AEIdeas The public policy blog of the American Enterprise Institute Thu, 28 Aug 2014 20:12:42 +0000 en-US hourly 1 If you are excited about driverless cars, you will find this very depressing Thu, 28 Aug 2014 19:48:38 +0000 read more >]]> Google has been working on self-driving cars, and while there has been a lot of progress made, here, according to MIT Technology Review, are some of the obstacles left to be conquered:

  • The self-driving car can’t drive itself in 99% of the country.
  • It knows almost nothing about parking, and can’t be taken out in snow or heavy rain.
  • If a new stoplight appeared overnight, the car wouldn’t know to obey it.
  • Google’s cars can detect and respond to stop signs that aren’t on its map, but at an unmapped intersection stop sign the car wouldn’t know what to do after it had stopped, and would probably remain stationary until a human driver intervened.
  • The car hasn’t yet tackled big, open parking lots or multilevel garages.
  • The car’s video cameras detect the color of a traffic light, and they’re still working to prevent them from being blinded when the sun is directly behind a light.
  • Pedestrians are detected just as moving, column-shaped blurs of pixels—meaning that the car wouldn’t be able to spot a police officer at the side of the road frantically waving for traffic to stop.
  • The car’s sensors can’t tell if a road obstacle is a rock or a crumpled piece of paper, so the car will try to drive around either. The car also can’t detect potholes or spot an uncovered manhole if it isn’t coned off.

What’s next? Well, researchers “say the unsolved problems will become increasingly difficult. For example, John Leonard, an MIT expert on autonomous driving, says he wonders about scenarios that may be beyond the capabilities of current sensors, such as making a left turn into a high-speed stream of oncoming traffic.” And Alberto Broggi, a professor studying autonomous driving, “says he worries about how a map-dependent system like Google’s will respond if a route has seen changes.” Chris Urmson, director of the Google car team, is more optimistic, aiming to have the car ready in about five years.

The technical issues may not be the only barriers the driverless cars face though, according to Jim Pethokoukis. Government regulation could also prove to be a problem.

Follow AEIdeas on Twitter at @AEIdeas.

]]> 1
What we’re reading today: August 28, 2014 Thu, 28 Aug 2014 16:53:25 +0000 read more >]]> Check out the top pieces we’re reading today on the economy, technology, family, and more.

1.) Should the SAT be optional? Jonathan Wai weighs in at Quartz.

2.) Carson Bruno looks at the economic impact of the Napa earthquake in this Real Clear Markets piece.

3.) Here are the hidden obstacles for self-driving cars, according to MIT Technology Review.

4.) In City Journal, Dennis Daffran writes on Colbert, Fallon, and the crony capitalism of the creative class.

5.) From Brookings comes this chart that shows today’s college-educated parents spend a lot more time with their kids than any parents did in the 1970s:

Growing class gap in time spent with parents

6.) Research from the St. Louis Fed finds that despite aggressive deleveraging, Generation X remains “Generation Debt.” They found that “on average by 2008, members of Gen X (those born between 1965 and 1980) had accumulated about twice as much total debt at a given age as birth-year cohorts observed at the same age in 2000.”

7.) It seems there has been progress on a powerful new way to generate electricity, says this MIT Technology Review piece by Kevin Bullis.

8.) In this Education Next piece, Jed Wallace looks at California, a case study for charter school success.

9.) From the Manhattan Institute: “New York’s rent-burdened households: Recalculating the total, finding a better solution.”

10.) DARPA project starts building human memory prosthetics, notes this IEEE article. “The first memory-enhancing devices could be implanted within four years.”

11.) Right-to-work laws could come to a city near you, according to this e21 piece.

Follow AEIdeas on Twitter at @AEIdeas.

]]> 0
When economists talk about mismanaged US states, one gets special mention Thu, 28 Aug 2014 15:30:14 +0000 read more >]]> A new IGM Forum poll of economists finds large, confident majorities who think US states are (a) understating pension liabilities and (b) at risk — at least some of them — of eventually needing a combo of austerity budgets, a federal bailout, and/or default unless they soon increase taxes, cut spending, or change their pension systems.

Now this post really isn’t about pension liabilities. It is about how in the survey of these economists one state repeatedly received special mention for its fiscal woes: Illinois.

But the Prairie State has lots of problems, in addition to government making promises it can’t reasonably keep. The US Chamber of Commerce recently looked at the difficulty of starting a business in different cities. I choose Dallas and Chicago. As you may know, Texas has been a leading state for job creation, Illinois not so much — as this chart shows:


So how do Dallas and Chicago compare on the regulatory ease of starting a business? Here is Chicago:

US Chamber of Commerce

US Chamber of Commerce

And here is Dallas:

US Chamber of Commerce

US Chamber of Commerce

How to fix Illinois? Spend and regulate less would seem to be a smart start.


]]> 3
Fewer Americans now self identify as ‘middle class’ Thu, 28 Aug 2014 14:59:27 +0000 read more >]]> What do years of stagnant wages, declining labor force participation, and job polarization (more jobs at the skill extremes, fewer in the middle) produce? Fewer people who consider themselves middle class, as the above Pew Research poll shows. (Thanks to Brookings’ Richard Reeves for the pointer.)

In 2008, 72% of Americans considered themselves “middle class (53%) or upper-middle class (19%). Now just 57% consider themselves “middle class” (44%) or “upper-middle class” (13%) Meanwhile, the number who see themselves as “lower-middle class” or “lower class” has risen to 40% from 25%.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

]]> 0
Americans on the job: Top 10 takeaways on Americans’ attitudes about work Thu, 28 Aug 2014 13:54:32 +0000 read more >]]> As we approach Labor Day weekend, we’ve assembled some recent polls on how workers feel about their jobs, benefits, co-workers, and the quality of their work life.

We really like our jobs: Most employed Americans say they’re happy with their jobs. In a question first asked by Gallup in 1989 and yearly since 2001, more than 80% have told interviewers that they are completely or somewhat satisfied with the work they do. In every survey since 2001, 40% or more have been completely satisfied. An AARP poll of people in their peak career years (between ages 40 and 59) found that 77%, a response similar to Gallup’s, either loved or liked their current jobs. Only 2% said hated them.

Surely part of the reason is that for many of us, our jobs give us a sense of identity. Fifty-five percent agreed with that idea in Gallup’s August poll, a finding very much in line with responses since Gallup started asking the question in 1989.

We worry less about losing our jobs than we did a few years ago: The financial crash and its aftermath took a toll on Americans’ views about their job security. And their fears were grounded in reality, as many Americans had personal experience with the harshness of the job market. Forty percent of adults told NBC News/Wall Street Journal pollsters this month that someone in their household had lost a job in the past five years.

In 2009, 31% of employed adults told Gallup they worried that they, personally, would be laid off, double the response (15%) before the crash. But people are more confident today. In August, 19% worried that they would be laid off.

The same goes for benefit cuts: After the crash, many Americans worried that their benefits would be cut. Anxiety has eased somewhat. Forty-six percent of people employed full or part time said they worried about benefit cuts in 2009; 34% gave that response this month.

We still believe that finding a job is difficult: Most Americans tell pollsters that finding jobs is still a major challenge. In July, 29% told Pew Research Center interviewers said there were plenty of jobs in their communities, while 62% said jobs were difficult to find. This is a clear improvement from March 2010, when only one in 10 Americans said there were plenty of jobs. But it’s still a far cry from December 2006, when 40% gave that response.

In a recent Fox News poll, 55% of registered voters had not seen signs that the economy had turned the corner and that the worst was over, while 41% had.

Our co-workers make our jobs better. . . : Most polls show that our fellow workers are the best parts of our jobs. Seventy-one percent of workers in Gallup’s latest survey said they were completely satisfied with their relations with their coworkers. Only the physical safety conditions of their workplaces ranked higher (74%).

. . . but our pay does not: Satisfaction with pay is lower than satisfaction with most other aspects of work. Gallup asked about 13 different areas, and the proportion completely satisfied with the amount of money they earned (31%) ranked second from the bottom. Only on-the-job stress (27%) ranked lower.

Thus far this election season, we’ve heard a great deal about equal pay for equal work. According to Pew, “solid majorities of working men (73%) and women (75%) say that where they work men and women are paid about the same amount for doing the same job.” Only about one in 10 say women are paid less than men.

We like our bosses but wouldn’t want their job: Sixty percent of employed adults told Gallup this August that they were completely satisfied with their boss or immediate supervisor. In other older polls, around two in 10 said they would fire their boss if given the chance.

Not many Americans want to be the boss. In the past, around a quarter have said that they would like to be the boss. A larger 39% told Pew in a broader question asked last October that they would like to be a boss or a top manager, but 45% said they would not.

Last year, when Gallup asked people whether they would prefer a male or female boss if taking a new job, 35% said they would prefer a man, 23% a woman, while 41% volunteered it would make no difference. In 1953, when Gallup first asked the question, 66 percent preferred a male boss and only 5% a female one.

We Think Our Workplaces Are Safe: Polls from the 1950s and 1960s showed that Americans were concerned about the safety of their workplaces, and indeed, workplaces were generally less safe than they are today. In a new battery from Gallup, 74% of workers said they were completely satisfied with the safety of their workplaces today.

We don’t think our jobs are moving overseas: Only 8% of workers in a new Gallup poll worry that their employer will ship their job overseas. The highest response to this question over the past dozen years came in August 2011, when 13% said they worried about their job being outsourced.

As much as we like our jobs, we still love time off: Fifty-nine percent of workers told Gallup this year that they were completely satisfied with the amount of vacation time they had.In another question, 63% were completely satisfied with the flexibility of their hours. That being said, a Gallup-Ipsos poll found that 4 in 5 Americans say they enjoy the hours they spend not on the job more than the ones they spend at work.

Americans on the job

If you’d like to read more, here is the full report on Americans’ attitudes toward work in the AEI Public Opinion Study “The State of the American Worker 2014: Attitudes about Work in America. Also look at the AEI Public Opinion Study “Economic Insecurity: Americans’ Concerns about their Jobs, Personal Finances, Retirement, Health Costs, Housing, and More.”

Follow AEIdeas on Twitter at @AEIdeas.

]]> 0
Why we shouldn’t grow the economic ‘pie’ Wed, 27 Aug 2014 18:00:44 +0000 read more >]]> Conservatives are for growth. Liberals are for redistribution. Conservatives worry about growing the pie. Liberals worry about slicing and re-slicing the pie to make sure everyone gets a fair piece.

At least those are the shorthand, flawed stereotypes. But it is the “pie” metaphor that I want to focus on for a second. A great blog post from awhile back by Keith Hennessey (as pointed out by Reihan Salam) argues that the economy isn’t a pie where some central planner with an apron predetermines the proper size of the dessert. Nor is the real economy some zero sum gain where if one pie slice grows, another must shrink. Hennessey:

A flower garden is a better metaphor for looking at economic growth and income distribution. A flower’s growth depends on the individual characteristics of that type of flower and that particular seed. It also depends on common factors shared with other flowers in the same garden (e.g., the local climate, pests, the skill and diligence of the gardener) as well as its particular advantages relative to other flowers (better sunlight, soil, and water in this part of the garden than that part over there).  Although there is some interdependence, the rapid growth of a sunflower at one end of the garden largely does not come at the expense of a struggling tulip at the other end. The sunflower may have advantages the tulip does not, even unfair ones, but the fast-growing sunflower is not “taking growth” from the slow-growing tulip.

Flowers will grow at different rates for a variety of different reasons. Policymakers should focus their energies on absolute growth rates rather than relative ones. It’s not a problem that some flowers are growing faster than normal, unless (a) that growth is indeed coming at the expense of other flowers, or (b) that more rapid growth is because the gardeners are neglecting the tulips to help the sunflowers grow faster.

In the same way it makes more sense to think of economic growth as the sum of the unequal income growths of tens of millions of separate individuals, rather than as a single growing pie to be divided. Any particular individual’s income growth depends on his innate talent, education, and skills, his effort and diligence, and some degree of luck. It also depends on common factors such as the health of the local, regional, national, and world economies, as well as shared resources like transportation and communications infrastructures and a stable and predictable system of law, property rights, and government rules.

The principal economic challenges are to maximize the growth potential of the entire economy/garden and to maximize the opportunities for those individuals/flowers struggling to succeed/grow. And just as a gardener should spend more time tending to the parts of his garden that are struggling, policymakers should devote greater effort to maximizing opportunities for those at the bottom of the income distribution to improve their lot. In the long run this means things like improving elementary and secondary education, expanding free trade, and reducing the growth burden of regulations, government spending, and debt. In the short run it means getting the incentives right so that those on means-tested government assistance don’t face exorbitant marginal effective tax rates from poorly designed income phase-outs.

The flower garden metaphor has one final advantage over the pie metaphor. A pie does not exist without a baker, whereas flowers grow naturally. The growth comes from the flowers, facilitated but not created by a good gardener. In the same way policymakers and elected officials neither “create jobs,” nor “increase economic growth.” Smart policymakers create the conditions under which private firms create jobs and in which millions of individuals combine their separate efforts to create economic growth. The origins of economic growth are in the private sector, not the public.

As long as the roots are not severed, all will be well in the garden.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

]]> 10
What we’re reading today: August 27, 2014 Wed, 27 Aug 2014 17:08:49 +0000 read more >]]> Check out the top pieces we’re reading today on the economy, technology, and more.

1.) How much disincentive is too much? Jim Manzi asks in Cato Unbound.

2.) Jason Russell writes on how right to work helps unions and economic growth in his latest from e21.

3.) From the National Bureau of Economic Research comes a paper titled “Import competition and the great US employment sag of the 2000s.”

4.) Who pays corporate taxes? Possibly you, according to the Harvard Business Review.

5.) Richard Johnson asks, in Real Clear Policy, will public employees cut their own pensions?

6.) Quartz discusses how big business buys the right to dodge US taxes.

7.) IEEE says  solar energy isn’t always as green as you think.

8.) Jacob Anbinder explains why postal banking won’t work in his The Week column.

Follow AEIdeas on Twitter at @AEIdeas.

]]> 0
3 things account for 85% of higher government spending over the next decade Wed, 27 Aug 2014 16:47:41 +0000 read more >]]> The Wall Street Journal sums up the new CBO budget report:

The Congressional Budget Office on Wednesday said the federal budget deficit over the next decade will be smaller than previously forecast, as the government continues to benefit from low interest rates.

The CBO said the deficit through 2024 is expected to be more than $400 billion smaller than the forecast in an April report. For fiscal 2014, which ends Sept. 30, 2014, the CBO predicted an annual deficit of $506 billion, a shortfall that is smaller when compared with previous years but slightly more—$14 billion—than it predicted in its earlier forecast.

And as a note from Capital Economics points out, this improvement doesn’t much change the bigger picture. But that is because the deficit outlook has already improved a lot.

It’s easy to forget that just two years  ago the deficit was expected to be between 5% and 6% of GDP for the following decade, while net debt was expected to rise towards 100% of GDP. (See Charts 1 and 2 again.) That’s not to say that all America’s fiscal problems have been solved as policy still needs to be changed in order to prevent the fiscal position from deteriorating significantly beyond the next decade.

Capital Economics

Capital Economics

Here is what jumped out at me: federal spending is projected to rise by $2.3 trillion over the next decade, according to CBO. That average annual increase of 5.2% will help take the US debt/GDP ratio from 72% last year – and just 35% in 2007 – to 77% in 2024.

This is key: just three parts of the budget account for 85% of that increase.

1.)  Social Security spending will increase by 80% to 5.6% of GDP in 2024 from 4.9% of GDP this year.

2.) Healthcare spending (Medicare, Medicaid, the Children’s Health Insurance Program, and Obamacare subsidies) will increase by more than 85% to 5.9% of GDP from 4.9% this year.

3.)  Interest payments on the national debt will triple to nearly $800 billion, 3.0% of GDP in 2024 vs. 1.3% this year. Indeed, 72% of the projected $7.2 trillion in addition debt Washington will rack up is due to interest payments. Without those obligations, deficits would run less than 1% of GDP between now and 2014 — and the debt-GDP ratio would fall to 55%.

By the way, everything else the government spends money is projected to grow by only 20%, and decline as share of GDP. CBO:

Relative to GDP, such spending would fall—from 9.3 percent this year to 7.3 percent by 2024, its lowest percentage since 1940 (the earliest year for which comparable data have been reported).

Anyone who talks about deficits and doesn’t focus on restraining entitlement spending isn’t being serious.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

]]> 3
Fighting bad economics in Asia Wed, 27 Aug 2014 14:46:35 +0000 read more >]]> US-Asia economic relations are one of the keys to a prosperous 21st century. In that light, yesterday did not bring good news.

As part of its recent spate of nasty economic behavior, China has been harassing foreign car-markers for “monopolizing” their own parts supply. This is something akin to buying an item from a store and then accusing them of monopolizing service for it, when there are a dozen other stores to buy and receive service from.

India has now rushed to copy China. The new Indian government is supposed to improve the business environment. Not so far.

India is not just a follower in dubious economic behavior, it is also a leader. Prime Minister Modi’s Independence Day speech two weeks ago was impressive in several ways. But its main economic theme was not prosperity through competition and private ownership, it was “make it in India.”

The nationalist overtones in that approach play well politically but are dangerous economically unless accompanied by an equal commitment to openness. India has not shown that commitment to date.

Asia’s third most populous country could join the top two in heading off the rails. Indonesia previously decided to halt metal ore exports, now it may be looking to discourage agriculture imports and perhaps others. Self-reliance sounds far better in principle than it works in practice.

If US-Asia economic relations are to be positive, strained accusations of monopoly and anti-trade policies cannot go unchallenged. Happily, the US has a response that goes well beyond complaining about individual issues: the Trans-Pacific Partnership (TPP), which includes Australia, Chile, Vietnam, and others.

A sound TPP is an agreement to counter protectionism, offering companies and workers alternative markets where predatory government policies have been forsworn. It undercuts economic nationalism by showing that competition and respect for private ownership rights is what will bring prosperity.

China and India are also contemplating superficial state sector reform, where neither has shown the nerve or vision to take meaningful action. The TPP has a chapter on “competitive neutrality,” which should require participants to sharply limit the advantages they give to state-owned enterprises. This will strike a blow against state-led development and its endemic corruption.

All of this, and more, can be accomplished, but requires a sound TPP that includes a number of important economies.

First is the US, which is not making progress on considering the TPP and may not be fully committed to a high-quality agreement. The US is, correctly, asking much of its partners on intellectual property, among other issues. Remaining American barriers from sugar to maritime services need to be lowered.

The second-most important TPP economy should be Japan. US-Japan talks are now the primary obstacle to an agreement. While the US is hardly blameless, Japanese Prime Minister Abe came into office promising a different economic course and has not delivered. Japan is long overdue to have opened its agriculture sector.

A genuinely pro-market TPP is politically difficult in Japan, the US, and most of the participating countries. But a glance at yesterday’s news serves as a reminder of how badly it is needed.

Follow AEIdeas on Twitter at @AEIdeas.

]]> 0
Can we please agree that workers probably bear some of the corporate tax burden? Science! Wed, 27 Aug 2014 14:20:50 +0000 read more >]]> When economist try to model how corporate income taxes work in the real world, they find that Mitt Romney was right when he said, “Corporations are people, my friend.” Some chunk of the tax burden, perhaps a rather large chunk in the 40% to 75% range, falls on workers. Cutting the tax might just raise worker wages. HBR’s Justin Fox sketches the current state of the research:

If a country allows free capital flows and free trade and has a corporate tax rate much higher than that of its neighbors, investors can choose to buy shares in companies elsewhere that face a lower tax, and corporate management can choose to move operations abroad. Consumers, meanwhile, can buy from foreign suppliers. By comparison, workers are pretty immobile. It’s hard for them to switch employers, let alone countries. So the tax lands on them, in the form of lower wages and/or skimpier benefits. And as those at the top of today’s corporate hierarchies seem to have done a pretty great job of keeping their paychecks from being adversely affected, the impact is presumably greatest on those farther down in the organization.

That’s the theory, at least. These models are, as Jennifer Gravelle of the Congressional Budget Office pointed out in a 2010 summary of recent theoretical work, extremely sensitive to how open an economy is and how sensitive people are to incentives. Tweak the assumptions just a little, and you can get a very different result.

So in the past few years there’s been a determined attempt to answer the question empirically, with a flurry of new regression studies that dig through data across countries, states, or even 13,000 German communities to suss out where businesses’ tax burden lands. Gravelle has a 2011 summary of this work, and her chief conclusions are that the results are all over the place and the most dramatic ones just aren’t credible. But most of these studies do show some significant chunk of the corporate tax burden landing on workers, which is perhaps not yet conclusive but is really interesting.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

]]> 5