AEI » Latest Content American Enterprise Institute: Freedom, Opportunity, Enterprise Sat, 22 Nov 2014 05:25:14 +0000 en-US hourly 1 An amazing chart of an amazing job-creating state; we owe a debt of gratitude to ‘Saudi Texas’ and the shale boom Sat, 22 Nov 2014 00:22:24 +0000 ...]]]> The chart above shows a most amazing economic phenomenon: Since December 2007 when the Great Recession started, Texas civilian employment has increased by 12.4% and by more than 1.36 million jobs, from just over 11 million jobs in December 2007 to 12.37 million in October of this year (see blue line in chart). In contrast, civilian employment in the other 49 states without Texas is still 0.26% and more than 350,000 jobs below the December 2007 level (see red line in chart) — there were 134.9 million non-Texas jobs in October vs. 135.26 million in December 2007.

It’s also important to note that while job growth in Texas slowed considerably in 2008 and 2009 due to the recession, the level of civilian employment in Texas never fell below its pre-recessionary, December 2007 level. Also, while Texas was able to actually increase jobs slightly even during the depths of the recession in 2008 and 2009, the US labor market minus Texas experienced a stunning loss of 8.374 million jobs (a percentage drop of 6.2%) in the two year period between December 2007 and December 2009.

In another job-related milestone for Texas, the BLS reported today that annual payroll employment in Texas increased in October by more than 400,000 jobs from a year ago for the third straight month, and established a new all-time state record for job growth over a 12-month period with a 421,900 gain from October 2013. Over the last year, Texas has added more than 1,600 new jobs every business day – a hiring rate of more than 200 jobs every hour! Also, Texas’s annual job gain of 421,900 through October represented 16% of the country’s 2.643 million increase in nonfarm payroll employment over that period, even though Texas’s population is only 8.4% of the US total. In percentage terms, Texas payrolls increased by 3.74% over the last 12 months, almost double the 1.93% growth in US payroll employment.

The chart and data tell a powerful and remarkable story of job creation in the Lone Star State of more than 1.36 million new jobs added since the start of the Great Recession, compared to a net deficit of 354,000 jobs for the other 49 states combined. Much of the economic success of Texas in recent years that has fueled job creation in the state is a direct result of the shale oil and gas boom taking place in areas like the Permian Basin in west Texas (1.8 million barrels of oil per day) and the Eagle Ford in south central Texas (1.6 million barrels per day). Texas is now producing almost 37% of America’s total crude oil production, and as a separate country would be the world’s 8th largest oil-producer. Further, Texas has done a great job of attracting businesses like Toyota because of the state’s “employer-friendly combination of low taxes, fair courts, smart regulations and world-class workforce.”

Bottom Line: The country, the president, and all of us individually owe a huge debt of gratitude to the state of Texas and to the oil and gas industry for helping support the US economy during and after the Great Recession. Without the energy-driven economic stimulus from the fracking revolution, and without the gusher of jobs in the state of Texas, there’s no question that the Great Recession would have been much worse and lasted much longer, and the jobs picture today would be much bleaker. The chart above helps to illustrate how important the state of “Saudi Texas” is to the US labor market and economy. Thanks largely to the Lone Star State, the US has finally gained back all of the jobs lost during the Great Recession – September and October this year have been the only two months since 2007 that civilian employment in the US surpassed the pre-recession jobs peak. God Bless Texas.

]]> 11
Obama’s immigration executive order Fri, 21 Nov 2014 22:15:56 +0000 ...]]]> Last night in prime time remarks, President Obama laid out his plan to address illegal immigration in the US. While some are hailing it as necessary action in a stalled political system, others are calling it a drastic overreach beyond the scope of presidential power. AEI scholars offer their perspective on the executive order, from its policy merits to the potential political implications.

AEI immigration expert Madeline Zavodny explains how the executive order is detrimental to reforming the immigration system as a whole:

The real disappointment is that this executive action distracts Congress and the American public from the far more important issue of the need to reform the entire U.S. immigration system. Instead of focusing on unauthorized immigrants, who are less than 30 percent of all immigrants in the U.S., the U.S. should rethink how it admits legal immigrants. The U.S. needs to change its legal immigrant system to increase the number of visas available to workers and to reduce chain migration based on family ties.

Visiting Fellow Roger Noriega explores the executive order’s potential to increase illegal immigration:

The president’s decision to grant lawful residence and work permits to about 4 million aliens with children who are US citizens or legal US residents cannot be implemented without funding, and, starting in January, a Republican Congress pulls the purse strings. Even if funds were forthcoming, about 8 million aliens are not covered by Obama’s order. So, the White House decision has merely sown more confusion and anxiety among these illegal aliens. In the meantime, as word spreads in Mexico and Central America that President Obama is doling out green cards and work permits, more immigrants might take their chances at an illegal crossing.

Resident Scholar Stan Veuger, however, examines its benefits:

What the president is doing, in effect, is going from not enforcing federal immigration law (much like his predecessors) to announcing that he is not enforcing federal immigration law, and detailing more of the specifics of this non-enforcement. In other words, he’s gone from not deporting 11 million people to not deporting 5 million or 3 million people. For a number of reasons this is, along practically all dimensions, good and helpful public policy.

To arrange an interview with an AEI scholar, or for other media inquires, please contact AEI Media Services by emailing (202.862.5829) or a media representative below.

]]> 0
How to check the president Fri, 21 Nov 2014 20:09:20 +0000 President Obama last night unveiled an executive order that suspends the deportation of as many as 5 million illegal aliens — almost half of the estimated 11 million persons illegally present in the United States — for the remainder of his term of office. He also intends to issue work permits to many of them. The administration’s stated objective is to “normalize” the conditions of life for the beneficiaries of the order — to enable them to be as fully integrated into mainstream American society as possible. The president’s expectation is that his successor and a later Congress will hereafter be forced, morally and politically, to legalize the permanent presence of this population and to put it on the path to citizenship. As former Justice Department lawyers who a) have defended a vigorous executive branch and b) support an expansion of immigration quotas, we believe that Obama is violating the Constitution and that Congress and the courts must respond.

When he assumed office, Obama swore that he would enforce the Constitution and the laws. During his first election campaign, and for a period after, he and his party argued against what they saw as overreaching claims to executive power made by President George W. Bush. Obama originally acknowledged that he, as president, had no legal authority to take exactly the kind of step that he has just ordered. In 2011, he said: “With respect to the notion that I can just suspend deportations through executive order, that’s just not the case, because there are laws on the books that Congress has passed. . . . [W]e’ve got three branches of government. Congress passes the law. The executive branch’s job is to enforce and implement those laws.” In 2013, he said: “I’m not a king. I am the head of the executive branch of the government. I’m required to follow the law.”

In acknowledging his constitutional duty to enforce the law (even when the law embodies policy choices with which he vehemently disagrees), Obama was merely restating what many earlier presidents, including Lincoln and Washington, had said long before. Basing themselves on centuries of English law, precedent, and practice, the Framers had consciously denied the president any authority to “suspend” the law. They embodied his duty in Article II, Section 3 of the Constitution, which requires the president to “take Care that the Laws be faithfully executed.”

Defenders of the legality of the president’s action have made several arguments on his behalf.

“We don’t have the funding.”

Budgetary constraints preclude the enforcement of federal law at all times and in every case. Administrators have to make judgments about the best use of the scarce resources available to them. They must choose what enforcement measures to take and which cases to bring. Obama’s defenders have claimed that his deportation deferrals reflect the prudent and permissible choice of enforcement priorities in immigration.

But budgetary concerns do not drive Obama’s decision. If they did, Obama would have taken the non-enforcement decision as quietly as possible, rather than announce it in a blaze of publicity. Handling such a policy shift discreetly would not encourage massive and continuing violations of the law. If a county prosecutor lacked the resources to prosecute any burglaries, announcing that she would no longer bring burglary cases would have the foreseeable effect of making burglaries more common. So it is here. Announce to illegal aliens that they have zero risk of deportation, and they are more likely to stay. And others outside the country more likely to enter illegally. Obama’s 2012 announcement provoked the tragic surge of children seeking to enter the United States illegally from Central America last summer.

Work permits are plainly not a cost-savings measure. They only raise the expected level of violation of the law. An illegal alien with work authorization and a legal job is more likely to remain. If the president truly means to enforce the immigration laws within financial constraints, he would deny, not grant, work permits and other benefits. Finally, the stated aim of the decision is to integrate the beneficiaries as much as possible into the mainstream of American life. But that too is not a budgetary purpose; it is a legislative policy choice, which may well increase costs to government at all levels as illegal aliens make use of schools and social services.

“Reagan and Bush did it.”

Part of Obama’s decision is known technically as “deferred enforced departure” (DED). It covers some but not all of the 5 million. This piece of the policy is the part that carries work authorization. Those who are granted DED have a “quasi-legal” status. Apologists for this action have argued that other presidents have granted DED on a class-wide basis on numerous occasions.

But in a July 2012 memo, the well-regarded Congressional Research Service (CRS) compiled a list of the blanket DED grants since 1976. CRS noted that “most of these discretionary deferrals have been done on a country-specific basis, usually in response to war, civil unrest, or natural disasters. In many of these instances, Congress was considering legislative remedies for the affected groups, but had not yet enacted immigration relief for them.” Obama’s policy differs from the general pattern of the past 40 years in three important ways: It is not country-specific; it does not arise from a critical humanitarian emergency in the home country; and it is done in open defiance of Congress.

If past practice sets the norm, then we should also consider President Eisenhower. When Eisenhower entered office, he found that our southern border was porous. As many as 3 million illegal aliens had walked or waded northward. Once in the United States, they were often forced to take work in agriculture, including cotton growing in the Rio Grande Valley, and were paid half the wages of ordinary working Americans. Using only 1,075 Border Control agents — roughly a tenth of the number available to Obama — Eisenhower cut off the illegal flow. In one month, immigration officers captured 50,000 illegal workers in two states; another 488,000, fearing arrest, fled the country. Within the next three months, 500,000 to 700,000 illegal workers had fled Texas voluntarily.

“It’s a matter of prosecutorial discretion.”

Prosecutorial discretion is indeed one of the president’s affirmative authorities and is rooted in the text of the Constitution. But its primary sphere of operation is in the criminal law. The executive’s power not to bring a criminal case even against a suspect who is likely to have committed a crime can be seen as a logical corollary of the president’s power to pardon. Clemency for those accused or convicted of crimes had long been considered an essential attribute of rulers, and the Framers vested that traditional authority in the president. Moreover, prosecutorial discretion in the criminal area makes sense in separation-of-powers terms: If Congress has enacted a criminal statute that is too harsh, or has become obsolete, or clearly was not intended to apply in a specific situation, prosecutorial discretion serves the constitutional goal of protecting individual liberty from the tyranny of one branch. But the Constitution provides no affirmative presidential power not to enforce the civil law as against a class of 5 million people. That is not “prosecutorial discretion”; it is simply the refusal to discharge a basic constitutional duty.

Obama’s Justice Department seeks to defend his order by reference to a 1985 Supreme Court case, Heckler v. Cheney. Although the Court declined to review the legality of an agency’s non-prosecution decision in a particular case, this doesn’t offer much help to Obama. First, the Court was as much concerned with limiting its own powers as with defining the executive branch’s responsibilities. In general, courts should not review non-enforcement decisions in specific cases. If they do, they will be micro-managing executive functions, in violation of separation-of-powers principles. But the non-reviewability of an executive choice for inaction doesn’t mean that the choice is constitutional. It might be unconstitutional but simply outside a court’s reach. Second, Heckler reserved judgment on the category of non-enforcement decisions that were so sweeping that they amounted to an abdication of the executive’s responsibilities. A decision not to enforce the deportation law against roughly half the nation’s illegal-immigrant population looks like an abdication to us and would seem so to a Court faithfully applying Heckler.

“Congress is dysfunctional.”

This is the weakest defense of all — and yet, it is the one on which the administration leans very heavily. A new Congress has just been elected and will take office in January. The president had contemplated issuing his order last summer, then pulled back when the polling showed that it would hurt his party, then came forward with it again after the election. Instead of taking the opportunity to work with a new Congress toward immigration reform (which many Republicans strongly favor), he has decided to wreck the chance of bipartisanship. The “dysfunction” is with a president who neither respects the wishes of the electorate nor is willing to play his part in good faith in the constitutional law-making process.


Although Obama’s deportation-deferral program violates the president’s duty to enforce the laws, the Constitution does not set out any obvious paths for resistance. The Constitution does not specifically set out the immigration power itself, only a power of naturalization, which it vests in Congress. The Supreme Court, however, has long recognized that control over the borders and immigration lies in Congress’s hands, not the president’s. To restore the Constitution’s separation of powers, critics will have to avail themselves of a variety of responses, some of which are less politically feasible than others.

Our Founders established three primary mechanisms to control an unconstitutional government. The first was the power of impeachment. The Clinton affair focused on whether perjury fell into the Constitution’s impeachable offenses: “Treason, Bribery, or other high Crimes and Misdemeanors.” Clinton’s defenders made a good point that this provision seemed to limit impeachment to the president’s public performance of his job. At the time of the Constitution’s writing, the British Parliament had used impeachment to remove ministers not just for constitutional disputes, but for incompetence and failure in office, such as losing a battle or a war. The Framers would have had no problem concluding that the president’s refusal to carry out his constitutional duties amounts to an impeachable offense.

The problem with impeachment is not its constitutional availability, but its political viability. As the Clinton affair teaches, Congress should not embark on impeachment unless it has the votes to convict. The House may vote to impeach — essentially a decision to prosecute — but the Senate must agree by a two-thirds vote to remove the president. Even with their stunning victories in this month’s midterm elections, Republicans have nothing approaching 67 votes in the Senate. Not only will impeachment fail, but as with Clinton, it will likely redound to Obama’s political benefit. Congress could always censure the president, as it considered during the Clinton affair. That could be a stinging rebuke, but it would have no practical effect on Obama’s order or his unconstitutional exercise of power.

The second, more promising, route is the power of the purse. Responding to the criticism that the Constitution made the president a potential dictator, James Madison declared in the critical Virginia ratifying convention that “the sword and the purse are not to be given to the same member.” Comparing the U.S. Constitution to the British, he said, “The sword is in the hands of the British King; the purse in the hands of the Parliament. It is so in America, as far as any analogy can exist.”

Opponents in Congress should immediately turn to the funding power. They need not aim for a complete government shutdown, which proved disastrous for the Republican party last year. They should use funds as a scalpel, not a sledgehammer. Congress could increase funds for border and immigration-control officers and cut them for higher management and legal advisers in the Department of Homeland Security and the Justice Department. It could separate the DHS appropriation from the overall federal budget and take a stronger hand in reorganizing and downsizing the department. It could refuse to cooperate with the Obama administration on any new funding proposals in other areas unrelated to immigration, and it could ignore the administration and spend more funds on national security.

Republicans should combine funding cutoffs with the usual tools of oversight to paralyze the Obama administration for the next two years. It could hold hearings where Obama officials face tough questions and conduct investigations into the performance on immigration, border, and national security. The Senate could refuse to confirm any Obama nominees for executive or judicial positions. It could refuse to approve any treaties or international agreements. President Obama should expect that his proposals in any area will be dead on arrival in Congress.

A third means for relief from unconstitutional government puts Republicans in a tough spot. Americans’ first reaction to a violation of the Constitution is to go to court. The problem is that of standing, which requires that a plaintiff have suffered an “injury in fact” that is traceable to the government’s action and for which the court can order a remedy. Conservatives such as Justice Antonin Scalia favor standing because it makes sure that federal judges are deciding real cases and controversies, as required by the Constitution, and not using lawsuits as an excuse to make social policy. When the president refuses to enforce the law, plaintiffs will have difficulty hurdling the standing bar, because all citizens may be harmed, but no individual American is uniquely harmed enough to bring suit.

Here, however, recent precedents point the way to a viable lawsuit. In Massachusetts v. EPA (2007), a state sued the Bush administration for failing to issue regulations controlling the emissions of greenhouse gases. Standing should have stopped Massachusetts from forcing the president to enforce its understanding of the Clean Air Act. But with the liberal Justice Stevens writing, the Court held that Massachusetts had standing because, some day, the rising seas caused by global warming might reduce the state’s coastline.

We consider the Court’s finding of injury to be tenuous, if not laughable. But if Massachusetts enjoys standing because of the rising seas, a state today must have standing to challenge the non-enforcement of the immigration laws. States, especially those along the nation’s borders, will expend more money and resources on the illegal aliens in their jurisdictions. They will have to spend more on police and social services, such as education and health care. Just as Massachusetts could sue to force the Bush administration to enforce its preferred understanding of the Clean Air Act, so states today should be able to sue to force the Obama administration to enforce the immigration laws. In the 1990s, the state of California sued the Clinton administration for failing to enforce the immigration laws under a similar theory. While the case never made it to the Supreme Court, the lower courts did not reject the case for lack of standing (though they did dismiss it because California founded its case on the U.S.’s responsibility to protect the states from invasion).

All of this will take time, of course, on multiple fronts. But Republicans should not forget the ultimate check on a president: the next president. Any unilateral executive non-enforcement decision, no matter how sweeping, is fleeting. Because orders like these are based on a president’s decision how to exercise (or not) his constitutional powers, the next president can undo it on his first day in office. A new president could take the list of illegal aliens who have applied for Obama deferrals and order them deported. A new president could order enforcement actions brought against any business that hires aliens under Obama’s work permits. It will take winning the 2016 election to ultimately undo the harm that President Obama has inflicted on the Constitution, and it is to that goal that Republicans should immediately turn.

]]> 0
Greece’s collision course with Germany Fri, 21 Nov 2014 20:00:48 +0000 Today’s decision by the Greek government to present a budget for 2015 that is in open defiance of the wishes of its European Union and IMF paymasters is of singular importance. Since it signals that not only the far-left Syriza Party but the whole of the Greek political establishment is now hostile to further fiscal adjustment and structural economic reform. This would seem to put Greece on a clear collision course with Germany that could have serious consequences for the Greek economy next year.

The Greek government’s budget presentation was made in the context of its expectation that general elections might need to be called early next year. Under the Greek constitution, the government needs a 60% parliamentary majority to elect a replacement for the country’s current president, whose term expires in February 2015. In the all too likely event that the government fails to muster the required majority, the Greek parliament would be dissolved and a general election would be called.

The far-left Syriza Party, which is comfortably ahead in the electoral polls has long since called for an end to fiscal austerity and structural reform. The significance of today’s move by the government appears to be that it too is now singing from the same hymn sheet as the opposition. This means that irrespective of which party wins the general election next year, Greece will no longer hew to the line dictated to it by the IMF and EU, which are very much despised by a recession-weary Greek public.

Many across the Greek policymaking spectrum appear to think that Greece can now thumb its nose at the IMF and EU with impunity. They do so in the belief that since the Greek government has a primary budget surplus (or a surplus once interest payments are excluded from the budget), it no longer needs net financing from abroad to cover its budget needs. Sadly, in so doing they overlook the fact that the Greek government has major amortization payments to make in 2015, a large part of which payments are due to the IMF and to the European Central Bank (ECB). It would be fanciful to believe that the IMF and the ECB would passively roll over the payments falling due to them in the absence of a Greek commitment to budget prudence and structural reform. Since such a stance by the IMF and ECB would send a clear message to the other countries in the European periphery like Italy, Portugal, and Spain, that there are no consequences for wayward economic policy behavior.

Running afoul of the ECB would be a particularly risky course for Greece to take as Greece policymakers should well know from their own experience at the start of the European sovereign debt crisis. Since Greece needs to have acceptable macroeconomic policies in place to access the ECB’s rediscount window. Absent such ECB access, the Greek banking system would be highly vulnerable to capital flight from Greece in search of safer havens abroad.

Hopefully the developing Greek political consensus against budget discipline and structural reform is noise ahead of a likely general election early next year. Since, if it is not noise, the world should be bracing itself for a second round in the Greek exit from the Euro saga.

Follow AEIdeas on Twitter at @AEIdeas.

]]> 0
Why America’s entrepreneurial heart is beating more slowly Fri, 21 Nov 2014 19:04:37 +0000 Again on the subject on the decline of US entrepreneurship — or at least the decline of US startups — over the past three decades, here is the latest research from Ian Hathaway and Robert Litan, as summarized by the great Ben Casselman at 538:

Hathaway and Litan look at more than three decades of data on business startups, expansions and failures from the Census Bureau’s Business Dynamics Statistics. They find a strong correlation between a region’s population growth and its startup rate. That makes intuitive sense: For example, Arizona, Florida and Utah experienced booming economies for much of the late 20thcentury that attracted new residents and new entrepreneurs. Overall population growth, however, has been gradually slowing over the past 20 years, possibly dragging the startup rate down with it.

The second big trend Hathaway and Litan look at is consolidation. Virtually every sector of the economy is more dominated by big companies today than it was 30 years ago. The authors find that regions that have seen more consolidation have also seen bigger declines in entrepreneurship. That, too, makes sense: For all the talk about disruption, it’s much harder to break into an industry that’s dominated by a handful of big, entrenched incumbents.

Hathaway and Litan conclude these two factors could be responsible for some three-fourths of the multi-decade decline, with bad policy such as regulation and taxes perhaps making up some bit of the rest. As far as a policy agenda goes, the researchers think it is “very likely that creating and expanding both entrepreneur and STEM education/green card visas in the future would increase startup rates. Teaching entrepreneurship in college and K-12 might also have some promise but needs more research and experimentation. Hathaway actually addressed the education issue in a recent podcast with me:

So Bill Aulet at MIT has written a great book on this called “Disciplined Entrepreneurship.”  Some folks say you can’t teach entrepreneurship.   I disagree with that.  And I think Bill’s sort of one of the leaders in this space and has a lot to say on that. And my co-author Bob Litan  has this great idea of instead of just teaching math and science  where students aren’t that engaged, but actually incorporating how that scientific and that mathematical knowledge has been used in the course of business to create goods and services and, teaching the commercial side of this, providing a link to that from young ages so it’s sort of a part of that curriculum and that learning all along throughout the education process.

Beyond that, let me add this: Increased immigration overall and fertility rates would be one way to address the first startup inhibitor. As for the second, consolidation, that could be result of less competitive intensity in the economy and the rise of strong creative monopolies like Facebook and Apple due to network effects. As economist Mike Feroli of JP Morgan has argued, ” … the decline in start-up activity has been a disconcerting feature of this expansion. … This is especially the case since most measures of business profit margins look elevated, which should stimulate new business formation. … One hypothesis is that those elevated margins owe to natural monopoly profits, perhaps due to an increased prevalence of network effects. In this case, the incumbent profits are incontestable, and start-up activity shouldn’t be expected to increase.”

]]> 2
Red ink redux: Why a return to trillion-dollar budget deficits starts in 2017 Fri, 21 Nov 2014 18:00:28 +0000 It’s an underreported story — except on this blog — but the US budget deficit has come way down in recent years. The fiscal gap has narrowed from $1.4 trillion, or 9.8% of GDP, in fiscal 2009 to $483 billion, or 2.8% of GDP in fiscal 2014. The key drivers:an improving economy, 2013 tax hikes, and the spending cuts/caps of the 2011 Budget Control Act.

But enjoy it while it lasts. Trillion-dollar deficits are likely on their way back. Citi:

Despite recent reductions in the Federal deficit, we believe that FY2016 will be a turning point, after which the deficit (as a share of GDP) resumes its rise. Unless policymakers implement substantial measures now, a legacy of outsized mandatory spending on health care (Medicare and Medicaid) and retirement (Social Security) benefits, rising debt service and inefficient tax collection, along with demographic trends, will cause the Federal deficit and debt to balloon over the next decade. …

Outsized deficits and debts may reduce the pace of economic growth and lower the standard of living of many. Moreover, government resources that could be used for national priorities or mitigating shocks, might be crowded out by interest expenses generated from borrowing to finance fiscal obligations. Currently, such pressures have been muted because nominal and real interest rates on Federal debt are at record lows. But over time, debt service will mount amid more normalized interest rates. On balance, the large amount that the government will have to borrow to finance rising future mandated expenditures will raise US Treasury securities issuance well above historical norms.



Citi, CBO

Citi, CBO

]]> 0
The rise of the machines vs. workers, in one chart Fri, 21 Nov 2014 16:49:05 +0000 For a long time, the share of national income going to labor vs. capital (represented in the above chart as worker income vs. corporate profits) was a steady relationship. But as University of Chicago economists Loukas Karabarbounis and Brent Neiman note in “The Global Decline of the Labor Share”, “the global labor share has significantly declined since the early 1980s, with the decline occurring within the large majority of countries.” A macro-observation deserves a macro-explanation:

We show that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced fi rms to shift away from labor and toward capital. The lower price of investment goods explains roughly half of the observed decline in the labor share, even when we allow for other mechanisms influencing factor shares such as increasing pro ts, capital-augmenting technology growth, and the changing skill composition of the labor force.

As machines can do more,  companies need man less — at least the kind of man without complementary skills. Policymakers must at least consider that technology-driven unemployment is a long-term factor that should influence next steps on reforming everything from education to taxes to the safety net. More from Andrew McAfee in the FT, who pointed me to the chart:

I expect the red line to continue to fall as robots, artificial intelligence, 3D printing, autonomous vehicles, and the many other technologies that until recently were the stuff of science fiction, permeate industry after industry. Policies intended to keep these advances out of a country might halt the decline of the labour share for a while, but they’d also halt competitiveness pretty quickly, thus leaving both capital and labour worse off.

I think the continued decline of the labour share, brought on by tech progress, will be a central dynamic, if not the central dynamic, of the world’s economies and societies in the 21st century. It’s a story much more about what will happen to the livelihood of the 50th percentile worker than to the wealth of the 1 per cent. And a much more important story.

]]> 1
Something to be thankful for: the real cost of a Thanksgiving dinner is 1.3% cheaper than last year, 21% cheaper than 1986 Fri, 21 Nov 2014 16:35:08 +0000 ...]]]> turkey2From the American Farm Bureau Federation (AFBF):

The American Farm Bureau Federation’s (AFBF) 29th annual informal price survey of classic items found on the Thanksgiving Day dinner table indicates the average cost of this year’s feast for 10 is $49.41, a 37-cent increase from last year’s average of $49.04. The big ticket item – a 16-pound turkey – came in at $21.65 this year. That’s roughly $1.35 per pound, a decrease of less than 1 cent per pound, or a total of 11 cents per whole turkey, compared to 2013. The average cost of the dinner has remained around $49 since 2011.

The AFBF survey shopping list includes turkey, bread stuffing, sweet potatoes, rolls with butter, peas, cranberries, a relish tray of carrots and celery, pumpkin pie with whipped cream, and beverages of coffee and milk, all in quantities sufficient to serve a family of 10. There is also plenty for leftovers.

Foods showing the largest increases this year were sweet potatoes, dairy products and pumpkin pie mix. Sweet potatoes came in at $3.56 for three pounds. A half pint of whipping cream was $2.00; one gallon of whole milk, $3.76; and a 30-ounce can of pumpkin pie mix, $3.12. A one-pound relish tray of carrots and celery ($.82) and one pound of green peas ($1.55) also increased in price. A combined group of miscellaneous items, including coffee and ingredients necessary to prepare the meal (butter, evaporated milk, onions, eggs, sugar and flour) rose to $3.48.

In addition to the turkey, other items that declined modestly in price included a 14-ounce package of cubed bread stuffing, $2.54; 12 ounces of fresh cranberries, $2.34; two nine-inch pie shells, $2.42; and a dozen brown-n-serve rolls, $2.17.

“America’s farmers and ranchers remain committed to continuously improving the way they grow food for our tables, both for everyday meals and special occasions like Thanksgiving dinner that many of us look forward to all year,” said AFBF Deputy Chief Economist John Anderson said. “We are blessed to be able to provide a special holiday meal for 10 people for about $5.00 per serving – less than the cost of most fast food meals.”

A total of 179 volunteer shoppers checked prices at grocery stores in 35 states. Farm Bureau volunteer shoppers are asked to look for the best possible prices, without taking advantage of special promotional coupons or purchase deals. The AFBF survey was first conducted in 1986. While Farm Bureau does not make any scientific claims about the data, it is an informal gauge of price trends around the nation. Farm Bureau’s survey menu has remained unchanged since 1986 to allow for consistent price comparisons.

Some comments:

1. Compared to last year’s cost of $49.04 for a complete classic Thanksgiving dinner for ten people, this year’s cost of $49.41 for the dinner is only 0.75% (and 37 cents) higher (see blue line in chart). That compares to increases in overall consumer prices over the last year of 1.7% and average wages of 2.2%.

In addition to the 0.5% decrease in turkey prices compared to last year, the other items that decreased in price over the last year were: rolls (-0.5%), stuffing (-4.9%), cranberries (-3.3%), peas (-7.2%), and pie shells (-2.8%). The items that were more expensive this year compared to a year ago were sweet potatoes (+6.0%), pumpkin pie mix (+0.6%), milk (+2.7%), relish tray (+1.2%) and whipping cream (+8.1%).

2. Adjusted for inflation, the cost of a classic Thanksgiving dinner for ten this year is 1.3% cheaper than last year, 3.6% cheaper than two years ago and 5% cheaper than 2011 (see blue line in chart).

3. Compared to the cost of a Thanksgiving dinner of $62.30 in 1986 (in 2014 dollars), today’s classic turkey dinner for ten is almost 21% cheaper at $49.41.

4. Measured in time worked at the average hourly wage for all private production workers of $20.70 in October 2014, the “time cost” of this year’s classic turkey dinner for ten is only 2.39 hours, down by 1.2% from 2.42 hours last year and down by 4.7% from 2.50 hours in 2012 (see bottom chart). Compared to 1986 when the average American would have worked 3.22 hours to earn the income necessary to purchase the turkey dinner for ten, the “time cost” for a worker today (2.39 hours) is almost 26% lower.

5. Cost conscious shoppers can buy the same classic Thanksgiving meal at Walmart for only $32.64 (see top chart above), a savings of 34% compared to the AFBF national average, according to this press release from Walmart. In hours of time worked at the average hourly wage for private production workers, that would be a “time cost “of only 1.58 hours for one worker to purchase a holiday feast for ten people at Walmart, a truly amazing bargain.

Bottom Line: The fact that a family in American can celebrate Thanksgiving with a classic turkey feast for less than $50 and at a “time cost” of only 2.39 hours of work for one person (and only $32.64 or 1.58 hours of work for Walmart shoppers) means that we really have a lot to be thankful for on Thanksgiving: an abundance of cheap, affordable food. Compared to 1986, the inflation-adjusted cost of a turkey dinner today is 21% cheaper, and 26% cheaper measured in the “time cost” for the average worker. Relative to our income and relative to the cost of food in the past, food in America has never been more affordable than it is today.

Bon appetit!

]]> 14
Lessons from the 1995 strategy Fri, 21 Nov 2014 15:42:48 +0000 ...]]]> The Republican victory in the midterm election was decisive. Now the victors must chart a sensible course for the next two years—one that demonstrates they can be trusted as America’s governing party and sets the table for 2016.

The landscape is more treacherous than it looks. The Republican majority is strong in the House but surprisingly thin in the Senate. Even with 54 Republican senators (if Rep. Bill Cassidy is victorious in his runoff against Mary Landrieu in Louisiana), there will be precious little room for maneuver, as a few defections on any given vote would give Democrats the upper hand. Moreover, Democrats are sure to hold together at least 41 senators, and probably more, on critical votes. That gives them the power to filibuster most legislation pushed by Republicans, which can only be overcome with a supermajority of 60 votes. Then there is the problem of the presidential veto. If Republicans somehow manage to get a piece of legislation through both chambers, the president can still kill it. Rounding up enough votes for a congressional override under these circumstances would be the longest of long shots.

At the same time, there is much pent-up frustration among conservatives that is already turning into high expectations for the incoming Congress. The GOP’s core supporters have watched with increasing dismay and alarm as the president has implemented his agenda, often with arguably unlawful executive actions, and they will expect a Republican Congress to put a stop to it. Complaints about the limited power of one branch of government are unlikely to go over well.

So a Republican Congress will have to balance the need to make tangible progress in rolling back the Obama agenda against the very real obstacles it will face in trying to achieve that goal.

To navigate this difficult terrain, it will be important for Republicans to clearly set expectations and articulate their goals at the outset. The first temptation for the new Congress will be to follow the 1995 road map. After the Republican sweep of 1994, the House spent the first months of 1995 passing the legislative provisions of the Contract With America. Although important symbolically, these bills were not consequential in terms of reforming government. The real work in early 1995 was taking place behind the scenes, as House speaker Newt Gingrich, House Budget Committee chairman John Kasich, and the key committee chairmen plotted out a balanced budget plan that incorporated just about every feature of a conservative vision for governance: tax cuts and reforms; major changes in entitlement programs; welfare reform; elimination of scores of programs and agencies; and significant spending reductions.

The idea was to lay out a comprehensive agenda that contrasted sharply with the plans of President Bill Clinton, precipitate a confrontation of some sort, and then use the power of public opinion to force the president to accept a substantial part of the Republicans’ program. It was also important that the budget process, and especially budget reconciliation, allowed this plan to move forward in the Senate without any supportive votes from Democrats.

The 1995 strategy did not work as planned, to put it mildly. It took nearly a year for the Republican leadership to draft and pass its agenda. During that time, very little else was considered in Congress, as the entire GOP agenda was wrapped up in the budget process. Democrats spent the year regrouping and attacking the politically weak points of the Republican approach. In the confrontations with the Clinton administration that ensued, it was the Republican Congress, not the president, that suffered the most in public opinion. President Clinton’s standing with voters improved dramatically as the confrontation dragged on into 1996, and he won reelection handily over Sen. Bob Dole.

In the end, Republicans did secure enactment of welfare reform in 1996—a major achievement. But little else from the 1995 reconciliation effort made it into law, save for the creation of child tax credits.

In 2015, Republicans should resist the temptation to pursue a 1995-style maximalist agenda, which would very likely squander valuable time and ultimately put the party in a worse position heading into the critical election of 2016.

A better approach would be to start with politically sensible first steps, and build from there. At the beginning of the year, Republicans should identify straightforward legislation that is targeted, understandable, achieves an important objective, and is a clear political winner. The prototype is legislation repealing the employer mandate in Obamacare. Democrats included this mandate in Obamacare out of an anticorporate, populist impulse. But now, even many liberals are realizing that imposing new costs for “full-time” employees (those working at least 30 hours per week) is a recipe for fewer jobs and lower pay. Bringing up repeal of the employer mandate for a vote early in 2015 in both the House and the Senate would put Democrats and the administration on the defensive. In fact, such legislation would likely garner some bipartisan support. And if it were ultimately filibustered by Senate Democrats, Republicans would benefit from forcing the issue and holding the Democrats accountable for blocking it. Other candidates for early action include rolling back costly and ineffective regulations, restoring fast-track trade authority, authorizing (again) the Keystone XL pipeline, and allowing Americans to reenroll in the insurance plans canceled by Obamacare.

Rather quickly after scoring some legislative victories, however, Republicans in Congress will need to lay out a plan for passing a budget. Virtually all Republicans have called for a balanced budget, so a GOP-led Congress will need to pass a plan that reaches fiscal balance within the next decade. And that plan will need to be built on a foundation of broad-based tax and entitlement reform. Those are the pillars of conservative governance.

But a distinction needs to be made that wasn’t in 1995. It is possible for a Republican Congress to lay out a vision for governing in a budget plan and not proceed to consider all of the component parts in actual legislation. The budget plan will be considered in the form of a budget resolution, which does not get sent to the president for approval. Consequently, the House and Senate can write a general budget plan, and it cannot be vetoed. In 1995, Republicans followed up the budget resolution with implementing legislation—called a reconciliation bill. Reconciliation bills are critically important legislative vehicles because they cannot be filibustered in the Senate and thus can pass with a simple majority vote. The 1995 reconciliation bill became the centerpiece of the GOP’s agenda, and the main target for Democratic attacks.

It does not have to be that way in 2015. Among other things, the Republican budget plan could assume structural reform of the Medicare program, along with other entitlement reforms, but there’s no reason these changes have to be taken up and passed as part of a reconciliation bill. The president would engage in his usual demagogic attacks, and the issue would become highly politicized again. It is very likely that the Republican nominee in 2016 will embrace at least the concept of structural entitlement reform, and so it would be better to allow the debate to occur during the presidential campaign—without the baggage of a specific proposal considered in Congress serving as an easy target for Democrats.

Republicans instead should use the reconciliation process to advance targeted budgetary items that constitute fiscal progress, but also pose more political risks for Democrats than Republicans. For instance, reconciliation could be used to make targeted changes to Obamacare that lay the foundation for repeal and replacement of the law. Among other things, excessive subsidies for insurers could be eliminated, the tax on going uninsured rolled back or eliminated, the Independ-ent Payment Advisory Board (IPAB) repealed, and states could be freed to pursue creative reforms without the need of a waiver from the Department of Health and Human Services. All of these changes unite Republicans and divide Democrats.

It will be particularly important for a Republican Congress to approach Obama-care rationally. It will not be possible to repeal and replace Obama-care without a Republican president. Moreover, moving a full repeal bill without an accompanying replacement plan is politically risky for the GOP. The public is not interested in returning to the pre-Obama-care status quo, which was flawed. But repeal without a clear replacement plan implies returning to just that, in addition to removing insurance protection from several million people now on Medicaid or enrolled in insurance plans offered on the Obama-care exchanges.

It will be far more effective for Republicans to use the reconciliation process to begin rolling back Obamacare as much as possible and to enact aspects of a replacement plan that have broad support, such as enabling the cross-state purchase of health insurance or giving states greater freedom to fashion creative health care solutions that lower costs and expand coverage.

Beyond their efforts on the budget and Obamacare, Republicans should also use the next two years to demonstrate their depth in policy areas that traditionally haven’t been the focus of the party’s attention. That includes passing legislation to make higher education more accessible and affordable, enhancing choice in K-12 education, particularly for kids in failing schools, and reforming the federal government’s approach to antipoverty programs. The impending exhaustion of the Social Security Disability Insurance Trust Fund in 2016 presents another opportunity for Republicans to advance systemic reforms that will benefit the party’s nominee in the upcoming presidential election.

These legislative initiatives are not a substitute for action on the core economic concerns of middle-income Americans, particularly job growth. That must remain the top focus for Republicans going into 2016. But a robust agenda that addresses other top concerns of middle-class families will go a long way toward convincing voters that Republicans can govern effectively and with an eye toward helping working families improve their standing.

Republicans won a resounding victory in the midterm election in November 2014, but that was just the beginning of their work. To be trusted with control of the White House in 2017, Republicans will need to demonstrate that they have the strategic vision, tactical skill, and ability to execute on a coherent agenda between now and the next presidential election, which is less than two years away.

]]> 0
The disappointment of President Obama’s executive action Fri, 21 Nov 2014 15:28:36 +0000 President Obama’s supporters and opponents are likely to be disappointed by his executive action on immigration, albeit for different reasons. His supporters may be disappointed that the action does not cover more unauthorized immigrants and falls far short of a pathway to citizenship. Meanwhile, his opponents may be disappointed—or more accurately outraged—by a blatant sidestepping of congressional authority and disregard of most voters’ expressed desire that he not take such action. Both of these disappointments miss the bigger picture.

The real disappointment is that this executive action distracts Congress and the American public from the far more important issue of the need to reform the entire US immigration system. Instead of focusing on unauthorized immigrants, who are less than 30% of all immigrants in the US, the US should rethink how it admits legal immigrants. The US needs to change its legal immigrant system to increase the number of visas available to workers and to reduce chain migration based on family ties.

Only 14% of permanent resident visas, or green cards, are awarded on the basis of employment, and half of those are to accompanying dependents of workers. Two-thirds of green cards are awarded on the basis of family ties. We limit every country to at most 25,620 green cards a year across numerically limited categories, resulting in some skilled immigrants from India and China waiting years for a green card. Many give up or never even apply. The number of H-1B visas for skilled specialty workers is capped at 85,000 per year, and so the US ran out of them within a week after they became available in the last two years. The number of H-2B visas for temporary non-agricultural workers is capped at 66,000 per year, also less than the number desired by employers and potential workers. And the H-2A visa system for temporary agricultural workers remains filled with bureaucratic red tape that leads farmers to turn to unauthorized workers. The system discourages high-skilled workers from trying to enter or remain in the US while encouraging low-skilled workers to enter illegally or overstay visas.

This executive action, as well as the earlier Deferred Action for Childhood Arrivals program, does nothing to address these fundamental flaws in our immigration system. The few changes that the executive action makes regarding legal immigration, such as increasing some temporary visa holders’ ability to switch employers, are steps in the right direction, but they are only baby steps. Worse yet, the outrage over the action makes it even less likely that bigger steps will occur in the next Congress, which seems likely to instead spend its time arguing about whether to block funding for carrying out the executive action. Congress and the White House would better serve the American public by adopting changes that would boost immigration’s economic contribution. Such changes would include increasing the number of green cards available to workers, particularly the high-skilled, and streamlining and expanding temporary worker programs.

Dealing with the large number of unauthorized immigrants in the US is a challenge. The unauthorized population has grown so large—and, in the case of the Dreamers, so vocal—that some action may be required. And a population that has worked so hard in the US for so long may have morally earned the right to stay here. But surely any action should consider the incentives it creates. The executive action creates an incentive for more people to come here illegally and have children here. Coupling legal status for some 5 million people with increased border enforcement is not enough. If the US wants to get serious about reducing future illegal immigration, it needs to require all employers to participate in E-Verify while also providing a legal way for more temporary workers to enter the US. The executive action does neither of those. Instead, it seems doomed to just worsen the problems created by current policy by delaying true reform for even longer.

I sometimes remind my children, just because you can doesn’t mean you should. President Obama would have been wise to follow such advice.

Follow AEIdeas on Twitter at @AEIdeas.

]]> 0