Capital Commerce
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Obama and the Olympics: An Economic Boost?
Continue reading… 1 CommentThe president's trip to Copenhagen to promote Chicago as an Olympic host city has raised criticism that Obama is wasting time for what is essentially a vanity project. Robert Gibbs has responded to those criticisms with a familiar argument that the Olympics are substantive for economic reasons:
White House press secretary Robert Gibbs said winning the games for Chicago would help the U.S. economy.
"Obviously any Olympics showcases the country that those Olympics are in and there's a tangible economic benefit to those games being here. And the president wants to help out America's bid."
But even people who generally support Obama are skeptical of this argument. Both Matthew Yglesias and Michael Tomasky doubt that the Olympics add much value; if any Olympic-associated infrastructure improvements are smart, then they are smart regardless of whether or not the Olympics come.
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Barney Frank on Executive Compensation and the Financial Crisis
Continue reading… 1 CommentPeople are starting to realize that while the story of lavish bankers' pay as one of the main root causes of the financial crisis might make sense, there is not much evidence to back it up. Jeffrey Friedman deftly explains how empirical studies of bank compensation have revealed that those banks where the CEOs had more of their own money invested in the success of the bank didn't perform better than those where the link was more tenous.
So this Times story looks at the debate (but strangely doesn't mention the Ohio State study Friedman discusses.) Here's how proponents of the theory are responding to the critics:
Professor Bebchuk, via e-mail, said he and Professor Spamann had not tried in their study to assess the evidence presented in the Stulz-Fahlenbrach study. But even if one accepted that evidence at face value, he added, it wouldn’t mean that bankers’ incentives were inconsequential.
Representative Barney Frank, the Massachusetts Democrat and chairman of the House Financial Services Committee, concurs. Mr. Frank, whose committee is considering pay reform legislation, said in an interview that it is entirely possible that in something as complex as the credit crisis, any one factor taken in isolation can seem insignificant even when it plays a large role.
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Will G-20 Look At Farm Subsidies and Climate Change?
Continue reading… 2 CommentsThe G-20 meeting in Pittsburgh is considering ways to reduce subsidies that articifically keep down the price of fossil fuels, thus contributing to greenhouse gas emissions. But what the G-20 nations will probably not talk about are the even more expensive set of subsidies that contribute to climate change in less obvious ways: farm subsidies.
I can think of two immediate examples: First, ethanol subsidies, which cost the U.S. $3 billion in 2007, lead to increased corn production. Deroy Murdock has written about the effects on emissions:
According to a study in the August 1 Atmospheric Chemistry and Physics, scientists discovered that “the use of several agricultural crops for biofuel production and climate protection can readily lead to an enhanced greenhouse warming by N2O emissions.” Nobel Prize-winning chemist Paul Crutzen and his three American, Austrian, and Scottish co-authors explain that nitrogen-rich fertilizers used in ethanol-driven corn production yield nitrous oxide, a greenhouse gas. Hence, “the relatively large emission of N2O exacerbates the already huge challenge of getting global warming under control.”
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Wayne County, Indiana: Don't Blame Economy For High Divorce Rates
Continue reading… 1 CommentWhy are divorce rates so much higher in some places than others? An AP story looks at recent Census numbers revealing a climbing divorce rate, and that Wayne County, Ind., is the nation's leader in divorced residents. Why that particular county?
Divorce counselors say the economy could be partly to blame for adding more stress to marriages. Indiana has been hit hard by the collapse of the auto and manufacturing industries. Wayne County had an average annual unemployment rate of 6.8 percent in 2008—when the census data was collected—a rate above the state average at the time but still below many other areas of the state and country.
It makes sense—times of great stress expose weaknesses in many institutions, and marriage could be one of them. It might not also be a coincidence that the county with the second-highest number of divorced residents is in Florida, one of the states hit hardest by the housing bubble collapse.
But, somewhat surprisingly, actual research done on the subject of divorce rates and the state of the economy seem to suggest there is little relationship. Check out this paper.
More recent research confirms that the rising level of female participation in the labor force, not unemployment or the overall state of economy, explains rising divorce rates to a much greater extent. In addition, female participation is associated with rising, not falling, incomes.
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Federal Reserve Unwinding: Not Until Next Spring?
Continue reading… 1 CommentOf all the commentary and speculation from economists in reaction to the recent Fed statement, I found this one the most interesting:
First, the Fed continues to extract itself from the array of special programs adding to the balance sheet more or less as expected. This doesn’t mean that tightening is around the corner, but policymakers are inching away from the extraordinary measures put in place in 2007 and 2008. Second, the Fed is taking their sweet time to do so. If in fact the Fed buys agencies and MBS until the end of [the first quarter] next year, then the Fed’s balance sheet is unlikely to peak until then, and various exit strategies (reverse RPs, etc.) may not even begin until next spring. –Stephen Stanley, RBS
[Emphasis added]
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G20 Talks: Damned If You Do...
Continue reading… 1 CommentThe FT reports how expectations are low for the G20's meeting this Friday on ways to achieve more "balanced" global growth:
British officials warned that unless more balanced growth could be achieved, the global community would have to accept either lower growth or a retreat to protectionism, as every country tried to create a trade surplus.
[emphasis mine]
So you can have either lower growth or... protectionism, which almost always means lower growth. What'll it be?
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Youth Interest In Entrepreneurship Still Declining
Continue reading… 0 CommentsIs renewed interest in big government sapping young people's interest in starting businesses? I'm not saying I subscribe to that theory, but there's at least some evidence for it.
Here's more: a new survey from Junior Achievement finds that 51 percent of U.S. teens are interested in starting their own businesses. That sounds high, but last year I reported that Junior Achievement had found 60 percent wanting to start their own businesses—down from 67 percent the year before. This new poll isn't the same as the old one, but that the number is at 51 percent is significant enough.
Better news in this current survey is that 92 percent of teens want entrepreneurial skills taught in school. You can't say the same about every scholastic subject.
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Marvel Disney Deal: Copyright Law Complexities
Continue reading… 0 CommentsThe Times reports how the possible expiration of Marvel's copyright claims on many of the biggest superhero characters like X-Men and the Fantastic Four complicates Disney's acquisition of the company.
The rise of the Internet has made copyright law more politically controversial than ever in recent years.
If you're a comic-book fan and want to learn more about the very confusing topic of copyright law, you should check out this comic produced by the Center for the Study of the Public Domain at Duke Law.
It reveals just how much the expiration terms in copyright law favor holders versus creative people that might want to use say, the X-Men in a project of their own. It's very difficult to calculate just how much money Disney would lose if it were not able to gain copyright control over these characters.
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Wall Street And Silicon Valley: Not That Different After All
Continue reading… 1 CommentDaniel Gross of Slate says: East Coast financial suits bite the government hand that feeds them, while West Coast cleantech gurus, with their "wide-eyed hucksterish world-changing idealism," are happy to accept hope and change.
It's simple enough to explain why the finance guys are so skeptical.
Having saved the banking system from failure and taken a significant ownership stake in the system, the government is now interested in telling banks how much they should pay employees, how much leverage they should use, and how aggressive they should be in modifying mortgages. And since such proposals would influence profitability, Wall Street detests them.
Now the Silicon Valley guys--is it really the case that, as Gross puts it, what they really care about is "changing the world," and if government funding is needed to do that, all the better?
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More On Big Boxes Destroying the Competition
Continue reading… 1 CommentThe "common-man" view of Wal-Mart and other "Big Box retailers" is that they are lethal to other businesses. That was the assumption behind a Time magazine headline from last week. Even a South Park episode that in the end defended a Wal-Mart-like retailer portrayed an abandoned, hollowed-out Main Street that had deteriorated when a big box moved into town.
But there hasn't been much evidence beyond these popular notions. Academic studies, however, are rolling in. Here's a new working paper from several economists that examines the effects Big Box retailers have on the employment growth of small chain businesses and single unit businesses (that is, the traditional Mom and Pop) in the Washington, D.C., metro area.
The study found that, yes, big box retailers reduce employment among smaller competitors, and even drive them out of business—but only in certain situations. What matters is 1) location and 2) industry.
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"Buy American" Provisions Mean the Opposite In Practice
Continue reading… 1 CommentThere is a long list of political slogans that were originated to create a certain frame in the mind of the public, but ended up being associated with the exact opposite effect that was intended by the sloganeers. "No Child Left Behind" is probably the best recent example.
Maybe we can add "Buy American" to that list. You'll recall that when the stimulus package was passed earlier this year, Congress inserted a provision that required many of the materials used in stimulus-funded projects to be purchased from American companies only. Supporters cheered that the "Buy American" provision would stimulate domestic employment at a time when it was needed most.
But what actually happened?
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Financial Reformers Remember: Market Flaws Can Be Government Flaws
Continue reading… 0 CommentsIn the Times yesterday, economist Robert Frank explains that the flaws in free markets that led to the financial crisis and recession are ultimately flaws in human nature. From there, it's an argument about why we need more government intervention to correct these flaws.
But there's one thing that needs to be added: Government is made up of humans, too. That's not an argument for inaction, but it is a reason to make sure that any "fixes" we implement don't just compound the problem.
Indeed, the flaws in markets are usually just as present in government action. Let me go through the flaws Frank discusses and give some examples of how they show up in government (also note that government has many flaws that are unique to it alone. I won't mention those here because there are too many to list in one post).
1. Relative performance matters more than absolute performance
Frank actually gives the best example of how governments, like markets, can get caught in races-to-the-bottoms that might help individual players but leave the group worse off: weapons proliferation and arms races.
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Can Democrats Retake Cap And Trade Debate?
Continue reading… 3 CommentsEarlier this week I posted about the reasons cap-and-trade isn't appealing to the American electorate. What I didn't go into were the possibilities that could change the game for cap-and-trade and its mostly Democratic supporters.
A new report from the Union of Concerned Scientists shows the kind of arguments they need to emphasize. It's full of concrete examples of costs Americans may have to pay for if nothing is done about climate change. Lexi Schultz, deputy director of the Climate Program at UCS, says "if we don't address global warming, you can imagine a cash register going 'ka-ching' all across the country." But the report also shows some of the difficulties with making economic appeals to voters to support climate-change legislation.
What are some examples of the "ka-ching" in the report?
California: Annual heat-related health costs could reach an estimated $14 billion by 2100, while rising ground-level ozone levels would boost medical bills by another $10 billion. The cost of protecting low-lying coastal property from sea level rise and the resulting storm surges, particularly around San Francisco Bay, would range from $6 billion to $30 billion annually by 2100.
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Wal-Mart To Destroy Small Businesses, Time Magazine Reports
Continue reading… 11 CommentsHere's the lead from a Time magazine story on Wal-Mart from yesterday:
Walmart loves to shock and awe. City-size stores, absurdly low prices ($8 jeans!) and everything from milk to Matchbox toys on its shelves. And with the recession forcing legions of stores into bankruptcy, the world's largest retailer now apparently wants to take out the remaining survivors.
It is certainly true that Wal-Mart has a tendency to "crush competitors," as the headline says. But is it true that, as that last sentence presumes, the more successful Wal-Mart is, the more there will be bankruptcies of smaller businesses?
There's actually some pretty compelling evidence that Wal-Mart could help smaller businesses overall. You can't just look at businesses that directly compete with Wal-Mart. There are also many businesses that do not compete with the retail giant but have customers with more money to spend thanks to Wal-Mart's dampening effect on prices of everyday goods.
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Cap And Trade In Trouble
Continue reading… 2 CommentsJimmy P has three reasons why cap-and-trade might be doomed to fail. Here's reason number two:
Most people won’t see an immediate benefit. Proposed changes in the U.S. healthcare system wouldn’t immediately change the current insurance coverage of most Americans, despite new government spending and higher taxes. Likewise, cutting carbon emissions will likely incur big costs today with any tangible benefits coming later this century. During a recession, neither provides the sort of cost-benefit analysis that strapped Americans are likely to find compelling.
I would add, more than just that voters don't see the benefits, they probably see the costs. There is strong evidence that when their pockets are being squeezed, consumers look to cut environmentally-friendly spending. Being green, in that sense, is another form of luxury spending—you won't buy the gold plating when you need to cut costs, and you're likely to not buy (or at least, less frequently buy) the luxury of feeling like you're helping the earth as well.
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Obama-Brooks Bromance: It's OK To Look Past Ideological Differences
Continue reading… 0 CommentsIn the Examiner today, Douglas McKinnon calls New York Times columnist David Brooks a "useful idiot" for being all buddy-buddy with the Obama administration:
Brooks has unabashedly become a cheerleader for Obama. Again, that is his right. What is not his right is to color the facts, nor to arbitrarily assign intelligence and station in life to others. With regard to the Obama White House, Brooks says, "I feel like I can call anybody. With Bush, there were months when I was in favor, and months when I was out of favor. Here, you can write whatever you want; you don't notice any diminution. If I call Rahm or Orszag or Axelrod, they're happy to talk."
I take it McKinnon means that, like the leftist Soviet sympathizers of America and Western Europe during the Cold War, Brooks is cozying up to a political entity that is doing harm to the ideals Brooks himself actually supports.
But his friendly relationship with the administration has not stopped Brooks from decrying the policy mistakes he thinks Obama is making. From a recent Brooks column:
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On Toy Makers And The Financial Crisis
Continue reading… 5 CommentsThe Washington Examiner's Tim Carney has a column on the CPSIA regulations that require makers of children's products to submit to expensive chemical testing (see previous posts here and here.) But guess who doesn't have to submit?
Recently, the Consumer Product Safety Commission (CPSC) voted unanimously to grant Mattel an exemption from the CPSIA's third-party testing requirement. The law provided for such exemptions if a company can demonstrate it has its own testing facilities that meet a certain standard.
Mattel in 2007 and 2008 lobbied for this provision, and lobbied for the overall bill, prompting the usual cries of "wow, even industry is on board!" Of course, Mattel was already completing its own in-house testing operation as a reaction to the bad publicity and litigation resulting from a handful of recalls of its toys containing unsafe levels of lead.
So while little mom-and-pop toy makers have to pay thousands of dollars to test their products, Mattel is off the hook.
This might seem like a regrettable, but minor issue. How much harm can come from some extra costs imposed on a few select small businesses?
But I think there's more worth pointing out here. The Mattel case is an example of a pattern in regulation that has proven to have dire consequences for the economy as a whole.
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Tax Cuts For The Poor Becoming Political Liability For Obama
Continue reading… 4 CommentsThe president wants to extend two tax credits for lower-income families that were supposed to be temporary products of his stimulus. Normally tax cuts for the poor would be the perfect bipartisan policy. But as further evidence that, contra Dick Cheney, deficits do matter politically, Obama's move is getting bipartisan criticism. The Post reports:
Deficit hawks are appalled. Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, called the move "outrageous" at a time when the nation is facing record budget deficits and the national debt is soaring toward a 50-year high. In addition to breaking Obama's pledge to pay for his policies, she said, it undermines confidence in Democrats' claim that the $787 billion stimulus package was truly a temporary measure aimed solely at reviving the slumping economy.
My thoughts:
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John Galt Not Hiding From The Public Eye
Continue reading… 9 CommentsOne of the strangest—but perhaps, predictable—trends that has accompanied the recession is a resurgence of interest in the writings of Ayn Rand and especially, the book Atlas Shrugged. Sales of the book have apparently soared over the last year. The book's hero, John Galt, has become a rallying figure for anti-big-government activists.
You might have seen the latest appropriation of Randian thought in your newspaper: one of the ads used by the Employment Policies Institute (started by famous lobbyist Rick Berman) as part of a new campaign called Defeat The Debt. Check out the ad here.
I'm guessing the ad mentions Galt in the context of high tax rates on wealthy individuals to remind us of the main conceit of the book: that the most productive individuals will withdraw from society when they feel the government has screwed things up too badly and exploited them. Obviously that won't really happen, but the campaign's implication is that we can't tax the wealthy much more in order to really make an impact on the national debt.
The problem is, it seems like among policy wonks, the debate is already settled that the wealthiest can't be the only targets if we want to make meaningful fiscal reform. Honest people from right to left know that broad-based tax increases are on the way. That's why, as I've mentioned, a value-added tax is likely to be the talk of Washington over the next few years.
To me, the VAT is the issue we should be debating—not whether or not the most productive of us will be fleeing to Galt's Gulch.
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Unemployment Won't Be Falling Anytime Soon
Continue reading… 3 CommentsThe new ADP report shows a bigger than expected drop in private sector employment for August. The Journal reports that most economists predict the official unemployment will tick back up to 9.5 percent, after a slight decline to 9.4 percent in July.
The numbers on private sector employment are probably worse than they sound because what they suggest for discouraged workers and other "marginally affected" workers. As I recently wrote about, the unemployment rate doesn't capture just how bad labor markets are because they don't count workers who gave up looking for work or those who were forced to go part-time. When private sector employment is dropping, it's a safe bet that more people will have to give up looking for work for lack of opportunity, and that more people will have to take part-time positions for lack of full-time work. So the unemployment rate plus the number of "marginally affected" workers is likely to stay above the levels of the early 80s recession.
