AEIdeas The public policy blog of the American Enterprise Institute Tue, 19 Aug 2014 22:13:46 +0000 en-US hourly 1 ‘Are you satisfied or unsatisfied with the way things are going in the United States?’ Tue, 19 Aug 2014 19:28:44 +0000 That, five years into an economic recovery. Not that you can really blame someone for such pessimism.

Follow James Pethokoukis on Twitter at @JimPethokoukisand AEIdeas at @AEIdeas.

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Hillary Clinton’s biggest weaknesses for 2016 Tue, 19 Aug 2014 19:14:54 +0000 read more >]]> Hillary Clinton definitely seems to be preparing for a presidential run in 2016, but a Clinton victory or even nomination isn’t as certain as you might think. AEI Senior Research Associate Jennifer Marsico explains the three biggest challenges to Hillary Clinton’s bid for the White House.

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You were a big savings and loan… Tue, 19 Aug 2014 18:58:47 +0000 read more >]]> “The Big Guys.” That’s what one of my colleague Federal Home Loan Bank presidents used to call the biggest savings and loans. Where are they now?

His attitude was a lingering reflection of the great post-World War II US housing boom, when the most important residential mortgage lenders were the savings and loans. In the Golden Age of the S&Ls, from the 1940s through the 1970s, the American home ownership rate increased dramatically, from about 50% in 1944 to over 64% in 1980. (That is the same level it is now.) Waving the banner of housing and home ownership, the S&Ls were politically potent and their trade association, the US League for Savings, a lobbying force to be reckoned with, until the early 1980s. S&Ls had their own government deposit insurance fund, FSLIC (the Federal Savings and Loan Insurance Corporation).

The list of the 25 biggest S&Ls in America in 1983, just three decades ago, contains many names which were famous in housing finance circles in those days. How many do you think still exist? Make your guess before you read the answer.

These 25 formerly famous names are unheard of now, because of the 25, the number still existing as independent companies is zero. Not one. The US League for Savings no longer exists. Neither does FSLIC.

Of the 25 biggest S&S, 17 failed or were acquired by institutions which later failed. The remaining eight were acquired and are merged portions of much bigger banks.

Here they are, or rather, were, for the instruction of the young in the fragility of institutions, and for the nostalgia of old veterans of the housing finance crises of the 1980s and 2000s:

The Biggest Savings and Loans in the United States, 1983

  1. American Savings
  2. Home Savings
  3. Great Western
  4. California Federal
  5. Philadelphia Savings Fund Society
  6. Goldome
  7. Glendale Federal
  8. First Nationwide
  9. World Savings
  10. First Federal of Michigan
  11. Metropolitan Savings
  12. Empire of America
  13. City Federal
  14. Home Federal
  15. Dime Savings
  16. Talman Home
  17. Anchor Savings
  18. Gibraltar Savings
  19. Bowery Savings
  20. Imperial Savings
  21. Dollar Dry Dock
  22. Coast Federal
  23. Great American
  24. Sears Savings
  25. Standard Federal

The Big Guys?

“You were a Big Guy, blink and now you’re gone.”

Alex J. Pollock is a resident fellow at AEI.

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Pakistan’s political crisis escalates dangerously Tue, 19 Aug 2014 18:55:12 +0000 read more >]]> Pakistan’s current political crisis is escalating dangerously. Pakistani opposition parties led by Imran Khan’s Pakistan Tehrik-e-Insaf (PTI) and firebrand cleric Tahirul Qadri’s Pakistan Awami Tehrik (PAT) have called on their thousands of supporters to march on and breach Islamabad’s heavily-fortified “Red Zone” housing government buildings and foreign missions. Such an action could bring them into direct conflict with Pakistan Army forces deployed to protect the zone. In the worst case, that conflict could undermine Nawaz Sharif’s government and destroy the careful balance between civilian and military rule that he and the Army have painstakingly built over the past year.

More background on the political crisis is available here and here.

Both the PTI and PAT have called on Prime Minister Nawaz Sharif to resign. The PTI claims that the 2013 general election was rigged against it and demands fresh polls. The PAT derides the current system as corrupt and has called for a “revolution.” Both failed to draw the hundreds of thousands of protestors they promised to weekend rallies, which fizzled with between 30,000 and 50,000 protestors in total.

PTI and PAT protests began in June and escalated to a major street campaign in Islamabad on August 14. The initially sloppy government approach to the protests has developed into a more sophisticated and intelligent response, as a result of which the PTI and PAT movements appeared to be on the cusp of dissipating. Both, however, seem now to have made a desperate play by rejecting government concessions and offers to negotiate and calling for an illegal march on the Red Zone and picketing outside Parliament.

Khan and Qadri have both urged their supporters (in separate, possibly competitive rallies) to remain peaceful and keep out of the Diplomatic Enclave and any other government buildings in the Red Zone. The PTI and PAT seem to be engaged in one-up-manship that could lead their followers to excesses, however.

Prime Minister Sharif initially ordered the police not to use force against protestors, but subsequent reporting indicates that the police have permission to use tear gas and rubber bullets. Sharif has also called the army in to take over responsibility for security in the Red Zone and command the 40,000 security personnel deployed there. Reports suggest the government, as a concession to the protestors, is ready to tolerate a “soft” breach of the zone so long as no especially sensitive areas are violated.

If protestors and security forces do clash, it will be extremely difficult to keep the situation from escalating further. One report suggests Khan, in a bid to save face, is seeking to provoke security forces into cracking down, or publicly arresting him. Such a development would not only provide him an exit from a lackluster sit-in but perhaps also rekindle anger against the government and bolster his anti-government movement. If the government or security forces lose their nerve in the face of oncoming protestors, or agents provocateurs hijack the demonstration and spark a confrontation, Pakistan risks descending into a profound crisis.

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How much worse does it have to get? Tue, 19 Aug 2014 17:42:24 +0000 read more >]]> I used to ask myself, how much worse does the Social Security financing problem have to get before progressive start getting serious about Social Security reform?

The answer, as I outline in today’s Wall Street Journal: at least four times worse, since CBO has projected quadrupling of Social Security’s long-term deficit since 2008 yet the response on the left has been to expand Social Security, not reform it.

The tax increases progressives previously said would be used to restore solvency are now going to build a bigger system. Plans from Sen. Tom Harkin (D-IA) and Sens. Patty Murray (D-WA) and Mark Begich (D-AK) raise taxes substantially, but use most of that money to increase benefits. As a result, they barely put a dent in Social Security’s long-term deficit.

Now that’s leadership for you.

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Here is exactly the sort of infrastructure spending Republicans should support Tue, 19 Aug 2014 17:02:52 +0000 read more >]]> University of Minnesota Transportation expert and must-follow blogger David Levinson was recently asked what he would do to help low-income residents if given $1 billion to spend. Now the context here is the opening of $1 billion light-rail line between downtown Minneapolis and St. Paul. Levinson:

I would improve the bus system. Buses are more adaptable and flexible than rail. This matters because land use patterns change over time, and this kind of flexibility allows the transportation services to follow their customers.  Buses also have the advantage that they can “free ride” on existing roads, and so have much lower infrastructure costs. In just about all US cities buses serve more riders than rail system do, yet rail attracts the bulk of funding.

There are a number of improvements that can be made to buses, arterial Bus Rapid Transit systems provide higher quality, higher frequency, more reliable, and faster service, and that network should be built out and extended.To be clear, the Green Line is the best rail project in the Twin Cities region, connecting two existing downtowns and the University along a relatively high-density urban corridor. The remaining extensions are more problematic, serving primarily suburban commuters.

Certainly for transit users, some investment is better than no investment, but that doesn’t mean we should support any investment that comes down the pike, instead we should try to design systems that best serve existing good transit markets – usually areas built before 1930, where the existing land uses are conducive to transit, rather than hoping to transform suburban green fields subject to the vagaries of speculative development.

Why are buses treated as second-class transportation options? One reason, this Next City story suggests, is that middle-class (and above) citizens are kind of snooty about buses. They view them as transportation purely for poor people. “Only losers ride the bus.” Of course, this is a cultural and financial choice. Buses could be cooler and, more importantly, provide better service. And one group they could provide better services for is … lower-income people who have limited commuting options. AEI’s Michael Strain in a recent podcast:

We know that low-income folks often live really far away from jobs. And one thing that I think we should do is just buy, you know, a whole bunch of buses, and have them pick people up in the low-income neighborhoods and then kind of zip in, not stopping along the way into the job centers as a way to shorten the commute time for those workers. That will make their lives a little easier. But it will also increase the number of jobs they can apply to and increase the set of possible jobs they can have. If you can cut a commute times from two hours down to one hour, that means there are a lot more jobs that people will be willing to apply to and a lot more people that want to get into the labor force

I don’t believe that if you are a person who believes in earned success, and if you’re a person who believes that the people should work and make their own way in the world, that that means that government should not do anything for anyone. I don’t make that leap. Instead, I think that government should enact policies that are prudent and that government is capable of managing, but to enact policies that help people to live the kind of life they want to live, and to help people to lead a flourishing life and to lead a life that includes work and that includes earned success.

And there are some folks who aren’t working because it would be four hours a day round-trip commute, and if you could cut that down to two hours a day, some of those people will say, “Hey, I’ll get a job now.” And those folks will leave the welfare state and enter of the labor force, So that’s the kind of policy that I think that, you know, people who believe in earned success and who believe in the value of work should really support.

Follow James Pethokoukis on Twitter at @JimPethokoukisand AEIdeas at @AEIdeas.

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Stop the US-China Bilateral Investment Treaty (BIT) Talks Tue, 19 Aug 2014 16:56:18 +0000 read more >]]> Washington and Beijing are ostensibly having serious discussions of a bilateral investment treaty to improve transparency and other aspects of the trans-Pacific investment environment. One hopes it’s not really true, that the American side is just humoring the Chinese, because it’s impossible at present to see such an agreement benefiting the US.

Excluding bonds, Chinese investment in the US set a record last year. It’s on pace to set another record this year.

Just last week, Chinese technology giant Lenovo was approved by the US to buy IBM’s low-end server unit. A Chinese group that includes state-owned enterprises bid for American chip-maker Omnivision. There’s also Chinese investment in property, energy, and finance. The main complaint Beijing can offer in this context is that a court decision in favor of a Chinese enterprise over the US government took too long.

In stark contrast, American acquisitions in the PRC are on course for their worst performance in over a decade, even while there is strong American spending elsewhere in the world. There is good reason for the China-specific aversion: the Communist Party is harassing foreign companies, with American technology firms near the top of the list.

Qualcomm has been found guilty of violating China’s anti-monopoly law, punishment yet to be announced. Microsoft is next in line. At best, the law is bizarrely and harmfully applied, witness tiny InterDigital accused of bullying giant Huawei. At worst, it is Beijing coercing lower prices and technology transfer. The PRC did not treat multinationals well prior to General Secretary Xi Jinping’s government taking office and has treated them considerably worse since.

American business can be short-sighted in its approach to China (though others can apparently be worse). Believing a bilateral investment treaty (BIT) is a solution to the current bout of mercantilism would be exceptionally short-sighted. Looking backward, the lesson from China’s WTO accession is clear: do not sign an agreement hoping to bind the PRC when the Party has another development path in mind.

Looking forward, the recent policy shift – what China wants – indicates that any BIT concessions – what the US wants – would be imaginary. They would shortly be finessed, sidestepped, or simply ignored. A BIT signed in 2015, for example, would see American business in 2018 complaining that the Chinese are cheating and calling for a free trade agreement to create a truly open market. Again.

For Beijing to merely return to the pre-Xi government days would be an improvement. But the new government’s hypocrisy in its words versus its actions robs it of the credibility needed for a proper BIT negotiation. For that, there must also be clear and sustained progress in showing that market competition is welcome from all comers, including multinationals.

On this side of the Pacific, the US should treat Chinese investment on the basis of how it affects our economy. That the PRC is a poor partner is not a good reason to shoot ourselves in the foot by blocking beneficial transactions. It is, however, a good reason to put a BIT on hold for a good while.

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What we’re reading today: August 19, 2014 Tue, 19 Aug 2014 16:17:44 +0000 read more >]]> Check out the top pieces we’re reading today on the economy, technology, family, and more.

1.) “The cost for a middle-income family to raise a child born in 2013 to age 18 rose to $245,340…according to a government report released Monday,” writes Peter Frost at the Chicago Tribune. “Adjusted for inflation, the cost of raising a child born last year will be about $304,480, on average, for the average middle-income family.”

2.) Mercatus shows how the top 10 regulators of 2012 changed over 10 years.

Mercatus Center: How the top 10 regulators of 2012 changed over 10 years

3.) The Atlantic looks at the tax dodge that has plagued the US for more than a decade, and why it keeps resurfacing.

4.) There’s no common opinion on the Common Core, acknowledges this piece in Education Next. In 2013, “65% of the general public favored the standards, but that portion is now just 53%. Meanwhile, the opposition has doubled from 13% to 26%.” And, “Just a year ago, 76% of teachers backed the Common Core, but the portion in favor has now plummeted to 46%. Meanwhile, teacher opposition has more than tripled, from 12% to 40%.”

5.) From Vox comes a piece on a new study that shows exactly how patent trolls destroy innovation.

6.) “America has a retirement spending problem,” says Ben Harris at RCM, “not just a saving one.”

7.) David Leonhard writes on inequality and web search trends in his The Upshot article “In one America, guns and diet. In the other, cameras and ‘Zoolander.’” Below is a snippet of the top results—read the piece to see the full top 20, which include “new nano” and “selling Avon.”

New York Times: Web searches by social class and geography

8.) The Federal Reserve Board recently released a paper on the role of oil price shocks in causing US recessions. Read the whole thing here.

9.) Frank Bruni looks at the trouble with tenure in this NYTimes op-ed.

10.) Want to know what voters think should be done on immigration? The Fiscal Times has six findings from recent polls on the matter. At the top of the list: Americans are tired of inaction. “Eighty-four percent of voters surveyed by CBS News last month said it was either ‘very important’ or ‘somewhat important’ that Congress pass legislation this year.”

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Republicans should talk about that thing they are afraid to talk about Tue, 19 Aug 2014 15:36:41 +0000 read more >]]> Although only a fifth of 2012 battleground voters said the most important factor in choosing a president was “cares about people,” Barack Obama beat Mitt Romney by a whopping 69 percentage points among that group. Now maybe Republicans don’t really care that voters think they don’t care. The GOP is supposedly the Daddy Party, after all — the party that tells Americans hard truths about debt, wasteful spending, welfare dependency, and global threats. The GOP is the party of “you built that,” entrepreneurs and self reliance. Romney, by the way, easily won voters who said “vision,” “shares my values,” and “strong leader” were their most important criteria. Maybe Republicans should just try to do even better in those three categories.

In a New York Times commentary, however, AEI President Arthur Brooks outlines a different path forward:

The George Washington University political scientist Danny Hayes has found that Americans, by significant margins, believe that empathy and compassion are traits “owned” by Democrats. Most Republicans acknowledge this, but many just shrug. Maybe they don’t win on empathy and compassion, they’ll concede, but they have a lock on some other traits. Research by Mr. Hayes shows that most voters instinctively associate morality and strong leadership with the political right.

Based on the premise that political success comes from doubling down on natural strengths, many Republicans conclude that the way to win is to be redder than red: They emphasize strength and moral uprightness and forget about the soft stuff. Similarly, many Democrats fixate on empathy and compassion and neglect the rest.

Mr. Hayes’s research shows that Americans love a leader who throws out the usual script and trespasses on traits that traditionally belong to the other side. Combing through decades of data, he finds that on average, if voters rate two candidates as equally strong leaders (meaning the Democrat has erased his party’s usual deficit on this trait), they break roughly 60 percent to 40 percent in favor of the Democrats. Conversely, among voters who rate a Republican candidate and a Democratic one as equally empathetic, the G.O.P. wins with about 65 percent. Voters reward candidates who go after unconventional traits.

Thus the antipoverty plans from Marco Rubio and Paul Ryan and Marco Rubio qualify as both smart policy — they promote work and upward mobility — an as savvy politics by showing voters a bit of their personal empathy and compassion for the poor. Even better, Brooks writes, Democrats should try the same strategy:

Rather than trying to chase this Republican interloper off their compassion turf, liberals could instead use the same technique and adopt some typically conservative traits. Openly discussing personal morality and extolling strong leadership in foreign affairs would help Democrats appeal to more voters and poach from the Republican base.

Scrambling the conventional categories would not merely shift electoral dynamics. It would improve our country. More trait-trespassing politicians would give all citizens the competition of ideas we deserve. Because of the lack of overlapping values between the parties today, most people have effectively one choice when it comes time to vote. Often, we just hold our noses and pull the lever. That makes politics about as edifying as shopping at a Soviet-era supermarket. Wouldn’t we all like some choice?

Follow James Pethokoukis on Twitter at @JimPethokoukisand AEIdeas at @AEIdeas.

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Reality check: Here’s what it looks and feels like when inflation really is sky high Tue, 19 Aug 2014 14:49:04 +0000 read more >]]> America faces many economic challenge, but inflation — at least as defined as an “ongoing rise in the general level of prices” — hasn’t been one of them. Some folks on the right argue otherwise, but they are simply wrong. As the Bureau of Labor Statistics reported today, the Consumer Price Index for All Urban Consumers, CPI-U, rose just 2.0% over the past 12 months. If you exclude volatile food and energy prices, the index is up 1.9%. (Private measures tells a similar story.) Cold comfort, of course, if your wages are stagnant or falling. But those are economic growth or redistribution issues, not a “the Fed is too easy” issue. (In fact, a tighter Fed the past five years might have dragged the US into a EU-style long recession.)

And what about food prices? Aren’t they up a lot? Well, since CPI is an average, some prices will likely be up more than others. And food prices have been rising faster than the CPI average. Economist Chris Christopher of IHS Global Insight: “Lower and middle income households are likely to be paying a larger percentage of their paychecks for grocery bills .. The rise of food prices makes it more difficult for many Americans households – especially those households that live paycheck to paycheck.”

But as Paul Dale of Capital Economics points out in a morning note, food price rises are (a) hardly hyper-inflationary and (b) may be ready to slow:

The chunky 0.4% m/m gain in food prices was offset by a 0.3% m/m decline in energy prices. Food price inflation has now risen to a two-year high of 2.6%, but the latest decline in agricultural commodity prices suggests it has peaked. What’s more, both gasoline and natural gas prices have continued to fall.

As much as some people try to make the case that the US is suffering 1970s-level inflation under President Barack “Jimmy Carter” Obama, the data inconveniently say otherwise. When inflation is really high — it averaged nearly 10% from 1973 through 1982 — it become a pervasive, overwhelming, and indisputable economic reality. Here is a bit from a January 1979 issue of U.S.News & World Report magazine:

Inflation? Another story. Few think it will be curbed in ’79 — if ever. A merchant in the Midwest contends: “Inflation is not just a passing phenomenon.” A New Jersey banker blames the unions: “Labor will always try to get as much as possible.” Will anticipation of more price rises and a business slowdown prompt Americans to pull in their economic horns? Not much, the survey shows. A California divorcee with four children says: “It’s important to maintain the quality of life. I’ll continue to dip into savings so we can go on trips and out to dinner.” Adds a 29-year-old nurseryman: “I’m planning a trip to Central America next month. There is no point letting the money sit in the bank.” … The spenders seem more careful about where they plan to put their dollars: “We’ll spend money on household furnishings that will increase in value — antiques, lamps, and rugs — hedges against inflation,” says a New York executive.

Indeed, expectations back then held that elevated inflation rates were a permanent feature of American life. As the chart at the top shows, inflation expectations were sky-high 35 years ago. But they have been stable and low since. If inflation really is as high today as back during the Carter years, how come people aren’t noticing it? Maybe because the government and private analysts have the story right.

Follow James Pethokoukis on Twitter at @JimPethokoukisand AEIdeas at @AEIdeas.

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