Tuesday, August 30, 2011


Being a Californian and thinking recently of San Francisco and the Berkeley City council, I've always thought it remarkable (i.e. worthy of remark) that the classical U.S. and Western European "liberal" is so enamored of national governments having a significant and ever-expanding, if not predominant, role in society.

After all, the experience of the 20th Century was largely that the greatest threats to individual liberties (and to life) came in societies in which governments took total control of not only the state (and often the economic) sectors, but also of the details of daily life - the Soviet Union, Nazi Germany, Fascist Italy and Communist China.  Whether one labeled those governments as Left or Right is probably irrelevant; the results were totalitarianism and horror.

So, why is it that "progressives," (the re-branded liberals, post the Mondale/Ferraro disaster) do not approach government expansion with the same concerns as conservatives?  

After all, probably far more liberals (defined for these purposes as those opposed to limits on free speech and religion, supporters of alternative or minority political parties, advocates of unfettered artistic expression and alternative social structures, such as Socialism, etc.) went to their deaths in the Soviet Gulag and the Nazi death camps, than ever did economic or political "conservatives."  

The correlation between governments that controlled almost all of a society, and the horrors of the 20th Century, is not perfect but it is very clear.

I'd think that the more cogent criticism of government expansion is not that of many conservatives: that it is costly, inefficient, likely to produce unintended consequences, destroys or punishes individual initiative and creativity, etc., all of which is often true, but that it is, from the lessons of history, a clear threat, and arguably the most potent one, to individual liberties (Ayn Rand's argument, after she moved from Soviet Russia to the U.S.)

A man from Mars might wonder why, then, today's liberals/progressives are not in the forefront of those concerned with an ever-expanding role for government in our society.

Your thoughts?

Saturday, August 27, 2011

Texas, Job Growth and Recommendations from the Dallas Fed

As Governor Perry emerges as a serious contender for the Republican nomination, attention has been focussed on job creation in Texas, which the Governor is expected to make a centerpiece of his campaign.

 While analysis of Texas' job creation record, and the Governor's role in it, assigns a number of causes to Texas' success, only some of which might be credited to the Governor, I thought it would be interesting to look into the views of the President and CEO of the Dallas Federal Reserve Bank, including the issue of whether the jobs created are mostly low paying, and his recommendations for action in Washington.  I've slightly re-arranged the order of his presentation, to flow a bit better for our readers.

 His full presentation will be found at www.dallasfed.org/news/speeches/fisher/2011/fs110817.cfm and relevant excerpts are set out below, along with the usual charts.  (Data matters!)

"Here is a chart that displays nonagricultural employment growth by Federal Reserve Districts over the past 21½ years, using the employment levels of 1990 as a base of 100 and tracing job creation through June.

Total nonagriculural employment growth by district 

 Nonagricultural employment growth in Texas has compounded at an annual rate of 1.95 percent over 21½ years; that of California at 0.57 percent; and New York’s at 0.19 percent. If you are interested in the output of their workers over this same period, the compound annual growth rate of Texas GDP is 3.6 percent; California’s is 2.59 percent; and New York’s 2.06 percent.

There are several ways to calculate Texas’ contribution to national job creation from June 2009 through the end of June 2011. One is to look at the number of jobs created by all 50 states, including those that have lost jobs since the nation’s anemic recovery began. Using this metric, through June of this year Texas has accounted for 49.9% of net new jobs created in the United States.

Another way to calculate Texas’ contribution to job creation is to lop off those states that have continued losing jobs and consider only those that have positive growth in employment these past two years. Using this metric, Texas has accounted for 29.2% of job creation since the recession ended.

This raises the obvious question―what kind of jobs are being created in Texas? Here are two charts that might help you form an opinion.

Texas nonfarm jobs in the recovery 

 Jobs and wages

[DEH note: Seasonally adjusted national median weekly earnings were $756 in the 2011 Q2, lower than that in Texas - Dept. of Labor, Bureau of Labor Statistics - www.bls.gov/news.release/wkyeng.nr0.htm] 

The most jobs in Texas have been created in the educational and health services sector, which accounts for 13.5% of Texas’ employment. The second-most jobs have been created in the professional and business services sector, which accounts for 12.5% of the Texas workforce. The mining sector, which includes support activities for both mining and oil and gas, employs 2.1% (yes, two-point-one percent) of Texas’ workers. 

In the second chart, you will see that these jobs are not low-paying jobs. The average weekly wage in the education and health services sector is $790; in the professional and business services sector it is $1,117; and in the mining sector, the average weekly wage is $2,271. Together these three sectors account for 68% of the jobs that have been created in Texas in the past two years.

I should point out that in 2010, 9.5% of hourly workers in Texas earned at or below the federal minimum wage, a share that exceeds the national average of 6%.

 Despite the fact that Texas has severely limited social services and an education system that faces great challenges, people and businesses have been picking up stakes and moving to Texas in significant numbers over a prolonged period.  It should be noted that in the last census, Texas gained population and congressional seats, while California’s population growth and congressional representation was static and New York’s was diminished. 

 Jobs have been created for American workers in Texas in several different sectors, not just in the oil and gas and mining sectors. People have taken those jobs of their own free will, even though the jobs may not measure up to the compensation levels everyone would like. 

 And yet Texas, like all states, is subject to the same monetary policy as all the rest: We have the same interest rates and access to capital as the residents of any of the other 49 states, for the Federal Reserve conducts monetary policy and regulates financial institutions under its purview for the nation at large. From this, I draw the conclusion that private sector capital and jobs will go to where taxes and spending and regulatory policy are most conducive to growth.

 In a cyberized, globalized world, those with the means to create jobs will gravitate to those places that provide the best prospect for a return on the investment of the abundant capital on business’ balance sheets or available to them in the marketplace or from eager bankers. Just as many people and firms within the United States have relocated to Texas from other states, investment will flow to countries anywhere in the world where it is most welcome.

Our fiscal authorities must not only figure out the way to contain the nation’s runaway deficits and public debt accumulation, but they must do so in a manner that is competitive with others who seek access to our money, and do so in a manner that does not pull the rug out from under the meager recovery we are experiencing. 

The Committee of 12 and the president have an awesome task. Essentially, they must reboot our entire system of economic incentives and come forward with an updated tax and spending and regulatory regime that incentivizes businesses to invest in the United States and create jobs for American workers rather than gravitate to foreign shores. And they must do so in a manner that avoids engaging in a race to the bottom, but rather, puts us back on the path to ever higher achievement of prosperity.

. . . [T]he ugly truth is that the problem lies not with monetary policy but in the need to construct a modern, appropriate set of fiscal and regulatory levers and pulleys to better incentivize the private sector to channel money into productive use in expanding our economy and enriching our people. 

Those with the capacity to hire American workers―small businesses as well as large, publicly traded or private―are immobilized. Not because they lack entrepreneurial zeal or do not wish to grow; not because they can’t access cheap and available credit. 

 Rather, they simply cannot budget or manage for the uncertainty of fiscal and regulatory policy. In an environment where they are already uncertain of potential growth in demand for their goods and services and have yet to see a significant pickup in top-line revenue, there is palpable angst surrounding the cost of doing business. According to my business contacts, the opera buffa of the debt ceiling negotiations compounded this uncertainty, leaving business decision makers frozen in their tracks.

I would suggest that unless you were on another planet, no consumer with access to a television, radio or the Internet could have escaped hearing their president, senators and their congressperson telling them the sky was falling. With the leadership of the nation―Republicans and Democrats alike―and every talking head in the media making clear hour after hour, day after day in the run-up to Aug. 2 that a financial disaster was lurking around the corner, it does not take much imagination to envision consumers deciding to forego or delay some discretionary expenditure they had planned.

Importantly, from a business operator’s perspective, nothing was clarified, except that there will be undefined change in taxes, spending and subsidies and other fiscal incentives or disincentives. The message was simply that some combination of revenue enhancement and spending growth cutbacks will take place. The particulars are left to one’s imagination and the outcome of deliberations among 12 members of the Legislature.
Now, put yourself in the shoes of a business operator. On the revenue side, you have yet to see a robust recovery in demand; growing your top-line revenue is vexing. You have been driving profits or just maintaining your margins through cost reduction and achieving maximum operating efficiency. You have money in your pocket or a banker increasingly willing to give you credit if and when you decide to expand. 

But you have no idea where the government will be cutting back on spending, what measures will be taken on the taxation front and how all this will affect your cost structure or customer base. 

Your most likely reaction is to cross your arms, plant your feet and say: “Show me. I am not going to hire new workers or build a new plant until I have been shown what will come out of this agreement.” 

Moreover, you might now say to yourself, “I understand from the Federal Reserve that I don’t have to worry about the cost of borrowing for another two years. Given that I don’t know how I am going to be hit by whatever new initiatives the Congress will come up with, but I do know that credit will remain cheap through the next election, what incentive do I have to invest and expand now? Why shouldn’t I wait until the sky is clear?”

It will be devilishly difficult for businesses to commit to adding significantly to their head count or to meaningful capital expansion in the United States until clarity is achieved on the particulars of how Congress will bend the curve of deficit and debt expansion.

Only Congress, working together with the president, has the power to write the rules and provide the incentives to correct the course of the great ship we know and love as America. I hope you, as the voters who put them in office, will demand no less of them."

Friday, August 26, 2011

Free Trade Is Foreign Aid

Many politicians and members of the public say they oppose foreign aid. Yet many of the same people support free trade agreements, by far the largest source of American foreign aid. Free trade agreements have caused many of our companies to build factories overseas and hire foreign workers to whom they pay wages higher than those workers had been earning in their countries. Hence these new factories constitute massive foreign aid to those countries and those workers.

Low tariffs, the result of free trade agreements, didn't cause the current recession/depression, but low tariffs along with technology are keeping unemployment high. Because of technology, companies can hire fewer workers in this country to do the same amount of work that more workers previously did. Ironically free trade will ultimately be the solution for a smoother economy and fuller employment. Technology will help. But not for a while.

As more and more goods are made overseas and standards of living rise overseas, foreign workers earn higher compensation. This has been true in Japan, Korea, Indonesia, and now is beginning to be true in China. Eventually rising labor costs overseas added to the cost of shipping goods back to the U.S. will make American labor costs competitive. Companies making products overseas will eventually find it profitable to build or rehab factories in the U.S. and hire U.S. employees. This will take a while.

In the meantime, people here who have jobs have the benefit not only of employment but also cheaper products made overseas. Even though unemployment is high, most of us are doing ok. Because we are doing ok, I believe we have a moral obligation to help workers who are out of work. These workers took jobs that our system made available, devoted their lives to their jobs and employers, and now are down and out because the politicians changed the trade rules.

The same politicians should quit complaining about foreign aid that they have made possible and continue to support.

Thursday, August 25, 2011

Consistently Unhappy Across Party Lines

As we've sometimes suggested, data is generally more important than unsupported opinions.  Therefore, some recent polling data show that it's not just the President that has low approval ratings, but also that there's a general sense of dissatisfaction on behalf of most Americans.

All of the data and charts below are from a Pew Research Center poll released today, August 25, 2011.  The full report can be found at pewresearch.org/pubs/2091/barack-obama-job-approval-republican-congressional-leadership-democrats-tea-party-2012-presidential-race-mitt-romnet-rick-perry-herman-cain-ron-paul-michele-bachmann.

Approval Ratings for the President and Congress

Approval ratings for both Congress and the President continue on a downward trend.  Perhaps not surprisingly, Democrat leaders retain a slightly less negative rating than Republican leaders.

Evaluation of the President

Consistent with low approval ratings, the President is increasingly seen as not able to get things done and not as a 
strong leader.

Analysis by Party Affiliation

More significantly for the 2012 campaign, the President's approval rating among independents, a vital electoral segment, has reached a very low point.

Responsibility for Not Working Together

By a significant margin, independent voters place the blame for a dysfunctional national government on the GOP, rather than the President.

Frustration and Anger Toward the Federal Government Grows Significantly

Putting to one side issues of blame, the numbers of Americans who feel frustrated or angry with the Federal Government has reached a new high in the last 14 years.

Also, that anger at the Federal government has grown since September of 2010 among Democrats, as well as independents, perhaps due to disappointed expectations.


Trust in Government at Historic Lows

 Finally, of the greatest personal concern to me, trust, defined as a belief that the Federal government will do what is right "just about always" or "most of the time" has reached historically low levels.  In the Pew survey, only 19% say the government can be trusted just about always or most of the time.

For any candidate of either party to inspire the voters (particularly young ones who may have become disappointed by a lack of "change") and achieve high levels of support for the tough choices ahead, he or she will have to overcome this fundamental distrust.

I wonder what your views might be?

Sunday, August 21, 2011

We Must Think for Ourselves

After reading our blog, a good friend suggests that "we must educate our children to truly think for themselves," or they will fall victims of dogmatic ideologues. I'm walking a fine line here because I strongly believe that thinking, educated people can benefit from reading, for example, both The God Who Is There by D.A. Carson (a fundamentalist view of the Bible) and The Portable Atheist: Essential Readings for the Nonbeliever, by Christopher Hitchens.

We learn to think for ourselves by learning to evaluate others' ideas, some of which might be dogmatic ideologies. Thinking for myself, I might even adopt the thinking of an ideologue. But if I am able to do so after understanding the ideology and finding good reason to support it, then I am at least moderately rational.

Wednesday, August 10, 2011

Healthcare Costs

In his post entitled "Health Care and Deficit Drivers," David Holmes shows that we must deal with healthcare costs if we hope to contain and eliminate deficits. Here are suggestions that would substantially reduce government healthcare costs.

1. Tort Reform – I will do a short Post on tort reform in the next few weeks.

2. Comprehensive tax reform including termination of the income exemption for employer-medical contributions.

3. Need-based Medicare co-pays and Social Security benefits, including for present recipients. Many plans exempt present recipients – present recipients (my generation) should participate in the solution for our country and the generations following us because we benefited from job opportunities that are no longer as broadly available. The post-WWII economy benefited us because of the coincidence of when we were born.

4. By law Medicare must cover a treatment that has some benefit regardless of cost and extent of the benefit. For example Medicare pays $93,000 for prostate cancer patients to receive Provenge, a treatment that prolongs patients' lives for 4 months. In deciding what Medicare should cover, we should take into account the cost of a medical treatment and the extent of a treatment's benefit.

5. Medicare has a co-pay. Seniors can insure against the co-pay with Medigap policies. Medicare should require some minimum amount that cannot be insured against so that we have to pay something for each medical visit. Cost should be part of the patient's decisions regarding care.

6. Provide uniform claim forms for Medicare and all insurers to simplify hospital and doctor office work.

What additional suggestions do readers have?

Saturday, August 6, 2011

Why Politicians Behave the Way They Do

For quite a while, we Americans have had an exceptionally low opinion of politicians in general, and that low opinion has been rapidly sinking in the last few months.

As of December of last year, Gallup reported that a new low had been recorded in the number of Americans approving of the way Congress is handling its job - 13%.  The President's approval rating as of the end of July was 42%, near his low for his tenure in office.

When I speak with people, they echo these sentiments, and when I ask them why they feel that way, they often respond with statements like these:

"Oh, they're all just politicians, just interested in getting re-elected; they care about that more than what's best for the country.  I just wish they could compromise and work better together, on behalf of all of us."

And it seems that those feelings have a real basis in fact, as the recent debt ceiling crisis amply demonstrated.

Most fair observers would remark that the one clear line drawn in the sand by the President was that there be no more battles over the debt, requiring him to go to Congress for authority to raise the debt limit, until after the 2012 elections.  While this was justified as a measure intended to calm the markets, the political benefits to the President (and his party) are painfully obvious.

At the same time, the Republicans were willing to risk default, so long as any solution to the crisis did not involve increases in taxes, notwithstanding the recommendations of the President's bi-partisan fiscal commission that tax increases (and a re-structuring of the tax code) should be part of a balanced solution, and that any realistic solution to the deficit will probably have to involve some additional revenues.

And all of this was in the framework of the pledge by the Republican leader in the Senate that “the single most important thing we want to achieve is for President Obama to be a one-term President.”

Confrontational, combative, highly competitive - all adjectives that accurately describe most politicians' current behavior.

So, why do politicians behave this way and what, if anything, can be done about it?

The explanation of Why, may be fairly straightforward, and it flows from a simple observation:  

Human beings operate and interact within a system (made up of the general culture, specific legal rules and other inputs) and they will act in ways which are incentivized by that system.  Change the system and you will (probably) change the behavior.  Leave the system unchanged, and you'll probably get the same behavior.

Or, to put it in a slightly different way, when a system rewards certain types of behavior, people will act in accordance with those rewards.  Politicians are probably no less intelligent, rational or moral than most of us; they simply respond to the constraints of the system in which they operate.

So, here's the news item: 

 Politics is a highly competitive system, in which politicians compete for a limited number of rewards (seats in Congress, the Presidency, etc.)  He who can out-compete his or her rival is rewarded (high office, salary, power, ego gratification, etc.); she who cannot is punished (back to the private sector, albeit perhaps with a high-paying lobbyist or law firm, loss of power and prestige, etc.)

[In fact, some of this is inherent in our political system, as designed by the Founding Fathers.  While they certainly did not mandate the rise of political parties, they did establish a system of checks and balances, and two houses of Congress, intentionally setting up a scheme in which an absence of consensus would frustrate initiatives and potential "power grabs."]

So, politicians rationally respond to these incentives, understanding that the other party is not a team member, but a rival (think: Yankees vs. Red Sox), and that the foremost objective is not to cooperate, but to battle and (hopefully) triumph over your rival.

You can see this in the recent debt crisis battle, as analyzed by game theory, which sees politics as a zero-sum game (in the technical sense) between two players, battling for a limited resource: political power.

First, a graphic (from www.businessweek.com/magazine/the-debt-ceiling-deal-the-case-for-caving), with a typical 2 x 2 matrix from game theory.  One player is the White House (with its Congressional allies) and the other is the Republicans in Congress:

Each player has two basic options: Hold Out (intransigence) or Compromise, and the outcome depends not only on what that player does but what the other does also.  Neither party can control the actions of the other, so he must think about what the other player might do, as well as his own options.

In each case, if one player holds out, he may achieve political victory, but can also cause financial armageddon (if the other player holds out), which, aside from hurting the country, will (and more relevantly for these purposes) probably result in a huge political loss for both players, and that potential negative result is far scarier than the potential positive result (political victory) is rewarding.  

After all, the player is, by definition, already in office - victory merely marginally enhances his position.  Financial armageddon risks loss of office and all the psychic and other rewards that go with it.

On the other hand, if the player compromises, and a deal is reached that no one likes, that player has avoided the severe losses associated with financial armageddon and, most importantly, remains in office.

So, a rational player (and I do believe that nearly all politicians are very, very rational, at least when it comes to strategizing their own re-election) will choose the least risky course of action.  Game theory then predicts the outcome in this case: compromise that no one likes.  And that's exactly what happened.

Then, if the system is inherently competitive, non-cooperative and perceived by the players as a zero-sum game, is there anything we can do to incentivize cooperative behavior, to the benefit of the country?


Some of the fixes are technical and in the nature of corrections to the political process, such as having congressional districts not be drawn (gerrymandered) by the politicians themselves, hopefully resulting in fewer "safe seats" where politicians know they will not face a serious challenge from the other party in the general election and can (and should, under game theory) pander to their own most-extreme base so as to triumph in primary elections.

More generally,we should acknowledge that while we may or may not get the politicians we deserve, we definitely get the politicians we elect and re-elect.  That's one of the moral downsides of a democracy - ultimately we have responsibility for who we put in office, a burden not shared by the citizens of, say, Cuba, Libya or North Korea.

So, part of the solution may be the same strategy used by a Mother who has two children that can't play well together - both go to their rooms without dinner, loose TV privileges, etc.

She simply creates a system (changes the rules of the "game") so that unacceptable behavior is punished and good behavior is rewarded.  And, in most cases, the children, now exposed to a game in which inappropriate behavior leads to loss for both of them, eventually "get it."

When Americans stop reflexively returning to office incumbents who refuse to work together (from 1982 through 2006, over 95% of all House members seeking re-election were successful - people don't like Congress but keep voting for their Congressman/woman), those politicians may get the message.