Category: Economics

The Cost of Discrimination

A recent book, Sharing the Prize: The Economics of the Civil Rights Revolution in the American South, by Gavin Wright, argues that the civil rights movement not only gave blacks basic civil rights, but also has a major beneficial economic impact on the economy of the south.

(Note: I have not yet read the book. I am basic my comments on excerpts and reviews.)

Wright notes that, as barriers to participation for blacks fell away, the overall economy of the south improved.

What we see, in other words, is not a redistribution in the name of historical justice, but an integration of black workers into the regional economy. When we consider that the civil- rights movement opened the South to inflows of capital, creativity and new enterprises from around the world, it becomes clear that most white Southerners were also long-term beneficiaries of this revolution. From: http://www.bloomberg.com/news/2013-02-13/the-stunning-economic-impact-of-the-civil-rights-movement.html

If the removal of discrimination improved the economy then it seems likely that the imposition of discrimination harmed the economy. That should be painfully obvious to anyone who spends time thinking about it. There were obvious costs to Jim Crow. It cost money to install additional drinking fountains and rest rooms. Clearly businesses lost money by not serving black customers. And clearly it cost money to have a police force that spent time enforcing racial restrictions rather than dealing with crime. It cost time and money for state legislatures to debate and enact racially discriminatory bills.

Discrimination not only cost the subject of discrimination, but it costs those who discriminate. They spend time and money discriminating when they could spend that time and money on more productive things.

If discrimination is bad for an economy then it seems likely that the corollary is true: non-discrimination – openness, acceptance, tolerance – are good for the economy.

Science and Government Support

The Federal government has supported scientific advancement since Vice President Thomas Jefferson got Congress to fund Eli Whitney’s attempts to manufacture muskets with interchangeable parts. Whitney failed but government support for other continued until Sam Colt perfected it in the 1850’s.

The government has supported both practical and speculative science. The “space race” created a need for increasingly small electronics, and researchers working under government contract created the transistor and later the micro-chip.  Fear of massive infrastructure disruption in the event of a nuclear attack led to government funded research into the development of a fragmented communication system called ARPANET, which was the earliest form of the internet.

But beginning in the late 1980’s the Federal government spent less and less on support for science. In the last 25 years government support has been cut by fully half. The results have been most obvious in publications in scientific literature. Research from the US used to dominate, but now researchers from the European Union are now producing nearly as many papers as US researchers. And while US funding has declined, government funding in other nations has climbed significantly. China’s R&D spending is growing at 20% a year.

The reality is that scientific research will continue, but the US will no longer dominate as it had in the past. The problem with this is that scientific research often (very often) leads to new technologies, new products, and new businesses. Most of the world seems to understand this, which is why other nations are increasing government supported research. But a few people don’t seem to get it. And unfortunately those people — conservative Republicans — have an outsized influence in the American government. They are clearly being penny wise (watching every penny) but pound foolish.

Government support for scientific research has been an important component of American economic growth and supremacy, and I find it frightening that Congressional Republicans are willing to turn their backs on that history.

 

Income Mobility and Economic Development

Income mobility, or the ability of people to move up the socio-economic ladder is an important component of a successful economy. Economic mobility means that the child of a dishwasher can go to college and become a lawyer, or a laborer with a good idea can open his own company to make or sell a new product.

A new report has found that cities in the Northeast, West Coast, and some in the Great Plains, have the highest levels of economic mobility, while cities in the South and Midwest have the lowest levels of economic mobility.

An article in Salon describing these findings can be found here: Upward Mobility

The full report can be found here: Equality of Opportunity

 

 

Can the Government Play Moneyball?

I just read an outstanding essay in this month’s Atlantic Magazine titled “Can Government Play Moneyball.” It asks whether the federal government can analyze the effectiveness of programs in the same way that baseball now analyzes the effectiveness of ballplayers. This means they are evaluated based on statistical data and verifiable criteria to judge effectiveness, and not hunches and wish full thinking. The authors, both former senior high level budgetary officials, one in the Bush administration and the other in the Obama administration (Orszag), describe their frustrations in trying to evaluate the actual effectiveness of programs, and disappointment that ineffective programs could not be killed because of political support.

The article is available on line here: Can Government Play Moneyball

The article notes that administrations since Clinton have tried to evaluate, on some level, the effectiveness of programs. Remember Clinton’s Reinventing Government? The Bush Administration established the Program Assessment Rating Tool, which the Obama Administration was continued. All of these efforts have identified government programs that simply don’t work, but in many cases, when the administration tries to defund the program, it runs into opposition for Congress. The article mentions two programs, one supporting individualized payments under Medicare, rather than bundling, and the other an after school education program, that were both shown, irrefutably, to be ineffective, but neither administration was able to kill the program due to opposition from Congress.

The article notes that the Bush program evaluated roughly 1000 programs, and 19% were rated effective, 32% were moderately effective, 29% adequate, 3% ineffective, and another 17% un-ratable due to insufficient data. I was surprised by these numbers. I would have thought that 10 to 15% of the programs would be ineffective, so I’m surprised that such a high percentage were at least somewhat effective.

The point is that government programs should be evaluated for effectiveness, and those that are not effective should be jettisoned. The problem is that there is never any provision in the bill creating a program to evaluate its effectiveness. The article suggests a number of proposals to address this defect. One proposal suggests that 1% of the budget of a program should be set aside for evaluation. The results of the evaluation can be used to improve the program if it needs it, or justify killing the program if it is proving ineffective. Another proposal, which New York Mayor Michael Bloomberg is using, is to make many new programs temporary, and they only become permanent if they prove their effectiveness.

I think that these are excellent ideas. Ineffective government programs should be eliminated, but their effectiveness should be evaluated based on valid criteria and good data, and not political beliefs and desires. I particularly like the idea of subjecting all new programs to a “probationary” period for them to prove their effectiveness. Government should not be wasting money (the taxpayers money) on programs that don’t work.

Immigration and Job Creation

According to a report issued by the non-partisan Congressional Budget Office, if the pending immigration reform bill (S. 744) is passed, it will have significant economic benefits for the country.  According to the CBO, new immigrants will generate enough new revenue to shrink the budget deficit by $175 billion over the next decade, and increase GDP by as much as two percentage points.

Here’s an article from Quartz

Here’s the link to the CBO report.

Here’s Ezra Klein’s take at the Washington Post

Conservatives claim that their main priority, above all else, is shrinking the deficit. So lets see how they interpret this report.

 

 

Some Economic Data and Fun Charts

I like charts. Jared Bernstein has a nice post today with lots of charts, and those charts show the economy picking up, and as the economy picks up the deficit (the year to year overspending) is steadily decreasing. Here’s the post: The Facts of the Case

Here are a couple of charts.

Economic data chart

If these charts are correct, in a few years the deficit may go to zero, and like the Clinton years we may actually run a surplus. Wanna bet that it we do run a surplus our conservative friends will once again call for tax cuts rather than paying down the debt?

The Market Has Spoken

The market has spoken: tolerance is good for business.

Most major corporations have strong anti-discrimination policies. Most have active minority recruitment and retention policies. And increasingly, many support providing benefits for domestic partners.

According to DiversityInc.com, most major companies are committed to diversity it the workplace, though they admit that many companies do fall short. Most try because they understand the importance of a diverse workforce. Virtually all companies, large and small, have anti-discrimination policies, and increasingly those policies cover discrimination based on gender or sexual orientation. According to the Equity Forum, in 2012, 483 of the Fortune 500 companies specifically included sexual orientation in their anti-discrimination policies. (www.equityforum.com/fortune500)

A significant majority of Fortune 500 Companies now provide domestic partner benefits. According to the Human Rights Campaign, in 2011, 291 of the 500 companies offered domestic partner benefits. [http://preview.hrc.org/issues/health/domestic_partner_benefits.htm]

As the twin cases dealing with Gay Marriage were at the Supreme Court, a group of businesses, which included Apple Inc., Broadcom Corp., Citigroup Inc., Facebook Inc., Johnson & Johnson, Marriott International Inc., Microsoft, Orbitz, Starbucks, Twitter and the Walt Disney Co., signed an amicus brief opposing the federal Defense Of Marriage Act (DOMA), and therefor supporting both gay marriage and domestic partner benefits. [The briefs can be found here: http://www.glad.org/doma/documents/]

Many prominent local and regional companies also provide domestic partnership benefits, including Proctor & Gamble in Cincinnati, Lexmark in Lexington, and Toyota in Georgetown.
Many companies are proudly outspoken about their anti-discrimination policies:

HP, for example, states that it has long been committed to fair employment practices, and strives for a diverse workforce.
HP believes that this diverse work force helps the company realize its full potential. Recognizing and developing the talents of each individual brings new ideas to HP. The company benefits from the creativity and innovation that results when HP people who have different experiences, perspectives and cultures work together. [See, http://www.hp.com/hpinfo/abouthp/diversity/nondisc.html]

Here’s is what HP says is its diversity philosophy:

HP’s Diversity and inclusion philosophy

• A diverse, high-achieving workforce is the sustainable competitive advantage that differentiates HP. It is essential to win in the marketplaces, workplaces and communities around the world.
• An inclusive, flexible work environment that values differences motivates employees to contribute their best.
• To better serve our customers, we must attract, develop, promote and retain a diverse workforce.
• Trust, mutual respect and dignity are fundamental beliefs that are reflected in our behavior and actions.
• Accountability for diversity and inclusion goals drives our success.

HP’s anti-disciminatin policy, which it calls its “Global Non-Discrimination Policy” provides that we do not discriminate against any employee or applicant for employment because of gender, color, race, ethnicity, national origin, religion, age, marital status, sexual orientation, gender identity and expression, disability, pregnancy, covered veteran status, protected genetic information and political affiliation. [Id.]

HP is far from alone. Walmart, America’s largest company has this non-discrimination policy:

The first of the three basic beliefs upon which Sam Walton founded our company is “respect for the individual.” Each of us is responsible for creating a culture of trust and respect that promotes a positive work environment. This means treating one another with fairness and courtesy in all of our interactions in the workplace.

We are committed to maintaining a diverse workforce and an inclusive work environment. Walmart will not tolerate discrimination in employment, employment-related decisions, or in business dealings on the basis of race, color, ancestry, age, sex, sexual orientation, religion, disability, ethnicity, national origin, veteran status, marital status, pregnancy, or any other legally protected status. We should provide an environment free of discrimination to our associates, customers, members, and suppliers.
[http://ethics.walmartstores.com/IntegrityIntheWorkplace/Nondiscrimination.aspx]

Major corporations do these things, not because of some weak-kneed liberalism, not out of a desire to be politically correct, or out of fear that they will be accused of not being politically correct. They do these things because it is good for business.

Companies know that they need to sell their goods and services to everyone to make money. In today’s highly competitive economic marketplace companies know that they can’t ignore any potential market. And they have found that the best way to compete in every market is to have employees that reflect every possible market. And so they actively recruit potential employees from every potential market, and once hired work hard to retain and promote that diverse workforce. Make no mistake, diversity is good for business. Make no mistake, tolerance is good for business.

Conservatives are fond of saying we should run government more like a business, and in this area at least, I agree.

Ma Bell and the Modern Market

Conservatives like to complain that government regulation is stifling the economy. This implies that, once upon a time, the market was free of government interference. And likely they would point to the 1950’s as the glory days of the American free enterprise system. I suspect that if you were to ask most Republicans, they would likely say that the American economy was more free and open in the 1950’s than today. The reality, however, is quite different.

Remember “Ma Bell?” Ma Bell was the nickname for AT &T, the American Telephone and Telegraph Company. Ma Bell was the only phone company in the country until the early 1980’s. Ma Bell was a government sanctioned monopoly. There was no competition, there was no free market, in telecommunications in this country in the 1950’s.

Remember the Civil Aeronautics Board? Up until deregulation in 1978, the CAB controlled rates and routes in the American airline industry. There was no competition, there was no free market, in the airline industry in this country in the 1950’s.

Remember the Hays Code? Most people don’t know the name, but in the 1920’s the Motion Picture Association of America created a production code that prohibited the depiction of certain subjects in film. This was known as the Hays Code, and it was censorship, plain and simple. The MPAA kept a tight rein on films until the late 1960’s, when things began to loosen up. There was a tightly regulated market in films in this country in the 1950’s. In fact there was widespread censorship in this country until the late 1950’s, when judicial decisions allowed the importation and domestic printing of books like Lady Chatterley’s Lover. Most of the censorship occurred at the state and local level, but the federal government enforced these laws at the Post Office by refusing to mail books deemed obscene. These laws were largely overturned in the 1973 Supreme Court case of Miller v. California, 413 U.S. 15 (1973).

Before the deregulation movement of the late 1970’s, most of the American transportation industries were heavily regulated. Railroads were deregulated in 1976 (the Railroad Revitalization and Regulatory Reform Act of 1976), trucking was deregulated in 1980 (the Motor Carriers Act of 1980), and bus lines were deregulated in 1982 (the Bus Regulatory Reform Act of 1982). There was no competition, there was no free market, in the transportation industry in this country in the 1950’s.

Banks and finance were heavily regulated after the market collapse of 1929, but things began to change in the 1980’s. In 1980, Congress passed the Depository Institutions Deregulation and Monetary Control Act, which removed many restrictions on the way Savings and Loans operated. Many went on a tear offering new loans, and the system collapsed in the late 1980’s, leading to the so-called “Savings and Loan Crisis.” Banks were largely deregulated in 1999, with the passage of the Gramm-Leach-Bliley Act. There was no competition, there was no free market, in the banking industry in this country in the 1950’s.

(I have neither the time or expertise to discuss the widespread use of tariffs and import laws to protect domestic industry, but suffice it to say, the American economy didn’t have to deal with much worldwide competition in the 1950’s.)

The U.S. economy of the 1950’s was also operating in the shadow of World War Two, when the government, through various war time production agencies, essentially controlled the economy. War production rebuilt many industries that had languished during the Depression, and after the war many of these facilities that had been built at taxpayer expense, were given, or sold at very low cost, to private industry. War production nearly doubled the size and output of the American aluminum industry, and after the war these facilities were sold for pennies on the dollar.

So the so-called free market of the 1950’s was anything but, and exists not in reality but only in the febrile imaginations of conservatives.

There is no doubt that there is still a great deal of regulation in the American marketplace, but it is regulation of a different sort. Modern regulation does not regulate the operation of the market, but regulates the behavior of businesses. The most hated forms of regulation are environmental regulations, product safety regulations, and work place safety regulations. These are certainly a burden to business, but it not manipulation of the market like the government involvement of the 1950’s. This sort of regulation, however, is probably much more of an irritant to business owners because it seems to presuppose that they need adult supervision to run their businesses honestly and properly. It is also much more niggling and picayune. And so it is likely much more despised than earlier forms of regulation.

But just because it is more irritating doesn’t necessarily mean that it is more burdensome than the higher level of market control and regulation that existed in the 1950’s.

Well, Whatever, Nevermind

Yesterday there were three opinion essays in the Herald Leader – from Senator Mitch McConnell, Representative Andy Barr, and Bill Bissett, the President of the Kentucky Coal Association – decrying what they call the Obama Administration’s “War on Coal.”  All three essentially said that federal regulations are killing the coal industry.

Then, in today’s paper, there is a blurb in the business section saying that a coal operator in Eastern Kentucky plans to open seven mines and employ roughly 250 people. According to Pike County Judge-Executive Wayne T. Rutherford, the long-term outlook for Eastern Kentucky coal is “rather bright.”

Apparently mines in Eastern Kentucky are planning to sell more coal to China, and need to open pits to meet demand. This would indicate that coal production was down because demand was down. According to Rutherford, the coal economy is cyclical, and the current lull appears to have “bottomed out.” He hopes that exports to China and India will help mines in the region return to a higher level of production.

I guess Mr. Rutherford didn’t get the memo from McConnell, Barr and Bissett.

Read more here: http://www.kentucky.com/2013/05/20/2646578/coal-operator-plans-to-open-7.html#storylink=cpy
Read more here: http://www.kentucky.com/2013/05/20/2646578/coal-operator-plans-to-open-7.html#storylink=cpy

Here are links to the stories:

Mitch McConnell’s Job’s Plan

Andy Barr: Over regulation

Bill Bissett: EPA Stalling Mine Permits

Coal Operator Plans to open seven mines