Month: July 2013

The rate at which health care costs are rising had slowed down in recent years, and perhaps not unexpectedly, Obama\’s economic advisers have sought to draw the link that \”As ACA Implementation Continues, Consumer Health Care Cost Growth Has Slowed.\” But an array of evidence suggests that something beyond that legislation–which after all, is mostly not yet implemented–is the cause.

1) The slowdown in the rise of health care spending was already being noted in newspaper articles back in early 2012. Writing in the New England Journal of Medicine in August 2012, Charles Roehrig, Ani Turner, Paul Hughes-Cromwick, and George Miller trace the timing and causes of the slowdown in \”When the Cost Curve Bent — Pre-Recession Moderation in Health Care Spending.\”
They measured the extent to which the rise in national health care spending exceeded growth of \”potential GDP: (that is, GDP adjusted to take out the effects of recessions and booms).  They find that the slowdown in health care spending started around 2003, and has been lower since 2005. Here\’s one of their figures:

They write: \”Spending for physician and clinical services has grown particularly slowly since the curve bent in 2005. In the pre-recession period, we trace this slowdown to slow growth in physician-payment rates relative to overall prices in the economy. In the post-recession period, payment-rate increases have remained low and the growth in the utilization of physician services has diminished.\” The authors acknowledge that the recession may also have contributed to a slower rise in health care spending, but they believe earlier structural factors–not yet well-understood–played a bigger role.

3) There\’s some reason to be dubious as to whether the slower rate of growth in health care spending will persist. Only a year ago, government actuaries were predicting that the rise in health care costs would pick up again as the economy accelerated, and total health care spending would rise from $17.8% of GDP in 2009 to nearly 20% of GDP by 2021.

In short, the case that the 2010 U.S. health financing reform legislation is already playing a substantial role in holding down health care costs seems weak. It seems clear that the recession held down the rise in health care costs both in the U.S. and in many other countries. And there\’s some reason to believe that the rise in U.S. health care costs may be slowing–although the evidence remains preliminary.

If the rise in health care costs is slowing down, and the health care cost curve is indeed bending, it would be huge news. For households, \”Health Care Costs are Eating Your Pay Raise,\” as I posted back in January 2012. For government, rising health care costs for current employees, for the poor, and for retirees are the major drivers of why budget deficits are projected to become so very large in the next few decades.

In almost every high income country, the share of 25-34 year-olds with higher education is higher than that for the age 25-64 population as a whole–about 7 percentage points higher. This is the pattern one would expect to see if a country is expanding access to higher education. But the U.S. is an exception, where the share of 25-34 year-olds with with a tertiary education degree is lower than for the age 25-64 population. Here\’s an illustrative figure, taken from Education at a Glance 2013, published by the OECD, and freely available with a slightly clunky browser here.

Although the U.S. used to lead the world share of adults with tertiary education few decades back, the figure shows that this is no longer the case. There\’s no reason to expect this to change in the next few years. When it comes to graduation rates from upper secondary school, the U.S. now falls below the OECD average.

Similarly, if you look at the share of students who are going to enter tertiary education and emerge with a degree, the U.S. falls below the OECD average.

The issue here doesn\’t seem to be primarily one of underspending. The U.S. has above-average spending per student by OECD standards–but this is expected, because the U.S. also has higher income levels, and so paying salaries to teachers will cost more. The following graph shows per capita GDP on the horizontal axis and spending per student on the vertical axis. The best-fit line drawn through the graph shows the average pattern of how education spending rises with a country\’s per capita income. For primary education and for secondary education, the U.S. spending levels are right on the best-fit line. For tertiary education, the U.S. is noticeably above the line–that is, we spend more than one would expect given U.S. per capita incomes.

Thus, the most obvious story told by these data is a frustrating one for the U.S. education system: Spending is roughly where it should be, but performance is lagging badly.

U.S. firms are holding $1.8 trillion in liquid assets: that is, either cash or marketable securities. What\’s going on here?  Laurie Simon Hodrick tackles the question, \”Are U.S. Firms Really Holding Too Much Cash?\” in a July 2013 Policy Brief written for the Stanford Institute for Economic Policy Research.

For background, here are a couple of figures. The first shows cash and marketable securities of firms over time–that is, \”liquid assets\”–rising rapidly. The second shows these liquid assets as a share of the short-term liabilities of firms. Of course, firms always like to have some cash on hand, but historically, that has been about 30% of all short-term liabilities. In the last few years, liquid assets have climbed to almost half of all short-term liabilities.

The argument usually heard for holding additional liquid assets is that the last few years have been times of considerable uncertainty about the economy and economic policy, so firms need a bigger cushion. This explanation has some truth in it, but it\’s not all of the truth.

1) This need for additional liquid assets is not affecting all firms or all industries equally, but instead is affecting a smaller number of highly profitable companies. For example, non-financial firms in the S&P 500 hold about $1.3 trillion in liquid assets. As Hodrick explains: \”Five companies, General Electric, Microsoft, Google, Cisco, and Apple, account for 25 percent of the $1.27 trillion, while 22 companies account for half of it. … [C]ash holdings are concentrated among highly profitable firms, many in the technology and health care sectors.\”

2)  Some of the cash holdings seem related to issues of the taxation of multinational firms. U.S. firms don\’t pay taxes on their international earnings until they \”officially\” bring the funds back to the U.S. Given that U.S. corporate tax rates are high by international standards, it makes sense to delay bringing back such funds until you\’re really sure that you want to do so. Hodrick: \”General Electric leads with $108 billion held overseas at the end of 2012. It is interesting to note that $102.3 billion of Apple’s total cash holding of $145 billion was offshore in lower-tax jurisdictions at the end of March
2013.\” It\’s especially interesting, or ironic, that waiting to bring foreign earnings back to the U.S. for tax purposes doesn\’t preclude investing those funds in the U.S. economy–just like any other foreign investor can do. Hodrick writes: \”It is also important to recognize that the “overseas” money owned by foreign subsidiaries need not be invested abroad, but instead can be held at U.S. banks, in U.S. dollars, or invested in U.S. securities. For example, according to SEC filings, $58 billion of Microsoft’s total cash holding of $66.6 billion is held by foreign subsidiaries. Surprisingly, about 93 percent of Microsoft’s cash held by foreign subsidiaries in 2012 was invested in U.S. government bonds, corporate bonds, and mortgage-based securities. The assets of Apple Operations International, Apple’s Irish subsidiary, are managed in Reno, Nevada, by employees at one of its wholly owned subsidiaries, Braeburn Capital, according to a Senate report, with the funds held in bank accounts in New York.\”

3) There\’s a long tradition in the economics and corporate finance literature of being suspicious about firms that hold large amounts of cash. After all, large amounts of cash on hand might help the job security and emotional comfort of the managers, but not necessarily be in the best interests of shareholders. There\’s an argument that cash-heavy firms should either have a plan for at least potentially investing that cash in a project that will increase future company profits, or a plan for paying it out to shareholders. I confess that I find it a little refreshing when firms hold large amounts of cash. It hints at a certain discipline on the part of management that they are waiting for an opportunity. Saying that you need a cash reserve to take advantage of unexpected opportunities sounds great–but after a few years of doing this, shouldn\’t firms be able to point to a series of actual unexpected opportunities of which they did take advantage?

There\’s are a few signs that, under pressure from shareholders and other investors, some firms are starting to pay out some of their cash hoard. \”On April 23, 2013, Apple Inc. announced its intention to pay out a total of $100 billion in cash by the end of calendar year 2015, the largest total payout
ever authorized.\” However, by some estimates this payout will only be enough to keep Apple\’s overall cash hoard from increasing–not actually to diminish it.

The US labor market has been improving from dismal to sluggish, and the overall unemployment rate has been drifting down. But it\’s worth remembering that after five years of sustained high unemployment, the  unemployed are disproportionately those who face the issues of long-run unemployment in a way that the U.S. economy  has not seen in its post World War II experience.

Here\’s a snapshot of the unemployment rate over time, generated with the ever-useful FRED website maintained by the Federal Reserve Bank of St. Louis. The sharp rise in unemployment during the Great Recession is striking, but what I want to focus on here is the amount of time that the U.S. economy has been experiencing an unemployment rate above 7.5%. Draw a mental line across the graph at 7.5% and take a look. The unemployment rate was above 7.5% for (almost all of) 26 months from January 1975 to February 1977. It was also above 7.5% for (almost all of) 51 months from May 1980 to August 1984. But since the unemployment rate rose above 7.5% in January 2009, it\’s now been above that level for 54 months and counting. Also, the graph shows that the spike in unemployment in the early 1980s was \”sharper,\” meaning that unemployment rates weren\’t at the very highest levels then for as long a time as they have been in the last few years.

One result is that a far higher share of the unemployed have been unemployed for 27 weeks or more than at any time since the end of World War II. In the past, the long-term unemployed typically made up 20-25% of total unemployment during recessions. In the Great Recession, the long-term unemployed were about 45% of the total unemployed, and the share of total unemployment accounted for by the long-run unemployed remains historically high.

A similar pattern emerges when looking at the average duration of unemployment. In past decades, this measure usually spiked up to about 15-20 weeks of unemployment in tough times. But in the aftermath of the Great Recession, the average duration of unemployment spiked up to 40 weeks, and even now is at a historically sky-high 35 weeks.

 A few observations here:

1) As someone on a college campus, where the undergraduates rotate in and out over four years, we have now reached a situation where entire classes of students have entered as freshmen during a terrible labor market and exited as seniors into a terrible labor market. This inevitably has an effect on how they perceive the costs and benefits of college, how their families see it, and how rising high school students see it.

2)  It seems plausible that the long-term unemployed have a harder time getting jobs than those who are more recently unemployed. In part, this may be that the long-term unemployed are less motivated or less attractive as employees–which is part of the reason they are long-term unemployed. After all, unemployed workers lose human capital: that is, they lose a chance for job experience and to keep their skills updated. But in addition, part of the reason is probably that employers make assumptions that the long-term unemployed are less likely to be desireable workers. When the labor market has been so poor for so long, such an assumption by employers is less justifiable than it would have been in the past.

3)  In short, those who are currently unemployed, as a group, are more likely to have experienced long-run unemployment than any previous group in post-World War II U.S. experience. Re-integrating these workers into the labor force is going to bring challenges and costs that I don\’t think employers, government, or workers themselves have yet thought through.

At least as far back as the Luddite movement of the early 19th century, when those who has made textiles by hand protested against labor-saving machinery, workers have feared that they might be replaced by machines. As the capabilities of robots increase and unemployment rates remain troublingly high, this fear may seem even more immediate today. Frank Levy and Richard J. Murnane look at the interaction between workers and machinery in \”Dancing with Robots: Human Skills for Computerized Work,\” written for the Third Way think tank.

Levy and Murnane offer a number of useful examples for thinking about the interaction between machinery and workers. Consider the dishwasher: \”The job of washing dishes consists of six tasks: clearing the dishes from the table, applying soap and hot water, scrubbing, rinsing, drying, and stacking dishes in the cabinet. The technology we call a “dishwasher” substitutes for human effort in four of these tasks, but not in the other two. Technology usually changes work by changing
how specific tasks are performed.\”

Levy and Murnane look at which occupations are growing (as a share of the labor force) over time, and which ones are shrinking. The picture looks like this: they argue that jobs with nonroutine physical work or unstructured cognitive work are hard to automate–and those are the kinds of jobs that are growing.

Here are a few thoughts about their arguments:

1) A worker with access to dishwashers can be far more productive than a worker who must do all six of the tasks by hand. But if your job was washing, rinsing and drying dishes by  hand, you could be out of luck. The the challenge for all 21st century workers is to find ways of being the one who uses technology and robots to magnify the productivity of the tasks that you do, not being the one who does tasks that can be replaced by a robot. In the economics jargon, you want technology to complement your work, not to substitute for it.

2) Back in the Stone Ages when I was in junior high school, we were all required to take \”shop\” classes in woodworking, metal-working, electrical circuits, and graphic drawing. While it remains important for students to have a grip on how material things work, someone who was relying on that kind of education would have experienced a miserable job market in the last few decades. Indeed, a large number of workers were educated in the 1950s, 1960s, 1970s and 1980s for jobs that barely existed by the end of the 20th century. The 21st century equivalent means knowing how things work, but also being able track down relevant information and make sense of it in solving problems that arise. Helping students memorize routines for addressing a task isn\’t a path to career advancement, because if a task can be reduced to a routine, it can also be automated. This calls for a shift in the educational system that is subtle, but substantial in teaching what Levy and Murnane call \”foundational skills.\” 

3)  At least to me, the bottom line for all concerns about machinery replacing workers is that if this was a big problem, surely it would have already been happening steadily during the last two centuries? It\’s easy to make the case that machinery and robots alter what workers do, and that it will shake up occupations and wages, but it flies in the face of two centuries of history to argue that mechanization will lead to mass unemployment.

According to World Bank estimates, Mexico\’s total GDP ranked 14th among the countries of the world in 2012, just behind Spain and just ahead of South Korea–and with an economy more than double the size of Sweden, Poland, or Argentina. But while Mexico is a light-heavyweight in the world economy as measured by total size of its economy, it\’s also an economy that has had disappointingly sluggish growth in recent decades. Jesús Cañas, Roberto Coronado and Pia Orrenius summarize the results of a conference held last fall at the Federal Reserve Bank of Dallas on these issues in \”Will Reforms Pay Off This Time? Experts Assess Mexico’s Prospects,\” published in the Second Quarter 2013 issue of Southwest Economy.

As a starting point, here are some background figures. The top line shows the path of output in Mexico since 1950: note the sharp rise from 1950 up to about 1980, the proverbial \”lost decade\” for Mexico\’s economy in the 1980s, and the modest rebound since the mid-1990s. The other lines show the underlying causes behind those patterns: Mexico\’s economy basically tracks the path of productivity growth, which has been sluggish for the last few decades.

Here is a figure showing the per capita standard of living in Mexico, generated by the ever-useful FRED website run by the Federal Reserve Bank of St. Louis. During the period of rapid growth from 1950 to 1980, per capita GDP more-or-less tripled. The economic ground lost during the 1980s wasn\’t recouped until the late 1990s. Mexico\’s per capita growth has been about 1.1% annually over the last 25 years, which isn\’t a large amount for an emerging economy, and it\’s been a bumpy economic road to get there.

For a sense of Mexico\’s bumpy economic road, here\’s one more figure generated from the FRED website. This shows annual rates of real GDP growth. Notice that even after Mexico\’s \”lost decade\” of the 1980s,  it experienced brutally deep recessions in 1996 and again in 2008.

The underlying story in Mexico seems to be that of an economy which has opened dramatically to international trade, but hasn\’t run into two problems. One is competition from China. The authors quote Gordon Hanson to the effect that Mexico has the misfortune of \”producing what China produces and not what China buys.\” But China\’s competitive challenge to Mexico appears to be diminishing as wages in China increase dramatically.

The bigger constellation of economic problems for Mexico is not reforming its economy in ways that would help to stimulate productivity growth. The essay cites a number of issues here: dysfunctional credit markets that don\’t get funds to small and medium-sized firms; inefficient infrastructure companies, including telecommunications, transportation, electricity, and energy; an inflexible labor market with many workers stuck in informal employment. The article describes evidence from Fausto Hernandez Trillo, a professor at Centro de Investigación y Docencia Económicas in Mexico City: \”Only one-fifth of the 3.7 million firms in Mexico are in the tax-paying formal sector. The remainder makes up the informal economy, which accounts for 72 percent of private sector employment.
“There are two Mexicos,” Hernandez Trillo said, “a modern, productive formal sector with large firms, and a poor informal sector dominated by small, unproductive firms.” The national oil company, Pemex, is a cash cow for the national government, and thus lacks money to invest in locating and developing energy resources.

To me, one of the most striking figures discussed in the paper is from Stephen Haber, looking at Mexico\’s political history. With the widely-used \”Polity\” scoring method, he looks at the level of democracy in Mexico over time. This scale runs from 0 to 100, with pure dictatorship at 0 and anything above 85 counting as \”democracy. By Haber\’s estimate, Mexico only really crossed into become a democracy about a decade ago.

In some sense, Mexico\’s main economic challenge is political–that is, it involves the question of how to undertake the legal and institutional changes that will encourage innovation and productivity growth in a way that reaches throughout Mexico\’s entire economy.

Many people know of the first wave of economic globalization that occurred in the last few decades of the 19th century and ended with the onset of World War I. After World War II, globalization got started again. But up to about the early 1990s, merchandise trade as a share of world GDP was still climbing back to where it had been circa 1913. The globalization of economic activity since then is truly unprededented. Arvind Subramanian and Martin Kessler discuss \”The Hyperglobalization of Trade and Its Future\” in a July 2013 working paper written for the Peterson Institute for International Economics.

Here\’s an overview figure showing the pattern of first globalization, deglobalization, reglobalization, and now hyperglobalization. 

Subramanian and Kessler go into some detail on how they see the key characteristics of hyperglobalization. Here are some of my own takeaways from their essay:

1) One reason for the surge in trade can be traced to the rapid growth of emerging economies that are intertwined with world trade, especially China, but also India, Brazil, and others.

2) Earlier surges in world trade have been driven to some extent by cheaper transportation costs. However, this particular surge of world trade seems to have more to do with cheaper information and communications costs. One manifestation of cheaper costs of information transmission is the rise in services trade, shown by the green line in the figure. Indeed, the authors argue that if one count services that accompany the trade in goods, then trade in services would be about 50% larger. Another manifestation is the rise in trade of unfinished products like parts and components, which flow back and forth across national borders as global supply chains become longer. Just looking at trade in value-added terms, as shown by the red dashed line in the figure, there is still a sharp rise–but not as large as the overall rise in trade. Still another manifestation is the rise in foreign direct investment, which can be thought of as applying management services from one country to production in another country.

3) Overall, world trade is facing increasing barriers. One reason is that the volume of trade is shifting to emerging economists, which on average have greater trade barriers than the high-income countries. Another reason is that trade is shifting to services, and trade barriers in areas like finance, professional services, retailing, and transportation are higher than in manufacturing. Still another reason is the proliferation of regional trade agreements, which ease trade barriers within a region at the cost of making remaining trade barriers against the rest of the world loom larger.

4) As the U.S. economy struggles to return to an acceptable rate of growth, one obvious mechanism is to find ways to hook into the very rapid growth happening in emerging economies around the world.  But this may well require both domestic policy changes to help U.S. workers adjust to the inevitable dislocations of international trade, and international changes so that world trade involving new trading partners, a rising level of services and foreign direct investment, and ever-longer production chains is conducted under a set of common rules that are at least clearly spelled out. 

Every teacher of economics needs examples of shortages: more specifically, examples of a situation in which the quantity demanded exceeds the quantity supplied at the prevailing market price. Robert S. Goldfarb is on the job with examples and insights in \”Shortage, Shortage, Who\’s Got the Shortage?\” in the most recent issue of the Journal of Economic Education (44: 3, pp. 277-297). Goldfarb provides six categories of shortages, and offers examples of points to make in the classroom and possible quiz or discussion questions for each. 

Category 1: A Demand Deadline Enables a Short-Run Shortage

Useful examples here are popular Christmas toys, where quantity demanded runs ahead of quantity supplied as the big day approaches. Examples over the years include Zhu Zhu Pets in 2009, Tickle Me Elmo in 1996, Transformers in 1984, Cabbage Patch Kids in 1983, and all the way back to Shirley Temple dolls in 1934. Goldfarb also suggests flu shots as an example of shortages in this category.

Category 2: Dynamic Shortages due to Lags in Supply or Demand

If demand shifts out faster than supply can adjust, or supply shifts back faster than demand can adjust, a shortage can emerge. Goldfarb offers the example of the nursing shortage, where demand rises faster than supply can keep up, and so even with rising wages, a shortage persists: \”[A] dynamic shortage is like a dog chasing its tail—and perhaps occasionally catching it.”

Category 3: Market Prices Set by Suppliers Below Market-Clearing Levels

An example here would be tickets to popular performances or athletic events, from the Super Bowl to Bruce Springsteen, and even popular restaurants that choose to book fully or have lines rather than to raise prices. The reason for such behavior is usually phrased in terms that consumers feel better about a seller who doesn\’t extract the highest possible dollar value, even when that same consumer may be paying for a higher-priced ticket sold by a re-seller or scalper.

Category 4: Prices Set or Regulated by Government (and/or Quantity Regulation)

A homely classroom example here would be the price of parking, which in many cities is set so that quantity demanded exceeds quantity supplied. More complex examples include the price of traffic congestion, which is often set at zero, but even on many toll roads is not set in a way that eliminates congestion.

Category 5: Capacity Choice in the Face of “Regular” Variance in Demand

In certain industries, like airlines and hospitals, the provider needs to make a decision in advance about what total quantity to provide. In these cases, it will usually make sense for the provider not to set up capacity for the highest likely spike in demand, because that would mean too much unused capacity at other times. Also, there are often some users of airlines and hospitals who can shift demand across time if necessary.

Category 6: Sudden Unexpected Supply Shocks

The standard classroom examples here are how weather affects agriculture. Goldfarb adds a lovely example about egg consumption in Mexico, with references. Apparently, Mexico has just about the highest per capita egg consumption of any country. But in 2012, a spread of avian flu led Mexico\’s government to slaughter 11 million chickens, just when the price of chicken feed was spiking. Egg prices doubled, and sometimes spiked even higher. There were 2-hour lines to buy eggs, and some sellers limited how many cartons of eggs each person could buy. Apparently, the president of Mexico made a \”promise to bring egg prices down—and to punish speculators . . . A program to monitor the sale of eggs has led to investigations of 1,299 retailers for possible price gouging.” Another example is how storms like Hurricane Sandy lead to gasoline shortages and arguments over price-gouging. (Here\’s a post from June 13, 2011, on \”The Case Against Price Gouging Laws.\”)

As Goldfarb notes, it\’s probably not useful to have a greatly expanded discussion of shortages in the supply-and-demand part of a class. My own experience is at some point, after about the third example, students experience the MEGO (\”my eyes glaze over\”) effect. But many of these kinds of examples can be used in discussions of slow adjustment speeds, government regulation, difficulties of forecasting the future, and the like. Thus, they offer ways of strengthening the earlier supply-and-demand lessons about shortages in later parts of the class.

When teaching economics, a standard concern from many students, whether they express it explicitly or not, is that economics only glorifies selfishness. But of course, economic analysis can be used in the service of gentler sentiments as well. Here are some reflections from non-economist but gifted essayist A.J. Jacobs, in his 2004 book The Know-It-All: One Man\’s Humble Quest to Become the Smartest Person in the World.  His method was to read the Encyclopedia Britannica–and then to write a charming book about the experience. Here\’s how reading about \”economics\” changed his behavior toward greater generosity:

\”Personally, I\’ve never been a cheapskate. I\’m not a free spender, mind you, but I do buy decent clothes from mid-level chains like Banana Republic, would probably pay a doctor to save my son\’s limbs if the kid asked nicely, and unless the waiter spills cappuccino on my lap or tells me  I look like Lyle Lovett, have always given a respectable, 15 percent tip.

\”I\’d say I\’m right in the middle of the stinginess scale. Or I was. The Britannica has nudged me to be ever so slightly less cheap. For the last few weeks, I\’ve started tipping more, in the range of 20 to 25 percent. That\’s one clear-cut–if very small–way the Britannica has changed me, probably for the better. I noted the change after reading about marginal utility theory in the economics section. I probably learned all about marginal utility theory in college, but it didn\’t sink in, just as most things in college didn\’t sink in, unless  they involved new and more efficient ways to get hammered.

\”For those foggy on their microeconomics: marginal utility theory says that consumers differ in the amount of satisfaction they derive from each unit of a commodity. When a man with only seven slices of bread gets offered another slice, that one extra slice gives him a lot of happiness. But if a man has a couple of hundred slices of bread–enough bread to keep him waist-deep in sandwiches for months–another slice of bread won\’t send his spirits soaring.

\”In short, money means more to those who don\’t have it. I know this verges on common sense. But there\’s something about seeing it in the Britannica, expressed as a rock-hard economic law, that makes it more powerful to me. So, for instance, today, when I took a cab home in the snow, even though the driver tested my nerves by spending the entire time telling me about his favorite Dunkin\’ Donuts flavors (he\’s partial to crullers), I gave him $6 instead of the usual $5. I probably have more money than he does in my bank account, so the dollar will provide him with greater happiness than it would me. A simple, logical conclusion. I know it smacks of noblesse oblige, of extreme condescension. But I don\’t care–it make me feel better. Of course, the right thing to do would be to give away 90 percent of my bank account, but what can I do? I like my Banana Republic khakis and my cappuccinos.\”

Here\’s a sure-to-be-unpopular but quite defensible conversation-starter: All placards that allow those with disabilities to park for free should be eliminated. For overviews of this argument, see \”Parking without Paying,\” by Michael Manville and Jonathan Williams in the Spring 2013 issue of Access magazine, and \”Ending the Abuse of Disabled Parking Placards,\” by Donald Shoup, in the Fall 2011 issue of Access, which is published by the University of California Transportation Center.  

To me, the key distinction in this argument is between designated parking spaces for those with disabilities, which allow them to park closer to their destination, and the disability placards which allow their holders to park for free in metered spaces, and thus serve only as a financial subsidy to the holder of the placard.  Parking spaces for the disabled near entrances make some sense. But parking permits are a peculiar way to give financial assistance to the disabled (nationally, only about one-fifth of those with disabilities are in poverty), and lead to incentives for overissuing and fraudulent use of such permits. Manville and Williams write:

\”The government isn’t going to hand out free gasoline anytime soon, but at least 24 states and many local governments do distribute free parking passes, in the form of disabled placards. These placards not only grant access to spaces reserved for people with disabilities, but also let their holders park free, often for unlimited time, at any metered space. Nor are placards difficult to get. In California, for example, doctors, nurses, nurse practitioners, optometrists and chiropractors can all certify people for placards, for everything from serious permanent impairments to temporary conditions like a sprained ankle. We recommend that cities and states limit or eliminate free parking for disabled placards. We believe the payment exemption has high costs and few benefits. It harms both the transportation system and the environment, and offers little help to most people with disabilities.\”

A number of counts in various cities have found very high use of disability placards that allow for free parking. Manville and Williams mention a 2010 count in Oakland which found that 44% of parking spaces were filled by cars displaying a disability placard.  In their own survey of 5,000 parking meters in Los Angeles, 27% were filled by cars not paying, but displaying a disability placard. Moreover, the cars with disability placards often stayed much longer than other vehicles. A 2010 study in Alexandria, Virginia, found that 90% of disability placards were being used inappropriately. In my own hometown of Minneapolis, the city council tightened up the rules on disability parking placards in 2002, when it was estimated that about half of the metered parking spots downdown every workday were occupied by cars with handicapped permits, costing the city up to $1 million in parking revenue each year.

There are some middle-ground solutions here. Donald Schoup explains one: \”In 1998, Arlington [Virginia] removed the exemption for placards and posted \”All May Park, All Must Pay\” on every meter pole. Because it is easier to pull into and out of the end space on a block, Arlington puts meters reserved for drivers with disabilities at many of these end spaces. The purpose is to provide parking in convenient locations for people with disabilities, not to offer a subsidy that invites gross abuse. Cities can reserve the most accessible meter spaces for disabled placard holders, but accessible is not the same as free.\” Another proposal is that if those who are disabled need more time while parking, they can have cards that allow them to stay longer at a given spot–but still to pay for the full parking time they use. Instead of free parking, collect the revenue and use it to give those with disabilities taxi vouchers or other transit services.

From a 2012 research paper by Manville and Williams in the Journal of Planning Education and Research, here\’s a list of the states that have free parking for those with disability permits. The list does not include municipal-level rules: for example, New York City offers free parking to those with disability permits, but the state of New York does not. Anyway, here\’s their list.