Monthly Archive for March, 2009

Quote Of The Day

“I was so happy to see the back of George W. Bush and his administration, with their disregard for the Constitution, foolish and unnecessary war, attempt to subvert habeas corpus, reckless spending, and overall arrogance and disregard for limits on power. His successor has decided to follow even more carefully the examples set by Benito Mussolini and Vladimir Putin, and has sacked the head of a company. That is a decision for the shareholders of a private firm to make, not for the head of state.” — Tom Palmer, of the Cato Institute on Obama’s recent decision to force the CEO of GM to resign

Good News: Compton Is Getting Better

Alot better, says Newsweek:

For nearly a decade, the entrance to the city of Compton, Calif., just off the 91 Freeway, was a huge, vacant lot, overgrown by weeds. Surrounded by an eight-foot steel gate, the once-bustling auto dealership had become a haven for the homeless; a place where people dumped trash, loitered, caused trouble….

By the 1990s, the mere mention of the name Compton had become so toxic that the nearby southern California suburbs had the city of 100,000 erased from their maps. Its schools were crumbling. Drugs were rampant, and street-gang tensions had escalated into what historian Josh Sides describes as “a brutal guerilla war.” The city became the U.S. murder capital, per capita, surpassing Washington with one homicide for every 1,000 residents—and the details were numbing…

Two decades later, Compton has a new lease on life. The community is still poor, and unemployment is more than twice the national average. But the number of homicides is at a 25-year low, slashed in half from 2005. There are fewer gunshots and more places for kids to go after school. Alongside the liquor stores and check-cashing stands are signs of middle-class aspiration: a T.G.I. Fridays, an outbreak of Starbucks and a natural-food store. Along the way, blacks became a minority in Compton, which is 60 percent Latino today.

The article puts too much emphasis on political and community outreach solutions. It’s been my experience that community outreach programs do little if any good, their success stories are usually with people who were already on the verge of getting out anyway. Think of the the marginal gangmember who has had enough and is looking for a way out – a community outreach program gives him the resources he needs at just the right time. All valuable work but hardly anything that could change a city around. The gun buyback programs are even more of a joke. They rarely result in any real usable handguns. It’s usually guns that don’t work, are damaged in some way, or have a murder on them and unlikely to sell for anything of worth on the streets. Basically, the type of guns that drug addicts give up in exchange for $20 worth of crack. It makes sense too, who would exchange a gun they could sell on the streets for three to four hundred dollars, for a $100 in “supermarket cards”?

My guess is that this is the result of something more fundamental: changing demographics. In the 1980’s it was crack cocaine and starting in the mid 1990’s it was the race wars between the black vs mexican gangs.  Now that Latinos are more than 60% of the cities population, we are probably seeing a new equilibrium reached with Latinos at the top of the gang power structure, which results in significantly lower levels of violence (the struggle for the top is now over). It also doesn’t hurt that most of the gangmembers who were actively involved in the race wars of the late 90’s are now dead, in prison or have left the area. Add in the fact that crack cocaine and gangbanging itself has fallen out of fashion, and you have a whole new Compton.

Of course this does not mean that Compton is headed towards a continuously decreasing violence rate.  After a few more years new gangmembers wanting to make a name for themselves will take the place left by the older ones and with that will come another wave of violence as one gang tries to take over more territory from another one. But I don’t expect anything like the violence of the 1980’s and late 1990’s, unless of course some other fundamental change hits Compton – like a new drug or demographic shift. All in all though, this is still very good news indeed.

A Pattern With Democrats

President Obama after newly elected:

President Obama’s budget chief hinted Wednesday that the president’s signature campaign issue — a middle-class tax cut — will not likely survive a budget battle with Democrats on Capitol Hill. On a conference call with reporters in advance of the president’s trip to the Hill to speak before the Senate Democratic caucus, Office of Management and Budget Director Peter Orszag indicated that, while 98 percent of the budget mark-ups in the House and Senate are on par with the administration’s budget blueprint, some campaign trail promises, like middle-class tax cuts, may get left on the cutting room floor.

President Bill Clinton in 1993 after newly elected:

Seeking to explain why he is backtracking on a campaign promise to cut taxes for the middle class, President-elect Bill Clinton said Thursday that the plan was never a major theme in his race for the White House. Mr. Clinton, speaking at a news conference a day after saying he would have to “revisit” his tax-cut plan, said Americans voted for him because of the “big things” he wanted to do.The middle-class tax cut, he said, was not among them….

Mr. Clinton spoke throughout the campaign of the need to redress declining middle-class incomes during the 1980s. He proposed a tax cut for the middle class nearly a year ago, in New Hampshire, and repeated the pledge frequently.

Link via Greg Mankiw.

The Future Of Immigration

From a recent National Bureau of Economic Research paper:

This paper documents a stylized fact not well appreciated in the literature. The Third World has been undergoing an emigration life cycle since the 1960s, and, except for Africa, emigration rates have been level or even declining since a peak in the late 1980s and the early 1990s. The current economic crisis will serve only to accelerate those trends. The paper estimates the economic and demographic fundamentals driving these Third World emigration life cycles to the United States since 1970 — the income gap between the US and the sending country, the education gap between the US and the sending country, the poverty trap, the size of the cohort at risk, and migrant stock dynamics. It then projects the life cycle up to 2024. The projections imply that pressure on Third World emigration over the next two decades will not increase. It also suggests that future US immigrants will be more African and less Hispanic than in the past.

Link via Tyler Cowen who has more here.

Closing The Education Gap Is Easy

So says John McWhorter, writing in The New Republic:

The forum was a typical one on race and education, as ritualized as a religious service. First, an introducer recites the latest dropout statistics. Then, discussants and audience questioners flag the usual terms–Low Expectations, Parental Involvement, Vested Interests, Resources, Accountability–each greeted with knowing murmurs and applause. A tacit assumption is always that the grievous intersection of these factors explains why poor children, especially black and Latino ones, tend to trail so far behind white ones in reading skills–a maddening gap that persists in National Assessment of Educational Progress reports year after year.

Yet a solution for the reading gap was discovered four decades ago. Starting in the late 1960s, Siegfried Engelmann led a government-sponsored investigation, Project Follow Through, that compared nine teaching methods and tracked their results in more than 75,000 children from kindergarten through third grade. It found that the Direct Instruction (DI) method of teaching reading was vastly more effective than any of the others for (drum roll, please) poor kids, including black ones. DI isn’t exactly complicated: Students are taught to sound out words rather than told to get the hang of recognizing words whole, and they are taught according to scripted drills that emphasize repetition and frequent student participation.

In a half-day preschool in Champaign-Urbana they founded, Engelmann and associates found that DI teaches four-year-olds to understand sounds, syllables, and rhyming. Its students went on to kindergarten reading at a second-grade level, with their mean IQ having jumped 25 points. In the 70s and 80s, similar results came from nine other sites nationwide, and since then, the evidence of DI’s effectiveness has been overwhelming, raising students’ reading scores in schools in Baltimore, Houston, Milwaukee, and other districts. A search for an occasion where DI was instituted and failed to improve students’ reading performance would be distinctly frustrating.

Still, at this forum you would never have known Project Follow Through existed. Key moment: A teacher reminded us to keep “creativity” in mind as a teaching tool, with coos and scattered applause from the audience, and Sharpton milking it by chiming in. Indeed, schools of education have long been caught up in an idea that teaching poor kids to read requires something more than, well, teaching them how to sound out words. The poor child, the good-thinking wisdom tells us, needs tutti-frutti approaches bringing in music, rhythm, narrative, Ebonics, and so on. Distracted by the hardships in their home lives, surely they cannot be reached by just laying out the facts. That can only work for coddled children of doctors and lawyers.

But the simple fact of how well DI has worked shows that “creativity” is not what poor kids need. At the Champaign-Urbana preschool, the kids–poor kids, recall, and not many who were white–had a jolly old time with DI, especially when they found that it was (hey!) teaching them to read.

The full article can be found here.

Two Points Worth Repeating On Healthcare

Given by CBO Director Doug Elmendorf, via Sally Pipes, via Greg Mankiw:

[T]he assertion that the costs of providing health insurance cripples American corporations in the global economy is simply wrong. CBO director Douglas W. Elmendorf explained this last week to the Senate Committee on Finance, which is chaired by Max Baucus, a leading proponent of government health care. The point is that for employers, health care is merely a part of total compensation: It reduces cash compensation for employees but it does not increase costs of employment. To argue otherwise is to argue for lower total U.S. compensation — that is, lower wages for U.S. workers. Said Mr. Elmendorf, “the costs of providing health insurance to their workers are not a competitive disadvantage to U.S.-based firms.”…

Preventative care, disease management and electronic medical records are also constantly cited as big cost-savers. The idea here is that if our health-care system was set up to prevent disease rather than just treat it, and could do so without duplicative paper records, it could save money. It’s a great hypothesis, but research does not indicate it amounts to much. “In many cases,” as Mr. Elmendorf testified regarding such initiatives, “those studies do not support claims of reductions in health spending or budgetary reductions.”

Full link here.

Latin America Fact Of The Day

Given by Harvard’s economic historian Jeffrey Williamson:

Most analysts of the modern Latin American economy hold to a pessimistic belief in historical persistence — they believe that Latin America has always had very high levels of inequality, suggesting it will be hard for modern social policy to create a more egalitarian society. This paper argues that this conclusion is not supported by what little evidence we have. The persistence view is based on an historical literature which has made little or no effort to be comparative. Modern analysts see a more unequal Latin America compared with Asia and the rich post-industrial nations and then assume that this must always have been true. Indeed, some have argued that high inequality appeared very early in the post-conquest Americas, and that this fact supported rent-seeking and anti-growth institutions which help explain the disappointing growth performance we observe there even today. This paper argues to the contrary. Compared with the rest of the world, inequality was not high in pre-conquest 1491, nor was it high in the postconquest decades following 1492. Indeed, it was not even high in the mid-19th century just prior Latin America’s belle époque. It only became high thereafter. Historical persistence in Latin American inequality is a myth.

Link via Tyler Cowen who posts a link to the full article here.

A Must Watch Video

Politics 101: Click here.

Quote Of The Day

“TARP recipients paid out $76.7 million on lobbying and $37 million on federal campaign contributions in 2008 and (through Feb 2, 2009) received access to $295.2 billion in TARP funds. The ratio of lobbying expense to TARP receipts suggests that, during the initial stages of the crisis, financial institutions have reaped extraordinary benefits from investing in efforts to scare federal officials and to tell them how “best” to dispel crisis pressures. Following this self-interested advice has been ineffective partly because the return from expanding large firms’ investments in lobbying activity has dwarfed the return they could expect to earn from diligently attending to their ordinary business of intermediating the nation’s flow of savings and investment.” — James F. Cleary, Professor in Finance at Boston College

Alan Greenspan Defends His Legacy

He writes in the Wall Street Journal:

As I noted on this page in December 2007, the presumptive cause of the world-wide decline in long-term rates was the tectonic shift in the early 1990s by much of the developing world from heavy emphasis on central planning to increasingly dynamic, export-led market competition. The result was a surge in growth in China and a large number of other emerging market economies that led to an excess of global intended savings relative to intended capital investment. That ex ante excess of savings propelled global long-term interest rates progressively lower between early 2000 and 2005.

That decline in long-term interest rates across a wide spectrum of countries statistically explains, and is the most likely major cause of, real-estate capitalization rates that declined and converged across the globe, resulting in the global housing price bubble. (The U.S. price bubble was at, or below, the median according to the International Monetary Fund.) By 2006, long-term interest rates and the home mortgage rates driven by them, for all developed and the main developing economies, had declined to single digits — I believe for the first time ever. I would have thought that the weight of such evidence would lead to wide support for this as a global explanation of the current crisis.

The full article can be found here.

Quote Of The Day

“Shouldn’t Obama call off his war on carbon emissions “for the duration” of the economic downturn? If the economy is roaring back in 18 months, swell, let’s all start fighting carbon again then. But if we’re in for a decade-long depression, then carbon emissions will be way down by themselves, and the last thing we should be trying to do is make energy, the main driver of economic growth, even more unaffordable.” — Steve Sailer

The Most Dangerous Part Of Obama’s Tax Proposals

Alvin Rabushka, an expert in taxation in the United States, alluded to it in discussing the recently passed “fiscal stimulus” bill:

There is danger lurking in this measure. The vast majority of federal income taxes is being paid by fewer and fewer households. The share of federal income taxes paid by the top 20% of all households has increased from 64.9% in 1979 to 86.3% in 2005. (That of the top 1% rose from 25.8% to 39.4% during 1986-2005, the top 5% from 43.9% to 59.7%, and the top 10% from 55.7% to 70.3%.) The share paid by the bottom 40% fell from 4.1% to -3.8% (negative tax) during 1979-2005. Negative tax means that the government is topping up household incomes with an earned income tax credit, cash, payable to low-income households….

On these numbers, a refundable tax credit against employee social insurance earnings would remove more than another 8 million tax units (5.8%) from federal tax liabilities, putting the share of non-taxpaying units around 49%.

If the “Making Work Pay” credit were to become permanent, and if Congress were to raise the offset to a higher percentage of the payroll tax, the 49% of households without any federal tax liability will quickly surpass 50%. When that happens, a non-taxpaying political majority will find itself in the enviable position of being able to vote tax increases on a minority of taxpayers (thereby financing benefits for themselves) without having to pay any of the increase. The models used by economists to estimate the economic gains of making the “Making Work Pay” tax credit permanent do not include this political outcome and its implications for U.S. democracy.

This was repeated by Michael Boskin, professor of economics at Stanford University, in a recent Wall Street Journal article:

New and expanded refundable tax credits would raise the fraction of taxpayers paying no income taxes to almost 50% from 38%. This is potentially the most pernicious feature of the president’s budget, because it would cement a permanent voting majority with no stake in controlling the cost of general government.

A very dangerous tipping point.

Another Mexico Trip

I leave to Monterrey, Mexico in a few hours. I should be back on Monday. See you then.

The Protectionist And Anti-Immigration Congress

The Harvard Crimson reports:

Troubled financial institutions that recruit heavily from Harvard may soon face restrictions on hiring international students if they accepted federal bailout funding. Under a recently passed amendment to the federal stimulus bill, companies participating in the Troubled Assets Relief Program—a government financial-rescue plan implemented last fall—will face more restrictions in hiring H-1B visa holders, foreigners with at least a bachelor’s degree and “highly specialized knowledge” in a particular field.

Link via Harvard’s Greg Mankiw, here.

Quote Of The Day

“In this “new era of responsibility”, as the budget document is called, it would have been better for Obama to signal that huge and desirable initiatives like universal health care will impose at least some costs on all Americans. It is literally impossible to make the rich pay for everything, and telling 95% of voters that they can have all these things at no cost is not good leadership. It has even less to do with shared responsibility.” — Clive Crook, writing in the Financial Times

Quote Of The Day

“Mr. Obama’s $3.6 trillion budget blueprint, by his own admission, redefines the role of government in our economy and society. The budget more than doubles the national debt held by the public, adding more to the debt than all previous presidents — from George Washington to George W. Bush — combined. It reduces defense spending to a level not sustained since the dangerous days before World War II, while increasing nondefense spending (relative to GDP) to the highest level in U.S. history. And it would raise taxes to historically high levels (again, relative to GDP). And all of this before addressing the impending explosion in Social Security and Medicare costs.” — Michael J. Boskin, professor of economics at Stanford University