Tuesday, August 30, 2011
Saturday, August 27, 2011
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!)
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.
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.
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.
Friday, August 26, 2011
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
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
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.
I wonder what your views might be?
Sunday, August 21, 2011
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
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
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.