Monday, February 28, 2011

The Institute For Humane Studies Has A Great Video Site Called "Learn Liberty"

Here is the link:

Learn Liberty

You can watch video lectures by experts on a variety of topics. Here is a brief blurb from their site:

"[It is a] resource for learning about the ideas of a free society. Our goal is to provide a starting point for conversations on important questions:

What is the nature of man and society?
What are the best ways to organize human society?
What is the proper role for government?

We believe that the classical liberal or libertarian tradition can offer compelling answers to these questions. Classical liberal ideas have deep intellectual roots, cultivated by thinkers such as John Locke, Adam Smith, the American Founders, and more recent scholars such as Friedrich Hayek and Milton Friedman. These scholars emphasize the importance of free markets, voluntary exchange, individual rights, and peace."

Here is a link to their list of speakers.

Lining Up for Government Jobs

That is a post by Andrew Biggs at The AEI blog. He cites research showing that many more people apply for government jobs than private sector jobs, showing that the overall pay and benefits package is possibly much better for those jobs.

The Problem With Multipliers According To John Taylor

See Goldman Sachs Wrong About Impact of House Budget Proposal at his blog. Here is an excerpt:

"The analysis in this Goldman-Sachs report is based on the same type of “large multiplier” theory that predicted that the stimulus package of 2009 would stimulate economic growth. Research by me and my colleague John Cogan finds that more up-to-date theories, which bring important incentive and expectations effects into account, show far smaller multipliers. In these models a reduction in the growth of spending will immediately crowd in private investment. Moreover, by following the stimulus money, we found that in actuality the stimulus package of 2009 had no material positive effect on economic growth or employment. The same economic theory which said the stimulus would increase economic growth in the past two years, says that reversing that spending will reduce growth now. It was wrong in the past and it is highly likely to be wrong again."

Collective Bargaining Might Be The Cause Of High Fringe Benefits For Wisconsin's State Workers

See Oh, To Be a Teacher in Wisconsin: How can fringe benefits cost nearly as much as a worker's salary? Answer: collective bargaining by Robert Costrell in the WSJ (2-25). He is a is professor of education reform and economics at the University of Arkansas. Excerpts:

"The showdown in Wisconsin over fringe benefits for public employees boils down to one number: 74.2. That's how many cents the public pays Milwaukee public-school teachers and other employees for retirement and health benefits for every dollar they receive in salary. The corresponding rate for employees of private firms is 24.3 cents.

Gov. Scott Walker's proposal would bring public-employee benefits closer in line with those of workers in the private sector. And to prevent benefits from reaching sky-high levels in the future, he wants to restrict collective-bargaining rights.

The average Milwaukee public-school teacher salary is $56,500, but with benefits the total package is $100,005, according to the manager of financial planning for Milwaukee public schools."

"What these numbers ultimately prove is the excessive power of collective bargaining. The teachers' main pension plan is set by the state legislature, but under the pressure of local bargaining, the employees' contribution is often pushed onto the taxpayers. In addition, collective bargaining led the Milwaukee public school district to add a supplemental pension plan—again with no employee contribution. Finally, the employees' contribution (or lack thereof) to the cost of health insurance is also collectively bargained."

Union Power for Thee, But Not for Me

That is the title of an interesting article from the WSJ (2-25) by Kimberley A. Strassel. See

Union Power for Thee, But Not for Me: If the president is so upset with Wisconsin's labor law reforms, why won't he allow federal workers to bargain collectively?

Here are some excerpts:

"Fact: President Obama is the boss of a civil work force that numbers up to two million (excluding postal workers and uniformed military). Fact: Those federal workers cannot bargain for wages or benefits. Fact: Washington, D.C. is, in the purest sense, a "right to work zone." Federal employees are not compelled to join a union, nor to pay union dues. Fact: Neither Mr. Obama, nor the prior Democratic majority, ever acted to give their union chums a better federal deal."

"For this enormous flexibility in managing his work force, Mr. Obama can thank his own party. In 1978, Democratic President Jimmy Carter, backed by a Democratic Congress, passed the Civil Service Reform Act. Washington had already established its General Schedule (GS) classification and pay system for workers. The 1978 bill went further, focused as it was on worker accountability and performance. It severely proscribed the issues over which employees could bargain, as well as prohibited compulsory union support.

Democrats weren't then (and aren't now) about to let their federal employees dictate pay. The GS system, as well as the president and Congress, sees to that. Nor were they about to let workers touch health-care or retirement plans. Unions are instead limited to bargaining over personnel employment practices such as whether employees are allowed to wear beards, or whether the government must pay to clean uniforms. These demands matter, though they are hardly the sort to break the federal bank."

"In Wisconsin, for instance, the teachers union doesn't just bargain for more health dollars. It also bargains to require that local school districts buy health insurance for their teachers through the union-affiliated health-insurance plan, called WEA Trust. That requirement gives the union (not the state) ultimate say over health benefits. It also costs the state at least $68 million more annually than it would if schools could buy the state-employee health plan—money that goes to a union outfit."

Sunday, February 27, 2011

David Harsanyi Responds To Paul Krugman On Wisconsin

See Harsanyi: Paul Krugman's Third World fantasy from Friday's Denver post. The entire article is very good. Here is the first paragraph and then two really good ones:

"According to Nobel laureate and raconteur Paul Krugman, Gov. Scott Walker and "his backers" are attempting to "make Wisconsin — and eventually, America — less of a functioning democracy and more of a Third World-style oligarchy.""

"The libertarian Kochs are super rich and gave less than $2 million to Republicans in the last election cycle, which mathematically speaking amounts to nothing. In fact, Timothy Carney of the Washington Examiner dispatched Krugman's claim that unions were a "counterweight to the political power of big money" by pointing out that "every one of the top ten industries contributing to the 2010 elections gave more money to Democrats."

If some public union rollbacks are a harbinger of rebirth of the robber barons, why is it that the Service Employees International Union boss — who represents a sliver of the American workforce — has been the most frequent guest at the White House after he handed Barack Obama $28 million and used tens of million more to campaign for him and his policies?"

To back that up, here is something from the WSJ on Feb. 22:
"Unlike businesses and industry groups that are also big givers but tend to split their donations between the parties, some 95% of government workers' donations has gone to the Democratic Party..."

Saturday, February 26, 2011

Manufacturing Is Still Strong In The US

See U.S. Manufacturing: More Output, Fewer Workers at "Carpe Diem," the blog of Mark Perry. It has a link to a WSJ article by him and one quote is "The average American factory worker today is responsible for more than $180,000 of annual output, triple the $60,000 in 1972." Here is an excerpt:

"International data compiled by the United Nations on global output from 1970-2009 show this success story. Excluding recession-related decreases in 2001 and 2008-09, America's manufacturing output has continued to increase since 1970. In every year since 2004, manufacturing output has exceeded $2 trillion (in constant 2005 dollars), twice the output produced in America's factories in the early 1970s. Taken on its own, U.S. manufacturing would rank today as the sixth largest economy in the world, just behind France and ahead of the United Kingdom, Italy and Brazil.

In 2009, the most recent full year for which international data are available, our manufacturing output was $2.155 trillion (including mining and utilities). That's more than 45% higher than China's, the country we're supposedly losing ground to. Despite recent gains in China and elsewhere, the U.S. still produced more than 20% of global manufacturing output in 2009.

The truth is that America still makes a lot of stuff, and we're making more of it than ever before. We're merely able to do it with a fraction of the workers needed in the past."

"Our world-class agriculture sector provides a great model for how to think about the evolution of U.S. manufacturing. The U.S. produces more agricultural output today—with only 2.6% of our work force involved in farming—than we did 100 years ago, when farming jobs represented almost 40% of the labor force. Likewise, we're able to produce twice as much manufacturing output today as in the 1970s, with about seven million fewer workers. That means yesterday's farmhands and plant workers can become today's computer engineers, medical doctors and financial managers."

Friday, February 25, 2011

More on Ian Fletcher’s Misinformation about Trade

Another great letter by Don Boudreaux at Cafe Hayek. He shows that raising tariffs is no panacea.

"Ian Fletcher’s latest call for higher U.S. tariffs as a means of “fixing” our “trade imbalance” has too many flaws to list, let alone address, in a single letter (“Yes We Can! (Fix Our Trade Mess)“), Feb. 24). So I confine myself here to one of these flaws.

Mr. Fletcher writes as if the only way foreign governments can retaliate against higher U.S. tariffs is to increase subsidies to their export industries. He overlooks the most obvious means of retaliation: discriminatory tariff hikes. So even if foreign governments won’t increase subsidies in response to higher U.S. tariffs, Mr. Fletcher is wrong to blithely assert that therefore higher U.S. tariffs won’t spark a trade war, for trade wars can be (and have been) fought with escalating discriminatory tariffs.

For evidence, Mr. Fletcher can read Dartmouth trade economist Douglas Irwin’s just-released book Peddling Prosperity. After a careful review of the data, Prof. Irwin concludes that “Smoot-Hawley clearly inspired retaliatory moves against the United States, particularly – but not exclusively – by Canada. This retaliation had a significant effect in reducing U.S. exports” [p. 183].

Apparently unaware of history, Mr. Fletcher doesn’t even consider the possibility – much less argue against the claim – that higher U.S. tariffs would be met by retaliatory tariff hikes abroad."

If Prices Are Signals, Are Taxes Noise?

Below is a letter I wrote to the Wall Street Journal that was printed in the April 30, 2007 edition:

"Stephen Moore did a great job explaining how complicated our tax code is and how high taxes have gotten relative to what was originally promised in 1913 ("Those April Blues," page A12, April 13). One other way to see the insidiousness of taxes is to realize that they are just as much the "noise" in the economy as prices are the "signals." The income you get paid is the price for your services and therefore signals the value of those services. But taxes reduce the clarity of that signal (hence, they are noise) by reducing how much of your pay you actually get to keep. As taxes increase, the noise-to-signal ratio in the economy increases even more, meaning distortions, and the mis-allocation of resources they cause, increases disproportionately. For example, if the income tax rate is 10%, you keep 90% of your income. The noise-to-signal ratio is .111 (or .1/. 9). But if the tax rate goes up by .10 or to 20%, the noise-to-signal ratio goes up even more, by .15 to .25 since you keep 80% of your income. The .25 comes from .20/.80 equaling .25. Another .10 increase in the tax rate increases the noise-to-signal ratio by .179 from .25 to .429. Then going from a 30% tax rate to a 40% tax rate makes it go up by .238, from .429 to .667. Every tax increase causes increasing damage to the economy's ability to efficiently allocate resources."

To read more about why this makes sense and what the theoretical foundation is go to If Prices Are Signals, Are Taxes Noise?

Thursday, February 24, 2011

Maybe We Should Allow Foreclosures To Take Place

See Why Regulators Should Let Banks Foreclose: Data show that brief additional time-outs don't allow borrowers to become current from today's WSJ, by JOSEPH R. MASON, a professor of banking at Louisiana State University and a senior fellow at the University of Pennsylvania's Wharton School. Excerpts:

"For borrowers, delaying foreclosure only provides false hope. Today, a borrower faces a foreclosure sale only after failing to make a payment for more than a year. There is no reason to believe a brief additional time-out will allow such borrowers to become current. To the contrary, data from the Mortgage Brokers Association indicate that loans reaching the foreclosure stage almost never avoid default, and that borrowers who become 90 days delinquent cure their default only about 1% of the time.

Similarly, recent research done for the National Bureau of Economic Research demonstrates that loan-modification programs have mixed effectiveness. Data suggest that many delinquent borrowers have the means to afford their mortgage payments, but are so deeply "under water" on their mortgages that they are simply no longer willing to pay. Others have insufficient income to afford any reasonable mortgage payment."

"For neighborhoods, every day without foreclosures means another day of deteriorating home values. A recent study of the Cleveland area published in Urban Affairs Review found that neighborhood home values are largely unaffected by foreclosures that take less than a year. But foreclosures that take longer than a year have a negative impact on home values as the effects of neglect and vandalism mount."

"For banks, further delays in the foreclosure process create uncertainty in their balance sheets, potentially blocking channels of credit and undermining lending. Creditors, like borrowers, are hesitant to make new commitments until there is a resolution of the significant economic issues facing them.

One of the root causes of the economic crisis was a deterioration of underwriting standards: We stopped focusing on whether people could afford the homes they were buying. Continuing to delay foreclosures reflects the same kind of wishful thinking."

Overall, Public Employees Might Be Better Compensated

See The Public Worker Gravy Train: Many government employees are paid up to 30% more than those in the private sector from today's WSJ, by ANDREW BIGGS AND JASON RICHWINE of AEI and Heritage, respectively. They attempt to refute studies that say the private sector pays better. Excerpts:

"These studies are misleading. Public-private pay comparisons vary from state to state, but a full accounting shows clearly that large, union-dominated states tend to overpay their workers. California is a good example.

The Berkeley study begins by studying salaries, where its methods are solid. Using individual-level data from the Census Bureau's Current Population Survey, it compares public and private wages while controlling for differences in age, education and other earnings-related characteristics. Using essentially the same methods, we found that California state and local government employees receive wages about 4% lower than those received by similarly skilled workers in large private firms, which offer the most generous pay and benefits. But if we compare public employees to all private workers, the 4% penalty becomes statistically zero.

Public employees really pull ahead in non-wage benefits.
The Berkeley study concludes that counting benefits means that public workers' total hourly compensation is about 2% higher than that of private workers. But our research shows that the study underestimates what public workers receive from pensions and retiree health programs. It also doesn't account for the value of job security in government employment. Once these are noted, the balance tilts clearly in favor of public workers.

The first error in the Berkeley study concerns defined-benefit pension plans. The study erroneously conflated what governments pay into defined-benefit plans with what workers will eventually receive in retirement. So if governments contribute 10% of employee pay to defined-benefit pensions while private employers contribute 10% to 401(k)-type pensions, these studies conclude that pension compensation is equal.

But here's the problem: State and local pensions effectively guarantee employees an 8% return on both their contributions and those made by their employer. By contrast, a private-sector employee with a 401(k) can achieve a guaranteed return of only around 4% by investing in U.S. Treasury securities. Most economists believe governments are foolish to base their funding decisions on the assumption of high investment returns, but the benefits for public employees are guaranteed in any case."

"The Berkeley study's second error is the omission of retiree health benefits. Private workers retire later and relatively few receive retiree health coverage. For those who do, eligibility has been tightened and premiums increased. But almost 90% of state and local governments offer retiree health benefits to employees. They generally retire in their 50s, at which point the government often pays most of their costs, including Medicare premiums and deductibles."

"Another major benefit of public employment is job security. The Bureau of Labor Statistics reports that, on average, a private worker has about a 20% chance of being fired or laid off in a given year. In state and local government, the discharge rate is only about 6%..."

Wednesday, February 23, 2011

Cato Report Says Effective Corporate Tax Rates In The US Are High And Damaging

See New Estimates of Effective Corporate Tax Rates on Business Investment by by Duanjie Chen and Jack Mintz, School of Public Policy, University of Calgary. Excerpts:

"We find that the U.S. effective corporate tax rate on new investment was 34.6 percent in 2010, which was the highest rate in the OECD and the fifth-highest rate among 83 countries. The average OECD rate was 18.6 percent, and the average rate for 83 countries was 17.7 percent."

"New findings emerging from academic tax literature point strongly to the advantages of tax rate reductions for corporations. One finding is that when considering the efficiency characteristics of different taxes, corporate income taxes are the most distortive, and hence the most harmful for economic growth.5 Reductions in corporate tax rates can help boost domestic investment and spur inflows of foreign invest.

Another finding is that corporate tax rate cuts in high-rate countries will probably not cause substantial revenue losses. Instead, in a global economy, aligning a nation’s corporate tax rate with the international average rate or less is important to protecting the tax base. Keeping the corporate rate competitive helps avoid “income shifting” by multinational companies from high-tax to low-tax jurisdictions.7 Accordingly, there is less concern today about corporate tax rates “racing to the bottom.” Rather, countries that are major trading partners often reduce their rates together over time, and all countries gain as the efficiency of tax systems are increased.

A third message from recent studies is that corporate tax rate reduction should be accompanied by base broadening, but it should not be constrained by demanding corporate “revenue neutrality.” Broader tax bases can raise a particular amount of revenue to support lower tax rates. But the purpose of base broadening should be to enhance tax neutrality, which allows businesses to make efficient decisions that reduce the misallocation of resources and minimizes tax planning and administration. Countries should avoid special tax breaks for particular industries or segments of business."

Why Companies Should Not Be Blamed For Not Hiring

There are stories about how they have about $2 trillion in cash yet are not hiring. Alan Reynolds explains why they should not be blamed. See The Myth of Corporate Cash Hoarding: Companies hire more workers when there's income to pay them. They don't liquidate financial assets from today's WSJ. Excerpts:

"Consider four basic points:

1) There are two sides to a balance sheet: assets and liabilities.

2) Liquid assets serve as a vital safety cushion to minimize the impact (on workers and suppliers) of unanticipated business difficulties.

3) A corporate balance sheet is not an income statement.

4) Corporations commonly use both internal and external sources of funds to acquire both real and financial assets at the same time. Larger investments in money-market funds and bank CDs do not mean smaller investment in plant and equipment, as many seem to imagine.

Point No. 1, about two-sided balance sheets, reminds us that single-entry bookkeeping will not do. The financial health of corporations is not measured by the form in which assets are held (liquid or not), but by net worth.

From 2007 to September 2010, the value of nonfinancial corporate real estate fell by more than 30%—a loss of more than $2.8 trillion. The ratio of cash to total assets rose largely because the value of total assets collapsed. Meanwhile, liabilities topped $13.6 trillion last fall, up from $12.9 trillion at the last cyclical peak. With real estate falling and debts rising, the net worth of nonfinancial corporations was only $12.6 trillion at last count—down from $15.9 trillion in 2007.

Point No. 2, about safety cushions, alerts us to the fact that $1.93 trillion of liquid assets would not begin to cover $3.67 trillion of short-term debts, let alone ongoing expenses such as payroll. To describe the liquid assets as "hoarding" (regardless of debts) is witless. The recession in 2008-09 would have been far less painful if nonfinancial corporations in 2007 had been "hoarding" more liquid assets (they had $1.53 trillion).

Point No. 3, about the difference between a balance sheet (what a company owns and owes) and an income statement (money received and spent) is basic accounting. Outraged proclamations about the $1.93 trillion figure show zero understanding of this difference.

Firms hire out of income, not by liquidating assets or adding to debt. No sensible employer plans on meeting routine payroll expenses by drawing down assets, liquid or not.

Decisions to increase or reduce hiring are unrelated to decisions to increase or reduce any assets on the balance sheet. Companies add workers if the expected addition to after-tax revenues is likely to exceed the addition to costs (including taxes and mandated benefits).

Point No. 4 is related to Point No. 3. Consider that in the balance-sheet section of the Federal Reserve flow-of-funds accounts, where the now-famous $1.93 trillion appears, investments in liquid assets are a use of funds, not a source of funds.
Sources of funds are both internal (profits) and external (debts). Uses of funds include adding to financial assets. The Smith family may invest part of its monthly paycheck in a bank CD or mutual fund and the Jones Corporation may likewise invest part of its monthly profits in the same way. Such liquid investments are viewed as something that could be tapped to meet unexpected expenses, or to make longer-term investments later—not as a substitute for regular monthly income."

ObamaCare Is Already Damaging Health Care

Click here to read the article. It is from today's WSJ and is by plastic surgeon Lloyd Krieger. Excerpts:

"The most significant change is a wave of frantic consolidation in the health industry. Because the law mandates that insurers accept all patients regardless of pre-existing conditions, insurers will not make money with their current premium and provider-payment structures. As a result, they have already started to raise premiums and cut payments to doctors and hospitals. Smaller and weaker insurers are being forced to sell themselves to larger entities."

"Consolidation is not necessarily bad, as larger medical practices and hospital systems can create some efficiencies. But in the context of ObamaCare's spiderweb of rules and regulations, consolidation is more akin to collectivization. It means that government bureaucrats will be able to impose controls with much greater ease.

With far fewer and much larger entities to browbeat, all changes in Medicare and Medicaid policies will go through the entire system like a shock wave. There will be far fewer individual insurers, doctors, hospitals, device makers, drug manufacturers, nursing homes and other health-care players to resist.

There is little mystery how the government will exercise its power. Choices will be limited. Pathways to expensive specialist care such as advanced radiology and surgery will decline. Cutting-edge devices and medicines will come into the system much more slowly and be used much less frequently."

Tuesday, February 22, 2011

Germany In The 1920s Might Have Lessons For America Today

See AMERICA’S WEIMAR MOMENT by Greg Ransom at "Taking Hayek Seriously." Excerpt:

"What is happening in Wisconsin, California, New Jersey, Illinois, et al — and in Washington, D.C. — should remind educated people of nothing less that the economic crisis of Weimar Germany, when governments captured by public sector workers and the apparatus of Bismarck’s redistributive state led to massive fiscal irresponsibility — and a choice between insolvency and hyperinflation.

Perhaps the most convincing authority on this topic is Niall Ferguson, who argues persuasively that profligate spending on public sector workers and Bismarck’s redistributive state was the ultimate source of Weimar Germany’s economic catastrophe — and John Maynard Keynes proved to be mistaken about what turned out to be the light economic burden of the reparations portions of the Treaty of Versailles. The problem wasn’t Versailles. What led to the great disasters of the 1920s and 1930s were the economic consequences of governments controlled by the demands of public sector workers, Bismarck’s redistributive state, and leftist union / party organizations. When the government becomes nothing less than an arm of a party apparatus controlled by organizations dedicated to advancing the financial/ political interests of workers hired to serve the public, you no longer have a liberal republic — what you have instead is a top-down guild organization dedicated to serving one set of citizens at the expense of all other citizens — in California government sector employees bring home more than half as much again as their comparably skilled market sector peers, and a huge number of non-college educated government employees in California qualify for fat six figure pensions at the age of 50 — 100%-120% of final salary — and many other government workers retire at 90%-100% of final salary beginning at age 55. And in the executive ranks in California, all manner of public officials have resorted to outright looting — both legal and illegal. University bureaucrats makes quarter million dollar and more annual salaries, California’s countless state board members make six figure salaries for a half-dozen or less days work, city and county and public utility bureaucrats of all kinds make haul home tens of millions of dollars across relatively short careers. And on and on it goes.

At the Federal level, government workers bring home twice the income of their private sector counterparts.

What we have destroyed is a liberal republic, and what we have replaced it with is a Weimar-style kleptocracy, enriching a political / government client class while simultaneously looting those laboring in the productive economy — and mortgaging the future of our children and grandchildren.

And what comes next is the most truly worrying thing of all. What can’t go on forever doesn’t, as the Germans frightfully learned in the 1920s."

Education Spending In The US May Not Be Effective

See Losing the Brains Race: America is spending more money on education while producing worse outcomes by Veronique de Rugy at Reason. Excerpts:

"...the U.S. spends the most in the world on education, an average of $91,700 per student in the nine years between the ages of 6 and 15. But the results do not correlate: For instance, we spend one-third more per student than Finland, which consistently ranks near the top in science, reading, and math."

"During the last 40 years, the federal government has spent $1.8 trillion on education, and spending per pupil in the U.S. has tripled in real terms. Government at all levels spent an average of $149,000 on the 13-year education of a high school senior who graduated in 2009, compared to $50,000 (in 2009 dollars) for a 1970 graduate." (this is followed by a graph which shows no improvement in test scores since 1970)

"Federal spending on education (which amounted to 8.3 percent of total public education spending in 2007) is funneled to students through the institutions to which they are tied, largely regardless of student performance. With no need to convince students and parents to stay, schools in most districts lack the incentive to serve student needs or differentiate their product. To make matters worse, this lack of competition continues at the school level, where teacher hiring and firing decisions are stubbornly divorced from student performance, tied instead to funding levels and tenure."

How Unions Wield Political Power

See The Showdown Over Public Union Power: At last, politicians and voters are fighting back against the most potent lobby for government spending and ever-higher taxes from today's WSJ by Steven Malanga, a senior fellow at the Manhattan Institute and the author of "Shakedown: The Continuing Conspiracy Against the American Taxpayer" (Ivan R. Dee, 2010). Excerpts:

"Government workers have taken to the streets in Madison, Wis., to battle a series of reforms proposed by Gov. Scott Walker that include allowing workers to opt out of paying dues to unions. Everywhere that this "opt out" idea has been proposed, unions have battled it vigorously because the money they collect from dues is at the heart of their power.

Unions use that money not only to run their daily operations but to wage political campaigns in state capitals and city halls. Indeed, public-sector unions especially have become the nation's most aggressive advocates for higher taxes and spending. They sponsor tax-raising ballot initiatives and pay for advertising and lobbying campaigns to pressure politicians into voting for them. And they mount multimillion dollar campaigns to defeat efforts by governors and taxpayer groups to roll back taxes.

Early last year, for example, Oregon's unions spearheaded a successful battle to pass ballot measures 66 and 67, which collectively raised business and income taxes in the state by an estimated $727 million annually. Led by $2 million from the Oregon Education Association and $1.8 million from the Service Employees International Union (SEIU), unions contributed an estimated 75% of the nearly $7 million raised to promote the tax increases, according to the National Institute on Money in State Politics.

Also in 2010, teachers unions and public-safety unions in Arizona were influential players in the successful ballot campaign to increase the state's sales tax to 6.6% from 5.6% to raise an additional $1 billion. Some state business groups also supported the tax increase in the vain hope that the legislature would roll back business and investment taxes. The public unions, by contrast, wanted the tax hike precisely to avoid government spending cuts."


"Public unions are also among the biggest players in national politics. According to the Center for Responsive Politics, the American Federation of State, County and Municipal Employees (Afscme) has been the third-biggest contributor to federal campaigns over the past 20 years, having given $43 million. The National Education Association is number eight with $31 million in contributions, while the SEIU—half of whose 2.2 million members are government workers—is No. 10, with $29 million in campaign donations.

Unlike businesses and industry groups that are also big givers but tend to split their donations between the parties, some 95% of government workers' donations has gone to the Democratic Party, whose members are far more likely to favor raising taxes and boosting spending than are members of the Republican Party."

There Ain’t No Such Thing As A Free Subsidy

Another great letter from Don Boudreaux at Cafe Hayek. Here it is:

"Gideon Rachman believes that “the normal rules about the mutual benefits of trade do not necessarily apply when one trading partner is practicing mercantilist or protectionist policies” (“Think Again: American Decline,” Jan./Feb.).

He’s correct, but not in the way that he thinks. Whereas Mr. Rachman believes that mercantilist and other protectionist policies help the countries that practice these policies and harm countries that trade freely, something closer to the opposite is true.

By erecting tariffs that dampen competition, mercantilism encourages home producers to become unresponsive and uncreative. By issuing subsidies paid for with higher taxes, government debt, or distortionary monetary policies, mercantilism helps exporters only by inflicting more-sizable damages on the nation’s economy writ large. By turning the national government into a bazaar for the buying and selling of monopoly privileges, mercantilism deflects entrepreneurial energies away from building better mousetraps and into building politically advantageous political connections. And by raising prices in the home market, mercantilism makes consumers poorer as well as makes producers who rely upon imported inputs less efficient.

So indeed, to the extent that Americans’ trades with non-Americans are conditioned by foreign-governments’ mercantilist policies, the gains from these trades are not mutual: they flow exclusively to Americans."

Donald Boudreaux On How The Trade Deficit Can Be Misleading

From Cafe Hayek. He points out that Hyundai building a factory in Alabama keeps the trade deficit high. They could have purchased American goods and services with the dollars they earned, which would lower the trade deficit. But maybe in the long-run we are better off if we have more factories here. Here is the letter he wrote to the NY Times:

"I enjoyed your report on how Hyundai’s automobile-production operations in Alabama provide better economic opportunities to Alabamians and raise wages in that state (“Hyundai’s Swift Growth Lifts Alabama’s Economy,” Feb. 19). Such capital investments are indeed indispensable for widespread economic growth.

It’s worth noting that Hyundai’s investments in these facilities – which increase the stock of productive capital in operation in the U.S. – add to America’s trade deficit. Rather than Hyundai cashing out its dollars by purchasing American exports – expenditures which would have narrowed America’s trade deficit – this Korean company expanded that deficit by instead using those dollars to build productive facilities and machines in America.

This fact should give pause to the countless politicians and pundits who insist that a rising American trade deficit is necessarily a symptom of American economic decline, a contributor to this decline, and evidence of ‘unfair’ trade practices by foreign governments."

Monday, February 21, 2011

Unions Have Monopoly Power, Not "Bargaining Rights"

See Collective Bargaining "Rights" by David Henderson at EconLog. Here is an excerpt:

"Almost everyone on both sides of the debate uses the term "collective bargaining rights" to mean the right of a union to bargain with an employer who must, by law, bargain in good faith. It also includes the right of a union to negotiate even for employees who don't want to be members of the union and don't want to pay dues to the union. So "collective bargaining rights" really mean the power to force others--to pay the dues and/or to join the union and/or to give up their power to negotiate with an employer. So the alleged right is really the "right" to monopolize the supply of labor to an employer. That's a phony right, not a real right. It's really a power."
He goes on to say that even economists who support unions agree with this.

Sunday, February 20, 2011

Wisconsin Has Public Sector Unions, Virginia Doesn't-Look Who's Doing Better

From The Cato Institute. Here is that post by Chis Edwards:

"The struggle over collective bargaining and government worker benefits continues in Wisconsin. Residents of the Badger State may be interested in comparing their government’s fiscal and union policies with policies in the Old Dominion.


•Collective bargaining (monopoly unionism) in place for government workers, with about 52 percent of state/local workers in unions (Source: Table 1 here)
•State debt as a share of income: 4.6% (Source: Moody’s)
•State unfunded pension obligations as a share of GDP: 32% (Source: Andrew Biggs)
•Score on quality of state government management: B- (Source: Pew Center)
•Score on Pew’s subcategory for “people” management: B-

•Collective bargaining in state and local government banned by a 1993 statute signed into law by Democratic Governor Douglas Wilder
•State debt as a share of income: 2.1%
•State unfunded pension obligations as a share of GDP: 17%
•Score on quality of state government management: A-
•Score on Pew’s subcategory for “people” management: A

Public sector unionism is, of course, just one factor affecting a state’s fiscal and management results. But there is a statistical correlation across the 50 states on unionism and some public policy outcomes (see here and here).

Ending monopoly unionism in state government would not be the apocalyptic event that some Wisconsin protesters seem to think. Indeed, collective bargaining is not a “right” of government workers, but a special privilege that stands in the way of modern and flexible policy management. Hopefully, public sector unions will eventually go the way of private sector unions and the dinosaurs."

Russ Roberts On Keynsian Economics

This comes from Taking Hayek Seriously. Here is the post:

"Russ Roberts on the Keynesian economics of Christina Romer and President Obama. Remarkably, Professor Romer lacked the intellectual integrity to defend her policies before the American people.

Roberts goes on to charge the Congressional Budget Office with scientific malpractice:

The truth is that our knowledge of the complex system called the economy is woefully inadequate and may always remain that way. We ask too much of economics. Even our best attempts to measure the job impact of the stimulus spending make this clear. In November of 2010, the CBO estimated that the stimulus had created between 1.4 and 3.6 million jobs. Not a very precise estimate.

But even this estimate was more of a guess than an estimate. The CBO estimates didn’t use any of the actual employment numbers after the stimulus was passed. Instead the CBO based its “estimates” on pre-stimulus relationships between government spending and employment, relationships that failed to predict the magnitude of our current problems.

The CBO’s results and those of other forecasters using multi-equation models of the economy are not science but pseudo science–what the economist F.A. Hayek called scientism—the use of the tools and language of science in unscientific ways."

John Stossel On High Speed Rail

See Rail: A Thing of the Past. He shows that it is more expensive than the alternatives and not necessarily good for the environment. Here is his post:

"What’s faster, greener and more convenient than high-speed rail? Self-driving cars, as I report in this week’s show.

I thought self-driving cars were a science fiction fantasy, but on my show Saturday, transportation expert Randal O’Toole tells me that self-driving cars are already a reality. Google engineers recently drove seven test cars, in traffic, 1,000 miles without any human intervention. There was only one accident, and that wasn’t the self-driving car’s fault. It happened when the Google car stopped for a red light and was rear-ended.

Computers have faster reaction times than people, so self-driving cars could safely drive close together at high speeds. O’Toole says that 6000 robot cars could drive on highways that currently supports 2000 regular cars. That would help far more commuters than “high speed” rail ever will.

But once again, government regulation blocks progress. Laws in every state right now require a person to be in control of the wheel. Our legal system hurts too: Even if driverless cars have fewer accidents, lawyers will blame the few that do occur on the car maker.

So are politicians pushing reform of our outdated driving laws to help robot cars reduce congestion? Of course not. Obama – who, to his credit, now says we need to cut some parts of government – says high-speed rail is one thing that needs more funding.

Ray LaHood, Obama’s clueless Transportation secretary, says building rail will help the environment.

An Amtrak train between Philadelphia and New York can carry up to 500 passengers, and if those folks drove instead, they would use … roughly double the energy used by that train.

So he says. But trains are not the environmental saviors people think they are. The Congressional Research Service concluded: The numbers… suggest that Amtrak does not conserve energy compared to … auto travel for trips longer than 75 miles.

It’s telling that Lahood has to single out “an Amtrak train from Philadelphia to New York” – just about the only part of the Amtrak system that gets decent ridership. Other lines, which hardly anyone ride, cost taxpayers $462 per ticket. Running empty trains isn’t good for the environment.

O’Toole says that self-driving cars would be far more energy efficient, as three times as many cars could be packed in the same stretch of road – which means less congestion and fewer idling cars wasting fuel."

John Taylor Says Budget Cuts Are Not Dire Since Spending Is Still Higher Than 2008

See 2011 is the New 2008 in Federal Budget Debate at his blog. Here is most of it:

"The simplest way to understand the proposed budget is that it largely (not completely) undoes this two-year binge and brings spending back to about what agencies had to spend in 2008. If the government budget was enough for federal agencies—such as the Weather Service—to operate in 2008, then how can one claim that they cannot operate with roughly the same budget now?

The two charts help illustrate this. They focus on the non-defense non-security discretionary part of the budget, which has been the focus of the 2011 budget debate so far. Of course the other parts of the budget must be addressed starting with the 2012 budget, but if we cannot have a fact-based principles-based discussion of the 2011 budget, it will be virtually impossible to resolve the longer term issues.

The first chart compares the 2011 House budget appropriations (passed the House this morning) with appropriated spending in the 2008 budget enacted in December 2007. Note how the proposed 2011 levels are close to but slightly higher than the enacted 2008 levels. In fact they are about 5 percent higher which is more than enough to keep up with inflation during this period. The chart also illustrates the recent spending binge with the 2011 levels proposed in the Administration’s fiscal year 2011 budget. Clearly the House budget proposal represents cuts from the binge but not relative to right before the binge.

"The second chart divides the appropriated spending into nine budget categories (other than defense, homeland security, and military construction). The chart shows how close the 2011 proposal is to 2008 for each category, with some higher and others lower. Of course there will be understandable disagreement between Republicans and Democrats about the composition of spending between and within these budget categories, and this will be a reasonable subject for debate with the Senate and the President. But I think these data show that a reasonable compromise would be to keep the overall totals as in the House proposal and thus take a first important step toward restoring fiscal sanity."

Central Planning May Have Dried The Aral Sea

Another great letter from Don Boudreaux at Cafe Hayek. Here it is:

"Three different readers write today in praise of Paul Ehrlich and his predictions of eco-mageddon (Letters, Feb. 18). Such praise is odd, given that not one of the many catastrophes that Mr. Ehrlich has predicted over the past 43 years has occurred.

The drying of the Aral Sea, alas, is not – contrary to reader David McClave’s insinuation – evidence in support of Mr. Ehrlich’s proposition that one of the greatest threats to the environment is capitalism. Here’s what the BBC reported in 1998: “correspondent Louise Hidalgo in Kazakhstan says that the most amazing thing about the disaster is that it is no accident. ‘The Soviet planners who fatally tapped the rivers, which fed the seas to irrigate central Asia’s vast cotton fields, expected it dry up. They either did not realise the consequences the Aral’s disappearance would bring or they simply did not care.’”

How interesting that the one genuine eco-disaster mentioned as confirmation of Mr. Ehrlich’s wisdom was caused by the same institution – the powerful, centralized state – that Mr. Ehrlich advises we must submit to if we are to be saved from genuine eco-disasters.

Donald J. Boudreaux"

Arnold Kling On The Financial Crisis

See The Bernank on What Caused the Bubble aat EconLog. Excerpt:

"I would argue--and nothing in the paper contradicts this--that the Basel capital accords created a worldwide monoculture in banking (they intentionally created a worldwide monoculture in bank regulation). The reduced capital requirements for AAA_rated securities created a regulatory hole through which the European and American banks drove the proverbial truck. It was not that the GSG countries dumped cheap money into the U.S. housing market. The problem was a financial sector that grew like a tumor in the U.S. and Europe, thanks to regulatory capital arbitrage that was, if anything, encouraged by the world's top banking regulators.

Going forward, the plan is to strengthen the Basel Accords so that this does not happen again. What could go wrong?"

Saturday, February 19, 2011

Victor Davis Hanson Says It Is Time To Reduce Farm Subsidies

This comes via Carpe Diem. Here it is

"From the editorial "Pruning Farm Subsidies," by Victor Davis Hanson:

"We need a drastic reset of agricultural policy. The use of prime ag land to grow corn for ethanol biofuel makes no sense. Why divert farmland for fuels when the world’s poor are short of food, and there are millions of unfarmable areas in Alaska and the arid West, as well as off the American coast, that either are not being tapped for more efficient gas and oil or are only partially exploited?

When North Americans do not fully utilize their own fossil-fuel resources, two very bad things usually follow:

1. Someone in Africa, Asia, or Russia is far more likely to harm the environment in order to provide us with oil, and

2. Precious farmland is diverted to growing less efficient biofuels instead of food — and billions worldwide pay the price.

No supporter has ever been able to explain why the advent of massive subsidies over the last half-century coincided with the decline, not the renaissance, of “the family farm.” Nor has anyone offered reasons why cotton, wheat, soy, sugar, and corn are directly subsidized, but not, for example, nuts, peaches, or carrots.

Finally, the United States is supposed to be the world’s premier free-market economy, based on the principles that competition is good and that entrepreneurs freely reacting to markets create more wealth when unfettered by government red tape. Why, then, would the conservative agribusiness community want government intrusion that warps world food markets, ends up hurting the global poor, and contributes to an unsustainable national debt?

2012 is finally the time to end the crop-subsidy business, with the annual budget deficit approaching $1.5 trillion in 2011, farmers receiving record prices on the open market, and the new conservative House of Representatives having been elected on the promise of fiscal responsibility."

MP: As the chart above shows (data from EWG), there is also massive "farm subsidy inequality" - the top 1% of farm subsidy recipients (13,186) got almost as much taxpayer-subsidized "pork" ($2.16 billion and 20% of the total payments) as the entire bottom 80% ($2.32 billion, and 21% of total payments)."

Friday, February 18, 2011

More John Taylor On The Stimulus

See The Empty Chairs at the ARRA Hearing from his blog. Here is an excerpt:

"My testimony focused on the eight quarters of data since the start of the stimulus which have now been made available by the Department of Commerce, updating a recent study by John Cogan and me. The most striking finding of that data is that only .04 percent of GDP in the large $862 billion package went to federal infrastructure spending, and the large amounts of funds sent to the states for infrastructure spending have not resulted in an increase in infrastructure spending. Raul Labrador of Idaho asked me if the stimulus package would have worked better if there had been more infrastructure spending, but the lesson is that it’s not really feasible to start large government infrastructure projects in a timely enough manner to affect the economy in a recession. There is no such thing as “shovel ready.” In my view we learned that from the 1970s stimulus packages, and indeed it is part of the reason that many of us teach in elementary economics that such discretionary stimulus packages are ineffective."

Prepare for Health Care Ping Pong

This is from Megan McArdle. The idea is that people's income can fluctuate from year to year and within years. So sometimes you will be eligible for the insurance exchanges and sometimes for medicaid. If your income goes up in a year and you were getting a subsidy for the exchanges, you might have to pay that pack. As she implies at the end, this is a good case of the law of unintended consequences. Here is her post:

"Health Affairs has a new article suggesting that low-income workers are going to be moving back and forth between Medicaid and the exchanges at a disturbingly rapid pace (H/T John Goodman):

"The Affordable Care Act will extend health insurance coverage by both expanding Medicaid eligibility and offering premium subsidies for the purchase of private health insurance through state health insurance exchanges. But by definition, eligibility for these programs is sensitive to income and can change over time with fluctuating income and changes in family composition. The law specifies no minimum enrollment period, and subsidy levels will also change as income rises and falls. Using national survey data, we estimate that within six months, more than 35 percent of all adults with family incomes below 200 percent of the federal poverty level will experience a shift in eligibility from Medicaid to an insurance exchange, or the reverse; within a year, 50 percent, or 28 million, will. To minimize the effect on continuity and quality of care, states and the federal government should adopt strategies to reduce the frequency of coverage transitions and to mitigate the disruptions caused by those transitions. Options include establishing a minimum guaranteed eligibility period and "dually certifying" some plans to serve both Medicaid and exchange enrollees."

We clearly haven't figured out a good way to going to handle the (fairly large) problem of intra-year variations in income. We just paid for the 2010 "doc fix" by requiring families who experience a mid-year boost to their incomes to repay at least some of the subsidy they received when they had lower incomes earlier in the year. Families who improve their job prospects will thus get to enjoy a privilege previously mostly reserved for freelancers: a surprise tax bill at the end of the year, when they were expecting a refund.

This is more than fiscally tricky (the sort of families that get subsidies are less likely to have thousands of dollars in the bank to repay them at year end). It means that lower-income workers will implicitly face a higher marginal tax rate on their wages, since getting a new job may mean a hefty tax bill at year end. For those even lower down the income scale, it means bouncing on and off Medicaid--and while I presume the private option will be better than Medicaid, the uncertainty and hassle may encourage them to stay put at lower wage rates.

This is the problem with complex new programs that aim to do everything: it's hard to predict ahead of time how all the moving parts are going to work together. There are still a whole lot of kinks to be worked out before 2014."

Thursday, February 17, 2011

Randy Barnett on the Mandate

From From Megan McArdle.

"In his congressional testimony, he illustrates the difference between regulating activity and inactivity:

Here's a thought experiment. Imagine that I tell you 100 things that you may not do tomorrow. For example, you cannot run on a treadmill, eat broccoli, buy a car, and 97 other things. While your liberty would be restricted, there would still be an infinite number of things you may still do.

Now suppose I tell you 100 things that you must do tomorrow. You must run on a treadmill, eat broccoli, buy a car, and 97 other things. These 100 mandates could potentially occupy all your time and consume all your financial resources.
And also, of course, the difference between negative and positive rights."

Russ Roberts On The Failure Of Stimulus Spending

See Congressional Testimony on the Stimulus at Cafe Hayek. I especially like how he explains that after WWII and a big drop in government spending, the economy did not slide into a recession (the last two paragraphs below). Excerpts:

"There have been two explanations. One is that the economy was in worse shape than we realized. The only evidence for this claim is circular—the standard Keynesian models under-predicted unemployment.

I prefer a simpler explanation: the models that justified the stimulus package were flawed. Those models were broadly based on the Keynesian notion that the road to recovery depends on spending. In the Keynesian worldview, all spending stimulates. Somehow, subsidizing university budgets in the Midwest or paying teachers in West Virginia helps unemployed carpenters in Nevada. That may be good politics. It’s lousy economics.

This isn’t the first time the Keynesian worldview was wildly inaccurate in predicting the impact of changes in government spending. Look at the beginning and end of WWII.

Keynesians frequently argue that the military spending on WWII ended the Great Depression.

Certainly unemployment fell to nearly zero because of the war. But did the war create an economic boom? There was a boom for the industries related to the war. But there was little prosperity for the rest of the country. The war was a time of austerity. Government spending didn’t have a multiplier effect on private output. It came at the expense of private output.

What about the end of the war, when government spending plummeted?

Paul Samuelson, a prominent Keynesian, warned in 1943 that when the war ended, the decrease in spending combined with the surge of returning soldiers to the labor force would lead to “the greatest period of unemployment and industrial dislocation which any economy has ever faced.” He was not alone. Many economists predicted disaster.

What happened? Government spending went form 40% of the economy to less than 15%. And prosperity returned to America. Unemployment stayed under 4% between 1945 and 1948. There was a short and mild recession in 1945—while the war was still going on. But the economy boomed when government spending shrank and price controls were removed."

Don Boudreaux On The Failure Of Stimulus Spending

Food, Famine, and Globalization

This is a post by Don Boudreaux at Cafe Hayek. He argues that free trade is actually the best insurance for famines and crop failures. He quotes Jagdish Bhagwati who says that famines in history became less of a problem as trade increased.

Wednesday, February 16, 2011

John Taylor's Congressional Testimony On The Stimulus

See The 2009 Stimulus Package: Two Years Later. It has some great charts. Excerpts:

"My empirical research during the past two years shows that ARRA did not have a significant impact in stimulating the economy. I do not think this finding should come as a surprise. Earlier research on the discretionary countercyclical Economic Stimulus Act of 2008— enacted three years ago this week—indicates that it too did little to stimulate the economy. Research on the discretionary countercyclical actions in the late 1960s and 1970s—the most recent period of such large interventions prior to this past decade—also shows disappointing results, including high unemployment, high inflation, high interest rates, and frequent recessions;"

"only a tiny slice of ARRA has gone to purchases of goods and services by the federal government."

"But when you look at what state and local governments did with the funds, you find that they did not increase purchases of goods and services or increase infrastructure projects."

"But state and local government purchases have hardly increased at all and they are still below the levels of late 2008 before ARRA grants began."

"What did the states do with the ARRA funds? The data show that they mainly used the funds to reduce their borrowing"

"However, aggregate personal consumption expenditures did not increase by much at the time of these sharp increases in stimulus payments. In general, the overall pattern of personal consumption expenditures seems to move closely with disposable personal income without the addition of the stimulus funds, though the decline in consumption is greater than the decline in either measure of disposable personal income."

"the effect of the temporary stimulus payments on personal consumption expenditures is much smaller than the effect of more permanent income changes and statistically insignificant from zero."

"As in the case of the grants to the states the temporary payments were mainly added to personal saving in the form of reduced net borrowing. In effect the increased borrowing by the federal government to finance ARRA was nearly matched by a decrease in net borrowing by the state and local governments and by persons."

"the percentage contribution of government purchases (federal as well as state and local combined) to the growth of real GDP is negligible. The swing in economic growth during the recession and the recovery seems largely independent of the changes in government purchases."

"The contribution of consumption is larger, but still consistent with the finding that the change in consumption was due to changes in income without the stimulus payments. Note that the largest contribution from consumption comes in the last quarter of 2010 at the time when the agreement to extend existing tax rates likely became anticipated and eventually a reality with increased expectations that they would become permanent."

Why Do Policy Evaluations Differ?

"Why do some argue that ARRA has been more effective than the facts presented here indicate? Many evaluations of the impact of ARRA use economic models in which the answers are built-in, and were built-in before the stimulus package was enacted. The same economic models that said, two years ago, that the impact would be large now show that the impact is in fact large. This is why, for example, the Congressional Budget Office finds larger effects while other researchers using different models find smaller effects. The models disagree so the policy evaluations disagree. The data I examine here place more emphasis on where the funds from ARRA actually went. The approach makes less use of simulations of existing econometric models, although it uses general theories—such as the permanent income theory or similar theories of government behavior—to analyze the data. These data point to some inconsistencies, however, in how model simulations have been conducted. For example, many model simulations assumed that ARRA would have a much larger effect on government infrastructure and other purchases than was actually the case. I believe the simulations should take account of the very small amount of funds that went to government infrastructure and other purchases. If CBO or other groups are still assuming in theirsimulations that a large fraction of grants to the states went to government purchases, then those simulations should be adjusted."


"In sum, the data presented here indicate that the American Recovery and Reinvestment Act was not effective in stimulating the economy. Despite its large size, ARRA did not result in more than an immaterial increase in government infrastructure and other purchases at the federal level. The large grants to the states did not result in an increase in government infrastructure and other purchases at the state and local level. And finally an analysis of the payments that temporarily increased disposable income shows that they did not significantly affect personal consumption expenditures. In contrast changes in private investment and net exports have been much more of a factor in the recovery. Currently, the increased debt caused by ARRA both directly through its deficit financing and indirectly through its de-emphasis on controlling spending—is likely a drag on economic growth."

The Myth of Green Energy Jobs: The European Experience

This is from the American Enterprise Institute. Go to The Myth of Green Energy Jobs: The European Experience by Kenneth P. Green. Excerpts:

"Key points in this Outlook:

-The Obama administration, its allies in Congress, and the environmental community champion the benefits of green technology and the creation of green jobs to alleviate unemployment.

-Green jobs merely replace jobs in other sectors and actually contribute less to economic growth.

-Experiments with renewable energy in Europe have led to job loss, higher energy prices, and corruption"

Here is a summary of what happened, for example, in Spain.

"-Since 2000, Spain spent 571,138 euros on each green job, including subsidies of more than 1 million euros per job in the wind industry.

-The programs creating those jobs destroyed nearly 110,500 jobs elsewhere in the economy (2.2 jobs destroyed for every green job created).

-The high cost of electricity mainly affects production costs and levels of employment in metallurgy, nonmetallic mining and food processing, and beverage and tobacco industries.

-Each "green" megawatt installed destroys 5.28 jobs elsewhere in the economy on average.

-These costs do not reflect Spain's particular approach but rather the nature of schemes to promote renewable energy sources."

The results have been similar in other European countries. Here is Mr. Green's conclusion:

"Both economic theory and the experience of European countries that have attempted to build a green-energy economy that will create green jobs reveal that such thinking is deeply fallacious. Spain, Italy, Germany, and Denmark have all tried and failed to accomplish positive outcomes with renewable energy. Some will suggest that the United States is different, and that US planners will have the wisdom to make the green economy work here. But there is no getting around the fact that you do not improve your economy or create jobs by breaking windows, and US planners are no more omniscient than those in Europe."

Toddy Zwycki On The Unintended Consequences Of Credit Card Regulation

See Dodd-Frank and the Return of the Loan Shark: In the name of consumer protection, Congress has pushed more Americans outside the traditional banking system. From the WSJ, 1-4-11 (Hat Tip: Jay Richards, AEI). Excerpts:

"In a competitive market, regulation of consumer credit has three predictable types of unintended consequences. First, regulation of some terms of the credit contract will result in the repricing of other terms. Thus restrictions on the ability to raise interest rates in response to a change in a borrower's risk profile lead card issuers to raise interest rates on all cardholders, good and bad risks alike.

But even if card issuers reprice some terms, they may still be unable to price risk efficiently under the new rules. This gives rise to a second type of unintended consequence: product substitution. Card issuers can't price risk, so they issue fewer cards—pushing would-be customers to payday lenders and other nontraditional credit products.

Third, if issuers can't price risk effectively, they will ration lending. In order to make a loan, a lender must be able to price its risk efficiently or to reduce risk exposure by rationing credit. One way to do the latter is to lend less to existing borrowers, which is part of the reason why more than $1 trillion in credit-card lines have been slashed since the onset of the credit crunch."
Mr. Zywicki teaches bankruptcy and contracts at the George Mason University School of Law and is co- editor of the University of Chicago's Supreme Court Economic Review.

Tibor Machan On Why Businesses Should Strive To Maximize Profits

See Profit: the Right Standard for Business from Barrons (Hat Tip: Cafe Hayek). He disagrees with those who say coporations should be motivated by social responsibility. Here is an excerpt:

"This line of thinking is an unsubtle attack on capitalist economics. In a capitalist system, those who buy shares and invest in them own companies, whose managers’ professional commitment and purpose is to make them succeed in the marketplace. Such success is measured, naturally, by how profitable they are, how good a return they bring in from their owners’ investment.

The details depend on the kind of firm in question, obviously, but this is the general understanding of capitalist business. Just as physicians owe their service first to patients, managers owe it to their company’s owners.

Never mind that no one could reap profits without also advancing what one’s trading partner deems to be his or her economic interests. Never mind that once one makes a good return on one’s investment, a separate moral question arises about what to do with the wealth.

Rejecting the capitalist model is not only a rejection of gaining wealth but also a rejection of the private allocation of wealth. Advocates of corporate social responsibility, in other words, don’t want private individuals to be in charge of spending the profits made in business. They would like society or the public—which for practical purposes translates into government—to decide what happens to the wealth.

This used to be called socialism, but by now that grand experiment as a political economic system has had innumerable setbacks across the globe, so the term has been dropped, except by its opponents."
TIBOR R. MACHAN holds the R. C. Hoiles Chair in Business Ethics & Free Enterprise at the Argyros School of Business & Economics, Chapman University, in Orange, Calif. He is the author, most recently, of The Morality of Business, a Profession for Human Wealth-Care (Springer, 2007).

Tuesday, February 15, 2011

Apparel Exports and Education: How Developing nations Encourage Women’s Schooling

This was by William C. Gruben and Darryl McLeod. From Economic Letter (Dallas Fed). Vol. 1 No. 3, March 2006.

“We find that clothing and shoe production requires more education than the average woman has attained in many developing nations (3).”

“In Bangladesh and other major apparel-exporting nations, to qualify for these jobs, more women stay longer in school (3).”

“Female workers’ commitment to seek more education delays child-bearing and lowers the incidence of child labor (3).”

“In short, the maligned suppliers of Nike, Gap and Wal-mart encourage governments to educate women, give women a reason to stay in school and pay them well by local standards (3).”

“For the average country, a doubling of exports as a share of GDP raises female secondary-school attendance by 20 to 25 percent (5).”

“If you make Nikes, you earn more. The shoe company’s Indonesian shop-floor workers on average earn more than four-fifths the working population. In Bangladesh, garment export firms generally pay more than firms not oriented to selling outside the country (7).”

ObamaCare and the Medicaid Mess

This is an article by Peter Suderman, who is an associate editor at Reason magazine. Click here to read it. From today's WSJ. He shows how high the cost of these programs are and how they will keep rising under ObamaCare. He suggests making Medicaid a temporary program like welfare (from the 1996 reform act), block grants to states that only cover mandatory care and health savings accounts. Excerpts:

"At roughly 21% of total state spending, Medicaid is already the single largest item in state budgets, according to the National Association of State Budget Officers. Between 2008 and 2009 (the latest year for which figures are available), annual spending growth on the program nearly doubled, growing to 9% from 4.9%.

Medicaid currently covers 53 million people at an overall cost of $373.9 billion (states are responsible for about half). But starting in 2014, ObamaCare rules will add about 20 million more, according to Richard Foster, the program's chief actuary.

Yet state budgets are already being squeezed."
He goes on to summarize how some states have dealt with budget crises by cutting back on the programs.

Feldstein Says Lower Corporate Tax Rates

See Want to Boost the Economy? Lower Corporate Tax Rates: The increased flow of capital to the U.S. would result in greater productivity and higher real wages, from today's WSJ. He shows that even with deductions and loopholes, and combining the federal and state taxes together, the US has the highest corporate taxes in the world. This drives capital out of the US. Excerpts:

"The U.S. corporate tax rate is 35% at the federal level and 39% when the average state corporate tax is included. The average rate in the other industrial countries of the Organization for Economic Cooperation and Development (OECD) is just 25%. Only Japan has as high a rate.

Eliminating every loophole in the taxation of domestic corporate profits identified by the administration's own Office of Management and Budget would raise less than $60 billion of extra revenue in 2011, enough to lower the combined federal-state corporate rate to 35%. The U.S rate would still be higher than in every other country but Japan, and a full 10 percentage points higher than the average in other industrial OECD countries.This high corporate tax rate causes a misuse of our capital stock. More specifically, the high rate drives capital within the U.S. economy away from the corporate sector and into housing and other uses that do not increase productivity or raise real wages. And because interest payments by companies are deductible in calculating taxable profits, the high tax rate induces firms to use too much debt to finance their operations, increasing risks for them and the U.S. economy.

Moreover, the difference between the U.S. corporate tax rate and the lower rates abroad encourages U.S. firms to locate production in foreign countries and discourages foreign firms from producing in the U.S. unless absolutely necessary. The result is less capital at home, reduced productivity, and therefore lower real wages.

Our high corporate tax rate also makes the cost of capital higher for American firms than for their foreign competitors, forcing them to charge higher prices on American products. That makes U.S. producers less able to compete in global markets or with imports to the U.S. from abroad.

All this is compounded by the unusual way in which U.S. firms are taxed on overseas incomes. Firms in every country pay taxes on the profits they earn at home and pay taxes to foreign governments on the profits they earn abroad. Generally, however, foreign firms pay only a small token tax if they bring their after-tax profits back to their home country.

But that's not how it works for American firms. Our companies must pay the difference between the U.S. tax rate and the tax that they have already paid. For example, French and American firms that invest in Ireland pay a corporate tax of only 12.5% to the Irish government. The French firm can then bring its after-tax profit back to France by paying less than 5% on those repatriated profits while an American firm would have to pay the 22.5% difference between our 35% corporate tax and the 12.5% Irish tax.

The extra tax that American firms must pay when they repatriate foreign profits encourages those firms to leave profits abroad, investing those funds to expand foreign operations instead of bringing that money back to invest in new plants and equipment at home. The extra tax paid by U.S. firms when repatriating profits also raises the effective cost of capital to American firms operating in other countries, making them less able to compete in those markets. That shrinks their scale of global production, reducing the cost savings that would result from spreading domestic R&D and other fixed costs over a larger volume of sales."

Monday, February 14, 2011

Megan McArdle On The Possibility Of Liberal Bias In Academia (Again)

See What Does Bias Look Like? It is a fairly long post, so I will not try to summarize it or list the main points. It is very well done. One thing I think she is saying is that having such a large majority of people within a group have the same political views, you raise the chance of getting bias. I certainly don't want quotas or affirmative action for libertarians or conservatives. When the state controls so much of education, it makes it hard for new private schools to start up. The public schools will always have the advantage of their subsidy. And if professors are overwhelmingly liberal, it raises the possibility that many Americans are only getting exposed to one viewpoint.

Here is the last part her post:

"But is this even a problem? Do conservatives have a right to a place in academia?

There are three potential arguments for why it's a problem. One if the harm it does to conservatives. But the others are the harm it does to academia, and to the rest of us. I think the latter are by far the bigger problems. Not to trivialize the conundrum faced by conservatives who want to be professors . . . but it's not like they're ending up as longshoremen. The other two problems are much more broadly harmful.

Excluding conservatives means that academia is losing the trust of the more conservative members of society. Academics are incredulous and angry about this--the way that many whites are when they hear rumors are spreading in the black community that AIDS was deliberately created and released by the government to destroy them. But the mistrust of the government in the black community is not crazy--not after things like the Tuskeegee Syphilis experiment. Nor is it crazy to think that academia wields its prestige like a club against conservative ideas--or even conservatives themselves, as with the steady stream of studies that characterize conservatives as authoritarian, less open to experience, and so forth. Conservatives point out that the questions are more than occasionally loaded, and the studies are done on psychology students, an overwhelmingly liberal group whose few conservatives may not look much like conservatives in the wild. Yet the academics in question more than occasionally participate in the denigrating connotations this information is given in the media.

Which hints at the other problem with excluding conservatives: it makes scholarship worse. Unless we assume what to many liberals is "proven" by their predominance in academia--that conservative ideas have no merit--leaving conservatives out means that important viewpoints are excluded. We are never the best interrogators of our ideas. It requires motivated critics to lay bare our hidden assumptions, our misreading of the data, our factual inaccuracies. No matter how scrupulously honest you try to be, you are no substitute for an irritated opponent thinking, "That can't possibly be right!"

If you build a group with the same assumptions, you can all too easily go wrong.

Moreover, as Haidt points out, that group develops sacred taboos that can't be violated. If facts threaten the sacred space, facts get jettisoned. Think of the creationist museum--or Larry Summers getting attacked by a swarm of angry critics for suggesting that it was possible that inborn differences in the distribution of intelligence might explain why men--who have a higher observed variance in math ability--are more likely to be found in the sciences.

Now, Summers could be wrong---as I say, I am inherently suspicious of narratives that offer neat explanations for why the dominant position of one group can't be changed. But the critics did not rush to explain why this was unlikely to be right. They furiously rushed to punish him for having said it. They were angry about sexism, not science.

Yet one more reason why I am suspicious that liberals' unshakeable commitment to scientific rigor is what forces them to exclude conservatives tainted by association with creationism.

I don't say this to denigrate liberals--obviously, conservatives have their taboos too. But it's healthier if different groups, with different taboos, all have a place in the quest for truth. Monoculture is as unhealthy for ideas as it is for agriculture."

Don Boudreaux On Why It Will Not Necessarily Help To "Buy American"

See Buy American? Some of his main points are that about half of what we buy from foreign countries are inputs, if Americans end up paying more for goods it hurts our standard of living and the dollars foreingers earn gets invested here. It is another one of his letters:

"Mr. Randy Erwin
Buy America Challenge blog

Dear Mr. Erwin:

Thanks for exporting to my household a link to your Feb. 12 blog post “Record Crushed: U.S. Trade Deficit with China – $273 Billion in 2010 – Biggest Ever Between Two Countries.” In it you write that

We can solve our country’s economic problem ourselves by changing our buying habits just slightly and buying American more often. The average adult consumes $700 per month in imported goods. If we could reduce that to $517 per person per month, we would have no trade deficit at all. With no trade deficit, we would likely have 3-4% unemployment. All we need to do is reduce our consumption of imported goods 25% to have jobs again in this country. That will secure our long-term economic future (a.k.a. our children’s future).

I’ve some questions for you.

- Because “buying American more often” means buying low-priced imports less often, Americans’ spending power will shrink. Americans will then have less money to spend at the movies, at local restaurants, on premium cable-tv packages, and the like. How do you know that the job losses that result from contractions in these industries won’t offset whatever job gains emerge in other industries from “buying American more often”?

- At least half of all U.S. imports are inputs used for production here at home by American firms. So if American firms substitute more costly American-made inputs for lower-priced imported inputs, many American firms’ costs will rise. These firms will lose market share. How do you know that the job losses that will result from these firms’ contractions and bankruptcies will not offset whatever job gains emerge from “buying American more often”?

- Because every dollar of America’s trade deficit is a dollar invested in the U.S. economy – investments that overwhelmingly expand the volume of America’s productive capital assets above what this volume would be without these foreign investments – eliminating America’s trade deficit will likely result in a net reduction of investments in the U.S. economy. How will less investment “secure our long-term economic future”?

Don Boudreaux On Why The Trade Deficit Is Not Necessarily Bad For The Economy

See Bad Reporting at Cafe Hayek. This is another one of his greate letters:

"You report that “A widening [trade] deficit is bad for the U.S. economy. When imports outpace exports, more jobs go to overseas workers than to U.S. workers” (“Trade deficit widens to $40.6 billion,” Feb. 13).

Untrue. Another name for a trade deficit is a “capital-account surplus.” Save for rare instances of dollars being hoarded or used as circulating media abroad, every dollar of a U.S. trade deficit is a dollar of foreign investment in America.

Suppose that in 2011 Richmonders buy $1 billion worth of goods and services from Charlottesvillians, but Charlottevillians buy no goods and services from Richmonders. Further suppose that Charlottesvillians use this billion dollars to invest in Richmond – such as building retail outlets in Richmond; buying stock in Richmond-based corporations; buying bonds issued by Richmond’s government to fund road improvements. Richmond will have a $1 billion trade deficit with Charlottesville. But are Richmonders harmed? Do the investments made by Charlottesvillians in Richmond fail to expand Richmond’s economy, fail to increase its capital stock, and fail to increase economic opportunity in that city? Does Richmond lose jobs as a result? Of course not.

And so it goes especially at the national level. Because nearly every dollar of the U.S. trade deficit represents foreign investment in America, only economically illiterate reporters assert that a U.S. trade deficit, as such, “is bad for the U.S. economy.”"

Better to Feel Good Than to Do Good: Nancy Pelosi's Compost Edition

This was posted at Division of Labor by E. Frank Stephenson.

"It turns out that the [U.S. House] composting program [started under Speaker Pelosi] not only cost the House an estimated $475,000 a year (according to the House inspector general) but actually increased energy consumption in the form of "additional energy for the pulping process and the increased hauling distance to the composting facility," according to a news release from [California Rep.] Lungren."
Here is their source. Stick a fork in it, we're done: Former Speaker Nancy Pelosi's Green the Capitol initiative is over at the House's Longworth cafeteria. From the LA Times

The Growing Gender MD Pay Gap CAN Be Explained

That is a post by Mark Perry over at Carpe Diem. He summarizes a new study and here is his conclusion:

"In other words, the trend of male MDs earning more than female MDs is pretty easily explained: female (male) physicians put a higher (lower) priority on flexibility in work hours and family-friendly attributes of their employment arrangements, and are willing to accept lower (higher) financial compensation in return for greater (lower) non-monetary compensation. That is, it's possible that male and female physicians are not true counterparts in the labor market for MDs, and it therefore could be expected that average starting salaries would reflect the significant gender differences in workplace priorities."

Sunday, February 13, 2011

How Great Entrepreneurs Think And Are They Heroes?

There was an article about how they think at Inc. It is about the research by Saras Sarasvathy, a professor at the University of Virginia's Darden School of Business.

Candace Allen Smith has written about how entrepreneurs are like heroes. She gave a talk on this at the Dallas Fed in 1997. Here is the link:

I think that got reprinted in the Freeman. She also had a similar, award winning article in the Journal of Private Enterprise in 1996.

Walter Williams also wrote about entrepreneurs as heroes

So did Johan Norberg

I have also written a couple of articles on the subject

The Calling of the Entrepreneur

The Creative-Destroyers: Are Entrepreneurs Mythological Heroes? (Presented at the annual meetings of the Western Economic Association, July 1992)

In one of his books, Israel Kirzner said something like "entreprneurs discover opportunities for economic proft by leading a life of purposeful action."

Lawrence Summers explained his vision for an entrepreneurial future last year at the White House blog.

"An important aspect of any economic expansion is the role innovation plays as an engine of economic growth. In this regard, the most important economist of the twenty-first century might actually turn out to be not Smith or Keynes, but Joseph Schumpeter."

Cato's Shapiro On The Consitutionality Of The Health Care Law

See The Law and Politics of Health Reform from the NY Times. This is a letter to the editor. Here it is:

"Laurence H. Tribe is a great scholar, but his analysis of the individual mandate’s constitutionality is flawed.

First, this is indeed a “novel” issue for the Supreme Court: Never before has the federal government asserted the power to require people to engage in economic activity under the guise of regulating commerce.

Second, those challenging the law do not question Congress’s power to regulate the “multitrillion-dollar health insurance industry,” but rather distinguish such regulation from a command for individuals to purchase that industry’s products.

Third, the difference between activity and inactivity is anything but “illusory”; if Congress can regulate mere decisions, then it can tell me, for example, that I shouldn’t spend time writing letters to the editor.

And finally, imagining that Justice Antonin Scalia would support the government here because he previously ratified prohibitions on the production and consumption of marijuana is to remove the very activity-inactivity distinction that he recognized in that earlier opinion.

Ilya Shapiro
Washington, Feb. 8, 2011

The writer is senior fellow in constitutional studies at the Cato Institute and editor in chief of the Cato Supreme Court Review."

Mankiw Critiques Obama's State Of The Union Address (Or Other Countries Are Our Partners, Not Our Competitors)

Harvard economics professor Greg Mankiw has a good column today in the NY Times called Emerging Markets as Partners, Not Rivals. He thinks Obama does not understand that if other nations do well, it will help our future. They will have more to trade to us. Excerpts:

"Achieving economic prosperity is not like winning a game, and guiding an economy is not like managing a sports team."

"Unlike a sports contest, which by necessity has a winner and a loser, a voluntary economic transaction between consenting consumers and producers typically benefits both parties."

"Listening to the president, you might think that competition from China and other rapidly growing nations was one of the larger threats facing the United States."

"Other nations are best viewed not as our competitors but as our trading partners."

"During the address, Mr. Obama lamented the fact that many foreign students attended colleges and universities in the United States and then returned to their countries of origin. “As soon as they obtain advanced degrees, we send them back home to compete against us,” he said. “It makes no sense.”

The president is right that we should encourage a greater number of highly educated foreigners to migrate here."

"But if these foreign students decide to return home, as many do, we shouldn’t worry that they are competing against us.

Instead, we should view higher education in the United States as one of our most successful export industries."

"When the foreign students head home, they take the human capital acquired here to become productive members of their own communities. They spread up-to-date knowledge, so it can foster prosperity everywhere."

"Nothing could be better for the United States than these thousands of American-trained ambassadors who have seen at first hand the benefits of a free and open society."

Saturday, February 12, 2011

Exports To China Rise Without Help From Government

From Carpe Diem by economist Mark Perry. Excerpts:

"Obama says he wants to double exports in the next five years to create U.S. jobs. According to data released today by the BEA (available here), U.S. exports to China surged to $10.12 billion in December, a new monthly record, and more than double the $4.6 billion in February 2009, less than two years ago. In fact, exports to China have more than tripled since January 2006, slightly less than five years ago. And this apparently happened without any special help from Obama or Bush, it most likely happened because China's economy is booming."

"...exports to China have actually grown much faster (+19% per year) than imports from China (13.8% per year)." (since the year 2000)