Ordinarily, I'm inclined to discount rumors about intrigue and conspiracy theories. I'm more inclined to the philosophy that "most things can be explained by greed and/or stupidity." Historically, though, I do set aside time on alternate Tuesdays to believe in conspiracies. This isn't a Tuesday, but I have a conspiracy theory regarding the timing of Texas A&M's announcement that they are leaving the Big 12 conference. Bear with me; it does connect (tenuously) to public policy.
During the summer of 2010, several changes in college conference line-ups occurred. In the Big 12, Colorado left for the Pac 10 and Nebraska for the Big 10. In certain ways, those changes made sense. The Colorado football program has always recruited heavily on the West Coast. In some ways, Boulder in particular and Colorado in general has a cultural focus that looks West rather than East. And while a good deal of Nebraska's motivation appeared to be "anywhere that Texas isn't," the bulk of Nebraska's population is in the eastern portion of the state and the culture there is a better match with the Big 10 states than with Texas (or Oklahoma, for that matter).
At the same time, there were lots of rumors about schools in the Big 12 South. Four teams to the Pac 10; three or four teams to the SEC; Texas to the Big 10. None of which came to pass, of course. When the rumors were flying hot and heavy, some prominent members of the Texas state legislature weighed in. In particular, they took the position that at least Texas and Texas A&M were a bundle that wouldn't be separated, and if necessary, things could be added to statute during the upcoming legislative session to ensure that. The Texas legislature only meets -- absent special sessions -- every other year. Having completed the 2011 session, they won't be back together until 2013.
In light of this week's announcement, it appears that Texas A&M wasn't a whole lot happier about being in a football conference skewed in favor of the University of Texas than Nebraska was. Unlike conferences like the SEC and Big 10, television revenue in the Big 12 is not shared equally by the member schools. Unlike the Pac 10 and the Big 10, schools in the Big 12 are allowed to have their own sports "networks". Under the Big 12 rules, UT has historically captured a larger share of the conference's television revenue than some of the other schools. And the Longhorn Network, a venture of UT and ESPN, is scheduled to launch next week. The network is regarded by many as an enormous recruiting advantage for UT.
So where, you ask, is the intrigue? It's in the timing of the A&M announcement. By jumping ship now, A&M has done an end-around on the the Texas legislature. Assuming that A&M has lined up the nine votes needed to join the SEC (and essentially everyone seems to assume that's the case), they are in the position of being able to join that conference and play an entire football season there before the legislature meets again. It's one thing to pass a law joining UT and A&M at the hip for deals to be made in the future; it's quite another to pass a law that attempts to overturn existing contracts, particularly where interstate commerce is involved. And in Texas, only the governor can call a special session, and the special session can only consider matters listed by the government in that call. Rick Perry is rather busy just now running for President, and calling a special session to deal with college football isn't consistent with the kind of image I think he's trying to project.
So, kudos to A&M for getting away from UT, and for maneuvering things so that the biggest hurdle to accomplishing that -- the Texas legislature -- is taken out of the game. As for UT [disclosure: I have an MS from Austin, and got a good education for two years there], things seem to have backfired on them. It certainly looks like they are now stuck in a slowly dying conference (didn't they learn anything when the SWC fell apart in the 1990s?). But I think we can put that down to greed and stupidity, not intrigue.
Wednesday, August 31, 2011
Tuesday, August 30, 2011
Federal Donor and Recipient States
From time to time, various bloggers comment on the fact that liberal blue states are generally net donors of federal tax dollars, and conservative red states are net recipients. "Donor", in this case, means that the residents and businesses in the state pay more in federal taxes than the federal expenditures in that state. The primary source for the information for these claims comes from the Tax Foundation [pdf], whose most recent version of the information is based on federal fiscal year 2004. The report makes various adjustments, such as ignoring expenditures that can't be attributed to a particular state (interest on the national debt) and adding in deficit spending as part of the current tax burden (in proportion to the actual taxes collected).
People who spend too much time with me know that I have a peculiar fixation with the idea of separating the US into two parts. There are lots of proposals kicking around the blogosphere about red/blue splits. Mine is quite different, a simple east/west division based on several energy considerations and the ongoing depopulation of the Great Plains. My definition of "West" is the 11 contiguous states from the Rocky Mountains to the Pacific coast; among other common features, these are the states with very large federal land holdings; and Alaska and Hawaii are such peculiar cases that I choose to ignore them. One of the things that I hear regularly is that the West couldn't stand on its own, and one of the reasons is that those states are subsidized by the more heavily populated East.
The same Tax Foundation figures that get used for red/blue comparisons would seem to be a reasonable place to start. The tax burden and expenditure figures from report #139 are reproduced in the following table. The tax burden figures do not include the adjustments the Foundation made to account for the federal deficit; the details of that adjustment are not included in the report, and are probably not important to the conclusions I'm going to draw. Let me begin with the last row of the table. For the US as a whole, the per-capita federal tax burden is $6,369, and the per-capita federal expenditures are $7,311. Taxes covered about 87% of the expenditures.
The main part of the table shows the same calculation for the 11 western states. The portion of state-specific expenses covered by state-specific taxes ranges from 114% in Nevada to 46% in New Mexico. Three states -- California, Colorado, and Nevada -- are net donors, the other are net recipients. [Note that when the Tax Foundation does its adjustment for the federal deficit, Oregon and Washington also become donor states.] The last two columns use the state populations (from Wikipedia, for July 2010) to convert the fractions of the expenditures covered to weighted figures, then sums those to get the fraction covered for the western states as a group: 97%. In short, federal taxes in western states cover a significantly larger portion of the federal expenditures in those states than are covered when the country is considered as a whole. The immediate corollaries are that the non-western states must be doing a worse job of covering their regional expenditures, and that if the "blue states subsidize red ones" argument is true, there is a corresponding "western states subsidize non-western states".
Granted, the skewed populations of the western states means that California is covering most of the western subsidies. That doesn't bother me; any "Western States of America" would clearly be dominated by California, or perhaps by two Californias since a political reorganization would give the north and south portions of the state the opportunity to separate, an idea that Californians seem to bring up regularly. More importantly, though, is that five of the eleven states do better than the national average, and those states illustrate a point that the red/blue state comparisons often miss: it's really an urban/rural thing. California is tied with New Jersey as the "least rural" states in the country, using the Census Bureau definition. All five of the western states that are better than average have economies that are dominated by their urban areas: Colorado's Front Range, Washington's Puget Sound, and so forth. The West would appear to do better than the rest of the country because, despite popular perceptions, it is on average less rural than the non-West.
There is one glaring exception to the "urban equals wealth" argument among these western states: Arizona. Arizona is in the top three western states by population, and is in the top ten nationally for non-rural: less rural than Illinois, Connecticut, New York, or Maryland. But for some reason, the population and its concentration in the Sun Corridor from north of Phoenix to Tucson, hasn't resulted in the same degree of wealth that has occurred elsewhere in the West. It would be useful to figure out what Arizona is doing wrong.
People who spend too much time with me know that I have a peculiar fixation with the idea of separating the US into two parts. There are lots of proposals kicking around the blogosphere about red/blue splits. Mine is quite different, a simple east/west division based on several energy considerations and the ongoing depopulation of the Great Plains. My definition of "West" is the 11 contiguous states from the Rocky Mountains to the Pacific coast; among other common features, these are the states with very large federal land holdings; and Alaska and Hawaii are such peculiar cases that I choose to ignore them. One of the things that I hear regularly is that the West couldn't stand on its own, and one of the reasons is that those states are subsidized by the more heavily populated East.
The same Tax Foundation figures that get used for red/blue comparisons would seem to be a reasonable place to start. The tax burden and expenditure figures from report #139 are reproduced in the following table. The tax burden figures do not include the adjustments the Foundation made to account for the federal deficit; the details of that adjustment are not included in the report, and are probably not important to the conclusions I'm going to draw. Let me begin with the last row of the table. For the US as a whole, the per-capita federal tax burden is $6,369, and the per-capita federal expenditures are $7,311. Taxes covered about 87% of the expenditures.
The main part of the table shows the same calculation for the 11 western states. The portion of state-specific expenses covered by state-specific taxes ranges from 114% in Nevada to 46% in New Mexico. Three states -- California, Colorado, and Nevada -- are net donors, the other are net recipients. [Note that when the Tax Foundation does its adjustment for the federal deficit, Oregon and Washington also become donor states.] The last two columns use the state populations (from Wikipedia, for July 2010) to convert the fractions of the expenditures covered to weighted figures, then sums those to get the fraction covered for the western states as a group: 97%. In short, federal taxes in western states cover a significantly larger portion of the federal expenditures in those states than are covered when the country is considered as a whole. The immediate corollaries are that the non-western states must be doing a worse job of covering their regional expenditures, and that if the "blue states subsidize red ones" argument is true, there is a corresponding "western states subsidize non-western states".
Granted, the skewed populations of the western states means that California is covering most of the western subsidies. That doesn't bother me; any "Western States of America" would clearly be dominated by California, or perhaps by two Californias since a political reorganization would give the north and south portions of the state the opportunity to separate, an idea that Californians seem to bring up regularly. More importantly, though, is that five of the eleven states do better than the national average, and those states illustrate a point that the red/blue state comparisons often miss: it's really an urban/rural thing. California is tied with New Jersey as the "least rural" states in the country, using the Census Bureau definition. All five of the western states that are better than average have economies that are dominated by their urban areas: Colorado's Front Range, Washington's Puget Sound, and so forth. The West would appear to do better than the rest of the country because, despite popular perceptions, it is on average less rural than the non-West.
There is one glaring exception to the "urban equals wealth" argument among these western states: Arizona. Arizona is in the top three western states by population, and is in the top ten nationally for non-rural: less rural than Illinois, Connecticut, New York, or Maryland. But for some reason, the population and its concentration in the Sun Corridor from north of Phoenix to Tucson, hasn't resulted in the same degree of wealth that has occurred elsewhere in the West. It would be useful to figure out what Arizona is doing wrong.
Friday, August 26, 2011
Has Business Bailed on the Social Contract?
Kevin drum has a post this week enumerating what he sees as the list of reasons that have been put forward regarding the difficulties in getting the economy to recover from its current problems. I want to write about the combination of two of them:
Since the end of WWII, the US has had an informal social contract, a major feature of which is that in exchange for low regulation and tax rates (relative to the rest of the developed world), business would provide everyone who wanted a job with one that paid an at least marginally living wage (including benefits). Government actions that enforced this contract included pro-union regulations and enforcement, minimum wages, and so forth. Business wasn't particularly happy about the situation, but there wasn't much they could do about it either.
Beginning by the mid-1980s, it became increasingly possible for business to "do something about it." Two of the primary factors were automation made possible by ever-cheaper and ever-more-powerful computer hardware and software, and relaxed rules about capital mobility. Recessions, by idling some of the productive capacity, were the ideal time to relocate and automate. "Relocate" could be indirect -- if you make layoffs at plants in both Michigan and Alabama, but later bring only Alabama back up to full output, you've "relocated". With relaxed rules on capital flows, sites for new factories included Mexico and China. Some argue that illegal immigration was another way for business to get around the social contract, but I'm not convinced it is as important as the other two factors.
One of the results has increasingly been "jobless" recoveries following recessions. If you look at graphs of job losses and recoveries for recessions since WWII, there is a pronounced break in the shape of the curves for the three post 1981-2 recessions. Calculated Risk provides a nice version of just such a chart on a monthly basis. Particularly given the depth of the last (current?) recession, it is not surprising that the curve looks like it may take a decade for employment to reach the pre-recession level. Current proposals for "fixing" the jobs problem will likely fail because they don't address the lapse of the social contract.
The strong form of number (2) in Drum's list is that there are a significant number of people who want jobs but are worthless from the perspective of an employer. Item (1) has contributed to that situation -- we are not creating new places in the economy with a large demand for workers. In addition, the primary innovation of the second half of the 20th century -- cheap processing power and software -- has allowed for the automation of a large number of jobs. And it certainly appears that business is not being held to the social contract. The combination is, well, scary.
Substantial adjustments to the social contract have a tendency to be messy affairs. Consider the French Revolution of the 1790s, the Russian Revolution in 1917, or the transition of the US economy from one based large on agriculture to one heavily into manufacturing over the period of about 1890 to 1930.
- The Tyler Cowen "Great Stagnation" hypothesis. We've picked through all the low-hanging economic fruit over the past century, and like it or not, we're now entering an extended period of low productivity growth because we're not inventing lots of cool new stuff.
- Various structural explanations that suggest the United States has an increasing number of workers who flatly don't have the skills to do anything useful in the modern economy — a problem that was temporarily masked by the housing bubble and was only fully exposed when the economy collapsed. This takes various forms, both weak (workers can be retrained but it will take a while) and strong (forget it, they're simply useless).
Since the end of WWII, the US has had an informal social contract, a major feature of which is that in exchange for low regulation and tax rates (relative to the rest of the developed world), business would provide everyone who wanted a job with one that paid an at least marginally living wage (including benefits). Government actions that enforced this contract included pro-union regulations and enforcement, minimum wages, and so forth. Business wasn't particularly happy about the situation, but there wasn't much they could do about it either.
Beginning by the mid-1980s, it became increasingly possible for business to "do something about it." Two of the primary factors were automation made possible by ever-cheaper and ever-more-powerful computer hardware and software, and relaxed rules about capital mobility. Recessions, by idling some of the productive capacity, were the ideal time to relocate and automate. "Relocate" could be indirect -- if you make layoffs at plants in both Michigan and Alabama, but later bring only Alabama back up to full output, you've "relocated". With relaxed rules on capital flows, sites for new factories included Mexico and China. Some argue that illegal immigration was another way for business to get around the social contract, but I'm not convinced it is as important as the other two factors.
One of the results has increasingly been "jobless" recoveries following recessions. If you look at graphs of job losses and recoveries for recessions since WWII, there is a pronounced break in the shape of the curves for the three post 1981-2 recessions. Calculated Risk provides a nice version of just such a chart on a monthly basis. Particularly given the depth of the last (current?) recession, it is not surprising that the curve looks like it may take a decade for employment to reach the pre-recession level. Current proposals for "fixing" the jobs problem will likely fail because they don't address the lapse of the social contract.
The strong form of number (2) in Drum's list is that there are a significant number of people who want jobs but are worthless from the perspective of an employer. Item (1) has contributed to that situation -- we are not creating new places in the economy with a large demand for workers. In addition, the primary innovation of the second half of the 20th century -- cheap processing power and software -- has allowed for the automation of a large number of jobs. And it certainly appears that business is not being held to the social contract. The combination is, well, scary.
Substantial adjustments to the social contract have a tendency to be messy affairs. Consider the French Revolution of the 1790s, the Russian Revolution in 1917, or the transition of the US economy from one based large on agriculture to one heavily into manufacturing over the period of about 1890 to 1930.
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