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It’s darn close. In 2000, a big study concluded that solar panels could get below $1 per watt [a level thought to make solar competitive in many markets]. At the time, everyone in the industry thought the authors were in la-la land. Now we’re under that cost target.
It’s not like there’s one cost number and then everything is all good. The value of solar power varies widely, depending on local sources of electricity that it’s competing with, the amount of sunlight, and other factors. There are geographic pockets where it’s becoming quite competitive. But we need to cut costs by at least another factor of two, which can happen in the next 10 years.
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Lots of interesting results from a new Bloomberg poll including:
— 44% approval rating for President Obama
— 64% of Americans think the nation is on the wrong track
— By 58% to 31%, Americans see the US in decline as a world leader
— 56% think we should wait to see how Obamacare works before modifying it
— By 51% to 26%, Americans are more likely to vote for a candidate who wants to address climate change
But I wanted to briefly focus on the poll result reflected in the above chart. It shows Americans are about split on what to do about income inequality, if anything. One interpretation is that America’s aspirational streak is still there, but thinning. Of course, the options are so vague and general that I am not sure which I option I would choose. I don’t want to raise income taxes, but I would favor government policies like wage subsidies. I would also like to see a question that differentiated between income inequality and opportunity inequality / income mobility. I am more concerned about the latter than the former.
The good times may be over for good. In a speech to the Economic Club of New York yesterday, US Treasury Secretary Jack Lew said the US GDP growth rate, adjusted for inflation, is now projected to run a little above 2% a year. That would be a significant downshift from the 3.4% average growth rate from the end of World War II until 2007.
Look at it this way: If the US economy grows at its traditional rate between now and 2040, it would double in size to $37 trillion vs. just 50% growth to $27 trillion at the slower pace. And remember, that growth gap — $10 trillion in 2040 – is cumulative. It would persist year after year and get larger as time passes.
So what’s wrong? An excellent New York Times piece today by reporter Binyamin Appelbaum notes that while economist accept slower growth is partly the result of long-term trends, they also think the aftermath of the Great Recession and the Not-So-Great Recovery are playing a role. Among the former factors, you have (a) the demographically-driven decline in labor force participation and (b) an apparent productivity slowdown starting in the mid-2000s as the pace of technological innovation and diffusion has slowed.
Among the latter factors, you have causes that will seem more or less explanatory, depending on political leanings. Conservatives will like the paper, “Quantifying the Lasting Harm to the U.S. Economy from the Financial Crisis,” by Stanford University economist Robert Hall. He points to the growth in disability and food-stamp programs as hurting labor-force participation. Liberals, on the other hand, will see much wisdom in “A Model of Secular Stagnation” by Gauti Eggertsson and Neil Mehrotra, which argues post recession deleveraging and an increase in inequality “can lead a permanent (or very persistent) slump.”
In his speech, Lew said, “that many today wonder whether something that has always been true in our past will be true in our future.” (Indeed, the 2013 Obama budget declared, “In the 21st Century, real GDP growth in the United States is likely to be permanently slower than it was in earlier eras … .”) Signs abound that the answer to that question is, “No, it won’t.” And while Washington should debate appropriate policy responses, it first needs to accept the reality of trends, both old and recent, that are fundamentally making America’s pursuit of happiness more difficult.
My chapter in the new book “Room to Grow” documents declining economic dynamism in America. In particular, there seems to be a secular decline in new business formation. Not only does this mean fewer fast-growing, highly innovative new firms, but also less competition for incumbents. Brookings has released a new paper further supporting my concern:
The life sciences industry—generally thought to be a major contributor to America’s innovation engine— has in fact suffered a steep decline in entrepreneurship and job creation, according to a new paper by Brookings Nonresident Senior Fellow Robert Litan and Ennsyte Economics’ Ian Hathaway released today.
Because this sector, and in particular its start-ups, has historically been a driver of innovation in human health care and an outsized driver of new job creation economy wide, the decline in entrepreneurship and therefore job creation is a troubling trend, the authors warn.
In a follow-up to an earlier paper that highlights the decline of entrepreneurship and business dynamism across the entire private sector, Litan and Hathaway find that the life sciences industry experienced a relative 23 percent decline in startups and subsequent job creation over the two decade period of 1990 to 2011—higher than the 15 percent decline across the economy as a whole.
Litan and Hathaway suggest several regulatory and policy changes that may be influencing the medical device industry in particular, including new insurance reimbursement models, regulatory restrictions, greater competition, and venture funding scarcity.
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AEI’s Rick Hess on the California legal ruling rejecting teacher tenure:
First, I think the plaintiffs were clearly right on the merits. … Even if just one to three percent of teachers are lousy, as defense expert David Berliner estimated, one would expect 3,000 to 8,000 teachers to be dismissed each year for unsatisfactory performance. Instead, the average is just 2.2. …
But, third, sixty years of decisions since the U.S. Supreme Court’s ruling in Brown v. Topeka have shown that courts can ensure access to education, but do a poor job of promoting quality. Vergaramay be a happy exception, but courts have a long history of failing to weigh costs and benefits and imposing requirements that prove bureaucratic and unworkable. Indeed, if courts can order legislatures to abolish tenure, what else might they require? If plaintiffs pick the right judge and present the right experts, can they get judges to require that pre-K teachers need to have an education school teaching credential? Can judges order schools to adopt the Common Core, if they think that will help ensure that all students are held to an equal standard? …
That’s why, while I think the Vergara verdict was decided correctly on the merits, and is a good decision for California’s kids, I find myself ambivalent about where this leads and the precedent it sets.
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Although there are a couple of exceptions, a glance reveals more ‘service’ industries amongst the 10 most depression-prone, while the bottom 10 is dominated by ‘manufacturing’ or ‘blue-collar’ jobs. Wulsin et al examined the predictors of depression rates in much more detail and concluded that, “Industries with the highest rates tended to be those which, on the national level, require frequent or difficult interactions with the public or clients, and have high levels of stress, and low levels of physical activity.”
In other words, all those “high-touch” service jobs of the future could be awfully depressing gigs?
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The House Majority Leader, last night:
What I set out do, and the agenda that I have always said we’re about, is that we want to create a Virginia and an America that works for everybody. And we need to focus our efforts as conservatives, as Republicans on putting forth our conservative solutions so they can help solve the problems of so many working and middle class families that may not have the opportunity that we have. We can also put out solutions to work for the most vulnerable. I’ve spent a lot of time on charter schools, on education opportunity to make sure that everyone in America can have access to that American dream, starting with a quality education.
And we talked about research in my office and my campaign and Congress. I am really proud of the Gabriella Miller Kids First Research Act. What it says as conservatives is that we don’t believe we ought to spend taxpayers dollars on political conventions, that in fact it is probably better to help cure disease because not only do you save lives and help people, you can ultimately solve the federal deficit problem by bringing down healthcare costs.
I think that’s right. A policy agenda that applies conservative principles and real-world economics to the problems of 2014 Americans, particularly opportunity equality and upward mobility. A policy agenda that views cutting deficits and spending as means and not necessarily its own end. A policy agenda that understands the proper role of government in delivering public goods and tries to make sure that role is conducted effectively.
Perhaps the most talked about bit of “Room to Grow,” the reform conservative policy agenda, is its call for dramatically expanding the child tax credit (including letting it apply to both income and payroll taxes).The short-version: A married couple with two children earning $70,000 would get a tax cut of roughly $5,000 per year vs. current law. The idea has generated two lines of criticism from the center-right:
1.) “It is an attempt to subsidize parents into having more kids.” Or as Ben Domenech writes at The Federalist: “But why is it conservative or even an example of limited government to use tax policy to essentially reject that steady decision-making over the course of decades?
If people want smaller families, that’s their choice, right? Right, indeed. And natalist policies have a poor record at nudging people into having more kids than they want.
Except that American families are having fewer children than they would like. Basically, on average, parents would prefer an additional half kid, more less. It’s a preference that’s been steady since the late 1970s, according to Gallup polling. What’s the problem? Well, according to Gallup, 76% cite financial or economic reasons. Specifically, 65% mention “not having enough money or the cost of raising a child,” and another 11% name “the state of the economy or the paucity of jobs in the U.S.” Wouldn’t tax relief help? As Robert Stein writes in “Room to Grow,”:
For some families, the extra money could be just the boost they need to be able to send their kids to a better school. Coming at a time in life when many parents and potential parents are considering whether they can afford an additional child, the extra credit would directly make carrying the burden (and generating the future social benefits) of a growing family somewhat easier.
Moreover, expanding the credit wouldn’t be a subsidy. Rather, it would partially offset an existing economic distortion created by government policy: Old-age programs like Medicare and Social Security reduce fertility rates. Moreover, entitlement programs give a person the same benefits whether or not they have spent the time, money, and effort that parents do raising the future taxpayers needed to support the safety net.
Again, Robert Stein:
By making so much of the economic benefit of children accrue to society collectively—and thereby reducing that benefit for the individual mothers and fathers who make the decisions about how many (if any) children to raise—federal policy distorts family formation.
2.) “It violates the supply-side approach to pro-growth tax reform. Or as Ira Stoll writes at Reason, ” … count this columnist as one supply-sider who is, as predicted, cringing at the idea of slapping an income tax increase on childless individuals for the express purpose of redistributing the funds in tax breaks for those with larger families.”
The supply-side of the economy is about more than just the supply of work or investment — and how those factors are affected by marginal income tax rates. It’s also about the supply of risk-taking and ideas. And a younger society with a higher birth rate, enabled by a tax code that offsets anti-family government policy, would be more dynamic, creative, and entrepreneurial. It’s a human capital gains tax cut.
As the late economist Gary Becker wrote: “Low fertility reduces the rate of scientific and other innovations since innovations mainly come from younger individuals. Younger individuals are also generally more adaptable, which is why new industries, like high tech startups, generally attract younger workers who are not yet committed to older and declining industries.”
Of course, there is nothing in the “Room to Grow” tax plan which precludes, say, lowering business taxes, an already much discussed idea on the right, or other comprehensive reform ideas.
Now the expanded child tax credit won’t pay for itself, at least according to Washington budget math. Stein offers a number of options, from raising the 25% marginal tax rate to 35% — keeping in mind most of the revenue would come from people who already pay the higher rate — or, alternately, the 25% bracket could be left as is with “extra revenue generated by more quickly limiting the mortgage interest deduction to the middle class or perhaps limiting the exemption for interest on municipal bonds.”
Bottom line: By reducing government policy distortions, expanding the child tax credit would strengthen both families and the overall economy.
President Barack Obama signed an executive order Monday afternoon that eventually would enable up to an additional 5 million borrowers to cap monthly student loan repayments at 10 percent of their income and forgive any unpaid debt after 20 years. The action makes those borrowers eligible for the administration’s Pay As You Earn program by expanding on a 2010 law that capped repayments for newer loans but excluded borrowers who took out loans before October 2007 or who stopped borrowing by October 2011. At an estimated $1.2 trillion, federal student loan debt is hampering the economy by crippling borrowers’ ability to spend, buy homes and open businesses, Democrats have said. More than 70 percent of today’s underclassmen graduate with debt, the White House said, which averages $29,400.
The policy research team at Guggenheim Partners questions that bit about helping housing. Analyst Jaret Seiberg:
– This is intended to go beyond changes the White House implemented in 2010 that limits payments on government-backed student loans to 10% of their monthly income by giving those with pre-2010 loans this option. — Nothing will happen immediately as the servicing agreements for these loans do not contemplate income-based repayments. As a result, these changes could take the rest of the year to implement as the White House must change the servicing agreements. — There is a lot of uncertainty about how many students will seek income-based repayment. In general, we believe this could become more and more popular if the White House continues to shower the program with attention. This is because it would be a way for students with lower incomes to reduce their monthly payments. – For us, this is a modest negative for housing. High student loan debt is a major obstacle to getting a mortgage. This suggests that some students will take even longer to repay those student loan debts. That means backend debt-to-income ratios – the measurement of all debt to all income – will be higher for longer. That makes qualifying for a mortgage harder as, in general, underwriting rules make it tougher for those with backend DTIs above 43% to get a mortgage.
And AEI’s Andrew Kelly had this to say about the first incarnation of the program.