Friday, September 30, 2011

Healing Unemployment Through Enterprise Zones... or not

I happened to come across a Wall Street Journal article by Arthur Lafffer titled "How to Fight Black Unemployment," which can be found by clicking on this post's title. Laffer starts by attacking the government and its many demand-stimulus by arguing that such measures do not create any wealth, but rather redistribute it; and that by imposing higher taxes on the rich, politicians are penalizing individuals and businesses for their success. He then proposes a supply-side solution for the incredibly high unemployment rates that affect the African-American population in the U.S: the creation of enterprise zones in cities.
Enterprise zones would be geographically defined areas where there is a high concentration of poverty and unemployment. In Laffer's vision, employees that work and reside within such a zone would not have to pay any payroll taxes, and nor would his or her employer. The minimum wage would be abolished within the zone, as would any other regulations that might impede economic growth within such areas. Lastly, the profit generated by companies operating within enterprise zones would only be taxed at one-third the regular tax rate.
At first glance, Laffer's ideas seem to be arguing for less government interference, but it appears to me that he contradicts himself in the article whenever he proposes that the solution for high poverty areas is the creation, by the government, of enterprise zones. This measure would, at its best, redistribute some wealth, and at its worst, contribute to the perpetuation of inequality between regions. I think that most, if not all the companies that would relocate their activities to enterprise zones would be the ones that do not require qualified employees anyways, and are looking for the cheapest labor they can get. But if successful companies do come to these areas, the value of land within these physical boundaries would increase and rents would go up, driving the people that were supposed to benefit from the program away from it, since they would not be able to afford it anymore. Moreover, if restrictions against the selling and buying of properties within these zones are imposed, then the government will have stablished a regime of segregation, where the individuals that live within such zones will develop separately from the ones living outside of it.

Government Created Sprawl by Way of the Road

I don’t understand the reasoning behind how someone can cut the taxes of small business and yet raise the taxes of the rich when many of such businesses make above $100,000 in annual revenue. I can attain a fairly good standard of living off a cooperative rental arrangement making only $15,000 so I would call people that make nearly seven times that to be considerably more well off than myself and dare I say it, maybe even a little “rich”.

I have often felt that small business owners can be considered rich in terms of certain measures of their income yet at times, the entrepreneurial nature of small business can spur on sacrifices made by the owner in order to save and later invest in the expansion of their business. Maybe at times a rich entrepreneur makes an income of $200,000 in store revenue, yet can only take home $30,000 for themselves annually. I’m no expert in the inner workings of the IRS or its workings of the tax code, but it seems to me that there is plenty of room for business owners and “rich” people can get mixed up.

I fear that what happens in a debate when class warfare gets involved, is that employees forget the symbiotic nature of their relationship with their employer. Granted small business owners and “rich” people generally have more money than I do but maybe we should ask ourselves what these people may have done to deserve this income and perhaps the large accumulation of wealth that goes along with it. These people may have taken a risk where they luckily came out on top and were able to support a lot of us little people by paying our wages.

I don’t want a large amount of rich people’s money flowing out of their bank accounts and into the governments coffers. Without that vast sum of money in the free market innovation is stifled because the rich people won’t have enough money to pay the innovators that come up with new ideas and products which happen to be really expensive because of the time and valuable resources that were poured into them.

But how does this relate to sprawl you may ask? I would answer that the ways in which the money is going to be spent has a direct impact on sprawl. This money is taken by the government from the “rich” a demographic which presumably would end up including entrepreneurs of all types, even the small business types everyone loves. So envision a world where these people have less money to spend on expanding their businesses which would most likely lead to more jobs on the market.

What does the government do with the money you ask? It utilizes some tax money, engages in a little deficit spending and uses it just like the Gazette states in the article:
    The president, who remains popular in California despite his national slump,     urged the crowd to press members of Congress to approve not only higher taxes     on the wealthy but also new spending on roads and bridges and the rest of his     economic agenda.

According to many of the articles we have discussed in class is that it is the construction of roads that facilitate transport that is so cheap, it leads to incentive's that cause movement out of the city.

I find it rather humorous that some of the very actions the government takes to shape the state and nature of the economy ends up conflicting with some of their other aims such as preventing the hemorrhaging of the cities of the U.S.

Aside from that it is also intriguing to think of the alternative that was presented in our discussion of the past week in which we considered a world in which private owners and entrepreneurs formed associations so that they could properly take care of the roads instead of the government.

While I think a transition from government maintained roads would be difficult I think after the transfer of ownership was complete, we would see some positive trends in American road ways. With individual ownership of smaller segments of road the owners could focus on their own areas and their respective flaws. Things like pot holes could be fixed much quicker because people at a smaller level would then be permitted to fix the road. Instead of blaming a large and impersonal government for roads that weren’t up to our standards by saying “someone should fix that” we can take charge of our own areas pooling our money with other people in our communities so that we can finally be able to say “we can do something to fix that.”

Private ownership of the road way would mean that construction and maintenance would no longer lead to deficit spending that drives up taxes. Many roads nowadays could be classified as a bit superfluous and a strain on government budgets. Privately owned roads would utilize concepts from the open market that would prices to be ascribed to road ways so that efficiency could be maximized. A reduction in congestion would presumably follow.

This is a concept I had never really considered but after realizing a road system based on the market would stand a fair chance of not degenerating into a chaotic anarchy I think it is an interesting concept that should at least be examined more closely before being dismissed entirely.

Third Lane's a Charm?

Wayne Laugesen, controversial editorial page editor of the Colorado Springs Gazette and a self-proclaimed libertarian, published an article in the Opinion section of the paper on September 29th urging Gazette readers (mainly Colorado Springs, but also Denver residents) to support the “long overdue widening of I-25” one lane in each direction.

According to the article, the Colorado Transportation Commission will meet on October 20th to decide whether they will spend $215 million in unanticipated funds (from federal and state governments and various local sources) on widening I-25 or on widening the eastbound tunnel of I-70.

Laugesen asserts that “any bottleneck along the I-25 corridor impedes the economic advantages that all of Colorado would gain from high-volume travel between the state’s two economic powerhouses”, and that widening the highway between Woodmen and the Douglas County line north of Monument would “speed economic activity by reducing congestion.” We have frequently discussed this topic in class, but I found it especially interesting to discover a situation that directly affects us.

Economists would use the theory of latent demand to counter this assertion by explaining why widening highways acts counterproductively on congestion; as the supply of road capacity increases, the price of traveling on the road decreases. This decrease in the price of traveling (which includes the cost of fuel and the opportunity cost of time spent on the road) encourages people to live further and further away from their workplace and economic activities, and consequently, traffic congestion increases and returns to the original state to begin the cycle over again. Laugesen neglected to consider this very basic theory of economics in his reasoning for supporting this quick fix to highway congestion.

Additionally, after our discussion in class about renowned libertarian, Murray Rothbard, I am surprised that Laugesen claims to be a libertarian. While Rothbard strongly supported the privatization of streets and roads, Laugesen seems to be an adamant proponent for government intervention as a solution for traffic congestion. I am curious as to why Laugesen would not be more interested in promoting a solution, such as the privatization of highways in the form of public-private partnership toll roads, instead of lane expansion.

Public-private partnership toll roads safeguard against the creation of projects that possess larger costs than benefits. Elected officials usually choose to initiate projects that yield political benefits. In the case of PPP toll roads, people will only invest in the project if they can expect a positive return on their investment. Additionally, the private company assumes the responsibility of both building and maintaining the toll road once it undertakes the project. Thus, unlike traditional highway projects, which are built by the lowest bidder and usually require costly repairs over time, private companies build PPP toll roads correctly in the beginning to minimize total life cycle cost. This also protects taxpayers from bearing the costs of schedule delays and cost over-runs such as with traditional highway projects. Finally, toll roads avoid the vicious cycle of increasing congestion by providing sustainable congestion relief through variable pricing instead of lane expansion.

Contrary to Laugesen and the 86% of Gazette readers who showed their support for the widening of I-25 in the online poll, I do not support the “long overdue widening of I-25.” In this case, the old adage “Third time’s a charm” does not apply. As long as I-25 is a free good, congestion will exist. Indubitably, a third lane will not solve this issue.

Thursday, September 29, 2011

Little Poor Farmers and the Big Bad Sprawl

The blog by John Paul Maxfeild called the Economics of Urban Sprawl is flawed. Maxfeild is extremely worried about the effects of urban sprawl, or outward expansion, on American farmland. His major points are as follows: “Every single minute of every day, America loses two acres of farmland. We lost farm and ranch land 51 percent faster in the 1990s than in the 1980s. We’re losing our best land—most fertile and productive—the fastest. Our food is increasingly in the path of development.” Although Maxfeild claims to be addressing these matters on an economic level, he does not bring up any economic reasoning proving why these points are a bad thing. Instead he comments, “As one farmer put it, ‘we’ve gone from growin’ corn to growin’ houses.’” An economist is likely to assume Maxfeild wishes for government involvement to stop sprawl. Maxfeild’s reasons against urban expansion are erred for several reasons. First, Maxfeild fails to realize many farms are currently run inefficiently. In fact, the current farming system is a good example of government failure and redistribution of wealth. Let us remember that government is force. Government currently uses this force to IDLE millions of acres of farmland. The government uses 3 million taxpayer dollars in programs that pay farmers to NOT USE their farm land. The government is redistributing wealth by using taxpayer’s money to pay off farmers. Redistribution of wealth by the government is never efficient. When the federal government tries to limit urban growth to protect farmers, it attempts to correct a government failure with another government failure. If government would try a hands off policy, the correct balance between urban development and farms would emerge. In a free market, markets conglomerate and become interrelated to satisfy consumer’s wants and needs. “The irony of vast corn fields and pastures surrounded by construction sites and tract housing,” may actually be exactly what consumers want. If this is true, there is no negative externality or problem to be fixed after all.


Tuesday, September 27, 2011

A Series of Short Reviews

This week's readings, over policy versus private property, started with a textbook reading that was, as always, very neoclassical. Lots of static multipliers, and static equations that frankly make me wonder where the researchers park their time machines so they can jump back to the precise moment when their models are accurate. Still, amongst all these instructions for making visual aids there were a few useful reminders. That equilibriums are never constant, because education, population, and technological advancement change things practically on an hourly basis. Also that a policy, to, for example, build a sports stadium, does not create wealth so much as redistribute it.

Nevertheless, it was a useful framework for the articles. The reading from For a New Liberty talks about a world that is completely privately owned, where everything is driven my profit, and it really doesn't sound so bad. There is the temptation to be resistant to it because it describes a utopia, just like the champions of Smart Growth, but it has something that Smart Growth testimonials that I have read have not: historical examples and proofs. The economic stimulation of the railroads and good service of their private police in the 19th century, and the private building of roads in the 18th century in England that had the same economic effect. Proof by statistics is much stronger than proof by anecdote.

Anecdotal proof is really all that the deliberative democracy article has to offer. Not in its charges, oddly; it not only says that there is considerable evidence sprawl is a contributing factor to several health problems, it also lists 42 references, so it thinks that it can back that claim. But it lists anecdotal proof for deliberation, and, while sounding good, offers no framework for decisions. Debate is well and good, but government is force, and force requires a decision to be made. The "Symposium" article by Ikeda and Staley actually sums it up pretty well, I think: "...public support for Smart Growth rests on (a) a faith in government intervention and planning to effectively steer (and sometimes predetermine) the growth of a community and/or (b) a fear that new development will fundamentally alter a community."

That quote actually sums up the "Symposium" article pretty well, too. The only thing that I have to add is that it is only the introduction to a symposium, but it has piqued my interest. As soon as I have the time, I think I'll be tracking down more of this material.

And those are my short reviews: static information, Utopian vision, saber rattling, and raised curiosity.

Monday, September 26, 2011

City Farming

The evil "S" word, sprawl, is cited in many cases as the cause of such societal ailments as health problems and loss of farmland among others. Funny enough, cities around the country have developed a solution to at least the two former issues. The best part about it, there is no government interference, no subsidies, no forced reappropriation of land, no tax incentives, not anything on the part of government officials. What you may ask is this solution that required absolutely no direction from the government? Urban farm sites.

Before I found an article about it on the Wall Street Journal website, I had no idea that there were large plots of land within cities that non-governmental groups had purchased for the purpose of farming all natural produce and raising hormone free small livestock(mostly chickens). The market perceived a need for inner city farming and fulfilled that need by purchasing plots of land in derelict areas of the city as well as rooftops. Some schools have even gotten in on the farming craze sweeping American cities by providing gardens that students attend to.

As more people become conscious of health concerns with mass produced produce and desire to purchase or grow healthy, organic alternatives, these gardens and small farms will become even more prevalent. Undoubtedly, sprawl pushes back the boundaries of larger, commercial farms, but it seems like that isn't a bad thing. While cities may be engulfing land previously used for farming with their ever-expanding suburbs, people within the city are recognizing the opportunity to reclaim rundown areas of the city. In the case of the Bronx in New York, few people had good things to say about it before it began to convert old, ruined lots into community or small private farms.

Not only do these small plots provide fresh, organically grown, better tasting fruits and veggies to be sold at farmer's markets, but they also improve the perception of the areas in which they are being constructed, encouraging further urban renewal efforts. Builders are much more likely to redevelop an area if there is something about it that is considered desirable to the people they would end up selling units to.The fact that people are getting out to farm and are demanding fresher produce within the city is a good sign that they are waking up to the health concerns created by their sedentary lifestyle. Perhaps as awareness of and demand for these types of community gardens grows, so too will the health of our cities' citizens improve. Encouraging children to spend time tending to plants instead of playing video games provides the fundamental understanding that exercise and fresh air, even in minimal amounts are good and rewarding things. The popularization of healthy, organic food is a huge step towards our overall population making healthier eating choices and educating our youth about nutritional eating.

Aside from the social benefits of urban renewal, reduced obesity/increased health, and an increase of alternative farm areas, there are purely economic benefits of these urban farms. Some of the larger farms, especially those with chickens, are enclosed behind gates and are able to charge money for tours. In fact La Finca del Sur (translated to "The Estate of the South") in the Bronx is able to charge $30 dollars to drive people do different farm plots on a small trolley. This promotes tourism and entrepreneurial farming in areas previously experiencing a loss of economic activities. As mentioned earlier, the farms that are created in especially run-down areas of the city are making them more attractive areas to live again and drawing in redevelopment funds, thereby revitalizing the housing market in these areas. Without the push of sprawl initially drawing funding away from these areas, the people who have purchased the land for farms would not have been able to afford it due to high land prices and many of these economic and social opportunities would not have been created.

The economy, in my opinion, is a self-correcting unit that will ensure that market demands are met. The results of these farms are proof that significant advances in urban renewal, and correcting social problems can be achieved by the sheer desire of the citizenry. The policies of New Urbanism and Smart Growth are an effort to speed up and standardize this process, but they require intervention by the government, which has been proven to be unnecessary and often burdensome. Also, it is unclear as to whether urban containment and other policies central to Smart Growth actually produce a greater net economic benefit than allowing cities to sprawl and the market to correct for any inefficiencies that result. Clearly, the presence of these farm plots will not solve all issues perceived to be the result of sprawl nor will they achieve an overall effect as fast as public policy would, but they're a good start that allows the people affected by mass suburbanization to make the decisions about how they would like to deal with it.

Monday, September 12, 2011

Jobs Jobs Jobs

Jobs. This seemingly simple word is used more frequently in the press than Charlie Sheen says he's "duh, winning." What is a job? Well, as we discussed in class last week it seems to be an agreement between an employer and an employee that calls for an exchange of a service for some sort of compensation, most commonly money. This means that the employer must count a "job" as a cost instead of income because he is giving out money against his gross income. This leads us to a very interesting question. President Obama claims that his "job creating" plan will cost $447 billion, but if all these "jobs" he is creating are in reality, costs to the companies, how much will President Obama's "job creation" plan cost? Who knows? Who cares? I know the President doesn't. $447 billion is chump change for this administration. But in all seriousness, this "job creation" plan that is so "common-sense" is going to cost a TON. And on a side note, what is the President doing submitting a bill to Congress? Last time I read the Constitution, that responsibility falls to the House of Representative and the Senate, not the Commander-in-Chief, but who reads that silly little book these days? Nerds.

Another part of President Obama's plan is to extend unemployment benefits. I am not going to sit here on my throne as an employed citizen of this country and call out every single person receiving unemployment benefits as lazy and the beginning of the end of this great country. I will say that by extending unemployment benefits people are less incentivized to change. Some people, I say SOME, not ALL, have reached a locational equilibrium. They are fine with receiving unemployment, will fill out the required job applications to receive the benefits, and go about living life. They believe that their utility in their current situation cannot be maximized any better than how they are living. While this is not everybody on unemployment, it seems to be that in our study of economics, this would seem to be an unintended side effect of such a program.