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Should Winners from Free Trade Compensate the Losers? C:\Documents and Settings\wkuuser\My Documents\landsburg on trade.pdf
A
favorite "progressive" trope is that America's middle class has stagnated
economically since the 1970s. One version of this claim, made by Robert Reich,
President Clinton's labor secretary, is typical: "After three decades of flat
wages during which almost all the gains of growth have gone to the very top," he
wrote in 2010, "the middle class no longer has the buying power to keep the
economy going."
This trope is spectacularly wrong.
It is true enough that, when adjusted for inflation
using the Consumer Price Index, the average hourly wage of nonsupervisory
workers in America has remained about the same. But not just for three
decades. The average hourly wage in real dollars has remained largely
unchanged from at least 1964—when the Bureau of Labor Statistics (BLS)
started reporting it.
Moreover, there are several problems with this
measurement of wages. First, the CPI overestimates inflation by
underestimating the value of improvements in product quality and variety. Would
you prefer 1980 medical care at 1980 prices, or 2013 care at 2013 prices? Most
of us wouldn't hesitate to choose the latter.
Enlarge Image
Chad
Crowe
Second,
this wage figure ignores the rise over the past few decades in the portion of
worker pay taken as (nontaxable) fringe benefits. This is no small matter—health benefits, pensions,
paid leave and the rest now amount to an average of almost 31% of total
compensation for all civilian workers according to the BLS.
Third and most important, the average hourly wage is held down by the great
increase of women and immigrants into the workforce over the past three
decades. Precisely because the U.S.
economy was flexible and strong, it created millions of jobs for the influx of
many often lesser-skilled workers who sought employment during these years.
Since almost all lesser-skilled workers entering the
workforce in any given year are paid wages lower than the average, the measured
statistic, "average hourly wage," remained stagnant over the years—even while
the real wages of actual flesh-and-blood workers employed in any given year
rose over time as they gained more experience and skills.
These three factors tell us that flat average wages over
time don't necessarily support a narrative of middle-class stagnation.
Still, pessimists reject these
arguments. Rather than debate esoteric matters such as how to properly adjust
for inflation, however, let's examine some other measures of middle-class living
standards.
No single measure of well-being is more informative or
important than life expectancy. Happily, an American born today can expect to live
approximately 79 years—a full five years longer than in 1980 and more than a
decade longer than in 1950. These longer life spans aren't just enjoyed by
"privileged" Americans. As the New York Times reported this past June 7, "The
gap in life expectancy between whites and blacks in America has narrowed,
reaching the lowest point ever recorded." This necessarily means that life
expectancy for blacks has risen even more impressively than it has for
whites.
Americans are also much better able to enjoy their
longer lives. According to the Bureau of Economic Analysis, spending by
households on many of modern life's "basics"—food at home, automobiles, clothing
and footwear, household furnishings and equipment, and housing and
utilities—fell from 53% of disposable income in 1950 to 44% in 1970 to 32%
today.
One underappreciated result of the dramatic fall in the
cost (and rise in the quality) of modern "basics" is that, while income
inequality might be rising when measured in dollars, it is falling when reckoned
in what's most important—our ability to consume. Before airlines were
deregulated, for example, commercial jet travel was a luxury that ordinary
Americans seldom enjoyed. Today, air travel for many Americans is as routine as
bus travel was during the disco era, thanks to a 50% decline in the real price
of airfares since 1980.
Bill
Gates in his private jet flies with more personal space than does Joe
Six-Pack when making a similar trip on a commercial jetliner. But unlike his
1970s counterpart, Joe routinely travels the same great distances in roughly the
same time as do the world's wealthiest tycoons.
What's true for long-distance travel is also true for
food, cars, entertainment, electronics, communications and many other aspects of
"consumability." Today, the
quantities and qualities of what ordinary Americans consume are closer to that
of rich Americans than they were in decades past. Consider the electronic
products that every middle-class teenager can now afford—iPhones, iPads, iPods
and laptop computers. They aren't much inferior to the electronic gadgets now
used by the top 1% of American income earners, and often they are exactly the
same.
Even though the inflation-adjusted hourly wage hasn't
changed much in 50 years, it is unlikely that an average American would trade
his wages and benefits in 2013—along with access to the most affordable food,
appliances, clothing and cars in history, plus today's cornucopia of modern
electronic goods—for the same real wages but with much lower fringe benefits in
the 1950s or 1970s, along with those era's higher prices, more limited
selection, and inferior products.
Despite assertions by progressives who complain about
stagnant wages, inequality and the (always) disappearing middle class,
middle-class Americans have more buying power than ever before. They live
longer lives and have much greater access to the services and consumer products
bought by billionaires.
Mr. Boudreaux is professor of economics
at George Mason University and chair for the study of free market capitalism at
the Mercatus Center. Mr. Perry is a professor of economics at the University of
Michigan-Flint and a resident scholar at the American Enterprise
Institute.
wsj January 23, 2013, 7:05 p.m.
ET
In his second
inaugural address on Monday, President Obama laudably promised to "respond to
the threat of climate change." Unfortunately, when the president described the
urgent nature of the threat—the "devastating impact of raging fires, and
crippling drought, and more powerful storms"—the scary examples suggested
that he is contemplating poor policies that don't point to any real, let alone
smart, solutions. Global warming is a problem that needs fixing, but
exaggeration doesn't help, and it often distracts us from simple, cheaper and
smarter solutions.
For starters, let's
address the three horsemen of the climate apocalypse that Mr. Obama mentioned.
Historical
analysis of wildfires around the world shows that since 1950 their numbers have
decreased globally by 15%. Estimates published in the Proceedings of the National
Academy of Sciences show that even with global warming proceeding uninterrupted,
the level of wildfires will continue to decline until around midcentury and
won't resume on the level of 1950—the worst for fire—before the end of the
century.
Enlarge Image
Associated
Press
The National Wind Technology Center outside Boulder,
Colo.
Claiming that
droughts are a consequence of global warming is also wrong. The world has
not seen a general increase in drought. A study published in Nature in
November shows globally that "there has been little change in drought over the
past 60 years." The U.N. Climate Panel in 2012 concluded: "Some regions of the
world have experienced more intense and longer droughts, in particular in
southern Europe and West Africa, but in some regions droughts have become less
frequent, less intense, or shorter, for example, in central North America and
northwestern Australia."
As for one of the
favorites of alarmism, hurricanes in recent years don't indicate that storms are
getting worse. Measured by total energy (Accumulated Cyclone Energy),
hurricane activity is at a low not encountered since the 1970s. The U.S. is
currently experiencing the longest absence of severe landfall hurricanes in over
a century—the last Category 3 or stronger storm was Wilma, more than seven years
ago.
While it is likely
that we will see somewhat stronger (but fewer) storms as climate change
continues, a March 2012 Nature study shows that the global damage cost from
hurricanes will go to 0.02% of gross domestic product annually in 2100 from
0.04% today—a drop of 50%, despite global warming.
This does not
mean that climate change isn't an issue. It means that exaggerating the threat concentrates
resources in the wrong areas. Consider hurricanes (though similar points hold
for wildfire and drought). If the aim is to reduce storm damage, then first
focus on resilience—better building codes and better enforcement of those codes.
Ending subsidies for hurricane insurance to discourage building in vulnerable
zones would also help, as would investing in better infrastructure (from
stronger levees to higher-capacity sewers).
These solutions are
quick and comparatively cheap. Most important, they would diminish future
hurricane damage, whether climate-induced or not. Had New York and New Jersey
focused resources on building sea walls and adding storm doors to the subway
system and making simple fixes like porous pavements, Hurricane Sandy would have
caused much less damage.
In the long run,
the world needs to cut carbon dioxide because it causes global
warming. But if the main effort to cut
emissions is through subsidies for chic renewables like wind and solar power,
virtually no good will be achieved—at very high cost. The cost of climate
policies just for the European Union—intended to reduce emissions by 2020 to 20%
below 1990 levels—are estimated at about $250 billion annually. And the
benefits, when estimated using a standard climate model, will reduce temperature
only by an immeasurable one-tenth of a degree Fahrenheit by the end of the
century.
Even in 2035, with
the most optimistic scenario, the International Energy Agency estimates that
just 2.4% of the world's energy will come from wind and only 1% from solar. As
is the case today, almost 80% will still come from fossil fuels. As long as
green energy is more expensive than fossil fuels, growing consumer markets like
those in China and India will continue to use them, despite what well-meaning
but broke Westerners try to do.
Instead of pouring
money into subsidies and direct production support of existing, inefficient
green energy, President Obama should focus on dramatically ramping up
investments into the research and development of green energy. Put another way,
it is the difference between supporting an inexpensive researcher who will
discover more efficient, future solar panels—and supporting a Solyndra at great
expense to produce lots of inefficient, present-technology solar
panels.
When innovation
eventually makes green energy cheaper, everyone will implement it, including the
Chinese. Such a policy would likely do 500 times more good per dollar invested
than current subsidy schemes. But first let's drop the fear-mongering
exaggeration—and then focus on innovation.
Mr. Lomborg, director of the Copenhagen
Consensus Center in Washington, D.C., is the author of "The Skeptical
Environmentalist" (Cambridge Press, 2001) and "Cool It" (Knopf,
2007).
An Index of Personal and Economic
Freedom
Jason
Sorens, William
Ruger | June 7, 2011
http://mercatus.org/freedom-50-states-2011
This study comprehensively ranks the
American states on their public policies that affect individual freedoms in the
economic, social, and personal spheres. It updates, expands, and improves upon
our inaugural 2009 Freedom in the 50 States study. For this new edition, we have
added more policy variables (such as bans on trans fats and the audio recording
of police, Massachusetts’s individual health-insurance mandate, and mandated
family leave), improved existing measures (such as those for fiscal policies,
workers’ compensation regulations, and asset-forfeiture rules), and developed
specific policy prescriptions for each of the 50 states based on our data and a
survey of state policy experts. With a consistent time series, we are also able
to discover for the first time which states have improved and worsened in regard
to freedom recently.
This project develops an index of
economic and personal freedom in the American states. Specifically, it examines
state and local government intervention across a wide range of public policies,
from income taxation to gun control, from homeschooling regulation to drug
policy.
We explicitly ground our conception
of freedom on an individual-rights framework. In our view, individuals should be
allowed to dispose of their lives, liberties, and properties as they see fit, as
long as they do not infringe on the rights of others.
We divide fiscal policy equally into
spending and taxation subcategories. These subcategories are highly
interdependent; we include them both as redundant measures of the size of
government.
In this study, regulatory policy
includes labor regulation, health-insurance coverage mandates, occupational
licensing, eminent domain, the tort system, land-use regulation, and utilities.
Regulations that seem to have a mainly paternalistic justification, such as
home- and private-school regulations, are placed in the paternalism category.
In deciding how to weight personal
freedoms, we started from the bottom up, beginning with the freedom we saw as
least important in terms of saliency, constitutional implications, and the
number of people affected, and working up to the most important.
By summing the economic freedom and
personal freedom scores, we obtain the overall freedom index, presented in table
5. New Hampshire and South Dakota again find themselves in a virtual tie for
first.
Although we hope we have demonstrated
that some states provide freer environments than others, it would be
inappropriate to infer that the freest states necessarily enjoy a libertarian
streak, while others suffer from a statist mentality.
The state profiles (found through the
above map) highlight some of the most interesting aspects of each state’s public
policies as they affect individual freedom. In preparation for this year’s
edition of Freedom in the 50 States, we conducted a survey of free-market policy
analysts at think tanks associated with the State Policy Network (SPN).
This section assesses the
consequences of the American Recovery and Reinvestment Act of 2009 (stimulus)
for individual freedom, as affected by state and local policies. While the
stimulus was passed immediately after the period covered by this study, we can
use findings on the effects of federal grants on state policies to infer what
the long-run consequences of the stimulus will be.
This project remains the only effort
to code both economic and personal freedom in the 50 states. Other studies
compare economic freedom or “competitiveness” in the states but do not treat
other critical aspects of individual liberty or selectively subsume a few
noneconomic issues within economic freedom concepts.
We started by collecting data on
state and local public policies affecting individual freedom as defined above.
All of the statutory policies are coded as of January 1, 2009, the fiscal data
are coded for the fiscal year 2007–2008, the law-enforcement data cover the
entire year of 2008, and all data are also back-coded consistently to January 1,
2007 (FY 2006–2007). We omit federal territories.
This data appendix contains a
description of each variable used in the study and its location in our
spreadsheets on the website, as well as a hierarchical summary of category,
issue subcategory, and variable weights.
Click on any state to learn more about its
score on the index.
You can also choose what reforms would help to
raise your state in the rankings using the State Freedom
Calculator.
Union membership fell in 2012, continuing a
decadeslong drop. Labor unions represented 11.3% of employed workers last year,
down half a percentage point from 2011 and a new postwar low. The latest decline
partly reflected a drop in public-sector workers, as states cut jobs to repair
budgets. At their peak, unions represented roughly a third of employed workers
in the mid-1950s.
For the past 17
years, the venture capital firm Accel Partners has thrown a hot-ticket party at
the World Economic Forum. Held in the modern Kirchner Museum in Davos,
Switzerland, the party draws heads of state, leading executives from technology
and media companies, and the occasional celebrity.
For the past 17 years, Accel Partners has thrown the
hottest party at Davos, always with a memorable wine list. For the Jan. 27
event, Accel will show off 15 California wines made before 2000. Frances
Dinkelspiel reports on Lunch Break.
The 350 guests
come not only to mingle with Google's Larry Page and Sergey Brin, hear what
Shimon Peres has to say about Middle East peace efforts or to find out when
Facebook will go public (Accel owns about a 10% stake in the company). They also
come for the wine.
Joe Schoendorf, the
Accel partner who started the party as a way to introduce Silicon Valley leaders
to European businessmen and politicians, is a serious wine buff, as are Bruce
Golden, Jim Breyer and Kevin Comolli, the other Accel hosts. Each year the men,
working with the Napa Valley wine company Soutirage, spend months assembling a
list that showcases a particular region or varietal. Previous parties have
focused on superb Cabernet Sauvignons or Pinot Noirs, with selections from
leading wineries in France, Italy, Spain, California and
Australia.
“We wanted to highlight California wines. We like the
parallels between the two great valleys—Silicon and Napa/Sonoma.”
For the Friday
party, the Accel partners decided to show off California wines made before 2000.
Most of California's cult and rare wines are produced in such small quantities
and are in such high demand that they are almost impossible to find in Europe.
On a continent dominated by Burgundies, Bordeaux and Barolos, Mr. Schoendorf and
his colleagues were eager to demonstrate that California wines, particularly
those from the 1960s through the '90s, are among the world's
best.
"This year we
wanted to highlight how extraordinary some California wines become with age,"
said Mr. Golden, who is based in London but travels frequently to the Bay Area.
"We also like the parallels between the two great valleys—Silicon Valley and
Napa/Sonoma Valleys—and how California produces both world class tech companies
as well as world class wines."
The 15 wines served
at the party reflect California's wine history, with a few surprises thrown in,
said Soutirage co-founder Matt Wilson. The 1969 BV Georges de Latour Cabernet
Sauvignon and the 1962 Inglenook Cabernet Sauvignon are both elegant, rich wines
made in the Bordeaux-style, which was the direction of many Napa Valley
winemakers at that time, he said. The later wines, including the 1992 Harlan
Estate and 1999 Colgin Cariad, are more fruit-forward and lush. And guests may
be surprised by the 1996 Williams Selyem Rochioli River Block Pinot Noir. Most
consumers drink Pinot Noir within five years, but this wine shows how well that
varietal can age, Mr. Wilson said.
Enlarge Image
Getty
Images
For the past 17 years, the venture capital firm Accel
Partners has thrown a hot-ticket party at the World Economic
Forum.
All of the wines
are donated. "We say to the winemakers, 'This is an opportunity to be in front
of some of the most powerful influencers,' " Mr. Wilson
said.
Bill Harlan, whose
Harlan Estate and Bond bottles have been featured at the Accel Davos party
numerous times, said the event serves as an important vehicle to get the word
out about California wines. They are not as well known as they should be,
particularly in China, which has emerged in recent years as the hottest market
for French wine.
"We feel it's
important for the world to know that we can produce fine wines in California,
and if we can get our wines in the hands of those who have credibility and are
people of discernment, we feel that's very good," said Mr.
Harlan.
Wines
served at the Accel Party in Davos on Friday
2001 Peter Michael
Chardonnay Cuvée Indigène
1996 Williams
Selyem Rochioli River Block Pinot Noir
1996 Martinelli
Jackass Zinfandel
1993 Turley Hayne
Petite Syrah
1975 Chappellet
Cabernet Sauvignon
1974 Clos du Val
Cabernet Sauvignon
1969 BV Georges de
Latour Cabernet Sauvignon
1966 Charles Krug
Reserve Cabernet Sauvignon
1962 Inglenook
Cabernet Sauvignon
The Swiss resort of Davos knew its first
wave of prosperity a century ago, when doctors declared that its cool, dry air
was effective therapy against tuberculosis. The grand hotels familiar to visitors today—the
Belvedere and Seehof among them—trace their origins to those lazier days.
After science overturned the supposed benefits
of Davos air, patients were slow to abandon the resort. Some stayed loyal out of
belief, others out of hope. Eventually, reality prevailed over perceptions, and
the patients stopped coming.
This week Davos is filled, as it is each
January, by a new set of privileged people, ones whose beliefs are no less
distant from reality than those of the spa tourists. With its astonishingly immodest slogan, "Committed
to improving the state of the world," the World Economic Forum (WEF) presides
each year over what must surely count as the world's most coveted program of
conferences, including the flagship annual meeting in Davos.
A Swiss foundation in law, the WEF is in
practice a dazzlingly successful business, which has enjoyed fast-growing
revenues and profits for more than three decades. For prestige and international
renown, no other conference organization comes close.
It is a puzzle even for many inside the WEF to
explain how the organization's founder and boss, Klaus Schwab, has
achieved all this. He is an understated, un-charismatic, slightly awkward man.
But if his genius for personal chemistry is elusive, his genius for strategic
insights is self-evident. The WEF says it is there to improve the world, but it
is really there to exploit rich people's need to feel important. It is driven
not by achievement but by vanity.
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AFP/Getty
Images
'We have to be here because everyone else is here,' one
old Davos hand said.
Personnel costs are kept down by an inflow of
young graduates and other would-be interns and associates prepared to work for a
pittance in the expectation of rubbing shoulders with WEF guests and
participants, and of receiving a glamorous entry on their résumés.
But while staff costs are low, turnover is
high. Expectations are often disappointed. As a former member of the WEF
executive board explained to me: "Young staff are susceptible to the
'concierge effect,' where they are deceived into thinking that WEF members
are really interested in them, rather than making sure they get the best room or
the right meetings."
By hosting the flagship annual meeting in
Davos, WEF also gets a logistical leg-up from Swiss national pride. Where else
would you find 4,000 troops to guard 2,000 guests, enabling the latter to
roam the streets without fear of terrorists, kidnappers and paparazzi? During
the event, more than 100 private jets park at Zurich airport, while
others are diverted to St. Moritz. All are kept under military supervision.
Best of all, guests do most of the work for
free. Celebrity Talent International advertises that Richard Branson is
available to speak for a minimum fee of $150,000. But he will gladly do it
gratis in Davos. Multiply this by a few hundred star turns, and the benefits of
this model become readily apparent.
Pride and ambition are monetized with equal
brilliance on the revenue side. Simple membership for most Davos delegates is
$50,000, plus a $19,000 conference fee. But that is only the first rung on
the ladder. If you want to feel important even by Davos standards, you have to
climb further. To gain access to industry peer events as an "industry
associate," $156,000 is the price. An "industry partnership," which buys you two
delegate spots, costs $263,000.
Scale those heights and another peak looms.
Up in the thin air at Davos are the so-called "strategic partners," who each
pay $527,000. Strategic partners can send five participants—a CEO and his
entourage, for instance.
Given that many top chief executives hold
office for only three or four years, WEF membership is effectively a revolving
door. By the time the novelty wears off and the CEO starts to see Davos as a
very expensive cocktail party, he is out on his ear and replaced by a new guy
who was frustrated for years about not being able to go.
If access at Davos can be bought, however,
recognition is a more difficult to procure. There are plenty of titles available
to those willing to strain that bit harder, especially among the younger people
who will be the conference lions of the future. The WEF is thick with "Global
Young Leaders," "Young Global Shapers" and "Social Entrepreneurs of the Year."
Another way to announce your eminence is to serve as a "thought leader" on one
of the WEF's 80 Global Agenda Councils.
Davos, in short, is magnificently
seductive, a monument to man's need for self-actualization. (And it is mostly men—women only make up 17% of the
elite participants at Davos, though they are 60% of WEF staff.) But does
it improve the state of the world? Hardly. When you consider the lifestyle
of those taking part, starting with the private jets, it is really quite an
achievement for them to keep their cognitive dissonance in check for the better
part of a week.
Perhaps the license to pretend is part of the
modern-day Davos therapy. "Schwab discovered along the way that saving the world
is really quite hard work," one longtime conference-goer said to me last year.
"Vanity is much easier to sell."
Another old Davos hand may have summed up WEF's
"magic" best when I asked him why he hasn't stopped coming. "We have to be here
because everyone else is here," he said.
Mr. Breiding is CEO of Naissance
Capital, an investment firm based in Zurich, and author of "Swiss Made: The
Untold Story Behind Switzerland's Success" (Profile Books, 2012).
Here’s some advice for young people worried
about how they are going to fare in the tough U.S. jobs market. Go to college
and major in science or math. Alternatively, train to become a
plumber.
That advice to American youth is roughly
extrapolated from the comments of two executives of global companies that hire
in bunches all over the world.
Specifically, the two executives maintained,
in separate interviews conducted on the sidelines of the World Economic Forum
annual meeting in Davos, there is a sharp need in an otherwise still-tough
U.S. employment market for people with trade skills (plumbers, electricians) and
people with science or engineering degrees from universities who want to work in
technology.
More broadly, Jonas Prising, president of the
employment services company ManpowerGroup, described a global employment scene
where Europe (especially southern Europe) is unsurprisingly the weak link, while
slow, steady progress against joblessness in the U.S. has been documented and is
expected to continue.
Mr. Prising used the phrase “certain
uncertainty” to describe the mind-set of many business leaders. With confidence
in outlooks lacking, but facing a need to increase business, the flexibility
inherent in temporary staffing holds appeal, he said.
The U.S. likely will see continued slow
progress in jobs creation, Mr. Prising said, adding the company’s quarterly
survey on hiring has been “remarkably stable” for the U.S.
Gordon Coburn, president of the business
services company Cognizant, which supplies information technology staffing,
among many other services, said the company’s clients have gone from a sole
focus on cost cutting to a “dual mandate” to continue to control costs but also
make investments to expand revenues. Tech-staffing spending has shifted
direction toward SMAC (social, media, analysis, cloud), he
said.
Back to the skills attractive in today’s
market. Mr. Coburn said there is a “tremendous shortage” in the U.S. of
skilled IT workers. He said the “average student I’m hiring (science or math
majors) has three other job offers.”
Mr. Prising of Manpower said the
trade-skills shortage (plumbers, electricians) isn’t limited to the U.S., but is
widespread across many countries.
When a 7.0
earthquake centered 16 miles from Port-au-Prince flattened Haiti three years
ago, hundreds of millions of dollars flowed into aid organizations serving the
country. Governments the world over promised billions more. The suffering was
unfathomable, the call for relief impossible to resist.
But beyond meeting emergency needs of victims,
throwing money at Haiti does not seem to have done much material good. In
economic terms, the country is stuck in neutral, though this is not to say
that there is nothing new to observe.
One notable development in recent years is the
increase in Islamic proselytizing. A credible source reports that there are now
14 formal mosques in the Port-au-Prince area and at least one "madrassa"
religious school in the small city of Miragoane. Qatar has been pouring in
money. In December 2011, Louis Farrakhan, the controversial leader of the Nation
of Islam, organized his own mission to Haiti.
Enlarge Image
Associated
Press
In
this Monday, Dec. 3, 2012, a worker carries a sack along the shoreline of Wharf
Jeremie, Port-au-Prince, Haiti. Haitians suffered widespread hunger following an
unusually active storm season this year and are likely to experience more,
according to a study released Friday, Dec. 7, 2012. Nearly 70 percent of the
more than 1,000 households interviewed said they experienced moderate or severe
hunger, the study found. (AP Photo/Dieu Nalio Chery)
Given that some
sects of Islam deny rights to women and teach intolerance, and even violence,
toward nonbelievers, this religious proselytizing is worthy of attention. Like
many Africans, Haitians are desperate and vulnerable, and Western efforts to
improve their lot are failing. A recent observation by Canada's minister for
international cooperation, Julian Fantino, that aid results are suboptimal was
not a sign of flagging interest. Canada is instead demonstrating justifiable
concern about whether its generosity is helping the Haitian people.
Handouts from the U.S. and Canada—which now
seem to be largely channeled through foreign nongovernmental organizations—have
helped the country earn the moniker of "the republic of NGOs." Yet blanketed as
it is with charity, Haiti remains a basket case. Haiti-based writer Tate Watkins
has observed that many NGO workers "are disconnected from the people they are
here to help," don't learn Creole, "work on shorter timelines" and experience
high turnover.
To add insult to poverty, foreign
aid—whether it goes through the governments or NGOs—distorts both politics and
commerce, undermining the evolution of market economics. Free resources reduce
the pressure on politicians to make the reforms necessary to attract capital.
When food and services are given away, entrepreneurs who might serve those
markets are shut out.
President Michel Martelly, inaugurated in 2011,
is the first Haitian leader in almost 20 years who is not connected to strongman
Jean Bertrand Aristide's Lavalas Party. But expectations for better economic
growth under his administration have not been met. In December, the
International Monetary Fund estimated Haitian gross domestic product growth for
2012 at 2.5%, well-below the 4.5% it had forecast. Inflation, the fund said, had
"accelerated since end-June, reaching 6.8% in October." It blamed the
lower-than-expected growth on bad weather and "a slow execution of public
spending," and it blamed the inflation on "rising food
prices."
There are more plausible explanations for the
Haitian economic malaise, starting with the vast divide between the lip service
that government pays to reform, and the reality. Prime Minister Laurent Lamothe
uses the right buzz words about "strengthening the rule of law" and "making
Haiti a place that's attractive to foreign and local investors." He speaks
glowingly about a government-planned industrial park in the north of the country
that he says will bring 20,000 jobs to Haiti. "With an unemployment rate
of 52 percent," Mr. Lamothe wrote in July, "this park represents a
unique opportunity to create much needed jobs that Haiti needs to break the
cycle of extreme poverty."
Wouldn't that be grand? But the real
problem of Haiti is revealed in the World Bank's 2013 "Doing Business" survey,
which rates the climate for entrepreneurship in 185 countries. This
year, Haiti's ranking fell one place to 174th. When it comes to the ease
of "starting a business," Haiti ranks 183rd in the world. In"protecting
investors," it ranks 169th, down from 167th last year. In "trading across
borders," Haiti lost three places from last year and now ranks 149th. "Paying
taxes" also got more difficult relative to the rest of the world, as did
"getting electricity."
Such a dismal report card suggests that Haiti
has a political problem, not one merely of poor infrastructure or not enough
charity from abroad. One example is the decades-old open secret that the
country's main port is a dysfunctional nest of corruption, which hamstrings
trade.
The interests at the port are dug in and
apparently the political cost of fixing this problem is too high for Mr.
Martelly. Fair enough. But no one should be surprised when the transaction costs
of getting around the problem—driving goods over the Dominican border or paying
huge bribes—choke business.
Building a new port
in the north of the country, as the aid gurus now want to do, will accomplish
nothing on its own to fix what is essentially an institutional problem. On the
contrary, it is likely to reduce the government's interest in spending its own
political capital to resolve the problem.
1 HR agoEurope
http://stream.wsj.com/story/davos/SS-2-145470/
Angela Merkel stepped into a growing debate
over the threat of a global currency war, taking a swipe at Japan's recent moves
to weaken the yen.
German Chancellor Angela Merkel
Reuters
German Chancellor Angela Merkel on
Thursday stepped into a growing debate over the threat of a global currency war,
taking a swipe at Japan’s recent moves to weaken the yen and warning that
political leaders must not use central banks to clean up their policy
mistakes.
Weighing into the discussion at the annual
World Economic Forum summit of executives and policy makers in Davos,
Switzerland, Ms. Merkel echoed the increasing concern in Germany that some
countries, most notably Japan and the U.S., are using monetary policy as a way
to enhance their economic competitiveness.
“I don’t want to say that I look towards Japan
completely without concern at the moment,” she said, adding that, “In Germany,
we believe that central banks are not there to clean up bad policy decisions and
a lack of competitiveness.”
The comments were unusually blunt for the
typically understated German leader, underscoring concern in Germany that a
global currency war would wreak havoc on the world economy just as Europe
appears calmer after the upheaval caused by the euro-zone debt crisis. Germany,
the economic motor in Europe, is teetering on the edge of
recession.
Germany relies on demand from the global
economy, especially Asia and emerging markets in Latin America, to offset
slumping demand in Europe.
The recently-elected Japanese government of
Prime Minister Shinzo Abe is trying to end years of chronic deflation and
recession by putting the Bank of Japan under pressure to weaken the yen as a way
to boost exports. Japan’s new government is pressing the Bank of Japan to set a
2% inflation target, double its current objective. Raising inflation makes its
currency cheaper, causing the prices on Japanese goods outside the country to
fall.
Moves to weaken the yen set off alarms in
Germany, where policy makers fear an all-out exchange-rate war could undermine
efforts in Europe to fix broken fiscal policies that led to the euro zone debt
crisis. They also fear that “competitive devaluation” could fuel a debate in
Europe about the role of the European Central Bank. The ECB’s sole
inflation-fighting mandate came under intense scrutiny during the euro-zone debt
crisis.
Speaking in Davos, Ms. Merkel said the ECB had
moved to the “edge of its mandate” in efforts to support weakened euro-zone
economies by buying their bonds.
She said the ECB had rightly “set limits” to
its actions, requiring fiscal reform as conditionality for its willingness to
weigh into the crisis. But many European leaders see the ECB’s mandate as too
narrow and would like to empower the central bank to be able to do more to
promote growth in the euro-zone economy.
Against this backdrop, German policy makers are
calling on governments in the U.S. and Japan to fix their fiscal policy rather
than resort to throwing on the printing presses at their central
banks.
Last week, German Finance Minister Wolfgang
Schäuble lashed out at Tokyo and Washington in a speech in the Bundestag, or
lower house of the German parliament. He suggested that while the world points
the finger at the euro zone, Japan and the U.S. through monetary policy easing
are pouring excessive liquidity into global financial markets and creating new
risks to the global economy.
Jens Weidmann, president of the Bundesbank,
Germany’s influential central bank, warned Japan in a speech on Monday not to
politicize exchange rates by pursuing an overly aggressive monetary
policy.
“Until now, the international monetary system
has come through the crisis without a race to devaluation, and I really hope
that it stays that way,” Mr. Weidmann said.
Japan rejects accusations it is engineering a
weaker yen and stirring a global currency war. In an interview Thursday, Vice
Finance Minister Takehiko Nakao said the government’s moves are aimed at
tackling the country’s persistent deflation, not competitively devaluing the yen
to stir exports.
In Europe, Ms. Merkel said, the ECB has only
been used to buy time for policy makers to fix fiscal and economic policies and
make their economies competitive through reform. Europe still needs to address
its weaknesses and overcome the scourge of youth unemployment, the worst legacy
of the region’s economic and debt crisis.
“If Europe is in a difficult situation today,”
she said, “we must implement structural reforms today so we can live better
tomorrow.”
Write to Harriet Torry at harriet.torry@dowjones.com
and William Boston at william.boston@dowjones.com
The American Century is dead. Long live the
next American Century.
The subtext of political debate these days
is that the United States is in decline - a proposition often portrayed as
self-evident. The economy lacks
dynamism; unemployment near 8 percent remains at recession levels. The president
and his Republican critics barely talk to each other; stalemate seems unending.
But what if America isn't in decline? A powerful rebuttal comes from an unlikely
place: Wall Street.
In a report to clients, analysts at Goldman
Sachs argue that the United States still has the world's strongest economy - and
will have for years. There is a growing "awareness of the key economic,
institutional, human capital and geopolitical advantages the U.S. enjoys over
other economies," contend Goldman's analysts.
As proof, they deploy voluminous facts. For
starters, the U.S. economy is still the world's largest by a long shot. Gross
domestic product (GDP) is almost $16 trillion, "nearly double the second largest
(China), 2.5 times the third largest (Japan)." Per capita GDP is about $50,000;
although 10 other countries have higher figures, most of the countries are small
- say, Luxembourg. The size of the U.S. market makes it an attractive investment
location.
Next, natural resources. In a world ravenous
for food and energy, the United States has plenty of both. Its arable
land is five times China's and nearly twice Brazil's. The advances in "fracking"
and horizontal drilling have opened vast natural gas and oil reserves that,
until recently, seemed too expensive to develop. The International Energy Agency
predicts that the United States will become the world's largest oil producer -
albeit temporarily - by 2020.
In turn, the oil and gas boom bolsters
employment. A study by IHS , a consulting firm, estimates that it has already
created 1.7 million direct and indirect jobs. By 2020, there should be 1.3
million more, reckons IHS. Secure and inexpensive natural gas also encourages an
expansion of U.S. manufacturing, Goldman argues. That's another
plus.
Poorly skilled workers are often counted as
a U.S. economic liability. Goldman's perspective is different. American workers
will remain younger and more energetic than their rapidly aging rivals. By
2050, workers' median age in China and Japan will be about 50, a decade higher
than in America. Moreover, the United States attracts motivated immigrants,
including "highly educated talent." A Gallup survey of 151 countries found
the United States was the top choice for those wanting to move, at 23 percent.
At 7?percent, the United Kingdom was
second.
Finally, Goldman expects the United
States to remain the leader in innovation. America performs the largest amount
of research and development (31 percent of the global total in 2012) and has
more of the best universities (29 out of the top 50, according to one British
ranking).
Up to a point, this is
convincing. America's strengths have
been underestimated. Compared with Europe and Japan - the world's other enclaves
of affluence - our prospects are brighter. But the Goldman report, which advises
investors where to put their money, is an incomplete guide to the future. It
may explain why U.S. stocks have recovered to near pre-crisis records. But it's
not how most people view national "decline."
If your neighbor's house burns down and only
half of yours does, you are relatively better off than your neighbor - but
you're worse off than you used to be. It's in that sense that America's
prospects exceed Europe's and Japan's. But this advantage doesn't erase the huge
economic losses suffered by millions of Americans. Most will reasonably
conclude that their country is in decline. Demoralized, they will be less
supportive of U.S. economic, political and military leadership abroad. This is
how domestic disappointment translates into global
retreat.
But "Is America in decline?" may be the wrong
question. The truth is that most of the affluent world - again, the United
States, Europe and Japan - faces similar threats.
First: Their welfare states are
overwhelmed. Aging societies face a
collision between promised benefits and acceptable taxes. Either the first must
be cut, or the second must be raised. The politics are poisonous. As the Goldman
report notes, how the United States handles its debt creates enormous
uncertainty. The same is true elsewhere.
Second: Economic management is breaking
down. Before the 2007-09
financial crisis, most economists thought they could avoid deep slumps and
engineer acceptable recoveries. Confidence has given way to contentious
disagreements. Policies are improvised.
Third: Global markets have run ahead of
global politics. Countries depend
increasingly on international trade and money flows. But globalized commerce
is menaced by nationalistic, ethnic, religious and political differences among
nations.
A second American Century, though possible,
seems a stretch. The harder question is whether the affluent world can defeat
these deeper and more persistent threats to political and economic
stability.
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at January 28, 2013 - 07:21:53 AM CST
In “Timothy
Geithner's Legacy,”, Steven Rattner argues that history has vindicated the
response of policy makers to the financial crisis. In my view, it is too soon to
make that judgment.
Many years ago, a friend of mine advised me
that when your bicycle gets a flat tire, never replace just the inner tube.
Chances are, there is still something sharp stuck in the tire, and if you do not
replace the tire you are just setting yourself up to have another
blowout.
At this point, we do not know whether the
financial system has been fixed or whether it has just been set up to have
another blowout. It appears that TARP and other post-crisis interventions
have enabled several large financial institutions to return to
profitability. Whether this is going to be good for the economy in the long
run only time will tell.
One thing we can say about our financial
system in the wake of the crisis is that our biggest banks have gotten bigger.
In an article
published by the Federal Reserve Bank of St. Louis in November-December 2011,
David C. Wheelock pointed out that the ten largest banks in the United States
now hold nearly fifty percent of all deposits.
Writing in a publication for the Federal
Reserve Bank of Minneapolis, economist Robert DeYoung pointed
out that the three largest U.S. banking firms (Bank of America, J P Morgan
Chase, and Citigroup) each now have assets in excess of $2 trillion. It is
not clear that these banks are any more efficient than banks that are one-tenth
the size, or even less. What is clear is that banks of this size are
impossible for regulators to monitor effectively or to resolve quickly in the
event they turn out to be insolvent. As DeYoung points out, these banks do not
face a market test, because their status as too-big-to-fail acts as a subsidy,
lowering their borrowing costs.
In my opinion, Timothy Geithner's
approach relied on short-term thinking, focused on the health of Wall Street and
the largest banks. He has shown little understanding of history and little
inclination to think deeply about the interaction between regulation and the
financial industry.
Back in 2008 and 2009, the attention of
policymakers was focused on the sudden deterioration of financial conditions.
Many pundits and politicians leaped to the conclusion that financial
deregulation and an outbreak of extreme private-sector greed had allowed
dangerous risks to build up without regulators catching on in
time.
As more information becomes available, that
narrative is looking increasingly suspect. Peter J. Wallison and Ed Pinto of the
American Enterprise Institute found that Freddie Mac and Fannie Mae, in an
effort to meet political mandates, purchased the majority of the subprime loans
that were originated in the peak years. Although many defenders of Freddie and
Fannie attacked this analysis, a lawsuit initiated by the SEC late in 2011
alleged that Freddie and Fannie bought even more high-risk loans than Wallison
and Pinto had estimated originally. (Peter J. Wallison, Bad History, Worse
Policy, p. 168)
I believe it is likely that eventually the
economic history will stress how poorly both regulators and financial industry
executives understood the structure of the system that had evolved. The
political advocates of home ownership had no idea how badly they were setting up
their constituents for failure. The regulators who saw themselves as fine-tuning
capital regulations had no idea how badly their rules were distorting bank
behavior. (See my paper,
“Not What They Had in Mind”)
Short-range thinking allows officials like
Rattner and Geithner to rejoice at having replaced the inner tube on tire of the
financial bicycle, so that Wall Street can ride almost as comfortably as it did
in 2007. However, Rattner and Geithner have not learned the true lessons of the
financial crisis. In my view, one of the key lessons is that regulators
have too much confidence in their ability to monitor and regulate large
financial institutions.
There is no such thing as a financial system
that is too regulated to break. And if
it cannot be made too regulated to break, then your best hope is a system that
is easy to fix when it does break. From that perspective, enormous banks,
with many hundreds of billions in assets, are inherently harmful. There is no
easy way to fix the system when such a large, complex institution becomes
insolvent. We would be better off breaking up the large banks. (See here)
This is where history may judge Tim Geithner
very poorly. In 2009, at the height of the financial crisis, there was
widespread public and political support for making serious changes to how Wall
Street and the financial sector operated. Presented with an opportunity to break
these too-to-big-to-fail banks down to a size where an institution could be
allowed to fail without threatening the entire national economy, Geither
instead attempted to restore the status quo. This was a win for the biggest
banks, but the nation as a whole may eventually come to regret his
policies.
//
Arnold Kling is a member of the Financial
Markets Working Group at the Mercatus Center.
Page Printed from:
http://www.realclearpolitics.com/articles/2013/01/28/who_will_be_vindicated_116823.html at January 28,
2013 - 07:13:46 AM CST
January 27,
2013
Where do you fit in the 2012 ranking of total
money income by age group in the United States?
While we've previously built a tool where you can find out your percentile ranking
among all individuals, men, women, families and households in the U.S., we
thought it might be fun to break the data for individuals down a little
differently - by age group!
Our chart below reveals what that
distribution looked like for 2012, as indicated by the curves showing the major
income percentiles from the 10th through the 90th percentile for each indicated
age group on the horizontal axis.
The data in the chart represents the income
distribution for the estimated 194,271,175 Americans from Age 15 through Age 74.
As such, the space between each of the percentile curves on the chart then
covers the total money income of some 19.4 million individual Americans.
What stands out most in the chart are the
changes in the vertical spread between the 10th, 50th and 90th percentiles by
age group, which might be taken as a measure of the relative income inequality
for each age group. For example, we see the Age 15-24 group seems to have the
greatest income equality, with the least amount of vertical separation between
each of the income percentile thresholds.
We said "seems" for the Age 15-24 group,
because believe it or not, this group has the highest income inequality of any age group as measured by the
Gini index. The reason why has
to do with the high concentration of very low income-earning individuals within
this age range (for example, about 50% of all minimum wage earners are found in this age
group!), against which a relative handful of very talented young people,
including entertainers and star athletes, go straight from their school years to
multi-million dollar incomes, often before many of these individuals see their
careers flameout before they even make it into the next age group.
The same phenomenon isn't true for the older age groups, who all tend to
gain in income as they gain greater experience, as their Gini index values do
follow the pattern we observe in the chart above.
Speaking of which, one thing that's pretty
clear in the chart is that incomes at each major percentile threshold
increase across the board as individuals accumulate work experience up through
the Age 40-44 group. Above that point, that's would seem to only be true
for above-median income-earning individuals.
Going back to the overall patterns we observe
in this income distribution visualization, we see that the greatest
vertical spread between the 10th and 90th percentiles occurs for the Age 50-54
group, which corresponds to the peak earning years for Americans.
But that vertical spread indicating income
inequality diminishes rapidly for older age groups, which is consistent
with the transition from earning wages and salaries to only having retirement
income. It's especially interesting to see that the peak the
retirement-associated decline occurs earlier for the 90th percentile
income-earners, while it occurs around Age 55-59 for the lower income-earning
percentiles.
The vertical spread between the 10th and
50th percentiles are interesting as well. Here, see see that after rising
rapidly for the young, the 50th percentile income level begins to plateau for
those around Age 35-39, then holds fairly level through Age 55-59, after which
it declines as older individuals increasingly leave wage and salary-earning jobs
they've had for years for retirement.
We'll revisit this chart in an upcoming post,
where we'll conduct something of a thought experiment....
We took the age-based total money income data
presented by the U.S. Census to construct cumulative income distributions for
each included age group, then used ZunZun's curve-fitting tools to develop mathematical
models for each to calculate the income that goes with a particular income
percentile. The indicated incomes in the chart above are typically within a few
hundred dollars of the IRS' published data.
As another hint to what's coming soon here at
Political Calculations, those mathematical models just might show up in the
future as a new tool that you can use to see exactly what your income percentile
ranking is within your own age group!
U.S. Census Bureau. Current Population Survey.
2012 Annual Social and Economic Supplement. Table PINC-01. Selected
Characteristics of People 15 Years Old and Over by Total Money Income in 2011,
Work Experience in 2011, Race, Hispanic Origin, and Sex. [Excel Spreadsheet]. 12 September 2012.
San Francisco
I walk to the security desk in the lobby of
what could be any of this city's downtown office buildings filled with lawyers,
architects and finance firms. "I'm here to see Travis Kalanick at
Uber."
"You'll have to email him, they're very
secretive. And take a seat."
I sit down and send
a note to say I have arrived for the interview. Nearby, several middle-aged men,
all wearing black suits, white shirts and ties, listen to a young guy in jeans,
orange socks and sneakers. He is consulting a MacBook as he talks to them. "Your
account is no longer active, due to quality concerns from negative feedback," he
says to one of the men. "You've had 105 trips and your quality scores are
low."
Enlarge Image
Zina
Saunders
These are Uber drivers, I surmise, and one
of them is being given the heave-ho. The company is a hot San Francisco
startup that already has 25 outposts around the world for its simple, seductive
service: on-demand transportation. With an iPhone or Android app, you call up
the Uber map, spot an available town car or taxi, and summon it with a
click. The fare and tip for a town car, or limo, is maybe 50% higher than
for a regular taxi ride and paid for through the service.
As the "no longer active" driver might attest,
the company puts a premium on customer satisfaction. Uber has been successful
enough that city bureaucrats across the country, eager to protect homegrown taxi
and limousine services, have thrown up regulatory roadblocks left and
right.
An Uber staffer fetches me and I am taken to
meet Mr. Kalanick. The 36-year-old CEO isn't dressed in the usual geek-chic
uniform. Instead, he wears a light-gray Italian suit with a pink shirt, no
tie. But the Uber offices themselves have the usual Silicon Valley
accouterments—as I walk with Mr. Kalanick to a cluttered conference room, we
pass a game room with a Foosball table, a Pepsi-stocked fridge and two tapped
beer kegs.
His background is
also classic Silicon Valley. Started coding in sixth grade. Studied computer
engineering at UCLA—"a great discipline on how to break down problems and
put them back together," Mr. Kalanick says. Founded a company in 1999
during his senior year, left college without graduating.
The company,
Scour.com, was like Napster, a peer-to-peer search engine to find music and
other content on the Web. He was sued for $250 billion (yes, with a "b") by 30
or so media companies, filed for Chapter 11, started another company with the
same P2P technology, but this time he was paid by media companies to move their
content around cheaply. He ran out of money several times, moved back home with
his parents near Los Angeles and worried about his sanity. Then the company,
called Red Swoosh, finally started working, and in 2007 he sold it to Akamai for
$15 million.
Two years later,
Travis and a friend, Garrett Camp, who had made his fortune by selling the Web
search tool StumbleUpon to eBay
EBAY +2.43% in 2007,
were in Paris for the Le Web conference. "We were jammin' on ideas," Mr.
Kalanick recalls. "What's next, what's the next thing, and Garrett said, 'I
just want to push a button and get a ride.' And I'm like, 'That's pretty good.'
He said 'Travis, let's go buy 10 Mercedes S-Classes, let's go hire 20 drivers,
let's get parking garages and let's make it so us and a hundred friends could
push a button and an S-Class would roll up, for only us, in the city of San
Francisco, where you cannot get a ride.' This wasn't about building a huge
company, this was about us and our hundred friends."
It took another
year to get going as a real company, even a small one. At one point early in
2010, Mr. Kalanick says, he asked himself: "Do I really want to run a limo
company?" He Googled "San Francisco limousine" and started calling existing
companies to try out the idea. "Three of them hung up, four of them were 'maybe'
and another three were super pumped."
That was good enough to suggest that he was
onto something. Uber launched as an iPhone app in June 2010. The cars
that iPhone users summon are typically town cars owned by a limousine company
but not on a call. Instead of idly waiting for work, the nearest available
driver answers the app call. Other cars are simply privately owned vehicles
whose drivers have been vetted by Uber.
The idea worked.
How could Mr. Kalanick tell? Four months after the launch in San Francisco, Uber
was served with a "cease and desist" order from the California Public Utility
Commission and the San Francisco Municipal Transportation Agency. "Given my
background," Mr. Kalanick says, alluding to being sued at Scour.com, "this was
like homecoming." He verified with his lawyers that what Uber was doing was
indeed legal, then the company took its case to the public through Twitter and
email.
"Did you ever
cease?" I asked. "No." "Did you ever desist?" "No." "So you basically ignored
them?"
As he talks, Mr.
Kalanick paces around the conference room carrying a golf putter. The more wound
up he becomes, the more he seems likely to break a window than practice his
stroke. "The thing is, a cease and desist is something that says, 'Hey, I think
you should stop,' and we're saying, 'We don't think we should.' The only way to
deal with that is to be taken to court, and we never went to
court."
But Uber did have
to meet with the San Francisco Municipal Transportation Agency, where the woman
in charge of taxis "was upset," Mr. Kalanick says. "Oh man, I've never. . . .
She was fire and brimstone, deep anger, screaming. But here's the thing,
SFMTA has no jurisdiction on what we do. They regulate taxis. Every single limo
company we work with is licensed and regulated by the state of California."
Ultimately, he says, the question boiled down
to this: "Are we American Airlines or are we Expedia
EXPE +4.89% ? It
became clear, we are Expedia."
When I suggest to Mr. Kalanick that Uber, in
the fine startup tradition, was using the "don't ask for permission, beg for
forgiveness" approach, he interrupts the question halfway through. "We don't
have to beg for forgiveness because we are legal," he says. "But there's been
so much corruption and so much cronyism in the taxi industry and so much
regulatory capture that if you ask for permission upfront for something that's
already legal, you'll never get it. There's no upside to
them."
The crisis with the transportation agency
lasted a few days and then faded. Meanwhile, Uber was trying to perfect
its model, employing Ph.D.s to create algorithms to estimate demand and pricing
to make the service efficient.
Breaking their own rules and not wanting to get
screamed at, Uber met with the New York Taxi and Limousine Commission,
briefing commissioners on the company's success in San Francisco. "They gave us
their blessing," Mr. Kalanick says, and Uber started operating in New York in
May 2011. Soon a prominent newspaper article appeared about the company, and
"the minute it hit the public, the taxi industry and black-car industry sees it
and then the lobbyists get working and then they try to shut us down." As he
notes, in New York there are 13,000 taxis with medallions that trade for close
to $1 million, implying a very profitable cash flow from fares. That's a lot of
assets to protect.
Uber met with New York officials and ended up
getting a memo saying they were legit, for limos anyway. "This speaks to New
York, they wanted to embrace innovation and they did," Mr. Kalanick says. That
sounds like a big change for the Big Apple. "You can trace this to [Mayor]
Bloomberg. If anyone gets technology disrupting an industry, he was there." As
long as the drivers don't smoke or drink Big Gulps.
Uber also launched in Chicago, where
regulators tried to change the rules to block them, in Seattle with no problems,
and in Boston, where a cease and desist was issued because the state's Division
of Standards didn't have a standard for using GPS in commercial vehicles. The
company ignored that one, too.
Then, last year, came the clash with
regulators in the city where they order red tape by the truckload: Washington,
D.C. A month after Uber launched there, the D.C. taxi commissioner asserted in a
public forum that Uber was violating the law.
This time Uber was ready with what it called
Operation Rolling Thunder. The company put out a news release,
alerted Uber customers by email and created a Twitter hashtag #UberDCLove. The
result: Supporters sent 50,000 emails and 37,000 tweets. Mr. Kalanick says that
Washington "has the most liberal, innovation-friendly laws in the country"
regarding transportation, but "that doesn't mean the regulators are the most
innovative." The taxi commission complained that the company was charging
based on time and distance, Mr. Kalanick says. "It's like saying a hotel
can't charge by the night. But there is a law on the books, black and white,
that a sedan, a six-passenger-or-under, for-hire vehicle can charge based on
time and distance."
In July, the
city tried to change the law—with what were actually called Uber Amendments—to
set a floor on the company's rates at five times those charged by taxis.
"The rationale, in the frickin' amendment, you can look it up, said 'We need to
keep the town-car business from competing with the taxi industry,' " Mr.
Kalanick says. "It's anticompetitive behavior. If a CEO did that kind of
stuff—you'd be in jail."
He sits down and puts away the golf club. "A
lot of my job is taking those kinds of things—anticapitalist taxi
protectionism—and putting it in populist terms. What they're really saying when
they put a floor on prices is that only wealthy people are allowed to get into
town cars."
As an
experiment, the company launched UberTaxi in Chicago last year—another
option in the app, to hail a taxi for a lower fare than a town car. "If there is
to be a low-cost Uber, Uber will be the low-cost Uber," Mr. Kalanick says.
Company reps met with the Chicago Taxi Commission, which told them they needed a
taxi-dispatch license. So Uber obtained a license and for a while had no
problems. The company's limo business in Chicago tripled and the taxi business
soon equaled the limo business. But in the course of one week in October, Uber
was sued by taxi and limousine companies, and Chicago regulators sent citations
and filed a class-action suit on behalf of passengers.
Rolling Thunder rolled out again, though this
time the company broke the email list into 10 parts and sent out one-tenth every
day, asking customers to let City Hall know what they thought. Mayor Rahm
Emanuel's office received a constant torrent of emails, tweets and phone calls
and, lo and behold, the regulatory threat went away. No permission, no plea for
forgiveness.
The day that I spoke with Mr. Kalanick,
UberTaxi launched in Washington. Next month, a one-year trial of UberTaxi will
start in New York City. "We already know how the trial will come out," he says.
"We ran taxi dispatch in New York for six weeks. Drivers will make a lot of
money."
Uber investors seem
to think they're onto a good thing too. The company raised $37 million in
exchange for a 10% stake over a year ago from Amazon CEO Jeff Bezos and others.
Mr. Kalanick says that Uber currently has 170 employees, not including drivers,
and he expects the total to reach 800-900 by the end of 2013, all without
raising any more money. Uber sends work to tens of thousands of drivers,
who log hundreds of thousands of hours behind the wheel per week. Imagine, a
company stirring up all that economic activity without government stimulus
money.
What has Mr.
Kalanick learned so far from his Uber experience? "The regulatory systems in
place disincentive innovation. It's intense to fight the red tape." His
advice for others: "Stand by your principles and be comfortable with
confrontation. So few people are, so when the people with the red tape come, it
becomes a negotiation."
The resistance to regulatory interference
doesn't stem from a particular political stance. "My politics are: I'm a
trustbuster. Very focused. And yeah, I'm pro-efficiency. I want the most
economic activity at the lowest price possible. It's good for everybody, it's
not red or blue."
Mr. Kessler a former hedge-fund manager, is
the author most recently of "Eat People" (Portfolio, 2011).
21 January 2013 http://www.project-syndicate.org/print/cutting-fiscal-deficits-by-shrinking-government-by-robert-j--barro
CAMBRIDGE – One of the many things I
learned from Milton Friedman is that the true cost of government is its
spending, not its taxes. To put it another way, spending is financed either by
current taxes or through borrowing, and borrowing amounts to future taxes, which
have almost the same impact on economic performance as current
taxes.
We can apply this reasoning to the United
States’ unsustainable fiscal deficit. As is well known, closing this deficit
requires less spending or more taxes.
The conventional view is that a reasonable,
balanced approach entails some of each. But, as Friedman would have argued, the
two methods should be considered polar opposites. Less spending means that the
government will be smaller. More taxes mean that the government will be
larger. Hence, people who favor smaller
government (for example, some Republicans) will want the deficit closed entirely
by cutting spending, whereas those who favor larger government (for example,
President Barack Obama and most Democrats) will want the deficit closed entirely
by raising taxes.
As the economist Alberto Alesina has
found from studies of fiscal stabilization in OECD countries, eliminating fiscal
deficits through spending cuts tends to be much better for the economy than
eliminating them through tax increases. A natural interpretation is that spending adjustments
work better because they promise smaller government, thereby favoring economic
growth.
For a given size of government, the method
of raising tax revenue matters. For example, we can choose how much to collect
via a general income tax, a payroll tax, a consumption tax (such as a sales or
value-added tax), and so on. We can
also choose how much revenue to raise today, rather than in the future (by
varying the fiscal deficit).
A general principle for an efficient tax
system is to collect a given amount of revenue (corresponding in the long run to
the government’s spending) in a way that causes as little distortion as possible
to the overall economy.
Usually, this principle means that marginal tax rates should be similar at
different levels of labor income, for various types of consumption, for outlays
today versus tomorrow, and so on.
From this perspective, a shortcoming of the
US individual income-tax system is that marginal tax rates are high at the
bottom (because of means testing of welfare programs) and the top (because of
the graduated-rate structure). Thus, the government has moved in the wrong
direction since 2009, sharply raising marginal tax rates at the bottom (by
dramatically increasing transfer programs) and, more recently, at the top (by
raising tax rates on the rich).
One of the most efficient tax-raising
methods is the US payroll tax, for which the marginal tax rate is close to the
average rate (because deductions are absent and there is little graduation in
the rate structure). Therefore,
cutting the payroll tax rate in 2011-2012 and making the rate schedule more
graduated (on the Medicare side) were mistakes from the standpoint of efficient
taxation.
Republicans should consider these ideas when
evaluating tax and spending changes in 2013. Going over the “fiscal cliff” would
have had the attraction of seriously cutting government spending, although the
composition of the cuts – nothing from entitlements and too much from defense –
was unattractive. The associated revenue increase was, at least, across the
board, rather than the unbalanced hike in marginal tax rates at the top that was
enacted.
But the most important part of the deal
to avert the fiscal cliff was the restoration of the efficient payroll tax. I
estimate that the rise by two percentage points in the amount collected from
employees corresponds to about $1.4 trillion in revenue over ten years.
This serious revenue boost was not counted in standard reports, because the
payroll-tax “holiday” for 2011-2012 had always been treated legally as
temporary.
It is true that some macroeconomic
modelers, including the Congressional Budget Office, forecasted that going over
the cliff would have caused a recession. But those results come from Keynesian
models that always predict that GDP expands when the government gets larger.
Entirely absent from these models are the negative effects of more government
and uncertainty about how fiscal problems will be
resolved.
Another recession in the US would not be a
great surprise, but it can be attributed to an array of bad government policies
and other forces, not to cutting the size of government. Indeed, it is nonsense
to think that cuts in government spending should be avoided in the “short run”
in order to lower the chance of a recession. If a smaller government is a good
idea in the long run (as I believe it is), it is also a good idea in the short
run.
How is the European economy, and the world's,
doing in the fifth year of the longest slump since the Great Depression? This is
the Big Question of Davos 2013, and the answer comes in the guise of its
official motto: "Resilient Dynamism." Around the world today, there is
certainly "resilience," but the "dynamism"—solid growth—is missing.
Compared to the World Economic Forums of
2009-12, good news abounds. The euro is rising against the dollar and even,
recently, against the mighty Swiss franc. The spreads of Italian and Spanish
10-year bonds have dropped to two and three percentage points above the German
bund. The traders who used to attack
one "Club Med" country after another remain cowed. Some of them have made
zillions on Greek paper.
Mario Draghi, head
of the European Central Bank, has carried the day, never mind that he has turned
the ECB, against its mandate, into a money-printing
Fed-on-the-Main. His threat to "do
whatever it takes" to save the euro has worked wonders. Central bankers around
the world must envy him; the trick doesn't always succeed.
German Chancellor Angela Merkel gets
credit, too. Though she bent or broke
European compacts left and right—above all the "no bailout" clause of the
Maastricht Treaty on monetary union—her "crimes" have paid. And who
wants to gripe about success? The Greeks have called off the revolution, and the
political center holds from Lisbon to Leipzig.
Pessimism, in
previous years as oppressive as the traffic jam on Davos's Promenade just before
the party zone starts grooving, has dwindled. Davos's organizers have taken an
"experts' opinion" poll, happily reporting that the "confidence index" has crept
up from 0.38 to 0.43. Just a bit more, and it will reach the "optimism zone"
beckoning beyond the 0.5 mark.
Enlarge Image
Getty Images
Enablers: German Chancellor Angela Merkel and ECB
President Mario Draghi.
So it's "resilience," all right. But the
"dynamics" are less inspiring. Growth in the euro zone has dropped below
zero, and the rest of the Western world is not doing much better. Worse—and hats
off to Lance
Armstrong—the euro zone is pedaling on steroids. These are trillions in
liquidity injected by Mr. Draghi, who is being flanked by his colleagues in
America, Britain and Japan. Public deficits range from intractable to gargantuan
and public debt is rising accordingly.
But why worry? Inflation is as low as the
courage of the cowed traders.
This friendly news would be a nice tranquilizer if asset inflation were
similarly depressed. But it is mounting throughout the world, as the prices of
real estate, gold, art and commodities signal.
"Real" inflation will follow once, and if, the
"dynamism" of the global economy returns. Spare capacity will dwindle, and with
confidence restored, liquidity will morph into buying power. Nor will China,
the "factory of the world," help us. Labor costs in the Middle Kingdom are
soaring, as they always do when a startup economy moves into maturity. By
2017, Chinese labor costs will reach American levels, the Economist predicts in
its latest issue.
As to the euro
zone, it takes Nobel laureates in economics to keep prescribing
steroids—mega-deficits and giga-debts—as panaceas. Alas, these build muscles
while imperiling long-term health.
The large crisis countries above all—France,
Italy, Spain—are not exercising hard enough to restore their economic strength,
aka "competitiveness." The issue is not austerity, as stubborn deficits and
rising public-debt burdens demonstrate. For Club Med, the real issue is
microeconomic reform, which is proceeding only fitfully and
hesitantly.
It doesn't take a Ph.D. in the "dismal science"
to diagnose the underlying causes of ill health. The most egregious
symptom is youth unemployment that runs twice as high as the general rate.
Evidently, the problem is a split labor market that protects the happy insiders
and excludes the young. This is not "social justice," as a favorite European
shibboleth has it. Nor do such enshrined advantages vouchsafe the
competitiveness of the Mediterranean economies.
Instead of serving justice, such market
barriers kill opportunity by protecting the privileged, skilled and unskilled:
taxi guilds, public servants, pharmacists, architects, lawyers. Add big business
feeding at the trough of subsidies and tax breaks. Alas, it takes political
capital to dismantle such walls, and Mario Draghi can't print that like so many
billions of cash.
Democratic governments can generate the
political capital needed, as demonstrated by the welfare and labor reforms
executed by Bill Clinton, Tony Blair and Gerhard Schröder—Social Democrats all.
The Scandinavians have done it too. Just compare today's Sweden with the basket
case it was in the 1990s.
Let's finally shift from Euroland to Europe as
a whole to dramatize the problem a different way. Since 1970, the average
annual growth rate in the EU-27 has dropped by about half a percentage point
each decade. In the same period, its share of global GDP has shrunk by 10
percentage points.
So much for the longevity of "economic
miracles." China enthusiasts, please take note. The same fate has befallen the
earlier "dragons": Japan, Taiwan and South Korea.
Steroids, as administered by Drs. Draghi and
Merkel, help in the short term—and that is for the good, given Europe's dismal
state two or three years ago. They have
bought Europe a precious recuperation period while kicking the can of a rigorous
health regimen down the road.
But Europe as a whole is limping. If it
doesn't put the lull to good use, the steroids will take their toll. Europe, so
rich in skills and talents, deserves better than the worst possible outcome:
neither "resilient" nor "dynamic."
Mr. Joffe is editor of Die Zeit and
fellow of the Freeman-Spogli Institute for International Studies and the Hoover
Institution, both at Stanford. His new book, "The Myth of American Decline,"
will be published by W.W. Norton in the fall.
When the latest
U.S. trade statistics came out this month, they conveyed one sobering
message: President Obama's National Export Initiative is in danger of
failing. Success can still be snatched from the jaws of defeat—but only if
the president and Congress quickly and aggressively pursue freer trade and
liberalize many other policies connected to the global
economy.
In his 2010 State
of the Union address, President Obama introduced the NEI goal of doubling
U.S. exports in five years. Such an achievement would help stabilize the
post-crisis global economy. It would also help unemployed workers in the U.S.,
where the total number of private-sector jobs remains the same as it was 12
years ago. Exporting companies compared with non-exporters tend to
generate about twice as many sales, to be about 10%-15% more productive per
worker and thus to pay about 10%-15% more in salaries.
U.S. real exports grew 11.1% in 2010 and
6.7% in 2011. But the most recent data showed that in 2012 they barely grew—by
only about 3.5% for the 11 months through November. Indeed, November nominal
exports were 1.2% lower than they were in March. On current trajectories, by 2015 America's exports will
be far short of the president's five-year-doubling target.
Exports in 2010 and 2011 were boosted mainly
by GDP growth among our trade partners. But that growth is
fading—and trade liberalization has not
been enacted to offset it. Nine of America's top 10 export partners—all
but perpetually sluggish Japan—suffered slower GDP growth in 2012 than in 2011.
In 2012, U.S. exports to the recessionary 27 European Union countries fell by
about 1%.
Enlarge Image
Getty Images
Amid slow economic growth abroad and little
movement in the American dollar, the key to spurring U.S. exports is aggressive
policy liberalization. Yet how many new U.S. free-trade agreements were
negotiated and ratified during President Obama's first term? Zero. How many new
agreements look likely to be negotiated and ratified in 2013? Zero. For
America to achieve the president's National Export Initiative goal, these zeros
must soon be replaced with bold new trade agreements.
These agreements should carefully target
countries and industries. That can make a real difference. No disrespect to
our 20 current free-trade-agreement partner countries, but last year they
collectively accounted for only 10.5% of global GDP. China alone accounts for
about the same amount. Why not negotiate a China-U.S. free-trade agreement?
Most estimates peg the U.S. as the
world's single-largest exporter of services. In 2011, American
exports of services—in technology and entertainment and including tourism to
this country—were worth $604.9 billion. Given that America's long-standing and
growing trade surplus with the rest of the world ($179 billion in 2011) reflects
a comparative advantage in strengths that should be cultivated at home,
including skilled labor, information technology and organizational capital, why
not negotiate a global free-trade agreement in major service industries like
consulting, entertainment and software?
To work, such
trade agreements cannot be mercantilist: They should open U.S. borders
to foreign exports as well as foreign borders to U.S. exports. Exports "made in
America" increasingly hinge on creative new ways to make goods and services used
in global supply networks. A June 2012 paper from the National Bureau of
Economic Research by Robert C. Johnson and Guillermo Noguera estimated that the
foreign content of U.S. exports has tripled in the past 40 years, rising from
about 7% in 1970 to 22% in the late 2000s. In 2011, fully 62% of America's $2.2
trillion of goods imports were intermediate inputs—components and parts—used in
America by American workers.
The National Export Initiative risks becoming a
sad example of America's current policy mess: diaphanous words left hanging,
without any tangible follow-through. Amid the many continuing fiscal fights,
American companies and their workers could use some good policy news. Mr.
President, how about surprising everyone in your second term with a renewed
effort regarding trade? Don't let your NEI be DOA.
Mr. Slaughter, professor and associate
dean at Dartmouth's Tuck School of Business, served as a member of the
president's Council of Economic Advisers from 2005 to 2007.
Japan's new Prime Minister Shinzo Abe scored
a partial victory over the Bank
of Japan 8301.JA +2.29% on
Tuesday, as Governor Masaaki
Shirakawa announced the expansion of the bank's quantitative easing program
and a doubling of its inflation target to 2%. Mr. Abe won last month's general
election in part because of his promise that he would force the central bank to
take these measures to stop deflation. But the Bank of Japan's capitulation is
unlikely to change much.
Financial markets were unimpressed, with stocks
falling and the yen even strengthening a bit. There was a more positive response
last month when Mr. Abe pushed his economic platform and won a larger than
expected victory at the polls. This is consistent with the Bank of Japan's past
attempts to fight deflation: Initial optimism quickly gives way to
cynicism.
Enlarge Image
Bloomberg
Masaaki Shirakawa, governor of the Bank of
Japan
And this goes to the heart of Japan's
economic policy challenge. Deflation is more a symptom than the cause of its
malaise. Certainly deflation depresses the desire of households to consume
and companies to invest. But without structural reform to deregulate the
Japanese economy and make it more open, productivity growth will continue to lag
and wages decline.
Monetary policy is a weak tool when banks
sitting on bad loans don't want to lend, and companies with unproductive assets
don't want to borrow. After the BOJ prints money, the banks simply keep it on
reserve with the central bank or buy new government bonds. Excess reserves stood
at 27.8 trillion yen ($319 billion) as of the middle of
December.
This doesn't mean we don't have some
sympathy for Mr. Abe's frustration over the yen's value. He is taking flak from
foreign officials, notably Bundesbank President Jens Weidmann on Tuesday, for
explicitly calling for a weaker yen to boost the export competitiveness of
Japanese companies. The critics are
right that Japan cannot devalue its way to prosperity, and such rhetoric risks
sparking a round of competitive devaluations like that seen in the
1930s.
However, Japan is also at the mercy of
gyrations in the world's reserve currency, thanks to the U.S. Federal Reserve's
quantitative easing policy. The flood of dollars has weakened the greenback
globally and worsened deflationary pressures in Japan and
elsewhere.
The yen most recently appreciated by more
than 25% from 2009 to late 2012, and seeking currency stability is not the same
thing as competitive devaluation.
As with past periods of a rising yen, this did not destroy the
competitiveness of Japan's export powerhouses such as Toyota—precisely because
it causes deflation, which compensates for the effects of the exchange rate.
Any country that is highly integrated into the global economy is a price
taker for tradable goods, and that filters through to the rest of the domestic
economy.
The resulting strong yen creates a vicious
cycle of expectations in Japan. Knowing that deflation follows, Japanese
institutions and households sit on their holdings of government bonds and bank
deposits. Moreover, they don't sell yen to invest overseas, because even though
they are earning minimal interest rates at home, they have learned that any
extra yield would be negated by the strengthening yen. This explains the lack of
capital flight despite the knowledge that the Japanese government's debt is
unsustainable.
Japan also lacks the one tool that might
have allowed it to stabilize the value of the yen. Legally the Bank of Japan
is required to sterilize interventions in the foreign exchange market—when the
Ministry of Finance sells yen to buy dollars, the BOJ must take those yen out of
circulation by selling bonds. This means that when the demand for yen is
strong, the supply of yen doesn't increase. Allowing the central bank to
accommodate the demand for yen is a better way to prevent deflation than having
politicians like Mr. Abe browbeat the Bank of Japan into
submission.
More broadly, structural economic reform
is the only policy that can break the hold of deflationary expectations without
risking a run on the yen. The tragedy for Japan—and thus for a world that needs
faster Japanese growth—is that Mr. Abe is still stuck on public-works spending
and other Keynesian demand-side stimulus prescriptions that have failed for more
than 20 years. By focusing so much on the yen, Mr. Abe is missing the
chance to promote supply-side reforms.
MADRID—Spain's central bank said a recession
in the euro zone's fourth-largest economy deepened slightly in the final quarter
of last year, but it said austerity cuts are bringing the country's runaway
budget deficit under control.
In the first estimate of fourth-quarter
economic performance, the Bank of Spain said the economy contracted 1.7%
compared with the same period a year earlier and likely contracted 0.6% from the
previous quarter. In the third quarter, the economy had shrunk 0.3% from the
previous quarter, and 1.6% on an annual basis.
The Bank of Spain said gross domestic
product fell just 1.3% in the whole of 2012, which was less than the 1.5%
contraction anticipated by the government and a sign that strict budget cuts across the board are
having a less detrimental effect than some feared. It cautioned that continuing
cuts could still weigh on an economy already hurt by efforts to trim debt.
"This budget consolidation effort has had a net
contracting effect on activity throughout the year, especially in the last few
months," the central bank said. This year, meeting even stricter austerity
targets "will require an additional, very ambitious fiscal effort by the central
and regional governments."
Those comments are in line with heightened
concerns by local and foreign observers that accelerated austerity measures
promoted by the European Union are self-defeating, as a collapse in economic
activity makes it harder to boost tax revenue, putting pressure on budget
deficits.
Earlier this month, the International
Monetary Fund said it revising its metrics for how quickly governments should
cut their budgets and the IMF's top economist Olivier Blanchard made the case
that Europe's fiscal tightening has been too severe.
"We do need to reduce the deficit, but the EU
should be more flexible about the deadlines," said Josep Comajuncosa, an
economics professor at Spain's ESADE business school. "Requiring a fast and
drastic reduction of the public deficit could backfire. The deficit target
should be pushed back one or two years."
The central bank said tax revenue increases in
recent months will make it easier for the government to get closer to its target
of lowering the 2012 budget deficit to 6.3% of GDP from 9% in 2011. The target
for this year is 4.5% of GDP.
The latest data available, the central bank
said, indicates tax revenue picked up in recent months due to higher value-added
and corporate tax receipts, while expenses fell after the government suspended
an extra monthly payment for civil servants and decided not to adjust pensions
for inflation—two measures which eroded popular support for Prime Minister
Mariano Rajoy.
Spain's statistics institute is due to release
an official preliminary estimate of fourth-quarter GDP Jan. 30. Full data on
Spain's 2012 budget deficit, including for regional governments, will likely be
released late February.
Write to Christopher Bjork at christopher.bjork@dowjones.com
********Jan 28
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