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The five-tool scholar - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 01/08/2018 - 13:35

On Wednesday, I’ll be publishing the 2018 RHSU Edu-Scholar Public Influence Rankings, honoring the 200 education scholars who had the biggest influence on the nation’s education discourse last year. Today, I want to take a few moments to explain the purpose of those rankings (I’ll review the scoring rubric tomorrow).

The exercise starts from two simple premises: 1) Ideas matter and 2) people devote more time and energy to those activities that are valued. The academy today does a passable job of acknowledging good disciplinary scholarship but a pretty poor job of recognizing scholars who move ideas from the pages of barely-read journals into the real world of policy and practice. This may not much matter when it comes to the study of material science or Renaissance poetry, but it does if we hope to see responsible researchers contribute to public discussion of education.

Now, I’m no wild-eyed enthusiast regarding the miraculous power of research. I don’t think policy or practice should be driven by the whims of researchers. That said, I do believe that thoughtful scholars have much to offer. They can ask hard questions, challenge lazy conventions, scrutinize the real-world impact of yesterday’s reforms, and examine how things might be done better.

Full stop. Let’s change gears. In baseball, there’s an ideal of the “five-tool” ballplayer. This is a player who can run, field, throw, hit, and hit with power. A terrific ballplayer might excel at just a few of these, but there’s a special appreciation for the rare player who can do it all.

Scholars whose work is relevant to the world of policy and practice require a similar range of skills to excel. Yet university promotion, pay, and prestige tend to reward a very narrow range of activity and accomplishment. I’ve long thought that if we did more to recognize and encourage five-tool scholars, more academics might choose to spend more time doing and getting good at those other roles.

As I see it, the extraordinary public scholar excels in five areas: disciplinary scholarship, policy analysis and popular writing, convening and shepherding collaborations, providing incisive commentary, and speaking in the public square. The scholars who are skilled in most or all of these areas can cross boundaries, foster crucial collaborations, spark fresh thinking, and bring research into the world of policy and practice in smart and useful ways. The academy, though, treats many of these skills as an afterthought—or even a distraction.

Today, academe offers many professional rewards for scholars who stay in their comfort zone and pursue narrow, hyper-sophisticated research, but few for “five-tool” scholars. One result is that the public square is filled by impassioned advocates (including academics with little in the way of scholarly accomplishment), while we hear far less than I’d like from those who may be best equipped to recognize complexities, offer essential context, and explain hard truths. One small way to encourage academics to step into the fray is, I think, by doing more to recognize and value those scholars who do step out.

Reaction to the Edu-Scholar rankings has left me convinced that the status quo is not immutable. I’ve heard from deans who have used these rankings to help identify candidates for new openings or to inform decisions about promotion and pay. I’ve heard from a remarkable number of scholars who’ve been able to use these data to start discussions with department chairs about institutional support, or who’ve flagged them when applying for a job and for promotion. More than a score of prominent institutions have issued releases touting the performance of their faculty in the rankings, spotlighting activity that too rarely gets such notice.

The Edu-Scholar rankings reflect, in roughly equal parts, the influence of a scholar’s academic scholarship, on the one hand, and their influence on public debate, on the other. The various metrics are intended not primarily as tallies of citations or sound bites, but as a “wisdom of crowds” attempt to gauge a scholar’s public footprint in the past year.

Now, no one should overstate the precision of this exercise. It’s a conversation-starter. It’s best to think of it as analogous to similar rankings of quarterbacks, movie stars, and mutual fund managers. It’s a data-informed effort to spur discussion about how scholars add value and which ones are doing so.

A final point: Readers will note that the rankings do not address things like teaching, mentoring, and community service. Such is the nature of things. These scores are not imagined as a summative measure of a scholar’s contribution. Rather, they are one attempt to expand our notion of research productivity.

Consumer data powers the information economy, but is more transparency needed? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 01/08/2018 - 11:00

User data flowing from one internet company to the next has become a commodity that trades for cash — it’s the currency of the information economy. Much of this data is personal information provided by consumers in exchange for free online services. Every time you search on a browser, share on social media, or purchase from an e-commerce company, data is collected, tracked,and aggregated for sale to third parties. These third parties are often advertisingor marketing firms that resell the data to commercial clients looking to reach a certain demographic. Advertisers and marketers want to collect as much information as possible — the more detailed and unique their data, the better they can target ads (and higher its value). But the growth of the consumer data market has led to consumer concerns about privacy and questions about whether government has a role to play.

Via Twenty20

The continued uptick in smartphone use has been a boon to the data industry. The majority of smartphone transactions take place in apps with terms-of-use agreements that grant the companies permission to use and resell user-generated data. Websites play a key role in the data collection business as well — known, functioning email addresses are pure gold in the consumer data market. A recent report by a Princeton researcher found that web trackers collect email addresses through the autofill function (that fills in your e-mail and password) in browsers like Chrome, Firefox, and Safari. User emails are collected and sold “hashed” or encrypted in a fashion that allows marketers to track cross-device activity. This allows marketers to follow consumers’ activities as they move between computers and smartphones.

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At the same time, consumer concerns about how their data is used have grown. A November survey by Recon Analytics gauged American consumers’ understanding of how their personal data is collected and used by social media companies. Among the findings: 73 percent were “concerned about how their personal data is being collected and used by internet companies.” Almost 77 percent wanted “more transparency on the ads being targeted to them based on the personal data the internet companies collect.” 29 percent of survey respondents didn’t even know that “many of the ‘free’ online services they use are paid for via targeted advertising made possible by the tracking and collecting of their personal data.” As a result, 77 percent of survey respondents supported regulations that would require transparent rules for data collection, and 82 percent were in favor of “legally requiring internet companies to disclose what information is being collected and to whom they sell it to.”To many consumers, the lack of transparency regarding how personal data is collected and used means the “free internet” model is starting to feel not so free.

Moving forward, it would be smart for the internet titans and their colleagues with data aggregating businesses to voluntarily move toward adopting transparency rules that are the same for anyone collecting data. There are tools offered by many of the companies that collect data to limit collection of consumers’ information, but they can be challenging to navigate to the point of achieving anonymity. Simplicity would give consumers a better understanding of how to control their part of the data collection practice.

Agreements on transparency around data collection and data marketing practices may mean more restrictions on how data companies manage their products, but it certainly beats the alternative of being under heavy-handed European-styled regulation, like the upcoming General Data Protection Regulation (GDPR), which includes expensive fines and extremely specific collection guidance that would narrow internet companies’ business models significantly.

The internet owes much of its success to the US government’s “hands-off” approach that has allowed digital communications and commerce to flourish. For the exchange of data to continue flowing and the internet economy to continue thriving, consumer concerns have to be taken seriously. The wild, wild, west of the internet pioneer days are coming to an end, and there is bound to be a sheriff in town. Consumers should know how they can choose to avoid collection of their data if that is their concern.  The Federal Trade Commission (FTC) recently held a workshop on informational injury where Acting Chairman Maureen Ohlhausen noted consumers want to be able to evaluate the tradeoffs for sharing their data and knowing how it’s used, collected, and stored. If the FTC is the most likely sheriff of the data frontier, they are telling the data miners to make their collection practices more orderly, understandable, and consumer friendly now, or face regulation on the horizon.

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The Master’s as the New Bachelor’s Degree: In Search of the Labor Market Payoff - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Mon, 01/08/2018 - 05:01

Key Points

  • American universities awarded roughly 760,000 master’s degrees during the 2014–15 academic year, yet we know little about the payoff associated with these degrees, especially by field of study.
  • Using new data from three states, we show that field of study is closely related to postgraduation earnings from master’s degrees. Master’s graduates in fields such as philosophy, art, and early childhood education have the lowest median earnings—often less than graduates with bachelor’s or even associate degrees.
  • The highest-paid graduates earned master’s degrees in fields such as business, information technology, engineering, or real estate. Differences in state labor markets also led to variance in postgraduate earnings, more so for high-paying fields than low-paying fields.
  • As the number of master’s degree candidates and graduates grows, federal and state governments have an obligation to collect and disseminate program-level data on earnings—prospective master’s students, indeed all students, should know before they go.

Read the full PDF. 

Introduction

Although the idea that the master’s degree is the new bachelor’s degree has been around for several years,1 most discussions around the value of postsecondary education still focus on the bachelor’s degree. These seemingly contradictory positions make sense: The master’s has been the fastest-growing degree over the past two decades, yet the bachelor’s is still the most common degree granted by the nation’s colleges and universities.2

Despite substantial growth, relatively little information exists on the economic value of a master’s degree by field of study. Reflecting the prominence of bachelor’s degrees, however, the US Census Bureau’s American Community Survey (ACS) collects and reports wages for bachelor’s graduates by major—the only college credential for which such information is made available in the ACS. Looking at annual median earnings for workers 25 years and older, the ACS documents considerable variation by bachelor’s field of study—not surprisingly, engineering graduates top the list with earnings over $90,000 while graduates who majored in visual and performing arts anchor the bottom at just over $50,000.3

This kind of field-specific information is also available for the highest end of the education attainment scale. The National Science Foundation releases data on Ph.D. graduates’ wages by field of study through the Survey of Earned Doctorates.4 For both male and female doctorate recipients, the highest annual median salary went to Ph.D.s in business and management ($111,000+). For men, economics and mathematics/computer science came in second (both at $110,000). For women, economics came in second ($100,000), edging out engineering ($92,000). At the very bottom of the salary scale were Ph.D.s in the humanities and the arts at around $50,000 for both men and women—no different than the median earnings for bachelor’s graduates in similar fields.5

Although associate degrees are the second most commonly awarded postsecondary credential, ACS does not report earnings by field of study for associate degree holders either. However, data from several states, as reported by College Measures, a research center focused on identifying the return on investment of higher education credentials, document wide variation in outcomes depending on field of study. A variety of reports show that, as in the case for bachelor’s and doctoral degrees, the labor market places high value on graduates who have earned technical associate degrees while placing a low value on graduates who have majored in liberal arts and related fields.6

While these different data sources cast light on the labor market value of several different types of degrees, the earnings of master’s graduates by field of study is mostly overlooked in official federal and state statistics. This is unfortunate because universities awarded almost 760,000 master’s degrees in 2014–15, more than four times the number of doctorates awarded the same year (179,000).7 While these students likely know how much they have to pay for their master’s programs, they are lacking vital information on the expected payoff.

Many of the existing studies of wages earned by master’s graduates hint at wage differentials, but these often do not provide enough information to fully judge the relative returns to different fields of study. The Census does report some (dated) master’s-level data in its “What It’s Worth: Field Training and Economic Status” series.8 As shown in Table 1, the Census groups together a wide range of specific majors into eight large fields. These data make clear that there are large differences in the payoff for different fields of study—both across master’s degrees and in the size of the “bonus” for adding a master’s to a bachelor’s degree.

Nonetheless, one problem with these Census data is the aggregation of different specific fields of study into a few large categories. Each of the eight large groups used contains several fields of study rather than reporting data for the specific majors that students actually completed. This masks wide variation across the fields that comprise the clusters. For instance, according to the Georgetown University Center on Education and the Workforce, the median earnings for someone with a graduate degree in anthropology is $66,000, and for graduates in interdisciplinary social science, it is $49,000.9

In contrast, the median earnings for someone with a graduate degree in economics is more than $100,000 and $90,000 in international relations—yet in the Census data all are grouped together in social sciences. Similarly, in business the range encompasses a graduate degree in business economics at the high end with a median of $100,000 and a degree in hospitality management at only $69,000.10

The Census data in its “Pathways After Bachelor’s” report also show average lifetime earnings of master’s degree recipients by undergraduate major or field of study at the national level, which is also the method used in the Georgetown University study noted above. The clear limitation is that a student may have earned their master’s degree in a totally different field of study as their undergraduate degree.11

In this brief we begin to address these lacunae in existing data, documenting the wide variation in the earnings of master’s graduates according to their field of study. We use information from three states—Colorado, Florida, and Texas—that have made detailed program-level earnings data available through a partnership with College Measures.12 We document wide variation in the earnings of master’s students by field of study, from the least remunerative to the highest-yielding programs.

In our analysis, we focus on the earnings outcomes of master’s students in specific fields of study five years after completion.13 In the panels of Tables 2 and 3 we report the earnings data of graduates from the 10 programs in each state with the lowest and highest wage outcomes.14 For the lowest 10 programs, we benchmark the wage outcomes against the median earnings for associate and bachelor’s graduates in those three states. There is some variation across the states reflecting state-specific differences in the economies, but there are also some consistent patterns across states with respect to high- and low-paying fields of study.

Read the full report. 

Notes

  1. For example, see Laura Pappano, “The Master’s as the New Bachelor’s,” New York Times, July 22, 2011, www.nytimes.com/ 2011/07/24/education/edlife/edl-24masters-t.html.
  2. See US Department of Education, National Center for Education Statistics, “Table 318.40. Degrees/Certificates Conferred by Postsecondary Institutions, by Control of Institution and Level of Degree/Certificate: 1970–71 Through 2014–15,” April 2017, https:// nces.ed.gov/programs/digest/d16/tables/dt16_318.40.asp.
  3. Camille Ryan, “Field of Degree and Earnings by Selected Employment Characteristics: 2011,” US Census Bureau, October 2012, www.census.gov/prod/2012pubs/acsbr11-10.pdf.
  4. National Science Foundation, “Table 48. Median Basic Annual Salary for Doctorate Recipients with Definite Postgraduation Plans in the United States, by Field of Study, Type of Postgraduation Plans, and Sex: 2016,” National Center for Science and Engineering Statistics, 2016, www.nsf.gov/statistics/2018/nsf18304/data/tab48.pdf.
  5. There is a growing recognition by research universities that more information about career choices and student success for Ph.D. students is needed. See, for example, Rebecca Blank et al., “A New Data Effort to Inform Career Choices in Biomedicine,” Science 358, no. 6369 (December 2017), http://science.sciencemag.org/content/358/6369/1388; and Colleen Flaherty, “AAU Sets Expectation for Data Transparency on Ph.D. Program Outcomes,” Insider Higher Ed, September 20, 2017, www.insidehighered. com/quicktakes/2017/09/20/aau-sets-expectation-data-transparency-phd-program-outcomes. At present, this effort is focused mostly on Ph.D.s and the physical and biological sciences.
  6. For example, see Mark Schneider, Education Pays in Colorado: Earnings 1, 5, and 10 Years After College, American Institutes for Research, April 2015, http://www.air.org/sites/default/files/downloads/report/Education-Pays-in-Colorado-Schneider-April-2015.pdf; and Mark Schneider, Degrees of Value: Differences in the Wages of Graduates from Virginia’s Colleges and Universities, American Institutes for Research, September 2016, http://www.air.org/system/files/downloads/report/Differences-in-Wages-Graduates-Virginia-Colleges-Universities-September-2016.pdf.
  7. US Department of Education, National Center for Education Statistics, “Table 318.40. Degrees/Certificates Conferred by Postsecondary Institutions.”
  8. Stephanie Ewert, “What It’s Worth: Field Training and Economic Status in 2009,” US Census Bureau, February 2012, www. census.gov/library/publications/2012/demo/p70-129.html.
  9. Anthony P. Carnevale, Ban Cheah, and Andrew R. Hanson, The Economic Value of College Majors, Georgetown University Center on Education and the Workforce, 2015, https://cew-7632.kxcdn.com/wp-content/uploads/The-Economic-Value-of-College-Majors-Full-Report-web-FINAL.pdf.
  10. While this study is valuable for highlighting differences in majors the ACS did not capture, it is limited in assessing the value of master’s degrees for two reasons. First, the “graduate advantage” (as the Georgetown researchers call it) is based on all graduate degrees (not just master’s). Second, the graduate wages reported are based on undergraduate majors, not the specific graduate field of study. See Carnevale, Cheah, and Hanson, “What’s It Worth?”
  11. See US Census Bureau, “Pathways After a Bachelor’s Degree,” www.census.gov/library/visualizations/2012/comm/pathways-series.html.
  12. Wage data come from states matching student-level data on program, institution, and year of completion with the state’s unemployment insurance wage data. Except for Florida, whose wage data also include out-of-state students found in the US Department of Labor’s Wage Record Interchange System (WRIS) 2, the labor market outcomes we are presenting are limited to students who studied in public institutions in the state and then found work in an industry covered by the state’s unemployment insurance system. Many states, indeed the nation as a whole, is trying to overcome this data limitation, but these data cover the majority of graduates in each state. In this brief we are focusing on patterns across states (similar to the way in which ACS reports bachelor’s wage data). More complete data for specific programs in each state and in individual campuses can be found at Launch My Career Colorado, “Welcome to Launch My Career Colorado!,” https://launchmycareercolorado.org/; Launch My Career Texas, “Let’s Find Your Best Course,” http://launchmycareertx.org/; and Launch My Career Florida, “Let’s Find Your Best Course,” http://launchmycareerfl.org/.
  13. Programs of study are defined by the federal Classification of Instructional Programs codes.
  14. We recognize that 10 fields of study is an arbitrary cutoff. However, the aim of the report is to show the best- and worst-paying fields of study for master’s degree holders. Also, as noted in endnote 12, data on every program in the state and from every public institution are available at the respective state Launch My Career websites.

Trump kicked Bannon out. The alt-right should be next. - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sat, 01/06/2018 - 01:00

President Trump has kicked Stephen K. Bannon off the Trump train once and for all. Good for him. Now he should kick off a few more noxious passengers whom Bannon brought along — the racists and anti-Semites of the “alt-right” whom Bannon promoted and who are like an albatross around Trump’s neck, dragging down his presidency.

Trump should be extremely popular today. Under his leadership, the economy is entering what is expected to be its third straight quarter of economic growth above 3 percent. Unemployment is at a 17-year low, consumer confidence is high and the stock market is soaring. He has enacted historic tax and regulatory reform, put conservative judges on the federal bench and driven the Islamic State from its caliphate. With this record, he should be riding high in the polls and expanding his base.

Yet Trump’s support is contracting, not expanding. After his inauguration, Trump enjoyed a 41 percent approval rating and 46 percent disapproval, according to the FiveThirtyEight average of polls. Today, Trump’s approval has dipped three points to 38 percent, while his disapproval has skyrocketed 10 points to 56 percent.

Why is that? Because, despite a booming economy and the president’s slate of policy achievements, many Americans are still uncomfortable with Trump in the White House. There are lots of reasons for that discomfort, many of them self-inflicted wounds. But a big reason is Trump’s perceived association with the alt-right — an association that is largely due to Trump’s now-ended association with Bannon.

The alt-right is a fringe movement, and it would have stayed on the fringes but for Bannon. Back in the 1960s, William F. Buckley Jr. and his magazine National Review excommunicated the fringe right of his day — the John Birch Society — from the respectable right. But Bannon and his Breitbart News website did the opposite, bringing the alt-right into the political mainstream through his association with Trump.

At the GOP convention that nominated Trump, Bannon declared proudly that he had made Breitbart “the platform for the alt-right.” He published pieces that praised, among others, white nationalist Richard Spencer as one of the movement’s leaders — the same Richard Spencer who led an alt-right audience (many with arms raised in a Nazi salute) in chants of “Hail Trump!” and helped organize the torch-carrying neo-Nazi mob that descended on Charlottesville in August.

At the White House, Bannon wreaked havoc from within, leaking like a sieve and giving Trump horrible strategic advice. It was Bannon who reportedly urged Trump to double down on his “many sides” equivocation after Charlottesville. And since being fired and returning to Breitbart, Bannon has wreaked havoc from without, backing alleged sexual predator Roy Moore in Alabama and alt-right candidates such as Paul Nehlen — a virulent anti-Semite who refers to his critics as “shekels-for-hire” — to challenge House Speaker Paul D. Ryan (R-Wis.).

Trump’s association with Bannon has been a disaster for his presidency and the conservative cause. Trump said: “Steve had very little to do with our historic victory, which was delivered by the forgotten men and women of this country. Yet Steve had everything to do with the loss of a Senate seat in Alabama held for more than thirty years by Republicans. Steve doesn’t represent my base — he’s only in it for himself.”

Trump is right. The men and women of this country who delivered his victory are not racists, and they are not part of Bannon’s alt-right movement. The steel workers who lost their jobs because of China’s illegal dumping, the factory workers who lost their jobs as manufacturing plants moved across the border and the coal miners who lost their jobs due to environmental regulations voted for Trump despite the alt-right, not because of it. Trump’s reluctance to disassociate himself from the inhabitants of the alt-right’s fever swamps has hurt him. Many Americans who might otherwise embrace Trump based on his record of achievement are unwilling to say “I’m a Trump supporter” because of it.

Trump must denounce the alt-right for one simple reason: because it has embraced him. Trump was factually correct that there was violence on both sides in Charlottesville, but only one side claimed to be acting in his name. And it still does. Which is why America needs to hear the president say: These bigots are not part of my movement. They don’t represent me. I don’t want their support, and I don’t want their votes.

Trump has denounced the “alt-left.” Yet, as Spencer pointed out gleefully after Charlottesville, “Trump has never denounced the Alt-Right. Nor will he.”

Prove him wrong, Mr. President.

Don’t Worry, Wage Gains Should Be Just Around the Corner - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/05/2018 - 21:56

The December jobs report from the Bureau of Labor Statistics shows a year of steady improvement in the labor market. The unemployment rate continued to decline, from 4.8 percent in January to 4.1 percent in December, and total employment increased by 2.1 million jobs. This labor market strength extends beyond the headline numbers, as many other stubborn indicators have shown tremendous improvement. The labor underutilization rate, which captures unemployed, involuntary part-time workers and discouraged workers, is today at 8.1 percent, down from its peak of 17 percent in 2010. The number of long-term unemployed workers has significantly declined as well, and the unemployment rates for certain demographics, such as African-Americans, are near 40-year lows.

If there is one mystery still dragging down this otherwise rosy labor market picture, it is the lack of wage growth. Over the year, average hourly earnings have grown by 2.5 percent. Yet given an already tight and still tightening labor market, this wage growth seems lackluster. To explore potential reasons for this apparent wage stagnation, we can look at the sectors where jobs have been gained, the types of jobs gained and the size distribution of firms which are creating jobs. Digging deeper into these indicators suggests that wage growth may be at the cusp of taking off.

One often-touted explanation for low wage growth is that while workers are getting jobs, these are part-time jobs that don’t command high wages. This was certainly true during and immediately after the Great Recession, when we saw an increase in part-time work, and particularly involuntary part-time work. Involuntary part-time work is indicative of slack in the labor market, and it makes sense that employers could pay low wages while there was a large supply of workers who wanted full-time jobs but had to settle for less. But this situation has changed significantly. Unemployment is low, and 2017 saw an 11.5 percent decline in involuntary part-time work. As the graph below shows, from December 2016 to December 2017, the number of involuntary part-time workers fell by 639,000, while the number of full-time workers increased by 1.9 million. The pool of unemployed workers has dried up, and employers are shifting part-time workers to full-time. If these trends continue, it’s hard to imagine a scenario in which wage growth does not increase.

Another common explanation for low wage growth is that the job gains in the initial years of the recovery were mostly in low-paying service sectors like retail or leisure and hospitality. In 2017, the biggest job gains were in mining and logging, construction, and professional and business services, all relatively high-paying industries. Manufacturing added 166,000 jobs as well, a considerable improvement over the net decline in 2016. But the picture as it relates to wage growth is more mixed. Sectors like mining and logging and construction saw the biggest wage gains in 2017, with increases in nominal wages of 5 and 4 percent, respectively. On the other hand, professional and business services saw nominal wage gains of less than 1 percent in 2017. So wage gains for average workers could vary depending upon which sectors are likely to see more job gains. If relatively higher paying sectors gain more steam, it is likely that wage growth will take off. However, if the bulk of jobs are expected to be in relatively lower paying sectors like education, business services and leisure and hospitality, then wages may continue to grow relatively slowly.

A final factor to consider is whether job gains are concentrated in smaller firms or larger firms. Reports from Automatic Data Processing (ADP), a human resources firm that produces monthly employment reports using payroll data, show that employment grew fastest in 2017 in large firms, specifically those with more than 500 employees. The chart below shows that large firms expanded their workforce by more than 2.5 percent, but small businesses expanded by less than 2 percent. As larger businesses typically pay better than smaller firms, this would again suggest that if these trends continued, wage growth should take off soon.

Hence a deeper look at the data suggests that while wage growth appears to be continuing a decade-long stagnation, there is ample reason for optimism. Not only are more and more workers finding jobs, these jobs are much more likely to be in full-time work, at larger businesses and in sectors that are relatively better paying.

The first jobs report of 2018 should be greeted with cheer. Wage gains should be just around the corner.

On marijuana law, no politician is a true federalist - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/05/2018 - 18:52

“Yet again, Republicans expose their utter hypocrisy in paying lip-service to states’ rights while trampling over laws they personally dislike.” That was House Democratic leader Nancy Pelosi’s reaction to the news that Attorney General Jeff Sessions is increasing federal enforcement of laws against marijuana in states that have legalized it.

Pelosi is right that consistency is hard to come by in debates over federalism. Liberals and conservatives alike hold their policy commitments more deeply than any federalist principles, and they invoke those principles as weapons of convenience in their fights over policy.

On marijuana specifically, almost nobody in politics is truly federalist. Sessions isn’t, and neither is Pelosi or other critics of the attorney general.

Federalism on marijuana would entail letting states set their own policies on the issue, and confining the federal role to helping states when interstate commerce threatens their ability to enforce their laws.

Most of the officials who oppose the Sessions move are uninterested in legislation that would limit the federal role in enforcing marijuana policy. Pelosi isn’t sponsoring a bill to eliminate federal laws against in-state marijuana commerce. She just wants the federal government to refrain, selectively, from enforcing those laws.

Senator Cory Gardner, a Colorado Republican incensed by the new policy, isn’t pushing for legalization at the federal level either. He too just wants selective non-enforcement. He even says he will block nominees to the Justice Department until it agrees to his demand.

In 2005, the Supreme Court considered a challenge to the federal Controlled Substances Act. California users of medical marijuana insisted that the law should not apply to them because their state had legalized their behavior. The court ruled against them.

Justice Antonin Scalia, concurring in the decision, started from the premise that the federal government has the power to prohibit commerce in marijuana among the states. “Where necessary to make a regulation of interstate commerce effective,” he reasoned, “Congress may regulate even those intrastate activities that do not themselves substantially affect interstate commerce.”

The court probably got the case right. How heavily the federal government has to be involved to stop interstate commerce in marijuana is a practical legislative judgment about which the courts have no special expertise or authority.

In deferring to Congress, the court left it open to legislators to revise that judgment. If Cory Gardner and Nancy Pelosi want the federal government to leave most of this field to the states, their proper course is not to make life difficult for the Justice Department until it agrees to stop enforcing the laws Congress has enacted. It’s to change those laws.

The SALT deduction and the ingenuity of the political class - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/05/2018 - 18:49

When we last visited the issue of the state and local tax deduction, the central point was the essential nature of the SALT deduction as a cartelization of state and local fiscal competition. This is an immensely interesting and important issue, touching heavily on the question of federal-state fiscal relations, about which my colleague Stan Veuger and I intend to have further discussions.

High-tax states, such as Governor Andrew Cuomo’s New York, are considering new ways to preserve the deductability of their state taxes. Via REUTERS/Brendan McDermid

As the new tax law limits the SALT deduction to $10,000, from no limit previously, and also raises the standard deduction to $12,000 for individuals and $24,000 for married couples, taxpayers in high-tax states will be forced to bear a higher share of the burden of state and local taxes. That is, the ability of high-tax states to shift part of the burden of their tax regimes onto taxpayers in other states will be constrained.

Stan Veuger:

And that is a problem for public officials and interest groups in high-tax states, as those high taxes are imposed to exploit the monopoly power of those states — it is hardly impossible but still not easy to move elsewhere — so as to subsidize those interests. (The short time horizon of public officials is a topic for another day.) What to do? Let us never claim that the public officials just referenced are not imaginative: They now are considering classifying taxes in excess of the new limit as “charitable contributions” so that the taxes could be deducted in full, as the new law does not limit charitable deductions.

This is supremely interesting and amusing simultaneously. It is absolutely true that under previous and current federal tax law, voluntary contributions to state and local general budget funds — in excess of statutory tax liabilities — are considered charity, and thus are fully deductible from federal taxable income. Many states also operate actual charitable funds — for the disabled, for injured first responders, and the like — and taxpayers on their state tax returns are offered line entries upon which to make donations. Again, such contributions are voluntary, and are not a function of state tax liabilities.

But there is nothing “voluntary” about the latter liabilities. Are those payments “charity?” After all, a given taxpayer owes his required tax payment however it is labeled.

And so it will be highly amusing indeed if, say, California responds to the new tax law by insisting that its income tax is a charitable contribution and thus is fully deductible from federal taxable income. I recommend that the IRS, in an effort to atone for its treatment of conservative nonprofit groups, issue a ruling to the effect that if such taxes are charity, taxpayers are not required to pay them. I cannot wait to see the end-of-the-year appeals from Sacramento, Albany, Springfield, and other centers of high tax states, and read the sort of creative thinking that makes policy work so very much fun.

Alex Brill:

Freedom in the World 2018: Democracy in crisis, featuring Sen. Ben Sasse (R-NE) - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/05/2018 - 17:43


Democracy is in retreat globally and, some say, in the United States. Exacerbating the democratic backslide are authoritarian regimes such as Russia and China, which have increased both repression at home and efforts to export instability abroad. On the home front, indifference toward democratic principles is escalating, as America retreats from a historic commitment to democracy promotion.

“Freedom in the World 2018” — the latest edition of Freedom House’s country-by-country survey of political rights and civil liberties — details the extent of the democratic recession and concludes that 2017 was the 12th consecutive year of decline in global freedom. Join AEI, the Center for American Progress, and Freedom House for a broader discussion on these global trends.

Join the conversation on social media with @AEI on Twitter and Facebook.

 If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.

December jobs report: Year closes out with fewer jobs than expected - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/05/2018 - 16:00

The US economy added 148,000 jobs in December, far below 2017’s monthly average of 171,000. Overall, 2017 brought 2.1 million jobs, the lowest since 2010. AEI experts are available to comment on the current state of the US labor market.

Resident Scholar Aparna Mathur notes:

The jobs picture showed steady improvement over the year, with the unemployment rate down by 0.6 pp and the number of unemployed down by 926,000. Involuntary part-time workers declined by 639,000 over the year and number of long-term unemployed also declined by 354,000. On the not so bright side, there is still scope for improvement in labor force participation as well as wages.

For the full infographic on the September jobs report, click here.

To arrange an interview with Aparna Mathur, or another AEI scholar, contact us at mediaservices@aei.org or 202.862.5829.

Free speech on campus: Can it be saved? | WHAT IF - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/05/2018 - 15:46

In recent years, the foundational values of both free speech and open inquiry have increasingly come under assault at America’s colleges and universities, with many institutions maintaining formal policies that restrict constitutionally protected speech. Frederick M. Hess and J. Grant Addison of the American Enterprise Institute probe into the crisis and propose a policy that can protect free speech from both universities and the United States federal government.

Read the report:

Disability Insurance Needs Reform - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/05/2018 - 14:54

The 2017 report of the Social Security trustees, released in July, shows the Disability Insurance (DI) trust fund will be depleted of its reserves in 2028, five years later than projected in the 2016 report. New applications for disability benefits are coming in below the rates that were projected the previous year.

Some policymakers might conclude that these new projections relieve them of the responsibility to pursue serious reforms of the DI program. They would be mistaken. Even with the recent slowdown in disability claims, the DI trust fund is in severe financial distress and probably would already be insolvent were it not for stopgap legislation, passed by Congress in 2015, that temporarily shifted tax revenue from the retirement side of Social Security to pay for disability benefits. But shifting payroll tax receipts in this way is not a permanent solution to the problem because the retirement program is also racing toward insolvency and cannot afford the lost revenue.

Fundamentally, the disability program is projected to run out of funds because it has evolved away from its original design. The number of disabled beneficiaries has increased from around 1.5 million in 1970 to 8.8 million in 2016, driven by changing legal and societal standards.

Following the political backlash to the Disability Amendments Act of 1980 — which tightened oversight of DI benefits — the Social Security Disability Benefits Reform Act of 1984 placed greater weight on disability assessments by the applicants’ personal physicians and reduced the role of state-contracted medical examiners in making final determinations. The criteria for assessing the severity of pain and discomfort as well as mental illness were also loosened. What’s more, the increasingly subjective nature of disability decisions has made the program sensitive to economic conditions. During periods of slow economic growth, applications for disability benefits surge.

Credit: Twenty20

The consequences of these shifts can be seen in the pattern of benefit awards. The percentage of beneficiaries awarded benefits based on mental health and musculoskeletal impairments (such as back pain) has risen dramatically from 27 percent in 1982 to 53 percent today. The deep recession of 2007 to 2009 led to an additional 2.5 million applications for disability benefits relative to what would have occurred if the economy had kept expanding during those years.

In 1970, the disability program cost 0.8 percent of taxable payroll (taxable payroll is a measure of aggregate wages earned by all U.S. workers below the maximum wage subject to the Social Security payroll tax). This level of program spending could be financed with a payroll tax of just 1.1 percent. By 2008, disability program spending had doubled to over 2 percent of taxable payroll. The 2017 trustees’ report projectsthat total spending will rise to about 2.2 percent of taxable payroll over the long run. Trust fund income will stay steady at 1.84 percent of taxable payroll, which means the program will run a steady and unrelenting deficit under current law. In dollar terms, the disability trust fund has unfunded liabilities of approximately $1.0 trillion.

Key to disability reform are programmatic changes that would keep people in the workforce before they become permanently dependent on disability support. The following are a series of adjustments to the program that should be implemented to see if they improve program results. Some of these suggestions track with recommendations included in the Trump administration’s 2018 budget proposal.

1. Mandatory Physical Therapy or Treatment with Job Support for Certain Applicants. Many people with back pain and depression respond to effective treatment. The Social Security Administration (SSA) should conduct a test of an aggressive program to help applicants with these conditions stay in the workforce by requiring them to participate in a treatment and job support effort before their applications are considered.

2. Temporary and Partial Disability Benefits. Current disability benefits are an all-or-nothing proposition. Applicants wait years for approval. Then, once on the program, they are reluctant to consider anything that might jeopardize their benefit status. A different approach would recognize that many workers could return to work if given temporary support and health care, allowing them time to rehabilitate and then find new employment.

SSA should assess whether a short-term benefit of perhaps two years would allow some workers who might qualify for full benefits to return to employment more readily. These applicants would get an immediate time-limited and partial benefit, along with health coverage, while being treated for their conditions and assisted in job searches. The income support provided during this period would be less than provided with full DI benefits, but would not be reduced as quickly as full DI benefits when the beneficiaries earn wages. The temporary benefits would be terminated at a time certain, and the beneficiaries would not be presumptively eligible for full benefits if they had not found work.

3. Experience-Rated Employer Taxes. Today, all employers pay the same disability insurance payroll tax on their workers’ earned income (1.185 percent for 2016 through 2018). Employers who employ workers who later become eligible for disability benefits at high rates could be required to pay a higher tax. Conversely, employers who have few workers who end up on the disability program might enjoy a reduction in their tax rate.

Adjusting the tax rate in this way would give employers a strong incentive to examine more closely what they could do to prevent their workers from becoming disabled. It may also encourage them to provide additional services to workers who may be at risk of going on the disability program to allow them to stay employed.

4. Other Reforms. Congress should tighten up other aspects of the disability program. For instance, as proposed in the Trump budget, applicants should not be allowed to receive both disability and unemployment benefits. And applicants who recently received unemployment compensation just prior to applying for disability benefits should receive enhanced scrutiny based on their recent work record. Only applicants who can show that their conditions have worsened in some measureable way during that period should be considered for benefits. In addition, SSA should devote all necessary resources to program integrity and vigorous review of existing beneficiaries to ascertain their ability to return to work.

The DI program is an important component of the nation’s safety net. It provides essential income support to many millions of workers who, for various reasons, can no longer earn sufficient incomes to support themselves due to their disabilities. But disability benefits should not become an avenue for unnecessary and counterproductive exits from the workforce.

After many years of steadily increasing disability prevalence rates, it is time to recalibrate the program. It is better for people’s financial well-being and overall health to remain in the workforce as long as possible, rather than to get disability support. An early exit from the labor force based on a disability is all too often a premature end to the productive work of an individual who could stay employed for many more years under the right circumstances.

Trump’s foolish economic Cold War with China - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/05/2018 - 14:14

Donald Trump is a historically unpopular president. And the just-passed Tax Cuts and Jobs Act may well be his peak legislative accomplishment. It’s hard to see Congress passing Medicare reform or a big infrastructure spending bill before the November midterm elections, which might well bolster Democratic power in Washington for the second half of President Trump’s term.

But none of that necessarily means Trump will be a lame duck for the next three years. And this might especially be true when it comes to one of his favorite issues, trade. While presidents typically need Congress to greatly expand trade, such as passing free-trade deals, they have considerable power to stifle trade — as the protectionist Trump has already shown by withdrawing the U.S. from the Trans-Pacific Partnership trade deal. That action arguably remains his most significant economic and geopolitical move to date, even more than the tax cuts. Moreover, 2018 may see Trump declaring the U.S will leave the North American Free Trade Agreement.

But although we’re just a few days into the new year, the Trump administration has already demonstrated a disturbing new use of a potentially powerful anti-trade tool. On Wednesday, the Trump administration blocked a $1.2 billion purchase of Moneygram, the Dallas-based money transfer company, by Ant Financial, an electronic payments firm controlled by Chinese internet tycoon Jack Ma. The deal failed to get approval from an interagency panel that reviews the potential national security impact of foreign investment.

U.S. President Donald Trump and China’s President Xi Jinping shake hands after making joint statements at the Great Hall of the People in Beijing, China, November 9, 2017. Reuters.

This isn’t the first time the Committee on Foreign Investment in the U.S., chaired by Treasury Secretary Steven Mnuchin, has acted against China. In September, CFIUS blocked Lattice Semiconductor from selling itself to a U.S.-based private equity firm that had Chinese funding.

But while stopping that deal had a least a patina of national security implications, Moneygram is an edge case at best. We’re not talking about Goldman Sachs here. Moneygram’s average transfer is only about $300, and the personal data that customers give — supposedly a big federal concern — is about what you would hand over when signing up for a fitness club membership. Based on the government’s reasoning, Jack Ma would also be blocked from purchasing, say, Gold’s Gym. Also, as Moneygram pointed out, there would be no post-merger integration of its data systems with Ant, and American data would continue to be stored in U.S.-based servers. At this point, it’s actually hard to see what sorts of Chinese investments the Trump administration would allow given the ubiquity of customer data in almost all businesses these days.

And that’s a problem. Overall, Chinese companies have invested nearly $150 billion into the U.S. since 2000. What’s more, Chinese investment in the U.S. has greatly increased in recent years, from under $10 billion in the 2000s to nearly $50 billion in 2016. This is a good thing! Indeed, one thing the new tax law is supposed to do is encourage more foreign capital to flow here. The dollars coming from China dipped somewhat in 2017, but it would be reasonable to expect $20 billion to $25 billion to be a new investment baseline, according to my AEI colleague Derek Scissors. That is, unless the Trump administration continues to use national security as an excuse to fight an economic Cold War against China.

That would be a mistake. America, as the world’s leading market economy, should continue to set an example of the sort of economic openness that supports global growth. But to other nations, the Ant-Moneygram decision probably looks less like a national security move than a blatantly protectionist one. After all, Ant Financial had beaten Euronet, a money-transfer rival based in Kansas, in winning Moneygram — Trump’s America First ethos in action. And if even the U.S. is going to favor its companies over foreign competitors, then maybe that will become the new international norm, undoing decades of work to create a more free-flowing global trading system. Which, of course, might be just fine to some in the Trump administration, including the president himself. But other nations don’t need any further encouragement, for example, to try to hobble America’s tech giants.

Not that the U.S should take a hands-off policy to all Chinese investment. Scissors argues, for instance, that Chinese firms and individuals should not be allowed to buy advanced technology that could have military uses. And Chinese firms that receive stolen intellectual property should be banned. But such efforts should work to reinforce trust and support for globalization. What Trump is doing, using national security as an excuse for closing the American economy to overseas competition, will more likely achieve the opposite effect.

8 education stories we’ll be reading in 2018 - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/05/2018 - 13:00

As we wade into 2018, I thought I’d give my not-so-famed prognostication skills a spin. Here’s my best guess at eight education stories we just may be reading in the year ahead:

1. Conference small talk leads to a massive but short-lived pivot in education advocacy. At the NewSchools Venture Fund Summit, Chan-Zuckerberg education honcho Jim Shelton is overheard quietly telling his Gates Foundation counterpart that Mark Zuckerberg has developed a taste for “stranger things” and is hungry for more. Gates chief Bob Hughes notes that Bill Gates is intrigued by “stranger things too.” Within hours, dozens of education advocacy groups, think tanks, university departments, and media outlets adopt new “verticals” dedicated to “strange” strategies and interventions. After being inundated in grant applications related to “psychic phenomena, UFOs, and the achievement gap,” Hughes and Shelton eventually clarify that they were just chatting about the Duffer Brothers Netflix show Stranger Things. One frustrated grantee grumbles to the Washington Post, “I wish we’d known that before we spent a quarter million on a reorg, a new website, and a new Vice President of Stranger Things Development.”

2. NEA honors Betsy DeVos as its “Fundraiser of the Year.” At a ceremony during the annual National Education Association Convention, NEA President Lily Eskelsen Garcia allows, “While we’ve had our differences with the Secretary, we’re truly grateful that she’s helped us to raise tens of millions by starring in all those ads depicting her as an enemy of children, teachers, and kittens. So, thanks!” DeVos accepts the award in absentia.

3. U.S. Department of Education fumbles Black History Month once again. This year, during Black History Month, the Department of Education spells W.E.B. DuBois’ name correctly. That elicits sighs of relief from senior Department staff, who remember last year’s stumbles. Unfortunately, the Department also announces that it is excited to honor “civil rights icon Martin Luther.” After being besieged by confused notes from educators asking how to link Luther’s 95 Theses to civil rights, the Department clarifies, “We apologize for any confusion. We meant Mr. King Junior, not Mr. Luther. And the President wants to be clear that he thinks that Mr. King Junior is doing a terrific job.” At a celebratory White House luncheon, President Trump observes, “You’re hearing more and more about Mr. King Junior these days, and deservedly so!’” Many Lutherans are crestfallen at the bait-and-switch.

4. Wal-Mart launches its own “Daily Education News Blast.” With Wal-Mart’s decision to enter the thriving daily education news bulletin game, Nielsen tracking shows that there are officially more daily education news blasts than there are students in the United States—and loads more news blasts than there are outlets funneling news into them.

Credit: Twenty20

5. The NGA announces that its focus will be shifting from “readiness” to “preparedness.” After “extensive research and discussion,” the National Governors Association announces that it is moving away from the phrase “college and career readiness” and will henceforth set its eye on “college and career and life and culinary-skills preparedness.” To accompany the shift, NBC launches a big new glam event, “Preparation Nation.”

6. A new AIR analysis finds fault with the analyses of state ESSA plans. The American Institutes for Research receives a hefty IES grant to conduct a meta-analysis of the dozens of analyses of states’ ESSA plans. AIR researchers conclude that the analyses were “not ambitious enough” and “failed to adequately enumerate the consequences for plans which failed to pass muster.” AIR does rate six analyses as deserving of an A, but that means that 73 analyses fell short. Most of the 73 bitterly complain that AIR’s review of their reviews is neither fair nor comprehensive.

7. Oberlin cracks down on cultural appropriation. Striking a blow against cultural appropriation, Oberlin adopts a new policy that students will only be allowed to eat a given food, wear a given garment, or purchase particular bathroom products if they can document that the item in question was originally eaten, woven, or created by a member of their own racial or ethnic group. Oberlin’s Vice President for Non-Appropriation Assurance explains to CNN, “We’ve really got this down. At orientation, students will be ordered by race and ethnicity and then issued an encoded ID card for on-campus purchases. At each station in the food court, for instance, we’ll have non-appropriation monitors with scanning equipment. If students want to purchase an item—say, a taco or a slice of pizza—they’ll just run the ID card showing they’ve been verified and approved to purchase the item. If they’re not, the monitor will steer them to a more ethnically appropriate food. We’re hoping that local establishments will opt into the program.” The campus newspaper lauds the program as “a welcome next step towards multicultural harmony” and “a rejection of the oppressive, patriarchal notion of an American ‘melting pot.’”

8. Responses to confusing Janus ruling leave Ed Week reporter with whiplash. After MSNBC’s Supreme Court reporter announces that the justices have ruled in the Janus case that unions can continue to collect agency fees from nonmembers, AFT president Randi Weingarten lauds the “invaluable role that the Supreme Court plays in safeguarding our freedoms.” Moments later, when MSNBC’s reporter realizes he has misread the complex decision, and that the Court has actually ruled that agency fees are a violation of First Amendment freedoms, Weingarten denounces the Supreme Court as “a Trumpian, corporate, right-wing threat to American democracy.” Over on FOX, union critics engage in mirror-image gymnastics. Education Week’s Mark Walsh, who gets stuck trying to write the story, is bed-ridden for a week with a debilitating case of whiplash.

Come December, we’ll take a look back and see just how well I fared. Anything worse than six out of eight, though, and I’m afraid I’ll be disappointed.

This post originally appeared on Rick Hess Straight Up.

Is Bitcoin the Tulip Craze of the 21st century, or something else? - Is Bitcoin the Tulip Craze of the 21st century, or something else?

Fri, 01/05/2018 - 11:00

Over the festive season, the conversation in my household inevitably turned to the phenomenal rise — and fall — in the US Dollar price (exchange rate) for Bitcoin during December (Figure 1). The roller-coaster ride of the blockchain-based currency has been front-page news for the mainstream media, where it has been both likened to and disassociated from the boom-and-bust of the infamous 1637 Dutch Tulip Craze.

Figure 1: Bitcoin to US Dollar, December 2017

It cannot be denied that December 2017 marks the point where the terms “bitcoin” and “cryptocurrency” went mainstream. But whereas in 1637, the average participant in the Dutch tulip market had a fairly good idea about what was being promised, as 2018 dawns, confusion abounds about exactly what Bitcoin and other cryptocurrencies such as Ethereum (Figure 2), Lightcoin, and Dash are, how they differ from other currencies or commodities, and whether trading in them warrants any special policy attention.

Figure 2: Ethereum to US Dollar, December 2017

Currency concerns

A starting point for understanding the similarities and differences between bitcoins and tulips comes from William Stanley Jevons. His 1875 work, Money and the Mechanism of Exchange, defines the four functions of a currency: as a medium of exchange, a measure of value (or unit of account), a standard of deferred payment, and a store of value.

To qualify as a currency, Bitcoin and other cryptocurrencies (which arguably include digital credits such as Airpoints) must fulfill each of these four functions. Clearly, a range of merchants is willing to price in and accept Bitcoin (and Airpoints) in exchange for goods and services, and they can be used to transfer value from one person to another (albeit that Airpoints transferability is somewhat limited), and thereby settle debts. A sum of Bitcoin (or Airpoints) can be held for a period of time as a store of value to be transferred or redeemed in the future, albeit that the terms of exchange may be different to those prevailing when the unit of currency was first acquired. Their status as currencies seems assured.

However, comparing Bitcoins with tulips reveals that tulips fulfill only the store of value function. Tulips are commodities, like stocks and shares, rather than currencies, like the US dollar. Tulips (and shares) have not commonly been used to price and transact deals for other commodities, or to settle debts. Nor have they been used primarily as a means of moving wealth from one location or person to another. However, both tulips and shares have been purchased in the anticipation that they will either hold or increase their value to a greater extent than the purchaser can expect from holding the sum used for their purchase in a currency (or the alternatives that can be purchased with it).

A currency or something else?

If there is a parallel to draw between the 2017 Bitcoin Boom and the 1637 Tulip Craze, it is that the vast majority of people purchasing bitcoins in December have been buying (and selling) a store of value perceived to offer better (worse) returns than the alternatives on offer. They are not buying a currency with which to actually transact — like when I convert my US dollar-denominated paycheck into New Zealand dollars, for example. One currency function — a store of value — appears to have crowded out the other three.

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Indeed, arguably the Bitcoin buying frenzy even more closely resembles the speculative purchase of shares in digital corporations such as Google and Amazon than the Tulip Craze. Ironically, one of the significant differences between the cryptocurrency and the currencies of nation-states issued and overseen by Central Banks appears to have led to this state of affairs being possible in the first place.

The difference is that since August 15, 1971, when the US unilaterally terminated convertibility of the US dollar to gold, the dollar and most other national currencies have been fiat currencies. Fiat currency has value only by government order (fiat) (Airpoints, are corporate fiat currencies, as their value is determined by corporate order(s)). The price (in another currency) individuals are prepared to pay for a dollar (or airpoint) is a function of the faith those individuals have in the actions of the government (or corporate entity) to maintain the value of the dollar (or airpoint) relative to the alternative currency in which that value can be held. Actions such as quantitative easing — increasing the supply of dollars/airpoints — lower the price of a dollar relative to other currencies where no change occurs by altering the balance of supply and demand.

By contrast, digital currencies such as Bitcoin are hybrids. As well as exhibiting some aspects of fiat currencies, they retain some of the elements of commodity currencies and representative money.  Commodity currencies derive their value from the value of an underlying commodity (e.g., gold used in the coins). Representative money consists of tokens that can be exchanged for a fixed quantity of a commodity (e.g., gold). The value of representative money is a function of the value of the underlying commodity. If the supply of that commodity is limited (e.g., no more gold to make coins can be mined), then the ability to manipulate the currency price (exchange rate) downward by varying the quantity in circulation (as occurs with quantitative easing in fiat currencies) is no longer an option.

A share of the action

In the case of Bitcoin, by design, the total supply that will ever be available is 21 million (the current number in circulation is a little under 17 million). From simple laws of supply and demand, the more people wanting to buy a share of the known, fixed quantity of bitcoins, the higher the price is expected to be, all else held equal.  In this manner, bitcoins are functioning more like the limited quantity of shares made available in an IPO than as a unit of currency like the US dollar, the total number of which varies constantly (the quantity of tulips was not fixed, as some bulbs could be used to propagate more bulbs, rather than being planted to render flowers). While the organization overseeing Bitcoin is not traded, the “coins” themselves are operating as a proxy for shares if they were being traded, reflecting both the quantity of individuals wanting to buy a share, and their collective expectations of what the firm is worth.  And as is the case for most IPOs, that price can be influenced by the quantity and quality of information in the public domain. Hence the Bitcoin price has been highly volatile, as speculation has abounded in the media as to whether the current price path is either reasonable or sustainable.

While Bitcoin has been the most-talked-about cryptocurrency, it is not the only one “on the market.” Bitcoin ended December around 25 percent higher (relative to the US dollar) than it began, but its less-famous (and uncapped) crypto-mate Ethereum rose by 75 percent.

This discussion suggests that the first question to resolve before any policies can be formed is whether the objects of interest are currencies, or something else, and if they are currencies, what type they have adopted. As with the debate over whether Uber is an electronic matching platform or a taxi service, this may take some time, as the exercise is far from straightforward.

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America’s top five inbound vs. top five outbound states: How do they compare on a variety of economic, business climate and political measures? - Is Bitcoin the Tulip Craze of the 21st century, or something else?

Fri, 01/05/2018 - 03:53

North American Moving Services just released its annual US Migration Report for 2017 based on household moves from one US state to another last year. In 2017, the top five inbound US states were: Arizona, No. 1 with 67% inbound moves vs. 37% outbound, followed by Idaho (63%-37% in-out), North Carolina (62-38%), South Carolina (62-38%) and Tennessee (58-42%). The top five outbound US states last year were No. 1 Illinois (32% inbound moves vs. 68% outbound), followed by Connecticut (38%-62% in-out), New Jersey (38-62%), California (40-60%), and Michigan (41-59%).

North American Moving Services’ interactive map includes annual state migration data back to 2011 and reveals some interesting historical patterns:

Illinois has been among the top five outbound states in each year from 2011 to 2017 and was No. 1 or No. 2 in each of those years except 2011 when it was No. 3. New Jersey has been in the top five outbound states in each of the last seven years from 2011 to 2017. Connecticut has been in the top five outbound states every year since 2011 except for 2012, and Michigan every year except 2013. Last year was the first time that California was among the top five outbound states.

For the top five inbound states, Arizona has been included every year except 2011, and it’s been No. 1 or No. 2 in each of the last four years. South Carolina has been in the top five inbound states in each of the last seven years, and North Carolina every year except two (2011 and 2015). Florida has been among the top five inbound states in most years but wasn’t in 2017, it was replaced in the top five by Tennessee, which made its debut last year.

Economic Questions: What significant differences are there, if any, between the top five inbound and top five outbound states when they are compared on a variety of measures of economic performance, business climate, business, and individual taxes, fiscal health, labor market dynamism, etc.? Assuming that many Americans “move/vote with their feet” when they relocate from one state to another, is there any empirical evidence to suggest that Americans are moving to states that are relatively more economically vibrant, dynamic and business-friendly, with lower tax and regulatory burdens and more economic and job opportunities, from states that are relatively more economically stagnant with higher taxes and more regulations and with fewer economic and job opportunities?

The table above summarizes a comparison between the two groups of US states (top five inbound and outbound) on nine different measures of economic performance, labor market dynamism, business climate, tax climate and fiscal health for those ten states. And on each of those nine measures, it does appear that the top five inbound states are on average out-performing the top five outbound states, suggesting that migration patterns in the US do reflect Americans “voting/moving with their feet” from high-tax, business-unfriendly, economically stagnant states to lower-tax, business-friendly, economically vibrant states. Let’s review those nine measures, one-by-one:

1.Right-to-Work. All five of the top five inbound states are Right-to-Work (RTW) states, and all of the top five outbound states except Michigan are Forced Unionism states. According to many studies like this one by my AEI colleague Jeff Eisenach (emphasis mine):

There is a large body of rigorous economic research on the effects of RTW laws on economic performance. Overall, that research suggests that RTW laws have a positive impact on economic growth, employment, investment, and innovation, both directly and indirectly.

Therefore, it would make sense that Americans are leaving forced unionism states for greater job opportunities in RTW states.

2. Taxes. The average top individual income tax rate in the top five inbound states is 5.8% compared to 7.69% in the top outbound states. Likewise, the top corporate tax rate in the top five inbound states is 5.4% compared to 8.1% in the top five outbound states. It’s an ironclad law of economics that if you tax something you get less of it, and it’s therefore no surprise that Americans and businesses are leaving relatively high tax states for relatively low tax states.

3. Forbes Best States for Business. Based on its most recent annual state ranking that measures six business categories: costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life, Forbes rated North Carolina ranked as the best US state for business last year. Three of the other four states in the top five inbound states (Tennessee, South Carolina, and Idaho) ranked in the top half of the best US states for business and Arizona ranked No. 33. All five top outbound states ranked in the bottom half of the best US states for business, and four states (Illinois, Connecticut, New Jersey and Michigan) ranked in the lowest one-third of US states for business.

4. Business Tax Climate Rankings. Every year The Tax Foundation creates its State Business Tax Climate Index based on each US state’s corporate income taxes, individual income taxes, sales taxes, property taxes and unemployment insurance taxes. For the most recent Tax Foundation rankings, all of the top five inbound states except North Carolina ranked in the top half (best) of states, and all of the top five outbound states ranked in the bottom (worst) half of the states except Michigan. New Jersey ranked as the worst US state (No. 50), California ranked No. 48 and Connecticut ranked No. 44.

Based on the last two categories (Forbes Best States for Business and The Tax Foundation’s Business Tax Climate Ranking), it’s perfectly understandable that low-tax, business-friendly states like North and South Carolina are experiencing net inflows of Americans and businesses, while high-tax, business-unfriendly states like New Jersey and California are losing populations.

5. State Fiscal Rankings. In an annual study, The Mercatus Center ranks each US state’s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pensions and healthcare benefits. According to its most recent report, “The fiscal health of America’s states affects all its citizens. Indicators of fiscal health come in a variety of forms—from a state’s ability to attract businesses and how much it taxes to what services it provides and how well it keeps its promises to public-sector employees.” In its most recent 2017 report, The Mercatus Center ranked all of the top five inbound states except Arizona in the above average (Tennesse, Idaho and North Carolina) and average categories (South Carolina). In contrast, all five of the top outbound states ranked below average and in the bottom one-third of US states, and Illinois (No. 49) and New Jersey (No. 50) ranked at the very bottom.

6. Economic Performance. The last three categories above show economic performance measures for each of the ten states for: a) state GDP growth rate in the first half of 2017 (most recent data available), b) the state jobless rate in November 2017 and c) employment growth over the most recent one-year period through November 2017. For the top five inbound states, the average GDP growth rate is 1.6%, the average jobless rate is 3.7%, and the average job growth rate is 1.8%. In contrast, the figures for the five outbound states are 1.0%, 4.8%, and 0.8%. In other words, compared to the outbound states, output growth is about 50% higher in the inbound states on average (1.6% vs. 1.0%), the average jobless rate is more than one percentage point lower (3.7% vs. 4.8%) and employment growth is one percentage point higher (1.8% vs. 0.8%).

Those three important economic indicators suggest that the inbound states on average are stronger economically than the outbound states and have more robust labor markets with lower jobless rates and greater job creation.

Finally, although it’s not shown in the table above, it’s worth mentioning that all five of the inbound states have Republican-controlled state legislatures and all of the outbound states have Democratic-controlled state legislatures except for Michigan. Since the top inbound states are relatively low-tax, business-friendly, fiscally healthy, and high-growth states and the top outbound states are relatively high-tax, business-unfriendly, fiscally unhealthy and low-growth states, the difference in party control of the state legislatures is exactly what one might expect.

Bottom Line: The migration patterns of US households last year followed predictable patterns based on differences among states in economic growth, vitality and dynamism, labor market robustness, fiscal health, and party control of state legislatures. To answer the questions posed above, there are significant differences between the top five inbound and top five outbound states when they are compared on a variety of measures of economic performance, business climate, tax burdens for businesses and individuals, fiscal health, and labor market dynamism. There is empirical evidence that Americans do “move/vote with their feet” when they relocate from one state to another, and the evidence suggests that Americans are moving from states that are relatively more economically stagnant, Democratic-controlled fiscally unhealthy states with higher taxes, more regulations and with fewer economic and job opportunities to Republican-controlled, fiscally sound states that are relatively more economically vibrant, dynamic and business-friendly, with lower tax and regulatory burdens and more economic and job opportunities.

Who’d a-Thunk It? Americans vote/move with their feet because they value jobs, economic freedom and prosperity, entrepreneurship, lower taxes, and less government over the opposite?  

Sharing the revenues from oil and gas leasing on the outer continental shelf - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/04/2018 - 21:25

The Trump administration announced Thursday an expansion of the oil and gas leasing program for the outer continental shelf (OCS) for 2019–2024,

which proposes to make over 90 percent of the total OCS acreage and more than 98 percent of undiscovered, technically recoverable oil and gas resources in federal offshore areas available to consider for future exploration and development. By comparison, the current program puts 94 percent of the OCS off limits. In addition, the program proposes the largest number of lease sales in U.S. history.

The energy resources available in the OCS are a component of national wealth, and given the enforcement of efficient environmental protections and other rules protecting social values — the nature of which can be debated another day — the arguments against expanded leasing are exceptionally weak analytically (“The oil industry will benefit!”) and are worthy of dismissal out of hand.

At the same time, important interests will not benefit, at least directly, and may perceive negative effects; tourism sectors in coastal states are an important example. Federal-state (and perhaps local) sharing of the revenues from lease sales and royalty payments can be used to overcome local and state opposition, but current OCS revenue sharing is meager and is rationalized only as compensation for the environmental risks of OCS oil and gas exploration and production.

Compensation now is governed by section 8(g) of the OCS Lands Act, and by the Gulf of Mexico Energy Security Act. The following table shows the amounts transferred to various states in fiscal year 2016.

Federal OCS revenues in FY2016 were $2.8 billion, and so the amounts transferred to the states are trivial both absolutely and in the context of overcoming political opposition to OCS exploration and production. Given that expanded exploitation of OCS energy resources — again, a form of national wealth — is appropriate, it would be useful for Congress to change the law allowing for greatly increased revenue sharing.

Yes, expanded revenue sharing might reduce Congress’ incentives to allow increased leasing. Yes, once the “environmental risks” rationale is superseded by the goal of overcoming NIMBY-type opposition, the rationale for limiting the revenue sharing to coastal states is weakened. But expanded revenue sharing to more states is irrelevant analytically, as the amount shared and the identity of the recipients is a distributional outcome; it is not a fundamental efficiency problem in terms of, again, exploiting national wealth. Congress will be busy in 2018, but this is an issue not nearly as insignificant as it may seem.

Learn more:

Base Prison Reform on What Works - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/04/2018 - 17:14

Each year, the U.S. spends nearly $40 billion on prisons. Yet the return on investment is not good as nearly 80 percent of released prisoners are rearrested within five years. Better public safety outcomes can be obtained for the same amount of money by doing three things: significantly expanding the delivery of effective programs; further reducing our reliance and spending on prisons; and placing greater emphasis on the use of validated risk assessments to help prison system officials make better programming and downsizing decisions.

Decades of research have shown there are effective interventions that reduce recidivism by targeting known risk factors. For instance, the likelihood of recidivism rose by 13 percent when prisoners were “warehoused,” or idle in prison because of choice or a lack of resources. For the recently released, this diminished the chances of getting a job and made it harder to avoid committing another crime. Increasing prison programming resources — such as substance abuse treatment, cognitive-behavioral therapy, sex offender treatment, and education and employment programs — will lessen recidivism and increase the odds of succeeding.

What is the best way to deliver more effective programming without increasing costs? The lack of money in state corrections budgets is a big reason why the nation’s imprisonment rate has fallen by more than 10 percent over the last decade. But while this decline is a step in the right direction — the U.S. has been overusing prison — downsizing alone will not result in less crime. It must be accompanied by a programming increase.

Further downsizing the prison population would not only reduce costs, but also free up the physical space needed within prisons to provide more interventions. Prison populations can be reduced by decreasing the number of persons entering (or reentering) prison, and shortening the lengths of stay for those admitted to prison. But when individuals enter prison, it should be for long enough to participate in effective programs, which usually lasts between three and nine months.

The best way to reduce prison admissions safely would be to restrict probation and parole violators — which account for about two-thirds of all prison admissions — and only allow the more serious offenders who are more likely to get longer sentences. The less serious violators, who are mostly warehoused and idle due to their relatively brief sentences, should remain in the community. We can ensure better public safety outcomes by reallocating the “decarceration savings” to provide more programming resources for all probation and parole violators — for those in prison as well as for those who remain free.

If it’s necessary to extend the minimum length of a prison stay to at least five months for rehabilitation purposes, the same holds true for limiting how long most inmates should be imprisoned. Because inmates with longer sentences tend to be warehoused for much of their imprisonment, the average sentence length, five years, is ample time to participate in multiple effective interventions. Shortening confinement periods for more inmates with sentences longer than five years would generate “decarceration savings” that, once again, should be reinvested to ramp up the delivery of prison programming.

Downsizing the prison population to increase programming would require the correctional systems to make decisions relating to program placement and recidivism risk. Improving the quality of these decisions would require an extensive use of validated risk assessment instruments. Critics have raised concerns about whether algorithms and “big data” are being used to worsen racial and ethnic disparities. But they fail to point out that the alternative is just to rely on professional judgment — which has not performed well in predicting future behavior, including recidivism. To be sure, the design and use of actuarial risk assessments can and should improve. But it’s important to recognize that research has long shown that statistical prediction is the best approach we have.

Implementing evidence-based prison reform would require a shift from punishment to rehabilitation in both our ideology and practice — no small feat. One enduring school of thought has been that if prison is odious enough, it will jolt inmates to change their ways. Increasing the misery of the prison experience may satisfy the impulse for retribution, but it doesn’t lead to an efficient use of taxpayer dollars. If we want prisons to be leaner, more cost-effective, and more successful in reducing recidivism, we need reforms that are based on what’s been shown to work.

Grant Duwe is an academic adviser on criminal justice reform at the American Enterprise Institute and the Research Director of the Minnesota Department of Corrections. His recent AEI study on evidence-based prison reform can be found here.

Banter #297: Andy Smarick on rural education - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/04/2018 - 17:00

In Banter’s seventh installment of the “Bridging the Dignity Divide” series, AEI Morgridge Fellow in Education Studies Andy Smarick joins the show to discuss the unique challenges and opportunities facing rural education in America. In addition to his role at AEI, Smarick also serves as president of the Maryland State Board of Education. With AEI Research Fellow Angela Rachidi and Resident Scholar Nat Malkus, Smarick hosted an event at AEI with authors of a forthcoming edited volume on rural education in America. The volume includes pieces on topics such as rural poverty, the opioid crisis, and education policy in rural communities. The link below will take you to the full event video including links to selections from the volume.

About the “Bridging the Dignity Divide” Series

Over the next few weeks, Banter guests will address topics such as ending the opioid epidemic, expanding career and technical education, reintegrating the incarcerated into society, promoting work and family formation to overcome poverty, and uniting the country. This series is part of a broader institutional push to help close the dignity gap by creating a culture and economy where everyone is objectively and authentically necessary. The links below provide more information on AEI’s work promoting dignity.

Learn More:

Rural education in America: Challenges and promise (Full AEI event video)

AEI Spotlight on Human Dignity

The Dignity Deficit | Arthur Brooks | Foreign Affairs | March/April 2017

A Spotlight on Human Dignity | Arthur Brooks | AEI | November 8, 2017

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