CityEconomist

Bottom-Fishing among States for Real Estate

2012-01-24T13:33:00.000-08:00

The state unemployment numbers for December, released today, show some numbers significantly lower than one year ago. Six states that have unemployment rates above the national average showed changes in their unemployment rates of 1.2 percentage points or higher. See Table C at www.bls.gov, today's (January 24) press release.

These six states are shown in the table below, which is abbreviated from Table C of the BLS release and has the states sorted by percentage-point change.

States with statistically significantunemployment rate changes from December 2010 to December 2011, seasonallyadjusted, and with unemployment rates above the national average; sorted by changein unemployment.

-----------------------------------------------------------

| Rate | Over-the-year

State | December | change(p)

| 2011(p) |

-----------------------------------------------------------

Nevada.........................| 12.6 | -2.3

Florida........................| 9.9 | -2.1

Michigan.......................| 9.3 | -1.8

South Carolina.................| 9.5 | -1.4

California.....................| 11.1 | -1.4

Kentucky.......................| 9.1 | -1.2

-----------------------------------------------------------

p = preliminary.

If one were bottom-fishing for real estate bargains based on state averages, these states would be worth investigating because without looking at any other information, a substantial drop in unemployment is a highly favorable economic indicator.

However, where unemployment rates are still in double digits, as in Nevada and California, recovery is further away.

California, Florida and Nevada were (along with Arizona) hit especially hard by a decline is housing prices. Michigan was affected more by the downturn in the auto industry.

Naturally, state averages are just a first step in an analysis. Within a large state, indicators can vary widely. County data, for example, show that California's Silicon Valley (Santa Clara County) is recovering faster than the state as a whole.

Economic Indicator for the One Percent - Key West's 25th Annual Race Week

2012-01-17T22:12:00.000-08:00

Putting up the divisional bulletin boards.

Here is an indicator of the prosperity of the One Percent - the density of yacht racers. The first big yacht regatta of 2012 is the Key West Race Week. According to the race staff I spoke with in Key West, recent attendance has been declining:
Peak year - 320 boats
2011 - 135 boats
2012 (expected) - 125 boats
2012 actual number of boats - 112.

I took some photos of the Key West headquarters, where the three divisional bulletin boards were being nailed up (see photo). They close off an entire street during Race Week.

Interviews with Premiere Racing, the Key West race manager, explicitly mention the poor economy as the reason for the decline in boat entrants. For example, last May there was a question to the organizer, Peter Craig, about Race Week cutting back from five to four days after the 2011 dropoff, or even continuing at all. The question continues to be asked and a four-day race may emerge for some boats. The key to the event is in the sponsorships and Craig was confident in mid-2011 that he would assemble a good sponsor list for the 25th annual Race Week, his 19th. He has done this! Nautica was the title sponsor in 2010. Quantum Sail Design Group is in 2012. Kelly's Bar and Brewery (the "southernmost" brewery not counting Hawaii) is the headquarters venue.

The headquarters venue, Kelly's

The number of boat entrants depends on many factors, such as the number of new boat designs, the number of designs not competing any longer, and the number of boats entering in each of the main boat classes. But overall the number of boats is related to the economy and the willingness of boat owners to spend the money and time to get down to Key West for a week. An economic recovery in 2012 can’t come too soon for event organizers anywhere. I don't know Premiere Racing's burn rate, and he may be able to carry on indefinitely, but Craig told an interviewer that he has to recreate his sponsorship and financing every year. To paraphrase a comment attributed to the great economist Lord Keynes:

An event organizer can go broke while the One Percent are postponing a traditional activity for just a few years.

If you want to follow this colorful event, go to Quantum's blogspot page and sign on for one of the various real time reports of the race.

What OWS Has Done for NYC and Vice Versa

2012-01-10T10:34:00.000-08:00

Occupy Wall Street from the start showed a genius for branding worthy of the best of Madison Avenue. The original call by Adbusters to bring people to Wall Street on September 17, 2011 combined the language of collective decision-making with a forceful image of an assembly target.

Picasso, Acrobat on a Ball


OWS, Ballerina on a Bull

The photo collage of a "Ballerina on a Bull" (at left; my title) echoes Pablo Picasso's 1905 "Acrobat on a Ball" (at right), with its juxtaposition of slender flexibility and awesome strength.The Picasso painting has been on display at the Prado in Madrid all of 2011, on loan from the Moscow State Pushkin Museum of Fine Arts.

My wife Alice and I were in Spain, celebrating our 40th wedding anniversary, on the day OWS came to NYC. The Picasso was heavily advertised and it was a magnet that attracted us to the Prado. In early October I posted a comment on the painting's power. As we left the Prado we were engulfed in a crowd of protesting teachers, angry about the layoffs imposed on Spain by EU deficit-cutting strictures. One banner said (in English): “If you don’t like the cost of education, wait till you discover the cost of ignorance."

When we returned to NYC, we found Mayor Bloomberg expressing concern that the OWS encampment would cost the City economic growth because tourists would stop coming to New York. This would indeed be a valid fear if the OWS protest was violent or out of control, as in London. But the OWS occupation has been a peaceful protest in the spirit of Martin Luther King.

I wondered whether the OWS presence might actually be a little gift, a magnet, attracting tourists to visit rather than repelling them. In fact, tourists have been asking NYC tour buses to be sure to go by the location of the OWS camp. When the camp was there, tourists were getting out of the buses to walk around and take pictures. They often outnumbered visible protesters. Columbia Journalism student Judy Le's short documentary shows this, and includes the Mayor's statement of concern about the impact of OWS on tourism. Take three minutes to watch this well-constructed and engaging "Occupy Tourism" video.

The photo below shows the OWS kitchen plan for three meals a day through November 13. Two days later, the NYPD cleared the area and the NY State judiciary ruled OWS was not to be allowed back. At midnight on December 31, about 500 protesters tried to re-occupy the park, and failed.

OWS kitchen schedule for November 7-13. (Photo by JTM)

The OWS story is not over. It continues to annoy the Mayor and NYPD Commissioner Kelly. Keeping track of protesters in the cell-phone and Twitter era must be a challenge. But the NYPD's capabilities in this area are second to none.

So far, I argue that OWS has had some value for NYC. The fact that an anti-Wall Street group was allowed to protest peacefully for many weeks is evidence that Wall Street coexists here with people of conscience.

The OWS has benefited as well. It was given a few weeks to remind people of the systemic risk-taking that brought down the world financial system. They came here because many of the riskiest (reckless) bets were placed downtown. AIG has since sold its biggest buildings at 70 Pine and 72 Wall, but the credit default swaps were engineered in lower Manhattan.

The nation has benefited as the OWS impact has rippled outward, and its message echoed. It has helped turn around the public debate. The full-throated call for immediate deficit-cutting has abated, as it should, since it is counterproductive in the context of continuing high unemployment rates. Issues about American inequality of opportunity and lack of mobility for the "99%" (another brilliant bit of branding) are being brought before the public more widely and aggressively than I can remember in my lifetime. President Obama has been emboldened to make an overdue recess appointment of Richard Cordray to head the Consumer Financial Protection Bureau.

Meanwhile, on the specific concern about about the impact of OWS on tourism, the numbers coming in indicate that fear of tourist cancellations is unfounded. The Mayor has announced that his goal of exceeding 50 million tourists for the first time in 2011 will be easily surpassed and New York City for the third successive year is the Number 1 tourism destination in the United States. Jobs associated with tourism - the "leisure and hospitality" industry - have continued to rise rapidly in NYC through the final month of the OWS camp. In the table below, note how much faster these jobs have grown in NYC compared with the nation, the state, and other parts of the NYC metro area.

Tourism-Related Jobs (Leisure and Hospitality)
November 2011 over November 2010

Not Seasonally Adjusted	Change %
United States	1.9%
NY State	3.0%
NYC Metro Area-North NJ-Long Island	1.9%
Nassau-Suffolk (Long Island)	-4.2%
NYC Division-White Plains-Wayne NJ	3.2%
Newark-Union NJ	2.9%
New York City	3.7%

Sources: BLS, Press Release, Dec. 15, 2011. NY Area Employment, Nov. 2011, Jan. 4, 2012.

These numbers (and many others) are not consistent with a narrative of widespread cancellation of conventions or trips. Tourists do not seem to have been scared away by the OWS presence in September-November 2011. Rather, they have asked the tour operators to please bring them by so they can see for themselves and (in the words of a tourist in the Judy Le video) "be part of history in the making". In November the number of new tourism-related jobs in NYC compared with the same month a year earlier was close to 13,000, nearly twice as many as the equivalent increase one year ago.

So thank you, OWS and Mayor Bloomberg and Commissioner Kelly, for keeping the protest basically within nonviolent boundaries. The British (and Canadians and Australians) are still coming! To broaden the base of foreign tourists coming here - they are the biggest spenders and many are facing economic issues back home - we must focus on making it easier for more of them to get visas to make the trip.

How Candy Cigarettes Contribute to the U.S. Budget Deficit

2012-01-01T09:21:00.000-08:00

Exhibit A. Candy Cigarettes for Sale

Gawker in 2010 said farewell to candy cigarettes. But the death of these products was exaggerated. They are still for sale. I would argue they have a high social cost and contribute to the U.S. budget deficit. Bear with me. Follow the dots from 1 to 4...

1. Candy Cigarettes for Sale Today to Children

Exhibit A at left is a product clearly marketed to children on several sites via Amazon, accessed in December 2011. Pre-pubescent children are pictured smiling at "World's King Size Candy". The candy cigarettes are wrapped in packs that look just like packs of cigarettes and have markings that imitate those of regular cigarettes. The candy does not have the red tip you may remember from your childhood, because, says a major candy-cigarette manufacturer (Blair), of a "Gov[ernment] ruling". The product, 24 packs of candy cigarettes in three rows of eight, weighs two pounds and costs about $5, sometimes more.

2. U.S. Budget Deficits Attributed to Rising Health Care Costs

Now let us turn to the budget deficit. Exhibit B was shown by an undoubted expert on U.S. deficits, Dr. Peter R. Orszag. He headed up the Congressional Budget Office from 2007 to 2009. Then he was appointed by President Obama as Director of the Office of Management and Budget.

Exhibit B. Health Care Costs Key to Budget Deficits

On November 15, Dr. Orszag explained to the New York Association for Business Economics (he is now Vice Chairman of Global Banking for Citigroup in New York) how medical care costs are almost entirely responsible for the worrisome federal budget deficit projections. The chart above, based on data from the Congressional Budget Office, makes clear that as a share of GDP, projected Federal spending on activities other than health care is not showing much of an increase.

No, the scary projections of growing spending (and therefore growing deficits) come from one major spending sector, health care costs. Spending is shown in the chart as growing from 20 percent of GDP in 2007 to to one-third of GDP in 2082. But the growth is all in the top layer of spending, i.e., Medicare and Medicaid.

NYU Professor William Baumol warned 20 years ago that the cost of education and health care have been growing unsustainably because of the "cost disease" of high-labor-input activities such as teaching and medical care. The technological innovation and cost savings from international trade have made many items cheaper over time. But the labor inputs in health care have been much harder to reduce through technology or innovation. To bring health care costs under control will be a huge challenge for the U.S. government and medical-care providers. The options are limited. They include reducing the cost of health care procedures or rationing them. The other range of options is to limit demand for health-care services by providing more education to the public and doctors about the potential for making healthy life-style choices. Or the government could develop incentives for the public (consumers of health care services) to make better lifestyle or health-care choices.

3. Cigarette Smoking and Calorie-Heavy Eating Learned in Childhood

Two of the big drivers of higher health-care costs are cigarette smoking, which is usually begun during teen years, and obesity, especially an epidemic of childhood obesity. Private health and life insurers recognize the need to rein in these costs, and many give discounts to nonsmokers. The State of Arizona is probably the first state government to propose charging childless adults on Medicaid who smoke a $50 fee as partial compensation for the extra burden they impose on the state's health system. Here is Arizona's rationale, which includes a reference to medical problems caused by obesity.

Since the beginning of the recession, unemployment increased, State revenues decreased and enrollment in Arizona’s Medicaid program increased by more than 30%. The Medicaid program now makes up nearly a third of the State’s budget – second only to K-12 education. According to the Centers for Disease Control (CDC), 49% of Medicaid recipients smoke, in sharp contrast to the approximately 16% of Arizonans overall who are smokers; 25% of all Arizonans are obese. But what do those figures mean in terms of the cost of our health care? In 2004, taxpayers spent $377 million on smoking-attributable expenditures for the Medicaid population. Meanwhile, annual per capita medical spending for an individual who is considered obese is 42% higher than for someone who is of normal weight. That percentage translated to roughly $148 billion nationally in obesity-attributable medical spending in 2008.

The huge problem with smoking and obesity is that they are easy to start and hard to stop. Smoking cigarettes is addictive. Obesity, it turns out, is hard to reverse. A child that is obese is almost certainly going to be an adult that is obese. Pounds are easy to add and hard to shed.

A child that is eats poorly and does not exercise and becomes obese may as a teenager take to cigarettes because they don't add calories. The United States has a national challenge to tackle both teenage obesity and teenage smoking.

4. The Social Costs of Candy Cigarettes Far Exceed Their Price

Given the role of health care costs in the economy, and the role of smoking and obesity in Federal, state and local government health care budgets, the true cost of candy cigarettes exceeds the price that consumers pay of $5 per carton or 20 cents per pack. The additional social cost is called a "detrimental externality" or a "negative externality" to the product. It is the cost of attaching glamor to cigarettes, of getting children used to something pleasurable continually in the mouth.

The connection created between cigarettes and candy goes both ways:
- It gets children used to taking long thin sticks out of convenient branded packs and putting them in their mouth for pleasure. This creates a predisposition for cigarette smoking among teenagers.
- It lends the stimulus of widespread advertising of cigarettes to candy. This encourages consumption of candy.

Remedies

If you are with me so far, the three approaches to changing public behavior are (1) a ban on candy cigarettes, (2) a tax, (3) exhortation to parents not to buy this product.

I thought maybe exhortation might work. So I put my head into the lion's den and posted some negative comments about candy cigarettes on the review page of a candy-cigarette product offered on Amazon. I asked: "What is the point of the candy cigarettes?" and I answered: "The point seems to be to get kids used to having a cigarette in their mouths..."

Here is a summary of the response I got:

- Of the 56 people who had commented on my review when I last looked, all of whom were presumably looking to buy candy cigarettes, none of them found my review helpful. That probably should not be a surprise, since some of the commenters may have an interest in sales of the candy cigarettes and the rest are at the site because they want to buy the product.

- Some of the commentators took the trouble to think up names to call me, such as "candy cig police", someone "looking for something to blame". Most broadly I was tarred and feathered for hijacking a quality-assessment site to attack the product itself.

- But here's an interesting report - one person said that candy cigarettes are good for people who are trying to stop smoking because they need something to put in their hands while they go through nicotine withdrawal symptoms. But this user can't be the target market, given that packaging is designed as a counter-top appeal to children.

- A person who identifies herself as the mother of two young children says she had no intention of buying the product for her children - it is for adults ("I'll eat my candy smokes and love it. Get over it. I ain't shoving them down your kid's throats.").

- A late post asks plaintively: "Do we really need to ban everything?"

In sum, exhortation didn't work. Let's look at the other two options:

- A ban on candy cigarettes. This may be too harsh. Maybe some grown people do need something to hold in their hand while they are trying to quit. The United States tried Prohibition and the experiment was not a big success. Some countries (Finland, Norway, the Republic of Ireland, Saudi Arabia and Turkey) have reportedly banned candy cigarettes, but a ban is the equivalent of an infinite tax.

- A special surtax on candy cigarettes. This is preferable because it uses the marketplace to make the price of candy cigarettes reflect its social costs. Tax them the same as cigarettes. Teenage smoking has fallen because cigarettes are so expensive, so why not try the same approach to candy cigarettes?

What do you think?

NYC To Be #1 in Tech? The Cornell-Technion Tech Campus on Roosevelt Island

2011-12-30T21:25:00.000-08:00

Model of Planned 2 mil. sf Cornell-Technion Campus

The December 19 announcement of the winning university bid to create a high-tech campus in New York was stunning. It was preceded by mystery and secrecy.

When he was elected, Mayor Bloomberg was expected by many to be a leader in bringing technology to New York City. In 2011, in his third term, he has fulfilled this expectation.

Part of his plan was an RFP for universities to bid on using city land to build a high-tech campus. In May the Mayor also provided a roadmap for NYC to become "the leading digital city".

The Offer, the Sites and the Candidates

The Mayor offered $100 million of NYC money toward university use of underutilized NYC land along with the land itself. The three main candidate sites were Governor's Island, the Brooklyn Navy Yard and Roosevelt Island. The campus was conceived of as the "Stanford of the East", and the smart money was on Stanford winning the RFP. After all, Silicon Valley has long been #1 in venture capital investments in technology, evidence of its long expertise in spinning off high-tech companies from centers of excellence in a university environment.

MIT was also seen as a possible candidate. The Route 128 area in Boston followed the same track as Stanford and was widely viewed as #2 in tech spinoffs. An MIT professor visiting New York City 15 years ago told me that New York City would never catch up to Boston in the tech VC arena because New York City "doesn't have the entrepreneurial spirit".

Well, guess what. The first surprise of 2011 was that the VC people were reporting that tech investments in NYC were exceeding tech investments in Boston. New York was now #2 only to the Bay Area. For whatever reason, MIT did not submit a bid.

Stanford seemed to be putting a huge amount effort into its proposal, but then it suddenly withdrew. Was this a sign that the project was just too ambitious? Or was too tied to real estate? Was this exciting idea going to be still-born?

Cornell, with its existing nexus to New York City (the Cornell-Weill Medical Center, the Cornell Club, the Cornell Institute for Labor Relations), was expected to join Stanford. But Cornell had its own idea and reached out to The Technion-Israel Institute of Technology in a series of secret meetings. Technion had the experience with spinning off companies that Cornell lacked.

Politicking meanwhile continued over the various sites. Roosevelt Island is in Rep. Carolyn Maloney's district and on October 19 she held a press conference to argue the case for this being the best site. On December 14 she announced that her campaign and petition drive had convinced the US Postal Service to take Roosevelt Island off the list of post offices to be shuttered. So for the time being a post office on Roosevelt Island was guaranteed.

The Announcements

Just as well, since four days later, on December 19, the Mayor revealed ahead of schedule that Cornell and Technion won the competition with a plan for building a facility on Roosevelt Island with 2 million square feet of space, costing $2 billion. The plan was given credibility by the announcement of the $350 million gift on top of the $100 million promised by the City of New York for infrastructure improvements and $300 million worth of land. The $350 million gift is the largest Cornell has ever received. With $750 million in hand, $2 billion doesn't seem so far away. The visionary Cornell donor was later identified as The Atlantic Philanthropies, founded and funded by Charles F. Feeney.

The Mayor must have been impressed not only by the degree of Cornell support but by the Cornell-Technion commitment to green architecture in the zero-pollution buildings themselves and in the planned academic staffing. It will also include major expertise in computer science (a given), energy efficiency and public health.

New Yorkers were ecstatic. BetaBeat ("The Lowdown on High-Tech") produced a slide show of "14 Terrifically Scientific Signs" that 2011 is "the year for New York Tech". One sign was the bypassing of Boston. Another was the materialization of the tech campus.

The Importance of the Campus

BetaBeat was being funny, but New York City may indeed soon be #1 in tech. Density is destiny and the aggregation of tech consumers and producers in NYC is going to be hard to beat when teamed up with a nerve center for high-tech research, education, innovation and financing. I have no inside information about why Stanford pulled out, but word of a $350 million gift by an alumnus to Cornell to support its bid for the tech campus may have prompted some serious questions to and by Stanford about the degree to which it could match this degree of commitment. The gift was a preemptive strike, about which much more will be written by people interested in the history and strategy of the relationship between cities and scientific knowledge and the commercial exploitation of this knowledge.

This is a breakthrough not just for New York City but for the United States. As manufacturing jobs have flowed overseas, the United States must generate new kinds of jobs - well-paid jobs. High-tech startups offer the potential for creating such jobs. University campuses that concentrate technical and business talent and provide incentives for forming startups have been proven job-generators.

I've been following this subject since 1973 when I wrote a report on "The Wealth of Cities" for the Council on Municipal Performance. From 1992 to 2006 I served three New York City Comptrollers as their Chief Economist and I worked on a report called "The NYC Software/IT Industry: How NYC Can Compete More Effectively in Information Technology" (April 1999). It shows how jobs in Information Technology in New York City grew 15 percent a year during the second half of the 1990s. I handed a copy to Deputy Mayor Dan Doctoroff early on in Mayor Bloomberg's first term. Here is a summary with links to the report. CUNY Chancellor Matthew Goldstein said he liked it. I think it still makes good reading in the context of the new Cornell-Technion campus. See if you agree.

Happy New Year!

Otterness Sculptures as Images of the 99%

2011-12-02T02:41:00.001-08:00

I was in the Eighth Avenue subway at 14th Street yesterday and it struck me that the sculptures of "Life Underground" in the station by Tom Otterness can be see in the light of the Occupy Wall Street as an allegory of the 99 percent.

The MTA has a video of Otterness's work on YouTube. Otterness, who comes from Wichita, Kansas and has a studio in Brooklyn, is probably best known for the subway station sculptures and for the sculptures in the Rockefeller Park in Battery Park City.

Many of the sculptures depict the life of the 99 percent - for example, the homeless woman huddled at the foot of a large riveted beam in the first picture, or the man peering around an aluminum fence in the second.

Sculptures of police stand guard over enclosures, or over would-be farebeaters or over large bags of money.

Otterness's sympathies are clearly not with the 1 percent, who are frequently depicted with a money-bag where a head should be, as in the next photo. The 1 percenter is shown as a shellfish that has captured a family in its giant claws.
The use of a money bag for a head follows Thomas Nast's depiction of Boss Tweed.

Here is a final sculpture - government workers sweep up the pennies. I lhink of this as the payroll tax, sweeping up the workers' pennies.

Otterness has done work in other cities and ran into trouble over a San Francisco contract. Local animal-rights activists drew attention to a film he made more than 30 years ago involving the shooting of a dog; he has apologized for having done this film.

Underemployment Improves Slightly in October - Proposed New Measure U7 Falls from 13.0% to 12.8%

2011-11-04T07:18:00.000-07:00

The U.S. unemployment rate (U3) declined slightly to 9.0 percent, not much comfort. But if we add the percentage of the labor force that is underemployed –the involuntarily employed part-time, i.e., those working “part-time for economic reasons” – the combined measure of unemployment fell by two-tenths of a percentage point, from 13.0 to 12.8 percent. This is an unofficial but useful number that we might call U7. See the last line of the following table.

Un- and Under-Employment Indicators	Aug	Sep	Oct
Unemployed/labor force, Rate % (U3)	9.1	9.1	9.0
Labor Force (mil.)	153.6	154.0	154.2
Unemployed (mil.)	14.0	14.0	14.0
Teenagers unemployed %	25.4	24.6	24.1
Blacks unemployed %	16.7	16.0	15.1
Long-term unemployed/unemployed %	42.9	44.6	42.4
Unemployed+discouraged/LF+disc* % (U4)	9.7	9.7	9.6
Unemployed + marg. att./labor force+marg. att.* % (U5)	10.6	10.5	10.5
Unemployed + involuntarily PT/LF % (proposed U7)	12.9	13.0	12.8

*Not seasonally adjusted and therefore should not be combined with (non-starred) seasonally adjusted data. Marginally attached includes discouraged workers. Denominator for all indicators except the long-term unemployed is the labor force. Seasonal adjustments are by the BLS. Source: Department of Labor, Bureau of Labor Statistics, www.bls.gov/news.release/pdf/empsit.pdf, November 4, 2011. The official broad unemployment and underemployment rates (U4, U5, U6) are discussed at www.bls.gov/fls/flscomparelf/unemployment.htm#table1_2; they combine seasonally adjusted and non-seasonally adjusted numbers in the numerator and the denominator. U7 is a proposed indicator that combines two seasonally adjusted numbers and divides them by another seasonally adjusted number, avoidjing the seasonal adjustment issue and permitting month-to-month comparisons.

It is a mystery to me why the BLS uses as its only broad measures of unemployment three numbers (U4, U5, U6) that combine seasonally adjusted numbers with unadjusted numbers. This means that monthly changes in these numbers may be misleading because of seasonal factors. The proposed U7 measure does not suffer from this problem and is easily interpreted.

A consequence of combining seasonally adjusted with unadjusted numbers is that state data are provided only on a four-quarter moving average, which is pretty useless for picking up state underemployment trends on a timely basis.

The U7 indicator (unemployment + underemployment) can be compared on a monthly basis because both components (and the labor force denominator) are seasonally adjusted.

Underemployment worsens in September - Proposed new monthly measure U7

2011-10-07T07:31:00.000-07:00

Payroll jobs grew by 103,000 inSeptember, but a big portion of this is 45,000 Verizon strikers returning to work. Better news is the upward revision in payrolls for July and August of 99,000 jobs. Private payroll jobs grew by 137,000 in September, offset by a 34,000-jobdecline in government employment, entirely accounted for by 35,000 cuts by local-governments.What’s going to happen to government jobs when the deficit-reduction Supercommitteereports next month and recommends significant new cuts in federal spending? Remember, Congress is supposed to vote up down as with the base-closing commission.

The household survey from the BLS does not give much relieffrom this bleak picture. The U.S. unemployment rate (U3) was stuck again at 9.1percent, but if we add the percentage of the labor force that is underemployed –i.e., involuntarily employed part-time – this measure of unemployment rose by 0.3of a percentage point, i.e., from 14.8 percent to 15.1 percent. This is anunofficial but useful number that we might call U7. See the last line of the table.

The problem with the official BLS broad measures ofunemployment (U4, U5, U6) shown below is that monthly changes in these numbers maybe misleading because they include components that are not seasonally adjusted.The slight improvement in the rate of the marginally attached (U5), whichincludes discouraged (U4), could reflect seasonal factors.

The unemployment + underemployment number (labeled U7) canbe compared on a monthly basis because both components are seasonally adjusted.

	Sept. 2011	Aug. 2011
Unemployment Rate % (U3)	9.1	9.1
Labor Force (mil.)	153.6	154.0
Unemployed (mil.)	14.0	14.0
Teenagers %	24.6	25.4
Blacks %	16.0	16.7
Long-term unemployed/unemployed %	44.6	42.9
Discouraged* %	0.6	0.6
Unemployed+discouraged* % (U4)	9.7	9.8
Marginally attached* %	1.7	1.7
Unemployed + marg. att.* % (U5)	10.7	10.8
Involuntary part-time %	6.0	5.7
Unemployed + marg.-att.*+invol-PT % (U6)	16.8	16.5
Unemployed + invol-PT % (proposed U7)	15.1	14.8

*Not seasonallyadjusted. Marginally attached includes discouraged workers. Denominator in allcases but the LT unemployed is the labor force or (for U4, U5 and U6) a combination of the labor force and the portion of the marginally attached in the numerator. The U4 rate changes because ofrounding. The other numbers shown are seasonally adjusted by the Bureau ofLabor Statistics. Source: www.bls.gov/news.release/pdf/empsit.pdf.The official broad unemployment and underemployment rates (U4, U5, U6) arediscussed at http://www.bls.gov/fls/flscomparelf/unemployment.htm#table1_2.

Manhattan Leads on Jobs and Wages in First Quarter

2011-09-29T09:05:00.000-07:00

The latest county job and wage numbers suggest that one place economic recovery starts is in counties that were already quite well off, like Manhattan. They also suggest that Santa Clara county, Calif. – the heart of Silicon Valley – is Manhattan’s main competitor.

In the first quarter of this year, Manhattan, aka New York County, gained nearly twice as many jobs (43,400) as Cook County, Ill. (22,900), which includes the City of Chicago. The two counties have approximately the same employment base - Manhattan has 2.304 million workers and Cook County has 2.334 million. The first-quarter numbers, just published by the Bureau of Labor Statistics, compare the first quarter of 2011 with the first quarter of 2010 to minimize issues of seasonality.

Among the 322 large counties with more than 75,000 employees, only Harris, Tex., gained more jobs than Manhattan in the first quarter compared with the same quarter in the previous year.

Manhattan’s average weekly wage was the highest of the large counties at $2,634, with the next two highest-wage counties both in the NYC metro area (Fairfield, Conn. and Somerset, N.J.) The next two highest-wage counties are in California (Santa Clara and San Francisco). The average weekly wage in large counties in the first quarter of 2011 was $935.

The increase in wages from 2010 to 2011 (again, first quarter numbers) was highest in Manhattan among the large counties, $222. The average U.S. large-county increase was $46. Santa Clara county was second. Somerset, NJ and Fairfield, Conn. are also among the top ten large counties in terms of their wage increase.

On a percentage basis, Manhattan wages rose 9.2 percent, which placed 10^th out of the 322 large counties. Manhattan accounts for approximately three-quarters of the New York City economy.

More: Go to http://www.bls.gov/news.release/cewqtr.nr0.htm#TB_inline?height=200&width=325&inlineId=cew_program_links

The UBS Mess and 4 Reasons Glass-Steagall Rocks

2011-09-16T02:45:00.000-07:00

I'm reading about the arrest in London of Kweku Adoboli of the Swiss investment bank UBS at the Randolph Hotel in Oxford, overlooking Balliol College. It's the Oxford University Reunion Weekend - 49 years since I matriculated.

Mr. Adoboli, the young UBS trader, made a $2 billion mistake, it seems. Using his Delta One trading system, he bought Swiss francs as a hedge when he meant to sell them. Before he realized his mistake, if we can believe this, the market ran away with his bet. Swiss francs fell in value. UBS took the hit for a couple billion. This exceeds Nick Leeson's $1.3 billion loss, which brought down Barings in 1995. It ranks third after Jerome Kerviel's $6 billion loss at Societe Generale in 2008 and Yasuo Hamanaka's $2.6 billion loss at Sumitomo in 1996. All this from today's Independent, delivered to my door this morning.

For UBS, the timing is bad. It had just started to show a profit in 2010. So long as no one bails out UBS, the victims are (and should be, based on the published information so far) UBS employees and shareholders.

But for the just-issued Vickers Report, from Britain's Independent Commission on Banking chaired by Sir John Vickers, the timing couldn't have been better. It shows how risky the "casino" banks are, and how frail is their ability to control it.

The Vickers Report recommends reversing some of Britain's "Big Bang" deregulation of 1986 by "ringfencing" retail (commercial) banks with a separate board of directors and shareholder equity that is at least 10 percent of risk-weighted assets. The plan is for new controls to be in place by 2019.

A key element of the Vickers recommendations is that commercial banking and investment banking be separated. This was a central component of the Glass-Steagall Act of 1933, separating commercial banking from investment ("casino") banking.

An opponent of the Vickers recommendations, Martin Jacomb, protested against them in the September 14 Financial Times (p. 15), the day after the Vickers report was publicized:

Commentators speak loosely about going back to Glass-Steagall. But the Glass-Steagall Act was introduced to deal with a problem that no longer exists: the distribution of fraudulent securities to uninformed customers. It was abolished because customers wanted the services universal banks can provide.

Sorry, but that loose statement is just wrong. Let me count the ways:

1. Glass-Steagall was not abolished. The Steagall part, having to do with deposit insurance and insured-bank regulation, is still very much in force. What was eaten away over time was the fence around the banks and the FDIC's ability to contain the problem.

2. Distribution of fraudulent securities to uninformed customers is still a problem. Does anyone believe that the underfunded securities regulators will prevent any future Bernie Madoff from emerging, or any future misdescribed and toxic derivative?

3. Glass-Steagall was designed to prevent runs on banks. The three-part program of Glass-Steagall was to keep the foxes of speculative banking (the "casino" bankers) out of the chicken-coop of commercial banking, to insure deposits, and to regulate insured banks on behalf of depositors and the federal insurance fund. It has worked well, and for 75 years the FDIC took care of ailing commercial banks without massive external funding.

4. "Customers" did not demand the erosion of Glass-Steagall. The legislative record of U.S. bank deregulation and subsequent actions of investment banks shows the ending of many Glass-Steagall protections was driven by financial speculators seeking access to the deep pockets of commercial banks and (via credit default swaps) insurance companies. There was no customer-driven yearning for "universal banking".

As the Economist said in 1999, the erosion of Glass-Steagall protections should have been accompanied by new regulations for investment banks. The United States Government unwittingly became a guarantor of "casino" bankers - and insurance companies - without the limitations that came in 1933 with deposit insurance. The failure of Lehman Brothers three years ago showed how perilously far into the commercial banking business investment banks had penetrated. The latest UBS fiasco shows the urgency of preventing a repeat of that situation, starting with implementation of Dodd-Frank.

Creating U.S. Jobs - Six Avenues

2011-09-14T21:28:00.000-07:00

What are the real choices before Washington this fall?

The number one issue before the nation is economic recovery. Unemployment rates have been too high for too long. Here are a few ideas about what we can expect and hope for during the next few months:

1. Don't Depend on an Out-of-Ammo Fed. Federal Reserve Chairman Bernanke wants to appear to be doing everything he can. However, there is little more the Fed/FOMC can do to help the economy since December 16, 2008 when the Federal Funds rate was lowered to the Zero Bound. Quantitative Easing hasn't made much difference. How much can the Fed spend buying long-term Treasury bonds to lower long-term interest rates, even if it sells short-term Treasurys at the same time? How much difference does it make for the Fed to buy up long-term bonds if the Treasury is selling new ones at the next window?

2. Implement Dodd-Frank to Help Address the Liquidity Trap. The economy would turn around if the Fed's easy-money policies led to more bank lending. But bankers are still worried about their balance sheets. Lax oversight by bank regulators has been replaced by close questioning. Bad loans are still not all recognized and new categories of potentially bad loans have opened up, e.g., the sovereign debt of the PIIGS countries, whose debts are freezing bank liquidity despite of banks EU rescue programs. Speeding up implementation of Dodd-Frank financial reforms would improve confidence in and among U.S. banks.

3. Pass the President's Second Jobs Program. Another $450 billion for job creation may not be sufficient. However, it is necessary and a CNN poll and others show, by wide margin, that the U.S. public wants this program implemented.

4. Encourage Entrepreneurship. Creating jobs is not just about getting existing firms to hire more workers. It's about encouraging people to start up new businesses. Incubators help. Entrepreneurship can be taught - it's like a language. Governments at all levels can do big and small things to make it easier for people to create businesses.

5. Modify Fuel Prices to Encourage Green Jobs. Federal subsidies of alternative energy and energy efficiency didn't work as well as hoped because prices for fossil fuels don't reflect their full costs (and also because many states and localities did not have staff ready in 2009 to respond to stimulus programs offering money for green jobs). Subsidies for fossil fuels need to be ended and a tax on gasoline or carbon should be imposed. Tom Friedman had a good op-ed on this topic today ("Is It Weird Enough Yet?"). The last Congress rejected cap-and-trade and a carbon tax, but the pressure to find money to pay for Medicare and Social Security, as well as more evidence on global warming, might bring these proposals back to debate and action.

6. Most of All, Reform the Tax Code to Encourage Job Creation. If U.S. payroll tax rates are lowered significantly, as President Obama has suggested, this will have a dual benefit, encouraging employers to hire and putting money in the hands of middle-class consumers, who will spend it. This could be paid for by raising the top tax for those earning, say, $500,000 or more, and gradually raising the cap on the payroll tax (as Sen. Bernie Sanders, I-VT, has proposed). This would return the income tax to a semblance of progressivity and would tax those best able to bear the burden and least likely to spend new money.

George Magnus in the Financial Times describes the world's predicament as a "once-in-a-generation crisis of capitalism", bequeathed by the excesses of the 1980s-2008 period. The stakes couldn't be higher.

The Jobs Impact of a High Top Tax Rate

2011-09-14T09:50:00.000-07:00

President Obama wants to cut payroll taxes and pay for it in part by raising the top Federal income tax rate.

Cutting payroll taxes is long overdue. You get less of what you tax. If you tax jobs - and that's what a payroll tax is - you get fewer jobs. Also, a middle-class worker is more likely to spend the money from a tax cut than someone earning $500,000 a year.

What would the effect be of a higher top Federal income tax rate? Tony Phillips in his blog on Salon.com compares top marginal tax rates and job growth during the period 1925-2010.

The top tax rate was below 40 percent in 31 of these years (1925-31 and 1987-2010). The average top tax rate was 33.3 percent. Job growth averaged 0.94 percent. (GDP growth averaged 3.6 percent.)

The top tax rate was 70-94 percent during the other 45 years! The 94 percent rate was in the two peak wartime years of 1944-45. The average top rate was 81.5 percent. The average rate of job growth was 2.6 percent, 2.8 times the average growth for the low-rate years. (GDP growth during the high-top-tax-rate years averaged 8.6 percent, 2.4 times the average GDP growth rate during the low-rate years.)

Meanwhile, in the low-top-tax-rate years, inequality of income has increased. This has hurt consumer demand, which is the bulk of GDP. The payroll tax has become a huge share of Treasury income, but it tops out. Without a higher top rate, our income tax structure is highly regressive, as Warren Buffett has famously complained.

The latest year when a higher top tax rate, 70 percent, was in effect was the last year of the Carter Administration. Phillips says:

[In 1980, when] America's top marginal income tax rate was 70%, that rate applied to earners with incomes of $215,400 or more. In 2011 dollars, that equals $590,000. Under a 1980 scheme, only a tiny fraction of Americans would pay the top marginal tax rate.

So Obama's proposed tax reforms look good from both sides. Cutting payroll taxes will boost demand and create jobs. Raising the top income tax rate to pay for the cut reduces the severely regressive tax sttucture and seems historically to be associated with more job creation than occurs under the present low-top-rate system introduced during the Reagan administration.

Mayor Koch Makes a Couple of Good Points

2011-09-07T22:13:00.000-07:00

Former Mayor Ed Koch doesn't blog, but he does send out from an email list maintained by his law office an occasional letter with his opinion of movies he has seen recently and sometimes he provides some comments on local or national political issues. He has taken positions on individuals in the news, such as candidates for public office.

Today, on the eve of President Obama's much-awaited speech with new proposals for job creation, the Mayor proposes that the President include the proposal that "the bankruptcy laws be amended immediately to empower bankruptcy judges to reduce principal as well as interest."

This would help clear the sticky foreclosure process. Houses lose value when banks push forward their claims slowly. Some banks do not want to reveal too quickly how many mortgages they signed on to are substandard and are being foreclosed on.

The usual argument against allowing bankruptcy courts to write down the principal owed is “moral hazard”. (This is an insurance term referring to the hazard that insurance can remove the incentive for insured owners to look after their property. Over-insurance, for example, creates a moral hazard because the insured gets more from the property when it is destroyed than the property is worth. Someone who is not moral might torch their own property.)

The argument against allowing bankruptcy courts to write down principal is that it would, in the Mayor's words, "encourage future borrowers to borrow more than they could repay."

Then the Mayor delivers his zinger, addressed to the President:

If “moral hazard” were the standard, why were the banks, which made decisions that were financially devastating to this country, bailed out to the tune of billions of dollars by laws enacted by Congress and signed by you, as well as actions taken by the Federal Reserve? Remember, Mr. President, that banks were given those billions to provide liquidity to businesses, but instead used the taxpayers’ monies to buy U.S. Treasury bonds to enhance their balance sheets with the interest received.

Something needs to be done to finish "marking to market" in the housing industry. Borrowers have received a lot less help from the government than the lenders. The Mayor's proposal would redress the balance for the remaining borrowers. This would be a good addition to the President's proposals.

Krugman and the Liquidity Trap

2011-08-31T21:19:00.000-07:00

On December 18, 2008, I reported on a speech by Laurence Meyer of Macroeconomic Advisors in which he said that after the December 16 Federal Open Market Committee statement, the FOMC could go on vacation for two years. In other words, by going to the zero (actually 0-0.25 percent) interest rate policy, the Fed was out of ammunition in the battle for recovery from the financial meltdown. In other words, the United States was in the Japanese liquidity trap.

Paul Krugman wrote an article in 1998 for Brookings with two other economists on the Japanese liquidity trap. In 1999 he posted his prescient thoughts about the possibility of a Japanese-style liquidity trap happening in the United States. He reviewed the assumptions of the traditional IS-LM model and concluded that at the zero-interest bound characteristic of the liquidity trap, the central bank has little power. In order to change expectations, he argues that inflation targeting is the solution - the central bank should plan on a certain degree of significant inflation. That will impose a negative interest rate on passive owners of liquid assets. It will force them to hunt for yield higher than the inflation rate and - assuming the banking system is working properly (which it was not doing in the first decade of this century) - that will prompt owners of liquid assets to invest. Krugman posted again on the liquidity trap in 2010 but with no mention of inflation targeting.

Interestingly, the 12th edition of Baumol and Blinder, Economics: Principles and Policy (South-Western, 2012, 2011) does not include anything specific about the IS-LM model.(Co-author Alan Blinder was formerly Vice Chairman of the Federal Reserve Board.) The book does not include "zero-interest" or "zero bound" or "liquidity trap" in its index. But it does have a box on inflation targeting (p. 695), noting that the current Fed Chairman, Ben Bernanke, was a "big advocate" of inflation when he was a Princeton professor. The British Chancellor of the Exchequer sets an inflation target (currently 2 percent) and the Bank of England is required to work towards meeting that target. Stanford Professor John Taylor showed during the Chairmanship of Alan Greenspan that the Fed's decisions could be replicated with a simple guideline, the "Taylor Rule": (1) When the inflation rate is above 2 percent, raise the real interest rate proportionately above 2 percent. (2) When there is a recessionary gap, reduce the real interest rate below 2 percent proportionate to the recession. Baumol and Blinder note that "No central bank uses the Taylor rule as a mechanical rule." But it is a useful guide to what is actually going on.

Does Hurricane Irene Rank among Top Ten All-Time U.S. Catastrophes?

2011-08-31T02:36:00.000-07:00

The New York Times today has Irene pegged as one of the "top 10 costliest catastrophes in the nation's history". To rank losses over time, they must at a minimum be adjusted for inflation. Irene imposed huge losses on many communities, but does it rank among the "Top 10 costliest catastrophes in the nation's history"? At the $7-$10 billion total cited in the article, no way. If the losses remain in this range after all reports are in, Irene will not even rank among the top ten Atlantic Coast hurricanes.
Adjusting for inflation only:
- The tenth costliest hurricane since 1900 was Betsy in 1965, with $11.2 billion in 2010 dollars.
- Katrina ranks #1 at $105.8 billion.
Adjusting for population growth and wealth per capita as well as inflation, as two experts argue is needed to compare the data on a fair basis:
- The costliest hurricane since 1900 was the 1926 Great Miami hurricane, with losses of $164.8 billion in 2010 dollars.
- Katrina is second at $113.4 billion.
- The Galveston 1900 hurricane is the third most severe, with a loss of $104.3 billion.
- The tenth costliest was Hurricane Donna in 1960, with a loss of $28.2 billion in 2010 dollars.
SOURCE: Eric S. Blake (National Hurricane Center) and Ethan J. Gibney (National Climatic Data Center), The Deadliest, Costliest and Most Intense U.S. Tropical Cyclones from 1851 to 2010, April 2011, Table 3b, p.11.

How Severe Was Hurricane Irene?

2011-08-28T23:55:00.000-07:00

Wall of Water, East Hampton
My photo, August 28, 2011

A day after Hurrican Irene was downgraded to a Tropical Storm, 21 fatalities have been reported. Each of these deaths represents a family tragedy and a huge loss for survivors. But in the business of measuring the economic impact of events - which I actively engaged in for 13 years while serving as Chief Economist for the New York City Comptroller - fatalities are one way to assess damage.

The latest report of fatalities as I write was issued at 1:16 am August 29 by CNN, with a total of 21 deaths in eight states - six in North Carolina, four in Virginia, four in Pennsylvania, three in New York State, and one each in four other states visited by Hurricane Irene.

The three fatalities in New York State were in (1) Spring Valley, Rockland Co., where a 50-year-old Good Samaritan electrocuted as he attempted to assist two people seeking to escape downed electrical wires, (2) New Scotland, Albany Co., where a woman was recovered after drowning in an overflowing creek, and (3) Bellport Bay, Suffolk Co., where a windsurfer drowned. The windsurfer death is assumed to be connected to a surge from Irene, but this may be revised. New deaths may also be reported today as offices open and more information is shared.

Note that no fatalities have been reported in New York City, which has suffered from extensive flooding. The City Government took great precautions to evacuate people from low-lying areas and to discourage travel.

How does 21 deaths compare with loss of life in other hurricanes? The five deadliest Atlantic hurricanes since 1900 are (based on Black and Gibney, 2011, Table 3b, part 2, p. 11):

1. Galveston, TX, 1900, Category 4, 8,000-12,000 deaths.
2. Lake Okeechobee, FL, 1928, Category 4, 2,500-3,000 deaths.
3. Katrina, 2005, Category 3, 1,200 deaths.
4. Florida Keys, 1919, Category 4, 600 deaths (287 on land).
5. Long Island Express (Great New England), 1938, Category 3, 600 deaths (256 on land).

The deadliest hurricanes are not always the costliest. Pielke et al. (R. A. Pielke, Jr., J. Gratz, C.W. Landsea, D. Collins, M. Saunders, and R. Musulin, 2008: "Normalized Hurricane Damages in the U.S.: 1900-2005." Natural Hazards Review, 9, 29-42, cited in Blake and Gibney, 2011) adjust historical data for inflation to 2010, wealth per capita and population. The ten costliest Atlantic hurricanes are listed below with their estimated damage. Note that earlier estimates are generally based on physical damage only, whereas later economic impact numbers include impacts such as business interruption costs.

The economic impact on New York City of business interruption is great, but fortunately Hurricane Irene arrived in NYC on a weekend, when the impact is less serious than on a weekday. A major factor in business interruption is the cancellation of a reported 9,000 flights at NYC area airports as well as suspension of rail and bus services in the region.

Here is the list of the ten costliest hurricanes, in $billions of 2010 dollars:
1. Great Miami, 1926 164.8
2. Katrina, 2005 113.4
3. Galveston, 1900 104.3
4. Galveston, 1915 71.4
5. Andrew, 1992 60.5
6. L.I. Express, 1938 41.1
7. SW Florida, 1944 40.6
8. Lake Okeechobee, 1928 35.3
9. Ike, 2008 29.5
10. Donna, 1960 28.2

Of the five hurricanes with the greatest loss of life, four are on this list. The one that is missing is the Category 5 Florida Keys hurricane of 1919.

Equecat is estimating insurance claims of $1.5-3 billion. Kinetic Analysis Corp., a consulting firm in Silver Spring, MD that was estimating insurance losses at $14 billion several days ago, has cut its insurance losses estimate by more than 80 percent, to $2.6 billion, on losses from the storm of $7 billion. If business-interruption costs are added to physical losses, this number might be on the low side.

But compared with the fatalities and losses for the ten hurricanes with the largest damages, Hurricane Irene has not turned out to be one of the big ones, something to be thankful for.

Mayor Bloomberg’s Evacuation - Panicky, Politic or Prudent?

2011-08-28T03:23:00.000-07:00

Mayor Michael Bloomberg ordered New York City’s first-ever mandatory evacuation to take place by 5 pm Saturday. More than 370,000 people were told to leave low-lying areas in “Zone A” of the City’s evacuation map, including:
- Battery Park City, Manhattan
- Coney Island and Manhattan Beach, Brooklyn
- Far Rockaway and Beach Channel, Queens
- South Beach and Midland Beach, Staten Island.

After the deadline on Saturday, the Mayor said that Hurricane Irene had reached the city. “The time for evacuation is over. Everyone should now go inside.”

By 2 am Sunday, the National Weather Service was predicting that Hurricane Irene would most likely hit land to the east of New York City and would be downgraded to a tropical storm. (See map.)

So - did the Mayor overreact in ordering an evacuation of so many people?

Here are seven points to consider:

1. The Mayor had no way to know for sure where or how hard the hurricane would hit or exactly where. The chances were good that it would slam into NYC.

2. He was setting an example for other officials in New York State and in other states by preparing for the worst.

3. The Mayor surely did not want a repeat of the charge of inadequate preparation that followed the December 2010 snow storm.

4. Hurricanes are rare enough in the NYC latitude that the Mayor could realistically expect never to have to declare another such emergency during the remainder of his administration. The only five major hurricanes (maximum winds of 111 mph or higher, i.e., Category 3, 4 or 5) to threaten New York State since 1900 were the Long Island Express hurricane of September 1938, the post-D-Day hurricane of September 1944, Carol in August 1954, Donna in September 1960 and Gloria in September 1985. Two other hurricanes were Category 1 in New York State – Agnes in June 1972 and Belle in August 1976. Some of these hurricanes didn’t come within 75 miles of NYC. Since 1851, only five have come that close.

5. Even when wind speeds are down below the 74 mph Category 1 level, the possibility that tornadoes could emerge is ever-present. A tornado watch was announced for Sunday morning. Based on the Saffir/Simpson Hurricane Wind Scale (see Table 1 in source).

6. The Hurricane Evacuation Map is impressive. The Mayor is surely proud of this emergency planning tool. Irene is an opportunity for him to test it. An evacuation drill would get nowhere. The threat of a hurricane is a good opportunity to try out the system.

7. Above all, the threat of flooding is real regardless of wind speed. The high precipitation expected in NYC means that a flood watch continues until noon on Sunday.

I think the Mayor did the right thing. To generate information that might be useful for preparing for the next threat of a natural disaster, the Mayor should report fully and soon on the extent of compliance with the evacuation order. We need to know what the challenges are for people to evacuate and how these challenges might be met.

NYC Seeks to Grow Jobs through Incubators

2011-08-24T23:41:00.000-07:00

It wasn't a big national event. New York City Mayor Bloomberg visited the Entrepreneur Space in Queens, New York last week. With him were City Council Speaker Christine Quinn, Rep. Carolyn Maloney and other elected officials. The main coverage was a local story by the Queens Gazette and a press release and a YouTube clip posted by the Mayor.

However, this visit should get national attention. Bloomberg, after all, knows a thing or two about how to create jobs. Back in 1981, when there weren't a lot of incubators and in the midst of a Fed-induced inflation-fighting recession, Michael Bloomberg parlayed his $10 million Salamon Brothers severance and his shares into a giant company. Last I checked, Bloomberg L.P. had 9,000 employees in the New York City area alone (a lot more than the entire staff of the U.S. Senate). Also, by bringing more transparency to capital markets, the company argues with some basis that it is contributing to growth of jobs outside of New York.

The nation is stuck in liquidity doldrums that Japan has made famous. Creating jobs is today's public-policy Priority One, the Tea Party's debt exorcisers notwithstanding. Mr. Bloomberg’s skill at building a business empire from scratch inspired scared New Yorkers to vote for him after 9/11. They elected an entrepreneur as mayor with the expectation that a successful business leader would surely would help the City hold on to its jobs and create new ones.

So what is the Mayor doing now, ten years after 9/11 and 30 years after he launched his business? He is recognizing the importance encouraging entrepreneurship, and he is also recognizing the fact that few wannabe entrepreneurs have the startup capital he began with, or the training he received at Salamon Brothers.

To assist new entrepreneurs, in 2009 Mayor Bloomberg launched nine business incubators thoughout NYC, hosting more than 500 start-up businesses and more than 800 jobs. The incubatees have raised $39 million in private capital so far. Many are graduating from their incubators.

Some New York City incubators are even exporting their support skills elsewhere. Green Spaces, a green incubator that started in Brooklyn has cloned itself in Manhattan and has now extended its efforts to Colorado, backing the Green Route Festival this Saturday in Denver.

The Entrepreneur Space in Queens is a good example of an incubator. It allows local food-oriented companies to avoid investing in their own commercial grade kitchens. For a fee, it provides four such kitchens, meeting Health Department standards, shared 24 hours a day by 120 businesses. The companies produce organic dog biscuits, ethnic foods, and pies, cakes and cookies. The kitchens are also used by catering services. The public-private Entrepreneur Space partnership includes incubator services funded by New York City - low-cost workstations, mentoring programs and job training.

Excerpts from comments of three elected officials who were on the tour of the incubator follow:

City Council Speaker Quinn:

These workspaces are groundbreaking initiatives, aiding culinary entrepreneurs to expand their businesses while bolstering the multibillion dollar food industry in New York City.

Mayor Bloomberg:

When we launched the first business incubator in 2009 to make it easier for entrepreneurs to turn their ideas into local businesses and jobs, we pledged to open more if it was successful. Now, we’re identifying opportunities to expand the program even further. We want New York City to be the most welcoming city in the country for people who want to start a business.

Rep. Maloney:

I agree wholeheartedly with President Obama that Congress needs to get moving to support job creation: we need to reauthorize the cut in payroll taxes we approved in the last Congress, which will give families an extra $1,000 per year, on average. I’d like to commend Mayor Bloomberg on the success of New York’s business incubators. The small businesses taking root here are truly the future of New York. This kind of innovation is one of the reasons New York is doing better than the national average.

Congratulations to the Mayor. Recent reports suggest that the New York City area has passed Boston in the amount of venture capital money it is raising. NYC is now second only to the Bay Area. Together, NYC and Boston VC funding exceeds what is going into the Bay Area. The hot areas for VC funding are web-focused tech companies. Just as demand from Wall Street drove growth of NYC’s tech companies in the 1990s, today the driver, says Dave Broadwin of Foley Hoag, is the advertising industry.

NYC needs to do everything we can to encourage entrepreneurship in tech development and every industry!

The S&P Ruckus and the Real Policy Challenge

2011-08-08T12:26:00.000-07:00

The S&P downgrade was signaled well in advance, so it should not have come as a surprise. Paul Krugman takes a no-holds-barred position today that yes, the United States is a mess, but no, S&P is not the organization to rely on for this evaluation, since its laxity during the mortgage-finance bubble contributed to the meltdown and triggered the Great Recession. A neat summary of blogviews by economists is at Curious Capitalist.

My Comment: Since U.S. Treasuries have been the global gold standard for risk-free debt, it is odd to think of them as rating less than AAA. For a rating agency to downgrade the debt in the way it did smacks of petulance over the way Congress conducted the debate. That should not be any business of S&P. The American voter will deal with that in 2012.

What strikes me as sad is that the unnecessary debt-ceiling debate precipitated the downgrade. The U.S. Government should remain focused on the 13.9 million unemployed Americans and the 9.1 percent unemployment rate. Demanding more cuts in spending now will not be helpful unless a package of job incentives is passed ASAP. What ought to have precipitated a rating-agency downgrade of U.S. debt, on technical grounds, was the exclusion of the Iraq and Afghanistan wars from the Federal budget, pushing this spending into the deficit and add to the U.S. debt. Or a downgrade for running up of deficits during the good years of 2004-2006 years unemployment was below 6 percent and falling. But that was when S&P was otherwise preoccupied, selling AAA ratings of evil baskets of CDOs. S&P is about six years late and a couple of trillion dollars off the mark.

Counterfeit Goods - New York City and Los Angeles

2011-08-07T22:57:00.000-07:00

A November 2004 report by the New York City Comptroller's Office entitled "Bootleg Billions" estimated that $23 billion was spent on counterfeit goods in New York City in 2003.

This was not just an estimate of counterfeit goods sold on New York streets, although such sales at the time were highly visible, for example up and down Broadway. The estimate included, in addition to street sales:

- Counterfeit goods sold in stores.

- Wholesale trade in New York City of counterfeit goods trans-shipped to places as far away as the Dominican Republic and Ohio.

- Out-of-town shipments. A raid on a Chelsea warehouse found a huge volume of counterfeit goods being packaged for shipment out of town.

- Wholesale buying by out-of-town resellers. A Broadway warehouse was raided and found to be a major shopping center for wholesale buyers who brought their goods out in black plastic bags to load into waiting trucks.

It's not hard to be a value-added counterfeiter in NYC. I was once included on a police raid targeting a small private house in Queens. A small group of people was making pirate CDs, packaging them in plastic "jewel cases" along with the usual inserts for delivery to retail CD sellers. The copying was done on up-to-date towers could produce 20 copies from one master in a few minutes. The cardboard boxes that the jewel cases came in were reused for shipment out, but the CD boxes remained. The boxes not yet trashed/recycled held hundreds of thousands of blank CDs, now shipped out.

Counterfeit iPods etc. confiscated in Los Angeles

An August 2011 "Nightline" story shows that Los Angeles has joined New York as a major trans-shipment and retail center for counterfeit goods. Counterfeit clothing and other branded goods are sold both on the street and in stores, to both retail and wholesale customers.

Counterfeiting may sound like a "victimless" crime, but it is not. When the goods are fake prescription drugs, fake sunglasses, fake auto parts or bootleg toys or food, they bypass certification or safety inspections. They also bypass sales taxes, which is a reason prices can be much lower than legitimate products. State and local governments are hard-pressed to pay for the services they provide and tax-evaders reduce revenues and force up the cost of collecting taxes.

The impact on brands is sometimes debated. Knockoffs can be described as promoting the products they try to duplicate. A parent may buy a knockoff for a young child. The extent of competition is determined by the cross-elasticity of demand, i.e., the extent to which the knockoff is a complement to the genuine item or is a substitute. If it is a substitute, sales of counterfeit goods harm sales of the genuine item.

Brands that do not spend money to track and expose counterfeiters are in danger of seeing their reputation tarnished. Why should a consumer buy a high-status watch if counterfeits are available at huge discounts on the street? The stakes posed by counterfeiting are high.

For Green Jobs, Cut Fossil-Fuel Subsidies

2011-07-20T13:07:00.000-07:00

Paul Krugman has a post on the green jobs issue. He wonders why wind energy investments and jobs have not been growing as fast as many have hoped. He argues that the "right incentives" have not been put in place and one reason is that progress on environmental issues is stymied by opponents of government intervention, i.e., believers in the markets. Krugman then makes the case that opponents of environmental intervention actually lack faith in the potential of markets. Markets would go to work to solve environmental problems if the right incentives were in place. For example, a price on carbon would be such an incentive.

I commented that in the context of the current debt-ceiling debate, the most promising path ahead in the Congress - especially for independent Republicans - is to push hard to end subsidies for fossil fuels.

This is not a pipe dream. Last year I attended a press conference in Washington of the Green Scissors campaign, a 15-year-old group led by three organizations concerned about the environment. The campaign has identified $200 billion in wasteful and environmentally harmful subsidies, such as subsidies for petroleum and ethanol. The press conference was bipartisan, including independently minded Republicans like Rep. Tom Petri of Wisconsin, who spoke in favor of reducing these subsidies.

The debate over the deficit and the debt ceiling is an opportunity for advancing alternative energy and energy efficiency by ending subsidies for the production of fossil fuels and ethanol.

The Great Debt Ceiling Countdown,15 Days to Go, A Missed Chance for GOP

2011-07-18T22:21:00.000-07:00

President Obama offered a $4 trillion deficit reduction package to Speaker Boehner, but Boehner could not sell it the House GOP majority, even though it was tilted 4 to 1 towards spending cuts rather than revenue increases and a NY Times analysis shows even Republicans in a Gallup survey say they require only a 3 to 1 ratio.

George Packer, writing in the July 25 New Yorker, depicts the President as embodying responsibility without conviction – sane but not inspiring. The republicans represent conviction without responsibility, which is to say they are “raving mad.” Either way, the unemployed no longer have a place at the table.

Comment: If you don’t have a seat at the table, you may be on the menu. Economists may not agree on details of solving debt issues, but the GOP emphasis on cutting spending now is preempting the potential for further fiscal action to revive the economy. President Obama was acting on a utilitarian calculus, the GOP on deontological principles. But if politics is the art of the possible, rejecting Obama’s proposal was politically crazy. If S&P despairs of rational debate and lowers its rating on U.S. long-term debt, one outcome is that spending on debt service is likely to rise sharply.

Rigged Muni Markets

2011-07-15T23:10:00.000-07:00

An outraged Republican friend sent me a link from Jesse's Café Américain, commenting on SEC and other actions announced on July 7. The related SEC actions, from their announcements, are summarized below. My friend was distressed at the inadequacy of the penalties.

SEC and Other Actions

The SEC charged J.P. Morgan Securities LLC (JPMS) with fraudulently rigging at least 93 municipal bond reinvestment transactions in 31 states. JPMS agreed to settle SEC complaints of violations of Section 15(c)(1)(A) of the Securities Exchange Act of 1934 by paying approximately $51 million, to be passed on to municipalities that were cheated. JPMS and its affiliates also agreed to pay $177 million to settle related claims by the IRS and other federal and state authorities.

JPMS improperly won bids by entering into secret arrangements with bidding agents to get an illegal 'last look' at competitors’ bids. Municipal issuers and investors didn't stand a chance against the fraudulent strategies JPMS and others used to guarantee profits. - Robert Khuzami, Director of the SEC's Division of Enforcement.

When municipalities sell securities, they usually invest the proceeds of the sales until the money is needed. As part of its oversight of the tax-exempt market, the IRS requires that such proceeds be invested at fair market value, which is commonly done by utilizing a competitive bidding process. But the SEC claims that from 1997 through 2005, JPMS's fraudulent practices undermined this process. Municipalities paid more for reinvestment products than they should have. JPMS thereby jeopardized the tax-exempt status of billions of dollars in municipal securities.

When powerful financial institutions like JPMS conspire with each other to intentionally violate regulations designed to ensure fair investment prices, the integrity of the municipal marketplace becomes corrupted. Rather than playing by the rules, the rules got played. - Elaine C. Greenberg, Chief of the SEC's Municipal Securities and Public Pensions Unit.

The SEC complaint filed in U.S. District Court for New Jersey, JPMS acted as agent for JPMorgan Chase Bank, N.A. It sometimes won bids by obtaining information ("last looks") from bidding agents about competing bids. It sometimes won bids that were wired in advance for JPMS to win (“set-ups”). The bidding agent deliberately set up non-winning bids from other providers, for whom other bids were wired for them to win. The employees involved are no longer with JPMS.

Comment

The SEC gets great credit for nailing this one. The penalties may be inadequate, but it's good to see the SEC taking action. The financial markets in the United States need to have their credibility restored and the SEC has a crucial role to play in making it happen.

The Fevered Debt Ceiling Debate - Recent Proposals

2011-07-15T22:45:00.000-07:00

Michael D. Shear, online July 15, 2011 (in the Saturday, July 16 NY Times), provides a “cheat sheet” on the various proposals for meeting the August 2 deadline for raising the debt ceiling. Comment: Not mentioned is the fact that Both Moody’s and S&P have threatened to lower their triple-A ratings on long-term U.S. debt if the deadline is not met, with S&P going further and expressing hawkish views about the terms of any compromise. The threat of a downgrade at least partly offsets the argument that cuts in spending now might bring on a double-dip recession. Here is an abbreviated summary of eight overlapping and evolving proposals, with a few additional facts from a Washington newsletter (W&J Washington Update, July 15) and other sources, and my comments:

1. The Obama-Boehner $4 Trillion Grand Bargain. The “big deal” worked on between President Obama and House Speaker John Boehner (R-OH) would add up to more than $4 trillion in deficit reductions over ten years, with $1 trillion of it from new tax revenue. But the tax revenue portion of this bargain made it unpalatable to Republicans. Boehner backed off from this last weekend but the President still likes this idea. Comment: S&P also likes this approach, saying that there is a 50 percent chance it will downgrade U.S. debt within 90 days, and suggesting that anything less than a $4 trillion deficit-reduction plan over ten years could trigger a downgrade. .

2. The Biden Half-Bargain. House Majority Leader Eric Cantor (R-VA) revealed some details of VP Joe Biden's plan to cut $2 trillion. Health care would lose about $340 billion. Reducing the debt would save $300 billlion. The Biden plan included several hundred billion dollars of new revenues from sources such as owners of private jets, hedge-fund managers and large oil companies. Cantor said the new tax revenues were a nonstarter. Comment: This would add up to about the $2.4 trillion of the debt-ceiling increase; it would not meet the S&P $4 trillion standard.

3. Cantor’s $2.4 Trillion Cuts. Cantor proposed $2.4 trillion worth of spending cuts without revenue increases. The President responded that these cuts are too deep, and would affect middle-class programs - student loans, Veterans’ benefits, Medicare and Medicaid – and that the cuts should be offset at least in part by higher taxes on wealthy individuals. Comment: Focusing only on the spending side does not meet the test of fairness.

4. White House: Proposed $1.5+ Trillion Cuts. President Obama has proposed cuts of $1.5-$1.7 trillion. Cantor says this would not be enough. Comment: Even if these cuts were matched by $700-$900 billion in new taxes to get to the $2.4 trillion of the debt increase, the total is below the S&P standard.

5. Cantor’s Stepwise Debt Increases. Rep. Cantor has suggested votes that would increase the debt ceiling in steps, with each step allowing Republicans to call again for more spending cuts. President Obama is opposed, saying that he wants to deal with the long-term deficit problem now. Comment: The President is operating on the sound principle that painful adjustments are best made as part of a package that shows fairness in the bearing of sacrifices.

6. The “Balanced Budget” Amendment. In the background, House conservatives are seeking to tie an increase in the debt ceiling to the passage of a constitutional amendment requiring Congress to balance the budget. Another proposal is a cap on federal spending as a share of GDP. Comment: Would such an amendment be ratified by two-thirds of the states? Unlikely. It would make Keynesian counter-cyclical fiscal policies more difficult, limiting the ability of future fiscal policymakers to respond to a recession or depression. (But on the plus side it might end the practice of financing wars with new debt.)

7. The McConnell Three-Step Option. Senate Minority Leader Mitch McConnell (R-KY) proposes allowing President Obama to raise the debt ceiling in three steps ($700 billion, $900 billion and $900 billion) between now and the end of 2012. Even if the Senate joins the House in voting against the debt-ceiling hikes, the President could veto their opposing legislation and go ahead. Comment: This would put the onus on the President but would also get past the deadline – it’s a better alternative than defaulting on debt payments, but does not address the long-term deficit concerns of the rating agencies.

8. The Hybrid Obama-McConnell. President Obama would be given the authority to raise the debt ceiling in return for the President’s commitment to the level of cuts that he proposed as a starting point. Then a base-closing-type commission would come up with additional deficit-reduction plans by the end of 2011 for an up-or-down vote. Comment: A well-thought-through package like this might conceivably be enough for the rating agencies, at least for this year.

Regulating Banks and Non-Banks: One Year Later

2009-03-22T19:32:00.000-07:00

A year ago today I wrote about financial regulation . As the G20 meeting on April 2 approaches, the topic is more relevant than ever.

I argued last year that when the Glass-Steagall wall between banking and non-bank financial institutions was torn down in 1999, the law should have extended U.S. regulatory authority beyond banking to all the other institutions.

My views were shaped by research I did at the FDIC. I developed a state credit-quality indicator, based on bank examiners' classification of loan quality at insured banks. The indicator deducted 20 percent of the loan value classified as substandard, 50 percent of loans classified as doubtful, and 100 percent of loans classified as loss. The results were included in an article I wrote with Professor George Benston published in the Journal of Money, Credit and Banking, "Bank Examiners' Evaluation of Credit".

Whatever use a state credit-quality indicator might have had as an early warning system (e.g., of mortgage-quality problems in Arizona, California, Florida and Nevada) disappeared when mortgage loans were wrapped up into securitized packages that were beyond easy classification by bank examiners and were camouflaged by AAA ratings by rating agencies and insurance companies.

The Chairman of the UK Financial Service Authority (FSA), Lord Turner, on March 18 has highlighted for the G20 socially undesirable financial innovation as a key source of the global crisis. He recommends regulation of near-bank activities such as hedge funds and credit-rating agencies, with a Europe-wide financial body to set standards and supervise. The UK seems to have joined the hawkish German and French authorities.

While the United States has been considered a dove on financial regulatory issues, the Obama administration may surprise the G20. Stephen Labaton in the NY Times on Saturday says a plan is being prepared that would

regulate the shadow banking system, with heightened standards put in place after the economy began to rebound. A broad consensus has emerged that hedge funds must be registered and more closely monitored, probably by the Securities and Exchange Commission.

The U.S. plan will probably give the government greater authority over large troubled companies not now regulated by Washington. The Treasury secretary would have authority to seize a struggling institution after consulting with the president and upon the recommendation of two-thirds of the Federal Reserve board. The government now can seize only the banking unit that controls federally insured deposits of large troubled institutions.

In the Eye of the Storm: NYC OMB's Mark Page

2009-03-22T13:33:00.000-07:00

NY State's Gov. David Paterson came to an agreement with legislative leaders to close a NY State budget gap for FY 2009 of $1.6 billion, with a monster gap of $13 billion waiting for the Governor in ten days.

In some ways, NY City is better off than NY State, because the biggest part of NYC's tax base is the property tax, and assessments are averaged over five years, creating a surge of revenue during the two or three years after the beginning of a decline.

However, all is not well because NYC depends on the State for aid. Half of the state’s revenues come from NYC and something less than half comes back to NYC in aid. So a gap of $13 billion without raising taxes might mean $6 billion less aid for NY City.

That's another thorn in the side of Mark Page, the man who has been a steady hand on NYC's fiscal wheel as director of NYC’s Office of Management and Budget since Mayor Bloomberg took office in 2002. He was introduced not long ago by Mr. Ross Sandler of the New York Law School.

Mr. Page is a graduate of Harvard College and the NYU Law School and his responsibilities as OMB Director include

developing and implementing the city’s budget, monitoring and forecasting the revenues and expenses of the city, analyzing the economy, evaluating agency management improvement initiatives, and issuing bonds in the public capital markets in conjunction with the New York City comptroller.

Mr. Page joined OMB in 1978 as deputy counsel, was named general counsel in 1980 and had the title of deputy director added in 1982. He his reputed to hate giving speeches and is hard to locate at a podium other than responding to questions from members of the NY City Council. He's actually a pleasure to listen to as he speaks in perfectly formed sentences without any apparent reference to notes.

I had a chance to listen to him at New York Law School and took some photos and notes. I report below what Mr. Page said until I received word that a videotape of his comments had been posted online, at which point I decided I would just post the link to this videotape.

REMARKS OF MR. MARK PAGE, DIRECTOR, NYC OMB

The banking industry has been engaged in in an extended use of vapors. Washington is engaged in a dramatic wielding of stimulus dollars.

Here in New York City, we are engaged in questions about the frequency of garbage collection, the number of workers in the parks during the summer, and high school class size, the daily oatmeal of government.

Government budgeting is not that complicated. It has to do with handling the fact that we want to get more services, like more frequent garbage collection, and pay less taxes... and preferably eliminate taxes.

It’s easy to do more and tax less when you’re getting more money out of existing tax rates. Economic expansion gives us more.

But then when you get in the inevitable reciprocal cycle, a given tax structure gives you less money to spend on services.

As I have heard it said very loudly at MTA meetings, in a downturn you are likely to have to tax more for less services. This is not a very seductive premise, particularly as government is political.

To make this point, we have divided our spending into controllable and uncontrollable costs. In government there are some things that are very difficult to avoid paying for. For an individual, the analogy might be with mortgage payments.

For New York City government, the stuff you are really stuck with paying starts with debt service and pension benefits.

We’ve done a lot over the last seven years with bringing the East River and Harlem River bridges up to standard. We’ve spent a lot on building and maintaining schools and roads. And we have the debt to show for it.

To hear how Mr. Page's speech proceeded, with questions from audience members like Jonathan Gelber, Roger Herz and Henry Stern (all shown in photos) go to the videotape here.

What Happened to Our Peace Dividend?

2009-03-18T22:11:00.000-07:00

When the Berlin Wall came down in 1989 and the Soviet Union disintegrated, many of us looked forward to a Peace Dividend, a reduction in military spending that would allow more U.S. Government spending on public needs like health care or education, or tax cuts, or a combination.

We got the tax cuts but the Peace Dividend has melted away. Spending on the ongoing wars in Iraq and Afghanistan have replaced spending on the Cold War, and U.S. military spending is still at the level it was in 1990.

In FY 2008, the federal budget shows $751.6 billion for defense. This is made up of four elements: (1) DoD spending (line 051) of $583.1 billion, (2) Nuclear weapons in the Department of Energy budget, $24.2 billion, (3) Veterans Administration, $86.6 billion and (4) borrowing cost of unfunded military expenditure, $57.7 billion.

However, the Bureau of Economic Analysis (BEA), in the Department of Commerce, shows a higher number for national defense consumption and gross investment expenditure, $734.8 billion. If we again add in Veterans Affairs ($86.6 billion) and interest on military-related borrowing (which BEA figures is $163.0 billion), the total is $984.4 billion, nearly $1 trillion. So how does this compare with 1990?

MilEx as Share of GDP. One measure of the change between 1990 and 2008 is military spending as a share of GDP. The media tend to report the 2008 figure as 4.1 percent. This is the lower line in the first chart below, which I reproduce by permission from Professor Jurgen Brauer of the James M. Hull College of Business at Augusta State University in Augusta, Ga.
Prof. Brauer argues:

But that uses the DoD budget number without the DOE’s nuclear weapons complex, without the VA, and without the interest cost for military-related debt.

If the BEA’s numbers for defense spending are used, as in the top line in the chart, the ratio is 6.9 percent of GDP. By the U.S. government’s own accounts, military expenditure is two-thirds higher than the usual media report.

MilEx as Share of Federal Spending. The second chart shows military expenditure as a percentage of the overall federal budget.
The lower line in this chart ends at 19.9 percent for 2008, about 20 cents of the federal dollar. But Prof. Brauer argues that this is not the right number to use, because the federal budget

is loaded down with transfer payments, that is, monies that come in and go out simply because federal law mandates that they be handled through the feds. Examples are social security contributions that pay for grandpa’s monthly check or money that residents of Oklahoma pay in federal taxes that then go back to Oklahoma to fund schools or build highways there.

When transfer payments are removed, the budget for federal functions is only $1,440.6 billion, of which BEA's $984.4 billion in military expenditure is 68.3 percent, as shown on the top line on the chart. That’s not 20 cents on the federal dollar but 70 cents.

Spending on defense has come down since the 1960s. But compared with 1990 the Peace Dividend has disappeared.

Few States Thrived Under Bush 43

2009-03-15T20:23:00.001-07:00

As the Democratic Administration wrestles with huge U.S. economic problems, officials can take comfort in the fact that they have an easy act to follow. The numbers are in, and under Bush 43 only four U.S. states beat the average long-term growth rate. The four "winner" states that did better than the long-term U.S. per-capita average annual growth rate of 2.5 percent were North Dakota, New York, Louisiana and Montana. (Louisiana wins on a technicality as is explained below.) The other 46 states grew at less than the long-term average growth rate.

The numbers are through 2007, but we know that 2008 was a recession year, so the final numbers by state will be worse.

The state records are on two charts prepared by my friend Professor Jurgen Brauer of the James M. Hull College of Business at Augusta State University in Augusta, Ga. His numbers are from the St. Louis Fed's FRED database, which vacuums population data from the U.S. Census and Gross State Product (GSP) data from the Bureau of Economic Analysis.

With Prof. Brauer's permission I am using his chart below showing average annual real growth in per-capita GSP during the first seven Bush 43 years.
Among the top ten losing states, two showed negative annual per-capita GSP real growth during 2001-2007 (2000 being the base year): Michigan and Georgia. The next eight states all had real growth of less than one percent: Indiana, Colorado, South Carolina, Missouri, Ohio, Alaska, Illinois and New Hampshire. Professor Brauer observes:

Two of the bottom five states in real per-capita GSP average annual growth rates switched from “red” to “blue” in the November 2008 presidential elections.

On the upside, the top state in per-capita GSP real growth was North Dakota, with annual growth of about 3.5 percent. The next nine states were all in the 2-3 percent range on per-capita real growth: New York, Louisiana, Montana, Vermont, Oregon, Maryland, South Dakota, Iowa and Alabama. Professor Brauer adds:

Only four states in the nation beat the long-term per-capita average annual growth rate for the United States of 2.5 percent since the late 1920s. Louisiana is an anomaly for its growth is at least partially explained by the exodus of poor residents following Hurricane Katrina so that the improvement in its average growth rate for the remaining residents is a statistical fiction.

Prof. Brauer's second chart below shows the state-by-state per-capita value of economic production in 2007.
The top ten states by per-capita GSP in 2007 are Delaware ($56,500 GSP per capita), Connecticut, New York, Massachusetts, New Jersey, Alaska, California, Virginia, Minnesota and Colorado (the District of Columbia is not included).

The bottom ten states are Mississippi (less than $25,000 GSP per capita), West Virginia, Arkansas, Montana, South Carolina, Oklahoma, Alabama, Idaho, Maine and Kentucky.

Should the weak economic performance of the states during the 2001-2007 years be a surprise? Michael Kinsley, writing in the Washington Post in 2005, concluded that the Democrats did better since 1960 on the Republican ("Daddy"-party) criterion of economic prosperity.

From 1960 to 2005 the GDP in year-2000 dollars rose an average of $165 billion a year under Republican presidents and $212 billon a year under Democrats. Measured from 1989, or measured with a one-year delay, or both, the results are similar. [On the] average annual rise in real per-capita income, Democrats score about 30 percent higher.

Bush 43 did not reverse this weak economic record.

The Great Recession

2009-03-15T06:29:00.000-07:00

In his NY Times column today, "Bad News, and More Bad News," Clark Hoyt responds to mail that complains of the NY Times writing too much about bad news. He says: "A newspaper's responsibility is not to be an economic cheerleader, but to maintain a level head and help put the world in perspective for readers.

The theme of Mr. Hoyt's column can't be repeated too often, but I have a problem with the sentence that the Public Editor attributes to Times business columnist David Leonhardt:

"[A]s bad as things are, they are still not as bad as the recession of 1982, let alone the Great Depression."

Does Mr. Leonhardt still say that? If so, I would respond that his comparison between today and 1982, which he based on job-market data, is a case of apples and oranges. The reason for the recession that produced high unemployment in 1982 was Fed Chairman Paul Volcker's brave determination to break the back of inflation. In the process he allowed interest rates to soar.

The 1980-82 recession was painful, but recovery was entirely within the control of the Fed, which simply had to ease credit.

Continuing credit problems today are not the deliberate creation of the Fed, which has--on the contrary--eased the target fed funds interest rate down to the "zero bound". To say that 1982 was worse is like someone suffering an angina attack saying that his heart was worse off right after his triple-bypass operation. Not so, because the surgeons then had the situation under control.

A consensus is growing that this recession is the worst downturn since the Great Depression. It's global. it looks only at U.S. data and misses the full extent of the devastation from the credit freeze. The IMF’s Dominique Strauss-Kahn, said on March 10: "I think that we can now say that we've entered a Great Recession."

Prior uses of the term "Great Recession" (which was applied to earlier recessions) have been collected by Catherine Rampell of the NY Times using Nexis and were quoted by World Wide Words. WWW does not mention the prominent March 1 NY Times Op-Ed by economic historian Niall Ferguson.

On December 5, 2008 the U.S. Federal News Service reported: "Some economists are already calling this 'the Great Recession' because they fear it may be longer and deeper than any recession in recent history." As early as April 2008, Former Wall Street Journal writer Jesse Eisinger predicted in Portfolio that: "The next president will take office during what may well come to be known as the Great Recession."

One year ago, in March 2008, I contributed three posts for HuffPost about the Bankers' Panic of 2008. I was focused on regulatory shortcomings and what could be done about them, rather than the likely economic consequences.

A March 10, 2009 poll reports that 53 percent of respondents say the United States is at least somewhat likely to enter a 1930’s-like Depression within the next few years. The Rasmussen Reports national telephone survey found that 39 percent think this outcome is unlikely. The latest results are more pessimistic than those found in early January, when 44 percent said a 1930’s-like Depression was likely. It will be a big challenge to restore positive “animal spirits”. But the poll may be a sign of “blood is in the streets” –- Main Street as well as Wall Street.

Winning Back Business Support for the UN

2009-03-12T08:28:00.000-07:00

At dinner yesterday I spoke with Georg Kell about business support of the UN. Georg is Executive Director of the UN Global Compact and is thinking ahead about the world's needs and how business and the UN can help meet them.

My interest in this is lifelong. My father was a member of the U.S. Budget Bureau team at the founding of the UN in San Francisco in 1945 and he worked for two UN agencies during the next two decades.

Business in 1945 was a huge supporter of the UN - think of the gift of six Manhattan blocks to the UN from John D. Rockefeller, Jr. Business looked forward to the UN's role not just in promoting peace but in supporting through its specialized agencies a global infrastructure, such as safe airports and air traffic controls.

Georg is focused on resurrecting this business support, which waned during the years when news about the UN seemed to revolve around ideology. Georg is a native of Munich and started his career as a venture capital analyst. He became a UN civil servant 18 years ago. The first ten years of his career he worked with UNCTAD. On the 50th Anniversary of the UN he wrote a paper giving five reasons why the UN is good for business and deserved more support. This paper attracted the attention of UN Secretary-General Kofi Annan... and Georg was soon given his present mandate.

Georg views 1945 as one of the great moments of history when support for the UN came from a broad swath of the world. The UN was seen as an agency for development to ensure peace. Development requires private investment, so business was a natural ally. Georg sees his job with the Global Compact as rebuilding the sense of partnership between business and the UN in advancing the goals of peace and development.

The Global Compact has been a success. Business is again deeply involved is supporting the UN. Some 5,000 companies in 130 countries have signed up with the Global Compact. In 80 of the countries, business networks have been created with at least half a dozen business leaders and a professional staff. The focus of the networks recently has been on the following key topics:

- Challenges to the Global Business Model. What happens to world trade if businesses shorten their supply chains or, worse, if countries look inward to their domestic industries and move to defend them with protectionist tariffs or quotas or other barriers?

- Best Practice for Business in Conflict-Prone Areas. The idea of divestment of subsidiaries from countries that are prone to conflict is being critiqued as making the situation worse. What are best business practices in such areas?

- Response to Climate-Change Worries. Scientific certainty about the threats from climate change is growing and is contributing to a new sense of urgency among businesses about the need for action. The UN will convene a conference in Copenhagen on May 24-25 that will bring together 500 CEOs or senior corporate staff along with other stakeholders. Georg sees the solution as a carbon tax or perhaps some form of carbon cap.

The global financial meltdown has made executives more humble about their ability to withstand financial and non-financial (environmental, human) risks. Georg believes that a major shift has occurred, back toward thinking with a longer-term time horizon. Sustainability is not being taken for granted as much as it was a few years ago. Business is more somber, more about functionality, about quality, about durability.

My Dad's labors show how useful the UN can be. In 17 years as Director of Technical Assistance at the International Civil Aviation Organization, he built up a crew of 1,500 ICAO technical experts working with airports all over the world to ensure safe air travel. Pilots of a German airline flying into Tokyo or Moscow learned to communicate smoothly in a common language with airport controllers to anticipate weather conditions, take off and land safely.

Georg Kell and the Global Compact are embarked on a new round of missions for the UN in partnership with world business. Their work offers hope for economic recovery, conflict reduction and a sustainable environment.

Plucking NYC’s Golden Geese

2009-03-10T21:05:00.000-07:00

French Finance Minister Jean-Baptiste Colbert said that the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.

The golden geese in New York City are the top 1 percent of NYC taxpayers, the 41,282 filers earning $500,000 or more. They pay 47.8 percent of the $7.3 billion collected by the city in income taxes. The concentration of golden feathers is much greater now than in 1993, when approximately the same share of taxes, 47.6 percent, was paid by more than five times as large a share of taxpayers, the 5.5 percent earning $100,000 or more.

Why has the concentration of taxpayers become so much more intense? Three explanations come to mind: (1) Inflation ($100,000 ain’t worth what it was in 1993). (2) The financial bubble, which in recent years has been good to top-earning New Yorkers. (3) The number of NYC personal income-tax filers, which has increased, to 4.1 million from 2.7 million in 1990.

One thing that hasn’t changed much is that average personal income tax rates in Manhattan are higher than in the other boroughs. Back in 1993, the average effective tax rate was 3.05 percent – 3.58 percent in Manhattan and less than 3 percent in all of the other four boroughs.

NY City and NY State officials are seeking to raise tax rates further on the highest categories of personal incomes. Council Speaker Christine Quinn has proposed boosting the city's income tax from 3.65 to 4.25 percent for those earning at least $297,000; to 4.45 percent for those making $532,000 and to 4.65 percent (a percentage-point increase) for the $1.2 million league and above. Comptroller Bill Thompson is supporting higher taxes for the top category.

Albany legislators are also seeking to raise the state income tax -- from 6.85 percent to 8.25 percent for people making a minimum of $250,000; 8.97 percent for those making $500,000 and above in taxable income and 10.3 percent for those at the $1-million-and-up level.

NYC’s budget director, Mark Page, has argued that the City’s golden geese have wings and can fly. He says:

The basic concern is how do you collect revenue from New York City's tax base if you have a relatively small group of individuals paying a very large proportion of your income-tax revenue.

A consoling fact for New Yorkers is that state and local taxes have been deductible against income on which federal taxes are imposed. But there is a question about what new tax rules will emerge from the budget debate that is taking place in Washington.

Rising Unemployment: True Pain Is Twice What's Reported

2009-03-10T02:00:00.000-07:00

Concerns are properly growing about the 8.1 percent unemployment rate reported for February and the higher rates that are on their way. But the true pain of unemployment is close to twice this rate. The Bureau of Labor Statistics routinely provides the data to report the higher rate.

The standard unemployment rate averaged 5.8 percent in 2008. A higher number of 10.5 percent takes account of three additional categories, including workers who are too discouraged to look for work and workers who have settled for part-time jobs.

Reporting the higher rate along with the standard one would help make clear why unemployment rates have been higher in much of Europe (France, Germany, Italy, for example) than in the United States. The reason, in part, is that European unemployment benefits extend longer, so workers are recorded as officially unemployed for longer. In the United States, workers settle for part-time work rather than have no job at all.

Differences among U.S. unemployment rates have been nicely summarized by Professor Jurgen Brauer of the University of Georgia at Augusta in his March blog. With his permission I am sharing his lucid exposition
of the different unemployment rates. His chart at right--click on it to get a better view--shows five measures of unemployment and underemployment. Prof. Brauer explains:

The red and the light blue lines both go back to 1960; the others back to 1994. The red line is called U3 unemployment and depicts the United States’ “official” unemployment rate, averaged over the months for the respective year. In 2008, the monthly unemployment rate ranged from 4.8 percent of the civilian labor force in April to 7.1 percent in December, with an average for the year [shown in the chart] of 5.8 percent.

The red U3 line is the number that is commonly reported on a month-to-month basis, i.e., the February rate of 8.1 percent. Recession years--i.e., years when the economy has been in decline--are shown by the dashed vertical lines. Arthur Okun famously used unemployment, numbers for which are available the next month, as a predictor for GDP (which takes several months to estimate). Professor Brauer continues:

The light blue line at the bottom of the chart is called U1. This measures long-term unemployment, namely the proportion of those who are willing and able to work (i.e., people who are actively looking for work) yet nonetheless are unemployed for 16 weeks or more, that is, about 4 months or longer. U1 shows the same up and down pattern as U3, and the reason government officials track it is because it indicates long-term hardship. The other three lines are called U4, U5, and U6 unemployment, respectively, and have been tracked only since 1994.

The three lines add categories of workers who are discouraged or underemployed:

U4 adds in so-called discouraged workers, a subset of those “marginally attached” to the workforce, that is,folks who are willing and able to work but have become so discouraged about their labor market prospects that they have stopped looking for employment.
U5 adds all other marginally attached workers (those who want to work and have looked for work but whose primary reason why they are not in the workforce right now is non-job market related).
U6 rounds this out by including those who are employed part time for economic reasons, that is, they want to work full time but cannot get anything other than part time.

The U4 and U5 numbers only add about one percentage point. But U6, which includes those who say they want and are looking for full-time work but can get only part-time work, adds 3-5 percentage points. In 2008, U3 was 5.8 percent but U6 was 10.5 percent, a difference of 4.7 percentage points, nearly double.

How the Financial System Was Taken Down

2009-03-08T13:19:00.000-07:00

Robert Weissman has tried to assemble the whole picture of the financial meltdown in a newly released report, Sold Out: How Wall Street and Washington Betrayed America, produced by Essential Information and the Consumer Education Foundation. The report details 12 deregulatory moves that are attributed to $5 billion spent in 1998-2008 on U.S. federal campaign contributions and lobbying expenditures. (Weissman is editor of the Washington, D.C.-based Multinational Monitor, and director of Essential Action.) Here are the 12 moves:

1. Repeal of Glass-Steagall: The 1999 repeal of the Glass-Steagall Act helped create the conditions in which banks invested monies from checking and savings accounts into creative financial instruments such as mortgage-backed securities and credit default swaps, investment gambles that led many of the banks to ruin and rocked the financial markets in 2008.

Comment: The 1999 law tore down the wall between banks and investment banks. Senator Carter Glass was a leader in Congress both of the effort to create the Federal Reserve System and the 1933 Glass-Steagall law that forbids banks from engaging in investment banking, merchant banking or insurance activities. Paul Volcker has said he thinks one of the first things that needs to be done to fix the system is to restore the wall between investment banking and commercial banking.

2. Off-the-Books Bank Accounting: Holding assets off the balance sheet generally allows companies to avoid disclosing “toxic” or money-losing assets to investors in order to make the company appear more valuable than it is.

Comment: In his memoir of his years as Chairman of the SEC, Arthur Levitt, Jr. complains about the huge lobbying effort by accounting firms.

3-4. CFTC Blocked from Regulating Derivatives: Financial derivatives are unregulated. By all accounts this has been a disaster. Warren Buffett warned they represent "weapons of mass financial destruction". They have amplified the financial crisis. The Commodity Futures Trading Commission (CFTC) sought to exert regulatory control over financial derivatives during the Clinton era, but failed to get the authority. The non-regulation of financial derivatives was again assured in 2000, with the Commodities Futures Modernization Act.

Comment: These two steps were crucial. They were victories for “financial innovation” – i.e., non-regulation. Passage of the Commodities Futures Modernization Act under the leadership of Senator Phil Gramm prohibited any incursion by the CFTC into regulating financial derivatives.

5-6. Excessive Capital Leveraging Was Encouraged. In 1975, the Securities and Exchange Commission (SEC) promulgated a rule requiring investment banks to maintain a debt-to-net-capital ratio of less than 15 to 1. In simpler terms, this limited the amount of borrowed money the investment banks could use. In 2004, however, the SEC succumbed to a push from the big investment banks, led by Goldman Sachs, and authorized investment banks to develop net capital requirements based on their own risk assessment models. With this new freedom, investment banks pushed ratios to as high as 40 to 1. Meanwhile global bank regulators, in a program known as Basel II, should have been tightening up capital requirements but, influenced by the banks themselves, have been moving in the opposite direction, toward letting commercial banks rely on their own internal risk-assessment models.

Comment: It’s as simple as ABC. Bank examiners look at the loan portfolios of banks to ensure Adequacy of Bank Capital. The potential for systemic meltdown is huge when investment banks have debt-to-net-capital ratios as high as 40 to 1.

7-9. No Predatory Lending Enforcement: Banking regulators retained authority to crack down on predatory lending abuses, but they sat on their hands. The Federal Reserve took three formal actions against such abuses in 2002-2007, while the Office of Comptroller of the Currency took three in 2004-2006. When the states sought to fill the vacuum created by federal non-enforcement of consumer protection laws against predatory lenders, the Feds stepped in and prohibited states from enforcing consumer-protection rules against nationally chartered banks. Under the doctrine of “assignee liability,” anyone profiting from predatory lending practices should be held financially accountable. With some limited exceptions, however, assignee liability does not apply to mortgage loans. Rep. Bob Ney worked hard to keep this effective immunity.

Comment: Bank supervision was lax. It happens when everyone seems to be making money.

10. Fannie and Freddie Enter Subprime. Fannie Mae and Freddie Mac were dominant purchasers in the subprime secondary market. The Government-Sponsored Enterprises were followers, not leaders, but they did end up taking on substantial subprime assets -- at least $57 billion. The purchase of subprime assets was a break from prior practice, justified by theories of expanded access to homeownership for low-income families and rationalized by mathematical models allegedly able to identify and assess risk. Fannie and Freddie are responsible for their own demise.

11. Merger Mania: Megabanks achieved too-big-to-fail status. While this should have meant they be treated as public utilities requiring heightened regulation and risk control, other deregulatory maneuvers enabled them to combine size, explicit and implicit federal guarantees, and reckless high-risk investments.

12. Credit Rating Agency Failure: Wall Street packaged mortgage loans into pools of securitized assets and then sliced them into tranches. The resultant financial instruments were attractive to many buyers because they promised high returns. But pension funds and other investors could only enter the game if the securities were highly rated. The credit rating agencies enabled these investors to enter the game, by attaching high ratings to securities that actually were high risk. The Credit Rating Agencies Reform Act of 2006 gave the SEC insufficient oversight authority. The SEC must give an approval rating to credit ratings agencies if they are adhering to their own standards -- even if the SEC knows those standards to be flawed.

Enough "Blood on the Streets"?

2009-03-06T05:15:00.000-08:00

How low can the market go? In 1815, Nathan Rothschild said that the time to buy stocks was "when there is blood on the streets". Are we there yet?

The Great Depression lasted a decade but the Dow industrial index fell 89 percent from its high of 381 on September 3, 1929 to its low of 41 on July 8, 1932. The economy remained sour for the rest of the decade but the stock market picked up.

For the enthralling story of what happened during those years, I recommend chapters 17-20 of Liaquat Ahamed’s timely Lords of Finance: The Bankers Who Broke the World. I had the pleasure of listening to Liaquat talk at a recent evening event in New York City. He modestly disclaimed knowledge of the financial disasters that were going to happen and simply said that the Time magazine cover showing Robert Rubin, Larry Summers and Alan Greenspan with the caption “Committee to Save the World” suggested to him the idea for his book. The title reminded him of the name given to the top bankers working on global financial problems after World War I, “The Most Exclusive Club in the World.” The book studies the origins of the Great Depression that is clearly told by taking the different perspectives of the four leading actors of the period, the Lords of Finance -- Montagu Norman in the UK, Benjamin Strong at the New York Fed, Hjalmar Schacht in Germany and Emile Moreau in France.

Yesterday’s stock-market drop brings us to a cumulative decline that can only be compared with the 1930s. Fearful of today’s jobs report, investors drove the major U.S. stock averages down 4-7 percent. Jack McHugh has tallied from StockCharts.com how far down this took the markets from their peaks.

I think we can all agree that what ails our economy and markets is worse than anything since that awful time [the Great Depression], and the worst punishment Mr. Market has meted out since the 1930’s was a drop in the S&P 500 of just less than 50% (1974 & 2002).

The cumulative drop from their peaks (October 11, 2007 so far is:
Dow Jones Industrial Average — All Time High: 14,198. March 5 - Down 53.6% to 6594.
Standard & Poor’s 500 — All Time High: 1576. March 5 - Down 56.7% to 683.
Russell 2000 — All Time High: 856.50. March 5 - Down 59.2% to 349.45.
KBW Bank Index (BKX) — All Time High: 121.16. March 5 - Down 84.3% to 18.97.

Barry Ritholtz’s blog provides this list of Blue Clip penny and under-$10 stocks:
AIG (39 cents – less than it costs to mail a letter). Citigroup (98 cents). E*Trade (66 cents). Fannie Mae (39 cents). Freddie Mac (39 cents). Unisys (37 cents). Ford ($1.83). GM ($1.83). Las Vegas Sands ($1.97). MGM ($1.99). CIT ($2). Kodak ($2.50). Bank of America ($3.15). New York Times ($4.00). News Corp ($6.15). Xerox ($4.36). International Paper ($4.22). Alcoa ($5.55). GE ($6.75). Dow Chemical ($6.56). Wells Fargo ($7.95). Dell ($8.50).

In terms of timing, the Dow peaked before FDR came to office – before he was even elected. So the fears are lingering longer than they did then.

In what ways are markets and economies possibly worse off than in 1932?
- Expectations are higher because billions of people in the developing countries who were anticipating joining the global economy are seeing their hopes dashed. The 1930s effects were severe but were concentrated on the industrialized countries. The potential for instability in some countries is great and the proliferation of weapons makes this scarier than it would have been in the 1930s.

- The size of the credit overhang is much larger. The gold standard, for all of its faults in extending the distress in the 1929-33 period, kept a lid on the growth of credit. Today’s system has no natural limit to credit growth. Credit-market exposures today exceed GDP – in the United States by 50 percent, estimates Liaquat, in the UK by four times, and in Iceland by eight times GDP.

- In the world’s second-largest economy, Japan, the stock market has fallen 81 percent from its peak at the end of 1989. This 20-year decline raises questions about how quickly the world's current mess can be cleaned up.

Higher Unit Labor Costs Won't Help U.S. Compete

2009-03-05T07:13:00.000-08:00

I thought the inflation dragon was reliably on vacation as the Great Recession reduces demand for goods and services. But unit-cost (cost-push) inflation seems to have returned in the fourth quarter of 2008 with more ferocity than previously reported.

The BLS announced today revised figures for the fourth quarter of 2008 that show labor productivity declined 0.4 percent in the overall nonfarm business sector, as output fell faster than hours. Unit labor costs increased 5.7 percent. These are seasonally adjusted annual rates of change from the preceding quarter.

The decline was greatest in the manufacturing sector, where productivity (output per hour) fell 4.0 percent, a downward revision (from -3.0 percent) of one percentage point from numbers previously announced on February 5. Output dropped 17.7 percent, and hours fell 14.2 percent. The declines were all the largest since the series began in second-quarter 1987. Unit labor costs increased 14.7 percent.

Within manufacturing, reduction in hours exceeded reduction in output in nondurable manufacturing.

But reduction in hours was less than reduction in output in the case of durables. In the durable goods manufacturing sector, productivity dropped 14.8 percent, as output per hour fell 26.9 percent and hours declined 14.2 percent. (See Table B.) The decreases in output and output per hour were the biggest since the series began in second-quarter of 1987.

Fourth-quarter 2008 output per hour fell relative to the same quarter in 2007, the first negative figure in the chart going back to 2001. The unit cost increase is also higher than any other quarter on the chart. (See Charts 3 and 4.)

The loss of productivity would not surprise Harold Cole, Lee Ohanian and Ron Leung, who concluded (2005) that monetary shocks only account for one-third of the wouldwide loss of output in the Great Depression and that lowered productivity shocks accounted for two-thirds of the loss.

It’s not surprising that durable manufacturing would be showing a decline in productivity at a time when the future of the U.S. auto industry and other industries is in doubt. Imagine being an auto worker in this environment. Prescriptions for antidepressants have increased 15 percent during the last year even though marketing for them has fallen. There isn't much argument against the idea that personal depression reduces productivity. But higher unit labor costs won't help U.S. manufactures compete at home or overseas.

NYC Tax Amnesty: A Good Idea?

2009-02-27T19:26:00.000-08:00

The Daily News has been running a series of stories showing more than $2 billion in various fines and taxes owed to the City of New York by scofflaws. Their reporter Erin Einhorn today writes that the City Comptroller has sent a letter to the Mayor calling for a tax amnesty.

A tax amnesty works like this: The tax collection agency announces a window of opportunity during which taxpayers owing money from prior years may voluntarily pay up. During this window, the taxpayers are assured they won't have to pay penalties or interest.

Amnesties have worked in the past. People whose consciences were bothering them, or were afraid of being caught some day, chose the amnesty window to come clean. In 1985 a New Yorker sent in a check for $2.5 million to cover unpaid taxes. NY City collected $84 million from an FY 2004 amnesty; NY State collected $22 million from an amnesty the year before.

Mayoral spokesman Marc LaVogna advises that the Finance Department already has an amnesty program, but I could find no details on the www.NYC.gov/finance site or using Google.

Is a tax amnesty a good idea?

1. Evidence from NYC's experience with payments for trips and falls suggests it's always a good idea to settle early and reasonably to avoid costly administrative expenses. So Speaker Quinn's idea of negotiating away some fines in return for early payment makes sense. But this is a case-by-case concept rather than a blanket amnesty.

2. Specifically, scofflaws outed in the Daily News should not be covered by a blanket amnesty. The jig is up for them. Delinquents already in the crosshairs of the Finance Department should perhaps qualify for individual concessions to speed up payment but not for a general one.

3. Amnesties offered frequently yield decreasing returns. Having had one in 2004, it may be too soon for the City to have another one. The City's current need for revenue, its potential increase in revenue and reduction in staff time, should be weighed against the loss of penalties and interest.

4. Amnesties have been known to be counterproductive, causing a reduction in compliance. Offers of amnesty should always be accompanied by an announced commitment to a higher level of enforcement after the amnesty window closes. Otherwise frequent amnesties create the danger of "moral hazard", perversely increasing the number of scofflaws. Fewer taxpayers might pay on time if they can count on there being frequent amnesties from penalties and interest.

Mayor Bloomberg Seeks to Clone Himself

2009-02-24T23:14:00.000-08:00

Nearly 30 years ago, Mayor Michael Bloomberg left Salomon Brothers (it was the recession of 1981-82), and he transformed his $10 million severance check and his Salomon shares into a giant company with more than 9,000 employees concentrated in the New York City area.

He had a hunch he could compete with the Reuters terminals and he was right.

Now he wants to clone himself so that in 30 years other people can look back and say: "My giant company got started in New York during the Decession (Repression?) of 2008-2010."

His new idea is one I hoped the Mayor would come round to. I said so last October in an Op Ed in City Hall News:

Today, the city has a once-in-a-generation opportunity to harness the energy of Wall Street entrepreneurs bursting with ideas as grand as Bloomberg's was in 1981, but who need partners to make their ideas a reality. Layoffs from the downsizing of Wall Street create a unique opportunity for talented displaced workers to start or partner in new businesses or social ventures. The displacement could help advance the Mayor's PlaNYC 2030 agenda by encouraging green entrepreneurs--profit-oriented or nonprofit, like Solar One and GreenEdge NYC--to make the Big Apple into the Green Apple.

When I wrote this less than five months ago, the latest estimate from Albany of the likely loss of New York's financial services jobs was 40,000. The estimate now is 65,000.

Mayor Bloomberg doesn’t pretend his plan will restore all 65,000 jobs. But his “guess” is that the small businesses could create 25,000 jobs. Last week a NY Times story by Patrick McGeehan describes the Mayor’s new plan, which is to

invest $45 million in government money to retrain investment bankers, traders and others who have lost jobs on Wall Street, as well as provide seed capital and office space for new businesses those laid-off bankers might create. The plan is intended to stem a potential exodus of banking professionals from the city during the restructuring of the financial services industry, which has been the city’s economic engine for decades, and to speed the industry’s recovery, which will take at least several years, officials said. Mr. Bloomberg recounted how he created his company in a rented 10-foot-by-10-foot room. He received no help from the city, but he said that was no reason not to help other entrepreneurs now.

The most tangible aspect of the plan is the creation of new incubators, one of them at 160 Varick Street, where he announced his new plan. The Varick Street building

will house an incubator for start-up companies that might employ laid-off professionals. Trinity Real Estate donated the space for three years and the Polytechnic Institute of New York University will select the entrepreneurs who will occupy the space, beginning in April. A second business incubator is scheduled to open in Lower Manhattan later in the year, said Seth W. Pinsky, the president of the city’s Economic Development Corporation. The agency plans to put $3 million into funds to make small investments in start-up companies, Mr. Pinsky said. He said that he hoped to attract twice as much money from private investors and that $9 million would be enough to help start hundreds of new businesses.

I spent the first half year after retiring from the Comptroller's Office in a business incubator in Manhattan and I have recently written about another one, Green Spaces in Brooklyn, as “Green Edge 14”. A report I worked on for the NYC Comptroller on the software industry in 1999 concluded that NYC needed more well-conceived incubators.

Successful incubators such as those that spawned the successes of Route 128 and Silicon Valley require energy from several sources. The MIT-Stanford model is based on a three-way fusion of energy from business entrepreneurs, government money and leadership, and university knowledge. Incubators in New York City that have petered out have usually lacked strong enough government support or university involvement.

My friend Professor Henry Etzkowitz calls the fusion of energy from the three sources in a well-functioning incubator the "Triple Helix" of innovation. If we are looking to clone financial entrepreneurs, it’s hard to think of a better DNA to work with than the Mayor’s.

Causes of the Depression: Real Estate Speculation or the Fed?

2009-02-23T10:06:00.000-08:00

In the 1950s, the cause of the Great Depression was attributed to 1920s over-speculation in real estate, with Florida as the poster state. Subsequently, monetarist economists have put the blame on blunders by the Federal Reserve System, which was adrift after the death in 1928 of its able New York Bank President, Benjamin Strong. Milton Friedman and Anna Schwartz demonstrated that the Fed kept interest rates too high in the 1930s.

Making the Fed the culprit has contributed to a complacent feeling that the Fed knows so much now that the Depression couldn't happen again. The problems of the Japanese financial system since 1990 have been brushed off (e.g., by former Fed Governor Larry Meyer) as indicators that the Japanese response to a downturn was just too slow and too timid.

Polly Cleveland has recently reasserted the older version of the story, namely that the Depression was primarily a reaction to the 1920's real estate bubble. It began with the production of cars in 1899, which grew exponentially (with just a two-year interruption for World War I) until a peak of 4 million cars in 1929.

The auto suddenly opened up vast suburban and rural areas to housing. Developers—legitimate and bogus—leapt at the opportunity. Banks jumped in too, creating so-called "shoestring mortgages", effectively allowing property purchases on margin. Within a few years, tens of thousands of acres around major cities had been subdivided and sold. In rural areas, developers bought up farms, dug a pond, built a "clubhouse" and sold cheap "vacation" lots. As reported in Homer Hoyt's classic “One Hundred Years of Land Values in Chicago, from 1918 to 1926,” Chicago’s population increased 35 percent and land values rose 150 percent, or about 12 percent a year.

Land values tapered off in 1926, then fell. After 1929, home construction and car production collapsed. In Chicago, by 1933 land values had fallen some 70 percent overall; peripheral areas fell even more. U.S. auto production did not regain the 4 million level until 1949. Housing production did not pass the 1926 peak until 1950. Cleveland continues:

Around Detroit, more than 95 percent of recorded lots were vacant as of 1938. Nationally, the number of vacant lots rose to 20-30 million, compared with about 30 million occupied housing units. According to economic historian Alex Field, the barren subdivisions ringing the cities hindered the recovery of construction: Missing titles of defaulted owners and poor physical layout created de facto brownfields.

The real estate bubble helped set off and then worsen the Depression. Collapsing land values left people suddenly much poorer, so they cut spending. They also defaulted on mortgages, sticking the banks with "toxic" assets: liens on near-worthless property. The struggling banks in turn cut off lending even to good customers. Bank runs—panicky depositors withdrawing cash—further crippled the banking system.

Cleveland compares the innovation of the automobile with the innovation of collateralized debt obligations. Both started off innocently enough (securitization of housing debt was a good idea when properly monitored), but ended up setting off destructive real estate bubbles.

What we have found out is that the downside of the business cycle is not necessarily more under control than it was in the 1930s.

Why Do Gas Prices Rise While Crude Prices Fall?

2009-02-21T19:51:00.001-08:00

I was wondering why gas prices have not fallen in line with the drop in the price of crude oil. It's a deepening global recession. Demand is dropping continuously, and crude oil prices have behaved as we expected. Why haven't retail prices dropped correspondingly? Instead, they have been rising. Is this perverse situation going to continue?

To answer the last question first, the Oil Price Information Service says that a disconnect between crude prices and gasoline prices will continue well into this year, with an average price of gas at the pump rising to $2.50 a gallon by early Spring. Prices are not expected to get back to the $4 per gallon level--at least not soon--but don't expect the price of gas to follow the decline in crude oil prices.

What's going on here? Price-gouging? An answer has been provided by the HEAT Zone blog on February 16, 2009 and I pass it on.

1. Refining activity has been cut back

Demand for gasoline in the U.S. began to drop at the end of 2008, as penny-pinching Americans drove less. Plummeting demand for gasoline, usually the most profitable petroleum product, led to refiners actually losing money as the wholesale price of crude purchased to manufacture gasoline actually cost more than the wholesale gasoline refiners were selling. When raw materials used to make a product cost more than that product, producers lose money. Wanting to minimize their losses, refiners cut back on gasoline production substantially, putting activity levels at their lowest point in 17 years, according to the Energy Information Administration. This supply reduction has succeeded in driving prices up 22 percent since December 30, 2008.

2. Different crude prices

Oil prices are commonly reported as the price of West Texas International crude oil sold on the NYMEX (NY Mercantile Exchange). West Texas is a high quality crude that in the past has drawn a higher price than crude from the Middle East or Latin America. However, plummeting demand for petroleum products worldwide means huge supplies of West Texas oil are available, pushing the price of West Texas crude below other crude oils from around the world (such as North Sea Brent crude from the UK and light, sweet crude from Saudi Arabia). Because international crude has usually been cheaper than West Texas crude, American refineries are set up to receive crude by tanker and no domestic transport systems exist—-so refineries can’t easily switch to West Texas crude while it’s cheaper.

Now, boys and girls, you know why gas prices at the pump are rising even though the price of crude oil we produce in West Texas is falling.

The Shift to Thrift

2009-02-17T19:33:00.000-08:00

One of the joys of being interviewed in the mainstream media is you hear from friends with wise or witty reactions. I got a nice note from Dick Roberts about the NY Times quoting me in the Economists’ Forecast story yesterday:

Delighted that the Times saw fit to consult you. The photo adds authenticity.

Dick wrote a response to my somewhat bearish perspective on New York City. He could also have been responding to Ann Medlock's salute to the coming return to fashion of the forgotten virtue of thrift. After all, the only 2008 winners among Dow stocks are the two retailers, Wal-Mart and McDonalds, that cater to thrifty consumers.

Dick, who is my frequent summertime tennis partner, provides a warning about the excesses of thrift:

Since most of the issues confronting us have their analogy in tennis, consider the consequences of players, who feeling poor, play a few extra sets with a can of balls they would have discarded in more opulent times.

A seemingly innocuous bit of domestic thrift could have, alas, serious consequences:

Since the balls have less bounce, the players stretch too far and run too fast, leading to injuries, thereby imposing additional costs on insurers, Medicare, and personal savings. Result: diminished funds available to purchase consumer goods. Result: retarded growth in the US economy, reduction of imports. Result: acceleration of recessions in Asia, Europe, third world. Result: social unrest in Mideast, unemployment in China, possible regime changes in unstable countries. All for the want of a horseshoe nail. What can you and I and our spouses do to reverse this trend?

Dick's warnings are a stretch but I actually worked on a study of this kind at the NYC Comptroller's Office in 1995, on the "Net Loss" from some budget cuts. The study is likely to get dusted off by agencies facing cuts because of looming gaps in state and city budgets. Thank you Dick, for reminding me to flag the report!

Reactions to Dennis Blair's Security Scares

2009-02-16T02:25:00.000-08:00

Dennis Blair, Obama's director of national intelligence, told the Senate Intelligence Committee on Friday that based on reports from the nation's 16 intelligence agencies, the global recession is now the country's top security concern. Unrest overseas, he says, would be a threat worse than terrorism.

I interviewed Jim Burke of CBER, which tracks what institutional investors are doing. His comments are posted here.

NYC Fiscal Solutions from Speaker Quinn

2009-02-13T20:21:00.000-08:00

Speaker Christine Quinn is attempting to help solve NYC's fiscal problems by raising the rate of taxation of NYC's personal income tax (PIT) on incomes above $297,000, to 4.25 percent (from 3.65 percent), above $532,000 to 4.45 percent and above $1.2 million to 4.65 percent (i.e., a full percentage point increase). The current NY State top rate is 6.85 percent and this is also being considered for an increase.

The PIT surtax is estimated to raise $1 billion and I could be convinced that under current conditions the increase is fair and the brackets well chosen, because:
- NYC has to balance its budget. There are no easy solutions. Those who are high income earners are better able to weather the storm.
- Back in the early days of the Clinton Administration, New Yorkers earning more thsn $200,000 got hit with a surcharge. There was little complaint (New Yorkers voted for him with lop-sided majorities) and the economy recovered well from the recession that hit its lowest point in 1992.
- Anyone in the bracket above $297,000 knows that taxes paid to NYC are deductible from taxable federal income. So the tax is shared with Uncle Sam.
- It's very hard to find a tax that doesn't hurt NYC's competitive situation (the property tax, which is the best of the taxes to raise for competitive reasons, has already been increased), but at least high income earners know that NYC is a good business partner and is a good place to live.
- My friend the late Karen Gerard, former deputy mayor for economic development, once said that after her retirement from the city she worked out a way to save a Wall Street firm millions of dollars by moving to New Jersey. She expected the firm to move. Instead, its reaction was that he savings was "chump change". For many individuals, it would take more than a 1 percentage point increase in the NYC income tax to persuade them to move out of NYC.
- The only tax that doesn't affect the competitive situation of NYC is a tax on land.

On the other hand:
- There would be a competitive effect relative to Connecticut or New Jersey or upstate.
- The top bracket will be high for a city tax. Back in May 2000, when I was Chief Economist in the Office of the NYC Comptroller, we reported a top rate of 3.9 percent, the highest PIT rate for any city that also had a state PIT. Washington, DC had a PIT rate of 9 percent for incomes above $20,000 - but it has no state PIT.
- An increase in the NYC's income tax would have to be approved by the state legislature. Albany has a much bigger budget gap to close than NYC and doesn't have the property tax to fall back on.
- The NYC increase would be on top of whatever increases the state comes up with. The Daily News on Feb. 5 reported that the number of millionaires in New York appears to have dropped by 10 percent, from 48,984 people in 2008 to 44,165 in 2009. The lower Wall Street bonuses would account for much of the change. One proposal would raise the state income tax above the current 6.85 percent for those making $250,000 and above. Others would start at $500,000 or $1 million.
- Gov. Paterson said the last time a temporary tax was approved on the wealthy, in 2003, New York was coming out of a recession. "In contrast, at this point we have not found the floor of this budget deficit, and millionaires - however many of them are still left - can't pay a $48 billion deficit over three years."
- Assembly Speaker Sheldon Silver said there is strong support for hiking taxes on the wealthy, which could raise at least $1 billion. A state surcharge of 1 percentage point on top of Speaker Quinn's percentage point would bring top combined state-city PIT rates to 12.5 percent.
- A fairness issue can be raised based on what percentage of PIT are paid by what percentage of taxpayers. Back in 1997, only 5.5 percent of NYC's PIT filers had adjusted gross incomes (AGIs) of more than $100,000. Yet they paid 57 percent of the PIT.
- A NYC PIT surcharge will be paid mainly by Manhattan residents. In 1997, Manhattan residents accounted for fewer than one-fourth of resident PIT filers, but half of AGIs and 57 percent of the NYC resident PIT tax liability.
- Nonresidents continue to get off lightly. They earned in 1997 on average twice the incomes of NYC residents, and accounted for 37 percent of the earnings of NYC workers, yet they paid only 7 percent of the PIT. Since then, the commuter tax has been eliminated.

Speaker Quinn has also assembled four proposals to help small businesses: Streamlining the permit and licensing process, waiving for 12 months permit and license fees and developing neighborhood marketing campaigns, requiring city agencies to review the effects of new regulations affecting small businesses, and offering commercial kitchen space “at a reasonable fee” to 60 start-up food manufacturers.

Three other proposals are designed to improve municipal efficiency: Merging city agencies with similar or overlapping functions, consolidating the Board of Education’s Retirement System into the general city pension system, reducing “unnecessary administration costs”, and reducing spending on municipal recruitment programs that currently cost the city $30 million a year.

Two proposals relate to R&D and training in the medical and biotech areas: Creating an annual four-year tax credit of up to $250,000 for research and development, facilities and staff training in the area of biotech, and training more nurses by linking experienced nurses to health-care-education programs at the City University of New York.

The remaining four proposals don't fit in any of the above areas: Purchasing the .nyc domain name for New York City businesses, organizations and residents; raising penalties for those who commit gang initiation crimes; creating a one-time amnesty program for those with outstanding violations to pay portions of fines; and improving the referrals of New Yorkers at risk of losing unemployment benefits to public programs like food stamps or Medicaid.

None of Speaker Quinn's smaller proposals would have anything like the fiscal impact of the surtax on personal incomes.

NYC and NY State Stimulus Details

2009-02-13T15:07:00.000-08:00

NY Gov. David Paterson and Sen. Charles E. Schumer (D-NY) held a conference call about the NY State share of the American Recovery and Reinvestment Act aka the stimulus package. According to the NY Times, the anticipated aid will bring more than $21 billion into the state, would close much of the city’s $4 billion budget gap and would significantly narrow the state’s $14 billion deficit. But Gov. Paterson warned that the state deficit was widening by the day.

Details that follow are abbreviated from Sen. Schumer’s website.

By some estimates, the package will create 215,000 new jobs in New York alone, while preventing layoffs of thousands more. "This is one of the first bills where New York gets more back from the federal government than we have put in," said Schumer.

FMAP
$12.6 billion boost in Federal Medical Assistance Percentage (FMAP) for New York over the next nine quarters. Currently, Medicaid is funded using a formula that determines how much the federal government contributes and how much the state is obligated to pay for Medicaid services. In New York, the federal government covers just 50 percent of Medicaid costs. New York is one of eleven states that divide the remaining bill between the state and the counties, putting a massive burden on county budgets. As a result of this, Upstate New York counties expect to pay $1.580 billion in Medicaid expenses this year. Because New York counties are faced with such a large share of Medicaid expenses, a portion of the FMAP boost for New York would go directly to the counties. So of the $12.6 billion, $8.6 billion will go to the state, $2.8 billion to New York City, $929 million to counties in Upstate New York and $262 million to Long Island.

EDUCATION AID

$2.72 billion for the State Fiscal Stabilization Fund to prevent massive cuts to education. New York spends approximately one-third of all tax revenue on education. All states, including New York, face massive budget deficits due to declines in the tax base. This funding will help make up that difference and prevent teacher lay-offs, cuts to education and property tax increases.

$800 million for Special Education Part B State Grants/IDEA to help educate individuals with disabilities. The federal government currently funds IDEA at only 17 percent. This money will significantly increase the federal share for special education funding.

$1 billion for Title I of No Child Left Behind. No Child Left Behind has been chronically underfunded, which means schools have had to live up to the demands of NCLB without the resources to do so. This funding is a much needed injection of funds to help schools meet the requirements of NCLB.

INFRASTRUCTURE

$87.5 million through the Drinking Water State Revolving Fund to address the backlog of drinking water infrastructure needs

$439.2 million through the Clean Water State Revolving Fund to address the backlog of clean water infrastructure needs

$1 billion in Highway Funding to be used on activities eligible under the Federal-aid Highway Program’s Surface Transportation Program and could also include rail and port infrastructure activities at the discretion of the states.

$1.3 billion in Mass Transit Funding for investments in mass transit.

COLLEGE TUITION TAX CREDIT

A new tax credit for tuition of $2,500 - a significant improvement over current tax benefits to families with children in college. For families that receive some benefit now from either the HOPE credit or the tuition deduction, the maximum benefit per student will increase by 39 to 317 percent, depending on the family's circumstances. Additionally, tens of thousands of families that receive no tax benefit today will be eligible for a refundable credit of up to $1,000.

FOR SENIORS & FAMILIES TO WEATHERIZE THEIR HOMES:

More than $403 million in weatherization funds for New York seniors and families to help reduce their sky-high home heating costs and create thousands of new jobs. This investment will save families up to $800 each on their utility bills and will create approximately 30,000 jobs in New York alone. It will also make New York more energy efficient and begin to reduce our dependence on volatile foreign sources of energy.

FOR LAW ENFORCEMENT

$96 million in COPS grants to hire and rehire local law enforcement officials. Schumer fought to make sure this funding was included in the bill so that local police departments could afford to maintain current staffing levels or hire new officers to combat rising crime.
$166.3 million in Byrne/JAG grants, which provide flexible funding to local police departments to support a variety of law enforcement efforts.

TAX BREAKS FOR NEW YORK FAMILIES

Up to $400 for individuals and $800 for married couples for the Making Work Pay Tax Credit, $250 to Social Security beneficiaries, SSI recipients, and disabled veterans.

$7,500 to $8,000 for the Improved Homebuyer Tax Credit for first-time homebuyers who purchase a home from the date of enactment through at least July, 2009. New homebuyers will no longer have to pay back the credit as required under current law. The exact amount of the credit is still under negotiation.
$2,500 for the College Tuition Tax Credit (an increase in the tax credit for higher education and allowing the credit for four full years)

3,142,000 NY taxpaers protected from the Alternative Minimum Tax, based on an estimate of the Congressional Research Service for 2009. Nationally, 26 million working families protected from the Alternative Minimum Tax, representing thousands of dollars in additional income taxes per family.

HOUSING

$4 billion nationally through the Public Housing Capital Fund to enable local public housing agencies to address a national $32 billion backlog in capital needs – especially those improving energy efficiency in aging developments – in this critical element of the nation’s affordable housing infrastructure. Of this amount, NYC will receive $390 million.

$251 million in HOME Funding to enable state and local government, in partnership with community-based organizations, to acquire, construct, and rehabilitate affordable housing and provide rental assistance to low-income families

$142.1 million through the Homelessness Prevention Fund to be used for prevention activities, which include: short or medium-term rental assistance, first and last month’s rental payment, or utility payments. As such, most of this funding will go directly into the economy of local communities, as the funds will be used to pay housing and other associated costs in the private market

$98 million for Community Development Block Grants, flexible grants that provide communities with resources to address a wide range of unique community development needs.

$51 million for the Neighborhood Stabilization Program, a program that provides funding for communities to redevelop demolished or vacant properties and purchase and rehabilitee foreclosed homes for resale. This grant program will endow Upstate New York communities with the funds needed to finally tackle the growing vacant housing problem that drives down property values and contributes to neighborhood blight.

Blair Warns of Economic Unrest

2009-02-12T21:51:00.000-08:00

Dennis Blair, Obama's director of national intelligence, told the Senate Intelligence Committee yesterday that the global recession could create unrest overseas that would be a threat worse than terrorism. He said:

“The longer it takes for the recovery to begin, the greater the likelihood of serious damage to U.S. strategic interests.

In other words, we can expect the Global Peace Index - the Dow-Jones of world peace - to take a hit. Just to start with the first name on the list, the most peaceful country in the world in mid-2008 was Iceland, which has seen all three of its major banks become insolvent.

Iceland replaced Norway as #1 in both the Global Peace Index and the UN's best-place-to-live table of 177 countries, based on health care, life expectancy, per-capita income and education.

With a population of barely 300,000, Iceland has an admired free health and education system. It buys the most books per capita and the most mobile telephones, and it has the highest proportion of working women in the world.

But Iceland's banking system has liabilities of more than $100 billion, a huge amount for a country with a GDP of $14 billion.

Iceland certainly over the long run qualifies as a peaceful country, since it gave up its armed forces 700 years ago.

But at the end of November, Iceland's citizens assembled to call for the government to resign, and at least five people were injured. The krona’s value was cut in half following a banking crisis that started in October. One-third of the population is at risk of losing their homes and savings.

Global Peace Index Rankings

The table below provides the 2008 GPI rankings for the 140 countries analysed in that year and the 121 countries analysed in 2007, as well as year-on-year comparison. Countries most at peace are ranked first. A lower score indicates a more peaceful country. You can click on a country to see the detail of its peace indicators and drivers.

Global Peace Index 2008 http://www.visionofhumanity.org/gpi/results/rankings.php
• Compare
• 2007
• 2008
Country
Rank
Score
Iceland1
1.176
Denmark
2
1.333
Norway
3
1.343
New Zealand
4
1.350
Japan
5
1.358
Ireland
6
1.410
Portugal
7
1.412
Finland
8
1.432
Luxembourg
9
1.446
Austria
10
1.449
Canada
11
1.451
Switzerland
12
1.465
Sweden
13
1.468
Germany
14
1.475
Belgium
15
1.485
Slovenia
16
1.491
Czech Republic
17
1.501
Hungary
18
1.576
Chile
19
1.576
Slovakia
20
1.576
Uruguay
21
1.606
Netherlands
22
1.607
Hong Kong
23
1.608
Romania
24
1.611
Oman
25
1.612
Bhutan
26
1.616
Australia
27
1.652
Italy
28
1.653
Singapore
29
1.673
Spain
30
1.683
Poland
31
1.687
South Korea
32
1.691
Qatar
33
1.694
Costa Rica
34
1.701
Estonia
35
1.702
France
36
1.707
Vietnam
37
1.720
Malaysia
38
1.721
Latvia
39
1.723
Ghana
40
1.723
Lithuania
41
1.723
United Arab Emirates
42
1.745
Madagascar
43
1.770
Taiwan
44
1.779
Kuwait
45
1.786
Botswana
46
1.792
Tunisia
47
1.797
Panama
48
1.797
United Kingdom
49
1.801
Mozambique
50
1.803
Laos
51
1.810
Cyprus
52
1.847
Zambia
53
1.856
Greece
54
1.867
Gabon
55
1.878
Argentina
56
1.895
Bulgaria
57
1.903
Tanzania
58
1.919
Nicaragua
59
1.919
Croatia
60
1.926
Libya
61
1.927
Cuba
62
1.954
Morocco
63
1.954
Equatorial Guinea
64
1.964
Jordan
65
1.969
Bosnia and Herzegovina
66
1.974
China
67
1.981
Indonesia
68
1.983
Egypt
69
1.987
Paraguay
70
1.997
Senegal
71
2.011
Kazakhstan
72
2.018
Malawi
73
2.024
Bahrain
74
2.025
Syria
75
2.027
Rwanda
76
2.030
Namibia
77
2.042
Bolivia
78
2.043
Albania
79
2.044
Peru
80
2.046
Burkina Faso
81
2.062
Dominican Republic
82
2.069
Moldova
83
2.091
Ukraine
84
2.096
Serbia
85
2.110
Bangladesh
86
2.118
Macedonia
87
2.119
Mongolia
88
2.155
El Salvador
89
2.163
Brazil
90
2.168
Cambodia
91
2.179
Cameroon
92
2.182
Mexico
93
2.191
Belarus
94
2.194
Papua New Guinea
95
2.224
Jamaica
96
2.226
United States of America
97
2.227
Trinidad and Tobago
98
2.230
Mali
99
2.238
Ecuador
100
2.274
Azerbaijan
101
2.287
Turkmenistan
102
2.302
Guatemala
103
2.328
Honduras
104
2.335
Iran
105
2.341
Yemen
106
2.352
India
107
2.355
Saudi Arabia
108
2.357
Haiti
109
2.362
Angola
110
2.364
Uzbekistan
111
2.377
Algeria
112
2.378
Philippines
113
2.385
Uganda
114
2.391
Turkey
115
2.403
South Africa
116
2.412
Congo (Brazzaville)
117
2.417
Thailand
118
2.424
Kenya
119
2.429
Mauritania
120
2.435
Ethiopia
121
2.439
Cote d'Ivoire
122
2.451
Venezuela
123
2.505
Zimbabwe
124
2.513
Sri Lanka
125
2.584
Myanmar
126
2.590
Pakistan
127
2.694
Democratic Republic of the Congo
128
2.707
Nigeria
129
2.724
Colombia
130
2.757
Russia
131
2.777
Lebanon
132
2.840
North Korea
133
2.850
Central African Republic
134
2.857
Chad
135
3.007
Israel
136
3.052
Afghanistan
137
3.126
Sudan
138
3.189
Somalia
139
3.293
Iraq
140
3.514

back to top

Happy 100th Birthday NAACP

2009-02-12T01:28:00.000-08:00

Today is the 200th birthday of Abraham Lincoln and is also the 100th birthday of the NAACP. Its founding was scheduled for February 12, 1909, and this is considered the NAACP's birth date even though the meeting was postponed to May 30.

Billed as a conference of the Niagara Movement, the meeting was held in New York City's Henry Street Settlement House. The 40 people in attendance called themselves at first the National Negro Committee. Harvard Professor W. E. B. Du Bois helped organize the event and presided over it. One year later, at its second conference, the membership renamed themselves the National Association for the Advancement of Colored People.

The first officers, as reported by Mary White Ovington were:
- National President, Moorfield Storey, Boston
- Chairman of the Executive Committee, William English Walling
- Treasurer, John E. Milholland - Disbursing Treasurer, Oswald Garrison Villard
- Executive Secretary, Frances Blascoer
- Director of Publicity and Research, Dr. W. E. B. DuBois.

John E. Milholland, the NAACP's first Treasurer, was a Presbyterian from New York City and Lewis, NY. A lifelong Republican, Milholland championed the rights of black Americans, in the Lincoln tradition, long after his party had ceased to care.

His daughter Inez Milhollandinsisted that a delegation from Howard University be allowed to march in the 1913 woman suffrage parade in Washington. She died in 1916 after an exhausting series of weeks campaigning against President Woodrow Wilson for not supporting the right of women to vote.

At a memorial for Inez in 1924, her father complained publicly about the absence of black people on the program.

On the centennial of their founding, the NAACP called for equity in distribution of stimulus funds.

The Life and Death of Multinational Corporations

2009-02-09T20:25:00.000-08:00

My friend Michael Phillips sent an email today expressing scepticism about the awesome power of the "big global companies". He argues that despots like Mao, Stalin, Castro, Chavez, Ho Chi Minh and Kim Jong-il are much more durable. He refers back to a list he says he was the first to post on the Internet the top 100 global companies in 1960. He compares that list to the top global companies in 2008.

Only eleven companies are on both lists. Another only has the same name (AT&T is not the same continuous company) and two of the eleven are about to collapse (Ford, GM). Four from the 2008 list are already out of business (Citigroup, Bank of Scotland, Merrill Lynch and Volkswagen).

So, he says, we have more to fear from dictators than multinationals. Dictators have the power to use weapons that with proliferation are becoming more dangerous.

Of the top hundred global companies today, among these ferocious demonic monsters, only eleven will still exist when today's 20 year-olds are retiring. Big global corporations are best compared to orchids, delicate hot house plants. They come and go, mostly go. Fear of big global companies is not a rational fear.

Food for thought. We should be enlisting multinational corporations in the cause of nonproliferation and peace. Nuclear weapons in the hands of rogue states can't be good for most businesses.

Turkey's Economy - Action Needed Now

2009-02-09T14:42:00.000-08:00

Having traveled to Istanbul three times in the last two years, I'm interested in how the Turkish economy is bearing up. I emailed a Pace University MBA graduate, Filiz Bakirhan, who was both a student of mine and an intern at the NYC Comptroller's Office, and now lives in Turkey. I asked her for an update on the economy.

She reports that Turkey is affected deeply, like so many other countries, by the financial crisis that stems from U.S. subprime mortgage problems beginning in 2007. She says:

By the third quarter of 2008, Turkey’s economy was seriously affected and the crisis is expected to worsen in 2009. Global production and trade has decreased sharply. Many sectors in Turkey with difficulty refinancing their short-term debts. Some companies have gone bankrupt even with strong sales. Credit problems have contributed to an increase in the unemployment rate to 10.9% in October 2008 from 9.7% in 2007. Consumers have decreased their spending because of the economic insecurity.

Apparently Turkey has been slower to take action than other countries. Turkey’s AKP (Justice and Development Party) has not introduced its own stimulus package, and faces local elections next month. Businesses are looking for tax incentives or tax reductions.

Payroll taxes are high and payroll tax cuts would lower the barriers to hiring workers from the unregistered economy. Businesses are also hoping the government will increase public spending to spur demand. Some also urge the government should restructure its tax sources to raise more revenue from taxes on land. In Turkey, many people are squatters and pay no taxes on land. But a series of Turkish governments have sought votes from squatters by giving them rights.

What has Turkey done so far? Filiz says it has taken one concrete action:

On January 15, the Turkish Central Bank cut its interest rate to 13% from 15%. Although the Turkish Lira has lost almost a quarter of its value in 2008, Turkish commentators think that it is presently secure.

In addition, the government has been negotiating with the IMF:

Turkey’s previous three-year $10 billion standby loan deal expired in May. A new agreement is expected to be for 18-24 months and includes financial support in the $20-25 billion range. Some economists believe that an IMF deal won’t be finalized until after the March elections and in any case won’t affect the situation greatly because the IMF money won’t be enough. But the new deal might boost confidence in the market and help the non-financial sectors recover their debts.

Is this enough? Filiz says no:

The AKP needs to give Turkey a stimulus package including tax reduction and public spending as well as a new IMF agreement, before next month’s elections.

HuffPost Editorial Panel Talks about the Business

2009-02-07T20:49:00.000-08:00

Behind HuffPost are lots of people, not just (surprise) Arianna Huffington. Four of them were on offer at the 92nd Street Y in Manhattan February 5.

The panel discussion is billed as giving the lowdown on "How they choose the stories that make the news" and "their insights into blogging, including what blogs they link to and why, what content gets blogs noticed, the best practices for community building and quick tips for making blogging more empowering, profitable and fun."

The MC is Editor Roy Sekoff, shown at left. With him are Senior News Editor Katharine Zaleski, Senior Blog Editor Colin Sterling and Columnist-Reporter Jason Linkins. If you’ve never clicked on the "About Us" button on HuffPost, here’s the editorial staff lineup (the business side is another world). The four speakers are shown in bold:

Co-Founder & Editor-in-Chief: Arianna Huffington
Chief Executive Officer: Betsy Morgan
Editor: Roy Sekoff
Political Editor: Thomas B. Edsall
Senior Editor: Willow Bay
Senior News Editor: Katharine Zaleski
Senior Blog Editor: Colin Sterling
National Editor: Nico Pitney; Senior Features Editor: Katherine Thomson
Senior Style Editor: Anya Strzemien; Media Editor: Danny Shea
Business/Green Editor: Dave Burdick; Living Editor: Verena von Pfetten;
World Editor: Hanna Ingber Win; Chicago Editor: Ben Goldberger;
Washington Editor at Large: Hilary Rosen; Night Editor: Marcus Baram
Associate News Editors: Nicholas Graham, Nicholas Sabloff
Associate Video Editor: Patrick Waldo
Associate Editor, Citizen Journalism: Matt Palevsky
Associate Blog Editors: David Flumenbaum, Katherine Goldstein, David Weiner, Whitney Snyder
Reporters: Ryan Grim, Jason Linkins, Sam Stein
Community Manager: Katie Saddlemire
Editor at Large: Nora Ephron

Roy has a challenge as MC. The crowd has struggled in from a dark, icy-cold, windy night. Roy is well tanned, obviously just flown in from the LA sun and zephyrs. He’s breezy himself and used to taking control of the house. However, his first couple of warmup jokes fall flat on a sullen audience of 100 or so earnest New Yorkers, God’s frozen people. My take is they resent he hasn’t been suffering with them the bitter NYC weather. Think: Jovial American journalist covering the 900th day of the Siege of Leningrad.

In fairness to audience members, they not only braved the cold but paid $27 plus round trip fares, in a deepening recession. Not even relatives got in free. Roy starts in about the blogger tone being “more personal than the typical news story, something you would write to a friend.” If they could have text-messaged him in real time it would have been: "Pls LA guy speed up."

Roy does step up the pace and we find out why he has a rep for very hard work on the nuts and bolts of the HuffPost operation. He's the Founding Editor, been with HuffPost since it opened in May 2005. Katharine Zaleski also, we find out, came on the same month. Roy came to HuffPost via Film School and a job with Michael Moore, where he honed his skills as a champion of the progressive POV. He was hired by Arianna before HuffPost opened. He speaks a lot about Arianna, how she gets the word out during her travels, how she serves as a sounding board, how she listens because she is interested in everything. Roy has a huge job serving as the cable-bridge between Arianna and her e-empire.

The panel is mightily impressed by the rapid growth of Twitter. Users can send only Tweets of fewer than 140 characters. Great time-saver for the reader. Except that maybe the number of Tweets will just rise. I do a Google search and find Twitter users exceed 200,000 per day, firing out 3 million Tweets – a mind-blowing average of 15 Tweets per Twit. It's like the invention of the machine gun. No one is safe any more.

Google search tells us global blogposts were 1.6 million in 2006 but have grown so fast that in 2008 Japan alone has that many. MySpace page views are 1.5 billion per day. Facebook is growing by 600,000 users per day. Stunning.

Katharine Zaleski is News Editor and the most decorative of the four panelists. She is in the eye of the storm in HuffPost's NYC operations where the news is edited. She notes that almost all readers used to get to the site via the "front door" – the home page (www.huffingtonpost.com) - but now 60 percent of readers get to HuffPost via links direct to a story from a search or Digg or a blogpost.

She says the nature of news coverage has been transformed by the Internet. Old model: News reporter looks for a scoop or a new angle, files story, goes to bed. People would get the news in the morning. Television shortened the lag. All-news radio shortened it some more. New model: Delays in reporting important news are down to minutes. The amount of related content that can be offered soon becomes gigantic. Katharine says her job is "to latch onto a breaking story and then stay with it" through the day or night. She works through the night when important stories are breaking. When news about Eliot Spitzer having meetings with a female in Washington, HuffPost for a while "owned" the story of the collateral damage to Ashley Alexander Dupree, by having more new information on Ashley’s music and career than anyone else.

Katharine waves off reports of antagonism between the main stream media and the blogsites. The two are complementary. A good major story on HuffPost, she says, is inclusive, with lots of links to the msm. Sure, HuffPost

depends on the newspapers. The papers also benefit by their content being promoted on the blogs. The great newspapers are using the Internet, adding online news sites with comment boxes, frequent updates and blogs. Same with television,

though she opines that CNN is just 10 percent dependent on the story, with 90 percent of the value in the production.

At question time, Katharine’s mother Caroline, sitting near HuffPost blogger Blake Fleetwood, asks a question anonymously. Katharine mercilessly outs her Mom. But Mom is unflappable. You can see where Katharine gets her poise.

Jason Linkins is the third panelist. He writes "Eat the Press", and was rated one of the five funniest bloggers by Comedy Central. He says HuffPost has 3,000 bloggers. When the final numbers were in on election night, the TV commentators were saying goodbye to one another and their audiences. That's one concept, says Jason, that would never occur to a blogsite. The stories keep rolling in – Rod Blagojevich, Bernie Madoff, who knows what next? He says that the job of bloggers is to "kneecap people who screw up."

So far as "tone" goes, Jason says he got there by trial and error. He started out to be a marine biologist and swam his way into the new medium.

Colin Sterling, Senior Blog Editor, is the final speaker. He is introduced as Harry Potter and you can judge the likeness for yourself. He says he tries to make HuffPost authoritative by including links, and more Google-able by adding enough tags. Colin's most embarrassing moment, he says in answer to a question from the by-now engaged audience, was when he posted a skeptical view of global warming. He's a graduate of UCLA and was like Roy working for Arianna before HuffPost was created.

By the end of the evening, the crowd is happy. Frankly, they didn't get everything promised in the promotion, but who cares? They got $27 worth of information and some entertainment as a bonus. If they need more, they can buy the $15 book on sale in the lobby, The Huffington Post Complete Guide to Blogging. Now I'd dearly like to go to a panel featuring the business side of HuffPost, i.e., the rest of the masthead that keeps the brand afloat and valued last year in the $40-$200 million range.

How the Clinton Health Care Plan Was Killed

2009-01-31T01:56:00.000-08:00

Yesterday Paul Krugman, whose column in the NY Times is the first one I look for every morning (in print or online), wrote:

Mr. Obama really, really doesn't want to repeat the mistakes of Bill Clinton, whose health care push failed politically partly because he moved too slowly.

It's ironic that the Clinton team should be blamed for moving too slowly, because Ira Magaziner expressed determination to move quickly as a speaker in December 1992 on a panel I attended. Magazine announced that the group drafting the health care legislation planned to get a bill through during the honeymoon period, "by June". He paused and looked toward the back of the room. Everyone's eyes turned toward a tall, lanky gentleman who rose slowly from his chair and said:

Ira, if you think y'all are going to get a health care bill through by June, y'all need to have your head examined. Y'all will be lucky to get your budget through by June.

Then he sat down. The speaker was Ernest ("Fritz") Hollings, Democratic Senator from South Carolina until 2005, and he was, alas, right in his prediction.

The charge of having "moved too slowly" is a way of saying that the bill was too complex, was prepared too secretively or made excessive concessions to the insurance industry. I haven't read, however, an explanation as cogent as the one presented by Ezra Klein in an article in the American Prospect that was posted yesterday on AlterNet. The article is not only a valuable take on the prospects for health care legislation, it's also a primer on the realities of the budget process in Washington today, especially the powerful role of the Congressional Budget Office in coming up with "the Number" for a bill's likely budget impact. The article, "Comprehensive Health Care Reform Is the Key to Our Economic Future," January 30, 2009. Here's how it opens:

"The history of health reform," explains Sen. Ron Wyden of Oregon, "is congressmen sending health legislation off to the Congressional Budget Office to die." That's not the history you often hear. Budget analyses do not make for gripping headlines. Editors want heroes and villains, narrative arcs and telling anecdotes. They do not want numbers. They do not want bureaucracies. But numbers, and the bureaucrats who decide them, can be quietly decisive in whether major policy reform lives or dies.

In the coming years, no bureaucrat will be as decisive as Peter Orszag -- the former director of the Congressional Budget Office who is now the head of Barack Obama's Office of Management and Budget -- and few bureaucracies will be as important as the CBO and the OMB. For every major policy and legislative fight, those organizations will decide the Number: the official price tag of a government program. And you can't do anything without the Number.

Go read the rest yourself here.

UK Doctors: Fewer Hours Mean Fewer Errors

2009-01-30T00:38:00.000-08:00

BBC News is running a medical care story today that has implications for U.S. medical care. Residents who are put on a shorter 48 hour/week limit, in accordance with European Union regulations, made 33 percent fewer medical errors than those on a schedule of up to 56 hours a week. The sample size of National Health Service doctors was small but the results were significant. Thanks to Dr. Elisabeth Paice for the link - .

The relevance of the study for the United States is that U.S. hospital residents are expected to work up to 80 hours a week during their training. The New York-based Commonwealth Fund has shown that patient-reported medical errors are the highest in the United States in a study comparing it with five other countries -- Australia, Canada, Germany, New Zealand and the UK. Of the six countries, the UK had the fewest patient-reported medical errors.

The new study is reported in the Quarterly Journal of Medicine - http://qjmed.oxfordjournals.org/cgi/content/abstract/hcp004v1?ct. The sample size was 19 junior doctors in residence.

[N]ine studied while working an intervention schedule of <48 h per week and 10 studied while working traditional weeks of <56 h scheduled hours in medical wards. Work hours and sleep duration were recorded daily. Rate of medical errors (per 1000 patient-days), identified using an established active surveillance methodology, were compared for the Intervention and Traditional wards. Two senior physicians blinded to rota independently rated all suspected errors.

The results showed significantly lower error rates for the doctors on the new rota with fewer hours:

Average scheduled work hours were significantly lower on the intervention schedule [43.2 (SD 7.7) (range 26.0–60.0) vs. 52.4 (11.2) (30.0–77.0) h/week; P < 0.001], and there was a non-significant trend for increased total sleep time per day [7.26 (0.36) vs. 6.75 (0.40) h; P = 0.095]. During a total of 4782 patient-days involving 481 admissions, 32.7% fewer total medical errors occurred during the intervention than during the traditional rota (27.6 vs. 41.0 per 1000 patient-days, P = 0.006), including 82.6% fewer intercepted potential adverse events (1.2 vs. 6.9 per 1000 patient-days, P = 0.002) and 31.4% fewer non-intercepted potential adverse events (16.6 vs. 24.2 per 1000 patient-days, P = 0.067). Doctors reported worse educational opportunities on the intervention rota.

NYC and NY State Fiscal Problems

2009-01-29T22:58:00.000-08:00

A Reuters story on Tuesday by Joan Gralla reports that New York City fears return to 1970s. The fear then was that the City couldn't get out from under its heavy load of short-term debt. In fact the City recovered as soon as the economy came back.

The more serious problem today is NY State's fiscal stress. Back in the 1970s NY State was not in such trouble, and it was able to bail the City out in conjunction with support from Sen. Richard Lugar (R-IN) to provide federal guarantees to the pension funds to buy the City's bonds (his help in getting these guarantees has never been properly acknowledged by the City).

Gov. David Paterson is now raising many taxes and cutting aid to local governments. The problems this creates for NYC are tacked on top of the City's own loss of tax revenue and rising requirements from the NYC employee pension funds for money to make up for their losses when an 8 percent annual return has been built into their actuarial assumptions. In addition, the volume of new tax abatements to spur development has contractually reduced the City's ability to raise taxes on some new developments. Gralla says:

While many U.S. cities worry that their economies are deteriorating to the level of the 1930s Great Depression, New York City fears reliving a more recent decade that features strongly in city lore.

But the better comparison is with 1989-1992. Gov. Paterson’s array of tax increases is reminiscent of the 22 forms of NYC tax increases during these recession years. The large number of increases, and the nuisance nature of some of them, were the subject of many news stories at the time.

A major advantage that NYC has over the state today is that property tax revenues are more stable than other taxes during an economic decline because NYC's assessed values are averaged over five years. NYC's property tax revenues continue to rise for a couple of years into a recession even though market values of property are falling. Property owners may sell and move away, but the property continues to be paid by the new owner.

All the taxes can be avoided by moving completely out of NYC. Charles Tiebout introduced the concept of “foot voting” or “voting with feet”. IU would argue that it's more serious when businesses leave town than when individuals arbitrage among residential options based on differences in property taxes.

The two explanations I have heard most widely regarding the exodus of businesses in 1989-1992 are (1) high crime rates and (2) higher taxes on incomes and businesses. It would have been better, in retrospect, to have increased NYC property tax rates more during those years to avoid increasing other taxes and to beef up spending on the police earlier than the City did. NY State doesn't have a property tax to rely on, although I am advised by a former employee of the Assembly Ways and Means Committee that NY State used to have a statewide property tax and there would be no constitutional problem with reintroducing it.

BBC Opens Up Panorama Show on U.S. Health Care

2009-01-29T08:11:00.000-08:00

Victory. Today I received this message from BBC Panorama:

Dear John,

Thank you for your email. Due to high demand, we have now made the programme available to view around the world. Please use the link below to watch "Panorama: What now, Mr President?" in full:

http://news.bbc.co.uk/panorama/hi/front_page/newsid_7854000/7854496.stm

Best wishes,

Lila

Lila Allen
BBC Panorama

Thanks to anyone who reads this who contacted BBC Panorama about opening it up.

Good Move by Schumer - Improve Mass Transit Benefits

2009-01-28T13:10:00.000-08:00

It's pleasing to see some early dividends from the election of President Barack Obama and a Senate and House with Democratic majorities. Senator Chuck Schumer announced yesterday that he has proposed doubling the benefits to commuters by mass transit. At the end of this post I have the URL for a site where one can express support of the bill.

Sem Schumer's concern is with the growth of New York City area commuters and with present and future MTA fare hikes:

[The] mass transit tax break has been included in the Senate version of the Economic Recovery package. The mass transit tax break would double the federal mass transit benefit for people who ride buses, Metro-North or other forms of mass transit to work, potentially saving them hundreds of dollars per year in transportation costs, increasing energy conservation, and reducing traffic, congestion and smog.

Sen. Schumer is essentially equalizing the benefit to be obtained for mass transit riders and those who drive to work.

Under current law, employers are able to offer employees a monthly tax-free transit benefit of only $120 to cover mass transit commuting costs, but they are able to offer up to $230 to help cover parking costs for people to drive to work.

The $230 benefit would be indexed to inflation.

The transit and parking benefits were initiated by the late Senator Daniel Patrick Moynihan. Employers to offer employees up to $120 per month in transit benefits, which are tax free. A corresponding benefit of up to $230 tax-free is provided for parking costs. In the New York metro area, the benefit saves commuters more than $150 million a year. Employers have saved more than $35 million since the benefit went into effect in the New York area. Sen. Schumer says that 15,000 companies in New York offer the transit benefit, covering about 650,000 employees.

Here is the site where individuals can post their support of the bill: http://schumer.senate.gov/new_website/contact.cfm.

BBC Panorama on U.S. Health Care

2009-01-25T02:56:00.000-08:00

My sister Brigid Marlin lives in the UK and a few days ago was watching a BBC program on health care in the United States. She sent me an email reporting that it was a shocking portrayal of the high cost and low coverage of U.S. medical care:

They were discussing the problems that Obama faces in meeting his promise to provide health care for poor Americans. The program showed an English medical team that set out to provide medical services to poor people overseas. They ended up spending 60 percent of their time helping poor Americans, as they are the most needy! We were shown people getting up at 4 am and driving for hundreds of miles to be early in a huge queue for a doctor's help.

The program was produced by BBC's Panorama, the world's oldest television documentary program, begun in 1953.

The Panorama team managed to get inside a briefing that a large US insurance company was giving its staff, awarding them huge bonuses for finding loopholes in the clients' policies, so they didn't have to pay up! They boasted that one employee had saved the company $7 million by giving them the basis for refusing to pay out because of a tiny flaw in the way they had filled out the form. This story was contrasted with the company's television ads, where a kindly fatherly figure assures clients that they will be safe and looked after.

The BBC describes the program as follows:

Barack Obama takes over as U.S. President with a promise to dramatically change America and make it a fairer place. He is inheriting the worst economic crisis in almost a century, and a country so unequal that 23,000 people die every year because they cannot afford basic healthcare. To close the gap between rich and poor Obama will have to take on the might of the corporate world, which wields enormous influence in Washington. Can he change the world's most powerful country, and should he?

My sister's message to me goes on:

The drug companies are just as bad, Panorama shows. They have bumped up their prices so that Americans pay twice as much for their medicines as the same companies charge to other countries. It seems that the drug companies are uncontrollable because they wine and dine the senators so no votes are cast against their policies. The program showed the drug companies supporting senators with money for electioneering and their favourite charities. They are determined not to allow a comprehensive health care system in America!

Well, I did a little research to see whether I can give you a link to the program. It was broadcast on BBC One, 8:30 pm, January 19. It's a half-hour show produced by Jeremy Vine. My sister is not the only fan of the show. It is posted as a "pick" by blogger “Up Your Ego: Love Your Inner Geek”. The blogger is trying to emulate the "brilliant" Watchification, Telegraph iPlayer Pick of the Day and the Radio Times Downloads index, and says:

My pick is the Panorama special on the USA health care system. I really enjoyed Michael Moore’s Sicko but it was a little (ok a lot) one sided. A great piece of entertainment and a good piece of journalism when preaching to the choir BUT lacking slightly in balance. The BBC tries to look at both sides of the story. Watch it HERE.

Unfortunately, when I tried it, I got a message that the link won't work in the United States. So the best we can do is try to get a PBS station to bring it over.

The program's e-mail address is: panorama@bbc.co.uk. I have written an email asking to be advised if the health care show has been or will be aired in the United States. You could do the same.

Word of the Year - Bailout - Limericks

2009-01-18T21:37:00.000-08:00

I reported on Huffington Post that Bailout was the Word of the Year of the American Dialect Society

To which LimerickSavant posted:

So "bail-out" was Word of the Year?
As a verb, we expected to hear
It used one of the times
When, for myriad crimes,
Those crooks went to court to appear!

So I responded:

The reason I cry in my beer
Is the trillions of bailouts, I fear,
Will add up too soon
And stretch to the moon,
We may wish that we had them still.

Obama - Please Fund Tech Innovation - SBIR - DARPA

2009-01-18T00:44:00.000-08:00

My friend Professor Henry Etzkowitz was very helpful when I was working on a study of the software industry in New York City in 1999. Our work can be found here. He is an expert on the history of science and serves as Chair of the Management of Innovation, Creativity and Enterprise Program at the Newcastle University Business School.Henry and I met recently in New York City to talk about President-elect Obama's stimulus program. This will be a gigantic investment in America's future. Should the Obama Administration use a portion of this funding to spur technological innovation? Or is this "picking winners" and is that a bad thing?

Those who oppose the government's picking winners argue that this is not the job of government and government employees have no expertise in culling business ideas and plans. So government's role has mostly been to lend money through programs like the Small Business Investment Company program, and leave it to private SBIC managers to pick among the possible investments.

Henry sent back to me some followup thoughts. I am excerpting, with his permission, some highlights of his thesis that the U.S. government has actually played a big and successful role in picking technological winners and that this role should be expanded.

The SBIR Program. The Small Business Innovation Research (SBIR) program has been a success, Henry says, in supporting high-tech firms.

SBIR was begun by program officers at the National Science Foundation (NSF) in the early 1980's. SBIR extended NSF's research programs by setting aside a relatively small percentage of research budgets, to support projects that demonstrate potential commercial as well as scientific merit. Researchers apply for SBIR grants and use them as the first step toward firm-formation, moving research ideas forward to commercialization.

In effect SBIR has served as a form of public venture capital, filling some of the gap, the so-called "Valley of Death" that business angels and private venture capital firms are typically unwilling to enter until a firm has proven itself through demonstrated earnings. Government has provided the seed capital to take many nascent firms to the point of private sector take-up. But government is not doing this task by itself. It relies on experienced private sector technology experts to serve as peer reviewers to judge the commercial potential of the new technology even as it continues to rely on academics to certify its scientific and technological potential. SBIR was extended from NSF to all government agencies with research budgets of more than $100 million.

The ATP. The European Union created Framework Programs to support collaborative industrial research, led usually by large firms. The U.S. response to this was the Advanced Technology Program (ATP) initiated during the Bush 41 presidency.

Opposition to the ATP led to a scale-down of grants, from tens of millions to large-firm led consortia to the low millions for innovative start-ups. This unintended consequence of reduced appropriations turned ATP into a useful follow-on to the SBIR, helping start-ups with new technologies through the "Valley of Death," the gap between government R&D funding and venture capital take-up. ATP is currently in "deep freeze" in the National Institute of Science and Technology, its sponsoring agency, receiving no new funds in recent years.

The ATP could be revived and SBIR could usefully be scaled up further, but the individual projects it supports are a necessary but insufficient technology policy for the current crisis. Larger scale initiatives are necessary to take advantage of the opportunity crisis offers to renew existing industries and create new techno-economic paradigms as the basis for future industries.

DARPA. The SBIR-ATP approach is relatively laissez-faire, choosing among competing ideas that arrive in response to general requests or over-the-transom proposals. The more tightly focused and directed approach is taken by the Defense Advance Research Projects Agency (DARPA). Under its demilitarized name ARPA, DARPA created the ARPANET as a communications system without a center, the origin of the Internet. DARPA's primary strength is its program-officer networks.

The DARPA officer is a highly skilled broad-gauge technologist, often a visionary drawn from a university, like psychologist J.C.R. Licklider who envisioned a new format for computer communication that led to the Internet. Following the DARPA format, invented in response to the Sputnik shock of the late 1950's Licklider had the freedom and the resources to establish a consortium of firms and universities to realize his vision.

The DARPA program officer, a public entrepreneur, is the key to the DARPA model. He or she has the resources and capability to fashion a technology development team from across university, industry and government laboratories and the remit to carry it from "blue sky" research all the way to commercialization and use. More recently a DARPA data-mining initiative provided the research resources and objective that provided the framework for the invention of the Google algorithm. Although DARPA is limited to achieving military goals, many of its initiatives have had significant spillover into the civilian economy. There have been various proposals for a civilian DARPA over the years but the political will has been lacking. Only military objectives have been granted an exemption from the dictum of government's supposed inability to pick winners. The current downturn offers a pressing opportunity to utilize this successful response to Sputnik to achieve broader socio-economic objectives. These models of R&D success, with mixed university-industry government elements and joint leadership, provide exemplars to creating a sustainable path to renewal, without relying on reviving past bubbles or inventing new ones.

As the Obama Administration seeks to maximize the long-term benefit from its stimulus funding, it should consider stepping up support of SBIR-ATP-DARPA initiatives.

Sweatshops - Dream or Nightmare?

2009-01-15T20:17:00.000-08:00

Nicholas Kristof makes a provocative statement in this morning's NY Times. It has put the cat among the pigeons. He says: "What the world's most impoverished people need isn't fewer sweatshops, but more of them." What's a kind-hearted liberal like him doing protesting ethical trading and labor standards? What's wrong with consumers being willing to pay more for products from factories and farms certified to the SA8000 decent work standard or to Ethical Trading standards? In a British airport or train station, it's hard to buy coffee that is not promoted as ethically traded.

Kristof fears that if President-elect Obama imposes minimum labor standards on developing countries, it will end orders from developed countries for manufactured goods from developing countries. So kids there will have to choose between being slumdog scavengers or child slaves.

He fears that the anti-sweatshop cause is being used a smokescreen for protectionist trade policies.

The Obama-Biden campaign website did promise to “fight for a trade policy that opens up foreign markets to support good American jobs [and] spread[s] good labor and environmental standards around the world.”

But it takes some work to read higher labor and environmental standards as protectionism. The fact is, factory jobs are being lost both in the United States and overseas because the harsh realities of unprecedented asset deflation. With half of their retirement savings gone, many Americans only have change left, and not much of that to spare.

It's surely unfair to condemn multinationals for seeking to comply with the labor laws of the countries where they operate or buy goods. Is it unfair for the United States to ask the governments of developing countries to do more to enforce their own local labor laws? What's wrong with brands giving preference in their buying to factories to abide by labor standards?

In fact higher labor standards have significant benefits for companies that embrace them. Better workplaces in developing countries have higher retention and productivity rates, fewer rejects and better quality goods. The jobs that these standards protect are the jobs in these factories and farms.

(Disclosure: John Tepper Marlin has been married for 37 years to Alice Tepper Marlin, President of Social Accountability International, which created the SA8000 labor standard.)

Word of the Year - Bailout - Alas, Not New

2009-01-10T12:11:00.000-08:00

The Word of the Year 2008 is bailout, according to the American Dialect Society, which balloted yesterday in San Francisco. The word is understood by the Society to mean “rescue by the government of companies on the brink of failure, including large players in the banking industry.”

This word-of-the-year is only 19 years old, or the Society would have run into it before, in the late 1970s when "bailout" was used in connection with the proposed first rescue of the Chrysler Corporation.

It's easy for me to remember because the unflappable lady who handled this for Senator William Proxmire's Banking Committee was Elinor Bachrach. Since she also handled New York City's rescue and a couple of other institutions in trouble, she was then known as Billion-Dollar Bailout Bachrach – and there may have been another adjectival prefix before the word Bailout, like Boondoggle or Basket-Case.

So if the American Dialect Society had been a little older, the word bailout might be taken and the winner could have been one of the other words, like:
- Most creative: recombobulation area, at Milwaukee’s Mitchell Airport where passengers who “have just passed through security screening can get their clothes and belongings back in order."
- Most unnecessary: moofing, i.e., “mobile out of office,” working with laptop and cell phone.
- Most outrageous: terrorist fist jab, a knuckle-to-knuckle fist bump, or “dap,” traditionally performed between two black people as a sign of friendship, celebration or agreement and described as “the terrorist fist jab” by newscaster E. D. Hill, formerly of Fox News.
- Most likely to succeed: shovel-ready, an infrastructure projects that can be started quickly when funds become available.

Other nominees that caught my eye:
lipstick on a pig: An adornment of something that can't be made pretty.
game-changer: In business and politics, something that alters the nature of a marketplace, relationship, or campaign. From sports. "something that changes a match or contest."
Palinesque: Pertaining to persons who have extended themselves beyond their expertise, thereby bringing ridicule upon a serious matter.
long photo: A video of 90 seconds or less. Used by the photo-sharing web site Flickr.
First Dude: The husband of a governor or president.
bromance: A very close relationship between two heterosexual men.

Muni Bonds Bid-Rigging Investigation

2009-01-09T08:12:00.001-08:00

The NY Times today has a prominent story on the "Nationwide Inquiry on Bids for Municipal Bonds" by Mary Williams Walsh. It starts:

The federal investigation that prompted Gov. Bill Richardson of New Mexico to withdraw his nomination as commerce secretary offers a rare glimpse into a long-simmering investigation of possible bid-rigging, tax evasion and other wrongdoing throughout the municipal bond business. Three federal agencies and a loose consortium of state attorneys general have for several years been gathering evidence of what appears to be collusion among the banks and other companies that have helped state and local governments take approximately $400 billion worth of municipal notes and bonds to market each year.

The background to this is that the Treasurer of New Mexico resigned in October 2005 facing 21 federal counts of extortion. The NY Times story continues:

E-mail messages, taped phone conversations and other court documents suggest that companies did not engage in open competition for this lucrative business, but secretly divided it among themselves, imposing layers of excess cost on local governments, violating the federal rules for tax-exempt bonds and making questionable payments and campaign contributions to local officials who could steer them business. In some cases, they created exotic financial structures that blew up.

After the NYC fiscal crisis in 1975 and concerns about the municipal securities market, the Municipal Securities Rulemaking Board was created. In 1978, the Council on Municipal Performance produced, with the assistance of the law firm of Chadbourne Parke, a ten-volume study of the municipal markets, the Municipal Securities Regulation series. Referencing this study, a NY Times editorial called for greater regulation of the municipal bond market. Twenty years later, SEC Chairman Arthur Levitt said in a
March 30, 1999 Speech:

Today, a new form of pressure exists on those who manage public funds. The pressure comes from the ever-escalating costs of political campaigns and the temptation to use control over public monies to raise funds to cover those costs. The pressure I'm talking about is "pay-to-play" – the selection of investment advisers to manage public funds based on their political contributions. I've been talking about pay-to-play since the very beginning of my tenure as SEC Chairman. Up until now, that discussion has focused on the municipal bond market. And, I'm proud to say that after a sustained period of cooperation between the private sector, self-regulatory organizations and the SEC, much has been done to address this insidious practice. Six years ago, the municipal securities business was rife with pay-to-play practices. Because of the importance of those markets, I placed banishing these practices at the forefront of our agenda, and in 1994, we approved the Municipal Securities Rulemaking Board's Rule G-37. It requires a two-year time out from doing business with a government client after a firm or its executives makes a contribution to an elected official. Some called the rule too strong a medicine. Well, when the patient is suffering and the fever is contagious, merely drinking a lot of liquids probably isn't the right or most effective solution. It's worth noting that a group of investment bankers were the first to confront the ethical implications of pay-to-play. They placed a voluntary ban on political contributions to officials with whom they did business. And just a few months ago, a group of financial advisors that help municipalities structure bond offerings met with me to announce a self-imposed ban on the same activity. Late last year, I asked the Division of Investment Management to look into the question of whether the Commission needed to address pay-to-play in the public pension area. After months of work on the issue, the Division has uncovered strong indications that pay-to-play can be a powerful force in the selection of money managers of public pension plans.
We found allegations of this activity in at least 17 states. Pay-to-play has affected both the largest of pension plans and the smallest of plans. The comptroller of a large state raised $1.8 million from pension fund contractors – many of whom are out-of-state. A former treasurer of a small state raised virtually all of his campaign contributions – $73,000 – from contractors for the state retirement system.

The SEC after Levitt doesn't seem to have dealt with the problem. Now we read in today's NY Times:

Pay-to-play in the municipal bond market is endemic,” according to a retired IRS manager in charge of overseeing the market.