WSJ: Michigan Needs to Move into a 21st Century Economy

William McGurn has it right:

As Mr. McCain so bluntly put it on the eve of last year's Republican primary, "Some jobs that have left Michigan are not coming back. And the answer to that isn't to raise false hopes that somehow we can bring back lost jobs but to create new ones."

Mr. McCain took a lot of grief for those words and ended up losing the primary to Mitt Romney. But Lou Glazer thinks Mr. McCain had it right. Mr. Glazer heads a nonpartisan think tank called Michigan Future. And he advances a simple argument: While the reliance on manufacturing made sense in the 20th century, the sooner we recognize that manufacturing is no longer the key to a prosperous middle class, the better off Michigan will be in the 21st.

I certainly hope those in Wisconsin are listening, as auto makers lose jobs in Kenosha. Stop giving them false hope; it'll come to bite you, them and the economy in the ass someday.

Mr. Glazer says that the state's most pressing need is to transition to the "knowledge economy," which Michigan Future defines as any industry where the proportion of workers with bachelor's degrees or higher is 30%. That's important, because the knowledge economy is more than the Googles and the Microsofts. The top knowledge industries include information, finance, insurance, professional services, health care and education. Not only are these industries creating jobs, they pay higher wages.

Instead of paying out bribes to help outdated industries move here, help more people go to college and invest in their human capital. Not all people can go to college, but there are ways of increasing access to higher education, including human capital contracts.

The larger point is that what the middle class needs more than anything else is an economy where employers have to compete for their labor. The more open a state's economy is to investment and entrepreneurship, the more employers there will be. And the more education a state's citizens have, the more advanced the industries they can support.

Amen.

Swine Flu: By the Numbers

According to the CDC, the total number of cases reported in the United States of H1N1 infection is 17,855 cases, and the number of deaths is now up to 45 deaths. While some news outlets continue to try to make us panic (albeit however, the story has died a bit), here are some sobering facts.

The U.S. Centers for Disease Control (CDC) estimates that 35 to 50 million Americans come down with the flu during each flu season.The CDC estimates that in the US more than 100,000 people are hospitalized and more than 20,000 people die from the flu and its complications every year.

90 People are killed by lightning strike every year.

120 are killed in airline crashes.

779 by accidental discharge of a firearm.

7,600 are killed by aspirin (NSAIDs)

So, my question to the news media is, "Why so serious?" Although I already know the answer: scaring the shit out of us brings more ratings than telling us everything is going to be okay.

Wisconsin Budget: Fun Facts

MJS gives us a couple key issues on the new budget attempting to be rammed through by Senate and Assembly Dems:

Oil company tax: To generate $224 million for highways and other transportation programs, Doyle and Democratic legislators want to tax oil companies. But Assembly Democrats dropped a provision saying that oil companies couldn't raise gas-pump prices to cover the tax.

Let me guess, to "create jobs?" No doubt, some of that money will be funneled towards the proposed KRM rail that will prove to be another economic suckhole finding its way towards the red on the Government's account balance. At least they dropped the provision on pump prices. Taxing gasoline, an inelastic good, will undoubtedly pass on most of the cost of that tax to consumers as opposed to producers. But if producers had to bear most of the burden, we would likely see at least some suppliers moving out or going out of business. Theoretically, this could lead to a shortage of supply, and people lining up at the pumps for hours.

Thankfully, the provision was removed, although I would object to the tax increase in the first place.

As for other provisions that have proven less controversial:

• Making residents with taxable incomes of $225,000 for a single person and $300,000 for married couples pay $287 million more in income taxes the next two years. That would be done by creating a 7.75% tax rate.

• Raising income taxes on capital gains, costing some investors an estimated $170.4 million.

• Raising the $1.77 state tax on a pack of cigarettes to $2.52, costing smokers an estimated $310.4 million.

• A 75-cent monthly fee on all phone lines, which would cost customers $102 million. The money would go to protect local police, fire and other emergency services.

• Requiring vehicle owners to buy more liability insurance coverage, which the state insurance commissioner has said will raise premiums.

Hmm. My personal favorite is the one taxing investments. That my friend is a sure-fire way to jumpstart an economy: penalize entreprenuership, which, as Econ 101 tells us, is one of our four factors of production other than land, labor, and capital.

Kenosha, WI to Implement Public Panopticon?

Kenosha Police Chief John Morrissey is requesting $500,000 in public funding to obtain and install up to 28 public cameras to be placed in "high crime" areas.

Twenty-eight cameras will be considered Wednesday by the City Council as part of the 2009-13 Capital Improvement Plan. Police are requesting $500,000, spread over 2009-10, to buy cameras.

While some are concerned the plan moves into “Big Brother”-like intrusion, Police Chief John Morrissey disagreed, noting the well-marked cameras will be in public areas.

“If you’re in a public place ... I’m all for it,” Morrissey said. “If I’m doing something wrong, then shame on me. But if something happens to me, I hope there’s something out there that will assist the police in figuring out what happened to me, or anybody else. I don’t have any problem with them as long as they’re in public places.”

Many aldermen agree.

Of course many alderman agree, I know these people. These are the guys that got a 2500 foot mandatory distance on sex offenders from schools, and other places that might have children, officially keeping them from within city boundaries completely. These are the guys that wanted a public smoking ban including in bars and homes. Now they want to make sure they can "check up" on us to make sure we aren't doing anything wrong.

Though locations are still being determined, Morrissey said he would like permanent cameras at some troublesome spots — such as the downtown bus transfer station — while the other cameras will be movable.

My poor ass uses that bus station all the time to get to class and back home or use the gym, or whatever else. Never have I seen criminal activity. The notion that it is a dangerous place in need of monitoring is absolutely false and ludicrous.

Exhibit A

Terry Rose, a county supervisor and local attorney, believes the plan amounts to government spying.

[...]

“This concept of ‘Big Brother is watching’ is something that every generation has fought to oppose, and we need to oppose it as well,” Rose said. “That type of concept smacks too much of the authoritarian, totalitarian way of thinking as opposed to what we cherish. Every time constitutional rights are deprived of people or limited, we give up a certain part of our American heritage, and I’m not willing to do that.”

[...]

“One can always use the argument, ‘If people are complying with the law, they have nothing to worry about,’” Rose said. “But as we’ve learned in the last eight years, people’s rights can be shortchanged by a theory that is in the best interest of the general public.”

Ditto.

Morrissey said the cameras could help investigate allegations of officer abuse.

“If this suspect comes in and tells me the cops beat me, well guess what? I’m watching the whole thing here,” Morrissey said. “There’s benefits to that too. It’s not just the public that’s under eye; my cops are under eye.”

Because, you know, the cops won't know where the cameras are, so they can't just go to another location to do the beating. Besides, I doubt that suspect's safety is the first thing on their minds.

Minimum Wage, Unemployment, Inflation

...are all going up today. The sad thing is that it is all accepted with warm cheers and fanfare. Hooray for the nanny state, right?

The increase, from $5.85 to $6.55 per hour, is the second of three annual increases required by a 2007 law. Next year's boost will bring the federal minimum to $7.25 an hour.

Workers like Walter Jasper, who earns minimum wage at a car wash in Nashville, Tenn., are happy to take the raise, but will still struggle with the higher gas and food prices hammering Americans.

But the problem with minimum wage laws is well documented. They are a price floor on wages. That is, they set a minimum level of value for employment. Every time minimum wage goes up, an unskilled workers are boxed out of jobs. What do we hope to achieve by keeping the unskilled and the poor from working in entry level jobs? Instead, laws like this end up favoring those who are skilled or have experience. At the same time, minimum wage laws actually cut the number of jobs available, since it is harder for companies to pay for labor, i.e., they are forced by law to hire people who are overpriced for certain jobs. Thus, they combine jobs, or add on to responsibilities by cutting staff, to more closely reflect wage levels (That or they higher illegal immigrants).

Then comes the inflation. No matter what, the economy has to deal with an artificial increase in the value of labor. Companies pay more for labor and may raise prices (even if by a modest amount). However, at the same time workers who are on the receiving end of minimum wage increases have more money to spend on goods, thus increasing demand, and also driving up prices (again, even if by a modest amount). Sometimes, the inflationary effect is almost completely undetectable at the micro level. However, when one pans out, one sees that inflationary effects costs the macro economy billions. With inflation an already pressing concern, I would say now is not a good time to throw more straws on the camel's back.

David Heath, owner of Tiki Tan in College Station, Texas, said the increase will force him to raise prices for his monthly tanning services by about 12 percent. Tiki Tan had been paying its employees $6 per hour.

"There just isn't any room for profit, and so this is why prices will have to go up," he said, citing the wage increase and higher fuel costs. "I have to recoup those costs."

The increase in the minimum wage could push food prices even higher by rising the pay for agricultural workers, said Brian Bethune, chief U.S. economist at consulting firm Global Insight

Eh, who needs food anyways right?

But he said he did not expect the change to have a major impact on the economy because recent increases in productivity, which enables companies to produce more with fewer workers, are keeping labor costs in check.

Still think minimum wage laws help the poor and unskilled?

When the minimum rises again next year, catching up with more states, more than 5 million workers will get a raise, said Lisa Lynch, dean of the Heller School for Social Policy and Management at Brandeis University.

I can't wait.

Fannie and Freddie: What to do?

The New Yorker has a great post explaining a brief history of the mortgage giants:

When do the words “not guaranteed” actually mean “guaranteed”? Whenever the mortgage giants Fannie Mae and Freddie Mac are involved. The two companies have long been required to tell investors that their securities are not guaranteed by the federal government. But in the financial markets everyone has always assumed that this demurral was just window-dressing, and everyone, it turns out, was right. Last week, when fears of a possible collapse of the two companies threatened to spark a major financial crisis, the Treasury Department and the Federal Reserve quickly came up with a rescue package. What had been an implicit guarantee became an explicit one.

However, I disagree with the author's conclusions:

Whatever their sins, Fannie and Freddie clearly couldn’t be allowed to fail, but that’s no argument for letting them go on as they are. Either they should be forced to make it as private companies or they should be nationalized. Given that their business depends on the promise of government assistance and that their current state remains woeful (despite an upturn in their fortunes late last week), nationalization seems more sensible. If Fannie and Freddie are going to run up a tab and stick taxpayers with the bill, why should shareholders profit?

No, why should taxpayers be stuck with the bill in the first place? James Suroweiki makes the assumption that profiting shareholders are the bane of the financial markets, even though earlier in the article he clearly shows that in a free and private market, Freddie and Fannie would not have gotten away with these shenanigans:

Because everyone assumed that the government would make good on Fannie’s and Freddie’s debts, they could borrow money more cheaply than their competitors. They used this cheap debt to increase the number of mortgages they bought. Had Fannie and Freddie been ordinary private companies, there would have been a natural check: companies with more debt are usually seen as riskier, and that makes shareholders and bondholders less willing to invest in them.

Freddie and Fannie had been able to lend outrageous quantities of low rate mortgages, on very very very little capital. Why? Because though they were "privatized," they still were largely attached to the government--that is, they knew they could get away with it, and so did their investors, thus did they invest such a large amount in these banks.

Could it be that Freddie and Fannie's distortion of the market prompted other banks to follow suit? Possibly. In any case, the banks knew that they were taking a huge risk, but they also knew that the government would most likely bail them out--a hunch that has thus far proven accurate. However, Suroweicki sees the problem in a different light:

...had Fannie and Freddie been government agencies, budget constraints would likely have limited the scope of their lending. Since neither the market nor the state checked their growth, they were able to swell extravagantly

...Right. Lord knows the government constrains its own budget...since when? More likely instead, the government would further tax the nation to subsidize further irresponsible loans to irresponsible people. At the same time, it would still be probable that other banks would follow suit to keep business going--that is, to be able to compete with Freddie Mac and Fanny Mae, other banks may be prompted to make, oh I don't know, adjustable rate mortgages and other irresponsible loans?

They constructed a giant pyramid of debt on a very small base of capital (eighty-one billion dollars, by the most recent publicly available figures), and by May, 2008, either owned or guaranteed more than five trillion dollars in mortgages.

If a bailout were the case, as has been suggested in some circles, guess who would foot the bill?

They say Americans are addicted to oil. I say we are addicted to debt. We depend on banks to give us money that doesn't exist to buy things we don't need (and probably can't afford). Banks depend on us to build their capital by paying on our debts, and depositing money, so that they can create more debt, in a never ending cycle of debt accumulation and usury. Meanwhile, both of us are dependent upon a nanny state government to prop up the whole charade.

WAAAAAY too busy as of late

Forgive my abhorrent lack of posts to date...it is summer: a time of relaxation and vacation for many university students. Unfortunately, I am not one of them, as I am taking summer courses as well as working and trying to function as Legislative Affairs Director of PSGA in between. Also, the current state of politics has me fairly....discombobulated. Thusly, my posts will be few and far between. Please be patient.