Always With Us

At City Journal Kay S. Hymowitz explains why problems of poverty among children as so persistent in the United States:

Articles about America’s high levels of child poverty are a media evergreen. Here’s a typical entry, courtesy of the New York Times’s Eduardo Porter: “The percentage of children who are poor is more than three times as high in the United States as it is in Norway or the Netherlands. America has a larger proportion of poor children than Russia.” That’s right: Russia.

Outrageous as they seem, the assertions are true—at least in the sense that they line up with official statistics from government agencies and reputable nongovernmental organizations like the OECD and UNICEF. International comparisons of the sort that Porter makes, though, should be accompanied by a forest of asterisks. Data limitations, varying definitions of poverty, and other wonky problems are rampant in these discussions.

The lousy child-poverty numbers should come with another qualifying asterisk, pointing to a very American reality. Before Europe’s recent migration crisis, the United States was the only developed country consistently to import millions of very poor, low-skilled families, from some of the most destitute places on earth—especially from undeveloped areas of Latin America—into its communities, schools, and hospitals. Let’s just say that Russia doesn’t care to do this—and, until recently, Norway and the Netherlands didn’t, either. Both policymakers and pundits prefer silence on the relationship between America’s immigration system and poverty, and it’s easy to see why. The subject pushes us headlong into the sort of wrenching trade-offs that politicians and advocates prefer to avoid. Here’s the problem in a nutshell: you can allow mass low-skilled immigration, which many on the left and the right—and probably most poverty mavens—consider humane and quintessentially American. But if you do, pursuing the equally humane goal of substantially reducing child poverty becomes a lot harder.

You’d think this would be obvious but it’s amazing how many obvious things need explanation these days. A quarter of poor children are immigrants or the children of immigrants. If you have a way of ameliorating that while continuing to import a large population of people without skills that pay good wages or command of English, I’m all ears.

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Moore Problems

I don’t know what’s going to happen in Alabama’s special election. I hope that Roy Moore is not elected but you never can tell. I wouldn’t vote for him.

However, I strongly suspect that anybody who’s banking on the Senate to act where the people of Alabama did not is doomed to disappointment. Contrary to popular opinion (including among Senators), the Senate does not have the power to refuse to seat an elected member, cf. Powell v. McCormack. The Senate might be able to get the House to impeach him and then try him and remove him from office. I doubt the Senate will do that.

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Monsoon

The drip, drip of revelations of sexual harassment and abuse in the entertainment industry and politics has turned into a torrent and may turn into a monsoon. Reaction, particularly of the sort intended to do damage control has taken a variety of different forms, from denial to indifference.

Denial

Probably the most famous example of denial in recent American political history was a response to a charge of sexual misconduct: “I did not have sex with that woman…Ms. Lewinsky.” Nearly all of those accused from Harvey Weinstein to Charlie Rose have denied any wrongdoing as their immediate reaction to allegations.

The complication in all of these denials is that some of those accused may actually be innocent of wrongdoing. Some are so obviously guilty I don’t know why they bother.

Times Have Changed

One of the most common reactions to the allegations is that “times have changed”. I think that’s actually a form of deflection.

I don’t think that times have changed that much. Harassment and abuse were thought to be wrong 40 years ago, 10 years ago, and they’re thought to be wrong now. What’s different is people, mostly women, coming forward. That may be because times have changed or that circumstances have changed. I hope it’s the former but I fear it’s the latter.

Maybe I’m particularly scrupulous but I do not ever recall dating a coworker, someone who worked for a customer or someone who worked for a vendor or even attempting to. It has been considered risky behavior for as long as I can recall.

Special Pleading

“Special pleading” means drawing distinctions where none exist, to justify (or condemn) someone. IMO the most egregious example of special pleading has been Roy Moore’s statements to the effect that he’s never dated anybody without their mothers knowing about it. That doesn’t make any difference. The conduct is still abusive by virtue of his age, position, prominence, etc.

Deflection

Deflection is taking so many forms in this matter it’s hard to keep track. As noted above “times have changed” is a form of deflection.

But so are “everybody does”, “all men do it”, and “it’s a problem with men”. Maybe I’m mistaken but I think that all of the revelations to date have been in entertainment (or infotainment, part of the same thing) and politics. IMO the profile of risk and reward and the prevalence of risk-taking behavior in those areas are distinctive. Maybe the problem is a lot broader but we should keep our attention on the wrongdoers actually accused rather than casting a wider net.

Indifference

There are many forms of indifference as well, ranging from “it’s just sex” to “who cares?” to “we need his vote to enact tax reform”. All of these say that the speaker has a hierarchy of values and that sexual misconduct just doesn’t fall high enough in the hierarchy to count. IMO no one should need to engage in sexual behavior to keep his or her job.

I have filed this post under a category of which you may not be aware: “O tempora o mores“, Cicero’s ancient plaint “Alas for the times and the manners”.

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State of Denial

The editors of the Wall Street Journal are skeptical about Chicago’s plan to lower its cost of borrowing by issuing bonds tied to sales tax revenue:

As part of Illinois’s slow-rolling bailout of Chicago, Democrats in Springfield this summer allowed the city to issue bonds securitized with $700 million or so in annual sales tax revenue. Creditors would have a legal lien on the revenues. Chicago plans to start floating the sales-tax bonds next month to refinance existing debt.

The bonds will be cheaper to finance than Chicago’s junk-rated GO bonds, which carry a 3.5% premium over top-rated municipal securities. Fitch has rated Chicago’s sales tax bonds AAA, which is an insult to every triple-A issuer including the U.S. Treasury. (Fitch still rates Treasurys triple-A, unlike Standard & Poor’s.) While the city noted in a recent presentation that “ratings agencies rate bonds issued by special-purpose corporations highly because they are more legally secure than a normal bond,” that hasn’t historically been the case.

Let the buyer beware. Chicago’s population peaked in 1950 and as of the last federal census it had already declined from peak by a million people, about 30%. The Census Bureau seems to think that Chicago’s population is remaining steady but I think they’re in for a surprise. I think that the extent of Chicago’s decline will be much clearer in the 2020 federal census.

Chicago’s sales tax is already the highest of any large city in the country. Sales tax revenues have nowhere to go but down.

The State of Illinois, colloquially referred to here as “Springfield”, needs to come to terms with Chicago’s problems. Stripping the city of future access to its sales tax revenues is no solution. The real solution is amending the state constitution so the city can dig itself out of the hole that years of political savvy but policy incompetence have dug for it. That would be politically painful so it’s unlikely to happen.

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What’s Happening to City Shopping?

The editors of the New York Times ask a very good question. Why are New York’s small stores closing?

In his classic 1949 essay “Here Is New York,” E. B. White described the city as “a composite of tens of thousands of tiny neighborhood units,” each “virtually self-sufficient” with shops that met most residents’ basic needs, from groceries to shoes, from newspapers to haircuts. Every neighborhood was so complete, White wrote, “that many a New Yorker spends a lifetime within the confines of an area smaller than a country village.”

Nearly seven decades later, that observation is still largely valid, but it is being sorely tested by a scourge of store closings that afflicts one section of the city after another, notably in Manhattan and parts of Brooklyn. This plague has been underway for several years, but its familiarity does not diminish the damage inflicted on the economic and the psychic well-being of neighborhoods. One by one, cherished local shops are disappearing, replaced by national chains or, worse, nothing at all. To borrow from Tim Wu, a Columbia University law professor who has examined the issue, “Blight extracts a social cost.”

I think the answers are obvious and the problem may be the opposite of what they suggest: costs create blight.

Small, local stores are suffering from a combination of taxation, big chains and their billion dollar advertising budgets, and e-commerce.

City governments are rapacious. Their requirements for money increase even when their populations shrink, cf. Detroit, St. Louis, and Chicago. To get those funds they impose higher taxes which induce a positive feedback loop.

There’s one obvious remedy to the problem unmentioned in the editorial: end the sales nexus requirements for levying local sales taxes on e-tailers. But that’s just a patch.

What we should do is decide what sort of country we want to be and effect the policies that will do that. If we want to be a country with only a single retailer (that would be Walmart, not Amazon), just continue to do what we’re doing. If we want to be White’s country of tiny, self-sufficient neighborhoods, impose those policies which would include high city earnings taxes and ends to transport subsidies.

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Monoculture

Well, this is interesting. If this article at USA Today is to be believed, half of the increase in the S&P 500 over the last year came from just 21 stocks:

401(k) investors can thank just 21 superstar stocks for driving the big gains in their retirement savings accounts this year.

But is that a good thing?

The so-called 21 Club, which includes U.S. tech stocks like Apple, Facebook and Amazon and blue chips like Visa, Home Depot and McDonald’s, has accounted for more than half (50.7%) of the Standard & Poor’s 500 stock index’s 17.2% total return this year, according to S&P Dow Jones Indices data through Nov. 14. Total return includes the increase in a stock’s price and its dividend payouts.

The S&P 500, an index of the nation’s 500 biggest companies, is often dubbed “the market.”

But a market driven by just a handful of superstars — Apple alone accounts for nearly 10% of the index’s total return this year — is not always viewed positively by Wall Street.

I doubt if the “long tail”, the phenomenon under which an awful lot depends on a rather small number of players, is new to the stock market. The DJIA has been around for 130 years and its significance is largely based on that insight.

However, it seems to me today that long tail is longer than usual. 30% of the S&P comes from just five companies and 10% from just two (Google and Facebook). Here’s the part that’s concerning: those five are very dependent on government policies. Tweaking intellectual property, data, privacy, or security laws could bring any or all of them to their knees. That’s a far cry from when the S&P was dominated by Philip Morris, Thatcher Glass, National Can, and General Foods. For today’s leaders regulatory capture is the whole ballgame.

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The Inevitable Consequences of Overspecialization

Nearly 350 years ago Adam Smith wrote, approvingly, of the value of specialization in producing prosperity in his anecdote about manufacturing pins. I thought about that when I read this opinion piece at the Guardian about the world being created by the “technological elite”:

One of the biggest puzzles about our current predicament with fake news and the weaponisation of social media is why the folks who built this technology are so taken aback by what has happened. Exhibit A is the founder of Facebook, Mark Zuckerberg, whose political education I recently chronicled. But he’s not alone. In fact I’d say he is quite representative of many of the biggest movers and shakers in the tech world. We have a burgeoning genre of “OMG, what have we done?” angst coming from former Facebook and Google employees who have begun to realise that the cool stuff they worked on might have had, well, antisocial consequences.

Put simply, what Google and Facebook have built is a pair of amazingly sophisticated, computer-driven engines for extracting users’ personal information and data trails, refining them for sale to advertisers in high-speed data-trading auctions that are entirely unregulated and opaque to everyone except the companies themselves.

Now there’s an easy solution to the problems created by the power of the Googles and Facebooks: decide that your data belongs to you, e.g. that data about your browsing behavior does not belong to those who capture it but to you. Analysis of that data abstracted from you could reasonably belong to those who performed the analysis but not the data.

Much harder to solve is the problem of granting power to individuals with narrowing ranges of specialized knowledge. Perhaps we need a new Adam Smith to counter the original by writing an anecdote on the manufacture of pinheads.

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Question

I have a question about Germany’s carbon emissions reductions. Were these reductions determined based on inputs, i.e. the measures they’ve put in place, or by output—measuring reductions? If the former, how does the fraud perpetrated by VW, Audi, and other auto manufacturers affect those calculations?

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Say It Ain’t So

On the occasion of its chairman’s resignation, at the Wall Street Journal Dennis Shaul writes this about the Consumer Financial Protection Bureau which he played a role in creating:

Richard Cordray’s resignation as director of the Consumer Financial Protection Bureau provides a great opportunity for President Trump to appoint a new director who can undo an unfortunate legacy of bureaucratic overreach and political bias. More important going forward is what we have learned from our experience with the CFPB to prevent future similar missteps.

The first lesson is that Congress should never again create an “independent” agency with a sole director, particularly one not subject to the congressional appropriations process. Under the law, the CFPB—unlike the Securities and Exchange Commission, the Federal Communications Commission, the Federal Trade Commission and other independent agencies—is funded by the Federal Reserve, a move specifically designed to avoid congressional oversight.

I had the privilege of working as an aide to then-Rep. Barney Frank, chairman of the House Financial Services Committee when the Dodd-Frank Act of 2010, which created the CFPB, was written. I realized that no bill is ever perfect and the CFPB would have its imperfections. The authors wanted the bureau to be a fair arbiter of protecting consumers, instead of what it has become—a politically biased regulatory dictator and a political steppingstone for its sole director, who is now expected to run for governor of Ohio.

An independent federal agency should be nonpartisan. A bipartisan commission on the model of the SEC and FCC would allow for better and more evenhanded decision-making. To show how partisan the CFPB became under Mr. Cordray’s leadership, not one of the agency’s employees made a contribution to Donald Trump’s campaign, while a multitude contributed to Hillary Clinton. The new director will have a partisan staff.

Who’d a thunk it? When given dictatorial powers, regulators will behave like dictators. But there’s a subtext here, too. The SEC and FCC have notoriously succumbed to regulatory capture and there’s every reason to believe that any agency tasked with regulating banks will inevitably become the creature of the banks.

IMO the solution to this is to let banks even the very biggest banks fail. Prosecute wrongdoing by bankers. Devote federal attention to helping those hurt by the failures rather than banks and their managers. The notion that they can be regulated as intended by the authors of Dodd-Frank is nonsense, flying in the face of human nature and experience. The Federal Reserve already has the job of regulating banks with all the power it needs. Why didn’t it do it? In the depths of the Great Recession I recall hearing testimony from the director of the federal agency that was specifically empowered and authorized to regulate credit default swaps to the effect that his agency just didn’t do its job. Why not?

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The Opposite

At Forbes, which would hardly appear to be a friendly venue for such a pronouncement, Stan Collender writes:

There’s no economic justification whatsoever for a tax cut at this time. U.S. GDP is growing, unemployment is close to 4 percent (below what is commonly considered “full employment”), corporate profits are at record levels and stock markets are soaring. It makes no sense to add any federal government-induced stimulus to all this private sector-caused economic activity, let alone a tax cut as big as this one.

This is actually the ideal time for Washington to be doing the opposite. But by damning the economic torpedoes and moving full-speed ahead, House and Senate Republicans and the Trump White House are setting up the U.S. for the modern-day analog of the inflation-producing guns-and-butter economic policy of the Vietnam era. The GOP tax bill will increase the federal deficit by $2 trillion or more over the next decade (the official estimates of $1.5 trillion hide the real amount with a witches brew of gimmicks and outright lies) that, unless all the rules have changed, is virtually certain to result in inflation and much higher interest rates than would otherwise occur.

At least he’s putting a marker down. We’re not going to have massive inflation here as long as people here and abroad keep buying Treasuries.

You may recall that I’ve supported lowering or eliminating the corporate income tax but raising personal income taxes to ensure revenue neutrality. There are good economic reasons for that. Not only is the corporate income tax economically inefficient, it has a host of other adverse economic consequences. Additionally, I’m skeptical that a cut in the personal income tax rates will bring the increased consumption and investment that Republicans assume will be the case or, more precisely, I’m skeptical that an increase in consumption in the United States will bring a great deal of economic benefit. It’s a global economy now and a lot of what we buy is already imported from someplace else, mainly China.

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