Capital Commerce
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Skilled Immigrants Get Washington Cold Shoulder
Continue reading… 17 CommentsThe H-1B visa program brings many of the skilled employees used by Silicon Valley and Wall Street firms to the U.S. With the current state of hiring, it makes sense that far fewer employers are requesting H-1B workers than in previous years. But, the WSJ reports, it's not just the economy that's making employers wary of looking abroad—it's also the "anti-immigration sentiment in Washington."
How is that sentiment materializing itself?
The cost and bureaucracy of applying for H-1B visas is another deterrent. Lawyers' fees, filing fees and other expenses can easily reach $5,000 per applicant.
And immigration lawyers say some would-be employers are put off by a crackdown on fraud. U.S. Citizenship and Immigration Services, which administers the H-1B program, has been dispatching inspectors on surprise company visits to verify that H-1B employees are performing the jobs on the terms specified. The fraud-detection unit in coming months is expected to inspect up to 20,000 companies with H-1Bs and other temporary worker visas.
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Using Economics to Solve Bone Marrow Transplant Crisis
Continue reading… 0 CommentsHow does bad economics become bad law? One thing that doesn't help is when legislators can't be bothered to read the bills they pass. Some activists recently launched a Read To Vote campaign that demands all elected officials and especially members of Congress to actually read legislation before voting. If they did, maybe we wouldn't have the situation we do with the 1984 National Organ Transplant Act—which bans people from being paid for donating bone marrow, despite the fact that monetary compensation for blood plasma is common practice, and the bill itself even explicitly says it should not criminalize compensation for "renewable tissue" (like blood and bone marrow, as opposed to things that can't regenerate like organs).
Congress threw "bone marrow" into the bill (which bans you from doing things like selling your kidney to the highest bidder) at the last minute probably because it "sounds like an organ," I was told by Robert McNamara, an attorney at the Institute for Justice. The Institute for Justice (IJ), you may recall, is the DC-based pack of libertarian lawyers behind many prominent lawsuits (they were the ones who sued the city of New London, Conn., to protect Susette Kelo's house in a now infamous Supreme Court decision). Today they filed suit in Los Angeles on behalf of a nonprofit group, MoreMarrowDonors.org, that seeks to offer people money to be used for college scholarships, charity gifts, or housing allowances if they agree to donate their marrow. The problem is that if MoreMarrowDonors.org did that, it would be committing a felony under the law punishable by up to five years in prison. "[Compensation for bone marrow donation] is treated exactly like black-market organ sales," McNamara told me. All because of a legislative decision that was "almost an accident."
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One Sign America Is Not in Decline
Continue reading… 2 CommentsYou should definitely check out my colleague Rick Newman's 9 Signs of America in Decline. He combines together some different thought-provoking data that make up for a very worrisome whole. But I do have one comment to make on one of his signs that might make the overall picture not look as bad.
Poverty. The U.S. poverty rate, about 17 percent, is third worst among the advanced nations tracked by the Organization for Economic Cooperation and Development. In that sample, only Turkey and Mexico are worse.
That's completely true. But there's "poverty" and then there's what we normally think of when we think about being poor and its impact on quality of life. The fact that there are more people living "in poverty" in the United States than in most advanced nations does not mean that the U.S. has more poor people than most of those countries.
Poverty is a relative concept. Specifically, the OECD defines it as less than one half of the nation's median household income. Because that income is so high in the U.S., people who would be rich if they lived in Turkey or Mexico could be considered impoverished in America.
When we look at standard of living on an absolute basis, the U.S. fares much better.
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Don't Forget Too Big to Fail
Continue reading… 1 CommentA former Citigroup chairman and a partner at Roaring Brook Capital (founded by a former Merrill Lynch executive) issue their recommendations for financial reform in the WSJ:
One thing our public officials should not do is get caught up in a debate over "too big to fail." It's a catchy phrase, but that's about it. Indeed, it is important to recognize that our recent financial crisis was provoked by last year's failure of Lehman Brothers, a company that few, if anyone, would have argued was too big to fail. Rather than get side-tracked on this and other complex questions, our policy leaders should focus directly on how to create and enhance market discipline.
Citigroup, of course, is the biggest of the "too big to fail" institutions.
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Executive Paycheck Curbs: Problem-Solving or Populism?
Continue reading… 5 CommentsJimmy P calls the new restrictions on executive pay at bailed-out firms a "great distraction."
If it really is just a distraction, the cynical explanation for why Washington is putting executive compensation on the front burner is that it plays well on Main Street. It's much easier to show to voters that you are doing something about the financial crisis by pinning the blame on fat-cat CEOs and their luxury jets, rather than, say, the byzantine vagaries of Federal Reserve policy.
I've recently pointed to the lack of evidence that compensation made much of a difference in determining which institutions did poorly in the crisis. Here's another interesting study out this month from the NBER. It finds a few counterintuitive results:
1. It's not salaries as much as other incentives:
...the salary of the median CEO has increased less than average wages in the non–farm sector. It turns out that most of the post–1999 increase in Current compensation is accounted for by net proceeds from trade in stock, i.e. by options exercise and stock sale.
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Gas Tax Hikes on The Way?
Continue reading… 0 CommentsAs the dollar continues to fall, the decline will tend to make gasoline more expensive (see Rick Newman's explanation why).
But regardless of the currency situation, Washington might make Americans pay more at the pump. The WSJ reports:
But skepticism remains high over whether any of the measures under consideration would spur significant job creation. Business executives are calling for more dramatic moves, including passage of a proposed six-year, $500 billion highway infrastructure bill, which some Democrats want to see funded through an increase in gasoline taxes.
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Why We Should Open Up The Border With Canada (And Other Political Tips From Tim Draper)
Continue reading… 1 CommentI've been at the AlwaysOn OnDC conference, and I just heard an interesting speech from legendary venture capitalist Tim Draper. Draper was a key figure in the launch of Skype, Baidu, and many other companies that took off. He also was an early developer of the concept of viral marketing.
So what does a guy who is so prescient about business think about the role of government in jumpstarting the economy?
Here's my summary of what he thought the government should do:
- Open up the border with Canada: They've got the oil, and they want more trade.
- Drop Sarbanes-Oxley regulations for the first ten years in the life of a public company. Sarbox is just too costly for the small public firms getting off the ground, Draper said. Thanks to Sarbanes-Oxley, Draper argued, the U.S. has seen a decline in the number of public companies, while European and Chinese stock exchanges have seen increases.
- Green incentives: Use carrots, rather than sticks like carbon taxes, to encourage businesses to address public goods problems like global warming.
- The federal government should make more secure loans to innovative companies like Tesla Motors. But, I should note that Draper has invested in Tesla.
- More free trade: If we didn't have trade with China, we wouldn't have semiconductors, flat screens, computer memory, etc.
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Marijuana And State Budgets: Now What?
Continue reading… 25 CommentsThe Justice Department will no longer go after medical marijuana users in states where the substance is partially legal. At about the same time as the Obama administration made headlines for that move, Gallup announced that a recent poll has found the greatest-ever number of Americans in support of legalizing marijuana.
But still, marijuana activists in California, a state with dire budget problems, have been unable to succeed in a long effort to regulate and tax marijuana to raise money for the state. (see previous post here).
Baby steps toward state-wide legalization might come in the form of tax increases for medical marijuana at the local level (PBS reports here). If those policies prove to be big windfalls for those towns, the state legislature will probably take notice.
No one knows which (if any) states will be the first to take this step, but the idea is certainly getting more popular: A committee in the Massachusetts legislature just entertained the notion of creating a taxable cannabis market.
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How Outsourcing Creates American Jobs
Continue reading… 6 CommentsThis highly-Dugg article lists the top U.S. businesses that have moved facilities and jobs abroad. It's generating comments like this one:
you outsource your country and theres nothing LEFT for normal people to work at except malls and retail stores.
But just a few days earlier, Vivek Wadhwa wrote this interesting article in The American that explains why, outsourcing from the U.S. to other countries withstanding, the U.S. is also a beneficiary of outsourcing by foreign companies:
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Name That Country
Continue reading… 1 CommentIn today's Financial Times, David Pilling gives a good overview of how the "dead hand" has returned to American economic policy:
Much of the banks’ money has been lent not to small private enterprises, but to big [state-supported financial institutions], many of which do not really need the cash. Some are putting loans straight back into the bank. Much is leaking out into real estate and equity investments, creating concerns about asset bubbles. If, as many suspect, the rash of lending eventually leads to a leap in non-performing loans, most banks probably expect the state to wipe the slate clean.
But oops, I made a mistake. Find out after the jump...
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Best Cities to Launch a Business (According to Fortune)
Continue reading… 0 CommentsFortune Small Business has a new list of the best cities in which to launch a small business. Here's their ranking for metro areas with over 1 million in population:
- Oklahoma City, OK
- Pittsburgh, PA
- Raleigh, NC
- Houston, TX
- Hartford, CT
- Washington, DC
- Charlotte, NC
- Austin, TX
- New York City, NY
- Baltimore, MD
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Is the Dow at 10,000 the Result of an Obama Bubble?
Continue reading… 1 CommentThe Dow's closing at the symbolic 10,000 mark yesterday has some people excited that maybe Washington really is doing the right thing. Jim Pinkerton says, "Obama should get some credit." But he immediately follows that up with:
...if I had borrowed, printed, or otherwise conjured up more than $12 trillion, and pumped it mostly into the financial sector, I could have made something happen. What would happen? Most likely, Wall Street would start, uh, bubbling again, even as unemployment rose and the rest of the country languished.
There are three reasons that come to mind that suggest that anyone who cites the Dow as evidence of the health of the underlying economy (and as a corollary, the efficacy of Obama's policies to revive the economy) is wrong. You'd be wrong if pre-2008 you had cited the run-up in housing prices as a sign of health. We could be seeing a new bubble at work.
[See Why Stocks Are Surging As Jobs Disappear]
1. 7,537, not 10,000 is the more important number.
It is good news that the Dow has gained 53 percent in seven months. Derek Thompson in The Atlantic says that the gains should "[put] to rest the silly argument peddled in the WSJ that the stock market was allergic to an Obama presidency."
But really, the 53 percent gain isn't that dramatic. Most of the news coverage has only been looking at nominal, not real, values. Comparing the Dow now to 1999 or, to a lesser extent, even earlier this year, is a bit of an apples-oranges comparison because the value of the dollar has fallen. If we index the Dow based on the value of the dollar (see here), we can view 1999 and 2009 on the same playing field. The Dow is at 7,537 relative to 10,000 in 1999, and has gone up only from 6,216 since February 27, 2009.
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Why Do Apple and Nike Support Climate Change Legislation?
Continue reading… 4 CommentsThe Journal has a somewhat odd editorial today on Apple and Nike's recent decisions to resign from the U.S. Chamber of Commerce because of the group's opposition to cap and trade. The editorial gives some persuasive reasons why Apple and Nike would not be hurt much by cap and trade (much of their manufacturing is done overseas) but then concludes that successful climate change reform actually would come back to bite them:
Yet even this self-interested calculation is likely to be short-sighted for both companies. Since climate change is a global issue, green activists won't stop their carbon pursuit at the U.S. border. It wouldn't be long after cap and trade passed in the U.S. that Nike and Apple were pressured to move their manufacturing out of countries that haven't signed Kyoto II. That would threaten their production lines and cost structure, with potential damage to sales and competitiveness.
The Journal uses this argument to support the conclusion that Apple and Nike are making mistakes, but I'm not sure that follows.
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More On Remittances
Continue reading… 2 CommentsCommenter NM says my last post "doesn't make useful sense" because I don't answer questions like:
How many dollars of imports did America buy from Mexico, including oil, to counteract the $120.4 billion they bought from us?
The answer, according to the State Department, is that Mexican exports to the U.S. amounted to $223 billion in 2007.
So yes, Americans consume more Mexican goods than Mexicans consume American goods. But in what sense does this affect my main point that remittances are good for Americans?
Mexican imports into the U.S. do not "counteract" against American exports to Mexico. It simply means that U.S. consumers have more goods to enjoy. If anyone is convinced that this trade deficit poses a problem, more immigration (and more remittances) would help narrow the deficit by pushing up Mexican incomes and allowing them to buy more of our exports.
One more fact: Merely looking at U.S. exports to Mexico doesn't fully account for how much Mexican consumers contribute to the U.S. economy.
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Are Immigrants Draining Money Out Of The United States?
Continue reading… 7 CommentsAn article in this week's Economist looks at the issue of remittances—the billions of dollars that immigrants send back to their home nations. The article looks at recent research showing the "huge and benign" impact that remittances have on human welfare in developing countries.
But that facet of the remittance issue isn't the one that gets attention in the political debate over immigration, which will soon heat up in Washington. As I've discussed before, what really gets immigration opponents is the idea that foreigners are wasting resources that would otherwise be consumed by Americans.
So when you read about the $328 billion that is being transferred from richer to poorer countries every year, it is easy to start to agree with the assessment that the U.S. economy cannot afford more immigration.
Easy, but wrong.
The argument only makes sense if you look at the world economy as a closed system. But in reality, money that flows out, can, and often does, flow back in. Just look at the economic relationship between the U.S. and its most important source of immigrants, Mexico.
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Cash For Clunkers Was Massive Corporate Welfare
Continue reading… 2 CommentsThe AP on the cornucopia of deals for consumers out there:
Great buys are not exclusive to retailing. The government's Cash for Clunkers program is over, but more than half of car buyers still get a cash rebate, according to J.D. Power & Associates.
The problem is, consumers don't seem to be biting at the current rebates—things are likely to get worse for GM, for example, long before they get better.
So what did Cash For Clunkers accomplish? It was a short boost in car sales that helped car companies offer a few more deals than they otherwise would. Who gained? Not the broader economy—car sales have since come crashing back down.
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Designing A Republican Bill Clinton
Continue reading… 4 CommentsEconomist Bruce Bartlett's new book attempts to create the platform for a Republican Bill Clinton—a compromiser who can bring GOP policies out of the fringe and into workable solutions. In this David Leonhardt piece, Bartlett identifies three policy stances for such a candidate: 1) deemphasizing tax cuts, 2) slowing or shrinking entitlement programs, and 3) a value-added tax to help close the deficit. Derek Thompson of the Atlantic adds a fourth suggestion: a modest tax on carbon.
[See 5 Myths About The Economic 'Recovery']
Let me add five more possibilities (on economics):
1. Guest worker compromise on immigration: Any "third way" Republican candidate will need to do something about the Hispanic vote, which most of the GOP has seemed determined to lose over the last few years. Bush tried to find a compromise on immigration, and failed. A Republican Bill Clinton could perhaps improve on Bush's attempt by focusing on just one simplistic proposal: new "smart" cards that would tie temporary workers to jobs in the U.S. This is the "Red Card" solution as advocated by some.
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Pelosi Says: Let's Even The Tax Playing Field
Continue reading… 7 CommentsVia Pethokoukis, I see that Nancy Pelosi is rallying behind the VAT as a way to even the competitive playing field with foreign manufacturers, especially European ones.
But regardless of what we do with the VAT, U.S. manufacturers will still be at a tax disadvantage. That's because U.S. corporate taxes are higher than literally every single highly-developed country in Europe.
I look forward to the day the Speaker will start railing against the unfairness of U.S. corporate taxes!
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Credit Default Swaps: Risk-Inducing, Or Risk-Stabilizing?
Continue reading… 5 CommentsLike bankers' pay, credit default swaps were quickly blamed as one of the culprits of the financial crisis early on, but as the dust has settled people are seeing that they're more complicated. Rene Stulz of Ohio State has a new NBER working paper out that looks at the various costs and benefits of over-the-counter credit default swaps, and he comes to the conclusion that, barring further empirical research, the problem may have been not enough of a derivatives market in 2008, not too much:
Investors and financial institutions generally believed that ex ante AAA tranches of securitization had a very small probability of default. Ex post, it turned out that many AAA tranches unexpectedly lost a lot of value. Because these tranches were held in large amounts by levered institutions, the losses on these tranches led to knock-on losses, reduced confidence in financial institutions, and made it harder for banks to make loans. In all this, derivatives exposures at times increased uncertainty about the financial health of some institutions and led to losses at some institutions, but they also enabled institutions to hedge and hence to reduce the impact of the fall in subprime securities and in other securities. It may well be that more robust derivatives markets in housing would have produced useful information for investors that would have changed the evolution of housing markets before the crash and would have enabled investors to hedge against drops in house prices.
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Innovation and Auto Manufacturing
Continue reading… 1 CommentDemocracy: A Journal Of Ideas has an interesting symposium on U.S. innovation. I was struck by this statement, in the context of how too much financial innovation has not contributed much to the U.S. economy:
While it is hard to imagine the downside to too much R&D in, say, auto manufacturing...
I think it's quite easy to conceive a downside to too much investment in auto manufacturing—and with the federal government's newly expanded role in that industry.
President Obama has often talked about the important of America retaining its traditional role as one of the lead car manufacturers around the world, and that Detroit needs to be at the forefront of new green automobile technologies. What's the problem with this competitive mindset? A paper from a few years ago by economists William Butos and Thomas McQuade takes a critical look:
