AEI » Blog http://www.aei.org American Enterprise Institute: Freedom, Opportunity, Enterprise Fri, 28 Nov 2014 03:30:31 +0000 en-US hourly 1 Thanksgiving linkshttp://www.aei.org/publication/thanksgiving-links/ http://www.aei.org/publication/thanksgiving-links/#comments Thu, 27 Nov 2014 17:05:46 +0000 http://www.aei.org/?post_type=publication&p=822789 1. About Those Union-Organized Black Friday Protests at 1,600 Walmarts. From my op-ed in tomorrow’s Investor’s Business Daily, “Black Friday Wal-Mart Protests Miss Mark On Pay Gap” (with Michael Saltsman): What is overlooked or ignored by labor unions and anti-Wal-Mart organizations is that it takes highly compensated, superstar-level managerial talent to efficiently run a retail [...]

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1. About Those Union-Organized Black Friday Protests at 1,600 Walmarts. From my op-ed in tomorrow’s Investor’s Business Daily, “Black Friday Wal-Mart Protests Miss Mark On Pay Gap” (with Michael Saltsman):

What is overlooked or ignored by labor unions and anti-Wal-Mart organizations is that it takes highly compensated, superstar-level managerial talent to efficiently run a retail giant like Wal-Mart. These activists then make an even bigger mistake by assuming Wal-Mart’s top leaders are highly paid at the expense of lower wages for part-time hourly workers.

Consider: Wal-Mart employs roughly 600,000 part-time employees. If we assume that Wal-Mart’s executive team takes a 100% pay cut and distributes those earnings to employees — the net benefit for the part-time workforce would be a pay bump of roughly 10 cents an hour before taxes.

There are other misguided means to boost the pay of Wal-Mart’s hourly staff. For instance, this year’s Black Friday protests will focus on creating a $15-an-hour “living wage.” But someone has to pay for that mandated raise, and Wal-Mart’s low single-digit profit margin (3.4%) suggests the company itself is ill-equipped to do so. Instead, the store’s employees would shoulder the cost of a “living wage” through reduced hours and fewer job opportunities — closing down the career pathway that allows today’s cashiers to become tomorrow’s store managers or corporate executives.

If you want to help Wal-Mart employees this year — or the employees of any other retailer, for that matter — the best thing you can do is go shopping. While labor union activists provide misleading talking points and empty solutions, you’ll be providing the sales dollars that allow these companies to create more opportunities for the people who staff and manage the stores. Unlike the Black Friday protests, that’s a tradition that’s actually worth continuing.

2. The Great Thanksgiving Hoax. From Richard Maybury writing today in Mises Daily:

The real meaning of Thanksgiving, deleted from the official story, is this: Socialism does not work; the one and only source of abundance is free markets, and we thank God we live in a country where we can have them.

3. Giving Thanks for Property Rights on Thanksgiving. From Caroline Baum, writing for the Manhattan Institute’s e21 website:

Once the colonists grasped the importance of property rights, they were quick to apply the principle. In 1624, they petitioned Governor Bradford for a “portion of land given them for continuance” instead of on a yearly basis. That way, those who worked hard to improve the soil on their land one year stood to benefit, personally, from higher crop yields the next year.

In 1623 and 1624, the Pilgrims were responding to the same incentives that, almost four centuries later, are regarded as the basis for a free, productive and prosperous society. At this time, with our personal freedom compromised by enhanced security against terrorist threats and our economic freedom challenged by government actions in the wake of the financial crisis, we must never lose sight of what it is that made this country great.

4. Map of the Day. The Most Popular Thanksgiving Recipes in Every US State, Based on Google Searches, from the NY Times.

5. Thank the Frackers, Big Oil and Evil Speculators for This. U.S. gasoline prices this Thanksgiving are the lowest since 2009, according to the EIA, and will save US motorists collectively more than $650 million on gasoline versus what they spent last Thanksgiving (from Thursday to Sunday) – or more than $160 million a day, according to Gas Buddy. As Neil Cavuto commented on FOX a month ago,

You know what is weirder than gas prices tumbling the way they have been? Not a single politician demanding to know why they have been falling. Because they sure didn’t waste a nanosecond taking to the microphone when gas prices were going in the other direction.

Don’t you find it a little odd that the same bunch that said the oil industry manipulated oil prices when they were going up aren’t saying boo when they’re coming down? Odder still, because the prices are coming down faster than they went up. Maybe the energy guys weren’t fixing prices any more on the upside than they are now apparently on the downside.

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Top 400 taxpayers paid almost as much in federal income taxes in 2010 as the entire bottom 50%http://www.aei.org/publication/top-400-taxpayers-paid-almost-much-federal-income-taxes-2010-entire-bottom-50/ http://www.aei.org/publication/top-400-taxpayers-paid-almost-much-federal-income-taxes-2010-entire-bottom-50/#comments Wed, 26 Nov 2014 22:28:37 +0000 http://www.aei.org/?post_type=publication&p=822780 We hear all the time that “the rich aren’t paying their fair share of taxes” (you’ll find more than 1,000,000 Google search results for that phrase). Early last year Obama reiterated his belief that the wealthiest Americans still aren’t paying their “fair share” of taxes. Here’s an analysis using recent IRS data that suggests otherwise. 1. [...]

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We hear all the time that “the rich aren’t paying their fair share of taxes” (you’ll find more than 1,000,000 Google search results for that phrase). Early last year Obama reiterated his belief that the wealthiest Americans still aren’t paying their “fair share” of taxes. Here’s an analysis using recent IRS data that suggests otherwise.

1. In 2010 (most recent year available), the top 400 taxpayers based on Adjusted Gross Income earned $106 billion collectively, and they paid $19.1 billion in federal income taxes at an average tax rate of 18% (see chart above).

2. In 2010, the bottom 50% of taxpayers, a group totaling 67.5 million Americans, earned collectively almost $1 trillion and paid $22.4 billion in federal income taxes at average tax rate of 2.4% (see chart above).

Bottom Line: A small group of 400 of America’s most successful earners in 2010, about the number of residents living in a typical apartment building in Washington, D.C., paid almost as much in federal income taxes as the entire bottom half of America’s 135 million tax filers, which is a population equivalent to the combined number of residents living in America’s 29 least populated states, plus the District of Columbia. What makes this disparity possible is the fact that 41% of individual income tax returns filed in 2010 had a zero or negative tax liability, according to The Tax Foundation. And a recent CBO study (featured on CD here) found that the entire bottom 60% of American households are “net recipient households” and received more in government transfers than they paid in federal taxes in 2011.

When you have only 400 Americans paying almost as much in federal income taxes as the entire bottom 50% of Americans filing income tax returns, I think we can dismiss any notion of the rich not paying their “fair share” of taxes. In fact, maybe the IRS should publish the names and addresses of the Top 400 taxpayers (or provide a forwarding service to protect anonymity), so that we can all send them “Thank You” letters to express our gratitude for shouldering such a disproportionately large share of our collective tax burden.

 

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Should government compensate the taxi cartels because of Uber?http://www.aei.org/publication/government-compensate-taxi-cartels-uber/ http://www.aei.org/publication/government-compensate-taxi-cartels-uber/#comments Wed, 26 Nov 2014 19:29:50 +0000 http://www.aei.org/?post_type=publication&p=822777 What about the losers from creative destruction? I got that question yesterday on Twitter, in the context of how the rise of Uber and other ride-sharing services affects the existing owners of taxicab medallions. As is seen in the above chart, these supply-limited medallions have been an excellent investment. Over the past 80 years, Stewart Dompe and Adam Smith note in a must-read new Mercatus report, "taxi medallions have generated annualized 15.5 percent rate of return. Put another way, the value of a medallion doubled, on average, every four and a half years."

And now this rent-seeking racket of artificial scarcity is under threat. Sure, all pretty good news for low-paid drivers and service-starved consumers, but what about the medallion owners who paid such big bucks? Don't they have a valid property right that is being made worthless by government regulators? Not long ago on the EconTalk podcast, host Russ Roberts and Duke University economist Mike Munger explored this very issue:

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What about the losers from creative destruction? I got that question yesterday on Twitter, in the context of how the rise of Uber and other ride-sharing services affects the existing owners of taxicab medallions. As is seen in the above chart, these supply-limited medallions have been an excellent investment. Over the past 80 years,  Stewart Dompe and Adam  Smith note in a must-read new Mercatus report, “taxi medallions have generated annualized 15.5 percent rate of return. Put another way, the value of a medallion doubled, on average, every four and a half years.”

And now this rent-seeking racket of artificial scarcity is under threat. Sure, all pretty good news for low-paid drivers and service-starved consumers, but what about the medallion owners who paid such big bucks? Don’t they have a valid property right that is being made worthless by government regulators? Not long ago on the EconTalk podcast, host Russ Roberts and Duke University economist Mike Munger explored this very issue: 

Munger: … But I think the cost advantage is really a problem, because it actually raises a lot of questions about the nature of due process. Suppose that we don’t take any action and the value of these medallions falls to zero. Are we obliged to offer compensation, because we in effect made a regulatory decision that is a taking? This property right, this medallion, had significant value. We made a choice, without due process, that said we are going to reduce the value of this medallion to zero. Are we obliged to compensate?

Roberts: Who is ‘we’?

Munger: The state. Just like we would if we were taking your land under eminent domain to build a road.

Roberts: Yeah, I’m just giving you a heard time. Um, I don’t think that would win. But I’ll be interested.

Munger: It would not. And one of the reasons I wanted to bring it up was my good friend Peter Van Doren had an article at Cato this past week that’s a really terrific discussion of that, and in fact gives good reasons why “we”–in quotes–would not be obliged. Because it’s something different.

This is a sort of political property right that we all recognize is contingent on policy. It changes all the time. And it’s a restriction on competition. Now, the thing that kind of bothers me is you could say all property is. So I have 35 acres of pine forest south of Pittsboro, North Carolina. And suppose I were down there one day, and I heard some chain saws, and I walked back 300 or 400 yards into the woods, and I saw some guys with chain saws cutting down my trees? I’d say, What are you guys doing? They said, We’ve had a tremendous cost to manage; because we can just take these trees and sell them, we can really undercut you! And I’d say, It’s my land! He said: ‘You need to read Rousseau: The fruits of the earth belong to all and the earth to no one. So, we can just take this. And that piece of paper that you say has property–well, the state’s going to change that. As soon as they realize that you took this land from the Indians; it’s unjust. It’s not a real property right.’ This is the same argument that people make about taxing medallions: It was unjust, it was a restriction on competition; it’s not a real property right. Once we start saying property rights aren’t real, I’m not sure I have my pine forest any more, either.

Roberts: Well, it is certainly true that if you paid a million dollars six months ago and now you find that asset isn’t paying out–first of all you can’t resell it for a million, and secondly, it’s not the cash flow that you anticipated from it. Using the medallion isn’t coming through. That’s a real unpleasant surprise. You definitely lost money.

Mumger: Isn’t it a violation of due process? Because did we make a promise? The reason that you need this medallion is we are going to force anyone who provides transportation services to have a medallion. No one else can provide this. And so when you pay for it, you can in good faith think we’re going to protect your property right. And that’s why you pay for it.

Roberts: Yeah, it’s an interesting question. It’s a dangerous slope. Because what it does, of course, is set in stone all rent-seeking victories. It’s very depressing.

Munger: I think the answer is [that] there is a difference between private property and kind of reifying rent-seeking victories. … But if it’s clearly just a restriction on competition and entry into an industry where there would be big benefits, then we shouldn’t compensate. … But in the pine forest it makes sense. We don’t want it to be a commons. We don’t want everyone coming in and overfishing, overharvesting; and so it’s a solution to an externalities problem. Whereas the medallion–maybe it’s a solution to an externalities problem. That’s the argument we make–is we don’t want too much congestion. But if you look, there probably are not enough taxis in New York, particularly at peak times. And so I think the congestion story doesn’t hold up as well.

 

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Giving thanks for the invisible hand, the kaleidoscopic energy and productivity of the free market, and no turkey czarhttp://www.aei.org/publication/giving-thanks-invisible-hand-kaleidoscopic-energy-productivity-free-market-turkey-czar/ http://www.aei.org/publication/giving-thanks-invisible-hand-kaleidoscopic-energy-productivity-free-market-turkey-czar/#comments Wed, 26 Nov 2014 16:24:48 +0000 http://www.aei.org/?post_type=publication&p=822738 This post has been an annual tradition at CD now for several years: Like in previous years, most of you probably didn’t call your local supermarket ahead of time and order a Thanksgiving turkey this year. Why not? Because you automatically assumed that a turkey would be there when you showed up, and it probably [...]

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This post has been an annual tradition at CD now for several years:

Like in previous years, most of you probably didn’t call your local supermarket ahead of time and order a Thanksgiving turkey this year. Why not? Because you automatically assumed that a turkey would be there when you showed up, and it probably was there when you showed up “unannounced” at your local grocery store and selected your Thanksgiving bird.

The reason your Thanksgiving turkey was waiting for you without an advance order? Because of the economic concepts of “spontaneous order,” “self-interest,” and the “invisible hand” of the free market. Turkeys appeared in your local grocery stores primarily because of the “selfishness” and “self-interest” (maybe even greed in some cases) of thousands of turkey farmers, truckers, and supermarket owners who are complete strangers to you and your family. But all of those strangers throughout the turkey supply chain co-operated on your behalf and were led by an “invisible hand” to make sure your family had a turkey on the table to celebrate Thanksgiving this year. The “invisible hand” that was responsible for your holiday turkey is just one of millions of everyday examples of the “miracle of the marketplace” where “individually selfish decisions must lead to a collectively efficient outcome,” as economist Steven E. Landsburg observed.

In a 2003 Boston Globe article titled “Giving Thanks for the Invisible Hand,” syndicated columnist Jeff Jacoby offered a wonderful tribute to the miracle of the invisible hand that makes affordable turkeys available so efficiently every year at Thanksgiving through the power of “spontaneous order” and without the need for any central planning or a “turkey czar”:

Isn’t there something wondrous — something almost inexplicable — in the way your Thanksgiving weekend is made possible by the skill and labor of vast numbers of total strangers?

To bring that turkey to the dining room table required the efforts of thousands of people — the poultry farmers who raised the birds, of course, but also the feed distributors who supplied their nourishment and the truckers who brought it to the farm, not to mention the architect who designed the hatchery, the workmen who built it, and the technicians who keep it running. The bird had to be slaughtered and defeathered and inspected and transported and unloaded and wrapped and priced and displayed. The people who accomplished those tasks were supported in turn by armies of other people accomplishing other tasks — from refining the gasoline that fueled the trucks to manufacturing the plastic in which the meat was packaged.

The activities of countless far-flung men and women over the course of many months had to be intricately choreographed and precisely timed, so that when you showed up to buy a fresh Thanksgiving turkey, there would be one — or more likely, a few dozen — waiting. The level of coordination that was required to pull it off is mind-boggling. But what is even more mind-boggling is this: No one coordinated it.

No turkey czar sat in a command post somewhere, consulting a master plan and issuing orders. No one forced people to cooperate for your benefit. And yet they did cooperate. When you arrived at the supermarket, your turkey was there. You didn’t have to do anything but show up to buy it. If that isn’t a miracle, what should we call it?

Adam Smith called it “the invisible hand” — the mysterious power that leads innumerable people, each working for his own gain, to promote ends that benefit many. Out of the seeming chaos of millions of uncoordinated private transactions emerges the spontaneous order of the market. Free human beings freely interact, and the result is an array of goods and services more immense than the human mind can comprehend. No dictator, no bureaucracy, no supercomputer plans it in advance. Indeed, the more an economy is planned, the more it is plagued by shortages, dislocation, and failure.

It is commonplace to speak of seeing God’s signature in the intricacy of a spider’s web or the animation of a beehive. But they pale in comparison to the kaleidoscopic energy and productivity of the free market. If it is a blessing from Heaven when seeds are transformed into grain, how much more of a blessing is it when our private, voluntary exchanges are transformed – without our ever intending it – into prosperity, innovation, and growth?”

Bottom Line: As you celebrate Thanksgiving tomorrow with your family, make sure to express some thanks and gratitude to the thousands of “invisible” strangers who won’t be there in person, but who were led by the “invisible hand” of the market over the last several months to make sure your holiday feast was possible.

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Here’s what we think we know about economic opportunity in America todayhttp://www.aei.org/publication/heres-think-know-economic-opportunity-america-today/ http://www.aei.org/publication/heres-think-know-economic-opportunity-america-today/#comments Wed, 26 Nov 2014 16:13:30 +0000 http://www.aei.org/?post_type=publication&p=822736 A just-released paper examined, better than any previous study, mobility across multiple countries using administrative data for each and the same methods and income concepts. That paper reported — for the U.S., Sweden, and Canada — the probability that a man raised by a father in the bottom fifth of earnings has earnings that exceed the bottom fifth of grown sons. The figures were 68 percent in the U.S. and Sweden and 69 percent in Canada. The essentially identical rates of upward mobility — also reflected in other measures in the paper — contradict the prior consensus that the U.S. features lower upward mobility than other nations, a conclusion that now appears compromised by data inconsistencies or driven by family structure differences that affect household income.

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A great summary from Scott Winship on how tough or easy it is these days to climb the opportunity ladder:

A just-released paper examined, better than any previous study, mobility across multiple countries using administrative data for each and the same methods and income concepts. That paper reported — for the U.S., Sweden, and Canada — the probability that a man raised by a father in the bottom fifth of earnings has earnings that exceed the bottom fifth of grown sons. The figures were 68 percent in the U.S. and Sweden and 69 percent in Canada. The essentially identical rates of upward mobility — also reflected in other measures in the paper — contradict the prior consensus that the U.S. features lower upward mobility than other nations, a conclusion that now appears compromised by data inconsistencies or driven by family structure differences that affect household income.

Upward mobility rates in the U.S. differ notably by race. Among whites, 74 percent of sons raised in the bottom make it out, compared with just 49 percent of African American sons. Even among whites, however, upward mobility is arguably insufficient. Just 37 percent of sons raised in the bottom fifth end up in the top three fifths, while equality of outcomes would put that figure at 60 percent. Among black sons, the figure is just 29 percent.

And while upward mobility probably has not declined in recent decades, neither has it increased. My own estimates, for example, indicate that 63 percent of sons born in the late 1940s and raised in the bottom quarter of family income made it out of the bottom quarter of earnings in early adulthood. For sons born in the early 1980s, the figure was 60 percent.

Of course, it is impossible to directly observe barriers to opportunity since we can neither observe the potential outcomes of children under different circumstances nor identify how their preferences form and evolve. Relative mobility rates cannot even be taken as prima facie evidence of unequal opportunity. However, we do know that there are large test score gaps when children enter school, which do not diminish much, if at all, over the course of primary and secondary schooling. We also know that college graduation rates are six times higher for children born in upper-income families than for those in lower-income families. Even children with test scores in the top quartile in eighth grade have dramatically different probabilities of getting a bachelor’s degree depending on whether they come from advantaged or disadvantaged families. 

And let me add that even if mobility is stable — to me, another discouraging sign of American economic stasis — higher inequality increases the economic penalty for an inability to move up the ladder. Anyway, rather than  a neat 10-point agenda for increasing mobility, Winship recommends lots of policy experiments in key areas such as education, marriage, and safety-net programs. Terribly reasonable stuff. But my key takeaway is that faster GDP growth is necessary but not sufficient in helping enhance opportunity to create the meaningful lives we wish to live.

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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.

williston
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 their total consumer expenditures, Americans spent the least amount on food and beverages consumed at home (along with Singapore) in 2013, based on a new international comparison of 88 countries by 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.

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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.

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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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