202 Readings C

Fall 2011


Smartphones Are Bridging the Digital Divide

Minorities are accessing the Internet through cheap, prepaid wireless data plans.


Federal regulators weighing the proposed AT&T and T-Mobile merger must not ignore a significant but quietly unfolding revolution in how Americans connect to the Internet for information and products. The changes began with the 2007-2008 launch of the iPhone and Android and have accelerated with the introduction of low-cost cellphone plans. What is most striking about this smartphone revolution is its democratic character.

This month's Pew Internet Report on Smartphones spotlights some specifics. Under 30, nonwhite, low-income and less-educated smartphone users report "they mostly go online using their phones." Some 87% of them, according to Pew, sometimes use their mobile phones to browse the web, but 38% use their handsets as their primary means to access the Internet.

National surveys conducted in June by the Institute for Communication Technology Management (CTM) at the University of Southern California similarly found that more than 60% of Latino, black and young smartphone users often or even always use smartphones for their Internet connections. This use of smartphones for Internet browsing is far more extensive than by whites. For instance, while only 26% of whites have smartphones, they are owned by 37% of African-Americans and 46% of Latinos surveyed by CTM.

The development of a mobile device capable of delivering multiple applications for Web browsing, information and entertainment is an obvious driver of the smartphone revolution. A business model has democratized the revolution: pre-paid or no-contract cellphone plans, ranging in price from $30 to $50 a month, and mostly offered by regional wireless carriers like U.S. Cellular, MetroPCS and Cricket Communications. So popular have these plans become that multiple carriers in most U.S. cities, including wireless giants AT&T and Verizon, have jumped onto the prepaid bandwagon, offering more plans and phones to consumers.

In 2010, prepaid plans accounted for 10% of the $160 billion in revenues generated by the mobile-phone market, according to CTIA, the U.S. wireless association. Recent data suggest that share will likely grow. From May 2010 to May 2011, new prepaid customers increased by 6.9 million, compared with 3.6 million new subscribers who signed the traditional two-year contract with monthly fees, according to Wireless Week.

This smartphone revolution has made wireless data the fastest-growing service category in the 300 million cellphone market, with average revenue per user growing more than 20% from 2009 to 2010. Latinos and blacks are disproportionately higher users of data services, according to CTM surveys. For example, minorities are twice as likely as the average user to access health information via smartphones. Use of m-commerce—buying via a phone—is 50% higher among blacks and Latinos.

The democratization of connectivity seems to undercut at least one objection to AT&T's proposed merger with T-Mobile. The concern is that the merged company might decrease Internet access for low-income consumers by dropping less profitable prepaid plans. But with the U.S. cellphone market nearly saturated and with wireless-data revenue projected to outstrip voice next year, all carriers—large or small—have a strong business incentive to offer their customers cost-effective data plans as well as voice.

For years, government officials, as well as academics, worried that the rise of the Internet would create a digital divide between those who could connect and those who couldn't. They wrestled with how to bring broadband to rural communities and to poor urban residents who couldn't afford laptops or a broadband connection at home. Many decried the U.S.'s 12th place ranking—behind South Korea, the United Kingdom, Canada and Germany—in fixed-broadband connectivity.

But no one metric can begin to capture the complexity of today's marketplace for Internet connectivity. Officials who still cling to such statistics as fixed-broadband access, and regulators who make policy around them, overlook the emerging reality brought about by rapid technological progress, business innovation and a dynamic wireless market. The smartphone revolution enables people to take matters into their own hands and find effective ways to narrow the digital divide.

Ms. Hood is executive director of the Institute for Communication Technology Management at the Marshall School of Business, University of Southern California. The institute's 30 corporate sponsors include wireless and communications companies, among them AT&T, Verizon and US Cellular.


August 29, 2011

Why Are Finland's Schools Successful?

The transformation of Finland's education system began some 40 years ago as a key part of the country's economic recovery plan.  Educators had little idea it was so successful until 2000, when the first results from the Programme for International Student Assessment (PISA), a standardized test given to 15-year-olds in more than 40 global venues, revealed Finnish youth to be the best young readers in the world.  Three years later, they led in math, says Smithsonian Magazine.  

Finland's schools were not always a wonder.  Until the late 1960s, most children left public school after six years and only the privileged or lucky got a quality education.

There are no mandated standardized tests in Finland, apart from one exam at the end of students' senior year in high school.  There are no rankings, no comparisons or competition between students, schools or regions.

Source: Lynnell Hancock, "Why Are Finland's Schools Successful?" Smithsonian Magazine, September 2011.

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August 25, 2011


Traveling Back to the Future on Intercity Buses

By Michael Barone


Not long ago, I wrote about how the private sector outraces and laps government. While governments dither and dispute, the private sector discovers.

The example I mentioned then was energy. For years, governments, national and local, have been promoting wind and solar power, to little practical effect. Curiously, the biggest wind power producer is Rick Perry's Texas. But wind power isn't reliable, and both wind and solar cause serious damage to the environment.

In the meantime, the oil and gas industries -- the favorite target of Barack Obama and congressional Democrats -- have developed new techniques of horizontal drilling and hydraulic fracturing (fracking) that have vastly expanded recoverable American energy supplies.

Now across my laptop comes news of another area in which private sector actors have overtaken government. Again an older technology has been improved and adapted to fill a need, while government dithers.

The old technology in this case is buses.

While the Obama administration has been desperately seeking to spend $53 billion on so-called high-speed rail lines, private businessmen have developed Chinatown and Megabus lines that provide inter-city service that has attracted legions of price-conscious travelers.

Chinatown bus service started in 1998 to provide a cheap way for Asian immigrants to get from New York to Boston. You lined up at the curb, paid your $20 fare to the driver and settled into a comfortable bus for four hours or so.

Now there's service to multiple destinations (including gambling casinos) from New York and on the West Coast, too. And competitors have arisen. Megabus routes exist between Maine and Memphis and Minneapolis, notably including many college towns.

The buses have bathrooms, AC power outlets and free wi-fi. They're not as fast as the much more expensive Acela train, but they tend to run on schedule.

Bus travel used to be decidedly downscale, with a clientele that scared off middle-class travelers. That's because, back in the days of heavily regulated transportation, bus lines followed the passenger railroad model, with stations in central cities, routes with multiple stops, fares propped up by monopolies and operators with no economic incentive to provide comfortable or pleasant service.

Chinatown and Megabus operators ditched this model for one that works for travelers for whom money is scarce and time plentiful. Who needs a station? Intercity buses can occupy curb space briefly just as city buses do. Who needs multiple stops? You can make money on people who want to go from one specific location to another.

Needless to say, the cost to the taxpaying public is minimal. City streets and interstate highways already exist, and maintenance gets financing from gas taxes. And the system has enormous flexibility. If fewer passengers want to line up in Chinatown and more on the Upper West Side, the bus can change stops.

Private bus operators have effectively taken a 100-year-old technology, the bus, and adapted it seamlessly to the 21st century.

Compare high-speed rail. It is tethered to enormous stations that must be built or refurbished and limited to particular routes that, once the rails are laid down, cannot be changed except at prohibitive expense.

And it is enormously costly. In just two years, the estimated cost of the Obama administration's pet project, California high-speed rail, in the "flatter than Kansas" Central Valley has risen from $7.1 billion to $13.9 billion. Oxford economist Bent Flyvbjerg has found that high-speed rail projects always end up costing more, usually far more, than estimates.

In addition, operating costs almost always end up higher than fares. And fares always turn out to be expensive, comparable to airfare if you book a popular flight the day before your trip.

So high-speed rail is a form of transportation on which government subsidizes business travelers. You don't see backpackers anymore on the Acela or Amtrak trains from Washington to New York. They're taking the Chinatown bus or one of its competitors.

Finally, most of the high-speed rail lines the Obama administration is touting are a whole lot slower than France's TGV or Japan's bullet train. You can beat the proposed Minneapolis-Duluth line by going just slightly over the speed limit on I-35. The proposed line from the college town of Iowa City to Chicago would take longer than the currently operating bus service.

So the private sector provides cheap intercity transportation while government struggles to waste $53 billion. Please remind me which is the wave of the future.


Is Occupational Licensing Necessary?

Restrictions on who can and cannot practice a certain profession have increased significantly in recent years.  Occupational licensing -- the most onerous restriction -- requires people to pass tests and meet other criteria before they can practice a trade.  It is a barrier to employment, disproportionately affecting low-income and immigrant workers, and frequently benefitting established practitioners by limiting competition from new entrants, says Courtney O'Sullivan, an editor with the National Center for Policy Analysis.

According to labor economists Morris M. Kleiner and Alan B. Krueger:

Advocates of licensing are typically well-established practitioners of that trade.  They have an incentive to reduce the number of competitors and often claim that licensing will safeguard consumers from unqualified providers.  However, there is little evidence that occupational licensing increases product quality.  For example:

Many jobs could be performed by unlicensed individuals at a lower cost, without sacrificing safety or quality.  Licensing decreases the rate of job growth by an average of 20 percent and costs the economy an estimated $34.8 billion to $41.7 billion per year, in 2000 dollars, reports the Reason Foundation.

Registration and voluntary certification by professional and vocational organizations could offer comparable quality and safety standards, without the costly barriers imposed by licensing, says O'Sullivan.

Source: Courtney O'Sullivan, "Is Occupational Licensing Necessary?" National Center for Policy Analysis, August 24, 2011.

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August 20, 2011

Are the Poor Really Poor?

By John C. Goodman


More than 30 million Americans are living in "poverty," according to the U.S. Census Bureau. That’s one out of every seven people. But what does it really mean to be "poor" in America?

A Heritage Foundation report by Robert Rector and Rachel Sheffield finds there is more here than initially meets the eye.

To most Americans, the word "poverty" implies significant material deprivation, including inadequate food, clothing and shelter. The actual living conditions of America's poor are very different, however. According to the government's own survey data, in 2005:

• The average household defined as poor lived in a house or apartment equipped with air conditioning and cable TV.

• The family had a car (a third of the poor have two or more cars).

• For entertainment, the household had two color televisions, a DVD player and a VCR.

• If there were children in the home (especially boys), the family had a game system, such as an Xbox or PlayStation.

• In the kitchen, the household had a microwave, refrigerator, and an oven and stove.

• Other household conveniences included a clothes washer, clothes dryer, ceiling fans, a cordless phone and a coffeemaker.

The home of the average poor family was in good repair and not overcrowded. In fact, the typical poor American had more living space than the average (non-poor) European, the Heritage scholars note. The poor family was able to obtain medical care when needed. When asked, most poor families stated they had had sufficient funds during the past year to meet all essential needs.

Does that mean it’s game, set, match. Case closed? Well not quite. Liberal blogger Matt Yglesias says the Heritage report leaves out three things: housing, education and health care.

Over the past 50 years, televisions have gotten a lot cheaper… Consequently, even a low-income person can reliably obtain a level of television-based entertainment that would blow the mind of a millionaire from 1961. At the same time, if you’re looking to live in a safe neighborhood with good public schools in a metropolitan area with decent job opportunities you’re going to find that this is quite expensive. Health care has become incredibly expensive.

But what do these three sectors have in common that’s missing from the market for television sets and video games? Government. I’ll save health care for another occasion, and consider the other two.

Does anyone doubt that government totally dominates education, shaping and molding every facet of it? We are all forced to pay for the public system, even if we don’t use its services. And even though the public schools may work tolerably in well-to-do suburbs, they are generally miserable in neighborhoods where most poor people reside.

That brings us to housing. For one thing, the real estate market is highly regulated. So much so that many poor people have been priced out of the private marketplace and must rely on public housing instead. More importantly, the way the government runs the school system, the housing market is really a surrogate market for public education.

A study of north Dallas schools found that housing prices varied in lock step with independent measures of school quality. Another study compared housing prices in Highland Park, a ritzy Dallas enclave with its own school system, except for one tiny area that spills over into the Dallas Independent School District. Along a Highland Park street that divides the two school systems, there is no visible difference in the appearance of the houses. But the average difference in price was $72,000. That’s what it costs to go to a Highland Park school rather than an inner city school.

Remember this price differential is not created by the real estate market. It reflects the relative value of two government school systems. “Tragically,” Yglesias writes, “many Americans can’t afford a house in a safe neighborhood with a decent school that’s within a convenient commute of the central business district of a major city.”

True enough, but whose fault is that? Don’t blame it on capitalism.



Why the Gender Gap Won't Go Away


From the City Journal

Early this past spring, the White House Council on Women and Girls released a much-anticipated report called Women in America. One of its conclusions struck a familiar note: today, as President Obama said in describing the document, "women still earn on average only about 75 cents for every dollar a man earns. That's a huge discrepancy."

It is a huge discrepancy. It's also an exquisite example of what journalist Charles Seife has dubbed "proofiness." Proofiness is the use of misleading statistics to confirm what you already believe. Indeed, the 75-cent meme depends on a panoply of apple-to-orange comparisons that support a variety of feminist policy initiatives, from the Paycheck Fairness Act to universal child care, while telling us next to nothing about the well-being of women.

This isn't to say that all is gender-equal in the labor market. It is not. It also isn't to imply that discrimination against women doesn't exist or that employers shouldn't get more creative in adapting to the large number of mothers in the workplace. It does and they should. But by severely overstating and sensationalizing what is a universal predicament (I'm looking at you, Sweden and Iceland!), proofers encourage resentment-fueled demands that no government anywhere has ever fulfilled—and that no government ever will.

Let's begin by unpacking that 75-cent statistic, which actually varies from 75 to about 81, depending on the year and the study. The figure is based on the average earnings of full-time, year-round (FTYR) workers, usually defined as those who work 35 hours a week or more.

But consider the mischief contained in that "or more." It makes the full-time category embrace everyone from a clerk who arrives at her desk at 9 am and leaves promptly at 4 pm to a trial lawyer who eats dinner four nights a week—and lunch on weekends—at his desk. I assume, in this case, that the clerk is a woman and the lawyer a man for the simple reason that—and here is an average that proofers rarely mention—full-time men work more hours than full-time women do. In 2007, according to the Bureau of Labor Statistics, 27 percent of male full-time workers had workweeks of 41 or more hours, compared with 15 percent of female full-time workers; meanwhile, just 4 percent of full-time men worked 35 to 39 hours a week, while 12 percent of women did. Since FTYR men work more than FTYR women do, it shouldn't be surprising that the men, on average, earn more.

The way proofers finesse "full-time" can be a wonder to behold. Take a recent article in the Washington Post by Mariko Chang, author of a forthcoming book on the wealth gap between women and men. Chang cites a wage difference between "full-time" male and female pharmacists to show how "even when they work in the same occupation, men earn more." A moment's Googling led me to a 2001 study in the Journal of the American Pharmacists Association concluding that male pharmacists worked 44.1 hours a week, on average, while females worked 37.2 hours. That study is a bit dated, but it's a good guess that things haven't changed much in the last decade. According to a 2009 article in the American Journal of Pharmaceutical Education, female pharmacists' preference for reduced work hours is enough to lead to an industry labor shortage.

The other arena of mischief contained in the 75-cent statistic lies in the seemingly harmless term "occupation." Everyone knows that a CEO makes more than a secretary and that a computer scientist makes more than a nurse. And most people wouldn't be shocked to hear that secretaries and nurses are likely to be women, while CEOs and computer scientists are likely to be men. That obviously explains much of the wage gap.

But proofers often make the claim that women earn less than men doing the exact same job. They can't possibly know that. The Labor Department's occupational categories can be so large that a woman could drive a truck through them. Among "physicians and surgeons," for example, women make only 64.2 percent of what men make. Outrageous, right? Not if you consider that there are dozens of specialties in medicine: some, like cardiac surgery, require years of extra training, grueling hours, and life-and-death procedures; others, like pediatrics, are less demanding and consequently less highly rewarded. Only 16 percent of surgeons, but a full 50 percent of pediatricians, are women. So the statement that female doctors make only 64.2 percent of what men make is really on the order of a tautology, much like saying that a surgeon working 50 hours a week makes significantly more than a pediatrician working 37.

A good example of how proofers get away with using the rogue term "occupation" is Behind the Pay Gap, a widely quoted 2007 study from the American Association of University Women whose executive summary informs us in its second paragraph that "one year out of college, women working full time earn only 80 percent as much as their male colleagues earn." The report divides the labor force into 11 extremely broad occupations determined by the Department of Education. So ten years after graduation, we learn, women who go into "business" earn considerably less than their male counterparts do. But the businessman could be an associate at Morgan Stanley who majored in econ, while the businesswoman could be a human-relations manager at Foot Locker who took a lot of psych courses. You don't read until the end of the summary—a point at which many readers will have already Tweeted their indignation—that when you control for such factors as education and hours worked, there's actually just a 5 percent pay gap. But the AAUW isn't going to begin a report with the statement that women earn 95 percent of what their male counterparts earn, is it?

Now, while a 5 percent gap will never lead to a million-woman march on Washington, it's not peanuts. Over a year, it can add up to real money, and over decades in the labor force, it can mean the difference between retirement in a Boca Raton co-op and a studio apartment in the inner suburbs. Many studies have examined the subject, and a consensus has emerged that when you control for what researchers call "observable" differences—not just hours worked and occupation, but also marital and parental status, experience, college major, and industry—there is still a small unexplained wage gap between men and women. Two Cornell economists, Francine Blau and Lawrence Kahn, place the number at about 9 cents per dollar. In 2009, the CONSAD Research Corporation, under the auspices of the Labor Department, located the gap a little lower, at 4.8 to 7.1 percent.

So what do we make of what, for simplicity's sake, we'll call the 7 percent gap? You can't rule out discrimination, whether deliberate or unconscious. Many women say that male bosses are more comfortable dealing with male workers, especially when the job involves late-night meetings and business conferences in Hawaii. This should become a smaller problem over time, as younger men used to coed dorms and female roommates become managers and, of course, as women themselves move into higher management positions. It's also possible that male managers fear that a female candidate for promotion, however capable, will be more distracted by family matters than a male would be. They might assume that women are less able to handle competition and pressure. It's even possible that female managers think such things, too.

No, you can't rule out discrimination. Neither can you rule out other, equally plausible explanations for the 7 percent gap. The data available to researchers may not be precise; for instance, it's extremely difficult to find accurate measures of work experience. There's also a popular theory that women are less aggressive than men when it comes to negotiating salaries.

The point is that we don't know the reason—or, more likely, reasons—for the 7 percent gap. What we do know is that making discrimination the default explanation for a wage gap, as proofers want us to do, leads us down some weird rabbit holes. Asian men and women earn more than white men and women do, says the Bureau of Labor Statistics. Does that mean that whites are discriminated against in favor of Asians? Female cafeteria attendants earn more than male ones do. Are men discriminated against in that field? Women who work in construction earn almost exactly what men in the field do, while women in education earn considerably less. The logic of default discrimination would lead us to conclude that construction workers are more open to having female colleagues than educators are. With all due respect to the construction workers, that seems unlikely.

So why do women work fewer hours, choose less demanding jobs, and then earn less than men do? The answer is obvious: kids. A number of researchers have found that if you consider only childless women, the wage gap disappears. June O'Neill, an economist who has probably studied wage gaps as much as anyone alive, has found that single, childless women make about 8 percent more than single, childless men do (though the advantage vanishes when you factor in education). Using Census Bureau data of pay levels in 147 of the nation's 150 largest cities, the research firm Reach Advisors recently showed that single, childless working women under 30 earned 8 percent more than their male counterparts did.

That's likely to change as soon as the children arrive. Mothers, particularly those with young children, take more time off from work; even when they are working, they're on the job less. Behind the Pay Gap found that "among women who graduated from college in 1992–93, more than one-fifth (23 percent) of mothers were out of the work force in 2003, and another 17 percent were working part time," compared with under 2 percent of fathers in each case. Other studies show consistently that the first child significantly reduces a woman's earnings and that the second child cuts them even further.

The most compelling research into the impact of children on women's careers and earnings—one that also casts light on why women are a rarity at the highest levels of the corporate and financial world—comes from a 2010 article in the American Economic Journal by Marianne Bertrand of the University of Chicago and Claudia Goldin and Lawrence Katz of Harvard. The authors selected nearly 2,500 MBAs who graduated between 1990 and 2006 from the University of Chicago's Booth School of Business and followed them as they made their way through the early stages of their careers. If there were discrimination to be found here, Goldin would be your woman. She is coauthor of a renowned 2000 study showing that blind auditions significantly increased the likelihood that an orchestra would hire female musicians.

Here's what the authors found: right after graduation, men and women had nearly identical earnings and working hours. Over the next ten years, however, women fell way behind. Survey questions revealed three reasons for this. First and least important, men had taken more finance courses and received better grades in those courses, while women had taken more marketing classes. Second, women had more career interruptions. Third and most important, mothers worked fewer hours. "The careers of MBA mothers slow down substantially within a few years of first birth," the authors wrote. Though 90 percent of women were employed full-time and year-round immediately following graduation, that was the case with only 80 percent five years out, 70 percent nine years out, and 62 percent ten or more years out—and only about half of women with children were working full-time ten years after graduation. By contrast, almost all the male grads were working full-time and year-round. Furthermore, MBA mothers, especially those with higher-earning spouses, "actively chose" family-friendly workplaces that would allow them to avoid long hours, even if it meant lowering their chances to climb the greasy pole.

In other words, these female MBAs bought tickets for what is commonly called the "mommy track." A little over 20 years ago, the Harvard Business Review published an article by Felice Schwartz proposing that businesses make room for the many, though not all, women who would want to trade some ambition and earnings for more flexibility and time with their children. Dismissed as the "mommy track," the idea was reviled by those who worried that it gave employers permission to discriminate and that it encouraged women to downsize their aspirations.

But as Virginia Postrel noted in a recent Wall Street Journal article, Schwartz had it right. When working mothers can, they tend to spend less time at work. That explains all those female pharmacists looking for reduced hours. It explains why female lawyers are twice as likely as men to go into public-interest law, in which hours are less brutal than in the partner track at Sullivan & Cromwell. Female medical students tell researchers that they're choosing not to become surgeons because of "lifestyle issues," which seems to be a euphemism for wanting more time with the kids. Thirty-three percent of female pediatricians are part-timers—and that's not because they want more time to play golf.

In the literature on the pay gap and in the media more generally, this state of affairs typically leads to cries of injustice. The presumption is that women pursue reduced or flexible hours because men refuse to take equal responsibility for the children and because the United States does not have "family-friendly policies." Child care is frequently described as a burden to women, a patriarchal imposition on their ambitions, and a source of profound inequity. But is this attitude accurate? Do women want to be working more, if only the kids—and their useless husbands—would let them? And do we know that more government support would enable them to do so and close the wage gap?

Actually, there is no evidence for either of these propositions. If women work fewer hours than men do, it appears to be because they want it that way. About two-thirds of the part-time workforce in the United States is female. According to a 2007 Pew Research survey, only 21 percent of working mothers with minor children want to be in the office full-time. Sixty percent say that they would prefer to work part-time, and 19 percent would like to give up their jobs altogether. For working fathers, the numbers are reversed: 72 percent want to work full-time and 12 percent part-time.

In fact, women choose fewer hours—despite the resulting gap in earnings—all over the world. That includes countries with generous family leave and child-care policies. Look at Iceland, recently crowned the world's most egalitarian nation by the World Economic Forum. The country boasts a female prime minister, a law requiring that the boards of midsize and larger businesses be at least 40 percent female, excellent public child care, and a family leave policy that would make NOW members swoon. Yet despite successful efforts to get men to take paternity leave, Icelandic women still take considerably more time off than men do. They also are far more likely to work part-time. According to the Organisation for Economic Co-operation and Development (OECD), this queen of women-friendly countries has a bigger wage gap—women make 62 percent of what men do—than the United States does.

Sweden, in many people's minds the world's gender utopia, also has a de facto mommy track. Sweden has one of the highest proportions of working women in the world and a commitment to gender parity that's close to a national religion. In addition to child care, the country offers paid parental leave that includes two months specifically reserved for fathers. Yet moms still take four times as much leave as dads do. (Women are also more likely to be in lower-paid public-sector jobs; according to sociologist Linda Haas, Sweden has "one of the most sex-segregated labor markets in the world.") Far more women than men work part-time; almost half of all mothers are on the job 30 hours a week or less. The gender wage gap among full-time workers in Sweden is 15 percent. That's lower than in the United States, at least according to the flawed data we have, but it's hardly the feminist Promised Land.

The list goes on. In the Netherlands, over 70 percent of women work part-time and say that they want it that way. According to the Netherlands Institute for Social Research, surveys found that only 4 percent of female part-timers wish that they had full-time jobs. In the United Kingdom, half of female GPs work part-time, and the National Health Service is scrambling to cope with a dearth of doctor hours. Interestingly enough, countries with higher GDPs tend to have the highest percentage of women in part-time work. In fact, the OECD reports that in many of its richest countries, including Denmark, Sweden, Iceland, Germany, the U.K., and the U.S., the percentage of the female workforce in part-time positions has gone up over the last decade.

So it makes no sense to think of either the mommy track or the resulting wage differential as an injustice to women. Less time at work, whether in the form of part-time jobs or fewer full-time hours, is what many women want and what those who can afford it tend to choose. Feminists can object till the Singularity arrives that women are "socialized" to think that they have to be the primary parent. But after decades of feminism and Nordic engineering, the continuing female tropism toward shorter work hours suggests that that view is either false or irrelevant. Even the determined Swedes haven't been able to get women to stick around the office.

That doesn't mean that the mommy track doesn't present a problem, particularly in a culture in which close to half of all marriages break down. A woman can have a baby, decide to reduce her hours and her pay, forgo a pension, and then, ten years later, watch her husband run off with the Pilates instructor. The problem isn't what it used to be when women had fewer degrees and less work experience during their childless years; women today are in better shape to jump-start their careers if need be. The risk remains, however.

It's not at all clear how to solve this problem or even if there is a solution, especially during these fiscally challenged days. But one thing is clear: the wage-gap debate ought to begin with the mommy track, not with proofy statistics.

Ms. Hymowitz is a contributing editor of City Journal, the William E. Simon Fellow at the Manhattan Institute, and the author of Manning Up: How the Rise of Women Has Turned Men into Boys.


France Gets Buffetted

There's no tea party in Paris.

France's richest woman pulled a Warren Buffett last Tuesday and asked her indebted government to extract more taxes from its wealthiest citizens. A day later the government complied, and then some.

L'Oreal heiress Liliane Bettencourt's open letter, co-signed by 15 of her super-rich countrymen, called for higher but "reasonable" levies on "the most favored French taxpayers." Ms. Bettencourt is the billionaire who made headlines last year over alleged tax evasion.

Among her co-signatories was the CEO of French bank and erstwhile AIG counterparty, Société Générale. The financial giant enjoyed its own dose of taxpayer largesse at the height of the panic thanks to the New York Federal Reserve's 2008 pay-off for banks' AIG insurance contracts. Americans didn't get a shout-out in the moguls' letter on Tuesday, though it sounds as if President Obama wouldn't object. The signatories explained that "We are aware of having fully benefited from a French model and a European environment to which we are committed and which we want to help preserve."

The next day Prime Minister François Fillon followed their advice and proposed a new 3% levy on incomes above €500,000 ($722,400). The tax hike would be part of the government's plan to raise the €12 billion it needs to meet its deficit targets for 2011 and 2012, after it downgraded its growth forecasts for this year and next.

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Associated Press

L'Oreal heiress Liliane Bettencourt

If parliament approves the proposal, the new levy would go on top of France's existing 41% top marginal income-tax rate. Mr. Fillon also suggested increasing long-term capital-gains-tax rates by up to 10%, and nudging up the social-security take on capital gains for the second time this year.

The plan would also raise consumption taxes on tobacco, hard liquor and soft drinks. To round out this windfall for government, Mr. Fillon called for applying France's 19.6% value-added tax rate to amusement-park admission fees.

The measures include no new spending cuts and address none of the regulations that make it so difficult for the French to climb up the income (and tax) ladder. The country suffers from the fifth-highest minimum wage in the European Union and labor laws that make it prohibitively expensive to fire (and thus hire) French workers.

Instead, the new proposals would further discourage work by capping some of the tax exemptions on overtime pay that Nicolas Sarkozy introduced in 2007. So much for one of the few pro-growth promises the French president kept: the near-abolition of the 35-hour workweek.

Like Mr. Buffett, Madame Bettencourt is already very rich—in her case, thanks to her father, whose cosmetics company predates the French welfare state by several decades. If she wants to give her money to the French state, she's welcome to do so. But a better public service would be calling for reforms that make it easier for today's entrepreneurs to earn, and create, the wealth that once helped make France great.

An Entrepreneurial Fix for the U.S. Economy

Several reforms can make it faster and easier for new business startups.


Virtually everyone knows the U.S. and global economies are in serious trouble. We're in uncharted territory. Having tried conventional macroenonic tools, we are now out of ways to stimulate growth in private-sector demand, which is flat and shows no signs of picking up any time soon.

The recent political dysfunction over lifting the debt ceiling offers little to no hope that any deals on short-term stimulus or fundamental changes in our tax code and entitlement programs can be quickly enacted.

The Fed may try a third round of quantitative easing. But with consumers and business scared by the outlook and the sickening decline in stock prices, any QE3 is likely to be pushing on the proverbial string.

Europe is lurching from rescue to rescue, trying to avoid the inevitable—a restructuring of the sovereign debt of several of its members, coupled with a government rescue of troubled European banks.

The emerging market economies that were rapidly growing have run into a wall, needing to fight inflation before it gets out of control. As this happens, the one bright spot in the world economy will dim.

It is tempting to sit back and accept the verdict of some economists who rightly point out that a massive deleveraging is inevitable, will take time and be painful. But policy makers have a responsibility to help limit the pain and help lay the groundwork for renewal.

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Getty Images/Illustration Works

While our two companies run very differently, we have come together to support what we believe is the only set of ideas that stand a chance of turning things around—ideas that can pass political muster in an otherwise very deeply divided Congress. These ideas center on reinvigorating what up to recently has been the most reliable source of job growth and innovation in our economy—the formation of new firms.

GenOn is one of the nation's largest operators of electric generating plants. Without new, growing companies and the people they employ, the demand for electricity will not generate growing profits for our company.

The Principal Financial Group provides employee benefit programs to 100,000 growing businesses employing six million U.S. workers. That includes services to nearly 800 employee-owned businesses. We know growing businesses are the real job creators in our economy today.

In our view, there is no hope of giving consumers renewed confidence in America unless governments at all levels mount a vigorous effort to get rid of rules that discourage entrepreneurs from launching and growing new businesses.

The Kauffman Foundation recently proposed a way to do that with a set of ideas aptly called the Startup Act. Those ideas, which would cost the government virtually nothing, include:

• Letting in immigrant entrepreneurs who hire American workers.

• Reducing the cost of capital through capital gains tax relief for early stage investments.

• Reducing barriers to IPOs by allowing shareholders to opt out of Sarbanes-Oxley.

• Charging higher fees for patent applicants who want quick decisions to remove the backlog of applications at the Patent Office.

• Giving licensing freedom to academic entrepreneurs at universities to accelerate the commercialization of their ideas.

• Having the government provide data to permit rankings of startup friendliness of states and localities.

• Regular sunsets for regulations and a consistent policy of putting new ones in place only if their benefits exceed their costs.

There is no time to waste. The president must meet as soon as possible with congressional leaders to develop a menu of policy initiatives to reignite the startup job machine. Despite the deep divisions on taxes and spending, there is overwhelming support in this country for letting entrepreneurs work their magic without excessive government interference.

Other nations look to the United States as a model for new company formation. Our Treasury debt may not be as valued as it once was, but we can't let our entrepreneurship brand be tarnished.

We realize America's larger businesses have their own agendas and ideas for moving our country forward. But all of us know where the energy that drives our economy comes from—new companies with new ideas that build confidence and optimism. We will all profit when our elected leaders understand and act on this fundamental fact too.

Mr. Muller is CEO of GenOn Energy. Mr. Zimpleman is president and CEO of the Principal Financial Group.



For Wal-Mart, a Rare Online Success


Wal-Mart Stores Inc. has stumbled often in Internet retailing, but the big-box granddad has been surprisingly successful in one online venture: digital movie downloads.

A year after buying streaming service Vudu, which lets customers rent or buy digital versions of Hollywood movies, the operation has become the third most popular such service, according to researcher IHS Inc. The jump put Vudu ahead of similar offerings from Amazon.com Inc. and Sony Corp.

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With a share of 5.3% at the end of the first half, Vudu still trails far behind Apple Inc.'s iTunes service in the fast-growing movie-download business. ITunes dominated the market with a 65.8% share, while Microsoft Corp.'s Zune Video Marketplace was No. 2 at 16.2%. And analysts have questioned whether Vudu has the legs to reach Wal-Mart's core customers.

Vudu could become Wal-Mart's biggest Internet-related success to date—though that doesn't say much.

The Bentonville, Ark., retailer this month said it was ending sales of MP3 music downloads, after failing for years to make a splash. The company also recently announced a management shake-up for its Internet retail operations and the departure of two top online executives, amid continued disappointing performance compared with Amazon.

"The business we're in today, offering first-run movies a la carte, is doing very well right now and has tripled so far this year," Vudu General Manager Edward Lichty said.

"It's becoming very meaningful for our Hollywood partners, to the point where some have called us and asked whether we had made some kind of mistake" when the company reported surprisingly high sales, Mr. Lichty said.

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Vudu at first staked its future on streaming movies through its own set-top boxes. It altered its business plan as consumers opted to watch through other devices.

Amazon, Sony and Apple weren't available for comment.

Vudu's model is different from that of Netflix Inc., which charges customers a monthly fee for unlimited access to a wide library of movies on DVD and via streaming but doesn't offer digital downloads to own.

Vudu's prices vary according to the movie. The animated film "Rio," a typical example, costs $3.99 to rent and $14.99 for a permanent digital copy. The high-definition version of "Rio" costs $4.99 to rent and $19.99 to own. The prices generally are competitive.

Wal-Mart purchased Vudu last year for a reported $100 million, which looks like a bargain in light of this year's rising valuations for Silicon Valley start-ups. In recent weeks, the company has integrated Vudu movies into the Walmart.com website while keeping the Vudu.com site active. The retailer also launched a format that allows owners of tablets, like the iPad, easily to view movies through their Web browsers. The tablet-friendly format allows Wal-Mart to avoid the 30% cut Apple collects from content sold through its App Store.

Before the acquisition, Vudu had developed a strong reputation among movie buffs, particularly for its high-definition content. It also had rights deals in place with most Hollywood studios, so Wal-Mart avoided having to negotiate them from scratch.

Vudu initially staked its future on streaming movies to consumers through its own set-top boxes. The growing popularity of videogame consoles and television sets that give customers access to movie downloads expanded Vudu's potential audience, and forced Vudu to alter its business plan.

Wal-Mart has the capital to make such growing pains irrelevant. But analysts said the retailer, whose DVD sales are evaporating, still has a long way to go to coax its core customers to migrate to Vudu.

Analysts also said Wal-Mart needs to find more ways to use online movies to drive customers to the company's core retail offerings, something the company did to great effect by selling low-priced DVDs, sometimes at a loss.

The Vudu strategy indicates the company understands the market, since Wal-Mart is establishing a presence where customers want to watch movies, such as on tablets, said Dan Cryan, senior analyst at IHS. "What's not as clear is how you tie that back into Wal-Mart's core business."

Write to Miguel Bustillo at miguel.bustillo@wsj.com and Karen Talley at karen.talley@dowjones.com

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********************** 9-1-11

The Wealth of Asians

Wander into any luxury-goods store and there they are: Asia's new rich. The phenomenal rise of personal wealth in the fast-growing region may be an old story, but a new report from brokerage CLSA suggests we ain't seen nothing yet. In Asia ex-Japan, there are currently "only" 1.2 million high-net-worth individuals, defined as those with investable assets excluding homes of $1 million or more. This accounts for about 0.06% of the region's population, but within five years there may be 2.8 million, or 0.13% of the population.

Retailers already salivate over these soon-to-be-rich Asians. Social-justiceniks at development banks and the like will fret about growing inequality. But the most consequential question of all is not whether more and more Asians will join the ranks of the world's super-rich, but rather how they'll do it.

Rising net worth ought to be a sign that a growing number of individuals are spotting productive economic opportunities and profiting handsomely in return for the big entrepreneurial risks they've taken. That's certainly how the likes of Steve Jobs or Richard Branson made their billions in the West. There's also a fair share of that in Asia.

But it's also true—and troubling—that so much wealth-creation in the region is related to various forms of government patronage. There are the Hong Kong tycoons who benefit from favorable government land-sale rules, or the Korean chaebol executives who gain from lenient treatment "for the national economic interest" when corporate fraud allegations pop up. China is especially notable for being an environment where friendly connections with government officials can pave the way through a bureaucratic labyrinth, even easing access to capital that's scarce for purely private-sector enterprises.

In a modern free economy it's false to suggest that the wealth of one entrepreneur impoverishes others—the pie can grow for everyone even if it grows faster for some. But wealth amassed through collecting government favors often does impoverish others: those who don't enjoy similar benefits. This fact, and the cynicism it breeds, is a greater threat to social stability than unequal wealth distribution.

Beijing in particular should be concerned about the ramifications of all this. CLSA estimates 900,000 Chinese will join the high-net-worth set in the next five years. Whether they get there through entrepreneurial gumption or government connections will determine how sustainable China's rise is, and how stable its society will be.

Printed in The Wall Street Journal, page 11

Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved




Wsdj Sep 6, 2011
8:23 AM

Vital Signs: Americans Cut Back on Driving

By Justin Lahart

Americans are driving less. They traveled a total of 259.1 billion miles on U.S. roads in June, down 1.4%, or 3.8 billion miles, from a year earlier. That marked the fourth consecutive year-over-year decline. The reduced driving was probably in large part a response to higher gasoline prices, but a souring economy also may have played a role.



wsj Sep 2, 2011
2:44 PM

Demand for Food Stamps Remains High

By Sara Murray

The number of Americans receiving food stamps dropped in June from declining disaster assistance, but there’s still little sign of waning demand for the food assistance program.

Click on map to see percent of each state’s population on food stamps.

Food stamp rolls declined by 0.5% in June to a still-high 45.2 million, the Department of Agriculture said Friday. It was the first decline since October 2008 and likely reflects declining disaster assistance to states like Alabama rather than improvements in household finances.

Alabama was hit by tornadoes in late April that sent the number of food assistance recipients soaring in May. Because disaster-assistance declined in June, it lowered the national tally. The number of recipients in the food stamp program, formally known as the Supplemental Nutrition Assistance Program (SNAP), may continue to rise in coming months as families continue to struggle with high unemployment and other natural disasters.

“As we continue to create jobs and grow the economy, we anticipate that participation in SNAP will decline, which is everyone’s goal,” the USDA said in a statement. “However, future participation in SNAP will likely be impacted by state natural disaster requests as American families continue to recover from recent storms.”

In June, 14.6% of the U.S. population relied on food stamps. Food stamp rolls have risen 9.5% in the past year, though recent months show the pace of growth is slowing.



Washington's Antitrust Timewarp

Blocking the AT&T-T-Mobile merger won't protect jobs.


The Obama administration's suit to block AT&T's acquisition of T-Mobile will harm, not help, our sputtering economy. The administration claims the acquisition "would result in tens of millions of consumers . . . facing higher prices, fewer choices and lower quality products for mobile wireless services." It argues that stopping the buyout "will help protect jobs in the economy" since mergers usually reduce jobs through the elimination of redundancies.

The first of these claims has no factual basis—indeed, the market believes otherwise. The second is indefensible as social policy.

It is very difficult at an abstract level to know what the effects of a merger or acquisition will be on competition within an industry. Firms may merge to create market power and increase prices, though they may also merge to create efficiencies that lower prices.

The Justice Department presumes that the acquisition of T-Mobile (the fourth largest wireless provider) by AT&T (the second largest) will lead to "higher prices . . . and lower quality products" based on the high market share that would result. But market share is a very rough proxy for market power and essentially meaningless in a network industry.

There are strong reasons to predict that AT&T's acquisition will lower prices and improve product quality. First, there's lots of competition in the wireless market. Prices have been declining progressively over time. There are many local market competitors with discount and pre-paid plans. There is clearly an economic reason that T-Mobile's parent, Deutsche Telekom, has no further interest in the American wireless market. If there were great profits to be made because of lack of competition, Deutsche Telekom wouldn't be selling T-Mobile.

Second, the best evidence of the prospective effect of a proposed acquisition is the response of competitors that will face the combined firms. The chief competitor, Sprint, the third largest wireless company, has been lobbying to stop the merger from its first announcement.

If the acquisition would lead to increased prices and lower quality products as the Justice Department has claimed, Sprint would be better off after the acquisition. Sprint would be able to add subscribers, not lose them, because of AT&T's higher prices and lower quality. Sprint would oppose the acquisition—as it has—only if it thought that the merger would put it in a worse position by increasing the competitive pressures that it already faces.

The market—though not the Obama administration—understands this point. On the day that the Justice Department announced its opposition to the acquisition, Sprint's share price rose 5.9%, reflecting investors' belief that Sprint will be in a better competitive position without the acquisition.

The Obama administration's emphasis on job maintenance is even more confused. The administration has argued that the acquisition should be opposed because mergers reduce employment by eliminating redundant jobs. But a sound economy is not built on redundant jobs. An economy becomes stronger as redundant jobs are eliminated, costs and prices reduced, and the effective wealth of the nation enhanced. A major reason that the Obama administration's efforts to stimulate the economy have failed is that it has consistently poured money into negative-value investments.

Much of the Justice Department's failing on this issue derives from its failure to understand that network industries must be evaluated differently from more traditional, manufacturing industries. The market share guidelines upon which the Justice Department relies to oppose this acquisition may make sense in the context of manufacturing industries. But they make no sense in the context of networks in which there are great benefits from large networks with large market shares.

This was the mistake the Justice Department made in the Microsoft case almost a decade ago. It wanted to break up Microsoft, supposedly to create greater competition among Web browsers. The courts prevented the effort, and to good effect.

The rise of Google, Facebook and the competition from smartphones that resemble computers have shown that the focus then on browser competition misunderstood the rapidly changing nature of network competition. The Obama administration is making the same mistake with its opposition to AT&T's acquisition of T-Mobile.

Mr. Priest teaches law and economics at Yale Law School.



Can the World Still Feed Itself?

Yes, says Nestle's chairman Peter Brabeck-Letmathe, but not if we burn food for fuel, fear genetic advances and fail to charge for water.


Vevey, Switzerland

As befits the chairman of the world's largest food-production company, Peter Brabeck-Letmathe is counting calories. But it's not his diet that the chairman and former CEO of Nestlé is worried about. It's all the food that the U.S. and Europe are converting into fuel while the world's poor get hungrier.

"Politicians," Mr. Brabeck-Letmathe says, "do not understand that between the food market and the energy market, there is a close link." That link is the calorie.

The energy stored in a bushel of corn can fuel a car or feed a person. And increasingly, thanks to ethanol mandates and subsidies in the U.S. and biofuel incentives in Europe, crops formerly grown for food or livestock feed are being grown for fuel. The U.S. Department of Agriculture's most recent estimate predicts that this year, for the first time, American farmers will harvest more corn for ethanol than for feed. In Europe some 50% of the rapeseed crop is going into biofuel production, according to Mr. Brabeck-Letmathe, while "world-wide about 18% of sugar is being used for biofuel today."

In one sense, this is a remarkable achievement—five decades ago, when the global population was half what it is today, catastrophists like Paul Ehrlich were warning that the world faced mass starvation on a biblical scale. Today, with nearly seven billion mouths to feed, we produce so much food that we think nothing of burning tons of it for fuel.

Or at least we think nothing of it in the West. If the price of our breakfast cereal goes up because we're diverting agricultural production to ethanol or biodiesel, it's an annoyance. But if the price of corn or flour doubles or triples in the Third World, where according to Mr. Brabeck-Letmathe people "are spending 80% of [their] disposable income on food," hundreds of millions of people go hungry. Sometimes, as in the Middle East earlier this year, they revolt.

"What we call today the Arab Spring," Mr. Brabeck-Letmathe says over lunch at Nestle's world headquarters, "really started as a protest against ever-increasing food prices."

Mr. Brabeck-Letmathe has extensive experience at the intersection of food, politics and development. He spent most of his first two decades at Nestlé in Latin America. In 1970, he was posted to Chile, where Salvador Allende's socialist government was threatening to nationalize milk production, and Nestlé's Chilean operations along with it. He knows that most of the world is not as fortunate as we are.

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Terry Shoffner

"There is a huge difference," he says, "between how we live this crisis and what the reality of today is for hundreds of millions of people, who we have been pushing back into extreme poverty with wrong policy making." First there's the biofuels craze, driven by concerns over energy independence, oil supplies, global warming and, ironically, Mideast political stability.

Add to that, especially in Europe, a paralyzing fear of genetically modified crops, or GMOs. This refusal to use "available technology" in agriculture, Mr. Brabeck-Letmathe contends, has halted the multi-decade rise in agricultural productivity that has allowed us, so far, to feed more mouths than many people believed was possible.

Then there is demographics. Recent decades have seen "the creation of more than a billion new consumers in the world who have had the opportunity to move from extreme poverty into what we would call today a moderate middle class," thanks to economic growth in places like China and India. This means a billion people who have "access to meat" for the first time, Mr. Brabeck-Letmathe says.

"And the demand for meat," he says, "has a multiplier effect of 10. You need 10 times as much land, 10 times as much [feed], 10 times as much water to produce one calorie of meat as you do to have one calorie of vegetables or grain." Even so, we are capable of satisfying this increased demand—if we choose to. "If politicians of this world really want to tackle food security," Mr. Brabeck-Letmathe says, "there's only one decision they have to make: No food for fuel. . . . They just have to say 'No food for fuel,' and supply and demand would balance again."

If we don't do that, we can never hope to square the drive for biofuels with the world's food needs. The calories don't add up. "The energy market," Mr. Brabeck-Letmathe argues, "is 20 times as big, in calories, as the food market." So "when politicians say, 'We want to replace 20% of the energy market through the food market,'" this means "we would have to triple food production" to meet that goal—and that's before we eat the first kernel of what we've grown.

Even if we could pull this off, we will never get there by turning our backs on genetically modified crops and holding up "organic" food as the new gold standard of safety, purity and health. Organic production is all the rage in the rich West, but we can't "feed the world with this stuff," he says. Agricultural productivity with organics is too low.

"If you look at those countries that have introduced GMOs," Mr. Brabeck-Letmathe says, "you will see that the yield per hectare has increased by about 30% over the past few years. Whereas the yields for non-GMO crops are flat to slightly declining." And that gap, he says, "is a voluntary gap. . . . It's just a political decision."

And it's one thing for rich, well-fed Europe to say, as Mr. Brabeck-Letmathe puts it, "I don't want to produce GMO [crops] because frankly speaking I don't want to produce so much food." That, he says, he can understand.

What's harder for him to understand is that Europe's policies effectively forbid poor countries in places like Africa from using genetically modified seed. These countries, he says, urgently need the technology to increase yields and productivity in their backward agricultural sectors. But if they plant GMOs, then under Europe's rules the EU "will not allow you to export anything—anything. Not just the [crop] that has GMO—anything," because of European fears about cross-contamination and almost impossibly strict purity standards. The European fear of genetically modified crops is, he says, "purely emotional. It's becoming almost a religious belief."

This makes Mr. Brabeck-Letmathe, a jovial man with a quick smile, get emotional himself. "How many people," he asks with a touch of irritation, "have died from food contamination from organic products, and how many people have died from GMO products?" He answers his own question: "None from GMO. And I don't have to ask too long how many people have died just recently from organic," he adds, referring to the e. coli outbreak earlier this year in Europe.

Nestlé itself has at times been painted as an enemy of the world's poor—for 30 years it has contended with a sporadic boycott movement over the sale and marketing of infant formula in the Third World, a push that some rich Westerners find unethical. On the other hand, under Mr. Brabeck-Letmathe, Nestlé's corporate strategy has emphasized that all food markets are intensely local. Americans may increasingly buy all drinks by the gallon and chocolate bars by the pound, but in many parts of the world a trip to the store might yield a single Maggi cube—the Nestlé-made bullion cubes that are ubiquitous in many countries. In these countries, single servings of many products are sold in little foil packets to allow people to match their spending to their cash flow.

This is, Mr. Brabeck-Letmathe contends, an extension of Nestlé's original reason for being. Nestlé exists, Mr. Brabeck-Letmathe says, because as Europe's population "urbanized," as people moved to the cities and traded their ploughshares for time cards, "somebody had to ensure that people" who worked 12 hours a day in a factory could feed themselves. For the first time in history, "you need[ed] a food industry. You need[ed] somebody who takes a product, who treats it so that its shelf life allows it to be transported, to be brought into the consumption center. That's why we have canning, that's why we have pasteurization, that's why we have all these things."

The vast majority of us would have no idea any longer how to feed ourselves if we turned up one day to find the supermarket empty. We rely on industrialized food production, distribution, preservation and storage to make our urban lifestyles, our very lives, possible. And "it was not the state that took care of this thing. It was private initiative." Today, Nestlé employs some 300,000 people, takes in some $100 billion a year in revenue—and yet represents just 1.5% of a global food industry that feeds billions.

But for private initiative to work that kind of miracle, you need a market. Mr. Brabeck-Letmathe even worries about the absence of a functioning market for water. Some 98.5% of the fresh water the world uses every year goes to agricultural or industrial use. And in most cases, there is no market for how that water is allocated and used. The result is waste, overuse and misuse of the water we have. If we don't do something about that, Mr. Brabeck-Letmathe fears, we will soon run ourselves dry.

Up to now, he says, our response to water shortages has focused "on the supply-side": We build another dam, or a canal to bring water from one place to another. But "the big issue," he contends, "is on the demand side," and the "best regulator" of demand is prices.

"If oil becomes scarce," he notes, "the oil price goes up. But if water does, well, we still pump the same amount. It doesn't matter because it doesn't cost. It has no value." He drives this point home by connecting it back to biofuels: "We would never have had a biofuel policy—never," he contends, "if we would have given water any value." It takes, Mr. Brabeck-Letmathe says, "9,100 liters of water to produce one liter of biodiesel. You can only do that because water has no price."

He cites Spain as an example of an agricultural sector in need of adjustment. "The total [output] of the Spanish agricultural system," he says, "is less in value than the subsidies they receive between the Common Agricultural Policy, the subsidies for tax relief, the subsidies for water."

'Take away the emotion of the water issue," Mr. Brabeck-Letmathe argues. "Give the 1.5% of the water [that we use to drink and wash with], make it a human right. But give me a market for the 98.5% so the market forces are able to react, and they will be the best guidance that you can have. Because if the market forces are there the investments are going to be made."

The world's population is projected to hit nine billion by mid-century, up from 6.7 billion today. So, can we feed all those people? Mr. Brabeck-Letmathe doesn't hesitate. "We can feed nine billion people," he says, with a wave of the hand. And we can provide them with water and fuel. But only if we let the market do its thing.

Mr. Carney is editorial page editor of The Wall Street Journal Europe and coauthor of "Freedom, Inc.," (Crown Business, 2009).


Teamsters Sue Over Mexican-Truck Plan


WASHINGTON—The Teamsters union filed a lawsuit against the Obama administration on Friday seeking to block the government's plan to allow Mexican trucks back into the U.S., in a sign of the growing rift between unions and the administration over trade.

The suit challenges a deal the U.S. signed with Mexico in July to resolve a longstanding dispute over cross-border trucking. The agreement ended a two-decade-long ban on Mexican trucks entering the U.S.

The North American Free Trade Agreement, signed in 1994, called for allowing Mexican truckers into the U.S., but the International Brotherhood of Teamsters and Democratic allies in Congress repeatedly used legislation to block access. Nafta ruled in the late 1990s that Mexico could impose punitive tariffs, which it did in 2009, affecting $2.4 billion in U.S. goods annually.

Earlier this year, President Barack Obama and Mexican President Felipe Calderon jointly unveiled their plan to resolve the dispute, including a reciprocal pilot program that would allow Mexican trucks into the U.S. under certain rules.

The suit was filed Friday in the U.S. Court of Appeals for the Ninth Circuit in San Francisco by the Teamsters and the nonprofit group Public Citizen against the Department of Transportation and its Federal Motor Carrier Safety Administration. The complaint alleges that the pilot program sets standards that aren't stringent enough for Mexican trucks and drivers. For example, the program waives a law requiring trucks to display proof of meeting federal safety standards, said Jonathan Weissglass, a lawyer for the plaintiffs.

An official for the Federal Motor Carrier Safety Administration said the Teamsters haven't directly served the agency with a lawsuit. Once they do, the agency "will review and address the filing," she said, adding that the pilot program will begin within 30 to 60 days. The official declined to address the substance of the suit.

U.S. officials have said the deal would hold Mexican truckers to high safety standards, and business groups have said it is important to make a deal with Mexico because the retaliatory tariffs are costing the U.S. jobs.

The Obama administration has also clashed with some of its labor supporters over proposed free-trade deals with South Korea, Colombia and Panama.

The Teamsters allege the trucker program is faulty because it contains certain standards that are impossible for Mexico to meet. Mexico won't be able to provide comparable access to U.S. trucks, as required, because ultra-low-sulfur diesel fuel isn't widely enough available there, the lawsuit alleges.

Mr. Weissglass, a partner at San Francisco law firm Altshuler Berzon LLP, said this fuel is required for trucks in the U.S. to achieve better engine efficiency and emissions controls. Shifting to another fuel after using this one could cause engine damage and violate truck-manufacturer warranties, he said.

The Teamsters also said Mexican truckers have less-stringent vision requirements than truckers in the U.S., which will allegedly violate the pilot program's requirement for equivalent trucker safety in the two countries.

Teamsters President Jim Hoffa likened the pilot program to allowing guest workers into the country at a time of high U.S. unemployment.

"The last thing America needs right now is a guest worker program on wheels. We created zero jobs last month," he said, referring to the U.S. unemployment report issued Friday.

Write to Melanie Trottman at melanie.trottman@wsj.com


Time to Repeal The Lacey Act

Posted by Lee Stranahan Sep 1st 2011 at 4:58 am in Economics, Environment, Featured Story, Mainstream Media, New York Times, media bias | Comments (109)

By now, you’ve probably heard a bit about the Obama DOJ’s two raids on iconic American manufacturer Gibson Guitars. The story has made headlines around the world as another shocking example of how far the current administration is willing to take their antipathy for successful businesses. If you need to get caught up, the Bigs have broken news on this story, including two exclusive interviews with Gibson’s CEO (one by me and a must-hear interview by Dana Loesch) plus an important piece by John Nolte (and this latest via RS McCain wherein Gibson’s CEO says the government told him not to use American labor.)

As much as the Obama Administration deserves scorn for their overzealous prosecution, I’ve been researching the background of this story and have found that there’s another culprit – the entire United States Congress and their passage of an amendment to The Lacey Act back in 2008 that’s a prime example of an awful, anti-business law done in the name of environmentalism.

When you learn the details of the Lacey Act Amendments I think you’ll agree that they need to repealed as soon as humanely possible.

The amendments were passed in 2008 as part of the behemoth omnibus Farm Bill. The problem they were trying to address was the deforestation in countries like Madagascar, where ‘exotic woods’ like rosewood and ebony come from. Some of these problems resulted from political instability in the country, which created a grey market for these woods where the new ruling governments looked the other way and profited from the illegal wood harvest.

Where is all this wood going? Interestingly, 95% of it is going to China – not for re-export but for domestic use. The wealthy in China love rosewood and ebony furniture. In fact, the next time you hear a liberal attack the Koch Brothers or whatever rich-person-of-the-moment that they want to attack, picture someone in China who sleeps in an $800,000 bed. That’s not a misprint – if you want to see a picture of what a nearly million dollar bed looks like, you might want to check out this stylish report – it’s on Page 11. There’s a million dollar Chinese bed on page 16, too. And the report makes mention of the first Gibson raid on page 9.

So how have papers like The New York Times reported on this? Do you think they might possibly use misleading or even blatantly false reporting to try and guilt out their environmentally hip urban left wing readership? This is from a 2010 article on their ‘Green Blog’…

..it is not only the Chinese who covet the rich look of rosewood. Much of the furniture gets exported to the United States and Europe. Some of it appears in the polished contours of beautiful guitars.

Let’s parse those three short sentences.

It’s true – it’s not ONLY the Chinese who like rosewood. They are only responsible for a mere 95% of it. And when the Times says ‘much of the furniture’ gets exported to the U.S. and Europe…well, that’s not at all what the report says. Go look at top of Page 5, which uses the phrase ‘small quantities’. And to finish – they mention guitars. You know, guitars like the ones Gibson makes.

So, we have the New York Times providing false ideological cover and justification for the Lacey Act amendments and their enforcement. The goal is to create a smokescreen of false equivalence when, in fact, this is almost exclusively a problem caused by the Chinese – and China doesn’t seem to have passed any laws or made any agreements related to this issue at all. I looked and I couldn’t find any.

Meanwhile, the United States Congress passed Amendments to the Lacey Act to put the hammer down on whatever small part of the 5% that anyone in the United Starts is responsible for. If the penalties weren’t so draconian it would be another laughable example totally ineffective environmental symbolism. Remember, even if the U.S. were to stop every single import of rosewood, it wouldn’t actually solve whatever problem may exist in Madagascar at all.

How bad are the Lacey Act Amendments?

While China does nothing, the U.S. Congress saw fit to punish U.s businesses with fines of $500,000 and jail sentences of 5 years. This can’t be emphasized enough because it’s a real human consequence – the Federal Government is on the verge of possibly putting the CEO of Gibson Guitars in prison and doing enough economic damage to shut down the company for good.

I’m not even mentioning the new bureaucracy and paperwork requirements. I’m not going into the fines of $100,000 and a year in prison for unknowingly violating the Lacey Act Amendments. I’m ignoring the cost to the taxpayers of this enforcement. You can read all about those disgusting elements in the cartoony Primer that your tax dollars paid for and you’ll see I’m not joking about the cartoons.

The consequences of this awful, ineffective law are no joke, either. It’s happening to Gibson Guitars right now. I don’t grant the government the facts for second; Gibson is innocent until proven guilty and they haven’t even been charged. But remember what’s at stake. A man might go to prison. People will lose their jobs. And the rosewood of Madagascar will still be sent to China to make $1,000,000 beds.

Unless …

Unless we do something about it. Unless we draw a line in the sand and say enough. Unless some politician or Presidential hopeful picks up on this as the perfect example of government versus U.S. business. Herman Cain? Rick Perry? Rep. Bachmann? Mitt Romney? Thad McCotter? Anyone?


Is Google-Motorola the Next Antitrust Case?

These companies, like AT&T, need mergers to survive obstacles that government created.


The Justice Department is going to court to stop the proposed merger of AT&T and T-Mobile USA. Will the pending union of Google and Motorola suffer the same fate?

At first glance, the two mergers appear to have little in common. AT&T and T-Mobile are in the same business, while Google and Motorola occupy different niches in the telecommunications ecosystem. But AT&T and Google share a common problem: Both are victims of bungled government regulation, and both need merger partners to sustain competitive momentum in the face of federal roadblocks. Indeed, it's unlikely that either would have risked such intense antitrust scrutiny if the government had been doing its job properly.

Justice apparently believes that the AT&T/T-Mobile merger would inevitably mean less competition—and therefore higher prices and lower quality—in the wireless carrier market. We're skeptical. For one thing, it's far from clear that T-Mobile is viable any longer on its own: Deutsche Telekom, the carrier's parent, is reportedly unwilling to make the huge investment T-Mobile needs to keep up with rivals. For another, carrier concentration varies from locality to locality, and some judicious divestiture of customers and spectrum would make a big difference—which, one hopes, is all that the Justice Department is really after.

Consider, though, that the reason AT&T was prepared to fight the uphill battle to obtain T-Mobile was its need for spectrum to meet the exploding demand for broadband service in very competitive markets, including New York and San Francisco. In a better world (one in which more spectrum could be auctioned off and freely traded), AT&T could have acquired what it needed without a merger with the one major carrier with the spectrum that meets AT&T's needs. Yet the Federal Communications Commission is dancing a painfully slow minuet with television broadcasters, hoping to induce them to part with the excess spectrum they control (but are not allowed to sell) with a combination of threats and promises of cash.

Editorial writer Mary Kissel on the Department of Justice's suit to block the AT&T and T-Mobile merger.

Google, for its part, faces a very different government-manufactured obstacle. The giant's Android operating system, which is licensed to a dozen equipment makers world-wide, is a runaway success. But, thanks to a government patent and copyright system that is ill-equipped to navigate the modern and complex issues of carving out rights in software, Google faces as-yet-unknown challenges to ownership of the intellectual property that makes Android tick.

The company reportedly is willing to pay a large fortune for Motorola only because it would bring along thousands of patents that could be used to defend Android from predators. Indeed, major wireless-device makers including Sony, Samsung, LG and HTC are supporting the merger despite the fact that it would raise the specter of favoritism for Motorola, because they fear that Android would otherwise be hobbled by patent trolls and other attackers.

There's one last irony here. The controversies over both mergers are largely based on concepts of antitrust that are as obsolete in a high-tech environment as the government rules for allocating spectrum and parsing intellectual property. In the AT&T case, the worry is that a higher concentration in the market would give the company the discretion to raise prices. With Google, the unease is that the owner of the Android operating system would reserve the newest features for Motorola handsets.

In a world of breakneck technological change, though, the far greater concern for the feds and everyone else must be that micromanaging markets will slow innovation. And it is hard to think of an industry that has delivered more value more rapidly than wireless communications—or one in which the potential for innovation is greater.

While it is fashionable these days to view regulation as the enemy of growth and innovation, reality is more subtle. What's needed is not less government, but nimbler government. One that understands when and how regulation can make markets more competitive—and when it makes sense just to get out of the way.

Mr. Hahn is director of economics at the Smith School, Oxford, and a senior fellow at the Georgetown Center for Business and Public Policy.




several vids by Arnold Kling on “outsourcing”





September 6, 2011

The Freelance Economy

Today, careers consist of piecing together various types of work, juggling multiple clients, learning to be marketing and accounting experts, and creating offices in bedrooms/coffee shops/coworking spaces.  Independent workers abound.  This transition is nothing less than a revolution, says Sara Horowitz, the founder of Freelancers Union, a nonprofit organization representing the interests and concerns of the independent workforce.

Now, employees are leaving the traditional workplace and opting to piece together a professional life on their own. 

·         As of 2005, one-third of our workforce participated in this "freelance economy."

·         Data show that number has only increased over the past six years.

·         Entrepreneurial activity in 2009 was at its highest level in 14 years, online freelance job postings skyrocketed in 2010 and companies are increasingly outsourcing work.

·         While the economy has unwillingly pushed some people into independent work, many have chosen it because of greater flexibility that lets them skip the dreary office environment and focus on more personally fulfilling projects.

These trends will have an enormous impact on our economy and our society.  Consider:

·         We don't actually know the true composition of the new workforce -- after 2005, the government stopped counting independent workers in a meaningful and accurate way. Since policies and budget decisions are based on data, freelancers are not being taken into account as a viable, critical component of the U.S. workforce.

·         Jobs no longer provide the protections and security that workers used to expect. The basics ­ such as health insurance, protection from unpaid wages, a retirement plan and unemployment insurance are out of reach for one-third of working Americans.

·         Our current support system is based on a traditional employment model, where one worker must be tethered to one employer to receive those benefits; it's time to build a new support system that allows for the flexible and mobile way that people are working.

·         This new, changing workforce needs to build economic security in profoundly new ways.

The solution will rest with our ability to form networks for exchange and to create political power, says Horowitz.

Source: Sara Horowitz, "The Freelance Surge Is the Industrial Revolution of Our Time," The Atlantic, September 1, 2011.

For text:






Patent Overhaul Nears


WASHINGTON—A patent-system overhaul nearly a decade in the making is expected to receive final congressional passage this month, significantly altering how anyone with an invention—from a garage tinkerer to a large corporation—will vie for profitable control of that idea's future.

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Everett Collection

Philo T. Farnsworth, inventor of the television, is seen focusing an early television prototype, circa 1934.

Patent Battles

The bill, which passed a key Senate vote Tuesday and is expected to get President Barack Obama's signature, will reverse centuries of U.S. patent policy by awarding patents to inventors who are "first to file" their invention with the U.S. Patent and Trademark Office. Currently the "first to invent" principle reigns, which often spawns costly litigation between dueling inventors.

The new system puts a premium on inventors with the wits—or deep pockets—to dash to the patent office as soon as they discover something useful and nonobvious.

Many big companies say that change will help forestall drawn-out disputes. "You'll end up with a patent system that's more predictable and far more certain," said Bob Armitage, general counsel of drug maker Eli Lilly & Co.

But small inventors fear the first-to-file approach will cause companies to overwhelm patent examiners with applications, a pace of activity individuals can't afford to match. Critics include Raymond Damadian, the doctor who invented magnetic resonance imaging technology and has said the MRI would never have been invented under the proposed rules.


A new bill that passed the Senate this week will overhaul centuries of U.S. patent policy and award patents to inventors who are first to file. Amy Schatz reports from Washington.

"This is very, very harmful for small companies, and they're by and large completely unaware of what's about to happen," said venture capitalist Gary Lauder. "The biggest harm will come for companies ages zero to one." Right now, entrepreneurs can talk to potential investors and others to gauge the potential for an invention without much risk of the idea will be stolen, he said, and first-to-file reduces that opportunity.

The bill also includes provisions that larger companies have sought for years. They will gain a new way to challenge patents that have just been granted, and the U.S. Patent and Trademark Office will get the right to set its own fees and hire more examiners.

That could make getting a patent quicker. Currently, there's a three-year wait for patent applications and some patent-office programs—such as a fast lane for applicants that are willing to pay extra fees—are on hold because of funding shortfalls.

"Is it a perfect bill? No," said David Simon, associate general counsel at chip maker Intel Corp., who estimated he has been working on a patent overhaul for nine years. "But it has a lot of good steps forward that will help things."

The Senate voted 93 to five Tuesday to limit debate on the bill, which passed the House in June. Aides said final passage could come by next week, and then the bill would go to President Obama's desk for signature.

Mr. Simon said the new challenge procedure may cut down on patents that shouldn't have been granted and are now seldom tested until costly litigation has begun.

Another provision, he said, would make it harder for patent holders to file blanket suits against dozens of companies in dissimilar industries.

Companies like Intel that manufacture products have often found themselves at odds with companies that live solely on their patents, sometimes buying and selling them like stocks in a portfolio.

But Intellectual Ventures, one of the best-known companies in the latter category, said it generally supports the current version of the legislation, including the post-patent review.

Matt Rainey, the firm's chief counsel for intellectual-property policy, said the bill's provisions giving the patent office more control over its own funding are critical. "If we don't give the patent office the money it needs and the people it needs to carry it out, it could be worse," he said.

Larger companies argue that the change to a first-to-file system will make it easier for companies by bringing the U.S. in line with Europe and Japan.

Already, companies "should be running to the patent office as soon as they can because in the rest of the world you have to," said Stuart Meyer, an intellectual property partner at law firm Fenwick & West.

When Canada instituted a similar change to "first to file" in 1989, the number of individual inventors who filed patents dropped and didn't go back up in the following years, according to new research by a pair of University of Pennsylvania Law School professors.

"To the extent we think the patent systems in the U.S. and Canada are similar, we might expect to see a similar outcome in the U.S.," said David S. Abrams, assistant professor of law, business and public policy at the University of Pennsylvania Law School and a co-author of the study.

In response to the complaints from the small business community, the legislation sets up an ombudsman program to help start-ups and provides new discounts on patent filing fees for small companies.

Passage of the legislation would mark the end of a decade-long battle by companies to persuade Congress to overhaul patent rules and jump-start the slow-moving Patent and Trademark Office. Previous attempts to pass legislation died as various industry groups haggled over details in the bill, but some of the largest disagreements – such as how damages on patent cases are determined – have been settled by the courts.

The Senate passed an earlier version of the bill in March on a 95-5 vote. The House passed its version 304-117 in June. The House bill—the same one the Senate voted on Tuesday—creates a reserve fund for excess patent fees instead of allowing the patent office to automatically keep all the fees its collects.

That displeased some senators who believed the new system might continue to give Congress the leeway to take patent fees and use the money elsewhere, but the objections weren't enough to derail the bill in Tuesday's vote.

—Siobhan Hughes
contributed to this article.

Write to Amy Schatz at Amy.Schatz@wsj.com and Don Clark at don.clark@wsj.com



Economic View


How to Make Business Want to Invest Again

Published: September 10, 2011


DURING the last week, the nation has witnessed much partisan wrangling over the economy. So it might be worth stepping back and assessing what we know and what we don’t. Let’s start with five propositions about which there is little doubt:

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Minh Uong/The New York Times

Weekend Business

Jeff Sommer with Floyd Norris on President Obama, the Fed, and the economy; Greg Mankiw on making business want to invest again; Louis Uchitelle on government help for manufacturing; and David Gillen and Natasha Singer on commercializing campus life.

The economy is in bad shape. Technically, the recession ended in June 2009, and since then the economy has been recovering. But it doesn’t feel that way to many Americans. Things have stopped getting worse, but they have not gotten much better. The recovery has been so meager that unemployment lingers at historically high levels.

The disappointing news about job creation is closely linked to lackluster growth in G.D.P. Economists call the relationship between growth and unemployment “Okun’s Law,” after Arthur Okun, who studied it in the 1960s. In essence, Okun’s Law says that to reduce the unemployment rate, we need for gross domestic product to grow by more than its long-run average rate of about 3 percent. So far in 2011, the growth rate has been less than 1 percent.

The most volatile component of G.D.P. over the business cycle is spending on investment goods. This spending category includes equipment, software, inventory accumulation, and residential and nonresidential construction. And the recent economic downturn offers this case in point about the problem: From the economy’s peak in the fourth quarter of 2007 to the recession’s official end, G.D.P. fell by only 5.1 percent, while investment spending fell by a whopping 34 percent.

The subpar recovery has coincided with a historically weak investment recovery. Compare our recent experience with that of the early 1980s, when the nation last experienced a deep economic downturn in which unemployment topped 10 percent. That recession ended in the fourth quarter of 1982. In the subsequent two years, investment spending grew by a total of 54 percent. By contrast, in the first two years of this recovery, it grew by half that amount.

While the sluggish housing market can explain the slow pace of residential investment, it is not the whole story. Business investment has also been weak. Over the last two years, nonresidential fixed investment has grown by only 12 percent, whereas during the two years after the 1982 recession, it grew by 27 percent. Similarly, the narrow category of spending on business equipment and software fell more than twice as much in this recession as it did in the 1982 recession, and it has been slower to recover.

So much for what we know for sure. Now comes the hard part: what to make of these facts.

Advocates of traditional fiscal stimulus often view low levels of investment as a symptom, rather than a cause, of the weak recovery. Businesses are reluctant to invest, they argue, because they lack customers eager to spend. If the government can goose demand by handing out dollars to households short on cash, or by buying goods and services directly, businesses will respond by expanding their own spending as well.

Yet fluctuations in investment spending, rather than being only a passive response, are also one of the driving forces of the booms and busts of the business cycle. The great economist John Maynard Keynes suggested that investment spending is in part determined by the “animal spirits” of investors, which he described as “a spontaneous urge to action rather than inaction.” Recessions occur when optimism turns to pessimism, and businesses are reluctant to place bets on a prosperous future. Recovery occurs when investor confidence returns.

To be sure, both points of view may well be true. The relationship between investment and the overall economy is what an engineer would call a positive feedback loop. Greater business investment would increase hiring, both by those who produce the investment goods and those who buy them. Greater employment would mean more workers taking home paychecks, which in turn would increase the overall demand for goods and services. When businesses saw more customers coming through their doors, they would then increase investment spending yet again.

WHAT can policy makers do to stoke animal spirits and encourage businesses to invest?

One obvious step would be a cut in the taxation of income from corporate capital. According to a 2008 study by the Organization for Economic Cooperation and Development, “Corporate taxes are found to be most harmful for growth.” Tax reform that reduced the burden on capital income and shifted it toward consumption would improve prospects for long-run growth and, in so doing, encourage greater investment today.

Yet it would be overly optimistic to think that any single public policy, by itself, could lead to the kind of robust investment spending seen in previous recoveries. Myriad government actions influence the expected future profitability of capital. These include not only policies concerning taxation but also those concerning trade and regulation.

For example, passing the free trade agreement with South Korea, which has languished in Congress more than four years after first being negotiated, would be a step in the right direction. So would reining in the National Labor Relations Board; its decision to block Boeing from opening a nonunion plant in South Carolina may have been hailed by organized labor, but it surely did not hearten investors.

Economists often rely on the convenient shortcut of separating long-run and short-run issues. Recessions are then viewed as short-run problems that require short-run solutions. That approach, however, may be simplistic. Lack of investment spending is a large part of the economy’s current difficulties, but capital investments are always made with an eye toward the future.

The best fix for our short-run problems may be to focus on policies that will foster long-run growth as well.

N. Gregory Mankiw is a professor of economics at Harvard. He is advising Mitt Romney, the former governor of Massachusetts, in the campaign for the Republican presidential nomination.

Arnold Kling’s “Jobs Speech”








How to Fight Black Unemployment

The tragedy of the failed stimulus is felt hard in minority communities. There's a better way.

Some people actually believe government can create jobs by taxing and borrowing from people with jobs and then giving that money to people without jobs. They call this demand stimulus. To make matters worse, other people think these demand-stimulus ideas warrant a serious response.

Government taxes cigarettes to stop people from smoking, not to get them to smoke. Government fines speeders so they won't speed, not to encourage them to drive faster. And yet contrary to common sense, it seems perfectly natural to some people that government would tax people who work or companies that are successful only to give that money to people who don't work and to bail out losing companies. The thought never crosses their minds that these policies are the very reason why our economy is in such bad shape.

I'm beginning to think that Irving Kristol was correct when he wrote, "It takes a Ph.D. in economics not to be able to understand the obvious." It shouldn't surprise anyone why the economy isn't getting better.

If the U.S. wants prosperity, government doesn't need to do something, it needs to undo much of what it already has done. Here is one area where, in the spirit of the late Congressman Jack Kemp, President Obama and I could agree.

African-Americans are suffering inordinately in the Obama aftermath of the Bush Great Recession. While overall U.S. unemployment stands at 9.1%, black unemployment has jumped to 16.7%. Black teenage unemployment is bordering on 50%, and that figure doesn't even take into account "discouraged" workers, "involuntary" part-time workers and "underemployed" workers. But even these numbers don't tell the real story. They represent real people who are suffering deeply and have been suffering for a long, long time.

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Behind these numbers are millions of lives discouraged and despondent. People who've lost their self-esteem and pride. The young who have given up on America and some of whom have even turned to crime. Scars are being made across a whole ethnic subset of America. Unemployment, underemployment and involuntary part-time employment represent the loss of a precious natural resource that can never be recouped. No one can feel good about himself if he's living on handouts from Uncle Sam. We as a nation can't wait until 2013 to address this issue.

Whether President Obama's base finds supply-side economics appealing or not, he should immediately join with all members of Congress from both parties to develop a full program for enterprise zones. And while enterprise zones are desperately needed in our inner cities, there are lots of areas in the hollows of Kentucky and West Virginia that need enterprise zones as well, not to mention barrios in California and New Mexico.

Enterprise zones should be areas that are geographically defined with exceptionally high concentrations of poverty, underachievement and unemployment. The policies applicable to enterprise zones should include:

A) For all employment within the enterprise zone of people whose principal residence is also the enterprise zone, there should be no payroll tax whatsoever, neither employer nor employee portions. The employer need not be headquartered in the enterprise zone to take advantage of the elimination of the employer's portion of the payroll tax. The locus of employment does have to be in the enterprise zone.

Don't for a moment think that this will be a budget buster. Right now there aren't many jobs in our inner cities anyway and the few dollars of tax revenues lost will be more than offset by reductions in welfare spending because people will have jobs and won't need welfare. The best form of welfare is still a good job.

B) Federal and state minimum wages must be suspended in the enterprise zone. If not for all employees, then at least for employees under 30. These young people need on-the-job training, and at the present minimum wage many of them aren't worth hiring. That is why they are unemployed.

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Associated Press

A job seeker fills out an application with Coca-Cola at a jobs fair hosted by the Congressional Black Caucus in Miami.

Even for teenagers who are in school, a summer job is an enormous benefit for a future productive career. This summer and last summer only 30% of all teens worked—all-time lows. We need to break this vicious cycle right now by getting rid of the youth minimum wage in our enterprise zones.

C) In the enterprise zones the government should do an expedited review of all building codes, regulations, restrictions and requirements to make sure that they don't unjustifiably impede economic growth. For example, mandated union membership rules should be voided in enterprise zones as should all prevailing wage provisions and the like.

When I lived in Chicago I reviewed a number of rules and regulations and restrictions whose primary impact was to impede our inner cities from ever achieving prosperity. I'll bet they're even worse now.

D) Profits generated by companies operating and employing people within the enterprise zone should only be taxed at one-third the regular tax rate. No matter how many fewer regulations a company faces, those companies still quite rightly respond to profits for their shareholders.

Businesses don't move their plant facilities as a matter of social conscience. They do it to make profits for their shareholders. If you want more jobs in our most depressed areas, make those areas more profitable for companies to relocate there. It's as simple as that.

I guarantee Mr. Obama that he will receive the support necessary to carry the day in Congress. And once he sees how this plan works for our most depressed areas of America, he can then extend enterprise zones to cover the whole country.

Mr. Laffer, chairman of Laffer Associates, is co-author, with Stephen Moore, of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).







September 10, 2011

When Health Insurance is Free

By John C. Goodman


Did you know that an estimated one of every three uninsured people in this country is eligible for a government program (mainly Medicaid or a state children’s health insurance plan), but has not signed up?

Either they haven’t bothered to sign up or they did bother and found the task too daunting. It’s probably some combination of the two, and if that doesn’t knock your socks off, you must not have been paying attention to the health policy debate over the past year or so.

Put aside everything you’ve heard about Obama Care and focus on this bottom line point: going all the way back to the Democratic presidential primary, Obama Care was always first and foremost about insuring the uninsured. Yet at the end of the day, the new health law is only going to insure about 32 million more people out of more than 50 million uninsured. Half that goal will be achieved by new enrollment in Medicaid. But if you believe the Census Bureau surveys, we could enroll just as many people in Medicaid by merely signing up those who are already eligible!

What brought this to mind was a series of editorials by Paul Krugman and Health Affairs blog and at my blog) asserting that government is so much more efficient than private insurers. Can you imagine Aetna or UnitedHealth Care leaving one-third of its customers without a sale, just because they couldn’t fill out the paperwork properly? Well that’s what Medicaid does, day in and day out.

Put differently, half of everything Obama Care is trying to do is necessary only because the Medicaid bureaucracy does such a poor job — not of selling insurance, but of giving it away for free!

Writing in Health Affairs the other day, health policy guru Alain Enthoven and health care executive Leonard Schaeffer revealed some of the gory details of what people encounter when they do try to sign up for free health insurance from Medi-Cal (California Medicaid) in the San Diego office:

Of the 50 calls made over a three-month period, only 15 calls were answered and addressed. The remaining 35 calls were met by a recording that stated, “Due to an unexpected volume of callers, all of our representatives are currently helping other people. Please try your call again later,” followed by a busy signal and the inability to leave a voice message. For the 15 answered calls, the average hold time was 22 minutes with the longest hold time being 32 minutes.

This study, by the way, was conducted by the Foundation for Health Coverage Education (FHCE), a nonprofit organization dedicated to helping the uninsured enroll in available health coverage programs. The head of FHCE’s national call center reports that his staff has taken hundreds of calls from people who have tried in the past to enroll in Medicaid, but who found the process so complicated and difficult that they simply quit trying.

I know what you are thinking. What about doctors and hospitals? Can’t they help poor people sign up for public programs and isn’t it in their self-interest to do so? Turns out that medical providers have just as much difficulty with the Medicaid bureaucracy as the patients do:

[I]t routinely takes more than 90 days for the state to enroll uninsured patients into public programs. This is because it is the patient‘s responsibility to apply directly to the state program to receive the needed documentation for hospital reimbursement. Once treatment is provided and the medical incident is over, it is difficult to ensure that the patient continues with the enrollment process.

Can you imagine Aetna taking 90 days to sell someone an insurance policy? What about WellPoint? Or Blue Cross?

Another problem is the Medicaid payment rates. They are so low that California hospitals frequently don’t even bother to try to enroll patients who come to the emergency room, unless they're admitted to the hospital:

[P]ublic program reimbursement is often so low that hospitals are more likely to only seek reimbursement for patients who are eligible for public coverage that fall into the “treat and admit” category rather than those patients who enter the Emergency Room with minor emergencies or illnesses. Furthermore, hospitals estimate that they receive as low as nine percent of fully-billed charges for Medi-Cal patients. Therefore, the providers have little financial incentive to encourage patient enrollment in public programs.

Most people view ObamaCare as a radical reform. Here’s an idea that is even more radical: why not abolish Medicaid? Texas A&M professor Thomas R. Saving, a former Trustee of Medicare, has proposed the idea of Health Care Stamps. They would work like Food Stamps. People who have them would be able to shop around andbuy care in the same medical marketplace that caters to the needs of all other patients — rich and poor alike.

I’ll write more about this idea in the future.


A Tariff-Reduction Plan for U.S. Jobs

Eliminating duties that U.S. producers pay on imported raw materials would instantly boost competitiveness.

In his address to Congress Thursday night, President Obama offered a tepid endorsement of the idea that reducing trade barriers could help put Americans back to work. But if the president is serious about creating jobs, he must take more decisive actions to spur trade and investment and reject protectionism. That means convincing trade-hostile Democrats of the merits of the long-pending bilateral trade agreements with South Korea, Colombia and Panama, which he plans to submit to Congress this month or next. He will also need to steer Congress away from inciting an unwelcome trade war with China.

As important as access to foreign markets is, however, some of the most significant obstacles to U.S. export success aren't foreign-made but homegrown. If the president is genuinely committed to spurring economic growth and job creation, he will take the lead on reducing or eliminating duties that U.S. producers pay on imported raw materials and components they need for manufacturing. This would instantly boost the competitiveness of U.S. products at home and abroad.

The same demographics that have created growing foreign markets also mean there are more foreign suppliers of raw materials, industrial inputs, and other intermediate goods used by U.S. producers in their own production processes. Last year, U.S. Customs and Border Patrol collected $30 billion in duties on $2 trillion of imports, 55% of which were ingredients for U.S. production—such as chemicals, minerals and machine parts. Purchases of imported inputs accounted for more than $1 trillion of U.S. production costs, a price tag that was roughly $15 billion higher than it might have been without U.S. import duties.

What is the point of negotiating a 5% reduction in a foreign tariff on behalf of certain U.S. exporters while ignoring the fact that, to produce those exports as domestic manufacturers, they are required to pay a 50% import tax on the most crucial raw materials? Reducing import barriers has the same effect on profit as does improving market access abroad, but with the added benefit of increasing U.S. competitiveness. And it can be achieved without waiting for consent from abroad.

President Obama understands this. Last year, when signing into law the Manufacturing Enhancement Act of 2010 (a bill to temporarily reduce or eliminate duties on certain imported raw materials) the president acknowledged that the new law "will significantly lower costs for American companies across the manufacturing landscape—from cars to chemicals; medical devices to sporting goods" and will "boost output, support good jobs here at home, and lower prices for American consumers."

Now the president should push Congress to reduce or eliminate, on a permanent basis, all tariffs on industrial inputs so that U.S. producers are more competitive in the global economy and so that America is a more appealing destination for foreign direct investment. That approach has produced good results in Canada, where the government has been reducing tariffs on manufacturing inputs for the past few years.

Meanwhile, some import duties can be eliminated with a stroke of the president's pen. First should be antidumping duties, imposed on inputs needed by U.S. producers. The antidumping law is purported to penalize foreign producers accused of injuring U.S. firms by selling in the United States at lower prices than they charge at home. Some U.S. industries lobby vigorously for such duties simply because they hobble the foreign competition.

Yet more than 80% of the nearly 300 U.S. antidumping measures in force today restrict imports of raw materials and intermediate goods, thus penalizing U.S. producers. Antidumping duties on magnesium or polyvinyl chloride or hot-rolled steel may allow domestic producers of those inputs to raise prices and reap greater profits. But they hurt many more downstream U.S. producers of auto parts, paint and appliances, who consume those inputs in their own manufacturing processes and who are more likely to export and create new jobs than are the firms that seek trade restrictions.

Earlier this year, U.S. Trade Representative Ron Kirk unintentionally made the case for antidumping reform while describing the consequences of Chinese restrictions on exports of nine raw materials. He noted that "these measures skew the playing field against the United States and other countries by creating substantial competitive benefits for downstream Chinese producers that use the inputs in the production and export of numerous processed steel, aluminum and chemical products and a wide range of further processed products."

What Amb. Kirk failed to mention is that the U.S. government itself maintains antidumping restrictions on three of those nine raw materials, which raises production costs in the same manner he described but also chases U.S. producers offshore, where these inputs are available at world market prices. (My recent study, "Economic Self-Flagellation: How U.S. Antidumping Policy Subverts the National Export Initiative," explains how antidumping restrictions on magnesium and silicon metal are encouraging high-value-added industries to move offshore.)

Improving access to foreign markets, through trade agreements and other measures, will be essential to continued U.S. economic growth. But for maximum effect, the president should strongly advocate the elimination of duties on imported manufacturing inputs and other domestic impediments to U.S. competitiveness abroad and at home.

Mr. Ikenson is associate director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute. 


September 8, 2011

Can For-Profit Colleges Save Higher Education?

For-profit colleges are on the ropes.  Damaging congressional investigations, a bruising fight over new federal regulations and a stagnant economy have all combined to reverse what had been unprecedented growth in for-profit enrollments.  As Bloomberg BusinessWeek reported last week, financial analysts now see an outlook for proprietary colleges that ranges from uncertain to gloomy, says

Andrew Kelly, a research fellow at the American Enterprise Institute.

Consumers and investors have reason to be wary.

·                       Federal statistics indicate that 25 percent of all for-profit students who started repaying their loans in 2008 had defaulted three years later.

·                       In public colleges, the comparable figure was just 10 percent.

·                       Although for-profits enroll only about 10-15 percent of all students, their students make up about 47 percent of all three-year loan defaults.

·                       By 2015, new federal regulations will cut off student aid dollars to for-profit programs whose graduates struggle to pay back their loans.

So what do the for-profits have to offer?  Kelly sees three things:

·                       First, the for-profits have shown an ability to grow and expand their capacity.

·                       Second, for-profits have experience serving higher education's "new majority": nontraditional students.

·                       Third, the for-profits have shown a knack for getting students over the finish line in their two-year programs.

This is not an argument for or against for-profit colleges as currently conceived.  Providing expertise, infrastructure and services to willing, entrepreneurial partners in the non-profit and public sectors would enable for-profits to accomplish two goals.

·                       First, the model would shift much of the risk inherent in educating nontraditional students to their partner organizations and provide for a more politically stable revenue stream.

·                       Second, this new arrangement would clearly harness their wealth of knowledge and innovative spirit to the nation's new higher education goals.

Source: Andrew P. Kelly, "How For-Profit Colleges Can Save Themselves -- and Higher Education," The Atlantic, September 6, 2011.

For text:



independent inst


Jobs, Wages, and Walmart

Shoppers in Washington, DC, may find comfort in Walmart's announcement that the retail giant will open four stores in the District starting next year. But despite its popularity with consumers, Walmart has no shortage of critics who complain that it reduces employment, pays low wages, and destroys communities. Independent Institute Research Fellow Art Carden takes on each of those claims in an op-ed for the Washington Examiner. READ MORE

A Case Against the Case Against Walmart, by Art Carden (Washington Examiner, 9/1/11)

Does Wal-Mart Reduce Social Capital?, by Art Carden and Charles Courtemanche (12/22/08)

Is Wal-Mart Good or Bad for America? A Debate Featuring Ken Jacobs and Richard Vedder (5/08/07)

The Lighthouse - Volume 13, Issue 36 - September 7, 2011






Student loan default rates jump


9/12/2011 | APNews


The number of borrowers defaulting on federal student loans has jumped sharply, the latest indication that rising college tuition costs, low graduation rates and poor job prospects are getting more and more students over their heads in debt.

The national two-year cohort default rate rose to 8.8 percent last year, from 7 percent in fiscal 2008, according to figures released Monday by the Department of Education.

Driving the overall increase was an especially sharp increase among students who borrow from the government to attend for-profit colleges.

Of the approximately 1 million student borrowers at for-profit schools whose first payments came due in the year starting Oct. 1, 2008 _ at the peak of the financial crisis _ 15 percent were already at least 270 days behind in their payments two years later. That was an increase from 11.6 percent among those whose first payments came due the previous year.

At public institutions, the default rate increased from 6 percent to 7.2 percent and from 4 percent to 4.6 percent among students at private not-for-profit colleges.

"I think the jump over the last year has been pretty astonishing," said Debbi Cochrane, program director for the California-based Institute for College Access & Success.

Overall, 3.6 million borrowers entered repayment in fiscal 2009; more than 320,000 had already defaulted last fall, an increase of 80,000 over the previous year.

The federal default rate remains substantially below its peak of more than 20 percent in the early 1990s, before a series of reforms in government lending. But after years of steady declines it has now risen four straight years to its highest rate since 1997, and is nearly double its trough of 4.6 percent in 2005.

Troubling as the new figures are, they understate how many students will eventually default. Last year's two-year default rate increased to more than 12 percent when the government made preliminary calculations of how many defaulted within three years. Beginning next year, the department will begin using the figure for how many default within three years to determine which institutions will lose eligibility to enroll students receiving government financial aid.

The figures come as a stalled economy is hitting student borrowers from two sides _ forcing cash-strapped state institutions to raise tuition, and making it harder for graduates to find jobs. The unemployment rate of 4.3 percent for college graduates remains substantially lower than for those without a degree. But many student borrowers don't finish the degree they borrow to pay for.

The Department of Education has begun an income-based repayment plan that caps federal loan payments at 15 percent of discretionary income. And new regulations the Obama administration has imposed on the for-profit sector have prompted those so-called proprietary colleges to close failing programs and tighten enrollment. Both developments could help lower default rates in the future.

Administration officials took pains to praise the for-profit sector for recent reforms, but also said flatly that those schools _ along with the weak economy _ are largely to blame for the current increases. Among some of the largest and better-known operators, the default rate at the University of Phoenix chain rose from 12.8 to 18.8 percent and at ITT Technical Institute it jumped from 10.9 percent to 22.6 percent.

"We are disappointed to see increases in the cohort default rates for our students, as well as students in other sectors of higher education," said Brian Moran, interim president and CEO of APSCU, the Association of Private Sector Colleges and Universities, which represents the for-profit sector. He said for-profit schools were taking remedial steps, including debt counseling for students, to bring down the rates.

"We believe that the default rates will go down when the economy improves and the unemployment rate drops," he said.

ITT, owned by ITT Educational Services, did not immediately respond to requests for comment.

Chad Christian, a spokesman for Phoenix, owned by Apollo Group, Inc., said colleges throughout the country are seeing increased default rates due to the economy.

"We are committed to helping our students understand and manage financial aid debt levels," Christian said.

The department emphasized that it eventually manages to collect most of the money it's owed, even from defaulters. But that's part of the reason federal student loan defaults are so hard on borrowers _ they can't be discharged in bankruptcy. Defaulting can also wreck students' credit and keep them from being able to return to school later with federal aid.

"There are very few avenues for escaping that," Cochrane said. Also, "many employers these days are starting to check credit so it can hurt your job prospects."

According to calculations by TICAS and using the latest available figures, in 2008 average debt for graduating seniors with student loans was $20,200 at public universities, $27,650 at private non-profits and $33,050 at private for-profits.


Justin Pope covers higher education for the AP. You can reach him at twitter.com/jnn_pope97

Too Much Higher Education

By Walter E. Williams


Too much of anything is just as much a misallocation of resources as it is too little, and that applies to higher education just as it applies to everything else. A recent study from The Center for College Affordability and Productivity titled "From Wall Street to Wal-Mart," by Richard Vedder, Christopher Denhart, Matthew Denhart, Christopher Matgouranis and Jonathan Robe, explains that college education for many is a waste of time and money. More than one-third of currently working college graduates are in jobs that do not require a degree. An essay by Vedder that complements the CCAP study reports that there are "one-third of a million waiters and waitresses with college degrees." The study says Vedder -- distinguished professor of economics at Ohio University, an adjunct scholar at the American Enterprise Institute and director of CCAP -- "was startled a year ago when the person he hired to cut down a tree had a master's degree in history, the fellow who fixed his furnace was a mathematics graduate, and, more recently, a TSA airport inspector (whose job it was to ensure that we took our shoes off while going through security) was a recent college graduate."

The nation's college problem is far deeper than the fact that people simply are overqualified for particular jobs. Citing the research of AEI scholar Charles Murray's book "Real Education" (2008), Vedder says: "The number going to college exceeds the number capable of mastering higher levels of intellectual inquiry. This leads colleges to alter their mission, watering down the intellectual content of what they do." In other words, colleges dumb down courses so that the students they admit can pass them. Murray argues that only a modest proportion of our population has the cognitive skills, work discipline, drive, maturity and integrity to master truly higher education. He says that educated people should be able to read and understand classic works, such as John Locke's "Essay Concerning Human Understanding" or William Shakespeare's "King Lear." These works are "insightful in many ways," he says, but a person of average intelligence "typically lacks both the motivation and ability to do so." Mastering complex forms of mathematics is challenging but necessary to develop rigorous thinking and is critical in some areas of science and engineering.

Richard Arum and Josipa Roksa, authors of "Academically Adrift: Limited Learning on College Campuses" (2011), report on their analysis of more than 2,300 undergraduates at 24 institutions. Forty-five percent of these students demonstrated no significant improvement in a range of skills -- including critical thinking, complex reasoning and writing -- during their first two years of college. According to an August 2006 issue brief by the Alliance for Excellent Education, student "lack of preparation is also apparent in multiple subject areas; of college freshmen taking remedial courses, 35 percent were enrolled in math, 23 percent in writing, and 20 percent in reading." Declining college admissions standards have contributed to the deterioration of the academic quality of our secondary schools. Colleges show high schools that they do not have to teach much in order for youngsters to be admitted.

According to Education Next, an August Harvard University study titled "Globally Challenged: Are U.S. Students Ready to Compete?" found that only 32 percent of U.S. students achieved proficiency in math, compared with "75 percent of students in Shanghai, 58 percent in Korea, and 56 percent in Finland. Countries in which a majority -- or near majority -- of students performed at or above the proficiency level in math include Switzerland, Japan, Canada, and the Netherlands." Results from the 2009 Programme for International Student Assessment international test show that U.S. students rank 32nd among industrialized nations in proficiency in math and 17th in reading.

Much of American education is in shambles. Part of a solution is for colleges to refuse to admit students who are unprepared to do real college work. That would help to reveal the shoddy education provided at the primary and secondary school levels. Here I'm whistlin' "Dixie," because college administrators are more interested in numbers of students, which equal more money.

Walter E. Williams

Dr. Williams serves on the faculty of George Mason University as John M. Olin Distinguished Professor of Economics


Sep 13, 2011
1:45 PM

Manufacturing Drove Cities’ Growth in 2010

By Ben Casselman

Last year was a good one for cities that make things.

Click for larger version

Metropolitan areas with big durable-goods manufacturing sectors grew much faster than the all-metropolitan average of 2.5% in 2010, according to new data on local gross domestic product released by the Commerce Department this morning. Durham-Chapel Hill, North Carolina, for example, grew 6.6%, led by a big surge in its manufacturing sector. Same for the Titusvilla, Florida, area, along Florida’s “Space Coast,” which grew 4.7% in 2010.

One area of particular interest was Indiana, where manufacturing helped several cities reverse big drops in output from 2009. Elkhart, Indiana, for example, was the nation’s third-fastest-growing metro area in 2010, a year after it experienced the country’s biggest contraction. (Its GDP remains 4.3% below its 2008 level, however.)

The U.S. manufacturing sector has been a rare bright spot in the economic recovery, buoyed in part by strong demand from overseas. But slowing global growth could threaten that resurgence — and the areas that have benefited from it.



Income, Poverty and Health Insurance Report: Fast Facts

by David Wessel

The Census Bureau released its annual report on Income, Poverty and Health Insurance Coverage in the United States today. Here are some quick bullet points:

–Median household income in 2010 was $49,445, down 2.3% from 2009 and down 6.4% from prerecession level.

–Median household income in 2010 was $49,445. That’s 7.1% lower (adjusted for inflation) than it was in 1999

–Median earnings for full time male worker in 2010 was $47,715. Adjusted for inflation, it was $48,245 in 1978.

–Median earnings for men who worked full-time year round was $47,715 in 2010, down 0.4%. For women it was $36,931, up 1.5%.

–Best off 5% of households (adjusted for household size) got 21% of income in 2010.

– Official poverty rate in 2010 was 15.1%, up from 14.3% in 2009, third consecutive annual increase

–In 2010, 49.90 million Americans (16.3%) without health insurance vs. 48.99 million (16.1%) in 2009.

–The fraction of foreign-born without health insurance in 2010 was more than double native-born population.


Income Slides to 1996 Levels

Median Household Earnings Fall for Third Year, Census Says


The income of the typical American family—long the envy of much of the world—has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.

The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak, the Census Bureau said.


The poverty rate clicked up again this year. WSJ's David Wessel, DJ Newswires' Neal Lipschutz and MarketWatch's David Callaway discuss on The News Hub whether the government needs to intervene to the rising number of Americans affected.

The Census Bureau's annual snapshot of living standards offered a new set of statistics to show how devastating the recession was and how disappointing the recovery has been. For a huge swath of American families, the gains of the boom of the 2000s have been wiped out.

Earnings of the typical man who works full-time year round fell, and are lower—adjusted for inflation—than in 1978. Earnings for women, meanwhile, are a relative bright spot: Median incomes have been rising in recent years and rose again last year, though women still make 77 cents for every dollar earned by comparably employed men.

The fraction of Americans living in poverty clicked up to 15.1% of the population, and 22% of children are now living below the poverty line, the biggest percentage since 1993.

Enlarge Image


To be sure, there are other measures of American financial health that are more positive. The nation's per capita net worth, for instance, hit $169,691 at the end of 2010, according to the Federal Reserve, up from $147,889 in 2007. Much of that gain is in the form of stocks, retirement accounts and other investments. The biggest asset of most American families is their homes, and those have declined in value in recent years.

And there are those who argue the Census report offers a flawed gauge of living standards. For example, the Census Bureau adjusts for inflation using government measures that attempt to reflect the improving quality as well as price of goods. But these inflation adjustments are imperfect and don't reflect advances in medicine, the wonders of the Internet or the improvements in air quality.


U.S. household incomes fell for the third straight year in 2010, driving up the poverty level to the highest level in nearly 20 years. WSJ's Conor Dougherty has details. Photo: Spencer Platt/Getty Images

Deborah Bagoy-Skinner and her husband, Chester, are among the faces behind the numbers. Four years ago, the Tucson, Ariz., couple owned their home and had a combined income of around $100,000, much of which came from Mr. Skinner's job conducting safety training classes for a heavy-equipment maker.

They lost their three-bedroom home in 2007 during a two-year spell of unemployment, and have since downgraded to a two-bedroom rental. Through 2008 and 2009, the darkest days of the recession, they sold everything from golf clubs to antique nickels to pay rent and bills. Today the couple is well above the poverty line: Mr. Skinner makes about $65,000 a year doing contract safety classes. But with their savings wiped out it will be a long road back, and likely they won't own another home or ever make as much as they once did. "We've pretty much accepted that that probably won't happen," she says.

The Census report, viewed as a key gauge of American prosperity, comes at a time of growing anxiety about the health of the U.S. economy and is likely to play into the political dialog this election year. With more than 14 million unemployed, many of them out of jobs for extended periods, the recovery is faltering and the administration and Congress are debating how to respond. Consumers account for some 70% of demand, so thinner pay checks are a major problem for anyone trying to boost growth and get the unemployed back into jobs.

The Census report was studded with data that underscore the economic strains across society in the aftermath of the worst recession in more than half a century. Poverty rates among people younger than 18 grew to 22%, compared with 20.7% the year before, while the percentage of Americans lacking health insurance edged up to 16.3%. Echoing a longer-term trend that is in part a reflection of an aging population, the share of people covered by private insurance fell last year, while the share of people on government programs such as Medicare and Medicaid increased.


As families struggle to make ends meet and young workers navigate the moribund labor market, many have turned to each other. According to the Census report, 5.9 million Americans between 25 and 34, or 14.2% of that group, lived with their parents in spring 2011, compared with 4.7 million before the recession, or 11.8%.

Meanwhile, the gap between the best-off and worst-off Americans remained largely unchanged. The top fifth of households accounted for 50.2% of all pre-tax income; the bottom two-fifths got 11.8%. In 1999, the top fifth claimed 49.4% and the bottom got 12.5% of the income.

The Census Bureau said 15.1% of Americans were living below the poverty line, set at $22,314 for a family of four in 2010. That's up from 14.3% last year and from 12.5% in 2007, before the recession. The official poverty rate overestimates the number of people living in poverty because it doesn't count many government anti-poverty programs, such as subsidized housing, food stamps and the Earned Income Tax Credit.

Write to Conor Dougherty at conor.dougherty@wsj.com

Corrections & Amplifications
The Census Bureau's latest report said 15.1% of Americans lived below the poverty line in 2010. An earlier version of this article incorrectly said 15.1% of U.S. families were below the line.


Leave the Euro to the PIGS

Europe's responsible countries should establish their own new currency union.


The European debt crisis spreads and worsens. The G-7 met last weekend and did nothing useful. The European Central Bank's chief economist, who was the German representative on the ECB, resigned last week to protest the bank's purchases of Italian and Spanish debt. My congratulations to him for reaffirming principles that the ECB was organized to support. The president of Germany's Bundesbank, the very able Axel Weber, resigned last spring because he did not support the policy of buying long-term debt of overindebted countries. He too chose principle over expediency. The long-term debt purchases continue.

The Europeans keep throwing money at problems and insisting on short-term palliatives. They are too willing to spare the bankers for past mistakes by trying to shift the cost of bad debt to unwilling taxpayers. Many propose a "European bond" to hide the fact that they want to shift the excessive debt contracted by the spenders to the more fiscally prudent. The current ECB acts on the belief that all problems can be solved by bailouts.

The ECB agreement to develop a common currency began as an agreement that France would accept Bundesbank rules in exchange for a seat at the table. Other countries agreed to the rules for maintaining price stability when they joined. But the agreement has been violated so often in the current crisis that it is dead, replaced by bailouts and fiscal actions, including purchases of long-term debt by the ECB.

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Francois Baroin, France's finance minister, left, Jean-Claude Trichet, president of the ECB, center, and U.S. Treasury Secretary Timothy Geithner at the G7 meeting in Marseille, France, on Friday.

Lending more money to Greece will not end Greece's problem. Greece cannot meet the budget targets set by its agreements with the European Union and the International Monetary Fund (IMF). A core problem is the wide gap between average worker's productivity and the average real wage. The difference is about 15% to 20%; that's the amount by which productivity must increase or real wages must fall to achieve equilibrium.

Since there is no chance that in Greece's state-controlled economy productivity can increase enough to close the gap, there are two outcomes left. One is to remain with the euro and deflate prices and wages 2% or 3% a year for six to 10 years. The other is to devalue the currency (as Greece has done several times in the past). Good luck to those who think any government could endure six or more years of deflation.

One thing is certain: Higher real-estate taxes or income taxes, among other proposals being floated in Athens, will not solve the Greek problem. Nor will a few sales of state-owned assets followed by large layoffs.

Another proposed alternative is another loan from the International Monetary Fund. Yet that delays resolution without solving any problem, and it shifts part of the cost to the countries that pay large shares into the IMF, such as the U.S., Britain and Japan, which have their own severe problems.

And then there is Italy, which has had low growth for a decade or more. Asian competition was too much for many small manufacturers of shoes, textiles and other products that Italy used to export. Italy continues to waste its potential by spending on low-productivity, politically-determined transfer programs. A currency devaluation would help to align Italy's costs with current world conditions. Government spending reductions would free resources for higher productivity uses.

Although the European Central Bank treaty does not permit devaluation, there is a way for Greece, Italy, Portugal and perhaps others (known by the acronym PIGS) to devalue while remaining part of the euro. The northern countries can start a new currency union limited to those who adopt common, binding or enforceable fiscal arrangements like those that German Chancellor Angela Merkel and France's President Nicolas Sarkozy discussed last month. The new currency could float against the euro, allowing the euro to devalue. Once devaluation restored competitive prices in the heavily indebted countries, they could be admitted to the new currency arrangement if, and only if, they made an enforceable commitment to the tighter fiscal arrangement. If all countries rejoined, the old system would restart with a more appropriate, binding fiscal policy rule.

Bondholders would suffer losses from devaluation. Banks that are threatened with insolvency should be permitted either to fail or to borrow from their governments on loans that must be repaid.

We have had enough clever schemes to protect bankers by shifting the cost of profligacy to the prudent citizenry. A permanent solution to the European debt problem requires a lot less finger pointing and much greater efforts to bring an end to the excessive debt and deficit spending. Spare the taxpayers, not the bankers. Let the market work to end the problem by devaluing the troubled currencies.

Mr. Meltzer is a professor of public policy at the Tepper School, Carnegie Mellon University, a visiting scholar at the Hoover Institution and author of "A History of the Federal Reserve" (University of Chicago Press, 2003 and 2009.)


Netflix Lowers Subscriber Estimates


Netflix Inc. lowered its third-quarter domestic subscriber estimates but backed its decision to separate DVD-rental and movie-streaming services, saying the decision was "the right long-term strategic choice."

Shares dropped 10.6% to $186.50 premarket as the video renter said the decision to split its services has upset many subscribers, but it believes the split will improve global streaming services and help grow revenue. The stock has risen 46% over the past year through Wednesday's $208.71 close.

The company ended its popular $9.99 per-month DVD-rental and movie-streaming plan, and required customers to pay $7.99 a month for each service, starting in September.

The company expects to end the quarter with 21.8 million domestic streaming subscribers and 14.2 million U.S. DVD subscribers, down from its prior forecast of 22 million and 15 million, respectively. Its financial and international-subscriber guidance are unchanged.

The company had said it expected total subscribers to continue growing and that its fiscal quarter following the pricing changes could lead to the first time it notches at least $1 billion in sales.

The company ended the second quarter with 25.6 million subscribers.

Netflix in July reported its second-quarter earnings rose 57%, but its domestic churn rate—a measure of customer cancellations and free subscribers—rose to 4.2% from 4% a year earlier.

Write to Melodie Warner at melodie.warner@dowjones.com

Read more: http://online.wsj.com/article/SB10001424053111904060604576572322651549428.html#ixzz1Y1WrKyz5


Wsj  econ blog Sep 14, 2011
7:27 PM

Billions in Unemployment Benefits Paid in Error

By Sara Murray

Nearly $19 billion in state unemployment benefits were paid in error during the three years that ended in June, new Labor Department data show.

Source: Labor Department

The amount represents more than 10% of the $180 billion in jobless benefits paid nationwide during the period. (See a sortable chart of each states overpayments) The tally covers state programs, which offer benefits for up to 26 weeks, from July 2008 to June 2011. Layers of federal programs that help provide benefits for up to 99 weeks weren’t included.

The figures were released Wednesday as the Obama administration promotes its bid to reduce waste at federal agencies. The federal government foots the bill for administering the programs, and states are supposed to pay for the benefits. Many states exhausted their unemployment insurance trust funds during the long recession and slow recovery, prompting them to borrow from the federal government to replenish their funds.

Improper payments most often occur when recipients claim benefits even though they have returned to work; employers or their administrators don’t submit timely or accurate information about worker separations; or recipients don’t correctly register with a state’s employment-service organization.

The Labor Department launched a plan to crack down on the improper payments, targeting Virginia, Indiana, Colorado, Washington, Louisiana and Arizona in particular for their high error rates. Those states will undergo additional monitoring and technical assistance until their error rates dip below 10% and remain there for at least six months, according to the Labor Department.

“The Unemployment Insurance system is a unique partnership between the federal government and the states. States bear the responsibility of operating an efficient and effective benefits program, but as partners the federal government must be able to hold them accountable for doing so,” Labor Secretary Hilda Solis said in a release.

Indiana had the highest error rate, with improper payments accounting for more than 43% of the total amount paid. But Mark Everson, commissioner of the Indiana Department of Workforce Development, said the differences in error rates stem from variations in state programs.

“To characterize it as waste, fraud and abuse is just manipulative,” Mr. Everson said. “There’s no way in the world you could cut the 43% of people off.”

Mr. Everson pointed out that in Indiana, benefit recipients are required to list three work searches. If a recipient fills out only two of the three searches correctly, there are cases when the recipient can still receive benefits. But that counts as an error.

The Labor Department noted, “it may be misleading to compare one state’s payment accuracy rates with another state’s rates… States with stringent or complex provisions tend to have higher improper payment rates than those with simpler, more straightforward provisions.”



Wsj Sep 14, 2011
8:25 AM

Vital Signs: Small Business and Skills Shortage

By Justin Lahart

The number of small businesses seeing a skills shortage has crept up this year. In August, 33% of small businesses reported having few or no qualified applicants for job openings, according to a National Federation of Independent Business survey. That was up from 21% in December 2009, but down from 46% five years earlier.












Consumers paid more for range of items in August

Consumers paid more for gas, food, rent and other items in August, raising inflation pressures


Christopher S. Rugaber, AP Economics Writer, On Thursday September 15, 2011, 9:28 am EDT

WASHINGTON (AP) -- Consumers paid more for a range of goods and services last month, pushing up inflation and squeezing Americans' purchasing power.

The Consumer Price Index rose 0.4 percent in August after jumping 0.5 percent in July. The core index, which excludes volatile food and energy prices, rose 0.2 percent.

For the 12 months that ended in August, the core index surged 2 percent, the biggest year-over-year increase in nearly three years. That's at the high end of the Federal Reserve's informal inflation target. It could limit the central bank's ability to take further steps to try to revive the economy.

The Labor Department said food prices rose 0.5 percent, the biggest increase since March. That was due to higher prices for cereals and dairy products. Energy prices increased 1.2 percent.

Among the factors driving up the core index were rental costs. They rose 0.4 percent, the most in nearly three years. Many Americans have been renting rather than buying homes, pushing up rents.

Clothing costs rose 1.1 percent, extending a string of increases that stem partly from steep rises in cotton prices earlier this year. Airline fares rose 1.1 percent, the most since March.

Sharp price increases for gas and food have pushed up most measures of inflation this year. That has reduced consumers' purchasing power, cut into their ability to spend on other items and weakened the economy. But the prices of many commodities have retreated since the summer. And many economists forecast that inflation will peak in the next few months.

Since August, gas prices have ticked up. The average nationwide price of gas was $3.63 a gallon Wednesday, according to AAA. That was about 4 cents higher than a month ago.

Some inflation can be healthy for the economy. That's because it encourages people to spend and invest rather than sitting on their cash. More spending drives corporate growth, which makes businesses more likely to hire.

There are signs that core consumer prices could level off soon. Cotton prices have come down by nearly half from the spring, and clothing costs are expected to follow.

And new-car prices rose earlier this year because of supply shortages caused by Japan's March 11 earthquake. The impact of that disruption is beginning to fade. New-car prices were unchanged in August for the second straight month.

Food prices are still rising. The Agriculture Department said Monday that unusually hot summer weather has damaged the corn harvest, which could raise prices for corn and ultimately most food products. That's because corn is used in everything from cereals to animal feed to sodas. It takes about six months for changes in corn prices to filter down to grocery store shelves.

Fed Chairman Ben Bernanke acknowledged last week that rising commodity prices had pushed up inflation this year but said it was likely to moderate in coming months.

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