Monday, February 28, 2011

Ineffective Educational System Responsible For Increasing US Wage Inequality

From "The Wage Premium Puzzle and the Quality of Human Capital" by Milton H. Marquis, Florida State University, Bharat Trehan, Federal Reserve Bank of San Francisco, and Wuttipan Tantivong, Department of Labor, Thailand, February 2011, Working Paper 2011-06:
The wage premium in the United States, which can be defined as the ratio of the wages paid to high-skilled workers relative to wages paid to low-skilled workers, underwent dramatic changes during the 1980s....using two separate data sources: the CPS May/ORG and the State of Working America....the data can be be broken down into three separate periods, characterized as low, transition, and sources suggest a low wage premium period from 1973 to 1980, with the 90-10 wage premium approximately equal to 3.45 and 3.62 respectively. The next few years can be regarded as a transition period. The CPS May/ORG suggests this period extended from 1981 to 1985 while the State of Working America suggests it extended from 1981 to 1988, with the average 90-10 wage premium equal to 3.98 and 4.08, respectively. For the high wage premium period, CPS May/ORG indicates a period from 1986 to 2005 and State of America from 1989 to 2005, with the average 90-10 wage premium equal to 4.36 and 4.35, respectively.
...relatively small changes in the skill distribution can have large effects on the wage premia. Such factors could include immigration, population growth, or deficiencies in the educational system in failing to provide job-relevant training. [Emphasis added]
The complete research paper is available here.

Sunday, February 27, 2011

Will The Rise In Oil Prices Lead The US Into Another Recession?

From "Oil Prices and Recessions, 40 Years’ Worth" by John Keefe:
Higher oil prices have in the past led the developed economies into recessions...

There’s been an oil spike before every recession. The wiggly line [in the above chart] is the two-year percent change in oil prices. [The shaded blue areas are recessions.]
...note that the doubling [of oil prices] in 2005 didn’t get an immediate recessionary response — but higher gasoline prices will reduce the income people have to spend, and dent whatever recovery is going on in the consumer sector.

Third Of Eligible Voters Pay 97 Percent Of US Income Taxes: Chart Of Income Taxes Paid By Income Group

Chart from the Tax Foundation of the amount of income tax paid by each income group in "Summary of Latest Federal Individual Income Tax Data" by Mark Robyn and Gerald Prante:

Summary of Federal Individual Income Tax Data, 2008
(Updated October 2010)

Number of Returns with Positive AGI
($ millions)
Income Taxes Paid 
($ millions)
Group's Share of Total AGI
Group's Share of Income Taxes
Income Split Point
Average Tax Rate
All Taxpayers
Top 1%

Top 5%

Top 10%

Top 25%

Top 50%
Bottom 50%
Source: Internal Revenue Service

For example, the above Tax Foundation table shows that the top 10 percent in income of taxpayers, those making more than $113,799 per year, paid 70 percent of all individual income taxes. The bottom 50 percent of taxpayers paid only 2.7 percent of US income taxes.

There are about 230 million people in the US over 25 years old and about 190 million between the ages of 25 and 65 years old. In 2008, only 140 million individual returns with positive income were filed, which is pretty close to the number of working individuals.

In 2008, there were about 213 million eligible US voters. Less than 7 percent of eligible voters are paying 70 percent of the US income tax. 33 percent of eligible voters are paying 97 percent of US income taxes.

Saturday, February 26, 2011

The Ignored Early Warning Of 9/11: 18 Year Anniversary Of The First Terrorist Attempt To Destroy The World Trade Center

From The New York Times, February 26, 1993 article about the first terrorist attempt to take down the World Trade Center with a blast that knocked out the police command and evacuation center and was felt a mile away:
The police said the blast killed at least five people and left more than 650 others injured, mostly with smoke inhalation or minor burns, but dozens with cuts, bruises, broken bones or serious burns. The police said 476 were treated at hospitals and the rest by rescue and medical crews at the scene.

The explosion also trapped hundreds of people in debris or in smoke-filled stairwells and elevators of the towers overhead and forced the evacuation of more than 50,000 workers from a trade center bereft of power for lights and elevators for seven hours.

No Bomb Fragments Found

The blast, which was felt throughout the Wall Street area and a mile away on Ellis and Liberty Islands in New York Harbor, also knocked out the police command and operations centers for the towers, which officials said rendered the office complex's evacuation plans useless.
Read the compltete NY Times article of that event here.

With hindsight, you have to wonder if President Clinton's response to the event was adequate.

Friday, February 25, 2011

CBO Economy Outlook Presentation To National Economists Club

CBO presentation to the National Economists Club on the "Outlook for the Economy and the Budget" February 24, 2011:
Outlook for the Economy CBO Presentation to NEC 2-24-11

Wisconsin Teachers' Fringe Benefits Per Dollar Salary Are 3 Times The Private Sector Rate

From The Wall Street Journal, "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 M. Costrell.
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.
Read the complete article here.

Thursday, February 24, 2011

Solar Energy Facing Same Environmental Lawsuits As Non-Renewable Energy

From "Solar Energy Faces Tests On Greenness" by Todd Woody in The New York Times:
Just weeks after regulators approved the last of nine multibillion-dollar solar thermal power plants to be built in the Southern California desert, a storm of lawsuits and the resurgence of an older solar technology are clouding the future of the nascent industry.
Read the complete article here.

Unionized Government Workers Paid 30 Percent More Than Private Sector

From The Wall Street Journal, "The Public Worker Gravy Train: Many government employees are paid up to 30% more than those in the private sector." by Andrew Biggs and Jason Richwine
Overall, our research suggests that government workers in California are compensated up to 30% more generously than are similar employees in large private firms. And the California experience is similar to that of other large states with powerful public unions. Elected officials are right to reassess public worker compensation as they try to close their budget deficits.
Read the complete article here.

Wednesday, February 23, 2011

More Research Finds Tax Increases Cause GDP Declines

From "The Effects of Tax Shocks on Output: Not so Large, But Not Small Either" by Roberto Perotti, February 2011:
typically, a one percentage point of GDP increase in taxes leads to a decline in GDP by about 1.5 percentage points after 3 years.

John List, Economist Who Uses Randomized Controlled Field Experiments Instead Of Mathematical Models

An excellent article about economics professor John List who believes in testing economic and social ideas with randomized controlled study field experiments instead of computer models and lab experiments.

From Bloomberg, "Chicago Economist's `Crazy' Education Idea Wins Ken Griffin's Backing" by Oliver Staley:
The Griffin experiment may show that the U.S. doesn’t spend enough on helping parents, List says. “We have too many eggs in the kid basket,” says List, himself a father of five. “We need to spend much more time and many more resources on helping parents.”
List knew where he could experiment with real decisions about prices: at sports-card trade shows, which he attended as a collector of baseball and football memorabilia. In one experiment, aimed at finding out why people in business transactions treat each other fairly, List had card buyers ask dealers for a card of Chicago White Sox slugger Frank Thomas in mint condition.

He found that when dealers didn’t think they were being watched and they knew the buyer couldn’t check the quality, they gave unfair prices, to a degree that rose with the dealers’ distance from their home markets.
In a later experiment, List and two colleagues posted an ad for an administrative job on Craigslist in 16 cities. About 7,000 job seekers responded and were then given different compensation plans. Some were offered a flat hourly rate while others had to compete for their money.

In general, women shied away from competition, although they were more likely to compete when they operated in teams and when they could earn more than the prevailing wages in their region, the research found. The study helps explain why there are relatively few women executives in fields where promotion is based on competition, List says.

“An important component of gender imbalance is compensation structure,” he says. “If you had a different type of compensation regime, the composition of the top echelon of workers would be different.”
Read the complete article here.

Tuesday, February 22, 2011

Home Prices At Lowest Level In 11 Major Cities

From Associated Press, "Home prices hit post-bust lows in most big cities: Home prices fall to lowest level since housing bust in most major US cities" by Derek Kravitz, AP Real Estate Writer:
The Standard & Poor's/Case-Shiller [residential real estate] index fell in December from November in all but one of the 20 cities it tracks. The 20-city index declined 1 percent.

The only market to see a gain was Washington.

Eleven of the markets hit their lowest point since the housing bust, in 2006 and 2007: Atlanta, Charlotte, N.C., Chicago, Detroit, Las Vegas, Miami, New York, Phoenix, Portland, Ore., Seattle and Tampa, Fla.
Read the complete article here.

Monday, February 21, 2011

Risk Adjust Private Wages To Compare To Public Wages

My comment to "What is the state employee union wage premium?" by Tyler Cowen on Marginal Revolution:
One also has to look at wage volatility in addition to average wage. Real wage volatility is increasing in the US, e.g. see The Great Increase in Relative Volatility of Real Wages in the United States by Julien Champagne and André Kurmann.

Increased volatility in real wages is an increase in risk to a wage earner of lower income and periods of unemployment.

Private sector versus government worker and teacher wages needed to be risk adjusted for valid comparisons. An equal numerical real wage between private and public is not equal if public workers face much less real wage negative adjustment risk.

Champagne and Kaufman state:
"We document that the increase in absolute volatility of the real wage is not generalized but concentrated among male, skilled and young workers. Also, there are large differences across industries..."

Around 80 percent of teachers are female and they are subject to much lower real wage volatility than private sector male workers, due to collective bargaining, tenure, difficulty in terminating, employment contracts, guaranteed benefits, cost of living increases, etc.

It is also highly likely given cost of living increase embedded in government employee contracts and difficulty in cutting wages or firing of government employees, that all government workers have lower wage volatility than private sector male or female workers.

Private sector employees, after adjusting for age, experience, education, regional variations in cost of living, etc., should make more than comparable public sector employees make to compensate for the increase in wage risk. If the numbers on their face are equal, they are in reality unequal.
Addendum: Also see my earlier post "Without A Productivity Measure, Government-Private Pay Comparisons Are Misleading."
Without a productivity measure, pay measurements are meaningless. For example, if three government engineers are needed to do the same work of two private sector engineers, then even at the same salaries and benefits, the government employees are overpaid.

Video Of Wisconsin Governor Scott Walker On 'Fox News Sunday'

Saturday, February 19, 2011

Why College Is Expensive

A comment I posted on "Why does college cost so much?" by Tyler Cowen:
Colleges and universities do lower their costs of teaching. They use low cost adjuncts, grad students and post docs. They increase class sizes, use large lecture halls and eliminate courses with low enrollments. Schools look for ways to save on heating, cooling and other and energy costs. There is no shortage of competition for students at US colleges as at each beginning term there are many unfilled seats at many of the colleges and universities in the US. A greater part of tuition has gone to non-teaching parts of universities, e.g. administrative, fund raising, sports, buildings, dorms, stadiums, and other physical structures, etc.

Obviously many schools have pricing power and can and have raised their prices without seeing ill effects in applications.

It has been like this for decades.

A more logical reason for pricing power at private universities is the existence of state schools.

State colleges took away from private colleges, the most price sensitive element of college students and parents, lower income and middle class students. Private universities became a luxury good and a sign of affordability for the rich. While private colleges these days do provide financial aid, most colleges do so for only about half or less of their students for less than half the tuition and room and board costs.

Without state colleges there would have been greater pricing and political pressure on private colleges to make schools affordable for the middle and lower income group. Colleges would have be more frugal with their spending to keep costs and financial aid low so more middle class and lower incomes students could attend.

Basically, state colleges allowed private colleges to become luxury goods for price insensitive consumers, which allowed private schools to raise prices without much concern.

Time To Consider A Negative Income Tax To Balance The Budget

As the US Government's primary job becomes an entitlement provider to its citizens (see above chart, HT: Carpe Diem), it is a great time to consider implementation of Milton Friedman's proposal for a negative income tax.

Friedman's proposal was for an automatic, unrestricted dollar payment to any household with less than a minimum income. The payment would phase out as income increased but at less than a dollar of benefits lost for each dollar of income earned as an incentive to work. The definition of earnings should be expanded in today's world to include the benefits of 401Ks, IRAs, pensions, capital gains, etc.

A negative income tax would eliminate the need for much of the US government's bureaucracy and would provide federal funds to those who need it the most. It would allow families to budget and spend government money as they wished and it would eliminate many unnecessary government programs.

By eliminating the costs of a large bureaucracy, it would allow each federal tax dollar to go much further to help families in need. A negative income tax could also replace Social Security in its entirety.

A single payment entitlement program would enable easier budget balancing, since all recipients would be treated equally and only one program would need modification to reduce a deficit.

Buffet Likes Companies With Pricing Power

From Bloomberg, "Buffett Says Pricing Power Beats Good Management When Evaluating Companies" by Andrew Frye and Dakin Campbell:
Warren Buffett, the billionaire chief executive officer of Berkshire Hathaway Inc., said he rates businesses on their ability to raise prices and sometimes doesn’t even consider the people in charge.

“The single most important decision in evaluating a business is pricing power,” Buffett told the Financial Crisis Inquiry Commission in an interview released by the panel last week. “If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

Friday, February 18, 2011

US Companies Keep Trillions In Cash Abroad To Avoid America's High Corporate Taxes

From "Why Investors Can't Get More Cash Out of U.S. Companies" in The Wall Street Journal by Jason Zweig:
like many purportedly cash-rich companies, Microsoft can't bring home much of its cash without writing a fat check to the Internal Revenue Service.

Politicians have been carping about the more than $2 trillion in cash sitting idle in corporate coffers even as unemployment remains high. But much of that cash isn't in the U.S.; it is abroad. And it isn't likely to come back home unless U.S. tax laws change.
U.S. companies are taxed at up to 35% when they bring home the earnings generated through the operations of their overseas subsidiaries. They get a credit for any taxes paid to foreign governments—but, since the corporate-tax rate in the U.S. is one of the world's highest, most companies are in no rush to bring the money back onshore. By keeping those earnings abroad, U.S. companies can indefinitely defer their day of reckoning with the IRS.
Read the complete article here.

Lowering or eliminating the corporate tax would give US companies an incentive to bring home the foreign cash to use for domestic investments or dividends to shareholders. Either action would promote economic growth and employment.

Wisconsin Governor Scott Walker's Press Conference On Balancing His State's Budget

Wisconsin Governor Scott Walker's Press Conference on Thursday afternoon about his attempts to balance the state budget. Wisconsin's modest request is to have government workers pay for a small share of their pension and healthcare premium costs.

Thursday, February 17, 2011

Predictive Value Of GDP Linked Bonds

A comment I posted on The Wall Street Journal blog, Real Time Economics, "Worried About U.S. Debt? Shiller Pushes GDP-Linked Bonds" by Javier E. David:
The GDP linked debt would act like an equity/stock of the US economy. The owner of the US GDP debt receives a fixed percentage of future US production of goods and services (GDP). Positive and negative changes in the market price of the debt, after issuance, would be indications of changes in market expectations about future GDP. If the market price of an issued GDP linked bond traded above par, it would indicate an expectation of higher GDP growth and vice versa.

Likewise, over time, there would be older GDP linked bonds with different maturity dates and one could discern the market expected GDP growth rates for future periods.

GDP linked bonds could act as early warning signals of US recessions and economic growth.

Increases in the price volatility of the bonds would indicate the nearing of periods of great economic risk and uncertainty.

And of course, credit must be given to Robert C Merton, who decades ago proposed that the US issue consumption linked bonds. Consumption is large part of US GDP and highly correlated to GDP. Consumption linked bonds would act very much like GDP linked bonds.

Wednesday, February 16, 2011

Obama's Budgetary New Year's Resolution

Obama's commitment to reducing spending and the deficit remind me of the typical New Year's resolution. Easy to say you will do it. Easy to break and go back to your old ways.

Algae Naturally Produces Harmful Estrogen-like Compound

From "UT researchers link algae to harmful estrogen-like compound in water" in ScienceBlog:
University of Tennessee, Knoxville, researchers have found that blue-green algae may be responsible for producing an estrogen-like compound in the environment which could disrupt the normal activity of reproductive hormones and adversely affect fish, plants and human health. Previously, human activities were thought solely responsible for producing these impacts.
Read the complete article here.

Obama's Disastrous Ever Widening Budget Deficit In Picture Form

From "The long term budget problem begins now" by Keith Hennessey:

Source: Keith Hennessey

The dotted red line shows us that, over the past 50 years, federal government spending averaged just over one-fifth of the economy (20.2% of GDP). The dotted blue shows us that, over the past 50 years, federal revenues averaged just over 18% of GDP. The small yellow double arrow between the dotted red and blue lines shows the average deficit over the same period: 2.1% of GDP.

The vertical white line at 2011 separates the past from the projected future of the President’s policies.
Read Hennessey's complete blog post here.

High US Corporate Tax Rates Are Driving Investments Abroad

From "Race to the Top of the Laffer Curve" by Aparna Mathur in the Journal of the American Enterprise Institute:
The international tax literature Roger Gordon and James Hines summarize in their 2002 article shows that mobile capital flows from high-tax to low-tax jurisdictions. In any set of competing countries, relative rates of taxation determine investment flows. In other words, America’s high corporate tax rates are driving investments abroad and causing firms to rethink expansion plans in the United States. The loss in revenues, or in effective taxes paid, should not shock us.
But for investment purposes, the important figure is the effective average tax rate (EATR), or the difference between the pre-tax return and the post-tax return on investment, expressed as a fraction of pre-tax economic profits. More simply, it is the tax liability that a firm may expect to incur as a fraction of pre-tax economic profits. The EATR differs from the statutory rate because it allows for other features of the tax code, such as depreciation allowances or interest rate deductions, which enable firms to ultimately pay less than the statutory rate.

A 1998 paper by Michael Devereux and Rachel Griffith shows that the EATR is the critical tax rate determining where firms locate investment. Countries with high EATRs lose, while capital flows to the low EATR jurisdictions.

EATR=Effective Avg Tax Rate:
EMTR=Effective Marginal Tax Rate 
Read the complete article here.

Tuesday, February 15, 2011

Need Technological Solutions To Global Warming: Greenhouse Gas Emission Reduction Is Insufficient

From "If greenhouse gas emissions stopped now, Earth still would likely get warmer" in ScienceBlog:
There would continue to be [climate] warming even if the most stringent policy proposals were adopted, because there still would be some emission of heat-trapping greenhouse gases such as carbon dioxide and methane. But the new research shows that even if all emissions were stopped now, temperatures would remain higher than pre-Industrial Revolution levels because the greenhouse gases already emitted are likely to persist in the atmosphere for thousands of years.

In fact, it is possible temperatures would continue to escalate even if all cars, heating and cooling systems and other sources of greenhouse gases were suddenly eliminated, said Kyle Armour, a UW doctoral student in physics. That’s because tiny atmospheric particles called aerosols, which tend to counteract the effect of greenhouse warming by reflecting sunlight back into space, would last only a matter of weeks once emissions stopped, while the greenhouse gases would continue on.

New York Stock Exchange Sold To Frankfurt Stock Exchange

From Bloomberg News article, "Deutsche Boerse Buys NYSE to Create Largest Owner of Exchanges" by Nandini Sukumar and Nina Meht:
Deutsche Boerse AG, operator of the Eurex futures platform and Frankfurt Stock Exchange, agreed to buy New York Stock Exchange parent NYSE Euronext in a deal that creates the world’s largest owner of equities and derivatives markets.
Read the complete article here.

Teaser Rate Mortgage Borrowers Defaulted Before Rates Reset To Higher Levels

Home buyers who used low teaser rate, adjustable rate mortgages defaulted before the borrowing rates reset to a higher level. Along with yesterday's Wall Street Journal article that the housing markets now suffering the biggest housing decline were not the markets with housing bubbles, it is becoming more clear that neither the types of mortgages, subprime, ARM, etc. nor high interest rate payments were the cause of our high rate of mortgage defaults or housing price decline.

From The Wall Street Journal article, "Option ARM Time Bomb Blows Early, Easing Damage to U.S. Housing" by Prashant Gopal and Jody Shenn:
This was the year thousands of U.S. homeowners with option adjustable-rate mortgages were supposed to default as their payments spiked.
About $600 billion of the loans were made from 2005 through 2007, according to industry newsletter Inside Mortgage Finance. Of those packaged into bonds, some 20 percent have been liquidated at losses to investors, and almost half of the remaining ones are at least 30 days delinquent, in foreclosure or have been seized by lenders, according to data from JPMorgan.

“It’s not that option ARMs weren’t a bad way to finance homes, it’s just that the disaster already happened before the resets,” McCarthy said in a telephone interview last week.

Monday, February 14, 2011

Video Interview Of Mark Zuckerberg By Henry Blodget

A republished 30-minute video interview of Mark Zuckerberg by Henry Blodget of Business Insider is available here and embedded below:

A full transcript of the above video interview is available here.

Switch To A Negative Income Tax To Balance The US Budget, Foster Private Sector Jobs, Reduce Federal Medical And Pension Costs, Fix Social Security

Before the US begins its painful political, budget balancing process of cutting its deficit and social benefit programs, the country should analyze and consider implementation of a negative income tax. Paying guaranteed income that would decrease, at a 50 percent rate, by earnings, pensions, IRA and Keogh withdrawals, etc., would solve the country's social security problems by eliminating social security payments to the wealthy, those that saved sufficiently for retirement, and those that continue to earn livable incomes after retirement.

A negative income tax would also decrease the US bureaucracy and the number of US and state employees and the associated payroll, pension and medical costs. It is a budget balancing, deficit reducing concept that needs analysis. Combined with a voucher system for Medicare and Medicaid medical costs, the entire US budget could probably be balanced without harming the poor or senior retirement. The idea certainly deserves a thorough, thoughtful analysis as a realistic, potential solution to our budget crisis.

From City Journal, "Why Not a' Negative Income Tax? Replace the welfare state with a cash subsidy for the poor." by Guy Sorman:
admits Gary Becker, a University of Chicago economist and Friedman disciple. “But if society decides that a certain level of redistribution must take place, the NIT [Negative Income Tax] is the best, the most minimally distorting, solution ever devised.” To limit the disincentive, Friedman argued, the NIT should be progressive. Say the government drew the income line at $10,000 for a family of four and the NIT was 50 percent, as most economists recommend. If the family had no income at all, it would receive $5,000—that is, 50 percent of the amount by which its income fell short of $10,000. If the family earned $2,000, it would get $4,000 from the government—again, 50 percent of its income shortfall—for a total post-tax income of $6,000. Bring in $4,000, and it would receive $3,000, for a total of $7,000. So as the family’s earnings rise, its post-tax income rises, too, preserving the work incentive. This is very different from many social welfare programs, in which a household either receives all of a benefit or, if it ceases to qualify, nothing at all. The all-or-nothing model encourages what social scientists call “poverty traps,” tempting the poor not to improve their situations.

Robert Moffitt, an economist at Johns Hopkins University and a leading authority on the NIT, notes another advantage of the program over other forms of state assistance: “No stigma attaches to the NIT.” Everyone fills out the same forms, and no infantilizing government meddles with a household’s food, shelter, and health care, as under the current system. The NIT simply provides the poor with money, which they can use to meet their various needs. Friedman strongly believed that individuals have the capacity to promote their own interests.

Yet another NIT advantage is a freer labor market. No minimum wage would be necessary, since a minimum income would now be guaranteed. This would boost employment: as economists recognize, a legal minimum wage tends to increase joblessness by discouraging employers from recruiting unskilled labor. The NIT would reduce illegal immigration, too. Managed by the IRS, it would apply only to citizens and legal residents, and since it would eliminate welfare programs, aliens would have less incentive to cross the border illegally for government benefits (though local authorities would still have to decide whether to grant them access to schools and hospitals). “From an economist’s perspective, the negative income tax is the perfect design,” Moffitt says. “The only reason an economist would oppose it would be from a strict libertarian perspective—opposition to any kind of government-managed welfare.”

But the biggest advantage of the NIT is that it requires the smallest possible bureaucracy to implement. The IRS already exists; it knows how to assess income statements; and, to run the NIT, it has only to take money or pay it out. No longer would the federal and state governments maintain the sprawling multiple agencies necessary to distribute food stamps, public housing, Medicaid, cash welfare, and a myriad of community development programs. Nor would they need to pay the salaries and enormous future pensions of the public employees who run all these programs. According to a Heritage Foundation study by Robert Rector, Kiki Bradley, and Rachel Sheffield, the federal portion of America’s welfare system cost a staggering $522 billion in 2008, which works out to about $12,000 per poor person aided.
Read the complete City Journal article here.

US Home Price Decline Spreads To Stable Markets

From The New York Times article, "Housing Crash Is Hitting Cities Thought to Be Stable" by David Streitfeld:
The rolling real estate crash that ravaged Florida and the Southwest is delivering a new wave of distress to communities once thought to be immune — economically diversified cities where the boom was relatively restrained.

In the last year, home prices in Seattle had a bigger decline than in Las Vegas. Minneapolis dropped more than Miami, and Atlanta fared worse than Phoenix.
The fact that even a fairly prosperous area like Seattle was ensnared in the downturn shows just how much of a national phenomenon the crash has been. The slump began when the low-quality loans that drove the latter stage of the boom began to go bad, but the resulting recession greatly enlarged the crisis. Many people could not get a mortgage, and others simply gave up the hunt.

Now, though the overall economy seems to be mending, housing remains stubbornly weak.
Read the complete article here.

A Lower Corporate Tax Rate Increases Tax Revenues, Promotes Economic Growth

From Bloomberg Opinion, "Laffer Curve Pays Billions If Obama Just Asks" by Kevin Hassett:
The U.S. is about to have the highest corporate tax rate in the developed world because our competitors have noticed that revenue goes up as rates go down. Multinational corporations today nimbly move their profits to the friendliest environment, rewarding tax havens like never before.

It looks as if President Barack Obama and congressional Democrats are going to miss out on the single biggest policy opportunity for the U.S. this year because of their ideological resistance to the idea that lower rates can increase revenue, also known as the Laffer curve.
Corporate taxes “are the most harmful type of tax for economic growth,” according to a November 2010 report by the Organization for Economic Cooperation and Development.
The U.S. top corporate tax rate of 35 percent in 2010 was higher than all other OECD nations except Japan, which has embarked on a 5 percentage-point cut. The average rate in the OECD is 23.5 percent. Ireland’s rate is only 10.9 percent; Turkey’s is 13.1 percent.
The U.S. earns less federal corporate tax revenue, as a percentage of gross domestic product, than the average OECD country. Higher rates, lower revenue.

From 2000 through 2009, the U.S. average corporate tax revenue as a percentage of GDP was 2.06 percent, according to OECD data. The average for the rest of the OECD was almost a percentage point higher, at 3 percent.

In 2009, the U.S. ratio dropped to 1.64 percent. That year, the U.K., with a tax rate of 28 percent, raised 2.8 percent of GDP. South Korea raised 3.4 percent of GDP with a rate of 22 percent. Belgium raised 2.5 percent of GDP with a rate of 34 percent.

A number of studies have indicated that a Laffer curve exists for corporate taxes. One study I did with Alex Brill, looking at data for OECD countries from 2000 to 2005, found that the U.S. could maximize its tax revenue by cutting the top corporate rate 8.6 percentage points, to 26.4 percent.
Read the complete Bloomberg opinion piece here.

Addendum: Also see my later post, "High US Corporate Tax Rates Are Driving Investments Abroad" where I have a chart of effective average corporate tax rates that show the US has one of the highest effective tax rates in the world.

Saturday, February 12, 2011

Mankiw Corrects Obama: We All Win From Trade

From The New York Times, "Emerging Markets as Partners, Not Rivals" by N. Gregory Mankiw:
Achieving economic prosperity is not like winning a game, and guiding an economy is not like managing a sports team.
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. But the essence of economic exchange belies that description. Other nations are best viewed not as our competitors but as our trading partners. Partners are to be welcomed, not feared. As a general matter, their prosperity does not come at our expense.
Read Mankiw's complete piece on trade here.

No Evidence That CO2 Increases Cause Climate Change

From The Wall Street Journal article, "The Weather Isn't Getting Weirder: The latest research belies the idea that storms are getting more extreme" by Anne Jolis: no evidence of an intensifying weather trend. "In the climate models, the extremes get more extreme as we move into a doubled CO2 world in 100 years," atmospheric scientist Gilbert Compo, one of the researchers on the project, tells me from his office at the University of Colorado, Boulder. "So we were surprised that none of the three major indices of climate variability that we used show a trend of increased circulation going back to 1871."

In other words, researchers have yet to find evidence of more-extreme weather patterns over the period, contrary to what the models predict. "There's no data-driven answer yet to the question of how human activity has affected extreme weather," adds Roger Pielke Jr., another University of Colorado climate researcher.

We do know that carbon dioxide and other gases trap and re-radiate heat. We also know that humans have emitted ever-more of these gases since the Industrial Revolution. What we don't know is exactly how sensitive the climate is to increases in these gases versus other possible factors—solar variability, oceanic currents, Pacific heating and cooling cycles, planets' gravitational and magnetic oscillations, and so on.
Read the complete Wall Street Journal article here.

More Men Than Women Are Dropping Out Of The Labor Force

From Federal Reserve Bank of Cleveland, Economic Trends, "Who Is Driving the Decline in the Labor Force Participation Rate?" by Daniel Hartley and Mary Zenker:

Comparing the fractions for men and women over time confirms that the fraction of men not in the labor force rose more than the fraction of women not in the labor force from December 2007 to December 2010. In contrast, the fractions of white, black, Hispanic, and Asian workers who are not in the labor force all seem to have increased by about the same amount over the period.
Read the complete article here.

Friday, February 11, 2011

US Treasury Report On Housing Market Reform

The complete US Treasury report, "Reforming America’s Housing Finance Market" on fixing Fannie Mae, Freddie Mac and the US housing market is available from Treasury here, on Scribd here and embedded below. The accompanying press release and summary is available here.
Reforming America's Housing Finance Market

Tuesday, February 8, 2011

Larry Tribe's Analysis Of The Health Care Insurance Mandate Is Wrong

From The New York Times, "On Health Care, Justice Will Prevail" by Laurence H. Tribe:
The justices aren’t likely to be misled by the reasoning that prompted two of the four federal courts that have ruled on this legislation to invalidate it on the theory that Congress is entitled to regulate only economic “activity,” not “inactivity,” like the decision not to purchase insurance. This distinction is illusory. Individuals who don’t purchase insurance they can afford have made a choice to take a free ride on the health care system. They know that if they need emergency-room care that they can’t pay for, the public will pick up the tab. This conscious choice carries serious economic consequences for the national health care market, which makes it a proper subject for federal regulation.
There are several reasons that the US Supreme Court case about the new health care law insurance mandate is not as clear cut as Laurence Tribe seems to believe.

Congress legislatively created the free ride. Congress had mandated in previous laws that emergency rooms cannot turn away patients because of an inability to pay. Congress can eliminate that service requirement as it also can require full repayment from the treated individual. Congress can eliminate the free riding that it self-created without the need to impose health insurance on every individual. The free riding is a self-imposed problem created by Congress and it cannot use a self-imposed problem to justify a mandate for health insurance.

The vast majority, according to the US Census Bureau, of uninsured individuals are people and children who are eligible and can, but did not, enroll in government paid heath care programs, such as Medicaid, CHIP, etc., young adults between the ages of 25-35 years old, and families with incomes high enough to buy health insurance.

To say that someone is free riding when a different government program than Congress expected to pay pays medical costs is a fallacious free riding argument.

To say that a group, such as young adults, who have a very low risk of health related costs or injuries, who make a rational economic choice not to purchase health insurance is free riding is again fallacious. To mandate a purchase of an uneconomical health insurance policy is without legal merit, especially since the health policy cannot be risk adjusted priced for the lower health needs of a healthy, no pre-existing medical condition, young adult.

The justices also need to look at the mandate separate from the costs of the health insurance to the covered individual. There is no law that requires Congress to continue to fund programs that will lower the cost to poorer individuals and families. Can Congress mandate that families buy something they cannot afford?

Funding is always at the discretion of Congress and The US Supreme Court will not interfere with the Congressional branch. It cannot require Congress to raise taxes and fund a health insurance program. The mandate has to be viewed separately from its funding. If Congress can mandate health insurance, it can mandate health insurance without appropriating funds to lower its costs.

Additionally, Congress did not allow for self-insurance by wealthy individuals who can afford a bare bones policy or no health insurance. Neither of these is allowed under the new law.

It would take a huge stretch of rational economic and legal thinking for the Supreme Court Justices to uphold the new health law insurance mandate.

State Estate Tax Reduces Job Growth And Causes Out-Migration

From "Death Tax Ambush: Many states now have crushing burdens" in The Wall Street Journal:
thanks to a quirk in December's GOP-White House tax compromise. The new law applies a top federal death tax rate of 35% with a $5 million exemption for 2011 and 2012. But it also changed a federal credit for state death tax rates into a federal deduction.


New research indicates that high state death taxes may be financially self-defeating. A 2011 study by the Ocean State Policy Research Institute, a think tank in Rhode Island, examined Census Bureau migration data and discovered that "from 1995 to 2007 Rhode Island collected $341.3 million from the estate tax while it lost $540 million in other taxes due to out-migration."

Not all of those people left because of taxes, but the study found evidence that "the most significant driver of out-migration is the estate tax." After Florida eliminated its estate tax in 2004, there was a significant acceleration of exiles from Rhode Island to Florida.

Connecticut has come to the same conclusion. A 2008 study by the Connecticut Department of Revenue Services found that the 26 states without an estate tax produced twice as many jobs from 2004-07 and had a growth rate 50% faster than those with estate taxes.
The complete Wall Street Journal piece is available here (subscription required).

Monday, February 7, 2011

Bigger Cities Are Cause Of US Wage Inequality Gap

From "Larger cities drive growing wage gap between the rich and the poor, study shows" in ScienceBlog:
“If we want to understand what’s causing the wage gap, we now know we need to look at the unique economies of our larger cities,” says [University of Rochester Ronni] Pavan.

These metropolitan areas have created “agglomeration” economies that have augmented productivity in dramatic ways, making workers more valuable and therefore able to command higher pay, says Pavan.
Read the complete article here.

Sunday, February 6, 2011

A Gender Pay Gap Is A Sign Of Equality Between The Sexes And Not Inequality

Is a gender pay gap a sign of equality between the sexes and not inequality?

The news media reported on a physician wage study last week, e.g. see The Wall Street Journal, "Women Doctors Face $17,000 Pay Gap," that the medical field pays women doctors less than men doctors.

According to the lead researcher's statement in the Wall Street Journal, women physicians trade salary for other benefits:
Anthony Lo Sasso, the lead researcher on the study, and a professor at the School of Public Health at the University of Illinois at Chicago, said the pay gap may exist because women doctors are seeking greater flexibility and family-friendly benefits, such as not being on call after certain hours. Women may be negotiating these work conditions at the same time that they are negotiating their starting salaries.
This is not the first study to find that women in the workforce will give up salary for other non-monetary benefits, such as health insurance, shorter hours, flexible schedules, limited or no travel requirements, etc.

Isn't it a sign of equality, and not inequality, that women can choose, value and negotiate for themselves the benefits and pay combination they most desire in the workplace, even if the paycheck is lower? Employers pay for these benefits and they are indifferent, their costs are equivalent, whether the money goes into a worker's paycheck or to pay for a benefit. The women are choosing how to allocate the employers' costs between salary and benefits.

Suppose law, or workplace practice, required women to receive the same paycheck amount as men in any field. Wouldn't women work much longer hours, have less flexible scheduling, travel more, etc., than they would choose if they could select their own benefits package and workplace environment?

Isn't true equality of the sexes measured by women's freedom to contract? Doesn't that imply that some women, maybe even a majority, would choose lower pay for fewer work hours, more time off and more flexible schedules?

Pay alone does not measure workplace equality between the genders when they there are many work benefits and characteristics not captured by the numbers in the paycheck.

US Is World's Biggest Manufacturer

From "Made in the U.S.A." by Jeff Jacoby, The Boston Globe:
Americans make more "stuff" than any other nation on earth, and by a wide margin. According to the UN's comprehensive database of international economic data, America's manufacturing output in 2009 (expressed in constant 2005 dollars) was $2.15 trillion. That surpassed China's output of $1.48 trillion by nearly 46 percent. China's industries may be booming, but the United States still accounted for 20 percent of the world's manufacturing output in 2009 -- only a hair below its 1990 share of 21 percent.

Saturday, February 5, 2011

Odds Of Republicans Winning The US House In 2012 Dropping Quickly: Now 50-50

According to the Intrade price for the security "The Republicans to control the House of Representatives after 2012 Congressional Elections," the odds of the Republicans taking over the US House of Representative after the 2012 election has quickly dropped from about 80-20 to 50-50.

The Intrade odds still overwhelmingly favor the Republicans controlling the US Senate after the 2012 elections.

It is not clear what is so quickly changing the mood of the electorate to favor a Democratic majority in the House instead of a Republican majority.

Republicans to control the House after 2012 Elections

Price for 2012 House of Representatives Control at
Republicans to control the House of Representatives after 2012 Elections

Wednesday, February 2, 2011

Vegans Have Increased Heart Disease Risk

From "Vegans’ elevated heart risk requires omega-3s and B12" in ScienceBlog:
strict vegetarians who try to eat no meat or animal products of any kind — may increase their risk of developing blood clots and atherosclerosis or “hardening of the arteries,” which are conditions that can lead to heart attacks and stroke.
vegans tend to have elevated blood levels of homocysteine and decreased levels of HDL, the “good” form of cholesterol. Both are risk factors for heart disease.