More evidence against the idea that World War II ended the Great Depression

See The Roaring Thirties by David Henderson of EconLog. He reviews Alexander J. Field's book A Great Leap Forward: 1930s Depression and U.S. Economic Growth. Excerpt:

"One other myth Field dispels about World War II, probably one of the most widely-believed myths, even by economists, is that World War II ended the Great Depression. Field notes that unemployment was falling rapidly in 1941 and that the unemployment rate for the last quarter of 1941 (the government did not collect monthly data back then) was down to 6.3 percent."

Maybe we don't have an infrastructure problem

See The U.S. infrastructure argument that crumbles upon examination by Charles Lane in the 10-31 Washington Post.
Excerpts:

"For all its shortcomings, U.S. infrastructure is still among the most advanced in the world — if not the most advanced. I base this not on selective personal experience but on the same data alarmists cite."

"When you compare America’s WEF (World Economic Forum) rankings with those of the 19 other largest countries, it stands second only to Canada, which is lightly populated — and whose infrastructure is linked with ours.

Among the 20 most populous countries, the United States ranks behind France, Germany and Japan, in that order. This would seem to confirm the case for U.S. inferiority in the developed world.

But France and Germany, in addition to being substantially smaller than the United States, are part of the European Union, a borderless single market from the Baltic Sea to the Black Sea. Sure enough, when you average out the scores of all 27 E.U. nations, the United States beats them by a clear margin."

"And while that D from the American Society of Civil Engineers is undoubtedly sincere, the organization has a vested interest in greater infrastructure spending, which means more work for engineers. The engineers’ lobby has given America’s infrastructure a D in every one of its report cards going back to 1998, except for 2001, when the mark was D-plus.

Top-notch though it is, the U.S. infrastructure could use an upgrade; by their very nature, roads, bridges and the rest require constant maintenance. The effort could boost both current employment and the economy’s capacity to grow in the future.

But it’s not just a matter of turning on the money tap and letting it flow. Though roads, rails and levees represent huge, upfront capital expenditures, the long-term benefits are often difficult to calculate objectively. The whole business is fraught with uncertainty, trade-offs and pork-barrel politics.

Nor are the economics of public works simple. After its economic bubble burst, Japan tried to restart growth with more than $6 trillion in infrastructure spending between 1991 and 2008. It ended up with little to show for it but a swollen national debt and lots of bridges to nowhere."

The "Imaginary Hobgoblin" of Income Inequality

Great post by Mark Perry of "Carpe Diem."

The charts above were prepared using Census Bureau data (Table E-2) on the Gini coefficients (a statistical measure of dispersion that quantifies income inequality on a range from 0% for complete equality to 100% for complete inequality where one person receives all of the income) for full-time, year-round workers. Like other measures of income inequality for families and households over time presented recently here, income inequality for full-time , year-round workers follows the same pattern:



The Gini coefficient for full-time workers increased gradually through the 1960s, 1970, 1980s, and then stabilized in the mid-1990s (after rising from 34% in 1967 to 39.5% in 1994, see top chart) and hasn't changed at all in the sixteen-year period from 1994 (39.5%) to 2010 (39.7%).



Bottom Line: Whether we look at Census Bureau data on Gini coefficients for U.S. households, families, or year-round workers, or look at the share of income going to the top fifth of Americans, there is absolutely no statistical support for the commonly held view that income inequality has been rising recently. So why are we even having this national debate about solutions to the "non-problem" of rising income inequality. Is this another "imaginary hobgoblin" (see below)?



H.L. Mencken: "The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary."

Matt Ridley says there is no Unprecedented Change or Harmful Change from global warming

See Ridley: "I Can't Find One Piece of Data That Shows Unprecedented Change, or Harmful Change." posted by Mark Perry of "Carpe Diem."

"From Matt Ridley's "Angus Millar Lecture of the Royal Society of the Arts" in Edinburgh, titled "Scientific Heresy":

"Stalagmites, tree lines and ice cores all confirm that it was significantly warmer 7000 years ago. Evidence from Greenland suggests that the Arctic ocean was probably ice free for part of the late summer at that time. Sea level is rising at the unthreatening rate about a foot per century and decelerating.

Greenland is losing ice at the rate of about 150 gigatonnes a year, which is 0.6% per century. There has been no significant warming in Antarctica, with the exception of the peninsula. Methane has largely stopped increasing. Tropical storm intensity and frequency have gone down, not up, in the last 20 years. Your probability of dying as a result of a drought, a flood or a storm is 98% lower globally than it was in the 1920s. Malaria has retreated not expanded as the world has warmed.

And so on. I’ve looked and looked but I cannot find one piece of data – as opposed to a model – that shows either unprecedented change or change is that is anywhere close to causing real harm.""

Why the Tax Policy Center is wrong: The U.S. can slash its corporate tax rate

Great post by James Pethokoukis of AEI

The folks at the Tax Policy Center (and the Joint Committee on Taxation) are dead wrong on this one:

It has been an article of faith among most congressional Republicans and many Democrats that the corporate tax rate should be cut from today’s top level of 35 percent to 25 percent—or even less. And backers of the idea breezily suggest this could be paid for by scaling back some corporate tax breaks. But a new report released today by the congressional Joint Committee on Taxation concludes it can’t be done.

The non-partisan JCT found that even if Congress scrubbed every single corporate preference from the code (a political fantasy if ever there was one) it could not get the corporate rate below 28 percent without adding to the budget deficit, raising taxes on individuals, or cutting spending.

My Tax Policy Center colleague Eric Toder has been making a similar point for months: It is painfully difficult to find the money to reduce rates very much. Unlike corporate breaks, there are more than enough individual tax preferences out there to pay for individual rate reduction (and have money left over the cut the deficit). The problem is merely a lack of political will. Abolish the mortgage interest deduction anyone?

My advice to congressional tax cutters is to cut the corporate rate whether or not they can “pay” for it. And to at least 26 percent. There is good reason to believe that the U.S. rate—currently at 35 percent—is way, way on the wrong side of the Laffer Curve, as AEI’s Kevin Hassett and Alex Brill point out in a 2007 study:

Corporate tax rates among industrialized nations have been declining steadily since the mid 1980s. … This note explores these changes and finds, similar to Clausing (2007), strong statistical evidence of a Laffer curve in the international corporate tax data. This conclusion remains even when significant potential outlier countries, such as Ireland, Switzerland and Norway, are excluded from the sample … We find robust evidence that a Laffer curve has existed in the corporate tax sphere throughout most of our sample period. It is not merely a recent phenomenon. We also find that the revenue maximizing corporate tax rate was about 34 percent in the late 1980s, and that this rate has declined steadily to about 26 percent for the most recent period.

We had made substantial education progress before the big federal involvement

See American Education, From Camelot to Obamaville by Andrew J. Coulson of Cato.

"The president has relentlessly called for a more extensive—and expensive—federal role in education. Here’s just one example:

The human mind is our fundamental resource. A balanced Federal program must go well beyond incentives for investment in plant and equipment. It must include equally determined measures to invest in human beings—both in their basic education and training and in their more advanced preparation…. Without such measures, the Federal Government will not be carrying out its responsibilities for expanding the base of our economic… strength.

And if we spend all those new federal dollars on k-12 education, the president promised that “it will pay rich dividends in the years ahead.”

But here’s the strange part: in that same speech, the president made this seemingly ridiculous claim:

Our progress in education over the last generation has been substantial. We are educating a greater proportion of our youth to a higher degree of competency than any other country on earth.

It’s actually not so ridiculous when you learn that the president who said it was John F. Kennedy, in February of 1961. Back then, we really had been making educational progress.

Aside from the ill-fated National Defense Education Act of 1958, the federal government had made no attempt to improve k-12 academic achievement or attainment in the four decades before JFK… and yet, as he noted, American education did in fact improve during that period.

But within a couple of years of JFK’s assassination, Congress passed the Elementary and Secondary Education Act, now known as the No Child Left Behind Act. And in the four plus decades since, the feds have spent roughly $2 trillion trying to improve outcomes and attainment. Over that course of years, both graduation rates and academic achievement at the end of high school have been flat or declining.

Perhaps it could be argued that JFK couldn’t have known better. There was no history showing him what an expensive failure U.S. federal education spending would turn out to be. But the same cannot be said of President Obama, or of those in Congress who continue to tell the public, and presumably themselves, that fed ed. spending is a useful “investment.”

Today, we can look back at a half-century of failed federal education programs. We can think about how much better off the U.S. economy and our children would be if we hadn’t thrown $2 trillion at a calcified school monopoly that cannot spend money efficiently.

And reflecting on that history, perhaps we’ll find the wisdom not to repeat it."

Want to Stick It to the Rich, Get Rid of Fannie and Freddie

Great post by Mark A. Calabria of Cato.

"There’s an interesting new NBER working paper out this week on the impacts of Fannie Mae and Freddie Mac on the mortgage market and the overall economy. I have to admit I’m still working through some of it (my matrix algebra is a little rusty).

To summarize the paper’s findings:

First, comparing stationary equilibria with and without the policy, a tax-financed interest rate subsidy of 40 basis points leads to a significant increase in mortgage origination, but has little effect on investment in housing assets or in the equilibrium construction of real estate. The mortgage subsidy does not significantly change the share of households with positive holdings of real estate, because on one hand the subsidy makes real estate ownership more attractive, but on the other hand the higher required taxes lower net of tax income and thus discourage homeownership for low-income and low-asset households. However, the subsidy does significantly affect the distribution of leverage in the economy by increasing both the fraction of households that have positive mortgage debt and the level of leverage. This suggests that the GSE’s may have led to over-investment in mortgages and excess household leverage, which may have exacerbated the response to the recent drop in house prices.

Using a steady state utilitarian social welfare functional we find that the aggregate welfare implications of the subsidy are negative, in the order of 0f 0.8% of consumption equivalent variation. However, since households are heterogeneous, there is disagreement over the desirability of the subsidy. Low-wealth households prefer to live in a world without the subsidy, whereas high wealth households prefer to live in a world with the subsidy. This can be explained by the fact that low-wealth households hold little or no housing, and thus do not benefit from the subsidy, as compared to high wealth households that have large homes and mortgages.

Of course you can always read the paper and decide for yourself. I didn’t need to work out all the equations to prove that Fannie and Freddie have been a massive regressive theft from all of us to a narrow segment of higher-income homeowners (and bankers)."