Category Archives: US business

05.20.13
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The death of driving?

That is the headline with which Automotive News’ Mark Rechtin begins:

You know that study that just came out declaring “the end of the driving boom,” because Gen Y supposedly doesn’t care about cars?

Ignore it.

The 69-page study by the Frontier Group and the Public Interest Research Group is just another case of inside-the-beltway thinking attempting to drive public policy decisions. Or using statistics to ignore the real causal evidence for why something is happening.

According to the study, “Young people aged 16 to 34 drove 23 percent fewer miles on average in 2009 than they did in 2001 — a greater decline in driving than any other age group. The severe economic recession was likely responsible for some of the decline, but not all.”

The study posits that millenials would rather Tweet than drive, and would rather live in an urban setting with mass transit than commute in from the suburbs.

When you read between the lines, the Frontier/PIRG study is a clear call for investing less in freeways and main arteries, and a call for more subways and light rail. …

But the biggest problem with the survey is its basic psychographic misunderstanding: Young people do care about cars. They just haven’t had to.

Either unemployed or underemployed, many Gen Y college grads have moved back home with their helicopter parents who have resumed their role as their childrens’ personal taxi services. Gen Ys can’t afford cars, but they can afford iPhones.

At some point, however, the economy will improve. Recent grads will get real jobs, have boyfriends and girlfriends, and realize that having mom chauffeur a date to see Vampire Weekend isn’t cool when you’re 25.

Then there’s the marriage factor. Even if millenials can afford that cool 600-square-foot artist’s loft close to the subway station, it won’t fit a family, and it’s in a cruddy, crowded neighborhood with a lousy school district.

Gen Y will enter suburban life — it’s a demographic certainty. Kicking and screaming, the last bohemians of Gen Y will realize the car has changed from being an unneeded luxury to an absolute necessity. …

The same day that the Frontier/PIRG study came out, Edmunds.com released its own findings about Gen Y buyers.

“With higher unemployment, lower income and a greater propensity to live at home than previous generations at this age, it hardly comes as a surprise that these younger adults have failed to buy new cars at the same rate as their predecessors,” Edmunds chief economist Lacey Plache wrote.

Rechtin points out that since 1956, vehicle miles driven have tracked growth, or lack thereof, in the gross domestic product. If driving is or has decreased, it’s because of the (still) crappy economy, with a major assist to gas prices nearing $4 per gallon once again.

05.14.13
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Texas vs. the U.S. (including Wisconsin)

Barack Obama went to Texas on his perpetual-campaign tour Thursday.

Texas is the state that, in terms of job growth, has basically propped up the entire U.S. economy, according to Texas Gov. Rick Perry:

The Texas Model works:

• While the U.S. lost 2.5 million net jobs over the last five years, Texas created 530,000 net new jobs.
• Over the last 10 years, Texas created 33 percent of the net new jobs nationwide.
• Texas has been the top exporting state in the nation for 11 straight years.
• Texas is ranked #1 on CNBC’s 2012 Top States for Business list.

And just this week, Chief Executive magazine ranked Texas the best state to do business for the ninth year in a row, and Site Selection Magazine ranked us the most competitive state in 2012. Mr. President, the Texas Success Story can be the American Success Story.

Investors Business Daily adds:

And since the recovery started in June 2009, Texas has outperformed Obama on every important economic measure.

Jobs: Private sector jobs have shot up 10% in Texas since June 2009, which is twice the national growth rate. And while U.S. employment is still 2% below its pre-recession peak, in Texas it’s 5% above the state’s previous high.

Labor force: Nationwide, the labor force — the number of people who have jobs or are actively looking — has remained virtually flat since the recovery started, climbing just 0.3% over the past 45 months. Texas, in contrast, has seen its labor force climb 6.2%, as workers flood the state.

Wages: According to the Bureau of Labor Statistics, average annual wages in the U.S. rose 5.4% from May 2009 to May 2012. In Texas, they rose 6.1%.

Per capita income: Texans have also seen their per capita personal income grow faster than the nation as a whole, increasing 13.3% compared with 10.5% nationwide, Bureau of Economic Analysis data show.

GDP: And Texas’ economy has grown faster than the overall economy since Obama took office. Between 2009 and 2011, real GDP in Texas expanded 8.7%, while the nation’s overall GDP managed just 4.6% growth, according to the BEA.

And while Obama and his backers complain that austerity is now standing in the way of economic growth, Texas proves that more government spending and government jobs aren’t needed to grow the economy.

Overall state spending has been flat since 2010, according to the National Association of State Budget Officers, and BLS data show that state and local government jobs dropped 16,500 since the recovery started.

The two statistics that stand out like sore thumbs are personal income growth, which in Wisconsin has trailed the national average since the late 1970s, and government spending, which is twice what it would have been had the state had controls on spending on taxes back in the 1970s.

With discontent in this state over its subpar job growth, and of course the pathetic national economic “recovery,” Perry says Texas’ economy is based on:

 Low taxes

 Lawsuit abuse reform

 Predictable and effective regulations

 Balanced budgets

 Accountable schools and a competitive workforce.

Which of these apply to Wisconsin or the nation? Definitely not low taxes. (Wisconsin is fifth highest in state and local taxes and eighth worst in business tax climate, and when state taxes are added, the U.S. has the highest corporate income tax rate in the world.) Lawsuit abuse reform? According to the Institute for Legal Reform, Wisconsin’s legal environment ranks 15th. (Texas ranks 36th, which probably is the reason for Texans for Lawsuit Reform.) “Predictable and effective regulations”? In Wisconsin? The land of Damn Near Russia?

Wisconsin has a legally but not factually balanced budget. Our schools are definitely overrated (while the education establishment screams bloody murder about attempts to make schools accountable), and our workforce appears to be overrated as well in the opinion of the only people who count, employers. And on each of these points where more needs to be done, the Legislature, which according to media reports is controlled by the Republican Party, has done next to nothing.

What is the Wisconsin Model? High taxes, 3,120 levels of government, grossly excessive regulation, slavish financial devotion to public schools, and, by the way, below-average business and personal income. Three and a half decades (or more) of the same old thing isn’t working.

 

05.09.13
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How to help the middle class (but they won’t)

I have been around Wisconsin media so long that I know both of the people in this piece — Tom Still of the Wisconsin Technology Council (formerly of the Wisconsin State Journal), and former U.S. Rep. Steve Gunderson (R–Osseo):

A report released this month by the Brookings Institution confirmed what many observers already suspected: Metro Milwaukee lost almost twice as many private-sector jobs in the decade of 2000-’10 as the average for the nation’s 100 largest metro areas.

What hurts most is not that metro Milwaukee’s 6.8% job loss was well above the national average of 3.9%, but that a large share of those jobs were good jobs – with decent wages, benefits and some sense of security and opportunity until the bottom fell out. …

Rebuilding the endangered middle class in America is the subject of The New Middle Class: Creating Wealth, Wages, and Opportunity in the 21st Century, written by former Wisconsin congressman Steve Gunderson, now president and CEO of the Association of Private Sector Colleges and Universities.

The book provides an unvarnished look at why the American middle class has eroded over time, beginning with events, trends and policies dating to the 1970s, and offers some paths forward – assuming there is sufficient private and public will to follow them.

Gunderson, who also served in the Wisconsin Legislature before representing the state’s 3rd Congressional District as a moderate Republican for 16 years, grew up in what he described as a classic middle-class environment. His grandfather was a farmer, his father a car dealer and virtually everyone around them in the northwest Wisconsin community of Pleasantville fit that profile.

Today, Gunderson believes, the middle-class ethos that contributed so much to the nation’s civic and economic fabric is threatened – not just in Wisconsin, but across the nation, at a time when competition from abroad has increased and the middle class is growing in emerging nations.

“Everyone thinks the end of the middle class began at the end of the recession,” Gunderson said last week. “It didn’t. It began in the 1970s. The good news is there is still time to save it.”

The book outlines a host of reasons the number of statistical middle-class households and their income growth has stagnated. Those include the instability of private and public retirement plans, the crumbling of the housing market following the growth bubble, policies and practices that encouraged a culture of personal spending vs. saving, global competition, a lack of innovation in some industries and more.

Of late, Gunderson argues, one of the biggest factors contributing to the decline of the middle class is political gridlock.

“Both parties talk a great deal about restoring the middle class, but neither of them does anything about it,” he wrote. “The truth is – they can’t. The middle class cannot be restored in this era of severe political polarization. Unless politicians from both parties are willing to make compromises and restore the middle ground of American politics, the middle class will continue to erode. Throughout our history, consensus has built the middle class. Now, partisanship has destroyed it.” …

The consensus Gunderson proposes … begins with understanding the world has changed and the economy that existed a generation or even a decade ago has changed with it. The “knowledge economy” of the 21st century requires skills that weren’t necessarily needed for middle-class jobs in the past. That has heightened the need for higher education that doesn’t stop at the edge of a traditional college campus. …

To Gunderson, that’s not just more people with bachelor’s, master’s and doctoral degrees, but lifelong learners with certificates that address the needs of employers in emerging sectors that are most likely to create middle-class jobs.

Rebuilding the American manufacturing advantage, stabilizing retirement plans, easing the home-ownership crisis and solving the federal deficit riddle are also part of the equation. At the center of it all is what Gunderson describes as a “middle class compact” that focuses on fostering a growth economy, something he believes Democrats and Republicans alike can embrace.

Rebuilding the middle class, in Milwaukee as with anywhere else, is essential to economic security, civic cohesion, democracy and even national security. It’s a task that cannot begin soon enough and that cannot be accomplished without public and private cooperation.

I was a big fan of Gunderson when he was a congressman. He raises interesting points, though I see absolutely nothing about how you foster a growth economy that “Democrats and Republicans alike can embrace” because of the nature of today’s politics. (Not that politics was beanbag in the permanent-campaign ’90s either, but those seem like the good old days now.)

Bill Clinton, the president during Gunderson’s last two terms in Congress, was about Bill Clinton, so he worked with whatever side was the majority in Congress. Barack Obama is much more of an ideologue, and split control of Congress doesn’t help. Politics is a zero-sum game, remember — one side wins (gets (re)elected, gets their legislation passed, generates big campaign donations), the other side loses.

Obama and his Democrats have, in fact, been actively hostile to the middle class, not to mention, as we know, their employers. Neither side agrees on how to create a “growth economy,” which makes those other four goals impossible, but when one side refuses to make things better for the middle class, that turns your book into fiction.

05.07.13
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The risk we take by not taking risks

Glenn Harlan Reynolds:

When the economy was last this bad for this long — back in the dreaded Jimmy Carter era — there was one upside: While inflation raged and unemployment stayed troublingly high in America’s big businesses, a lot was going on in America’s garages. Steve Jobs and Steve Wozniak werestarting Apple, Bill Gates and friends were starting Microsoft and a variety of other new entrepreneurial ventures were lining up for takeoff.

So you might hope that there’s a similar silver lining in today’s economic Slough Of Despond. But so far, that hope would seem to be unjustified.

At any rate, the latest data indicate that start-ups are becoming rarer, not more common. A new report from JPMorgan economist Mike Feroli indicates that employment in start-ups is plunging. New jobs in the economy tend to come from new businesses, but we’re getting fewer new businesses. That doesn’t bode well. …

One reason, I suspect, for a job market that looks more like Europe is a regulatory and legal environment that looks more like Europe’s. High regulatory loads — the product of ObamaCare and numerous other laws — systematically harm small businesses, which can’t afford the personnel needed for compliance, to the benefit of large corporations, which can.

Likewise, higher taxes reduce the rewards for success, making people less likely to invest their money (or time) into new businesses. And local regulatory bodies, too, make starting new businesses harder.

But I wonder if the biggest problem isn’t cultural. Since 2008, this country hasn’t celebrated achievement or entrepreneurialism. Instead, we’ve heard talk about the evils of the “1%” ” about the rapaciousness of capitalism, and the importance of spreading the wealth around. We’ve even heard that work in the public sector is somehow nobler than work in the private sector.

Countries where those attitudes prevail tend not to produce as much entrepreneurialism, so it’s perhaps no surprise that as those attitudes have gained ascendance among America’s political class and media elite, we’ve seen less entrepreneurialism here. …

Some people, of course, will start businesses no matter what politicians and pundits say, and will do so even in the face of hostile legal and regulatory climates. But their numbers will be fewer, and so will be the numbers of jobs generated. As millions of Americans are unemployed — while millions more have dropped out of the workforce entirely — perhaps it’s time for our political class to think harder about the messages it’s sending. And perhaps it’s time for voters to send the political class a message of their own.

That message, by the way, is grossly overdue in Wisconsin.

 

05.07.13
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The coming collapse of American health care

Remember former Speaker of the House Nancy Pelosi‘s claim about ObamaCare that “we have to pass the bill so that you can find out what is in it, away from the fog of the controversy”?

The more we learn about ObamaCare, the more controversial it gets, independent of the predictions by its opponents that are beginning to come true.

There are those who claim that ObamaCare is actually designed to fail so that Americans would demand a single-payer health care system, just like (supposedly) the rest of the industrialized world.

What would that be like? Look north, and despair, says Reason, which tells the story of Dr. Jacques Chaouill, who decided to fight Canada’s health care system on constitutional grounds, going so far as to get a law license:

Ultimately, after many years, his efforts bore fruit. A lower-level court had ruled that Dr. Chaouilli was correct in contending that the prohibition of private health care violated ones rights to “life, liberty, and security,” as guaranteed by the Charter of Rights and Freedom, but that the development of a two-tiered medical system was unacceptable to the Canadian vision of “equality.”

In 2005, the Supreme Court of Canada heard Dr. Chaouilli’s appeal, and ruled that the Canadian single-payer system led to situations whereby patients suffer and die on government waiting lists, in violation of their rights guaranteed by both the Canadian and the Quebec Charters of Rights and Freedoms. The Supreme Court ruled as unconstitutional the prohibition of a parallel private medical system in addition to the government mandated single-payer system.

Dr. Chaouill’s heroic eight-year effort, during which time he sacrificed priceless time with his family and with his patients, left him financially distressed, but morally vindicated.

The Court’s decision has since led to the growth of numerous private clinics, throughout the provinces, where patients can obtain private medical care for cash, in a consumer-driven market, and avoid having to travel south of the border to get off the queue. …

The Canadian experience provides an opportunity to anticipate the future of health care delivery in the United States.

Over the past 20-30 years, the practice of medicine has been slowly morphing into a government-run enterprise, often with private health insurance companies acting as the intermediaries. Medicare price controls serve as templates for private insurance reimbursement arrangements. Managed care, encouraged and nurtured by federal legislation, requires providers to obtain authorization from faceless bureaucrats in order to provide many services they deem necessary for their patients. Guidelines and protocols, drawn up by committees and panels serving federal regulators, are imposed upon providers, requiring them to practice according to one-size-fits-all to models or face financial or even legal sanctions.

While not the simple Canadian style single-payer system, the U.S. system, especially with the advent of the Affordable Care Act, gets us to the same place—only in a more Byzantine fashion. True, there are multiple payers, but the insurance companies, as a result of the ACA, have become nothing more than publicly regulated utilities. The policies they will be allowed to offer patients are all designed and predetermined by the U.S. Department of Health and Human Services. The provider payment provisions, as well as the coding system, as has been the practice for years, will be pegged to Medicare reimbursement schedules.

Already we are seeing increasing numbers of doctors retire or slow down their practices in response to the changing practice environment. Many are selling their practices to hospitals and becoming shift-working hospital employees. Still others are dropping out of all insurance plans—even Medicare in some instances—and embarking on cash-only “concierge” medical practices.

In the meantime, demand for health care continues to rise, as 10,000 baby boomers become Medicare beneficiaries every day—and will continue to do so for the next 18 years. Emergency rooms continue to be overcrowded, as many people use them to obtain services that would otherwise be given by primary care providers, because they can’t get in for appointments.

As perhaps another 32 million people are added to the Medicaid or private health insurance systems—the purported goal of the ACA—without a commensurate increase in the number of health care providers, one can expect wait times for physician appointments to only grow longer, and emergency rooms and urgent care centers to grow more crowded. The experience in Massachusetts after its health care reform of 2006 (upon which the ACA is largely modeled) tells us what to expect.

If Canada’s experience serves as any guide, one can expect the one-tiered system in the U.S.—where anyone, regardless of socioeconomic status gets the same quality health care by the same physicians in the same hospitals with the same promptness—will slowly evolve into a two-tiered system, whereby those who can afford it will get state-of-the-art, prompt, courteous, consumer driven health care, while everyone else waits on line. …

The demographic cliff has been reached. With increasing numbers of Medicare and Medicaid beneficiaries stressing state and federal budgets—and future liabilities impossible to fund, provider reimbursements will continue to drop. Add to this the piling on of regulatory compliance costs, from electronic health records, to complex coding requirements, and we can expect to see more and more doctors unable to survive in private practice. The current trend of private practice consolidation and corporatization will only be matched by doctors closing their practices and becoming hospital employees. The old model of the private physician or small group practice giving personalized, one-to-one patient care will soon fade from memory.

Concurrent with the end of the physician as independent agent we see a shift in work incentives. Therefore, one can expect a decrease in physician productivity. Decreased physician productivity only exacerbates the physician shortage, which is, in turn, exacerbated by the sudden influx of Medicaid and privately insured patients. Wait times, a form of stealth rationing, will only get longer. It is worth remembering the adage: “Just because you have health care coverage doesn’t mean you will receive health care.” Ask any Canadian on a waiting list in the government-run system.

The Hippocratic Oath, which 98 percent of American doctors recite, stipulates that a doctor will keep his or her patients ”from harm and injustice.” Of course, that’s an oath for physicians, not politicians.

 

05.03.13
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Why the microbrewery

One of the most salutary developments in American business is the growth of the microbrewery.

Tom Acitelli explains how the growth of microbrewing proves the converse of the phrase “if you want less something of it, tax it”:

Today there are more than 2,300 breweries in the United States—where beer production is second only to China’s—but it wasn’t long ago that American beer was an international punch line. Embodied by yellowy lagers in aluminum cans, nearly all domestic beer was made by a handful of breweries like Miller and Anheuser-Busch. As recently as 35 years ago, there were fewer than 50 breweries in the whole country, and the fastest-growing type of American beer was light, which Miller introduced in 1975.

The story of the U.S. ascent to the top tier of world beer began in the late 1970s, when brewing was liberated from government taxation and regulation that had held it back since Prohibition.

In 1976, Henry King, a gregarious World War II hero whose favorite drink was a whiskey-based Rob Roy, trained the attention of his U.S. Brewers Association, the industry’s biggest trade group, on Congress. The brewing industry had been trying unsuccessfully for years to get Washington to lower excise taxes on beer produced by smaller brewers.

King was determined to change things. In an impressive feat of bridge-building, he lined up support from the industry’s labor unions as well as its owners. Steelworker and glassworker unions called in favors; the big brewery owners wrote personal checks. These owners, whose excise taxes would remain the same, figured that by helping their smaller brethren, they would ultimately help themselves by inspiring more beer consumption in an American alcohol market suddenly awash with California wines.

Brewer Peter Stroh—whose family name was a mainstay of Midwestern beer—lobbied a fellow Michigander, President Gerald Ford, to sign the bill that King’s efforts finally steered through Congress. H.R. 3605 cut the federal excise tax on beer to $7 from $9 per barrel on the first 60,000 barrels produced, so long as a brewery produced no more than two million barrels annually. (There were few breweries that did, which was another reason King’s association went to bat for the tax cut.)

The tax cut unleashed a revolution in American brewing. Hundreds of smaller breweries began to open across the country selling what came to be called craft beer. But as significant as the numbers was the rise of American brewers and consumers as the industry’s tastemakers. …

Some of the stars of American craft beer, such as Ken Grossman of Sierra Nevada and Sam Calagione at Dogfish Head, got their start with home brewing—an activity that until the late 1970s was illegal in the U.S.

The repeal of Prohibition in 1933 legalized home winemaking, but, because of an oversight, did not legalize home-brewing of beer. Stores that sold supplies for winemaking also sold supplies for making beer at home, and the government did little to enforce the anti-home-brewing law. …

Gradually, though, the secretive home brewers grew bolder. In the 1970s—about when Henry King was lobbying Congress to cut the beer tax—home-brewing clubs in California, where America’s craft-beer revolution began, joined with trade groups representing the winemaking shops that sold home-brewing supplies. They lobbied California Sen. Alan Cranston to introduce legislation legalizing home-brewing at the federal level.

Cranston introduced legislation that was reconciled with a House bill in August 1978. President Carter signed the law that October, and it took effect the following February. Home-brewing of up to 200 gallons a year per household was suddenly permitted.

Following the federal example, state legislatures also began rewriting their bans on home-brewing, and it is legal now in every state except Alabama. The result: Home-brewing took off, helping to spur the movement toward craft beer that had been touched off by the beer tax reduction.

Keep all this in mind the next time you read about a state legislator wanting to increase alcohol taxes. Keep this in mind as well when you read calls for higher taxes, as Acitelli concludes:

The rise of American beer wasn’t an accident. It was spurred by efforts to cut taxes and regulation that unleashed entrepreneurship. Too bad Washington doesn’t raise a toast to that idea more often.

Or Madison.

04.23.13
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The real “takers”

Pollster Scott Rasmussen:

Mitt Romney’s secretly recorded comment that 47 percent of Americans are “dependent on the government” and “believe they are victims” isn’t the only reason he lost the presidential campaign. But the candidate himself acknowledged after the election that the comments were “very harmful.”

He added, “What I said is not what I believe.”

But many Republicans still believe it, and the “makers vs. takers” theme has a deep hold on the party. In private conversations, many in the GOP are whispering that Romney was right and that his only mistake was saying it out loud.

I can’t tell you how many times I’ve heard people say something like, “Well, the half who favor government programs is the half who don’t pay any taxes.”

This is ridiculous — on many levels.

First, the overwhelming majority of those who don’t pay federal income taxes pay a whole variety of other taxes, including state and local taxes, payroll taxes, sales taxes, property taxes, sin taxes and more. They don’t feel excluded from sharing the tax burden just because they don’t pay one particular tax.

It’s also worth noting that these aren’t the people pushing for higher taxes. At Rasmussen Reports, our most recent polling shows that people who make $100,000 or more each year are more supportive of higher taxes than those who make less.

Second, the 47 percent who don’t pay federal income taxes include large chunks of the Republican base. Many senior citizens fall into this category because their primary income is from Social Security. They don’t consider themselves “takers.” They paid money into a Social Security system throughout their working lives and now simply expect the government to honor the promises it made.

Third, low-income Americans aren’t looking for a handout. Among those who are living in poverty, 81 percent agree that work is the best solution to poverty. Most would rather replace welfare programs with a guaranteed minimum-wage job. Sharing the mainstream view, 69 percent of the poor believe that too many Americans are dependent upon the government. …

If they want to seriously compete for middle-class votes, Republicans need to get over the makers vs. takers mentality. We live in a time when just 35 percent believe the economy is fair to the middle class. Only 41 percent believe it is fair to those who are willing to work hard. Those problems are not created by the poor.

GOP candidates would be well advised to shift their focus from attacking the poor to going after those who are really dependent upon government — the Political Class, the crony capitalists, the megabanks and other recipients of corporate welfare.

 

04.22.13
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Green news on Earth Day

Back in my business magazine days, at the behest of higher management I created a section of the magazine I called “Green Business.”

As you can imagine from the title it had to do with environment-related businesses or green-related business issues. I insisted, however, that the section be about more than jumping on the green fad, that it show how businesses could make more money (as in higher revenues or lower expenses) through “green” things.

Perhaps “green” isn’t a fad, except that the environmental movement keeps damaging its own credibility with hysterical end-of-the-world predictions, such as those chronicled by FreedomWorks around the first Earth Day in 1970:

  1. “Civilization will end within 15 or 30 years unless immediate action is taken against problems facing mankind.”  — Harvard biologist George Wald
  2. “We are in an environmental crisis which threatens the survival of this nation, and of the world as a suitable place of human habitation.” — Washington University biologist Barry Commoner
  3. “Man must stop pollution and conserve his resources, not merely to enhance existence but to save the race from intolerable deterioration and possible extinction.” — New York Timeseditorial
  4. “Population will inevitably and completely outstrip whatever small increases in food supplies we make. The death rate will increase until at least 100-200 million people per year will be starving to death during the next ten years.” — Stanford University biologist Paul Ehrlich
  5. “Most of the people who are going to die in the greatest cataclysm in the history of man have already been born… [By 1975] some experts feel that food shortages will have escalated the present level of world hunger and starvation into famines of unbelievable proportions. Other experts, more optimistic, think the ultimate food-population collision will not occur until the decade of the 1980s.” — Paul Ehrlich
  6. “It is already too late to avoid mass starvation,” — Denis Hayes, Chief organizer for Earth Day
  7. “Demographers agree almost unanimously on the following grim timetable: by 1975 widespread famines will begin in India; these will spread by 1990 to include all of India, Pakistan, China and the Near East, Africa. By the year 2000, or conceivably sooner, South and Central America will exist under famine conditions…. By the year 2000, thirty years from now, the entire world, with the exception of Western Europe, North America, and Australia, will be in famine.” — North Texas State University professor Peter Gunter
  8. “In a decade, urban dwellers will have to wear gas masks to survive air pollution… by 1985 air pollution will have reduced the amount of sunlight reaching earth by one half.” — Life magazine
  9. “At the present rate of nitrogen buildup, it’s only a matter of time before light will be filtered out of the atmosphere and none of our land will be usable.” — Ecologist Kenneth Watt
  10. “Air pollution…is certainly going to take hundreds of thousands of lives in the next few years alone.” — Paul Ehrlich
  11. “By the year 2000, if present trends continue, we will be using up crude oil at such a rate… that there won’t be any more crude oil. You’ll drive up to the pump and say, ‘Fill ‘er up, buddy,’ and he’ll say, ‘I am very sorry, there isn’t any.’” — Ecologist Kenneth Watt
  12. “[One] theory assumes that the earth’s cloud cover will continue to thicken as more dust, fumes, and water vapor are belched into the atmosphere by industrial smokestacks and jet planes. Screened from the sun’s heat, the planet will cool, the water vapor will fall and freeze, and a new Ice Age will be born.” — Newsweek magazine
  13. “The world has been chilling sharply for about twenty years. If present trends continue, the world will be about four degrees colder for the global mean temperature in 1990, but eleven degrees colder in the year 2000. This is about twice what it would take to put us into an ice age.” — Kenneth Watt

Making a profit is the first responsibility of a business, after all, and maximizing profits for the owners is the fiduciary responsibility of a business’ management. If a business can make more money by, for instance, energy efficiency or figuring out how to use less water during a product’s manufacturing process, that’s sustainability.

So here on Vladimir Lenin’s birthday — I mean Earth Day — the Property and Environment Research Center shows which green is more important:

Extrapolate global average GDP per capita into the future and it shows a rapid rise to the end of this century, when the average person on the planet would have an income at least twice as high as the typical American has today. If this were to happen, an economist would likely say that it’s a good thing, while an ecologist would likely say that it’s a bad thing because growth means using more resources. Therein lies a gap to be bridged between the two disciplines.

The environmental movement has always based its message on pessimism. Population growth was unstoppable; oil was running out; pesticides were causing a cancer epidemic; deserts were expanding; rainforests were shrinking; acid rain was killing trees; sperm counts were falling; and species extinction was rampant. For the green movement, generally, good news is no news. Many environmentalists are embarrassed even to admit that some trends are going in the right direction.

Why? The underlying assumption is that pessimism is what drives change. But great innovators from Archimedes to Steve Jobs generally lived in the richest parts of the world in their day. Driven by ambition, not desperation, they changed the world for optimistic reasons.

Pessimism should no longer be a prerequisite for being an environmentalist. It can be counterproductive because it is a counsel of despair. People do not respond well to being told disaster is unavoidable. Instead, the environmental movement should try optimism.

There is a wonderful chance that the current century is going to be a golden age for nature. Not everything is going to go right, but it is possible that by the end of the century we will have more forests, more wildlife, and cleaner air. …

The “forest transition”—the point at which a country stops losing forest and starts regaining it—is happening all over the world: Forest cover is increasing in Bangladesh, China, Costa Rica, Cuba, Denmark, Dominican Republic, El Salvador, France, Gambia, Hungary, Ireland, Morocco, New Zealand, Portugal, Puerto Rico, Rwanda, Scotland, South Korea, Switzerland, the United States, and Vietnam. …

Why are environmental trends mainly positive? In short, the gains are due to “land sparing,” in which technological innovation allows humans to produce more from less land, leaving more land for forests and wildlife. The list of land sparing technologies is long: Tractors, unlike mules and horses, do not need to feed on hay. Advances in fertilizers and irrigation, as well as better storage, transport, and pest control, help boost yields. New genetic varieties of crops and livestock allow people to get more from less. Chickens now grow three times as fast in they did in the 1950s. The yield boosts from genetically modified crops is now saving from the plow an area equivalent to 24 percent of Brazil’s arable land.

What is really making a positive dent in the environmental arena is the unintended effects of technology rather than nature reserves or exhortations to love nature. Policy analyst Indur Goklany calculated that if we tried to support today’s population using the methods of the 1950s, we would need to farm 82 percent of all land, instead of the 38 percent we do now. The economist Julian Simon once pointed out that with cheap light, an urban, multi-story hydroponic warehouse the size of Delaware could feed the world, leaving the rest for wilderness.

It is not just food. In fiber and fuel too, we replace natural sources with synthetic, reducing the ecological footprint. Construction uses less and lighter materials. Even CO2 emissions enrich crop yields. …

Catastrophic climate change might undo us. Yet moderate climate change will only help with land sparing. Moreover, the empirical data increasingly support the probability that climate change will be mild and slow for many decades. One should be more concerned about the effects of climate change policies, which are horribly land-hungry and harsh toward nature. This includes biofuels, wind power, hydroelectric power, and the refusal to back fossil fuels for the rural poor, which results in the continued exploitation of forests for fuel. In other words, when it comes to climate change, the cure might be worse than the disease.

Organic farming is another example of ecologically good intentions that would pave the road to environmental hell. Organic farming is nice enough as a local fad, but if it were pursued on a global scale it would require a doubling of the amount of land devoted to agriculture, because organic yields are necessarily much lower than those using synthetic fertilizer. In effect, organic farmers have to grow their own fertilizer as “green manure” or dung from livestock, which takes up far more land than making fertilizer in a factory. If the world were to go organic, it would require a renewed and massive assault on forests, wetlands, and nature reserves to feed the global population.

Paradoxically, economics has done more for nature than ecology has. Yet, as discussed at PERC’s recent forum, there is still much that both fields can learn from the other. Economics could learn something from Charles Darwin and ecology could evolve from revisiting Adam Smith. Indeed, Charles Darwin read Smith, so there is an ancestral connection between the two fields: they both stress the emergence of phenomena rather than their direction from above. And, there is much activity in evolutionary biology and ecology that is parallel to what is occurring in economics and vice versa.

How does that work? Watchdog.org:

On April 22, in cities across America, some environmental activists will celebrate Earth Day, claiming only increased government control can protect the environment. Those celebrations will expose a couple ironies.

First, many activists will arrive in a Toyota Prius, which has become the symbol of environmental consciousness. Ironically, however, the Prius is not a triumph of political planning but of the free market. In the 1990s, while California was requiring “zero-emission” vehicles, leaders at Toyota and Honda saw an opportunity to sell cars to people who want to spend less on gasoline, drive a car that emits less carbon dioxide, or both. Thus was born the hybrid vehicle. Even though it did not meet California’s regulation, it sold well, causing Golden State politicians to change the law.

Jumping on the bandwagon, politicians began to give preferences to hybrids. Politicians did not lead, but followed the innovation of the free market. Most Prius drivers, however, don’t know that history and some will spend Earth Day opposing the free-market policies that created the car they are so proud of. …

Across the country, the parts of the nation that most consistently support free-market candidates are those surrounded by stunning natural beauty. The most vocal environmental activists — who are quick to lecture others about caring for nature — tend to live in cities, where nature has been thoroughly controlled, constrained and paved. …

Environmentalism has become trendy and a way to show you are a good person, rather than actually helping the environment. Environmental activists and politicians choose government-mandated approaches not because they help the environment, but because the policies make them feel good about themselves and make them look good to others. …

In fact, a strong concern for the environment is part of believing in personal responsibility and the free market. Conservatives believe people have freedom, but must take responsibility for the impact they cause. If you commit a crime, you don’t get to blame society. A reason conservatives live near nature is that we love to hike, hunt, fish and marvel at the awe-inspiring natural beauty with which our nation is so blessed.

Finally, the free market is the greatest system for allocating scarce resources and doing more with less, both of which are at the heart of a true environmental ethic.

Rather than forcing behavior change, conservatives promote technological solutions that respect the freedom of individuals while reducing environmental impact. Rather than falling for the latest trendy environmental policy, conservatives demand that the government measure success or failure.

04.16.13
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You know what they say about assuming

After some assuming music …

… Gallup CEO Jim Clifton:

During my 40 years at Gallup, I’ve observed that one of the main reasons very talented leaders fail is because their thinking failed them. Not their leadership or management skills, which in many cases are just fine, but their thinking. Specifically, failed leaders in business and politics are usually wrong about a core premise that drives all their strategies. …

Many people in the highest levels of U.S. government think that 1.5 billion Muslims are uncomfortable with the West because they “hate us for our freedom” and that “religion divides us.” So, leaders build policy — war, economic sanctions, and anti-terror campaigns — around these assumptions. But Gallup World Poll data tell another story entirely.

The world’s Muslims don’t hate us because of our freedom or our way of life or because they’re religious fanatics. Gallup finds that their discomfort comes predominantly from a hopelessness rooted in economic despair and joblessness. This is an economic problem, not a religious one. Yet too often, policies are created around these wrong assumptions. …

Correct assumption No. 1: Entrepreneurship trumps innovation

Many thinkers and leaders in the U.S. and around the world have reviewed decades of America’s global economic dominance and concluded that the country has been a colossus because of superior innovation. That is the global conventional wisdom, the core assumption. Thousands of conferences around the world have been organized around this assumption. Some countries are even building “innovation cities.”

In my view, rooted in decades of Gallup research and our company’s work with many multinational corporations and city and national governments, this assumption is dead wrong. And I believe that America has stopped growing because leaders are governing from this faulty premise.

The U.S. cannot innovate its way out of its stagnant growth. It must enterprise its way to prosperity. Simply put, when it comes to fostering long-term economic growth, entrepreneurship trumps innovation. Put another way: An innovative product or service has no commercial value until a talented businessperson finds a customer for it. ,,,

The U.S. has no peer at high-level intellectual development. The country has many of the best universities in the world. And the best of America’s private and public K-12 schools do a marvelous job at intellectual development, which is nurtured systematically and intentionally. But entrepreneurial development is completely left to chance. Right now, if you’re a 12th-grader blessed with an unusually high IQ — perhaps even in an inner-city neighborhood like California’s Compton or Watts — testing will find you. And if you’re really brilliant, you’ll get extra special treatment and possibly scholarships to the best schools in the country. You may even get financial help all the way to a Ph.D. at MIT, then go off to NASA, the National Institutes of Health, or the like. If you’re blessed with real talent to think and learn, the system likely will find you. …

However, if you were born with rare entrepreneurial talent — unusual determination, optimism, and problem-solving skills — the system has no way of finding you, certainly not in Compton or Watts. Nothing finds you. There is no formal identification system. There are no formal special classes, no colleges bidding for you, no evening classes with the best teachers, and nothing sent to your parents that identifies you as gifted. Colleges and universities place tremendous weight on SAT or ACT scores. But nobody asks about the applicant’s ability to start a company, build an organization, or create millions of customers. America leaves that to chance. …

The U.S. Department of Education should lead the creation and passing of a bill that requires all high schools and middle schools to test every student for entrepreneurial aptitude. Gallup is working with some of the best test makers in the world now, and we are confident that the intellectual attributes of entrepreneurship are as testable as IQ, athletic “40 speed,” or vertical jump height. …

Correct assumption No. 2: Small businesses are the key to America’s economic revival

When small businesses boom, jobs boom, GDP booms, and exports boom.

There are approximately 6 million small businesses in the United States, and they are the very backbone of the country’s democracy. Those businesses fund significantly more American jobs and GDP than big business does. Here is something you likely don’t know: Of the 6 million small businesses out there, 75% of the owners or proprietors aren’t in business to build something big. They aren’t trying to build the next Intel or Waste Management. They’re not even in it for the money. Most small-businesspeople are in it for one reason: freedom. Almost no leader in the world knows that.

Three out of four entrepreneurs get up each morning with the simple yearning for total, complete, unimpeded independence. They must be their own boss or they can’t cope with the day. They cannot be employed at IBM or even at a local car dealership because they are like the coyote — they can never be domesticated. So let’s not try. Instead, let’s say, “God bless you for all the jobs and economic energy you create. It’s great to have you here.”

The remaining 25% of these small businesses do want to build something big. They do get up every day dreaming of creating an empire of customers and services. They are the most important people on the planet because when they win, America wins — and when America wins, so does the global economy.

When these 1.5 million businesses boom, jobs boom, GDP booms, and exports boom. In my view, nothing is more heroic in America right now than creating a customer abroad. The White House should give medals every Monday morning to small-business owners who are booming because they have found foreign customers to export to, and those exports are crucial to creating American jobs. It’s not too hard to believe that whether the U.S. goes broke or is prospering in 10 years lies predominantly in the American cultural phenomenon of small business — the 1.5 million empire builders.

Correct assumption No. 3: Entrepreneurship must be fostered at the city level

Let me narrow that 1.5 million number down to 1 million, because that’s probably a more accurate estimate of high-potential small-business boomers and empire builders. And I’d rather use a more conservative figure.

Here is an intervention that would help those 1 million small-businesspeople prosper and thrive and thus drive a resurgence of the U.S. economy: Cities should dedicate one great coach — a local star senior adviser, an executive or entrepreneur with a proven track record of success — for every 10 high-potential small businesses. This is not an activity for Washington or for the states. This must happen city by city.

What we need at the national level is a campaign that asks every single mayor and city councilperson in the country this question: What is your plan to boom high-potential small businesses? Although, in my opinion, many mayors and city council members likely will have little grasp of the subject of entrepreneurship. Still, they’re the place to start because the future of their cities depends on the degree to which they make their cities attractive to entrepreneurs. Those city leaders may think their job is negotiating union contracts and government-employee benefits, but they won’t be able to pay their employees, much less help their cities prosper and thrive, without a growing and thriving entrepreneurial sector. …

To jump-start a stagnant U.S. economy and put the country on a path toward long-term economic growth and prosperity — even global dominance once again — leaders must get their assumptions right. They must understand that entrepreneurship trumps innovation and that finding the next generation of great entrepreneurs means cultivating them in middle schools, high schools, and colleges and universities, just as surely and intentionally as the country cultivates innovators.

The college role in cultivating entrepreneurs is explained by Syracuse University Prof. Carl Schramm:

If one manages, using Facebook and other social media, to establish celebrity status, however restricted the province in which it is achieved, pre-college adolescents come to believe the world has deemed them somehow accomplished.  Narcissism is the result of a theorem of social engagement that sees successfully establishing a unique identity as the goal of life.  The achievement of objectively important things that are judged important because they advance the welfare of others – seems a terribly old fashioned, outdated and irrelevant way to order one’s life.  Beyoncé bests Ben Carson!

Thus, aspiring entrants are asked to write about, among other things, how something they have done has changed the world!  Anticipating such questions, and either affirming the values that are presumed to underlie them or knowing that their students have to play this game to successfully apply to college, something on the order of 80 percent of school districts require students to do “community service” projects as a condition for graduation. …

Given that getting into college no longer brings with it the expectation of a good job in an economy that is starting to appear as if it discriminates against too much education in entry-level positions, maybe an alternative question should be substituted.  Why not ask aspiring students if they ever started a business, worked in a new business, know an entrepreneur, or might themselves want to create a new business?  This simple change or addition to the required essays could be the first great lesson colleges might teach.

For one, it might cause students to think that their role in the economy is more up to them to make than for their college education to preordain.  Increasingly, in an economy that is changing in profound ways not the least of which is that productivity in all industries is reducing the demand for even highly trained labor, everyone will be more and more responsible for the opportunities they can make.  Perhaps the most successful applicants will write that their goal is to “make a job, not take a job.”  Come to think about it, the phrase has a faint community service ring to it.  Maybe existing jobs should go to those who can’t make their own.

Second, it would force high school students to consider that perhaps business is not such a bad career choice.  In fact 90 percent of graduates work in the private sector.  Surely they are creative people who have dreams of changing the world for the better.  And, can anyone say that working at Apple or Genentech, or Johnson and Johnson is not changing the world for the better?

Speaking of making jobs, a third benefit comes to mind.  Most of the new jobs made in America are in new firms.  About eighty percent of all new jobs are found in firms less than five years old.  So could it just be that entrepreneurs are doing the very best community service?  What does a phi beta kappa graduate starting an all night basketball league accomplish that is somehow more beneficial to society than the “B-“ graduate who undertakes the risk of starting a company that brings a needed new product to the world, and in the course of doing so gives ten unemployed people jobs that never before existed?  With employment these people can go on to earn dignity and support families and help break the cycle of poverty.

Finally, if colleges required students to write about their entrepreneurial aspirations, maybe high schools and universities might learn something about how to structure education in ways that really improve what students learn and need to learn.  The college that sets its sights on helping more of its graduates start businesses that can help the society become more robust economically might think twice about developing courses in any number of fields where students will never find meaningful work; teaching high school seniors how to write their community service essays being one.

04.03.13
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The soda taxman

Cal Poly Prof. Michael Marlow, author of a book I must read — The Myth of Fair and Efficient Government: Why the Government You Want Is Not the One You Get:

New York Mayor Michael Bloomberg‘s anti-obesity campaign to ban the sale of certain sugary drinks in large servings, especially sodas, was struck down last month in state court. A proposal for a penny-per-ounce excise tax on sweetened beverages also floundered in Vermont’s House of Representatives in February. …

I recently reviewed the data on the impact of soda taxes for an article in the Journal of American Physicians and Surgeons. I also examined how these “pro-tax” studies were received in the press. The body of evidence is small, in contrast with the debate’s decibel level. One 2012 study, published in Health Affairs, spawned many news stories along the lines of this one in the Los Angeles Times: “Soda tax could prevent 26,000 premature deaths, study finds.”

The authors acknowledged encountering “uncertainties and methodological challenges” and conceded that any links between soda taxes and prevalence of obesity were “weak.” The projected 26,000 premature deaths averted were over a decade. From the headlines, I wouldn’t have guessed any of this.

The authors of the study in Health Affairs conclude that existing sales taxes may be “too low to cause changes in calorie consumption” affecting the average body mass index, or BMI. In other words, the special levy would have to be adjusted upward until the intended effect is achieved. A 2010 study in Contemporary Economic Policy estimated that a punishing 58% tax on soda might change behavior sufficiently to lower the average BMI by only 0.16 points. But a drop of 0.16 is minuscule, given that the standard threshold for obesity is a BMI of 30. (And remember, the majority of people buying these products aren’t obese.)

For an individual with a sweet tooth, getting around a high soda tax would require neither genius nor brash acts. Some people in search of a less expensive sugar fix could switch to fruit juice. If the tax were low enough, they might also swallow it, so to speak. In a 2012 Cornell University study, consumers hit with a 10% tax on soda purchased fewer soft drinks for about one month. In three to six months, they were back to the base line. …

Public cynicism deepens further when taxpayers see what becomes of the revenues earned by lifestyle taxes. Last year, an organization called Campaign for Tobacco-Free Kids ran the numbers on 14 years of tobacco-related taxes. The report estimates that, in fiscal year 2013, states will collect a record $25.7 billion in revenue from the 1998 tobacco settlement and tobacco taxes. But states are expected to pay less than 2% of it on tobacco-smoking prevention and cessation—even though the 1998 settlement was sold to fund such programs. People notice when promises go unfulfilled and tax revenues are diverted from their intended purposes. …

What would come after Mayor Bloomberg’s downsized sodas, if his dream is realized? Government-assigned limits on what we may purchase in grocery stores, what meals restaurants may offer or even how frequently we can eat out?

The very question “what should government do?” takes us down a shadowy path. Laws are different from products or services sold on the market. If you hired a personal trainer to help you lose weight and you actually got fatter, you’d fire the trainer. You can’t fire a regulation.