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Category: public policy

Published on Leave a comment on A Capital Idea

Thinking more about how to use fiscal policy as economic stimulus, I hold forth in the current issue of the Ripon Forum. Here's a teaser:

The agreement reached by the House and White House in January addressed two problems that the United States does not have.

First, the nation does not have an underconsumption problem. The personal saving rate hovers around zero. The government’s budget has been in surplus in only four of the last 35 years. The nation has run current account deficits with the rest of the world for the last 15 years. If we are looking for additional economic activity, consumption is a poor choice.

Second, we do not have an underinvestment problem in the private sector. Interest rates have been very low by historical standards, and the Federal Reserve intervened immediately to lower them even further. With or without additional tax-based incentives, corporations have plenty of access to cheap credit to expand their capital stocks.

Where our country does have an underinvestment problem is in our public infrastructure. The failed levees of New Orleans. The collapsed bridge in Minneapolis. Those are but two recent examples of an area where the federal government is falling down on the job. Regrettably, they are not the only examples. In 2005, the American Society of Civil Engineers released a report card in which it estimated that $1.6 trillion would be required over a five-year period to restore the nation’s physical infrastructure to good condition.

Because infrastructure projects are in many cases public goods or natural monopolies that can be provided more efficiently with government regulation or implementation, the government should bear responsibility for them. Looking ahead, the country faces potential bottlenecks in network infrastructures in broadband and alternative energy that could be added to the ASCE report’s recommendations.

Read the whole thing.

Published on Leave a comment on Insurance for the Nation’s Health

Mark McClellan will be on campus tomorrow to deliver the Rockefeller Center's first lecture in a series commemorating the 100th birthday of Nelson Rockefeller. (Read more here.) Mark's will lecture on "Universal Health Care," a topic that Governor Rockefeller championed more than four decades ago and that remains a leading policy issue today.

In doing some research for the event, I came across this Nixon-era article in Time magazine from May 11, 1970. Here's the big finish:

While every American may be entitled to at least adequate health care, he is not getting it, and will not, until a momentous national debate reaches election-year levels of acrimony and is somehow resolved.

The issue has already been injected into this year's elections by Democrat Theodore C. Sorensen, campaigning for the U.S. Senate from New York, who last week announced his own plan for "universal health insurance." Apart from such standpatters as the A.M.A. and its arch-conservative Republican allies, there is a growing consensus that some national insurance blanket must be thrown over the ailing body of health care.

It may prove to be more of a patchwork quilt, with multicolored squares for sections covered by contracts with a variety of private insurers. If administration is not made too cumbersome, that would be far better than the present non-system with its huge gaps. Walter McNerney, president of the Blue Cross Association and head of a task force soon to report to the President on the nation's health needs, believes that a monolithic system operated by HEW would be wildly inflationary—and not sufficiently innovative. He wants a flexible, pluralistic plan.

But when? The principal difference between proponents of progress is over whether to put the cart of medical-care delivery before the horse of manpower resources, and let the resources catch up with the overburdened cart—or to take the time to breed more medical horses. That means waiting years for the country's health education system to produce many thousands more doctors and tens of thousands more paramedical personnel. Secretary [of Health, Education, and Welfare Robert H.] Finch sincerely believes that the modest expansions of federal health programs that he has submitted to Congress are important steps in the right direction, but will not commit himself to true national insurance. His chief assistant for health affairs, Under Secretary Roger O. Egeberg, thinks that some such plan may very well evolve in "six to seven years." His prognosis is as good as any.

Read the whole thing, to get an idea of what has changed and what has remained the same in this debate, and be sure to stop by Mark's talk tomorrow evening if you are on or near campus.

Published on Leave a comment on Storehouses of Ideas

I hadn't realized that Chris DeMuth is stepping down as the president of the American Enterprise Institute. Here is an essay he wrote reflecting on the nature and role of think tanks. I thought the following excerpt was interesting:

I have tried to explain it to people who have been setting up liberal and leftist think tanks in recent years, advising them that the secret of success is to go away and spend thirty years in the political wilderness. They have thought I was joking. Let me try again here.

Every one of the right-of-center think tanks was founded in a spirit of opposition to the established order of things. Opposition is the natural proclivity of the intellectual (it's what leads some smart people to become intellectuals rather than computer programmers), and is of course prerequisite to criticism and devotion to reform. And for conservatives, opposition lasted a very long time--in domestic policy, from the New Deal through 1980.

It's been more than half that period of time since 1980, and the conservative think tanks are now part of the status quo and not the political wilderness. Maybe the Lefties aren't the only ones who could benefit from a few day hikes.

Read the whole thing.

Published on Leave a comment on What Capitalism Doesn’t Need

Adjectives like "creative" to modify it.

From the Wall Street Journal today:

In a speech at the World Economic Forum in Davos, Switzerland, the software tycoon plans to call for a "creative capitalism" that uses market forces to address poor-country needs that he feels are being ignored.

"We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well," Mr. Gates will tell world leaders at the forum, according to a copy of the speech seen by The Wall Street Journal.

Capitalism is by its nature creative. Ask a capitalist.

If Bill wants to put an adjective in front of "capitalism," then perhaps he should consider "universal" and challenge the attendees at Davos to help establish the institutions in poor countries that will make that adjective redundant as well. That way, the billions of people living in poverty in these areas will have access to the one economic system that can meaningfully improve their plight.

Published on Leave a comment on Ben Bernanke Waves a Handkerchief

As the old saying goes, when America sneezes, the rest of the world catches a cold. A second day of selloffs in overseas markets prompted the Fed to cut 75 basis point cuts in both the discount rate and the federal funds rate. From The New York Times this morning:

The Federal Reserve, responding to an international stock sell-off and the likelihood of a sharp drop in America on Tuesday morning, cut its benchmark interest rate by three-quarters of a percentage point.

The Federal Open Market Committee lowered its target for the federal funds rate on overnight loans between banks to 3.5 percent, from 4.25 percent.

In a statement, the Fed said: “The committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.”

“Moreover,” the statement continued, “incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.”

In a related action, the Fed approved a 75 basis-point decrease in the discount rate, to 4 percent.

Within minutes after the announcement, trading in stock-index futures, which had been presaging a deep slide on American stock exchanges Tuesday, retraced much of their earlier declines, which had been driven by a second sour day in Asia and Europe.

The reaction of the overseas markets is what strikes me as excessive. Conditional on that, a rate reduction of some magnitude (if not 0.75 percentage points) is not much of a surprise. It should make for an interesting week in the financial markets.

Published on Leave a comment on Tasty Clones

Speaking of unnecessary stimulus, cloning in the food supply was brought back to the fore this week, as the F.D.A. made a pronouncement on the safety of meat and milk from cloned animals. From Wednesday's New York Times:

After years of debate, the Food and Drug Administration on Tuesday declared that food from cloned animals and their progeny is safe to eat, clearing the way for milk and meat derived from genetic copies of prized dairy cows, steers and hogs to be sold at the grocery store.

There was a predictable response from consumer watchdogs:

Consumer groups immediately lambasted the F.D.A.’s report, saying that the science remains inadequate and that many consumers oppose cloning for religious or ethical reasons. Some members of Congress had sought to delay a decision until further studies were completed.

“It flies in the face of Congress’s wishes. It flies in the face of consumer wishes,” said Michael Hansen, a senior scientist at Consumers Union, the advocacy group that publishes Consumer Reports.

I don't share the same apprehensions about safety in genetic cloning as I do in genetic modification or doping. With cloning, it seems that the breeders obtain an animal that has desirable characteristics and then simply make more copies of it without modifying it. The principal advantage of cloning is summed up by this expert, who must have fun giving out his business card:

“When you buy a box of Cheerios in New York and one in Champaign, Illinois, you know they are going to be the same,” said Jon Fisher, president and owner of Prairie State Semen in Illinois. “By shortening the genetic pool using clones, you can do a similar thing.”

“It could improve the quality of meat in the supermarket,” Mr. Fisher added. “It depends if customers allow it.”

It will likely do that in areas where the quality of meat is poor. But I'm not in one of those areas, and so if I should decide that I don't want to eat meat or drink milk from cloned animals, I should have that option, too. From the article again:

The F.D.A.’s approval extends to cloned cows, pigs and goats but not other farm animals like sheep; the agency cited insufficient data on cloned sheep. The F.D.A. said meat and milk from cloned animals and their offspring would not be labeled because it was the same as conventional food and did not pose a safety risk.

However, Representative Rosa DeLauro, Democrat of Connecticut, has introduced legislation to require labels on cloned products, and consumer groups suggested that labeling would be a battleground in the near future.

As with other food production processes, I am in favor of allowing producers who do not use a particular technology to label their products as such, regardless of whether the F.D.A. requires those who do use the technology to label their products as such.

Published on Leave a comment on More on the Florida Financing Fiasco

Some e-mail feedback on the last post reveals that David Evans and co-authors at Bloomberg Markets Magazine have been on the case for months. This is very good investigative reporting of the subprime meltdown in financial markets and the case of Florida in particular. Put these on your required reading list:

I warn you--if you go into anaphylactic shock at the sight of the words "declined to comment," have your Epi-Pen ready. Our justice system should make a point of getting involved to clean up this mess.

Published on Leave a comment on A Surprising Place for a Run

I have from time to time had the pleasure of commenting on the reporting of Mary Williams Walsh of The New York Times, where she covers pensions, state and local governments, and some other topics. Over the holiday, I read her excellent article, written jointly with Kirk Semple, on the burden that poor investments by the state of Florida have had on local communities. The opening paragraphs:

PORT ST. LUCIE, Fla. — On Nov. 28, Marcia L. Dedert, finance director of this rapidly growing city, called the administrators of Florida’s state-run investment pool to ask whether it was still safe to park her city’s money there. She was hearing talk of urgent withdrawals by others worried about the pool’s investments in debt related to subprime mortgages.

After the pool’s manager told her the money would be all right, Ms. Dedert recalled, she deposited $135 million in bond proceeds. But less than 24 hours later, the administrators froze the pool and blocked withdrawals to halt a full-blown run.

Now the city cannot touch the money. And rest of the $371 million it has in the pool is also off-limits unless the city pays a 2 percent penalty.

Port St. Lucie is among hundreds of local governments in Florida that were drawn to the pool by its air of reliability and the promise of higher returns than banks offered. They now find themselves grappling with the consequences of having their money frozen.

Some have had to borrow money to meet day-to-day obligations. Others have had to shift money around for the time being or consider postponing long-planned projects.

For Port St. Lucie, the timing of the freeze could not have been worse. The city is trying to recreate itself as a center of the biotech industry and had just issued $155 million worth of bonds to lay roads, water pipes and sewer lines in a planned “jobs corridor,” where it hopes to house the companies it is courting from out of state.

I question why localities actually need this service from the state. Given investment amounts in the hundreds of millions, there are any number of banks and financial service companies with whom they could contract directly. People with accounts as small as 0.1% of Port St. Lucie's account get treated very well by financial service companies. Why tie up your money with a state fund that thinks it's doing you a favor instead of going to the professionals who would actively compete for your business?

Published on Leave a comment on Yes, Mikey, It Really Is About Illegal Immigration

Mark Thoma directs us to Michael Kinsley's commentary in Time arguing that "legal vs. illegal immigration isn't the real issue." I take the bait. Here is one of Kinsley's key paragraphs:

Another question: Why are you so upset about this particular form of lawbreaking? After all, there are lots of laws, not all of them enforced with vigor. The suspicion naturally arises that the illegality is not what bothers you. What bothers you is the immigration. There is an easy way to test this. Reducing illegal immigration is hard, but increasing legal immigration would be easy. If your view is that legal immigration is good and illegal immigration is bad, how about increasing legal immigration? How about doubling it? Any takers? So in the end, this is not really a debate about illegal immigration. This is a debate about immigration.

That's not a good test, unless Kinsley is arguing that a politician's desired amount of legal immigration should not depend (negatively) on the number of illegal immigrants who are already here. One does not have to argue that there are no differences between illegal and legal immigrants (for example, in their economic or fiscal impact) to assert that the key distinction of legality is relevant for public policy.

Additionally, why does Kinsley develop his article by excluding the possibility that a politician believes that the number of legally authorized immigrants each year is the appropriate one and wants to reduce total immigration to that target which emerged out of the democratic process? Later in the article, he suggests this is possible:

There is some number of immigrants that is too many. I don't believe we're past that point, but maybe we are. In any event, a democracy has the right to decide that it has reached such a point. There is no obligation to be fair to foreigners.

But let's not kid ourselves that all we care about is obeying the law and all we are asking illegals to do is go home and get in line like everybody else. We know perfectly well that the line is too long, and we are basically telling people to go home and not come back.

But he should have written, "no obligation to be generous to foreigners." This is an important distinction. Telling the ones here illegally "to go home and not come back" is the way to be fair to "foreigners," particularly the ones near the front of that very long line.

He should also have written that we have no obligation to cede our decisions about who enters the country to the "foreigners." Insisting on a distinction between legal and illegal immigration is a way to keep control of that process. Why should we give up that prerogative? To be generous to some and unfair to others? I'm going to need a better reason than that.

And while we are on the topic of obligations, we should clarify what our obligations are to those who are here illegally. We are obligated to protect their basic human rights. We are not obligated beyond that to ease the considerable burdens they face in being here illegally, whether through issuing them drivers' licenses or providing a path to citizenship that recognizes their illegal tenure here. We may choose to do so, but we are certainly not obligated to do so.

And, referring back to the first excerpt, we are not obligated to ensure that immigration laws are "enforced with vigor" against those who have managed to enter illegally if the cost of enforcement is perceived to be too high or the consequences too disruptive. That in no way undermines our authority to enforce them with vigor against those who would seek to enter illegally in the future to prevent them from doing so. That seems to be where most of the Republican candidates are, and on this issue, that's where I am, too.

Published on Leave a comment on More Sensible Cross-Border Flows

This is probably not the best timing, given the very weak August employment report, but I regard the developments in this article in Wednesday's New York Times as a good sign. Five months ago, I asked the question in the context of the immigration debate, "Is Labor Now the Mobile Factor?" I wrote:

In the current environment, I would expect to see capital going south across the border with Mexico, drawn by the high returns available due to the large amount of low-wage labor. But that's not what we are seeing. We are seeing the labor cross the border--at considerable personal cost--to take the low-wage jobs and then send remittances back to Mexico. (Even in agriculture, where the land is obviously not mobile, I would be surprised if much of the agriculture in the Southwestern U.S. couldn't also be produced in Mexico. But there is nothing in the argument that requires the unskilled labor to work in agriculture or any particular industry.)

The article notes that there are American farmers who are moving their businesses south of the border:

Steve Scaroni, a farmer from California, looked across a luxuriant field of lettuce here in central Mexico and liked what he saw: full-strength crews of Mexican farm workers with no immigration problems.

About 500 people work for Steve Scaroni’s farming operation in Mexico. Farming since he was a teenager, Mr. Scaroni, 50, built a $50 million business growing lettuce and broccoli in the fields of California, relying on the hands of immigrant workers, most of them Mexican and many probably in the United States illegally.

But early last year he began shifting part of his operation to rented fields here. Now some 500 Mexicans tend his crops in Mexico, where they run no risk of deportation.

“I’m as American red-blood as it gets,” Mr. Scaroni said, “but I’m tired of fighting the fight on the immigration issue.”

That's good to know. I consider our "blood" to be the same color for the same reason, and I am also tired of fighting the fight on the immigration issue. I'm tired of hearing people treat American citizenship as if it is incidental to an economic transaction. Stepping up to that task in this article (filling in for the President, I guess) is Senator Dianne Feinstein of California:

She predicted that more American farmers would move to Mexico for the ready work force and lower wages. Ms. Feinstein favored a measure in the failed immigration bill that would have created a new guest worker program for agriculture and a special legal status for illegal immigrant farm workers.

There is nothing so sacred about cheap lettuce that we should create a population of second-class citizens to pick it in California rather than Mexico. So I'm glad Mr. Scaroni has moved his operations to Mexico if he feels that is what is essential for his business if he is to abide by our immigration laws. I am particularly glad that the legal and economic infrastructure has developed in Mexico to the point where he can do it.

I wish him the very best in his endeavor, and I'll reward him like I do all other businessmen--I'll buy his product if it's the best one on the market for the price. The article gives a good accounting of the various business challenges involved, and it's worth a read.