AEI » Blog http://www.aei.org American Enterprise Institute: Freedom, Opportunity, Enterprise Wed, 26 Nov 2014 01:07:57 +0000 en-US hourly 1 Tuesday evening linkshttp://www.aei.org/publication/tuesday-evening-links-2/ http://www.aei.org/publication/tuesday-evening-links-2/#comments Tue, 25 Nov 2014 22:33:00 +0000 http://www.aei.org/?post_type=publication&p=822670 1. Chart of the Day. Based on new data from the Department of Energy, the US produced domestically 86.2% of the total energy consumed domestically this year through August – that’s the highest level of energy self-sufficiency in the US since 1986. 2. Photos of the Day I. From the NY Times, what would North [...]

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1. Chart of the Day. Based on new data from the Department of Energy, the US produced domestically 86.2% of the total energy consumed domestically this year through August – that’s the highest level of energy self-sufficiency in the US since 1986.

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2. Photos of the Day I. From the NY Times, what would North Dakota look like if its oil drilling lines were above ground? See example above of the Williston area.

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3. Photo of the Day II. Very egalitarian Lego instructions to parents from 1974, find out more here.

4. Who-d a-Thunk It? Of the Top 10 High Schools in Michigan, 5 Are Charters? At the highest ranked high school in the state, 90 percent of the students are from low-income households. And yet Democratic lawmakers in the state are doing everything they can to stop the growth of charters?

5. Inc.’s 2014 Company of the Year? Airbnb, the home-sharing empire that has become the biggest lodging provider on Earth.

6. You Can Thank the Frackers for This: From Thanksgiving to Sunday, US motorists will collectively save $650 million on gasoline versus last year, or more than $160 million a day, according to GasBuddy.com.

7. Glenn Reynolds: “Quotas to keep minorities out of schools were once considered racist and unfair, but colleges today think it is just fine as long as they discriminate against the right minorities – Asian-Americans,” from his USAToday column “Asians get the Ivy League’s Jewish treatment.”

8. Howard Baetjer’s Economic Lesson: Profit-seeking Uber and competitive market forces are regulating racial profiling in the transportation industry much more effectively than government bureaucrats and regulations. From his article “Uber against Racial Profiling“:

Why would Uber-directed drivers, unregulated by any government agency, pick up passengers from minority groups that government-regulated taxi drivers refuse? The answer is that Uber drivers are regulated by Uber, Uber is regulated by market forces, and market forces regulate far more effectively than the DC taxi commission does.

Here’s a beautiful instance of how market forces push people to pay attention to the well-being of others of all races. And it’s an instance of how modern technology and market incentives are making government regulations obsolete, if they were ever useful at all.

9. NEW VIDEO from the Factual Feminist – Are the sciences steeped in sexism? Christina Sommers dives into the data on women in science and science education.

10. Something Else to Be Thankful For: As a share of consumer expenditures, American have the most affordable food on the planet (along with Singapore), based on new data for 2013 from the USDA, see table below.

CountryPercent of consumer expenditures spent on food and beverages consumed at home in 2013
USA6.7
Singapore6.7
Switzerland8.9
United Kingdom9.3
Canada9.5
Austria9.9
Australia10.0
Ireland10.4
Denmark11.2
Netherlands11.8
Qatar12.0
Germany12.0
Sweden12.2
Finland12.5
Norway13.0
South Korea13.4
Japan13.6
Taiwan13.6
Bahrain13.7
France13.8
Belgium13.8
Spain13.8
United Arab Emirates14.1
Italy14.1
Hong Kong, China14.3
Israel15.2
Slovenia15.2
New Zealand15.4
Chile15.6
Brazil15.7
Czech Republic16.1
Greece16.6
Hungary16.8
Bulgaria17.6
Poland17.7
Slovakia17.8
Colombia17.9
Uruguay18.4
Kuwait18.5
Portugal18.6
Latvia18.8
South Africa19.2
Estonia19.6
Venezuela19.9
Costa Rica20.2
Montenegro20.5
Argentina20.7
Malaysia20.7
Turkey22.0
Tunisia22.7
Ecuador23.1
Lithuania23.7
Dominican Republic24.1
Iran25.0
Mexico25.1
Saudi Arabia25.5
China26.1
Serbia27.4
Thailand28.0
Romania28.3
Bolivia28.7
India29.6
Russia30.5
Uzbekistan30.8
Croatia31.1
Bosnia-Herzegovina31.3
Indonesia33.2
Georgia33.2
Macedonia34.2
Vietnam35.5
Morocco35.8
Peru36.5
Belarus37.3
Egypt37.4
Jordan37.5
Ukraine38.6
Turkmenistan38.8
Guatemala40.1
Philippines42.4
Algeria42.6
Kazakhstan43.5
Azerbaijan45.3
Cameroon45.8
Kenya46.9
Pakistan48.1
Nigeria56.7

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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% [...]

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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.

 

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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 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.

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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.

 

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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 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

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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.

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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 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, economist Gary 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.

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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.

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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 D.C. policy establishment seems to be betting on a bureaucrat, rather than a politician, to replace Hagel as Secretary of Defense.

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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.

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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 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.

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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?

 

 

 

 

 

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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.

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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.

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Japan’s Abe confuses electorate, yet keeps big lead over opponentshttp://www.aei.org/publication/japans-abe-confuses-electorate-yet-keeps-big-lead-opponents/ http://www.aei.org/publication/japans-abe-confuses-electorate-yet-keeps-big-lead-opponents/#comments Tue, 25 Nov 2014 15:10:58 +0000 http://www.aei.org/?post_type=publication&p=822553 Abe’s goal is to gain a renewed mandate for his controversial policies, including a disastrous sales tax increase earlier this year, more fiscal stimulus spending, and monetary expansion. From a policy point of view, that may not be a bad thing, given the lack of other plans from either Abe’s own LDP or the DPJ. But from a political perspective, the continuing lack of confidence in Japan’s leaders is a worrisome sign for the long-term health of the democracy.

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Japan’s Prime Minister, Shinzo Abe, made a bold move to call for snap parliamentary elections in December, given the country’s fall back into recession and growing public dissatisfaction with his policies. Tactically, he made the right move, since waiting another two years for the scheduled vote would have likely seen worse economic news, intra-party challenges to his rule, and possibly even the resurgence of the main opposition party, the Democratic Party of Japan (DPJ). The immediate result of his bold move has been to send his public approval rate plummeting. In a poll last Friday, by the liberal Asahi Shimbun, Abe’s cabinet was supported by just 39% of respondents. That’s a drop of roughly 20 points from polls just a few months ago.

Yet in a sign of how Japan has yet to develop a full two-party system, a plurality of voters polled in recent days have indicated that they will support Abe’s Liberal Democratic Party (LDP), despite their disapproval of the direction the country is going. A poll taken by one of Japan’s leading business newspapers found that 35% of respondents would vote for the LDP, while just nine percent indicated support for the DPJ. It is thus likely that Abe will maintain his majority in the Lower House of the Diet, with the only real question being how many seats he loses. Given that the LDP currently controls 295 out of 480 total seats in the Lower House (plus another 31 seats for their coalition partner, the Komeito), there would have to be a political earthquake of unprecedented proportions for Abe to lose control of the Diet. A loss of 30 seats, representing just 10% of his current total, would leave him in a still dominant position. More than that, though, and it is possible that Abe could face intra-party opposition to remaining premier.

Abe’s goal is to gain a renewed mandate for his controversial policies, including a disastrous sales tax increase earlier this year, more fiscal stimulus spending, and monetary expansion. Even with a minor turnout at the polls on December 14, Abe is likely to claim any victory as a new mandate. The voters, who have already soured on his plans, won’t be fooled, but they currently see no alternative. From a policy point of view, that may not be a bad thing, given the lack of other plans from either Abe’s own LDP or the DPJ. But from a political perspective, the continuing lack of confidence in Japan’s leaders is a worrisome sign for the long-term health of the democracy.

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Iran talks: 6 silver liningshttp://www.aei.org/publication/iran-talks-six-silver-linings/ http://www.aei.org/publication/iran-talks-six-silver-linings/#comments Tue, 25 Nov 2014 13:50:03 +0000 http://www.aei.org/?post_type=publication&p=822530 It was no surprise on Monday when the P5+1 countries and Iran agreed to another extension of the talks over Tehran’s nuclear program. The question now for the US is what Washington can gain from talking for seven more months?

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It was no surprise on Monday when the P5+1 countries and Iran agreed to another extension of the talks over Tehran’s nuclear program. Iran has been serious about finding a deal to escape sanctions, but the regime has also been clear that a meaningful reversal of its nuclear capabilities — as opposed to simply constraining the program — is a redline. To put it simply, this is why the negotiations are stuck. The question now for the US is what Washington can gain from talking for seven more months?

  1. An extension is better than a bad deal. One positive read on today’s decision is that at least some of the P5+1 negotiators were unwilling to make concessions that would have left Iran’s program largely intact and critical suspicions about the regime’s past weapons research unanswered.
  2. Washington could begin to instill fear in Iran that the US might walk away from the talks in the absence of real progress. The threat of not reaching a deal and not ending the sanctions regime would likely sober up the Iranian leadership quickly, especially if we can ignore the rhetorical and political fit Tehran would throw at first.
  3. The incoming US Senate can lead in strengthening the incentives that brought Iran to the table in the first place and avoid a bad nuclear deal. As the primary architect of the sanctions regime, Congress has the responsibility to work with the Obama Administration and our allies to ensure existing sanctions remain intact, and enforceable if there is no deal. This includes raising the specter of new sanctions if negotiations fail.
  4. The president and Secretary Kerry might stop appearing to be siding with Iran against a (rightly) skeptical Congress over the imposing of new sanctions or potential suspension of existing ones. Greater White House cooperation with Capitol Hill, rather than avoidance and open confrontation, will strengthen Kerry’s hand in the talks.
  5. A military option needs to be back on the table, though it must remain a last resort. This means military exercises with our allies and deep earth-penetrating weapons testing. Air and sea power deployments in the region should signal an increased capability and preparedness beyond the current campaign against ISIS. The threat of an attack helped push Iran into the negotiations. An implied threat should help keep them there.
  6. Finally, the US should ensure an aggressive intelligence effort and enhanced dual-use technology sanctions regime is built to detect a covert “sneakout” by Iran to build a nuclear weapon, regardless of the talks’ outcome. A breakout for a bomb in declared facilities will always be risky for Iran. A secret pathway is the greater concern.

Chances for a good deal are still slim. The US team—both the president and Congress – needs to recognize our strengths and Iran’s weaknesses in these talks and start playing like we really want to win.

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