America’s Prospects

Posted on by

Heather Sims writes,

Henry Olsen proposed that America’s economic stagnation exists primarily within a segment of the population: the working class. For Olsen, the political party that taps into this group’s declining income and offers a solution to this problem in terms of “comfort, dignity, and respect” will win elections in the future. Pollster Kristen Soltis Anderson concluded the panel discussion with a description of Millennials and why they are “a generation worth fighting for” electorally. According to Anderson, Millennials’ and conservatives’ values coincide on several key points, including the importance of hard work, education, family, and individual social responsibility.

I attended the session. In response to my question, Anderson said that she thinks that Millenials’ belief in individual community service rather than government programs provides an opportunity for conservatives.

I disagree. I think that young people are indoctrinated in school to believe that they can identify moral individuals by looking for signals like:

–belief that straight white males have “privilege,” and other classes of people are victims
–belief that intention toward the poor is an indicator of the morality of economic policy
–belief that fossil fuels are evil

Against such indoctrination, conservatives offer arguments like those of Yuval Levin and others that government crowds out civil society. That may be true and important, but it is much too subtle for most young people to grasp. Although they may have acquired some skepticism about big-government solutions, when push comes to shove they will still apply the intention heuristic that the community-service ethic inculcates. The supporters of government programs will get credit for trying, and the supporters of smaller government will be viewed as immoral.

The License Barrier

Posted on by

Jared Meyer writes,

Excessive permitting processes are part of professional licensing. They also act as a deterrent to work and were seen as a large problem by small businesses. The utter complexity of many states’ permitting processes makes it difficult for entrepreneurs to focus on getting their ideas off the ground, and for small business owners to devote the necessary time to ensuring their businesses stay alive.

He cites a survey by Thumbtack, a business services firm working with the Kauffman Foundation, which shows that small business owners find licensing and permitting to be a significant barrier to their development.

Pointer from Don Boudreaux.

Timothy Taylor makes a prediction

Posted on by

He writes,

ultimately, I expect that the growth in services trade will reduce pressures for protectionism. Instead of talking about hypothetical trade in hypothetical completed goods–like cars and computers–it will become clear that portions of the value-added are often being created in different places. Pushing for trade protectionism in the name of specific products made in other countries like cars or steel or televisions is one thing, but I’m not sure any similar protectionist movement will form to prevent, say, insurance record-keeping or checking diagnostic X-rays from happening in another country. In addition, countries will need to be wary of placing tariffs or other restrictions on imports, because many imports will be part of a global production chain, and domestic produces will be quick to point out how inhibiting their access to those global connections will injure the domestic economy.

He cites a paper by Prakash Loungani and Saurabh Mishra and points out that trade in services has been growing three times faster than trade in goods. I would make the additional prediction that the Great Factor-Price Equalization will continue.

Pure Transactional Bank?

Posted on by

Jeremy Warner writes,

A simple transactional, online bank, where all deposits are placed as reserves with the central bank, making them completely safe, free of costly capital requirements, and immune to loss and panic, cries out to be invented.

Let’s assume that the main cost of the bank is upfront software development. It recovers that cost (and other expenses) with a monthly service charge to each customer.

Each customer will have a companion institution, call it a mutual fund, that pays a return on deposits. When you want to earn more interest, you shift money from the transactional bank to the mutual fund. When you want to have more money available for transactions, you shift it from the mutual fund to the transactional bank. As the cost of moving funds between institutions approaches zero, your average balance at the transactional bank will approach zero.

If they took away deposit insurance, would the system evolve toward this? If they keep deposit insurance, are you ensuring that the system cannot evolve toward this?

In any case, the safety of the transactional bank does not mean that risk goes away, or maturity mismatching goes away. It goes to other institutions, and I’m not convinced that those institutions won’t have a cozy relationship with the government.

Doubts on Solar

Posted on by

Timothy Taylor finds a study by Charles R. Frank, Jr. that tries to assess the cost of solar’s lack of reliability. Taylor quotes Frank:

we estimate that it would take 7.30 MW of solar capacity, costing roughly four times as much per MW to produce the same electrical output with the same degree of reliability as a baseload gas combined cycle plant. It requires an investment of approximately $29 million in utility-scale solar capacity to produce the same output with the same reliability as a $1 million investment in gas combined cycle.

Good Sentences, Bad Sentences

Posted on by

1. From Edward Conard:

The key to accelerating the recovery is not to generate unsustainable consumption, as Mian and Sufi propose. Rather, we must find sustainable uses for risk-averse savings

Mian and Sufi make a big deal over the fact that consumer spending fell in places where housing prices fell. Conard suggests that this is because consumers in those areas were spending at an unsustainable rate, based on capital gains in housing that disappeared.

2. From Alex Ellefson:

Laplante said he expects all 50 states to require software engineering licenses within the next decade, and possibly much sooner.

Not surprisingly, most software engineers endorse this. [UPDATE: from the article “The licensing effort was supported by nearly two-thirds of software engineers surveyed in a 2008 poll.” Commenters on this blog dispute that most software engineers endorse licensing. They may be correct.] But it is really, really, not a good idea. Bad software may be created by coders. But its cause is bad management. The typical problems are needlessly complex requirements, poor communication in the project team between business and technical people, and inadequate testing.

I would favor licensing for journalists if I thought that it would keep incompetent stories like this one from appearing. But I don’t think that would work at all.

The pointers to both of these are from Tyler Cowen.

Room for a Regulatory Arbitrageur?

Posted on by

Matthew Mitchell and Christopher Koopman write,

Startups in the craft brewing industry face formidable barriers to entry in the form of federal, state, and local regulations. These barriers limit competition and innovation, reducing consumer welfare.

If this is correct, then it should open up opportunities for regulatory arbitrage. An existing craft brewery that has licenses and regulatory know-how could market the products of start-up breweries.

Rognlie > Piketty

Posted on by

Matt Rognlie writes,

[If house values continue to rise], Piketty (2014) will be right about the rise of capital in the twenty-first century. But the mechanism is quite distinct from the one proposed by Piketty (2014) (a better title would be Housing in the Twenty-First Century), and it has radically different policy implications. For instance, the literature studying markets with high housing costs finds that these costs are driven in large part by artificial
scarcity through land use regulation—see Glaeser, Gyourko and Saks (2005) and Quigley and Raphael (2005). A natural first step to combat the increasing role of housing wealth would be to reexamine these regulations and expand the housing supply.

Pointer from Tyler Cowen, who writes

Piketty’s mechanism of accumulation, as laid out in his book, is simply the wrong mechanism for understanding growing inequality, both theoretically and empirically.

That would appear to be the correct post-mortem on Piketty.

Private Cities

Posted on by

Mark Lutter makes the case for them.

What if…there exists a system of governance that could provide an alternative to the morass of public interest which stagnate change in cities today? What if these cities could not only provide local public goods, but also institutional change to jumpstart economic growth? I argue that private cities could do just that.

Pointer from Don Boudreaux.

I am puzzled as to why we have not seen more private cities emerge. You would think that large investors, developers, or venture capitalists would try them if there were a profit opportunity. Some possible answers:

1. Cities must emerge naturally. You really cannot start a good city from scratch.

2. It is too difficult to acquire the land to start a private city.

3. Existing governments will not allow private cities the freedom to operate.

Kimberly Strassel on RtG

Posted on by

She writes,

The authors are clear that politics, not principle, needs to drive conservative policy. Nowhere is that clearer than in the chapter by former Bush Treasury official Robert Stein on tax policy. A summary: Marginal tax rates are no longer popular because they don’t give much to the middle class. Republicans instead need to embrace redistribution and lard the tax code with special, conservative-approved handouts for said middle class—namely a giant tax credit for children, similar to that proposed by Utah Sen. Mike Lee. (The book has many more tax-credit suggestions, too.)

I think that the authors of RtG ought to reflect on such criticism rather than reject it outright. Whatever you think of each tax credit individually, they are not even compatible with one another, much less a coherent package.

Above all, they need to resolve the relationship between policy and gesturing. Their implicit assumption is that policy can serve as gesturing, and vice-versa. That is, if they propose tax credits for the middle class, middle-class voters will recognize this as a gesture toward them and respond favorably. On the other hand, when they make vague gestures in the direction of reforms of welfare programs, education, or licensing regulations, they expect those of us who are interested in policy to read into such gestures some specific proposal.

Sometimes, a particular policy becomes a widely-accepted gesture. For example, support for the minimum wage is considered to be a gesture in favor of workers. But overall, I am cynical about how much policy actually counts in voters’ decisions.

I am inclined to separate policy from gesturing. Politicians like Ronald Reagan or Barack Obama managed to make convincing gestures toward constituents who were not going to benefit from their policies. Meanwhile, as a policy proponent, the more you link your policy proposals to gesturing, the less you are able to stand on high ground.