AEIdeas http://www.aei-ideas.org The public policy blog of the American Enterprise Institute Fri, 25 Apr 2014 04:15:38 +0000 en-US hourly 1 Traditional taxi cartels are doomed as on-demand ridesharing services take off – Lyft operates in 60 markets, Uber in 100 http://www.aei-ideas.org/2014/04/traditional-taxi-cartels-are-doomed-as-on-demand-ridesharing-services-take-off-lyft-operates-in-60-markets-uber-in-100/ http://www.aei-ideas.org/2014/04/traditional-taxi-cartels-are-doomed-as-on-demand-ridesharing-services-take-off-lyft-operates-in-60-markets-uber-in-100/#comments Thu, 24 Apr 2014 23:54:13 +0000 http://www.aei-ideas.org/?p=128603 read more >]]> Pinkout81Tech Crunch is reporting that “Lyft Launches In 24 New Markets, Cuts Fares By Another 10%“:

On-demand ride-sharing startup Lyft is expanding aggressively in the U.S., announcing the launch of service in 24 new markets today (see the Lyft trademark “carstache” above). Along with the expansion, Lyft company will be offering free rides to new users in all launch markets, while also lowering its fares by another 10 percent in existing markets.

Today’s expansion brings the total number of Lyft markets served to 60, which is up from 36 just a day ago. That is the most coverage in the U.S. by any of the new on-demand ride app companies. It will also position Lyft as first-mover in 13 markets where the company won’t be competing with rival Uber at launch.

Lyft is offering free rides for the first two weeks of service as a way to entice new users to sign up. That’s more or less standard operating procedure for the company in any new market it serves.

But the company is also discounting fares in existing markets by an additional 10 percent. The price cut is the second discount Lyft has applied just this month, as it seeks to acquire new customers in many places where it’s battling Uber and other transportation services.

From another Tech Crunch article “Everywhere From Oklahoma City To Beijing: Uber Now Available In 100 Cities Worldwide“:

It’s hard to believe that on-demand ride service Uber is less than four years old. Launched in San Francisco in 2010, the company has expanded aggressively over the last several years. Today, the company announced a major milestone: With its launch in Beijing, Uber is now available in 100 different cities around the world.

Uber started out as a way for San Franciscans to hail a black car with your mobile phone, and spent about a year exclusively in that market refining its service. Its next step was launching in New York City, a place with a pretty good transportation system and ample supply of taxis.

Over time, Uber continued to take an unconventional approach to its expansion. As Uber head of global operations Ryan Graves reminded me today, the company’s first international launch wasn’t in London, which would have made sense due to common language, but Paris.

And it’s increasingly making its service available in places that don’t fit the usual framework of a large urban center like Tokyo or Berlin. That’s evident with the launch of Uber in smaller cities like Sacramento, or Fresno, or Oklahoma City. The success it’s seen in those cities shows that Uber probably works just about anywhere.

MP: It’s hard to believe that the traditional, high-priced, restricted-entry taxi cartels will be able to survive now that there’s increasing competition from the new, user-friendly, convenient, affordable on-demand ride-sharing services like Lyft and Uber. Unless of course, the taxi cartels adapt to the new economic environment that places the interest of consumers above the interests of entrenched taxi cartel members – and that may be too much to ask. Too many consumers have now “gotten a taste” of the new consumer-friendly business model, and the old producer-friendly way of doing business simply can’t survive – it’s an outdated and doomed model that will succumb to a new gale of Schumpeterian creative destruction. It’s a change that’s long overdue and a huge benefit to consumers everywhere. Let Lyft and Uber bloom in a thousand cites!

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Thursday afternoon links http://www.aei-ideas.org/2014/04/thursday-afternoon-links-10/ http://www.aei-ideas.org/2014/04/thursday-afternoon-links-10/#comments Thu, 24 Apr 2014 19:31:44 +0000 http://www.aei-ideas.org/?p=128581 read more >]]> prices1. Chart of the Day: Textbook bubble, with data through 2013 for the increase since 1978 for Educational books (864%), Medical care (+588%), New home prices (+375%) and the overall CPI (+257%).

2. Bureaucratic Excess: 11 Crazy Occupational Licensing Laws That Keep You From Getting A Job (h/t  Cafe Hayek).

3. Bureaucratic Excess II: Several New Pests Have Invaded the DC-area and Threaten the Livelihoods of Local Farmers Selling Their Produce at Local Farmers’ Markets: Government food bureaucrats, food regulators and food inspectors. To protect the public interest of course, even though it doesn’t appear that the public has complained or been harmed.

4. Wage Discrimination? Young workers (16-24 years) earn only 54 cents for every dollar an older worker (25+) earns, writes Walter E. Williams:

This wage gap is 43 percent greater than the male/female gap. Our president, progressives, do-gooders, academics and union leaders show little interest in big, greedy corporations ripping off the nation’s youth. You might say, “Whoa, Williams! There’s a reason younger people earn less than older people. They don’t have the skills or experience.” My response would be — if I shared the vision of the president, media elite and do-gooders: Just as there can be no justification for big, greedy corporations paying women less than they pay men, there’s no justification for them to exploit the nation’s youth.

5. America, Here’s Your Drug War: Virginia State Police raided the wrong apartment, and traumatized and handcuffed a 75-year-old grandmother after breaking her front door down. They never apologized for having the wrong house, but on the way out said “You got to get someone to fix that door” – the one they broke down.

6. Administrative Bloat: Rob Port reports that the University of North Dakota (15,000 students) just added its 19th vice-president (for “diversity and inclusion”), in addition to 85 other administrators with the title of  “dean” or “director,” bringing the total number of top administrators to more than 100. Like most universities today, the University of North Dakota has almost twice as many non-teaching employees (7,812) as full-time teaching faculty (4,173).

7. Who’d a-Thunk It? Teachers’ unions put the interests of their members above the educational interests of children?

8. Who-d a-Thunk It II? They have chronic shortages of consumer goods under communism in places like Cuba?

9. Misprint at the NY Times? Shouldn’t its editorial “Racial Equality Loses at the Court” have been “Racial Equality Wins at the Court”?

10. Cartoon of the Day, related to #9 above, from Michael Ramirez at Investor’s Business Daily.

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Superintendent Duncan yanks Washington’s waiver http://www.aei-ideas.org/2014/04/superintendent-duncan-yanks-washingtons-waiver/ http://www.aei-ideas.org/2014/04/superintendent-duncan-yanks-washingtons-waiver/#comments Thu, 24 Apr 2014 19:27:05 +0000 http://www.aei-ideas.org/?p=128588 read more >]]> Showing the taste for power that has led Sen. Lamar Alexander to accuse him of thinking he runs a national school board, Secretary of Education Arne Duncan today yanked Washington state’s “waiver” from the No Child Left Behind Act. In his letter, Duncan expressed his disappointment in the failure of Washington state’s legislature to heed his instruction “to put in place teacher and principal evaluation and support systems that take into account information on student learning growth based on high-quality college- and career-ready (CCR) State assessments as a significant factor in determining teacher and principal performance levels.” This was the first time Duncan had pulled a state’s waiver. Four thoughts:

One, the incident shows how massively the Obama administration has extended the US Department of Education’s reach. Secretary Duncan is now punishing Washington state and re-imposing provisions of a law that he has termed “broken,” because its legislature failed to heed his mandate governing teacher and principal evaluation—a mandate that has no grounding in statute. Talk about your worrisome precedents.

Two, this decision shows how capricious the whole waiver process has been. Duncan’s letter acknowledges that he extended Washington’s waiver despite it having violated its pledge. It’s hard to understand why it was okay to grant a reprieve last time and not this time.

Three, it’s hard to fathom why anyone would imagine it appropriate or desirable for the Secretary of Education to require states to adopt particular teacher and administrator evaluation policies, especially at this time. Aside from the absence of any legislative basis for his doing so, there is no evidentiary basis he can point to demonstrate the merits of his preferred model. Meanwhile, his actions are fueling backlash. And, he is insisting on linking assessment results to evaluation at the precise time Washington state is adopting new assessments, which seems a recipe for trouble.

Fourth, I’ll bet dollars to doughnuts that every one of the 40-odd states with a waiver is in violation of at least some portion of it. So it’s troubling to see the Secretary freely pick and choose which violations are “okay,” which call for probation, and which are so severe he’ll yank a state’s waiver and force them to re-impose provisions of a law he’s termed broken.  In this case, his anger seems to be directed at the legislature for having failed to heed his directive. There are at least two huge problems with that. One, in our system of government, executive branch officials are not empowered to give marching orders to duly elected legislators. Two, absent statutory authority, federal officials are not supposed to give marching orders to state officials.

Unfortunately, this has all become strangely routine for a Department that seems increasingly untethered from the inconvenient strictures of statute and unbothered by the niceties of lawmaking.

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The Senkakus: Obama adds ambiguity to reassurance http://www.aei-ideas.org/2014/04/the-senkakus-obama-adds-ambiguity-to-reassurance/ http://www.aei-ideas.org/2014/04/the-senkakus-obama-adds-ambiguity-to-reassurance/#comments Thu, 24 Apr 2014 19:00:34 +0000 http://www.aei-ideas.org/?p=128579 read more >]]> At his joint press conference with Prime Minister Abe, President Obama once again stated that the mutual defense treaty covers the Senkaku islands, which Japan administers but which China and Taiwan also claim as their own. He repeated the assertion twice, which Tokyo certainly welcomed.

The president, however, also noted that “we don’t take a position on final sovereignty determinations with respect to Senkakus.” This has been longstanding US policy and thus the statement comes as no surprise. Still, it does introduce a bit of ambiguity into the security guarantee.

The complication comes primarily with President Obama’s domestic audience in the United States. Should China, God forbid, ever attempt to take an island by force, the American president (whether Obama or a successor) will have to explain to the public why the United States should go to war over a “rock” (the president’s word) that may not even belong to Japan. That’s a potentially tall order, and one that will raise questions in Tokyo and Beijing about just how likely the United States is to take action.

In short, there is some dissonance within Washington’s approach to the Senkakus. While actually recognizing Japanese sovereignty over the islands should at least be up for consideration, doing so is unlikely, possibly unhelpful, and probably unnecessary. More importantly, President Obama should not limit his comments on Asia to when he’s actually in the region or hosting Asian leaders. He needs to start explaining to the American people on a regular basis the interests that the United States has in Asia, the challenges that America faces in the region, and why US alliances there are so important. Put another way, the president should begin building support now for intervention in a future hypothetical Sino-Japanese conflict. Doing so will enhance deterrence, making such a conflict less likely.

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Welfare, work, and responsibility: A Q&A with Robert Doar http://www.aei-ideas.org/2014/04/welfare-work-and-responsibility-a-qa-with-robert-doar/ http://www.aei-ideas.org/2014/04/welfare-work-and-responsibility-a-qa-with-robert-doar/#comments Thu, 24 Apr 2014 17:40:38 +0000 http://www.aei-ideas.org/?p=128570 read more >]]> AEI’s Robert Doar recently wrote a must-read piece on “10 welfare reform lessons.” Prior to joining AEI, he was commissioner of New York City’s Human Resources Administration. He oversaw a 25% reduction in the City’s welfare caseload and the transition to work of more than 500,000 public assistance applicants and recipients. Here, Doar answers a few questions about his article and experiences.

Your first lesson is “Always promote personal responsibility.” Why is “accepting responsibility for one’s own future the vital first step to moving up”?

Personal responsibility is vital because government’s powers are limited. Government can’t set the morning alarm clock, or make someone turn away from drugs, or put love in someone’s heart. In order to help someone in need, government needs the client to at least make an effort to help themselves. Most poor Americans are willing and able to do those things and they do them all the time – but the minute government begins to act as if those first steps of personal responsibility are not essential, then more clients look to government for those answers as well – and even the best-run government can’t deliver those.

I want to be clear here – personal responsibility is not the only thing that is needed. Government, community, and family all need to help people who make all the right decisions but still face hurdles. So communicating to people the importance of their decisions is not the only answer, but it is part of the answer.

“From 1995 until the end of 2013, New York City’s cash-welfare caseload shrunk from almost 1.1 million recipients to less than 347, 000,” you write. What’s the next step in reducing that number even more?

That’s tough. People do run into hard times and sometimes need to turn to government for help. In a city of more than 8.4 million people, there are going to be some people that need help getting back to work – hopefully for only a short time. I suppose if our entire culture changed and there was much less willingness to turn to government, and much more active and effective charitable institutions, then perhaps the number of people in need of cash welfare from the government could be reduced further. It would also help if a much greater percentage of children were born into married, two parent families. That would definitely bring the number down further.

You stress the importance of work. How can we get more people into jobs?

It starts with having a vibrant economy that offers jobs – not just in booming cities like New York but in struggling places like Detroit or parts of rural West Virginia or too many other parts of our nation. And that is why I believe that if you care about the poor, you need to support policies that lead to robust job creation – of all kinds of jobs — low skilled and high skilled. Here I am a little out of my expertise, but I have found generally that lower taxes and less regulation lead to more jobs. Big government infrastructure investments that build important things also create jobs and I like them when they are managed correctly. And I believe that certain essential government functions – sanitation, parks, police, the armed forces, and, yes, social services should be well staffed, especially on the front lines.

Out of the 10 lessons you provide, which two are the most important and why?

I would rather say four: welfare programs should require work; reward work; and promote two-parent, married families as the best way to raise children. And our government needs to do a better job at stimulating job creation and economic growth.

Your data showed more than 25% of cash-welfare and food-stamp recipients and more than 35% of Medicaid recipients were non-citizens or children of non-citizens. You mention the “sponsor recovery” process in your article, which is rarely enforced by agencies. Could you elaborate on what this process is and what might happen if it was properly implemented?

For many legal immigrants, a key ingredient of their application for citizenship is the identification of a citizen sponsor who must sign a legally binding affidavit of support which specifies that the sponsor will provide necessary support to maintain the non-citizen at an annual income of no less than 125% of federal poverty guideline. Under the law, whenever a sponsored noncitizen receives federal means-tested public benefits such as Medicaid, cash welfare or food stamp benefits, the administering agency that provided the benefit must request repayment of the benefit costs from the sponsor.

In 2009, the General Accounting Office wrote a report (GAO-09-375) that states very clearly that federal law requires states to pursue recovery from sponsors of non-citizens who receive assistance, but no state was actually complying with that requirement. The reason, GAO reported, was the absence of clear guidance from federal oversight agencies.

In New York City we decided to do what the law required – even if our state and federal oversight agencies weren’t interested. Not only did we feel obligated to pursue recovery, but we also felt the sponsors themselves who signed a form clearly stating that this was an expectation would want their government to enforce the requirement.

We even instituted a good faith exception so that if the sponsor could show that they themselves were too poor to comply, they could be excused. But many of the people we wrote to and asked to reimburse us for the assistance, complied without us having to do anything more than ask.

I believe this provision of federal law should be implemented across the country. First, it would show that the government means what it says when it enters into an agreement with a sponsor of a candidate for citizenship. And second it would make clear that government-provided welfare should not be looked to first when a candidate for citizenship is in need. But rather the person who has agreed to sponsor their citizenship should do what they said they would do – provide aid to the person they have proposed for citizenship.

I love that our country is a nation of immigrants. And I believe strongly that we should be more welcoming of newcomers to America.  But people should not come to America to get on welfare and if we have a program which requires a sponsor in the citizenship process and that clearly states the responsibilities of the sponsor, we should enforce that requirement.

Final thoughts?

The way we reward work is with various forms of assistance that help make work pay – such as refundable tax credits, child care assistance, food stamp benefits, and public health insurance and I have supported those because, for a variety of reasons, wages at the low end of the wage scale are not sufficient by themselves to provide adequate support for families.

But, there is a delicate balancing act that needs to be attended to where the government provided rewards for work can sometimes replace work as people begin to feel that additional effort will lead to a large reduction in benefits. My view is that more earnings should lead to less assistance and a marginal tax rate of as high as 75% still leaves the worker better off for taking on the additional work.  But I am afraid that the Affordable Care Act may significantly increase the extent to which more work could lead to being financially worse off as they lose subsidies for health care coverage.  This is a problem that needs very serious attending too. Thankfully, we have institutions like AEI watching that very closely.

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Thursday morning links, all energy edition http://www.aei-ideas.org/2014/04/thursday-morning-links-all-energy-edition/ http://www.aei-ideas.org/2014/04/thursday-morning-links-all-energy-edition/#comments Thu, 24 Apr 2014 13:59:11 +0000 http://www.aei-ideas.org/?p=128548 read more >]]> dakotas1. Chart of the Day: The chart above compares annual per-capita personal income in North and South Dakota from 1929 to 2013 and helps to quantify the effect of the shale oil boom on North Dakota’s economy. After closely matching for 80 years, per-capita income in North Dakota started exceeding neighboring South Dakota’s in 2010, and last year was $11,526 higher ($57,084 vs. $45,558). The way President Obama would explain it is to say that the average person in South Dakota earned only 80 cents last year for every $1 earned by a neighbor in North Dakota, and call it “embarrassing.”

2. Markets in Everything: Take a 3-Day North Dakota Oilfield Educational Tour and get a firsthand look at the Bakken oil boom for $599.

3. Rockin’ in the Bakken: Experts now say the Bakken oil boom will continue through about 2039, a decade longer than predicted just last year. 

4. Wind Blows: It’s not politics, but science and physics, that will prevent wind energy from ever becoming a reliable source of power. 

5. Washington Post: The Keystone XL delay is absurd and embarrassing.

If foot-dragging were a competitive sport, President Obama and his administration would be world champions for their performance in delaying the approval of the Keystone XL pipeline. The president should end this national psychodrama now, bow to reason, approve the pipeline and go do something more productive for the climate.

6. Inconvenient Energy Fact: All the solar panels and wind turbines in the world (at a taxpayer cost of $60 billion annually) have cut less CO2 emissions than US fracking.

7. Inconvenient Energy Fact II: President “Big Foot” Obama marked Earth Day with a carbon-emitting extravaganza, burning more than 35,000 gallons of fuel (not including automobile motorcades) and emitting 375 tons of CO2 emissions.

8. VIDEO: Fracking has brought CO2 emissions to a 20-year low in the US.

9. Man Camp Boom (from the WSJ via Marginal Revolution):

Target Logistics, a Boston-based builder and operator of dormitory-style housing, recently landed a nearly $30 million contract to provide lodging for hundreds of oil-field workers in North Dakota over the next three years. The deal is the latest example of rising demand for professionally managed “man camps,” sprawling barracks that house mostly male workers at American and Canadian oil sites.

10. Chart of the Day II: Daily US crude oil production surged last week to 8.36 million barrels, the highest output since January 1988, more than 26 years ago.
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Ukraine, the IMF, and moral hazard http://www.aei-ideas.org/2014/04/ukraine-the-imf-and-moral-hazard/ http://www.aei-ideas.org/2014/04/ukraine-the-imf-and-moral-hazard/#comments Thu, 24 Apr 2014 13:38:14 +0000 http://www.aei-ideas.org/?p=128549 read more >]]> From a geo-political point of view, it is perfectly understandable why the IMF’s main shareholders are leaning heavily on that organization to bend its rules that would allow it to provide exceptionally large financing to Ukraine. However, one would hope that those shareholders are cognizant of the moral hazard to which such IMF exceptional lending gives rise. One would also hope that they have under consideration measures to minimize that moral hazard and better still to return the IMF to a more rules-based organization.

The IMF is reportedly soon to approve a US$17 billion stand-by arrangement for Ukraine, with an initial drawing of as much as US$10 billion. This loan would amount to around 800% of Ukraine’s IMF quota and to over 10% of Ukraine’s GDP. The IMF would be making such an exceptionally large loan and providing such a large upfront disbursement despite Ukraine’s particularly bad track record on IMF loan performance and its continued serious problems with corruption and poor governance. It would also be doing so immediately ahead of Ukraine’s presidential elections at the end of next month and in the context of extreme political uncertainty being stirred up by its Russian neighbor.

An important unintended consequence of the IMF loan is that it will further encourage bad lending practices by international creditors. Those institutions, which bought Ukraine bonds at high yields despite Ukraine’s very poor economic management but on the expectation that in the end the IMF would bail out Ukraine, are rewarded for such behavior. For the IMF loan to Ukraine will not involve any private sector bail-in.

A second unintended consequence of the IMF loan is that it will financially reward Russia for its irresponsible actions in Ukraine. Prior to the Ukraine crisis, Russia was standing ready to provide Ukraine with a US$15 billion support loan and to continue providing Ukraine natural gas at highly subsidized rates. With the onset of the crisis, Russia has withdrawn its loan offer and it has increased by 80% the price of its natural gas exports. This latter move will have the effect of raising Ukraine’s gas import bill by US$6 billion a year, which will effectively be paid with a large part of the proceeds of the IMF loan.

Efforts by the IMF’s major shareholders to minimize the unintended consequences of the IMF Ukrainian bailout might take different forms. In dealing with the bondholders, one might insist that private sector creditors be bailed-in or at a minimum that they extend the maturities of their loans. In dealing with the Russians, the West might get more serious about financial and energy import sanctions on Russia. For it would be highly unfortunate if not only is Russia left to challenge Ukraine’s territorial integrity but if it also gets financially rewarded for doing so through higher energy prices.

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Questioning bank regulators’ pay: Not ‘so dumb’ http://www.aei-ideas.org/2014/04/questioning-bank-regulators-pay-not-so-dumb/ http://www.aei-ideas.org/2014/04/questioning-bank-regulators-pay-not-so-dumb/#comments Thu, 24 Apr 2014 13:13:29 +0000 http://www.aei-ideas.org/?p=128529 read more >]]> In his new Wall Street Journal op-ed, “Guess Who Makes More Than Bankers: Their Regulators,” AEI resident scholar Paul Kupiec explains that when it comes to compensation, public servant bank regulators fare favorably relative to their historically-detested  counterparts in private banking:

It is true that the very top bank executives make more in a year than most of us make in a lifetime, but compensation of this magnitude is rare… Yet one group in banking stands out as highly paid—federal bank regulators. Before the Dodd-Frank Act, the average employee of a federal bank regulatory agency received 2.3 times the average compensation of a private banker. By 2013 this ratio increased to more than 2.7—and in some cases considerably more.

BloombergView columnist Matt Levine took to Twitter to ridicule the piece, calling it “the dumbest proposal in the history of bank regulatory proposals.” Later, he unleashed the brunt of his disparagement in an article entitled “Are Bank Regulators Overpaid?” To answer his own question, Mr. Levine responds with the thought-provoking line, “Hahahahahahahahahahaha.”

To Mr. Levine, questioning the sufficiency of bank regulators’ compensation is not just dumb, but “so dumb” (emphasis added). Because if history has taught us anything, it is that good, responsive government requires blind faith and unwavering obedience.

In any event, Levine offers a  less-than-convincing counterargument. For example, Mr. Levine lists the number of employees at the FDIC, the CFPB, and the Fed. To summarize his point, federal bank regulators don’t have that many employees; therefore they are not overpaid. Huh?

Even worse, Mr. Levine points out that investment bankers make way more than those cash-strapped regulators. Except that investment banks are not regulated by the FDIC, OCC, or the CFPB, so they were not included in Kupiec’s study.

With a more careful reading, Levine would have noticed that Kupiec compared the compensation of employees at depository institutions to the compensation of those who regulate depository institutions. And he would have recognized that compensation and salary are two distinct figures—one includes employment taxes and the cost of employee benefits, the other not—rather than jumping to the conclusion that a number is wrong.

As he sees it, “We have a big sophisticated banking system, and we want big sophisticated regulators to regulate it.” Sure. And, as he submits, we need them to prevent catastrophes like the London Whale—except that regulators didn’t prevent that. (Mr. Levine knows that, “but still.”)

According to Levine, we can solve problems with “good regulators” who “cost money.”  How much money, exactly? Even if we had been able to fill the regulatory ranks with clones of Bernanke and Yellen (both of whom are/were paid less than senior staffers at the bank regulatory agencies), it seems highly unlikely that we would have averted the recent financial crisis (see FMOC minutes). If they can’t save us from financial meltdown, what exactly are we paying current bank regulators so much for?

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Obama off to a good start in Asia http://www.aei-ideas.org/2014/04/obama-off-to-a-good-start-in-asia/ http://www.aei-ideas.org/2014/04/obama-off-to-a-good-start-in-asia/#comments Wed, 23 Apr 2014 21:00:45 +0000 http://www.aei-ideas.org/?p=128527 read more >]]> The president’s trip to Tokyo is off to a good start, and not just because of his dinner at sushi mecca Sukiyabashi Jiro. In written answers to questions from the Yomiuri Shimbun, President Obama asserted:

The policy of the United States is clear—the Senkaku Islands are administered by Japan and therefore fall within the scope of Article 5 of the U.S.-Japan Treaty of Mutual Cooperation and Security. And we oppose any unilateral attempts to undermine Japan’s administration of these islands.

While others in the US administration have stated this policy previously, it’s important for the words to come directly from the president himself. The president’s statement, which he will hopefully repeat at his joint press conference with Prime Minister Abe on Thursday, should be reassuring to Japan and other US allies. Beijing may claim that such statements hurt the (apparently delicate) feelings of all 1.3 billion Chinese people, but in reality, personal presidential attention to the Senkaku dispute will contribute to the deterrence of Chinese aggression and thus to stability in the East China Sea.

Also significant, President Obama voiced support for Abe’s “efforts to strengthen Japan’s defense forces and to deepen the coordination between our militaries, including by reviewing existing limits on the exercise of collective self-defense.” According to the Yomiuri Shimbun, the president expressed hope that the Japanese Self-Defense Forces would “do more within the framework of our alliance.”

The encouragement could help Abe pursue reforms domestically, where his national security agenda remains controversial, and might help to calm nerves in South Korea, which is more likely to abide a more ‘normal’ Japanese military if it is acting “within the framework” of the US-Japan alliance. Seoul recognizes the importance of America’s role in keeping the peace in Asia, and a more robust SDF can act as a force multiplier for the USmilitary.

If, over the next week, the president maintains a message of full-throated support for US alliances, he will have taken a small but important step towards defending peace in Asia.

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Evidence shows significant income mobility in the US – 73% of Americans were in the ‘top 20%’ for at least a year http://www.aei-ideas.org/2014/04/evidence-shows-significant-mobility-in-income-and-affluence-73-of-americans-will-be-in-top-20-for-at-least-a-year/ http://www.aei-ideas.org/2014/04/evidence-shows-significant-mobility-in-income-and-affluence-73-of-americans-will-be-in-top-20-for-at-least-a-year/#comments Wed, 23 Apr 2014 20:20:09 +0000 http://www.aei-ideas.org/?p=128524 read more >]]> incomemobilityIn a Sunday’s NY Times article “From Rags to Riches to Rags,” Professor Mark Rank of Washington University highlights a number of studies finding a significant amount of income mobility in the US. The empirical evidence showing that Americans move up and down the income distribution during their lifetimes “casts serious doubt on the notion of a rigid class structure in the United States based upon income.”

For example, Rank and his co-author Thomas Hirschl of Cornell followed a cohort of American adults ages 25 to 60 over a 44-year period to see what percentage of them reached various levels of the income distribution during their lives. Their “striking” results are summarized in the chart above. According to Rank:

It turns out that 12% of the population will find themselves in the top 1% of the income distribution for at least one year. What’s more, 39% of Americans will spend a year in the top 5% of the income distribution, 56% will find themselves in the top 10%, and a whopping 73% will spend a year in the top 20% of the income distribution.

Yet while many Americans will experience some level of affluence during their lives, a much smaller percentage of them will do so for an extended period of time. Although 12% of the population will experience a year in which they find themselves in the top 1% of the income distribution, a mere 0.6% will do so in 10 consecutive years.

One of the reasons for such fluidity at the top is that, over sufficiently long periods of time, most American households go through a wide range of economic experiences, both positive and negative. Individuals we interviewed spoke about hitting a particularly prosperous period where they received a bonus, or a spouse entered the labor market, or there was a change of jobs. These are the types of events that can throw households above particular income thresholds.

It is clear that the image of a static 1 and 99 percent is largely incorrect. The majority of Americans will experience at least one year of affluence at some point during their working careers. (This is just as true at the bottom of the income distribution scale, where 54% of Americans will experience poverty or near poverty at least once between the ages of 25 and 60).

Ultimately, this information suggests that the United States is indeed a land of opportunity, that the American dream is still possible — but that it is also a land of widespread poverty. And rather than being a place of static, income-based social tiers, America is a place where a large majority of people will experience either wealth or poverty — or both — during their lifetimes.

Rather than talking about the 1 percent and the 99 percent as if they were forever fixed, it would make much more sense to talk about the fact that Americans are likely to be exposed to both prosperity and poverty during their lives, and to shape our policies accordingly. As such, we have much more in common with one another than we dare to realize.

Thanks to Mark Rank for bringing some much-needed attention to the fact that there is dynamic movement up and down the income quintiles throughout most Americans’ lifetimes, and contrary to public opinion, the top 1/5/10 percent income categories are not fixed, static closed groups, but fluid, abstract categories with ever-changing composition of different Americans. It’s an important point that Thomas Sowell has been making for years, here’s an example of his from back in 2000, a column of his titled “Perennial Economic Fallacies“:

Alarmists are not talking about real flesh and blood people. They are talking about abstract categories like the top or bottom 10 percent or 20 percent of families or households. So long as all incomes are not identical, there will always be top and bottom 10 percents or 20 percents or any other percents. But these abstract categories do not contain the same people over time. Behind both the statistics on inequality that are spotlighted and the statistics on ever-changing personal incomes that are ignored is the simple fact that people just starting out in their careers usually do not make as much money as they will later, after they have had years of experience.

Who should be surprised that 60-year-olds have higher incomes and more wealth than 30-year-olds? Moreover, that was also true 30 years ago, when today’s 60-year-olds were just 30. But these are not different classes of people. They are the same people at different stages of their lives. At some times and places, there have been whole classes of people who lived permanently in poverty or in luxury. But, in the United States today, the percentage of Americans who fit either description does not reach beyond single digits.

It is one thing to be concerned about the fate of flesh and blood human beings. It is something very different to create alarms about statistical relationships between abstract categories.

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