Sunday, August 31, 2008

Addicted to Oil?

What does it mean to say that we are “addicted to oil?” That we should not pay $700 billion a year to import oil from foreign countries, especially those that oppose American interests. That we should not pollute the air and contribute to global warming? That we should live in densely populated urban centers instead of sprawling suburbs? That we should develop alternative sources of renewable energy? The notion of addiction implies, as it does for narcotics, that the consumption of oil is habit forming, that we are compulsively and physiologically dependent on it, even though it is an essential element in transportation, heating, and manufacturing.

The metaphor of addiction to oil applies equally to food, water, shelter, clothing, education, and medical care. Each is an important element of life. Why aren’t we badgered to reduce our addiction to them? Perhaps it has to do with the interests of those who would benefit economically and politically from substituting other sources of energy for our heavy consumption of oil. It is difficult to formulate a sensible national energy policy when our political language treats oil as if it were a narcotic instead of a vital economic resource.

Wednesday, August 27, 2008

Count Every Vote, But not Every Voter

The U.S. Census Bureau publishes estimates of voter registration and turnout in its Current Population Survey following each presidential and off-year Congressional election. For the presidential elections of 2004, 2000, and 1996, voters respectively constituted 63.8%, 59.5%, and 58.4% of the 18+ eligible citizen population. For the off-year elections of 2006, 2002, 1998, and 1994, voters respectively composed 47.8%, 46.1%, 45.3%, and 48.3% of the eligible citizenry.

The turnout trend line in the three previous presidential elections has been up, with a significant 4.3% increase in 2004 over 2000. A fair guess of turnout in 2008 may well exceed 65%.

A two-thirds turnout means that fully one-third of eligible voters will not be counted when the results are tabulated. If 65% vote and if the election is close, it means that just over a third of the eligible electorate will decide the outcome.

Beware of the next president claiming a mandate for his policies.

Tuesday, August 26, 2008

Two Roads Diverged in a Yellow Wood

“The Road Not Taken” by Robert Frost describes the two presidential campaigns. Senator Obama promises change, which means putting himself in the White House, not another Republican. Senator McCain promises to reach across the aisle to solve the country’s problems, which means accepting what Democrats want and declaring the problems solved.

“Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;”

Translation: It would be nice to know the outcome before starting

“Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,”

Translation: Six of one; half a dozen of the other

And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.”

Translation: Neither path had been taken that morning

“I shall be telling this with a sigh
Somewhere ages and ages hence;
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.”

Translation: What? As both was equally worn and neither had been trampled in the early morning, there was no difference

Summing up: No difference. The election is largely about who fills the offices in the federal buildings in Washington.

Thursday, August 21, 2008

The Economic Consequences of a More Diverse America

On August 14, 2008, the U.S. Census Bureau released its projections for the ethnic composition of the population in 2050. The key finding is that minorities, which currently constitute one-third of the U.S. population, will rise to 54%. As early as 2023, minorities will comprise more than half of all children.

The breakdown in 2050 is projected as follows: non-Hispanic white alone: 46.3% (65.7% in 2008); Hispanic: 30.3% (15.4% in 2008); black: 14.0% (15.0% in 2008); Asian: 9.2% (5.1% in 2008); and mixed race: 3.7% (1.7% in 2008). American Indians, Alaskans, Hawaiians, and Pacific Islanders will increase by less than 1%. The two largest changes are a one-third decline in the non-Hispanic white and a doubling in the Hispanic population.

Numerous studies have attempted to determine high school and college graduation rates among Americans. A sampling includes the Center for Public Education, the U.S. Census Bureau, the Urban Institute Education Policy Center, and a National Bureau of Economic Research paper written by Chicago professor James J. Heckman and American Bar Association affiliated Paul A. LaFontaine. Although the numbers and percentages differ among the four reports, all found a large gap between Asians and Whites, the top two groups, and blacks and Hispanics, which enjoyed lower graduation rates. Depending on the methodology employed, the gap between whites and blacks/Hispanics ranged between 16-28 percentages points. The gap was a few percentage points greater between Asians and blacks/Hispanics. These gaps have persisted for 35 years. The gaps were even larger for college graduation rates.

Unless blacks and Hispanics markedly increase their secondary and tertiary graduation rates, the average educational level of the American work force will steadily decline in the coming decades as better educated whites are replaced by less well-educated blacks and Hispanics. On this trend, America will steadily lose competitiveness. America must find the means to better educate its minorities.

Tuesday, August 19, 2008

Obama’s Tax Proposals: Does He Really Mean it?

Obama advisers Jason Furman and Austan Goolsbee were in the news last week with some specifics of Senator Obama’s tax proposals, which are also posted on his web site. A great fear in Wall Street and among investors was that Obama would tax dividends and capital gains as ordinary income, up to 39.6% for upper-income families. To their relief, the top rate on dividends and capital gains will only rise to 20%, and apply to families with annual income over $250,000. Those with income below $250,000 will pay current rates. Obama will restore the 36%and 39.6% tax brackets that prevailed during the 1990s, but only on families making over $250,000 (individuals over $200,000). Obama’s estate tax would exempt $7 million per couple, and impose a 45% rate on the balance.

A second great fear is that Obama will impose a 12.4% surtax on Social Security payroll taxes on earned income exceeding $250,000. Under existing law, workers and employers together pay 12.4% on the first $102,000 of earned income. (Medicare payroll tax of 2.9% is not subject to an earnings cap.) Obama’s campaign remarks suggest a rate of 2-4% and that the surtax would not commence for ten years.

The additional revenue collected in these measures would be used to help fund tax credits for middle-class households, a zero capital gains rate for small business and start-ups, a permanent research and development credit, zero tax on seniors making less than $50,000, and several other measures. Obama also pledges to close loopholes and go after tax havens.

Two issues arise in Obama’s proposals. First is the taxation of interest income as ordinary income. Many economists attribute the large budget and trade deficits in the U.S. to its low savings rate. Wouldn’t it make sense to tax interest at the same lower rate as dividends and capital gains, thereby increasing the incentive to save?

The second issue is trustworthiness. If Obama is elected president, will he keep to the proposals articulated by Furman and Goolsbee and posted on his web site? Or, will he flip-flop to higher tax rates? This is the $64,000 question.

Friday, August 8, 2008

Where Have All the Oil Speculators Gone?

As posted oil prices soared from $85 a barrel on February 1, 2008, to peak at $142 a barrel in early July, several Congressional committees held hearings to investigate the role of speculators in pushing up prices. Members of Congress went after oil company executives with hammer and tongs, proposing windfall profits taxes on oil company earnings and new restrictions on traders. Congress adjourned on August 1 until after Labor Day before it enacted any new measures.

Good thing, too.

Imagine another round of Congressional hearings, this time with oil company executives and traders on the dais where Members of Congress usually sit and members in the chairs below facing tough questioning. How would members explain the fall in prices to $115.60 a barrel for NYMEX crude futures by August 8? How would they explain why greedy oil companies would willingly give up $30 a barrel in earnings in the short period of a month? Where did the speculators who profit by pushing up oil prices go?

"I have a dream." That someday Members of Congress will face the same judgment as business executives and traders.

Thursday, August 7, 2008

Karl Rove—Mandrake the Magician or Reverse King Midas?

Since leaving the White House in August 2007, Karl Rove has become a political pundit on Fox News and a regular contributor to the Wall Street Journal. His modus operandi is to offer advice on what political candidates should do to win, with special attention given to Senator John McCain.

Rove is often credited with masterminding President Bush’s two electoral victories. But consider the state of the Republican Party in August 2007 following the November 2006 elections.

The Republican Party has gone from being the majority party to the minority in both Houses of Congress. Democrats gained 31 additional seats in the House and 5 in the Senate. They secured 28 governorships, raising their number from 14, and picked up more than 300 seats in the state legislatures.

Having failed to use his veto pen during the first six years of his two administrations, as the Republican majority spent money like there was no tomorrow, President Bush suddenly discovered the veto, which had lain dormant in Article 1, Section 7 of the U.S. Constitution. Inheriting a fiscal surplus from President Clinton, the Republicans ran off seven consecutive deficits, only partly explained by expenditures in Iraq and Afghanistan.

Has Karl Rove turned gold into lead? Will his legacy be the great realignment of 2006 that resurrected Democratic Party control of Congress?

Friday, August 1, 2008

India, China, and Russia—Three Countries That Can Say No

The rise of India and China and the oil wealth of Russia have transformed the power structure of international relations. India refused to accept lower tariffs on several agricultural products, thereby scuppering the current Doha round of negotiations in pursuit of further liberalization of international trade. China reneged on its promise to allow unfettered press freedom for foreign media covering the Olympic games. Russia threatens to aim missiles westward, and perhaps curtail gas deliveries in winter, if the Czechs and Poles proceed with installation of a U.S. missile shield in Eastern Europe.

Sustained high growth and the accumulation of several trillion dollars of international currency reserves, largely held in dollars, have given the gang of three a much stronger bargaining position in international affairs. These trends are likely to continue for the foreseeable future, while the United States goes deeper in debt to foreigners.

No, bu, and nyet are words that American diplomats had better get used to hearing. The list of "no’s" is likely to grow in the future.