Chicago developer unwraps second West Loop tower

The 58-story project would include a 165-room Equinox Hotel, 370 apartments—and rise higher than any other Chicago building west of the Kennedy Expressway.

from nicholemhearn digest http://www.chicagobusiness.com/realestate/20180131/CRED03/180139940/chicago-developer-unwraps-second-west-loop-tower?utm_source=CRED03&utm_medium=rss&utm_campaign=chicagobusiness

Carson's in Chicago, Schaumburg to shutter

The closures come as parent company Bon-Ton Stores attempts to stanch six consecutive years of losses.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180131/NEWS07/180139939/carsons-in-chicago-schaumburg-to-shutter?utm_source=NEWS07&utm_medium=rss&utm_campaign=chicagobusiness

Boeing surges on tax cut, record deliveries

The jet maker's stock jumped the most in six months.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180131/NEWS05/180139941/boeing-surges-on-tax-cut-record-deliveries?utm_source=NEWS05&utm_medium=rss&utm_campaign=chicagobusiness

Sears to cut 220 corporate jobs as it slashes costs

It's the latest shake-up for a department-store chain racked by declining sales and mounting red ink.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180131/EMPLOYMENT/180139942/sears-to-cut-220-corporate-jobs-as-it-slashes-costs?utm_source=EMPLOYMENT&utm_medium=rss&utm_campaign=chicagobusiness

Bezos, Buffett and Dimon can't solve healthcare's ills

But if they manage to wring some cost savings for their employees, they could create a model other businesses can follow, writes the former CEO of Baxter.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180131/OPINION/180139944/bezos-buffett-and-dimon-cant-solve-healthcares-ills?utm_source=OPINION&utm_medium=rss&utm_campaign=chicagobusiness

As Rauner pushes for unity, foes ask: what about the jobs?

The governor's State of the State speech calls for a "laser-like" focus on fixing Illinois' economy, but his record on creating new jobs in the state immediately caught flak on both sides of the aisle.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180131/BLOGS02/180139947/as-rauner-pushes-for-unity-foes-ask-what-about-the-jobs?utm_source=BLOGS02&utm_medium=rss&utm_campaign=chicagobusiness

US Foods sues major chicken suppliers

Tyson, Perdue and Koch Foods are named in the food distribution giant's lawsuit, which claims years of industry collusion restricted supply and boosted poultry prices.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180131/NEWS07/180139948/us-foods-sues-major-chicken-suppliers?utm_source=NEWS07&utm_medium=rss&utm_campaign=chicagobusiness

Million-plus gifts support photography locally

The Ruttenberg Arts Foundation has given $4 million plus to the Art Institute and $1 million to the Museum of Contemporary Photography.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180131/NEWS07/180139950/million-plus-gifts-support-photography-locally?utm_source=NEWS07&utm_medium=rss&utm_campaign=chicagobusiness

Episode 9: Congressional Primaries: How the Parties Fight Insurgents

The year 2016 brought a lot of change in presidential primaries, but mostly continuity in House and Senate primaries. How will the candidates gain party support and win votes in this year’s crowded primary season? Hans Hassell says party elites and donors continue to decide the vast majority of primaries by clearing the field and providing support. Robert Boatright says the story of primaries as ideological battles contributing to polarization is way oversold. Neither sees 2018 breaking the historical mold.

The Niskanen Center’s Political Research Digest features up-and-coming researchers delivering fresh insights on the big trends driving American politics today. Get beyond punditry to data-driven understanding of today’s Washington with host and political scientist Matt Grossmann. Each 15-minute episode covers two new cutting-edge studies and interviews two researchers.

You can subscribe to the Political Research Digest on iTunes here.

The post Episode 9: Congressional Primaries: How the Parties Fight Insurgents appeared first on Niskanen Center.

from nicholemhearn digest https://niskanencenter.org/blog/episode-9-congressional-primaries-parties-fight-insurgents/

Book Review — The Elephant in the Brain

The elephant in the room” is any important and obvious fact that, for whatever reason, no one is willing to talk about. In their new book, The Elephant in the Brain, authors Kevin Simler and Robin Hanson extend the concept to one the most important and obvious, yet unspoken, facts about the human mind: that we are masters of self-deception, equipped by evolution with an “introspective blind spot” that hides our deeper, selfish motives, even when the same motives are easy to spot in others. The result is an entertaining and insightful book that sheds light on a diverse collection of perplexing human behaviors — from laughter to religion to the origin of language.

For fans of books like The Selfish Gene and The Mating Mind, The Elephant in The Brain will be familiar territory. But for almost everyone else, the core thesis is likely to be extremely challenging. That’s because our introspective blind spot is not unlike the literal blind spot in our eye, located where the optic nerve connects with our eye’s disc of photoreceptor cells. Thanks to an evolutionary adaptation, our brain automatically fills in the hole using information from the surrounding context, creating the illusion of a continuous field of vision. We can easily verify that the deception is taking place with imaging techniques or simple optical illusions, and yet knowledge of its existence cannot make us any less blind to our own blindness.

Unconscious self-deception in the social domain works similarly: easy to demonstrate but impossible to switch-off. Thus for any action with a mix of sacred and profane motives — as much Good Samaritan as quid pro quo — we are willfully blind to the latter, not as conscious manipulators, but because strategic ignorance of our Machiavellian side had survival value for our ancestors. As the renown evolutionary psychologist Robert Trivers once put it, “We deceive ourselves the better to deceive others.”

The core thesis of The Elephant in the Brain is that this has major implications for public policy that we are loathe to admit. Thus spending on health care, we learn, isn’t merely about improving our health; it’s also a wasteful way to signal our caring for others. Admitting this, we could conceivably cut medical expenditure in halfand be no worse off. Likewise, charitable giving isn’t just, or even mainly, about doing good in the world; it’s also a way to flex one’s wealth and generosity while bathing in the “warm glow” of peer approval. A movement dedicated to “effective altruism” could rectify this by subjecting philanthropic causes to utilitarian rigor.

The above is an excerpt. To read the full review please click here.

The post Book Review — The Elephant in the Brain appeared first on Niskanen Center.

from nicholemhearn digest https://niskanencenter.org/blog/book-review-elephant-brain/

After pivot takes hold, Packback gets $4.2 million

After switching from textbook rentals to classroom software, a Chicago startup backed by Mark Cuban signs up new investors.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180131/BLOGS11/180139958/after-pivot-takes-hold-packback-gets-4-2-million?utm_source=BLOGS11&utm_medium=rss&utm_campaign=chicagobusiness

Will rehabs attract millennials to Lake Forest?

A 29-old developer believes the walkable neighborhoods near the center of the suburb check all the boxes for young families who can afford an $850,000 house.

from nicholemhearn digest http://www.chicagobusiness.com/realestate/20180131/CRED0701/180139960/will-rehabs-attract-millennials-to-lake-forest?utm_source=CRED0701&utm_medium=rss&utm_campaign=chicagobusiness

New-home sales fall in 2017

With nine years of low local volume, "it's clear that nothing spectacular has been happening for builders in this market," said Tracy Cross, whose firm tracks the data.

from nicholemhearn digest http://www.chicagobusiness.com/realestate/20180131/CRED0701/180139963/new-home-sales-fall-in-2017?utm_source=CRED0701&utm_medium=rss&utm_campaign=chicagobusiness

Democratic race for governor now wide open

J.B. Pritzker holds a tenuous lead, state Sen. Daniel Biss has surged into second place and more than a third of voters surveyed are undecided, a new poll shows.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180131/BLOGS02/180139965/democratic-race-for-governor-now-wide-open?utm_source=BLOGS02&utm_medium=rss&utm_campaign=chicagobusiness

United bars emotional support peacock from flight

An airline spokeswoman says the bird didn't meet guidelines for several reasons, including its size and weight, and that the issues had been explained to the passenger three times "before they arrived at the airport."

from nicholemhearn digest http://www.chicagobusiness.com/article/20180131/NEWS10/180139966/united-bars-emotional-support-peacock-from-flight?utm_source=NEWS10&utm_medium=rss&utm_campaign=chicagobusiness

Utilities giving freely to AG candidates after 15 years of Lisa Madigan freeze-out

The campaigns of Democrats Kwame Raoul, Jesse Ruiz and Nancy Rotering have gotten tens of thousands from ComEd, Exelon and Peoples Gas for an office that has staunchly opposed the interests of all three under Madigan.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180131/NEWS02/180139967/utilities-giving-freely-to-ag-candidates-after-15-years-of-lisa?utm_source=NEWS02&utm_medium=rss&utm_campaign=chicagobusiness

Godfather of Blago's pension bond plan warns against replay

Ex-state budget chief John Filan says the state's pension funds do need a cash infusion—but selling bonds to play the stock market is not the answer.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180131/BLOGS02/180139973/godfather-of-blagos-pension-bond-plan-warns-against-replay?utm_source=BLOGS02&utm_medium=rss&utm_campaign=chicagobusiness

Is Abbvie playing with fire?

A combination of price hikes and tax cuts has produced euphoria on Wall Street but risks inflaming tensions over prescription drug costs.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180131/BLOGS10/180139972/is-abbvie-playing-with-fire?utm_source=BLOGS10&utm_medium=rss&utm_campaign=chicagobusiness

Developer unveils plans for Fulton Market high-rises

Will city officials approve two towers exceeding 50 stories that would dwarf the many historic low-rise structures and even buildings developed there the last few years?

from nicholemhearn digest http://www.chicagobusiness.com/realestate/20180130/CRED03/180139969/developer-unveils-plans-for-fulton-market-high-rises?utm_source=CRED03&utm_medium=rss&utm_campaign=chicagobusiness

One guess who Rauner is blaming for the state of the state

You won't be hearing any details about the 2018 Illinois budget, new programs or exactly where to cut and raise spending in Gov. Bruce Rauner's State of the State speech.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180130/BLOGS02/180139968/one-guess-who-rauner-is-blaming-for-the-state-of-the-state?utm_source=BLOGS02&utm_medium=rss&utm_campaign=chicagobusiness

Fears, frustrations bubble up in hearing over Illinois Medicaid

By revamping a state hospital tax program, lawmakers are shaking up a key revenue source for medical centers across Illinois. That's causing anxiety, hospital executives testified today.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180130/NEWS03/180139975/fears-frustrations-bubble-up-in-hearing-over-illinois-medicaid?utm_source=NEWS03&utm_medium=rss&utm_campaign=chicagobusiness

Have a look at what's replacing the Rock 'N' Roll McDonald's

The sleek steel-and-timber structure is sophisticated and eco-friendly. And the bright red-and-yellow decor of years past? It's nowhere to be seen.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180130/NEWS07/180139979/have-a-look-at-whats-replacing-the-rock-n-roll-mcdonalds?utm_source=NEWS07&utm_medium=rss&utm_campaign=chicagobusiness

Todd Ricketts to be named RNC finance chair: report

Ricketts, a major Republican Party donor whose family owns the Chicago Cubs, will succeed Steve Wynn as the party's top fundraiser, according to Politico.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180130/NEWS02/180139981/todd-ricketts-to-be-named-rnc-finance-chair-report?utm_source=NEWS02&utm_medium=rss&utm_campaign=chicagobusiness

Tronc shifts 70 workers to Cars.com

The Chicago Tribune parent will shed ad sales and support employees as they move to the online auto research company, under terms of a new pact.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180130/NEWS06/180139982/tronc-shifts-70-workers-to-cars-com?utm_source=NEWS06&utm_medium=rss&utm_campaign=chicagobusiness

Jeanne Ives is vulnerable if Gov. Rauner dares to attack

After a terrible 24 hours, Bruce Rauner must educate GOP primary voters on his opponent's real views, or he could find himself an early lame duck.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180130/BLOGS02/180139983/jeanne-ives-is-vulnerable-if-gov-rauner-dares-to-attack?utm_source=BLOGS02&utm_medium=rss&utm_campaign=chicagobusiness

Useless? Hardly. ICC pushing for greater oversight.

Taking issue with a recent Crain's editorial, the utility regulator outlines its oversight of a $900 million Peoples Gas modernization project.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180130/OPINION/180129893/useless-hardly-icc-pushing-for-greater-oversight?utm_source=OPINION&utm_medium=rss&utm_campaign=chicagobusiness

5 Reasons to Consider Renting Office Furniture vs Buying

The following post is copyrighted by Austin Tenant Advisors - .

Office furniture is a necessary aspect for a business that leases offices space as it adds to the function and design of the overall layout. It also can be a very expensive part of it, which is why you need to thoroughly evaluate the different options and budget accordingly. Depending on the office furniture vendor that you use you may have the option to rent office furniture or buy it, however how do you know which option makes sense for your business? 

Below are 5 reasons why you might consider renting office furniture rather than buying it.

1. If you are in a hurry and need it sooner than later – New office furniture often has long lead times. If you plan ahead then you have time to select, order, and receive it, however if you don’t have much time to wait then you may consider renting. Furniture rental companies can typically supply you with office furniture within 24 to 48 hours.
2. When your company has unpredictable growth – Startups and new small businesses have a hard time projecting growth. What if you get a big sale you were not expecting and need to hire 50 more people? It can be difficult to account for that type of rapid hiring. Also if your business is seasonal or potentially volatile renting office furniture will allow you to deal with these fluctuating situations.
3. You don’t have the cash – New business many times don’t have a ton of cash. If they do they may need to use that for business operations and sales growth. Buying furniture can tie up a lot of financial resources. Renting office furniture allows you to get what you want now, however without the upfront price.
4. You have a short term lease or office sublease – Sometimes you may find an awesome office space that has a short term sublease remaining or maybe your a startup that is growing and prefers to sign a short term lease to remain flexible. Renting furniture in these situations make it easier to relocate. If you are planning on signing a lease or sublease that has less than 24 months then renting office furniture makes more business sense. 
5. You change your brand or image often – If you are constantly changing or evolving your brand then renting furniture will give you the ability to try out different styles. Office furniture is like a car. After you buy it loses a certain percentage of its resale value. It depreciates faster than a car does also. If you want the most current up to date style then renting office furniture is your best option.

There you are! 5 reasons why renting office furniture might be better than buying office furniture. Most office rental companies make it easy to rent. You typically have a low up front deposit then you pay monthly rent costs. They will deliver and set up the furniture for you, and when you are ready to relocate they will tear it down and move. It’s a great alternative to buying and allows you to focus on your business. Just like how renting office furniture has its benefits renting Austin office space might be a better option than purchasing it. If you would like help in determining whether you should lease or buy office space give us a call at 512-861-0525

The post 5 Reasons to Consider Renting Office Furniture vs Buying appeared first on Austin Tenant Advisors.

Other Costs Associated with Renting Office Space

The following post is copyrighted by Austin Tenant Advisors - .

Sometimes when companies begin estimating their office space needs they often overlook the other costs associated with the leasing office space. Your monthly rent will be the biggest expense you incur however there are other things to consider that you will have to pay for as well. By budgeting these costs now you will avoid any surprises and and frustration later on.

Below are a few other costs to consider when leasing office space.

1. Parking – In most cases if you are leasing office space in the suburbs parking will be free. However if a building has covered parking or offers reserved parking then you may incur additional monthly fees if you opt for those options. Additionally most downtown areas are going to charge for parking. In Austin, Tx for example parking fees average $150 to $250 per month for EACH employee. The more employees you have the more monthly costs. At the end of the day it’s important that you know how office space parking works in your city.
2. Furniture – Every business needs furniture. The question is do you want to rent or buy furniture? Do you want to buy used, refurbished, or new furniture. How many employees do you have now and in the future? Furniture can get really expensive so it’s important that you budget accurately.
3. Phone & Data Cabling – Depending on your deal you may get a tenant improvement allowance. Sometimes landlords will let you use any left over TI allowance to pay for phone and data cabling. Other times they will not. Regardless you need to budget for this cost as if you are paying for it yourself. If you are leasing a 2nd generation space you may be able to use the cabling that was left. However new laws require tenants to remove their wiring before they move out. So…….make sure you get an estimate on the cost of phone and data cabling.
4. Moving costs – Are you going to move yourself? Make sure to get quotes for the cost of moving your office to the new building.

If you have any questions about leasing office space in Austin Tx feel free to give us a call.

The post Other Costs Associated with Renting Office Space appeared first on Austin Tenant Advisors.

County agency plans to redevelop site near Obama Center

The Cook County Land Bank, designed to give new life to tax-delinquent houses, is getting into the commercial property game with a rehab project involving a former bank in Woodlawn.

from nicholemhearn digest http://www.chicagobusiness.com/realestate/20180130/CRED03/180139986/county-agency-plans-to-redevelop-site-near-obama-center?utm_source=CRED03&utm_medium=rss&utm_campaign=chicagobusiness

In-flight wi-fi is about to get a lot faster

As passenger expectations rise and many seat-back screens vanish, carriers up their game—and your bandwidth.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180130/NEWS10/180139985/in-flight-wi-fi-is-about-to-get-a-lot-faster?utm_source=NEWS10&utm_medium=rss&utm_campaign=chicagobusiness

Who's going, who's skipping Trump's State of the Union

A night that's usually good for sending messages promises to be more, as Donald Trump gives his first speech to a joint session of Congress.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180130/BLOGS02/180139988/whos-going-whos-skipping-trumps-state-of-the-union?utm_source=BLOGS02&utm_medium=rss&utm_campaign=chicagobusiness

A potential threat to health care middlemen

Amazon, Berkshire and JPMorgan seem to have bigger ambitions than just negotiating prices with service providers. But incumbents aren't necessarily doomed just yet.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180130/NEWS03/180139989/a-potential-threat-to-health-care-middlemen?utm_source=NEWS03&utm_medium=rss&utm_campaign=chicagobusiness

Foxconn wants to tap 7 million gallons of water a day

The request from the city of Racine would be "a significant increase in water use," the Milwaukee Journal Sentinel reports.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180130/NEWS02/180139990/foxconn-wants-to-tap-7-million-gallons-of-water-a-day?utm_source=NEWS02&utm_medium=rss&utm_campaign=chicagobusiness

How Much Does it Cost To Lease Office Space in Austin Tx?

The following post is copyrighted by Austin Tenant Advisors - .

When renting Austin office space you typically fall into one or two of the following categories:

1. Your headquarters is out of town and you are considering opening a satellite office in Austin
2. You are relocating your head quarters to Austin
3. You currently do business in Austin and need to lease space for the first time
4. You currently do business in Austin and want to relocate your office to a different building

Regardless of your current situation one of the first questions I get is “How much does it cost to lease office space in Austin, Tx?”

Austin Commercial real estate markets change. Sometimes you have a high vacancy rate and lower lease rates and sometimes vacancy rates are low which means lease rates are higher. When starting your Austin office space search it’s important that you spend the time necessary to learn the market or hire an Austin tenant representative with experience so you can arm yourself with the information, tools, & resources that will give you the leverage needed negotiate the best deal. 

To Determine The Cost To Lease Austin Office Space Learn About

• Types of office spaces leases
• How Office space monthly rental rates are calculated
• How to determine the class of an office building
• Average office space lease rates in Austin, Tx

If you click on the links above you will learn a ton of valuable information. In a nut shell there are several different types of leases that differ in what the landlord is responsible for payment of vs what the tenant is responsible for paying for. It’s important that you understand each one and how they will affect your monthly rent. The same goes for how the monthly office rent is calculated. Depending on the type of lease the calculations will vary. In addition the type of space has an impact on your monthly rental costs. Class A space is going to be the nicest and most expensive while class C office space will be the oldest and least expensive.

Read the posts I put together on each of those topics. After learning then when you look at the post with the average office space lease rates in Austin then it will all make more sense.

If you have any questions feel free to call 512-861-0525

The post How Much Does it Cost To Lease Office Space in Austin Tx? appeared first on Austin Tenant Advisors.

5 Things That Can Affect the Cost of Your Office Space Build Out

Home values lose steam in November

The region's single-family home values were up 3.6 percent, down from a 4.1 percent year-over-year gain in October.

from nicholemhearn digest http://www.chicagobusiness.com/realestate/20180130/CRED0701/180139993/home-values-lose-steam-in-november?utm_source=CRED0701&utm_medium=rss&utm_campaign=chicagobusiness

Sales launch at second version of Lincoln Park building

The condos have larger, family-sized interiors and bigger terraces than a previous developer was offering on the site at North and Clark.

from nicholemhearn digest http://www.chicagobusiness.com/realestate/20180130/CRED0701/180139994/sales-launch-at-second-version-of-lincoln-park-building?utm_source=CRED0701&utm_medium=rss&utm_campaign=chicagobusiness

The Good, the Bad, and the Ugly of the National Defense Strategy

Earlier this month, the Department of Defense revealed the unclassified summary of its National Defense Strategy (PDF). The National Defense Strategy (PDF) replaces the Quadrennial Defense Review, which had outlived its usefulness from the moment it debuted. While it is unclear what the classified version of the strategy contains, the summary, as well as Secretary of Defense James Mattis’ remarks upon its release, provide a good indication of how the Pentagon’s leadership is thinking about future defense planning.

This post discusses the “good,” the “bad,” and the “ugly” of the NDS. While the unclassified version provides much that is worth praising, how the Pentagon’s plans are implemented is more important. And thus far, the NDS leaves more questions than answers as far as implementation.

The Good: Priorities

The aspect of the NDS that has garnered the most headlines since its release is its emphasis on strategic competition. The NDS states this priority right up front: “The central challenge to U.S. prosperity and security is the reemergence of long-term, strategic competition by what the National Security Strategy classifies as revisionist powers” [emphasis in the original]. These “revisionist powers” are Russia and China. To underscore the role of planning for traditional conflict against major powers, a defense official told Nicholas Schmidle of the New Yorker, “Real men fight real wars. We like the clarity of big wars.”

Leaving aside the inherent “fog” and “friction” of “big wars” that the quoted defense official ignores in lauding their “clarity,” prioritizing Russia and China in defense planning makes a certain amount of sense. As political scientist Barry Posen has explained, strategy should focus on major military threats “because these are the most dangerous,” while focusing on “military remedies because these are the most costly.” A rung below the revisionist power—and in a throwback to the Clinton and Bush administrations—the NDS lists “rogue regimes,” such as Iran and North Korea, who are called out for their destabilizing actions. Meanwhile, terrorism—which kills fewer Americans than the country’s furniture—is downgraded to a “persistent condition.”

Prioritizing is the essence of strategy because resources are finite. Even if there is a major increase in defense spending—as recent reporting suggests is distinctly possible—there will never be enough to please everyone. The fatal flaw of the QDR was the effort to produce consensus, leading to watered-down recommendations that would keep the various elements of the defense bureaucracy happy. As Mara Karlin, a former deputy assistant secretary of defense for force planning and development, wrote after the NDS was released, “To their credit, Secretary Mattis and his team largely avoided the ‘Christmas Tree Phenomenon’ that plagues so many strategies, wherein every participant puts his or her own ornament—or pet issue—in the document.”

However, the degree to which the renewed focus on major-power competition represents a significant shift from previous post-Cold War administrations can be overstated. For example, how much of the defense budget was allocated in support of the wars in Afghanistan, Iraq, and Syria? According to the Pentagon’s own estimate (PDF), it has spent $1.5 trillion on post-September 11th military operations. Of course, that figure does not include things like long-term medical care for combat veterans of the War on Terror that are not directly included in the Pentagon’s budget. But Department of Defense budget authority (PDF) between fiscal years 2002 and 2017 has totaled more than $10 trillion.

The Bad: Contradictions

Helmuth von Moltke, the chief of Prussia’s General Staff, said it well when he stated, “No plan of operations extends with any certainty beyond first contact with the main hostile force.” A pithier version of the quote—“No plan survives contact with the enemy”—is cited more often, but perhaps former heavyweight champion Mike Tyson put it even better: “Everybody has a plan until they get punched in the mouth.” The wisdom in those quotes might be worth reformulating here: the best defense plans rarely survive contact with the White House.

One problem defense planners face is that their priorities can be overtaken by events. After all, the NDS is hardly the first time the Pentagon has expressed its desire to focus on high-end threats. In the aftermath of the Cold War, military force planning remained largely wedded to the concept laid down by Chairman of the Joint Chiefs of Staff General Colin Powell in the “Base Force.” Even as the United States undertook more humanitarian interventions during the Clinton administration, these operations were considered MOOTW (“military operations other than war”)—lesser included operations that could be conducted by service members trained for conventional military operations.

When the second Bush administration took office in 2001, it promised the military would not be used for “escorting kids to kindergarten” and to undertake an ambitious “transformation” agenda to prepare for high-end fights. But following the September 11th terrorist attacks, the United States instead undertook two large-scale nation-building efforts, in Afghanistan and Iraq. The military is still involved in both of those countries, to different degrees, today.

Even as the Pentagon has asserted major-power competition in Europe and Northeast Asia as its priority, the Trump administration has deepened its involvement in limited conflicts in the Middle East and Central Asia. In August, President Trump announced an increase in the number of U.S. military personnel serving in Afghanistan. Meanwhile, the same week that Mattis unveiled the NDS, Secretary of State Rex Tillerson announced an open-ended U.S. military presence in Syria. While the NDS acknowledges a continued American military role in the Middle East, it is unclear how this commitment will affect the Pentagon’s ability to pursue its main priorities in Europe and Asia. As Karlin notes, “This tension plagued the previous administration and will surely be difficult to implement short of Secretary Mattis’ personal and deft hand.”

Another contradiction is apparent in how the NDS heavily emphasizes the role of America’s allies in its defense plans. The strategy lists “strengthen alliances and attract new partners” as a one of its objectives and states, “Mutually beneficial alliances and partnerships are crucial to our strategy, providing a durable asymmetric advantage that no competitor or rival can match.” It goes on to say, “By working together with allies and partners we amass the greatest possible strength for the long-term advancement of our interests, maintaining favorable balances of power that deter aggression and support the stability that generates economic growth.”

While the NDS is right to emphasize the benefits these partnerships provide, it is difficult to square this objective with the tendency of the commander-in-chief to alienate American partners through both word and deed. During the 2016 presidential campaign, then-candidate Donald Trump repeatedly denigrated American allies about the need to “pay their bills” and suggested that, as president, he would let them go their own way. After his election, President Trump only reluctantly reasserted NATO’s Article 5 commitment. At the same time, policies such as America’s unceremonious exit from the Trans-Pacific Partnership and threats to other trade deals have led American partners to pursue economic cooperation elsewhere. Moreover, the image the Trump administration presents of America’s interests abroad will make attracting new partners more difficult.

The Ugly: Reform

Finally, the “ugly” in the NDS stems its call for significant reforms to the way the Pentagon does business. The proposed reforms themselves are not “ugly”—changes at the Pentagon are, in fact, quite necessary—but the process by which any reforms occur will necessarily be unpleasant. Reform is often the product of political slugfests because even necessary changes threaten the cherished interests and capabilities.

The NDS discusses a number of reforms, but they are united by the need to shake up a sclerotic defense bureaucracy and produce innovation that will allow the U.S. military to maintain its qualitative advantage. But it is easier to call for innovation than it is to achieve it. One does not need to search far back into the history of the Department of Defense to find leading defense officials pushing for it. Obama’s penultimate secretary of defense, Chuck Hagel, announced a “Third Offset Strategy” in 2014 by which the Pentagon would pursue game-changing technologies. Deputy Secretary of Defense Robert Work pushed the Third Offset throughout the rest of Obama’s tenure in office. Meanwhile, Secretary of Defense Ash Carter—who replaced Hagel shortly after the Offset was announced—shepherded innovation initiatives like the Defense Innovation Unit Experimental (DIUx) and the Strategic Capabilities office, while also pursuing reforms such the Force of the Future program.

Innovation produces winners and losers. It threatens entrenched interests. As scholars of military innovation have argued, innovation leads not only to the creation of new capabilities but also the destruction of old ones (PDF). It is not enough to identify the right technology. Innovation in a military organization also requires the political power to defeat those—both within and outside the organization—who would stymie the effort in service of older capabilities from which they derive some form of benefit.

The rollout of the NDS suggests Mattis is willing to take political ownership of the proposed reforms. However, even someone with Mattis’ charisma and personal popularity has finite amounts of the political capital needed when imposing changes on a recalcitrant bureaucracy or garnering approval from legislators whose parochial interests may be threatened by proposed reforms. As noted above, Mattis will already have his hands full realizing the Pentagon’s desire to prioritize threats in Europe and Asia while sustaining a military presence in the Middle East.

In these situations, support from the commander-in-chief is often essential. For example, Robert McNamara found presidential support from John F. Kennedy vital to pushing reforms through early in his tenure as secretary of defense. Donald Rumsfeld, on the other hand, was less successful in pursuing his “transformation” agenda at least in part due to lack of interest from President George W. Bush. Yet the president Mattis serves is generally uninterested in policy details, mercurial, and historically unpopular. Assuming presidential backing is a key variable in defense reform, that combination of traits does not add up to a recipe for success.

***

By prioritizing, the NDS gets back to the essence of what strategy is all about. However, history shows that those priorities can easily be overtaken by events or the whims of political leaders. Moreover, the proposed reforms articulated in the NDS are likely to require herculean efforts and no small amount of political capital. How the NDS is implemented will therefore be key to its success or failure.

The post The Good, the Bad, and the Ugly of the National Defense Strategy appeared first on Niskanen Center.

from nicholemhearn digest https://niskanencenter.org/blog/good-bad-ugly-national-defense-strategy/

Condo owners: new law erodes privacy

Some condo owners are objecting to a new law that requires condo boards to provide a list of unit owners' personal email addresses and phone numbers to other members.

from nicholemhearn digest http://www.chicagobusiness.com/realestate/20180130/CRED0701/180139995/condo-owners-new-law-erodes-privacy?utm_source=CRED0701&utm_medium=rss&utm_campaign=chicagobusiness

Obama Presidential Center controversy about parks, not race

Let's not stoop to racialized tactics. The conversation should focus on whether public parkland should be used for development, writes the head of Friends of the Parks.

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Willis Tower snags big tenant

Morgan Stanley is finalizing a deal to move its Chicago offices to the skyscraper, becoming one of the largest renters in the building.

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Jeanne Ives gets $500,000 donation from Dick Uihlein

The longtime Bruce Rauner backer switches sides as the GOP gubernatorial primary nears.

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Latest magic pension plan has some problems

Is the way out of Illinois' hole really to borrow $100 billion to take a 30-year flier on the stock market? History suggests not.

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Hospital tax fund gets $360M boost—but safety net CEOs still worry

State lawmakers are scheduled to have their first public hearing tomorrow on shaking up an outdated program that determines how hospitals rich and poor get Medicaid dollars.

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McDonald's traffic rises after Dollar Menu debut

It's a sign the fast food giant is attracting penny-pinchers.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180129/NEWS07/180129890/mcdonalds-traffic-rises-after-dollar-menu-debut?utm_source=NEWS07&utm_medium=rss&utm_campaign=chicagobusiness

What it will take for Outcome Health to rebuild

The scandal-shocked medical marketer made peace with its investors. But the to-do list for this onetime darling of the local startup scene remains daunting.

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CBRE lures Cushman & Wakefield's Chicago retail team

Nine brokers and three support staff have defected to join CBRE's retail advisory and transactions group here.

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Illinois picks Boston company for opioid hotline

The move, part of the state's effort to combat the opioid epidemic, comes despite receiving proposals from at least three Illinois providers.

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Warehouse landlords resume their hot streak

After two quarters of rising vacancy, the local industrial property market ended the year on a strong note, easing concerns about a potential space glut.

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Our most-viewed real estate stories in the past week

Home values, McDonald's Oak Brook campus and Fulton Market make the list.

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Keurig to buy Dr. Pepper Snapple

Mondelez will hold a stake of about 13 percent to 14 percent. Entities linked to Chicago-based BDT also are investing in the transaction.

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Peace for Outcome and its investors

The must-read stories to get your day started.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180129/MORNING10/301299999/peace-for-outcome-and-its-investors?utm_source=MORNING10&utm_medium=rss&utm_campaign=chicagobusiness

Swedish Covenant sells downtown cancer facility

Swedish Covenant Hospital is pulling out of the competitive oncology business downtown, selling its CyberKnife Institute to Cancer Treatment Centers of America.

The 10,000-square-foot facility at 160 E. Illinois St.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180128/NEWS03/180129900/swedish-covenant-sells-downtown-cancer-facility?utm_source=NEWS03&utm_medium=rss&utm_campaign=chicagobusiness

Outcome Health, investors call a truce

A monthslong, bitter and very public feud enters a new stage as the co-founders of the scandal-rocked company—once the pride of Chicago's startup scene—step aside.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180126/BLOGS11/180129938/outcome-health-investors-call-a-truce?utm_source=BLOGS11&utm_medium=rss&utm_campaign=chicagobusiness

Wrigley mansion sold by foreclosing lender

The grand 19th-century mansion in Lincoln Park was sold for about 52 percent of what the last homeowner paid for it in 2004.

from nicholemhearn digest http://www.chicagobusiness.com/realestate/20180126/CRED0701/180129901/wrigley-mansion-sold-by-foreclosing-lender?utm_source=CRED0701&utm_medium=rss&utm_campaign=chicagobusiness

How UIC is defying the odds and actually growing

The urban campus has lured students for peak enrollment this year despite a demographic drag that is challenging many other Chicago-area universities.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180126/ISSUE01/180129903/how-uic-is-defying-the-odds-and-actually-growing?utm_source=ISSUE01&utm_medium=rss&utm_campaign=chicagobusiness

Foundations shaking things up

These traditionally quiet institutions are stepping out from behind the curtain, sharpening their focus, spending on bigger projects and collaborating more.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180126/ISSUE01/180129904/foundations-shaking-things-up?utm_source=ISSUE01&utm_medium=rss&utm_campaign=chicagobusiness

Illinois ponders pension-fund moonshot: a $107B bond sale

Lawmakers are so desperate to shore up underfunded retirement plans that they're willing to entertain an eye-popping wager: Borrowing $107 billion and letting it ride in the financial markets.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180126/NEWS02/180129902/illinois-ponders-pension-fund-moonshot-a-107b-bond-sale?utm_source=NEWS02&utm_medium=rss&utm_campaign=chicagobusiness

Feds rebuff Boeing's trade complaint

It's a surprise win for rival Bombardier, which can start shipping jets to Delta.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180126/NEWS05/180129908/feds-rebuff-boeings-trade-complaint?utm_source=NEWS05&utm_medium=rss&utm_campaign=chicagobusiness

Trump's crafty DACA offer deserves a serious look

The president's proposal isn't perfect. Maybe the Democrats can make it a little better. But it's good enough that walking away from it would be a mistake.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180126/BLOGS02/180129911/trumps-crafty-daca-offer-deserves-a-serious-look?utm_source=BLOGS02&utm_medium=rss&utm_campaign=chicagobusiness

Afternoon tea at London House, H Mart Korean opens soon in West Loop and more

All the restaurant opening and closing news you can use this week.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180126/BLOGS09/180129913/afternoon-tea-at-london-house-h-mart-korean-opens-soon-in-west-loop?utm_source=BLOGS09&utm_medium=rss&utm_campaign=chicagobusiness

Hill-Rom CEO to retire

John J. Greisch has doubled the company's revenue since arriving in 2010.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180126/NEWS07/180129912/hill-rom-ceo-to-retire?utm_source=NEWS07&utm_medium=rss&utm_campaign=chicagobusiness

In Illinois, 334,979 Obamacare enrollments. That's only half the story.

The structure and efficacy of the Affordable Care Act is continually threatened, yet it continues to thrive. But to make it work, we must look beyond the numbers.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180126/OPINION/180129914/in-illinois-334979-obamacare-enrollments-thats-only-half-the-story?utm_source=OPINION&utm_medium=rss&utm_campaign=chicagobusiness

State Sen. Ira Silverstein 'unprofessional,' but cleared of sex harassment

The lawmaker made inappropriate "teasing and flirtatious" comments to an activist while the two worked on legislation, but he did not sexually harass her, an inspector general report says.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180126/NEWS02/180129917/state-sen-ira-silverstein-unprofessional-but-cleared-of-sex?utm_source=NEWS02&utm_medium=rss&utm_campaign=chicagobusiness

A Gold Coast rowhouse for $3 million

A carefully restored 4,950-square-foot home on North State Parkway with an in-law apartment and all new utilities.

from nicholemhearn digest http://www.chicagobusiness.com/realestate/20180126/CRED0703/180129919/a-gold-coast-rowhouse-for-3-million?utm_source=CRED0703&utm_medium=rss&utm_campaign=chicagobusiness

What it takes to sell postindustrial tycoons on Chicago

It has dawned on the likes of Jeff Bezos that the attractive urban centers of the coasts are maxed out and can't absorb additional tech investment. Enter Chicago.

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Taking a cue from SoHo House, Union League loosens up—again

The 139-year-old private club is redoing its first floor to offer a modern coffee bar and open workspace with windows facing onto Jackson Street.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180126/NEWS07/180129922/taking-a-cue-from-soho-house-union-league-loosens-up-again?utm_source=NEWS07&utm_medium=rss&utm_campaign=chicagobusiness

Trump floats immigration deal: Double DACA, path to citizenship, $25B for wall

The requests are detailed in what the White House is calling a "legislative framework."

from nicholemhearn digest http://www.chicagobusiness.com/article/20180125/NEWS02/180129924/trump-floats-immigration-deal-double-daca-path-to-citizenship-25b?utm_source=NEWS02&utm_medium=rss&utm_campaign=chicagobusiness

Tax-law gain won't be what spurs Cat hiring

The company will add workers "as global demand and U.S. demand requires."

from nicholemhearn digest http://www.chicagobusiness.com/article/20180125/NEWS05/180129927/tax-law-gain-wont-be-what-spurs-cat-hiring?utm_source=NEWS05&utm_medium=rss&utm_campaign=chicagobusiness

Cat holding on to tax gain

The tax law changes will not affect the company's cash deployment, the CFO said.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180125/NEWS05/180129927/cat-holding-on-to-tax-gain?utm_source=NEWS05&utm_medium=rss&utm_campaign=chicagobusiness

How blind is Gov. Rauner's blind investment trust?

Here's what we know about an investment gone bad, a legal dispute and a mysterious meeting at the governor's mansion in Springfield.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180125/BLOGS02/180129929/how-blind-is-gov-rauners-blind-investment-trust?utm_source=BLOGS02&utm_medium=rss&utm_campaign=chicagobusiness

Guess the economic impact of 327 Illinois film and TV productions?

The city and state film offices release the 2017 totals on film and TV production in Illinois. Despite a dip from the prior year, officials say we're doing well.

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Abortion-rights groups split on guv race

A rare divide develops in the Democratic race for governor as Planned Parenthood declares support for three candidates but Personal PAC backs only the one who gave it more than $300,000.

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North Side shopping center sells for less than 2014 price

Kingsbury Center in the Clybourn Corridor sold in a $28 million deal, less than the $35 million it fetched in 2014.

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$4 million buys all the condos in historic terra cotta factory

Built in 1878 for the Northwestern Terra Cotta Company, the Lincoln Park structure has been a six-unit condo building since 1990.

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When do we get our $91 billion back?

That's the gap between the peak and current value of all Chicago-area homes. It's also the biggest, percentage-wise, among the country's 10 largest metro areas.

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Why Dems won't get their way on immigration

They were not elected to run any branch of government. That's hard news to break to the liberal base.

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Work Requirements for Medicaid Are Yesterday’s Idea. We Can Do Better

The Trump administration has begun allowing states to impose work requirements for able-bodied, working-age adults as a condition for Medicaid. Work requirements are an old idea. They have been around since the days of the poorhouse. True, poorhouses were an improvement over the still older system of auctioning off poor people as slaves, but we can do better than that.

Modern supporters of work requirements, like the leaders of the poorhouse movement, see themselves as having the best of intentions. Some hope that work requirements will help lift people out of poverty by giving them the nudge they need to become self-supporting. Others believe that they will strengthen the economy by increasing labor force participation. Others think they will fix government budgets by cutting entitlement spending. But good intentions are not enough. They must be channeled through programs that actually work.

Work requirements don’t work. They have not worked in the past, and they won’t work for Medicaid. Here are some of the reasons why, and some better ideas for moving people from welfare into the labor force.

The unimpressive track record of work requirements

Work requirements featured prominently in the welfare reforms of the 1990s. Their effects were initially promising, but they soon faded. Some of the best available data from that period come from a set of controlled experiments called the National Evaluation of Welfare-to-Work Strategies (PDF). Eleven such experiments were conducted in seven cities over a span of five years. Each compared a group of single-parent welfare recipients who were subject to work requirements, known as “program groups,” with a control group that faced no such requirements. Several thousand people participated.

Work requirements did raise the number of people who found employment, but the effects were surprisingly small. In the most successful experiment, conducted in Portland, Oregon, work requirements were backed up by intensive, one-on-one counseling. There, the share of people who found work during at least one calendar quarter of the five-year experimental period increased by 4.1 percentage points, from 81.7 percent to 85.8 percent. The effects were smaller elsewhere. In five of the experiments, there was no statistically significant effect. In one case, people in the control group were actually more likely to work than those subject to work requirements.

Because even a small increase in work meant a decrease in welfare benefits, taxpayers did see some gains. However, the same was not always true for participants. Ten of the experiments tracked combined wage and benefit income over the five-year period. In six of them, the increase in wages earned was less than the decrease in benefits. Averaged across all ten experiments, participants subject to work requirements experienced about a 1 percent reduction in total income. (For more details, see my discussion of the NEWWS experiments in the Milken Institute Review.)

The NEWWS experiments were conducted more than 20 years ago, but they are consistent with results of more recent policy initiatives. For example, Kansas (2013) and Maine (2014) cut off SNAP (food stamp) benefits to able-bodied adults without dependents who were jobless for more than three months. According to an analysis of state data by the Center for Budget and Policy Priorities, over the year following the cutoff, earnings of former SNAP recipients increased, but the increase in earnings was largely offset by the loss of benefits in Maine, and probably entirely offset by loss of benefits in Kansas.

In short, work requirements are not very effective in moving people from welfare into the labor force. To the extent that these requirements do anything, taxpayers capture most of the gains, while former beneficiaries often fail to earn enough to compensate for the loss of benefits. Although modestly successful in cutting welfare rolls, work requirements by and large fail to move people out of poverty.

What accounts for these disappointing results?

The pool of work-ready welfare recipients is small

One reason work requirements fail to move more people into the labor force is the small size of the pool of people on public assistance who are truly available to work. That is because many beneficiaries already work, and most of the rest face a variety of economic and noneconomic barriers to employment. That was true of those who participated in the NEWWS experiments, and it is true today of most people who are on Medicaid.

The following chart from the Kaiser Family Foundation (KFF) gives us an idea of the numbers. The chart shows that among nonelderly adult Medicaid beneficiaries who were not enrolled in the government’s Supplemental Social Insurance (SSI) program for the disabled, 60 percent  worked at least part time. A separate KFF study notes that a total of 79 percent lived in a household where at least one member had a job. Yet another KFF report shows that the majority of Medicaid enrollees in the states that are currently seeking to impose work requirements are currently working.

Of the enrollees who are not working for pay, 12 percent are serving as caregivers to children or other family members. Their unpaid work has economic value that is likely, in most cases, to exceed what they could earn in the kind of low-paid jobs in which working Medicaid recipients are typically employed.

Another 14 percent are not working because of illness or disability. Note that not being enrolled in SSI disability does not automatically mean that a person is medically able to work. Some suffer from temporary illnesses that do not qualify them for SSI. Others may be disabled, but have not completed the arduous process of applying for SSI benefits.

A further 6 percent of Medicaid recipients were not working because they were in school. Being in school does not absolutely preclude work, but scheduling constraints can make it more difficult for students to find suitable jobs. Also, beyond a point, working may reduce school performance, to the detriment of long-term employment prospects.

Finally, of the 7 percent of Medicaid recipients who are not working, caregiving, disabled, ill, or in school, many face other serious barriers to finding employment. Those include lack of transportation, mental health problems that fall short of full disability, emotional issues, criminal records, substance abuse, domestic abuse, and low skills.

In short, despite what some who support work requirements seem to think, there are no large numbers of people who could work, but who choose not to because life on public assistance is easier and more comfortable.

Adding a stick is not enough

Conflicting incentives are a second reason that work requirements produce disappointing results. Work incentives can take the form either of a carrot or a stick. The carrot is the hope that getting a job will raise your disposable income and allow you to live better. Adding a stick—a threat that something bad will happen if you don’t work—seems like it should make the incentive even stronger. But the stick by itself may not be enough if the carrot isn’t there, too.

To see how carrots and sticks can work at cross purposes, look at the structure of our existing social programs. Most of them reduce benefits as income increases. When you participate in more than one program, the benefit reductions add up, layer on layer.

For example, suppose you get SNAP benefits, subject to a benefit reduction rate of 24 percent; you get housing benefits, subject to a benefit reduction rate of 30 percent; and you earn income at a minimum wage, subject to a 7 percent payroll tax. Add those together, and you get 24+30+7=61 percent, a number that economists call your effective marginal tax rate. That means benefit reductions and payroll taxes take away $61 of each extra $100 you earn, leaving you with a net gain of just $39.

In some cases, especially for people close to or just above the poverty line and for secondary workers in poor households, effective marginal tax rates can exceed 100 percent. If you add in costs of work clothes, transportation, and child care, taking a job can actually cost you money.

Medicaid is a special case. Rather than being subject to a gradual reduction as earnings rise, Medicaid is tied to a fixed income limit. The limit varies according to the state you live in, your age, and whether you have children. For a family of four in the 32 states that have expanded Medicaid under the Affordable Care Act, the limit is currently about $34,000 a year for a family of four. If you earn less, you get Medicaid at no cost. If you earn $1 more than the limit, you lose it altogether. Elsewhere, income limits are even lower. In twelve states, even if you have dependent children, you can lose Medicaid if you earn as little as $200 a week.

How much of a barrier to work that constitutes depends on your circumstances. If you have skills or education, you can get a job with an employer that pays you a good wage plus healthcare benefits, but in that case, why would you be on Medicaid in the first place? If, instead, you have skills that qualify you only for a low-paid job—the kind that usually has no health benefits—and if you or anyone in your family has ongoing health problems, you have to walk a fine line. Adding a work requirement to the income limit for Medicaid would only make your life more difficult. If you had to work at least 20 hours a week to keep your Medicaid, as you will now be required to do in Kentucky, but also had to earn less than $200 a week, you’d have to stay away from any full-time job and even from any part-time job that paid much more than the minimum wage.

If not work requirements, then what?

Our conclusions about the likely effects of work requirements for Medicaid are pessimistic. Experience with other social programs indicates that work requirements have little impact, if any, on actual work behavior. Partly that is because the pool of public-assistance beneficiaries who do not have jobs but are realistically available for work is so small. Partly it is because existing social programs include strong disincentives to employment that blunt the effect of work requirements.

So, if work requirements won’t move people off public assistance and into the job market, would anything? Here are three ideas that have real potential to work better:

First, we need universal healthcare, in a form that ensures full access to the system for people with low incomes. That could be something like Bernie Sanders’ Medicare for All. Instead, it could be another approach that I like, a form of universal catastrophic coverage that would give full healthcare coverage to low-income families and high-deductible coverage to those who could afford to pay for their own routine health expenses. Or, we could just copy the system they have in Switzerland or New Zealand or Singapore or somewhere else where we like the results. Whatever form it might take, universal healthcare access would address two of the biggest barriers to work for people with low incomes: Poor health itself, and the disincentive effects of Medicaid income limits.

Second, we should fundamentally reform our social safety net in a way that eases cascading benefit reductions and high effective marginal tax rates. The ultimate solution would be to replace all existing income support programs with a universal basic income. An older idea that would represent a partial step in the same direction would be something like Milton Friedman’s negative income tax, which would replace multiple cash and in-kind programs with a single cash payment, subject to a more moderate marginal tax rate. Still another proposal is an enhanced earned-income tax credit or wage subsidy.

Finally, we need to make greater efforts to overcome the employment barriers that affect so many people with low incomes. We could start by making better use of conventional active labor-market measures like retraining and job centers that match people with jobs. Better transportation and child-care options would let a lot of people take jobs that they already qualify for, but can’t now accept. We need better treatment options for those who abuse opioids and other substances, a problem that work requirements for Medicaid would arguably make worse, not better. We could improve labor market fluidity by getting control of run-away occupational licensing and easing employment barriers for ex-offenders. The list goes on and on.

There are no magic bullets here, but each item would help. And keep in mind—work requirements are not a magic bullet, either. They are more like firing a blank.

The post Work Requirements for Medicaid Are Yesterday’s Idea. We Can Do Better appeared first on Niskanen Center.

from nicholemhearn digest https://niskanencenter.org/blog/work-requirements-medicaid-yesterdays-idea-can-better/

Buyers didn't exactly storm this castle

The guest castle has gargoyles and turrets. There's a house on the property, too.

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Chicago's small businesses are growing. But they worry about talent.

A new survey of 482 Chicago small businesses reveals plenty of optimism about the future. But some familiar concerns remain.

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What's working—and what's not—for Chicago entrepreneurs

A new survey reveals that Chicago entrepreneurs are going all-in on growth. But a few concerns still keep them up at night.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180125/OPINION/180129949/whats-working-and-whats-not-8212-for-chicago-entrepreneurs?utm_source=OPINION&utm_medium=rss&utm_campaign=chicagobusiness

Rauner's calendar has mansion business meeting

The official calendar shows a scheduled May 2015 meeting at the Executive Mansion with a former business partner who claims in a lawsuit they discussed a personal business deal.

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Who has the worst commute?

In metro Chicago, those in minority neighborhoods—and particularly African-American areas of the South and West sides—spend the most time trekking to work. Here's why.

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For sale: Water Tower condo where 'I Dream of Jeannie' star lived

Barbara Eden was married for about six years in the 1970s and '80s to the Sun-Times executive who owned it.

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Justice Department demands 'sanctuary cities' disclosures

Jurisdictions targeted include Chicago, where a judge blocked the Trump administration from withholding public-safety grants over the city's policies.

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O'Hare has a record year, but still needs to work to catch up

The airport has emerged from a 17-year slump. Now its growth depends on landing a deal on new gates and its biggest carrier sticking to its expansion plans.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180124/BLOGS02/180129955/ohare-has-a-record-year-but-still-needs-to-work-to-catch-up?utm_source=BLOGS02&utm_medium=rss&utm_campaign=chicagobusiness

Without prevailing wage laws, guess who loses? Taxpayers.

A recent Crain's column distorts the facts: Economists, and even some Republicans, agree that states don't save money when they repeal such laws. Why would Illinois be different?

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Landlords seek $35 million for North Side apartments

A Golub venture has hired a broker to sell eight buildings in Lincoln Park, Lakeview, Wrigleyville and Old Town.

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Two more data centers planned near O'Hare

A pair of operators are adding to the list of companies building big computer server storage facilities surrounding the airport.

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Here are the Chicago-area Toys R Us stores going dark

The retailer, squeezed by Amazon on one side and huge chains like Walmart on the other, is cutting about 20 percent of its U.S. locations.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180124/NEWS07/180129959/here-are-the-chicago-area-toys-r-us-stores-going-dark?utm_source=NEWS07&utm_medium=rss&utm_campaign=chicagobusiness

How did home values do last year where you live?

We've mapped the changes for Chicago neighborhoods and suburbs.

from nicholemhearn digest http://www.chicagobusiness.com/realestate/20180124/CRED0701/180129960/how-did-home-values-do-last-year-where-you-live?utm_source=CRED0701&utm_medium=rss&utm_campaign=chicagobusiness

Here's why a Chinese real estate firm opened its 1st U.S. office in Buffalo Grove

The firm, based in Beijing, wanted to launch its American operation close to a top-quality high school with relatively affordable homes nearby.

from nicholemhearn digest http://www.chicagobusiness.com/realestate/20180124/CRED0701/180129961/heres-why-a-chinese-real-estate-firm-opened-its-1st-u-s-office-in?utm_source=CRED0701&utm_medium=rss&utm_campaign=chicagobusiness

What ADM should do instead of buying another low-margin grain merchant

A buyout of Bunge would expand Archer Daniels Midland's presence in low-margin commodity businesses that already represent nearly half its $60 billion-plus in annual revenue.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180124/BLOGS10/180129963/what-adm-should-do-instead-of-buying-another-low-margin-grain?utm_source=BLOGS10&utm_medium=rss&utm_campaign=chicagobusiness

Audit stings Rauner's Medicaid program

The must-read stories to get your day started.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180124/MORNING10/301249999/audit-stings-rauners-medicaid-program?utm_source=MORNING10&utm_medium=rss&utm_campaign=chicagobusiness

Condo building to be named for pioneering gay entrepreneur

A nine-unit building on Clark Street will be an homage to Chuck Renslow, "one of the top five or ten pillars of the last 100 years of the gay movement in Chicago."

from nicholemhearn digest http://www.chicagobusiness.com/realestate/20180123/CRED0701/180129964/condo-building-to-be-named-for-pioneering-gay-entrepreneur?utm_source=CRED0701&utm_medium=rss&utm_campaign=chicagobusiness

Audit stings Rauner's Medicaid program

Team Rauner failed to adequately monitor $7.11 billion that flowed through a Medicaid program that aims to save the state money, according to a new audit.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180123/NEWS03/180129966/audit-stings-rauners-medicaid-program?utm_source=NEWS03&utm_medium=rss&utm_campaign=chicagobusiness

Kennedy admits 'error' in his attack on Berrios—and blames Berrios

The question of how much a swank West Loop office tower really is worth sparks a new round of finger-pointing between Chris Kennedy and Joe Berrios, even as Kennedy concedes a math mistake.

from nicholemhearn digest http://www.chicagobusiness.com/article/20180123/BLOGS02/180129968/kennedy-admits-error-in-his-attack-on-berrios-and-blames-berrios?utm_source=BLOGS02&utm_medium=rss&utm_campaign=chicagobusiness

The Regulatory Subsidy for Extreme Leverage: A Reply to Mike Konczal

Mike Konczal has written a thoughtful, highly critical review of The Captured Economy that focuses on our analysis of financial regulation. Although we are not sure how much Konczal would agree with us once all misunderstandings are resolved, his criticisms are based on a misreading of our position. No doubt all failures of communication are on us, so we welcome this chance to straighten things out and clarify and elaborate our argument.

Although Konczal raises other issues, for purposes of space we’re going to focus just on our contention that the combination of a formal and informal safety net for financial institutions and low capital requirements for those institutions amounts to a massive subsidy for excessive risk-taking—and that, consequently, the U.S. financial sector is both too big and too prone to crisis. Konczal argues that the data don’t back up our contention. As to the formal safety net, he looks at deposit insurance and notes that both the rapid growth of the financial sector in recent decades and the housing bubble meltdown of a decade ago were driven by the “shadow banking” sector, not depository institutions. As to the informal safety net, Konczal points to the absence of any significant spread in borrowing rates between large financial institutions and the rest of the pack in the run-up to the crisis. If “too big to fail” subsidies were a major reason behind both financialization and the financial crisis, where was the funding advantage for firms with access to those subsidies? Furthermore, if those institutions were piling up risk because their creditors would be held harmless regardless, why didn’t we see a buildup in equity risk (“beta”) for those firms in the years before the crisis (since equity holders remained exposed to losses)?

The fundamental problem with Konczal’s critique is that it is pitched at the wrong level of analysis. Konczal looks for the specific effects of discrete policies and comes up empty. But our argument is focused, not on specific policies and how they work in isolation, but rather on the whole underlying regulatory model. We contend that extreme reliance on debt financing is inherently destabilizing, making financial firms highly vulnerable to both insolvency and liquidity crises. Unfortunately, the regulatory system is premised on the assumption that extreme leverage is natural, unavoidable, and even desirable. So rather than eliminating this root cause of financial instability, policymakers have chosen to try to regulate around it with detailed controls on the risks that financial institutions can take. As to how that works out, pick your metaphor. Sometimes, financial regulation resembles the game of whack-a-mole: clamp down on risk-taking somewhere in the system, and soon it crops up somewhere else. Over the long run, regulation resembles putting a lid on the pot while leaving the burner on high: sooner or later, the lid will get knocked off and the pot will boil over.

To be clear, we do not argue—although Konczal suggests we do—that the problem with financial regulation is a dearth of “economic liberty” that can be remedied by “getting government out of the way.” The modern state and modern finance have been inextricably connected since the origins of both. Accordingly, our analytical starting point is to take as given an active government role in overseeing the financial sector. The question, therefore, is entirely one of choosing which institutional arrangements the state uses to facilitate and structure financial markets, with a view to the different effects of various possible arrangements on stability, growth, and inequality. Our contention is that the United States has adopted—typically at the behest of the financial industry— institutional arrangements that generate high system instability while redistributing income and wealth upwards. Nothing in our argument should be understood to suggest that the problem is “too much regulation” and the answer is “deregulation,” for the simple reason that, at the margin where policy change occurs, those terms are basically meaningless. Reducing regulation on the one hand (say, by reducing limits on leverage) may just increase the role of the state (through bailouts) on the other.

Let’s flesh out our story with a little potted history, starting with the creation of the Federal Reserve system in the early twentieth century. At this time, U.S. banks were much less dependent on leverage: debt-to-asset ratios were in the range of 75 percent, as opposed to contemporary ratios well in excess of 90 percent. Yet the financial system was notoriously crisis-prone, thanks to the original sin of U.S. banking regulation: unit banking, or strict limits on interstate and intrastate branching. The financial system that resulted was one composed of thousands of small, under-diversified local banks, for which merely local downturns could be ruinous.

Instead of shoring up the system by allowing mergers and branching, policymakers created the Fed and in particular its discount window. With the Fed in place as the lender of last resort, banks were now better able to ride out liquidity crunches. The unit banking system was somewhat stabilized as a result—and leverage gradually increased, with average debt-to-asset ratios climbing to 85 to 90 percent by the 1920s.

Then came the Great Depression and waves of ruinous bank failures. Policymakers could have responded by redesigning the U.S. financial system in ways that would eliminate the fundamental sources of instability. First, they could have allowed more liberal branching, as some states had begun experimenting with during the 1920s. Second, they could have mandated greater reliance on equity financing, as the “Chicago Plan” forwarded by Irving Fisher and others would have done in dramatic fashion by requiring that bankers hold reserves equal to 100 percent of deposits (thus ensuring that bank lending would be financed much more heavily with equity). Instead, we got deposit insurance—inserted into the Banking Act of 1933 by Henry Steagall in a bid to save unit banking (it worked too, as state-level branching liberalization all but stopped for decades). Deposit insurance made runs less likely by promising depositors they would never lose their money; at the same time, of course, it made reliance on short-term debt more attractive by reducing its attendant risks. By the 1940s, debt-to-asset ratios moved above 90 percent, where they have stayed ever since.

Deposit insurance did help to stabilize unit banking—for a few decades at least. Against a backdrop of unprecedentedly robust growth and interest rate stability, the New Deal regulatory model worked fine. With the Great Inflation of the 1970s, however, the model came under severe stress—as evidenced most spectacularly by the savings-and-loan meltdown of the 1980s. The policy response was what has come to be known as financial liberalization: decontrol of interest rates and gradual removal of restrictions on branching and investment banking activities. What didn’t change was regulatory acquiescence in, and affirmative enabling of, extreme leverage. Although capital requirements were imposed and refined, they were aimed merely at pruning outliers, not challenging the systemic reliance on extreme leverage.

The competitive environment for financial firms grew much more challenging and complex in this new era. In the sleepy, staid environment of the postwar decades, bankers followed the “3-6-3” rule: borrow at 3 percent, lend at 6 percent, out on the golf course by 3pm. Now, however, interest rates could move freely—as, increasingly, could exchange rates and international capital flows. The end of unit banking brought dramatic consolidation and created new banking giants. “Financial innovation” ushered in a host of new and increasingly exotic financial instruments, touted as sophisticated tools for managing and minimizing risk—if used correctly. The prolonged stock market boom and the rise of mutual funds and 401(k) plans—a move pushed strongly by the government, at the behest of parts of the financial industry—led to a huge increase in assets under active management. And as financial intermediation’s share of national economic output steadily rose, almost all of that growth occurred outside of traditional banking—in the so-called “shadow banking” sector that emerged to serve the rapidly expanding market for securitized assets.

In short, while under-diversification, the oldest source of market risk and financial instability, was reduced by consolidation, other sources of risk and instability were growing by leaps and bounds. Yet in this more dynamic, complex, volatile, and unpredictable market environment, reliance on extreme leverage persisted unchallenged. The old premise on which this reliance was based—namely, that regulators could keep tabs on financial firms to make sure they didn’t do anything too risky—grew increasingly unrealistic as the range and complexity of financial activities made the necessary oversight impossible.

Repeatedly during this era of financialization, the sector swerved toward a catastrophic reckoning—only to be saved by a combination of ad hoc bailouts and turn-a-blind-eye regulatory forbearance (i.e., not enforcing the rules against struggling institutions). Continental Illinois in 1984, the Latin American debt crisis of the 1980s, the peso crisis of 1994, the Asian financial crisis of 1997-1998, Long Term Capital Management in 1998, and of course the financial crisis of 2007-2009 – again and again the U.S. government has intervened with emergency assistance to prop up financial institutions deemed too big or too important to fail. This implicit safety net has extended far beyond the traditional banks covered by deposit insurance to include investment banks, the government sponsored enterprises Fannie Mae and Freddie Mac, hedge funds, money-market mutual funds, and insurance companies.

 

To understand the effect of these repeated bailouts, imagine the counterfactual: what would have happened if government had reacted to those pre-2007 episodes by doing nothing and letting the market consequences of excessive risk-taking run their course? The more you think contagion effects are a big problem, the worse the aftermath would have been—and, consequently, the bigger the shift in risk perceptions. Call it a reversal of “animal spirits,” or a “Minsky moment,” or the workings of the availability heuristic on a mass scale, but after the crisis, investors would have seen the world as a much riskier and unpredictable place than it had seemed just before. And as a consequence, the extreme levels of leverage that had created the exposure to ruin would suddenly look like heedless folly. It seems extremely unlikely that the relentless, debt-fueled expansion of the financial sector we’ve experienced since the 1970s would have reached the levels it has without those bailouts – or that the scale of dysfunction revealed by the bursting of the housing bubble would ever have been attained.

Note that this explanation departs from efficient-markets thinking and embraces a “behavioral finance” approach. We believe that bubbles are a regular feature of asset markets, and that it is possible for everyone to take on too much risk at the same time because they are blind to how risky what they are doing really is. By regularly intervening to stave off reality checks that would make people more risk-averse, the government has actively abetted the inflation of the biggest bubble of them all: the U.S. financial sector bubble.

For an analogy from everyday life, think about the last time you were involved in an accident while driving. The more serious the accident, the more likely you were to drive with an abundance, perhaps an over-abundance, of caution in the days that followed. But as memories of the accident receded, and the reassuring normality of accident-free driving reasserted itself, you gradually reverted to the way you drove before.

Now let’s imagine that you’re an aggressive driver who’s prone to excessive risk-taking on the road—lots of tailgating, rapid lane changes, and accelerating through yellow lights. The way you drive, you would get into accidents fairly regularly—but you have a guardian angel (our stand-in for the government) that regularly slams other drivers’ brakes or swerves their steering wheels to avoid those collisions. Your natural reaction will be to think your driving is much less dangerous than it really is, and you have no idea that you are a menace on the roads—until one day your guardian angel is preoccupied and you plow through a just-turned-red light into a school bus full of kids.

For the perfect quote that both describes and gives an example of this dynamic, consider this observation made by none other than Robert Rubin back in 1999: “It is in the nature of markets, and probably ultimately in human nature…, to become ever more careless about adequately analyzing and weighing risk as good times continue.” As Treasury secretary, Rubin, lionized as one of the architects of the “Great Moderation” that fostered the widespread view that major U.S. economic crises were a thing of the past, helped to extend good times, and deepen the ensuing complacency, by dutifully delivering bailouts when the need arose. Then, as a director and senior counselor at Citigroup, he had a front row seat for the meltdown. Hubris, meet nemesis.

Our understanding of the roots of the financial crisis thus accords an important role to moral hazard—but understood somewhat differently from how it is typically portrayed. Most descriptions of moral hazard assume that risks are known and properly judged but that perverse incentives lead actors astray. Picture a financial executive knowingly engaging in long-shot investments with a “heads I win, tails you lose” mentality. He knows the chance of a bad outcome is high, but he just doesn’t care: if the investment pays off, his firm makes a huge gain; if it doesn’t, the government will take the loss.

If this was the only way moral hazard worked, it would be hard to conclude that moral hazard was an important factor in what went wrong. After all, the long bookshelf of crisis postmortems makes clear that terrible blunders were regularly made by people who had plenty to lose. Far from cold-bloodedly gambling with other people’s money, most had no idea how recklessly they were gambling: they were confident that all the risk-management techniques offered up by financial innovation were working well and that what actually ended up happening was unthinkable.

But moral hazard doesn’t just incentivize consciously aggressive risk-taking. Once you’ve taken the behavioral turn, you see that moral hazard also causes people to underestimate the risks they’re taking. This is what the formal and informal safety nets constructed for the financial sector combine to do: they make the high-wire act of extreme leverage seem a lot closer to the ground than it really is.

Consider again the record of the two decades leading up to the financial crisis. Every few years, policymakers were faced with the prospect of a catastrophic collapse of the U.S. financial system. Read that sentence again, and let it sink in: a system that threatens to implode every few years is not a stable system! By intervening regularly, though, policymakers were able to maintain the appearance of stability—and, thus, the widespread delusion that all was well and the Masters of the Universe really did know what they were doing. Meanwhile, they never took the one step that would have prevented future crises: mandating that financial institutions adopt a thick equity cushion to protect themselves from market downturns and taxpayers from future bailouts.

For readers patient enough to make it through this explanation, we can now return to Konczal’s evidence against our position. As to deposit insurance, we never argued that it was a proximate cause of the financial crisis or the direct driver of financialization. Rather, we see deposit insurance as one component of an overall regulatory structure that works to enable and perpetuate an otherwise unsustainable reliance on extreme leverage by financial institutions both inside and outside that regulatory structure.

Deposit insurance, while it succeeded in stabilizing unit banking, also normalized reliance on extreme leverage. The New Deal system functioned serviceably well for a few decades under the exceptionally favorable circumstances of the postwar boom. But even as circumstances altered and policy liberalized considerably, policymakers never reconsidered extreme leverage as an industry norm. And when nonbank institutions are now similarly leveraged, they are simply following long-standing industry practice. Shadow banking grew to prominence in an era when regulators were convinced that contemporary risk management strategies made such leverage perfectly safe.

As to ad hoc bailouts, we have already explained how they propped up reliance on extreme leverage in the face of repeated brushes with disaster. In our understanding, they accomplished this, not by reducing known risks for large and systemically important institutions, but by suppressing risk aversion generally. In the years leading up to the financial crisis, market participants generally had no idea of the risks they were running—in significant part because policymakers kept stepping in and absorbing the downside. Accordingly, we are not surprised that there was no clear funding advantage, or elevated beta, for TBTF firms; a position in the front of the line for government support in the event of a system-wide collapse was not considered especially advantageous when nobody took seriously the prospect of that collapse, and equity holders didn’t generally believe that they were running heightened risks.

The evidence for the massive subsidy for excessive leverage—and, therefore, for an excessively large financial sector—lies in the heightened risk of financial crises and attendant bailouts that the current regulatory system perpetuates, institutionalizes, and normalizes. According to analysis by the Federal Reserve Bank of Minnesota, the regulatory system as of 2007, on the verge of the crisis, stood an 84 percent chance of spawning a financial crisis over the next century. Dodd-Frank reforms in the aftermath have done a bit of good, but even so,the chance of a crisis in the next 100 years has only dropped to 67 percent. As this analysis and other studies have found, higher capital standards offer the prospect of significantly higher output over the long term, as the costs in terms of higher lending spreads (caused by higher financing costs for banks) are more than offset by avoiding the enormous losses that financial crises inflict.

Accordingly, the combination of the financial safety-net and low capital requirements constitutes a large-scale, negative-sum transfer of resources to the financial sector—reducing its borrowing costs, boosting return on equity (and therefore pay for financial professionals, which is often based on ROE), and expanding the overall size of the system.