The Not-so-Simple Economics of Right to Work Laws

There was much hand wringing and an equal amount of triumphant cheering last month, when Michigan became the twenty-fourth state to adopt a right to work (RTW) law. It joined Indiana, which went RTW last February, as only the second major industrial state with such a policy. Much of the commentary portrayed the spread of RTW as a victory for corporate power over working America, but do we really know what the effects will be? The rhetoric surrounding the passage of Michigan’s law has shed more heat than light on the matter. A less impassioned review of the issues suggests that the effects of RTW on labor markets are not as simple as supporters and opponents make them out to be. >>>Read more

The Budget Deal: What We Have Left Undone

Making fiscal policy is never going to be easy, but it would be easier if we broke the process down into a logical sequence of steps. Here are those steps, as I see them:

1. Decide how large a government we want in terms of government purchases and transfer payments. Any such number will necessarily have to be a political compromise, because not everyone will agree, but the result should be consistent with inescapable realities such as demographic trends.
2. Agree on a set of budget procedures for prioritizing line items within the constraint imposed by (1), and then follow the agreed procedures.
3. Determine the tax revenue needed to support the desired level of spending. This amount should be consistent with long-term considerations of sustainability.
4. Agree on a set of rules for adjusting spending and revenue over the business cycle. The rules should allow for a prudent amount of cyclical stimulus and restraint as appropriate, while maintaining consistency with decisions (1) and (3).
5. Agree on a tax structure that collects the amount of revenue required by (1), (3), and (4) in a way that is consistent with efficiency (broadest feasible base, lowest feasible marginal rates) and fairness (another political compromise).

Which of these five steps did Congress accomplish in 2012? Not one of them.  That conclusion will hold whether or not the House approves the last-minute stopgap measure passed by the Senate on New Year’s Eve.

In the consensus view, two things are holding back the recovery. One is the fear of an “austerity bomb”—a dose of British-style front-loaded austerity early in 2013, when what the economy really needs is a fix for its long-run inability to manage its budget. The other is sheer uncertainty—how many kilotons of fiscal TNT? Will it be all cuts? If so, which programs will be hit? If revenue is to rise, how much will come from structural tax reform and how much from increases to marginal rates? The New Year’s deal does nothing to answer these questions. All it does is to ensure that we go through the whole exercise again at another midnight a couple of months from now.

So here’s a resolution for the Honorable Members of the incoming Congress: Let’s do in the New Year those things which we left undone in the old. All five of them.

Originally posted on Economonitor.com. Reposted with permission.

Latest Revisions Show Stronger Growth of both Real and Nominal GDP

The third estimate of Q3 2012 US GDP came out on December 20, just as the holiday season was in full swing and as the limited public appetite for economic news was focused on the fiscal cliff. The report deserved more notice than it got. The Bureau of Economic Analysis revised its estimate of real GDP growth upward to a respectable 3.1 percent from the 2.7 percent of the second estimate, which came out in November. The latest estimate looked even better set against the anemic 2.0 percent reported in October’s advance estimate. The latest report also revised the estimate for nominal GDP growth upward to 5.9 percent, the fastest in almost four years. >>>Read more

Follow this link to view or download a classroom-ready slideshow with charts and analysis of all the latest GDP and NGDP data

Classroom Debate Topic: Should We Keep the Charitable Deduction or Scrap It?

Here's a great topic for a debate that will fit in either your micro class (altruism, poverty, preferences) or your macro class (tax reform, fiscal cliff): What should we do about the charitable deduction? Keep it or scrap it?

Yale University's Robert J. Shiller has just weighed in with a New York Times op-ed titled "Please Don't Mess with the Charitable Deduction." He defends the deduction as an essential part of the great American tradition of giving.

Earlier this year I took the opposite position in a pair of posts. (Part 1 and Part 2). I argued that the popularity of the charitable deduction rests on a set of false premises. In reality, the deduction is best viewed not as a tax expenditure, and that not more than a third of the giving that qualifies for the deduction goes to truly charitable purposes. Furthermore, warnings that the nonprofit sector would face collapse without the charitable deduction are greatly exaggerated, if not altogether baseless.

What do your students think? Using these opposing pieces as a starting point, put them to work doing their own research and then let them try out their debating skills.

US CPI Drops Sharply in November; Inflation Expectations Remain Well Anchored

U.S. Consumer price inflation, which has been unusually volatile over the past year, turned sharply negative in November. According to data released today by the Bureau of Labor Statistics, the all-items CPI fell at an annual rate of 3.7 percent during the month of November. That was the most rapid rate of decrease since the worst months of recession in late 2008.

Much of the recent volatility in the CPI has come from the energy sector, particularly gasoline. Consumer inflation spiked at the end of the summer when gasoline prices rose 8.6 percent in August and 6.7 percent in September. Gas prices then fell by 0.5 percent in October and by 6.9 percent in November. >>>Read More

Follow this link to view or download a classroom-ready slideshow with charts of the latest CPI data

Michael Levi talks to James Stafford about Falling Oil Prices, the Shale Boom, and Carbon Pricing

In this exclusive interview, Oilprice.com publisher James Stafford talks with energy security expert Michael Levi, the David M. Rubenstein Senior Fellow for Energy and the Environment and Director of the Program on Energy Security and Climate Change at the Council on Foreign Relations (CFR), discusses. The interview was originally posted on Oilprice.com and is reproduced here with permission.

There’s been plenty of talk about potentially radical US foreign policy changes as a result of the shale boom. While one shouldn’t expect any dramatic US foreign policy move away from the Middle East, factors are influencing a greater focus on Asia. Only one thing is certain in this transforming world: The shale boom is real and the implications are many and difficult to predict.

In an exclusive interview with Oilprice.com publisher James Stafford, energy security expert Michael Levi, the David M. Rubenstein Senior Fellow for Energy and the Environment and Director of the Program on Energy Security and Climate Change at the Council on Foreign Relations (CFR), discusses:  

•    Why oil price stability is still all about the Middle East
•    Why the oil and gas industry is heading towards transformation
•    Why oil prices could drop substantially
•    Why the US shale boom is real
•    Why the shale oil boom won’t lead to major US foreign policy changes
•    Why Keystone XL is pretty much non-essential
•    Why we won’t see any radical change in renewables in the next five years
•    The carbon pricing remains the best way to achieve meaningful results on climate change

Green Illusions: The Good, the Bad, and the Ugly of Alternative Energy

Are solar, wind, and other alternatives the magic bullets that will solve the world’s environmental and energy problems? Take a closer look, says Ozzie Zehner in Green Illusions . Zehner not only argues that green energy has technological, environmental and economic limits, but also that without an appropriate policy context, some forms of alternative energy could do more harm than good.

The dirty secrets of clean energy

The first part of Zehner’s book—by far the best—is devoted to explaining why neither photovoltaic, nor wind, nor biomass, nor any of the other alternatives to fossil fuels will be able to deliver a future of abundant, cheap, clean energy. Chapter by chapter, he brings out the environmental and economic limitations of each technology. Among the highlights— Read more  

Update, May 2020: This book review was originally posted on the now-defunct Economonitor.com. I have reposted the review in full here.