Thursday, September 30, 2010

The US Economic Recovery Is Worse Than Other Countries

From "Echoes of the Great Depression" by Phil Gramm:
The chart nearby compares total 2007 employment levels in the United States, the United Kingdom, the 16 euro zone countries, the G-7 countries and all OECD (Organization for Economic Cooperation and Development) countries with those of the second quarter of 2010. There are 4.6% fewer people employed in the U.S. today than at the start of the recession. Euro zone countries have lost 1.7% of their jobs. Total employment in the U.K. is down 0.6%, G-7 average employment is down 2.4%, and OECD employment has fallen 1.9%.

Most striking about these comparisons is their similarity to the U.S. experience in the Great Depression. Using data from the League of Nations' World Economic Survey, we can look at unemployment in developed nations between 1929 and the end of 1938. Ten years after the stock market crash, total employment in the U.S. was still almost 20% below the pre-Depression level. The decline in France was similar. But in the U.K. and Italy, total employment was up 10% and 12%, respectively. Industrial production on average in the six most developed countries was almost 16% above their 1929 levels by the end of 1938, but industrial production had declined by 20% in the U.S.

Today's lagging growth and persistent high unemployment are reminiscent of the 1930s, perhaps because in no other period of American history has our government followed policies as similar to those of the Great Depression era. Federal debt by the end of 1938 was almost 150% above the 1929 level. Federal spending grew by 77% from 1932 to 1934 as the New Deal was implemented—unprecedented for peacetime.
Read the complete article here.

Jevons Effect In Action: US Homes Use Same Per Capita Energy As In 1971

From "Are American homes more energy efficient? Not exactly." by David A. Fahrenthold, Washington Post Staff Writer, Thursday, September 30, 2010:
The amount of energy that the average American requires at home has changed little since the early 1970s -- despite advances in technology that have made many home appliances far more energy efficient.

Dishwashers use 45 percent less energy than they did two decades ago, according to industry data. Refrigerators use 51 percent less.

But on a per-capita basis, Americans still require about 70 million British thermal units a year to heat, cool and power their homes, just as they did in 1971. (One BTU is the energy required to heat one pound of water one degree Fahrenheit.)
Read the complete article here.

Using the same or more energy as energy efficiency increases instead of less is known as the Jevons Effect or Jevons Paradox. An economist William Jevons noticed in 1865 that as coal technologically improved the efficiency of coal, more coal was used instead of less. Sometimes, the Jevons Effect is called the Rebound Effect.

Wednesday, September 29, 2010

3 Possible Future US Economic Scenarios Highlighted By Dallas Fed Bank Economists

Economists at the Federal Reserve Bank Of Dallas highlight three general scenarios that the US economy could follow in these unusually uncertain economic times.

From "Oh, the Places We’ll Go: Three Scenarios for Economic Trajectory" by Tyler Atkinson and David Luttrell:
The recent recession proved to be one of the largest setbacks to U.S. output and the largest contraction in employment in the post–World War II era. After starting strong, the subsequent recovery has begun to show signs of slowing down, with second quarter 2010 real gross domestic product (GDP) growing at a revised 1.6 percent annualized rate. While the recovery has exhibited an overall growth rate that would be acceptable during normal periods of growth in the business cycle, one would expect more robust growth at the current phase of recovery given the magnitude of the recession. In fact, stronger growth is required if the U.S. economy is to return to its prerecession path of output growth (Chart 1).
While the economic outlook is unusually uncertain, there are three general scenarios that the economy could follow.
Read the Atkinson and Lutrell's complete article about the trajectory of US growth here.

Tuesday, September 28, 2010

Initial Low BP Oil Leak Estimates Did Not Affect Response

From "Poor initial Gulf spill numbers did ‘not impact’ response" by Janet Raloff in ScienceNews:
In the early weeks after the catastrophic blowout of the deep-water well in the Gulf of Mexico this spring, BP — the well’s owner — provided the government dramatically low estimates of the flow rate of oil and gas into the sea. Did telling Uncle Sam and the public that the flow rate was 1,000 barrels per day and later 5,000 barrels per day — when the actual rate was closer to 60,000 barrels per day — affect the spill’s management?

“The answer is no,” said Thad Allen at a September 27 meeting in Washington, D.C., of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. Allen, who recently retired from the Coast Guard, was its commandant during the early days of the spill. He assumed command of the spill's management on day one.
Read the complete article here.

Monday, September 27, 2010

Chris Christie's Belt Tightening Plan For NJ

From "Christie: Jersey superstar" in the New York Post:
He wants to raise the normal retirement age for teachers and most state and municipal workers to 65, requiring 30 years service for early retirement instead of 25. Police would have to work 30 years for full retirement, but could retire early with reduced benefits.

He also wants public employees to:

* Contribute 8.5 percent of their salaries toward their pensions.

* Start paying 30 percent of the cost of their health premiums.

* Accept the rollback of a 9 percent raise in pension benefits granted in 2001 -- an increase he admits was put into place by Republicans, who "shouldn't have done it in the first place."
Read the complete article here.

Sunday, September 26, 2010

High School Dropout Signaling Model

A comment I posted on EconLog, "Educational Signaling and Statistical Discrimination" by Bryan Caplan:
Any signaling model of education has to explain the very low comparative unemployment rate for Asian high school dropouts.

Blacks, Hispanics and Whites all show downward sloping unemployment rates as education levels increase. Asians show a relatively flat, low unemployment rate for all educational levels.

Asian high school dropouts have an unemployment rate that is 40 percent of Blacks and 60 percent of Hispanics and Whites' high school dropout unemployment rates.

See unemployment chart towards end of article on the Chronicle of Education, "Education Pays, but How Much?" by Beckie Supiano at the following web link:

Furthermore, there are two types of high school dropouts. Those that upon entering high school are expected to graduate and those that upon entering are expected to dropout.

The expected to dropout group obviously have predictive negative characteristics of a high school dropout, alcohol and drug abuse and/or behavioral problems, which make them potentially and likely poor workers.

The expected to graduate group dropouts for non-predictive reasons, such as an unexpected loss of emotional or economic parental support, would make good, cheap workers. One would think the employment market would find a way to identify this subgroup. Whether Asians are the market response to signaling, I do not know since I have not seen data on Asian high school dropout characteristics. Asians generally have the lowest dropout rate of the ethnic groups.

Also, although I cannot find a link, European dropouts who come to the US do very well finding jobs that pay well. The reason often stated for the success of European high school dropouts is that in Europe they do not dropout due to drug use, alcohol abuse, teen pregnancy or behavioral problems as is common in the US for high school dropouts.
Also see my earlier post, "The Unemployment Rate For Asian High School Dropouts Is 40 To 60 Percent Lower Than Other Racial Groups."

People Are Mad About MADD

From "Anti-drinking activists drunk with power" by Eric Scheie on Classical Values blog:
When I was awakened early this morning, I made the mistake of turning ... on C-SPAN, thinking that boring speeches would do the trick.

Big mistake. Instead of boring speeches, I was greeted by passionate, in-your-face activists from M.A.D.D.[Mothers Against Drunk Drives] The hard core of that organization consists mostly of people who have lost a family member because of an accident with a drunk driver, and who have clearly sublimated the normal grief which accompanies the death of a loved one into political activism. They think that their loved ones died because of lax laws, and they press for endlessly tougher laws, which they claim will stop drunk driving.

M.A.D.D. activists are now pushing to make drunk driving a felony, and to lower the blood alcohol level standard for DUI from .08 (already lowered from .10 thanks to MADD activists) down to .04.

.04 is the BAC [Blood Alcohol Content] you'd get from a glass of wine.

It doesn't take much imagination to see that this would create a gigantic new group of felons.

Now, I do not defend drunk driving. But the direction in which this hysteria is going -- making driving after a glass of wine with dinner a felony -- is simply an outrage. This isn't a crackdown on drunk driving; it is neo-prohibitionism.

The M.A.D.D. speakers were also calling for a return to the 55 mph speed limit, because drunk drivers are said to be much more dangerous at high speeds. Saying that because drunk drivers are more dangerous at higher speeds no one should be allowed to drive at high speeds makes about as much sense as saying that because drunk drivers are dangerous in cars, no one should be allowed to own a car. In typical nanny state fashion, this would punish the many for the crimes of the few, and another example of the national kindergarten mentality I have complained about till I'm blue in the fingertips. Also, this argument makes the ridiculous assumption that drunk drivers (who are already violating the law by drinking and driving) will somehow be law-abiding and not exceed the speed limit. (Right. Like criminals planning armed robbery or murder will nonetheless be deterred by gun control laws.)
Read the complete blog post here.

Nobody, including myself, wants drunk, distracted, drugged drivers driving cars on the road, but nobody wants to make a felon out of someone who has one glass of wine and was stopped by the police because his license plate light was out and gets arrested for drunk driving as a felon.

Saturday, September 25, 2010

Consumers May Be Paying Off Debt And Saving Much Less Than Believed

From "Bank Losses Lead to Drop in Credit Card Debt" by Christine Hauser in The New York Times:
The substantial drop in credit card debt in the United States since early 2009 has been widely attributed to newly frugal consumers. But analysts say that a significant portion of the decline is actually the result of financial institutions writing off billions of dollars in credit card debt as losses.
Not mentioned in the article, banks are also writing off mortgage debt. Consumers may not be saving as much during this recession as many economists and the press have stated.

Friday, September 24, 2010

Colbert's US House Testimony On Migrant Farm Labor

Surprisingly, Stephen Colbert offers, towards the end of his testimony, a reasonable solution to the problem of illegal farm workers in the US.

Grant more visas to these farm immigrants so that they have legal status in the US. With legal rights, the workers will be able to complain about poor working conditions and low pay without fear of deportation or imprisonment. Better working conditions and higher pay might attract more American workers to these jobs.

Watch the video of his testimony below.

Thursday, September 23, 2010

Legislating Is Not An Achievement

A Cafe Hayek, Don Boudreaux quote I like:
Enacting legislation is neither an "achievement" nor an "accomplishment" that, standing alone, deserves credit. To think otherwise is akin to thinking that a rain-dancer deserves credit for performing his fancy ritual even if afterward the crops continue to wilt because the drought persists.

Elizabeth Warren's Audio Interview On NPR: Does The Lady Know Whence She Speaks?

Yesterday, NPR's Robert Siegel of All Things Considered, interviewed Elizabeth Warren, the new de facto head of the new Consumer Financial Protection Bureau. President Obama bypassed her confirmation hearing by appointing her as an "Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau."

After listening to her responses as to why the President bypassed the confirmation process and what her agency can do to help banking consumers, I lost a lot of respect for her and I question her ability to be an effective head of the CFPB.

Warren says in her interview that bypassing confirmation was done to speed her ability to help consumers. She said that if she had to go through a confirmation process to become head of the CFPB:
...I could not have worked on the agency for months and months, possibly over a year. ... So the question was, would the president nominate me [as director] and sort of put me in a pumpkin shell for a while, or could I get started to work immediately? And my own enthusiasm was, I'd really like to get to work right now.
Also in the interview, Warren cited making credit-card agreements simpler for people to understand as a benefit of her agency: have two pages, that's the whole credit card agreement. The terms are clear and flat and easy to see so anyone can read them. So you could lay four credit cards in front of you and say, "Oh, that's the one that has the highest rate, that's the one that has the really scary provision that could hurt me." Now you get a market that starts to work again so consumers can make better choices.
Does anybody really believe that the confirmation process was avoided to speedup the availability of her agency's help to consumers or that her agency, or any government agency, will foster a better market process through extensive regulation and interference.

Secondly, the reason credit card agreements are so complex is because they contain many regulatory required provisions and the exact wording is often set by law or regulation.

As for a simple to understand, comparative sheet of credit card terms, the various federal banking agencies, FDIC, OCC, Federal Reserve, the former OTS, and occasionally the FTC, had the power individually and certainly together, through information sharing, to issue consumer information about every bank's credit card offer terms and conditions on a government website or in a government publication in a very simple to understand format.

Nothing stopped these federal agencies from providing banking consumers with individual credit card information except their own reluctance and ineffectiveness. A simple reprimand from Congress, without new legislation, would have gotten the agencies to provide the consumer information she touts as a benefit of her new agency without the necessity of creating a new federal bureaucracy and a new government agency head.

Listen to the complete 6 minute interview of Warren here, below or download to a portable listening device and draw your own conclusions about Warren.

Women Stand To Lose The Most Care Under Obamacare

Since comparative medical effectiveness studies (see excerpts from NY Times article below) show that mammograms are not a useful preventive care medical diagnosis tool, is there any doubt that if ObamaCare would not pay for a woman's mammogram, the law would not pass today, unless it had an exception to allow for the payment of mammograms.

If you will have to put a special provision in the law to pay for mammograms, what other commonly accepted treatments and diagnosis tools will be eliminated.

Women as a group are the biggest users of medical care in the US. The treatment that they are used to receiving and expect to continue to receive under ObamaCare is the medical care most threatened by the new law. Many common procedures from mammograms to Papp smears to regular gynecological visits will be subject to more and more medical effectiveness studies. More and more of what a women considers basic medical care will be at risk and many commonly expected procedures will be found comparatively unnecessary as the new law is phased in.

From The New York Times article, "Mammograms’ Value in Cancer Fight at Issue" by Gina Kolata:
A new study suggests that increased awareness and improved treatments rather than mammograms are the main force in reducing the breast cancer death rate.
Nonetheless, the new study is “very credible,” said Dr. Barnett Kramer, associate director for disease prevention at the National Institutes of Health.

"This is the first time researchers used real populations to compare the effects of treatment and mammography in the modern era of treatment," Dr. Kramer said. "It shows the relative impacts of screening versus therapy in an era in which therapy has been improving."
That means, Dr. H. Gilbert Welch of Dartmouth wrote in an additional analysis in an accompanying editorial, that mammography could have reduced the breast cancer death rate by as little as 2 percent, an amount so small that it is not really different from zero.

Two percent is an estimate, Dr. Welch said. But, he said, whatever the effect of mammograms is, "all the signals here are that it is much smaller than we believed."

Dr. Laura Esserman, a professor of surgery and radiology at the University of California in San Francisco, said it tells her that "if you get the same treatment and the outcome is the same if you find it earlier or later, then you don’t make a difference when you find it early."

And screening has a cost, Dr. Welch said. Screening 2,500 50-year-olds for a decade would identify 1,000 women with at least one suspicious mammogram resulting in follow-up tests. Five hundred would have biopsies. And 5 to 15 of those women would be treated for cancers that, if left alone, would have grown so slowly they would never have been noticed.

When the study was planned, the scientists expected that screening would be even more effective than it was in studies from decades ago. After all, mammography had improved and, in Norway, each mammogram was independently read by two radiologists, which should make it less likely that cancers would be missed. The researchers expected mammograms to reduce the breast cancer death rate by a third.

Video: Improving SEC Performance: Senate Banking Hearing

The archived video (1 and 1/2 hour) of the Senate Banking Hearing, "Oversight of the SEC Inspector General’s Report on the ‘Investigation of the SEC’s Response to Concerns Regarding Robert Allen Stanford’s Alleged Ponzi Scheme’ and Improving SEC Performance" Wednesday, September 22, 2010, 10:00 AM - 12:30 PM.

The full 1 and 1/2 half hour Senate hearing video is available here.

Weblinks to the written prepared testimony are available here.

The Wall Street Journal is reporting that the SEC Inspector General H. David Kotz testified about the SEC's timing of the Goldman Sachs' lawsuit:
On the same day [as the Goldman Sachs' lawsuit], the SEC released a scathing report by Mr. Kotz that concluded the agency had repeatedly missed chances to detect an alleged $7 billion fraud run by R. Allen Stanford, a money manager indicted by a federal grand jury last year. Mr. Stanford denies wrongdoing.

At a Senate Banking Committee hearing Wednesday, Mr. Kotz was questioned about the timing of the Goldman suit. He responded: "It would strain credulity to think it was coincidental." He added: "I can't give you a conclusion right now, but it was suspicious."
The full Wall Street Journal article, "SEC Blasted on Goldman: Suit's Timing 'Suspicious,' Watchdog Says; Heat on Agencies as Crisis Cases Lag" is available here.

Wednesday, September 22, 2010

Public Sector Unions Have Excessive Powers

From the excellent and comprehensive National Affairs article, "The Trouble with Public Sector Unions" by Daniel Disalvo:
When it comes to advancing their interests, public-sector unions have significant advantages over traditional unions. For one thing, using the political process, they can exert far greater influence over their members' employers — that is, government — than private-sector unions can. Through their extensive political activity, these government-workers' unions help elect the very politicians who will act as "management" in their contract negotiations — in effect handpicking those who will sit across the bargaining table from them, in a way that workers in a private corporation (like, say, American Airlines or the Washington Post Company) cannot. Such power led Victor Gotbaum, the leader of District Council 37 of the AFSCME in New York City, to brag in 1975: "We have the ability, in a sense, to elect our own boss."
By contrast, as economist Richard Freeman has written, "public sector unions can be viewed as using their political power to raise demand for public services, as well as using their bargaining power to fight for higher wages." The millions spent by public-employee unions on ballot measures in states like California and Oregon, for instance, almost always support the options that would lead to higher taxes and more government spending. The California Teachers Association, for example, spent $57 million in 2005 to defeat referenda that would have reduced union power and checked government growth. And the political influence of such massive spending is of course only amplified by the get-out-the-vote efforts of the unions and their members. This power of government-workers' unions to increase (and then sustain) levels of employment through the political process helps explain why, for instance, the city of Buffalo, New York, had the same number of public workers in 2006 as it did in 1950 — despite having lost half of its population (and thus a significant amount of the demand for public services).
Read the complete National Affairs article here.

Clearly, there is a need to reform and restrict the bargaining powers of public sector unions and their influence on the political process.

Tuesday, September 21, 2010

We Do Not Know How to Improve Student Education Levels And High School Graduation Rates

A comment I posted to the Wall Street Journal opinion piece, "A Teacher Quality Manifesto" by Deborah Kenny:
In k-12 education, just about every variable, class size, teacher subject matter education level, dollars spent per pupil, availability of classroom technology, years of teacher experience, etc., unbiased controlled studies find either no effect or a minimal effect on student educational performance in the major subject matters tested, reading and arithmetic and dropout rates.

Even things like parent participation in the schools do not matter. For example, Asians on average outperform in school yet have low levels of parent school participation.

Everybody has a fix for the high US high school dropout rate and the low student performance on standardized math and reading tests. One year it is a nutritional breakfast, another year, it is increased parent involvement in schools. There is always some idea that seems to generate a lot of buzz as the solution to our education problems. Currently, it is charter schools.

Just about everything has been tried and while there are always isolated examples of where 'something' seems to work, that 'something' does not work when applied broadly to a large number of schools with a diverse student population.

There are many things that different parent groups do not like about the education system, such as unions, tenure, teacher pay (too high, too low), too bureaucratic, teacher skill level, length of school day, etc., but in many ways these things are like a surgeon's bedside manner. We may or may not like things about our teachers and our school systems, but like a great surgeon's bad bedside manner, it does not mean anything about results.

The fact of the matter is that despite years of throwing billions of dollars at schools, teachers and studies of student performance, we are clueless as to what will significantly increase the learning and graduation rates of our students. Most studies or education experiments produce small, if any, improvements. The magic cure to fix our educational system is undiscovered.

There are obviously broad differences in test results, high graduation rates and college attendance rates among different school systems in the US. We know from experience that whatever we do at the teacher, school and school system levels will not make poorly performing schools perform substantially better, as measured by graduation rates, or standardized test results.

If any method used in the US were a clear-cut success, a large number of our nation's schools would adopt it with very visible positive student results. It does not exist. Given how much money we spent on schools and education research, the magic fix probably does not exist.

Yes, it would be nice to increase the high school graduation rates and increase the levels of student performance on standardized tests. The problem we face is that we truly do not know how.

The Unemployment Rate For Asian High School Dropouts Is 40 To 60 Percent Lower Than Other Racial Groups

The above chart is from the College Board via The Chronicle of Higher Education.

Notice how much lower the unemployment rate for Asian high school dropouts is than for any other racial group. For Asians, the unemployment rate in 2009 for high school dropouts is 8.4%. For the other racial groups, the high school dropout unemployment rate ranges from 13.7% to 21.3%.

In addition to promoting increased education levels of US workers, a study should be undertaken to see what can be learned from Asians' low unemployment rate for high school dropouts, and whether there is useful information that can be applied to the other racial groups to lower their high school dropout unemployment rate.

Maybe some of the employment benefits obtained from education can be applied to high school dropouts without increasing their education levels.

Recession Over But Employment Depression Continues

There is a maxim that when your neighbors lose their jobs, it is a recession. When you lose your job, it is a depression.

Despite NBER's declaration that the recession ended June 2009, the job market has not recovered. Unemployment still hovers around the 9.5 percent mark and the number of employed is still millions below the peak of the pre-recession levels with millions of long-term unemployed.

US Illegal Immigrants Are 4% Of US Population But Have 8% of Newborns

From Pew Research, "8% - U.S.-Born Children of Unauthorized Immigrants:"

...while a little more than 4% of the U.S. adult population is composed of unauthorized immigrants, their children make up 8% of newborn population. Additionally, 7% of the overall child population (those younger than age 18) in the U.S. are the children of unauthorized immigrants.
The entire article, "Unauthorized Immigrants and Their U.S.-Born Children" by Jeffrey S. Passel, Senior Demographer, and Paul Taylor, Director, Pew Hispanic Center is available here.

Misunderstood Finance Ranked Top 50th Economics Blog By PostRank

This blog, Misunderstood Finance, is ranked in the top 50 in economics blogs by PostRank.

Sinai Calls For US Capital Gains Tax Cut To Boost Economy

From The Wall Street Journal opinion piece, "Cap Gains Taxation: Less Means More: A new study suggests a zero cap gains rate could create millions of jobs at a fraction of the cost of the spending stimulus" by Allen Sinai:
Capital gains taxation is one area in which lawmakers can help jump-start the economy. Capital gains tax rates for taxpayers in the top four income brackets are set to move higher in a few months. My [Allen Sinai] new study, "Capital Gains Taxes and the Economy," published this week by the American Council for Capital Formation, shows that the net effect of lower capital gains taxation is a significant plus for U.S. macroeconomic performance.
Allen Sinai is chief global economist, strategist and president of Decision Economics Inc.

Wall Street Journal online subscribers can read Sinai's complete opinion piece here.

Monday, September 20, 2010

Much Of Income Inequality Disappears With Adjustments For Different Inflation Rates For Upper And Lower Income Groups

A research paper, "The Welfare Implications of Rising Price Dispersion" by Christian Broda, University of Chicago, GSB and John Romalis, University of Chicago, GSB, finds that US income inequality measures are distorted by different inflation rates for upper and lower income groups. Upper income groups face higher inflation rates and therefore when accurate adjustments are made to real dollars, a substantial part, if not all, of income inequality between the upper and lower income groups disappears.
From the Broda and Romalis' paper:
Using scanner data on household consumption of non-durable goods between 1994 and 2005, we document that the relative prices of low-quality products that are consumed disproportionately by low-income households were falling over this period. This implies that non-durable inflation for the 10th percentile of the income distribution has only been 4.3 percent between 1994 and 2005 (0.4 percent per annum), while the non-durable inflation for the 90th percentile has been 11.9 percent (1.0 percent annually), and 13.4 percent (1.2 percent annually) for the richest 5 percent of households in the sample. Over the period 1994 – 2005, the conventionally measured ratio between real household income at the 90th and 10th percentile rose by 5.7 percent (0.5 percent per annum) and the 95th/10th ratio rose by 7.5 percent (0.7 percent per annum). This suggests that the inflation differential in non-durable goods (around 30 percent of total consumption) is enough to offset almost 40 percent of the rise in both of these inequality ratios over this period. In the case of other common inequality measures, the 80/20th and 95/20th income ratios, the non-durable inflation differential is enough to offset over 80 percent and 50 percent, respectively, of the rise in these indicators. Moreover, we provide evidence that suggests that the increase in price dispersion is not limited to the products in our sample nor to our time period. If differences in income-group specific inflation rates in our sample are representative of the broader economy, then real income growth in the US has been much more substantial and equal than suggested by standard measures. In that case, “real” inequality may have actually fallen between 1994 and 2005.
Read the entire research paper here.

Is The Answer To Global Warming The Growing And Storage Of Green Plant Matter?

From "Could the garbage heap help save us from global warming?" by Hugh Price, Washington Post, September 18, 2010:
With an overabundance of carbon dioxide in the atmosphere, it is reasonable to ask, "Where are the plants?" Why hasn't the Earth's vegetation grown larger and faster to absorb the additional CO2? The answer is that it probably has. Some of the 20th century's improvement in crop yields may be due to higher concentrations of CO2 in the atmosphere. Nevertheless, eventually those plants die or are eaten, returning their carbon to the atmosphere. To remove CO2 from the atmosphere, the plant material has to be prevented from decomposing.
In 2009, the combined U.S. production of corn, wheat and soybeans was 487 million metric tons. That production measures the usable part of the plants. It is reasonable to believe that there is at least as much material in unused stalks and leaves. If just this material were stored rather than burned or plowed under, it could compensate for almost a quarter of the U.S. carbon footprint. The Mountaineer Power Plant could match the captured carbon of its high-tech approach by piling up the plant waste from 12,000 acres of farmland, at a tiny fraction of the cost.
The biggest problem with this approach may be that it's so low-tech. No green-technology subsidies are required, so there may not be a natural constituency for it. On the other hand, environmentalists should love it. What could be greener than growing plants? And for those concerned about the economy, this approach provides a low-cost method of reducing the country's carbon footprint without increasing the cost of energy. It is also reversible. If current concerns about CO2 concentrations turn out to be unwarranted, the stockpiled material will be readily available for use. What could be simpler?
Read the complete Washington Post article here.

Saturday, September 18, 2010

Traffic Lights That Act Locally Improve Traffic Globally

Traffic lights that act locally can improve traffic globally, new research suggests. By minimizing congestion, the approach could save money, reduce emissions and perhaps even quash the road rage of frustrated drivers.

The new approach makes traffic lights go with the flow, rather than enslaving drivers to the tyranny of timed signals. By measuring vehicle inflow and outflow through each intersection as it occurs and coordinating lights with only their nearest neighbors, a systemwide smoothness emerges, scientists report in a September Santa Fe Institute working paper.
From ScienceNews "To tame traffic, go with the flow: Lights should respond to cars, a study concludes, not the other way around" by Rachel Ehrenberg, Web edition, Friday, September 17th, 2010.

Friday, September 17, 2010

Reduce Poverty: Remove Work Disincentives From Government Entitlement And Transfer Programs

A response I wrote to a Wall Street Journal opinion, "Wealth and Poverty: How's that inequality thing working out?" published on September 17, 2010:
The article actually explains a lot about why inequality and poverty exists in the US in mentioning that the Census data overstates poverty because it excludes noncash government payments like housing subsidies, food stamps, the earned income tax credit or entitlements like Medicaid.

The strategy of the US response to poverty, at least since the end of WWII, is to transfer payments to the poor and needy through subsidies and entitlements. Transfer payments and entitlement programs do not promote the principles for success in the US.

Success in the US requires hard work, education, motivation, skills and good work habits. Transfer payments promote dependency, reduce motivation and interfere with skill development. Transfer and entitlement payments have income eligibility cutoffs, which act as a large marginal tax increase and motivate people to avoid generating income to lose the government income. All government entitlement and transfer programs have some eligibility requirement or unintended consequence that works against successful achievement. It can be the previous single parent requirement for government benefits for a child, which broke up families and removed fathers from homes, or income eligibility requirements for lunch programs and food stamps, which forces families close to the cutoff income level to choose between earning more money and feeding their children nutritionally.

Similarly, the minimum wage laws prevent many unskilled workers below the poverty level from developing good work habits and needed job skills because they remain unemployed. It is too costly for employers to hire and train these unskilled workers at minimum wage levels. At the same time, all across the US, middle and upper income kids can learn valuable job skills as interns without pay because it is educational, but training an unskilled employee requires minimum wage.

The best way to reduce poverty in the US is to review and eliminate all the disincentives to full time work skill development our transfer and entitlement programs have in them. Some programs need to be eliminated and others need to be modified. For example, unemployment insurance acts both as a needed safety net in time of unemployment and as a disincentive to finding work while there are remaining benefits. Modify the unemployment program to act as an incentive to find work by allowing the benefits to be continued (at a reduced level) after one finds a new job so one is better off working with unemployment benefits than either not working or working without benefits.

Some of our poverty and lack of workforce skill training (which increases poverty) is the result of the unintended disincentives in place in many transfer and entitlement programs.

Many of the governments new programs to help families during this recession, such as the recent housing foreclosure prevention programs, contain requirements that act as disincentives to working or making more money above eligibility levels.

Remove from all transfer and entitlement the disincentives for work and skill training and the economy will grow, poverty will decline and household income will increase.
Read the complete Wall Street Journal opinion piece here.
If the full Wall Street Journal opinion is unavailable at the previous links, try this link. It may help.

Supersymmetric Particle Price Higher Than Higgs Boson On Intrade

The current price on Intrade for the observation of supersymmetry particle before December 31, 2013 is now higher than the Intrade price for the observation of a Higgs Boson particle.

The supersymmetric particle observation price is 21.2. The Higgs Boson particle observation price is 15.

Someone obviously believes there is a 41 percent greater chance of finding a supersymmetry particle before December 31, 2013 than there is in finding a Higgs Boson.

Fed Economists Refute Lewis' Book: The Big Short

Paul Willen, research economist and policy adviser at the Boston Fed, with Boston Fed economist Christopher Foote and Atlanta Fed economist Kris Gerardi, refute the claims made in the best selling book, "The Big Short" by Michael Lewis:
In this post, we focus on the logic of the "sure thing" claim, which is that the subprime bears were exploiting the ignorance of the subprime bulls. The idea that subprime bulls were ignorant is central to the thesis of the book, because it explains both why investors made such huge errors and why it was possible for the subprime bears to exploit, with little risk, the collapse of the mortgage market.

Lewis argues that the ignorance of the subprime bulls resulted from a combination of laziness and obfuscation by issuers of the securities they were buying. We argue, however, that the evidence, including some in the book itself, shows this claim to be patently incorrect. Issuers provided staggering amounts of information about mortgage securities and there was a whole industry of analysts on Wall Street who pored over that data and published literally thousands of reports.
Read "A closer look at Michael Lewis's 'The Big Short' ", the complete Federal Reserve Bank of Atlanta article here.

CBO Elmendorf: Presentation to Macroeconomic Advisers: Fiscal Policy Choices in Uncertain Times

From CBO Director Doug Elmendorf's presentation to Macroeconomic Advisers, "Fiscal Policy Choices in Uncertain Times" on September 16, 2010:
  • The economic recovery will probably proceed at a modest pace—leaving total output well below its sustainable level, and the unemployment rate well above its sustainable level, for a number of years.

  • In CBO’s judgment, the available monetary and fiscal tools, if applied at sufficient scale, would improve economic conditions during the next few years—though with costs and risks in the medium and long term. Policymakers need to address those trade-offs.

  • To avoid worsening the medium-term and long-term imbalance between federal spending and revenue, any policies that widened budget deficits in the near term would need to be accompanied by specific polices to reduce spending or increase revenue over time.
Read the CBO director's complete presentation here or below.
Elmendorf Fiscal Policy Choices in Uncertain Times

Thursday, September 16, 2010

Lifestyle Comment To TIME Post On Increasing Poverty

A comment I posted on the Curious Capitalist blog on, "Why Are a Record Number of Americans Living in Poverty?" by Stephen Gandel:
Income inequality has nothing to do with the point of your article about the increase in poverty. According to same GINI census data,,
(see pdf page 15, or document page 13), the 1967 GINI was also .37. So over 43 years, inequality as measured by GINI increased by 22 percent, as poverty has generally declined in the US.

Until this recent recession, poverty in the US has been declining. As you correctly point out, the extended amount of unemployment and the lack of jobs are causing the increase in poverty.

The increase in the GINI index since the early 1980s is directly related to the changing nature of the household and the decrease in the average number of people per household.

The census GINI numbers are measured per household. With the increase in divorce, out of wedlock births by adults and the resulting increase in single parent households, naturally household GINI inequality measures will increase. A substantial part of the increase in household GINI is a cultural phenomenon having nothing to do with the increasing income of the upper ten percent.

The increase in single wage earner households, and single working mothers due to divorce and out of wedlock births has led to an increase in GINI and stagnation in household and per capita income.

It easy for the press to blame and insinuate that the increase in income inequality is due to the increasing income and income share of the wealthier US households. If there were fewer single parent households and fewer divorces, the income of the middle and lower tier of households would also have increased and GINI would have decreased.

Divorced women and single parent mothers are most likely poor as are their children. It has always been the case, and there increasing numbers, increases childhood poverty rates and the overall poverty rates. The poverty rate for a female householder without a husband present is close to 40 percent, according to the US Census Bureau.

Our lifestyle explains more about our overall poverty rates then does any GINI index that measures income inequality between the upper 10 percent and the lower 10 percent.

Almost Half The US Receives Entitlement Benefits

From The Wall Street Journal article, "Obstacle to Deficit Cutting: A Nation on Entitlements" by Sara Murray:
As recently as the early 1980s, about 30% of Americans lived in households in which an individual was receiving Social Security, subsidized housing, jobless benefits or other government-provided benefits. By the third quarter of 2008, 44% were, according to the most recent Census Bureau data.

That number has undoubtedly gone up, as the recession has hammered incomes. Some 41.3 million people were on food stamps as of June 2010, for instance, up 45% from June 2008. With unemployment high and federal jobless benefits now available for up to 99 weeks, 9.7 million unemployed workers were receiving checks in late August 2010, more than twice as many as the 4.2 million in August 2008.
Still more Americans—19 million by 2019, according to the Congressional Budget Office—will get federal aid to buy health insurance when legislation passed this year is implemented.

Wednesday, September 15, 2010

History Shows Cutting Spending And Taxes Spurs Economic Growth

From The Wall Street Journal article, "Tax Cuts vs. 'Stimulus': The Evidence Is In: A review of over 200 fiscal adjustments in 21 countries shows that spending discipline and tax cuts are the best ways to spur economic growth." by Harvard Economics Professor Alberto Alesina:
Politicians argue for increased stimulus spending, as opposed to spending cuts, on the grounds that it would speed up economic recovery. This argument might have it exactly backward. Indeed, history shows that cutting spending in order to reduce deficits may be the key to promoting economic recovery.
Economic history shows that even large adjustments in fiscal policy, if based on well-targeted spending cuts, have often led to expansions, not recessions. Fiscal adjustments based on higher taxes, on the other hand, have generally been recessionary.
The evidence from the last 40 years suggests that spending increases meant to stimulate the economy and tax increases meant to reduce deficits are unlikely to achieve their goals. The opposite combination might.
Read the complete article here. If the entire article is not available, try this link.

Tuesday, September 14, 2010

Friday, September 10, 2010

Goolsbee, Supply-Side, Income And Wealth Effects

A comment I posted on Rortybomb, "Goolsbee on Supply-Side and Subprime" by Mike Konczal:
The rise in executive and high-income compensation mentioned in 2 and 3 is in large part due to the sharp rise in the stock market as pay shifted from salary to stock incentives and stock options, starting around 1980 as more income was generated from stock investments than salaries. An effect of a tax law change itself.

To make statements about effects of marginal tax cuts on high-income earners, studies have to separate the effects of taxes on stock compensation (options, etc.) and wages.

They studies do not. For example, the timing switch mentioned in three is in part a decision about when to recognize the wealth gain in stock option compensation. The proper question is not when an executive converts the investment and pays taxes on it. Of course, a rational executive will pick a lower tax year. The studies fail to recognize that the wealth, the appreciation in the stock price, has already occurred and exists independent of its conversion into a taxable event.

The more relevant questions is to what extent did tax policy aid or hinder that stock’s appreciation and do corporations adjust their incentive compensation policies to offset expected tax effects. If corporations adjust future realized compensation for expected tax changes, then of course, corporate income also changes in an opposite direction to gross income to keep after tax income level.

Over the period from Kennedy to Bush, the tax laws increased relating to exceeding a maximum executive compensation level. The consequence was that the amount of executive compensation paid as stock options, etc. increased tremendously.

To make a positive, negative or neutral statement about marginal tax rates on high-income taxpayers, the studies have to distinguish tax effects on wages versus wealth creation (which can occur without recognized taxable income) versus stock market effects.

High wealth and high-income effects are not synonymous and different taxes have different effects on these two components.

There is still a lot of research needed to answer the questions about the effect of marginal tax rates. Yes, a lower marginal tax rate speeds up income recognition. The more relevant, important and difficult question is did the decrease in marginal tax rates contribute to the increased wealth that was recognized in the earlier period?

A paper than definitively answered positively or negatively the supply side effect of marginal tax cuts would have to look both at income and wealth increases (decreases) due to marginal tax cuts.

Looking at either wealth or income creation separately cannot answer the question about marginal tax effects. Both components need to be considered at the same time.