Category Archives: State Policy

Fastest growing cities in America

Joel Kotkin and Wendell Cox have an analysis in Forbes of new Census data about where Americans are living. They look at metro regions not only central cities. Las Vegas and Raleigh, N.C. were two of the fastest growing regions this decade due in part to job growth. Several regions in Texas are growing and are attracting people from California. Housing prices help to explain the migration of people from the northeast (Boston and New York) to Raleigh.

And Washington D.C. has “defied all market logic” as a relatively expensive area with growth. The authors suggest this is due to the “ever-expanding scope of federal government and its…growing legions of parasitic private corporations.”

For more on why other areas have lost population check out the article.

Hearing tomorrow on state and municipal debt

The House Committee on Oversight and Government Reform will hold a hearing tomorrow on state and muncipal debt. Witnesses include Governor Scott Walker of Wisconsin, Robert Novy-Marx of the University of Rochester, Andrew Biggs of AEI, Mark Mix of the Right to Work Legal Defense Foundation, and Desmond Lachman of AEI. The hearing is sceduled for 9:30 AM and will be broadcast on C-SPAN.

The state bankruptcy debate

Veronique deRugy has a column in the upcoming edition of Reason Magazine discussing the idea of allowing states to declare bankrtupcy. It’s good to remember that bankruptcy doesn’t mean that states suddenly have an incentive to re-think and re-structure their budgets. It only means they get a chance to start over with a clean slate. Another question to consider is this: why can’t states straighten out their fiscal problems now? Do they lack the tools? In reality there are things states can do, but it must be in conjuction with federal spending reform. In short, there are no easy solutions to decades of structural budgetary problems.

Unemployment Insurance and the Job Market

The Wall Street Journal reports that states are likely to cut back on unemployment benefits in the coming year. These cuts are taking various forms. Some states are reducing the number of weeks covered. Others are trimming the share of benefits covered. The program is in need of reform, which I have discussed in the past. Equally troubling is the fact that the unemployment rate remains high at 8.8 percent. The WSJ also reports that the jobs being created are at the income extremes. A recent job report shows average hourly earnings have remained flat because many new jobs are being created in low-paying sectors such as temporary work and leisure industry jobs. Economists weigh in here about what the jobs report means.

Real Spending Per Person: White House vs. Paul Ryan

Budget Committee Chairman Paul Ryan’s spending plan has been released. Both sides are going to characterize it as a $6.2 trillion dollar cut in federal spending. Of course, in Washington a “cut” is rarely a cut. Usually, when politicians speak of cuts, they mean cuts in reference to what some other politician wants to spend. In this case, the chairman actually wants 2021 spending to be about $1 trillion greater than 2011 spending. But since the President wants 2021 spending to be nearly $2 trillion greater and since the annual differences between the two plans add up to about $6.2 trillion over ten years, Ryan’s plan will be called a cut.

But what about inflation? And what about population growth?

Since inflation erodes the value of dollars over time and since population growth spreads those dollars over an ever-expanding group of people, some will argue that we must increase spending just to maintain the same level of government services.

I would note that in the non-political world, we expect technological improvements and efficiency gains to make things cheaper over time (witness computing power, smart phones, and plasma TVs–all of which have gotten cheaper in real terms over time). But let us make the reasonable assumption that government is incapable of efficiency gains. In this case, we should examine “real, per capita spending.” That is, after controlling for inflation and population growth, how much more or less will the federal government be spending per man, woman, and child?

The chart below shows real per capita spending under the President’s plan (red) and under the Congressman’s plan (blue). By 2020 (I don’t have inflation projections out to 2021), the president wants to spend $1,012 more per person in real terms. In contrast, the Chairman wants to spend $470 less per person. To put this another way, the President would increase real per capita spending by about 8% while the Chairman would decrease it by about 4%.

Just about everyone agrees that fiscal calamity awaits inaction. And numerous studies suggest that spending cuts are far more effective at addressing fiscal problems than revenue increases. In this context, is a 4% cut in spending really–as Ezra Klein characterizes it–“completely, almost gleefully, unacceptable“?

Yes, the Government is Long-Lived

In the debate over how to value public sector pension liabilities an argument that seems to impress some people is this. Public sector pensions can guarantee their pensions with risky assets because the government never goes out of business. Andrew Biggs has written several responses to this notion. The latest piece to make this claim appeared in The Weekly Standard. Andrew and I offer a refutation.

The recurring theme that the government can value pension liabilities as though they were risky because it is long-lived is an oxymoron.  It is precisely because the government is unlikely to go out of business that public sector pensions are considered guaranteed. That is why economists suggest using a risk-free discount rate to value public pension obligations. It’s because of the government guarantee – the government is more likely, not less likely, to pay it. Current public pension accounting implies otherwise. The subtext in defense of this flawed accounting is, “If all else fails, raise taxes.”

“The risk is borne by the taxpayer” is the missing subtitle to the headline, “The government is long-lived.”

Veronique deRugy offers a fantastic analysis of this debate here. Followed by Yuval Levin here.

Saving Playgrounds and Amphitheaters

In the coming years expect more of these kinds of discussions in local government.  Revenues are sluggish to modest. The recovery is weak. Spending growth in entitlements guarantees a future with diminished economic growth. Pension obligations in many state and municipal governments will crowd out other areas of spending. There will be tax hikes proposed and there will be spending cuts proposed and someone is not going to like them.

Is there a rational way to make cuts that satisfy all voters? Unfortunately, no.  Budgets do not reflect individual market exchanges. Without the profit motive, or market prices, making choices on the grounds of economic efficiency is difficult to impossible. V.O. Key’s 1940 discussion of The Lack of a Budgetary Theory gets at this core problem in government budgeting. Budgets are not technical documents. Budgets reflect subjective and political choices.

One criterion to use in determining what belongs in a budget is to limit government spending to only providing public goods.

Arthur Brooks mentions the other criteria for government intervention: in the case of monopolies, information problems and market failure.

Amusement parks and amphitheaters do not qualify as public goods. They are club goods. It is possible to exclude free-riders by charging admission. But parks are also non-rival. One person’s use of the facility doesn’t preclude someone else’s. What is telling is how interested parties – those who consider “club goods” valuable to society and worthy of subsidy- respond to the cut.

First consider Playland in Rye, New York. Operated by Westchester County, Playland is one of the few government-operated amusement parks in the United States. It has been so since 1928 after residents decided the expanding hotel-resort-amusement business that had sprung up along Long Island Sound was attracting “bawdy hotels and unsavory crowds.” They asked the county to take it over and reinvent it as a family-friendly park. (An interesting question is how might the community have achieved this outcome without a county takeover?)

With attendance cut in half, a series of recent accidents, and the latest addition of a $30 admittance fee, according to the Wall Street Journal, Westchester County Executive Rob Astorino is seeking to “reinvent the park,” since operating an amusement park, “isn’t an essential service for government to operate…”

There are several bidders offering to take it over, mainly private amusement park owners. One group is non-profit, Sustainable Playland, started by a resident who wants to ensure the park doesn’t become an “over-the-top casino”.  She and her husband have raised $150,o00 for their proposal to revive Playland as a public-private partnership.Their proposal involves a combination of park profits, government grants, and debt.

Now consider the Lubber Run Amphitheater in Arlington, Virginia. Built by the county in 1968, the Amphitheater was found in 2010 to be in violation of  federal and local regulations including the Americans with Disabilities Act, floodplain requirements, Chesapeake Bay Preservation Act requirements, and building codes. The county cut of funds last year due to budget constraints and allocated $10,000 for summer events in 2010.

Residents have launched a petition to save the Amphitheater. Their proposal is pretty basic. “Make room in the budget for the Amphitheater.”

Their discussion board sheds some light on the subjective nature of budgets. Most posters insist the Amphitheater is a priority because they have used and enjoyed it. Posters wonder why the Newseum in Rosslyn got $15 million or why the county is subsidizing low-income housing. In their eyes these are lower or equal priority items.

But there is the crux of the matter. What is a priority of government when the government is choosing to spend funds among a whole list of  non-public goods?  The priority is determined by the most successful special interest.

 

 

 

 

 

In DC Job Market, it is Who You Know, Not What You Can Produce

When making hiring decisions, how does one determine the productivity of a prospective worker? Assessing productivity is difficult even after you hire someone but it is even trickier when all you have to go on is a resume and some references.

Pete Thompson of the local DC NPR station (WAMU) had an interesting story yesterday on the DC job market. He interviewed George Mason economist James Bennett:

Bennett says it’s common sense that networking is the key to many jobs in DC including those in government, nonprofits, and especially politics.

But he says the end result is that many people — qualified or not — wind up wasting valuable time applying for open positions that have already been filled.

“All these people have job searches but half the time that’s show and tell, the real candidate has been picked out long ago,” he says, “but you have to go through the motions of government regulations, all this stuff’s been going for a hundred years.”

This, I think, is one of the ugly side-effects when government employment crowds-out private employment. As hard as it is to determine the productivity of a prospective worker, it is even harder when that worker is responsible for producing a public good instead of a marketable private good. And thus, compared with private employment, public employment is more likely to be subject to arbitrary standards.

In private industry, one can attempt to measure the marginal productivity of labor with the measuring rod of profit and loss: if I add one more man-hour, how does that affect my net profit? From this assessment, an employer can offer a wage based on some knowledge of the return he or she will get from hiring the worker. Of course, the prospective employee can reject that offer if he or she can find another firm that will pay more.

There are many ways to get tripped up—especially in complicated production procedures that require the collaboration of multiple workers and their machines. But competitive pressures help hone the estimation procedure: workers can leave the firm if another firm offers a greater wage (perhaps because, in using the new firm’s machines, the workers are more productive there). And as employees come and go, the employer can better-assess marginal productivity.

In public employment, however, there is no measuring rod of profit and loss and so employers must rely on more-arbitrary procedures. How does one determine how much a prospective congressional aide will add to the productivity of government? As Professor Bennett notes, a common shortcut is to look at who the job-seeker knows.