If You Build It…

by Dave Schuler on July 24, 2014

Peter Van Buren kvetches about federal job training programs:

Obama’s new call for job training also belies the fact that the government already spends approximately $18 billion a year to administer 47 job-training programs. The actual value of those programs remains unclear. The Government Accountability Office found that only five programs assessed whether people who found jobs did so because of the program and not for some other reason. In addition, the GAO learned that almost all training programs overlap with at least one other training program. “Federal job training sounds like something that should boost the economy,” writes the Cato Institute’s Chris Edwards and Daniel J. Murphy in a 2011 report, “but five decades of experience indicate otherwise.”

The panacea myth of job training crosses party lines. The GAO reported that in 2003, under the George W. Bush administration, the government spent $13 billion on training, spread across 44 programs. Job training may again be on the GOP agenda, even if the parties differ on the details. Politically, some sort of job training just sounds good. The problem is that it won’t really help America’s 9.5 million unemployed.

$18 billion is a lot of money. If you divided it among 1 million people it would be $18,000 each.

The key problem is that the jobs just don’t exist. Here’s Mr. Van Buren’s prescription:

Jobs. Jobs that pay a living wage. The 2008 recession wiped out primarily high- and middle-wage jobs, with the strongest employment growth in the recovery taking place in low-wage employment, to the point where the United States has the highest number of workers in low-wage jobs of all industrialized nations.

There are many possible paths to better-paying jobs in the United States where consumer spending alone has the power to spark a “virtuous cycle.” That would mean more employment leading to more spending and more demand, followed by more hiring. One kickstarter is simply higher wages in the jobs we do have. For example, recent Department of Labor studies show that the 13 states that raised their minimum wages added jobs (at higher wages of course) at a faster pace than those that did not. On a larger, albeit more contentious scale, are options such as a WPA-like program, changes to tax and import laws to promote domestic manufacturing, infrastructure grants and the like. There’s the $18 billion being spent on job training that could be repurposed for a start.

I remain somewhat skeptical about increasing the minimum wage—I’d need to be confident the increase was helping more people than it hurt. As I’ve said before I have no hostility to a WPA-type program. That seems to be a non-starter in Congress.

Other proposals I’ve made from time to time: apprenticeship programs, wage subsidies. I’ve just thought of another one: train to suit. Let’s say there’s a job available and there are candidates who are missing some qualification or other. Get an agreement that you’ll train them to suit the requirements.

What we’ll undoubtedly do is persist in useless job training program whose most important results are the jobs of the people administering it.

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Getting Into Line

by Dave Schuler on July 24, 2014

In considering how to end “inversion”, the decision by corporations to change their national headquarters for tax reasons, Rober Samuelson proposes:

Let’s lower taxes on corporations that can move from the United States; let’s raise taxes on the people who own their stock. Although the odds against this bargain are long, it would be a true act of economic patriotism.

a solution obvious to anyone who’s ever taken an economics class. The key problem here is one I fear that Congress either does not understand or doesn’t care about: our corporate tax laws are wildly divergent from those of other major economies. It is now a globalized world in which most factors of production are portable. We need to get used to it.


Let the Courts Decide

by Dave Schuler on July 23, 2014

The DC Circuit and the 4th Circuit have arrived at directly contradictory rulings on the question of whether people who reside in states that did not set up their own exchanges under the PPACA are eligible for the subsidies specified by the law. The DC Circuit has said “no”; the 4th “yes”. Unless the DC Circuit reverses itself in an en banc decision this sets the stage for the matter being brought before the Supreme Court.

The editors of the Washington Post side with the 4th Circuit:

Given the contradictions, the administration’s interpretation deserves deference. That is particularly true because the administration’s reading accords with the law’s obvious intent: to offer affordable health-care coverage to a large number of Americans.

while the editors of the Wall Street Journal agree with the panel of the DC Circuit:

In Halbig v. Burwell, the D.C. Circuit Court of Appeals held that the Administration violated the Affordable Care Act by expanding subsidies to the 36 insurance exchanges run by the federal government. The plain statutory language of ObamaCare repeatedly stipulates that these credits shall flow only through “an Exchange established by the State.” The 2-1 panel majority thus did not “strike down” part of ObamaCare, as liberals and the media claim. Using straightforward textual construction, the court upheld the law the President signed but it vacated the illegitimate federal-exchange subsidies he tried to sneak in via regulation.

The point being ignored by the Post’s editors is brought forward by the editors of the WSJ:

Distinguishing between state and federal exchanges was no glitch or drafting error. In 2010 Democrats assumed that the unpopularity of ObamaCare would melt away and all states would run their own exchanges. Conditioning the subsidies was meant to pressure Governors to participate. To evade this language, the Internal Revenue Service simply pumped out a rule in 2012 dispensing the subsidies to all. The taxmen did not elaborate on niceties such as legal justification.

We know that the distinction wasn’t a “glitch or drafting error” because the issue was stated in the terms described by the WSJ by Sen. Max Baucus, the principle sponsor of the Senate bill that would become the PPACA, among others, contemporaneously with the passage of the law. By the way, you might be interested in this handy guide to the “Halbig” cases.

While much of the commentary is arguing the policy, the real question should be one of the law. Will we have a law that is circumscribed by the letter of the law and the expressed intentions of its authors or will we have a law that is determined by the unstated intentions and hopes of its supporters?

As Wittgenstein explained many years ago, it is impossible to make a perfectly unambiguous statement using natural language. Consequently, ambiguities in law are inevitable in every law and the longer and more intricate the law, the more ambiguities there will be. That means that if ambiguity in the law allows any possible interpretation, there is no law as we’ve known it. As I’ve written elsewhere, legislate in haste, repent at leisure.

Now let the courts decide.


Cheap Talk

by Dave Schuler on July 22, 2014

There’s an article at Fiscal Times that gets dangerously close to the truth about the supposed lack of skilled workers:

“The story that there is a structural mismatch between the needs of expanding employers and the skills of the people waiting on the sideline…is based mainly on anecdotal evidence from individual companies,” he said.

When business owners complain about having difficulty filling jobs, Burtless said, “What’s always surprised me is the business journalists who decline to ask the obvious follow-on question: Have you tried offering them more money? Better benefits?”

“It’s cheap to say there is a mismatch in skills. It’s a little more expensive to pay workers more,” he said.

I think we have yet to come to terms with the implications of the prevalence of two career families. That brings up an interesting subject. What policies are the best during periods of great social change? What if we enter a period in which society is always in a state of upheaval?


Why Is the Present Corporate Tax Rate Good?

by Dave Schuler on July 22, 2014

Edward Kleinbard urges us to adopt policies that end the practice of “inversion”, corporations changing countries for tax purposes:

Yet inversions are symptomatic of a corporate tax system that is highly distortionary, unstable and riddled with loopholes. The headline rate of 35% is well above world averages, effective rates imposed on investments vary wildly, and the international rules in particular are an incoherent mess. Inverting firms try to justify corporate self-help as the right response, but inversions both gut the domestic tax base and allow key players (those with international operations) to excuse themselves from the debate, while domestic firms are left holding the bag.

Thus fundamental corporate tax reform is urgently needed, but the path forward has two prongs. First, Congress should enact a temporary law to preserve the status quo, and thereby the corporate tax base, by treating inversions according to their economic substance, and by foreclosing the “hopscotch” strategies described above. Without this, there will be no corporate tax base left to reform.

Then both parties need to get serious about substantive reform, lowering the rate to say, 25%, and imposing a stable international regime that works well with territorial systems in other countries. The work Congress’s tax-writing committees did last year shows that reform is possible. Now congressional leadership needs to make it a priority.

What does present law achieve? That’s not a rhetorical question but a practical one. The only thing I can see that it positively does is help politicians by scoring brownie points with constituents eager to punish corporations and get them to pay “their fair share”, neither of which it accomplishes. That and providing a lever for securing donations from companies and their lobbyists eager to get a tax break.


Wanna Buy a Laser?

by Dave Schuler on July 22, 2014

There’s an interesting post at RealClearScience on the sad story of the world’s highest energy laser:

So you spent 17 years and $5 billion to build a fusion experiment. You built a facility wider than the length of three football fields. You built a 400-foot-long laser with more than 33,000 optical parts; it is currently the highest energy laser in the world. You’ve been through more budget overruns and management problems than you’d care to admit.

Now, you finally turn the thing on at full power and carry out your experiment. And it fails monumentally. Now what?

I would have thought they would have had a backlog. Apparently not.

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The National Pastime

by Dave Schuler on July 21, 2014

Today seems to be “National Pick on Dodd-Frank Day”. Perhaps it should be added to the list of federal holidays. The editors of Bloomberg get the ball rolling with the complaint that Dodd-Frank isn’t doing anything:

Four years after President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law, polling suggests that most Americans think it hasn’t done enough to protect them from a repeat of the 2008 financial crisis, a disaster from which the global economy has yet to fully recover.

Unfortunately, they’re right.

while Peter Wallison whinges that it’s doing far too much:

When the Dodd-Frank Wall Street Reform and Consumer Protection Act took effect on July 21, 2010, it immediately caused a sharp partisan division. This staggeringly large legislation—2,300 pages—passed the House without a single Republican vote and received only three GOP votes in the Senate. Republicans saw the bill as ObamaCare for the financial system, a vast and unnecessary expansion of the regulatory state.

Four years later, Dodd-Frank’s pernicious effects have shown that the law’s critics were, if anything, too kind. Dodd-Frank has already overwhelmed the regulatory system, stifled the financial industry and impaired economic growth.

According to the law firm Davis, Polk & Wardell’s progress report, Dodd-Frank is severely taxing the regulatory agencies that are supposed to implement it. As of July 18, only 208 of the 398 regulations required by the act have been finalized, and more than 45% of congressional deadlines have been missed.

The effect on the economy has been worse. A 2013 Federal Reserve Bank of Dallas study showed that the GDP recovery from the recession that ended in 2009 has been the slowest on record, 11% below the average for recoveries since 1960.”

I don’t think that either opinion piece sees the big picture here. Dodd-Frank is clearly a jobs program. Full employment for federal bureaucrats. It’s an overwhelming success. Heckuva job.

That under Dodd-Frank we’ve seen a constant progression towards increasing centralization of the banking industry into the hands of an ever-shrinking few “too big to fail” banks does not seem to concern anyone. You can’t make an omelet without breaking eggs, can you?


The Buck Stops Where?

by Dave Schuler on July 21, 2014

At Fiscal Times David Patrick calls for letting Europe “do the heavy political lift” on dealing with Russia on the Ukraine:

“Days after the plane went down,” Liow said over the weekend, “the remains of 298 people lie uncovered. Citizens of 11 nations, none of whom are involved in the conflict in eastern Ukraine, cannot be laid to rest.”

These conditions at the crash site say it all now. The MH-17 tragedy transforms the Ukraine crisis into one that must be taken, decisively and immediately, out of the hands of its two belligerents, the Kiev government and the rebels who oppose them. This means international engagement of a seriousness not yet achieved.

Mr. Patrick does a pretty fair job of explaining some of the interests that various European countries have in pacifying the situation in the Ukraine. He doesn’t do nearly as good a job of explaining why they wouldn’t want to delegate that job to us. Or why we should be interested in doing the heavy lifting for them.

Let me summarize. We have no direct national interests in Ukraine. Russia does. We have an interest in not increasing tensions with Russia. We don’t do nearly as much trade with Russia as Europe does. Every move by us I have seen anyone propose would produce an escalation in the conflict rather than reducing tensions.

This entire crisis is a near-perfect example of the sort of thing where we should be able to depend on Germany, France, Italy, the Netherlands, etc. to take the lead because of their direct interests but can’t.


Searching for an Answer

July 20, 2014

There’s an interesting article at Fiscal Times on the alternatives for punitive measures against Russia. Here are David Francis’s proposals: Arm the Ukrainian military. Strangle the Russian economy. Extend NATO membership to Ukraine. I think that each of those proposals is problematic in its own way and all fail by the standards I suggested yesterday. […]

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James Garner, 1928-2014

July 20, 2014

Many years ago when television and I were much younger and television was testing its legs to see what genres were best-suited to the still-new medium, the Warner Brothers studio had a sort of repertory of westerns that played on ABC. Each was headed by a tall, good-looking, second- or third-tier contract player. Of these […]

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