Capital Commerce
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Is Cash For Clunkers Cash For SUVs?
Continue reading… 15 CommentsEarlier this week I said that the recently-enacted cash for clunkers program encourages people to buy cars with "only slightly better" gas mileage than the "clunkers" they are trading in. Here's just how slight the difference is.
Alan Reynolds of the Cato Institute:
Consider how easy it would be to game this giveaway program by using that $4,500 voucher to buy a big SUV or V-8 muscle car.
First of all, with Chrysler and GM dealerships folding, it should be easy to buy a mediocre Chevy Cobalt or Dodge Caliber for about $10,000 more than the voucher.
What you do next is sell that boring econobox, even if you end up with $1,000 less than you paid—that still leaves you with $3,500 of free money, courtesy of taxpayers.
As this process unfolds, the flood of resold small cars will make it even harder for GM, Chrysler and Ford dealers to get a decent price for small cars, because of added competition from new cars being resold as used.
That’s their problem, not yours.
So, take the $9,000 net from reselling the crummy little car plus the $4,500 from Uncle Sam. Then use that $13,500 to make a big down payment on a used Cadillac Escalade, Toyota Tundra pickup or Corvette.
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How Many Businesses Could Get A Health Insurance Mandate?
Continue reading… 3 CommentsThe other week I blogged about how whatever version of Congress's health plan passes, it is likely to include a mandate for employers to provide health insurance for their employees. Small-business groups are up in arms because while there will be exemptions for small businesses, they say these exceptions don't go far enough.
[See Small Businesses Hold On Despite Economy.]
So just how many businesses would have to provide health insurance, or pay penalties?
The answer depends on which bill we are talking about. The House and Senate versions have different exceptions. (Note: these are the Democratic bills; the Republican bill does not have mandates.)
Let's start with the House version, which exempts businesses with annual payrolls under $250,000. The Census Bureau's U.S. Business Statistics data are somewhat of a lagging measure. The most recent data on business sizes come from 2006. The data on number of firms with different payroll sizes are not available online, but Lori Bowan of the Census Bureau sent me data from 2006.
That year, the Census counted just over 6 million employer firms in the US (i.e., firms that actually have employees and are not just one-person shops.) Of those, 1,376,285 had annual payrolls over $249,000. That's nearly one quarter of all employer firms—pretty significant. Things change when we look at the version of the bill that passed a Senate committee.
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Cash For Clunkers Hype In Full Force
Continue reading… 21 CommentsToday was the Department of Transportation's official kickoff for the "cash for clunkers" program, so that means Secretary Ray LaHood had to make the media rounds talking about how the program will change driving as we know it. Here's his appearance on CNBC with Erin Burnett. (In case you're not familiar with the idea, basically you trade in your old car when you buy a new one that gets slightly better gas mileage, and the government gives you a $3,500 ot $4,500 voucher to sweeten the deal.)
[See 10 Cars Detroit Should Copy.]
LaHood says that cash-for-clunkers could get 250,000 new cars on the road. But there are at least two good reasons to be highly skeptical of that number, and the broader implications for the Obama administration's policies:
1. As LaHood says, that 250,000 only comes about if the entire program is exhausted by Americans rushing out to trade in their cars. But such excitement seems unlikely when the program only covers cars under $4,500 in value. You can likely sell your car and buy a used car for less than what you'd spend using the cash-for-clunkers voucher on a brand-new car. As John Wolkonowicz of IHS Global Insight told me, "If I have a car that's worth less than $3,500 or $4,500, I probably can't afford a new car anyway."
[See 10 Other Things To Know About Cash For Clunkers.]
LaHood himself says that car manufacturers are putting more rebates in place on top of the new vouchers--thus pushing down the effective price of new cars. But that also means prices in the used car market will likely decline, making it even less clear why these vouchers are the "extraordinary opportunity" that LaHood says they are.
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The Worst Health Care Reforms: What Can We Learn?
Continue reading… 6 CommentsThe debate on US health care reform has been all about two opposing sides: "more government" versus "the free market." Advocates of the former position tend to point to international examples of great health care systems, which presumably point the way forward for our own reforms. Foreign Policy just published a list making the opposite point: what NOT to do based on four international examples. What I take away from the list is this: the dualistic way Americans are arguing about health care is misguided. Every country has massive government involvement in health care. The differences show up because some mess it up more than others.
Of the four countries on the list, Russia and Turkmenistan's problems are most obviously caused by Soviet-style policies, so let's put them to the side. China, on the other hand, the article attempts to portray as another country that shows the perils of a free market in health care. It says China has put in a place "a market-oriented model." The result has been governments unable or unwilling to foot the bill, and so a majority of Chinese citizens have to pay health care costs out of their own pockets, and much of it is unaffordable.
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Does The Credit Card Bill Of Rights Mean More Consumer Freedom, Or Less?
Continue reading… 7 CommentsBack when the Credit CARD Act (also known as the Credit Cardholder's Bill of Rights) was being debated, opponents argued that the bill would not stop "abuses" of customers by credit card companies, but rather simply shift their efforts in ways that limit consumer choice.
Now, the Consumerist blog has reported all the new ways that credit card companies are trying to wring as much money out of as they can before the new rules come into place. This is a few days old, but I think it's important to note something. The blog post seems to hint that these new "mean" practices will go away when the new legislation takes effect. While most of these new practices will be regulated by the CARD Bill starting in February of 2010, it also seems that in some cases, the CARD Bill is creating new difficulties that it does nothing to stop.
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Immigrants A Driving Force Behind Innovative Firms, Study Finds
Continue reading… 29 CommentsNeed more evidence that immigration contributes more to the economy than it takes away? The Small Business Administration Office of Advocacy just released a report on "High-Tech Immigrant Entrepreneurship in The United States." The study looked at a nationally representative sample of "rapidly-growing high-impact, high-tech companies" (defined as tech companies where sales have at least doubled in the past 4 years, and also has had sufficient employment growth). The authors find that 16 percent of these companies have at least one foreign-born immigrant as a founder. Over three-quarters of these founders are American citizens.
Why look at "high-growth, high-tech" firms only? They have a dramatically disproportionate impact on job growth and overall economic growth, two things we are especially interested in these days.
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Ron Paul Audio Interview
Continue reading… 14 CommentsThe Economist has an audio interview with Ron Paul that hits on many of the same points that I interviewed him about recently (see my Q&A here.) For example, he talks about the system of commodity money with which he'd like to replace the Federal Reserve.
Mr Paul also argues, "If you didn't have the Federal Reserve, you could pull out a certificate that says 'one ounce of gold' or 'one ounce of silver', and pay with that."
And even more interestingly, Paul even weighs in on his appearance in the hit comedy Bruno!
On a more serious note, the interviewer raises the most powerful objection to Paul's proposal of auditing the Fed: wouldn't that have the perverse effect of making the Fed more politically pliable? Paul's response is that it is already political. That's not a great response to those who want to keep the Fed's political independence to the greatest level possible. But if you don't think the Fed should exist at all, that objection isn't very relevant.
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Congress's Health Care Reform Problematic For Small Businesses
Continue reading… 4 CommentsA couple days ago the Journal had a great, lengthy report on how small businesses are often unable to afford health-care for their employees. You know it's bad when even a health-care consulting company hits a wall:
The problem? The Washington, D.C., company just can’t afford to cover employees—despite a growth spurt that has left it desperate for additional staff. Only health savings accounts with catastrophic coverage seemed affordable, but they didn’t provide enough coverage to make Ms. Gleason comfortable. Traditional plans with more-comprehensive coverage and lower deductibles came in between $750 and $950 per month per employee, and that’s just not affordable, Ms. Gleason says. (For her part, Ms. Gleason is currently covered by the domestic-policy plan that her partner’s employer offers.)
The article also said that when it comes to the policy proposals going around Congress, "any kind of employer mandate to pay for coverage would exclude small businesses."
But today, the same newspaper reports that's not what's happening.
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Generation Y Is Generation Big Government
Continue reading… 4 CommentsThe federal government is capturing an increasing amount of the remaining job creation in cities around the country. But perhaps more significantly, it's also increasingly capturing the minds of those coming of age. Business school apps might be up as people flee the weak job market, but apps at schools of public affairs are up even more.
Writing on this subject today in the Washington Examiner, Gene Healy has a more powerful statistic:
A 1999 survey asked Gen X college seniors to name their ideal employers; they "filled the entire list with for-profit businesses like Microsoft and Cisco." What a difference a generation makes. In the same poll today, Gen Y prefers the State Department, Teach for America, and the Peace Corps. That's a problem for a country built on the entrepreneurial spirit.
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The Sotomayor Hearings And Financial Bubbles
Continue reading… 1 CommentE.J. Dionne in the Post finds a creative way to link the Sonia Sotomayor hearings to the economic crisis. Creative, yes, but I'm not sure that it works.
He writes about the soon-to-be-decided Citizens United v. FEC case, and how the conservative majority on the Court have steered the case to the broad question of corporate support for political candidates. This opens the door to the possibility that Roberts et al may overturn precedent and thus make it easier for corporations to spend money to support or oppose candidates.
Dionne writes:
It is truly frightening that a conservative Supreme Court is seriously considering overturning a century-old tradition at the very moment the financial crisis has brought home the terrible effects of excessive corporate influence on politics.
In the deregulatory wave of the 1980s and '90s, Congress was clearly too solicitous to the demands of finance. Why take a step now that would give corporations even more opportunity to buy influence? With the political winds shifting, do conservatives on the court see an opportunity to fight the trends against their side by altering the rules of the electoral game?
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Bad Economy Good For A Lower Trade Deficit
Continue reading… 0 CommentsWe've heard speculation that the U.S. trade deficit is a big problem that maybe even led to the recession. But if you really want to reduce the trade deficit, the last year has shown that recessions are a very effective way to balance things out. As unemployment is rising and retail spending is falling, the trade deficit has hit its lowest level in nine years:
The Commerce Department said Friday the deficit narrowed to $26 billion, a drop of 9.8 percent from April and the lowest level since November 1999. Economists expected the deficit to widen to $30.2 billion in May.
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Do California Ads Promote Marijuana Use?
Continue reading… 26 CommentsThe pro-marijuana-decriminalization group the Marijuana Policy Project is making big waves in California's debate over whether to legalize, tax, and regulate pot in order to raise revenue. Many national media sources are reporting on an ad the MPP is airing on California TV that argues the state is ignoring millions of willing taxpayers--marijuana smokers.
Well, the ads are intended to be aired on TV--the LA Times reports that several major local stations are refusing to air them. They were also rejected by an NBC affiliate in the San Francisco area, and ABC affiliates in LA and San Francisco.
Why? According to the San Francisco Chronicle politics blog, the stations fear that the ads appear to "promote drug use."
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Are The States With The Worst Budget Problems The Product Of Taxes?
Continue reading… 4 CommentsABC got a big hit on Digg with its list of the Top 10 States With The Worst Budget Problems (but it's actually eleven states). Sifting through the 200 plus comments to the article, I see the usual partisan wrangling: "They're all blue states," says one. "No, this is the result of Reagonomics," says another.
So who's right? Did an obsession with small-government bankrupt these states? Or do they prove that you can't tax yourself into good fiscal standing?
Luckily, we do have at least one good index that measures how "low-tax" states are. The Small Business & Entrepreneurship Council puts out an annual index on the "best to worst" tax systems for entrepreneurship (I've written about it before). What they mean by "best for entrepreneurship" seems to mean how low the whole range of taxes are: personal income, corporate income, capital gains, excise taxes, gas and diesel taxes, whether or not the state taxes Internet access, etc. So the states that do "well" on this index have put these taxes low, or eliminated them altogether. I'm not using this index to make a value judgment on whether or not these policies are good. I'm just using it as a measurement of low taxes.
How does this ranking compare to ABC's?
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Is The Unemployment Rate As Bad As It Looks?
Continue reading… 3 CommentsIn his monthly newsletter, Jim Paulsen of Wells Capital Management has a point about the rising unemployment rate that doesn't get made very often:
even though the unemployment rate rose by 1 percent to 9.5 percent in the second quarter, about 55 percent of this rise was due, not to job losses, but rather from new entrants to the labor force. Of the 1.568 million rise in the unemployed roles during the second quarter, 878 thousand came from new searchers which is often a good sign the labor market is returning to health.
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Scam Artists Hit Twitter
Continue reading… 2 CommentsWe already have heard about how much many members of Congress love to tweet. Don't be surprised if within the next year, Congress starts talking about Twitter in a quite different way--holding hearings about what laws should be passed to protect the rights of vulnerable tweeters!
The Better Business Bureau reports about new scams that capitalize on Twitter:
The e-mail links to EasyTweetProfits.com, a company out of Surrey, England. EasyTweetProfits.com claims you can make $250-$873 a day working at home with Twitter. The Web site offers a seven-day free trial of their instructional CD-ROM for $1.95 to cover shipping. Buried in the lengthy terms and conditions are the details that the trial begins on the day the CD is ordered—not when it is received—and if the consumer doesn’t cancel within seven days of signing up, they’ll be charged $47 every month.
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Unaffordable San Francisco, And Other Urban Misconceptions
Continue reading… 0 CommentsA couple weeks ago I wrote a story about how a Michigan economist found San Francisco to have the highest amenity value of any city in the country. That's part of the reason why it's also the most expensive city in which to live. But what my story didn't cover is the bang-to-buck ratio. Luckily, Forbes just published a story looking at the issue of affordability: In which cities do basic necessities eat up the incomes of families the worst? Which cities get you more bang for your buck?
Again, San Francisco does quite well--coming up fifth on their list. An average budget for a family only consumers 68 percent of income, because the median income is so high.
One implication for urban policy: Taxes really make a difference. New York and San Francisco both have similarly high incomes and high housing costs. But while San Francisco is one of the better cities for affordability, New York is the most unaffordable--the average budget consumes 93 percent of income. Residents of San Francisco have much more disposable income.
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Nuclear Power May Be Climate Change Bargaining Chip
Continue reading… 4 CommentsIn the middle of this Post story on the political wrangling over Waxman-Markey in the Senate, there's an interesting tidbit. The Democrats may need to offer new permits for nuclear power plants to lure a few Republican votes and avoid a filibuster:
Maine's moderate Republicans, Sens. Susan Collins and Olympia Snowe, are the only likely GOP backers of the legislation at this point, and if Obama needs more Republicans, he may have to authorize Reid to give in for more funding for the construction of the nation's first new nuclear power plants in a generation. The environmental lobby has rigorously opposed any new nuclear plants, but several GOP senators, including Lamar Alexander (Tenn.) and John McCain (Ariz.), have made their case that nuclear power is the best for cleaning the skies of carbon emissions.
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Caplan On How The Market Can Supply Health Care For All
Continue reading… 8 CommentsBryan Caplan has a thought-provoking response to my queries. Excerpt:
...almost everyone familiar with the data admits that at least in First World countries, the difference in health between rich and poor has little or nothing to do with access to medical care.* It's easy to find anecdotes of poor people who suffered or died because of inadequate medical care, but when you look at the big picture, you realize that these anecdotes must be quite rare. So despite response #1, more redistribution wouldn't actually help the poor's health very much.
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Health Insurance's Ideological Divide
Continue reading… 3 CommentsHealth insurance companies (or the big ones, at least) want whatever Frankenstein-esque monster bill that emerges from Congress's health reform debate to require everyone to buy health insurance. Bryan Caplan has a must-read post on what he sees as the main intellectual justification for mandatory health insurance.
Shorter version of Caplan: The standard criticism of markets in health insurance harps on a phenomenon called adverse selection: relatively healthy (low-risk) people will find health insurance too unaffordable for them, because the premiums are inflated by all the relatively unhealthy (high-risk) people buying insurance. These healthy people will drop out of the market, and thus premiums will inflate further still for high-risk people left in the pool.
Caplan responds that the solution of mandatory insurance does not actually do anything about this problem, because insurance companies really can tell who the low-risk people are, and charge them lower premiums accordingly.
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A Hidden Business Tax Increase
Continue reading… 3 CommentsGeoff Colvin, writing about the major tax increases of the Obama administration, lays out one that might have you scratching your head:
That's Obama's first proposed business tax increase. Another would require companies to account for their inventories on a first-in-first-out (FIFO) basis rather than a last-in-first-out (LIFO) one -- an eye-glazing change that's highly significant. In an era of rising costs, to assume that you're selling your oldest inventory rather than your newest increases reported profits and thus taxes, even though nothing real has changed. If inflation turns worse, as many analysts predict, FIFO would force companies to pay real taxes on phantom profits as the value of goods gets inflated while they sit in inventory.
I wrote a piece on the LIFO issue a while back. It's a pretty dry issue, but it's becoming more important. The basic deal is that the majority of businesses use a first-in-first-out accounting method for tax purposes. So when you, a business owner, record the cost of a good you sold from your inventory, it is assumed that the first good added to your inventory was the one sold. That's great for you if you're selling goods that depreciate in value over time. In that case, what's going on your books for that tax year are your highest cost goods. That means that, for tax purposes, your profit margins look lower on the books, and your taxes are lower as a result.
