Who can forget the profound statement made by the former mayor of Washington, DC, Marion Barry, when he said, "Outside of the killings, Washington has one of the lowest crime rates in the country." Criminologists do tend to divide lawbreaking into crimes against property and crimes against people. It is interesting to note that since the early 1990s, both have been steadily dropping. Finally, a happy statistic. But it is a head scratcher. What are the reasons for the drop?
Is it stronger gun control laws? Is it larger police departments? Is it improved policing with techniques like DNA testing? Is it a better economy? Is it a dampening of the crack-cocaine market? Perhaps an aging population? To some extent, all of these MAY have some influence. But economist Steven Levitt has the most intriguing theory -- Roe v. Wade....the legalization of abortion. It began with 20 year old Norma McCorvey. All she wanted was to end her pregnancy. But in Texas, as in most states at the time, abortion was illegal. Various groups with a cause made McCorvey the lead defendant to legalize abortion. The defendant was Henry Wade, the Dallas County district attorney. McCorvey's name had been disguised as Jane Roe, and on January 22, 1973, the court ruled in favor of Ms. Roe, allowing legalized abortion throughout the country. By that time it was far too late for McCorvey/Roe to have her abortion. She ultimately gave birth and put her child up for adoption. Ironically, years later she would renounce her allegiance to legalized abortion and became a pro-life activist.
I'm sure you see where this is leading. Levitt's thesis is that a child born in an adverse family environment is far more likely than other children to become a criminal. Exactly 20 years after Roe v. Wade, when the pool of potential criminals had dramatically shrunk, the soaring crime rate took a sudden dip downward, and has continued to this day. Can we definitively say that Levitt was right? Perhaps, but the only way we could really confirm his thesis is if we banned abortion, then 20 years hence monitored to see if the crime rate started to spike again. But waiting 2 decades for an answer requires a lot of patience. Ergo, it is best to keep an open mind to all possibilities. On a personal note, I am against the aborting of a human life. But that is no reason to ignore all possibilities in explaining the world around us.
Saturday, June 8, 2013
Saturday, June 1, 2013
100 Million Missing Women
Nobel laureate economist Amartya Sen has calculated that based on birth rates of men and women, and the number of men and women alive today, that roughly 100 million women are missing....perhaps victims of early death. In known demographics, more men than women are born every year, but women tend to be healthier than men. The upshot is that women outnumber men in the populations of high-income countries by about 105 women for every 100 men. But in less developed countries this is reversed. Lower health standards for girls seems to be a major contributor to the rates of missing women. By the same token, sex-selective abortion is having a major impact. Higher rates of maternal mortality in 3rd world countries is also having an impact. In China, the one-child policy has manifested itself in a skewed birth rate of 111:100. This is one reason that this attempt to social engineer has about run its course in China. Girls are so undervalued in India that there are roughly 35 million fewer fewer females than males. And if an Indian girl does reach adulthood, she faces a difficult life. 51% of Indian men said that wife-beating is justified. Amazingly, 54% of Indian women agree. More than 100,000 young Indian women die every year in "bride-burnings" or other instances of domestic abuse.
Literacy rates and education levels are also a factor. In North America, Europe, and Latin America, literacy between men and women are about the same. But in Arab states, South and West Asia, and across sub-Saharan Africa, literacy rates of women are about 20% below those of men. The direct effect of less education is that women have a lower chance of getting jobs, and lower wages in the jobs they do get.
Globally women are dramatically underrepresented in legislative bodies or as political leaders. In those countries that have a higher share of female representation in establishing government priorities, there is a greater share of funding going toward health and education. In the long run this has a positive impact on economic growth. It expands the life choices available to the world's population and gives people of both genders a better chance to choose the lives they want to lead. In the decades ahead, the successful countries will be the ones that move more toward market based economies, and improve the status of women.
Literacy rates and education levels are also a factor. In North America, Europe, and Latin America, literacy between men and women are about the same. But in Arab states, South and West Asia, and across sub-Saharan Africa, literacy rates of women are about 20% below those of men. The direct effect of less education is that women have a lower chance of getting jobs, and lower wages in the jobs they do get.
Globally women are dramatically underrepresented in legislative bodies or as political leaders. In those countries that have a higher share of female representation in establishing government priorities, there is a greater share of funding going toward health and education. In the long run this has a positive impact on economic growth. It expands the life choices available to the world's population and gives people of both genders a better chance to choose the lives they want to lead. In the decades ahead, the successful countries will be the ones that move more toward market based economies, and improve the status of women.
Sunday, April 14, 2013
It's April 15th -- The U.S. Tax Code
"A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it. Whether to sit on it or not. We left England because we'd be paying 98 cents on the dollar. We left and they lost out." -- Keith Richards - Rolling Stones
Most of us need help in filing our taxes each year. Even with very simple returns, most people want someone knowledgeable to file it for us. That is why H & R Block is doing so well. The U.S. Tax code is currently 16,845 pages long. But Congress is always fiddling with it, and that number will continually grow. Parts of it are so complicated that even the experts sometime scratch their heads. In the mid-90's, Money Magazine produced a tax return for a fictitious couple who had a mortgage, with the husband working full time, and the wife running a part-time business from the home. On a scale of complexity, this would fall somewhere in the middle. They then gave the task of preparing the tax return to 40 different tax preparers, ranging from H & R Block types to individual CPAs. The results were 40 different taxes owed in a range of 1000's of dollars.
What have we done? Why have we created this monstrosity? In spite of the size of the tax code, and an aggressive enforcer (The IRS), there is still a huge leak in the system. The underground economy which deals in cash, never pays a dime in taxes. And it never will since there is no paper trail. Then there are the tax loopholes. For example, did you know there is a special provision for favorable treatment of racehorses? And not just any racehorse....just two year olds and younger. Section 68(e)(3)(i)(I) creates a special depreciation schedule for these fine creatures.....talk about a loophole for the rich.
The answer to all this silliness is a simple flat tax which doesn't allow special interest loopholes. Twenty-four nations have adopted the flat tax. Russia gets more revenue with its 13% flat tax than it did under the old system when tax rates were over 50%. And to address the underground economy and to broaden the tax base, implement a modest value added tax (VAT), which basically is a sales tax on consumption. Thus everyone pays something, not just those who have a paper trail.
Taxes are the price we pay for civilization. But there certainly must be a more civilized way to collect them.
************
Postscript -- IRS Mission Statement
"Provide America's Taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all."
-- Publication 1, Catalog Number 64731W
Most of us need help in filing our taxes each year. Even with very simple returns, most people want someone knowledgeable to file it for us. That is why H & R Block is doing so well. The U.S. Tax code is currently 16,845 pages long. But Congress is always fiddling with it, and that number will continually grow. Parts of it are so complicated that even the experts sometime scratch their heads. In the mid-90's, Money Magazine produced a tax return for a fictitious couple who had a mortgage, with the husband working full time, and the wife running a part-time business from the home. On a scale of complexity, this would fall somewhere in the middle. They then gave the task of preparing the tax return to 40 different tax preparers, ranging from H & R Block types to individual CPAs. The results were 40 different taxes owed in a range of 1000's of dollars.
What have we done? Why have we created this monstrosity? In spite of the size of the tax code, and an aggressive enforcer (The IRS), there is still a huge leak in the system. The underground economy which deals in cash, never pays a dime in taxes. And it never will since there is no paper trail. Then there are the tax loopholes. For example, did you know there is a special provision for favorable treatment of racehorses? And not just any racehorse....just two year olds and younger. Section 68(e)(3)(i)(I) creates a special depreciation schedule for these fine creatures.....talk about a loophole for the rich.
The answer to all this silliness is a simple flat tax which doesn't allow special interest loopholes. Twenty-four nations have adopted the flat tax. Russia gets more revenue with its 13% flat tax than it did under the old system when tax rates were over 50%. And to address the underground economy and to broaden the tax base, implement a modest value added tax (VAT), which basically is a sales tax on consumption. Thus everyone pays something, not just those who have a paper trail.
Taxes are the price we pay for civilization. But there certainly must be a more civilized way to collect them.
************
Postscript -- IRS Mission Statement
"Provide America's Taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all."
-- Publication 1, Catalog Number 64731W
Monday, March 25, 2013
Why Business Is Not Hiring
Many medium and large corporations are flush with cash. In spite of this, the hiring process is very sluggish. The upshot is that unemployment remains high. Hiring for federal government jobs is robust. But very little is happening in the private sector. Why?
Over the years, the cost of hiring an employee has slowly but steadily risen. It is more than just a salary. There is Social Security (FICA), Medicare (MICA), Unemployment Insurance, Workman's Comp, and now Obamacare. There are minimum wage rules, required sick days, overtime laws, union requirements, paid maternity leave, etc. By the same token, there are a legion of anti-discrimination laws that a hiring company must tip-toe around. God help the employer who happens to ask the wrong question to a potential employee. The result of all this is that in 2013 an employer must think long and hard about hiring even one more person. In Europe, it is even worse. The dark side is that for decades the unemployment rate in the Euro Zone has been about twice that of the US......but we are catching up.
The government answer to high unemployment has been to stimulate the economy by increasing their spending. Has this been effective? Yes and no. If we were in a deflationary period, there is empirical data that deficit spending does help prices to come back. This is important since deflation can be an economy killer. But if prices are stable or rising, the data reveals just the opposite. For example, Swedish economists Andreas Bergh and Magnus Henrekson measured the negative relationship between government spending and economic growth. They found that a 10% increase in government spending corresponds to a decrease in economic growth of between 0.5 and 1 percentage point (Journal Of Economic Surveys -- June 2011). By the same token, economists Timothy Conley and Bill Dupor in a detailed study of the American Recovery and Reinvestment Act found that indeed the stimulus did create or save 450,000 government jobs. However, up to 1 million private sector jobs where forestalled or destroyed. (http://web.econ.ohio-state.edu/dupor/arra10_may11.pdf) This is because of the detrimental tax and public debt effects on investment and confidence. These empirical findings go counter to Keynesian economic theory that says an increase in government spending will reduce unemployment. Since virtually every government on the planet practices Keynesian economics, these studies should get a lot of people's attention. But it probably won't since the pesky task of working with budgets has never been the favorite task of lawmakers.
Somehow, policymakers need to see the light, and make it less costly for employers to hire a full time employee, and also control excessive government spending.
Over the years, the cost of hiring an employee has slowly but steadily risen. It is more than just a salary. There is Social Security (FICA), Medicare (MICA), Unemployment Insurance, Workman's Comp, and now Obamacare. There are minimum wage rules, required sick days, overtime laws, union requirements, paid maternity leave, etc. By the same token, there are a legion of anti-discrimination laws that a hiring company must tip-toe around. God help the employer who happens to ask the wrong question to a potential employee. The result of all this is that in 2013 an employer must think long and hard about hiring even one more person. In Europe, it is even worse. The dark side is that for decades the unemployment rate in the Euro Zone has been about twice that of the US......but we are catching up.
The government answer to high unemployment has been to stimulate the economy by increasing their spending. Has this been effective? Yes and no. If we were in a deflationary period, there is empirical data that deficit spending does help prices to come back. This is important since deflation can be an economy killer. But if prices are stable or rising, the data reveals just the opposite. For example, Swedish economists Andreas Bergh and Magnus Henrekson measured the negative relationship between government spending and economic growth. They found that a 10% increase in government spending corresponds to a decrease in economic growth of between 0.5 and 1 percentage point (Journal Of Economic Surveys -- June 2011). By the same token, economists Timothy Conley and Bill Dupor in a detailed study of the American Recovery and Reinvestment Act found that indeed the stimulus did create or save 450,000 government jobs. However, up to 1 million private sector jobs where forestalled or destroyed. (http://web.econ.ohio-state.edu/dupor/arra10_may11.pdf) This is because of the detrimental tax and public debt effects on investment and confidence. These empirical findings go counter to Keynesian economic theory that says an increase in government spending will reduce unemployment. Since virtually every government on the planet practices Keynesian economics, these studies should get a lot of people's attention. But it probably won't since the pesky task of working with budgets has never been the favorite task of lawmakers.
Somehow, policymakers need to see the light, and make it less costly for employers to hire a full time employee, and also control excessive government spending.
Sunday, January 13, 2013
TAXES
No one likes taxes, but they are necessary. It is the price we pay for civilization. We have town taxes, county taxes, state taxes, and federal taxes. All very necessary.....but it does add up. Every state in the Union, with the exception of New Hampshire, has either an income tax or a sales tax (often both). So should we all move to New Hampshire? Probably not since they have the highest property tax in the nation. Tax Freedom Day (the day when if our income went to pay all federal, state, and local taxes, we would have completed the payments) in 2012 was April 17th. So for the first 107 days of the year we are working for the government. On April 18th we could start paying our personal bills and maybe indulge ourselves with a night on the town.
We do have this constant battle between public and private. The public sector (governments) needs the private sector to pay its bills. But the private sector generally doesn't mind since they get needed services in return...fire protection, police protection, schools, national defense, etc. But there must be a balance between the two. It is a fine dance as to where that balance should be, and when we are reaching a tipping point. To keep it simple, let's focus on federal taxes.
All federal policies (which always affect taxes) should be based in the dictum "Primum Non Nocere" (First, do no harm). If we spend a massive amount of money on national defense, or eliminating poverty, what could be the harm? The answer is pretty straightforward. The study of economics is all about the spreading of limited resources among unlimited wants. History shows that very quickly we do bump up against limits. How can you go beyond these limits? Quite simply, by going into debt. Will it do harm to keep increasing that debt? If we are to answer this strictly from an economic viewpoint and not a political one, the answer is "yes!".
One way to reduce the debt is to increase taxes, to pay for a new jet fighter or to pay the poor man. But who ever heard of a poor person spending themselves to prosperity. And raising taxes will always result in a drop in the taxed activity. In short, a clear violation of the Primum Non Nocere dictum. What is really needed is a growth in the economy. That will happen if we expand production and expand employment. To do that you must lower taxes on production and employment, not raise it. Tax policies that punish work, saving, and investing, create less work, saving, and investing.
If you want more taxes from the rich, you've got to make the rich richer. To make the rich richer you lower taxes. The dream of America has always been to make the poor man rich, not make the rich man poor.
A final thought....We can walk away forever from a bad boss, merchant, or customer, but we cannot walk away from the government. Therein lies the paradox. We have concentrated power in public guardians in order to protect us from private violence, theft, and fraud. But, having done so, who will guard us from the guardians?
We do have this constant battle between public and private. The public sector (governments) needs the private sector to pay its bills. But the private sector generally doesn't mind since they get needed services in return...fire protection, police protection, schools, national defense, etc. But there must be a balance between the two. It is a fine dance as to where that balance should be, and when we are reaching a tipping point. To keep it simple, let's focus on federal taxes.
All federal policies (which always affect taxes) should be based in the dictum "Primum Non Nocere" (First, do no harm). If we spend a massive amount of money on national defense, or eliminating poverty, what could be the harm? The answer is pretty straightforward. The study of economics is all about the spreading of limited resources among unlimited wants. History shows that very quickly we do bump up against limits. How can you go beyond these limits? Quite simply, by going into debt. Will it do harm to keep increasing that debt? If we are to answer this strictly from an economic viewpoint and not a political one, the answer is "yes!".
One way to reduce the debt is to increase taxes, to pay for a new jet fighter or to pay the poor man. But who ever heard of a poor person spending themselves to prosperity. And raising taxes will always result in a drop in the taxed activity. In short, a clear violation of the Primum Non Nocere dictum. What is really needed is a growth in the economy. That will happen if we expand production and expand employment. To do that you must lower taxes on production and employment, not raise it. Tax policies that punish work, saving, and investing, create less work, saving, and investing.
If you want more taxes from the rich, you've got to make the rich richer. To make the rich richer you lower taxes. The dream of America has always been to make the poor man rich, not make the rich man poor.
A final thought....We can walk away forever from a bad boss, merchant, or customer, but we cannot walk away from the government. Therein lies the paradox. We have concentrated power in public guardians in order to protect us from private violence, theft, and fraud. But, having done so, who will guard us from the guardians?
Monday, November 19, 2012
The War On Women
During the last presidential campaign there was much mentioned about the War on Women. What is the truth on this subject? Most certainly on the international stage, in many countries women are treated like chattels. In Muslim countries where Shariah Law dominates, a woman who is raped can be put to death, while her perpetrator goes free. This is a the true war on women.
But what about in modern western countries? Some would argue that in the United States, because of a pay gap between the genders, that women are being discriminated against. Statistics seem to bear this out. Economists determine this by charting plot lines by a method called "multivariate ordinary least squares regression," in which a computer essentially runs a line through a cloud of data points. When the computer run compares men vs women, women clearly earn less. But before we run to conclusions based on raw data, let's look deeper into the stats. First, the pay gap has declined substantially over the years. Before industrialization, the pay gap was around 70%. By the 1970s the gap had dropped to 40%. In 2007 it was 19%.
Today, 60% of the college graduates are women in the US. It is similar in other advanced countries. If the woman has the right college degree, employers most definately want to tap into that resource. Among the jobs where women with college degrees earn at least as much as men are computer engineer, petroleum engineer (and a variety of other engineering occupations), journalist, portfolio manager, and medical technologist. But in most of these fields, especially engineering, there are far fewer women than men. But over time, even in fields like engineering, statisically a woman will earn less. Why?! The answer can be summed up in one word....childrearing. The following needs to be emphasised. For every year a woman delays having her first child, her lifetime earnings will rise by 10%. By the same token, among college educated, never-married women with no children who worked full-time and were from 40 - 64 years old (that is, beyond child-bearing years), men averaged $40,000 a year while women averaged $47,000. It should be no surprise that if a woman takes a few years off to raise a child, that this is going to interrupt her climb to the top, and skew the data.
The upshot is that, indeed, the war on women does not exists....at least in this country. The reader would be wise to add the economic filter to anything coming from a politician's mouth.
But what about in modern western countries? Some would argue that in the United States, because of a pay gap between the genders, that women are being discriminated against. Statistics seem to bear this out. Economists determine this by charting plot lines by a method called "multivariate ordinary least squares regression," in which a computer essentially runs a line through a cloud of data points. When the computer run compares men vs women, women clearly earn less. But before we run to conclusions based on raw data, let's look deeper into the stats. First, the pay gap has declined substantially over the years. Before industrialization, the pay gap was around 70%. By the 1970s the gap had dropped to 40%. In 2007 it was 19%.
Today, 60% of the college graduates are women in the US. It is similar in other advanced countries. If the woman has the right college degree, employers most definately want to tap into that resource. Among the jobs where women with college degrees earn at least as much as men are computer engineer, petroleum engineer (and a variety of other engineering occupations), journalist, portfolio manager, and medical technologist. But in most of these fields, especially engineering, there are far fewer women than men. But over time, even in fields like engineering, statisically a woman will earn less. Why?! The answer can be summed up in one word....childrearing. The following needs to be emphasised. For every year a woman delays having her first child, her lifetime earnings will rise by 10%. By the same token, among college educated, never-married women with no children who worked full-time and were from 40 - 64 years old (that is, beyond child-bearing years), men averaged $40,000 a year while women averaged $47,000. It should be no surprise that if a woman takes a few years off to raise a child, that this is going to interrupt her climb to the top, and skew the data.
The upshot is that, indeed, the war on women does not exists....at least in this country. The reader would be wise to add the economic filter to anything coming from a politician's mouth.
Sunday, October 7, 2012
The Financial Meltdown Of Greece -- Is It Coming To America?
Many have seen the riots in the streets of Athens, as the government tries to pull back on benefits which can be summed up in one word -- lavish. The average government job pays almost 3 times the average private-sector job. The national railroad has average revenues of 100 million euros against an annual wage bill of 400 million euros, plus 300 million euros in other expenses. The former Minister of Finance, Stefanos Manos, pointed out that it would be cheaper to put all of Greece's rail passengers into taxi cabs. By the same token, the Greek public school system is the site of breathtaking inefficiency. One of Europe's lowest ranked, it nonetheless employs four times as many teachers per pupil as the top ranked system in Finland. The retirement age for most of the jobs in Greece is 55 for men, and 50 for women.
But the lack of fiscal sobriety is not confined to just Greece. Ireland, Portugal, Spain, Italy, and even France are drowning in debt obligations that they need help with to prevent a default. The Germans are about the only ones who can help. They just need to suck it up, work harder, and pay for everyone else. It's either that, or the Euro Zone is dead.
We see these trends now manifesting itself in the US. The fiscal debt of $16 trillion by the Federal Government is well known. But more and more governments on the local level are already throwing in the towel with an inability to pay off their debts. The only solution is to declare bankruptcy. Once thriving San Jose, California has done just that. Through the years, the police and firefighters had worked out deals by which they earn more in retirement than they ever made while working. Take sick leave. It is good to give workers a paid day off when they are ill. But we have gone from that to letting workers accumulate it and cash it in for hundreds of thousands of dollars when they are done working. Is this what public service is really about? What finally put San Jose over the edge was when pensions and health costs reached $245 million which was exactly half of the total annual budget. If this were to continue, the city would become nothing but a vehicle to pay retirement costs for its former employees.
Back to Greece....is it the canary in the coal mine? Governments globally, and at all levels, need to re-think the concept of debt, and what they can afford. When the canary dies, the miner will immediately do an about-face, and get out of that mine. Governments likewise need to take a sobering look at the warning signs around them.
But the lack of fiscal sobriety is not confined to just Greece. Ireland, Portugal, Spain, Italy, and even France are drowning in debt obligations that they need help with to prevent a default. The Germans are about the only ones who can help. They just need to suck it up, work harder, and pay for everyone else. It's either that, or the Euro Zone is dead.
We see these trends now manifesting itself in the US. The fiscal debt of $16 trillion by the Federal Government is well known. But more and more governments on the local level are already throwing in the towel with an inability to pay off their debts. The only solution is to declare bankruptcy. Once thriving San Jose, California has done just that. Through the years, the police and firefighters had worked out deals by which they earn more in retirement than they ever made while working. Take sick leave. It is good to give workers a paid day off when they are ill. But we have gone from that to letting workers accumulate it and cash it in for hundreds of thousands of dollars when they are done working. Is this what public service is really about? What finally put San Jose over the edge was when pensions and health costs reached $245 million which was exactly half of the total annual budget. If this were to continue, the city would become nothing but a vehicle to pay retirement costs for its former employees.
Back to Greece....is it the canary in the coal mine? Governments globally, and at all levels, need to re-think the concept of debt, and what they can afford. When the canary dies, the miner will immediately do an about-face, and get out of that mine. Governments likewise need to take a sobering look at the warning signs around them.
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