1. LESSONS FROM BRITISH COLUMBIA: PUBLIC FOREST MANAGEMENT
2. TITLE: Wine Sales Thrive as Old Barriers Start
to Crumble
3.Wine Sales ThriveAs Old Barriers Start to Crumble
By VANESSA O'CONNELL August 25, 2006; Page A1
4. Just Compensation
5.Catering to Ignorance
6. WORKING WOMEN STILL DISADVANTAGED
7. Four Million Children Left Behind
8. POPULIST MYTHS ON INCOME INEQUALITY
9.POOR POVERTY YARDSTICKS
10. Big Oil's New Conspiracy
Font Size:
11. Lifestyles of the Superrich and Not So Famous
Font Size: By Donald Boudreaux : BIO| 07 Sep 2006
12. Wal-Mart Discounts Politics WSJ September 12,
2006; Page A20
13. HIGH SCHOOL DROPOUTS FACE STEEPER COSTS
14. Hot Seat To Protect Its Box-Office Turf, Ticketmaster
Plays Rivals' Tune As Online Threat Crescendos,
It Goes After Resellers With Auctions, Exchanges Artists Get Piece of the
Action
15. What Are the 'Dynamics of Economic Well-Being'?
Font Size:By David R. Henderson : BIO| 13 Sep 2006
16. What Left and Right Both Miss About the Wal-Mart
Debate Font Size: By Stephen Bainbridge : BIO| 13 Sep 2006
17. Ford Aims to Cut Union Work Force Through Buyouts
As Financial Crisis Deepens,A Senior Executive Departs;
18. BIG TOBACCO'S SHOWDOWN IN THE WEST
19. Labor Movement As U.S. Debates Guest Workers,
They Are Here Now In Construction, 'Subidos' Don't Tax Social Services
But May Depress Wages The Epic Drives of the
20. The Boom Generation Seventh Decade y MICHAEL MILKEN
WSJ eptember 19, 2006; Page A20
21. YouTube Model Is Compromise Over Copyrights
22. MIGRATING TO MODERNITY
*23. The Poor Get Richer By MARY ANASTASIA O'GRADY
January 16, 2007; Page A21
24. PELOSI'S TUNA SURPRISE
25. Gem War The diamonds pictured below .....
*26. CANADIANS WAIT LONGER FOR MEDICAL CARE
27. LEVELING THE PLAYING FIELD
28. Health and Taxes WSJ January 24, 2007; Page A12
*29. Rich States, Poor States WSJ January 25, 2007;
Page A18
30. TRADE WINDS In Call to Deregulate Business, a
Global Twist Onerous Rules Hurt U.S. Stock Markets,But So Do New Rivals
**31. How to Make the Poor PoorerBy GARY S. BECKER
and RICHARD A. POSNER WSJ January 26, 2007; Page A11
*32./ The "Greed" Fallacy By Thomas Sowell Tuesday,
January 23, 2007
33.The Biggest Secret in Health Care by Holman Jenkins
WSJ February 7, 2007; Page A14
34. Choice Advances WSJ February 7, 2007; Page A14
35. Exports and Free Trade WSJ February 5, 2007; Page
A16
*36. The Coming Exaflood By BRET SWANSON WSJ January
20, 2007; Page A11
*37. Is $34.06 Per Hour 'Underpaid'? By JAY P. GREENE
and MARCUS A. WINTERS WSJ February 2, 2007; Page A19
38. New York's Bizarre Housing Tax Font
Size:
1. LESSONS FROM BRITISH COLUMBIA: PUBLIC FOREST MANAGEMENT
------------------------------------------------------------------------
Although the forests of British Columbia, Canada, are
96 percent
government-owned, the management of the forests is far
more
market-driven than in the U.S. Forest Service, according
to a new
report by Alison Berry, a research fellow with the Property
and
Environment Research Center.
For example:
o The government of the province
transfers management
responsibilities
for most of its forests to the private sector
through long-term
agreements called tenures, some of which
extend for 25 years
or more.
o Some of these tenures resemble
private property, and provide
incentives for reforestation,
investment in silviculture and
environmental protection.
This experience with secure, long-term tenures offers
valuable lessons
for the United States, says Berry.
"It would be unnecessary to adopt the British Columbia
tenure
system as it exists," she explains, "but the United States
could use the timber tenure system as a model for creating
a more
?exible timber program that addresses multiple resources
such as
recreation." Berry notes that the U.S. Forest Service
suffers detrimental effects from its short-term timber
sales
program. Her new paper also includes case studies
illustrating
how some British Columbia tenures operate.
Source: Alison Berry, "Lessons from British Columbia:
Public
Forest Management," Property and Environment Research
Center,
August 2006.
For text:
http://www.perc.org/perc.php?id=815
For study text:
http://www.perc.org/pdf/pl5.pdf
For more on for Forests:
http://eteam.ncpa.org/issues/?c=forests
For more on Environment:
http://www.ncpa.org/sub/dpd/?Article_Category=31
2. TITLE: Wine Sales Thrive as Old Barriers Start to
Crumble
REPORTER: Vanessa O'Connell
DATE: Aug 25, 2006
PAGE: A1
LINK: http://online.wsj.com/article/SB115646213960145012.html?mod=djem_wrjie_ec
TOPICS: Antitrust, Regulation
SUMMARY: "The business of wine is breaking free of one
of the world's most
archaic and tangled retail systems. The result: a rise
in sales, and an
explosion of new ways to buy wine.... The market
is in upheaval because its
many barriers are starting to crumble. Recently, a Seattle
federal court struck
down state rules forcing retailers to buy through wholesalers
at
pre-established prices. Several states are lifting rules
that prevent consumers
from buying wine directly from out-of-state producers
and retailers. At the
same time, giant players like Costco Wholesale Corp.
(today the biggest wine
seller in the country) are pressing for reforms that
would largely eliminate
the industry's powerful middlemen."
In a three-tier regulatory system, set up in the 1920s,
by law producers could
sell alcohol only to state-licensed wholesalers.
Wholesalers in turn sold
products to state-licensed retailers, who then sold to
consumers. In addition
to this three-tier distribution system, some states had
laws in place setting a
minimum wholesale price for almost any alcoholic beverage
sold in the state.
In other states, wholesalers often had to adhere to mandated
minimum price
markups of 10% or so, or were required to sell each wine
to all retailers in a
state at the same price.
The article reports on two major court challenges to this
regulatory system.
First, small wineries in Virginia, Northern California
and elsewhere pushed for
the right to distribute directly to consumers.
Their efforts culminated in a
major victory last year, when the Supreme Court ruled
that states must allow
wine shipments to consumers from wineries both in and
out of state : or ban
such sales altogether. Second, Costco mounted a
federal court challenge to the
three-tier system in Washington state's U.S. district
court. The judge hearing
the case called the state wine and liquor regulations
"plainly
anticompetitive." The state then enacted legislation
allowing out-of-state
wineries to ship their products directly to Washington
retailers. Costco is
also challenging the pricing regulations of uniform pricing
and no quantity
discounts.
QUESTIONS:
1.) Why do no quantity discounts by wholesalers and uniform
pricing favor
mom-and-pop retailers?
2.) Will the erosion of pricing regulations result in lower wine prices?
3.) Will the erosion of pricing regulations result in
greater sales by large
retailers (in states where private retailers are permitted
to sell wine)?
4.) Why do large retailers want to eliminate the requirement
that retailers
much purchase from wholesalers and not directly from
the wine producers? Do
mom-and-pop retailers favor the three-tier distribution
system?
Reviewed By: James Dearden, Lehigh University
FULL ARTICLE
3.Wine Sales ThriveAs Old Barriers Start to Crumble By VANESSA O'CONNELL August 25, 2006; Page A1
The business of wine is breaking free of one of the world's most archaic and tangled retail systems. The result: a rise in sales, and an explosion of new ways to buy wine.
One of wine's new winners is Gary Vaynerchuk, a 30-year-old
Belarus immigrant who recently dipped his nose into a glass, inhaled deeply,
and stared into a videocamera. "Bell pepper, green pepper, red pepper,"
he declared. "This smells like a salad."
[Gary Vaynerchuk]
That observation helped ring up sales of 194 cases of 2003 Noblaie Chinon Rouge, an obscure French red, at $14 a bottle, by the Wine Library in Springfield, N.J. It used to be a small store in a New York City suburb. Today, with a busy Web site, it's one of the highest-grossing independently owned wine and liquor retailers in the nation, with about $45 million in annual revenue. Web sales -- launched in 1997 and buoyed by Mr. Vaynerchuk's folksy online reviews -- grew by about $10 million in the past two years alone.
The market is in upheaval because its many barriers are starting to crumble. Recently, a Seattle federal court struck down state rules forcing retailers to buy through wholesalers at pre-established prices. Several states are lifting rules that prevent consumers from buying wine directly from out-of-state producers and retailers.
At the same time, giant players like Costco Wholesale
Corp. -- today the biggest wine seller in the country -- are pressing for
reforms that would largely eliminate the industry's powerful middlemen.
VENDING VINTAGES
[selling wine]
Vanessa O'Connell talks with Gary Vaynerchuck about the
business of selling wine today.
The changing landscape is helping wine move into new mainstream markets. At 7-Eleven Stores Inc., shoppers can buy Chardonnays and Pinot Noirs. Roughly 500 Target Corp. stores carry wine, compared to 280 last year. Growth in U.S. dollar sales of wine is outpacing that of beer and liquor, according to research firm ACNielsen. Americans spent $7 billion on table wine at food, drug and liquor stores over the past year, 9% more than they spent the previous year.
For decades, wine and liquor marketers have been restrained by the 21st Amendment, which ended Prohibition in 1933 and granted the states broad power to control sales of alcoholic beverages. Fearful that a single player might dominate alcohol sales as gangsters had in the 1920s, the states set up a three-tier marketing system.
Power of the Wholesalers
By law, producers could sell alcohol only to state-licensed wholesalers. Wholesalers then sold products to state-licensed stores, who ultimately made sales to consumers. Until recently, the three-tier system -- with its patchwork of state regulations -- made online sales nearly impossible. Some states, such as Missouri, even had laws in place setting a minimum wholesale price for wine and liquor sold in the state. Elsewhere, wholesalers often had to adhere to mandated minimum markups of 10% or more, or were required to sell each wine to all retailers in a state at the same price.
Retailers grew dependent on wholesalers -- some larger than the companies whose products they sell. Miami-based Southern Wine & Spirits of America Inc. is the market leader, with roughly $7 billion in annual revenue, according to the research firm Impact. The world's biggest wine company, Constellation Brands Inc., by comparison, has roughly $3.2 billion in annual wine sales.
Wholesalers only carry certain brands in a particular
market, so stores must often go to dozens of them just to get the products
they want. Since no one wholesaler does business in every state, national
chains might have to deal with more than 450 different wholesale suppliers.
[Battle of the Bottle chart]
The snarl of rules explains why no retailer has emerged to carve out a nationwide franchise in wine, as Starbucks did with coffee, Victoria's Secret with lingerie or Home Depot with hardware.
Over the past several years, a spate of mergers in the wine business sparked similar consolidation among wholesalers, anxious to maintain their bargaining power. Giant companies like Southern, whose operations straddle several states, fought state-mandated controls on wholesale prices and some other restrictions.
First Big Challenge
The first major challenge to the old system came in the late 1990s, from small wineries in Virginia, Northern California and elsewhere. Eager to ship wine to customers in other states, the wineries began mounting legal campaigns against laws barring interstate wine sales in Indiana, Texas, Michigan, New York and North Carolina.
Their efforts culminated in a major victory last year, when the Supreme Court ruled that states must allow wine shipments to consumers from wineries both in and out of state -- or ban such sales altogether. While the court sanctioned interstate sales, it left it up to each state to permit them or not. The ruling didn't address beer and liquor producers, which are fewer in number than wineries and whose products are more broadly distributed in retail stores across the U.S.
Today, 34 states let consumers order direct from out-of-state wineries. In 1997, only 17 states allowed such shipments, thanks to lobbying in the 1980s and 1990s in those states by wineries in California and elsewhere.
Big retailers such as Costco, Target and Wal-Mart Stores Inc. are now pushing for change too, eyeing a lucrative new way to expand their sales. Wal-Mart found that at its new, upscale store in Plano, Texas -- where the median household income is nearly twice the national average -- its 144-square-foot wine section generates more sales per square foot than dairy products.
Costco mounted a federal court challenge to the three-tier system in Washington state's U.S. district court. In April, it emerged victorious when Judge Marsha Pechman issued a sweeping ruling, calling state wine and liquor regulations "plainly anticompetitive" and in violation of antitrust laws.
Advice to Lawmakers
Judge Pechman not only struck down state pricing controls but also, earlier in the case, she prompted lawmakers to address the direct-sales issue. The state enacted new legislation allowing out-of-state wineries and brewers to ship their products directly to Washington retailers.
If the court's rulings ultimately are upheld on appeal and applied broadly, they could drive wine prices down and streamline the sales process. Warehouse clubs and other wine discounters could benefit the most because they compete ferociously on price. Costco already has a following from consumers looking for deals on fine wines, especially from France.
Washington's alcohol control board and wholesalers have filed separate appeals. Wholesalers say they play an important role in checking the power of big retailers and helping smaller stores compete.
Costco is "trying to change the system so they can apply direct pressure on suppliers without wholesalers being involved," says Craig Wolf, general counsel for Wine and Spirits Wholesalers of America. "The regulations challenged by Costco -- such as uniform pricing and no volume discounts to stores -- were intended to prevent big retailers from having advantages over the mom and pops, who lack the resources to keep up."
John Sullivan, associate general counsel for Costco, says its suit is about "bringing competition to the distribution of beer and wine, so that the distribution is subject to the same competition as every other facet of business." He says Costco is not trying to do away with wholesalers, but argues "there's no reason that wholesalers should have a special protection from competition just because of the things that happened 70 years ago."
In the months since the ruling, Costco has begun trying to get out-of-state wine and beer suppliers to sell to it directly, without much success. "We are doing our best," Mr. Sullivan says. "The current system has some inertia and there's great resistance" from wholesalers.
"Everybody wants to see how this plays out," says Mike Martin, a spokesman for Constellation Brands, which has refused to sell wine to Costco directly.
Last year's Supreme Court decision regarding interstate trade applied to wineries, not retailers. But store-owners argue they also should be covered. Some wine stores, wanting to directly ship bottles to consumers nationwide, have begun mounting their own legal challenges to state restrictions.
Earlier this year, for instance, California-based Wine Country Gift Baskets.com, K&L Wine Merchants and Beverages & More joined with a few Florida stores in an alliance to change the rules. The group hired Northern California wineries' legal counsel -- including a former U.S. Solicitor General, Kenneth W. Starr of Kirkland & Ellis -- to help them challenge bans on out-of-state retail orders in states such as Texas. In May, Texas alcohol regulators agreed to suspend enforcement of its ban.
Amid the gradual erosion of rigid rules, other marketers are rushing into the business of selling wine. Often they use nontraditional sales tactics, from flashy floor displays to unusual packaging -- to lure consumers. The players include startups such WineStyles Inc., a fast-growing national franchise of 64 stores which popped up in 17 states in the past two years. It focuses largely in states with less-restrictive wine retailing laws, such as Florida, Texas, Illinois, California and Minnesota.
As retailers gain clout, more sellers are similarly threatening the role of wholesalers by selling their own private-label brands. Generally priced at $20 and under, these store brands are at least twice as profitable to retailers as other wine. Most retailers don't disclose that a particular wine is their private label; shoppers generally can't tell the difference, and don't seem to care.
At Cost Plus Inc.'s World Market, a home-textiles chain that is also one the largest wine sellers in the country, markets its own brands -- such as Atacama Chilean merlot, and Timbuktu Big Block Red, a South Australian blend -- just as if they were any other wine.
Cheaper Products
Wine shoppers are romping through a new world of choices. Ruthann Stambaugh of Deltona, Fla., says she recently started experimenting with cabernets from around the world, some of which she purchased from Wal-Mart's Sam's Club, where prices on some brands are $2 a bottle cheaper than at her local wine merchants.
Mr. Vaynerchuk, the director of operations at the Wine
Library, started the store's Web site nearly a decade ago, but originally
he used it only as a tool to take orders for pick-up. Some states allowed
shipping from his store but he didn't bother untangling the forbidding
rules.
Over the years, he started keeping track of states that
allowed direct delivery. He pounces with each new opportunity. In May,
when he learned that Texas had begun allowing shipments from out-of-state
retailers, Mr. Vaynerchuk quickly removed the state from his site's "restricted
list." Within days, he had sent out email notices to the hundreds of Texans
who had previously sent his store email inquiries.
His video tastings appear online almost every day, and
they sell wine. Even a $60 old-growth Tuscan red he described as redolent
of "stinky socks" saw its sales rise by 5%.
--Kris Hudson in Dallas contributed to this article.
Write to Vanessa O'Connell at vanessa.oconnell@wsj.com
[Chart Sour Grapes]
4. Just Compensation INVESTOR'S BUSINESS DAILY Posted 8/28/2006
Economy: It's that time of year — Labor Day — when union-backed think tanks issue reports about how miserable U.S. workers are and when the think tanks' toadies in the liberal media come up with a few of their own.
And sure enough, there was The New York Times on Monday with its Page One contribution. Under the headline "Real Wages Fail to Match A Rise In Productivity," the paper makes its best case for why U.S. workers are worse off today than they were three years ago and have done worse in this economic recovery than in any recovery since World War II.
Specifically, it notes that the median hourly wage, adjusted for inflation, has slipped 2% since 2003, and that wages and salaries, as a share of GDP, are the lowest they've been since 1947.
There are all kinds of problems, however, with such a narrow analysis. Most of us aren't paid just in "wages" but in wages and benefits. And when the two are put together, total compensation is up 8.7% since 2003, for an average annual gain of 3.5%.
Why is this? Wages may not be soaring (up just 0.7% since 2000), but benefits are (13.1%). In other words, we're making more but getting it in the form of tax-free benefits. The Times' implication — that we are somehow falling behind in the Bush years — is simply not true.
If you want to know how we're really doing, look at what we spend and the wealth we're building. Here, too, you get a radically different picture. Consumer spending in the second quarter hit $8.053 trillion, up $659 billion, or roughly 4.2% a year, since 2003. How can we spend so much more if we have less?
Yes, we've been putting more on credit cards. But we've been doing that for 40 years.
A better answer is that we're wealthier. We now own about $53.8 trillion in stocks, cash and real estate — up a whopping 35% just since 2002. That "wealth effect" fuels spending.
Another problem with the newspaper's report is that it ignores the surge in illegal immigrants whose low wages skew the overall figures sharply downward. You simply can't import tens of millions of people willing to work for nothing and not expect to see an impact on overall wage levels.
Of course, the real point of the story in the anti-Bush
Times is found in the subhead about laggard real wages: "Political Fallout
Is Seen." But as long as the economy remains on the roll it's been on since
Bush cut taxes, you can put that down as wishful thinking.
5.Catering to Ignorance
August 28, 2006
Russell Roberts http://cafehayek.typepad.com/hayek/2006/08/catering_to_ign.html
I suppose it's a dog bites man story—I shouldn't be upset when the New York Times news division writes a intellectually dishonest story that plays to the biases of its readership base. But today's front-page above the fold story on wages depresses and surprises me anyway. Maybe it's because one of the authors, David Leonhardt, is a good reporter with good economic intuition. (I can't speak for the other author, Steven Greenhouse.) But I suspect the source of my dismay is simply the knowledge that this article, despite its inadequacies will be met with nods of agreement around the breakfast tables of America.
Here's how the article opens:
With the economy beginning to slow, the current expansion has a chance to become the first sustained period of economic growth since World War II that fails to offer a prolonged increase in real wages for most workers.
That situation is adding to fears among Republicans that the economy will hurt vulnerable incumbents in this year’s midterm elections even though overall growth has been healthy for much of the last five years.
The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity — the amount that an average worker produces in an hour and the basic wellspring of a nation’s living standards — has risen steadily over the same period.
Let me repeat the key sentence:
The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation.
That's a very strange sentence for many reasons:
1. Why would you use a measure of compensation that ignores benefits, an increasingly important form of compensation?
2. Why would you use 2003 as your starting point when the recession ended in November of 2001?
3. There are no government series that I know of on median earnings. Where did those data come from?
There's a chart accompanying the article. It tells the reader that the median hourly pay data are from the Economic Policy Institute. The Economic Policy Institute has a policy agenda. Their main issue is the alleged stagnant or falling standard of living of American workers. They support a higher minimum wage and the strengthening of labor unions.
The Bureau of Labor Statistics does calculate real hourly compensation for the nonfarm business sector, a measure that includes benefits. Let's see what those numbers look like:
Realhourly What these numbers show is that for every year since the recession of 2001, real hourly compensation has actually increased. It's up since 2003 as well. And this year it's up quite dramatically.
Any of these measures are at odds with the Times's conclusion. It would have been nice for the Times to include a measure like this as a counterpoint but it's missing.
The article continues:
As a result, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s. UBS, the investment bank, recently described the current period as “the golden era of profitability.”
Until the last year, stagnating wages were somewhat offset by the rising value of benefits, especially health insurance, which caused overall compensation for most Americans to continue increasing. Since last summer, however, the value of workers’ benefits has also failed to keep pace with inflation, according to government data.
There are two claims here. The first is that labor is getting an increasinly small share of the economic pie. The second is that taking account of compensation (which the authors have ignored till now and are mentioning here in passing) isn't enough to keep workers ahead of inflation.
Both of these claims are puzzling. The first claim, about labor's share of the pie ignores benefits. As I have mentioned here before--the standard claims you hear about labor's share declining come from using wages without other forms of compensation. When you include benefits, labor's share is virtually a constant at 70% of national income and has been steady since the end of World War II, as this St. Louis Fed report shows:
Lshare
Yes, there are some ups and downs. Yes, it may be the golden age of profitability. And yes, CEO and upper management compensation may mean this is a distorted picture of how the average Joe is doing. Yes, these data end in—it looks like—2003.
But it's hard to use these data to support the claim of the Times that labor's share is at an all-time low relative to 1947.
The second claim about recent years is hard to square with the BLS data on real hourly compensation which shows that real compensation is growing not shrinking. Later on in the article, the authors make a definitive statement about compensation including benefits:
Total employee compensation — wages plus benefits — has fared a little better. Its share was briefly lower than its current level of 56.1 percent in the mid-1990’s and otherwise has not been so low since 1966.
This percentage, taken from Commerce Department data, is the ratio of compensation to GDP. If this ratio is indeed lower today than it was in 1966, my guess is that it isn't much lower and that it tends to bounce around very little like the data I show above.
The second point is that my quick look at the Commerce Department numbers shows that total compensation received by employees as a ratio to GDP is HIGHER today than it was in 1966. I've emailed the Times. I'll let you know what they say in reply if it's relevant.
The article discusses the reasons for the alleged wage stagnation:
Economists offer various reasons for the stagnation of wages. Although the economy continues to add jobs, global trade, immigration, layoffs and technology — as well as the insecurity caused by them — appear to have eroded workers’ bargaining power.
Trade unions are much weaker than they once were, while the buying power of the minimum wage is at a 50-year low. And health care is far more expensive than it was a decade ago, causing companies to spend more on benefits at the expense of wages.
I would love to see a measure of workers' bargaining power. What could that possibly be? Unions have been weaker for fifty years, a time of great increases in our standard of living.
What keeps my wages high (and yours) is our alternatives. Is there any evidence that workers have fewer alternatives than they once had? If anything, workers are more mobile today than ever. What sets workers wages are the wages of those alternatives. That depends, generally, on our skills, our knowledge and our drive and discipline—human capital and how well we are able to apply it. Workers are better educated than ever. That is why I believe that compensation, properly measured, is higher than it was five or ten or twenty or thirty years ago.
By the way, the New York Times quotes one economist in this entire article. That would be Jared Bernstein of the Economic Policy Institute.
Update: Greg Mankiw takes a calmer look at the whole question of wages and productivity here.
Posted by Russell Roberts in Standard of Living | Permalink
6. WORKING WOMEN STILL DISADVANTAGED
------------------------------------------------------------------------
Once relegated to being nurses, teachers or stay-at-home
mothers,
millions of women today run businesses, own property
and have
graduate-level degrees, says the Standard-Times (New
Bedford,
Mass.).
In fact, according to national statistics, more women
than ever are
working alongside men:
o The labor force participation
rate of women between 25 and 55
years of age more
than doubled between 1950 and 2000.
o Less than 12 percent of mothers
with children under age 6
were in the labor
force in 1950; today, more than 60 percent
are working.
o Two-income families constitute
two-thirds of all married
couples and women
account for 59 percent of the American
workforce.
However, in a new book, "Leaving Women Behind: Modern
Families,
Outdated Laws," authors Kim Strassel of the Wall Street
Journal,
and John Goodman and Celeste Colgan of the National Center
for Policy
Analysis, contend that major economic institutions deny
these
modern-day realities by weighting the tax system to reward
families
comprised of a full-time worker and a stay-at-home spouse.
For
example:
o The first dollar a married
woman earns is taxed at her
husband's highest
rate, regardless of her income level.
o Women must pay Social Security
taxes on every dollar they
earn even if their
husbands max out on their Social Security
taxes, and receive
few, if any, extra benefits in return.
o A woman in a middle-income
family can expect to keep 35 cents
out of every dollar
she earns when all taxes and working and
living costs, such
as daycare, are considered.
The authors recommend initiating a benefit system that
gives employees
more choices, makes benefits portable and makes the tax
system fairer
for two-earner households.
Source: Brian Fraga, "Working women have come a long way,
baby," Standard-Times (New Bedford, Mass.), September
5, 2006.
For text:
http://www.southcoasttoday.com/daily/09-06/09-04-06/01topstories.htm
For more on Women In Economy:
http://www.ncpa.org/sub/dpd/?Article_Category=45
7. Four Million Children Left Behind
By CLINT BOLICK
WSJ September 7, 2006; Page A21
LOS ANGELES -- This city is the main front in the pitched battle over the No Child Left Behind Act. Like many large urban school districts across the nation -- though more brazenly -- the Los Angeles Unified School District (LAUSD) is resisting the law's core command: that no child be forced to attend a failing school.
In LAUSD, there are over 300,000 children in schools the state has declared failing under NCLB's requirements for adequate yearly progress. Under the law, such children must be provided opportunities to transfer to better-performing schools within the district. To date, fewer than two out of every 1,000 eligible children have transferred -- much lower even than the paltry 1% transfer figure nationwide. In neighboring Compton, whose schools are a disaster, the number of families transferring their children to better schools is a whopping zero.
The question is whether Secretary of Education Margaret Spellings -- whose administration has made NCLB the centerpiece of its education agenda -- will do anything about it. She has the power to withhold federal funds from districts that fail to comply with NCLB, and has threatened to do just that. Rhetoric, so far, has exceeded action.
In L.A., the district has squelched school choice for children in failing schools by evading deadlines for notifying families of their transfer options; burying information in bureaucratese; and encouraging families to accept after-school supplemental services (often provided by the same district employees who fail to get the job done during the regular school day) rather than transfers. Still, the district insists that the reason for the low transfer numbers is that parents don't want their kids to leave failing schools.
That explanation rings false because, well, it is. The Polling Company surveyed Los Angeles and Compton parents whose children are eligible to transfer their children out of failing schools. Only 11% knew their school was rated as failing, and fewer than one-fifth of those parents (just nine out of 409 surveyed) recalled receiving notice to that effect from the districts -- a key NCLB requirement. Once informed of their schools' status and their transfer rights, 82% expressed a desire to move their children to better schools.
The parents were twice as likely to prefer transfers to private schools than to other public schools, but as of yet private school choice is not an option under NCLB. That is a serious defect in the law, because the number of children eligible for transfers in inner-city school districts vastly exceeds the number of seats in better-performing public schools. "We don't have the space," LAUSD Superintendent Roy Romer candidly acknowledged. "Think about it. We're 160,000 seats short. Where do you transfer to?"
In response, Republican Sens. Lamar Alexander and John Ensign and Reps. Buck McKeon and Sam Johnson have proposed adding private options under NCLB for children in chronically failing schools. But for now, the only hope for these kids is for Secretary Spellings to hold the districts' feet to the fire.
Last month, Ms. Spellings threatened to withhold federal funds unless the California Department of Education produced a plan by Aug. 15 to facilitate transfers for children in failing schools. That deadline passed with no action.
Meanwhile, Ms. Spellings has granted scores of waivers from NCLB requirements to school districts across the nation. These allow certain districts with failing schools to offer supplemental services to children before offering transfers. This reverses the order Congress stipulated, providing for transfers first and supplemental services only for those children remaining. By bureaucratic fiat, Ms. Spellings has delayed for thousands of children the chance to escape poor schools -- and the day of reckoning for districts that are failing their most basic responsibilities.
NCLB can survive the waiver carrots, but only if they are accompanied by a serious stick. Were Ms. Spellings to yank federal funding and make an example of LAUSD, it would be the shot heard round the education world. School districts across the nation finally would have to enlist all possible options -- interdistrict transfers, charter schools, private schools -- to aid children stuck in failing schools. And, if past experience holds true, those schools finally will have a spur for improvement as their students leave and take funds with them.
But for now, LAUSD is calling Ms. Spellings's rhetoric. The California media seems to agree: Not a single major newspaper has reported on the secretary's threat to withhold federal funds, which if taken seriously ought to constitute front-page news.
NCLB is a flawed law in many respects. Still, it may represent the last true hope, at the national level, to ensure that our education system truly leaves no child behind. The establishment is chafing furiously under the tethers of accountability. If these slip away, it is unlikely that any politician will have the courage to buckle them back down again.
For better or worse, the law grants the secretary of education vast discretion in enforcement. But the law itself is clear in command: No child should be forced to endure a failing school for one minute, let alone 12 years. Under this administration's watch, four million children -- by the states' own conservative measures -- are in schools that have been failing for at least six consecutive years. Ms. Spellings has the power to make sure they are offered a brighter future.
Will she or won't she? Margaret Spellings's actions in the coming days will determine far more than the Bush administration's education legacy. They will determine whether our nation will make good at last on its sacred promise of educational opportunity.
Mr. Bolick is president and general counsel of the Alliance for School Choice.
8. POPULIST MYTHS ON INCOME INEQUALITY
------------------------------------------------------------------------
Populists argue that rising income inequality is the result
of a broken
market. The rules are rigged. The reigning
ideology in
Washington must be upended. Unions must be revived.
Globalization needs to be reorganized. The problem
with this
narrative is that it doesn't really fit the facts, says
columnist David
Brooks.
For example:
o Workers over all are not getting
a smaller slice of the pie;
wages and benefits
have made up roughly the same share of
gross domestic product
(GDP) for 50 years.
o Offshore outsourcing is not
decimating employment; according
to the Bureau of
Labor Statistics, outsourcing is responsible
for 1.9 percent
of layoffs, and the efficiencies it produces
create more jobs
at better wages than the ones destroyed.
o Jobs are not more insecure;
workers are just as likely to
hold a job for 20
years as they were in 1969.
o Workers are not stuck in dead-end
jobs; social mobility is
roughly where it
was a generation ago.
Lastly, says Brooks, declining unionization has not been
the driving
force behind inequality:
o David Card of the University
of California, Berkeley, has
estimated that de-unionization
explains between 10 and 20
percent of the rise
in inequality, and that effect was
probably strongest
decades ago.
o These days the working class
is not falling behind the middle
or upper-middle
class, instead, the big rise in inequality is
within the office
parks, among people who were never
unionized; middle
managers are falling behind top executives.
A much more persuasive school of thought on inequality
holds that the
key issue is skills. Lawrence Katz, formerly of the Clinton
administration, now of Harvard, puts it this way: Across
many nations,
the market increasingly rewards people with high social
and
customer-service skills.
Source: David Brooks, "The Populist Myths on Income
Inequality," New York Times, September 7, 2006.
For text (subscription required):
http://select.nytimes.com/2006/09/07/opinion/07brooks.html
For more on Economic Issues:
http://www.ncpa.org/sub/dpd/?Article_Category=17
------------------------------------------------------------------------
9.POOR POVERTY YARDSTICKS
------------------------------------------------------------------------
The Census Bureau needs to update its measurement of income
and
poverty. At a minimum, it should emphasize the
poverty rate after
counting all government transfer programs and taxes.
This will
allow Americans to see how effective low-income aid is
in reducing the
poverty rate and what types of relief work best, says
Rea Hederman, a
senior policy analyst with the Heritage Foundation.
The official poverty measure counts only monetary income.
It
considers antipoverty programs such as food stamps, housing
assistance,
the Earned Income Tax Credit, Medicaid and school
lunches to be
"in-kind benefits" -- and hence not income. So,
despite
everything these programs do to relieve poverty, they
aren't counted as
income when Washington measures the poverty rate.
o In 2002, the federal government
spent $522 billion on
low-income assistance
programs.
o But $418 billion was not considered
cash income and not
included in calculating
any family's income.
Did that $418 billion do nothing to alleviate poverty?
Studies
that take into account all income and transfer payments
to low-income
people have found a decline in the number of those in
poverty, says
Hederman:
o A 2006 study in the Journal
of Economic Perspectives reported
that if in-kind
benefits are included in income, poverty rates
in 2003 would have
declined from 12.7 percent to 9.9 percent.
o By counting all income and
taxes, the poverty rate falls by
more than 20 percent.
The current system's bad accounting can lead to bad public
policy. The misleading figures make it difficult
to accurately
judge anti-poverty programs, says Hederman.
Source: Rea Hederman, "Poor poverty yardsticks," Washington
Times, September 7, 2006.
For text (subscription required):
http://www.washingtontimes.com/commentary/20060906-100020-4785r.htm
For more on Welfare Issues:
http://www.ncpa.org/sub/dpd/?Article_Category=44
10. Big Oil's New Conspiracy
Font Size:
By Pejman Yousefzadeh : BIO| 08 Sep 2006
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oil prices down
We have heard much in recent months about the plot by oil companies to gouge consumers at the pump. Now, I am writing to report another insidious plot on the part of Big Oil. They are scheming to lower prices.
Shocking, I know. But it is all true. Just read:
"Gasoline prices are falling fast and could keep dropping for months.
"The only place they have to go is down," says Fred Rozell, gasoline analyst at the Oil Price Information Service (OPIS). "We'll be closer to $2 than $3 come Thanksgiving."
Travel organization AAA foresees prices 10 cents a gallon lower by the end of next week. It reported a nationwide average of $2.84 Tuesday, the lowest since April 20.
It's good news for consumers and the economy. Continued lower prices "may act like a tax cut" and stimulate spending, says Richard DeKaser, chief economist at National City in Cleveland. He calculates that higher energy prices the first six months cut growth of consumer spending 1 percentage point.
The U.S. average for a gallon of regular peaked this year at $3.036 Aug. 10, according to OPIS/AAA daily surveys. That's slightly under the high of $3.057 Sept. 5, a week after Hurricane Katrina battered petroleum production in the Gulf of Mexico and caused fears of fuel shortages."
The conspiracy of which I write is a vast one. It even involves oil companies manipulating countries and international crises the way a grandmaster would manipulate pieces on a chessboard:
"Oil fell more than a dollar to less than $68 a barrel on Monday, pulled lower by expectations that any sanctions against oil producer Iran were some way off and would not necessarily disrupt export flows.
U.S. light sweet crude was down $1.17 to $68.02 a barrel, just off a session low of $67.77.
London Brent crude settled at $67.71, $1.44 a barrel below Friday's close. Its session low was $67.59, the lowest level since June 21.
Trading volumes were light as the New York Mercantile Exchange pit was closed on Monday to mark the Labor Day holiday. U.S. futures were only trading electronically and the ICE exchange, where Brent trades, closed early."
Okay, so I am being facetious.
Needless to say (you'd think), the arguments alleging oil company manipulation of the market value for gasoline are fundamentally flawed. According to these arguments, oil companies have the power in the first place casually to adjust the market value of gasoline with the same degree of impunity that you and I have in determining what we want to have for lunch. Of course, even those who are minimally knowledgeable about economics know that the primary influence on the market value of gasoline is the law of supply and demand. As the USA Today report linked above suggests, the end of summer means reduced driving needs which in turn reduce the demand for gasoline. The report also points out that gasoline use in the first eight months of this year is up by less than the amount considered typical. This reduced demand helps push down prices.
Additionally, supply is increased because "federal requirements for clean air, summer-blend gasoline end next month, making gasoline cheaper to refine and import." The Reuters story linked above reports a further reduction of demand fears with speculators and observers betting that there will not be any political conflicts with Iran in the near term that will reduce supply.
All of these facts notwithstanding, we will continue to be plagued by myths that gas prices are somehow capriciously and artificially set by businesspeople bound and determined to rob consumers of their hard-earned dollars so these self-same capitalists can line their filthy pockets. But the merest bit of Googling brings up excellent rejoinders demolishing these myths.
Economist Don Boudreaux points out, for example, that to the extent that sellers capriciously "choose" to sell gas at a certain price, buyers also "choose" to buy it at that price. Additionally, Professor Boudreaux reinforces the fact that market value for gasoline is set (again) by supply and demand, not by individual people at all:
"When hurricane Katrina destroyed much oil- and gasoline-producing capacity in the gulf south, the supply of gasoline fell. This sudden fall in supply made the market value of each gallon of gasoline rise. No one -- no flesh-and-blood person -- no oil-company executive, no bureaucrat, no consumer, no one -- chose for this rise in market value to happen.
Prices, of course, typically adjust to reflect market values. (Or perhaps we should say instead, "prices typically are adjusted to reflect market values.") Because the economist recognizes that prices serve their purpose best when they accurately reflect market values -- and because the economist recognizes also that the incentives in private-property markets generally lead participants in those markets to set prices in accordance with market values -- when the economist says "supply and demand determine prices," what he or she means is that underlying supply and demand conditions determine market values and that the incentives confronted by sellers and consumers prompt each to agree to exchange each product at a price that reflects its market value.
So while prices can be kept above or below the market values of the products in question, market values are not subject to such manipulation.
The economist understands that prices are best that reflect market values; the non-economist too often overlooks this fact."
The end result, as Professor Boudreaux writes, is that calls for gasoline companies to charge at rates below market values really constitute calls for market failure. In the end, this does more damage to the interests of the individual consumer and the economy as a whole than any supposed greedy and capricious "price gouging" on the part of a gasoline supplier or the oil companies.
It is also worth pointing out that at no point during the recent increase in gas prices did the increase reach crisis levels. On the contrary. As this post points out, when adjusted for inflation in terms of 1979 dollars, gas prices are not even close to the level they were a little over a generation ago. And with gas prices now poised to fall dramatically as supply outstrips (anticipated) demand, the fears of "crisis" should diminish further still.
All of this goes to show that the explanations behind increases and decreases in gas prices are more complicated than conspiracy theorists about market manipulation by oil companies and gas station merchants would have you believe. To be sure, none of what I write will stop the myths from spreading. Next summer, when prices inevitably go up as demand increases, there will be claims of "price gouging" along with demands that the Federal Trade Commission (FTC) investigate whether "gouging" has occurred. In fact, a price increase -- along with demands for an FTC investigation -- could occur as soon as the next significant natural disaster. That trend has been well-established, after all -- as have FTC findings that debunk price-gouging claims (and explain price increases by "regional or local market trends"). When it comes to explaining the variance in gas prices, lots of people prefer to mythologize rather than face up to the cold, hard facts of economics.
Pejman Yousefzadeh is a TCS Daily contributing writer.
11. Lifestyles of the Superrich and Not So Famous
Font Size: By Donald Boudreaux : BIO| 07 Sep 2006
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america-wealth
When I lecture to teenagers and twentysomethings here in the United States, I often ask members of the audience to "raise your hand if you're wealthy." Except for the young woman years ago who announced that her father owned a string of 7-11s, no one ever raises a hand.
"Oh but you are wealthy!" I insist. "Each of us is among the wealthiest people ever to breathe."
My listeners think me mad. "I'm middle-class, not rich" surely is what most of think to themselves. And they're right about being middle-class -- but they don't realize that to be middle-class in America today means to be superrich by historical standards.
Here's a small sample of the many ways in which ordinary Americans today are Bill-Gates-like rich compared to almost all humans who've ever lived:
* None of us has ever starved to death
* We have indoor plumbing and artificial
light
* We bathe regularly
* We have solid roofs over our heads,
rather than bug-and-vermin-infested thatched roofs
* We routinely converse in real time
to people one mile or one thousand miles away
* We don't get smallpox
* Our life expectancy is decades longer
And while it's possible to list some ways in which the average person today is worse off than were pre-industrial folk -- for example, no one before the 20th century died in airplane crashes -- only the most doctrinaire ascetic would deny that almost everyone today in the Western World is vastly better off than were the overwhelming bulk of the human population before the industrial revolution.
But what caused this great wealth explosion?
The standard answer is technology. The standard answer is wrong.
Technology clearly has advanced over the years, and happily it continues to do so. And these advances are indeed indispensable to our modern way of life. But the deeper cause of our widespread wealth isn't technology; rather, it's the force that unleashes and directs the human energy necessary to produce technological advances and its fruits: free markets.
Markets are more fundamental than is technology to prosperity. For evidence, look no further than the fact that billions of people today remain desperately poor. People in Niger and North Korea are starving to death now, even though the technical knowledge for growing and distributing basic foodstuffs is readily available across the globe. Many Latin Americans and Eastern Europeans still carry their goods to and from market on wooden carts, despite the easy availability of automotive technology. Countless other people today dwell in earthen huts, have no indoor plumbing, die of malaria, and suffer all manner of other dangers and indignities that are easily avoided with commonplace technologies.
It is manifestly mistaken to suggest that technology is the reason for our prosperity. Clearly, our prosperity must rooted in something deeper than technology -- something that both promotes technological advance and, even more importantly, encourages the use of technological knowledge to make widely available the goods and services that we Americans today take for granted.
That something else is economic freedom which spawns complex markets.
As shown again and again by researchers who study the relationship between prosperity and economic freedom, the greater is economic freedom, the greater and more widespread is prosperity.
Among the best of these studies is one produced annually by economists James Gwartney and Robert Lawson, and published jointly by the Cato Institute and Canada's Fraser Institute. The 2006 study will be released this week. Among the most important findings of Economic Freedom of the World: 2006 Annual Report are these:
* Nations in the top fourth in economic freedom have an average per-capita GDP of US$24,402, compared to US$2,998 for those nations in the bottom fourth
* The top fourth of economic freedom also has an average per-capita economic growth rate of 2.1 percent, compared to 0.2 percent for the bottom fourth
* Unemployment in the top fourth of economic freedom averages 5.9 percent, compared to 12.7 percent in the bottom fourth
* Life expectancy averages 77.8 years in nations in the top fourth of economic freedom but a mere 55.0 years in the bottom fourth
* Nations in the top fourth of economic freedom have only 0.3 percent of children in the work force, while nations in the bottom forth suffer 19.3 percent of their children in the labor force
* In the top fourth, the average income of the poorest 10 percent of the population is US$6,519 compared to US$826 for those in the bottom fourth
As this careful new study makes clear, there is no denying that more freedom means more prosperity for more people -- and that lack of freedom ensures poverty for the masses, regardless of the degree of technological sophistication.
Donald J. Boudreaux is Chair of the Economics Department
at George Mason University.
12. Wal-Mart Discounts Politics WSJ September 12, 2006; Page A20
Yesterday Chicago Mayor Richard Daley issued his first veto ever, striking down a living-wage bill that would require "big box" retailers like Wal-Mart and Office Depot to pay a super-minimum wage of $10 an hour plus $3 in benefits to all employees by 2010. The national minimum is $5.15, and in Illinois the minimum is $6.50. So you ask: What else is new? Well this is Chicago, so follow us back through the big-box bill's politics, and even the most politically jaundiced reader might find a surprise.
In his veto message, Mayor Daley, a pro-union Democrat, declared that the wage law would "drive jobs and businesses from our city, penalizing neighborhoods that need additional economic activity the most." Wal-Mart and Target have announced plans to cease expansions in the city if the law is enacted. The city already loses $300 million a year in sales tax revenues when Windy City residents go bargain hunting in the suburbs. And of course if Wal-Mart, Home Depot and the others were to abandon the city, Chicago residents would be paying a great many millions more a year in higher prices. Still, the City Council has vowed a veto override vote later this week. What then? Well, the poor get stuck while those with the financial means will drive out to the suburbs to do some Wal-Mart shopping.
It turns out that the wage bill's chief sponsor, Alderman Joe Moore, shops at suburban big-box retail stores, for the usual reason. His campaign committee has purchased $30,589 worth of supplies at big-box retailers outside the city, according to disclosure forms. Alderman Moore isn't alone out there with a cart among the high stacks. A review of Illinois State Board of Elections disclosure forms finds that the 35 aldermen who voted to stick it to the "big box" retailers have spent $114,000 patronizing these non-Chicago stores.
And why not? The virtue of superstores isn't just that they're prodigious creators of jobs -- Wal-Mart alone has hired 240,000 workers since 2001 -- but that they hold down costs and pass on the savings to consumers, even to Windy City pols.
13. HIGH SCHOOL DROPOUTS FACE STEEPER COSTS
------------------------------------------------------------------------
Dropping out of high school has its costs around the
globe, but nowhere
steeper than in the United States, according to "Education
at a
Glance," an annual study by the Paris-based Organization
for
Economic Cooperation and Development (OECD). Other findings:
o Adults who don't finish high
school in the United States earn
65 percent of what
people who have high school degrees make.
o Adults without a high school
diploma typically make about 80
percent of the salaries
earned by high school graduates in
nations across Asia,
Europe and elsewhere.
o Countries such as Finland,
Belgium, Germany and Sweden have
the smallest gaps
in earnings between dropouts and graduates.
The findings underscore the cost of a persistent dropout
problem in the
United States. It is rising as a national concern
as politicians
see the risks for the economy and for millions of kids.
According
to the researchers:
o Nearly 45 percent of adults
without high school degrees in
the United States
have low incomes -- that is, they make half
of the country's
median income or less.
o Only Denmark had a higher
proportion of dropouts with low
incomes.
o Also, the United States is
below the international average
when it comes to
its employment rate among adults age 25 to 64
who have no high
school degree.
Even U.S. adult education and job training do little
to close gaps,
because too few dropouts take part, said Barbara Ischinger,
director of
education for the OECD.
Source: Study: "H.S. Dropouts Face Steeper Costs,"
Townhall.com, September 12, 2006; based upon: "Education
at a
Glance 2006," Organization for Economic Cooperation and
Development, September 12, 2006.
For text:
http://townhall.com/News/NewsArticle.aspx?contentGUID=4920ea19-b9d3-4bce-9b56-960b8f3ce3fe&page=full&comments=true
For OECD text:
http://www.oecd.org/edu/eag2006
For more on Education:
http://www.ncpa.org/sub/dpd/?Article_Category=27
14. Hot Seat To Protect Its Box-Office Turf, Ticketmaster
Plays Rivals' Tune As Online Threat Crescendos,
It Goes After Resellers With Auctions, Exchanges Artists
Get Piece of the Action
By ETHAN SMITH and SARA SILVER
WSJ September 12, 2006; Page A1
Reselling sports and concert tickets online has become a multibillion-dollar business for eBay Inc., StubHub Inc. and other middlemen. Now the concert and sports industry -- and Ticketmaster, which sells the majority of seats -- are fighting to take back some of that money.
A division of Barry Diller's IAC/InterActiveCorp, Ticketmaster
is overhauling the way it sells tickets, embracing new methods that it
long shunned. It is now running auctions to sell seats for roughly 30%
of this year's major music tours -- including Pink Floyd's Roger Waters,
Barbra Streisand, Madonna, B.B. King and Melissa Etheridge. Ticketmaster
also is letting customers resell some seats at its Web site. Since that
lets fans sell tickets far above face value, Ticketmaster has joined the
fight against state antiscalping laws, reversing its earlier position.
WSJ.COM VIDEO
[Go to Video]
Journal reporter Ethan Smith talks about how Ticketmaster
is defending itself against the rise of online ticket-reselling services.
Concert promoters, performers and sports teams stand to win if the new methods at Ticketmaster reduce scalper sales -- and return some of the proceeds to their own coffers.
Ticketmaster, which for 15 years has held a near-monopoly over the market for ticketing major live events, is battling competition from online rivals that can easily resell tickets at whatever price the market will bear. The result is a marketplace in the throes of upheaval, confronting a pricing system that everyone agrees is dysfunctional.
Tickets for live events are frequently either overpriced -- leading to potentially disastrous sales shortfalls -- or underpriced, opening the door for scalpers. "We're in an industry that prices its product worse than anybody else," says Ticketmaster Chairman Terry Barnes. People in the concert industry estimate that only 45% of tickets made available to the public end up being sold.
Last year, the number of concert tickets sold in the U.S. fell, although prices and overall ticket revenue continued to rise. The average price of a ticket to the 100 top-grossing shows hit a record $57 in 2005, according to Pollstar, a trade magazine, up nearly 9% from 2004's average of $52.39. In 2005, the number of tickets sold fell to 67.4 million, down nearly 7% from 72.2 million in 2004.
Prices for Barbra Streisand's coming tour, for example, are setting records, with top-tier seats carrying face values of $750 through Ticketmaster. Sales have been slow, with excellent seats going unsold in Atlanta, Columbus, Ohio, and other cities. That, in turn, has undercut Ticketmaster and Ms. Streisand's efforts to sell some of those seats at auction for even higher prices.
At the same time, sales of seats by resellers has thrived,
thanks to the Internet. By some estimates, the U.S. secondary market reached
$5 billion in 2005 -- nearly equal to the face value of all the tickets
sold by Ticketmaster that year.
"The Internet has opened up the world of reselling tickets
to anybody," says Arthur Fogel, chairman of concert-promotion giant Live
Nation Inc.'s music division. That rankles Ticketmaster, concert promoters
and musicians, who generally haven't benefited financially from this extra
revenue. "That secondary-market money, we think belongs in the industry,"
says Ticketmaster's Mr. Barnes.
[Ticket Pricing Graphic]
Ticketmaster began exploring auctions and other sales methods in 2003 as a way to address the disequilibrium. "On one hand, there is a small percentage of tickets, say 5% to 10%, that are priced well below their market value, and end up being resold on the secondary market for huge profits," says President and Chief Operating Officer Sean Moriarty. "And on the other hand, over 50% of tickets go unsold."
Ticketmaster now makes auctions available as an option
to concert promoters, venues, performers and sports teams. For any given
show, clients decide how many seats to put up for auction -- and set the
opening bid prices. The bidding process is similar to that of Web auctioneer
eBay. A fan enters the maximum he or she is willing to pay, along with
a credit-card number, and can follow competing bids online.
When country stars Tim McGraw and Faith Hill played a
concert last month at Phoenix's U.S. Airways Center arena, ticket prices
ranged from $49 to $125. Marcus Ridgway, a 36-year-old real-estate developer
from Mesa, Ariz., paid $700 on a Ticketmaster auction for a pair of seats
close enough to touch the country stars as they strutted on a catwalk.
Performers also argue that they -- not brokers -- should
participate in any windfall from resold tickets. Mr. McGraw spent the summer
on the road with his wife and fellow star, Ms. Hill. The duo largely financed
the tour, which required a staff of 122 traveling with 22 trucks and 13
buses. After watching scalpers resell $125 seats online for $1,000 or more,
manager Scott Siman declares: "We would like to tap into that profit instead
of somebody else."
Ticketmaster's early efforts suggest even limited auctions
can help offset scalping activity. Jim Guerinot, a manager, says his client
Nine Inch Nails auctioned fewer than 10% of the tickets on a tour last
summer but saw a significant decrease in online reselling. "We watched
eBay and [scalping activity] was way down," he says.
Ticketmaster also is pushing its own resale program.
Launched in 2002, "TicketExchange" has proven most popular for sporting
events, letting season-ticket holders unload seats they won't use.
In 2005, Ticketmaster customers resold 329,000 tickets
this way, up from 83,000 the year before. Ticketmaster and the promoter,
venue or team share an undisclosed percentage of the sale price, while
the seller keeps the rest. Ticketmaster allows reselling on TicketExchange
only when its clients agree.
Ticketmaster's revenue jumped to $950 million in 2005,
up almost 24% from 2004, partly as a result of strong sales in Canada and
higher sales from recent acquisitions in Sweden, Finland and Australia.
The bulk of Ticketmaster's revenue comes from fees it adds on top of the
face value of tickets, accounting for 30% or more of the final cost. It
is the cash cow for parent company IAC. For the quarter ending June 30,
the company's ticketing division had $295 million in sales and produced
$69 million in operating income, the bulk of IAC's total operating income
of $81 million.
Fighting Back
Ticketmaster's online rivals are fighting back, boasting
that they offer a wider range of tickets in the resale market. A leading
combatant is StubHub, founded in 2000 amid the tech crash by two students
at Stanford University's Graduate School of Business who began devising
a business plan as part of a school competition. The company expects ticket
sales to hit $400 million this year -- double that of 2005 -- and to take
in fees of 25% of sales, or about $100 million.
[Ticketmaster Graphic]
StubHub says it can maintain its edge by letting fans
buy and sell any ticket for any event through its site. It pockets a fee
from both buyer and seller. Ticketmaster only resells tickets when it has
a resale contract with the artists, teams or venues. "In the secondary
market, success is driven by relationships with the fans, whereas Ticketmaster's
focus is about locking up deals with venues," says Chief Executive Jeff
Fluhr.
Branching out, StubHub recently staged an auction for
every seat in the house for an INXS concert at the 650-seat Lobero Theater
in Santa Barbara, Calif., with the band's cooperation. Seats went for an
average $50, with one pair fetching more than $500 each (a price that included
an opportunity to meet the band) and a few going for just $3.
The National Hockey League's Web site has a link to StubHub
for people seeking tickets to league games -- despite the fact that most
NHL teams are Ticketmaster clients.
Susan Cohig, the NHL's group vice president for club
services, says the StubHub link is just a paid advertisement. She adds
that the league is in talks with StubHub, Ticketmaster and others about
establishing an official secondary market for NHL tickets. "We have to
look at how to better service our fans," she says.
Legal Barriers
The legal barriers to reselling tickets are starting to
erode. Florida in June overturned a law against reselling a ticket for
more than $1 above face value. Eleven states still have strong antiscalping
laws, like the one Florida did away with, and nine others have weaker ones.
Even in states and municipalities where such laws remain on the books,
they are enforced inconsistently at best and have done little to slow the
growth of the online secondary market.
Now that Ticketmaster is slugging it out in the secondary
market, it has joined in lobbying for the repeal of states' antiscalping
laws -- a 180-degree change from its earlier efforts to make such laws
stiffer. StubHub says it also is lobbying to repeal "antiquated" state
laws.
Still, StubHub ran afoul of such a law at June's NHL
Stanley Cup finals in Raleigh, N.C. Police found two company employees
distributing tickets from a hotel near the stadium and charged them with
violating a law prohibiting the resale of tickets for more than $3 above
the face value. The charges are pending. StubHub contends that its employees
didn't break the law, since the company was merely allowing buyers to pick
up tickets they previously had purchased online. StubHub, like eBay, says
it places the burden of legal compliance with its users.
Ticketmaster executives acknowledge that the complex new marketplace has its perils for the culture of concert-going. Artists, Mr. Barnes says, still want their fans to feel that they can wake up the morning a concert goes on sale, and log on -- or line up -- to luck into a great seat: "They want to be careful not to kill the Saturday-morning dream."
Write to Ethan Smith at ethan.smith@wsj.com and Sara Silver
at sara.silver@wsj.com
15. What Are the 'Dynamics of Economic Well-Being'?
Font Size:By David R. Henderson : BIO| 13 Sep 2006
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night-of-the-living-wage-240x150
Recently, the Census Bureau reported its findings on 2005 household income for the United States. The August 30 Wall Street Journal's headline for its story on these findings was, "Median Household Income Rises 1.1%." The line underneath (what journalists called "the deck line," which many people read without reading the whole story) stated, "Gap Between the Richest and the Poorest Widens; Middle Class Feels Squeezed."
The article reads as if the reporter, Robert Guy Matthews, had simply read the press releases of the Census Bureau and then called liberal and conservative commentators to get their take. It didn't read as if he had actually downloaded the Census Report and looked at the tables. The New York Times article the same day was headlined "Census Reports Slight Increase in '05 Incomes" and then went on to cite the findings of the sociology department of Queens College that median income was still not as high as its level in 2000. The Times' reporter, Rick Lyman, seems not to have studied the report's findings either.
That's too bad. Because hidden in plain sight in the report are some data that help one understand the household-income picture in the United States. These data show what it takes to be middle class or above. And they show that staying out of, or getting out of, the lowest quintile is not rocket science.
The report's most interesting table -- especially if you've never studied the data -- is Table 3. Throughout the report, U.S. households are categorized by the quintile (fifth) they're in. In 2005, the lowest quintile had incomes of up to $19,178 and the highest quintile had incomes exceeding $91,705. People often picture families at all quintiles looking pretty much alike except for income and ethnicity. But that picture is false.
One of the main ways they are not alike is in the number of people working in the household. In the lowest quintile, 58.7 percent of households had no one earning money, 35.9 percent had one earner, and only 5.5 percent of households had two or more earners. (These percentages total 100.1 percent due to rounding.) In the highest quintile, by contrast, only 2.6 percent had no one earning money, 21.1 percent had one earner, and a whopping 76.3 percent had two or more earners.
In the middle three quintiles -- which, unfortunately, the Census didn't break down further -- only 14.9 percent had no earners and 42.8 percent had two or more earners.
In the lowest quintile, 64.2 percent of the heads of household (the Census now calls them "householders") did not work at all and only 14.0 percent worked full-time year-round. By contrast, in the highest quintile only 11.3 percent of heads of households did not work, while 73.0 percent worked full-time year-round. In the middle three quintiles, 26.3 percent of heads of households did not work and 54.7 percent of heads of households worked full-time year-round.
The message is clear: if you want to have an extremely high probability of avoiding the lowest quintile, get a job, ideally a full-time job, and live with someone who has a job.
That same Census table reveals something else that does not surprise people who study these data, but seems to surprise many others: the correlation between income and age. There's a life cycle to income. Workers, whether high-school dropouts, high-school graduates, or college graduates, tend to start out at a low income, to increase their income with experience, and then to have lower incomes late in their careers or in retirement. And the Census data confirm this. In the lowest quintile, for example, only 25.9 percent of households had a head in the age group from 35 to 54 -- it is within this age range that peak earnings typically occur. In the highest quintile, by contrast, 57.2 percent of heads of household were between the ages of 35 and 54.
And what about marriage? In Getting Rich in America: 8 Simple Rules for Building a Fortune and a Satisfying Life, Dwight R. Lee and Richard B. McKenzie give as one of their rules, "Get married and stay married." And the Census data confirm those findings. Only 17.9 percent of households in the bottom quintile had a married-couple family; by contrast, 79.0 percent of households in the top quintile had a married-couple family.
One of the misimpressions people often have about those in the lowest income category is that they're there forever. But as the above data show, your characteristics affect the quintile you're in. If you're not old and you want to get out of poverty or even out of the lowest quintile, marry someone who makes money -- and it doesn't have to be a lot of money -- or acquire skills on the job. A section of the Census report titled "Dynamics of Economic Well-Being" reports that if one used just a two-year period to measure poverty, the stated poverty rate would be lower. What this means is that for many poor people, poverty is short-term.
Finally, I shouldn't leave this issue without mentioning two things, neither of which is mentioned in the Census report. The first is that the price index used to adjust incomes for inflation over time -- the Consumer Price Index -- overstates the inflation rate by 0.8 to 0.9 percentage points per year. Over long periods, therefore, economic progress of all income classes is understated.
The second fact is that income and wealth are not the same. To its credit, the Census report never claims that they are. But most commentators write as if they are. When the Wall Street Journal claims that the gap between the richest and the poorest has widened, it is using income as a measure of wealth. But wealth is typically measured by a person's net worth -- the value of his tangible assets minus his debts. Income is the amount of money the person makes or receives annually. People can be high-income but not wealthy if they spend everything they earn; alternatively, they can be low-income but rich if they started to save early and to invest in assets that appreciated. Many of the elderly in this country are in this latter position -- they have low retirement incomes but high net worths. Indeed, one of the striking findings in the popular book The Millionaire Next Door, by Thomas J. Stanley and William D. Danko, is that most of the few million millionaires in the United States have never had particularly high incomes.
So next time you see a report on Census data on household incomes, if you want to know what really happened, download the report and actually peruse the tables.
David R. Henderson, a research fellow with the Hoover
Institution and an economics professor at the Naval Postgraduate School
in Monterey, Calif., is author of The Joy of Freedom: An Economist's Odyssey
and co-author of Making Great Decisions in Business and Life (Chicago Park
Press, 2006).
16. What Left and Right Both Miss About the Wal-Mart
Debate Font Size: By Stephen Bainbridge : BIO| 13 Sep 2006
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Once again, Wal-Mart is being used as a political football. On the left, politicians and pundits use Wal-Mart as the poster child for living wages and mandatory health care benefits. On the right, Wal-Mart is held up as a paragon of corporate efficiency.
Interestingly, however, both the left and right implicitly cast Wal-Mart in the role of free market capitalist. What's missing from the debate is the extent to which the Wal-Mart story really is the antithesis of laissez-faire capitalism. When you look under the rug, it turns out that Wal-Mart is a beneficiary of corporate welfare.
When Wal-Mart plans a new store, it typically asks local and county governments for an array of benefits, principally in the form of various economic development subsidies:
* Infrastructure assistance in the
form of new or expanded roads and utilities servicing the store location.
* Sales tax abatements.
* Property tax abatements.
* Income tax credits.
* Enterprise zone treatment for the
store location.
* Eligibility for job training programs.
* Eligibility for tax exempt industrial
revenue bond financing.
* Economic development loans and grants.
In some cases, Wal-Mart benefits directly from such subsidies. In others, the benefits initially go to the real estate developer who owns the land on which the store is built, but are then passed on to Wal-Mart in the form of reduced rents or a lower land sale price. In 2005, for example, the Dallas City Council approved a plan "to grant the developer half of the sales tax revenue that the Lake Highlands Wal-Mart produces specifically for the city of Dallas, up to $1 million."
It's hard to find reliable numbers on the total value to Wal-Mart of such subsidies. The leading report is Shopping for Subsidies: How Wal-Mart Uses Taxpayer Money to Finance Its Never-Ending Growth by Philip Mattera and Anna Purinton was published by a left-leaning advocacy group and funded in part by one of the very unions trying to unionize Wal-Mart's work force, which will suggest to some a need for caution. Yet, even if one applies a substantial discount to Mattera and Purinton's results, Wal-Mart is still doing quite well at the public trough:
* In a sample of subsidy deals for
individual stores, they found subsidies ranging from "$1 million to about
$12 million, with an average of about $2.8 million."
* In a survey of Wal-Mart regional
distribution centers, they found that "84 of the 91 centers have received
subsidies totaling at least $624 million. The deals, most of which involved
a variety of subsidies, ranged as high as $48 million, with an average
of about $7.4 million."
In a very real sense, Wal-Mart thus is in part a creature of big government. From this perspective, Wal-Mart's recent hiring of long-time Democratic operative Leslie Datch and significant increase in contributions to Democratic politicians comes as no surprise. (Of course, as Timothy Carney has argued, it may also be that Wal-Mart is now using big government not just to boost its own growth but as a tool to squash competition.)
Wal-Mart's defenders likely will argue that the long-run benefits to local communities outweigh the costs of the subsidies. On this question, reliable data is almost impossible to find. Yet, there are a couple of arguments against giving this defense to much weight.
First, it's clear that Wal-Mart plays off one community against another. When it comes to locating a new store, one city can be played off against another (or against unincorporated areas). As with any auction, the resulting inter-jurisdictional competition may lead cities to "over-pay" by giving Wal-Mart excessively large subsidies.
The problem is not just that competing cities bid up the price. Rather, if there are enough competing jurisdictions, one may see the so-called "winner's curse" come into play. In any auction, the winner will be the party with the highest reservation price. By definition, the winner thus is not only the party that puts the highest value on the item being auctioned, but also is the party most likely to over-value the item. After all, if the universe of bidders looks like a bell curve, is the bidder further to the right likely to be the one with the best estimate of the item's worth?
Second, we know that cities often over-estimate the economic benefits to be gained in return for such subsidies. A leading analysis of convention center feasibility studies, for example, found "consistent over-estimates of convention and tradeshow growth." As a result, "the competitive situations of new or expanded centers may be more difficult than predicted" by their boosters. There's no reason to think city or county analyses of the economic benefits of a Wal-Mart store or distribution center are any more reliable.
In sum, informed debate requires one to view Wal-Mart not as a rugged free market capitalist, but as a leading recipient of corporate welfare. If one is on the left, one thus might insist that Wal-Mart provide a so-called living wage in return for its subsidies. If one is on the right, one might call for abolishing such subsidies. In either case, however, we at last will be debating the real issues.
Steve Bainbridge is a TCS Daily Contributing Editor and
a Professor of Law at UCLA. He writes two popular blogs: ProfessorBainbridge.com
and ProfessorBainbridgeOnWine.com.
17. Ford Aims to Cut Union Work Force Through Buyouts
As Financial Crisis Deepens,A Senior Executive Departs;
Another Big Blow to UAW By JEFFREY MCCRACKEN WSJ September
15, 2006; Page A1
Ford Motor Co. plans to offer buyouts to all 75,000 of its North American factory workers in hopes of cutting its payroll costs by nearly a third, as the nation's second-biggest auto maker tries to accelerate its restructuring to head off a deepening financial crisis.
The buyouts, to be announced today, come amid indications that Ford will post wider losses and burn through more cash this year than previously expected. They also came as Anne Stevens, the No. 2 executive behind Ford's North American turnaround effort and the industry's highest-ranking woman, joined a recent exodus of top executives from the company.
Ford's buyout plan follows a similar program offered this year by General Motors Corp., through which it shed 34,000 North American workers. Coupled with the GM buyouts, the Ford buyouts mean the once-powerful United Auto Workers union could end up losing as many as 50,000 members this year alone -- nearly equivalent to the number of UAW workers now employed by DaimlerChrysler Corp.
Two senior officials say Ford has concluded its stated goal of profitability in North America by 2008 is unrealistic, though it isn't clear whether Ford will say so today. One official said Ford will "come in well under" the more than $20 billion it had previously estimated it would have in cash on hand at the end of 2006. Through the first half of the year, losses at Ford's North American operations have totaled $1.3 billion, including $826 million in the second quarter.
With new Chief Executive Alan Mulally just over a week into his job, Ford also is expected to outline plans to cut its salaried work force and related costs by 30% and to accelerate plant closings. The company previously had said it didn't plan to offer companywide buyouts.
Meanwhile, Ford is expected to retain all its U.S. brands in the overhaul and to hang on to consumer-finance unit Ford Credit. Some Wall Street analysts had argued that junk-rated Ford should consider selling a piece of Ford Credit and phase out its struggling Mercury brand.Ford spokeswoman Becky Sanch declined to comment on the auto maker's plans. Details of the announcement were still being finalized late yesterday.
Ford stock had risen in recent days on anticipation of a more aggressive restructuring plan, though shares shed 10 cents, or 1.1%, yesterday to $9.09 by 4 p.m. in New York Stock Exchange composite trading. If the plan lacks definitive statements on issues such as the possible sale of luxury-car maker Jaguar, that could disappoint some investors, said John Murphy, auto analyst at Merrill Lynch. "I just think they are reluctant to pull the levers they need to," he said.
Ford's earlier overhaul, the "Way Forward" plan released in January, had proposed eliminating 30,000 hourly jobs, at the time about 35% of the company's U.S. hourly workers, and 4,000 salaried jobs by 2012. Those cuts, and more, likely will come three or four years faster under the revised plan. Ford had about 82,000 hourly workers in the U.S. at the start of the year.
Ford's buyout offers are similar to GM's in that a worker can get as much as $140,000 to leave the company and leave behind his or her retiree health-care benefits. The most-generous of Ford's eight different buyout packages is limited to workers with at least 30 years of service or those that are at least 55 years old and have at least 10 years of service.
"Ford is realizing it's time to get real. They've got to take their lumps like GM did last year," said David Cole, president of the Center for Automotive Research, an auto-analysis firm in Ann Arbor, Mich.
Mr. Cole said the ability of Ford to negotiate new local contracts with about 10 stamping and powertrain plants in the past few months, so-called Competitive Operating Agreements, may have limited its need to close many more plants. Such agreements can save the auto maker 25% to 30% on labor costs, according to a UAW official, by allowing Ford to outsource more work or eliminate job classifications that required higher staffing levels.
For the UAW, agreeing to companywide buyouts at Ford is the latest concession to the competitive crisis that has engulfed Detroit's two biggest unionized auto makers. The UAW also agreed to cuts in retiree health benefits at GM and Ford, although it has refused to agree to matching cuts at DaimlerChrysler's Chrysler Group. With Chrysler now forecasting wide losses and struggling to reverse slumping sales, the union's resolve will be tested.
By accepting huge job cuts within the past year at GM and Ford and their respective former parts units, the UAW is gambling it can preserve its health-care and retirement benefits in national contract talks with Detroit's Big Three next year. The companies are likely to continue to press the weakened union, arguing Detroit's UAW-represented operations can't compete with nonunion factories in the U.S. run by the companies' foreign rivals.
Word of the UAW buyout deal was faxed to UAW locals yesterday afternoon. "Once again, our members are stepping up to make hard choices under difficult circumstances," the union's president, Ron Gettelfinger, wrote in the fax. "Now, it's Ford Motor Company's responsibility to lead this company in a positive direction -- which means using the skills, experience and dedication to quality that UAW members demonstrate every day in order to deliver quality vehicles to customers."
Ford already had some limited, targeted buyouts operating under the "Way Forward." The latest move essentially expands those offers across the company. Offers range from $35,000 for workers with 30 or more years experience, who can leave and keep their full retiree benefits, to a flat $100,000 payment to younger workers who leave the auto maker and give up retiree health care and Ford pensions.
For workers who want to go to college or vocational school for four years, Ford will provide half their usual pay, about $27,000 on average, while they receive full medical coverage and their tuition is paid for. Workers choosing this plan could keep any accumulated pension but must leave behind any retiree medical benefits.
About 6,500 hourly workers have left Ford this year under current plans. Workers at Ford's ACH plants, comprised of the former Visteon Corp., will be able to flow back into Ford plants, much like workers at parts maker Delphi Corp. were able to return to GM plants.
GM was able to get about 34,000 workers to take early-out programs, with about 31,000 taking early-retirement plans. GM executives say the larger-than-expected exodus has put GM on track to cut annual costs by $9 billion.
Ford may not be as successful because it doesn't have as many older workers close to retirement. Ford's hourly workers on average have 7.5 fewer years on the job than GM's -- with an average of about 18 years at Ford, according to a report published yesterday by Merrill Lynch.
Meanwhile, Ford's outside directors are increasingly concerned by the exodus of management talent at the auto maker and by signs that Ford's automotive operations are weakening not just in the U.S., but in other parts of the world, too, said individuals familiar with the situation.
Ford's management woes were highlighted by the abrupt departure of Ms. Stevens, a chief architect of the "Way Forward." Ford made a counteroffer to keep her, said a Ford senior official, but she decided to leave anyway. Ford said Ms. Stevens was unavailable for comment.
Ford said David Szczupak, group vice president for Americas manufacturing, also is retiring. Others who have left in the past 18 months include the head of product development, head of hybrid programs and chief financial officer of Ford Credit.
It wasn't clear whether Ford would announce more plant closures as part of its accelerated restructuring. Almost "any facility is vulnerable," said Catherine Madden, an auto industry analyst at Global Insight Inc. She said her analysis was based on conversations with Ford suppliers.
The auto maker's Michigan Truck Plant -- one of the most profitable in the world in the late 1990s -- could be at risk. The Wayne, Mich., plant makes Ford Expeditions and Lincoln Navigators, once-popular sport-utility vehicles that have fallen out of favor amid high gasoline prices. "You've got people in the truck plant that are scared," said Brian Quantz, vice president of UAW Local 900, which represents Michigan Truck Plant. "They're afraid they're going to shut their plant down."
The Expedition and Navigator share similar architecture with Ford's F-series trucks, meaning they could be built at the auto maker's newer Dearborn Truck Plant. "I see them as a candidate" for closure, Ms. Madden said of the Michigan Truck Plant, "because essentially what they're building there could be built at the Dearborn facility."
Ms. Madden said Ford's Wayne Assembly plant, which makes the Focus small car, also could be vulnerable, because the car's sales have tumbled fast and the auto maker has discussed building a new low-cost facility that could build a Focus-size vehicle plus another small car. Both Michigan Truck and Wayne share the same UAW local and were considered for closure with the first Way Forward plan.
---- Mike Spector contributed to this article.
Write to Jeffrey McCracken at jeff.mccracken@wsj.com
18. BIG TOBACCO'S SHOWDOWN IN THE WEST
------------------------------------------------------------------------
California is poised to enact the largest one-time cigarette
tax hike
ever -- adding $2.60 per pack -- on top of an already
existing 87 cent
excise tax, bringing the average price for a pack of
cigarettes to
$6.55, says Nanette Byrnes in BusinessWeek.
The new measure is particularly worrisome for tobacco
companies because
of California's large share of the tobacco market; the
state is home to
9 percent of all U.S. smokers.
In addition, cigarette makers argue that the tax is unfair,
and an
irresponsible spending of the public's money:
o The measure does not require
that all tax money be spent on
programs to help
smokers quit or on treating smoker's
illnesses.
o It needlessly includes an
antitrust exemption for hospital
companies.
o It will only lead to increases
in untaxed counterfeits and
buying from other
states will hurt sales, undermining the
tobacco tax revenue.
Despite the tobacco industry's efforts, many expect the
mandate to pass
easily. But that will not end the fight, says Byrnes.
Other
states are generating similar proposals:
o In Missouri, there is a court
battle to get a measure that
would increase taxes
by 80 cents per pack on the November
ballot.
o Several candidates running
for office in Maryland, and some
already in power,
are pushing for a $1 per pack
increase.
Source: Nanette Byrnes, "Big Tobacco's Showdown in the
West,"
NewsWeek, September 11, 2006.
For text:
http://www.businessweek.com/magazine/content/06_37/b4000065.htm?chan=search
For more on Taxes:
http://www.ncpa.org/sub/dpd/?Article_Category=20
19. Labor Movement As U.S. Debates Guest Workers, They Are Here Now In Construction, 'Subidos' Don't Tax Social Services But May Depress Wages The Epic Drives of the Cantús By JOEL MILLMAN WSjSeptember 18, 2006; Page A1
CHARLES CITY, Iowa -- When he is home in Montemorelos,
Mexico, Roberto Cantú earns $300 a week pouring concrete. Last month,
a labor recruiter called him promising similar work in Colorado and Iowa
paying five times as much.
[Roberto Cantu]
Within hours, Mr. Cantú, his three grown sons and his brother were driving their white pickup truck 250 miles north to the U.S. border, on the way to job sites another 700 miles away. It was the Cantús' fifth trip this year to take temporary U.S. jobs, during which they have crossed 18 states.
The Cantús are among an estimated tens of thousands of Mexicans with an unusual place in the bitter debate over immigration. Thanks to quirks in the law, they have green cards enabling them to come to the U.S. for work stints. Many, like the Cantús, call themselves "subidos" from the Spanish verb for "to rise," because they do the grueling jobs of pouring concrete for tall structures such as grain silos for the ethanol plants increasingly rising across the Great Plains.
President Bush is pushing for the U.S. to adopt its first
formal guest-worker program since 1964, a contentious proposal that has
helped stall broader efforts at immigration-law changes in Congress. The
president says the program would respond to the strong demand for Mexican
labor in the U.S., and would reduce the number of undocumented workers
sneaking across the border to answer it.
FOLLOWING THE JOBS
[Following the Jobs]
See an animated map showing the travels of the Cantú
family over the course of 2006.
Employer groups and other advocates believe guest workers would boost economic growth in both the U.S. and Mexico. Labor unions and immigration foes call that employer-funded propaganda. Their view: Mexicans would steal jobs and undercut U.S. wages.
The experience of the Cantús and other Mexicans who use green cards to hop across the border provides some intriguing clues about how an official guest-worker system might play out. By quickly filling jobs and providing needed skills, such workers are a boon to employers. They rarely put a burden on social services, because they leave their school-age children and elderly relatives at home. Nonetheless, there is some evidence that the Mexicans drive down wages in the industries where they work.
Some guest workers had their status legalized under the Simpson-Rodino Immigration Reform and Control Act of 1986, which granted amnesty to 2.7 million undocumented workers. It offered that group, who call themselves "Rodinos," the chance at green cards that confer permanent-resident status and the right to work. The act was intended to encourage U.S. citizenship, but some preferred the guest-worker way of life, as the Cantús do, earning wages in the U.S. but keeping their families and their living costs in Mexico.
Others acquired work visas through programs that legalized imported farm workers during times of labor shortages. Still others won green cards after being sponsored by a parent who became a naturalized U.S. citizen, or by marrying a U.S. citizen. About 100,000 Mexicans also legally commute short distances across the border for day jobs in the U.S.
Mr. Cantú's father arrived in the U.S. as a relief laborer during World War II. He worked regularly in the U.S. under the Bracero program for farmhands, which ended in 1964. He became a U.S. citizen in the early 1990s. His citizenship made his children and grandchildren eligible for green cards. It took eight years to obtain them. Since 2003 they have been taking advantage by landing concrete-pouring jobs in the U.S.
The five Cantús keep a brutal pace and spend as much as eight months in the U.S. annually. One day last month, after finishing two 89-hour workweeks in Pueblo, Colo., they barreled across three states in 14 hours to start a job in Iowa. The older brothers, Daniel, 45 years old, and Roberto, 47, split the long drive and arrived just minutes before the night shift began. Daniel headed to a motel to nap; Roberto quickly started work, hoisting himself up a 30-foot scaffold he wouldn't descend until dawn.
Roberto's three sons, 18-year-old César, 20-year-old Mario and 24-year-old Roberto Jr., hopped into town to look for a Mexican restaurant, or at least a 7-Eleven store selling tortillas. They are more comfortable in the U.S. than the older men, mostly because they speak English better. They are the ones who mollify truck-stop waitresses who grow impatient waiting for the older men to order a meal or politely respond to state troopers who occasionally stop them on the road, demanding papers showing they are in the U.S. legally. "We know not everyone wants to see Mexicans in their town," Mario says.
The Cantús are skilled in the continuous-pour construction specialty of subidos, where fresh concrete is pumped nonstop for hours into wooden trenches to harden. That eliminates seams that can trap moisture and freeze during Corn Belt winters. The younger Cantús work as "finisheros," sanding down rough edges of dried concrete.
A $2.4 billion ethanol-plant construction boom is under way in the U.S., according to the Renewable Fuels Association, an industry trade group. Continuous pouring for the silos means round-the-clock work, requiring twice the number of laborers on site. Ethanol plants, situated near their raw grain supply, often are built where skilled labor is scarce.
Midwest construction firms including Fagen Engineering Inc., Granite Falls, Minn., and T.E. Ibberson Co., of Hopkins, Minn., and subcontractors Todd & Sargent and McCormick Construction Co., of Rockford, Minn., find Mexican subidos through a loose confederation of recruiters on the Texas-Mexico border. Those include Ray Maldonado, a Puerto Rico-born, transplanted New Yorker now based in the border town of Eagle Pass. A former laborer, the 52-year-old Mr. Maldonado manages a loyal pool of Mexican workers. He vets work documents of subidos referred by his network of scouts across northern Mexico. He also places some subidos in permanent jobs with U.S. employers.
On a recent Saturday in Laredo, Texas, Mr. Maldonado shepherded 20 workers with their belongings in tiny suitcases and plastic garbage bags onto vans bound for North Dakota. The chain-smoking Mr. Maldonado checked names off a list and answered cellphone calls from workers still en route. As he talked, more crews rolled out of town, two drivers in front, passengers crowded behind, for the two-day drive. Bathroom and food stops are allowed only during refueling.
Sometimes Mr. Maldonado advertises by paying disc jockey Juventino Botello $10 for a 20-second spot on his morning show, on border station XEMU in Piedras Negras. "Workers needed, heavy construction, report to Beto's place in Eagle Pass," Mr. Botello calls out over accordion-laced "ranchera" music.
Around the corner from Mr. Maldonado, rival recruiter Pepe Regosa beat the sidewalks for Younglove Construction LLC of Sioux City, Iowa, which needed 55 men for a job in Missouri. Younglove "hires local guys to do this work, but they don't last," Mr. Regosa said with a grin. "Some leave after one day."
The work isn't just difficult, it is dangerous, too. Just before dawn Friday, 67-year old Jesus Guerrero fell 120 feet to his death, slipping from a scaffold at a silo one of Mr. Regosa's crews is erecting in Underwood, N.D., for Blue Flint Ethanol. "They'll ship the body back to Laredo," Mr. Regosa said. "The company pays."
In Charles City, Iowa, the Cantús joined nearly 100 of Mr. Maldonado's workers building an ethanol-plant corn silo for VeraSun Energy Corp. of Brookings, S.D. Phil Sargent, executive vice president of Todd & Sargent, based in Ames, Iowa, is a subcontractor on the site. He says he would prefer to use local workers but can't find enough of them. "Years ago, this was a summer job for college kids," Mr. Sargent says. He finds the local labor pool has shrunk, while the work has expanded.
Todd & Sargent says it doesn't pay imported workers less than Americans. Most jobs are nonunion. The company must pay additional housing and transportation costs for the subidos.
The accommodations aren't lavish. At the Best Budget Inn in Charles City, the five Cantús were crowded into $30-a-night rooms paid for by Todd & Sargent for the two-week job. Workers on the day shift used the beds by night, while late-shifters crawled in after the shift change at 7 a.m. "I don't have the staff to change everyone's sheets," said motel manager Linda Webb. "I tell each one to show courtesy to the man he's sharing with, and shower before going to bed."
Guest-worker proponents argue that a formal program would minimize costs to U.S. schools and welfare agencies, compared with undocumented workers, because guest workers would be free to cross borders legally and would likely leave their families behind.
Agustín García, a 62-year-old subido from General Teran, Mexico, a city southeast of Monterrey, says he never brought his wife or three children with him to the U.S. during 20 years of temporary work. "A man goes from hotel to hotel, works for maybe a week or two," he says. "He really has to travel alone."
Now, he and his wife share a tidy home in Mexico by a
gentle stream, surrounded by households supported by subidos' wages. Mrs.
García suffers from high blood pressure and circulatory problems,
and benefits from Mexico's free health-care system. Mr. García says
if they lived in the U.S., he couldn't afford to pay for her care.
[On the Move]
In the U.S., his wages are taxed -- about $25 for every $100 he earns, according to a pay stub from a job Mr. García did this summer building a flour mill in Roanoke, Va. Generally, subidos pay all state, local and federal taxes. They also are covered by workman's compensation insurance in case of on-the-job injury, paying into a fund covering all workers on the job.
Undocumented workers, by contrast, are less likely to pay taxes. They frequently pay thousands of dollars hiring guides to help evade the Border Patrol. That gives them a big incentive to stay longer periods in the U.S. and bring their families across the border, often crowding into the poor neighborhoods they can afford. "We're turning people who would otherwise be temporary workers into permanent settlers," says Wayne Cornelius, an immigration expert at the University of California at San Diego.
The subidos rarely mix with local townspeople. In four years on the road, the Cantús say they haven't attended a baseball game, gone to a movie or visited a national park in the 20 states they have motored through. "We went past that rock in South Dakota once where they have the presidents' faces carved, but it was at night and we couldn't see it," says César Cantú, Roberto's youngest son.
Immigration critics argue that a guest-worker program wouldn't stem the flow of illegal immigrants but simply legalize lawbreakers. Some have a problem with workers like the Cantús as well, contending they are subverting the intent of their visas, which are meant to establish U.S. residency, not just working rights. Technically, they should have a commuter version of the green card, though the distinction isn't strictly enforced.
The presence of so much Mexican construction labor worries union officials in Midwest and mountain states, though demand for construction appears strong enough now to support both foreign-born and local workers. The Pueblo, Colo., cement plant being built by subidos, for instance, is within sight of a massive project, Xcel Energy Corp.'s $1.3 billion Comanche-3 power plant, which employs union workers, nearly all U.S.-born. Ethanol construction tends to be divided between union shops in large towns and subidos in rural areas.
Union officials complain bitterly that competition from Mexico is driving down wages, and there is evidence to back them up. Roberto Cantú's Pueblo pay stub shows he earned $14 an hour for a 45-hour week, and $21 for every additional hour. Pete Mustacchio, business manager of Cement Masons Local 577 in Denver, says Colorado's union pourers earn twice that, including an hourly wage of $23.40, plus health-insurance and pension benefits valued at another $9 an hour. Overtime starts at $35.10 an hour.
Figures compiled by the U.S. Bureau of Labor Statistics indicate wages in concrete work fell 16.5% in 2005 from 2000 -- to $508 a week from $604, adjusted for inflation -- despite a soaring demand for workers. Meanwhile, the proportion of cement workers described as "foreign-born Hispanic" has risen to almost 55% from around 35% in the late 1990s. Statistics suggest many are replacing African-Americans, whose employment in concrete work declined to 9,000 in 2005, from 18,000 six years ago.
David Card, a University of California at Berkeley economist, says the decline in earnings is part of a long-term trend of nonunion construction workers replacing a unionized work force. Other factors are at play besides the subidos. Illegal-immigrant labor drives down wages even more than do legal subidos, and technology has reduced the need for some skilled workers.
An expanded guest-worker program probably would deepen the wage squeeze, says Harvard University immigration economist George Borjas. "I find a 10% rise in worker supply results in a 3% decline in wages" locally.
Earl Agan, business manager of Cement Masons local 51 in Des Moines, says ethanol-plant construction should be a reason to hire more union workers, not fewer. He has 260 members qualified to pour silos, at least 50 of whom are presently without work. "Contractors have my guys traveling all over the country," Mr. Agan says, arguing that remote work sites shouldn't justify importing workers. His conclusion: Contractors want a bigger share of the profit and won't employ union labor if they don't have to.
The Cantús, who were in North Dakota last week building a grain elevator, know their work is controversial. "Our first job was in Peru, Illinois," recalls Mario Cantú, Roberto's middle son. "There was a protest at the gate of the place we were working. I remember they had a big, inflatable rat bouncing around. And people held signs: Mexicans Are Stealing Our Jobs." Nowadays, they sometimes endure the silent treatment on the jobs from other workers, even those born in Mexico. "They say, 'Our job is next,' " Mario adds.
The five Cantús estimate they each earn around $35,000 a year working in the U.S. Daniel Cantú figures it will take him just a few more years of U.S. work to save enough money for his own contracting business. Then he will compete for work year-round in Monterrey, Mexico, where construction is booming. His wife might want to open a dress shop there, he says.
"We wanted to see what working in the U.S. was like," Daniel says. "Well, we've seen it. It's not something you can do forever."
Write to Joel Millman at joel.millman@wsj.com
20. The Boom Generation Seventh Decade y MICHAEL MILKEN WSJ eptember 19, 2006; Page A20
SANTA MONICA, Calif. -- On July 4, along with more than 9,000 other American post-war babies, I turned 60. Our generation, the 78 million American baby boomers born between 1946 and 1964, has had a profound social and economic impact around the world for more than half a century. As we start moving into our seventh decade, it's logical to ask what effect baby-boomer retirements will have on real estate and financial markets. The question is logical, but it puts the emphasis on the wrong side of the equation. The real future value of U.S. assets won't be determined by retirements, but by policy decisions on education, taxation, regulation, immigration, international investment and the environment.
Baby boomer asset liquidation isn't really a financial market issue because (1) there's plenty of liquidity in the global economy; (2) as the rest of the world becomes wealthier, people outside the U.S. will own a greater percentage of global assets and they'll want to keep a share of their net worth in America; (3) liquidity will grow in both developed and developing nations as they adopt recent American financial innovations and market structures; (4) as baby boomers live longer and healthier, their new mantra will become "Who wants to retire?" and (5) most assets won't need to be sold.
I will examine each of these points.
* * *
1. Large parts of the developed world are awash in liquidity
-- Japan has more than $10 trillion -- and we're also seeing a buildup
in several countries with small populations. Norway, the UAE, Taiwan, Singapore
and others each have hundreds of billions of dollars available for investment
beyond the immediate needs of their citizens -- in some cases, as much
as $50,000 per person. To put that in perspective, Hewitt Associates reports
that the median amount in a U.S. 401(k) plan is just $27,100.
[Output and Outlook]
2. The "BRIC" nations -- Brazil, Russia, India and China -- will continue to grow faster than the U.S. and, with the U.S. and Japan, will become the world's major economic powers by mid-century. There are 600 million children in China and India whose future buying power will grow at least as fast as their rapidly improving educations. As the BRICs accumulate wealth, they will want to diversify their holdings globally. America stands to benefit as richly from that diversification as it did from European investment in the 19th century.
China and India combined to produce nearly half the world's economic output in 1820 compared to just 1.8% for the U.S. Our remarkable growth since 1820 has benefited from democratic institutions, a belief in capitalism, private property rights, an entrepreneurial culture, abundant resources, openness to foreign investment, the best universities, immigration and relatively transparent markets.
3. Recent U.S. financial innovations -- including new markets for securitized mortgages and credit-card liabilities, collateralized loan and high-yield bond obligations, and financial derivatives -- helped to spread risk and created tens of millions of jobs by freeing up investment capital for growing businesses. As these financial technologies are deployed throughout the world, they will increase prosperity by multiplying the value of human capital, social capital and real assets. They have the potential to create as much as $50 trillion to $100 trillion in worldwide liquidity.
In the U.S., the value of home mortgages equals 95% of the nation's gross domestic product. The ratio is considerably lower in other countries: mortgages in Germany total about 69% of GDP; in Japan, it's 36%; and in Russia, less than 1%. A worldwide securitized mortgage market alone could free up some $20 trillion for productive investment by unlocking the unused capital in residential real estate.
4. More baby boomers are asking themselves, Why retire? It's a cliché to say that 60 is the new 40, but it has some biological and psychological validity. Advanced biomedical research is leading to continued progress against cancer, heart disease, arthritis, dementia and other conditions that forced people out of the workforce before they wanted to quit. In the future, aging workers will be healthier and will use broadband technology to live and work from anywhere at the increasing proportion of jobs that involve knowledge rather than physical labor. They'll spend more years earning income, often in multiple careers, instead of selling assets.
Fewer people will retire in their 60s simply because they know that average life expectancy at birth is increasing at an astounding rate. Americans, who could expect to live an average of 47 years in 1900, now enjoy life spans approaching 80 years. (It already exceeds 80 for women.) An American who makes it to age 65 can look forward to living almost two decades more. Worldwide, the increase has been even more dramatic. In a single century -- despite wars, AIDS and other scourges -- the global average more than doubled to 66 years. Nobel laureate Robert Fogel believes it will exceed 100 years within this century.
More than just the length of life, the number of healthy years will also increase. When people are vibrant into their 80s and 90s, 65 will evolve from the traditional retirement age to a mid-career milestone for those who choose to keep working. Who wants to retire when you have fulfilling work, when you earn a good income, and when you feel great? According to a Yahoo! poll, 70% of people over 55 say it's never too late to start a new business.
5. Many baby-boomer assets won't be liquidated. The Federal Reserve reports that the wealthiest 5% of American households own about 60% of the nation's assets. Ninety percent of all stock is owned by 10% of investors. Debate continues about how this concentration of wealth affects our society, but what seems irrefutable is that the owners of most wealth will have no urgent need to raise cash. A retiree with a $10 million net worth doesn't sell stocks to buy groceries or pay the mortgage. He can easily live on dividends and interest while preserving assets for his grandchildren or a favorite charity. And if wealthy retirees don't sell their assets, they won't put pressure on valuations.
In the top 1% of households -- which own a third of U.S. assets -- net worth starts above $10 million and moves well into the billions. Rather than sell assets, these families endow non-profit institutions and give their wealth to foundations, which are growing in number and size.
If the top 5% of wealth holders won't be liquidating their 60% of U.S. assets, what about the remaining 40% of assets owned by 95% of the population? For most baby boomers, the biggest chunk of their net worth is the equity in their house. Many of these houses will be transferred to the next generation through inheritance. For those properties that will be sold, their future prices will be greatly influenced by policy decisions affecting social capital -- things like good schools, clean air, cultural attractions, reasonable regulations and safe streets. A community that ignores the quality of its schools will eventually see that neglect reflected in its real estate market.
The best way to assure the future value of American assets is to focus on succeeding in the worldwide competition for human capital. We have some excellent preschool programs and the world's best system of higher education; but we need to shore up our K-12 educational infrastructure -- especially in science -- to help the next generation compete on a world stage.
When I went to Wall Street in 1969, the major providers of investment capital had adopted regression analysis and concluded that the future would be much like the past. So they financed yesterday's industries. Today's predictions of a coming asset liquidation problem seem to make the same mistake of projecting the past into the future. There's one thing I can predict about the future with complete confidence: it won't be anything like the past. It never is. But as long as we maintain asset values by enhancing human and social capital, I believe the future of the baby boomers -- and their nest eggs -- is secure.
Mr. Milken is chairman of the Milken Institute. (This
essay is the first in a two-part series on baby boomers, which concludes
tomorrow with a contribution by Jeremy Siegel.)
21. YouTube Model Is Compromise Over Copyrights
By KEVIN J. DELANEY and ETHAN SMITH
WSJ September 19, 2006; Page B1
Video-sharing site YouTube Inc., in a move that could defuse the threat of legal action against it, is racing to overhaul the way media and entertainment companies view unlicensed online use of their content.
YouTube is rolling out technology designed to automatically spot copyrighted material that users upload without the permission of media companies, and then to share ad revenue with those companies.
Consumers go to YouTube to watch videos ranging from music
videos to footage of a napping cat more than 100 million times a day and
submit more than 65,000 videos a day.
[Chart]
YouTube's new system, announced yesterday and set for release in the next few months, is an ambitious effort to give media companies more control over the video on the site and to address their fears that others will profit from consumers' piracy of their content. The first entertainment company to embrace the system is Warner Music Group. The two companies have agreed that Warner Music will post its catalog of music videos on YouTube and collect an unspecified percentage of the revenue from advertising appearing alongside them. The deal doesn't cover live performances captured on video cameras or other devices, because Warner doesn't own the copyrights to those recordings.
In addition, the new system will give YouTube users a legitimate way to create videos with soundtracks that use music from Warner artists. (Videos of amateurs' lip syncing or juggling to popular songs are among the most viewed on video-sharing sites.) YouTube's system will identify such videos and give Warner a share of the revenue for any ads that appear alongside these videos, if Warner opts for that rather than having the videos removed.
For YouTube, a closely held San Mateo, Calif., company, the new system offers the chance to bring revenue, users and a legitimacy to content that, in many cases, probably would otherwise infringe on copyrights. Consumers get free, legal use of Warner music for their videos -- although there wasn't much standing in their way before. Warner gets ad revenue it wasn't otherwise receiving.
YouTube and Warner declined to discuss specifics of their
agreement. Alex Zubillaga, Warner's executive vice president for digital
strategy and business development, said the terms are "comparable" to those
of its other video-licensing deals. Existing video-licensing deals currently
don't generate significant revenue for music companies. People who work
in the industry estimate Vivendi SA's Universal Music Group, the world's
largest recorded music company, earns around $15 million a year, or less
than 0.5% of its annual revenue, from hundreds of online video licensees.
But the money these deals generate is growing rapidly, these people add.
FUZZY RECEPTION
Key events in YouTube's relations with media and entertainment
companies, in 2006
• February: NBC requests removal of hundreds of video
clips from YouTube
• April/May: C-SPAN requests removal of Stephen Colbert clips, posts them on Google Video
• June: NBC makes a pact to distribute video through YouTube, buys ads
• July: Robert Tur sues YouTube for copyright infringement
• August: YouTube adds video ads to its home page
• September: Universal Music CEO alleges YouTube copyright infringement; YouTube makes pact with Warner Music to distribute music videos, share ad revenue
Source: WSJ research
YouTube's new system is the latest attempt by an online startup to transition from disputed copyright practices to a less-controversial business model. TV and movie companies are just starting to come to grips with how to manage video-sharing technology. There are signs they could be interested in cutting deals: Several TV executives say they have been in talks with YouTube and other video sites about ways to make some content freely available. General Electric Co.'s NBC Universal signed an advertising and content deal with YouTube in June.
YouTube's agreement with Warner hinges on a digital system YouTube is developing to identify automatically copyrighted music or other audio, and related video its users upload. The system relies partly on what's known as "fingerprinting" -- comparing audio uploaded to the site to unique attributes of copyrighted content it already knows. YouTube's planned system is similar in some respects to one proposed last year by an online music startup, Snocap Inc., which was launched by Shawn Fanning, the founder of Napster. Snocap is seeking to help peer-to-peer music services and other online outlets become legitimate music distributors. YouTube said the audio-identification system could potentially be used to locate non-music content such as video clips from TV shows, and that it could eventually use video-identification technology as well.
While YouTube's services are focused on video, the most significant challenge could come from the music industry, which remains divided on how to protect its content online. EMI Group PLC has said it, too, is in talks with YouTube. A spokesman for the world's No. 2 music company, the joint venture Sony BMG, declined to comment.
Universal appears poised to put up a fight. Universal CEO Doug Morris last week told investors that YouTube violates copyright laws by allowing users to post music videos and other Universal content. He said YouTube and News Corp.'s MySpace social-networking site "owe us tens of millions of dollars." (Universal's Interscope Records is a partner in the MySpace Records label.) A Universal spokesman declined to comment.
"We've reached out to [Universal Music] to let them know we're willing to work with them," said Chad Hurley, chief executive of YouTube.
In announcing the system, YouTube could open itself up to a flood of requests by creators of videos looking for their own share of advertising revenue. Other sites such as Revver Inc. currently give amateur video creators a percentage of ad revenue. YouTube in the future will explore options for sharing online ad revenue with smaller, or amateur creators, Mr. Hurley said. But "right now we're building tools for record labels, TV networks and movie studios."
YouTube currently faces legal challenges. Robert Tur, the owner of Los Angeles News Service, named YouTube in a complaint filed in July in U.S. District Court in Los Angeles. He alleges copyright infringement in connection with several videos that were available through YouTube. YouTube has said Mr. Tur's suit is "without merit." A similar case, which an adult-entertainment company, Io Group Inc., brought against a video-sharing site, Veoh Networks Inc., in June in U.S. District Court for California's Northern District, makes a similar claim. A ruling against Veoh could potentially set a precedent affecting YouTube.
YouTube and other video sites currently follow a so-called safe-harbor process, enshrined in the Digital Millennium Copyright Act of 1998. Under that process, they have to comply with "takedown" notices that copyright holders may send when they become aware of content uploaded without their permission. Some entertainment companies have privately expressed frustration with the process, since it requires them to track down infringing works on a multitude of video-sharing sites.
Under YouTube's system, media companies will have a way to have their content removed without resorting to separately sending takedown letters: YouTube plans to provide them with tools to directly request either to remove or to share ad revenue for specific videos.
--Sarah McBride contributed to this article.
Write to Kevin J. Delaney at kevin.delaney@wsj.com and Ethan Smith at ethan.smith@wsj.com
22. MIGRATING TO MODERNITY
------------------------------------------------------------------------
In the immigration debate, rich countries often argue
border
enforcement, employer sanctions and so on, yet they rarely
relate the
argument to economic development. In fact, immigration
could lead
to greater economic gains than any other method, says
columnist
Sebastian Mallaby.
In "Let Their People Come," a new book published by the
Center for Global Development, Lant Pritchett says:
o If rich countries permitted
extra immigration equivalent to 3
percent of their
labor force, the citizens of poor countries
would gain about
$300 billion a year.
o That amount would be three
times more than the direct gains
from abolishing
all remaining trade barriers, four times more
than the foreign
aid given by governments and 100 times more
than the value of
debt relief.
And while there is a downside to immigration from poor
countries, it
isn't that it depresses wages in the United States; researchers
find
that this effect is small or nonexistent. Rather,
it's a lack of
trained workers, who are the first to leave their countries,
which
creates a more serious obstacle to poverty reduction.
Thus, the best way to promote development is to allow
a rolling cohort
of poor and relatively unskilled workers to amass savings
and
experience -- and then return to their own countries,
says
Mallaby. One of the ways to do this is through
a guest-worker
program, albeit one with certain criteria, to ensure
workers return to
their home countries.
Some of the possible measures could include:
o Stipulations that workers
be recruited by agencies, which
would screen candidates
for criminal records, require minimal
English skills and
ensure repatriation.
o Denying guest workers the
right to marry citizens. A
tough measure; but
if desperately poor migrants accept the
no-marriage condition
in exchange for a visa, then they should
be allowed.
Source: Sebastian Mallaby, "Migrating to Modernity,"
Washington Post, September 18, 2006.
or text (subscription required):
http://www.washingtonpost.com/wp-dyn/content/article/2006/09/17/AR2006091700544.html
For more on Immigration Issues:
http://www.ncpa.org/sub/dpd/?Article_Category=34
23. The Poor Get Richer By MARY ANASTASIA O'GRADY January 16, 2007; Page A21
Here's bad news for those who oppose global free trade: Not only did the world-wide trend toward greater economic liberty hold steady over the past year, but the incomes of poor individuals across the globe are rising as result. The world isn't only growing richer. The gap between the per-capita income of have-not populations and that of the developed world is narrowing.
This good news for human progress is documented in the 2007 Heritage Foundation/The Wall Street Journal 2007 Index of Economic Freedom, released today. Neither another year of Islamic terrorism, nor record high oil prices, nor fear mongering on Capitol Hill about the China peril have been able to reverse a gradual global shift that reflects the basic human longing for individual liberty. While not all of mankind is participating in this advance, in those places where freedom has increased, people are becoming decidedly better off.
The average freedom score this year for the 157 countries ranked is the second highest since we began measuring economic freedom 13 years ago. It is down a fraction from last year, but each region of the globe enjoys greater economic freedom than it did a decade ago. Hong Kong, Singapore and Australia are the three freest economies in the world this year, in that order. The U.S. ranks No. 4. Among the 20 freest economies in the world, Europe holds 12 places.
This year the Index has some important changes. One is the addition of a 16-member academic advisory board to oversee methodology, one of the most critical aspects of the annual survey. That methodology also has some changes. The annual survey still grades countries on a combination of factors including property rights protection, tax rates, government intervention in the economy, and monetary, fiscal and trade policy. But this year we have renamed the "regulation" factor "business freedom" in order to reflect our emphasis on liberty. Thanks to data from the World Bank's annual "Doing Business" report, we expect this factor to better capture the varying levels of entrepreneurial freedom around the globe. We have also crafted a new category to measure "labor freedom," meaning the flexibility of labor laws. Finally, the Index scoring scale will now be 0 to 100 instead of 1 to 5, to allow a more nuanced overall measure.
As it has in past editions, the 2007 Index also looks
at income levels around the globe and finds that economically free countries
enjoy significantly greater prosperity than those burdened by heavy government
intervention. The per capita GDP of the top quintile of countries, ranked
according to economic freedom, is now almost $28,000 while the bottom quintile
is less than $5,000. The associated higher GDP rates that come with economic
freedom "seem to create a virtuous cycle, triggering further improvements
in economic freedom. Our 13 years of Index data strongly suggest that countries
that increase their levels of freedom experience faster growth rates,"
says the report.
* * *
This year the Index again includes important essays on world economic trends. In a piece titled "Global Inequality Fades as the Global Economy Grows," Columbia University professor of economics Xavier Sala-i-Martin destroys the myth that the income gap is widening. While it is true that some countries are being left behind, when population weights are factored into the equation, the evidence shows that "individual income inequality declined substantially during the past two decades. The main reason is that incomes of some of the world's poorest and most populated countries (most notably China and India, but also many other countries in Asia) converged rapidly with the incomes of OECD citizens." Of course both China (ranked 119) and India (104) have a long way to go toward economic freedom but both have made big gains in recent years. Mr. Sala-i-Martin finds that the inequality gap would be even narrower if not for the "dismal performance" of African countries.
A second essay is by Swedish economist Johnny Munkhammar on "The Urgent Need for Labor Freedom in Europe -- and the World." The more advanced economies in Europe restrict labor freedom at the cost of low growth and high unemployment, he argues, while "many Eastern and Middle European countries experiment successfully with freedom." Contrary to socialist views, labor freedom and improving social conditions actually go together. What he concludes could be applied to the rest of the globe in all areas of economic policy: "If the world wants to achieve both more jobs and better living standards, freedom is essential."
Ms. O'Grady is member of the Journal's editorial board.
She is co-editor, with Tim Kane and Kim R. Holmes, of the 2007 Index of
Economic Freedom (408 pages, $24.95), available at 1-800-975-8625.
THE POOR GET RICHER
------------------------------------------------------------------------
Not only did the world-wide trend toward greater economic
liberty hold
steady over the past year, but the incomes of poor individuals
across
the globe are rising as result. The world isn't
only growing
richer. The gap between the per-capita income of
have-not
populations and that of the developed world is narrowing,
says Mary
Anastasia O'Grady, co-editor of the 2007 Index of Economic
Freedom.
This good news for human progress is documented in the
Index, released
today:
o The average freedom score
this year for the 157 countries
ranked is the
second highest since the Index began measuring
economic freedom
13 years ago.
o It is down a fraction from
last year, but each region of the
globe enjoys
greater economic freedom than it did a decade
ago.
o Hong Kong, Singapore and
Australia are the three freest
economies in
the world this year, in that order.
o The United States ranks
No. 4. Among the 20 freest economies
in the world,
Europe holds 12 places.
As it has in past editions, the 2007 Index also looks
at income levels
around the globe and finds that economically free countries
enjoy
significantly greater prosperity than those burdened
by heavy
government intervention:
The per capita gross domestic product (GDP) of the top
quintile of
countries, ranked according to economic freedom, is now
almost $28,000
while the bottom quintile is less than $5,000.
The associated
higher GDP rates that come with economic freedom "seem
to create a
virtuous cycle, triggering further improvements in economic
freedom. The 13 years of Index data strongly suggest
that
countries that increase their levels of freedom experience
faster
growth rates, says O'Grady.
Source: Mary Anastasia O'Grady, "The Poor Get Richer,"
Wall
Street Journal, January 16, 2007; Mary Anastasia O'Grady,
Tim Kane and
Kim R. Holmes, "2007 Index of Economic Freedom," Heritage
Foundation/Wall Street Journal, January 16, 2007.
For text:
http://online.wsj.com/article/SB116892179250077388.html
For Index:
http://www.heritage.org/research/features/index/
For more on International Issues:
http://www.ncpa.org/sub/dpd/?Article_Category=26
24. PELOSI'S TUNA SURPRISE
------------------------------------------------------------------------
Economists of every political stripe agree that a higher
minimum wage
will cost some low-skill workers their jobs, says the
Wall Street
Journal.
Even Speaker Nancy Pelosi seems to understand this.
Despite
leading efforts to pass minimum wage increases, she granted
a reprieve
to American Samoa, which has a big fish and tuna canning
industry,
specifically operations run by StarKist and Chicken of
the Sea.
Both companies are headquartered in California, and StarKist's
parent
is located in none other than Speaker Pelosi's own San
Francisco
district. Democrats rediscovered the eternal economic
truth that
a higher minimum wage can cost jobs and granted Samoa
its reprieve:
o In 2004, according to the
Department of Labor, Samoan
canneries directly
employed some 4,800 people, or nearly 40
percent of the work
force.
o StarKist and Chicken of the
Sea would have plenty of other
low-wage locations
to do their canning; the average hourly
wage for the American
Samoan canneries in 2004 was about
$3.60.
o In contrast, the average cannery
wage in Thailand was 67
cents an hour and
in the Philippines 66 cents.
You don't have to go as far as American Samoa to discover
other
liberals who understand this -- at least when they do
the hiring, says
the Journal:
o In 1995, the union-financed
lobby, Acorn, sued California
seeking exemption
from the state's then-$4.25 minimum wage.
o Acorn argued in its court
brief that the more they must pay
each individual
outreach worker -- either because of minimum
wage or overtime
requirements -- the fewer outreach workers it
will be able to
hire.
None of this insight will do American Samoa much good,
however.
Red-faced after her tuna surprise was discovered, Speaker
Pelosi
announced that she was to re-examine whether the bill
also should apply
to the Pacific island.
Source: Editorial, "Pelosi's Tuna Surprise," Wall Street
Journal, January 16, 2007.
For text:
http://online.wsj.com/article/SB116891896808477346.html
For more on Minimum Wage:
http://www.ncpa.org/sub/dpd/?Article_Category=24
25. Gem War The diamonds pictured below .....
are real -- only they cost about 15% less than other
stones of similar size and quality. The reason: They were produced in a
lab. How a new generation of high-quality diamonds is shaking up the jewelry
world.
By VANESSA O'CONNELL
January 13, 2007; Page P1
Robert Amoroso learned the jewelry business from his dad
and spent more than 700 hours in a classroom to become an expert on precious
stones. On a recent afternoon, he eyed three gems. One was a diamond. Another
was cubic zirconia, a common and relatively inexpensive diamond substitute.
The third was something new: a gem-quality diamond produced in a laboratory.
[Diamonds were produced in a lab]
Lab-produced diamonds
The cubic zirconia stood out easily to the naked eye -- but Mr. Amoroso couldn't immediately tell the other two stones apart. Only after inspecting them under a microscope did he note an inscribed serial number that betrayed the origins of the lab-produced diamond.
"It's scary," said Mr. Amoroso, owner of Amoroso Jewelers, a retail and design shop in Boston's Jewelers Exchange Building. "I knew it could be done, but I just hadn't seen one yet." He pronounced the lab-grown diamond "the best of the three," noting that the natural diamond had more flaws.
The $143 billion jewelry business -- and the would-be fiancés, Valentines and lovers of bling that it caters to -- are facing a shakeup. Lab-produced diamonds, once suitable only for industrial use, are being produced with color and clarity that match -- or exceed -- the quality of diamonds dug out of the earth. These lab-made diamonds have begun trickling into retailers at prices below those for natural diamonds of similar size and sparkle.
The diamond establishment is gearing up to persuade consumers that natural stones are worth paying more for. It's an arguably vulnerable time for traditional producers; mined diamonds have suffered a wave of negative publicity (including the recent movie "Blood Diamond") for financing conflict in Africa. De Beers, which has long controlled the world's diamond supply, has stepped up its marketing of natural stones.
The industry is trying to persuade the Federal Trade Commission that lab-grown diamonds should be prohibited from using the term "cultured" and suggests, among other things, "synthetic." And DeBeers is loaning machines it says can distinguish between the two types to the most powerful gem-testing labs around the world. The technology helps DeBeers position lab-produced diamonds as synthetics that don't compete with natural stones.
It's "essential that synthetics are readily detectable from diamonds and that clear, unequivocal language is used to describe these man-made products," says Lynette Gould, a De Beers spokeswoman.
Tiffany and Co., one of the most prominent retailers of
diamonds, says it has no plans to sell lab-produced stones in its stores.
"They don't fit in our stores," says Mark Aaron, vice president of investor
relations at Tiffany. "Natural diamonds fit in our stores -- diamonds that
come out of the ground."
WHAT TO LOOK FOR IN LAB-MADE GEMS
[Icon] • See how the stones stack up, in a graphic comparing of natural and lab-made diamonds and cubic zirconia, along with a sampling of some popular jewelry styles on the market.
• vOnly a small number of designers are incorporating lab-grown diamonds into their styles now. If you're looking for cutting-edge designs and want them made with lab-grown diamonds, you might have to buy loose lab-made stones and work with a designer.
• Ask for a grading report, particularly when buying a gift. That way you'll know exactly what you've purchased -- and you'll be able to explain it to your loved one.
• Carat sizes are growing as production of colorless varieties
improves. Stones of one carat or more are expected to be at retail stores
midyear.
Producers say they aren't concerned. "As the business develops and people become more aware of cultured diamonds, the public will demand them," says Robert Linares, chairman of Apollo Diamond, a Boston-area maker of lab-produced diamonds.
These gems are still in their infancy, with only a handful of companies producing them and turning out relatively small numbers of stones for now. But unlike cubic zirconia, which is a chemically different substance, the lab gems are considered true diamonds, not fakes. Earlier this month, the Gemological Institute of America, which had long refused to grade them and other diamond alternatives, began offering to do so.
The long-term threat to established diamond producers: that mined diamonds could suffer the same fate as naturally occurring pearls. Cultured pearls, made when a small bead is inserted into a mollusk and grown, destroyed the natural pearl industry. Cultured pearls now account for more than 95% of all pearls sold globally, according to estimates by Gem World International, a research firm.
The basic technology to produce diamonds in a lab has been around since the 1950s, when General Electric started making what are called industrial diamonds used in cutting hard substances such as stones, ceramics, metals and concrete. De Beers itself has an equity interest in a leading manufacturer of these stones, which are typically too small and flawed for use in jewelry. As the technology has evolved, companies learned how to make high-quality diamonds tinted in colors such as yellow, orange and pink (the colors result from an addition or elimination of certain impurities in the carbon). But producing gem-quality colorless diamonds, the most popular variety for jewelry, was too complicated.
In jewelry, colored diamonds, which are relatively rare in nature and therefore high-priced, have actually caught on in popularity recently. But colorless diamonds are still the staple for everything from rings to earrings and bracelets.
To make its gems, Apollo Diamonds exposes shirt-button-sized diamond fragments known as seeds to carbon particles, which latch onto them under high temperatures. Diamonds then start to form, one crystal at a time. A look through the window of one of the lab's submarine-like machines reveals two dozen glowing chips that will grow to be one carat in about two weeks. Apollo can now use its own stock of small diamond chips as seeds, rather than relying on seeds from mined diamonds.
In Sarasota, Fla., competitor Gemesis relies on high pressures to mimic what happens underground. Its machines essentially crush carbon under 58,000 atmospheres of pressure at 2,300-degrees Fahrenheit until the material crystallizes into yellowish or orange diamonds.
For now, the producers with the equipment to consistently turn out gem-quality stones are in the U.S., which is why they're first appearing in retail outlets here. Though the lab-grown diamonds are true diamonds, white ones especially differ in minuscule ways that aren't apparent to the eye but can be detected with equipment. For example, because there's virtually no nitrogen in Apollo's stones, they tend to be more transparent in ultraviolet light than all but the rarest mined stones. Under more powerful, short-wave UV beams, they tend to emanate a strong blue to orange fluorescence.
The Wall Street Journal asked the GIA lab in New York to analyze a 0.22-carat Apollo-made diamond. The lab determined that the stone was a synthetic diamond of high clarity and almost flawless. "That's pretty pure for a synthetic of this type," says Tom Gelb, a supervisor at the lab.
Late last year, Apollo started selling jewelry directly to consumers and through a jeweler in Boston, near its hometown. This year, it hopes to increase production of large stones, while expanding distribution to other jewelers and selling online.
Both Gemesis and Chatham Created Gems, in San Francisco, make lab-produced colored diamonds that are also showing up online and in jewelry stores around the country, sometimes mixed with natural diamonds.
Randy McCollough, who owns 97 Samuels Jewelers stores in states such as California, Texas and Pennsylvania, began selling Gemesis diamonds in October, in some cases mounting them in existing settings. "It took a long time for everyone to accept cultured pearls, but look where they are today," he says. "Plus, at the end of the day, it's a diamond."
Last year, 400,000 carats were produced in the U.S. for gem use, compared with 130 million carats mined annually around the world. But man-made diamonds are gaining legitimacy. The Gemological Institute of America's new ratings will work just like those for natural diamonds, grading them according to color, clarity and cut. However, the reports will describe the stones as "laboratory grown."
Mindful of the collapse in pearl prices that followed the introduction of cultured pearls, Apollo has set the prices for most of its stones at 15% below that of mined diamonds, a figure it says it set after interviewing customers in focus groups. But its pricing structure could change as competitors perfect their own colorless diamond-making techniques.
In the complaint to the FTC, the main diamond associations noted that natural diamonds are a diminishing resource and therefore prices tend to rise each year. As technology improves, the petition said, the supply of lab-produced diamonds "presumably will increase, thereby increasing the price differential."
Citing three separate consumer surveys, the trade groups say that people think of "cultured" as a natural growth process with some human intervention that results in products that are superior to synthetics."
In the eyes of Gemesis founder Carter Clarke, "cultured" is an appropriate label for lab-grown diamonds since they are chemically the same as natural diamonds. Similar to the way cultured pearls are engineered by man, labs recreate nature's process to make diamonds. Gemesis uses the terms "cultured" and "laboratory-grown" to describe its diamonds. Producers oppose the term "synthetic," which they say implies that their diamonds are fakes.
The debate falls into a gray area of the law. The FTC says it is deceptive to call a man-made diamond a "diamond," but offers no opinion on the question of calling it a "cultured diamond." The FTC hasn't yet responded to the recent Diamond Association complaint.
Meanwhile, De Beers, creator of the "Diamond Is Forever" ad campaign, has ramped up its advertising of the virtues of mined diamonds. While it doesn't explicitly acknowledge the existence of lab-grown diamonds, De Beers extols the permanence of natural diamonds and attempts to make them seem special. They're "billions of years in the making," it says on its diamond information Web site, adiamondisforever.com. "Adding to the mystery and aura of what make diamonds so sought-after" is the fact that "approximately 250 tons of ore must be mined and processed in order to produce a single, one-carat, polished, gem-quality diamond."
"De Beers is confident that synthetics will not have the same emotional and financial value as diamonds because the value of diamonds is inextricably linked to how they were naturally formed billions of years ago," Ms. Gould, the DeBeers spokeswoman says.
Overall, many expect prices for natural diamonds, especially bigger, better quality stones, to increase as at least 100 million new diamond consumers from India and China enter the market over the next five years. Despite the expected surge in demand for natural diamonds, production in carats over the next five years is expected to remain flat, according to Martin Rapaport of the Rapaport Diamond Report, which analyzes the diamond market.
The larger question is whether lab-grown diamonds will gain acceptance with consumers -- or whether they will be tagged with the stigma of cubic zirconia and moissanite, both of which simulate the look of diamonds and have declined in price since their arrival on the market.
Right now, lab-produced diamonds are benefiting from a backlash against natural diamonds. And they're starting to find an audience with some celebrities who want to make a statement.
Actor Terrence Howard, for instance, says he plans to wear a custom-designed pin with several "flawless" lab-produced colorless diamonds when he takes the stage as an Academy Awards presenter next month.
On the red carpet, he says he plans to talk about how they were made in Apollo's lab and are devoid of ethical and environmental concerns raised by diamonds that are mined. Mr. Howard, who says he approached Apollo and isn't getting paid by the firm, is borrowing it for the event. They're diamonds, he says, but consumers "can be sure nobody was harmed in the process of making it."
Albert Park, who bought his wife a pair of lab-produced
diamond earrings for $800 last month with part of the signing bonus he
got from his new job at a biotech startup in Mountain View, Calif., stumbled
across them in an Internet search. His interest, he says, was partly driven
by "heightened awareness of blood diamonds and the DeBeers cartel grip
on diamond pricing." But he says the stones are "absolutely gorgeous" and
his wife is very happy with them -- though she would have preferred them
to be larger.
• Email us at pursuits.style@wsj.com.
[Chart]
26. CANADIANS WAIT LONGER FOR MEDICAL CARE
------------------------------------------------------------------------
In recent years, patients treated by the Canadian health
care system
have increasingly experienced lengthy waits to see providers.
According a new study on medical care in Canada, released
in October
2006 by the Fraser Institute, "waiting times are the
legacy of a
medical system offering low expectations cloaked in lofty
rhetoric."
In its 16th annual installment, the report titled "Waiting
Your
Turn" tracks how waiting times vary across Canadian provinces
depending on the type of treatment needed. The
report also
documents waiting times for referral to specialists and
the subsequent
amount of time spent waiting for actual treatment from
the specialist:
o In 2006, the average amount
of time spent waiting to receive
treatment after
referral by a general practitioner averaged
17.8 weeks across
Canada.
o At 14.9 weeks, Ontario had
the shortest waits. Prince Edward
Island, Saskatchewan,
and New Brunswick had average waits of
25.8 weeks, 28.5
weeks, and 31.9 weeks, respectively.
o Patients referred to a neurosurgeon
waited an average of 21
weeks just to see
a specialist; getting treatment required an
additional 10.7
weeks.
o Patients waited an average
of 16.2 weeks to see an orthopedic
surgeon, and another
24.2 weeks for treatment to be performed
after the initial
visit.
The number of people routinely waiting for services is
staggering,
according to the report:
o In 2003, the most recent year
for which data were available
from Statistics
Canada, approximately 1.1 million people had
trouble accessing
care on a timely basis.
o About 201,000 had problems
obtaining non-emergency services;
an additional 607,000
had problems getting in to see a
specialist, and
about 301,000 patients experienced problems
obtaining diagnostic
procedures.
In Canada, waiting lists are considered a way of rationing
medical care
and holding down health care spending. Because
health care in
Canada is largely free at the point of service, demand
is likely to
exceed supply, says the Institute.
Source: Devon Herrick, "Canadians Wait Longer for Medical
Care," Heartland Institute, January 2007; based upon:
Nadeem
Esmail, "Waiting Your Turn: Hospital Waiting Lists in
Canada, 16th
Edition," Fraser Institute, October 2006.
For text:
http://www.heartland.org/Article.cfm?artId=20368
For Fraser study:
http://www.fraserinstitute.ca/shared/readmore.asp?sNav=pb&id=863
For more on Health Issues:
http://www.ncpa.org/sub/dpd/?Article_Category=16
27. LEVELING THE PLAYING FIELD
------------------------------------------------------------------------
President Bush used his State of the Union address to
outline his plans
for making private health insurance affordable for more
Americans, with
a new emphasis on reducing the ranks of the uninsured.
The President's proposal would:
o Make employer-provided health
insurance count as taxable
income.
o Create a standard tax deduction
of $15,000 for families and
$7,500 for individuals
who buy health insurance, either
through their employer
or on their own.
o Take an undetermined amount
of federal funding for hospitals
and give it to states
to help subsidize health insurance for
low-income people.
John Goodman, president of the National Center for Policy
Analysis,
praised the president's idea of a standard tax deduction
for health
insurance because it would redistribute tax benefits
from the haves to
the have-nots.
"It levels the playing field for people who buy health
insurance
on their own rather than through their employers," Goodman
said.
"If you're buying insurance on your own, you have
to earn
more to pay for your health care. That's not fair."
Though others have previously suggested eliminating this
tax inequity,
Goodman said the president's idea may have more political
currency
because the nation's 77 million aging baby boomers are
approaching
retirement.
"Many boomers will retire before 65 and will shop for
individual
insurance to get them to Medicare," he said. "When
they're out there on their own, without the tax break
they've enjoyed
through their past employer, they're going to suffer
sticker
shock."
Source: Bob Moos, "Experts laud health care emphasis,
disagree on
deduction," Dallas Morning News, January 24, 2007.
For text:
http://www.dallasnews.com/sharedcontent/dws/bus/stories/012407dnbushealthcare.1ec00b8.html
For more on Health Issues:
http://www.ncpa.org/sub/dpd/?Article_Category=16
28. Health and Taxes WSJ January 24, 2007; Page A12
Now we're getting somewhere. The U.S. has long needed a debate over health care and tax subsidies, and President Bush got ready to rumble last night with his proposal to make insurance more affordable for most Americans.
For all the griping about our system, Americans have the most advanced health care in the world in part because we still have something resembling a private market for insurance. But it is not a truly efficient market because current tax policy lets businesses -- but not individuals -- deduct the cost of health expenditures. Thus most Americans with private insurance get it from their employers, which leads to inequities and insulates individuals from the real cost of their treatment decisions.
Mr. Bush's "standard deduction" for health care would move in the direction of solving both problems. Instead of giving employers an unlimited deduction and individuals none, Mr. Bush would give every family a $15,000 deduction ($7,500 for individuals) regardless of their insurance source.
That might mean a slight tax increase for those who currently have the most expensive insurance plans. But the average employer-sponsored family plan runs about $11,500 annually, and about 80% of the 160 million employer-insured Americans would benefit. All Americans with employer-sponsored insurance would have to report the value of their health benefit as income, but they could deduct the full $15,000 no matter how much their insurance cost.
The 17 million Americans who buy their own coverage would be big winners. And because the tax deduction would apply to payroll as well as income taxes, the benefits would be large even for low-income earners. So a family making $60,000 would wind up with a tax savings of $4,500, which would offset the cost of acquiring coverage in many states. Meanwhile, a young person making $40,000 could buy a high-deductible plan for, say, $1,000 and actually get a tax break of $2,250 for doing so. The Treasury estimates the new deduction would add at least five million Americans to the ranks of the insured, but our guess is that would be higher given the incentives all of this would provide for new private insurance products.
Individuals who buy their own health insurance now struggle because there are so few of them and they can buy only in a single state market. That means insurers have little incentive to develop and market innovative products. But this will change if the equalized tax treatment convinces enough people that it makes more sense to have their own, portable policies than take whatever their boss offers. Imagine the same kind of capitalist energy devoted to selling health insurance as you now see selling where to roll over your 401(k).
These new products are also likely to be policies that put individuals directly in charge of more routine spending. That's because removing the tax advantage would mean it will make less financial sense to "insure" for predictable expenses like several annual office visits. That in turn could put pressure on health care providers to post -- and actually compete on -- prices. Such new price awareness might even generate pressure for states that overregulate their insurance markets (New York, Massachusetts) to ease their costly mandates.
It's true that additional subsidies might be needed for some people with chronic illnesses who might have a harder time finding private insurance in this kind of world. And we'd also like to see a more national insurance market, with companies able to sell policies over the Internet free of the worst state mandates.
But the biggest problem with Mr. Bush's plan is that it wasn't offered two years ago, when it had a better chance to pass. The White House wasted its first term health energies on a failed attempt to buy votes with the Medicare drug benefit. Now the GOP is a minority in Congress, and Democrats aren't likely to favor Mr. Bush's ideas because they think health care is a winner for them in 2008.
Ways and Means Chairman Charlie Rangel was quick out of the box to call the President's idea "a dangerous policy that ultimately shifts cost and risk from employers to employees." But the numbers show that most Americans would have lower costs, and in any case the current tax treatment of health care benefits tends to benefit the well-to-do over the poor. Figures from the Lewin Group show that the average tax subsidy under the current system was $2,780 for families earning over $100,000 in 2004, while those with incomes below $30,000 got less than $725 in aid. Democrats ought to favor this idea on equity grounds alone.
But no matter if they don't. We're fated to debate health care in 2008 anyway, and Mr. Bush is finally offering a GOP reform based on market principles that these pages have encouraged for years. Most Americans can see for themselves that the current employer-based system is breaking down, as more companies pass along the rising cost of their insurance to employees (in higher co-pays and deductibles). Yet the system remains opaque and frustrating because of the underlying tax bias for businesses instead of individuals.
This status quo won't hold, and the political race is going to be between those who want to move to a more genuine market and consumer-based health care, and those who want to move toward Canada, Europe and more government control. The Bush plan ought to jump start that debate.
29. Rich States, Poor States WSJ January 25, 2007; Page A18
If you're searching for the next big thing in American politics, it's wise to keep an eye on the states. Here's one possibility: the abolition of state income taxes.
In Georgia, Missouri and South Carolina, Governors and state legislatures are drafting serious proposals to repeal their income taxes to promote economic development. St. Louis, one of America's most distressed cities, may overturn its wage/income tax as a way to spur urban revival. And in Michigan, the legislature is in the last stages of phasing out its hated business income tax -- the most onerous in the land. "States are now in a ferocious competition to attract jobs and businesses," says economist Arthur Laffer, who is advising several Governors and legislators on the issue, "and one of the best ways to win this race is to abolish the state income tax."
The timing for fixing state tax codes could hardly be more ideal because states are swimming in budget surpluses thanks to the booming national economy. This should be a big year for state tax cuts. Governors in Arkansas, Florida and West Virginia have already announced major tax relief plans for 2007. Even New York City has a $1 billion surplus and Mayor Michael Bloomberg is promising a property tax cut.
But the biggest target is the income tax. Newly re-elected South Carolina Governor Mark Sanford is talking of reviving his plan to phase out the income tax over 18 years. Mr. Sanford ran into opposition from the legislature in his first term, but he tells us that "I still consider this one of my top priorities and if the legislature wants to do it, I would be ecstatic."
Georgia may beat Mr. Sanford to the punch. House Republicans in Atlanta have announced that one of their top priorities is to use the half-billion-dollar budget surplus as a downpayment to "dismantle the current tax code." House Republican Majority Leader Jerry Keen tells us the debate in Atlanta is between a flat-rate income tax and a plan that would "do away with the personal income tax but broaden the sales tax by eliminating 107 exemptions. We're committed to a pro-growth tax plan that announces to the country that Georgia is open for business."
In Missouri the legislature is reviewing a plan by the state think tank, the Show Me Institute, that would increase the rate of the sales tax to 7.5% and limit spending growth to population plus inflation, in return for eliminating the state's income tax over 10 years. House Speaker Carl Bearden says "I would like to see a phasing out of our current tax structure in Missouri. . . . Eliminating the income tax can have a huge positive impact on a state's economy."
The idea of financing state services without an income tax is hardly radical. Nine states today -- Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming -- manage well without one. With a few exceptions, the non-income tax states are America's most prosperous. Meanwhile, the high income tax states, which tend to be congregated in the Northeast, keep surrendering jobs, people, and voters to the South and West.
State lawmakers also seem to have learned from two of the most recent states to adopt an income tax: New Jersey and Connecticut. As recently as 1965 New Jersey had neither an income nor sales tax, but managed to balance its budget every year. Now it has both taxes -- its income tax is the 5th highest in the nation -- but the state is facing what Stateline.org calls a "staggering budget deficit." Allied Van Lines reports that the Garden State is now one of the leading places for people to flee.
The latest state to adopt an income tax was Connecticut in 1991, but a new report by the Yankee Institute reveals that the tax has been a calamity. The state has ranked last in employment growth since 1991, losing 240,000 of its native born citizens between 1991-2002. No other state has since enacted an income tax, and lawmakers in Georgia, Missouri and South Carolina say Connecticut is now the model for how not to run a state economy.
Whether these states will be able to eliminate their income
taxes in the next few years is an open question. But what's undeniable
is that the debate in state capitals has swung decisively in the direction
of chopping income tax rates, not raising them.
30. TRADE WINDS In Call to Deregulate Business, a Global
Twist Onerous Rules Hurt U.S. Stock Markets,But So Do New Rivals
By GREG IP, KARA SCANNELL and DEBORAH SOLOMON
WSJ January 25, 2007; Page A1
Prominent figures in the U.S. are warning that the nation's financial markets have been handicapped by post-Enron regulatory overreach. Treasury Secretary Henry Paulson has made addressing the problem a signature political issue. A blue-ribbon committee chaired by former Bush economist Glenn Hubbard has echoed this sentiment, as does a report commissioned by Sen. Charles Schumer of New York and New York City Mayor Michael Bloomberg.
Their key evidence is data suggesting that U.S. stock
markets are increasingly unattractive places for companies to list shares.
Mr. Hubbard, now dean of Columbia University's business school, says this
is the "canary in the coal mine," an early warning of the increasing costs
to U.S. companies of raising money, which in turn threatens investment
and growth. Their solution: a lighter touch in regulating corporate behavior.
• The Issue: Post-Enron corporate regulation is
being blamed for driving foreign and U.S. companies away from U.S. stock
exchanges.
• The Stakes: If critics are right, U.S. companies are paying more to raise capital, which will limit investment and growth.
• The Bottom Line: Powerful global forces are contributing
to the exchanges' woes. Reducing regulation might not make a difference.
Yet this position, which has gone largely unchallenged, downplays a different explanation for why U.S. exchanges are under pressure -- the changing nature of global finance. Stock markets around the world have become better and deeper, encouraging companies to seek IPOs in their home market. Trading across borders has become simpler, cutting the prestige and usefulness of a big-country listing everywhere. And private-equity buyouts are a global phenomenon, not a uniquely American one.
Meanwhile, other countries are stiffening their own rules, bringing them closer to the U.S. model.
Andrew Karolyi, an Ohio State University economist who specializes in international stock-exchange listings, agrees with Mr. Hubbard that some new regulations, especially parts of the 2002 Sarbanes-Oxley Act, impose burdens that outweigh the benefits. But Mr. Karolyi is skeptical of the stock-exchange evidence, which he links instead to transitory global trends.
Regulations "should be judged on their own merits and not on any evidence of a supposed decline in the attractiveness for prospective listings from overseas," Mr. Karolyi says.
Mr. Paulson acknowledged in a speech last November that foreign markets have improved, which he called "unequivocally...a positive." But he devoted most of his attention to the costs of U.S. accounting and governance rules and the legal climate. Mr. Hubbard's Committee on Capital Markets Regulation, consisting of academics and finance executives and endorsed by Mr. Paulson, spent 148 pages discussing the harm done by U.S. regulatory and legal risks.
Among the charges: Suing corporations for fraud is too easy, resulting in a ninefold increase in the number of shareholder lawsuit settlements between 1997 and 2005. Civil and criminal prosecutors are overzealous, producing civil enforcement penalties more than 100 times higher in the U.S. than the U.K. in 2004. Auditing standards are unreasonably onerous for small companies.
As this criticism has increased in volume, regulators have eased some Sarbanes-Oxley standards for companies' internal financial controls. In addition, they have made it easier for foreign companies to stop adhering to U.S. rules, and the Department of Justice has imposed more conditions on prosecutors seeking evidence when investigating executives.
In an interview, Mr. Hubbard concedes there's "no smoking gun" that proves whether global or U.S.-specific forces are behind the smaller number of foreign companies listing in the U.S. "Both factors are important," he says.
He also cites a complex piece of evidence in favor of
the domestic theory. Historically, overseas companies received a boost
in their stock price when they listed in the U.S., an indication of how
meeting U.S. requirements inspires investor trust. But recently the premium
earned by companies from advanced countries has shrunk faster than that
for shares in emerging-market companies. For companies already meeting
stringent governance standards at home, Mr. Hubbard argues, the costs of
meeting U.S. requirements therefore exceeds the benefits.
[Glenn Hubbard]
A spokeswoman for Mr. Paulson said he was unavailable to comment for this article. In a written statement, she said Mr. Paulson sees the global changes as "unquestionably a factor to consider" alongside regulatory and legal burdens. The Treasury is holding a conference this spring to discuss these topics.
There's little doubt U.S. exchanges are facing increasing competition. They're losing out to overseas exchanges for initial public offerings. Many overseas companies are deciding they don't need an American listing. And in the U.S. itself, many companies have decided they're better off private.
Taken alone, the cost of regulation can't explain what's happening to U.S. financial markets, and paring regulations might not alter the outcome, except to give a helping hand to Wall Street.
"Well-functioning capital markets are central to the success of the economy," says former Treasury Secretary Lawrence Summers, now a Harvard University economist and managing director at a hedge fund. "What fraction of capital markets transactions runs through New York is of much less broad-based significance."
The IPO Challenge
One piece of evidence Mr. Paulson and others cite is the falling U.S. share of IPOs. At the peak of the U.S. IPO boom in 1999, the New York Stock Exchange and Nasdaq Stock Market notched 57% of world-wide IPO proceeds, up from 39% in 1990, according to Thomson Financial, a financial-data provider. By last year, that share had fallen to 18%.
Regulatory costs may be one factor. Another big one is the shrinking quality gap between U.S. and overseas capital markets and an explosion in IPOs from the developing world. The world's largest IPO, the $22 billion offering from Industrial & Commercial Bank of China, listed in October in both Hong Kong and Shanghai. The biggest gainer in IPO business has been Hong Kong, which snagged 16% of world IPO proceeds in 2006 compared with zero in 1990.
"The Hong Kong market is deep enough and liquid enough
that there's really no need to list elsewhere," says Paul Calello, Asia
chief executive for Credit Suisse, one of the managers of ICBC's IPO.
[Henry Paulson]
Another gainer is the London Stock Exchange's Alternative Investment Market, set up in the 1990s to cater to small companies with little operating history. AIM has far less government oversight of governance, accounting and disclosure than the LSE's better-known Main Market or U.S. markets. Its foreign listings -- not all of which are IPOs -- have skyrocketed to 306 from 31 in 2000, and include some U.S. companies.
AIM's success is seen by some as evidence that some companies have sought a haven from U.S. rules. Protonex Technology Corp., Southborough, Mass., a maker of fuel-cell power systems, went public on AIM in 2006. Scott Pearson, its chief executive officer, says it would have cost three times as much to list in the U.S., in large part due to legal and auditing costs related to Sarbanes-Oxley.
But many of AIM's companies probably couldn't have listed in the U.S. even before 2002, either because they didn't meet U.S. requirements or were too small to attract interest from U.S. underwriters and investors. "Many of the companies listed on AIM today wouldn't come anywhere close to meeting an NYSE listing standard," says Noreen Culhane, executive vice-president of listings at the NYSE.
A Global Affliction
In addition to IPO share, listings of foreign companies on U.S. markets have fallen. Since their peak in 2002, foreign listings on the NYSE have fallen 4% to 451 by the end of 2006, although that's up slightly from 2000. Since 2000, foreign listing have fallen 34% to 321 on Nasdaq.
It's hardly an American disease. Excluding AIM, the London Stock Exchange's blue-chip Main Market has seen foreign listings decline 23% since 2000. The Deutsche Börse is down 58%; Tokyo down 39%.
The world has changed for all big-country stock exchanges. For years, says Mr. Karolyi, investors "were trapped in their local markets" because foreign stock exchanges had differing standards, for example over how to finalize payments. Over time, those standards have been strengthened and harmonized, increasing "global investors' appetite for going directly into those markets." Shanghai, for example, has 842 listed companies, up from 188 in 1995.
Furthermore, says Mr. Karolyi, a U.S. listing may have
had particular appeal to foreign companies in the late 1990s because of
the buoyant stock market, which faded with the market's downward turn after
the tech bubble burst. Most of the delisted companies had little trading
volume, and trading in those that remain is generally healthy.
[ssss]
Cellphone maker Nokia Corp., based in Finland, shows how companies make decisions in light of these changed circumstances. Nokia sought a London listing in 1987 to raise its profile, and listed on the NYSE in 1994. In 1995, about 45% of trading in Nokia stock occurred in New York, 31% in London and 24% in Helsinki.
Then, as a condition of joining the European Union in the mid-1990s, Finland began permitting brokers in other EU countries to trade on Helsinki's stock exchange. In the late 1990s, Helsinki launched an electronic trading system and Finland adopted the euro as its currency. By 2003 Helsinki had captured 60% of Nokia's trading volume, leaving the LSE with less than 1%. Nokia delisted from London and Paris, where its shares were also traded.
"People still could trade Nokia, but we did not have to pay annual listing costs to the London and Paris stock exchanges," says spokeswoman Arja Suominen. Today, 91% of Nokia's shares are held outside Finland, but 68% of the trading occurs in Helsinki and about a quarter in the U.S.
Meanwhile, U.S. investors are less insistent that foreign companies list in the U.S. before they'll buy shares. Mitchells & Butlers PLC, a British operator of taverns, delisted from the NYSE in 2005. It says the low volume of trading -- less than 1% of the total -- didn't merit the annual $1 million cost, which included filing SEC statements and auditor fees related to Sarbanes-Oxley.
This makes little difference to Ray Mills, who owns about $10 million in Mitchells & Butlers shares for the $2.4 billion stock fund he manages for T. Rowe Price Group Inc., a Baltimore mutual-fund house. He bought the shares in London even though they were listed on the NYSE at the time, and isn't bothered that they no longer are.
"We want to go where the liquidity is," Mr. Mills says. Mitchells's stock was more liquid -- that is, easier to trade -- in its home market than in New York. "We have trading desks not just in the U.S. but Hong Kong and London [so] we have 24-hour coverage of the markets."
Private-Equity Rules
In his November speech, Mr. Paulson suggested many publicly traded companies are selling to private-equity firms -- removing themselves from public trading and SEC scrutiny -- because of the "regulatory requirements" of being a public company in the U.S. But the buyout boom, too, is not merely a U.S. trend but a global one.
Between 1996 and 2002, private-equity buyouts represented 2% of all mergers and acquisitions in the U.S. and 3% in the rest of the world. Between 2002 and 2006, the fraction has increased to 11% in the U.S. and 10% in the rest of the world, according to Thomson Financial.
David Rubenstein, managing director of Carlyle Group, Washington, D.C., one of the world's largest private-equity firms, attributes much of the boom to the simple fact that firms such as Carlyle have so much cash -- from investors eager to share in the sector's impressive returns and from banks, hedge funds and others ready to lend on easy terms.
Regulations have also been blamed for the growing number of venture- and private-equity backed companies being sold privately. "The costs and regulatory hurdles to go public in the U.S. today are driving venture-backed companies away from our capital markets system," Keith Crandell, managing director of Chicago's Arch Venture Partners, told Congress last year.
Carlyle's Mr. Rubenstein cites another reason. It's easier for private-equity firms to recoup their entire investment by selling to another private-equity firm, rather than the small portion they typically sell in an IPO.
Early last year, Carlyle filed to sell a stake in industrial manufacturer Rexnord Corp., through an IPO, for up to $400 million. A few months later, Carlyle instead sold the entire company to Apollo Management LP, another private-equity firm, for $1.8 billion.
The importance of Sarbanes-Oxley in the decision of many public companies to go private "has probably been overstated," Mr. Rubenstein says. More important, he says, is "not just the quarterly but hourly" pressure from Wall Street for stock and earnings performance.
Differential Equations
Mr. Hubbard's committee worried about how the U.S. regulatory burden has risen relative to that of other countries. The bigger the differential, the greater the potential competitive disadvantage.
Yet even as the U.S. debates whether it has gone too far, other countries are tightening their rules. The EU, Canada, Mexico, Australia, Hong Kong, Brazil, the U.K. and Germany have to varying degrees beefed up standards for audit committees. This means many companies won't escape tighter regulation by avoiding the U.S.
Major provisions of Sarbanes-Oxley "have not competitively disadvantaged U.S. markets, simply by virtue of the fact that they have been widely adopted elsewhere," says a 2006 study by Ethiopis Tafara, director of the Securities and Exchange Commission's office of international affairs.
The Netherlands' ABN AMRO Bank NV dropped its London listing last year because of low trading volume, and now trades only on the NYSE and Euronext, two exchanges in the process of merging. Spokesman Jochem van de Laarschot says while the U.S. regulatory burden has risen, the same is true of most countries where it operates.
In 2004, Hong Kong's then-chief securities regulator, Andrew Sheng, told a Senate panel that Sarbanes-Oxley brought global attention to corporate governance. Hong Kong, he said, has moved "closer to the U.S. SEC regulatory model," though without as much detail and prescription. SEC Chairman Christopher Cox said yesterday at a conference that his agency's recent guidance on Sarbanes-Oxley, relaxing its implementation, "benefited greatly" from other countries' experience with similar rules.
Europe is moving, too. "Pretty soon the vast majority of Sarbanes-Oxley will be applicable either at the European level or at the national levels," says Andrew Bernstein, a Cleary Gottlieb partner in Paris who advises many French corporations. "The regulatory costs are in the process of converging."
--Kate Linebaugh in Hong Kong contributed to this article.
Write to Greg Ip at greg.ip@wsj.com, Kara Scannell at
kara.scannell@wsj.com and Deborah Solomon
31. How to Make the Poor PoorerBy GARY S. BECKER and RICHARD A. POSNER WSJ January 26, 2007; Page A11
The strong bipartisan support for increasing the federal minimum wage to $7.25 an hour from the current $5.15 -- a 40% increase -- is a sad example of how interest-group politics and the public's ignorance of economics can combine to give us laws that manage to be both inefficient and inegalitarian.
An increase in the minimum wage raises the costs of fast
foods and other goods produced with large inputs of unskilled labor. Producers
adjust both by substituting capital inputs and/or high-skilled labor for
minimum-wage workers and, because the substitutes are more costly (otherwise
the substitutions would have been made already), by raising prices. The
higher prices reduce the producers' output and thus their demand for labor.
The adjustments to the hike in the minimum wage are inefficient because
they are motivated not by a higher real cost of low-skilled labor but by
a government-mandated increase in the price of that labor. That increase
has the same misallocative effect as monopoly pricing.
[Illustration]
Although some workers benefit -- those who were paid the old minimum wage but are worth the new, higher one to the employers -- others are pushed into unemployment, the underground economy or crime. The losers are therefore likely to lose more than the gainers gain; they are also likely to be poorer people. And poor families are disproportionately hurt by the rise in the price of fast foods and other goods produced with low-skilled labor because these families spend a relatively large fraction of their incomes on such goods. And many, maybe most, of the gainers from a higher minimum wage are not poor. Most minimum-wage workers are part time, and for the majority their minimum-wage income supplements an income derived from other sources. Examples are retirees living on Social Security or private pensions who want to get out of the house part of the day and earn pin money, stay-at-home spouses who want to supplement their spouse's earnings, and teenagers working after school. An increase in the minimum wage will thus provide a windfall to many workers who are not poor.
Some economists deny that a minimum wage reduces employment, though most disagree. And because most increases in the minimum wage have been slight, their effects are difficult to disentangle from other factors that affect employment. But a 40% increase would be too large to have no employment effect; about a tenth of the work force makes less than $7.25 an hour. Even defenders of minimum-wage laws must believe that beyond some point a higher minimum would cause unemployment. Otherwise why don't they propose $10, or $15, or an even higher figure?
A number of countries, including France, have conducted such experiments; the ratio of the minimum wage to the average wage is much higher in these countries than in the U.S. Economists Guy Laroque and Bernard Salanie find that the high minimum wage in France explains a significant part of the low employment rate of married women. Mr. Salanie has argued that the minimum wage also contributes to the dismal employment prospects of young persons in France, including Muslim youths, an estimated 40% of whom are unemployed.
As a means of raising people from poverty or near poverty, the minimum wage is inferior to the Earned Income Tax Credit, which compensates for low wages without interfering with the labor market or conferring windfalls on the nonpoor. EITC is not completely devoid of effects on efficient resource allocation, because like any other government spending it is defrayed out of taxes, and it has been abused by underreporting of income and overreporting of dependents. But it is a more efficient tax than the minimum wage as well as being more effective in redistributing income to the poor.
So why push to increase the minimum wage rather than the EITC? For one thing, unions strongly favor the minimum wage because it reduces competition from low-wage workers (who, partly because most of them work part time, tend not to be unionized) and thus enhances unions' bargaining power and so their appeal to workers. For another, increasing the EITC would mean an increase in government spending, which might require higher taxes; there is no public support for explicit tax increases and most people don't understand that regulatory laws can have the same effect as taxes.
Moreover, poor people tend not to vote; and the number of nonpoor who'd be directly benefited by an increase in the minimum wage, when combined with the number of nonpoor workers whose incomes would rise because of reduced competition from minimum-wage workers, probably exceeds the number of nonpoor who would lose jobs. Teenagers would be among the hardest hit -- and few of them are voters (if under 18, they're ineligible). While workers who receive a wage increase when the minimum wage is hiked realize they've benefited from the hike, many hurt by the hike don't realize it; teenagers and retirees who have trouble finding a job are unlikely to realize that it's because there are fewer jobs in the economy for minimum-wage workers.
Let's hope that if Congress passes a stiff increase in the federal minimum wage, George Bush will emulate Mayor Richard Daley and veto it. Several months ago the Chicago City Council, by a lopsided but not veto-proof vote, passed an ordinance requiring companies that have more than $1 billion in annual sales, and own stores in Chicago having at least 90,000 square feet of floor space, to pay Chicago employees a minimum wage of $9.25 an hour plus $1.50 an hour in fringe benefits, respectively rising to $10 and $3 by 2010. About 40 stores would have been affected.
The ordinance was surpassingly foolish. The retailers that would have been most affected, such as Wal-Mart, Target and Home Depot, are at best only marginally interested in placing stores in large cities because space for large stores and for the parking they require is much more expensive than in suburbs and smaller towns. Moreover, these companies could offset much of the effect of the ordinance by opening more stores in suburbs within easy reach of Chicago, or by holding their floor space to just below 90,000 square feet. Fewer jobs would be available to low-skilled workers in the city, and families with modest incomes who seek low prices rather than elaborate service would be hurt more than the affluent by the increase in prices and reduced availability of big box outlets.
Who would favor such a bad ordinance? Conventional supermarket chains and clothing stores, of course, and unions -- the latter not only for the usual reasons but also because big box companies oppose unions; the ordinance sent a signal that unions have enough political clout to make life difficult for large nonunion retailers. The absence of opposition to the ordinance from low-income consumers is not surprising because they are not organized to exert political pressure. The aggressive support of the ordinance by most of the council's black members is more difficult to understand, but the explanation may be that they are allied with unions. They may have realized that their constituents would be harmed by the ordinance, but believed that in return for taking this hit they would get the support of unions for measures that would help low-income families.
The failure of the Chicago ordinance and related local measures helps to explain the push to raise the federal minimum wage. The ordinance would have been particularly destructive -- hence Mayor Daley's veto of it -- because the smaller the scope of a minimum-wage increase, the more easily it is evaded, though possibly at great social cost. A federal increase would have a smaller social cost per worker covered, but presumably a larger overall social cost. Chicago's "big box" ordinance is evidence, if any is needed, that politics can override economic sanity. One can only hope that this lesson will not be repeated on the national stage.
Mr. Becker, the 1992 Nobel economics laureate, is professor
of economics at the University of Chicago and senior fellow at the Hoover
Institution. Mr. Posner is a federal circuit judge and a senior lecturer
at the University of Chicago Law School.
32./ The "Greed" Fallacy By Thomas Sowell Tuesday,
January 23, 2007
Send an email to Thomas Sowell http://www.townhall.com/columnists/column.aspx?UrlTitle=the_greed_fallacy&ns=ThomasSowell&dt=01/23/2007&page=full&comments=true
Shouting "greed" is no substitute for economic logic.
In an era when our media and even our education system exalt emotions, while ignoring facts and logic, perhaps we should not be surprised that so many people explain economics by "greed."
Today there are adults -- including educated adults --
who explain multimillion-dollar corporate executives' salaries as being
due to "greed."
A Speedway gas station shows the regular unleaded gasoline price under $2 per gallon Friday, Jan. 19, 2007 in Columbus, Ohio. As crude oil prices have fallen close to $50 a barrel, retail price for a gallon of regular gasoline have declined at a slower rate. They were well below $2 a gallon in early 2005 when oil prices were this low, but today the average is about $2.20 a gallon. (AP Photo/Kiichiro Sato)
Think about it: I could become so greedy that I wanted a fortune twice the size of Bill Gates' -- but this greed would not increase my income by one cent.
If you want to explain why some people have astronomical incomes, it cannot be simply because of their own desires -- whether "greedy" or not -- but because of what other people are willing to pay them.
The real question, then, is: Why do other people choose to pay corporate executives so much?
One popular explanation is that executive salaries are set by boards of directors who are spending the stockholders' money and do not care that they are overpaying a CEO, who may be the one responsible for putting them on the board of directors in the first place.
It makes a neat picture and may even be true in some cases. What deals a body blow to this theory, however, is that CEO compensation is even higher in corporations owned by a few giant investment firms, as distinguished from corporations owned by thousands of individual stockholders.
In other words, it is precisely where people are spending their own money and have financial expertise that they bid highest for CEOs. It is precisely where people most fully understand the difference that the right CEO can make in a corporation's profitability that they are willing to bid what it takes to get the executive they want.
If people who are capable of being outstanding executives were a dime a dozen, nobody would pay eleven cents a dozen for them.
Many observers who say that they cannot understand how anyone can be worth $100 million a year do not realize that it is not necessary that they understand it, since it is not their money.
All of us have thousands of things happening around us that we do not understand. We use computers all the time but most of us could not build a computer if our life depended on it -- and those few individuals who could probably couldn't grow orchids or train horses.
In short, we all have grossly inadequate knowledge in other people's specialties.
The idea that everything must "justify itself before the bar of reason" goes back at least as far as the 18th century. But that just makes it a candidate for the longest-running fallacy in the world.
Given the high degree of specialization in a modern economy, demanding that everything "justify itself before the bar of reason" means demanding that people who know what they are doing must be subject to the veto of people who don't have a clue about the decisions that they are second-guessing.
It means demanding that ignorance override knowledge.
The ignorant are not just some separate group of people. As Will Rogers said, everybody is ignorant, but just about different things.
Should computer experts tell brain surgeons how to do their job? Or horse trainers tell either of them what to do?
One of the reasons why central planning sounds so good, but has failed so badly that even socialist and communist governments finally abandoned the idea by the end of the 20th century, is that nobody knows enough to second guess everybody else.
Every time oil prices shoot up, there are cries of "greed" and demands by politicians for an investigation of collusion by Big Oil. There have been more than a dozen investigations of oil companies over the years, and none of them has turned up the collusion that is supposed to be responsible for high gas prices.
Now that oil prices have dropped big time, does that mean that oil companies have lost their "greed"? Or could it all be supply and demand -- a cause and effect explanation that seems to be harder for some people to understand than emotions like "greed"?
Thomas Sowell is a senior fellow at the Hoover Institute and author of Basic Economics: A Citizen's Guide to the Economy.
33.The Biggest Secret in Health Care by Holman Jenkins WSJ February 7, 2007; Page A14
President Bush might seem a candidate for OCD treatment, what with his insistence that the fix for health care is tax reform. He was at it again in his latest budget proposal, which calls for reforming the unlimited tax break for job-related health insurance.
Where does he get such ideas?
The answer: From every recent president that went before him, including Presidents Reagan, Bush and Clinton. And from all the wonks in wonkdom, who've long understood that the tax code was the problem and who've occasionally even shared this understanding with the public, most recently during the heady days before the Clinton health plan was submitted to a congressional dumpster.
A newspaper we know and love, in 1993, reported as a nearly uncontested fact: "The tax breaks on this enormous transfer of wealth have created a health-care market characterized by inefficiency, ignorance and excess."
The head of Blue Cross & Blue Shield declared: "The most powerful incentive is the tax code. We've been through five decades of teaching the individual that health care is a free good."
Paul Ellwood, godfather of the Clinton plan, said: "Changing the tax status of health benefits is the glue that holds managed competition together."
Bill Clinton himself said: "There has to be some sort of personal responsibility in this health-care system we set up."
Let the current President Bush give voice to the same analysis, however, and it must be some kind of supply-side hokum.
To rehearse: The tax code is the original hectoring mommy behind our health-care neuroses. It gives the biggest subsidy to those who need it least. It pays the affluent to buy more medical care than they would if they were spending their own money. It prompts them to launder our health spending through an insurance bureaucracy, creating endless paperwork. It prices millions of less-favored taxpayers out of the market for health insurance. It fosters a misconception that health care is free even as workers are perplexed over the failure of their wages to rise.
Clark Havighurst, a Duke University sage, points to one of the many destructive consequences: "With insured consumer-voters generally believing that someone other than themselves is paying for their health care, they see no reason not to approve regulatory and other public policies that raise the cost of that care and foreclose opportunities to economize."
He was thinking of the congressional rage to prevent managed care from saving us money, after Congress and everyone else first championed managed care as a way to save us money.
Others point to a destructive consequence for the practice of medicine itself. Patients, because their only skin in the game is their skin, end up listening to doctors and hospitals who are massively incentivized to expose them to more procedures, more tests and more drugs than patients, quite apart from any consideration of costs, would choose for themselves.
Guess what? The patients are right. Much of this superfluous care is bad for their health. (Such is the finding of a long-running Dartmouth Medical School study of national treatment patterns.)
Much better, in our view, would be simply to do away with the tax break and let businesses and consumers adjust. The insurance industry wouldn't stand around and watch its livelihood vanish. And tax rates could be adjusted to make sure the overall tax burden remains unchanged. You'd be shocked at how quickly the system would right itself.
Alas, there is panic on K Street when anyone suggests doing away with the tax break directly. The health industry goes ape. (Think doctors, hospitals, drug makers, insurers, etc. don't enjoy having a $200 billion-a-year tax subsidy to encourage consumption of their products? Think big business doesn't like having a tax subsidy for a good chunk of its employment costs? Think they don't lobby?)
So Mr. Bush makes peace with the tax code's bias toward health spending in order to do battle with the particular vice of our overreliance on third-party payment. He does so by equalizing the tax treatment of health dollars whether they flow directly from a consumer pocket (the vehicle here is health savings accounts) or through a third-party laundromat.
He would do so by equalizing the treatment of health insurance whether you buy it yourself or your employer buys it for you (his latest plan).
No, hosannas will not be sung to him by left or right. However, keep something in mind as the 2008 debate heats up. The oft-mouthed goal of expanding health insurance to the poor would be far easier to achieve if we stopped subsidizing overconsumption by the non-poor.
There's a lesson in presidential leadership here. Mr. Clinton lost interest in health care after a few months when he discovered health care wouldn't result in a monument to his presidency. In a very pre-postmodern approach, Mr. Bush identified the same basic problem and has worked steadily away at it, showing that a president can accomplish something as long as he's willing not to receive any credit.
The one great and glaring fault in his record is the creation of an unsustainable drug benefit to add to the unsustainable burden of future Medicare spending. Then again, what is unsustainable is unsustainable.
The pattern for that reform is already present between
the lines -- towards greater reliance on saving than taxing, towards greater
reliance on individual responsibility than on the illusory free-lunchism
of government transfers. For the problem of Medicare is the problem health
care writ small: The illusion that somebody else is available to pay our
bills for us.
34. Choice Advances WSJ February 7, 2007; Page A14
Proving that the best reforms often pass by the slimmest of margins, Utah's house voted 38-37 late last week to create a state-wide voucher program that will allow students to escape failing public schools.
Union opponents can be expected to mount a furious assault in the state senate, and then head to court. But the senate is likely to pass the reform supported by GOP Governor Jon Huntsman Jr., so Utah may soon become the first state with a universal school choice plan. It would offer students who attend private K-12 schools from $500 to $3,000 in tuition reimbursement based on family income.
Meanwhile, South Carolina could be next. Legislation is now being drafted to allow nearly 200,000 poor students to opt out of failing public schools by giving them up to $4,500 a year to spend on private school tuition. Middle class parents would be eligible for a $1,000 tax credit.
Governor Mark Sanford, a Republican, also wants to create more choice within the public system by consolidating school districts so students who can't afford to live in a certain zip code aren't forced into the worst public schools -- a system that now consigns thousands of African-American students to failing schools. In his State of the State Address last month, Mr. Sanford branded the current districts a "throwback to the era of segregation." The comment drew hardly a flutter in the legislature, he told us, because "everyone knows it's true."
Despite a 137% increase in education spending over the past two decades and annual per pupil spending that exceeds $10,000, South Carolina schools trail the nation in performance. The state ranks 50th in SAT scores, only half of its students graduate from high school in four years and only 25% of eighth graders read at grade level. The Governor's budget puts it this way: "The more we expose students to public education, the worse they do."
In last year's elections three legislators paid for their opposition to school choice with their seats. One freshman reformer is Representative Curtis Brantley, an African-American Democrat from rural Jasper County who defeated a white incumbent in a June primary. He told us he supports school choice because something must be done to shake up the status quo.
Those counting votes say this might be the year that choice
legislation passes. Advocates are planning a rally at the state Capitol
in Columbia on Tuesday, February 13. Mr. Brantley says he's helping bus
people in from his district, and Governor Sanford will address the event.
The voucher movement has been declared dead many times, but as Utah and
South Carolina show, its promise of better education is keeping hope alive.
35. Exports and Free Trade WSJ February 5, 2007; Page A16
President Bush's trade promotion authority expires in a few months, and along with it the ability to strike new free-trade deals. So it's worth highlighting that some of the fastest-growing destinations for American products are the countries with which we've signed trade-opening accords.
According to the U.S. Trade Representative's office, U.S. goods exports have climbed by some 26% among the 10 countries with which the U.S. has signed accords since 2001. Meanwhile, goods exports to the rest of the world have only grown by 13% across the same period.
The differential is even larger over the 12 months through November 2006 for new free-trade partners Australia, Chile, Jordan and Singapore. U.S. exports to those nations rose at a rate of 40.5%, compared with 14.4% to the rest of the world. No doubt this reflects the commodity (copper) boom in Chile, where, for example, Caterpillar has been able to double its exports of heavy equipment.
But bilateral free-trade agreements have also made those markets more accessible by sharply reducing tariffs on U.S. manufactured goods. These export markets have been especially important to manufacturers during the recent U.S. housing and auto slumps, helping to keep American workers employed.
The U.S. had three free-trade accords when Mr. Bush took office, and his Administration has put in place 10 more. While these trading partners represent only 7.3% of world GDP, they are the destination for 42% of U.S. goods exports. Agreements with the Dominican Republic, Costa Rica and Oman have passed Congress and await implementation, while pacts have been signed with Peru and Colombia, and still others are in the works.
We don't want to sound like mercantilists here. The freer flow of imports is arguably even a more important by-product of free trade, because imports allow U.S. consumers to buy more at cheaper prices and because they make American companies more efficient and competitive. In developing countries, imports also help to disperse political power by opening up cartels and monopolies to competition.
However, the new trade "populists" in Congress like to
claim that U.S. exporters are getting a raw deal from Bush trade policy.
As the export facts show, the truth is precisely the opposite.
36. The Coming Exaflood By BRET SWANSON WSJ January 20, 2007; Page A11
Today there is much praise for YouTube, MySpace, blogs and all the other democratic digital technologies that are allowing you and me to transform media and commerce. But these infant Internet applications are at risk, thanks to the regulatory implications of "network neutrality." Proponents of this concept -- including Democratic Reps. John Dingell and John Conyers, and Sen. Daniel Inouye, who have ascended to key committee chairs -- are obsessed with divvying up the existing network, but oblivious to the need to build more capacity.
To understand, let's take a step back. In 1999, Yahoo acquired Broadcast.com for $5 billion. Broadcast.com had little revenue, and although its intent was to stream sports and entertainment video to consumers over the Internet, two-thirds of its sales at the time came from hosting corporate video conferences. Yahoo absorbed the start-up -- and little more was heard of Broadcast.com or Yahoo's video ambitions.
Seven years later, Google acquired YouTube for $1.65 billion. Like Broadcast.com, YouTube so far has not enjoyed large revenues. But it is streaming massive amounts of video to all corners of the globe. The difference: Broadcast.com failed because there were almost no broadband connections to homes and businesses. Today, we have hundreds of millions of links world-wide capable of transmitting passable video clips.
Why did that come about? At the Telecosm conference last October, Stanford professor Larry Lessig asserted that the previous federal Internet policy of open access neutrality was the chief enabler of success on the net. "[B]ecause of that neutrality," Mr. Lessig insisted, "the explosion of innovation and the applications and content layer happened. Now . . . the legal basis supporting net neutrality has been erased by the FCC."
In fact, Mr. Lessig has it backward. Broadcast.com failed precisely because the FCC's "neutral" telecom price controls and sharing mandates effectively prohibited investments in broadband networks and crashed thousands of Silicon Valley business plans and dot-com dreams. Hoping to create "competition" out of thin air, the Clinton-Gore FCC forced telecom providers to lease their wires and switches at below-market rates. By guaranteeing a negative rate of return on infrastructure investments, the FCC destroyed incentives to build new broadband networks -- the kind that might have allowed Broadcast.com to flourish.
By 2000, the U.S. had fewer than five million consumer "broadband" links, averaging 500 kilobits per second. Over the past two years, the reverse has been true. As the FCC has relaxed or eliminated regulations, broadband investment and download speeds have surged -- we now enjoy almost 50 million broadband links, averaging some three megabits per second. Internet video succeeded in the form of YouTube. But that "explosion of innovation" at the "applications and content layer" was not feasible without tens of billions of dollars of optics, chips and disks deployed around the world. YouTube at the edge cannot happen without bandwidth in the core.
Messrs. Lessig, Dingell and Conyers, and Google, now want to repeat all the investment-killing mistakes of the late 1990s, in the form of new legislation and FCC regulation to ensure "net neutrality." This ignores the experience of the recent past -- and worse, the needs of the future.
Think of this. Each year the original content on the world's radio, cable and broadcast television channels adds up to about 75 petabytes of data -- or, 10 to the 15th power. If current estimates are correct, the two-year-old YouTube streams that much data in about three months. But a shift to high-definition video clips by YouTube users would flood the Internet with enough data to more than double the traffic of the entire cybersphere. And YouTube is just one company with one application that is itself only in its infancy. Given the growth of video cameras around the world, we could soon produce five exabytes of amateur video annually. Upgrades to high-definition will in time increase that number by another order of magnitude to some 50 exabytes or more, or 10 times the Internet's current yearly traffic.
We will increasingly share these videos with the world. And even if we do not share them, we will back them up at remote data storage facilities. I just began using a service called Mozy that each night at 3 a.m. automatically scans and backs up the gigabytes worth of documents and photos on my PCs. My home computers are now mirrored at a data center in Utah. One way or another, these videos will thus traverse the net at least once, and possibly, in the case of a YouTube hit, hundreds of thousands of times.
There's more. Advances in digital medical imaging will soon slice your brain 1,024 ways with resolution of less than half a millimeter and produce multigigabyte files. A technician puts your anatomy on a DVD and you send your body onto the Internet for analysis by a radiologist in Mumbai. You skip doctor visits, stay home and have him come to you with a remote video diagnosis. Add another 10 exabytes or more of Internet data traffic. Then there's what George Gilder calls the "global sensorium," the coming network of digital surveillance cameras, RFID tags and other sensors, sprawling across every home, highway, hybrid, high-rise, high-school, etc. All this data will be collected, analyzed and transmitted. Oh, and how about video conferencing? Each year we generate some 20 exabytes of data via telephone. As these audio conversations gradually shift to video, putting further severe strains on the network, we could multiply the 20 exabytes by a factor of 100 or more.
Today's networks are not remotely prepared to handle this exaflood.
Wall Street will finance new telco and cable fiber optic projects, but only with some reasonable hope of a profit. And that is what net neutrality could squelch. Google, for example, has guaranteed $900 million in advertising revenue to MySpace and paid Dell $1 billion to install Google search boxes on its computers; YouTube partnered with Verizon Wireless; MySpace signed its own content deal with Cingular. But these kinds of preferential partnerships, where content and conduit are integrated to varying degrees -- and which are ubiquitous in almost every industry -- could be outlawed under net neutrality.
Ironically, the condition that net neutrality seeks to ban -- discrimination or favoritism of content on the Internet -- is only necessary in narrowband networks. When resources are scarce, the highest bidder can exclude the others. But with real broadband networks, capacity is abundant and discrimination unnecessary. Net neutrality's rules, price controls and litigation would prevent broadband networks from being built, limit the amount of available bandwidth and thus encourage the zero-sum discrimination supposedly deplored.
Without many tens of billions of dollars worth of new fiber optic networks, thousands of new business plans in communications, medicine, education, security, remote sensing, computing, the military and every mundane task that could soon move to the Internet will be frustrated. All the innovations on the edge will die. Only an explosion of risky network investment and new network technology can accommodate these millions of ideas.
Mr. Swanson is a senior fellow at the Discovery Institute,
and contributing editor at the Gilder Technology Report.
37. Is $34.06 Per Hour 'Underpaid'? By JAY P. GREENE and MARCUS A. WINTERS WSJ February 2, 2007; Page A19
Who, on average, is better paid -- public school teachers or architects? How about teachers or economists? You might be surprised to learn that public school teachers are better paid than these and many other professionals. According to the Bureau of Labor Statistics, public school teachers earned $34.06 per hour in 2005, 36% more than the hourly wage of the average white-collar worker and 11% more than the average professional specialty or technical worker.
In the popular imagination, however, public school teachers are underpaid. "Salaries are too low. We all know that," noted First Lady Laura Bush, expressing the consensus view. "We need to figure out a way to pay teachers more." Indeed, our efforts to hire more teachers and raise their salaries account for the bulk of public school spending increases over the last four decades. During that time per-pupil spending, adjusted for inflation, has more than doubled; overall we now annually spend more than $500 billion on public education.
The perception that we underpay teachers is likely to
play a significant role in the debate to reauthorize No Child Left Behind.
The new Democratic majority intends to push for greater education funding,
much of which would likely go toward increasing teacher compensation. It
would be beneficial if the debate focused on the actual salaries teachers
are already paid.
It would also be beneficial if the debate touched on
the correlation between teacher pay and actual results. To wit, higher
teacher pay seems to have no effect on raising student achievement. Metropolitan
areas with higher teacher pay do not graduate a higher percentage of their
students than areas with lower teacher pay.
In fact, the urban areas with the highest teacher pay are famous for their abysmal outcomes. Metro Detroit leads the nation, paying its public school teachers, on average, $47.28 per hour. That's 61% more than the average white-collar worker in the Detroit area and 36% more than the average professional worker. In metro New York, public school teachers make $45.79 per hour, 20% more than the average professional worker in that area. And in Los Angeles teachers earn $44.03 per hour, 23% higher than other professionals in the area.
Evidence suggests that the way we pay teachers is more important than simply what they take home. Currently salaries are determined almost entirely by seniority -- the number of years in the classroom -- and the number of advanced degrees accumulated. Neither has much to do with student improvement.
There is evidence that providing bonuses to teachers who improve the performance of their students does raise academic proficiency. With our colleagues at the University of Arkansas we found that a Little Rock program providing bonuses to teachers based on student gains on standardized tests substantially increased math proficiency. Researchers at the University of Florida recently found similar results in a nationwide evaluation.
Of course, public school teacher earnings look less impressive when viewed on an annual basis than on an hourly basis. This is because teachers tend to work fewer hours per year, with breaks during the summer, winter and spring. But comparing earnings on an annual basis would be inappropriate when teachers work significantly fewer hours than do other workers. Teachers can use that time to be with family, to engage in activities that they enjoy, or to earn additional money from other employment. That time off is worth money and cannot simply be ignored when comparing earnings. The appropriate way to compare earnings in this circumstance is to focus on hourly rates.
Moreover, the earnings data reported here, which are taken directly from the National Compensation Survey conducted by the Bureau of Labor Statistics, do not include retirement and health benefits, which tend to be quite generous for public school teachers relative to other workers. Nor do they include the nonmonetary benefit of greater job security due to the tenure that most public school teachers enjoy.
Educators sometimes object that hourly earnings calculations do not capture the additional hours they work outside of school, but this objection is not very compelling. First, the National Compensation Survey is designed to capture all hours actually worked. And teachers are hardly the only wage earners who take work home with them.
The fact is that teachers are better paid than most other professionals. What matters is the way that we pay public school teachers, not the amount. The next time politicians call for tax increases to address the problem of terribly underpaid public school teachers, they might be reminded of these facts.
Mr. Greene holds the endowed chair of education reform
at the University of Arkansas and is a senior fellow at the Manhattan Institute,
where Mr. Winters is a senior research associate. Their report, "How Much
Are Public School Teachers Paid?," was released this week.
38. New York's Bizarre Housing Tax Font
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By Martin Fridson : BIO| 06 Feb 2007
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The trail led to the Badlands.
His name is Bill Golodner, private investigator. Along with partner Bruce Frankel he hunts down absentee tenants of rent-regulated New York City apartments. Golodner's subject was clearing a cool $1,500-plus every month by covertly subletting her digs in Manhattan while holing up in South Dakota. Her fatal mistake: Applying for a license to work in the gambling industry. That caused her true address to pop up in a search of public records.
Score one for the landlord. In New York, evicting a phony occupant makes it possible to increase the rent on an apartment. Almost everywhere else, nothing more is required than a rise in the unit's rental value on the open market.
Readers may be surprised to find the prim New York Times tagging along while a gumshoe catches an illicit subletter in flagrante delicto. But spying on cheats who only pretend to inhabit one of the Naked City's 1.1 million rent-regulated apartments is getting to be a big business.
Private investigator Nick Himonidis reports that surveillance for landlords has jumped from 5% to almost 20% of his work over the past 24 months. The expense of hiring a detective armed with a hidden video camera is money well spent, he explains. "It might not have made economic sense five or ten years ago. And now it does."
Put another way, the gap between market-level and government-administered rents is widening in New York. That is to say, the misallocation of resources and landlords' disincentives to improve their properties are on the rise. So are ludicrous incidents such as the 2005 apprehension of Bozo the Clown's octogenarian alter ego, Larry Harmon. While living mainly in Los Angeles, Harmon continued to qualify for below-market rent by falsely claiming that his primary residence was an upscale Manhattan apartment.
Although adventure-packed, the New York Times's January 27 front-page story omitted an essential economic point: The cost of nailing surreptitious subletters, on top of huge administrative and litigation expenses arising from disputes over rent regulation, constitutes a tax on housing. Accordingly, if New York politicians were to abolish rent control and its modified variant, rent stabilization, they could take credit for delivering a massive tax cut to the voters.
Attractive though that might sound, no such proposal appeared in the platform of any major candidate in the 2005 mayoral election. Republican Michael Bloomberg, ostensibly representing the party of free enterprise, was no more eager than the numerous aspirants for the Democratic nomination to let the market work. The debate, such as it was, revolved around the technical matter of whether rent regulation should be administered locally or at the state level, in Albany.
From the standpoint of shrewd political calculation, the candidates made the right call. Economic studies have shown that despite rhetoric characterizing rent regulation as protection for the poor against greedy landlords, the affluent disproportionately benefit. And those well-heeled winners in the game of obtaining goodies from the government have two characteristics of vital interest to politicians: They're organized and they vote. What the poor get out of the deal is a higher proportion of leaky roofs and broken toilets than residents of non-rent-regulated cities with comparably aged housing stock.
Elected officials haven't entirely ignored the inequities that result from tampering with rents. In fact, they've made the system even more cumbersome than it otherwise would be by tying rent increases to renters' income. A landlord can hike the rent if a tenant's household income exceeds $175,000 for two consecutive years.
What a way to run an economy! First, hold the price of a service artificially low, then increase it for those with superior ability to pay. A rational response in households near the $175,000 threshold would be to remain below it by cutting back on hours worked or service provided. The policy sets on its head the traditional notion of individual incentives as a stimulus to overall economic output.
Rent regulation, however, does not run on the principle of people moving up to a higher living standard by energetically employing their native talents. Instead, the key to success is to have parents or grandparents who happened to occupy an apartment that became rent-controlled or rent-stabilized several decades ago. Personal initiative enters into the equation when the winners of this birth-based lottery go to court to defend their right to occupy apartments they haven't lived in for many years, if ever.
The grotesque economic distortions of rent regulation hardly constitute a new story. New York City instituted the market intervention as a temporary measure during World War II. The ill effects have long since been a staple of introductory economics textbooks. In a nearly unparalleled demonstration of unanimity, 93% of economists surveyed on the matter in the early 1990s agreed with the statement that placing a ceiling on rents reduces both the quantity and the quality of available housing.
New York's government lumbers along, oblivious to all this. Economic reality scarcely enters the debate, much less the electoral or legislative process. The press puts true detective stories of rent regulation on page one, but the public policy angle gets less prominent coverage. Disappointingly, democracy's greatest institutions have failed to generate a discussion, much less a resolution, of a tragically costly intrusion in the marketplace.
Martin Fridson is publisher of Leverage World, a research
service focusing on the high yield bond market and author of Unwarranted
Intrusions: The Case Against Government Intervention in the Marketplace
(John Wiley & Sons, Inc.)