Monthly Archives: September 2012

Californian Depopulation

Is Tiebout competition draining people out of California? That theory suggests that people vote with their feet, but its existence in the real world has been questioned.  This study from the Manhattan Institute makes for some compelling reading about that real world during the last ten or fifteen years.

 

Foreign migration remained a net positive for California, in every sense of the word. However, this trend masked the out-migration of domestic residents to other U.S. states, which looks like it averaged 200,000 people a year for the last 20 years.

Opening Chapters with Quotes

Part of the fun of writing a book is designing your layout. We know we want to write about entitlements and taxes, for example, but how do you make that a compelling narrative?  I’ve had this problem when explaining what my forthcoming book is about.  The title is Bleeding Talent (to be published by Palgrave officially on December 11, 2012, but I am telling people it is 12.12.12 because that just sounds so much better), and I find myself tongue-tied describing the book in a way that might actually increase sales. “It’s about military personnel economics” doesn’t seem to get people nearly as excited as they should be. Yawn.

Anyway, on BALANCE, we are using a convention of opening chapter quotations.  Niall Ferguson used these to great effect in Colossus. I’m sure there is a professional lingo for that in the book world. Here is one that we found and are pegging for the closing chapter:

“The preservation of the sacred fire of liberty, and the destiny of the republican model of government, are justly considered as deeply, perhaps as finally, staked on the experiment entrusted to the hands of the American people.”

― George Washington, First Inaugural Address (April 30, 1798)

I also found a line by Neal Stephenson that is just fantastic — won’t reveal it here, but it is not the one about the four things Americans will still be good at in the next century. I am curious what great quotes you would recommend for a book about economic imbalance?  How about this one?

Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

— William Butler Yeats, The Second Coming, 1919

Broken Promises

America has a budget crisis, bigger and more dangerous than the fiscal cliff.  I’m reading the latest report from CBO from August 22, 2012 as we finalize our draft chapter on America’s imbalance (Chapter 12 as currently organized). This kind of spending is an existential threat, much bigger than external threats. It echoes the kind of imbalances that brought down great powers in history.

Let’s not forget that President Obama promised to cut the deficit in half during his first term, and he made this promise in February 2009, during the recession, when the scope of the problem was well known:

And that’s why today I’m pledging to cut the deficit we inherited in half by the end of my first term in office.  This will not be easy.  It will require us to make difficult decisions and face challenges we’ve long neglected.  But I refuse to leave our children with a debt that they cannot repay — and that means taking responsibility right now, in this administration, for getting our spending under control. (emphasis added)

Here is the scorecard on Obama’s fiscal promises, according to the CBO: the deficit in 2008 was 0.5 trillion dollars. Federal outlays were 2.98 trillion dollars. Since then, the U.S. government has run deficits of 1.4, 1.3, 1.3, and a projected 1.17 trillion dollars during these last four years. And “spending under control” apparently meant “blowing a hole” through the federal pocketbook, with outlays of 3.5, 3.5, 3.6 and a projected 3.4 trillion dollars (through 11 months of the 2012 fiscal year). If a presidential promise falls in Washington, but the media refuses to notice, does it make a sound?

Instead of cutting the deficit in half, Obama has tripled it. Instead of controlling spending, he’s raised outlays by half a trillion dollars a year, which will get much bigger when the health care law takes effect. Instead of a temporary stimulus to bridge the nation back to full GDP, we have a permanently stimulated federal government and zero recovery.

It is entirely understandable that the deficit was not fixed in the first year that Obama was in the White House, the second year, the third year, and even the fourth year. What is not understandable is the absence of any coherent long-term plan, partisan or bi-partisan, to address the issue. What America got instead was another blue-ribbon commission (Simpson-Bowles) that was ignored before the ink on its final report was dry.

Ironic that the President has time to tweet about the decision made by referees during the Monday Night Football game to take away the interception by a Packers player and give a bogus touchdown to Seattle. Sure, the refs made a bad call. They neglected to huddle up, calm down, and clarify the situation. But here’s the thing: the refs were managing a game, making a split-second call. In contrast, the White House had four years to huddle up, calm down, and make a plan about the deficits. Yet, nothing. There’s not even a sketch of how the White House would address this issue any differently than it has for the last 45 months. It’s just frustrating to see how football gets more presidential attention than the debt my children will pay.

Interested in Hudson Internship?

If you are interested in an internship in the economics department of the Hudson Institute in Washington, I need one, possibly two, interns this fall. You can inquire directly via the Hudson Institute (www.hudson.org).Thanks!

Blog RSS

We’ve had some friends ask if our blog has an RSS feed.  Yes.  If you are looking for it, try

balanceofeconomics.com/feed/

and please let me know if this does not work.  Thanks.

Fundamental Tax Reform / Startup Jobs Collapse

I am participating in a “fundamental tax reform” panel hosted by the Mercatus Center on Friday. The goal is to get beyond the tired old debates about extending or not extending taxes on this class or that class of Americans and start with first principles.  I will be talking about entrepreneurs, and will probably mention my latest study showing that the startup job creation rate has collapsed during the last three years and actually fallen lower in 2011 than ever before. I’ll ask: Why did the IRS start cracking down on companies that hire American contractors in 2009? I might even mention that after 50 years of an LBJ-inspired War on Poverty, poverty is winning. Maybe the United States should design a tax code that doesn’t treat low-income Americans as dependent victims (and thus trapping them in poverty with effective tax rates above 100%), no?

Details of the Mercatus event:
Sept. 21, 2012 — 12:00-1:30 PM
Senate Dirksen, Room 562

And here’s the chart from my report:

Roubini on weaknesses in political-economic systems

A good essay by Nouriel Roubini.  I liked his line that “as everyone kicks the can down the road, the can is getting heavier.”  But this is section that caught my eye:

Ineffective governments with weak leadership are at the root of the problem. In democracies, repeated elections lead to short-term policy choices. In autocracies like China and Russia, leaders resist the radical reforms that would reduce the power of entrenched lobbies and interests, thereby fueling social unrest as resentment against corruption and rent-seeking boils over into protest.

Is the Eurozone crisis a Euro crisis?

Too many voices are pointing at the imperfections of the Euro as a monetary union, and blaming the Euro for the lingering recession across the continet, but it seems that the currency is not the root cause of problems. The real crisis is fiscal imbalance: Greek pensions, Spanish welfare, Italian debt/GDP ratio.  Contrast those nations’ fiscal policies with Germany, the Netherlands, and others.

So the question isn’t what transmission mechanism might bring the interest rate spike to U.S. bonds, it is whether the Senate can pass a budget. If America has another 5 years of trillion dollar annual budget deficits, our debt/GDP ratio surpasses Spain’s.  In fact, as AEI President Arthur Brooks recently noted in the Wall Street Journal, America is already more European than many European nations: “[O]ur debt-to-GDP ratio is 103%; Spain’s is 68%.” To be sure, if we don’t count debt America owes America, the ratio is only 73%, but CBO predicts it will rise to 200% in 25 years.

Academic presentations on Institutions

Stockholm University had a Nobel Symposia on growth and development a few days ago.  All of the presentations are publicly available here.  Daron Acemoglu’s presentation on Institutions and the comment by Andrei Shliefer are very good.

The Q3 Econ Blog Survey

For years, I conducted a survey of top economics bloggers for the Kauffman Foundation, and I have been continuing the tradition since joining Hudson. A few weeks ago, just as Glenn and I were launching the BALANCE blog, I got results in for the Q3 survey.  They are truly fascinating, as always, because the collective opinion never conforms to an ideological tilt that we see in many media stories. The 50 or so respondents include some very famous bloggers, but they tend to not identify with either political party. Roughly half of the respondents have an economics PhD, and roughly half are professors of some kind.  With that, here are the results in chart form of the Q3 survey …

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Imageand finally the word cloud (each participating blogger is asked to list five adjectives that describe the U.S. economy right now), which speaks for itself: