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Best Cities to Launch a Business (According to Fortune)
Tweet Share on Facebook October 15, 2009 CommentFortune Small Business has a new list of the best cities in which to launch a small business. Here's their ranking for metro areas with over 1 million in population:
- Oklahoma City, OK
- Pittsburgh, PA
- Raleigh, NC
- Houston, TX
- Hartford, CT
- Washington, DC
- Charlotte, NC
- Austin, TX
- New York City, NY
- Baltimore, MD
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Is the Dow at 10,000 the Result of an Obama Bubble?
Tweet Share on Facebook October 15, 2009 Comment (1)The Dow's closing at the symbolic 10,000 mark yesterday has some people excited that maybe Washington really is doing the right thing. Jim Pinkerton says, "Obama should get some credit." But he immediately follows that up with:
...if I had borrowed, printed, or otherwise conjured up more than $12 trillion, and pumped it mostly into the financial sector, I could have made something happen. What would happen? Most likely, Wall Street would start, uh, bubbling again, even as unemployment rose and the rest of the country languished.
There are three reasons that come to mind that suggest that anyone who cites the Dow as evidence of the health of the underlying economy (and as a corollary, the efficacy of Obama's policies to revive the economy) is wrong. You'd be wrong if pre-2008 you had cited the run-up in housing prices as a sign of health. We could be seeing a new bubble at work.
[See Why Stocks Are Surging As Jobs Disappear]
1. 7,537, not 10,000 is the more important number.
It is good news that the Dow has gained 53 percent in seven months. Derek Thompson in The Atlantic says that the gains should "[put] to rest the silly argument peddled in the WSJ that the stock market was allergic to an Obama presidency."
But really, the 53 percent gain isn't that dramatic. Most of the news coverage has only been looking at nominal, not real, values. Comparing the Dow now to 1999 or, to a lesser extent, even earlier this year, is a bit of an apples-oranges comparison because the value of the dollar has fallen. If we index the Dow based on the value of the dollar (see here), we can view 1999 and 2009 on the same playing field. The Dow is at 7,537 relative to 10,000 in 1999, and has gone up only from 6,216 since February 27, 2009.
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Why Do Apple and Nike Support Climate Change Legislation?
Tweet Share on Facebook October 14, 2009 Comment (4)The Journal has a somewhat odd editorial today on Apple and Nike's recent decisions to resign from the U.S. Chamber of Commerce because of the group's opposition to cap and trade. The editorial gives some persuasive reasons why Apple and Nike would not be hurt much by cap and trade (much of their manufacturing is done overseas) but then concludes that successful climate change reform actually would come back to bite them:
Yet even this self-interested calculation is likely to be short-sighted for both companies. Since climate change is a global issue, green activists won't stop their carbon pursuit at the U.S. border. It wouldn't be long after cap and trade passed in the U.S. that Nike and Apple were pressured to move their manufacturing out of countries that haven't signed Kyoto II. That would threaten their production lines and cost structure, with potential damage to sales and competitiveness.
The Journal uses this argument to support the conclusion that Apple and Nike are making mistakes, but I'm not sure that follows.
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More On Remittances
Tweet Share on Facebook October 13, 2009 Comment (2)Commenter NM says my last post "doesn't make useful sense" because I don't answer questions like:
How many dollars of imports did America buy from Mexico, including oil, to counteract the $120.4 billion they bought from us?
The answer, according to the State Department, is that Mexican exports to the U.S. amounted to $223 billion in 2007.
So yes, Americans consume more Mexican goods than Mexicans consume American goods. But in what sense does this affect my main point that remittances are good for Americans?
Mexican imports into the U.S. do not "counteract" against American exports to Mexico. It simply means that U.S. consumers have more goods to enjoy. If anyone is convinced that this trade deficit poses a problem, more immigration (and more remittances) would help narrow the deficit by pushing up Mexican incomes and allowing them to buy more of our exports.
One more fact: Merely looking at U.S. exports to Mexico doesn't fully account for how much Mexican consumers contribute to the U.S. economy.
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Are Immigrants Draining Money Out Of The United States?
Tweet Share on Facebook October 12, 2009 Comment (8)An article in this week's Economist looks at the issue of remittances—the billions of dollars that immigrants send back to their home nations. The article looks at recent research showing the "huge and benign" impact that remittances have on human welfare in developing countries.
But that facet of the remittance issue isn't the one that gets attention in the political debate over immigration, which will soon heat up in Washington. As I've discussed before, what really gets immigration opponents is the idea that foreigners are wasting resources that would otherwise be consumed by Americans.
So when you read about the $328 billion that is being transferred from richer to poorer countries every year, it is easy to start to agree with the assessment that the U.S. economy cannot afford more immigration.
Easy, but wrong.
The argument only makes sense if you look at the world economy as a closed system. But in reality, money that flows out, can, and often does, flow back in. Just look at the economic relationship between the U.S. and its most important source of immigrants, Mexico.
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Cash For Clunkers Was Massive Corporate Welfare
Tweet Share on Facebook October 8, 2009 Comment (2)The AP on the cornucopia of deals for consumers out there:
Great buys are not exclusive to retailing. The government's Cash for Clunkers program is over, but more than half of car buyers still get a cash rebate, according to J.D. Power & Associates.
The problem is, consumers don't seem to be biting at the current rebates—things are likely to get worse for GM, for example, long before they get better.
So what did Cash For Clunkers accomplish? It was a short boost in car sales that helped car companies offer a few more deals than they otherwise would. Who gained? Not the broader economy—car sales have since come crashing back down.
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Designing A Republican Bill Clinton
Tweet Share on Facebook October 7, 2009 Comment (4)Economist Bruce Bartlett's new book attempts to create the platform for a Republican Bill Clinton—a compromiser who can bring GOP policies out of the fringe and into workable solutions. In this David Leonhardt piece, Bartlett identifies three policy stances for such a candidate: 1) deemphasizing tax cuts, 2) slowing or shrinking entitlement programs, and 3) a value-added tax to help close the deficit. Derek Thompson of the Atlantic adds a fourth suggestion: a modest tax on carbon.
[See 5 Myths About The Economic 'Recovery']
Let me add five more possibilities (on economics):
1. Guest worker compromise on immigration: Any "third way" Republican candidate will need to do something about the Hispanic vote, which most of the GOP has seemed determined to lose over the last few years. Bush tried to find a compromise on immigration, and failed. A Republican Bill Clinton could perhaps improve on Bush's attempt by focusing on just one simplistic proposal: new "smart" cards that would tie temporary workers to jobs in the U.S. This is the "Red Card" solution as advocated by some.
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Pelosi Says: Let's Even The Tax Playing Field
Tweet Share on Facebook October 6, 2009 Comment (7)Via Pethokoukis, I see that Nancy Pelosi is rallying behind the VAT as a way to even the competitive playing field with foreign manufacturers, especially European ones.
But regardless of what we do with the VAT, U.S. manufacturers will still be at a tax disadvantage. That's because U.S. corporate taxes are higher than literally every single highly-developed country in Europe.
I look forward to the day the Speaker will start railing against the unfairness of U.S. corporate taxes!
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Credit Default Swaps: Risk-Inducing, Or Risk-Stabilizing?
Tweet Share on Facebook October 5, 2009 Comment (5)Like bankers' pay, credit default swaps were quickly blamed as one of the culprits of the financial crisis early on, but as the dust has settled people are seeing that they're more complicated. Rene Stulz of Ohio State has a new NBER working paper out that looks at the various costs and benefits of over-the-counter credit default swaps, and he comes to the conclusion that, barring further empirical research, the problem may have been not enough of a derivatives market in 2008, not too much:
Investors and financial institutions generally believed that ex ante AAA tranches of securitization had a very small probability of default. Ex post, it turned out that many AAA tranches unexpectedly lost a lot of value. Because these tranches were held in large amounts by levered institutions, the losses on these tranches led to knock-on losses, reduced confidence in financial institutions, and made it harder for banks to make loans. In all this, derivatives exposures at times increased uncertainty about the financial health of some institutions and led to losses at some institutions, but they also enabled institutions to hedge and hence to reduce the impact of the fall in subprime securities and in other securities. It may well be that more robust derivatives markets in housing would have produced useful information for investors that would have changed the evolution of housing markets before the crash and would have enabled investors to hedge against drops in house prices.
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Innovation and Auto Manufacturing
Tweet Share on Facebook October 5, 2009 Comment (1)Democracy: A Journal Of Ideas has an interesting symposium on U.S. innovation. I was struck by this statement, in the context of how too much financial innovation has not contributed much to the U.S. economy:
While it is hard to imagine the downside to too much R&D in, say, auto manufacturing...
I think it's quite easy to conceive a downside to too much investment in auto manufacturing—and with the federal government's newly expanded role in that industry.
President Obama has often talked about the important of America retaining its traditional role as one of the lead car manufacturers around the world, and that Detroit needs to be at the forefront of new green automobile technologies. What's the problem with this competitive mindset? A paper from a few years ago by economists William Butos and Thomas McQuade takes a critical look:
