AEI » Latest Content http://www.aei.org American Enterprise Institute: Freedom, Opportunity, Enterprise Tue, 25 Nov 2014 21:59:06 +0000 en-US hourly 1 Education that workshttp://www.aei.org/events/education-works/ http://www.aei.org/events/education-works/#comments Tue, 21 Oct 2014 20:49:30 +0000 http://www.aei.org/?post_type=event&p=816541 AEI’s exclusive Vision Talks series convenes America’s leading scholars, thinkers, and practitioners to offer fresh perspectives on key areas of policy and public debate. These talks will be filmed and disseminated as standalone videos, such as Robert Doar’s “What works in helping the poor?” talk.

In the United States, we think of education as the key to equal opportunity. But while spending on education is higher than ever, student achievement — particularly for disadvantaged students — has not kept pace.

Myriad government efforts to improve educational attainment have shown mixed results at best. Is conventional thought on reforming education misguided? Is there a better way to foster excellence? What can parents, educators, and citizens do about it, and how can they make an effective case for change?

Please join us for four concise talks on why America needs to rethink education, what that thinking looks like in practice, and how compelling communication can turn ideas into action.

This event will not be live streamed.

If you have trouble registering, please contact laura.lalinde@aei.org.

]]>
http://www.aei.org/events/education-works/feed/ 0
Why the global gloom? World trade and world output are at record highs, and global equities are near record levelshttp://www.aei.org/publication/global-gloom-world-trade-world-output-record-highs-global-equities-near-record-levels/ http://www.aei.org/publication/global-gloom-world-trade-world-output-record-highs-global-equities-near-record-levels/#comments Tue, 25 Nov 2014 19:48:35 +0000 http://www.aei.org/?post_type=publication&p=822633 ...]]]> The CPB Netherlands Bureau for Economic Policy Analysis released its monthly report today on world trade and world industrial production for the month of September. Here are some of the highlights of that report:

1. World merchandise trade volume (adjusted for price changes) increased by 2.0% in September on a monthly basis and by 4.6% from a year earlier to reach a new all-time record high in September (see blue line in chart above).

2. On a year-over-year basis through September, the volume of trade grew more than two times faster in the world’s emerging economies than in the advanced economies for both exports (7.1% for emerging vs. 2.0% for advanced) and imports (6.25% vs. 2.9%). The growth in trade volume for the emerging economies was led by especially strong double-digit gains for the Asian countries, where exports grew year-over-year by 10.2% and imports by 10.3%.

3. At a new record high of 138.7 for the CPB world trade index in September, the volume of global trade is now almost 14% above its previous cyclical peak of 122.1 in early 2008, and 42% above the recessionary cyclical low of 97.6 in May 2009.

4. World industrial production (adjusted for price changes) increased in September on a monthly basis by 1.20% to a new record high, led by monthly growth of 1.4% in the emerging economies and followed by a slightly lower monthly growth of 1.1% in the advanced economies (see red line in chart).

5. On an annual basis, world industrial output increased 3.3% in September, with year-over-year output growth in the emerging economies of 4.7%, led by growth in the Emerging Asian economies of 6.6%. Factory output in the advanced economies grew by 2.2% year-over-year, led by the strong growth in the United States of 4.2%.

5. At an all-time high index level of 127.1 in September, world industrial production is now nearly 12% above its previous recession-era peak in February 2008 of 113.6, and 28.6% above the recessionary low of 98.8 in February 2009.

Bottom Line: World industrial output and world merchandise trade both reached new record monthly highs again in September. The volumes of world output and trade are now both well above their previous peaks during the early months of the global slowdown in 2008 (by 13.6% and 11.9% respectively), confirming that the global economy has made a complete recovery from the 2008-2009 economic slowdown and is now in a new cycle of solid and sustained growth. At the forefront of the global economic expansion in 2014 have been the emerging economies, which experienced especially strong growth over the last year through September in both trade volumes (7.1% export growth and 6.25% import growth) and industrial output (4.7%), led by double-digit growth in exports (10.1%) and imports (10.3%) in the Asian economies and 6.6% output growth.

worldstocks

Reflecting the strong growth in world trade and output over the last several years, the world stock market capitalization rallied to a new record high in August of $64.7 trillion (T) before retreating slightly in September and October (see chart above). Global equity values at $63.3T in October were above their 2007 pre-recession $58.5T peak by $4.8T (and by 8.2%), and above their recessionary low of $27T in 2008 by $36.3T (and by 134%). The complete recovery in recent years for the global economy with more new record highs this year for global trade, global industrial output, and world stock market capitalization demonstrates the incredible resiliency of economies around the world to recover and prosper, even following the worst financial crisis and global economic slowdown in generations. So why so much global gloom?

That’s a question Scott Grannis asked last week in a post about the global recovery (“Why the Global Gloom?“), where he had this to say about the rebound in global equities:

So consider the implications of the chart above. It shows that the market capitalization of the world’s equity markets has increased almost $40 trillion dollars since March 2009, and in the past two years the value of global equities is up about 30%. That’s a huge, and welcome increase. Does it mean that consumers are going to be spending double and triple as much because stock prices have almost tripled? No. It means that the expected future cash flows of corporations all over the globe have increased significantly. Consumers likely will be spending more in the future, but only because corporations will be making more and better stuff, hiring more workers, building new plant and equipment, and booking rising profits. The stock market is often able to look across the valley of despair and see a better future on the other side. It’s likely that that’s the case today.

It’s hard to get pessimistic about the future when the world’s stock markets are becoming more and more optimistic. For now, the world’s stock markets are seeing better times ahead, and investors seem to be getting the message.

 

]]>
http://www.aei.org/publication/global-gloom-world-trade-world-output-record-highs-global-equities-near-record-levels/feed/ 1
Some smart thoughts on housing, jobs, and economic growthhttp://www.aei.org/publication/smart-thoughts-housing-jobs-economic-growth/ http://www.aei.org/publication/smart-thoughts-housing-jobs-economic-growth/#comments Tue, 25 Nov 2014 19:37:40 +0000 http://www.aei.org/?post_type=publication&p=822644 Here is a needed addendum to my post earlier on how policymakers must focus on key middle-class, cost-of-living issues such as healthcare and higher education. I should have also mentioned housing, however. And has it happens, my pal Ryan Avent has an essay on this topic over at Cato Institute’s new online forum on economic growth.

It’s pretty logical: People should go where the jobs are if they are living where the jobs are not. In particular, they should move to places where high levels of productivity and innovation result in strong wage growth. But that is not happening. A lot more Americans are moving to lower-productivity Dallas or Houston than higher-productivity San Francisco. Of course, housing is five times more expensive in the Bay Area as Houston has built five times as much housing since 2000.

Here is Avent:

If one had a magic wand to wave and wanted to boost growth, magically neutralizing opposition to new development in the most productive cities would be one’s best bet. In the absence of a magic wand, solving the problem probably requires a two-pronged approach. On the one hand, it must be made easier for big cities to invest in big infrastructure projects, like the ones that allowed them to get so large in the first place. That means simplifying the regulations that constrain such investments and raise their costs. It means designing project bidding in ways that encourage competition and create the incentives for efficient, on-time construction. It means reforming the federal government rules that channel infrastructure money toward places that don’t need it, and, yes, it means using the federal government’s ability to borrow at remarkably low interest rates to make an economically justified investment in America’s future.

But infrastructure alone will not solve the problem. Instead, metropolitan areas may need institutional reforms that better balance the economic interests of the metropolitan area (and the country as a whole) with the interests and preferences of those living in neighborhoods that are likely to be affected by new development. When land-use decisions are made at a hyper-local level — giving local councilmembers or commissions extensive influence over which projects are approved, or focusing negotiation between residents and developers at the street level rather than the metropolitan level — the result will typically be far too little development. Those living immediately around a project enjoy some of its benefits but bear nearly all of its costs, in terms of disruption and congestion; they are therefore highly motivated to block projects and can succeed when local institutions enable them.

At a macro level, the payoff could be pretty big. Housing mismatch may be costing Americans a trillion dollars a year. It also makes sense to make it easier for the jobless to move to economically stronger cities through relocation vouchers, not mention better public transit — whether buses or congestion-priced highways — to connect workers to jobs within urban areas.

 

]]>
http://www.aei.org/publication/smart-thoughts-housing-jobs-economic-growth/feed/ 0
Hagel’s departure more about policy than the personhttp://www.aei.org/publication/hagels-departure-policy-person/ http://www.aei.org/publication/hagels-departure-policy-person/#comments Tue, 25 Nov 2014 17:48:42 +0000 http://www.aei.org/?post_type=publication&p=822631 One sentiment reigns a day after the news of Secretary of Defense Chuck Hagel’s early exit from the administration: Everyone, including the president, dislikes something about the U.S. strategy to combat then Islamic State in Iraq and Syria (ISIS).

Apparently, the White House was displeased with the uninventive military options Hagel presented to President Obama this fall. Members of Congress see Hagel’s departure as another opportunity to try and force the president to change course through his successor’s confirmation hearing process. And the Joint Chiefs of Staff will, for now, put off going public with their own boiling frustrations about the inadequate military approaches to achieve the soaring strategic goal of total defeat and a lacking whole-of-government strategy to sustain any battlefield gains.

Unfortunately, it is likely that not much will be different three months from now regarding U.S. strategy to combat Islamic extremists even after a change at the top of the Pentagon. In the meantime, the Defense Department will lose ground on its important but unsexy efforts to reform, innovate and plan for an uncertain future.

No matter who takes the job for the last two years of Obama’s tenure, all parties aside from the yet-to-be-named Defense chief seem set to wait out the clock, muddle through to a new national election and kick the can on any substantial policy work.
That is a shame, because in the case of Hagel, he was what the White House needed. Just not what it wanted.

Hagel may not have been the compelling, visionary leader the White House belatedly discovered it wanted — but didn’t know it until after they didn’t get it — but he was a competent and capable manager of the world’s finest military. His leaving means that the many Pentagon efforts at bureaucratic overhaul may simply stall out. (It was an uphill battle anyway from the beginning, but Hagel was not only tackling them head-on, but was eager to do so.)

The work that must get done in running the nearly 3-million-person Department of Defense does not dramatically change even with an E-ring nameplate switch. The next person leading it will still have to finalize a 2016 defense budget without one for 2015 signed into law; confront the looming specter of sequestration yet again and lobby for a mini-budget deal like the Ryan-Murray plan of two years ago; try to Band-Aid the readiness crisis in the ranks; push forward with wildly out of favor reforms like shedding bases and cutting overhead; keep the pivot to Asia on track while re-posturing more robustly in the Middle East and Europe with fewer forces and money; and prosecute well the many ongoing big and small military campaigns around the world on a daily basis. They must do this all while keeping a lid on simmering problems with U.S. nuclear forces and sexual assault in the military and while serving as the global messenger for U.S. defense policy with friends and allies and being the chief defender and negotiator for the executive branch’s defense policy with the legislative branch of another party.

As with Hagel, Washington can be sure there will be items on the incoming secretary’s agenda few can even predict at this point. Also as with Hagel, policymakers should be thankful this Thanksgiving for anyone willing to take all of this on at this point in America’s defense drawdown and when threats are increasing. Let’s hope Secretary Hagel’s successor keeps his number on speed dial, because he or she will undoubtedly need it.

]]>
http://www.aei.org/publication/hagels-departure-policy-person/feed/ 0
Europe’s sputtering economic locomotivehttp://www.aei.org/publication/europes-sputtering-economic-locomotive/ http://www.aei.org/publication/europes-sputtering-economic-locomotive/#comments Tue, 25 Nov 2014 17:37:26 +0000 http://www.aei.org/?post_type=publication&p=822609  

Today’s report that the German economy managed to expand by a mere 0.1 percent in the third quarter of the year has to heighten fears of a renewed European sovereign debt crisis sometime next year. Since a highly indebted European economic periphery needs a vibrant German economy to revitalize overall European economic growth and to prevent Europe from succumbing to outright price deflation. Sadly, German policymakers are showing little sign of reacting anytime soon to a stagnating German economy by a shift in their macroeconomic policy stance. Instead, they are sticking to the mantra of needing to balance the German government’s budget and they are continuing to resist the ECB’s proposed EUR 1 trillion balance sheet expansion.

image001

The fact that the German economy has literally shown no economic growth over the past two quarters is hardly surprising considering the multiple adverse shocks to which it has been exposed. German investment sentiment appears to have taken a serious blow from recent geopolitical events in both the Russia-Ukraine crisis and in the Middle East. At the same time, Germany appears to be losing international competitiveness due to a rapidly depreciating Japanese yen and to a policy induced increase in the German minimum wage. It is also not helping matters that there appears to be a considerable economic slowdown in a number of major emerging market economies like Brazil, China, and Russia.

At this delicate juncture for the European economy, three considerations would argue in favor of an early German fiscal policy response and of German support for aggressive ECB policy action. The first is that overall European inflation has already declined to 0.4% while European unemployment remains stuck at around 11 ½%. Absent an early pick up in European economic growth that might reduce Europe’s very high unemployment rate, Europe could succumb to Japanese-style deflation. The second reason is that the forces that seem to have contributed to the most recent German economic slowdown show little sign of going away anytime soon. If anything, the Russian-Ukraine crisis now appears to show signs of intensifying, the Bank of Japan appears to be bent on a policy path that will result in a further substantial weakening in the Japanese yen, and the emerging markets now appear to be experiencing a secular economic slowdown. A third reason for early German policy action to help a struggling European economy relates to domestic German political considerations. In recent months, anti-European sentiment has been rising as underlined by the fact that the newly formed Alternative for Germany party is now receiving between 10% and 12% of the votes in state elections. It would seem that the last thing that the German government wants to do now is to provide the German anti-European movement further grist for its mill by contributing to continued poor European economic performance.

One has to hope that there is an early shift in German economic policy thinking. Since experience would suggest that policy changes take time to bear fruit and to turn around an ailing European economy. And a struggling European economy that appears to be on the cusp of deflation and of a strong political backlash against austerity does not have the luxury of time to get its act together.

Follow AEIdeas on Twitter at @AEIdeas. 

]]>
http://www.aei.org/publication/europes-sputtering-economic-locomotive/feed/ 0
This is certainly the simplest immigration reform plan out therehttp://www.aei.org/publication/certainly-simplest-immigration-reform-plan/ http://www.aei.org/publication/certainly-simplest-immigration-reform-plan/#comments Tue, 25 Nov 2014 17:30:41 +0000 http://www.aei.org/?post_type=publication&p=822612 The more I review various immigration reform plans, the more I think this rather libertarian one by the late Gary Becker makes more sense. From Guy Sorman in City Journal:

Immigrants know that they will find a better life in the United States. Most will work hard at achieving that better life, Becker believed, because the American welfare state today doesn’t provide all that much support for those unwilling to work (unlike in Western Europe, where many immigrants live permanently on welfare). A Mexican or Chinese immigrant working in America will usually multiply his income by five or even ten times over what it would be in his country of origin. Given that reality, Becker thought, such immigrants, legal or illegal, would be willing to pay for such an opportunity—just as students and their families pay for college, perceiving it, rightly, as an investment that will bring greater earning power. “Visa seekers,” he wrote, “are comparable to college degree seekers”: they’re entrepreneurs, investing in human capital. Thus, Becker proposed, all visas should come with a price tag attached, set by the market. For American taxpayers, Becker claimed, the benefits of such a visa-for-money system would be substantial. Border control would cost less, for starters, since some immigrants who are tempted to sneak into America illegally (which costs them time and money) could now buy their way in legally. And immigrants ready to pay for visas would have an even stronger incentive to work to recoup their investment.

In a Beckerian system, wouldn’t wealthy immigrants be favored over the deserving poor? This is already the case, he replied: the rich can often obtain U.S. residency permits if they invest in the country. Becker wanted to extend the market for visas, now enjoyed by the wealthy, to the hardworking poor. If they didn’t have the money up front, aspirational immigrants should be able to borrow it, just as American students and their families do. In Becker’s view, the only losers in an open market for visas would be the often unsavory “coyotes” paid to transport Latin American migrants across the Texas border.

A visa market would remain imperfect, Becker admitted; he wasn’t a free-market fundamentalist (a breed that exists more in the liberal imagination than on the University of Chicago campus). Not all foreign workers purchasing a visa would earn back their investments. Some might fail completely, costing American society more than what they generate. Such realities illustrate the limitations of economics as a discipline: the individual’s personal fate is hidden in the data and models that the economist proposes. On average, though, Becker predicted, his visa plan would work far better than the dysfunctional current immigration system.

Of course, politics would still have a role, most obviously in setting the price. And I am sure that before long politicians would attempt to carve out exceptions or create multi-level pricing schemes. What’s more, the immigration reform mostly likely to happen is the one that most resembles the existing system, not something totally different. But at least the Becker plan is an attempt to look and economic costs and benefits and inject some economic rationality into our immigration system. A 2010 piece from The Economist offers a few downsides to the idea versus a “points” system like the one used in Canada.

]]>
http://www.aei.org/publication/certainly-simplest-immigration-reform-plan/feed/ 0
Handicapping Hagel’s successor: Homo politicus v. homo bureaucraticushttp://www.aei.org/publication/handicapping-hagels-successor-homo-politicus-v-homo-bureaucraticus/ http://www.aei.org/publication/handicapping-hagels-successor-homo-politicus-v-homo-bureaucraticus/#comments Tue, 25 Nov 2014 17:23:46 +0000 http://www.aei.org/?post_type=publication&p=822594 The expected public apotheosis of soon-to-depart defense secretary Chuck Hagel has begun, with the man many now calling a “scapegoat” receiving praise from those who recently derided him in public or private. Even as Washington engages in this strangely touching and humanistic rite, D.C.-watchers are already handicapping his potential successor. Anthropologically speaking, the candidates will come from one of two species: homo politicus or homo bureaucraticus. Those who expect Obama to appoint someone on the left with views of the military similar to his own are betting on a political choice, such as former senator Jack Reed from Rhode Island. A more centrist, if not right wing, defense choice from the political side would be former senator Joe Lieberman of Connecticut. Getting a big name from the political world to pick up the pieces of the collapsing Obama foreign and security policy, though, may not be easy. Few politicians like to come in on the shovel brigade during the waning days of any administration.

The D.C. policy establishment, on the other hand, seems to be betting on a bureaucrat. This is not surprising, given that most of the pundits are from this species, and thus both most familiar with and hopeful for the selection of one of their own. The three names emerging early in the top running are former under secretary of defense for policy Michele Flournoy, founder and chief executive of the Center for a New American Security, a D.C. think tank; former deputy secretary of defense Ashton Carter; and current deputy secretary of defense Robert Work. Also in the mix is John Hamre, head of the Center for Strategic and International Studies, and a longtime D.C. player as well as former deputy secretary of defense.

What is interesting about these four is that they are not weak personalities, nor individuals who would agree to be sidelined the way that Hagel appeared to be. They would salute and carry out the president’s orders, of course, but those who know them expect they would be active voices in national-security decision making for the last two years of Obama’s term. That may be where the parochial interests of homo bureaucraticus blind them to a more accurate appreciation of the odds of such an individual being appointed by a White House that seems to avoid precisely such powerful individuals outside the president’s inner circle.

Choosing any of those listed above, or Lieberman, for that matter, would fly in the face of much criticism, both from Democrats and Republicans, of Obama’s perceived increasing isolation, tone deafness, and even “bunker” mentality. The best recent example of such thinking is a long, controversial article in The New Republic on the outsized and unprecedented power of senior advisor Valerie Jarrett on matters both domestic and foreign.

The rap on Obama for wanting to be the smartest person in the room (or thinking himself so) would have to be rethought if Lieberman, Flournoy, Carter, Work, or Hamre were chosen to lead the Pentagon. Each would garner major bipartisan support, be respected intellectually, and listened to with a seriousness not evident since Leon Panetta left the building. Given the drift and uncertainty over policy toward Russia, the Islamic State, and Iran, the next secretary of defense will be no placeholder in a lame-duck administration, but rather a crucial player in an environment of mounting threats.

Yet not everyone is convinced the West Wing will welcome such a challenge to its cocoon. One well-placed Democratic insider told me with reference to Flournoy, “She’d be a terrific candidate, but I think they are likely going in a different direction.” That would be a missed opportunity, and would open the doors to criticism of the next secretary of defense as biting as that which helped undermine Chuck Hagel.

]]>
http://www.aei.org/publication/handicapping-hagels-successor-homo-politicus-v-homo-bureaucraticus/feed/ 0
This is the kind of inflation that Republicans should worry abouthttp://www.aei.org/publication/kind-inflation-republicans-worry/ http://www.aei.org/publication/kind-inflation-republicans-worry/#comments Tue, 25 Nov 2014 16:33:06 +0000 http://www.aei.org/?post_type=publication&p=822578 We should want the US economy to be as innovative as possible. For instance: Innovative new companies provide new goods, services, and high-paying jobs. Innovation also helps raise living standards by making good and services more affordable. As Scott Andes of Brookings notes in a blog post:

Computers, information technology services, and appliances are all cheaper today than 25 years ago, while the price of automobiles has grown by less than a percentage point annually. Today it takes fewer hours of work for a middle income wage earner to afford a car than at any time in history. These price declines constitute unequivocal wins for the American middle and working classes.

But as the above chart from Andes shows, the cost of some key services — including health and education — have outpaced incomes. And this reflects a lack of innovation and productivity and competition. Many Republicans fret about inflation. But it’s the wrong kind of inflation that they are worrying about. The problem isn’t the government central bank’s “money printing,” but the government’s distortion and inefficient provision of important services. And it is addressing these cost-of-living issues that is at the core of the conservative reform movement. As Ramesh Ponnuru wrote just after the 2012 election:

The Republican story about how societies prosper — not just the Romney story — dwelt on the heroic entrepreneur stifled by taxes and regulations: an important story with which most people do not identify. The ordinary person does not see himself as a great innovator. He, or she, is trying to make a living and support or maybe start a family. A conservative reform of our health-care system and tax code, among other institutions, might help with these goals. About this person, however, Republicans have had little to say. ..

The perception that the Republican party serves the interests only of the rich underlies all the demographic weaknesses that get discussed in narrower terms. Hispanics do not vote for the Democrats solely because of immigration. Many of them are poor and lack health insurance, and they hear nothing from the Republicans but a lot from the Democrats about bettering their situation. Young people, too, are economically insecure, especially these days. If Republicans found a way to apply conservative principles in ways that offered tangible benefits to most voters and then talked about this agenda in those terms, they would improve their standing among all of these groups while also increasing their appeal to white working-class voters. 

I guess I view it this way: A smart, center-right policy agenda would include a focus on a) revitalizing US entrepreneurship, b) modernizing the safety net to make it more affordable long-term and more pro-work,  and c) dealing with the cost, availability, and quality of education (K-12 and college) and healthcare. What am I missing here?

 

 

 

 

 

]]>
http://www.aei.org/publication/kind-inflation-republicans-worry/feed/ 0
Bring Congress’s budget watchdog out of the shadowshttp://www.aei.org/publication/bring-congresss-budget-watchdog-shadows/ http://www.aei.org/publication/bring-congresss-budget-watchdog-shadows/#comments Tue, 25 Nov 2014 16:25:26 +0000 http://www.aei.org/?post_type=publication&p=822588 Douglas Elmendorf, the director of the Congressional Budget Office, is a respected economist. He’s also the subject of an intra-Republican debate that has broken out since the midterm elections. Democrats appointed Elmendorf to his position, and now that Republicans will control both houses of Congress they can replace him. They’re divided about whether they should, and their debate suggests a deeper flaw in a very important government office.

The CBO estimates the costs and effects of legislation and analyzes budget decisions for Congress. It typically offers a “score” of how a given law would affect federal revenue and spending. The idea is to offer a nonpartisan factual basis for debate.

Elmendorf’s term as the head of the office ends Jan. 3, and several conservative economists have come out for reappointing him. They say that he’s an honest broker, and that because he’s a liberal it carries extra weight when he questions liberal talking points. When the CBO said that raising the minimum wage to $10.10 an hour could be expected to reduce job growth by 500,000, it had a big impact on the debate.

Republicans who want a new director have disparaged some of the reports the agency issued during Elmendorf’s term — particularly its positive findings about President Barack Obama’s stimulus spending and his health-care law — and criticized the organization for not embracing “dynamic scoring.” They think that when estimating how tax cuts or tax reform would affect federal revenue, for example, the CBO should take into account the possibility that the policy change would cause the economy to grow faster.

Both groups of Republicans are thinking too narrowly about the organization. Its biggest problem isn’t that it reaches the wrong conclusions — it is usually very unclear what the right conclusions are — or that it doesn’t make the same assumptions as supply-siders. It’s that the CBO’s assumptions are largely secret.

This secrecy, combined with the CBO’s reputation as a nonpartisan referee of legislative disputes, warps policy making. Backbench lawmakers try to design bills that will get a good score from the CBO, without having a clear sense of how to do so. Consultants can make a lot of money by predicting how the CBO will model the effects of legislation.

A number of critics have therefore suggested a more transformative solution than merely changing the CBO’s director or making it adopt dynamic scoring. They want to “open source” the CBO: make its models public so that anyone can apply them to policy proposals, and dispute the models’ assumptions. The CBO’s work would continue to be very important. But when its analysts said that a law would have effects A, B and C, we wouldn’t have to take their word for it as often as we do now.

A new conception of the CBO lends itself naturally to a new director. And it would be odd for Republicans to leave a Democratic appointee in such a politically sensitive position — the equivalent of a Republican president leaving Health and Human Services Secretary Sylvia Burwell in her job because she knows her way around the department.

Ultimately, though, the problem with the CBO isn’t who is in charge of it. The problem is that it’s so important who’s in charge of it, and that their assumptions are generally so opaque. More transparency would solve those problems.

]]>
http://www.aei.org/publication/bring-congresss-budget-watchdog-shadows/feed/ 0
China and Japan’s standoff in the East China Sea: It could get very uglyhttp://www.aei.org/publication/china-japans-standoff-east-china-sea-get-ugly/ http://www.aei.org/publication/china-japans-standoff-east-china-sea-get-ugly/#comments Tue, 25 Nov 2014 16:22:57 +0000 http://www.aei.org/?post_type=publication&p=822558 Among the more prominent narratives to have come out of the APEC Summit in Beijing was one of China and Japan agreeing to “break the ice” after years of tense relations. Observers noted that between the personal meetings and the “joint statement” released just days beforehand, President Xi Jinping and Prime Minister Shinzo Abe had finally found common ground, even if it was based on an agreement to disagree. Such characterizations of these developments, however, gloss over what actually occurred and obscure China’s skillful political jockeying and resultant diplomatic victories. The so-called “joint statement” far from reflected any real agreement (including on what they disagreed about), with each side issuing competing English interpretations, while the ballyhooed handshake between the leaders of the two countries provided a public venue to exhibit just who held the upper hand in the relationship.

The Joint Statement That Wasn’t

In the days leading up to the APEC summit, China’s state councilor Yang Jiechi and Japan’s national security advisor Shotaro Yachi met in Beijing to negotiate a joint statement that would pave the way for a Xi-Abe meeting on the sidelines. China had previously insisted upon two preconditions before such a meeting could occur: Japan had to acknowledge that a dispute existed over the Senkaku (or Diaoyu, as the Chinese call them) Islands; and Abe had to promise to abstain from any additional visits to the Yasukuni Shrine, which enshrines Japan’s war dead, including fourteen Class-A war criminals. The negotiations resulted, supposedly, in an agreement on four principles upon which Sino-Japanese relations could finally proceed. Yet, no sooner had the ink dried on the announcement, than was each side claiming it had compromised on nothing and releasing distinctly different translations of the agreement.

Regarding the territorial row, the Japanese statement made no mention of any other country’s claim or dispute regarding the Senkaku Islands. Instead, it simply noted that both sides recognized that “different views” existed on the “tense situations” in the waters of the East China Sea. This remained consistent with Japan’s policy of denying the existence of competing territorial claims to the islands and instead drawing attention to China’s aggressive maritime behavior in the East China Sea. The Chinese version, on the other hand, claimed that both sides acknowledged the “different positions” regarding the tensions over the “Diaoyu Islands,” as well as over the waters surrounding them. Thus, the Chinese could claim that the Japanese had finally changed tack on their long-held policy and had given in to the first of their preconditions for any summit-level meeting.

On the issue of Abe’s visits to Yasukuni and Japan’s treatment of its wartime past, no direct mention of them appeared in either statement, although there was an acknowledgement of “political difficulties” in the Japanese statement and “political obstacles” in the Chinese one. Here, the differences between the two statements were less severe, though still notable, and come down to the use of “would” versus “have,” respectively, when discussing the overcoming of their disputes. In other words, the Japanese statement is limited in nature, noting that these difficulties would be overcome, though perhaps not yet. The Chinese statement, on the other hand, claims far more, suggesting the two countries have already agreed in some respects on how to resolve the obstacles.

Unfortunately for Japan, however, what might have seemed like a pragmatic approach toward clearing the path for a meeting between the two leaders handed Xi a powerful victory on two fronts. Domestically, he can shore up support for his leadership from the Chinese public, claiming that he was able to extract an acknowledgement from Japan regarding China’s claims to the disputed islands. Indeed, following the release of the statements, an editorial in the state-controlled Global Times noted, “Now that Japan has agreed to sit down with China to talk about crisis management, it is equal to admitting that the disputes over the Diaoyu Islands’ sovereignty have become the new reality.” And, in subsequent negotiations touching on territorial issues, China will insist that any resolutions be premised on Japan’s acceptance of the Chinese understanding of the November 7 “joint” statement, a situation that, at the very least, will require Japanese negotiators to expend considerable energy clarifying.

The Chinese can likewise claim a diplomatic success on the “history” issue as well, which ironically paves the way for additional tensions. Japanese government leaders, if not the prime minister himself, will undoubtedly visit Yasukuni again, perhaps even in the coming weeks. When they do so, Beijing will express outrage not only over their lack of repentance for actions dating to World War II, but for violating the new bilateral agreement. In this way, the statement will become an additional wedge driving Japan and China apart, rather than a new foundation upon which to build a more stable relationship.

The Handshake Heard Round the World

If the problematic dual statements marked the only real loss Japan suffered in the process of securing Abe’s coveted meeting with Xi, then perhaps one could deem them merely tactical setbacks offset by strategic gains. Yet, like the statements, the meeting can hardly be called a success for the Japanese.

There was certainly no expectation for a grand bargain to emerge or for Abe and Xi to come to a meeting of the minds, but the hope had been that a formal sit-down would move the bilateral relationship back to firmer footing. If anything, however, Xi emerged appearing to be the stronger of the two leaders, a troubling development as such perceived imbalances in Sino-Japanese dynamics are often destabilizing.

What went wrong? Ahead of the meeting, Xi deftly maneuvered Abe into the position of supplicant. In recent months, Abe had repeatedly stated his desire for a face-to-face with Xi, with his government engaged in obvious lobbying to secure it. The Chinese leadership never evinced any such similar desire, ensuring Xi was in a position to grant or deny the Japanese request.

Xi, of course, ultimately approved the meeting, but took pains to give the appearance that he had deigned to meet with Abe, rather than welcomed such an encounter. Abe’s much-sought-after handshake was certainly not worth the trouble. With cameras flashing and video rolling, Abe did all of the talking as he took the hand of Xi, who turned away while Abe was still speaking, put on his best “I-don’t-want-to-be-here” face for the cameras, and refused to make eye contact with the Japanese leader once the handshake was concluded. It was a juvenile performance for the paramount leader of the world’s biggest country and, perhaps, in acting like an adult, Abe can claim he was the bigger man. But the fact is that Abe was embarrassed on the world stage by his purported equal.

Xi, likewise, ensured that Abe would play the role of petitioner in their private meeting. It was no coincidence that in the weeks leading up to the APEC summit, and with a potential meeting in the works, Chinese poachers stepped up their illegal harvesting of protected coral in uncontested Japanese waters. As reported by the Wall Street Journal, Japanese foreign minister Fumio Kishida described a fleet of over 200 Chinese ships sailing in or near Japanese waters in late October. A Coast Guard spokesman noted that the number of arrests that month was “far from average.”

And so, when the Japanese prime minister got his one-on-one with his Chinese counterpart, Abe also had to ask Xi for help putting a stop to the illegal poaching operations. Much has been made of the fact that the two leaders spent twenty-five minutes together, but that is not much time to discuss heated territorial disputes, crisis-management mechanisms and historical tensions. Every minute spent on the poaching issue was a minute not spent discussing those areas most likely to bring Japan and China into conflict.

A Thaw in Name Only

At a meeting intended to break the ice, Abe instead received a very frosty reception. He went down this path in large part due to U.S. pressure, with Washington looking to Tokyo to reduce tensions in the East China Sea. But in the process of doing so, he violated a key tenet of statecraft: never negotiate for negotiations’ sake. Thus, rather than achieve “détente”—or anything resembling it—Abe handed Xi a domestic-political win, found himself on the defensive at home and abroad and secured little of value from either China or the United States.

Having looked so weak in Beijing, Abe may now actually be less able to compromise with a Xi Jinping who, in any case, gave no hint that there was wiggle room for altering Chinese behavior in the East China Sea. And with the joint statement proving to be new fodder for the quarrel, rather than an impetus for improving ties, a true crisis in Sino-Japanese relations could, troublingly, be closer than it was just two weeks ago.

]]>
http://www.aei.org/publication/china-japans-standoff-east-china-sea-get-ugly/feed/ 0
Where are all the workers? | What if the rest of the U.S. economy starts to look like manufacturing?http://www.aei.org/publication/where-are-all-the-workers/ http://www.aei.org/publication/where-are-all-the-workers/#comments Tue, 25 Nov 2014 15:33:02 +0000 http://www.aei.org/?post_type=publication&p=822554 There is a famous economic fallacy that posits the amount of work to be done is fixed or static. So if machines do more, human do less. Classic zero-sum thinking that has been disproved in the many decades since the start of the Industrial Revolution. In 1900, 40% of American workers were farmers. Now it’s less than 2% thanks to better techniques and technology. But we found other things for those folks to do. They went to work in factories. As the above chart shows, however, manufacturing is also becoming ever-more productive with fewer workers. What if the employment-output charts of an increasing number of non-manufacturing sectors start looking the same thanks to automation?  Andrew McAfee:

Because of advances in sensors, software, chips, and the other components of robots, and because of lots of innovating and tinkering with them, the industries that deal with physical products — distribution, transportation, wholesaling, and so on — are about to become a lot more productive. My guess is that their output-vs.-employment graphs are going to start to look a lot like the manufacturing one above.

And because of similarly impressive advances in artificial intelligence, machine learning, crowdsourcing, and exploitation of Big Data, the same will in the near future be true of industries that deal with virtual products like knowledge, information, media, decisions, and communication. In many cases, their employment will start to trend downward even as their output rises over time.

I don’t know of any economic law that prevents this from happening. Yes, I’m aware of the “lump of labor fallacy.” But I think the more up-to-date fallacy is the assumption that a growing industry means that there will be more work for people to do, rather than for ever-more capable machines to do. The graph above shows that this has clearly not been the case for US manufacturing over the past 30 years. In an era of astonishing technological progress, why won’t the same be true for other industries in the US and elsewhere? If you have some faith that employment must keep rising as output does, please leave a comment and explain where it comes from. Because the evidence, both past and present, is making me a skeptic.

Indeed, there was another kind of worker a hundred years ago that didn’t adapt so well to technological progress. There used to be millions of horses plowing fields, transporting goods, and carrying passengers. But as economist Gregory Clark has noted, ” … the arrival of the internal combustion engine in the late nineteenth century rapidly displaced these [equine] workers … There was always a wage at which all these horses could have remained employed. But that wage was so low that it did not pay for their feed.”

And the horses were not able to upgrade their skills set to command a higher wage. People are more adaptable, of course. But how many will be able to upgrade their skills, both cognitive and non-cognitive, to take advantage of the high-wage, tech-driven jobs of the future? One possible scenario is the one painted by Tyler Cowen where a small slice of workers have great-paying, high-skill jobs, a much bigger bit has high-touch jobs where wages are stagnant, and many fewer people work at all. The exact ratio, I suppose, will depend on how many new innovative firms the economy can create, how well we reform education, and whether we choose to subsidize work at the low or move further toward a basic income model.

]]>
http://www.aei.org/publication/where-are-all-the-workers/feed/ 0