SCSUScholars

A happy Independence Day to you

2009-07-03T15:06:00.001-05:00

It's nice to be back in St. Cloud. I was expected to leave for another conference tomorrow overseas, and when I called to suggest I would not fly on the Fourth of July there was a momentary pause on the other side. "Oh, that's your Independence Day, isn't it?!?" Yes, and I'd like to have it with my family. (I'll have to skip fireworks, as I leave early Sunday.)

(UPDATE: Yes, this means NARN will be a replay tomorrow. However, if you really must hear me, David and Margaret will be live tomorrow and I'll check in with my monthly macroeconomic update, just after 10am.)

Let me second Janet's request that we fly the flag. Let's celebrate our heritage, and our families, and let's pray for the freedom that we celebrate that day extends to all men and women. I'm going to wear a flag pin while speaking overseas next week. Had I one with an Iranian flag and a green ribbon on it, I'd wear it instead. But an American flag will do, and it does well as long as we continue to recognize why oppressed people prefer to see our flag come over a hill than anyone else's.

Does priceless mean infinite price?

2009-07-03T12:24:00.003-05:00

Just wonderin', as have several people who've emailed me about this cover. There were a stack of these in my office this AM. There's a suggestion that I should now work for free instead. I prefer the infinite price idea to justify my constant complaint of being underpaid and overworked.

Thanks to our local communications staff who put that together; I wasn't as enthused about the cover as others, but it seems to have gone over well. I am deeply grateful to this university that has given me plenty of opportunities to be successful and in my corner when I am. When I do write critically of the school on this blog, I hope readers understand it's the disappointment one feels when a loved one doesn't meet the ideal vision one has of it. It has long been populated with wonderful people, most of whom are friendly even when in deep disagreement. One can hardly ask for more.

Stressful

2009-07-03T11:40:00.003-05:00

This graph shows the unemployment rate compared to the stress test economic scenarios on a quarterly basis as provided by the regulators to the banks (no link).

This is a quarterly forecast: the Unemployment Rate in Q2 was higher than the "more adverse" scenario.

Note also that the unemployment rate has already exceeded the peak of the "baseline scenario".

From Calculated Risk, hat tip to Henry Blodget, who correctly adds:

The larger story here, unfortunately, is that the Obama administration continues to blow its credibility on the economy. By being too optimistic from the get-go, the administration is opening the door for critics and opponents who are already arguing that the Obama plan has failed.

The only surplus this administration has is in hubris. See my posts here and here for more on overselling your forecast.

Mrs. S writes

2009-07-03T10:41:00.002-05:00

...about the gold standard. I was surprised she decided to do this topic, and when she sent me a draft of it I was quite surprised how much she had learned.

But after World War I came the Great Depression. Country after country abandoned gold standard after the Depression. During World War II the allies held a meeting at Bretton Woods, N.H., to establish that the dollar was fixed to gold and everyone fixed to dollar. But that ended in 1971 because the United States didn�t want to play by those rules either.

I asked [St. John's economics professor Louis] Johnston if the gold standard made sense for today, and he argued that it would not. �Governments have no better sense of what a currency �ought� to be than anyone else, so there is no case to give a government a monopoly in this area. Let markets determine what the value of a currency will be.�

It turns out the value of our currency is not assured by government promising to convert money to gold. Instead, it depends on government doing those things that a gold standard would require. If we have the gold standard and no discipline, it fails. If we have the discipline, we don�t need a gold standard to tell us what our dollar will be worth 20 years from now.

Do we have that discipline now?

See also, as always, the Concise Encyclopedia of Economics.

Flying OUR Flag

2009-07-03T05:13:00.007-05:00

On Independence Day, July Fourth, Americans fly more American flags than possibly any other national holiday. Why? I believe at some level we know how fortunate we are to live in a country with the ideals and subsequent freedoms that we have. At times, we take them for granted, but underneath, I hope we realize that we, indeed, are very fortunate.

Yesterday we replaced our tattered flag with a bright, new one. With the flag came an insert covering all aspects of flying our flag - everything from: Displaying the flag properly, folding it correctly, respecting it, and basic facts. You can go here for details.

We must remember that freedom isn't free, people have died for our freedom, and because of our ideals, our flag is recognized around the world. Some will debate as to why, but the most telling reason is the answer to this question: "If all nations of the world had open immigration, where would people choose to go? The USA." Our flag represents freedom for everyone, everywhere.

Happy Independence Day

What a Canada Day

2009-07-02T15:27:00.001-05:00

I have some experience with other countries' independence day celebrations, but Canada's was different. A day of celebration, downtown Vancouver was full of families with flags and Maple leaf tattoos. I saw several military platoons around the waterfront. The fireworks left much to be desired but the people were in a good and festive mood.

I have to say I ignored Vancouver as a destination wrongly. It is a great city. Sort of Euro but without the attitude. Talking to Canadians reveals people who are curious about America but not envious or dismissive of our country. It had been 13 years since I last was here. I won't wait so long next time.

Independence Day Tea Parties

2009-07-01T21:44:00.003-05:00

For all who will be around for the Fourth of July, our Independence Day, this is an invitation to participate in a Tea Party, hopefully near you. Those in the Twin City Metro area are welcome to join all independent minded people at the Capitol in St. Paul to celebrate our freedoms between the hours of 3 and 6. Afterwards, depending on your schedule, you may want to stay for great fireworks.

For those of you outside the metro area, go here to find a location that hopefully is near you.

Happy Birthday, USA!

The Canadian job?

2009-07-01T10:22:00.002-05:00

Did someone pinch about 17,500 ounces of gold from the Canadian mint?

The Royal Canadian Mint is missing about C$18.8 million ($16.2 million) worth of gold and has not ruled out theft even as it continues to try to solve the mystery, according to an official on Tuesday.

An independent review by of the Mint's records found a discrepancy of 17,500 troy ounces of gold -- worth about C$18.8 million at current prices -- between the Mint's accounting and its physical count of precious metal done at the end of 2008.

The Mint refines 5.4 million troy ounces of gold a year, turning raw metal and scrap jewelry into 400-ounce bars.

The bars that the Mint makes out of scrap gold weigh about 27.5 pounds (12.5 kilos). It's a bit heavy to sneak out under a skirt or coat. And you'd have to take out 44 such bars for a theft that large. Mint officials say they had a lot of gold come in when prices rose above US$1000 an ounce. Hard to believe they'd end up with an explanation "we were swamped."

The mint's management has been told by government it will not get any bonuses until they find the gold. That should be reassuring. Wouldn't firing someone be the normal thing?

Suppose you wanted to spend more?

2009-07-01T10:05:00.002-05:00

Canada spends about $3600 per person on health care. That's about half what the US spends, and some think we need to spend less and be more Canadian. Well, some Canadians want to be more American, too.

"Any wait time was an enormous frustration for me and also pain. I just couldn't live my life the way I wanted to," says Canadian patient Christine Crossman, who was told she could wait up to a year for an MRI after injuring her hip during an exercise class. Warned she would have to wait for the scan, and then wait even longer for surgery, Crossman opted for a private clinic.

As the Obama administration prepares to launch its legislative effort to create a national health care system, many experts on both sides of the debate site Canada as a successful model.

But the Canadian system is not without its problems. Critics lament the shortage of doctors as patients flood the system, resulting in long waits for some treatment.

"No question, it was worth the money," said Crossman, who paid several hundred dollars and waited just a few days.

So without denial of any service to anyone else, Ms. Crossman spends $700 to get her treatment. She upgraded her health care, of her own volition, with her own resources. I would not have thought anyone could object. But,

"Private clinics don't produce one new doctor, nurse, or specialist. All they do it take the existing ones out of the public system, make wait times longer for everybody else while people who can pay more and more and more money jump the queue for health care services," said Natalie Mehra, member of the Ontario Health Coalition.

..."One can understand that this is evolving and a mix of private and public seems to be favorable in some context. On the other hand, we need to be really careful that we're not treating health care the way we treat a value meal at McDonalds," Dr. Michael Orsini from the University of Ottawa told FOX News.

Ms. Mehra is economically illiterate. An increase in demand for doctors -- by paying them more -- will increase their income and induce young, smart people into medicine who now go elsewhere. (That is, if the medical profession allows medical schools to admit however many they want.) The fixed-pie thinking of Mehra -- if you get one more doctor in your private clinic I get one less doctor in my public medical factory line -- is a static thinking that fails to understand incentives. If you would just allow them to work, you could have as many doctors as you'd like.

But Dr. Orsini thinks there's something entirely different about health care. That appears to be the dominant thinking in Canadian public policy. They should talk to more Ms. Crossmans. Health care is a scarce good: People economize by seeking value for their dollar. The only reason someone would not want a patient to seek value is that that person -- the doctor, the government, the bureaucracy -- doesn't want to cede the power of being able to make that choice for them.

Come home, little donut

2009-06-30T17:27:00.003-05:00

Tim Horton's is returning to its roots, and it's taxes that done it:

In a clear indication that Canada is starting to be considered a low-tax place to do business, Tim Hortons Inc. announced yesterday plans to shift its base of operations from Delaware to Canada for tax purposes.

Further, analysts indicate this is also a sign of unease among corporations regarding the U. S. business environment, where taxes are likely heading upward to deal with trillion-dollar deficits and proposed health-care reforms and the White House is looking to crack down on companies that invest abroad.

The move by Tim Hortons makes good on a promise contained in the company's filing with U. S. securities regulators earlier this year, in which it said it was exploring such a reorganization because it could potentially drive down its effective tax rate closer to Canadian statutory levels.

In Canada, the federal corporate tax rate is headed to 15% in 2012, and the federal Conservative government has called on the provinces to get to a 10% business levy by the same time frame--for a combined 25% rate on corporate income. Alberta is already at 10%. British Columbia will be there in 2011, Ontario by 2013, and New Brunswick will go down further, to 8%, in 2012.

In the United States, the top corporate tax rate is in the mid-30% range. As a result, the United States now has about the highest combined corporate tax rate, second only to Japan, among industrialized countries.

And note that, thanks to outsized budget deficits, we're probably heading higher. The Canadians are noticing:

The retailer said in recent filings it expects its effective tax rate to be in the 32%-to-34% range in 2009. In 2008, it paid US$139.2-million in income taxes.

With the reorganization, Tim Hortons could generate "quite a bit" of savings on taxes paid because the income earned in Canada would be taxed at the lower Canadian rate, said John Wonfor, national tax partner at BDO Dunwoody. Its income from U. S. operations would still be taxed at U. S. rates.

Plus, Mr. Wonfor said Canada's fiscal framework looks much healthier compared with the United States, which means the country's policy-makers can likely maintain its lower tax rates. Meanwhile, U. S. taxes are bound to climb, he added.

Finally, there is the current White House proposal to remove the incentives for U. S. companies to invest overseas, and curb the use of offshore jurisdictions by companies and investors.

"If the U. S. tightens up on the tax treatment on foreign income, many Canadian companies -- as well as other foreign entities operating in the U. S. -- might look to put headquarters and holding company functions in Canada since dividends from foreign affiliates are not taxed by Canada," said Jack Mintz, a public-policy expert from the University of Calgary and a renowned tax expert.

Rust never sleeps, and capital is quicksilver. It's not going to wait around for our rapacious Washington elite to feast upon it.

UPDATE: Ed posted the article this morning and comments:

Eventually, American companies will either have to withdraw from global competition and compete solely at home, or they will have to move out of the US in order to return to an equal tax position as their competition, whose governments only tax them on domestic earnings.

The more I think of this, the less I think it's the tax rate that matters as much as the Obama Administration's spending plans. Suppose they cut the corporate tax rate but leave the spending alone. Does anyone think it wouldn't lead to an increase in individual income taxes? An increase in the tax on dividends would hurt corporations as much as an increase in their corporate income tax. A VAT without a cut in income taxes would kill US businesses. So too would increasing interest rates through more government borrowing, or inflation if they print money to pay deficits. What matters is spending. Pawlenty is right: They need to stop.

May you be blessed to be born into the right institutions

2009-06-30T10:53:00.003-05:00

Regardless of what one thinks of his music or his life choices, it is easy to recognize how enormously productive Jackson was. He broke all the records for album sales, put MTV on the map and propelled music videos into the mainstream.

He created something out of nothing. He used his talent, hard work, and creativity to please the ears and eyes of consumers around the globe. If Jackson--or any entrepreneur for that matter--had asked a certain kind of economist whether he should pursue this line of work, this innovation, he would have been told it was foolhardy. "If there really was a market for that kind of stuff, someone would have done it already," they would say. But this is a static view of the world.

In reality, the economy is dynamic. And what allows that dynamism, what creates the environment for entrepreneurship, is the institutional framework--property rights, the rule of law and even the level of common trust among citizens. These factors cannot be quantified or easily measured, so they are often overlooked.

And yet without these social attributes great talent goes wasted around the world. The U.S. is blessed in countless ways, but do we really think we are just "lucky" to have so many talented people who live here? Would Michael Jackson have been just as successful if he had been born in France or Ghana? Of course not.

The good news is that singers like Shakira, who is from Columbia, and movies like Slumdog Millionaire, based on a book by an Indian novelist, suggest the environment necessary for success is spreading--even in the developing world.

Brian Wesbury and Robert Stein yesterday. My mind turns to these things while traveling. Canada is a great country, but how much of its greatness comes from its proximity to the US? How much of Mexico's growth? How do these institutional frameworks spread?

Please note that this week and next, postings will be at odd times due to time shifts. I will update via Twitter whenever possible, so be sure to follow me there.

New Quarterly Business Report out

2009-06-29T10:26:00.005-05:00

The news story on our new Quarterly Business Report is out. Not a pretty picture: Because the St. Cloud economy went into recession much later than the national economy, and because there's not yet anything to indicate a bottom in the national economy, we think the St. Cloud economy stays in recession until at least winter. I'm only a bit more optimistic than my co-author Rich MacDonald on this forecast, but for me to be right we need to see some real signs of turnaround soon. Anecdotal stories aren't encouraging based on what I've heard around town the last week. Any place someone can pinch spending, they are still doing. Whatever stories you hear about consumer confidence, they aren't evident to business owners in spending patterns yet.

Note to media: If you want an interview on this one, send me an email rather than trying to call my phones. I'll have trouble with those up in Canada. I'm going to try out Skype for the first time.

The government that can give you everything you want...

2009-06-29T10:09:00.004-05:00

While on my way to the Western Economics Association meetings this year (sitting in the airport ready to visit Vancouver for the first time in 14 years), I run across this statement from our president courtesy PowerLine:

The list goes on and on, but the point is this: this legislation will finally make clean energy the profitable kind of energy.

Note the definite article "the". It makes one type of energy at the expense of another. And how does it propose to do this? He's already told us once.

So, if somebody wants to build a coal plant, they can � it�s just that it will bankrupt them, because they are going to be charged a huge sum for all that greenhouse gas that�s being emitted.

That was January 2008. As of last week energy experts were determining the likelihood that cap-and-trade will favor natural gas over coal. This government is engaged in picking winners, an industrial policy that more and more represents the second Carter Administration. That didn't turn out so well, as I recall.

But 25 senators (soon 26) represent states that produce more than average amount of energy from coal sources. If we can't rely on the sensible economic advice that Obama supposedly is receiving -- perhaps not listening -- maybe we can appeal to those who have used government to give their states something in the past to oppose having it taken away now.

Thanks to President Ford for the title to this post.

How big a tax?

2009-06-26T14:13:00.004-05:00

Last night Janet posted at True North about the cost of cap-and-trade legislation and her call to Colin Peterson, a Minnesota Democrat from a declining region of farms, lakes and empty nests. Heritage has posted a calculation of the costs of the Waxman-Markey bill by congressional district. Districts have roughly the same number of people of voting age, but can differ greatly in the type of economies they have and the incomes earned by the people of the district. To correct for that, I adjusted each cost applying to the district for year 2012 as Heritage estimates by my estimate of how much each district creates in personal income. The variation goes from under $18 billion in CD-7 (Peterson) to over $31 billion in CD-3 (Paulsen). Here's what I get:

Congressperson	Lost personal income % 2012	Lost jobs 2012
Walz	2.35%	3871
Kline	1.09%	3835
Paulsen	1.41%	4496
McCollum	2.31%	3984
Ellison	1.60%	3819
Bachmann	1.24%	4127
Peterson	2.41%	4174
Oberstar	1.46%	3340

This is a tax therefore that varies but bears down hard on Collin Peterson's district. It will cost CD-3 more jobs, but the impact there is less as a share of income.

Let there be no doubt that this is a huge tax increase: taking 2% more of one's income when the government takes about 12.6% of your income in the federal individual income tax for the average taxpayer. In a poor district with a large farm sector, it's worse. I know that Peterson says he got "concessions". It's dubious whether the concessions mean much even to Peterson's constituents. For them, it's unlikely to be less than an across-the-board 20% tax increase. If Peterson does vote for this stinker, someone should take that fact to the debate as his opponent next year.

In but not of finance

2009-06-26T13:49:00.002-05:00

Johnny Roosh, honorable mayor of the MOB, finds this really incredible quote from Treasury Secretary Timothy Geithner.

JIM LEHRER: Finally, President Obama said yesterday that the real cause of all of this was a culture of irresponsibility. You�ve worked in and around the financial industry for years. How would you describe that, what that culture was? What caused it?

TIMOTHY GEITHNER: I�ve never worked in the financial industry, just to say. I�ve always worked in public service and the government.

Let's review the resume, shall we? He was at the New York Federal Reserve as its president before joining the Obama Administration. So he is the president of the place where Fed open market operations happen. Before that he's at Treasury holding a bunch of positions, including as undersecretary for international affairs (which was the position Larry Summers held before ascending to secretary after Robert Rubin) and his years at the IMF that confounded TurboTax. It's hard for someone to read this history or these comments during his NYFed times and not think he's in the financial industry; you can understand Jim Lehrer's question.

No, what I think Geithner means is that he never worked to earn money for a financial firm. I don't think this makes much of a difference unless you think that somehow makes you more noble. It is very telling the distance he puts between himself as regulator and the financial industry in this comment from 2008:

Let me just finish by saying that confidence in any financial system depends in part on confidence in the individuals running the largest private institutions. Regulation cannot produce integrity, foresight or judgment in those responsible for managing these institutions. That�s up to the boards and shareholders of those institutions."

I knew several people within the industry who were questioning the closeness of Hank Paulson to the financial industry; Geithner seems to want the exact opposite pole. I'm not sure either place is where we want our regulators.

The Case AGAINST Socialized/Obama-ized Medicine

2009-06-25T22:39:00.005-05:00

When I first saw this post by my friend, David Thul, I couldn't believe it. Well, it's true. One of our great soldiers, Sgt. Dan Powers, took a 4" knife stab to his head. He was keeping Iraqi citizens away from a bomb scene. Powers actually grabbed the insurgent who stabbed him, yet was unaware that he had a 4" blade in his skull.

What happened next could only happen with a nation that values life, innovation, technology and ingenuity. Powers' survival relied on the Army�s top vascular neurosurgeon guiding Iraq-based U.S. military physicians via laptop, the Air Force�s third nonstop medical evacuation from Central Command to America, and the best physicians Bethesda National Naval Medical Center in Maryland could offer. The entire story is here and the video is here.

I listened to Stephen Forbes on the radio a couple of days ago. He mentioned a critical point I'd not considered in the socialized medicine debate (or lack thereof). While we spend a substantial amount of money in the last 6 months of life, (and one must decide whether or not to pursue all alternatives), a benefit of pushing the last six months is this: we learn (because we Americans make a point of learning and asking questions, etc.) what does and does not work. Compiling what we discover in extensive treatments has lead to advances in medicine, for all to benefit.

Yes, there are times when extraordinary measures are not wise. But there are other times when, perhaps, extraordinary measures should be taken. If what we learn from these extraordinary measures turns out to extend lives by years for future patients, then is the extraordinary measure worthwhile? Perhaps these measures save lives in the future. And, perhaps, Obama and the Democrats just might want to consider what knowledge they will be missing by forcing the rest of us non-elites to settle for less medicine and a shorter life. I agree that we need to do something to address our medical costs but is rationing and a two-tier (one for thee but not for me) the answer? I don't think so. The Brits, Canadians, etc. don't really think so, either. Finally, what if tort law were changed, nationwide, to "loser pays"? Just how much would we save in reduced insurance costs, court costs and the avoidance of frivolous lawsuits?

Obamacare: Just for Thee, Not for Me

2009-06-25T10:59:00.003-05:00

This Obama answer from last night's Heathcare Infomercial sponsored by ABC says all you need to know about "fairness" and "social justice" - key mantras of the Democrats. Dr. Divinsky, a neurologist from NYU raised the fear (legitimate, I might add) that proposed public healthcare solutions limit access, etc. for the general public but not the elite. Obama was asked if he would use the public (restricted) solutions for his daughters and wife:

Obama's answer: �it�s my family member, if it�s my wife, if it�s my children, if it�s my grandmother, I always want them to get the very best care.["]

So, Obama and his wealthy, influential cronies won't use the public healthcare system. Do you think Ted Kennedy did? Nah, I didn't think so.

If you're a Twin Cities MOB blogger, go!

2009-06-25T10:26:00.002-05:00

I wish I could join in this but St. Cloud commitments will keep me away. Nevertheless, go see Ed and Mitch:

We�ve talked about the brilliant new movie from Mpower Pictures, The Stoning of Soraya M, for the last couple of weeks. It opens on Friday in selected theaters across the country. How �selected�? Only one theater in the Twin Cities will show it during its opening week � the Landmark Uptown in Minneapolis.
Mitch Berg and I thought this would make a great occasion to get the Minnesota Organization of Bloggers (MOB) together for an evening. We plan to attend the 7 pm showing at the Landmark Uptown on opening night, one of the great, classic theaters of Minneapolis, and get the word of mouth going on this powerful film. If you want to join us, just show up at the theater on June 26th. If you�re a MOB blogger, be sure to put the invite up on your blog. We want to get a big crowd to make a splash � and to get together, too.

Unallotment powers

2009-06-25T09:17:00.001-05:00

The DFL continues to make claims about the unallotment process that Governor Tim Pawlenty is using to balance the budget that the Legislature chose not to. Leading this charge has been DFL state Senator Tarryl Clark of St. Cloud. From her latest newsletter:

It has been just over one month since the Governor announced he was ending negotiations and would go it alone on budget cuts. We thought it was unwise then and it remains so now to do budgeting behind closed doors. Unallotment is meant to be a scalpel, not an ax and it is meant to be used at the end of the two-year budget cycle, not the beginning. It is for unanticipated budget shortfalls, not ones created by vetoes and a refusal to negotiate.

This is wrong on at least two levels. First, the DFL legislature had in fact created the budget in private, asking next to no help from either the governor or the Republican caucus. It did so on May 8, and then did so on the last night of the legislature, passing a bill barely by midnight. It is rather rich for Clark to argue that the governor will go it alone when they did not take his wishes into account (something Rep. Gene Pelowski understood.) Gary Gross is correct in saying that Clark and her colleagues assumed they could get Pawlenty into special session, where the pressure would bear down on him as much as them. She is upset that the Governor side-stepped that box.

Second, Clark has misrepresented the nature of the unallotment process. Luckily, a review of the process was done only last October. The House Research document on unallotment speaks to the issue of timing:

The statutory duty to reduce allotments is mandatory to the extent needed to make up a projected deficit not solved by use of the budget reserve account. However, the statute does not specify a timetable. The authors presume unallotment would have to occur in time to make up the projected deficit within the biennium. Arguably, the Commissioner of Finance must unallot immediately once the conditions that require unallotment have been determined to exist, and the commissioner has approval of the governor and has consulted the LAC. However, in the past, it has been a common practice of commissioners of finance and governors to wait until the legislature had time to rewrite the budget before unallotting. The requirement to obtain the governor�s approval and to consult with the LAC may imply that the commissioner has some discretion in the timing of unallotment. (pp. 4-5)

The governor notified the legislature of his intention to use the power if he did not receive a plan from them. They chose not to act on that power except to run forward a last-minute bill that had already been vetoed once (and had that veto sustained.)

The Minnesota Supreme Court also spoke on the unallotment process in Rukavina v Pawlenty (684 N.W. 2nd 525 [2004]), finding it constitutional for the Legislature to have ceded that power.

Although appropriation of money is the responsibility of the legislature under Minn. Const. Art. XI � 1, it is an annual possibility that the revenue streams that fund those appropriations may be insufficient to actually realize each appropriation. For that purpose, the legislature, by statute authorized the executive branch to avoid, or reduce, a budget shortfall in any given biennium. Minn. Stat. � 16A.152 does not represent a legislative delegation of the legislature's ultimate authority to appropriate money, but merely enables the executive to deal with an anticipated budget shortfall before it occurs.

Although purely legislative power cannot be delegated, the legislature may authorize others to do things (insofar as the doing involves powers that are not exclusively legislative) that it might properly, but cannot conveniently or advantageously, do itself. (cite omitted). It does not follow that, because a power may be wielded by the legislature directly or because it entails an exercise of discretion and judgment, it is exclusively legislative. (cite omitted). Pure legislative power, which can never be delegated, is the authority to make a complete law--complete as to the time it shall take effect and as to whom it shall apply--and to determine the expediency of its enactment. We conclude that Minn. Stat. � 16A.152, does not reflect an unconstitutional delegation of legislative power, but only enables the executive to protect the state from financial crisis in a manner designated by the legislature.

Indeed, to the extent possible Governor Pawlenty has delayed most unallotments to not take place until July 1, 2010, to both hope for more revenue from an improved economy and to allow the Legislature time to make changes in cooperation with the Executive. The door isn't closed: The governor offers the chance to find a better solution, and makes plain the consequences of not compromising.

Clark notes that Pawlenty has used unallotment three times, and in one of those cases the legislature had sought an opinion from the Supreme Court. It therefore had full knowledge of the law. If it did not want to permit the executive the power to "protect the state from financial crisis" through the current law, it only needed to pass a law amending the process. Certainly if the executive is expanding power unduly, the DFL could find a few GOP representatives to vote to defend their prerogative.

I encourage you to read Gary's post for more on what's wrong with Senator Clark's e-letter. But the point here is to make it plain that the DFL continues to mischaracterize Pawlenty's use of powers the Legislature delegates to him. They knew the issues, they did not address them by legislative initiative, and they continue to be hypocritical over who didn't bargain in good faith with whom.

UPDATE: Gary has a second post. Key point I would highlight:

It isn�t accurate to say that the DFL didn�t submit a balanced budget. It�s accurate, though, to say that the first balanced budget they submitted to Gov. Pawlenty passed the Senate with minutes left in the session. It�s equally accurate to say that the Tax Bill that passed was a hodgepodge bill, filled with a litany of tax increases and spending shifts.

And let's not forget that this was trotted out at 10:30pm for passage before midnight in an uncivil manner. Senator Clark should also answer for that clusterfarg.

Obama uncreates and unsaves 495 jobs

2009-06-25T08:26:00.000-05:00

I'd rather have had that harridan who badgered President Obama about his difficulties stopping smoking asked this question instead: Do you have any comment on the closing of the Hav-A-Tampa plant that died thanks to your insatiable need for revenues?

Tampa will lose part of its cigar heritage in August when Hav-A-Tampa shuts its factory near Seffner and lays off about 495 employees, closing a factory that has been operating since 1902.

The company announced the closing today.

Many employees there make Hav-A-Tampa's iconic Jewels, inexpensive machine-made cigars known for their birchwood tips. Some workers have labored there for two decades or longer, including one who's been there for 50 years, said Richard McKenzie, a senior vice president of human resources for Altadis USA, which owns Hav-A-Tampa. ...

Employees on Tuesday were digesting how they would find work in an economy where more than one in 10 people in the area already are unemployed.

"I've been here 12 years. I know someone's who's been there 20 years, 22 years," said Denise Harrison, an office manager at Hav-A-Tampa. "I'm sure we'll all land on our feet, but it will be harder for some people other than me who may have done nothing else."

...Several things conspired to hurt Altadis' sales, McKenzie said, including the recession and the growth of indoor smoking bans. The bans have especially hurt sales in cold-weather states, where it's impractical to smoke a cigar outdoors in the winter, he said.

However, the company attributed much of its trouble to the State Children's Health Insurance Program, or SCHIP, a federal program that provides health insurance to low-income children. It is funded, in part, by a new federal tax on cigars and cigarettes. McKenzie couldn't say how much sales of Hav-A-Tampa cigars had fallen off, but the numbers have dropped significantly, he said.

Previously, federal excise taxes on cigars were limited to no more than a nickel, said Norman Sharp, president of the Cigar Association of America trade group. The tax increase, which took effect April 1, raises the maximum tax on cigars to about 40 cents, Sharp said.

I used to carry those Jewels around the golf course back in my 20s, when I needed a cheap smoke that kept the flies off and tasted half-decent. They are a poor person's cigar, and putting an excise tax per cigar was bound to hurt cheaper cigars smoked by modest-income folks more than hurt your $10 stogie. Indeed, most of the cheap cigars you see behind the cashier at your Walgreens or Thrifty Drug are made in the States (the better ones, even those made by U.S. firms, are handrolled with cheaper labor in the Caribbean.

Way to go, Democratic Congress and President Obama! You've just uncreated 495 jobs!

Reading two FOMC statements

2009-06-24T13:42:00.004-05:00

This afternoon's versus the previous statement on April 29:

Now says "pace of contraction is slowing", a second derivative kind of assessment. Last time they qualified with contraction "appears to be somewhat slower."
Sees progress in getting inventories under control relative to sales. (See this for data.) I don't see any other optimism in the statement relative to April than this.
Recognizes that "prices of energy and other commodities have risen of late" but "substantial resource slack" means they still think inflation fears are "subdued". Anyone looking for statements about concern over future inflation will be disappointed by the middle paragraph.
Actual policy is the same, both on the rate side and in terms of quantitative measures.
Drops reference to "facilitating the extension of credit to households and businesses" that was in the April statement. Not sure whether this signals they are done with creating new facilities. The new statement concludes by saying that after monitoring its balance sheet it will "make adjustments to its credit and liquidity programs as warranted," which might be their signal that they are thinking about how to unwind their balance sheet expansion.

The inflation hawks can't be happy, and perhaps as much as the statement's disappointment for them will be the absence of a dissenting vote. The April meeting's minutes indicated some discussion of the balance sheet expansion and "contacts who had expressed concerns that the expansion of the Federal Reserve�s balance sheet might not be reversed in a sufficiently timely manner and hence that inflation could rise above rates consistent
with price stability." That discussion might have moved the last sentence as indicated in my last bullet point. But the Fed isn't moving as fast as some would like. �If there was a surprise, then maybe it was the fact that there was no mention of the exit strategy,� said one trader as stock and bond markets reacted badly.

A letter from Tehran

2009-06-24T12:01:00.004-05:00

Sent to me by a friend, this is a letter from someone running an ashram in Iran (a brave task in and of itself.)

A letter from Iran: Please Help

Dear friends,

These days our hearts are bleeding, and we can not stop crying for the lives being lost so brutally in this land once again. People you see on the media are risking their lives for the most basic human right, freedom to be. This has been taken away from us in a violent and bloody manner one way or another for the past thirty years. Once you walk with people in protest, it is inevitable to feel the depth of this yearning and the dimension of the pain they have endured by having it suppressed decade after decade. We have lost brothers, sisters, friends, children, students, fellow activists, writers, poets, Sufis, yogis, homosexuals, Kurds, Turks, Baloochis, Jews, Armenians, Muslims, Assyrians, Bahais, and other so called �minorities� to this simple quest for the right to be and live as we are in our society. We have been jailed, whipped, and publically humiliated for simple things like listening to music, socializing with the other sex, having parties, wearing jeans, growing hair, not covering our hair and body with the Islamic dark dress code. Our women, not our men, have been stoned to death for having extra-marital affairs. In our legal system women are officially treated as second class citizens, being worth half of a man�s voice when it comes to submitting evidence to a court of law as a witness. They can easily be divorced by men, but can not divorce as easily, and have no right to their children after divorce. They can not leave the country without written permission of their husbands/fathers.

Friends, the list is as endless as the degrees we differ from one and other. We have been suffering from this systematic utterly inhuman intolerance being forced at every level of our society down to our own families. No wonder young and old, men and women are out there walking surrounded by heavily armed and aggressive police, hit squads, and snipers on the roof shooting them down at random.

We are confronting religious intolerance and fantaicism of its worst kind in this land. Past thirty years tens of thousands have been lost, raped, and jailed for standing tall against this current. Its vibrations of hatred, war, and aggression have reached your home anywhere in the globe. There is no doubt that we are a global family being interrelated to one another closer than we know. This, we have experienced the hard way past few years.

I am writing to beg for your attention and assistance in any way possible. An innocent, peaceful, historic momentum, unprecedented in recent history, has come alive in our world that is being brutally put down with violence, lies, and dirty politics for power and riches. You, no matter where you are, have been inflicted by the evil nature of this current going round in our globe.

My brothers and sisters, come together in any way you can. Join the arms of our innocent people whose blood is being shed for peace and human rights which you may be blessed with elsewhere. Our hands are stretched out, reaching out for your support from outside. We are confronting a formidable power as ancient and infectious as hatred, tyranny, intolerance, prejudice and racism. We need your help.

If your heart prompts, please send this letter to your local newspaper, members of parliament, offices of your country�s Prime Minister or President. Let it be heard what we are facing and how important it is that we as the human body must shoulder this together. I can not do it alone, but we can do it.

We as a nation are pleading desperately to the world that we MUST not recognize this regime legitimate. We need to use all our strength and unity to pressure it to leave the office before our voice is shut down.

I hope you join us in prayers and firm peaceful steps towards a global village where we all can live in peace and harmony.

With love to all,
[name redacted]
Tehran-Iran

Updates this morning from Tehran via Gateway Pundit show increased repression, shooting around the Majlis. I have been following Twitter feeds of ABC news reporters Lara Setrakian and Jim Sciutto since the beginning, and they confirm a massive crackdown going on at this moment. I agree with Mitch on the comparisons to Solidarity in Poland, but the key there was how long it lasted. You needed years to move Solidarity to power. It will take almost that long in Iran. (I now have the one pre-condition Obama should ask for: He will meet with Ahmadinejad only if he gets a meeting as well with Mousavi. There is a parallel there too with Poland.)

We can debate weenies all we like, but let's not lose sight of the larger story here. Meanwhile, don't forget to go see The Stoning of Soraya M this weekend (theater listing).

Don't save them just yet!

2009-06-23T17:07:00.002-05:00

Bill Easterly finds the concept of Millennium Villages as tourist attractions where you're not supposed to feed the natives:

I decided to look more into the MV tourism project, not to pile on, but because I believe patronizing attitudes towards Africans is a BIG issue in aid. The web site gives this introduction:

The Millennium Village Tour is a unique experience that introduces the � poverty traps in south-eastern Rwanda and the successful intervention package of the UN Millennium Villages Project.
I agree with Wade that it is dehumanizing that the villagers are just exhibits for tourists teaching them about abstractions like �poverty traps,� and are also to be used as propaganda for the MVs� �successful intervention.�

The brochure that bothered Wade really is cringe-inducing, including also this line:
Please do not eat in drink in public. Many people in Bugesera Distract are still suffering from malnutrition�
If the MV is so successful, why are people still starving? Instead of worrying about hiding their food, why don�t the tourists pitch in on some MV project that helps the starving get food and nutritional supplements?

I think the answer to that might be found in a famous early Sam Kinison sketch (NSFW) about world hunger. Easterly's larger point, to me, ties to a connection he made years ago in which we continue to believe sending foreign aid helps poor countries grow even though the evidence doesn't support that claim any more. Indeed, as Harford and Klein point out, the aid becomes something to fight over, much like the Coke bottle in The Gods Must Be Crazy.

Oh well, it could be worse:

(You have to watch to the end of this for full effect. There's at least one NSFW word in there, but it's not Kinison style.)

If Maine can do it, why can't we?

2009-06-23T09:22:00.006-05:00

Eighteen months ago the Lady Logician wrote about her new home Utah which has a flat income tax and wondered whether it would be time for one in Minnesota. You might want to say that you can't do this when we're in a recession. But that's not stopping Maine:

This month the Democratic legislature and Governor John Baldacci broke with Obamanomics and enacted a sweeping tax reform that is almost, but not quite, a flat tax. The new law junks the state's graduated income tax structure with a top rate of 8.5% and replaces it with a simple 6.5% flat rate tax on almost everyone. Those with earnings above $250,000 will pay a surtax rate of 0.35%, for a 6.85% rate. Maine's tax rate will fall to 20th from seventh highest among the states. To offset the lower rates and a larger family deduction, the plan cuts the state budget by some $300 million to $5.8 billion, closes tax loopholes and expands the 5% state sales tax to services that have been exempt, such as ski lift tickets.

This month the Democratic legislature and Governor John Baldacci broke with Obamanomics and enacted a sweeping tax reform that is almost, but not quite, a flat tax. The new law junks the state's graduated income tax structure with a top rate of 8.5% and replaces it with a simple 6.5% flat rate tax on almost everyone. Those with earnings above $250,000 will pay a surtax rate of 0.35%, for a 6.85% rate. Maine's tax rate will fall to 20th from seventh highest among the states. To offset the lower rates and a larger family deduction, the plan cuts the state budget by some $300 million to $5.8 billion, closes tax loopholes and expands the 5% state sales tax to services that have been exempt, such as ski lift tickets.

It seems like everyone's running for governor here in Minnesota; support of a flat tax would be one way to distinguish the candidates. And it doesn't have to be just Republicans:

One question is how Democrats in Augusta were able to withstand the cries by interest groups of "tax cuts for the rich?" Mr. Baldacci's snappy reply: "Without employers, you don't have employees." He adds: "The best social services program is a job."

Born of high means

2009-06-22T16:34:00.004-05:00

Let's suppose that everybody gets their income by random chance. Suppose that random chance is approximated by a draw of one ball from a bag. The bag contains balls that are one of five colors, and these correspond to five income levels (let's say $20,000, $40,000, $60,000, $80,000 and $100,000.)

There are parents and children. Let's suppose that the children's draws of balls are independent of the parents. If Mom draws a $20,000 ball, what are the odds that Junior will draw something better? It would be 4/5, or 80%. If Mom draws a $40,000 ball, there's a 20% chance Junior ends up worse off, 20% chance Junior is the same, and 60% chance he's better off. Etc. For those children whose parents drew the $100k ball, 20% will do as well, no more. Spread the balls out over more categories than five, and you'd get finer gradations, but the logic is the same. Be born to a higher-income person, and there's a higher chance your income will be less, if income is randomly distributed.

Now look at the two strands of data Russ Roberts extracts from a recent Pew study on generational income mobility. At the bottom end of the income distribution we get a result that would appear to be pretty well drawn from random chance. It looks like race matters; you can speculate all you want about it, I don't have much to add based on the graphs except that the ratio of black to white income rises from 44% to 53%. It's better in relative terms, but I couldn't argue with you if you said it wasn't "better enough". But I'm more interested in the top quintile. 44% of those whose parents where in the upper fifth of the income distribution exceed their parents' income; on average, their income is 2% less than their parents'. And on my random draw exercise, you'd expect no more than 10% to be better off rather than 44%.

So for those at the bottom, your children are likely to do better off, though no more so than if all incomes were drawn randomly. For the rich, there's some persistence over generations. Inherited traits do matter, be it height or brains or beauty. If you think 44% is too many, how do you do something about it without killing the incentive of the most productive to work on their children's behalf?

And, more importantly: Would this "chance distribution" story in my first two paragraphs be anybody's idea of what the "right" amount of generational income mobility is? If not, what is? (For more, see Mueller, Tollison and Willett [1974].)