My blogging buddy, Ed Morse, said that while watching Desperate Housewives this past Sunday night and flipping between stations, he accidentally came across the Mainstreet Economy which airs on NETV-1 and NETV-2, primarily in Nebraska. This is a new television show that we at Creighton University just launched covering the rural economies of Colorado, Iowa, Kansas, Missouri, Nebraska, South Dakota and Wyoming. For those of you who were not as fortunate as Ed and continued to watch the foibles of those lascivious characters on the Desperate Housewives, let me summarize the findings from our March survey (you can request that your local station carry this soon-to-be “gotta have” broadcast by contacting NETV in Lincoln, Nebraska):
The Mainstreet Bank CEOs Report Stable Non-Urban Economy But with Potential Drought Fallout
The third survey of the Mainstreet Economy completed in March indicates that the non-urban, agriculturally dependent portions of the seven-state survey area was virtually unchanged for the month, but with continuing weak retail sales and renewed concerns of the impact of drought conditions on the economy.
Bank presidents and CEOs in the region, which includes the rural and non-urban Portions of Colorado, Iowa, Kansas, Missouri, Nebraska, South Dakota and Wyoming, reported stable economic conditions as the overall index rose to 51.6, slightly above growth neutral 50.0, from February’s weaker 48.1. However, almost 80 percent of the CEOs expect drought conditions to have severe to moderate negative impacts on the non-urban portions of the economy. As reported by Craig Brewster, President of Butte State Bank in Butte, Nebraska, “My biggest concern for our area is weather conditions. In a county where crop production is almost all dryland weather conditions will play a major role on how people spend their money.” In Frankfort, Kansas, Joe Kennedy, CEO of the First National Bank stated that “The local economy is good but we need rain.” Hiring in the 7-state area was weak for March with an index of 48.3, up slightly from 44.0 in February. Job gains were weak in Iowa and Missouri, stable in Kansas, and strong in Colorado, Nebraska, South Dakota and Wyoming. Job growth was especially strong for areas with ties to mining and energy.
Across the region, bankers are enthusiastic about the prospects of renewable energy production. For example, Kurt Henstorf, President of the First National Bank of Shenandoah, Iowa stated that, “We have a new 50M gallon ethanol plant under construction, a Canadian company that just chose our community for a new ag implement manufacturing plant, and a new super Wal-Mart location just announced for our community. The construction crews for these three projects alone will enhance our local economy for the next year or more.” Bank presidents and CEOs in the region expect the Mainstreet economy to continue to grow, albeit at a slow pace, over the next six months, as the confidence index declined to a tepid 51.6 from February’s 51.9, and down slightly from January’s 53.3. “The bankers in our survey reported weak retail sales with an index of 34.4, but up from February’s 28.8. As in January and February, CEOs reported vigorous growth in farmland prices with an index of 64.1, down from February’s 72.0 and January’s 71.0. As in January, the Mainstreet economy relative to the urban economy was strongest in Colorado, Nebraska, South Dakota and Wyoming. On the other hand, Mainstreet businesses in Iowa, Kansas and Missouri were experiencing somewhat weaker economic growth than their urban counterparts.
To obtain more detailed data go to:
http://www.outlook-economic.com/MainstreetEconomy/NebraskaMSE.html
EPG
Tuesday, March 28, 2006
Monday, March 27, 2006
Immigration and Economic Growth: CBO Wrong Again
In 2003, the Congressional Budget Office (CBO), an organization where I worked as a resident scholar in 2004, estimated that the annual growth in U.S. gross domestic product (GDP) would wither to 2.7 percent in 2007. The primary factor driving growth to this unacceptably low (Europeanesque) growth rate was a decline in the expected growth in the U.S. labor force. Go to the following site to see the CBO’s latest forecasts:
http://www.cbo.gov/showdoc.cfm?index=6060&sequence=1
During my stay at the CBO, I disagreed with my economist colleagues on this pessimistic prognostication. As you will note they have since moved their expected slowdown out from 2007 to the year 2010. I estimated then, and still maintain, that increasing immigration, especially from our southern neighbors, will in fact swell our labor force to the point that the U.S. gross domestic product will continue to grow at a rate north of 3.3 percent, even beyond 2010.
Most estimates of labor’s contribution to growth, even foreign labor, find that a two percent increase in the labor produces a 1.3 percent to 1.4 percent increase in gross domestic product. Currently there are an estimated 12 million illegal immigrants in the U.S. Pushing these individuals back to their home country would be calamitous to the U.S. economy reducing GDP by a full 6 percent to 7 percent. Moreover, limiting immigration will significantly limit growth of the U.S. economy.
EPG
http://www.cbo.gov/showdoc.cfm?index=6060&sequence=1
During my stay at the CBO, I disagreed with my economist colleagues on this pessimistic prognostication. As you will note they have since moved their expected slowdown out from 2007 to the year 2010. I estimated then, and still maintain, that increasing immigration, especially from our southern neighbors, will in fact swell our labor force to the point that the U.S. gross domestic product will continue to grow at a rate north of 3.3 percent, even beyond 2010.
Most estimates of labor’s contribution to growth, even foreign labor, find that a two percent increase in the labor produces a 1.3 percent to 1.4 percent increase in gross domestic product. Currently there are an estimated 12 million illegal immigrants in the U.S. Pushing these individuals back to their home country would be calamitous to the U.S. economy reducing GDP by a full 6 percent to 7 percent. Moreover, limiting immigration will significantly limit growth of the U.S. economy.
EPG
Sunday, March 26, 2006
The Growing Threat of Ignorant Protesters against Global Capitalism
The title of a March 17th post to this blog by my colleague Ed Morse suggests that French students who are protesting a government proposal to loosen restrictions on employers might wish to take a course in basic economics. While I wholeheartedly agree with such a sentiment, I think it instructive to consider just what it is that these French students are protesting. Can it be that they really do not understand their own interests, as some television commentators have contended? I think that a case can indeed be made for this. Knowing the French education system, however, it is more likely that the French students have taken quite a bit of economics. So much so that they have come to the conclusion that they virulently oppose the international economic order that is based on the principles that they learned in these economics courses. In other words, it is not the law that is the target of the wrath of these students, it is the international economic order itself. French students want their government to engage in deconstructing that economic order, not responding to it by passing laws that further legitimate it. That, in fact, is a sentiment widely shared in France; and it is why France voted against the proposed European Union constitution.
The French students (as well as government employees and unions) are not likely to succeed; and if they do, it will be a pyrrhic victory. Trying to deconstruct the world capitalist economy, while a century-and-a-half dream of Marxists of all stripes on the left (who dominate thinking in the Sorbonne and other elite French institutions), is a bit like standing in front of an on-coming freight train in the hopes of derailing it. The end result is likely to be that France’s economy will continue to list while the rest of the world benefits from investment capital and jobs that might have otherwise found their way to France. So be it!
What troubles me more are students, government workers, union employees, and others in the United States who protest against the same things without having a clue about the world capitalist order. At least the French protesters understand that they are protesting the fundamentals, not consequences. In the United States a growing number of individuals are protesting the consequences, while thinking that they support the fundamentals. Witness the movement against Walmart, the pharmaceutical industry, and oil companies, a movement that is fueled by radio and television talk show hosts who are manipulating so-called “conservative” citizens. Such citizens haven’t a clue about what capitalism is. I am much more concerned by them than I am by French students who reject capitalism on principle. How are we to reason with those who object to consequences without any understanding that those same consequences are rooted in the very principles of capitalism, principles they say they support? Where would we even begin the conversation? They will simply respond that they are capitalists. But just what kind of capitalists are they if every position they take on important issues is in fact in opposition to the very notion of free markets?
If I were a conspiratorial theorist I would conclude that Marxists have succeeded much more admirably in the U.S. than have their comrades in France. They have turned out several generations of economic illiterates from our institutions of higher education. Hence, unlike in France, where people still argue about philosophical principles, such as those that lay at the heart of global capitalism, the only Americans who do so are generally Marxists. Their so-called conservative and moderate opponents, on the other hand, are increasingly less able to do so, as a consequence of which they are subject to manipulation that in the end leads them to take almost identical positions to those of the far-left!
If the process of the dumbing-down of the right in the United States continues, we will soon have a government pursuing non-market policies in pursuit of global capitalism supported by a so-called “conservative” population that is actually populist. I hope we can avoid such a fate, but we are not likely to until conservatives begin defending free market capitalism from its detractors. I suggest they begin by helping their less astute “conservative” colleagues understand that Walmart, higher oil prices, outsourcing of jobs to the 3rd world, immigration, and the like are not threats to free markets and capitalism. They are capitalism!
The French students (as well as government employees and unions) are not likely to succeed; and if they do, it will be a pyrrhic victory. Trying to deconstruct the world capitalist economy, while a century-and-a-half dream of Marxists of all stripes on the left (who dominate thinking in the Sorbonne and other elite French institutions), is a bit like standing in front of an on-coming freight train in the hopes of derailing it. The end result is likely to be that France’s economy will continue to list while the rest of the world benefits from investment capital and jobs that might have otherwise found their way to France. So be it!
What troubles me more are students, government workers, union employees, and others in the United States who protest against the same things without having a clue about the world capitalist order. At least the French protesters understand that they are protesting the fundamentals, not consequences. In the United States a growing number of individuals are protesting the consequences, while thinking that they support the fundamentals. Witness the movement against Walmart, the pharmaceutical industry, and oil companies, a movement that is fueled by radio and television talk show hosts who are manipulating so-called “conservative” citizens. Such citizens haven’t a clue about what capitalism is. I am much more concerned by them than I am by French students who reject capitalism on principle. How are we to reason with those who object to consequences without any understanding that those same consequences are rooted in the very principles of capitalism, principles they say they support? Where would we even begin the conversation? They will simply respond that they are capitalists. But just what kind of capitalists are they if every position they take on important issues is in fact in opposition to the very notion of free markets?
If I were a conspiratorial theorist I would conclude that Marxists have succeeded much more admirably in the U.S. than have their comrades in France. They have turned out several generations of economic illiterates from our institutions of higher education. Hence, unlike in France, where people still argue about philosophical principles, such as those that lay at the heart of global capitalism, the only Americans who do so are generally Marxists. Their so-called conservative and moderate opponents, on the other hand, are increasingly less able to do so, as a consequence of which they are subject to manipulation that in the end leads them to take almost identical positions to those of the far-left!
If the process of the dumbing-down of the right in the United States continues, we will soon have a government pursuing non-market policies in pursuit of global capitalism supported by a so-called “conservative” population that is actually populist. I hope we can avoid such a fate, but we are not likely to until conservatives begin defending free market capitalism from its detractors. I suggest they begin by helping their less astute “conservative” colleagues understand that Walmart, higher oil prices, outsourcing of jobs to the 3rd world, immigration, and the like are not threats to free markets and capitalism. They are capitalism!
Immigration: More Disparities Here, Too
As long as we are on the topic of disparities, I ran across this study while reading David Frum’s blog at National Review Online. The study deals with the impact of immigration on the job prospects of Americans with lower educational levels. It is just what you would expect: not good. Whereas the national unemployment rate hovers around 5 percent, adults 18-64 with high school or less in education in some regions with high immigrant inflows is at 10 percent. Although job growth for lower-skilled workers has been substantial since 2000, most of these jobs have gone to non-natives.
The study indicates that not only are more members of this native cohort of lower-skilled workers looking for work and not finding it, more of them have dropped out of the labor force altogether. College and child-rearing can’t explain these numbers, and the study estimates that if participation rates had stayed the same as in 2000, there would be 450,000 more dropouts and 1.4 million more high school graduates in the labor force in 2005. A full copy of the study can be found here:
http://www.cis.org/articles/2006/back206.html
The results described above are hardly surprising. When you expand the supply of labor through immigration, you put downward pressure on price. The employer’s surplus increases, and workers do not benefit. The study indicates that about 11 million lower-skilled immigrants are estimated to be working in the United States, and about half of these are here illegally. (I have heard some figures that are much higher.) In contrast, about 17 million lower-skilled natives are in the labor force in areas with high concentrations of immigrant workers. Natives are still a majority, but you can see the big impact this has had on the labor market for their skills.
Many of the people who are protesting on behalf of immigrants are doing so out of concern for the poor. (I recall that one Catholic leader has even suggested that he will counsel parishioners to disobey stricter immigration laws if they are passed.) They are right to be concerned, and I find myself being drawn to the plight of the poor who are simply seeking a better life. But which poor should concern us? The poor among our own citizens, who are now having trouble competing? Or the poor from other countries who break laws to enter here, but who apparently are more competitive than their native counterparts? And what about the employers, who just want a dependable worker at a fair price? Some profound moral issues are presented here, which cannot be simplistically resolved.
Movements of labor are controlled by immigration policy, which has not caught up with the free trade movements that allow ingress and egress of goods and capital. Immigration presents many complexities, including the matter of national security (who is coming in) as well as the matter of cultural changes on account of more new folks moving in than can be assimilated into the existing culture. One wonders about the process of assimilation when, in recent days, we see immigration protestors carrying the Mexican flag, rather than the American flag. To the extent that voting security is not maintained, democratic mechanisms may also be threatened by the influx of noncitizens to the voting booth. “Whose country is it, anyway?” will present itself to the citizens of this country of immigrants.
(And apropos of yesterday’s blog on drugs, query whether that has had something to do with unskilled young people dropping out of the labor market.)
EAM
The study indicates that not only are more members of this native cohort of lower-skilled workers looking for work and not finding it, more of them have dropped out of the labor force altogether. College and child-rearing can’t explain these numbers, and the study estimates that if participation rates had stayed the same as in 2000, there would be 450,000 more dropouts and 1.4 million more high school graduates in the labor force in 2005. A full copy of the study can be found here:
http://www.cis.org/articles/2006/back206.html
The results described above are hardly surprising. When you expand the supply of labor through immigration, you put downward pressure on price. The employer’s surplus increases, and workers do not benefit. The study indicates that about 11 million lower-skilled immigrants are estimated to be working in the United States, and about half of these are here illegally. (I have heard some figures that are much higher.) In contrast, about 17 million lower-skilled natives are in the labor force in areas with high concentrations of immigrant workers. Natives are still a majority, but you can see the big impact this has had on the labor market for their skills.
Many of the people who are protesting on behalf of immigrants are doing so out of concern for the poor. (I recall that one Catholic leader has even suggested that he will counsel parishioners to disobey stricter immigration laws if they are passed.) They are right to be concerned, and I find myself being drawn to the plight of the poor who are simply seeking a better life. But which poor should concern us? The poor among our own citizens, who are now having trouble competing? Or the poor from other countries who break laws to enter here, but who apparently are more competitive than their native counterparts? And what about the employers, who just want a dependable worker at a fair price? Some profound moral issues are presented here, which cannot be simplistically resolved.
Movements of labor are controlled by immigration policy, which has not caught up with the free trade movements that allow ingress and egress of goods and capital. Immigration presents many complexities, including the matter of national security (who is coming in) as well as the matter of cultural changes on account of more new folks moving in than can be assimilated into the existing culture. One wonders about the process of assimilation when, in recent days, we see immigration protestors carrying the Mexican flag, rather than the American flag. To the extent that voting security is not maintained, democratic mechanisms may also be threatened by the influx of noncitizens to the voting booth. “Whose country is it, anyway?” will present itself to the citizens of this country of immigrants.
(And apropos of yesterday’s blog on drugs, query whether that has had something to do with unskilled young people dropping out of the labor market.)
EAM
Saturday, March 25, 2006
Drugs in Schools: Growing Costs and Disparities?
One of my son’s friends joined us for dinner tonight. She attends an urban public school. In the course of our after dinner conversations (or as my kids might sometimes describe them, cross examinations) we discussed several patterns of behavior common among young people in high school. Let’s just say I’m disturbed.
According to this very reliable source, about half the kids in her school have tried drugs, and about one third are using them regularly. When we define drugs, this includes marijuana, cocaine, and heroin. (Yes, cocaine and heroin. I specifically excluded alcohol and tobacco from the definition.)
Where do they get the money? From working, stealing, and parents. Though I salute the kids with jobs, parents might want to do some monitoring about where their paychecks are going.
Where do they get the drugs? She was not sure, but they seem to have no problem. They brag about their drug exploits openly. Apparently, they feel no shame about being a drug user, and they have no fear of being caught. (When I was a cub, it was definitely not cool to use drugs – though nondrinkers were in the minority.)
What do they think of school administration efforts to reduce drug usage? A joke. Mostly they don’t think they mean what they say. The administration lacks credibility. (Could it be because there is no follow-through?)
And how about smoking? Slightly less than half do. But so much for all these anti-tobacco campaigns. I really don’t care if people smoke, but I don’t like to breathe it myself. But I think young people who start smoking are, well, not the brightest crayons in the box.
My young source estimates that about half the students are not using drugs or alcohol or tobacco. I’m told the situation at a parochial high school in town is less problematic for drugs, but alcohol usage is common. (This is much like my rural high school when I was a cub.) A nearby small town school is much the same, with drinking to excess being a common event on weekends, though much less frequent indications of drug use.
Parents: Wake up. This is disturbing. No wonder many of us choose to home school or send our kids to private schools. Query whether there will ever be enough outrage to break the public monopoly on education and allow vouchers or other school choice mechanisms. How long will people be satisfied with an environment where their children are among frequent drug users who, incidentally, are also not exactly going after educational excellence?
Taxpayers: Pay up. Don’t think for a moment that the drug users will internalize their costs. It is going to affect you sooner or later.
I could mention some other groups here, but this is not really about blame. It is about waking up and smelling the coffee in our postmodern world. What is the depth of hopelessness that drives kids to choose drugs instead of life? Note that not all of these kids who choose drugs are poor – many are from affluent families.
I doubt that government programs can change this kind of behavior. Our efforts to enforce drug laws (or lack of them – see “Catch and Release in Atlantic” from the March archives) are apparently not cutting it. One policy change that might help: give parents more choices and allow competition that will permit those who care about excellence (in personal deportment and education) to pursue it. But despite whatever slogans the government may adopt, some children (and adults) will be left behind. This will lead to greater disparities in the social structure. But what is the alternative? I would be interested in hearing any personal insights on this issue.
EAM
According to this very reliable source, about half the kids in her school have tried drugs, and about one third are using them regularly. When we define drugs, this includes marijuana, cocaine, and heroin. (Yes, cocaine and heroin. I specifically excluded alcohol and tobacco from the definition.)
Where do they get the money? From working, stealing, and parents. Though I salute the kids with jobs, parents might want to do some monitoring about where their paychecks are going.
Where do they get the drugs? She was not sure, but they seem to have no problem. They brag about their drug exploits openly. Apparently, they feel no shame about being a drug user, and they have no fear of being caught. (When I was a cub, it was definitely not cool to use drugs – though nondrinkers were in the minority.)
What do they think of school administration efforts to reduce drug usage? A joke. Mostly they don’t think they mean what they say. The administration lacks credibility. (Could it be because there is no follow-through?)
And how about smoking? Slightly less than half do. But so much for all these anti-tobacco campaigns. I really don’t care if people smoke, but I don’t like to breathe it myself. But I think young people who start smoking are, well, not the brightest crayons in the box.
My young source estimates that about half the students are not using drugs or alcohol or tobacco. I’m told the situation at a parochial high school in town is less problematic for drugs, but alcohol usage is common. (This is much like my rural high school when I was a cub.) A nearby small town school is much the same, with drinking to excess being a common event on weekends, though much less frequent indications of drug use.
Parents: Wake up. This is disturbing. No wonder many of us choose to home school or send our kids to private schools. Query whether there will ever be enough outrage to break the public monopoly on education and allow vouchers or other school choice mechanisms. How long will people be satisfied with an environment where their children are among frequent drug users who, incidentally, are also not exactly going after educational excellence?
Taxpayers: Pay up. Don’t think for a moment that the drug users will internalize their costs. It is going to affect you sooner or later.
I could mention some other groups here, but this is not really about blame. It is about waking up and smelling the coffee in our postmodern world. What is the depth of hopelessness that drives kids to choose drugs instead of life? Note that not all of these kids who choose drugs are poor – many are from affluent families.
I doubt that government programs can change this kind of behavior. Our efforts to enforce drug laws (or lack of them – see “Catch and Release in Atlantic” from the March archives) are apparently not cutting it. One policy change that might help: give parents more choices and allow competition that will permit those who care about excellence (in personal deportment and education) to pursue it. But despite whatever slogans the government may adopt, some children (and adults) will be left behind. This will lead to greater disparities in the social structure. But what is the alternative? I would be interested in hearing any personal insights on this issue.
EAM
Thursday, March 23, 2006
Income Inequality: Is It Overstated?
We hear the constant drumbeat from government interventionists railing against rising income inequality in the U.S. and calling for “big” government remedies. However, it is abundantly clear that these individuals, pundits and economists have overstated the problem and advocated policy solutions that will undermine the long term growth of the U.S. economy.
It is true that over the past two decades the share of income going to the lowest quintile of workers in the U.S. declined by approximately 1%, while the proportion going to highest quintile of workers rose by almost 5%. However the raw income numbers fail to consider factors that undermine this result.
First, the data do not consider government subsidies for which low income workers qualify. For example in 2000, families having more than one child and earning less than $31,152 received a credit, or earned income tax credit (EITC) of up to $3,888. Caring for a child who was formally placed by an authorized placement agency may also qualify a worker for the EITC.
Second, the measured inequality does not consider the impact of taxes. The most recent IRS data show that the top 1% of taxpayers pay 29% of all taxes and the top 5% of taxpayers pay 50% of all taxes. The lowest 20% of U.S. income earners pay virtually none of the federal income tax burden. In fact, IRS data show that the top quintile of income earners pay 79% of federal income taxes, and the bottom quintile of job holders pay -2% of federal income taxes. A high share of the low income earners instead of paying taxes actually received a net tax “refund” or EITC.
Third, it does not recognize the aging of the U.S. workforce. Workers in the age bracket 45 to 54 are the highest income earners in the nation. Over these two decades, the share of the workforce in this age bracket has grown by 3% to 5%. Thus, one would expect the highest quintile of workers share of income to grow simply because the quintile is older.
After adjusting for these factors, one concludes that the U.S. earnings differences between the “haves” and “have nots” is not nearly as dramatic as presented by the alarmists.
EPG
It is true that over the past two decades the share of income going to the lowest quintile of workers in the U.S. declined by approximately 1%, while the proportion going to highest quintile of workers rose by almost 5%. However the raw income numbers fail to consider factors that undermine this result.
First, the data do not consider government subsidies for which low income workers qualify. For example in 2000, families having more than one child and earning less than $31,152 received a credit, or earned income tax credit (EITC) of up to $3,888. Caring for a child who was formally placed by an authorized placement agency may also qualify a worker for the EITC.
Second, the measured inequality does not consider the impact of taxes. The most recent IRS data show that the top 1% of taxpayers pay 29% of all taxes and the top 5% of taxpayers pay 50% of all taxes. The lowest 20% of U.S. income earners pay virtually none of the federal income tax burden. In fact, IRS data show that the top quintile of income earners pay 79% of federal income taxes, and the bottom quintile of job holders pay -2% of federal income taxes. A high share of the low income earners instead of paying taxes actually received a net tax “refund” or EITC.
Third, it does not recognize the aging of the U.S. workforce. Workers in the age bracket 45 to 54 are the highest income earners in the nation. Over these two decades, the share of the workforce in this age bracket has grown by 3% to 5%. Thus, one would expect the highest quintile of workers share of income to grow simply because the quintile is older.
After adjusting for these factors, one concludes that the U.S. earnings differences between the “haves” and “have nots” is not nearly as dramatic as presented by the alarmists.
EPG
Tuesday, March 21, 2006
U.S. Companies Bring Profits Home
The American Shareholders Association (ASA) has released a report on the effects of a change in U.S. tax law affecting foreign earnings. By way of background, U.S. companies with foreign subsidiaries are not taxed on foreign earnings until they were repatriated. This rule incentivizes continued foreign investment and capital spending, rather than bringing those profits back to the U.S. where they would be taxed at ordinary rates. Congress changed the incentive structure by imposing a low tax rate of only 5.25 percent on repatriated earnings. However, like those sale ads that induce us not to dally, this offer is for a limited time only.
U.S. companies took advantage of this opportunity, bringing back over $200 billion to the U.S. in 2005. Total flows are estimated at nearly $300 billion. This additional money flow is significant, and we should see positive domestic impacts from these funds that are now available to deploy here in additional ventures. For the first time on record (recorded since 1952), foreign earnings retained abroad were negative.
In terms of the significance of the size of these cash flows, the report explains that they match the effects on GDP of the combined Bush tax cuts. In other words, looking to 2005, the Bush tax cuts enacted from 2001-2004 had an impact of 1.76 percent of GDP, whereas the flows represented 1.74 percent of GDP – nearly the same amount. This means that businesses and individuals have more money to deploy toward activities they believe will be productive. If you believe people make better choices than governments, then you will be delighted with this development.
And by the way, even the tax and spend crowd (as opposed to the borrow and spend crowd, which seems to include much of the republican establishment these days) should still be pleased: the federal government will still reap more taxes from these repatriated earnings than the taxwriters expected. Looking down the road, new taxes are also likely to be generated (at higher rates than 5.25 percent) on future earnings from enhanced domestic investment.
It’s a competitive world out there – we need to be running as fast as we can. This change in law helps us. And if lower tax rates can do this for repatriated earnings, think what we might accomplish through lower tax rates on capital investment!
(The report is discussed in today’s BNA Daily Tax Report; for nonsubscribers, the ASA report is available here:
http://www.americanshareholders.com/news/asa-repats-03-20-06.pdf)
U.S. companies took advantage of this opportunity, bringing back over $200 billion to the U.S. in 2005. Total flows are estimated at nearly $300 billion. This additional money flow is significant, and we should see positive domestic impacts from these funds that are now available to deploy here in additional ventures. For the first time on record (recorded since 1952), foreign earnings retained abroad were negative.
In terms of the significance of the size of these cash flows, the report explains that they match the effects on GDP of the combined Bush tax cuts. In other words, looking to 2005, the Bush tax cuts enacted from 2001-2004 had an impact of 1.76 percent of GDP, whereas the flows represented 1.74 percent of GDP – nearly the same amount. This means that businesses and individuals have more money to deploy toward activities they believe will be productive. If you believe people make better choices than governments, then you will be delighted with this development.
And by the way, even the tax and spend crowd (as opposed to the borrow and spend crowd, which seems to include much of the republican establishment these days) should still be pleased: the federal government will still reap more taxes from these repatriated earnings than the taxwriters expected. Looking down the road, new taxes are also likely to be generated (at higher rates than 5.25 percent) on future earnings from enhanced domestic investment.
It’s a competitive world out there – we need to be running as fast as we can. This change in law helps us. And if lower tax rates can do this for repatriated earnings, think what we might accomplish through lower tax rates on capital investment!
(The report is discussed in today’s BNA Daily Tax Report; for nonsubscribers, the ASA report is available here:
http://www.americanshareholders.com/news/asa-repats-03-20-06.pdf)
Monday, March 20, 2006
Dell in India: Good News
Today’s Wall Street Journal contained a story on Dell Computer’s plan to add 20,000 new jobs in India over the next three years. (I read the online version today, as we are experiencing heavy snowfall here that is keeping me at home. Happy Spring to everyone – even if you are somewhere warm.)
Some may lament this as a further example of globalization moving jobs away from the United States, but that would be a premature judgment. Dell is adding these jobs, which will include not only call center personnel, but perhaps also manufacturing jobs, so that it can be closer to a growing market. Dell has only 4 percent of the computer market in India, but 14 percent worldwide. So that means it has some catching up to do in the Indian market. To the extent they are able to increase market share, the effect on U.S. jobs could be positive. After all, some parts may still be made here, and some design and other work done in the United States may now have a new outlet. The effect on U.S. shareholders should also be positive, to the extent that it is able to expand profits in these markets.
The lesson: do not assume that job growth overseas does not benefit U.S. constituencies.
* *
On a personal note, today happens to be my parents’ 60th Wedding Anniversary. That is quite rare for many reasons these days. They have seen much in their lives, and they have weathered many storms. My brothers and sisters and I have benefited greatly from their love and commitment. Congratulations, Mom and Dad.
Some may lament this as a further example of globalization moving jobs away from the United States, but that would be a premature judgment. Dell is adding these jobs, which will include not only call center personnel, but perhaps also manufacturing jobs, so that it can be closer to a growing market. Dell has only 4 percent of the computer market in India, but 14 percent worldwide. So that means it has some catching up to do in the Indian market. To the extent they are able to increase market share, the effect on U.S. jobs could be positive. After all, some parts may still be made here, and some design and other work done in the United States may now have a new outlet. The effect on U.S. shareholders should also be positive, to the extent that it is able to expand profits in these markets.
The lesson: do not assume that job growth overseas does not benefit U.S. constituencies.
* *
On a personal note, today happens to be my parents’ 60th Wedding Anniversary. That is quite rare for many reasons these days. They have seen much in their lives, and they have weathered many storms. My brothers and sisters and I have benefited greatly from their love and commitment. Congratulations, Mom and Dad.
Sunday, March 19, 2006
On the Dubai Ports Deal
In the words of one of my colleagues, Ken Wise, the inability of Congress to put aside “short-sighted mid-term election grandstanding” in the case of the Dubai ports deal is tragic. Congress’s avoidance of such antics in pursuit of the greater good (to wit, the national security) which was so much in evidence with the reauthorization of the Patriotic Act (at least at the end), unfortunately was not in evidence in this case.
It appears that democracy has failed us this time around. Students of Plato would argue that when we let the average person vote, we are left with the average person’s ideas ruling the country. The founding fathers had hoped that those elected by the average person would not themselves fall sway to the passions of those same average persons. It seems that they can and they did.
I fear I must agree with Thomas Friedman of The New York Times on this one. He writes, “So whatever happens with the Iraq experiment – but especially if it fails – we need Dubai to succeed. Dubai is where we should want the Arab world to go. Unfortunately, we just told Dubai to go to hell” (The New York Times, 15 March 2006).
It appears that democracy has failed us this time around. Students of Plato would argue that when we let the average person vote, we are left with the average person’s ideas ruling the country. The founding fathers had hoped that those elected by the average person would not themselves fall sway to the passions of those same average persons. It seems that they can and they did.
I fear I must agree with Thomas Friedman of The New York Times on this one. He writes, “So whatever happens with the Iraq experiment – but especially if it fails – we need Dubai to succeed. Dubai is where we should want the Arab world to go. Unfortunately, we just told Dubai to go to hell” (The New York Times, 15 March 2006).
Friday, March 17, 2006
Dear French Students: Take an Economics Course
Some of you may be following the latest series of protests happening in France. The French government is seeking to change its employment laws to allow students getting their first job to be offered a contract with more limited employment protections. Students affected by this change, who already face significant unemployment rates of 23 percent and double that in some depressed urban areas, are up in arms about the apparently loss of job security that this change presents. An AP story can be found here: www.townhall.com/news/ap/online/regional/europe/D8GC0DBO2.html
My advice to these students: have a nice glass of California wine or an ice cold Coca-Cola to relax, enjoy some good Wisconsin cheese, and stop burning other people’s cars. (How is it that random destruction of other people’s stuff becomes an acceptable form of protest?) Once you have composed yourself, enroll in an economics course, or read one of the excellent books out there by people like Thomas Sowell or Milton Friedman.
You will soon discover that your government is trying to help you. Employers are more willing to give you a chance to prove yourself when they are not hampered by a long-term obligation to keep you on in the event you don’t work out. Being risk averse, and considering the significant costs of keeping on a person who turns out to be a slug, the employers must either pay very low wages or hire only those applicants that are virtually certain to perform. Given that minimum wage laws prevent the low-wage alternative, they choose the latter.
Restrictive employment laws end up hurting the segment of the labor market which is likely to have the lowest skill levels and prospects for employability. (Thus, it makes sense that the troubled urban areas, which are probably full of rather troubled young people, would have dramatically higher unemployment rates.) These young people might have a chance to prove themselves and show that they can indeed perform useful services if someone only gives them a chance to try. However, that chance does not come at all if substantial future cost burdens are attached.
In the academic realm in which I am employed, tenure creates these potential future burdens on employers. Though some of us may find tenure as a necessary protection from reprisals for our academic opinions (probably a greater risk for conservatives than for those of other political stripes), for others it simply protects them from the market consequences of modest effort. This explains, in significant part, why academics do not get paid as much as their counterparts in private industry. Unfortunately, the depressing effects of these burdens not only affect entry, but also compensation growth within the affected employee group.
Some might still find this security preferable, and willingly enjoy the trade-off in compensation. I'm all for choice in such matters. But we should think carefully about imposing this as a requirement in the legal structure, where choice is not permitted, particularly when the people harmed by it are likely to be those with the weakest prospects.
I doubt many French student protestors will read my blog today. For the rest of us, we should think about these principles the next time we contemplate imposing significant new burdens on employers. Those who think they are doing good by imposing these burdens should consider the effect on the weakest workers, who may not get the chance to try to prove themselves.
EAM
My advice to these students: have a nice glass of California wine or an ice cold Coca-Cola to relax, enjoy some good Wisconsin cheese, and stop burning other people’s cars. (How is it that random destruction of other people’s stuff becomes an acceptable form of protest?) Once you have composed yourself, enroll in an economics course, or read one of the excellent books out there by people like Thomas Sowell or Milton Friedman.
You will soon discover that your government is trying to help you. Employers are more willing to give you a chance to prove yourself when they are not hampered by a long-term obligation to keep you on in the event you don’t work out. Being risk averse, and considering the significant costs of keeping on a person who turns out to be a slug, the employers must either pay very low wages or hire only those applicants that are virtually certain to perform. Given that minimum wage laws prevent the low-wage alternative, they choose the latter.
Restrictive employment laws end up hurting the segment of the labor market which is likely to have the lowest skill levels and prospects for employability. (Thus, it makes sense that the troubled urban areas, which are probably full of rather troubled young people, would have dramatically higher unemployment rates.) These young people might have a chance to prove themselves and show that they can indeed perform useful services if someone only gives them a chance to try. However, that chance does not come at all if substantial future cost burdens are attached.
In the academic realm in which I am employed, tenure creates these potential future burdens on employers. Though some of us may find tenure as a necessary protection from reprisals for our academic opinions (probably a greater risk for conservatives than for those of other political stripes), for others it simply protects them from the market consequences of modest effort. This explains, in significant part, why academics do not get paid as much as their counterparts in private industry. Unfortunately, the depressing effects of these burdens not only affect entry, but also compensation growth within the affected employee group.
Some might still find this security preferable, and willingly enjoy the trade-off in compensation. I'm all for choice in such matters. But we should think carefully about imposing this as a requirement in the legal structure, where choice is not permitted, particularly when the people harmed by it are likely to be those with the weakest prospects.
I doubt many French student protestors will read my blog today. For the rest of us, we should think about these principles the next time we contemplate imposing significant new burdens on employers. Those who think they are doing good by imposing these burdens should consider the effect on the weakest workers, who may not get the chance to try to prove themselves.
EAM
Thursday, March 16, 2006
Globalization:Downsides of Waning Gov't Power
Globalization (often discussed, rarely defined) typically involves the phenomenon of diminishing significance for territorial boundaries and the influence of governments within them. With increasing mobility of capital, globalization means factories and jobs move from high-cost to lower-cost jurisdictions. Though economically this translates into long-run benefits, both for the lower-cost jurisdiction (in the form of new jobs and investment) and for the consumers of these goods (which are now less expensive), there is the pain of loss in the high-cost jurisdiction.
As much as the high-cost residents might want to have their governments do something about the change, they are hard pressed to figure out what can be done. That is globalization at work. Local governments are, as a practical matter, powerless to stop it. National governments can apply pressure around the margins, but given the network of free trade agreements, it is getting harder for them to prevent these flows.
One downside of waning government power is that criminals can benefit from diffused operations and power structures. Law enforcement efforts may also prove less effective, at least without international cooperation. The recent news stories announcing the capture of dozens involved in a world-wide child porn network give us some indication of the depths that can be reached by these organizations (If evil is a term that offends you, you might consider what some of these folks were doing to amuse themselves.)
Gambling is another activity (or vice, depending on your view of the postmodern revolution) that has benefited from globalization. The Internet gives you access to servers with gambling services that can be located anywhere. But you have to transfer money, and therein lies a potential problem. Of course, intermediaries arise to thwart restrictions on fund transfers. I recently completed a paper on this topic, which is available at http://www.ssrn.com/. (Search for my name and you’ll find this paper. I’m not very faithful about posting my work there, but I’m trying to do better.)
Keep in mind the power of intermediaries, such as e-cash services, in creating a moving target for government. You might especially note this when you hear the congress announcing proposed legislation that will “outlaw” internet gambling. See the Reuters news story on 3/15/06 entitled "US House panel clears anti-Internet gambling bill"
Remember that it is easy to outlaw something, but enforcing laws effectively is another matter.
EAM
As much as the high-cost residents might want to have their governments do something about the change, they are hard pressed to figure out what can be done. That is globalization at work. Local governments are, as a practical matter, powerless to stop it. National governments can apply pressure around the margins, but given the network of free trade agreements, it is getting harder for them to prevent these flows.
One downside of waning government power is that criminals can benefit from diffused operations and power structures. Law enforcement efforts may also prove less effective, at least without international cooperation. The recent news stories announcing the capture of dozens involved in a world-wide child porn network give us some indication of the depths that can be reached by these organizations (If evil is a term that offends you, you might consider what some of these folks were doing to amuse themselves.)
Gambling is another activity (or vice, depending on your view of the postmodern revolution) that has benefited from globalization. The Internet gives you access to servers with gambling services that can be located anywhere. But you have to transfer money, and therein lies a potential problem. Of course, intermediaries arise to thwart restrictions on fund transfers. I recently completed a paper on this topic, which is available at http://www.ssrn.com/. (Search for my name and you’ll find this paper. I’m not very faithful about posting my work there, but I’m trying to do better.)
Keep in mind the power of intermediaries, such as e-cash services, in creating a moving target for government. You might especially note this when you hear the congress announcing proposed legislation that will “outlaw” internet gambling. See the Reuters news story on 3/15/06 entitled "US House panel clears anti-Internet gambling bill"
Remember that it is easy to outlaw something, but enforcing laws effectively is another matter.
EAM
Wednesday, March 15, 2006
"Mad Cow" in Alabama: The Market Yawns
Stories of the third case of so-called “mad cow disease” (also known as BSE, or bovine spongiform encephalopothy) emerging in Alabama have apparently generated yawns of disinterest from participants in markets for fed cattle and beef retailers. Though fed cattle markets (including futures) have softened (and in the case of some futures contracts, prices have declined significantly), the mad cow case did not have the same dramatic impact that the first one in the U.S. had.
In part, this is due to the scientific reality. None of these animals entered the food chain. The cow in Alabama was old, and possibly ingested feedstuffs that are now prohibited (though even this proves to be an unproven theory about the cause of this disease). It was killed by a veterinarian and buried on the farm. There was no risk to the food supply as a result. And people may now believe this, which is good. Sometimes fears arise in us which cause us to do things we later regret or dismiss as a silly overreaction (does anyone see an analogy with Dubai?).
Meanwhile, back in Japan, which has closed its markets to us based on fears about mad cow (or more likely based on protectionist trade practices), a website I often consult about cattle, the Cattle Report, reports that Japan has now reported its 23rd case of BSE.
The website can be found here: http://www.agcenter.com/cattlereport.asp
See what I mean about protectionist trade practices?
Best regards.
EAM
In part, this is due to the scientific reality. None of these animals entered the food chain. The cow in Alabama was old, and possibly ingested feedstuffs that are now prohibited (though even this proves to be an unproven theory about the cause of this disease). It was killed by a veterinarian and buried on the farm. There was no risk to the food supply as a result. And people may now believe this, which is good. Sometimes fears arise in us which cause us to do things we later regret or dismiss as a silly overreaction (does anyone see an analogy with Dubai?).
Meanwhile, back in Japan, which has closed its markets to us based on fears about mad cow (or more likely based on protectionist trade practices), a website I often consult about cattle, the Cattle Report, reports that Japan has now reported its 23rd case of BSE.
The website can be found here: http://www.agcenter.com/cattlereport.asp
See what I mean about protectionist trade practices?
Best regards.
EAM
Monday, March 13, 2006
Is Congressman Hunter Opposed to both Out-sourcing and In-sourcing?
California Republican Congressman Duncan Hunter, the chairman of the House Armed Services Committee was a major ring leader in killing the Dubai ports deal. Now with the completion of that deed, he has turned his weapon on American consumers and American businesses. Mr. Hunter is now advancing legislation that would require US ownership of infrastructure deemed critical to homeland security. The difficulties and the foolishness of his rhetoric and his proposed action would require more blog space than allowed by Blogspot. But allow me to list the most obvious.
First, what U.S. assets are critical to homeland security? Are we going to allow the same group of individuals that ran up a $400 billion federal deficit for the latest fiscal year to determine our “critical” assets? I vote NO. As a foreign sports car enthusiast, these pieces of art are critical to MY homeland security. In the comment section of this blog, please list U.S. assets that you think are critical to homeland security.
It drips with irony that the same politicians that rail against outsourcing are now complaining about in-sourcing. These isolationists will only be happy when they have walled off economic vitality. To quote Frost (loosely), “Before you build a wall, you better find out what you are walling in and walling out.”
Second, my research has concluded that foreign capital has made important contributions to U.S. productivity growth over the past decade. You may obtain a copy of one of the studies at the following site:
http://www.outlook-economic.com/ResearchAndNews/Research/foreign.pdf
Third, foreign investment in the U.S. has been a significant contributor to lower inflation rates which have generated lower short term and long term interest rates. Just think of the contributions of Toyota automobile manufacturing in the U.S. This company has produced superior cars at super-competitive prices putting significant and well-deserved pressures on GM and Ford. (see my earlier essay on the impending death of GM).
If Congressman Hunter has not done enough damage to the U.S. economy, last week, he and Congressman Ryan introduced H.R. 1498, the Chinese Currency Act of 2005, a bipartisan effort to force the Chinese to de-link their currency to the U.S. dollar. As I have written in prior essays, this action could produce many negative and unexpected outcomes. My advice for Mr. Hunter, take a couple of introductory economics classes at a local community college.
EPG
First, what U.S. assets are critical to homeland security? Are we going to allow the same group of individuals that ran up a $400 billion federal deficit for the latest fiscal year to determine our “critical” assets? I vote NO. As a foreign sports car enthusiast, these pieces of art are critical to MY homeland security. In the comment section of this blog, please list U.S. assets that you think are critical to homeland security.
It drips with irony that the same politicians that rail against outsourcing are now complaining about in-sourcing. These isolationists will only be happy when they have walled off economic vitality. To quote Frost (loosely), “Before you build a wall, you better find out what you are walling in and walling out.”
Second, my research has concluded that foreign capital has made important contributions to U.S. productivity growth over the past decade. You may obtain a copy of one of the studies at the following site:
http://www.outlook-economic.com/ResearchAndNews/Research/foreign.pdf
Third, foreign investment in the U.S. has been a significant contributor to lower inflation rates which have generated lower short term and long term interest rates. Just think of the contributions of Toyota automobile manufacturing in the U.S. This company has produced superior cars at super-competitive prices putting significant and well-deserved pressures on GM and Ford. (see my earlier essay on the impending death of GM).
If Congressman Hunter has not done enough damage to the U.S. economy, last week, he and Congressman Ryan introduced H.R. 1498, the Chinese Currency Act of 2005, a bipartisan effort to force the Chinese to de-link their currency to the U.S. dollar. As I have written in prior essays, this action could produce many negative and unexpected outcomes. My advice for Mr. Hunter, take a couple of introductory economics classes at a local community college.
EPG
State Tax Revenue Growth in 2005
The Rockefeller Institute of Government released a study last week of state tax revenue collections for the 2004-05 fiscal year. The results seem very positive for the states, as revenue was up in all categories. Nationwide, the personal income tax was up 12.5 percent, corporate income taxes were up 31.7 percent, and sales taxes were up 6.7 percent over the prior year. Overall, tax collections were up 10.7 percent; even adjusted for inflation and legislative changes (i.e., tax increases), the results still showed a year over increase of more than 9 percent overall.
This is good news for individuals and businesses. Paying taxes means you made money (or in the sales tax category, you spent it). These figures reflect actual tax collections, meaning money in the bank for the states, which is a solid indicator of growth. Significantly, the study reports that not a single state underperformed their budget expectations. However, some care must be taken in evaluating whether an individual state's results were affected by legislative changes.
Not all regions fared equally well. The Midwest was among the weakers performing areas in terms of tax growth. Within this regions, Michigan was among the weakest, with personal income tax growth of only 2.2 percent (the lowest nationwide) and business tax growth of only 4.6 percent (nearly the lowest). Struggles in manufacturing have apparently hit both business and individuals, as further reflected by tepid sales tax growth of only 3.1 percent (among the lowest nationwide).
Iowa also did relatively poorly, with personal income tax growth of 7.6 percent, corporate income growth of 19.6 percent, and sales tax growth of 4.2 percent. (Iowa cut its taxes by 85 million during this period, representing 1.7 percent of overall collections - one of the largest cuts nationwide. This could bode well for the future, though it makes Iowa look a little weak during this priod.)
Nebraska was slightly stronger than Iowa, with 12.0 percent, 18.5 percent, and 10.5 percent, respectively. Nebraska's personal income tax growth lead the "great Lakes" and "Plains" regions, which encompass most of what we consider the Midwest. Leading the Midwest in corporate income growth was Kansas at a blistering 60.1 percent, followed closely by Minnesota at 47.4 percent. (Neither of which was attributable to tax increases.) Surprisingly, Missouri was a laggard in both personal and corporate income taxes in this region. (Of course, Missouri also reaps significant tax revenues from gambling, which are apparently not included in these figures.)
Which regions fared the best? The Far West region showed growth of 15.1 (personal) 53.5 (corporate) and 9.2 (sales), for overall growth of 15.8. Much of that was in California, where a corporate tax amnesty program generated large increases in corporate taxes. Rocky Mountain and Southwestern states also did well
The possibility that tax figures can be affected by legislative changes, which provide a short term boost for those "locked in" to the state who cannot escape the tax increase, needs to be considered in evaluating these figures as a barometer of the future. Of course, population trends will also affect tax collections, making per capital collection figures more relevant. And, of course, the matter of other kinds of taxes - like those on gambling - can affect growth figures in particular years if states shift from one kind of taxation to another.
The full text of the report can be found here:
http://rfs.rockinst.org/exhibit/9046/Full%20Text/SFB75.pdf
Happy Monday.
EAM
This is good news for individuals and businesses. Paying taxes means you made money (or in the sales tax category, you spent it). These figures reflect actual tax collections, meaning money in the bank for the states, which is a solid indicator of growth. Significantly, the study reports that not a single state underperformed their budget expectations. However, some care must be taken in evaluating whether an individual state's results were affected by legislative changes.
Not all regions fared equally well. The Midwest was among the weakers performing areas in terms of tax growth. Within this regions, Michigan was among the weakest, with personal income tax growth of only 2.2 percent (the lowest nationwide) and business tax growth of only 4.6 percent (nearly the lowest). Struggles in manufacturing have apparently hit both business and individuals, as further reflected by tepid sales tax growth of only 3.1 percent (among the lowest nationwide).
Iowa also did relatively poorly, with personal income tax growth of 7.6 percent, corporate income growth of 19.6 percent, and sales tax growth of 4.2 percent. (Iowa cut its taxes by 85 million during this period, representing 1.7 percent of overall collections - one of the largest cuts nationwide. This could bode well for the future, though it makes Iowa look a little weak during this priod.)
Nebraska was slightly stronger than Iowa, with 12.0 percent, 18.5 percent, and 10.5 percent, respectively. Nebraska's personal income tax growth lead the "great Lakes" and "Plains" regions, which encompass most of what we consider the Midwest. Leading the Midwest in corporate income growth was Kansas at a blistering 60.1 percent, followed closely by Minnesota at 47.4 percent. (Neither of which was attributable to tax increases.) Surprisingly, Missouri was a laggard in both personal and corporate income taxes in this region. (Of course, Missouri also reaps significant tax revenues from gambling, which are apparently not included in these figures.)
Which regions fared the best? The Far West region showed growth of 15.1 (personal) 53.5 (corporate) and 9.2 (sales), for overall growth of 15.8. Much of that was in California, where a corporate tax amnesty program generated large increases in corporate taxes. Rocky Mountain and Southwestern states also did well
The possibility that tax figures can be affected by legislative changes, which provide a short term boost for those "locked in" to the state who cannot escape the tax increase, needs to be considered in evaluating these figures as a barometer of the future. Of course, population trends will also affect tax collections, making per capital collection figures more relevant. And, of course, the matter of other kinds of taxes - like those on gambling - can affect growth figures in particular years if states shift from one kind of taxation to another.
The full text of the report can be found here:
http://rfs.rockinst.org/exhibit/9046/Full%20Text/SFB75.pdf
Happy Monday.
EAM
Saturday, March 11, 2006
Catch and Release in Atlantic, Iowa?
An AP story in the March 10 Omaha World-Herald (Iowa edition) comes right from the pages of a Cheech and Chong movie.
Sheriff's deputies in Atlantic, Iowa (in Cass County, about one hour east of Omaha), detained two men after receiving reports about erratic driving. Both were Mexican immigrants. Not only were they in violation of immigration laws, they violated a few more as well. The men had open containers of alcohol (illegal in Iowa), and they were intoxicated. A search of their van produced 95 pounds of marijuana.
For those unfamiliar with the Midwest, Interstate 80 runs across Iowa and Nebraska. This important travel route has also become a trade route for drugs. Traffic stops often involve canine units, which lead to drug discoveries and arrests. However, this time the deputies apparently had no problem in ferreting out the drugs. I don't know much about marijuana, but comparing this to a leafy herb I do know about -- alfalfa -- I visualize 95 pounds of hay taking up most of the back seat. So this was probably not too difficult to find.
You are probably thinking so what - these guys will be in jail next, right? Not so. They let the men go. You see, the deputies noticed the men had numerous cuts and bruises. The county was concerned that if they were treated at a local hospital, it would have to bear medical costs. They called the INS, which was apparently not interested in them after they looked up the men's criminal history and found no previous violations. An INS official is reported as saying "[W]e usually focus on criminals."
This story is disturbing at many levels. First, there is the matter of valuing human life. As illegal immigrants, these men were probably afraid to go to the hospital emergency room, where they would have been treated regardless of their ability to pay. The requirement for the county to pay does create a budgetary issue, but one wonders how this could become outcome determinative in a case of this nature. If it was a matter of cuts and bruises only, the medical bills could not have been that extravagant. If it was more than this, the sherrif is saying that these lives are not worth much. In either case, this answer seems unjustifiable. (I also wonder where did the cuts and bruises come from? Will there be some people in a van somewere else along I-80 who are now dead or injured? And are they missing some marijuana?)
Second, when valuing human life, this includes the lives of others. There are huge public safey issues here. Releasing guys who get in fights, drink and drive, and haul drugs around may not be very healthy for the rest of the good people driving through Iowa. The story doesn't say how long these guys were detained, but hopefully it was long enough to sober up. But that may only last until the next town where they celebrate their narrow escape with a few beers and some new weed.
Third, what messages does this send? The sheriff's office is probably overburdened and may view this problem as one that can be passed along to the next town or the next county down the Interstate. I'm sure they did not intend to send a message to Atlantic residents that drinking and driving and hauling drugs are ok. However, their choice was backed up by INS, who would not help out here.
The problem here, in addition to probable misjudgments, involves the diffusion of law enforcement costs. In one sense, this is an old problem. A common remedy in olden times was to run the petty criminal out of town. But these do not sound like petty crimes. This problem will not easily be solved.
EAM
Sheriff's deputies in Atlantic, Iowa (in Cass County, about one hour east of Omaha), detained two men after receiving reports about erratic driving. Both were Mexican immigrants. Not only were they in violation of immigration laws, they violated a few more as well. The men had open containers of alcohol (illegal in Iowa), and they were intoxicated. A search of their van produced 95 pounds of marijuana.
For those unfamiliar with the Midwest, Interstate 80 runs across Iowa and Nebraska. This important travel route has also become a trade route for drugs. Traffic stops often involve canine units, which lead to drug discoveries and arrests. However, this time the deputies apparently had no problem in ferreting out the drugs. I don't know much about marijuana, but comparing this to a leafy herb I do know about -- alfalfa -- I visualize 95 pounds of hay taking up most of the back seat. So this was probably not too difficult to find.
You are probably thinking so what - these guys will be in jail next, right? Not so. They let the men go. You see, the deputies noticed the men had numerous cuts and bruises. The county was concerned that if they were treated at a local hospital, it would have to bear medical costs. They called the INS, which was apparently not interested in them after they looked up the men's criminal history and found no previous violations. An INS official is reported as saying "[W]e usually focus on criminals."
This story is disturbing at many levels. First, there is the matter of valuing human life. As illegal immigrants, these men were probably afraid to go to the hospital emergency room, where they would have been treated regardless of their ability to pay. The requirement for the county to pay does create a budgetary issue, but one wonders how this could become outcome determinative in a case of this nature. If it was a matter of cuts and bruises only, the medical bills could not have been that extravagant. If it was more than this, the sherrif is saying that these lives are not worth much. In either case, this answer seems unjustifiable. (I also wonder where did the cuts and bruises come from? Will there be some people in a van somewere else along I-80 who are now dead or injured? And are they missing some marijuana?)
Second, when valuing human life, this includes the lives of others. There are huge public safey issues here. Releasing guys who get in fights, drink and drive, and haul drugs around may not be very healthy for the rest of the good people driving through Iowa. The story doesn't say how long these guys were detained, but hopefully it was long enough to sober up. But that may only last until the next town where they celebrate their narrow escape with a few beers and some new weed.
Third, what messages does this send? The sheriff's office is probably overburdened and may view this problem as one that can be passed along to the next town or the next county down the Interstate. I'm sure they did not intend to send a message to Atlantic residents that drinking and driving and hauling drugs are ok. However, their choice was backed up by INS, who would not help out here.
The problem here, in addition to probable misjudgments, involves the diffusion of law enforcement costs. In one sense, this is an old problem. A common remedy in olden times was to run the petty criminal out of town. But these do not sound like petty crimes. This problem will not easily be solved.
EAM
Thursday, March 09, 2006
More on Dubai Ports World
Today's Wall Street Journal (page B1, Meckler and Machalaba) has an excellent story providing some useful background on foreign company involvement in U.S. ports. It seems about 80 percent of our ports are already run by foreign companies, some of which are controlled by foreign governments. For example, China runs some ports in California. The article explains how this came to be. One explanation: this is not terribly profitable, and U.S. investors have moved their capital elsewhere.
Another informative piece on Dubai can be found here, on the von Mises blog. This is written by an investment banker familiar with Dubai and its historical trading role.
http://www.mises.org/story/2078
Meanwhile, back in Washington, Republican leaders are announcing that they are about to block the port deal. Democrats are joining them. This troubles me deeply. Though I think we have some people of good will who are acting out of genuine security concerns, the problem here is that this issue lends itself to demogoguery. It is too easy to prey upon the fears of the voting public, regardless of the facts. Though I don't want to beat this issue to death, I am reminded of the wisdom of Will Rogers. He told us that it is not only things we don't know that hurt us, but also the things we think we know that are wrong. I think both parts of that saying could be at work here, and we can only hope that our leaders can stop pointing fingers at one another long enough to do the right thing for our country.
EAM
Another informative piece on Dubai can be found here, on the von Mises blog. This is written by an investment banker familiar with Dubai and its historical trading role.
http://www.mises.org/story/2078
Meanwhile, back in Washington, Republican leaders are announcing that they are about to block the port deal. Democrats are joining them. This troubles me deeply. Though I think we have some people of good will who are acting out of genuine security concerns, the problem here is that this issue lends itself to demogoguery. It is too easy to prey upon the fears of the voting public, regardless of the facts. Though I don't want to beat this issue to death, I am reminded of the wisdom of Will Rogers. He told us that it is not only things we don't know that hurt us, but also the things we think we know that are wrong. I think both parts of that saying could be at work here, and we can only hope that our leaders can stop pointing fingers at one another long enough to do the right thing for our country.
EAM
Spam and "Taxes"
All of us experience spam e-mails, and probably on a daily basis. Most of us engage in some form of self-help (albeit with the help of our friendly software providers) to stop unwanted ads from reaching us. A story in a recent BNA report on Electronic Commerce highlights a scheme by AOL to impose "taxes" on bulk e-mailers. The idea is that the "tax" will deter bulk e-mailers from sending the mail, which is rankling free speech advocates and nonprofits, as well as the scam artists out there who send much of the spam.
First of all, "tax" is a misnomer - it is really a fee imposed by a private company. Using the term "tax" would be like saying your landlord taxes you for your apartment. Or that Starbucks -- I mean, Java n' Ice (at Rockbrook Shopping Center in Omaha, which is owned by my nephew Steve) -- taxes you for latte and a gelato. We have enough real taxes to worry about without expanding the list for private charges. (And hey, the blog is free, so please don't mind my little plug for Steve's store.)
As for the substance, I have no problem with AOL doing this. But then again, I'm not a mass e-mailer or an AOL customer. (I think they call them "members" -- another terminology problem, but we'll let that one pass.) It remains to be seen what will happen if a fee is imposed. It might mean that the "scam artists" trying to sell me stocks or pharmaceutical enhancements of various kinds would, in fact, be economically deterred from sending them. This would mean only the well-heeled spammers would send things on, and that could at least limit the total quantity.
Nonprofits and political organizations don't like the idea, as it imposes friction in their communications. MoveOn.org is quoted as being against the concept because it might nip incipient organizations in the bud before they can attract millions of dollars in support. This is a fair point - the world of free e-mailing has made communications easier, and this has helped politics and nonprofits. But even good causes (and I don't put MoveOn in that category, for the record) must pay their way somehow. In effect, the price we all paid for free communications was massive advertising -- there is no free lunch. (But there is good coffee at Java n' Ice, and Ice Cream, too.)
AOL could become a haven for spam that is guaranteed to be delivered to your mailbox, if the price is high enough. Then, I suppose, AOL could impose more charges for its users who want to be free of those communications, thus leveraging its position. (This is much like the phone company charging me to block solicitation calls.) Or software could be developed to stop all mails from others that are not on your approved list.
But the great thing about the internet is that it allows us to choose. Companies that want to snatch away AOL customers will have a wedge handed to them by AOL practices that offend -- and this may keep them from imposing these fees for guaranteed delivery of spam. Or others may flock to AOL because they like the convenience of having most of it blocked. Let the competition continue free from government interference.
EAM
First of all, "tax" is a misnomer - it is really a fee imposed by a private company. Using the term "tax" would be like saying your landlord taxes you for your apartment. Or that Starbucks -- I mean, Java n' Ice (at Rockbrook Shopping Center in Omaha, which is owned by my nephew Steve) -- taxes you for latte and a gelato. We have enough real taxes to worry about without expanding the list for private charges. (And hey, the blog is free, so please don't mind my little plug for Steve's store.)
As for the substance, I have no problem with AOL doing this. But then again, I'm not a mass e-mailer or an AOL customer. (I think they call them "members" -- another terminology problem, but we'll let that one pass.) It remains to be seen what will happen if a fee is imposed. It might mean that the "scam artists" trying to sell me stocks or pharmaceutical enhancements of various kinds would, in fact, be economically deterred from sending them. This would mean only the well-heeled spammers would send things on, and that could at least limit the total quantity.
Nonprofits and political organizations don't like the idea, as it imposes friction in their communications. MoveOn.org is quoted as being against the concept because it might nip incipient organizations in the bud before they can attract millions of dollars in support. This is a fair point - the world of free e-mailing has made communications easier, and this has helped politics and nonprofits. But even good causes (and I don't put MoveOn in that category, for the record) must pay their way somehow. In effect, the price we all paid for free communications was massive advertising -- there is no free lunch. (But there is good coffee at Java n' Ice, and Ice Cream, too.)
AOL could become a haven for spam that is guaranteed to be delivered to your mailbox, if the price is high enough. Then, I suppose, AOL could impose more charges for its users who want to be free of those communications, thus leveraging its position. (This is much like the phone company charging me to block solicitation calls.) Or software could be developed to stop all mails from others that are not on your approved list.
But the great thing about the internet is that it allows us to choose. Companies that want to snatch away AOL customers will have a wedge handed to them by AOL practices that offend -- and this may keep them from imposing these fees for guaranteed delivery of spam. Or others may flock to AOL because they like the convenience of having most of it blocked. Let the competition continue free from government interference.
EAM
Monday, March 06, 2006
Commissioner Everson: Taxman and Punster!
Today's BNA Daily Tax Report contains a wonderful little piece quoting IRS Commissioner Everson on the topic of taxing the "Goodie Bags" given to the Oscar nominees. For those of us who used to enjoy the puns of Louis Rukeyser, this guy could perhaps keep up with him. Here are excerpts from the story:
"As the world watches the glamour and glitz of the Academy Awards, it's important to keep in mind that movie stars face the same tax obligations as ordinary Americans," IRS Commissioner Mark Everson said. "We want to make sure the stars 'walk the line' when it comes to these goodie bags." ... "This has become big business for companies promoting their products. These things aren't given without pride and prejudice. There is a tax implication for them. We just want to make sure no one crashes into the tax code," Everson said.
I only caught a glimpse of the ceremonies, but I was pleased to see in the morning paper that March of the Penguins (previously given accolades on these pages - see the August 13, 2005 archives) won an Oscar for best documentary. Good for those guys who marched along with the penguins to catch that great footage.
Happy Monday.
EAM
"As the world watches the glamour and glitz of the Academy Awards, it's important to keep in mind that movie stars face the same tax obligations as ordinary Americans," IRS Commissioner Mark Everson said. "We want to make sure the stars 'walk the line' when it comes to these goodie bags." ... "This has become big business for companies promoting their products. These things aren't given without pride and prejudice. There is a tax implication for them. We just want to make sure no one crashes into the tax code," Everson said.
I only caught a glimpse of the ceremonies, but I was pleased to see in the morning paper that March of the Penguins (previously given accolades on these pages - see the August 13, 2005 archives) won an Oscar for best documentary. Good for those guys who marched along with the penguins to catch that great footage.
Happy Monday.
EAM
Saturday, March 04, 2006
Kudlow Is Right on Dubai Ports World
Following up on my post of last week, Larry Kudlow has a terrific column in National Review Online on the Dubai Ports World debacle. It can be found here:
http://www.nationalreview.com/kudlow/kudlow200603041230.asp
The unfolding information suggests that calmer heads are prevailing. I was amused to note that former President Clinton was advising the Dubai company, while Senator Hillary Clinton was calling for more investigations and raising a ruckus about security. Wouldn't you expect the former President to choose his foreign business associations carefully? And wouldn't you expect Mrs. Clinton to trust the former President's judgment on that issue as well?
It is completely appropriate to be careful about security matters. But a view of isolationism and fear is not likely to achieve greater security than an approach that builds trust through emerging common interests rooted in commerce.
EAM
http://www.nationalreview.com/kudlow/kudlow200603041230.asp
The unfolding information suggests that calmer heads are prevailing. I was amused to note that former President Clinton was advising the Dubai company, while Senator Hillary Clinton was calling for more investigations and raising a ruckus about security. Wouldn't you expect the former President to choose his foreign business associations carefully? And wouldn't you expect Mrs. Clinton to trust the former President's judgment on that issue as well?
It is completely appropriate to be careful about security matters. But a view of isolationism and fear is not likely to achieve greater security than an approach that builds trust through emerging common interests rooted in commerce.
EAM
Touch Play Lotto: Risks of Fickle Government
Iowa is currently wrestling with the issue of so-called Touch Play Lotto machines, which have been installed in numerous bars, convenience stores, and restaurants throughout the state. Small business owners invested a little more than $7,000 for each machine, which gives them the privilege of selling a lottery-type product via a machine with bells and whistles. These machines resemble slot machines, but they are slightly different.
First, they dispense tickets, not cash. Second, their protocols for winnings are controlled by the lottery commission, rather than internal algorithms within the machine itself.
According to a story by Elizabeth Ahlin in today’s Omaha World-Herald (front page on the Iowa edition), there are currently more than 6000 of these machines operating in Iowa. Doing the math, that translates into private investment of more than $42 million. (The World-Herald reports total private investment of $130 million, based on the spokesman for the TouchPlay Coalition. The difference, which is significant, should be explored. The group, which is advocating the protection of this investment, would surely have an incentive to overstate it.)
The reason why business owners invest in these machines is quite clear: lottery officials predict that over the next fiscal year, consumers will drop more than $380 million into these machines. Of that amount, about $255 million will be returned as prizes (of course, income taxes can be expected to take away a significant percentage of that amount). Of the remaining $125 million, the state gets 24 percent or $30 million, leaving about $95 million for the industry to pocket. Even without my trusty calculator, I think that sounds like a pretty fast payback for the owners.
Doing some quick math, that means that the expected value of every dollar you put in to these machines is about 67 cents before tax effects. Assuming you report taxes on your winnings (as you should, good citizens), and further assuming that the average tax rate for state and federal taxes is a modest 25 percent, that expected value goes down further. Ultimately, you are only getting about 50 cents on the dollar. Would a rational citizen bet if they knew the odds were stacked against you two to one? Would a benevolent government choose to take money from its citizens in this way? Go figure.
The legislature is now coming to the realization that this may not be the best thing to have in every convenience store and restaurant in the state. For one thing, for those of you with kids who play video games, there is just something about electronic games that make us want to keep playing. That is bad enough if it is Super Mario Brothers and your kids are wasting their study time, but it is potentially disastrous if the mom and dad are wasting their grocery and rent money. Another dimension of this problem involves the matter of minors gambling – we proscribe them from entering casinos where slot machines are housed, but we can’t keep the under-21 crowd out of all the 7-11 stores, can we?
The big controversy brewing now is whether the state can take the right to use these away. My own prediction: they can, and without legal liability to the owners. I am not privy to all the facts, but unless there is a contractual right to operate for a period of time, the mere act of purchasing a good in reliance upon the stability of existing laws is generally not sufficient to protect you from legal change.
The message to small business owners who bought these machines: caveat emptor. You use them at the pleasure of the state. The law may be an ass for not giving you compensation, but that’s the risk one takes for dealing with a fickle government. At the least, I think the legislature should post warnings on all such machines: Using these machines is bad for your fiscal health.
EAM
First, they dispense tickets, not cash. Second, their protocols for winnings are controlled by the lottery commission, rather than internal algorithms within the machine itself.
According to a story by Elizabeth Ahlin in today’s Omaha World-Herald (front page on the Iowa edition), there are currently more than 6000 of these machines operating in Iowa. Doing the math, that translates into private investment of more than $42 million. (The World-Herald reports total private investment of $130 million, based on the spokesman for the TouchPlay Coalition. The difference, which is significant, should be explored. The group, which is advocating the protection of this investment, would surely have an incentive to overstate it.)
The reason why business owners invest in these machines is quite clear: lottery officials predict that over the next fiscal year, consumers will drop more than $380 million into these machines. Of that amount, about $255 million will be returned as prizes (of course, income taxes can be expected to take away a significant percentage of that amount). Of the remaining $125 million, the state gets 24 percent or $30 million, leaving about $95 million for the industry to pocket. Even without my trusty calculator, I think that sounds like a pretty fast payback for the owners.
Doing some quick math, that means that the expected value of every dollar you put in to these machines is about 67 cents before tax effects. Assuming you report taxes on your winnings (as you should, good citizens), and further assuming that the average tax rate for state and federal taxes is a modest 25 percent, that expected value goes down further. Ultimately, you are only getting about 50 cents on the dollar. Would a rational citizen bet if they knew the odds were stacked against you two to one? Would a benevolent government choose to take money from its citizens in this way? Go figure.
The legislature is now coming to the realization that this may not be the best thing to have in every convenience store and restaurant in the state. For one thing, for those of you with kids who play video games, there is just something about electronic games that make us want to keep playing. That is bad enough if it is Super Mario Brothers and your kids are wasting their study time, but it is potentially disastrous if the mom and dad are wasting their grocery and rent money. Another dimension of this problem involves the matter of minors gambling – we proscribe them from entering casinos where slot machines are housed, but we can’t keep the under-21 crowd out of all the 7-11 stores, can we?
The big controversy brewing now is whether the state can take the right to use these away. My own prediction: they can, and without legal liability to the owners. I am not privy to all the facts, but unless there is a contractual right to operate for a period of time, the mere act of purchasing a good in reliance upon the stability of existing laws is generally not sufficient to protect you from legal change.
The message to small business owners who bought these machines: caveat emptor. You use them at the pleasure of the state. The law may be an ass for not giving you compensation, but that’s the risk one takes for dealing with a fickle government. At the least, I think the legislature should post warnings on all such machines: Using these machines is bad for your fiscal health.
EAM
Wednesday, March 01, 2006
Credit Unions: Unfair Competition
Today’s BNA Daily Tax Report includes a story by Marcia Kass on the Credit Union National Association Governmental Affairs Conference. It should be no surprise that conference participants favor continuing the tax exempt status of credit unions. A half-dozen government officials speaking at the conference apparently agreed on that point. Bill Frist, Senate Majority leader, was one of those officials who reportedly stated: “I absolutely support tax exemption for credit unions today." (To the cynical among us: Will you still love me tomorrow, Bill?) Paul Kanjorski (D-Pa.) was also quoted to say that doing away with tax exemption would be "the worst concept we could have."
As previously discussed in this blog, tax-exempt status for credit unions allows a preferred competitive status against community banks, which have taxable operations. Many credit unions are functionally indistinguishable from community banks in terms of the services offered and demographic traits of their customers.
I don’t know how much tax can be raised from removing this exemption (I’ll welcome a post from anyone who does). Whatever contribution this would make to the national deficit reduction should be secondary to the principle of fair treatment for business operations.
Of course, the trade association for credit unions has another view. Here is their web site if you are interested. http://www.cuna.org/.
This raises another point: grants of special tax exempt status like this one also tend to corrupt the political process. The politically powerful have every incentive to extract rents from those holding special status in order to perpetuate it. (Recall our discussions about Jack Abramoff preying on the special status granted to tribal governments.) That sounds like another reason to level the playing field in this area.
EAM
As previously discussed in this blog, tax-exempt status for credit unions allows a preferred competitive status against community banks, which have taxable operations. Many credit unions are functionally indistinguishable from community banks in terms of the services offered and demographic traits of their customers.
I don’t know how much tax can be raised from removing this exemption (I’ll welcome a post from anyone who does). Whatever contribution this would make to the national deficit reduction should be secondary to the principle of fair treatment for business operations.
Of course, the trade association for credit unions has another view. Here is their web site if you are interested. http://www.cuna.org/.
This raises another point: grants of special tax exempt status like this one also tend to corrupt the political process. The politically powerful have every incentive to extract rents from those holding special status in order to perpetuate it. (Recall our discussions about Jack Abramoff preying on the special status granted to tribal governments.) That sounds like another reason to level the playing field in this area.
EAM
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