefit Guaranty Corporation are probably pretty glad it exists, since, without it, they probably wouldn't be able to retire. These are not the only good examples.

The fact is, the government is pretty good at providing insurance. Most problems that arise with these programs, like the trouble the Social Security Trust Fund is in, are born of the inability of the public and politicians to recognize and address the tradeoffs that we have to make in order to maintain such successful programs. It's little wonder that these programs are successful, since the government is really the ideal organization to offer insurance.

Insurance markets are plagued by problems of adverse selection. At a given price, those most likely to purchase insurance will be those most likely to need the insured service. This makes it hard to make a profit. In order to do so, insurance companies spend a lot of time and resources weeding out the people they expect will cost them the most.

Since the government isn't motivated by profit, it has more room to cover people likely to need more service. Compared to private insurance companies, it would also be able to save all the money usually spent denying people coverage. Insurance companies mitigate their risks by insuring large groups of people. Can you think of an organization capable of reaching a larger group of people than the federal government?

The current health care debate has lacked full discussion of the government's real, structural advantage and strong history of success in providing insurance. Instead we've heard ridiculous tales of death panels, long waiting periods, and bureaucrats standing between you and your doctors, tales that have no basis in fact. At a time when calm reasoning is required, hyperbole and hysteria seem to be prevailing. It's time to forget the fear-mongering and establish the health insurance system America needs.

Senate candidates reveal themselves at public forum

2009-08-13T16:23:00.000-04:00

This morning I attended a public forum on issues affecting the elderly in Ohio. The forum consisted of presentations on economic insecurity, housing, and healthcare by panelists (including the Research Director from Policy Matters - that's why I, the only young person in the room, was there), followed by questions directed at three candidates for Ohio's Class III Senate seat, currently occupied by Sen. George Voinovich. The participating candidates were Ohio Secretary of State Jennifer Brunner (Democrat), Eric LaMont Gregory (Independent), and Tom Ganley (Republican).

Unsurprisingly, the Q&A period was dominated by questions about health care and the proposed reforms. The seniors in attendance did a pretty good job of asking reasonable questions. Unlike some of the other public gatherings on the subject, this affair remained pretty civil. A few people asked questions or made comments that indicated pretty clearly that they were opposed to reform (or to hear them say it, for reform, but not this reform), but no one made a scene or was disrespectful. Overall, the crowd seemed rather friendly to the proposed reforms, and very few seemed worried about negative effects of reform on Medicare (according to a show of hands). Apparently, there were a few protesters with signs outside the event, but I didn't see them.

The most significant aspect of this event to me was insight it provided into each of the candidates. I would have like to see Lee Fisher and Rob Portman there, too, in order to get a more complete picture, but knowing a little something about these three is a good place to start:

Jennifer Brunner: Seemed pretty smart, and generally addressed the issues presented in questions; pretty much just held the party line on health care, but did say she would support expanding Medicare eligibility gradually; also said she would support raising the limit on the Social Security payroll tax; seems like she might have some trouble, though, connecting with audiences - she may have done okay with a civically-engaged, liberal-leaning group of seniors (she studied gerontology in college), but a more representative group might not relate to her as well

Eric LaMont Gregory: Could just be that he exceeded my rather low expectations of independent candidates, but Gregory impressed me the most out of these three; came across as thoughtful and knowledgeable in his responses; has an interesting set of experiences, including significant work with the National Health Service of England and the World Health Organization, giving him some credibility on health care; on policy, might as well have been a Democrat, except for his (rather puzzling) support for replacing our income tax with an 11% flat tax

Tom Ganley: Lacks substance; raised his voice and gesticulated (mostly by pointing emphatically) a lot; answers often lacked clear support or foundation; articulated his opposition to health care in typical, blustery, disingenuous, Republican way; pretty fully engaged in health care disinformation campaign, although not to the "death panel" extreme seen recently; very assertive, though, and probably did the best job of connecting to the audience; would be very friendly to business as a Senator

As you may have gathered from that last bullet point, I'm not a huge fan of Mr. Ganley (based solely on his performance at this event). The most annoying thing he did was to cite pages and lines in "the health care bill" (while not really saying which version he was using) and to claim to be reading from it (while really just summarizing his interpretation of the sections he cited). He made some claims that would be pretty disturbing to some, if they were true (a pretty big "if").

As he is a (formerly) small businessman, his favorite claims were about the employer mandate and requirements to provide health care for part-time employees. More than once, he lamented the impact this mandate would have on a hypothetical small salon or a small barbershop, each with a couple of employees and someone to clean up part-time. He said that the requirement that these businesses provide health care to their employees or be faced with an 8% tax on their total payroll would put them out of business.

Which might be true. Except the businesses he described would be incredibly unlikely to face this requirement. The House Energy and Commerce Committee's markup of the bill exempts businesses with payrolls under $250,000 from the requirement. Then, for payrolls between $250,000 and $400,000, the tax is imposed at progressively higher levels. Only businesses with payrolls greater than $400,000 would face the full 8% tax. In short, if a three or four man barbershop is paying an 8% tax on its payroll for not covering its employees, either those are some of the highest-paid barbers around, or the barbershop exists only in Tom Ganley's imagination.

Nonprofit banking could address financial problems of the poor

2009-08-11T16:13:00.002-04:00

One of the researchers for Policy Matters Ohio appeared on a Cincinnati talk-radio show this morning to discuss his work on the rent-to-own industry. Unsurprisingly, the host was less than receptive to his positions. As you may know, rent-to-own is a pretty bad deal for consumers, who often end up paying up to 4.5 times as much for goods purchased at rent-to-own stores as they would have paid for the same goods at a retail store. Rent-to-own customers are often constrained to those stores by their inability to afford the up-front payments required by retail stores.

Rent-to-own isn't the only industry that profits at the expense of those already facing financial hardship. Payday lenders make short-term loans at exorbitant rates of interest to people who need cash to make it to their next paycheck.

The common feature of these two industries is that both assume the risk of entering into financial transactions with people who are at greater risk of failing to uphold their end of the bargain. As a consequence, they must charge higher prices. This is well established, and even much-praised microcredit lenders in developing areas charge what seem to be rather high rates in order to cover the costs of defaults. The interest rates that poor American consumers face, however, whether they are taking out a two-week loan or renting a stove with the intention of buying it, are pretty ridiculous. Since traditional commerce providers of financial services seem unwilling to jeopardize their profits to address this inequity, some new approach needs to be taken. Fortunately, we should know just where to look for a good model: the Cleveland Clinic.

What does the Cleveland Clinic, one of the world's top hospitals, have to do with helping poor people afford a new refrigerator? The Cleveland Clinic is a nonprofit hospital, and one model of non-profit hospital structure seems like it could be easily applied to the financial services industry.

I'll call the model I'm referring to the two-good model of nonprofit organization. It is based on the premise that, within an industry (like the health services industry), there are two categories of services: those that are profitable (revenue goods), and those that are not (mission goods). The typical, for-profit hospital, say, will provide all (or many) of the profitable services and none of the unprofitable ones. Consequently, the unprofitable services, which many people may still need to consume despite their unprofitability, will be under-provided.

Non-profit hospitals, like the Cleveland Clinic or the Mayo Clinic, exist to correct this market failure. Under the two good mode, non-profit hospitals also provide as many of the profitable services as they can, but instead of distributing their "profits" to shareholders or directors, they use the extra revenue to fund the provision of "mission goods," the unprofitable but still necessary services that the profit motive has failed to supply.

The extension of this model to the financial services industry seems fairly straightforward. There are obviously some financial services that it is very profitable to provide, while there are others (like making short-term loans at a reasonable rate of interest) that are not profitable, but which some people still need. A nonprofit bank could operate just like a traditional commercial bank for the most part, providing all the services banks normally provide to all the customers banks normally serve. But then, instead of paying 8- or 9-digit bonuses to its top employees or splitting profits among its shareholders, a nonprofit bank could use its excess revenue to provide mission goods like low-interest, short-term loans to the people who need them most.

People, like banks, occasionally face short-term "liquidity crises." The banks have the United States government to help them through theirs. Nonprofit banks could provide similar help to the poor and create an alternative to the muggings they face at Payday loan windows and rent-to-own stores.

Note: I couldn't find a good online source about the two-good model to cite here. It is not my theory. I learned about it in a class I took, Economics of Medical Care, with Burton Weisbrod, the John Evans Professor of Economics at Northwestern University.

Wrap up: Managing externalities is about property rights

2009-08-10T15:49:00.003-04:00

The management of externalities is a major issue in public economics. As I have discussed previously, there are a number of ways in which a government might try to get people to internalize the external costs (or benefits) of their actions. All methods have good and bad aspects, and no one option clearly dominates all others in the real world (although one option, stern orders, is clearly dominated by all others).

This is not to say, however, that the other options are all created equal. A given method may be far more effective in one type of situation than another. Additionally, these various systems, and the different ways in which they might be implemented, can have dramatically different implications in society, particularly in terms of the direction of payments between those creating the externalities and those affected by them.

But while the relative merits of these systems or the desirability of their social implications may be debatable, the central source of differences between them is clear: the allocation of property rights.

Externalities arise when two parties make inconsistent use of a shared resource. In this sense, a steel plant's pollution is not necessarily a problem, per se, because it makes the air dirty, but because it's neighbors wanted to use that air for breathing. Since we have laws, we try to resolve the resulting problems by allocating property rights. Since we have markets, those rights can be bought and sold, in whole or in part.

The adjustment of these rights, once they've been established, is what I've been talking about in my previous posts. How these rights are established in the first place is another question. It is in that stage that most questions of fairness are also raised and resolved.

The initial allocation of property rights really makes all the practical difference in shaping a system to regulate externalities. Will firms be paying to pollute, or will citizens be paying to breathe freely? In some cases, we must answer broader questions about the nature of the rights we enjoy in order to allocate property rights. Am I entitled to freely express myself by making noise in my back yard? Or do you have a right to be free from the disruption my activities might cause?

As Congress considers establishing a cap and trade system to regulate carbon emissions, some will attack the system as unfair, to either businesses or consumers. What they are really attacking, though, is the way in which the proposal will establish property rights to the act of emitting carbon. The main question for those concerned with fairness should not be whether a market-based approach is appropriate for this situation (it seems to be a pretty good option), but instead whether the rights to emit will be reasonably allocated.

At the most basic level, I tend to favor the position that Earth's atmosphere and its protective qualities should belong to all of its present and future inhabitants, and that we all have a right to preserve its integrity. Anyone who would take an action that would harm the atmosphere should be required to buy that right from us. The American Clean Energy and Security Act gives varying degrees of freedom to emit to various emitters, free of charge, and in this way falls short of my ideal program. Nothing is ever done at the most basic level, though, and I think the bill is worth passing, despite this shortcoming (and perhaps a few others). It is important for the United States to finally step up and address carbon emissions, and for us to fail now after having come this far would not be good, to put it mildly.

What's a government to do? Maybe nothing

2009-08-07T16:21:00.000-04:00

In addition to the several overt actions a government can take to regulate externalities, it has the option of doing nothing. In many circumstances, choosing this option won't have much of an effect on the level of the externality that is produced. However, if it is easy and inexpensive for producers of the externality and those affected by it to interact and bargain with each other, the government would be wise not to impose any regulation.

According to a theorem developed by Ronald Coase, when transactions costs are low, bargaining between parties will lead to an efficient allocation of goods. Applied to externalities, this implies that, when its easy for people and polluters to bargain, the efficient amount of pollution will be produced. If an affected community would like to see less pollution, members of the community could pay companies to pollute less. Conversely, if a corporation feels constrained by limits on pollution, it could pay its neighbors to accept more pollution. Who pays whom depends on which party initially possesses the relevant property rights.

Polluters and their neighbors can work out bargains to reach the optimal level of production because they place different values on the marginal units of the good whose production has pollution as a side effect. Behold:

At the level of production (q1) initially chosen by the firm, which produces until its marginal cost equals its marginal benefit, the people affected by the pollution value the last unit of production at the difference between MC and MC - Social, the per unit external cost of production (or, the effect of the externality), represented by the blue lines. The firm values the last unit at the difference between its marginal cost and its marginal benefit, so not at all. If the two sides negotiate, so price can be agreed upon between zero and the length of the blue line that will be mutually beneficial and will induce the firm not to produce the last unit of its good.

This process can be repeated. The firm no longer values its last unit of production at zero, but it probably still doesn't value it a whole lot. The firm's value of its last unit is shown on the graph as the red line. The more the parties bargain to reduce the firm's output, the more highly the firm will value its marginal unit. Eventually, production will be bargained back to the point at which the firm and its neighbors place the same value on the last unit of production (q*). This is the efficient level of production, and thus leads to the efficient level of externality.

The problems with this course of action are obvious, especially within the context of addressing carbon emissions. It is clearly not the case that bargaining between polluters and those affected by pollution is easy. In fact, it's really hard. Transactions costs are very high, and, as we know from the fact that we are now considering other means of addressing the problem, the efficient outcome has not been achieved. The Coase solution is probably better for situations in which the externality is localized and easily and immediately quantifiable.

The Coase Theorem, however, presents another problem that could arise if a Pigouvian tax were used to control emissions.

Once an effective tax has reduced production to the efficient level, it will still be the case that those affected by the externality will value the marginal unit of production more highly than the producer. If transactions costs are low, the same bargaining that took place in the absence of a tax will occur, but the effect will now be to reduce production to a level below the efficient level. Fortunately, transactions costs don't seem to be low with respect to emissions.

That, in combination with my other posts on externalities, pretty much covers the options have when dealing with negative externalities. Similar concepts can be applied to see how a government might promote activities that have positive externalities and the problems they might encounter in those efforts. I'll have a wrap-up post about externalities soon.

Cap and Trade: Good system, but some questions

2009-08-06T13:00:00.001-04:00

Finally, we get to the option that's actually being considered.

The first part of Cap and Trade is the Cap. The government establishes a limit on the amount of externality that will be allowed throughout the system as a whole.

The second, and perhaps more important, part of Cap and Trade is Trade. The Cap gets divided up into permits or allowances that are alienable (i.e. can be bought and sold by the producers of the externality). The permits become commodities. Holders of permits have property rights to produce externalities, and they can sell those rights if they so choose.

One who holds these permits is entitled to produce a certain amount of the regulated externality without being penalized. Anyone who produces more externality than they have purchased the right to produce, however, is subject to fines. If a producer evaluates his situation and sees that he will make more externality than he has the right to, he can avoid the fines by buying permits from another producer who expects to make less externality than he's allowed to.

The effect of this system is the same as the effect of taxing production of the externality. Let's say that a cap and trade system is established to regulate carbon emissions. Say also that permits are sold for emissions in one ton units (buying one permit entitles you to emit one ton of carbon in a given period). Since permits can be traded a market for the permits will emerge. Let's say the market price for a permit to emit one ton of carbon ends up being $10. The effect of the regulation will be the same as imposing a tax on carbon emissions equal to $10/ton.

You might ask, "If the effect is the same as the tax, why not just impose the tax? Why go through all this extra nonsense?" One answer is that it's easier to adjust the "tax rate" under cap and trade than under a straight up tax. If the price of a permit is too low, and the regulation is failing to effectively reduce emissions (to continue the example), the government can purchase permits and retire them (decide not to sell them to anyone else). Reducing supply while demand is held constant leads to higher prices. Likewise, third parties who are not producers of the externality (maybe groups like the Sierra Club) can buy permits and take them off the market in order to influence the price. Conversely, if the price of permits is too high, and the regulation is choking the economy, the government can issue more permits, decreasing the price.

The other benefit of the cap and trade system is that the tax sets itself, provided the government is sufficiently flexible. Since the price of permits is determined in the market, the government doesn't have to know about industry cost curves or research what would be the best level of taxation to impose. It can put the system in place and adjust the number of available permits until it gets the ideal result.

While there seem to be few major, systematic problems with cap and trade, some questions do arise when considering the initial allotment of permits. Consider the proposed system for regulating emissions. How should permits be distributed in the beginning? What about in subsequent years? Should they be sold to emitters? At auction? For a flat fee? Should they be given away (grandfathering existing emitters into the new regulatory system)? Who should be given/allowed to buy permits initially? How do you minimize the effects of what amounts to a carbon tax on the poor? What about the jobs that might be lost if existing companies can't deal with the added costs? There are many more...

Depending on your views and the answers to these questions, a cap and trade system could be anywhere from "complete disaster" to "the best thing since sliced bread." The American Clean Energy and Security Act answers them in one of infinitely many ways, and those answers will be what ultimately determine its success or failure (but hopefully success). The cap and trade system in general, however, seems like a very good option for regulating emissions and possibly other negative externalities.

Does less for me mean even less for charity?

2009-08-05T15:48:00.002-04:00

My high school wants to build a new athletic field on campus. They would use it for football, soccer, marching band, track and other practices, as well as soccer and JV/Freshman football games. This would be a very good thing for current students, since the football team currently practices on a public field that is often littered with glass, and the marching band practices in the parking lot. Having this field would also help with recruitment. The only problem, of course, is finding the money to build the field.

The school wants to raise $2,250,000 to build the field, and it has raised about $602,750 so far, which seems pretty good to me, given the economic climate in which it's had to raise money. They are left, however, with the prospect of raising an additional $1.5 million+, which sounds daunting.

I wondered, though, how daunting it would really be. It makes sense that charitable giving would decline during a recession, but is that, historically, what happens?

Using data from the IRS and news articles based on reports from Giving USA, I looked at the amount of charitable giving in the United States annually since 1985 (I used a calculator from the Bureau of Labor Statistics to convert all amounts to 2009 dollars). I compared that to the quarterly real GDP growth rate over the same period using data from the Bureau of Economic Analysis.

One definition of a recession is a period of at least two consecutive quarters of negative GDP growth. On my chart, this corresponds loosely to the times when the green line dips below zero (the x-axis). The first time this occurs on the graph is around late-1990 into early-1991. Real GDP growth was negative in the last quarter of 1990 and the first quarter of 1991. Looking at the blue charitable giving dots, then, you can see that, adjusted for inflation, Americans gave less to charity in 1991, a year that began in a recession, than they did in 1990 (the charitable giving markers are aligned with the fourth quarter of each year).

The next time we see the economy shrink is in two non-consecutive quarters in 2001. While not technically a recession, these were certainly volatile economic and political times. Despite this volatility, Americans gave more to charity in 2001 than in 2000. In 2002, charitable giving fell below its 2001 level despite the fact that the economy grew in all four quarters of 2002. It fell, however, from what was probably, given the state of the economy, an artificially high level of giving in 2001 that resulted from the enormous outpouring of charitable support throughout the country after the September 11 terrorist attacks.

The economy shrank again in three out of four quarters of 2008, growing only in the second quarter. The recession we are currently in began in the middle of last year. Real GDP shrank faster in the fourth quarter of 2008 than at any other point in the period covered by this data (a 5.4% contraction). Not surprisingly, charitable giving in 2008 was down from its all-time high in 2007.

From these three cases, it looks like Americans do become a little less charitable when their country faces tough economic times. Since GDP shrank an even larger 6.4% in the first quarter of 2009, and the country remains in a recession, I would not be surprised to see charitable giving fall again from 2008 to 2009. Looks like we might have to wait a while for that football field.

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Note: I have no idea what happened to charitable giving in 1986-87.

High-speed trading sounds like a problem for Pigou

2009-08-03T11:58:00.002-04:00

Nobel-prize-winning economist and New York Times columnist Paul Krugman writes in yesterday's paper about the harm being done to the American economy by banks and individuals who engage in high-speed trading, using privately available information to take advantage of public markets for private profit. He points out that such activities hurt the market and detract from it's primary purpose, which is to allocate capital to those places where it will do the most good.

At the end of his column, Krugman suggests a couple of ways to address this problem in a society that he says, "lavishly rewards those who make us poorer." He supports, for starters, the recently-passed House bill setting guidelines for compensation at financial institutions and, more broadly, higher levels of taxation on very high incomes.

Another possible remedy to the problem Krugman discusses, which he does not mention today, would be to impose a Financial Transactions Tax. If high-speed transactions are harming the market, as Krugman suggests, they are imposing negative externalities on other participants in the market, and enacting a Pigouvian tax could help correct this problem.

The tax could be set at a low rate, so that ordinary investors who make relatively few trades and use the market for its intended purposes, including business investment and saving for retirement, would be minimally affected. For traders who use super-fast computers to make trades every few seconds, however, the costs would start to add up. If the tax could be targeted to only the latter type of trade, the rate could be set higher to further discourage such harmful behavior.

I mentioned earlier that one problem with setting Pigouvian taxes is finding the level of taxation that will lead to the efficient level of the externality. Underestimating doesn't sufficiently combat the problem, but overestimating can drive resources away from useful projects. In this case, however, high-speed trades don't appear to have any socially redeeming qualities (unlike steel production, which provides inputs for beneficial construction projects, for example). Since these trades harm the market and don't seem to have any social benefits, the efficient number of trades might actually be zero, in which case it would be impossible to set the tax too high if it could be targeted to only high-speed trades.

There are many other potential reasons one might want to impose a Financial Transactions Tax, including to discourage particularly risky trades. I think using one to combat high-speed trading would be a good place to start, though, especially since those who engage in it are further enriching themselves at the expense of the market by using tools not available to ordinary people.

Microcredit means the world to some

2009-07-29T12:19:00.001-04:00

Juana Del Socorro Caceres Torrez owns a vegetable stand in Chinandega, Nicaragua. Living in a country where the average annual income is $3636, she felt she needed a loan to help her grow her business.

By typical standards, a vegetable stand in Nicaragua doesn't really sound like a promising candidate to receive a loan from a bank. But thanks to Kiva and its partner agencies, individuals from all over the world came together to lend Ms. Torrez $800, which she used to purchase vegetables for her business and repaid within a few months.

Kiva is a non-profit organization that makes small loans to entrepreneurs in poor areas throughout the world, including within the United States. The loans are financed by donations and through the participation of individuals lending over the internet from all over the globe.

Microcredit, as a concept, is has been around for a while, but it has received lots of attention recently. In 2006, Muhammad Yunus received the Nobel Peace Prize for his work with Grameen Bank in extending credit to the working poor. Kiva and its partner agencies have made over 100,000 microcredit loans totaling more than $80 million. In so doing, they have helped thousands of individuals, families, and communities throughout the world improve their lives and combat poverty.

Naturally, microcredit's potential is accompanied by some risk to lenders. There is always the risk that the borrowers' plans won't be successful and they will be unable to repay the loan. With international loans, currency changes might render any repayment worthless. As many borrowers live in underdeveloped nations, problems like disease or other instabilities could lead to default. Kiva, however, works with agencies to ensure that its loans are going to people with good plans who are likely to repay the loans. Over 98% of the funds Kiva has lent have been repaid.

Microcredit is pretty cool. Kiva is pretty cool, too. You should check it out.

Jon Stewart interviews Bill Krisol on The Daily Show

2009-07-28T10:33:00.002-04:00

This was a good interview, especially when they got around to talking about health care.

The Daily Show With Jon Stewart

Mon - Thurs 11p / 10c

Bill Kristol Extended Interview

www.thedailyshow.com

Daily Show
Full Episodes

Political Humor

Joke of the Day

Thoughts from the President's town hall

2009-07-24T15:12:00.001-04:00

President Barack Obama visited Cleveland yesterday. One-thousand-forty-nine other people and I won a lottery to attend the town hall meeting he held to discuss health care reform while he was here.

The President opened the town hall with about 20 minutes of prepared remarks, in which he defended his administration's handling of the economic situation it inherited from the previous president, discussed the urgency of reforming our health care system now, explained how such reform will affect those who already have health insurance, expressed some frustration with political opponents who would slow or stop progress toward reform, and declared his confidence that reform can be achieved.

Overall, I thought the speech was pretty strong. I watched his press conference last night, too, and I thought he did okay there, but I think he did much better at the town hall. The audience was much more receptive than a room full of reporters doing their jobs, and he played to us well. He was interrupted with applause several times.

In the Q&A session, President Obama took questions from a variety of people (including three high school students, which was cool) and answered them all very directly. He addressed people's concerns well. Throughout the town hall, he presented a convincing case for health care reform. He was calmly confident, and I think he did a good job motivating and relating to his audience, which, I guess, was probably the objective. President Obama is clearly an excellent politician.

I was kind of disappointed, though, with the answer the President gave to one of the questions he got after his speech. A woman asked President Obama what he would do to ensure that the financing of any reform plan was fair to women and the elderly. The premise of her question was that one funding mechanism being discussed is ending the preferential tax treatment given to employer-provided health benefits. Also, insurance plans for women and the elderly are generally more expensive. Consequently, ending the preferential tax treatment might have a more adverse effect on women and the elderly. President Obama responded by assuring the woman that ending the preferential tax treatment of employer-provided health benefits was something he had taken off the table. He then went on to say, however, that discussions about taxing "Cadillac plans" valued above $25,000 were legitimate.

I'm disappointed that the President will not consider changing the tax treatment of health benefits. Not taxing benefits is incredibly regressive, as those who benefit most from the system are people in high marginal tax brackets with expensive insurance plans,

while poorer people with lower-quality jobs are forced to buy insurance with post-tax dollars. The current tax treatment is also economically inefficient, because it encourages over-investment in deluxe health care plans, driving spending up unnecessarily.

It's explained better here. Let it suffice to say that lots of economists agree that the current tax treatment of health benefits is less than ideal. It's also apparent that changing this treatment would go a long way toward paying for health care reform and holding down costs in the future. It seems that in discarding this option, President Obama is setting aside an effective funding mechanism that would also correct a market distortion and could gain some Republican support.

My disappointment was somewhat mitigated, however, by the fact that President Obama could explain his reasons for opposing changes to the tax treatment of health benefits (changing the law would make it more expensive or employers to provide insurance and could lead many to stop doing so, leaving even more people uninsured). Personally, I think employer provided health insurance is a strange system, and it wouldn't really be that bad if we could find our way out of it, especially since it kind of arose by accident, but that's another story.

President Obama's position on this issue is particularly interesting to me in light of some other comments he made in his speech. At one point, he told us, "I hear from you at town hall meetings like this. I read your letters. The stories I hear are the first thing that I think about in the morning. They're the last thing I think about at night. They're the focus of my attention every waking minute of every day." I, for one, believe that he is being truthful - I believe he is motivated my people's personal stories. I also believe this helps highlight a dilemma faced by many holders of high political office.

People in positions of power, especially on the state and national levels, must often be motivated on a personal level to do jobs that require them to act in the abstract. Tales of successes and failures, of hopes and hardships, give governors, congressmen, and presidents the drive to make life better for individuals, but their power is within a system. Working in a system often requires people to make trade-offs. It must be difficult to trade in lives of people you meet face to face, especially when the reward is the theoretical improvement of an impersonal system, but sometimes that is what needs to be done. Is this one of those times? Are the systemic benefits great enough to offset the personal losses some might experience? How can we tell? What if we're wrong? I'm glad I don't have to answer these questions, because doing so certainly doesn't seem easy.

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On a lighter note, this guy was standing outside the town hall meeting yesterday:

In case you can't tell, that's Jesus, but with Barack Obama's face, on the sign. Hahaha.

President Obama's health care town hall meeting in Shaker Heights

2009-07-23T20:59:00.000-04:00

Today, I attended President Obama's town hall meeting about health care reform at Shaker Heights High School. He delivered prepared remarks and then took about 40 minutes of questions from the audience. Here are his prepared remarks, as recorded from my seat next to reporters from the Wall Street Journal and the New York Times.

Thoughts to follow in another post.

Would somebody sue them already?

2009-07-21T21:32:00.001-04:00

If someone is doing something that you feel infringes on your rights, you are free, in the great American tradition, to sue his ass. In theory, and apart from legal issues like establishing standing, common law suits could be used to force those who generate negative externalities to internalize the external costs they impose.

The benefits of this method are fairly clear. Those most affected by the externality can get together and sue the entity producing it. If they win, they receive any damages (apart from attorneys' fees). This addresses the problem of misaligned costs and benefits encountered under a Pigouvian tax (see old post).

Why, then, don't people use this option? There are several answers that fall under the broader category of public action problems. Within public action problems, three are particularly pertinent: free riding, rational ignorance, and rational apathy.

Any action for which a broad base of people is expected to voluntarily share costs will likely suffer from free rider problems. A lawsuit, particularly a class action suit, which would likely be used to address externalities affecting lots of people, is such an action.

Suing someone takes a lot of time, effort, and money. The benefits of a successful suit (internalization of external costs) are enjoyed by everyone, even those who do not support the suit along the way. Most individuals cannot influence the outcome of a lawsuit by means of their own actions (unless the individual happens to be an especially talented attorney, for example). Given that an individual will see the same benefits from a successful suit whether he participates or not, and that the success of the suit generally does not depend uniquely on his participation (as opposed to that of some other generic person), he will likely prefer not to participate (saving himself the costs of doing so) while eventually reaping the same rewards as everyone else. All individuals face the same choice (to participate or not), and if they all frame it this way (and many often do), no one ends up participating, and the suit never happens. Everyone wants a free ride, but nobody's hired a driver.

The other two problems, rational ignorance and rational apathy, are similar. They occur when it costs an individual more to become informed (or interested) than he receives in benefits from doing so. Say a man lives in an area that is minimally affected by air pollution from a steel plant. Suppose he is unaware of this effect. He could learn about the ways in which the steel plant affects him by doing research. But doing research takes time, which he might prefer to spend working, working out, relaxing, or engaging in some other activity. Unless he places a particularly high value on knowing about things, it probably makes sense for him to skip the research and see a movie, since he'll enjoy the movie more than he'll enjoy knowing about the steel plant.

(N.B. I'm assuming the man can do research without incurring explicit monetary costs. Say he already subscribes to an internet service provider anyway and uses the internet at home to do his research. The cost, then, of learning about the air pollution is an implicit opportunity cost, i.e., the enjoyment the man doesn't get from doing whatever activity he gave up to do the research. If he does incur explicit costs, like paying for a book, for example, the total cost will be the sum of the explicit and implicit costs.)

Alternatively, suppose the man does know that the air he breathes is being polluted by a steel plant and that the effects he experiences are minimal. Suppose he also knows about the free rider problems often experienced by those who attempt to file law suits. Since he can reasonably conclude that efforts to address the pollution issue are likely to fail, it may be rational for him not to care about it.

The bottom line with law suits is that, due to collective action problems, it is too difficult to get them off the ground for them to be an effective means of controlling externalities, especially externalities that affect lots of people in relatively minor or less-than-urgent ways. In this respect, systems options like stern orders or Pigouvian taxes have the advantage of being supported by paid professionals whose job it is to pursue regulation and who are not deterred by public action problems.

We're running low on options now. Up next is the important one, "Cap and Trade," followed by "Do Nothing" and then some "tie all this stuff together" comments.

Internship Update

2009-07-21T20:47:00.000-04:00

Recently, I've been reading about and working with data about public libraries in Ohio, which averted a disastrous 50% cut in Ohio's recently completed biennial budget negotiations, only to be saddled with cuts of approximately 30% (on top of the cuts that would have been realized anyway due to declining tax revenue, which is another story).

Relatedly, I have a question. Does anyone have any suggestions of macro factors that might affect home values? By macro factors I mean things like poverty rate in a particular area, not things like how many bedrooms a house has.

Happy Independence Day!

2009-07-04T20:50:00.003-04:00

There's no problem a good Pigouvian tax can't fix (or is there?)

2009-06-30T23:17:00.002-04:00

Another option regulators have for limiting negative externalities like ozone-depleting emissions is to impose what's called a Pigouvian tax on the goods associated with the externality. The tax works by increasing the cost of supplying any given quantity of the good, which, ceteris paribus, will lead to a reduction in the quantity of the good that ends up being consumed, reducing the externality by extension. (Note that, in this respect, it does not matter whom the tax is collected from, i.e. the economic incidence of the tax does not depend on its statutory incidence. In other words, the same people will be paying the tax, via higher prices, regardless of who has to actually give money to the government.)

The government's goal is again to get firms to internalize the external costs their production imposes on society. The ideal Pigouvian tax is equal to the per unit external cost of producing the good that is being taxed. With the government charging the firms for the external costs they impose, the firms are forced to take the consequences of their production into account. Facing this additional cost, they will produce less.

Unfortunately, there are significant informational difficulties in establishing the ideal level of taxation. Measuring external cost is difficult, just like determining the efficient level of production. If the government gets the tax level wrong, it is imperative that it admit the mistake and fix it. The next guess may not be much better than the first, though, and, legislatively, it is relatively difficult to tinker with taxes too much. If the tax is set at the appropriate level however, the efficient level of production will be achieved without the government having to issue mandates like it did under stern orders and without creating the potential for a cartel to emerge (since the last unit produced will have the cost the firm as much as it benefits the firm). So really, there is no problem a good Pigouvian tax can't fix. The problem is finding a good Pigouvian tax.

Seriously, though, there are a couple other issues with Pigouvian taxes that make them something less than perfect, even if set at the level appropriate to reach efficient production. For one, the benefits of the Pigouvian tax are not received in proportion to the injury suffered from the externality it regulates.

Assume the government collects tax revenue and spends it on projects that benefit its entire citizenry. Now let's say that there are still steel plants in Cleveland, that they pollute, and that the federal government has imposed a Pigouvian tax on steel. Suppose revenue collected from this tax is spent nationwide on programs to plant more trees in order to address carbon dioxide emissions. The people who live near the steel plants suffer the most, as they have to breath dirty air. People in, say, Berkley, CA, are virtually unaffected by steel production in Cleveland (ignoring, for a moment, the long-term, worldwide climate change implications). However, through this taxation mechanism, Cleveland steel plants are essentially paying for the pollution they create in Cleveland by buying trees for people in Berkley.

The people most affected by the externality receive a disproportionately small portion of the benefits from its regulation. They do experience a reduction in pollution relative to the case of no regulation, but they are still not being fully compensated for the pollution they continue to experience.

Another problem with Pigouvian taxes arises when they are imposed in environments in which the costs of bargaining between those creating externalities and those affected by them are low, but I'll talk about that later.

The problem with stern orders

2009-06-29T23:19:00.002-04:00

One thing to keep in mind regarding regulations of emissions is that the point is not to drive emissions to zero. That would be incredibly inefficient. The goal of a cap and trade system (or any similar system) is to get people (and firms) to internalize the costs their behavior imposes on society, leading society to the right amount of a emissions. When we drive our cars, or when steel plants fire up their furnaces, we create pollution, which affects other people. Our decisions, however, about how much to drive, or a firm's decision about how much steel to produce, are generally based on the costs we face, not on how these behaviors will help or hurt other people. Regulation, like cap and trade, forces us to take the consequences of our actions into account by imposing additional monetary costs on behaviors that hurt others.

A government that uses stern orders limits emissions by dictating levels of production to firms whose products are associated with pollution. The government sets the level of production that will lead to the efficient amount of emissions (the level at which the marginal cost of reducing emissions is equal to the marginal benefit of doing so).

This sounds simple. The government should just figure out what the right level of production is and tell firms to produce it, and the pollution problem will be solved. There are a few problems, however. Let's assume markets are competitive. It is hard to figure out what the right level of production is. The government would need to know all kinds of information about costs and benefits for individual firms in order for it to make stern orders work. All it knows is the market price and quantity of the goods in question. It could ask firms for the other information, but they would all have pretty strong incentive to lie to the government in order to encourage it to set terms that would be favorable to firms. Also, at least in America, firms generally do not take kindly to being told how much of their products they are allowed to produce.

(left - what government needs to know; right - what government knows)

None of these, however, is the big problem with stern orders. The big problem with regulation via stern orders is that it can actually end up helping the polluters (and hurting consumers). In order to understand this, you need to know a little bit about how monopolies work. You can follow the link for a more in-depth explanation, but, in short, a firm that is a monopoly is able to earn higher profits by restricting the available quantity of the goods it sells, which allows it to charge higher prices. A firm that faces a competitive market cannot do this because its customers will simply buy their goods from another firm that is charging the market price.

If a government regulates a competitive market with stern orders, it may help the firms in that market become a cartel, which behaves like a monopoly. In a cartel, multiple firms cooperatively limit the available quantities of goods in order to charge higher prices. The regulations require firms to reduce the quantities they are producing. Cartels, however, are difficult to maintain because each individual member has incentive to cheat by producing more and lowering its price to beat the other members of the cartel. Cartels can try to punish members that cheat (those that engage in "chiseling"), but the measures necessary to do this are often more painful to the cartel than to the cheater. The government regulations, in this case, also provide a strong enforcement mechanism for a potential cartel (the government can do things, like imposing fines or requiring shutdowns, perhaps, that a true cartel cannot do).

A cartel won't necessarily form under stern orders, but it's possible. If one does form, there will be less product available on the market, and consumers will have to pay higher prices for it than they would in a competitive situation. Consumers also experience a loss of welfare, since additional units could be produced the benefits of which would exceed the costs. Thus, this government-enhanced cartel leads to inefficiency.

Hopefully, stern orders don't look so great anymore. Once I've explained the other options, it should be clear that they are actually he worst choice all the time.

The right amount of pollution?

2009-06-26T19:52:00.008-04:00

Today, I wished I had my old job. Nothing against my current job, but today would have been a great day to be on the Hill. Today, the House of Representatives passed the Waxman-Markey climate bill, officially known as the American Clean Energy and Security Act, which would, among other things, address the threat of global warming by, for the first time, imposing a "cap and trade" system of regulating emissions.

The vote was remarkably close (219-212), considering the Democrats' sizable majority in the House. One reason for the small margin was that the bill failed to satisfy several of the more liberal members of the Democratic caucus. Their complaints cover topics like too much spending on the wrong types of programs, going too easy on polluters, too much coal, and others.

Some people, liberal and conservative alike, don't like the cap and trade mechanism. Given the alternative means of regulation, however, cap and trade is probably the best option.

A government that wants to regulate emissions has five basic choices:

Stern orders - dictate what level of production the industries in question may engage in
Pigouvian taxes - impose a tax on emissions (via taxes on the goods whose production leads to pollution)
Suits in common law courts - sue polluters
Cap and trade - allocate alienable rights to pollute and allow firms to buy and sell them
Do nothing - take no direct action, but allow polluters and those affected by pollution to bargain in order to reduce pollution to the appropriate level

This could get long fast, and since the Senate is likely to take its time with this bill, I think I'll break up my explanation into multiple posts over a couple days.

Straight from the horse's mouth

2009-06-26T10:41:00.001-04:00

This is really cool. Treasury Secretary Timothy Geithner answers questions posed to him by readers of the Huffington Post. It might be a little bit technical, but overall I don't think it's too hard to understand.

I tried to embed it, but I don't think it worked.

Why we still need newspapers

2009-06-22T22:26:00.000-04:00

This morning, my post from Saturday about the Policy Matters rent-to-own report incited an article on rtoonline.com, a rent-to-own industry news site. The site cited my post as support for reporting that Policy Matters was working on the report. Actually, what the articles said was,

"According to a blogger claiming to be an intern for Policy Matters Ohio (PMO), the consumer advocacy group is preparing a special report on the rent-to-own industry."

First of all, I find the implication that someone might claim to be an intern at Policy Matters Ohio without actually being one hilarious. Policy Matters is a pretty cool place, but I don't quite think it's a place someone would falsely claim to work just for kicks. Also, it was kind of funny, although not really that surprising, that the tone of the article seemed hostile to the report, despite the fact that whoever wrote the article had not read a word of the report.

Unfortunately, this statement is not only humorous, but it also illustrates a dangerous situation. "According to a blogger claiming to be an intern for Policy Matters Ohio..." Whoever wrote the article probably didn't think I was lying about where I work, but he hedged his bets anyway. And he did it because he had to. Because he didn't (and probably couldn't) verify my identity.

With the proliferation of blogs and the increasing ease with which individuals can put information on the internet, it has become harder and harder to know whether something you are reading is legitimate or not. The fact that the veracity of published statements is rarely tested before those statements appear online should make people more skeptical of content from sources that are not well-established, but it seems that many people read with an eye no more discerning than the one they used when fact-checked newspapers and magazines were the most popular sources of information.

But newspapers and magazines are no longer the most popular sources of information. In fact, many people see them as vestigial organs in the body of news sources in this age of 24-hour instant access to information. But many of those sources don't fact-check. People report on what others are reporting. Things get murkier and murkier with every degree of separation of verifiable fact (assuming that there are facts in there somewhere). With so many questionable sources out there, we need solid sources we can trust, like newspapers, that don't put things out there unless they've checked them out, but these are the very sources that are rapidly disappearing.

In this case, the report was accurate. What I wrote was true, and the story didn't misquote me or take any of my statements out of context. However, the fact is that what I wrote should not be considered, without verification, a legitimate source. I could very easily have been wrong, or just making things up. There was no reason to believe what I wrote, except that it sounded believable.

Update: Policy Matters Ohio Rent-to-Own Report

2009-06-22T12:20:00.002-04:00

Here's the link to the report I wrote about a couple days ago. It ended up being called, "Paying More, Renting Debt: Why Rent-to-Own is a bad deal for Ohio consumers."