Archive for the ‘Politics’ category

PureHost is “PureHell” and a Reprise of a Cautionary Column

January 15, 2013

Unless I send-out email notifications about posts on this blog I don’t get a lot of readers. Either I don’t have much of anything interesting to post or people have more than enough to look at without needing another nerdy economic and policy blog to read.  I’d put-up a poll to determine which is more responsible if I weren’t afraid of the results.   Thanks to my web host (PureHost or “PureHell” as I have come to know it) any email that contains a link to my or another WordPress blog is filtered from outgoing or incoming email – thus no email notices to eager readers who just need a little prompting about the “can’t live without” information in this blog.

So while I spend another day with poor tech support trying to resolve the email foible, Ive decided to reprise a column (slightly shortened) that I wrote for Business New Hampshire Magazine after the November 2010 elections.   It is a cautionary opine about the election results and in retrospect holds-up pretty well.  I liked it in 2010 and I like it as much now –  Business New Hampshire Magazine liked it so much that they stopped asking me to write a policy column shortly thereafter.

(From a January 2011 Column I Wrote for Business NH Magazine)

The  Double-Edged Sword of Populism

“Mass movements can rise and spread without belief in a God, but never without belief in a devil.”

      Eric Hoffer “The True Believer: Thoughts on the Nature of Mass Movements” (1951)

The tsunami that swept conservative Republicans into elective office this past November is due, in large part, to a mass movement called the Tea Party that shook the political ground and released seismic levels of populist energy in New Hampshire and across the country.

It’s a businesses community’s dream if the November election produces a public policy agenda of smaller government, lower taxes, and fewer regulations.  The big government, more regulation, higher spending, and bailout policies of recent years are the “devil” that unified the Tea Party movement in New Hampshire and the nation and what makes the movement’s agenda attractive to many business leaders.  But neither seismic nor populist energy is predictable, and neither has yet been effectively harnessed.

From its inception in 2009 through the November elections, what the Tea Party was against was more important to the business community than what the movement was for.  As long as the business community and Tea Party populism share as their common “devil,” big government, more regulations and more spending, then their interests are generally aligned.    But many, if not a majority in the loosely defined Tea Party movement have no love for much of the business world – big business, finance, insurance,  and multi-national companies to name a few – they just happen to dislike President Obama and most Democrats more.

What “devil” will unify and sustain the populist movement after it has vanquished Democrats and/or big government?  For businesses in New Hampshire, especially larger corporations, the stakes are large.   The anti-immigration sympathies of Tea Party populists will clash with New Hampshire businesses increasing need to hire technology workers.  The average educational attainment of foreign-born workers in New Hampshire is higher than that of its native-born population.  About 45 percent of New Hampshire’s foreign-born residents have a bachelor’s degree or higher (the second highest of any state in the nation) compared to about one-third of native-born residents. Foreign born residents in New Hampshire make up an especially large percentage (32%) of al PhD’s and young workers age 25 to 34 with graduate degrees (24%).  Thirty (30) percent of computer programmers in New Hampshire are foreign born as are 25 percent of the software engineers in the state.

Populist calls for protectionism and anti-globalization sentiments can also threaten what will be about $4 billion in exports by New Hampshire manufacturers in 2010, as well as the jobs that those sales support, up about 60 percent from $2.5 billion just since 2005,.  In addition, the New Hampshire economy relies more on foreign direct investment than all but three states.  In 2008, almost seven percent of workers in New Hampshire were employed by foreign-owned firms.

New Hampshire’s economic successes over the past several decades are the result of a transition to an innovation-dependent, technology-rich, economy that increasingly relies on workers with higher levels of educational attainment, across virtually all industries.   Research and development, strong universities, high performing schools, attracting and retaining talented employees, and a reputation for being “ahead of the curve,” all support innovation.  There are different ways policy makers can support or facilitate innovation but it is critical that they recognize its importance.

The recent election is sure to produce many spending, revenue, and regulatory policies in New Hampshire that will please most businesses.  But at least a portion of the business community should be wary of becoming a unifying “devil” of the populist movement.   Small business is off- the-hook and it is easy to see why.  Most small businesses receive no loans, subsidies or other support from the government, and relatively few sell goods and services outside of the U.S. or hire any foreign-born workers.  Moreover, most of the high-profile public policies that energize the populist movement have their greatest impacts and generate the largest costs for small businesses.  Not all Americans love businesses or even capitalism, but they increasingly worship small business, according to one public opinion poll, small business is viewed more favorably by the public than are churches.

Big government is at the top of a short list of unifying ‘devils’ needed to sustain today’s populist movement, but “big” business isn’t far behind.  While occasionally justified, in New Hampshire it would be unfortunate.  New Hampshire is home to world-class, innovative businesses whose connections throughout the world benefit the state’s economy.  Financial institutions in the state have avoided the practices that evoked populist outrage and their lending has been a key to the milder recession and stronger recovery of our state’s economy.  Only about 100 New Hampshire businesses have more than 500 employees and only 260 have more than 250 employees, but combined they employ one-third of all workers in the state.  That is far from a majority, but if a movement targets businesses employing one-third of New Hampshire’s workers, it is best described as something other than populist.

The Most Important Ideological Debate of 2013

January 2, 2013

It is hard to fix a problem that you don’t  know you have.  That seems to be the case in NH where I still hear “NH has fared better than most states since the recession.”  I disagree and the U.S. Bureau of Labor Statistics is on my side.   Just before Christmas the Bureau of Labor Statistics issued its  monthly report on November employment and unemployment in  the 50 states.  Once again the news was not good for New Hampshire.  Most media reports chose to report that NH’s unemployment rate dropped slightly during the month without noting that the number of jobs located in the state declined in November (John Nolan of the Foster’s Daily Democrat and Rochester Times was a notable exception).

Nov 2011 to Nov 2012 Job Growth

Compared to employment in November 0f 2011,  November 2012 employment in NH was lower by1,700 on a seasonally adjusted basis and lower by 2,500 on a not seasonally adjusted basis.  Only five states have fewer jobs located in their state in November of 2012 than they had in November of 2011.  As I have suggested before, NH’s job growth goes a long way toward explaining why the state’s housing market isn’t seeing the same recovery in prices that appears to be occurring in many other states.

50 state Job Growth Nov 11 to Nov 12

I am hoping that in 2013 policymakers focus much of their debates (ideological or otherwise) on policies that strengthen the NH economy.  I hope that most of those debates encourage the introduction of solid empirical evidence in support or opposition to any proposals (I tried last year but could not find any data or methodology to determine the impact that allowing pistol duels in the statehouse would have on job growth) and are absent the vitriol and ad hominems that characterized so many debates last year.  Policies that can influence job growth can easily accommodate the needs of the two-party system to make the  sort of ideological arguments and distinctions that they feel are needed to influence elections.

Whether job growth is slower now than in the past because employers are not willing to add additional workers (supply side arguments) or because they are not able to find enough or enough qualified workers  (the human capital and “skills gap” argument) is among the most important issues to understand in setting both national and state-level economic policies.  If employers are unwilling to add employees that are readily available,  then the efforts to spur job growth focus more on factors affecting businesses (tax rates, regulations, costs etc.).  If job growth is constrained because employers are unable to find enough or enough qualified workers to fill open positions, then the focus of efforts to spur job growth will be more effective if they look to influence demographic trends, increase the skills of the labor force, and/or better match the skills of workers  to the needs of employers.  In reality this is not an either or question because inadequate attention to the needs of either employers or the workforce will produce sub-optimal economic growth. I’ve tried in this blog to introduce some evidence related to the human capital argument for job growth trends and I will bring some supply side evidence in the future as well.
Ideological or not, respectful and civil or not, recent trends in NH’s job growth and the implications for future growth have to be the first and most important policy debate of 2013.

If We Can Beat the Mayan Apocalypse Why Not the Fiscal Cliff?

December 21, 2012

If the Mayan apocalypse can be postponed (I am not sure exactly at which time it is supposed to occur so I may be speaking too soon here) then surely the U.S. Congress can agree to actions to avoid the fiscal cliff.  Lawmakers are poised to give us over $500 billion in tax increases and over $100 billion in spending cuts to begin the new year.  The fiscal cliff is a  pretty big lump of coal as a gift to begin 2013.

What is extraordinary about the cliff’s self-inflicted harm is that it appears  almost all sentient beings realize what needs to happen. More importantly, there also appears to be substantial agreement on most of the actions necessary to avoid the economic harm resulting from the fiscal cliff.   Spending clearly has to be cut  just as surely as revenues have to be raised.

deficit trends

With so much apparent agreement on actions needed to avoid the damage, it is hard to understand the calculus of lawmakers as the lack of an agreement begins to  demonstrably affect business and consumer confidence as well as financial  markets.  Congress always comes up with a temporary fix for the alternative minimum tax and can easily do so again.  Almost everyone wants the payroll tax cut to expire (for different reasons – Republicans because they don’t like the temporary nature and believe it has no incentive for work and saving and Democrats because of its impact on the Social Security trust fund).  There is little support for extending unemployment benefits.  It seems like neither party really wants the spending cuts (Republicans opposed to defense cuts and Democrats to non-defense cuts).   There is disagreement over the tax increase for high income individuals included in the Affordable Care Act and Medicare reimbursements for doctors but those are a miniscule portion of the cliff’s effects.   Beyond all the posturing,  the fight in congress is really  about whether to extend tax cut provisions to 98% or 100% of U.S. households.

cliff effects on growth

I know I am simplifying here.  Even with many agreed upon temporary  fixes,  longer-term solutions must be found.  But lawmakers could still salvage strong economic benefits by avoiding the worst of the cliff’s impacts in the short-term while resolving longer-term issues in the first-half of 2013.  Such a “grand bargain”  would both increase business and consumer confidence and set the nation on a more sustainable budgetary and debt path that would quickly overcome any of the short-term negative impacts  resulting from necessary spending cuts and revenue increases.

Who are the 47% and Who Did they Really Vote For?

December 6, 2012

I know a lot of people who voted for President Obama (and about as many and maybe more who voted for Mitt Romney).  None of the people who voted for the President fit the famous “47%” profile of individuals dependent on government for support.  In fact, very much the opposite was the case.  Nevertheless, the notion that a dependent population was largely responsible for the President’s re-election seems popular in some circles.  My small circle of acquaintances is not a  valid sample from which to accept or reject the dependency theory of  the election so here is one small step toward empirical verification or rejection.

I chose ten states from various regions of the country (NH,MA,NY,IN,KS,GA,FL,TX,AZ,OR), half of whom were won by President Obama and half by Mitt Romney.   I compiled a county-level dataset that includes the percentage of votes won by each candidate, the percentage of the population age 25 and older in the county that has a bachelor’s degree or higher, and the percentage of the population in the county that is white and non-Hispanic.   For my dependency measure I used the percentage of total personal income in the county that comes from government transfer payments.  The largest government transfer payments are for Social Security, Medicare and Medicaid (see chart below).  Of those, only Medicaid is for low-income individuals (and thus more closely fitting the profile of dependency) and income support payments like disability, supplemental income, food stamps and other (see chart below).

transfer payments

The ten states are not random and perhaps not a valid sample and there are many more demographic variables I could have included but this is all I could accommodate in the span of a Boston Celtics game and a couple of glasses of wine.  The ten states represent 814 counties, or about 26% of all counties in the U.S.  Using a simple regression model that analyzes the impact of the educational, race, and dependency variables on the percentage of the vote in each county received by the President, results were significant but still only explain about 25% of the variation in the percentage of the vote received by the President.  A larger percentage of income in a county  from government transfer payments is, in fact,  positively related to higher percentage of the vote for the President (although the simple correlation is small), and a higher percentage of the population that is white is negatively related to the vote received by the President (no surprise that we are a long ways from being color blind).  Its no great epiphany that users and supporters of government assistance  would be more likely to vote for a Democrat or that white voters might be less likely to vote for the President.  What is most interesting, however, is that the strongest relationship is a positive one between the percentage of persons age 25 and above in a county who have at least a bachelor’s degree, and the percentage of the vote received by the President.  Republicans may be right about not being able to win as many individuals who rely on government assistance as will Democrats but over the next few decades the percentage of the population that will be receiving the largest share of government benefits (Social Security and Medicare) is going to skyrocket and the percentage of the population that has a bachelor’s degree or higher is likely to increase as well.

I guess you can dismiss election results when they appear to be an aberration driven by the “great unwashed” who depend on government benefits, but what do you say if  the results were more influenced by the voting behavior of the most educated?

Anyone interested in the limited dataset I have, feel free to contact me.  I’d love to include all 50 states and many more demographic and economic variable but I doubt I will ever get to that.  For the truly nerdy who might want the stats from the regression models, you are welcome to those as well.

The Fiscal “Cliff” is No “Bluff”

November 27, 2012

Linguists will take exception to that and note that a cliff is, in fact, a bluff.    The consensus among economists, however,  is that the fiscal cliff is indeed no bluff.    A number of commentators have noted that the fiscal cliff is more like a slope and will not  cause immediate economic calamity.  I was one of those as a guest on NHPR’s “The Exchange“.   But just as there was once too much hyperbole surrounding the fiscal cliff issue, now, as we get closer to the deadlines when the combination of tax hikes  and spending cuts that define the fiscal cliff take effect, there seems to be more of an effort to minimize the likely impacts that will occur if no resolution is found.  That would be a mistake because whether the spending cuts take effect immediately or over the course of a year or more, and whether the tax hikes immediately effect spending and investment decisions is not the issue.  The issue is that the U.S. economy is simply not growing fast enough to withstand the impacts of the full implementation of the provisions of the fiscal cliff.  Skeptics fire away, but below is a succinct chart that shows how the effects of the fiscal cliff relate to real growth in our nation’s economy, assuming the effects of the cliff occur in 2014.  To lump all effects in one year isn’t accurate, but the point is to place the magnitude of the cliff’s impacts into context.  I believe the context in the chart below highlights the importance of a reasonable resolution to the potential problems the cliff could cause.

The World Needs Another Election Analysis

November 13, 2012

How many times over the last week have you heard someone say “I just don’t think there has been enough post-election analysis, where can I get more”?  Ok, nobody has likely said that to anyone, anywhere, in this country since November 6th.  But just like there is “always room for Jello,” there is always a little more room for political analysis, especially when it comes with absolutely no political spin, and from someone uniquely unqualified to offer it.  Examining town-by-town results from NH’s race for governor in the context of  demographic as well as political variables provides some clues to the problems facing the NH Republican party.   Using regression analysis to predict the percentage of votes both the Republican and Democratic candidates received in each of 230+ towns shows that several variables were significantly related to the percentage of votes each candidate received.  I know there are all sorts of explanations and contexts that account for the election results but I am striving for some level of empiricism in an ocean of spin, even if some of the important context (issues) can’t be quantified and are left out.  I am going for parsimony here.

Of course the percentage of voters registered in each party in a town is the single largest determinant of the percentage of votes received by the party’s candidate, but after and controlling for that, what other variables were significantly related to the election results?  The chart below shows the most important demographic variables (at least the most important of the 30 or so I examined).  The bars are standardized results (z scores) that show the RELATIVE importance of the variables in determining the percentage of the vote that went to the Republican candidate.

Results show that sometimes, empiricism supports rather than refutes conventional wisdom.  The variable that has the strongest negative association with the percentage of votes for the Republican candidate (controlling for all other variables) is the percentage of the town’s population age 25+ that has at least a bachelor’s degree or higher.  The percentage of the population age 25-34 also has a strong, statistically significant negative association with the vote received by the Republican candidate.  On the plus side, higher income towns and towns where a higher percentage of residents moved to NH from another state (again controlling for all the other variables and with a caveat that this data include only those who moved to NH between 1995 and 2000) were both associated with higher percentage totals for the Republican candidate.  The percentage of households with children in a town  just missed a statistically significant relationship with higher vote percentages for the Republican candidate.  In combination, these three variables point to Republican strength in higher income communities that also have a high percentage of families with children and that have a higher percentage of households that moved into NH from another state- that is a good description of many of NH’s, bedroom communities near our southern border.  It is (or was until recently) also a pretty good characterization of the bulk of NH’s in-migration from other states.   The notion that movement to NH is positively related to Republican vote totals suggests that other explanations (demographic but also issue-based) besides “NH is becoming Massachusetts north” may be responsible for NH’s emerging blue hue.  In any case,  in-migration to bedroom communities slowed a lot this past decade.  More troubling for Republicans is the negative association between higher educational-attainment and the percentage of votes received by the Republican candidate.  A higher percentage of population aged 25-34 is also negatively associated with the percentage of Republican votes, although the true meaning of this is harder to glean because this age group is also associated with a higher percentage of independent voter registration.  Whether it is age or lack of party affiliation that is the cause, however, votes for the Republican candidate were negatively associated with a higher percentage of individuals in a town in this age group.  None of this is an epiphany, but sometimes you just have to document the obvious (even if only to make it patently or inherently obvious) in order to really believe it.

What Will the “Fiscal Cliff” Mean for NH?

October 30, 2012

For an economy struggling to gain altitude it is hard to see how the impending spending cuts and tax increases associated with the “fiscal cliff” will do anything in the short-term but bring the economy to stall speed or push it back into recession.  At a time when compromise is seen as weakness and ideological impurity, an agreement must be reached in order to avoid the negative effects of the the fiscal cliff.  Depending on what is included, the ‘fiscal cliff includes anywhere from $500 to $700 billion in combined spending cuts and tax increases (many via the expiration of temporary cuts).

All states will feel the effects of the elimination of the temporary cut in the payroll tax but states with a higher percentage of high-income taxpayers will likely be affected more by the expiration of Bush era tax cuts.  Despite often being characterized as a “tax haven” for the rich, NH is much more a “haven for the middle class” as it has a somewhat higher percentage of high-income households than the U.S. (but much lower than MA) and a relatively smaller percentage of lower- income individuals.   The percentage of high-wealth individuals in NH is above the U.S. average, but the percentage of income taxes paid by those making $200,000 or more in NH is lower than 24 other states.

States where higher-wealth individuals pay a larger portion of the  state’s tax burden are likely to be relatively more affected by the tax cut expiration provisions of the fiscal cliff.   But NH will still see an estimated increase in payroll taxes of about $650 million, a significant drop in disposable income in the state.  In addition, a study by George Mason University’s Center for Regional Analysis estimates that the defense department and non-defense department budget cuts that will  result from  the fiscal cliff will cost NH about 6,300 jobs and $325 million in labor income.  NH no doubt will take some solace from the fact that Massachusetts is likely to see nearly 10 times the job losses from  budget cuts to defense and other purposes (especially medical) and as a result of  their high percentage of high-wealth households.

I want to think a reasonable resolution will be found that avoids the worst of the potential problems from the fiscal cliff.  Fiscal tightening is clearly warranted,  and it appears almost certain that at a minimum the payroll tax holiday will be allowed to expire  as well as the Bush era tax cuts for upper income households.  It is also almost certain that long term unemployment insurance benefits will be allowed to run out.  After that, it all depends on one four-letter word – compromise.


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