Economics: Pity the Poor C.E.O.'S

All the buzz lately is that the Obama administration is “antibusiness.” And there are widespread claims that fears about taxes, regulation and budget deficits are holding down business spending and blocking economic recovery.

How much truth is there to these claims? None. Business spending is indeed low, but no lower than one would have expected given widespread overcapacity and weak consumer spending.

So where’s the evidence that an antibusiness climate is depressing spending? The answer, supposedly, is that this is what you hear when you talk to entrepreneurs. But don’t believe it. Yes, when you talk to business people they complain about taxes, regulations and the deficit; they always do. But the Obama’s-socialist-policies-are-wrecking-the-economy chorus isn’t coming from businesses; it’s coming from business lobbyists, which isn’t at all the same thing.

It turns out that business is less concerned about taxes and regulation than during the 1990s, an era of booming investment. Concerns about poor sales, on the other hand, have surged. The weak economy, not fear about government actions, is what’s holding investment down.

For more, see Pity the Poor C.E.O.'S by Paul Krugman, July 8, 2010, at The New York Times.

Economics: House Budget Plan? A Dereliction of Duty

... the House of Representatives passed a one-year budget resolution rather than the normal blueprint committing the government to a fiscal plan of at least five years.

The terrible irony in all this? More and more people are seeing that what this agonizing situation requires is a limited and temporary measure to pump more life into the economy and create jobs, along with a serious commitment to impose real spending discipline and hold down deficits in the long term -- exactly what a five-year budget resolution could provide.

Gregg and Conrad agree that such a resolution could "unleash huge energy back into the economy," because corporations are hoarding $1.8 trillion in their treasuries and consumers are sitting on billions more.

Of all the times for Congress to abandon its responsibility for long-term fiscal planning, this is the worst.

For more, see House Budget Plan? A Dereliction of Duty by David S. Broder, July 8, 2010, at The Washington Post.

Economics: Poor Social Mobility in the U.S.

As Rich Lowry and Ramesh Ponnuru wrote in an important statement for National Review about the superiority of the U.S. over the European model:

American attitudes toward wealth and its creation stand out within the developed world. Our income gap is greater than that in European countries, but not because our poor are worse off. In fact, they are better off than, say, the bottom 10 percent of Britons. It’s just that our rich are phenomenally wealthy.

This is a source of political tension, but not as much as foreign observers might expect, thanks partly to a typically American attitude. A 2003 Gallup survey found that 31 percent of Americans expect to get rich, including 51 percent of young people and more than 20 percent of Americans making less than $30,000 a year. This isn’t just cockeyed optimism. America remains a fluid society, with more than half of people in the bottom quintile pulling themselves out of it within a decade.

But what if it turns out that America is not really such a fluid society?

I’ve referred before to this Brookings Institution study, published in 2009.

Pay special attention to this chart from page 5.

Only the UK does worse than the US among the 9 countries surveyed — and the social democratic countries of Scandinavia all do better.

This is not an argument in favor of the European way of doing things. I agree with Lowry and Ponnuru — and Charles Murray too — that American freedom and individualism are important national values to be celebrated and defended.

But let’s not flatter ourselves: Those values exact a social cost — and they would be easier to defend if the cost were less high. And the fact that this cost is not being paid by my children or (probably) yours does not make the cost less real to the one-third of America whose children do pay it.

For more, see Losing the Fight Against Child Poverty by David Frum, July 6, 2010, at Frum Forum.

Another of the interesting charts from the study, Economic Mobility: Is the American Dream Alive and Well? by Isabel Sawhill and John E. Morton, 2009, at The Economic Mobility Project is:

Economics: Greater Fools

Unsurprisingly, the less people know, the more they run into trouble. Gary Rivlin’s blistering new examination of the subprime economy, “Broke, U.S.A.,” is full of stories of financially ignorant people bamboozled into making bad decisions—refinancing out of low-interest mortgages, say, or buying overpriced credit insurance—by a consumer finance industry adept at creating confusing products. Such stories are backed up by the numbers. A study by economists at the Atlanta Fed found that thirty per cent of people in the lowest quartile of financial literacy thought they had a fixed-rate mortgage when in fact they had an adjustable-rate one. A study of subprime borrowers in the Northeast found that, of the people who scored in the bottom quartile on a very basic test of calculation skills, a full twenty per cent had been foreclosed on, compared with just five per cent of those in the top quartile.

What can be done? One solution is regulation: the financial-reform bill now before Congress will create a consumer financial-protection agency that should help curb the finance industry’s most predatory excesses. Another solution is to tinker with “choice architecture”—doing things like enrolling people in 401(k)s automatically—in order to “nudge” them toward better decisions. Both of these strategies are necessary, but they’re not enough on their own, because financially illiterate consumers are always going to be easy victims. We also urgently need proper financial education. [Emphasis added].

For more, see Greater Fools by James Surowiecki, July 5, 2010, at The New Yorker.

Immigration: Immigrants and Crime: Perception Vs. Reality

Data show immigrants are less likely to commit crimes than the native-born ...

For more, see Immigrants and Crime: Perception Vs. Reality (PDF) by Stuart Anderson, June, 2010, at The Cato Institute.

Economics: Motivating States While Stimulating the Economy

An interesting idea ...

... you (the U.S. government) need to mitigate the pain caused by the state governments that are slashing spending. You need a program modeled on Race to the Top. You will provide federal money now to states that pass responsible long-term budget plans that will reduce spending and pension commitments. That would save public-sector jobs and ease contractionary pressures without throwing the country into a fiscal-debt spiral.

From A Little Economic Realism by David Brooks, July 5, 2010, at The New York Times.

Economics: Growing Income Disparity

For much more, see Economic Mobility: Is the American Dream Alive and Well? by Isabel Sawhill and John E. Morton, 2009, at The Economic Mobility Project.

Science: Robot Personal Helpers

A good, long article on robot helpers is A Soft Spot for Circuitry by Amy Harmon, July 4, 2010, at nytimes.com.

Economics: Punishing the Jobless

It's amazing how many people's prescriptions for solving our debt problems ignore the fact that we're still recovering from the Great Recession, as described in ...

Today, American workers face the worst job market since the Great Depression, with five job seekers for every job opening, with the average spell of unemployment now at 35 weeks. Yet the Senate went home for the holiday weekend without extending benefits. How was that possible?

Do unemployment benefits reduce the incentive to seek work? Yes: workers receiving unemployment benefits aren’t quite as desperate as workers without benefits, and are likely to be slightly more choosy about accepting new jobs. ... it’s a real effect when the economy is doing well. [Emphasis added]

But it’s an effect that is completely irrelevant to our current situation. When the economy is booming, and lack of sufficient willing workers is limiting growth, generous unemployment benefits may keep employment lower than it would have been otherwise. But as you may have noticed, right now the economy isn’t booming — again, there are five unemployed workers for every job opening. Cutting off benefits to the unemployed will make them even more desperate for work — but they can’t take jobs that aren’t there.

Wait: there’s more. One main reason there aren’t enough jobs right now is weak consumer demand. Helping the unemployed, by putting money in the pockets of people who badly need it, helps support consumer spending. That’s why the Congressional Budget Office rates aid to the unemployed as a highly cost-effective form of economic stimulus. And unlike, say, large infrastructure projects, aid to the unemployed creates jobs quickly — while allowing that aid to lapse, which is what is happening right now, is a recipe for even weaker job growth, not in the distant future but over the next few months.

But won’t extending unemployment benefits worsen the budget deficit? Yes, slightly — but as I and others have been arguing at length, penny-pinching in the midst of a severely depressed economy is no way to deal with our long-run budget problems. And penny-pinching at the expense of the unemployed is cruel as well as misguided.

From Punishing the Jobless by Paul Krugman, July 4, 2010, at nytimes.com.

Politics: It Depends on What the Definition of ‘Austerity' Is

Republicans say Democrats are the big government people, and yet ...

Using Bureau of Labor Statistics data, the chart below compares recent changes in government expenditures—or federal, state, and local government purchases of labor, goods, and services—and private domestic investment.

From It Depends on What the Definition of ‘Austerity' Is by Veronique De Rugy, July 1, 2010, at the American Enterprise Institute.

Politics: Lindsey Graham, This Year's Maverick

A good, long article on Lindsey Graham is Lindsey Graham, This Year's Maverick by Robert Draper, June 28, 2010, at nytimes.com.

Government: Time's up for Term Limits

In 1990, I voted for term limits.

Now, 20 years later, the experiment has failed. My disgust in 1990 has become despair in 2010, as the [California] Legislature’s performance has worsened. The failure may be ascribed to four reasons.

First, while limits opened up seats for capable newcomers, they also booted out valuable incumbents. For example, Kuehl replaced Terry Freidman, who was himself a relative newcomer. Friedman was a bright, thoughtful legislator and could have served with distinction — and increasing experience — for years. Instead, faced with term limits, Freidman successfully ran for a seat on the Superior Court, where he served for 15 years. The caricature of an invulnerable, out-of-touch lifer who deserved to be forced out was often false.

...

Second, while legislators are forced out, lobbyists and staff remain. The result is that term limits are a hoax: California still has entrenched political leaders, but, as lobbyists and staff, they are even less accountable than incumbents.

Third, the theory that term limits would foster more independence and less partisanship appears unsupported by evidence. Republican and former legislator Tom Campbell has spoken of his own survey of legislators’ voting records. Contrary to the theory of limits, legislators in their last terms, when they are not running again, are more likely to adhere to the straight party line. Certainly in California, post-term-limits legislators appear to be more partisan than their predecessors.

Fourth, California’s problems, particularly budget crises, have been years in the making. Decisions made years or even decades ago — enacting an automatic cost-of-living adjustment, foregoing revenue, creating an unfunded mandate and so forth — all have contributed to today’s deep, structural problems. However, legislators who cast the key votes years ago have been termed out and are not being held accountable for their misdeeds. California needs to plan for the long term, but term limits discourage such planning.

Even Republicans’ hopes that terms limits would benefit them have been dashed. The state’s Senate and the Assembly each have fewer Republicans now than in 1990.

Finally, maybe the need for term limits has abated. To the extent that gerrymandered districts unfairly benefited incumbents, the neutral redistricting initiative approved by voters in 2008 eliminated this benefit

From Time's up for Term Limits by John S. Caragozian, June 27, 2010, at miller-mccune.com.

Economics: Asking Companies to Reflect Shareholders' Politics

Ever since the Supreme Court endorsed the political free-speech rights of corporations in January in the contentious Citizens United case, the decision’s critics have been searching for ways to blunt the ruling’s impact — preferably before the test case of this fall’s midterm elections.

If shareholders are the true owners of a company, shouldn’t they be the ones to decide if that company dabbles in politics, and on which candidates it bets?

Enter the “shareholder protection act.”

Under the act, a majority of shareholders would have to approve a company’s political budget every year. The U.K. passed a similar law in 2000, although it’s seen but one case in 10 years of shareholders voting down political spending.

The U.S. version, however, would be much stricter: Instead of winning a majority of shareholders who show up or vote by proxy at the annual meeting, companies would have to win a majority of all shareholders, likely polling them by mail. Non-responses would count as “no” votes. Institutional investors such as 401(k) managers would also have to inform their members of how they voted on their behalf.

If a company gets over those hurdles, there are two more. Each specific expenditure from the political budget would then have to be approved by the board of directors, and each of those expenditures would ultimately have to be disclosed to the SEC for public scrutiny.

For more, see Asking Companies to Reflect Shareholders' Politics by Emily Badger, April 21, 2010, at miller-mccune.com.

Mind: The down Side of Self-Control

Participants who [did not have to exercise much self control in a previous experiment] claimed 25 percent more correct answers in the self-scoring condition, which “suggests some dishonesty,” the researchers note. But those who [did have to control themselves earlier] claimed more than twice as many correct answers than their counterparts. This suggests “self-control research depletion led to dishonest behavior,” the researchers conclude.

A second, similar test found that participants who had been forced to exercise self-control were not only more likely to cheat, but also more prone “to put themselves in a situation that enabled cheating.” Those self-control-depleted people cheated three times as much as members of a control group.

In related research published last year, University of Minnesota psychologist Kathleen Vohs reported that the act of making decisions makes it more difficult to control one’s impulses. She noted at the time that “almost all of our previous research on this model has found that if you engage in self-control in one domain, you’ll have less self-control in another domain.”

Together, these studies suggest that if you’ve been successfully engaging in self-control all day — say, by avoiding that plate of pastries in the workplace lunchroom — it’s best to avoid contact with any type of temptation that evening. You may find yourself unable to resist.

From The down Side of Self-Control by Tom Jacobs, February 26, 2009, at miller-mccune.com.

Politics: Another Odd Lie?

From a speech delivered at the International Bowl Expo in Las Vegas yesterday:

Palin recalled her youth when her father set pins in Idaho. "My Dad was on a Thursday night bowling league," she said. "He bonded with his buddies. I have memories of that point of my life which mean very, very much to me."

Palin was three months old when she left Idaho.

From Another Odd Lie? by Andrew Sullivan, July 1, 2010, at theatlantic.com.

Mind: Money Can Buy One Form of Happiness

Pulling in the big bucks makes people more likely to say they are happy with their lives overall -- whether they are young or old, male or female, or living in cities or remote villages, the survey of more than 136,000 people in 132 countries found.

But the survey also showed that a key element of what many people consider happiness -- positive feelings -- is much more strongly affected by factors other than cold, hard cash, such as feeling respected, being in control of your life and having friends and family to rely on in a pinch.

"Yes, money makes you happy -- we see the effect of income on life satisfaction is very strong and virtually ubiquitous and universal around the world," said Ed Diener, a professor emeritus of psychology at the University of Illinois who led the study. "But it makes you more satisfied than it makes you feel good. Positive feelings are less affected by money and more affected by the things people are doing day to day."

"What we didn't know before is the extent to which life evaluation and emotional well-being are so distinct," Kahneman said. "When you look at the books about well-being, you see one word -- it's happiness. People do not distinguish."

For more, see Money Can Buy One Form of Happiness, Massive Global Study Concludes by Rob Stein, July 1, 2010, at washingtonpost.com.

Economics: Federal Debt Will Exceed It's All Time High by 2025

In its latest long-term forecast, the nonpartisan Congressional Budget Office predicted that the national debt, which has surged to nearly 60 percent of annual economic output in the wake of the recession, would continue rising in the coming decades despite cost-containment measures in the health overhaul Obama signed this spring.

"Growth in spending on health-care programs remains the central fiscal challenge," CBO Director Douglas W. Elmendorf said in a presentation to Obama's bipartisan deficit commission. "In CBO's judgment, the health-care legislation enacted earlier this year made a dent in the problem, but did not substantially diminish that challenge."

... the CBO said the national debt would soar to 87 percent of gross domestic product by 2020, exceed its historical peak of 109 percent by 2025 and hit 185 percent by 2035 -- "uncharted territory," Elmendorf said, that could include higher interest rates, more foreign borrowing, less private investment and lower income growth, if not a full-blown fiscal crisis. [Emphasis mine]

Elmendorf said the gloomy long-term picture is not an argument for rejecting additional spending now to bolster the economic recovery. Indeed, he said, "enacting cuts in spending or increases in taxes now would probably slow the recovery."

However, Elmendorf said developing a credible and certain deficit-reduction plan to take effect after the economy has recovered could provide a significant boost to public confidence by reducing "uncertainty" about what is bound to be a painful future path.

From CBO Tells Obama Deficit Panel That Forecast Remains Bleak by Lori Montgomery, July 1, 2010, at washingtonpost.com, and The Long-Term Budget Outlook by Congressional Budget Office, June, 2010, at cbo.gov.

Economics: Mortgage Rates Drop to Lowest Rate in 50 Years

... the average rate for 30-year fixed loans sank to 4.58 percent this week.

From Mortgage Rates Drop to Lowest Rate in 50 Years by AP, July 1, 2010, at cnbc.com.

Humor: Pickles

From Pickles by Brian Crane, June 30, 2010, at gocomics.com.

Science: When Intuition and Math Probably Look Wrong

I have two children, one of whom is a son born on a Tuesday. What is the probability that I have two boys?

Gary Foshee, a puzzle designer from Issaquah, Wash., posed this puzzle during his talk this past March at Gathering 4 Gardner, a convention of mathematicians, magicians and puzzle enthusiasts held biannually in Atlanta. The convention is inspired by Martin Gardner, the recreational mathematician, expositor and philosopher who died May 22 at age 95. Foshee’s riddle is a beautiful example of the kind of simple, surprising and sometimes controversial bits of mathematics that Gardner prized and shared with others.

For much more, see When Intuition and Math Probably Look Wrong by Julie Rehmeyer, June 28, 2010, at sciencenews.org.