Economics 150 ,202 Readings(A)
Those marked "*" are highly recommended
1. Bad statistics for summer employment for youth
2. Parking, Once Again Arnold Kling
3. Gone Parkin’ By DONALD SHOUP
4. The Folly of Subsidizing Unemployment
5. My Reasons for Optimism on Education
6. Capitalism, Democracy and Environmental Quality
7. Free Parking Comes at a Price By TYLER COWEN
8. A Course Load for the Game of Life By N. GREGORY
MANKIW
9. School Voucher Breakout
10. What is the role of the state?
11. The German Miracle: Another Look
12. Making Lighting More Efficient Could Increase
Energy Use, Not Decrease It
13. You Paid What for That Flight? It Can Cost More
to Fly to Hartford Than Barcelona. What Airlines Consider in Setting Prices
14. Climate Panel Faces Heat Investigation Calls for
'Fundamental Reform' at U.N. Group on Global Warming
15. Roll-Your-Own Cigarette Machines Help Evade Steep
Tax
16. More Go Without Life Insurance
17. Housing Crisis? Look to Canada for Answers
18. After the Deluge, A New Education System Today
close to 70% of New Orleans children attend charter schools.
19. Don't Expect Much From the R&D Tax Credit
20. Who Is Austan Goolsbee?
21. Obamanomics Meets Incentives Why cuts in marginal
tax rates increase economic growth, but cash for clunkers merely created
a boom and bust cycle in auto sales.
22. Venezuela on the Brink
23. Don't defend this deduction Greg IP
24. The Right Call on Spectrum Auctions The FCC kills
a special interest scheme.
*25. Principles for Economic Revival
26. Census: 1 in 7 Americans live in poverty
*27. What Is Missed in Poverty Measures
*28. Q&A: Rethinking U.S. Poverty Measure: interview
with Prof Bruce Meyer
29. Census Bureau to Develop Supplemental Poverty
Measure
30. Tight Labor Market Boosts Employee Tenure
31. Report Blames Big Banks for Payday Loan Growth
32. Evidence on Austerity and Economic Stimulus
33. Sentence of the Day Alex Tabarrok from the
Marginal Revolution Blog
34. Problems with Oregon State Health PLan
35. Why Corvettes Cost Less Than College
1. Bad statistics for summer employment for youth
|
Recommend (3)
By Diane Stafford | Kansas City Star
The share of young people aged 16 to 24 who were employed this summer fell to 48.9 percent -- the lowest rate on record since 1948.
Meanwhile, the raw number of youth who held jobs in July 2010 actually rose by 1.8 million from July 2009 to 18.6 million.
But as a percentage of the population, the share of workers in that age group fell, according to annual data from the U.S. Bureau of Labor Statistics, released today.
The youth employment rate always rises in the summer -- and it went up this year by 571,000 from April. But that was half as much as in each of the two previous summers, the bureau said.
For the summer of 2010, the youth labor force totaled 22.9 million workers in July, an 11.5 percent growth from April youth payrolls.
Knowledge of the recession and bad job market may have kept young people from even looking for work. Also, many in that age group could have been enrolled in summer classes and not seeking employment.
For whatever reason, the proportion of the 16-24 age group that was working or looking for work also dropped this summer to its lowest percentage on record -- 60.6 percent. That was 2.5 percentage points below the rate recorded in Juy 2009 and 17 percentage points below the peak of labor force participation for that age group in July 1989.
About 4.4 million youth were actively searching for work and considered unemployed in July this year. That produced a youth unemployment rate of 19.1 percent, the highest rate on record for the month.
Read the complete story at kansascity.com
Read more: http://www.mcclatchydc.com/2010/08/27/99763/bad-statistics-for-summer-employment.html#ixzz0xqECuNBn
AUGUST 22, 2010
2. Parking, Once Again
Arnold Kling
Tyler Cowen offers a number of links. I clicked on this
op-ed, by Donald Shoup.
To prevent shortages, some cities have
begun to adjust their meter rates (using trial and error) to produce about
an 85 percent occupancy rate for curb parking. The prices vary by location
and the time of day.
The case for peak-load pricing of parking spaces is unassailable. That is, when there is plenty of parking available, the price should be zero, or close to it. When parking spaces are mostly utilized, the price should be high enough to ensure that at least some spaces are available. Peak-load pricing helps people make the right decision on one of the relevant margins, namely, when to use a parking place and when to leave it for someone else.
But if you read chapter one of Shoup's book, it seems that what ticks him off is the fact that people use cars. Hence, the relevant margin is the mode of transportation. But peak-load pricing, by ensuring drivers that parking spaces will be available, might increase the use of cars. When I have to get to a meeting in the area, I am more worried that parking lots will be full than that they will be expensive. That is one reason I usually take the subway.
Shoup strikes me as one of those people who would like
to see American locales looking more like Berlin. As I wrote here, it is
not clear that taking away public parking will generate that outcome.
CATEGORIES: Regulation and Subsidies
Save to del.icio.us • Stumble It! • Digg This! • Share
on Facebook • Post to Google Buzz • Email this
PERMANENT LINK
|
COMMENTS (7)
|
TRACKBACKS (0)
More parking links
Donald Shoup wrote me and asked if I might pass along the following links, to correct misinformation:
1. A short video on the San Francsico parking experiment.
2. Shoup speaking at Yale.
3. How to price curb parking.
4. NYT Op-Ed by Shoup.
5. Chapter one of Shoup's book.
6. Shoup's website.
From me, here is Matt Yglesias on parking feedback loops.
Posted by Tyler Cowen on August 22, 2010 at 05:35 AM in
Economics | Permalink
Comments
I'll go along with the 85% performance-parking concept in the third item. I guess parking garages must do something like that. When I want to use one, they seem mostly occupied, but a space is nearly always available.
In DC, I suppose a performance parking scheme would have to account -- don't ask me how -- for the fact that 50% of those green parking payment kiosks are out of order at any given moment.
Posted by: Steve at Aug 22, 2010 8:30:46 AM
I'm not necessarily against higher parking rates to insure the availability of spots, but it's a bit of a stretch to say we can use the extra revenues for new services. In reality, extra revenues are spotted by existing municipal workers who demand higher wages for the same services, which is why high tax states don't provide substantially more services or substantially better services than low tax ones.
Op-Ed Contributor
3. Gone Parkin’ By DONALD SHOUP
Published: March 29, 2007
http://www.nytimes.com/2007/03/29/opinion/29shoup.html?ex=1332820800&en=cdabf3ece6c4a862&ei=5088&partner=rssnyt&emc=rss
Los Angeles
Skip to next paragraph
Harry Campbell
MOST people view traffic with a mixture of rage and resignation: rage because congestion wastes valuable time, resignation because, well, what can anyone do about it? People have places to go, after all; congestion seems inevitable.
But a surprising amount of traffic isn’t caused by people who are on their way somewhere. Rather, it is caused by those who have already arrived. Streets are clogged, in part, by drivers searching for a place to park.
Several studies have found that cruising for curb parking generates about 30 percent of the traffic in central business districts. In a recent survey conducted by Bruce Schaller in the SoHo district in Manhattan, 28 percent of drivers interviewed while they were stopped at traffic lights said they were searching for curb parking. A similar study conducted by Transportation Alternatives in the Park Slope neighborhood in Brooklyn found that 45 percent of drivers were cruising.
When my students and I studied cruising for parking in a 15-block business district in Los Angeles, we found the average cruising time was 3.3 minutes, and the average cruising distance half a mile (about 2.5 times around the block). This may not sound like much, but with 470 parking meters in the district, and a turnover rate for curb parking of 17 cars per space per day, 8,000 cars park at the curb each weekday. Even a small amount of cruising time for each car adds up to a lot of traffic.
Over the course of a year, the search for curb parking in this 15-block district created about 950,000 excess vehicle miles of travel — equivalent to 38 trips around the earth, or four trips to the moon. And here’s another inconvenient truth about underpriced curb parking: cruising those 950,000 miles wastes 47,000 gallons of gas and produces 730 tons of the greenhouse gas carbon dioxide. If all this happens in one small business district, imagine the cumulative effect of all cruising in the United States.
What causes this astonishing waste? As is often the case, the prices are wrong. A national study of downtown parking found that the average price of curb parking is only 20 percent that of parking in a garage, giving drivers a strong incentive to cruise. As George Costanza once said on “Seinfeld”: “My father never paid for parking, my mother, my brother, nobody. ... It’s like going to a prostitute. Why should I pay when, if I apply myself, maybe I could get it for free?”
Like George Costanza, drivers often compare parking at the curb to parking in a garage and decide that the price of garage parking is too high. But the truth is that the price of curb parking is too low. Underpriced curb spaces are like rent-controlled apartments: hard to find and, once you do, crazy to give up. This increases the time costs (and therefore the congestion and pollution costs) of cruising.
And, like rent-controlled apartments, underpriced curb spaces go to the lucky more often than they do to the deserving. While the car owner with good timing can enjoy his space free or cheaply for hours or days, others who are late for a meeting or a job interview are left to circle the block, making themselves — and other drivers — miserable. The solution is to set the right price for curb parking.
To prevent shortages, some cities have begun to adjust their meter rates (using trial and error) to produce about an 85 percent occupancy rate for curb parking. The prices vary by location and the time of day. Drivers can usually find a vacant curb space near their destination, and the search time is zero. Cities can adjust the price of curb parking in response to demand to keep roughly one out of every eight spaces vacant throughout the day. Right-priced curb parking can eliminate cruising.
The balance between the varying demand for parking and the fixed supply of curb spaces is the Goldilocks Principle of parking prices: the price is too high if too many spaces are vacant, and too low if no spaces are vacant. But when only a few spaces are vacant, the price is just right, and everyone will see that curb parking is both well used and readily available.
Beyond the transportation and environmental benefits, performance-based prices for curb parking can yield ample revenue. If the city uses a share of this money for added public services on the metered streets, residents and local merchants will be more willing to support charging the right price for curb parking. These funds can be used to clean and maintain sidewalks, plant trees, improve lighting, remove graffiti, bury utility wires and provide other public improvements. Returning the meter revenue generated by a district to the district can persuade residents, merchants and property owners to support right-priced curb parking.
Redwood City, Calif., for example, sets its downtown meter rates to achieve an 85 percent occupancy rate for curb parking (the rates vary by location and time of day, depending on demand). Because the city returns the revenue to pay for added public services in the metered district, the downtown area will receive an estimated $1 million a year for increased police protection and cleaner sidewalks.
The Redwood City merchants and property owners all supported the new policy when they learned what the meter revenue would help pay for, and the City Council adopted it unanimously. Performance-based prices create a few curb vacancies so visitors can easily find a space, the added revenue pays to improve public services, and the improved public services create political support for the performance-based prices.
If cities want to reduce congestion, clean the air, save energy, reduce greenhouse gas emissions and improve neighborhoods — and do it all quickly — they should charge the right price for curb parking, and spend the resulting revenue to improve local public services.
Getting that price right will do a world of good.
Donald Shoup, a professor of urban planning at the University
of California, Los Angeles, is the author of “The High Cost of Free Parking.”
*WSJ AUGUST 30, 2010
4. The Folly of Subsidizing Unemployment
My calculations suggest the jobless rate could be as
low as 6.8%, instead of 9.5%, if jobless benefits hadn't been extended
to 99 weeks.
By ROBERT BARRO
Congressman John Boehner recently suggested that President Obama replace his top economic advisers. I think he may have a point. The economic "recovery" has been disappointing, to put it mildly, and it has become increasingly clear that the blame lies with the policies of the Obama administration, not with those of its predecessor.
In general, the current administration has been too focused on expanding government, redistributing more from rich to poor, and stimulating aggregate demand. I have previously criticized the stimulus package as cost-ineffective. In particular, whatever tax reductions were in the package did not involve the cuts in marginal income tax rates that encourage investment, work effort and productivity growth.
Now the administration wants to kill the 2003 income-tax cuts, at least the parts that reduced marginal income tax rates for high-income earners and for all recipients of dividend income. This proposal is particularly disturbing because the 2003 law was George W. Bush's main economic achievement; unlike most of Mr. Bush's policies, this one was well-conceived and effective.
View Full Image
barro
Martin Kozlowski
barro
barro
I want to focus here on another dimension of the Obama administration's policies: the expansion of unemployment-insurance eligibility to as much as 99 weeks from the standard 26 weeks.
The unemployment-insurance program involves a balance between compassion—providing for persons temporarily without work—and efficiency. The loss in efficiency results partly because the program subsidizes unemployment, causing insufficient job-search, job-acceptance and levels of employment. A further inefficiency concerns the distortions from the increases in taxes required to pay for the program.
In a recession, it is more likely that individual unemployment reflects weak economic conditions, rather than individual decisions to choose leisure over work. Therefore, it is reasonable during a recession to adopt a more generous unemployment-insurance program. In the past, this change entailed extensions to perhaps 39 weeks of eligibility from 26 weeks, though sometimes a bit more and typically conditioned on the employment situation in a person's state of residence. However, we have never experienced anything close to the blanket extension of eligibility to nearly two years. We have shifted toward a welfare program that resembles those in many Western European countries.
The administration has argued that the more generous unemployment-insurance program could not have had much impact on the unemployment rate because the recession is so severe that jobs are unavailable for many people. This perspective is odd on its face because, even at the worst of the downturn, the U.S. labor market featured a tremendous amount of turnover in the form of large numbers of persons hired and separated every month.
For example, the Bureau of Labor Statistics reports that, near the worst of the recession in March 2009, 3.9 million people were hired and 4.7 million were separated from jobs. This net loss of 800,000 jobs in one month indicates a very weak economy—but nevertheless one in which 3.9 million people were hired. A program that reduced incentives for people to search for and accept jobs could surely matter a lot here.
Moreover, although the peak unemployment rate (thus far) of 10.1% in October 2009 is very disturbing, the rate was even higher in the 1982 recession (10.8% in November-December 1982). Thus, there is no reason to think that the United States is in a new world in which incentives provided by more generous unemployment-insurance programs do not matter much for unemployment.
Another reason to be skeptical about the administration's stance is that generous unemployment-insurance programs have been found to raise unemployment in many Western European countries in which unemployment rates have been far higher than the current U.S. rate. In Europe, the influence has worked particularly through increases in long-term unemployment. So the key question is what happened to long-term unemployment in the United States during the current recession?
To begin with a historical perspective, in the 1982 recession the peak unemployment rate of 10.8% in November-December 1982 corresponded to a mean duration of unemployment of 17.6 weeks and a share of long-term unemployment (those unemployed more than 26 weeks) of 20.4%. Long-term unemployment peaked later, in July 1983, when the unemployment rate had fallen to 9.4%. At that point, the mean duration of unemployment reached 21.2 weeks and the share of long-term unemployment was 24.5%. These numbers are the highest observed in the post-World War II period until recently. Thus, we can think of previous recessions (including those in 2001, 1990-91 and before 1982) as featuring a mean duration of unemployment of less than 21 weeks and a share of long-term unemployment of less than 25%.
These numbers provide a stark contrast with joblessness today. The peak unemployment rate of 10.1% in October 2009 corresponded to a mean duration of unemployment of 27.2 weeks and a share of long-term unemployment of 36%. The duration of unemployment peaked (thus far) at 35.2 weeks in June 2010, when the share of long-term unemployment in the total reached a remarkable 46.2%. These numbers are way above the ceilings of 21 weeks and 25% share applicable to previous post-World War II recessions. The dramatic expansion of unemployment-insurance eligibility to 99 weeks is almost surely the culprit.
To get a rough quantitative estimate of the implications for the unemployment rate, suppose that the expansion of unemployment-insurance coverage to 99 weeks had not occurred and—I assume—the share of long-term unemployment had equaled the peak value of 24.5% observed in July 1983. Then, if the number of unemployed 26 weeks or less in June 2010 had still equaled the observed value of 7.9 million, the total number of unemployed would have been 10.4 million rather than 14.6 million. If the labor force still equaled the observed value (153.7 million), the unemployment rate would have been 6.8% rather than 9.5%.
Consider how the prospects for Democrats in the November
elections would look if the unemployment rate were now only 6.8%. Obviously,
this change would make all the difference, and President Obama can reasonably
blame his economic advisers. They should have protected their boss by standing
firm and arguing that a reckless expansion of unemployment-insurance coverage
to 99 weeks was unwise economically and politically. Congressman Boehner's
advice to Mr. Obama seems correct, though possibly too late to matter.
Mr. Barro is an economics professor at Harvard University
and a senior fellow at Stanford University's Hoover Institution.
WSJ * SEPTEMBER 2, 2010
5. My Reasons for Optimism on Education
Across the country, new institutions like charter schools
are disproving the old assumption that economic circumstances determine
outcomes.
By WENDY KOPP
Last week, Secretary of Education Arne Duncan announced the latest winners of Race to the Top, the initiative he devised to leverage federal dollars to drive education reform at the state level. While no grant process is perfect, the competition drove a remarkable volume of new plans and even new laws designed to advance educational opportunity. Many states showed boldness—and I'm particularly excited that all 12 winning states mentioned Teach For America in their applications.
This fall marks Teach For America's 20th anniversary, and I have spent much of the summer reflecting on the sea change that has taken place in public education over the last two decades.
When we set out to recruit our first corps of teachers in 1990, it would be fair to say that there was no organized movement to ensure educational opportunity for all children in our nation. The prevailing assumption in most policy circles was that socioeconomic circumstances determined educational outcomes. Thus, it was unrealistic to expect teachers or schools to overcome the effects of poverty.
When Jaime Escalante led a class of East Los Angeles students to pass the AP calculus exam in 1982, the Educational Testing Service questioned the results, and Hollywood went on to make the hit movie "Stand and Deliver" about his success. Escalante was lionized as an outlier—not as someone whose example could be widely replicated.
Today, there are myriad examples of teachers who are setting out to accomplish what Escalante did. They are aiming to change their students' expected trajectories and doing whatever it takes to accomplish this end. Every day teachers across the country demonstrate that with high expectations and extra support, economically disadvantaged students can succeed on an absolute scale.
A decade ago, though I saw teachers making exceptional progress with their students, I struggled to find more than a handful of schools in high-poverty areas that were putting students on a successful academic path. Now there are hundreds. Schools like those in the growing charter-school networks and an increasing number of traditional schools are showing that we can ensure educational excellence in low-income communities.
The question facing us now is whether we can provide educational equity at a system-wide level. In cities like Washington, D.C., New Orleans and New York City—places which, a few years ago, had among the most stubborn achievement gaps in America—we are seeing signs of real progress. The school systems in these cities have not yet achieved excellence, but they are demonstrating that it is possible to turn the corner and change outcomes for kids at the scale of whole districts. And Race to the Top now aims to create proof points at the state level—a goal so audacious that it couldn't have been credibly suggested 20 years ago.
Despite my optimism about the potential to change educational outcomes, I worry that we underestimate the work that lies ahead. Without the willpower, capacity and patience to carry out the hard work, good policies are mere pieces of paper. Transforming our students' futures requires the same intense energy and discipline that is required to accomplish ambitious goals in any endeavor. As in other sectors, at the core of the solution is leadership. Wherever there is transformational change for children, whether at the classroom, school, or system level, there is transformational leadership.
One of the biggest reasons for optimism, given the role we know effective leadership plays, is the outpouring of interest among our nation's future leaders to channel their energy toward this cause. This year, 46,000 young people applied to Teach For America; more than 4,500 will be teaching this fall. We are the top employer of graduating seniors at over 40 colleges and universities across the country, including Yale, Spelman and the University of North Carolina-Chapel Hill.
As our 2010 corps members prepare to enter their classrooms in the coming week, they are teaching in communities that increasingly believe success is possible. Yes, we have a long way to go. But reflecting on how far we've come in the past 20 years gives me confidence that, with sustained focus and effort, we can realize educational opportunity for all American children.
Ms. Kopp is the founder and CEO of Teach For America. She is the author of the forthcoming book "A Chance to Make History: What Works and What Doesn't in Providing an Excellent Education for All" (PublicAffairs).
Lowering the heat around raising retirement age
Eugene Steuerle
San Francisco Chronicle August 27, 2010 04:00 AM Copyright
San Francisco Chronicle. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed.
Friday, August 27, 2010
More Open Forum »
House Majority Leader Steny Hoyer and Republican counterpart John Boehner may feel as though they were battered this summer when they suggested that because people are living longer, Social Security retirement ages should rise. Both met with a hailstorm of criticism, some of which derived from myths surrounding the retirement age.
Myth 1: Increasing the retirement age will reduce benefits. Compared with what today's retirees get, no. Under most proposals, increasing the retirement age reduces only the rate of benefit growth from one generation of retirees to the next, as real annual benefits still grow and people continue to live longer.
Under Congressional Budget Office projections, for instance, increasing the normal retirement age gradually from 67 (where current law will put it by 2022) to 70 would still allow expected median lifetime benefits per person to increase from about $250,000 for today's people in their 50s to $360,000 for their 10-year-old kids.
Myth 2: Increasing the retirement age discriminates against low-income workers who have shorter life expectancies. Nope, and it's largely irrelevant. Low-income groups receive a disproportionate share of disability benefits, and any change in retirement age wouldn't affect those on disability or those who don't live long enough even to receive old-age benefits. There are many better ways to protect and help low-income workers.
Myth 3: Increasing the retirement age makes Social Security reform regressive. Wrong again. The progressivity of reform will be determined by the package as a whole, not by bits and pieces. Not that it should matter, then, but partly because retirement age changes don't affect those on disability, higher-income groups tend to be relatively more affected by increases in the retirement age.
By way of contrast, consider the commonly discussed reform of tweaking the annual cost of living adjustment (COLA). Whereas a retirement age change asks people to adjust when they are healthier and wealthier, COLAs compound over retirement to hit hardest those in their late 80s or 90s, whose annual benefits eventually might fall by 10 or 15 percent.
Myth 4: Social Security's Old-Age Insurance goes to the old. Not really. Social Security has morphed into a middle-age retirement system. It defines people as old - eligible for Old-Age Insurance - when they are 62. When this benefit was first made available 70 years ago, people couldn't get it until they were 65, and on average they retired at age 68 (compared with about 64 today).
If Americans were to retire for the same number of years today as they did then, on average they would work until about age 75 and, within another 60 years, to age 80. Instead, most draw benefits for about a decade more than they did when the system was first established - now approaching one-third of their adult lives. One or another partner in a couple retiring at age 62 today will probably draw benefits for about 26 years!
Myth 5: The elderly need to fear such Social Security reforms as increasing the retirement age. Of all the crazy myths that interest groups can rant, blog and tweet about, none is sillier than this one. Budget reform is around the corner, and the elderly will feel the pinch along with everyone else. Already, subsidies for Medicare Advantage plans held by the elderly have been cut back, and some tax rates are likely to rise.
But Social Security reform? Apart from the possible COLA change, not a single Social Security benefit reform option on the table would affect anyone currently older than 60. Literally, grandfathers are grandfathered into today's system. Social Security reform is almost entirely an issue for today's middle-aged and young people. Purely from self-interest, the elderly should lobby for Social Security reform because no other budget revision so totally exempts them from sharing the pain of deficit reduction.
Social Security is a huge program - its 2009 tab came to $678 billion, or about 20 percent of the federal budget - with lots of moving parts. Because the effects of the whole system matter most, the electorate and the elected need to see how all reforms fit together to make Social Security solvent and secure for all generations.
Eugene Steuerle is a fellow at the nonpartisan Urban Institute, an economics and social policy research organization in Washington, D.C.
This article appeared on page A - 14 of the San Francisco
Chronicle
Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/08/27/EDSH1F21FI.DTL#ixzz0yHrtRCUS
September 2, 2010
6. Capitalism, Democracy and Environmental Quality
Both capitalism and democracy improve a society's quality of life, measured by such things as infant mortality and literacy. Suppose, however, that beyond improving the basic conditions of human life, the most important goal is to improve environmental quality. In that case, asks Michael D. Stroup, professor of economics at Stephen F. Austin State University and a senior fellow with the National Center for Policy Analysis, which should be more strongly encouraged in other countries: capitalism or democracy?
Data on members of the Organization for Economic Cooperation and Development (OECD), a group of developed countries, shows that additional income, or gross domestic product (GDP), is linked to lower emissions. Over the period 1985 to 1995:
* A 10 percent increase in per capita
income reduced daily sulfur oxides emissions per billion dollars of GDP
by 7 metric tons.
* The income increase reduced nitrous
oxide emissions per billion dollars of GDP by 2.2 metric tons.
* The higher income also reduced discharges
of organic water pollutants by 464 kilograms.
The Fraser Institute's economic freedom index and Freedom House's political rights index can each be used to evaluate the relative impacts on environmental quality from increases in economic freedom and political rights. Using the OECD data on emissions of pollutants in the same analysis as above reveals the impact of an increase in democracy when holding economic freedom constant:
* A one-unit increase in the democracy
index reduces sulfur oxides emissions per billion dollars of GDP by 42
metric tons per day.
* The same increase in democracy reduces
discharges of organic water pollutants per billion dollars of GDP by 21
kilograms daily.
* However, a one-unit increase in
democracy increases nitrous oxide emissions per billion dollars of GDP
by 28 metric tons.
By contrast, holding political freedom constant reveals that increased capitalism reduces all three types of pollutants:
* A one-unit increase in the economic
freedom index reduces nitrous oxide emissions per billion dollars of GDP
by 162 metric tons per day.
* The increase in economic freedom
reduces discharges of organic water pollutants per billion dollars of GDP
by 154 kilograms daily.
* It also reduces sulfur oxides by
131 metric tons.
Developing countries with limited natural and institutional resources can improve air and water quality more efficiently by increasing the amount of economic freedom in society rather than by expanding democratic control over collective resource allocations, says Stroup.
Source: Michael D. Stroup, "Capitalism, Democracy and Environmental Quality," National Center for Policy Analysis, September 2, 2010.
For text:
http://www.ncpa.org/pub/ba721
For more on Environment Issues:
http://www.ncpa.org/sub/dpd/index.php?Article_Category=31
7. Free Parking Comes at a Price By TYLER COWEN
Published: August 14, 2010
IN our society, cars receive considerable attention and
study — whether the subject is buying and selling them, the traffic congestion
they cause or the dangerous things we do in them, like texting and talking
on cellphones while driving. But we haven’t devoted nearly enough thought
to how cars are usually deployed — namely, by sitting in parking spaces.
Enlarge This Image
David G. Klein
Weekend Business: Tyler Cowen on the real cost of free parking.
Is this a serious economic issue? In fact, it’s a classic tale of how subsidies, use restrictions, and price controls can steer an economy in wrong directions. Car owners may not want to hear this, but we have way too much free parking.
Higher charges for parking spaces would limit our trips by car. That would cut emissions, alleviate congestion and, as a side effect, improve land use. Donald C. Shoup, professor of urban planning at the University of California, Los Angeles, has made this idea a cause, as presented in his 733-page book, “The High Cost of Free Parking.”
Many suburbanites take free parking for granted, whether it’s in the lot of a big-box store or at home in the driveway. Yet the presence of so many parking spaces is an artifact of regulation and serves as a powerful subsidy to cars and car trips. Legally mandated parking lowers the market price of parking spaces, often to zero. Zoning and development restrictions often require a large number of parking spaces attached to a store or a smaller number of spaces attached to a house or apartment block.
If developers were allowed to face directly the high land costs of providing so much parking, the number of spaces would be a result of a careful economic calculation rather than a matter of satisfying a legal requirement. Parking would be scarcer, and more likely to have a price — or a higher one than it does now — and people would be more careful about when and where they drove.
The subsidies are largely invisible to drivers who park their cars — and thus free or cheap parking spaces feel like natural outcomes of the market, or perhaps even an entitlement. Yet the law is allocating this land rather than letting market prices adjudicate whether we need more parking, and whether that parking should be free. We end up overusing land for cars — and overusing cars too. You don’t have to hate sprawl, or automobiles, to want to stop subsidizing that way of life.
As Professor Shoup wrote, “Minimum parking requirements act like a fertility drug for cars.”
Under a more sensible policy, a parking space that is currently free could cost at least $100 a month — and maybe much more — in many American cities and suburbs. At the bottom end of that estimate, if a commuter drives to work 20 days a month, current parking policy offers a subsidy of $5 a day — which is more than the gas and wear-and-tear costs of many round-trip commutes. In essence, the parking subsidy outweighs many of the other costs of driving, including the gasoline tax.
In densely populated cities like New York, people are accustomed to paying high prices for parking, which has helped to encourage a relatively efficient, high-density use of space. Yet even New York is reluctant to enact the full social cost of the automobile into policy. Proposals to impose congestion fees have failed politically, and on-street parking is priced artificially low.
Manhattan streets are full of cars cruising around, looking for cheaper on-street parking, rather than pulling into a lot. The waste includes drivers’ lost time and the costs of running those engines. By contrast, San Francisco has just instituted a pioneering program to connect parking meter prices to supply and demand, with prices being adjusted, over time, within a general range of 25 cents to $6 an hour.
Another common practice in many cities is to restrict on-street parking to residents or to short-term parkers by imposing a limit of, say, two hours for transients. That makes parking artificially easy for residents and for people who are running quick errands. Higher fees and permit prices would help shore up the ailing budgets of local governments.
Many parking spaces are extremely valuable, even if that’s not reflected in current market prices. In fact, Professor Shoup estimates that many American parking spaces have a higher economic value than the cars sitting in them. For instance, after including construction and land costs, he measures the value of a Los Angeles parking space at over $31,000 — much more than the worth of many cars, especially when considering their rapid depreciation. If we don’t give away cars, why give away parking spaces?
Yet 99 percent of all automobile trips in the United States end in a free parking space, rather than a parking space with a market price. In his book, Professor Shoup estimated that the value of the free-parking subsidy to cars was at least $127 billion in 2002, and possibly much more.
PERHAPS most important, if we’re going to wean ourselves away from excess use of fossil fuels, we need to remove current subsidies to energy-unfriendly ways of life. Imposing a cap-and-trade system or a direct carbon tax doesn’t seem politically acceptable right now. But we can start on alternative paths that may take us far.
Imposing higher fees for parking may make further changes more palatable by helping to promote higher residential density and support for mass transit.
As Professor Shoup puts it: “Who pays for free parking? Everyone but the motorist.”
Tyler Cowen is a professor of economics at George Mason
University.
8. A Course Load for the Game of Life By N. GREGORY
MANKIW
Published: NY Times September 4, 2010
AS a Harvard professor who teaches introductory economics,
I have the delightful assignment of greeting about 700 first-year students
every fall. And this year, I am sending the first of my own children off
to college. Which raises these questions: What should they be learning?
And what kind of foundation is needed to understand and be prepared for
the modern economy?
Enlarge This Image
David G. Klein
Weekend Business: Gregory Mankiw on the Joys of Econ 101.
Here is my advice for students of all ages:
LEARN SOME ECONOMICS You knew this was coming. Perhaps I am just trying to protect my profession’s market share, but I hope it is more than that.
The great economist Alfred Marshall called economics “the study of mankind in the ordinary business of life.” When students leave school, “the ordinary business of life” will be their most pressing concern. If the current moribund economy turns into a lost decade, as some economists fear it might, it will be crucial to be prepared for it.
There may be no better place than a course in introductory economics. It helps students understand the whirlwind of forces swirling around them. It develops rigorous analytic skills that are useful in a wide range of jobs. And it makes students better citizens, ready to evaluate the claims of competing politicians.
For those who have left college behind, it is not too late to learn. Pick up an economics textbook (mine would be a fine choice), and you might find yourself learning more than you imagined.
Not convinced? Even if you are a skeptic of my field, as many are, there is another, more cynical reason to study it. As the economist Joan Robinson once noted, one purpose of studying economics is to avoid being fooled by economists.
LEARN SOME STATISTICS High school mathematics curriculums spend too much time on traditional topics like Euclidean geometry and trigonometry. For a typical person, these are useful intellectual exercises but have little applicability to daily life. Students would be better served by learning more about probability and statistics.
One thing the modern computer age has given everyone is data. Lots and lots of data. There is a large leap, however, between having data and learning from it. Students need to know the potential of number-crunching, as well as its limitations. All college students are well advised to take one or more courses in statistics, at least until high schools update what they teach.
LEARN SOME FINANCE With the rise of 401(k) plans and the looming problems with Social Security, Americans are increasingly in charge of their own financial future. But are they up to the task?
Few high school students graduate with the tools needed to make smart choices. Indeed, many enter college without knowing, for instance, what stocks and bonds are, what risks and returns these assets offer, and how best to manage those risks.
The evidence of financial naïveté shows up every time some company goes belly up. Whether it is Enron or Lehman Brothers, many company employees are often caught with a large fraction of their wealth in a single stock. They fail to heed the most basic lesson of finance — that diversification provides a free lunch. It reduces risk without lowering expected return.
College is an investment with a great return. The gap between the wages of college graduates and those with only high school diplomas is now large by historical standards. If those college grads are going to manage their earnings intelligently, they need to study the fundamentals of financial decision making.
LEARN SOME PSYCHOLOGY Economists like me often pretend that people are rational. That is, with mathematical precision, people are assumed to do the best they can to achieve their goals.
For many purposes, this approach is useful. But it is only one way to view human behavior. A bit of psychology is a useful antidote to an excess of classical economics. It reveals flaws in human rationality, including your own.
This is one lesson I failed to heed when I was in college. I never took a single psychology course as an undergrad. But after the birth of behavioral economics, which infuses psychology into economics, I remedied that mistake. Several years ago, as a Harvard faculty member, I audited an introductory psychology course taught by Steven Pinker. I don’t know if it made me a better economist. But it has surely made me a more humble one, and, I suspect, a better human being as well.
IGNORE ADVICE AS YOU SEE FIT Adults of all stripes have advice for the college-bound. Those leaving home and starting their freshman year should listen to it, consider it, reflect on it but ultimately follow their own instincts and passions.
The one certain thing about the future is that it is far from certain. I don’t know what emerging industries will be attracting college graduates four years from now, and neither does anyone else. The next generation will shape its own economy, as the young Bill Gates and Mark Zuckerberg shaped ours. Those now packing up their clothes, buying textbooks and meeting roommates hold the future in their hands. Every year, when I look out over my 700 eager freshmen on that first day of class, the view gives me optimism about the path ahead.
N. Gregory Mankiw is a professor of economics at Harvard.
A version of this article appeared in print on September
5, 2010, on page BU5 of the New York edition.
* WSJ SEPTEMBER 7, 2010
9. School Voucher Breakout
A bipartisan endorsement in Pennsylvania.
This is an encouraging season for education reform, and the latest development is a bipartisan political breakout on vouchers in the unlikely state of Pennsylvania.
Last month, and to widespread surprise, Democratic gubernatorial candidate Dan Onorato came out in support of school vouchers for underprivileged kids. Mr. Onorato said that education "grants"—he avoided the term vouchers—"would give low-income families in academically distressed communities direct choices about which schools their children should attend."
Mr. Onorato's Republican opponent, state Attorney General Tom Corbett, is also a strong backer of education choice, which means that come November Pennsylvania voters will get to choose between two candidates who are on record in support of a statewide school voucher program.
Mr. Onorato, the Allegheny County Executive, adopted his new position at the urging of state lawmaker Tony Williams, a voucher proponent whom he defeated in a May primary. The speculation is that Mr. Onorato, who trails Mr. Corbett in the polls, is looking to attract financial support from pro-voucher businessmen who backed Mr. Williams in the primary.
Mr. Onorato could also be responding to the public education reality in Pennsylvania. On state tests last year, only 56% of 11th graders scored proficient in math, and 65% in reading. In Philadelphia, only 48% of public school students read at grade level and 52% reach the standard in math. Clearly, the status quo isn't working.
The Obama Administration, which is phasing out a popular and successful school voucher program in Washington, D.C., at the insistence of teachers unions, refuses to acknowledge that vouchers can play a role in reforming K-12 education. But states and cities are the real engines of reform, and the Pennsylvania developments are another sign that the school choice movement is alive and well.
September 3, 2010
Gas Prices Explained
What determines the price of gasoline? Speculators? Evil conspiring oil companies? Well, actually no. It is demand and supply, of course.
On the demand side the American automobile fleet gets better gas mileage than it did a few years ago and Americans are driving a bit less than they used to.
* In addition, about 9 percent of what
goes into our gas tanks is ethanol produced from corn, which also reduces
the demand for refined crude.
* On the supply side, global oil supplies
are ample and refiners in the United States have stockpiled a lot of gasoline
recently, says Ronald Bailey of Reason Magazine.
So what can American motorists expect for future gas prices? It all depends on the price of oil, says Bailey.
* Earlier this year, the international
insurance syndicate Lloyd's of London issued a rather bearish report suggesting
that "a spike in excess of $200 per barrel is not infeasible" around 2013.
* On the other hand, Cambridge Energy
Research Associates (CERA), one of the world's leading oil supply consultancies,
rejects the notion of imminent "peak oil" and projects a more bullish production
increase from about 85 million barrels per day now to over 115 million
barrels per day by 2030.
* After 2030, the CERA analysts foresee
global oil production reaching an "undulating plateau" lasting for several
decades, perhaps until 2070, before it begins a permanent decline.
* The CERA report also speculates
that "peak demand" could happen before peak oil is ever reached.
The key variable to keep in mind therefore when looking at future oil prices is how much spare production capacity is available globally. Spare capacity prevents and cushions price shocks. During the 2008 price run up, global spare oil production capacity fell to as low as one million barrels per day. According to CERA, current spare capacity is a comfortable 6.4 million barrels per day, says Bailey.
Source: Ronald Bailey, "Gas Prices Explained," Reason Magazine, August 31, 2010.
For text:
http://reason.com/archives/2010/08/31/gas-prices-explained
For Lloyd's of London report:
http://www.chathamhouse.org.uk/files/16720_0610_froggatt_lahn.pdf
For CERA report:
http://www.cera.com/aspx/cda/client/report/report.aspx?KID=5&CID=10720
For more on Energy Issues:
http://www.ncpa.org/sub/dpd/index.php?Article_Category=22
10. What is the role of the state?
August 8, 2010 8:09pm | Share
Update: Read Martin Wolf’s response to readers’ comments
It is summer - a good time to ask a big question. So I intend to ask the biggest question in political economy: what is the role of the state?
This question has concerned western thinkers at least since Plato (5th-4th century BCE). It has also concerned thinkers in other cultural traditions: Confucius (6th-5th century BCE); China’s legalist tradition; and India’s Kautilya (4th-3rd century BCE). The perspective here is that of the contemporary democratic west.
The core purpose of the state is protection. This view would be shared by everybody, except anarchists, who believe that the protective role of the state is unnecessary or, more precisely, that people can rely on purely voluntary arrangements. Most people accept that protection against predators, both external and internal, is a natural monopoly: the presence of more than one such organisation within a given territory is a recipe for unbridled lawlessness, civil war, or both.
Contemporary Somalia shows the horrors that can befall a stateless society. Yet horrors can also befall a society with an over-mighty state. It is evident, because it is the story of post-tribal humanity that the powers of the state can be abused for the benefit of those who control it.
In his final book, Power and Prosperity, the late Mancur Olson argued that the state was a “stationary bandit”. A stationary bandit is better than a “roving bandit”, because the latter has no interest in developing the economy, while the former does. But it may not be much better, because those who control the state will seek to extract the surplus over subsistence generated by those under their control.
In the contemporary west, there are three protections against undue exploitation by the stationary bandit: exit, voice (on the first two of these, see this on Albert Hirschman) and restraint. By “exit”, I mean the possibility of escaping from the control of a given jurisdiction, by emigration, capital flight or some form of market exchange. By “voice”, I mean a degree of control over, the state, most obviously by voting. By “restraint”, I mean independent courts, division of powers, federalism and entrenched rights.
This, then, is a brief background to what I consider to be the problem, which is defining what a democratic state, viewed precisely as such a constrained protective arrangement, is entitled to do. My short answer is that this is precisely what politics must be about.
There exists a strand in classical liberal or, in contemporary US parlance, libertarian thought which believes the answer is to define the role of the state so narrowly and the rights of individuals so broadly that many political choices (the income tax or universal health care, for example) would be ruled out a priori. In other words, it seeks to abolish much of politics through constitutional restraints.
I view this as a hopeless strategy, both intellectually and politically.
It is hopeless intellectually, because the values people hold are many and divergent and some of these values do not merely allow, but demand, government protection of weak, vulnerable or unfortunate people. Moreover, such values are not “wrong”. The reality is that people hold many, often incompatible, core values. Libertarians argue that the only relevant wrong is coercion by the state. Others disagree and are entitled to do so.
It is hopeless politically, because democracy necessitates debate among widely divergent opinions. Trying to rule out a vast range of values from the political sphere by constitutional means will fail. Under enough pressure, the constitution itself will be changed, via amendment or reinterpretation.
So what ought the protective role of the state to include? Again, in such a discussion, classical liberals would argue for the “night-watchman” role. The government’s responsibilities are limited to protecting individuals from coercion, fraud and theft and to defending the country from foreign aggression.
Yet once one has accepted the legitimacy of using coercion (taxation) to provide the goods listed above, there is no reason in principle why one should not accept it for the provision of other goods that cannot be provided as well, or at all, by non-political means.
Those other measures would include addressing a range of externalities (e.g. pollution), providing information and supplying insurance against otherwise uninsurable risks, such as unemployment, spousal abandonment and so forth. The subsidisation or public provision of childcare and education is a way to promote equality of opportunity. The subsidisation or public provision of health insurance is a way to preserve life, unquestionably one of the purposes of the state. Safety standards are a way to protect people against the carelessness or malevolence of others or (more controversially) themselves. All these, then, are legitimate protective measures. The more complex the society and economy, the greater the range of the protections that will be sought.
What, then, are the objections to such actions? The answers might be: the proposed measures are ineffective, compared with what would happen in the absence of state intervention; the measures are unaffordable and might lead to state bankruptcy; the measures encourage irresponsible behaviour; and, at the limit, the measures restrict individual autonomy to an unacceptable degree. These are all, we should note, questions of consequences.
The vote is more evenly distributed than wealth and income. Thus, one would expect the tenor of democratic policymaking to be redistributive and so, indeed, it is. Those with wealth and income to protect will then make political power expensive to acquire and encourage potential supporters to focus on common enemies (inside and outside the country) and on cultural values. The more unequal are incomes and wealth and the more determined are the “haves” to avoid being compelled to support the “have-nots”, the more politics will take on such characteristics.
What are my personal views on how far the protective role of the state should go? In the 1970s, the view that democracy would collapse under the weight of its excessive promises seemed to me disturbingly true. I am no longer convinced of this: as Adam Smith said, “There is a great deal of ruin in a nation”. Moreover, the capacity for learning by democracies is greater than I had realised. The conservative movements of the 1980s were part of that learning. But they went too far in their confidence in market arrangements and their indifference to the social and political consequences of inequality. I would support state pensions, state-funded health insurance and state regulation of environmental and other externalities. I am happy to debate details.
The ancient Athenians called someone who had a purely private life “idiotes”. This is, of course, the origin of our word “idiot”. Individual liberty does indeed matter. But it is not the only thing that matters. The market is a remarkable social institution. But it is far from perfect. Democratic politics can be destructive. But it is much better than the alternatives. Each of us has an obligation, as a citizen, to make politics work as well as he (or she) can and to embrace the debate over a wide range of difficult choices that this entails.
Financial Times August 8, 2010 8:09pm in Economics, The
state | 215 comments
# wsj SEPTEMBER 8, 2010
11. The German Miracle: Another Look
Germany has cut government spending and its economy is
growing smartly. It's not the first time that market-friendly policies
have led the nation out of crisis.
By LAWRENCE H. WHITE
Earlier this summer George Soros and some leading Keynesian economists criticized what they regarded as Germany's overly strict fiscal discipline. Yet Germany's real output expanded at a robust 9% annual rate in the second quarter, while the U.S. economy grew at an anemic 1.6% rate. So is Germany now a role model for how to recover?
In a June op-ed, German Finance Minister Wolfgang Schäuble justified his government's decision to cut spending, citing "aversion to deficits and inflationary fears, which have their roots in German history in the past century." He was presumably making a reference to the destructive hyperinflation of the 1920s.
Yet Mr. Schäuble might have cited another relevant episode from his nation's history. Sixty-two years ago Germany became a role model for recovery from a very different crisis. In the aftermath of World War II, Germany's cities, factories and railroads lay in ruins. Severe shortages of food, fuel, water and housing posed challenges to sheer survival.
Unfortunately, occupation policy makers actually perpetuated the shortages by retaining the price controls the Nazi government had imposed before and during the war. Consumers and businessmen battled against the bureaucratic regime of controls and rationing in what the German economist Ludwig Erhard described as Der Papierkrieg—the paper war. Black markets were pervasive.
Germany's new Social Democratic Party wanted to continue the controls and rationing, and some American advisers agreed, particularly John Kenneth Galbraith. Galbraith, an official of the U.S. State Department overseeing economic policy for occupied Germany and Japan, had been the U.S. price-control czar from 1941-1943; he completely dismissed the idea of reviving the German economy through decontrol.
View Full Image
white0908
Associated Press
A 1950s Volkswagen plant. Between 1950 and 1960 the West
German economy's real output more than doubled, growing at a compound annual
rate of nearly 8% per year.
white0908
Fortunately for ordinary Germans, Erhard—who became director of the economic administration for the U.K.-U.S. occupation Bizone in April 1948—thought otherwise. A currency reform that he helped to design was slated to replace the feeble old Reichsmark with the new Deutsche mark in all three Western zones on June 20. Without approval from the Allied military command, Erhard used the occasion to issue a sweeping decree abolishing most of the price controls and rationing directives. He later told friends that the American commander, Gen. Lucius Clay, phoned him when he heard about the decree and said: "Professor Erhard, my advisers tell me that you are making a big mistake." Erhard replied, "So my advisers also tell me."
It was not a big mistake. In the following weeks Erhard removed most of the Bizone's remaining price controls, wage controls, allocation edicts and rationing directives. The effects of decontrol were dramatic.
The shortages ended, black markets disappeared, and Germany's recovery began. Buying and selling with Deutsche marks replaced barter. Observers remarked that almost overnight the factories began to belch smoke, delivery trucks crowded the streets, and the noise of construction crews clattered throughout the cities.
The remarkable success of the reforms made them irreversible. A few months later the French zone followed suit. The Allied authorities went on to lower tax rates substantially.
Between June and December of 1948, industrial production in the three Western zones increased by an astounding 50%. In May 1949 the three zones were merged to form the Federal Republic of Germany, commonly called West Germany, while East Germany remained under Soviet domination as the German Democratic Republic.
Growth continued under the market-friendly policies of the new West German government. Erhard became the Minister of Economic Affairs, serving under Chancellor Konrad Adenauer from 1949 to 1963. The West German economy not only left East Germany's in the dust, it outgrew France's and the United Kingdom's despite receiving much less Marshall Plan aid. This was the era of the Wirtschaftswunder or "economic miracle."
Between 1950 and 1960 the West German economy's real output more than doubled, growing for a decade at a compound annual rate of nearly 8% per year. Econometricians who have tried to parse the various factors contributing to this remarkable record found that not all of it can be attributed to a growing labor force and investment flows, or to "catching up" from a low initial level of output. A large chunk of the period's growth is explained by superior economic policy.
Erhard succeeded Adenauer in 1963 and served as chancellor for three years. His electoral success was an endorsement of the policies that had unleashed the Wirtschaftswunder.
Erhard drew his ideas from free-market economists centered at the University of Freiburg, particularly Walter Eucken, who developed a classical liberal philosophy known as Ordoliberalism (named after ORDO, the academic journal where the economists published their ideas). Interest in Ordoliberal ideas waned in Germany after 1963, eclipsed by interest in Keynesian economics. The welfare state grew. The economy became clogged with interest-group policies. Not coincidentally, economic growth also waned. From 1960 to 1973 growth was about half as great as it had been in the 1950s, and during the period from 1973 to 1989 it was halved again to only 2% per year.
Interest in Ordoliberalism began to revive among academics in the 1970s and 1980s, and it continues to have an institutional presence in Freiburg at the university and at the Walter Eucken Institute. Greater interest among politicians might be the best thing for reviving German economic growth over the long term.
If Mr. Schäuble is sincere when he says that, by comparison with U.S. policy makers, "we take the longer view and are, therefore, more preoccupied with the implications of excessive deficits and the dangers of high inflation," he can find a useful model in the policies of his predecessor 60 years ago.
Mr. White is professor of economics at George Mason University.
This op-ed draws on his forthcoming book, "The Clash of Economic Ideas."
Energy Issues
September 7, 2010
12. Making Lighting More Efficient Could Increase
Energy Use, Not Decrease It
Solid-state lighting, a souped-up version of the light-emitting diodes that shine from the faces of digital clocks and on the front panels of audio and video equipment, promises illumination for a fraction of the energy used by incandescent or fluorescent bulbs.
If history is an indicator, however, the consequence may not just be more light for the same amount of energy, but an actual increase in energy consumption rather than the decrease hoped for by those promoting new forms of lighting, says The Economist.
* The light perceived by the human
eye is measured in units called lumen-hours -- about the amount produced
by burning a candle for an hour.
* In 1700 a typical Briton consumed
580 lumen-hours in the course of a year, from candles, wood and oil.
* Today, burning electric lights,
he uses about 46 megalumen-hours -- almost 100,000 times as much.
Jeff Tsao of Sandia National Laboratories in New Mexico and his colleagues predict that the introduction of solid-state lighting could increase the consumption of light by a factor of ten within two decades.
* Assuming that, by 2030, solid-state
lights will be about three times more efficient than fluorescent ones and
that the price of electricity stays the same in real terms, the number
of megalumen-hours consumed by the average person will, according to their
model, rise from 20 to 202.
* The amount of electricity needed
to generate that light would more than double.
* Only if the price of electricity
were to triple would the amount of electricity used to generate light start
to fall by 2030.
Source: "Making lighting more efficient could increase energy use, not decrease it," The Economist, August 26, 2010.
For text:
http://www.economist.com/node/16886228
For more on Energy Issues:
http://www.ncpa.org/sub/dpd/index.php?Article_Category=22
*WSJK AUGUST 26, 2010
13. You Paid What for That Flight? It Can Cost More to Fly to Hartford Than Barcelona. What Airlines Consider in Setting Prices
*
By SCOTT MCCARTNEY
Airline ticket prices often seem like a brain-teaser with little logic. From Chicago, a flight to Miami is more than twice as far as a flight to Memphis, but the shorter Memphis flight costs 25% more on average. Fly to Washington, D.C., from Hartford, Conn., and the average fare is nearly three times as high as if you flew to nearby Baltimore from Hartford, according to government data for the first quarter of this year.
If Los Angeles is the same distance from New York as London,
why does it cost so much more to fly to London than LA? Even though airline
costs are tied largely to how far you fly, airline fares have little relation
to distance. Scott McCartney tells us why.
More
* Chart: Compare Ticket Prices on Popular Routes
The fares travelers pay typically have little relation to how far you fly, even though airline costs are largely dependent on the length of a flight. Long trips often cost less than short trips. Flights of the same time and distance can have radically different prices.
David Dugan's defense company paid US Airways $1,358 for a non-refundable coach, round-trip ticket this week to Hartford from Washington. And yet Mr. Dugan had just bought $900 round-trip tickets for a family trip from Washington to Spain.
"It's crazy," he said. "We're going to Europe and it's cheaper than going to Hartford."
Airline pricing is enormously complex, often confounding and angering travelers with prices that change several times a day, carry an almanac full of rules, restrictions and penalties and have huge disparities in the price of a trip in different markets or even just different days.
The price you pay for a ticket is driven by a number of variables: competition, types of passengers, the route and operating costs. But the biggest factor, by far, is whether discount airlines fly in a market. Low-cost carriers often set the price in markets because competitors feel compelled to match that price or risk losing customers and flying empty seats. And when they aren't there, big airlines behave radically differently when setting prices.
"It's the number of competitors and the quality of the competition," said airfare analyst and consultant Bob Harrell.
The kinds of travelers in a market heavily influence what prices airlines charge as well. If the route has lots of business travelers—like Hartford to Washington—then airlines set prices high knowing customers will be less sensitive to higher prices. If the route is populated by price-sensitive travelers —think Florida cities and Las Vegas—then airlines set prices low in order to fill up planes.
"Airlines are just saying, 'What is the most I can get for that seat?' " said Bradley Seitz, president of Topaz International Ltd., which tracks and audits airfares for major corporations.
On the Hartford-Washington route, what they can get is a lot: The average price in the first quarter was $648 round-trip, or 99 cents per mile, according to the Department of Transportation, making that route one of the most expensive in the country per-mile. Meanwhile, Southwest Airlines charges far lower prices between Hartford and Baltimore, about 40 miles north of Washington, so the average ticket price was $236, or 42 cents per mile.
When Andrew Kowal made a trip to Washington from Hartford
for meetings at the Capitol, his corporate travel department asked if he
would fly to Baltimore instead. It made little sense to him to rent a car
or buy a round-trip Amtrak ticket to get to Washington instead of simply
flying where you want to go.
<div class="noFlash">{if djIsFlashPossible}<p>The
version of Adobe Flash Player required to view this interactive has not
been found. To enjoy our complete interactive experience, please download
a free copy of the latest version of Adobe Flash Player <a href="http://www.adobe.com/shockwave/download/download.cgi?P1_Prod_Version=ShockwaveFlash">here</a></p>{else}<p>This
content can not be displayed because your browser does not support the
Adobe Flash player required to view it.</p>{/if}</div>
"Think about the resources used if I went to Baltimore," he said. "How could that be cheaper?"
Business travelers pay more than twice as much per mile, on average, to fly from New York to London as they do from New York to Los Angeles, according to Topaz. In the second quarter, the average round-trip from New York's Kennedy Airport to Los Angeles International Airport was $1,088, while the average ticket from JFK to London's Heathrow Airport was $3,610, Topaz found in checking ticket purchases for companies.
Not only are business routes more expensive, but the London-bound travelers are more likely to buy business-class seats than the L.A. fliers. It's more expensive, too, for airlines to operate internationally, and international ticket taxes are higher.
But the reality is that big airlines that fly to both Los Angeles and London from New York face low-fare airline competition on the domestic route, but not the international route, and so they charge far more. Bigger competitors often match prices of discount carriers like Virgin America, which had 20% of all passengers flying between JFK and LAX in the first quarter, according to consulting firm Oliver Wyman Group's PlaneStats database.
And when there's not low-fare competition, prices soar. The most-expensive average domestic ticket in the first quarter was $786 for round-trip flights between San Francisco and Philadelphia, according to the DOT. That 2,521-mile route is dominated by United and US Airways, who are competitors but also partners in the Star Alliance. Fly to Boston from San Francisco—183 miles farther by air than Philadelphia—and you paid an average $296 less round-trip in the first quarter, according to DOT. The difference: JetBlue Airways has 17% of the San Francisco-Boston market, but none of the San Francisco-Philadelphia market.
High fixed costs do make short routes more expensive,
per mile. But airport costs like terminal rents and landing fees and even
the expense of buying or leasing jets, pale in comparison to the two biggest
expenses at airlines: labor and fuel. Both go higher as flights get longer.
Price-O-Meter
When the airline industry was regulated, the government set prices sensitive to distance, and buying tickets—far more expensive in the regulated days because airlines were guaranteed profits—was a bit like going to the gas pump.
Now, airfares are more like Coca-Cola, says Rob Britton, a former American Airlines executive who now lectures at business schools. "How much does Coke cost? The reality is it depends on where you are. You pay a lot more at the cineplex than you do at the grocery store," he said. "Charge what the market will bear."
That means distance has little to do with pricing. Cincinnati to New York happens to be exactly the same distance by air as Long Beach, Calif., to Salt Lake City, and both routes include a hub for Delta Air Lines at one end. The similarities end there. For Cincinnati-New York, a market rich with business travelers where Delta carries 98% of all passengers, travelers paid an average 42 cents a mile in the first quarter, according to the DOT. For the Long-Beach-Salt Lake route, Delta competes with jetBlue Airways and charged only half as much.
Delta says prices on each route are based on "market dynamics," including distance, operating costs and competition. US Airways declined to comment on its pricing strategy "for competitive reasons.''
High prices do catch the attention of low-priced competitors. In the first quarter this year, the most expensive market in the country, per mile, was Boston to Philadelphia, a US Airways-dominated route, where the average fare was a whopping $684. Southwest began serving that route in June.
And now? US Airways' highest coach fare is $281 round-trip—$400 less than its first-quarter average fare.
Write to Scott McCartney at middleseat@wsj.com
[MIDSEATjumpTble]
*WSJ A UGUST 31, 2010
14. Climate Panel Faces Heat Investigation Calls for 'Fundamental Reform' at U.N. Group on Global Warming
By JEFFREY BALL
An independent investigation called for "fundamental reform" at the United Nations' Intergovernmental Panel on Climate Change, saying the organization's 2007 report played down uncertainty about some aspects of global warming.
The probe of the IPCC, a preeminent climate-science body that won the Nobel Peace Prize three years ago, was conducted by the InterAcademy Council, a consortium of national scientific academies. Leaders of the IPCC asked the council to conduct the probe following the disclosure of a few errors in its 2007 climate-science report, which concluded, among other things, that climate change is "unequivocal" and is "very likely" caused by human activity.
View Full Image
0830ipcc
AFP/Getty Images
Nobel peace prize winner with his organization and Chairman
of the Intergovernmental Panel on Climate Change Rajendra Pachauri.
0830ipcc
0830ipcc
The investigation comes at a precarious time for the IPCC
and for advocates of tough measures to curb greenhouse-gas emissions. For
months, critics of such steps have cited the errors in the IPCC's 2007
report as reason to question the group's basic conclusion about climate
change. As the InterAcademy Council's report notes, recent polls suggest
the controversy over IPCC errors has caused public confidence in climate
science to fall. Meanwhile, the recession has dimmed the enthusiasm of
some politicians to push for major changes in energy production and consumption.
More
* An Unlikely General in Climate-Change War
Some critics, in the wake of the disclosure of the errors, called for IPCC chairman Rajendra Pachauri to resign. But Mr. Pachauri, who has said those errors were minor, said Monday that he hopes to serve until his term ends after the publication of the panel's next major climate-science study in 2014. "I was instrumental in requesting this review, and now that we've got it, I believe my responsibility is to take it forward," he said.
Partisans on both sides of the climate debate saw Monday's report as significant. Advocates of deep emission cuts said the investigation, and the reforms it suggested, should boost public confidence in the IPCC's assertions about the dangers of allowing greenhouse-gas emissions to increase. Critics said the investigation underscored problems with the way the IPCC assesses climate science. They said the agency ignored scientific nuances and dismissed minority viewpoints in its 2007 report.
The investigation will likely factor into the next U.N. climate conference in Cancún, Mexico, in December, when governments will try to come up with a global agreement to curb greenhouse-gas emissions. A similar conference last year in Copenhagen failed to come up with a major agreement.
View Full Image
ipcc2
Associated Press
Chairman of a committee to review the Intergovernmental
Panel on Climate Change, Harold Shapiro
ipcc2
ipcc2
Harold Shapiro, the economist and former Princeton University president who led the InterAcademy Council's review, said in a press conference announcing the report that the IPCC "has been a success and has served society well."
In addition to raising questions about the procedures
the IPCC used in coming up with its conclusions, the report was critical
of the organization's management. It recommended that the IPCC chairman
and other top leaders each serve only one six-year term, and that the IPCC
institute a conflict-of-interest policy for its top leaders. This was partly
a response to criticism that during his tenure, Mr. Pachauri has served
as an adviser to energy and financial companies. These companies, said
critics, could be affected by energy policies that rested in part on the
IPCC's scientific pronouncements.
Experience WSJ professional
Editors' Deep Dive: Exploring Emissions Curbs, Taxes
*
INVESTOR'S BUSINESS DAILY
Climate-Change Lawsuits
Heat Up
*
Datamonitor News and Comment
China Aims for Carbon-Emissions
Scheme by 2015
*
Dow Jones Business News
German Utilities Warn
Tax May Herald End of Nuclear Energy
Access thousands of business sources not available on the free web. Learn More
Mr. Pachauri, in an interview, said he supports the investigation's call for a conflict-of-interest policy and for clearer explanations about areas in which climate science is uncertain. He said the IPCC already has begun work on some of those changes and would consider further action when it holds a major meeting in October in Korea. Mr. Pachauri said his work on corporate boards doesn't interfere with his position as IPCC chair, adding that he has given all proceeds from that work to an energy think tank he heads and to charity.
Mr. Pachauri stressed that neither the InterAcademy Council report nor several other climate-science investigations that have been conducted in recent months have questioned the IPCC's conclusion about the existence of climate change or its likely human cause. Claims to the contrary amount to "gross distortions and ideologically driven posturing," he said. Taken together, the investigations should "strengthen public trust so that we can move forward," Mr. Pachauri said. "Science has confirmed that climate change is real."
Critics of the IPCC said the report validated many of their concerns.
"If these recommendations are followed to the letter and spirit, I think the IPCC could indeed be improved," said John Christy, an atmospheric scientist at the University of Alabama in Huntsville who was consulted by the InterAcademy Council for its review. Mr. Christy participated in the writing of two IPCC reports and said his doubts about evidence of man-made global warming were largely pushed aside both times.
One U.S. company played down the investigative report's importance, saying the political debate over climate change had moved beyond the question of what's causing it to the question of what to do about it.
"We're kind of beyond the science," said Tom Williams, a spokesman for Duke Energy Corp., a Charlotte, N.C.-based power company that is one of the country's major greenhouse-gas emitters. "What we're after are the rules of the road," he said, explaining that Duke believes U.S. limits on greenhouse-gas emissions are inevitable and wants to shape the rules to the advantage of its customers.
The IPCC, created by the United Nations in 1988, is a sprawling organization. Thousands of scientists and other experts around the world volunteer their time to help write its massive reports approximately every six years that assess what's known and what isn't about the causes and effects of climate change. Its reports influence government policies on energy and the environment around the world.
The InterAcademy Council investigation, like several other investigations into climate science in recent months, didn't question whether human activity is causing global warming. Instead, it focused on the IPCC's process for forming conclusions, including one that projected Himalayan glaciers would melt by 2035. The investigation noted that some scientists invited by the IPCC to review the 2007 report before it was published questioned the Himalayan claim. But those challenges "were not adequately considered," the InterAcademy Council's investigation said, and the projection was included in the final report.
Mr. Shapiro said the IPCC needs to tighten many of its procedures and its enforcement of the rules already on its books, given that climate change is such a hotly debated topic and that the IPCC's reports influence environmental policy world-wide.
A particular problem in the 2007 report was that it didn't consistently reflect uncertainty in some aspects of climate change, the investigation found.
Although the IPCC has guidelines in place for measuring uncertainty, those rules were "not consistently followed" in the 2007 report, "leading to unnecessary errors," the investigation said.
For instance, the investigation noted, the 2007 IPCC report said it had "high confidence" that climate change could halve the output of rain-fed agriculture in Africa by 2020.
But a fuller explanation about how the IPCC came up with that "high confidence," the investigation said, "would have made clear the weak evidentiary basis" for that statement. The InterAcademy Council panel recommended that IPCC reports assign specific probabilities to projections "only when there is sufficient evidence" to justify them.
The InterAcademy Council also faulted the IPCC for failing to stress in its 2007 report when some claims were based on literature that hadn't undergone the scientific process of peer-review. The IPCC should impose tougher guidelines to make sure non-peer-reviewed information is clearly "flagged," it said.
The investigation also said the IPCC sometimes failed to adequately reflect "properly documented" views of scientists who disagreed with the consensus conclusions.
IPCC leaders say they have already begun discussing how to better characterize uncertainty and to be more transparent about whether information has been peer-reviewed.
Write to Jeffrey Ball at jeffrey.ball@wsj.com
*WSJ AUGUST 30, 2010
15. Roll-Your-Own Cigarette Machines Help Evade Steep Tax
By DAVID KESMODEL
WOOD DALE, Ill.—Scores of tobacco retailers in the U.S. are taking advantage of a federal tax loophole to offer deep discounts on roll-your-own cigarettes. But the practice is attracting scrutiny from regulators and cigarette manufacturers.
View Full Image
TOBACCO
David Kesmodel/The Wall Street Journal
A customer holds cigarettes made by a rolling machine
at Smoke.
TOBACCO
TOBACCO
At Smoke Zone, a store in this Chicago suburb, customers one recent afternoon flocked to two high-speed rolling machines that produce a carton of cigarettes in eight minutes. The price: $21—less than half the cost of a carton of Marlboro cigarettes.
"People have waited an hour for these some days," said Taren DeNicolo, the store's manager.
About 150 tobacco outlets in some 20 states are deploying the novel roll-your-own machines to tempt recession-weary smokers, according to an estimate by one maker of the devices. But some regulators say the stores may be violating U.S. and state laws that govern cigarette manufacturing.
"These machines raise a number of questions," said David Rienzo, an assistant attorney general in New Hampshire, which has sued several retailers alleging they are acting as cigarette manufacturers and should pay applicable fees.
View Full Image
TOBACCO_2
David Kesmodel/The Wall Street Journal
Zone in Wood Dale, Ill. The machine produces a carton
in about eight minutes priced at less than half that of some commercial
brands.
TOBACCO_2
TOBACCO_2
Here's where the tax loophole comes into play: At Smoke Zone and other retailers, The Wall Street Journal found, store employees or customers insert into the machines tobacco labeled "pipe tobacco." This substantially reduces the stores' and smokers' costs because the federal excise tax on pipe tobacco is $2.83 a pound—compared with $24.78 a pound for the rolling tobacco traditionally used to make hand-rolled cigarettes.
Congress in 2009 sharply raised the federal excise tax on rolling tobacco to help finance the expansion of a children's health-insurance program backed by President Barack Obama.
New Hampshire's Mr. Rienzo said that after the tax increase took effect, "numerous manufacturers that sold roll-your-own [tobacco] said, 'Why not just put a pipe-tobacco label on it, and you won't have to pay the increased federal excise tax?'"
Other companies created new brands they call pipe tobacco but essentially contain the same tobacco as in their roll-your-own products, said Kevin Altman, an independent tobacco-industry consultant in Richmond, Va.
Shargio Patel, president of Inter-Continental Trading USA Inc. in Mount Prospect, Ill., confirmed his company began offering pipe tobacco under its OHM brand that is similar to its rolling tobacco due to the tax increase. "We're just following what other companies are doing," he said.
Some cigarette makers decry the loophole that has created new low-priced competition. "We are complying with the law, but some companies are not doing so in order to gain an unfair advantage," said Ron Bernstein, chief executive of Liggett Vector Brands Inc., a unit of Vector Group Ltd. that is the fifth-largest U.S. cigarette maker by sales.
In the 14 months since the tax increase, the volume of pipe tobacco sold in the U.S. more than tripled to about 21 million pounds, according to data from the U.S. Treasury's Alcohol and Tobacco Tax and Trade Bureau. Rolling-tobacco sales volumes, in contrast, fell about 60%.
The tax loophole cost the U.S. government more than $345 million in the first 15 months since the tax increase, estimated Daniel Morris, who tracks tobacco production data for the Oregon Public Health Division.
Under U.S. Food and Drug Administration regulations, cigarette makers must place health-warning labels on packaging and can't use terms such as "light" in describing cigarettes—a term being used by some retailers selling the roll-your-own cartons, the Journal found. The FDA "is gathering more information about practices related to these machines to determine the appropriate regulatory response," an agency spokeswoman said.
Meanwhile, the Treasury's tobacco-tax bureau is soliciting industry input to help write new rules to clearly differentiate pipe tobacco from rolling tobacco. The process could take months, said an agency spokesman.
Some loose-tobacco makers and retailers say they are doing nothing wrong and that Congress created the problem by raising the excise tax on rolling tobacco—typically used by smokers with lower incomes—by more than 2,000%. "I don't think the founding fathers of this country meant for taxes that could put companies out of business," said Jeff Martin, general manager of Rouseco Inc., a pipe and rolling tobacco maker in Kinston, N.C.
Phil Accordino, co-owner of RYO Machine Rental LLC of Girard, Ohio, says his company has sold or leased about 200 of the rolling machines. He said his company, which is about two years old, simply has improved on gadgets some consumers use to roll their own cigarettes.
Jerry Kunz, 39 years old, left a store in Addison, Ill., recently with five cartons of cigarettes made by the machines. "They're not as good as Marlboro," he said, but "it's saving you money."
Write to David Kesmodel at david.kesmodel@wsj.com
*WSJ AUGUST 29, 2010, 11:35 P.M. ET
16. More Go Without Life Insurance
By LESLIE SCISM
Nearly a third of U.S. households have no life-insurance coverage, the highest percentage in more than four decades, according to research firm Limra.
About 35 million U.S. households neither own their own life-insurance policies nor are covered under employer-sponsored plans, up from the 24 million, or 22% of households, without coverage in 2004, according to the study this year by Limra, of Windsor, Conn.
Limra is an industry-funded research organization that has conducted periodic surveys of ownership trends since 1960.
The percentage without life insurance is a sign of the financial pressures on middle-income families as the economy struggles.
The rise reflects tight household budgets, loss of employer-provided coverage as a result of layoffs, and cutbacks by some employers in their benefits packages, Limra said.
Half of the respondents in the latest survey said they needed more life insurance, but many haven't bought it because their financial priorities include paying off debt.
Among households with children under 18, four in 10 respondents said they would immediately have trouble meeting living expenses if a primary wage earner died, and another three in 10 would have trouble keeping up with expenses after several months.
"Clearly, more American families are living on the edge, surviving paycheck to paycheck, and, as our new study suggests, too many are without the safety net that life insurance provides," said Robert Kerzner, president of Limra.
While the poor economy is a factor in the most recent
decline in coverage, the life-insurance industry itself shares blame in
the falloff in sales, according to other recent studies and consumer advocates.
[INSURE]
Prices of term life-insurance policies have dropped in recent years amid competition, but other types of insurance remain expensive to many middle-income consumers, and they often are put off by the hardball tactics of commission-paid sales agents.
The industry also is grappling with a decline in the number of agents who sell to middle-class families, often described as those with household incomes of between about $35,000 and $100,000 a year.
Since the 1970s, the number of company-affiliated life-insurance agents has dropped by nearly one-third, to 174,000 in recent years, according to data from Limra.
Many agents have focused on higher-income families, who can afford the bigger policies that pay the higher commissions. Many also have favored sales of investment and retirement-income products like variable annuities, which also pay commissions.
Life-insurance coverage provided through benefits packages at work has played a significant role in protecting families in recent decades, but it may be lost if the wage earner loses his job or reduces work hours.
Employers scaling back or eliminating coverage is another factor in the declining percentage of households with insurance, Limra noted.
The number of households relying solely on life insurance provided through an employer shrank to one in four, from about one in three in 2004, when the previous survey was conducted.
And over the same period, the percentage of all households that have life-insurance protection outside of an employer-sponsored plan dropped to 44%, from 50%.
Many survey respondents said they didn't know where to get help buying life insurance. Almost eight in 10 don't have an insurance agent or broker. Sixty percent of baby-boomer households would prefer to buy life insurance face to face, while younger generations are interested in gathering information online, the survey found.
In 2009, insurers issued 9.4 million individual life policies in the U.S., about one million fewer than in 2004, according to Limra.
Analysts said the industry hasn't solved the puzzle of how best to reach middle-income households in a cost-efficient manner and in a way that enables consumers to feel comfortable making financial decisions.
Write to Leslie Scism at leslie.scism@wsj.com
September 9, 2010
17. Housing Crisis? Look to Canada for Answers
For decades, the United States has actively promoted homeownership through a raft of programs: generous mortgage interest tax breaks, subsidized loans, Fannie Mae and Freddie Mac loan guarantees, limits on what banks can repossess when a borrower defaults and so on, says Jim Powell, senior fellow with the Cato Institute.
The result has been an increase in homeownership, but it has also convinced far too many people to buy homes who couldn't afford them, helping to unrealistically push up home prices, which inevitably led to the subsequent collapse.
What's needed isn't more government involvement to help to prop up homeownership, but less, says Powell. And if you don't think so, look at what's happened in Canada.
* More Canadians (68 percent) than
Americans (66 percent) own their homes, yet the Canadian government has
interfered very little in the private housing market.
* Canada doesn't have an income tax
deduction for mortgage interest. Nor is there a tax advantage to converting
home equity into debt.
* In Canada, mortgages aren't issued
without verification of employment and income, and people must buy mortgage
insurance if their down payment is less than 25 percent of the purchase
price.
* Unlike Americans, Canadians cannot
walk away from their homes without serious consequences -- Canadian mortgages
are generally full recourse, which means a bank can attach an individual's
other assets and wages/salaries if necessary to pay the deficiency in the
event of a mortgage default.
As a result of these policies, people in Canada generally buy a home when they can afford it and the Canadian housing market has been remarkable for its long-term stability, says Powell.
Source: Jim Powell, "Housing Crisis? Look to Canada for Answers," AOL News, September 3, 2010.
For text:
http://www.aolnews.com/opinion/article/opinion-housing-crisis-look-to-canada-for-answers/19619199
For more on Economic Issues:
http://www.ncpa.org/sub/dpd/index.php?Article_Category=17
*WSJ AUGUST 30, 2010
18. After the Deluge, A New Education System Today close to 70% of New Orleans children attend charter schools.
By LESLIE JACOBS
New Orleans
Five years ago yesterday, the levees broke. Hurricane Katrina flooded roughly 80% of this city, causing nearly $100 billion in damage. The storm forced us to rebuild our homes, workplaces and many of our institutions—including our failing public education system.
But from the flood waters, the most market-driven public school system in the country has emerged. Education reformers across America should take notice: The model is working.
Citywide, the number of fourth-grade students who pass the state's standardized tests has jumped by almost a third—to 65% in 2010 from 49% in 2007. The passage rate among eighth-graders during the same period has improved at a similar clip, to 58% from 44%.
In high school, the transformation has been even more
impressive. Since 2007, the percentage of students meeting the state's
proficiency goals is up 44% for English and 45% for math. Schools have
achieved this dramatic improvement despite serving a higher percentage
of low-income students—84%—than they did before the storm. Many of these
students missed months or even a whole year of school.
[jacobs] Associated Press
New Orleans Recovery School DIstrict
How did New Orleans do it? After Katrina, the state took over all but 16 of the city's public schools and placed them in the state-run Recovery School District (RSD). The RSD had been established in 2003 to allow the state to take failing schools away from local school districts and give them a new start. But rather than mimic a more conventional, centralized school district, state officials took the bold step of creating a market-driven system of autonomous schools. This arrangement is unlike anything else in the country.
Public officials dramatically expanded the number of charter schools in the city. Today close to 70% of children attend charters. These independent public schools formulate their own budgets, control their own academic affairs, and make their own hiring decisions.
Schools now have the freedom to select teachers whose skills and philosophy match their mission, and vice versa. Students and their families have choices, too. No student is assigned to a school according to a neighborhood boundary, and any parent unhappy with his or her child's school can choose a different one.
State officials have put charters in a position to succeed or fail on their own merits. They've also allocated resources fairly. Charters occupy public school buildings, like regular public schools, and they receive equitable funding for each student they enroll.
This decentralized system has encouraged educational entrepreneurship. Just as businesses may use different methods to deliver their products or services, so do New Orleans's charter schools. Some of the most successful charters are run by veteran principals who prefer veteran teachers from traditional education programs. Other successful charter schools, like the Knowledge Is Power Program (KIPP), are new to the city and rely on alternatives like Teach for America.
New Orleans is also pioneering cooperative competition,
or "co-opetition," between schools. While they may compete for students,
teachers and bragging rights, schools are working together to solve problems.
For example, the founder of a particularly successful charter school came
up with a highly effective literacy program for ninth graders. He willingly
shared it with other high school "competitors."
More
* In New Orleans, Obama Vows to Aid
Recovery
* On One Block, Resilience and Despair
Louisiana has been smart about how it approves charter applicants and holds them accountable. In New Orleans, potential charter operators must submit to a rigorous screening process. Six of 44 applicants were approved in the first year after Katrina, and charters are required to meet specific performance standards to keep their authorization.
City residents have embraced these changes. A 2009 poll by Citizens for a Better Louisiana asked, "What about New Orleans has gotten better since the hurricane?" The overwhelming answer—offered without prompting by one in four respondents—was "education." A separate poll from Tulane University's Cowen Institute found that two-thirds agreed with the state's decision to take over schools. Nearly 80% thought parents should be able to send their children to any school in the city.
Hurricane Katrina devastated New Orleans. But the disaster gave state officials the opportunity to accelerate education reform. Other cities shouldn't wait for their own cataclysm to do the same.
Ms. Jacobs is a former member of the Louisiana State Board of Elementary and Secondary Education and the founder of Educate Now!
# WSJ SEPTEMBER 11, 2010
19. Don't Expect Much From the R&D Tax Credit
Apple does little of the kind of research that would
be eligible. Nor do the thousands of companies that develop applications
and accessories for iPhones and iPads.
By AMAR BHIDé
President Barack Obama has called for making the on-again, off-again R&D tax credit permanent, as had Presidents Bill Clinton and George W. Bush, in the name of promoting long-term economic growth. Big companies with large R&D budgets, unsurprisingly, favor the proposal. But it's a bad idea. Tax credits for R&D don't encourage the broad-based innovation that is crucial for widespread prosperity.
Advocates for the tax breaks that riddle our tax code usually invoke a public good that results from an activity that people would not otherwise undertake. Biofuels may be more costly than traditional gasoline, but they reduce our dependence on foreign oil. Renting may be more prudent for individuals with uncertain incomes but homeownership improves neighborhoods. Why not use the tax credits or deductions to tilt the balance?
Similarly, investment in research often produces "spillovers" that benefit everyone, not just the business that incurred the expense. If the spillovers are large enough, the argument goes, it behooves society to subsidize research that is only marginally profitable.
As it happens, evidence of a large gap between public and private returns cited by advocates of R&D subsidies is underwhelming. The 2005 National Academies of Sciences "Rising Above the Gathering Storm" report, which favors public subsidies, cites only eight studies, the most recent of which was published in 1993.
Even if it were true that R&D produces higher returns for society, the argument that we would be better off with larger subsidies turns on heroic assumptions. Larger subsidies do little to increase research effort if most capable engineers and scientists are already productively employed. Moreover, larger research programs don't necessarily translate into better results.
Huge R&D budgets didn't save Detroit from disaster.
Yet this week Gloria Bergquist of the Alliance of Automobile Manufacturers
told the Detroit News, without irony, that "The auto industry is one of
the leading centers of R&D in all industries—even higher than computers
and pharmaceuticals. Making a permanent R&D tax credit sends us a strong
signal that we should invest in a lot of the technology. To the extent
it can encourage R&D and generate investment, that translates into
jobs."
Editorial Page Editor Paul Gigot, Deputy Editorial Page Editor Daniel Henninger and Senior Economics Writer Steve Moore analyze the President's press conference.
Most crucially, subsidizing traditional research is a bad idea because it risks diverting resources from more valuable activities. But this does not occur to supporters of public subsidies. They fail to realize that widespread prosperity requires broad-based innovation. A breakthrough microprocessor developed by Intel's R&D staff, for example, has no value unless its production personnel figure out how to manufacture it in high volumes, its marketing staff communicates its benefits to customers, and customers design it into their products and sell the new products to end-users.
Everyone's favorite example of innovation—Apple—has certainly benefitted from the R&D investments of its suppliers. But Apple itself does little of the kind of classic R&D that is eligible for tax credits. Nor do the thousands of entrepreneurial companies that develop applications and accessories for iPhones and iPads.
Like R&D, innovations in design, marketing, logistics and organization require the investment of funds, time and effort. And although less obvious and visible than technological breakthroughs, these other kinds of developments also generate spillovers. For more than half a century IBM's sales and marketing innovations have helped promote wider and more effective use of its products. They have also served as a model for innumerable high-tech companies.
A tax break for R&D doesn't even make political sense, especially under current conditions. Less than 2% of the American work force is now employed in traditional R&D. This proportion is declining as the economy becomes more service based and a relatively small proportion of service innovations fall under the rubric of traditional R&D. The manufacturing sector, which produces just 12% of our gross domestic product, accounts for 42% of R&D undertaken in the country.
The inclusive view of innovation I have outlined does not mean that the government should cast a wider net to correct underinvestment in socially desirable activities. Advances undertaken by autonomous entrepreneurs will never be perfectly in sync. But in the shortages that a mainstream economist might call market failures and underinvestment, entrepreneurs see opportunity. The challenge for public policy is to provide evenhanded incentives for all to pursue the opportunities they find most promising.
Mr. Bhidé is a professor at Tufts University's Fletcher School of Law and Diplomacy and author of "A Call for Judgment" (Oxford University Press, 2010).
WSJ Blog Sep 10, 2010
1:09 AM
20. Who Is Austan Goolsbee?
By Phil Izzo
President Barack Obama’s choice of Austan Goolsbee to succeed Christina Romer as the head of the Council of Economic Advisers represents a change of personality at the top of the board, if not a shift in policy.
Goolsbee, a Yale graduate with a Ph.D. from MIT currently on leave from the University of Chicago’s Booth School of Business, has been advising Obama since the two met during the president’s 2004 Senate run. He has worked in the CEA under Romer since the administration took office and has been a visible face of the White House on the economic front. Having already been backed by the Senate for his spot on the council, his appointment won’t have to be vetted by lawmakers.
According to his bio for the president’s Economic Recovery Advisory Board on which he’s served as chief economist,, his academic work focuses on the new economy, government policy, taxes, and technology. To be more specific, he was doing leading work on the Internet when e-commerce was still in its infancy and wrote a leading paper on taxes and the Web.
Despite his pedigree from the historically conservative University of Chicago, Republicans aren’t likely to cheer his stance on taxes. During the 2008 presidential campaign he strongly backed the president’s plan to increase taxes on those earning more than $250,000 a year. Meanwhile, much of his academic research has attempted to counter arguments that tax cuts pay for themselves and that raising taxes on high-income individuals reduces long-term government revenue.
At the same time, Goolsbee has been an advocate of free trade. During 2008, he took some lumps when a Canadian government memo surfaced, citing Goolsbee saying that Obama statements on scaling back the North American Free Trade Agreement amounted to “political positioning.” Obama took a hit from then-opponent Hilary Clinton, but many economists were relieved.
The statements coming out of the CEA may look similar to the ones produced under Romer, but the tone may be different. While Romer’s soft tone and ever-present smile may remind you of a doting aunt, Goolsbee can come across more like a mischievous uncle. He has listed improv comedy as one of his interests and has been a frequent guest on The Daily Show. Goolsbee made a splash last year with a stand-up comedy routine that took shots at Republicans and Fox News with some self-deprecating humor thrown in. (See the routine here.)
WSJ Econ Blog Sep 10, 2010
2:58 PM
Think Small Business Is Job Engine? Think Again
By Kathleen Madigan
One economic adage is that small businesses generate the bulk of all U.S. jobs. It’s a rule of thumb often cited by politicians. The problem is: the truism may not be entirely true. The age of the firm–not its size–matters more.
Three economists looked into the debate between firm size and employment growth. John Haltiwanger, an economics professor at the University of Maryland, along with Javier Miranda and Ron Jarmin from the Census Bureau used Census data on firms and establishments by their age and numbers of employees from 1992 to 2005.
Not surprising, start-ups generate a lot of jobs in their first year. “Start-ups tend to be small so most of the truth to the popular perception is driven by the contribution of start-ups” to net job growth, says the paper. The problem is that many of those jobs don’t last.
“Start-ups contribute to job creation, but they also contribute disproportionately to job destruction,” says Haltiwanger. Indeed, the research shows that within five years, 40% of start-up jobs have been lost because the firms went out of business.
Sustainable job growth seems to kick in once a business reaches its five-year anniversary, and better job growth occurs when the 10-year mark is reached. Like fine wine, job creation improves with age, and that’s true whether or not a firm is large or small.
According to the paper, firms over 10 years old–no matter their size–account for most jobs. Mature firms with more than 500 workers account for about 45% of all jobs in the private sector. Mature firms with fewer than 500 employees generate about 30% of payrolls. The rest, about 25%, comes from all firms younger than 10 years.
The research on small businesses and job growth “tweaks the adage in some fashion,” says Haltiwanger. “The variable that matters more is age.” As a result, economic policy that focuses solely on “small businesses” may very well backfire on job creation.
A better move might be to pursue action that help businesses big and small to survive. Such policies might include access to financing, subsidized college classes in marketing to learn how to drum up sales or in management to learn how to control growth.
While small businesses may not be the job engines of popular lore, Haltiwanger says they are important as innovators. “Startups play a critical role as the U.S. economy constantly reinvents itself,” says Haltiwanger.
After all, Wal-Mart, Apple, and Ford began as small businesses
and then went on to change how the economy works. Innovation, of course,
is a vital long-term goal In the much shorter-run, however, the U.S. needs
pump up job growth. Policies simply targeting businesses by size may miss
the mark.
*WSJ SEPTEMBER 14, 2010
21. Obamanomics Meets Incentives Why cuts in marginal
tax rates increase economic growth, but cash for clunkers merely created
a boom and bust cycle in auto sales.
By ROBERT J. BARRO
One memorable phrase from the Reagan administration is "supply-side economics." These catchy yet misleading words pertain not to supply versus demand but rather to incentives, good or ill. For income taxes the key point is that cuts in marginal tax rates spur the economy partly through enhanced supply (greater work effort, higher productivity) and partly through expanded demand (increased investment in plant & equipment and in R&D).
Reagan cut the average marginal income tax rate to 21.8% in 1988 from 29.4% in 1981. The GDP growth rate between 1982 and 1989 was a strong 4.3% per year, and I estimate that 0.6% per year of that seven-year growth came from the tax cuts. Similarly, George W. Bush cut the average marginal rate to 21.1% in 2003 from 24.7% in 2000. The GDP growth rate between 2001 and 2005 (including negative effects from the 2001 recession) was a respectable 2.7% per year, and I estimate that 0.5% per year of that four-year growth reflected the tax cuts.
Now the Obama administration is considering whether to maintain the Bush tax cuts or let them expire. Unfortunately, little of the administration's analysis refers to incentives. Rather the discussion is mainly about whether the poor or the rich spend a greater fraction of added disposable income, whether the rich can afford to pay more taxes, and so on.
From the standpoint of incentives, the important point
is that higher marginal tax rates harm the economy. For example, if all
of the 2003 Bush tax cuts (which alone reduced the average marginal rate
by two percentage points) were undone for 2011, I estimate that GDP growth
for 2011-12 would be reduced by 1.1 percentage points.
Incentive-based arguments imply that it is best to cut marginal rates where they are the highest—usually at the top of the income distribution but sometimes for poor people who lose transfer-payment eligibility by earning more money. A common suggestion is to cut the Social Security payroll tax, but this change is less effective than a cut in the federal individual income tax. In contrast to the income tax, the payroll tax is nearly a flat tax and therefore generates a lot of revenue compared to the marginal tax rate.
Some of President Obama's economic agenda does rely on incentives, a notorious example being cash for clunkers. The two main responses to this program were destruction of functional old cars and acceleration of purchases of new cars. Hence, used-car prices went up and automobile sales followed a boom-and-bust pattern. In other words, incentives worked but in an unhelpful manner.
A more favorable case is the recent proposal for accelerated depreciation allowances for business investment. This change has good economic incentives and ought to be a permanent part of the tax system. Unfortunately, the stimulative effects are likely to be weak in an economy where nominal interest rates are close to zero. With low interest rates, businesses value near-term depreciation allowances only a little more than far-off allowances.
Last year's extension of unemployment-insurance eligibility to 99 weeks had incentive effects as well, though not in the way it was intended. According to the most recent Labor Department statistics, 57% of all persons receiving unemployment benefits were on extended programs—persons unemployed more than 26 weeks—and the share of the unemployed getting benefits of some form was 67%.
We know from the U.S. Bureau of Labor Statistics (BLS) that in early August 6.25 million or 42% of the unemployed had been unemployed more than 26 weeks. If we subtract the 5.67 million getting extended unemployment-insurance benefits, we can estimate that 580,000 persons were unemployed more than 26 weeks and not getting benefits. That is, around 11% of the 4.93 million unemployed without benefits were in the greater-than-26-weeks category.
If more data were available, we could do serious research on the determinants of unemployment duration for those eligible or ineligible for benefits (by taking into account differences across the two groups in work experience and other characteristics). Yet even with the available data, it is not a great stretch to infer that the main reason for the sharply higher unemployment duration among those receiving benefits is the eligibility up to 99 weeks. In a weak economy, extended benefits incentivize unemployment even when the benefits offered by unemployment insurance replace only around 40% of previous wages.
My hope is that the administration will shift away from programs based on Keynesian reasoning and toward policies that emphasize favorable economic incentives. Extension of the full tax cuts of 2001-03 and a reduction in the period of eligibility for unemployment insurance would be good starts.
Mr. Barro is a professor of economics at Harvard and a
senior fellow of Stanford's Hoover Institution.
****9-22
22. Venezuela on the Brink
James K. Glassman
http://www.commentarymagazine.com/viewarticle.cfm/venezuela-on-the-brink-15528
WEB ONLY
Text Size
Print Article E-mail Article Reserve Article
E-mail This Article to a Friend
Subject: Venezuela on the Brink
Yes, I would like to receive periodic updates and
information via e-mail from Commentary.
Recipient Addresses:
Separate each address with a comma.
Your E-mail Address: Message:
E-mail This Article to a Friend
Thank You
A link to
"Venezuela on the Brink"
has been emailed to your friends.
Most E-mailed articles:
Venezuela goes to the polls on Sept. 26 in a parliamentary election that opponents of President Hugo Chavez see as “a chance to turn the tide,” as Reuters news service puts it. Chavez may be taking on more authoritarian powers, but he also has to defend what the latest data show is the worst economy in the world. And you thought the Democrats had problems!
The Economist magazine provides statistics weekly on 57 nations, from the United States to Estonia. Its most recent report forecasts that gross domestic product in Venezuela will decline by 5.5 percent in 2010. Next worst is Greece, with a 3.9 percent decline. Greece, of course, came close to defaulting on its debt earlier this year, and analysts at Morgan Stanley worry that Venezuela is moving in the same direction.
“Our new baseline of at least three years of economic contraction suggests the risks to Venezuela’s ability to honor its international financial commitments may be on the rise,” wrote Daniel Volberg and Giuliana Pardelli in a June report, at the same time predicting that GDP will fall by 6.2 percent in 2010. “While most of Latin America, in line with the globe, has been in recovery mode since last year, Venezuela has seen an intensifying downturn in activity,” they added.
So that’s GDP, the single best measure of economic health. When it comes to inflation, no one is close to Venezuela. Consumer prices are already up 31 percent for 2010 and are expected to rise more by year-end. Only two of the remaining 56 nations monitored by the Economist are suffering double-digit inflation: India and Egypt, both with 11 percent price increases.
Venezuela’s stagflation is all the more remarkable because, as the No. 8 oil-producing nation in the world, the country should be benefiting handsomely from high oil prices.
These results, however, should come as no surprise. Venezuela is suffering from serious economic mismanagement as the central government takes control of more and more sectors. Over the last three years, Chavez has nationalized firms in such industries as cement, steel, agribusiness, banking, tourism, oil, communications, and electricity.
Chavez has another problem: violent crime. Caracas, the capital, has nine times the homicides per 100,000 people as Bogota and 15 times the rate of Sao Paulo. Overall, according to Newsweek, Venezuela has “the worst murder rate in the hemisphere,” and it has helped push “President Chávez’s approval ratings off a cliff.”
Indeed. In a survey last month, Consultores 21 found that only 36 percent of Venezuelans approved of Chavez’s performance, a seven-year low.
Chavez has responded to these ills by shutting down media outlets, restricting economic freedom, blaming his critics, and throwing political opponents and businessmen in jail.
In March, he imprisoned Oswaldo Alvarez Paz, after the former state governor said on Globovision TV, “The Venezuelan regime has relations with structures that serve narco-trafficking, like the FARC [the Colombian terror group] and others which exist in the continent and the world.” In May, a retired general, Raul Isaias Baduel, once Chavez’s defense minister but now a critic, was sentenced to a prison term of nearly eight years on charges of misappropriation of funds. Those two join what Reuters calls “a list of several dozen Chavez opponents now in jail, living in exile or facing probes.”
Earlier this summer, the government issued an arrest warrant for Guillermo Zuloaga, the principal owner of Globovision, which the New Republic, in a blistering editorial about Chavez, called “the country’s last remaining major TV station with sympathy for the opposition.”
The pattern is clear: like Gen. Baduel, the charges against Zuloaga were economic -- in this case, that he “hoarded” automobiles on his property, a strange claim that had been made against him before and shelved. Zuloaga was to be held in one of the most notorious prisons in Latin America, but he fled the country and is now in exile.
In an interview in July with Mary O’Grady of the Wall Street Journal, Zuloaga said the arrest warrant came because his TV station has been reporting the dire conditions in Venezuela today. "The quality of Venezuelan life is deteriorating considerably, at the same time one of the biggest corruption scandals has come out with 70,000 tons of food rotting in the ports,” he said. “We have problems with electricity, problems with water, the highest crime rate of any place. … The Chávez government has infringed almost every article of the constitution."
At the time of Zuloaga’s arrest, the government also seized control of Banco Federal, claiming that the bank was not meeting liquidity requirements. Nelson Mezerhane, the bank’s president, is a major investor in Globovision, and the Wall Street Journal reported that the connection with Zuloaga was “the actual reason the bank was seized.” Mezerhane has also fled the country.
Unlike Zuloaga and Mezerhane, another prominent businessman, Ricardo Fernandez Barrueco, a billionaire banker and food supplier, is languishing in jail. Barrueco’s case was likened in an article on Forbes.com to that of Mikhail Khodorkovsky, the former CEO of the energy giant Yukos and a critic of former Russian President Vladimir Putin. Barrueco was first imprisoned in November and not charged with alleged banking violations until July. Barrueco’s assets, ranging from tuna boats to trucking fleets to shares in such companies as flour maker Molinos Nacionales, have been seized by the government.
Also targeted by Chavez is another food-production executive, Lorenzo Mendoza. A Miami Herald article in July reported that “Chávez is gunning for Empresas Polar, the country's giant food and beer conglomerate. The company, owned by the Mendoza family, is an obstacle to the government's plans for state control of the food industry.”
Once again, Chavez is accusing someone of “hoarding” -- in the case of Mendoza, it’s food rather than cars. The Herald article quotes an expert, however, as saying that the government has already mismanaged the part of the food-production sector it already controls. If Empresas Polar is taken over, says Carlos Machado Allison of the IESA business school in Caracas, “there would be terrible unemployment and many producers would have nowhere to place their products.''
In an attempt to prevent Venezuelans from learning what is happening in their country, Chavez has been dismantling independent media. In 2007, RCTV, the popular over-the-air television station launched more than 50 years ago, lost its broadcast license for criticism of Chavez. RCTV then moved to cable, where it became the most popular network but soon ran afoul of Chavez again. Dozens more stations have been shuttered. Chavez’s latest move, in June, was the creation of what Human Rights Watch calls an all-powerful “censorship office.”
Last month, a photo on the front page of the newspaper El Nacional showed more than a dozen corpses of homicide victims in the morgue. It caused outrage at the government, which responded by ordering the paper to stop publishing any images of violence, “as if that would quiet growing questions about why the government -- despite proclaiming a revolution that heralds socialist values -- has been unable to close the dangerous gap between rich and poor and make the country’s streets safer,” wrote reporter Simon Romero in an article in the New York Times.
But even a news blackout would not prevent Venezuelans from knowing firsthand what is happening to their nation’s economy. Retail sales were down 12 percent in the first half of the year; sales of food, beverages, and tobacco in specialty stores were off 30 percent. Chavez slapped on permanent exchange controls to prevent “the oligarchy from taking U.S. dollars and depositing them in banks around the world.” But like most such controls, they have only panicked investors and businesses and led to more capital flight. Figures from the Central Bank of Venezuela showed $9 billion in capital outflows in the first half of the year.
As they go to the polls this month, Venezuelans will undoubtedly
be concluding that arrests, censorship, and other restrictions on liberty
are no substitute for economic and political freedom and sensible public
policy.
Respond to this Article
Respond to this Article
(page 1 of 1 - view all)
Write a Letter to the Editor
Subject:
James K. Glassman, former undersecretary of state for
public diplomacy and public affairs, is executive director of the George
W. Bush Institute in Dallas.
23. Don't defend this deduction Greg IP
http://www.economist.com/blogs/freeexchange/2010/09/mortgage_interest_deduction
Sep 13th 2010, 19:58 by G.I. | WASHINGTON, DC
I JUST got an email from Nancy Pelosi’s press office lambasting John Boehner for wanting to eliminate "tax relief benefiting millions of middle-class families" by scrapping the mortgage interest deduction.
Please. If you must defend a tax break, find a different one. The mortgage interest deduction (MID) is truly one of the worst, most pernicious features of our income tax code. Not only does it encourage excessive investment in homes, it encourages doing it with debt. The MID didn’t cause our crisis—after all, it’s been around since 1986 when the deductibility of almost all other types of interest was eliminated. But it is symptomatic of our fondness for endless subsidies and distortions to promote home ownership, which did ultimately produce our crisis.
The MID is almost impossible to defend on distributional grounds. It only goes to people whose income is high enough to merit itemising deductions, and its value rises with their tax bracket. A study for the Urban Institute and Tax Policy Center by Eric Toder, Margery Austin Turner, Katherine Lim and Liza Getsinger estimates that its elimination would cost the average household an average of $559 more per year in tax. But the impact is highly progressive: for bottom quintile the average increase would be just $2 or 0.01% of after tax income; for the middle quintile, $215 or 0.49% of income; and for those in the top quintile minus the very richest 1%, it would average $1,723 to $4,234, or 1.59% to 1.63%. Only for the richest 1% does its relative importance decline. The study notes that the MID has not been found to increase home ownership, which makes intuitive sense: the families that benefit are precisely those most able and likely to buy a home regardless of the tax treatment. It only encourages them to buy larger homes, and to do so with more debt; anyone who pays off their mortgage gets no benefit.
Subsidies for home ownership are of questionable value, but if we must have one, it should be targeted to those with lower incomes. The right way would be to replace the MID with a tax credit so that the benefit does not rise with level of income. Better yet, make it a tax credit for buying a home, not for getting a mortgage; so that it does not discriminate in favour of leveraged home purchases. (It might have been a good idea to keep this year’s much reviled home buyer tax credit and use it to replace the MID).
*WSJ SEPTEMBER 16, 2010
24. The Right Call on Spectrum Auctions The FCC kills a special interest scheme.
In the Small Miracles Department, the Federal Communications Commission has pulled the plug on a plan to use a rigged auction to award spectrum to a telecom start-up backed by billionaire venture capitalist and Democratic campaign donor John Doerr. FCC Chairman Julius Genachowski has been coy about his reasons for nixing the proposal, but it was the right call in any case.
The company, M2Z Networks, was urging the government to auction off coveted spectrum with certain conditions tailored to M2Z's business model. The winning bidder would have been required, among other things, to provide free broadband service and operate under net neutrality principles. Mr. Doerr knew that such restrictions on the spectrum's use would reduce interest from established carriers like Verizon or T-Mobile who could bid up the price. What M2Z was seeking amounted to a taxpayer subsidy, as these columns reported during the Bush Administration.
"We gave careful and thorough consideration to the proposal but ultimately determined that this was not the best policy outcome," said the FCC in a Sept. 1 statement. According to the trade publication Telecommunications Reports, Mr. Genachowski personally called Mr. Doerr to deliver the news.
The decision makes both political and policy sense. Giving away valuable spectrum at below-market rates to a wealthy venture capitalist would have drawn the wrong kind of attention to the Obama Administration, especially with the country running a trillion-dollar deficit. Spectrum auctions won't close that deficit, but the past two did raise $33 billion for the Treasury.
The proliferation of wireless gadgets and broadband applications could result in a spectrum shortage. And it's generally agreed that open auctions are the fairest way for the government to make wireless spectrum available for commercial use. When regulators start allocating spectrum for political reasons, they take it away from those best positioned to use it productively and in a way that does the most good for the most people.
* WSJ SEPTEMBER 16, 2010
25. Principles for Economic Revival
Our prosperity has faded because policies have moved
away from those that have proven to work. Here are the priorities that
should guide policy makers as they seek to restore more rapid growth.
By GEORGE P. SHULTZ, MICHAEL J. BOSKIN, JOHN F. COGAN, ALLAN MELTZER AND JOHN B. TAYLOR
America's financial crisis, deep recession and anemic recovery have largely been driven by economic policies that have deviated from proven fact-based principles. To return to prosperity we must get back to these principles.
The most fundamental starting point is that people respond to incentives and disincentives. Tax rates are a great example because the data are so clear and the results so powerful. A wealth of evidence shows that high tax rates reduce work effort, retard investment and lower productivity growth. Raise taxes, and living standards stagnate.
Nobel Prize-winning economist Edward Prescott examined
international labor market data and showed that changes in tax rates on
labor are associated with changes in employment and hours worked. From
the 1970s to the 1990s, the effective tax rate on work increased by an
average of 28% in Germany, France and Italy. Over that same period, work
hours fell by an average of 22% in those three countries. When higher taxes
reduce the reward for work, you get less of it.
[shultz]
Long-lasting economic policies based on a long-term strategy work; temporary policies don't. The difference between the effect of permanent tax rate cuts and one-time temporary tax rebates is also well-documented. The former creates a sustainable increase in economic output, the latter at best only a transitory blip. Temporary policies create uncertainty that dampen economic output as market participants, unsure about whether and how policies might change, delay their decisions.
Having "skin in the game," unsurprisingly, leads to superior outcomes. As Milton Friedman famously observed: "Nobody spends somebody else's money as wisely as they spend their own." When legislators put other people's money at risk—as when Fannie Mae and Freddie Mac bought risky mortgages—crisis and economic hardship inevitably result. When minimal co-payments and low deductibles are mandated in the insurance market, wasteful health-care spending balloons.
Rule-based policies provide the foundation of a high-growth market economy. Abiding by such policies minimizes capricious discretionary actions, such as the recent ad hoc bailouts, which too often had deleterious consequences. For most of the 1980s and '90s monetary policy was conducted in a predictable rule-like manner. As a result, the economy was far more stable. We avoided lengthy economic contractions like the Great Depression of the 1930s and the rapid inflation of the 1970s.
The history of recent economic policy is one of massive deviations from these basic tenets. The result has been a crippling recession and now a weak, nearly nonexistent recovery. The deviations began with policies—like the Federal Reserve holding interest rates too low for too long—that fueled the unsustainable housing boom. Federal housing policies allowed down payments on home loans as low as zero. Banks were encouraged to make risky loans, and securitization separated lenders from their loans. Neither borrower nor lender had sufficient skin in the game. Lax enforcement of existing regulations allowed both investment and commercial banks to circumvent long-established banking rules to take on far too much leverage. Regulators, not regulations, failed.
The departures from sound principles continued when the Fed and the Treasury responded with arbitrary and unpredictable bailouts of banks, auto companies and financial institutions. They financed their actions with unprecedented money creation and massive issuance of debt. These frantic moves spooked already turbulent markets and led to the financial panic.
More deviations occurred when the government responded with ineffective temporary stimulus packages. The 2008 tax rebate and the 2009 spending stimulus bills failed to improve the economy. Cash for clunkers and the first-time home buyers tax credit merely moved purchases forward by a few months.
Then there's the recent health-care legislation, which imposes taxes on savings and investment and gives the government control over health-care decisions. Fannie Mae and Freddie Mac now sit with an estimated $400 billion cost to taxpayers and no path to resolution. Hundreds of new complex regulations lurk in the 2010 financial reform bill with most of the critical details left to regulators. So uncertainty reigns and nearly $2 trillion in cash sits in corporate coffers.
Since the onset of the financial crisis, annual federal spending has increased by an extraordinary $800 billion—more than $10,000 for every American family. This has driven the budget deficit to 10% of GDP, far above the previous peacetime record. The Obama administration has proposed to lock a sizable portion of that additional spending into government programs and to finance it with higher taxes and debt. The Fed recently announced it would continue buying long-term Treasury debt, adding to the risk of future inflation.
There is perhaps no better indicator of the destructive path that these policy deviations have put us on than the federal budget. The nearby chart puts the fiscal problem in perspective. It shows federal spending as a percent of GDP, which is now at 24%, up sharply from 18.2% in 2000.
Future federal spending, driven mainly by retirement and health-care promises, is likely to increase beyond 30% of GDP in 20 years and then keep rising, according to the Congressional Budget Office. The reckless expansions of both entitlements and discretionary programs in recent years have only added to our long-term fiscal problem.
As the chart shows, in all of U.S. history, there has been only one period of sustained decline in federal spending relative to GDP. From 1983 to 2001, federal spending relative to GDP declined by five percentage points. Two factors dominated this remarkable period. First was strong economic growth. Second was modest spending restraint—on domestic spending in the 1980s and on defense in the 1990s.
The good news is that we can change these destructive policies by adopting a strategy based on proven economic principles:
• First, take tax increases off the table. Higher tax rates are destructive to growth and would ratify the recent spending excesses. Our complex tax code is badly in need of overhaul to make America more competitive. For example, the U.S. corporate tax is one of the highest in the world. That's why many tax reform proposals integrate personal and corporate income taxes with fewer special tax breaks and lower tax rates.
But in the current climate, with the very credit-worthiness of the United States at stake, our program keeps the present tax regime in place while avoiding the severe economic drag of higher tax rates.
• Second, balance the federal budget by reducing spending. The publicly held debt must be brought down to the pre-crisis safety zone. To do this, the excessive spending of recent years must be removed before it becomes a permanent budget fixture. The government should begin by rescinding unspent "stimulus" and TARP funds, ratcheting down domestic appropriations to their pre-binge levels, and repealing entitlement expansions, most notably the subsidies in the health-care bill.
The next step is restructuring public activities between federal and state governments. The federal government has taken on more responsibilities than it can properly manage and efficiently finance. The 1996 welfare reform, which transferred authority and financing for welfare from the federal to the state level, should serve as the model. This reform reduced welfare dependency and lowered costs, benefiting taxpayers and welfare recipients.
• Third, modify Social Security and health-care entitlements to reduce their explosive future growth. Social Security now promises much higher benefits to future retirees than to today's retirees. The typical 30-year-old today is scheduled to get an inflation-adjusted retirement benefit that is 50% higher than the benefit for a typical current retiree.
Benefits paid to future retirees should remain at the same level, in terms of purchasing power, that today's retirees receive. A combination of indexing initial benefits to prices rather than to wages and increasing the program's retirement age would achieve this goal. They should be phased-in gradually so that current retirees and those nearing retirement are not affected.
Health care is far too important to the American economy to be left in its current state. In markets other than health care, the legendary American shopper, armed with money and information, has kept quality high and costs low. In health care, service providers, unaided by consumers with sufficient skin in the game, make the purchasing decisions. Third-party payers—employers, governments and insurance companies—have resorted to regulatory schemes and price controls to stem the resulting cost growth.
The key to making Medicare affordable while maintaining the quality of health care is more patient involvement, more choices among Medicare health plans, and more competition. Co-payments should be raised to make patients and their physicians more cost-conscious. Monthly premiums should be lowered to provide seniors with more disposable income to make these choices. A menu of additional Medicare plans, some with lower premiums, higher co-payments and improved catastrophic coverage, should be added to the current one-size-fits-all program to encourage competition.
Similarly for Medicaid, modest co-payments should be introduced except for preventive services. The program should be turned over entirely to the states with federal financing supplied by a "no strings attached" block grant. States should then allow Medicaid recipients to purchase a health plan of their choosing with a risk-adjusted Medicaid grant that phases out as income rises.
The 2010 health-care law undermined positive reforms underway since the late 1990s, including higher co-payments and health savings accounts. The law should be repealed before its regulations and price controls further damage availability and quality of care. It should be replaced with policies that target specific health market concerns: quality, affordability and access. Making out-of-pocket expenditures and individual purchases of health insurance tax deductible, enhancing health savings accounts, and improving access to medical information are keys to more consumer involvement. Allowing consumers to buy insurance across state lines will lower the cost of insurance.
• Fourth, enact a moratorium on all new regulations for the next three years, with an exception for national security and public safety. Going forward, regulations should be transparent and simple, pass rigorous cost-benefit tests, and rely to a maximum extent on market-based incentives instead of command and control. Direct and indirect cost estimates of regulations and subsidies should be published before new regulations are put into law.
Off-budget financing should end by closing Fannie Mae and Freddie Mac. The Bureau of Consumer Finance Protection and all other government agencies should be on the budget that Congress annually approves. An enhanced bankruptcy process for failing financial firms should be enacted in order to end the need for bailouts. Higher bank capital requirements that rise with the size of the bank should be phased in.
• Fifth, monetary policy should be less discretionary and more rule-like. The Federal Reserve should announce and follow a monetary policy rule, such as the Taylor rule, in which the short-term interest rate is determined by the supply and demand for money and is adjusted through changes in the money supply when inflation rises above or falls below the target, or when the economy goes into a recession. When monetary policy decisions follow such a rule, economic stability and growth increase.
In order to reduce the size of the Fed's bloated balance sheet without causing more market disruption, the Fed should announce and follow a clear and predictable exit rule, which describes a contingency path for bringing bank reserves back to normal levels. It should also announce and follow a lender-of-last-resort rule designed to protect the payment system and the economy—not failing banks. Such a rule would end the erratic bailout policy that leads to crises.
The United States should, along with other countries, agree to a target for inflation in order to increase expected price stability and exchange rate stability. A new accord between the Federal Reserve and Treasury should re-establish the Fed's independence and accountability so that it is not called on to monetize the debt or engage in credit allocation. A monetary rule is a requisite for restoring the Fed's independence.
These pro-growth policies provide the surest path back to prosperity.
Mr. Shultz, a former secretary of labor, secretary of
Treasury and secretary of state, is a fellow at Stanford University's Hoover
Institution. Mr. Boskin, a professor of economics at Stanford University
and a senior fellow at the Hoover Institution, chaired the Council of Economic
Advisers under President George H.W. Bush. Mr. Cogan, a senior fellow at
the Hoover Institution, was deputy director of the Office of Management
and Budget under President Ronald Reagan. Mr. Meltzer is professor of political
economy at Carnegie Mellon University. Mr. Taylor, an economics professor
at Stanford and a senior fellow at the Hoover Institution, was undersecretary
of Treasury under President George W. Bush.
26. Census: 1 in 7 Americans live in poverty
By HOPE YEN
The Associated Press
Thursday, September 16, 2010; 10:29 AM
WASHINGTON -- The number of people living in poverty has climbed to 14.3 percent of Americans, with the ranks of working-age poor reaching the highest level since at least 1965.
The Census Bureau says that about 43.6 million people, or 1 in 7, were in poverty last year. That's up from 39.8 million, or 13.2 percent, in 2008.
The number of people lacking health insurance rose from 46.3 million to 50.7 million, due mostly to the loss of employer-provided health insurance during the recession. Congress passed a health overhaul earlier this year to extend coverage to more people.
The statistics released Thursday cover President Barack Obama's first year in office, when unemployment climbed to 10 percent in the months after the financial meltdown.
The median - or midpoint - household income was $49,777.
*WSJ September 16, 2010, 5:00 AM ET
27. What Is Missed in Poverty Measures
By Conor Dougherty
Today at 10 a.m. the Census Bureau will release its annual snapshot on Americans’ living standards, a report that includes median household income and the official poverty rate for 2009. Economists expect incomes to decline and the poverty rate to go up.
There’s no question the recession has caused a lot of economic pain, but there are many questions about the accuracy of the federal poverty rate. The Census is developing a supplemental measure that will be released next fall.
Perhaps the biggest problem is that the official poverty rate — which rose to 13.2% in 2008, the highest since 1997 — doesn’t account for the lion’s share of antipoverty measures such as subsidized housing and the earned income tax credit. It also tends to overstate inflation. “We want to know how people are doing today relative to how people at the bottom were doing last year, five years ago, 10 years ago. And we want to know if our government programs and economic growth have improved their lot,” said Bruce Meyer, a professor at the University of Chicago, in a July interview with Real Time Economics.
Mr. Meyer, who has written extensively about problems with the federal poverty measure, set up this site in advance of today’s release.
WSJ * July 26, 2010, 12:00 PM ET
28. Q&A: Rethinking U.S. Poverty Measure: interview with Prof Bruce Meyer
By Conor Dougherty
Few measures have generated more disagreement than the federal poverty level. The threshold, distributed by the Commerce Department, is the same as it was in the 1960s and is largely a function of a family’s cash income. In March, the Commerce Department announced a new poverty measure that will be released next fall.
Real Time Economics discussed poverty and the new measure with Bruce Meyer, an economics professor at the University of Chicago’s Harris School, who has written extensively about the subject. Some excerpts:
Putting aside how it gets done, what should the poverty
rate measure?
Meyer: We want to know how people are doing today relative
to how people at the bottom were doing last year, five years ago, 10 years
ago. And we want to know if our government programs and economic growth
have improved their lot. Officially, that’s what the poverty measure is
designed to do. In practice, the threshold moves up — we raise the standard
of living we require to be above the poverty line each year because the
inflation adjustment overstates inflation. There is some disagreement on
how to do this.
What is the disagreement?
Meyer: I think it should measure an absolute level of
well being and we should compare how people are doing over time relative
to this absolute standard. And every 20 or 30 years we should adjust our
sites upward and pick a new absolute standard.
Some people think that we should adjust the thresholds
that we aim for each year, that we should adopt a relative or pseudo-relative
poverty measure as opposed to an absolute measure. The idea there is that
some people think when average incomes go up we should immediately adjust
upward what the poverty thresholds are. I’m sympathetic to the notion that
what people expect in terms of their living standards goes up over time.
But if you mix that in with the setting of the thresholds it makes it very
hard to figure out what you’re measuring.
What does the official federal poverty rate measure today?
Meyer: It is pre-tax money income, which is compared
to thresholds that were set in the ’60s. It’s bad because it doesn’t account
for taxes or transfers such as the earned income tax credit, Medicaid,
public and subsidized housing, food stamps. None of those enter the official
measure even though those are the main things we’ve done to reduce poverty
over the past 30 years.
Are there other problems?
Meyer: We adjust the thresholds using the consumer price
index for urban consumers, which overstates inflation because the index
takes a while to incorporate new products. It took 15 years for them to
include cell phones. Going back further, 60% of people owned cars before
they included cars in the CPI.
How would the new proposal change that?
Meyer: They’re going to compare after-tax income including
some transfers but will subtract medical out of pocket expenses. It’s an
improvement to account for taxes and in-kind benefits. The major thing
I don’t like are that you going to have a hard-to-follow relative poverty
measure where the thresholds adjust every year in a way that’s very complicated
so that you really don’t know what is this moving target is that we’re
aiming for.
How do you feel about it overall?
Meyer: In principal, it seems like it could be an improvement
because it includes what people have to spend and accounts for taxes and
benefits people receive. But in practice, the main change that it does
to poverty rates is in the wrong direction from what we know about well-being
of Americans. For instance, by using income for senior citizens and then
subtracting an estimate of medical out of pocket expenditures it would
sharply increase the poverty rate of the elderly. The measure ignores that
a lot of elderly Americans have savings that they draw down. More than
80% of households with a head of household that is 65 or older owns their
own home. They don’t have to spend on housing the way that a young renter
does.
But this whole thing is really complicated, and so much
is still left unspecified. But there are various measure that the Census
and others have done, and those find that elderly poverty goes way
up.
29. Census Bureau to Develop Supplemental Poverty Measure
Submitted on March 2, 2010 - 4:42pm
http://www.commerce.gov/news/press-releases/2010/03/02/census-bureau-develop-supplemental-poverty-measure
Categories:
FOR IMMEDIATE RELEASE
Tuesday, March 2, 2010
CONTACT OFFICE OF PUBLIC AFFAIRS
202-482-4883
Census Bureau to Develop Supplemental Poverty Measure
New measurement will complement but not replace existing statistic
ESA Contact: Jane Callen
(202) 482-2235
The Commerce Department’s U.S. Census Bureau is preparing to develop a Supplemental Poverty Measure that will use the best new data and methodologies to obtain an improved understanding of the economic well-being of American families and of how federal policies affect those living in poverty. The initiative to create the new statistic is included in the President’s FY2011 budget proposal.
The official poverty measure, which has been in use since the 1960s, largely estimates poverty rates by looking at a family’s or an individual’s cash income. It will remain the definitive statistical measure. The supplemental measure will be a more complex and refined statistic, including such additional items as tax payments and work expenses in estimating family resources. Unlike the official administrative measure, the supplemental measure will not be the measure used to estimate eligibility for government programs. Instead, it will be an additional macroeconomic statistic, providing further understanding of economic conditions and trends.
The Supplemental Poverty Measure will be released in the fall of 2011, at the same time that the official income and poverty measures for 2010 are released by the Census Bureau.
“The new supplemental poverty measure will provide an alternative lens to understand poverty and measure the effects of anti-poverty policies,” Department of Commerce Under Secretary for Economic Affairs Rebecca Blank said. “Moreover, it will be dynamic and will benefit from improvements over time based on new data and new methodologies.”
An Interagency Technical Working Group has provided a roadmap to the Census Bureau on how to develop the Supplemental Poverty Measure, drawing on the recommendations of a 1995 National Academy of Science report called Measuring Poverty, and the extensive research on poverty measurement that has been done over the past 15 years. Additional details can be found at http://www.census.gov/hhes/www/povmeas/SPM_TWGObservations.pdf.
The Census Bureau’s statistical experts, with assistance from the Bureau of Labor Statistics and in consultation with other appropriate agencies and outside experts, will be responsible for the measure’s technical design.
WSJ Sep 15, 2010
9:34 AM
30. Tight Labor Market Boosts Employee Tenure
By Sara Murray
Employee tenure rose this year as senior workers sat tight in their current jobs and workers lower on the totem pole were let go.
Employees held their current positions for a median of 4.4 years as of January 2010, the Labor Department said in a report on employee tenure Tuesday. That’s up from 4.1 years in January 2008. The difference, the department said, reflects job losses among less-senior workers during the recession.
The overall rise contrasts with a sharp decline in tenure among federal government workers. Federal employees held their current positions a median of 7.9 years, down from 9.9 years in 2008. That could reflect retirements or layoffs at strained government agencies, such as the U.S. Postal Service, which has shed 44,100 jobs in the past year. Tenure for all public sector workers, which includes state and local governments, has remained essentially flat over the last 10 years while private sector employee tenure has ticked up from 3.2 years to four years in the same time frame. Still, public servants tend to stick with their employers for longer. Public sector workers had a median tenure of 7.2 years in 2010, nearly twice that of private sector employees.
“The longer tenure among workers in the public sector is explained, in part, by the age profile of government workers,” the report states. “Seventy-four percent of government workers were ages 35 and over, compared with 62% of private wage and salary workers.”
Industries with the longest-serving workforce tended to be clustered in manufacturing. The utilities industry was the exception: Their workers had the longest tenure of any private-sector industry, 9.1 years.
Leisure and hospitality workers, those employed at bars and restaurants in particular, had the shortest tenures. On the whole, 29% of workers 16 years or older had been with their employer for at least 10 years. A larger share, 39%, had been with their employer for 3 to 9 years. The rest, 32%, worked at their current job for 2 years or less.
Men tended to stay with an employer longer than women.
And those with masters degrees tended to stay put for the longest, a median
of 5.7 years, followed by workers with only high school degrees whose average
tenure was 5.4 years.
WSJ Sep 14, 2010
4:21 PM
31. Report Blames Big Banks for Payday Loan Growth
By Maya Jackson Randall
The weak economic recovery might be making it harder for small businesses and families to get loans. But there’s at least one unlikely group that isn’t having problems securing financing: payday lenders.
That’s the conclusion of a new study backed by a community group that blames the nation’s largest banks for the growth of the payday loan industry.
Thanks to billions of dollars of financing from giant banks, the payday loan industry is booming and poised for expansion — even as consumer groups and government officials aim to rein in the high-cost loan products, says the study.
The report was issued Tuesday by community group National People’s Action and watchdog group Public Accountability Initiative.
“While small businesses and individuals have struggled to get affordable loans in the wake of the taxpayer bailouts, payday lenders have received new and amended credit agreements from Wall Street,” says the report. “Instead of wading further into the business of predatory payday lending, big banks need to stop financing these lenders and instead lend to businesses and individuals that create wealth, rather than destroy it.”
The study notes that payday loan companies depend heavily on credit agreements and other financing vehicles from banks such as Wells Fargo & Co. and Bank of America Corp. It singles out Wells Fargo, in particular, saying the San Francisco-based bank finances more payday lenders than any other big bank, providing credit to payday lenders such as Advance America, Cash Advance Centers, Inc. and fueling the growth of the industry.
A Wells Fargo spokesperson said that while the company is very selective, it doesn’t impose barriers when it comes to considering new credit customers. He added, though, that Wells Fargo puts payday lenders and check-cashing companies through higher levels of scrutiny before providing financing.
“Every responsible business that complies with the law has equal access to consideration for credit,” said Wells Fargo spokesman Gabriel Boehmer. “That said, we exercise strict due diligence with these customers to ensure they, like us, do business in a responsible way.”
Meanwhile, the study finds that banks are starting to offer high-cost loans on their own, which suggests that the payday loan business is ripe for growth, says the report. It adds that new “checking advance” short-term loans being offered by banks can carry extremely high interest rates of up to 120%.
The report dubbed, “ The Predator’s Creditors,” seems to be a way to shame banks into thinking twice about their ties to the payday loan industry. It includes diagrams illustrating ties between Wall Street executives and payday lenders and a table that lists recipients of Troubled Asset-Relief Program cash that have provided financing to payday lenders.
“Ultimately, the big banks that borrow at near-zero interest rates from the Federal Reserve are not far removed from the payday companies that lend money at 500%,” the report says.
Consumer groups have routinely attacked payday loans — the high-cost, quick loans repaid from a borrower’s paycheck — as debt-traps that simply hurt lower-income Americans by hitting them with hefty fees and extra charges. And the Obama administration recently unveiled a new initiative aimed at helping taxpayers avoid turning to high-cost payday and tax-refund loans.
Still, Steven Schlein, a spokesman for payday lenders group Community Financial Services Association slammed the report for painting “a misleading and distorted” picture of the relationship between banks and payday lenders.
“Payday loans companies are in fact good creditors because their customers are good creditors,” he said, adding that 95% of payday loans are repaid. “Payday loans are a valuable service to millions of American consumers that have short-term financial needs.”
Although Schlein says payday lenders are “highly regulated,” the report finds that new laws are needed. It recommends that lawmakers institute a national cap on pay day loan interest rates in wake of failed congressional efforts earlier this year.
Still, the report says a cap will be tough to institute.
“The payday industry’s political clout has allowed it to fight common sense
reforms that would have curtailed their ability to operate,” it said.
32. Evidence on Austerity and Economic Stimulus
ACROSS EUROPE, governments are announcing new austerity packages of spending cuts and higher taxes rather than Obama-style stimulus spending. In response, American economists such as Paul Krugman and Brad DeLong are warning that these policies will throw Europe back into a depression and should be avoided at all costs in the United States.
"The next time you hear serious-sounding people explaining the need for fiscal austerity," Krugman wrote in The New York Times in July, "try to parse their argument. Almost surely, you'll discover that what sounds like hardheaded realism actually rests on a foundation of fantasy, on the belief that invisible vigilantes will punish us if we're bad and the confidence fairy will reward us if we're good."
One crucial point Krugman leaves out is that most European Union member states have no alternative. Countries that rely heavily on foreign investors--such as Greece, France, Ireland, Italy, and Spain--must cut spending to avoid being shut off from the global capital markets.
Contrary to common belief, investors don't judge sovereign default risks based on public debt as a percentage of gross domestic product. Instead, bond professionals grade on a curve, assessing one country's fiscal behavior against another's. When investors lose confidence in a government's fiscal rectitude relative to its competitors, they withdraw, and the snubbed country suffers. Capital being a scarce good, the result is increased interest rates and a higher price for debt.
Ads by GoogleForex Club ™
Try a Free $50,000 Practice Account Join the Award Winning
Forex Club.
www.fxclub.com
BP Response
Learn About BP's Progress On The Gulf Of Mexico Response
Effort.
www.BP.com/GulfOfMexicoResponse
One of the key signaling devices for international investors is how a government behaves under financial duress--how it balances the demands of its debtors with those of its welfare recipients. Announcements of lower spending and higher taxes tell investors a country is willing to go to great lengths not to default on its debt obligations. If the government instead focuses on preserving its welfare state and public employee benefits, investors know default is more likely and will shy away from that country's bonds.
Japan has the world's biggest debt as a percentage of GDP, at 227 percent, nearly four times the economist-recommended 60 percent ceiling. It has gotten away with its carelessness without risking default because the country relies more heavily than most on domestic investors to fund its follies. The United States, despite a dangerous debt burden relative to GDP (66 percent) and a structural deficit among the highest of developed countries (almost 4 percent), has so far also escaped investor censure, thanks to the perception that the dollar remains the safest currency in the world. European countries don't have that luxury.
But the benefits of austerity go far beyond signaling investors. Goldman Sachs economists Ben Broadbent and Kevin Daly, surveying the data of 44 large fiscal adjustments across the globe since 1975, concluded in a 2010 report that cutting annual spending by 1 percent triggers a net 0.6 percent in economic growth. As we will see below, this is a good deal compared to the $1.10 reduction in GDP we get for each $1 spent by the government to stimulate the economy. Lower spending reduces the fear of higher taxes, which leads to an increase in consumer and business demand and growth.
The notion that austerity is bad and stimulus is good rests on the Keynesian theory that if government spends a lot of money, that money will create more value in economic growth. This purported increase in gross domestic product is what economists call the "multiplier effect." It's a nice story, but like most fairy tales, it has scant basis in reality.
In a 2010 paper published by George Mason University's Mercatus Center (where I work), economists Robert Barro and Charles Redlick showed that in the best-case scenario, a dollar of government spending produces much less than a dollar in economic growth--between 40 and 70 cents. If that was the rate of return on our private-sector investments, America would soon cease to be a leading economic force.
Barro and Redlick also looked at the economic impact of raising taxes to pay for spending increases. They found that for every $1 in tax-financed spending, the economy actually shrinks by $1.10. In other words, greater spending financed by tax increases damages the economy. The stimulus isn't working, because the economic theory it is based on is fundamentally flawed.
The findings from my own quarterly reports on stimulus spending (mercatus.org/publication/stimulusfacts-data) further illustrate why these packages don't work. My analysis is based on the tens of thousands of reports from stimulus recipients published on recovery.gov each quarter, along with economic and political data from the Bureau of Labor Statistics, the Census Bureau, GovTrack. us, and other sources. My most recent analysis found that the total number of jobs the government attributed to stimulus spending as of April was 682,000. Factoring in stimulus dollars spent up to that point, the average cost of these jobs was $282,000.
That's a lot of money. Worse, four-fifths of these jobs were in the public sector. This outcome is far afield from the administration's original promise that the stimulus would create 3.5 million jobs over two years, 90 percent of them in the private sector.
A 2002 paper in the Economic Policy Journal, written by the French economists Yann Algan, Pierre Cahuc, and Andre Zylberberg, looked at the impact of public employment on overall labor market performance. Using data for a sample of OECD countries from 1960 to 2000, they found that, on average, the creation of 100 public jobs eliminated about 150 private-sector jobs, decreased by a slight margin overall labor market participation, and increased by about 33 the number of unemployed workers. Their explanation was that public employment crowds out private employment and increases overall unemployment by offering comparatively attractive working conditions. Basically, public jobs, especially ones that also exist in the private sector in fields such as transportation and education, offer higher wages and benefits, require low effort, and therefore crowd out many private jobs. When these new employees are paid with taxes it negatively impacts the economy.
The data released by the Bureau of Labor Statistics in June, then, were bad news. (See the chart.) They showed that since the passage of the stimulus bill, the private sector has lost 2.55 million jobs while the federal government gained 416,000.
The understandable temptation to take action in a time of recession should not lead lawmakers down unproductive paths. Stimulus by government spending doesn't work. European and American governments have tried it without success. Now is the time to tighten spending, no matter what some American economists might say.
Contributing Editor Veronique de Rugy (vderugy@gmu.edu) is a senior research fallow at the Mercatus Center at George Mason University.
Job Changes Since the Recovery Act (in millions)
Federal Government +416,000 jobs
Private Sector -2,554,000
jobs
Source: Bureau of Labor Statistics
Produced by the Mercatus Center at George Mason University
Note: Table made from bar graph.
http://www.thefreelibrary.com/Austerity+agonistes%3A+why+left-wing+economists%27+warnings+against...-a0236332418
33. Sentence of the Day Alex Tabarrok from the
Marginal Revolution Blog
From Bryan Caplan:
In a society of Einsteins, Einsteins take out the garbage, scrub floors, and wash dishes.
A simple sentence but one with deep implications for our view of immigration and trade.
September 15, 2010 at 08:29 AM in Economics | Permalink
| Comments (4
34. Problems with Oregon State Health PLan
States as a whole, says Eric Fruits, president of Oregon-based consulting firm Economics International Corp. and adjunct professor at Portland State University.
Uninsured.
* Over the life of the plan, the share
of uninsured in Oregon has not been significantly different from the rest
of the United States for any sustained period of time.
* Similarly, over time, Oregon's share
of the population covered by Medicaid is virtually no different from the
rest of the country.
Expenditures.
* Total Medicaid expenditures and Medicaid
expenditures per enrollee have closely tracked U.S. expenditures.
* This indicates that the Oregon Health
Plan has not been any more or less successful than the United States as
a whole in controlling costs.
Initial hopes for broad participation by providers have been dashed by the pullout of larger managed care providers and a shrinking pool of providers willing to accept Oregon Health Plan enrollees as new patients, says Fruits.
Source: Erik Fruits with Andrew Hillard and Laura Lewis, "The Oregon Health Plan: A 'Bold Experiment' that Failed," Cascade Policy Institute, September 2010.
For text:
http://www.cascadepolicy.org/wp-content/uploads/2010/09/Oregon_Health_Plan_-_The_Bold_Experiment_That_Failed.pdf
35. Why Corvettes Cost Less Than College
By Froma Harrop
That was a pleasant stroll across the Ivy League campus of Brown University, in Providence, R.I. I saw the gardening crews, the maintenance trucks, the pricey restoration work on Faunce Arch. I passed the skating rink, the president's mansion and the new Department of Facilities Management building.
As I surveyed the handsome spread (tax-exempt, sadly), I wondered, "Is all this really necessary -- I mean -- for the education of these students?"
Such subversive thoughts are hardly original. "A whale ship was my Yale College and my Harvard," Herman Melville, the author of "Moby Dick," famously said over 150 years ago.
Bill Gates recently predicted: "Five years from now on the Web for free you'll be able to find the best lectures in the world. It will be better than any single university."
A year at a university costs an average $50,000, the Microsoft founder and Harvard dropout said last month. The Web can deliver the same quality education for $2,000.
Yet American colleges continue to float in the bubble of economic exceptionalism once occupied by Detroit carmakers. American median income has grown 6.5 times over the past 40 years, but the cost of attending one's own state college has ballooned 15 times. This kind of income-price mismatch haunted the housing market right before it melted down.
Tuition at the private University of Southern California has risen 360 percent since 1980, to $41,434 a year. At the University of Illinois, a state school, the annual tuition of $13,658 is six times that of 1980. These numbers are all adjusted for inflation and don't include room and board.
As the father of a student at Kenyon College told me, "It's like driving a new Corvette to Ohio every September, leaving the keys and taking the bus home."
American universities now rake in $40 billion a year more than they did 30 years ago. And most of that money isn't going for academics, according to Andrew Hacker and Claudia Dreifus in their book, "Higher Education? How Colleges Are Wasting Our Money and Failing Our Kids and What We Can Do About It."
For starters, the money is going to more numerous and more pampered sports teams. Duke University in Durham, N.C., spends over $20,000 a year per varsity golf player. And these squads rarely pay for themselves. There are 629 college football teams, and only 14 make money.
The number of administrators per student at colleges has about doubled over 30 years, according to Hacker and Dreifus. Their titles point to such questionable duties as "director for learning communities" and "assistant dean of students for substance education."
Compensation for college presidents, meanwhile, has soared to corporate CEO levels. Vanderbilt University in Nashville, Tenn., pays its president $1.2 million a year!
Universities are also competing to make their on-campus experiences more like a resort than a bookish monastery. Some dorms feature granite counters, kitchens and walk-in closets. Fancy health clubs have replaced musty gyms.
What else are students getting in return for their enormous college bills? Some useful contacts for the future and four extra years to figure life out.
And they do receive an education, though the quality doesn't seem to justify the rising costs. Full-time faculty members are being paid more for teaching less. Some elite colleges now offer sabbaticals every third year instead of the traditional seventh. Harvard has 48 history professors, and 20 of them are somewhere else this year.
The market will eventually recognize the out-of-whack
economics of today's "place-based colleges" and intervene. Some day soon,
Web alternatives will let students of modest means try their hand at a
college education. And what a great day that will be.
fharrop@projo.com
Copyright 2010, Creators Syndicate Inc.
Page Printed from: http://www.realclearpolitics.com/articles/2010/09/21/why_corvettes_cost_less_than_college_107241.html
at September 21, 2010 - 08:39:14 AM PDT
**********9-22 fr7****