Month: October 2013

The Ivory Tower: Are Democrats Serious About Budget Cutting?

/ Matthew Clemente / Leave a comment

Ivory Tower: Are Democrats Serious About Budget Cutting?

This was one of the questions being discussed on WCNY’s The Ivory Tower.

This edition of The Ivory Tower, hosted by David Rubin, Dean of the Newhouse School of Public Communications at Syracuse University, featured a powerhouse panel including of Lisa Dolak (Syracuse University College of Law), Bob Spitzer (SUNY Cortland), Bob Greene (Cazenovia College), Tara Ross (Onondaga County Community College), and Kristi Andersen (Syracuse University).

The panel also discussed a program proposed by Governor Cuomo aimed at boosting tourism in Upstate New York with adds in New York City.

Here is a description of the program:

The panelists assess whether Democrats want to strike a budget-cutting bargain with the Republicans. The the panelists provide suggestions to Gov. Cuomo for how to spend tourism money to attract New York City residents Upstate.

 

Ideology in the Supreme Court

/ Lisa Dolak / Leave a comment

During its October 2012 term, the U.S. Supreme Court decided a number of high-profile cases, including cases on voting rights and same-sex marriage. The Court decided these and a number of other cases – 23 in all this term – by 5-4 (or 5-3) majorities. The “conservative bloc” members – Chief Justice Roberts and Justices Scalia, Thomas and Alito – were in the majority (with Justice Kennedy) in 10 of these 23 cases. And indeed the Court’s conservatives frequently vote to decide cases in the same way. For example, Chief Justice Roberts and Justice Alito agreed in 90% of all the Court’s cases this term, and Justices Scalia and Thomas agreed in 86%.

But the same (or even higher) levels of agreement were seen this term among the Court’s “liberal” justices: Justices Breyer and Kagan agreed in 91% of the cases, and Justices Ginsburg and Sotomayor agreed in 94%. The four members of the liberal wing voted as a bloc in most (17) of the 5-justice majority decisions, as did the four conservative justices (in 16 of the 23). And we see similar levels of agreement among the justices each year.

Ideological voting, in other words, is a two-way street. Liberal justices and conservative justices tend to vote with their ideological fellow travelers. The media often oversimplify this phenomenon by suggesting that a given justice’s vote is attributable to the political affiliation of the president who made the particular judicial appointment. But the reality is more complex and less sinister. Although decisions are to be made in accordance with the law, in most cases sound arguments can be made for differing interpretations of the relevant legal principles. And the suggestion that the justices simply do the bidding of their appointers ignores the fact that judges (like the rest of us) have distinct, sincerely-held political and constitutional philosophies, and that they (legitimately) bring those approaches to bear on the questions they decide.

The percentage of decisions made by a 5-justice majority during the recent term (29%) is slightly higher than the recent (previous four terms) average (of 22%). But significantly more (49%) of the Court’s decisions this year were unanimous. With all of the media focus on the justices’ disagreements, it is important to recognize that in most cases, the much-publicized right-left Supreme Court divide is bridged.

This piece was originally published in the September/October issue of WCNY Magazine.

For more from Professor Dolak, check out the recent SLACE Archive post about her appearance on WCNY‘s The Ivory Tower as well as her regular appearances on the program Friday nights at 8PM.

Break Up The Big Banks?

/ Matthew Clemente / Leave a comment

That was the proposition being debated on the Intelligence Squared podcast.

Moderated by ABC News’ John Donvan, this debate featured Richard Fisher–President and CEO of the Federal Reserve Bank of Dallas and Simon Johnson–MIT Professor of Entrepreneurship, who argued for the motion; and Douglas Elliott–Fellow in Economic Studies for the Brookings Institution and Paul Saltzman, President of the Clearing House Association, who argued against the motion.

Here is description of the debate:

To prevent the collapse of the global financial system in 2008, Treasury committed 245 billion in taxpayer dollars to stabilize America’s banking institutions. Today, banks that were once “too big to fail” have only grown bigger, with JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, and Goldman Sachs holding assets equal to over 50% of the U.S. economy. Were size and complexity at the root of the financial crisis, or do calls to break up the big banks ignore real benefits that only economies of scale can pass on to customers and investors?

Why No Hate for Job-Killing Advertising?

/ Edward Thater / Leave a comment

As the various branches of the federal government continue to struggle to find ways to put the nation’s fiscal house in better order, a key component of these discussions is whether and how to make tax reforms. If you spend more than five minutes watching Sunday morning news, you know that some policymakers are pretty insistent that taxes cannot be raised because taxes “kill jobs.” My response to this is, “So what?” A lot of economic actions “kill jobs,” many to a larger degree than taxes do, but no policymakers are looking to ban those actions as bad for the economy.

Now, don’t misconstrue me here, dear readers. I am all in favor of tax reform. I think our federal taxation system is too complicated, has far too high a level of compliance costs, and is otherwise a pretty bad way to go about raising government revenue. However, unless and until there is a political consensus about where and how much to cut government spending, there is a legitimate case to be made (one that you don’t necessarily need to agree with) for increasing our current tax revenue to cover more of the costs of government so that we can borrow less. (As an aside, the debate around government spending is usually off base as well. The question should almost never be “how much should we spend?” but rather “are we spending the correct amount of money on the correct things?” But that is a topic for a different blog post.)

It is quite well established that taxes reduce production and reduce jobs. Let’s say the government imposes a $10 tax on widgets. Let’s also say that for the purpose of this example, the market conditions are such that the price of widgets rises by $5. This means that consumers bear half of the cost of the tax through higher prices, while producers bear half the cost of the tax through a hit to their bottom lines. (A fuller discussion of tax incidence and why producers can’t simply pass on 100% of the tax’s cost to their consumers is beyond the scope of this particular post.) However, this means some consumers will be priced out of the widget market, as they will be unwilling and/or unable to pay the new, higher price. Likewise, facing diminished demand and the hit to their bottom lines, producers will scale back production or leave the widget business entirely. That means fewer people employed making widgets. Economists call this loss of economic activity (fewer people buying widgets and fewer producers making widgets) deadweight loss, and it does translate to fewer jobs on an economy-wide scale.

However, lots of other things cause deadweight loss besides taxes. Take, for example, monopolies. The reason monopolies are generally considered bad is because they maximize their profits by creating artificial shortages. This in turn creates a rise in the price per unit (shortage of supply drives prices up), which increases the monopoly’s profits. The monopoly could create more units and sell them at a lower price to people who want the units while still turning a profit, but it wouldn’t be as big of a profit as the one it gets from its artificial shortage. Thus, unchecked market power, which is the ability to control the market price by controlling the quantity produced, creates deadweight loss.

While monopoly is one extreme example of market power, millions of firms in the U.S. economy enjoy some level of market power that allows them to withhold production in order to increase profits. And what causes these firms to have this market power they exercise? For most of them, it is simple advertising.

Companies advertise to build their “market share” by attracting new customers and by building brand loyalty. This, in turn, leads to those businesses commanding a portion of their markets, which allows them to withhold production and make more money. If you’ve ever known someone who rushed to the store to buy the latest Disney DVD release before it goes “back into the vault,” you’ve seen this technique in action. But it’s not just Disney. Firms of all sizes use similar techniques to make more money.

So why aren’t any politicians railing against job-killing advertising? After all, given the millions of firms with some level of market power, the number of lost jobs to advertising is at least as big, if not bigger, than the number of jobs lost to taxes. The obvious political answers are that (a) few policymakers in D.C. have had any sort of economics training, and (b) business hate taxes, which hurts their balance sheets, but love advertising, which pads their balance sheets at the expense of their competitors, so they tend to lobby against the one and not the other.

There are many good reasons to support a smarter tax system with lower rates and a broader base. Such a system would cause less deadweight loss and be better for the economy in the long run. But unless you’re willing to go the extra step to crusade against any economic activity that causes deadweight loss, you should find a better argument to lower taxes.

Germany Is Outraged That America Does What Every Country Does

/ David Kailer / Leave a comment

German Chancellor Angela Merkel expressed outrage at reports that the American National Security Agency allegedly intercepted conversations to and from her mobile cell phone. This comes on the heels of a similar claim from France that the National Security Agency collected tens of thousands of French phone records between December 2012 and January 2013.

The Chancellor argued that such spying constitutes a breach of trust, and that the United States will need to rebuild that trust going forward. The revelation about National Security Agency surveillance is merely the latest in a string of similar stories since former U.S. analyst Edward Snowden leaked that the United States had a very wide-ranging intelligence and surveillance program.

In light of the incident, the German Chancellor suggested limiting the current data-sharing agreement in place between Washington and the nations of the European Union. The article points out that any additional limitations on the free flow of information between the United States and its European allies could have damaging repercussions in the American effort to combat terrorism.

This revelation might prompt the European Union to additionally tighten data privacy rules it is already in the process of drafting. Such new legislation might hinder companies collecting data in Europe and then disseminating that information to non-European nations. The legislation might also impose stiff financial penalties on any country caught violating the new rules.

Any new laws would also affect a program called Swift, based in Europe, which collects data on an international scale about electronic money transfers. Leaks by Edward Snowden indicate that the United States may bee repeatedly violating the agreement underlying the Swift program by retrieving more information than it is permitted to. The article does not indicate whether this suggests the United States pulls more data, or rather collects data about an impermissible range of subjects. The European Union has moved to suspend operation of the program until data sharing laws and policies can be put in place, while the United States has voiced concern that limiting access to the information collected by the program would greatly impede our ability to conduct effective counter-terrorism.

The article ends with a quote from the former head of France’s secret services, Bernard Squarcini, “I’m bewildered by such worrying naiveté. You’d think the politicians don’t read the reports they’re sent – there shouldn’t be any surprise, [t]he agencies know perfectly well that every country, even when they cooperate on anti-terrorism, spies on its allies. The Americans spy on us on the commercial and industrial level like we spy on them, because it’s in the national interest to defend our businesses. No one is fooled.”

This article deals with the moral and legal gray area that is the use of intelligence directed against international allies. In the absence of any binding agreements prohibiting it, should the United States continue gathering secret information about its allies? Should international law reflect a belief that allies are prohibited from spying on each other? Despite the international backlash, are there policy reasons why it might be beneficial to allow allies to spy on each other without explicit knowledge or consent?