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Academic Hypotheses Versus Religion & Easily Dismissed Conclusions

The National Bureau of Economic Research set out to determine whether religiosity corresponds with a lack of innovation, as measured by the issuance of patents.  As the economists surely expected when they set out to publish such a paper, the answer at which they arrive is: “yes.”

Even the summary published in the Wall Street Journal gives hints of where argument with the methodology could begin, and purchasing the study itself would no doubt allow for a fleshing out of objections.  But it doesn’t seem necessary to go to such lengths.  Just a look at the headline chart gives reason to think the study’s conclusions aren’t worth exploring in detail.

Reporter Jeffrey Sparshott writes that the negative “relationship is apparent when plotting the percent of the population that describes itself as religious against a population-controlled measure of patent applications filed by a country’s residents.”  The distribution actually shows something more like the opposite.

Sure, the most patent-heavy countries, Japan and South Korea, are not religious, but they’re also from a certain culture.  Another East Asian country, the most unreligious, is China, and its innovation is in the middle of the spread.  Vietnam is nearly as unreligious as South Korea, and it’s the fourth-least-innovate country on the chart.  (North Korea isn’t included, by the way.)

Moving out of the orient continues the point.  The chart is broken into a five-by-five grid, and of the five non-oriental countries in the top quintile for innovation, three are more than 50% religious.  Expand the view to the top two quintiles for innovation, and it isn’t even close.  Only seven of nearly 30 countries in this space have less than 50% religiosity.  Moving the threshold to 60% of residents self-describing as “religious” only picks up two more countries.

From the chart, it’s pretty clear that the reasons there appears to be a correlation between the two variables is that (1) the great majority of countries are substantially religious, (2) Japan and South Korea are innovative outliers, and (3) a number of relatively poor countries (heavily weighted toward Islam) are very religious.

“We’re not making strong claims as to what is causing what,” says one of the study’s authors, but that’s obviously not true.  Even the abstract makes much of a presumption of religious opposition to science.

Rhode Island needs to learn how entrepreneurship really works

Everybody around the table gave me that friendly look that says, “You speak eloquently and seem to care, but we don’t think you really get what we’re talking about, here.” At the “Make It Happen RI” conference, I was seated at one of about a half-dozen round tables with eight to ten people at each, assembled to talk about entrepreneurship in Rhode Island.

In a half-dozen other conference rooms in the Rhode Island Convention Center, similar tables were filled with similar people, discussing related topics focused on how Rhode Island could “make it happen.”  That is, how leaders in the public and private sectors could get the state off the wrong end of every list, and change the state’s motto — “Hope” — from a bitter joke to a reality.

The statement that had drawn “the look” was that we were too focused on entrepreneurship as this exciting process of birthing cutting-edge businesses to make investors rich.  The plumber who identifies flaws in his boss’s business model, applied to the local market, and who strikes out on his own to test the theory is also an entrepreneur; it isn’t just the Mark Zuckerbergs of the world.

A recent study out of Pepperdine University specifies that entrepreneurs aren’t just “self-employed” people, but “the starter[s] and owner[s] of new businesses,” with an emphasis on “intense and continuous competition between new products and ideas.”  According to the authors, “The entrepreneur as gap-filler and risk-bearer is especially important to economic growth in developing nations.”

Continue reading on WatchDog.org.

Figuring Out Who the Sucker Is

As Rhode Islanders hear about the latest ideas for economic development percolating among their elected and appointed officials, whether minor-league baseball parks or big bucks for a Commerce Czar, Kevin Williamson looks to Maine for an important reminder:

When some lobbyists for a business interest—any interest group, really—come to the state capitol and tell you that they have a tremendous new idea that will create jobs-jobs-jobs-jobs-jobs, grow the tax base and get voters off the backs of citizen-legislators, listen carefully to see if the next sentence is: “All you have to do is to give us a tremendous amount of money.”

As the poker players say: If you don’t know who the sucker at the table is . . .

Perhaps Maine’s legislators were thinking to themselves: “Financiers and their lobbyists are well-known for their selflessness and their sense of public duty—surely they would not lead us astray!”

If so, they should stop thinking that.

In Maine, as Williamson says, “legislators put millions of dollars into a deal that they did not understand.”  Rhode Island is a leading example of legislators attempting to micromanage an economy that they don’t understand — that it is actually impossible for anybody to understand well enough to direct.

Income Inequality and the Middle Class in RI Cities and Towns

Stephen Beale has a story on GoLocalProv, this morning, on “The RI Communities with the Biggest Wealth Gaps.”  The progressives whom Beale quotes all handle the question as one of “income inequality,” but the subject really has more to do with a certain way of looking at the middle class, as on the interactive map from Pew that I’ve mentioned here and on WatchDog.org.

That’s the thrust of the comments that I gave Beale for the article.  Progressive policies create this gap between rich and poor, because they dismantle the structure that families can use to bridge the gap.  As I put it in the article, they “make it difficult to improvise economically.”  Then, they explicitly attempt to redistribute money based on the political demands of government, rather than leave it in the economy, where people can redistribute it themselves through commerce.  The first method benefits political interests, which helps insiders; the second method benefits the economy, which helps everybody.

An example of a progressive policy suggested by Kate Brewster of the Economic Progress Institute (formerly the Poverty Institute) is a fine illustration:

… “Cities may be able to provide some opportunities for residents to improve their economic circumstances through policies that require businesses that receive benefits from the city to hire city residents,” Brewster said.

The most prominent example of such a policy in Rhode Island is the First Source ordinance in Providence, which mandates that businesses receiving any form of aid from the city first attempt to hire local residents before going outside of the city to recruit. However, a GoLocalProv report last year found that the city had largely failed to enforce the ordinance, prompting a lawsuit from the activist group, Direct Action for Rights and Equality.

As Rhode Islanders are learning with every new high-profile development that’s proposed, our state has structured itself such that businesses find it difficult to operate without seeking some sort of benefit from the cities, towns, and state, whether tax deals, grants, or some other relief.  That puts them at the mercy of such policies as Brewster suggests.  Then, those policies place additional burdens.  To the extent that a business can’t simply hire the best candidate for a job, it represents an implicit drag on its operations.

The end result is that entrepreneurs (and less highfalutin small-business owners) can’t or don’t bother to enter the economic game.  That leaves more space for the established players who are able to work the system.  They get richer than they otherwise would be, while the folks at the bottom of the ladder have no rungs to climb up.

No Jobs for College Grads & No Jobs for Anybody

At first look, a study mentioned on MarketWatch appears to provide support for the mantra from Rhode Island’s governing elite that we need “the right kind of well-paying jobs.”  From the color-coded map that Quentin Fottrell includes with his article, the takeaway appears to be that Rhode Island is one of the four states with the lowest numbers of jobs for college graduates.

Comparing that map with my regular employment-versus-peak chart shows that there’s more to the story.  On the map, RI is in company with North Dakota, but in employment, North Dakota is up there with Texas as two states that have put the recession well in their rear-view mirrors.

If you consider the second chart of the study that Fottrell cites, you’ll note that adjustment for population doesn’t help Rhode Island at all, but it does move North Dakota up to the middle of the pack, albeit below the national average.  The key point is that Rhode Island lacks both college-grad jobs and non-college-grad jobs.  In short, Rhode Island doesn’t have much by way of opportunity for anybody (except political insiders and opportunists).

As a college grad who spent much of the last decade working as a carpenter, I’d suggest for the average Rhode Islander having a job comes first.  Benefiting from a college degree comes second.  Judging by the way our governors and legislators set policy, it’s pretty clear that they believe it’s worth slowing down job growth generally in order to make sure that those that are available meet their approval.

Making matters worse is that there’s no guarantee (or evidence, that I’ve seen) that the “well-paying jobs” that elected officials promise will actually go to the Rhode Islanders who are suffering from the state’s moribund economy.  As I keep repeating: the only plausible, or even humane, solution is to back the government off so that Rhode Islanders can develop the kind of economy that serves their needs.

This may just be my undying optimism, but I have a feeling that letting Rhode Islanders do that will improve prospects across the job spectrum.  After all, a good portion of your neighbors do, in fact, have college degrees that they’d like to put to work.  Left free to work and to experiment, they’ll make their own opportunities.

Who’s “Working for the Government”?

Two items in today’s Providence Journal “Political Scene” column make me hope for broad agreement on a proposition.  Item 1:

In 2012, Political Scene reported that Kilmartin and his wife, Kristine, derived big chunks of their income the previous year from his $56,862-a-year pension as a retired Pawtucket police officer. When she retired that year, on the cusp of her 51st birthday, as director of the legislature’s data-services office, she started collecting her own $60,030.96-a-year state pension.

Total pensions: $116,893.  According to the RIOpenGov payrol application, Kilmartin added $116,611 via his salary as AG.  Total income: $233,504.

Item 2:

Former Family Court Magistrate John J. O’Brien retired with two state pensions totaling more than $195,000. …

The retired chief judge of the state Family Court, Jeremiah S. Jeremiah Jr., took another path to receive $207,207 in two pensions  — municipal ($22,126) and judicial ($185,648).

Proposition: Can we all agree that it’s simply obscene for households to live this well off the public dime — for work they are no longer doing?  

Really.  Flip over to the commentary section of the paper, and you see a letter from Lorraine Keyes, of West Warwick, who returned to her Westerly business after a few months away only to discover that an oversight in paying her taxes resulted in not only hundreds of dollars of additional fees, but also a heavy-handed threat that the town would be selling her property two months later if the bill were not paid.  Her conclusion:

No wonder people leave Rhode Island as soon as they can. I don’t know if this happens in every town, but it is such a shame that this state tries to drain every cent it can from the average person.

Oh, Lorraine.  Even just in the state system, Westerly’s got 245 retired employees taking home up to $95,237 per year.

Don’t you see?  They don’t work for us (literally, in the case of retirees).  We work for them.  Everything you own in Rhode Island, even if you think you built it, is really just a privilege that they allow you to enjoy while supporting their machine.  If you’re not going to keep up on your payments, naturally they’ll take it all away.

Getting Economic Development Wrong

Readers may get the impression of a broken record with this post.  Before I go on, perhaps I should explain to the younger folks that records were large black vinyl discs, of about 10 or 12 inches, that would spin on a table called a “record player,” with a needle following grooves in the plastic and thereby transmitted prerecorded audio.  If the record were scratched, the needle would skip across grooves and the listener would often hear the same phrase repeated over and over again.

Anyway, repetition is obligatory in Rhode Island, these days, because the people we’ve elected to public office have the completely incorrect view of economic development.  Here’s Governor Gina Raimondo’s Commerce Czar Stefan Pryor responding to the House Finance Committee’s concern that the governor intends to give him a great deal of money and discretion:

… Pryor bluntly told the committee that the corporation cannot grow the state’s economy without the programs proposed in the governor’s budget. He described a conversation he had with the corporation’s executive staff before he formally assumed his new role earlier this year. Pryor said he asked the staff how Rhode Island would attempt to compete with a company that arrived in the state with a list of project terms provided by another nearby state, such as New York.

“This is not a fictionalization. This is the actual answer I got back: We cannot — on any point,” Pryor said. 

“That’s a problem. We must ensure the appropriate level of accountability and the necessary level of flexibility to carry out this work. But the primary problem that we have is we can’t even counter. We can’t help our businesses in Rhode Island grow.”

Simply put, it should not be the role of government to take money away from the people who live in the state in order to outbid other states’ bribes to lure the economic actors whom government prefers to the state.  Rather, the government’s role should be to ensure that Rhode Islanders have the space — in stability, security, and infrastructure — to make their state a place that attracts the sorts of economic actors whom they prefer.

Politicians sometimes say that Rhode Islanders are Rhode Island’s greatest asset, but they don’t really mean it.  If they did, they’d let Rhode Islanders maximize their own efforts toward building their lives and shaping their state.

The technocratic, Raimondian method of economic development is akin to confiscating money from the music industry in order to subsidize companies that make enhanced record players when they should be leaving the money in the economy and trimming regulations in order to allow Rhode Islanders to develop cassettes, compact discs, and mp3 players.

Lincoln Chafee’s sense of modern politics could indicate the U.S. has caught RI’s civic illness

A shock went through the collective psyche of Rhode Island when former governor Lincoln Chafee announced that he had formed an exploratory committee to consider a run for the Democrat nomination for President of the United States in 2016.  As governor, Chafee’s public support became so thin that he announced in September 2013 that he would not seek reelection to his office, which didn’t expire until January 2015.

Stepping back from the local incredulity, however, it’s an open question whether Chafee’s got a political sense that his critics lack.  Maybe things like experience and evidence don’t matter as much as they once did.

Continue reading on WatchDog.org.

A Two Million Plus Dollar a Year Loser of a Stadium: What Does the Governor See that Almost No One Else Does?

Two million dollars per year because that is the projected annual loss for state taxpayers in the just-unveiled proposal by the new owners of the Paw Sox for construction of a baseball stadium in Providence. It’s worth repeating: the numbers offered by the Paw Sox owners THEMSELVES have state taxpayers losing two million dollars per year.

“Plus” – and the plus could be quite a large figure – because the president of the Providence City Council has told WPRI’s Dan McGowan that Providence would be looking to state taxpayers to pick up the property taxes that the owners of the Paw Sox have requested to be relieved of. This suggestion would be a laff riot, especially in light of the state’s multi-hundred million dollar structural deficit, except that the council president seemed quite serious about it.

Earlier today, John Marion tweeted out,

Received a call from someone looking to know if there is an organization actively opposing the PawSox stadium deal. Anyone know if there is?

Most of the reaction I’ve seen and heard can be described as “actively opposing” the stadium (also: vigorously opposing, seriously concerned about and downright appalled by), though a single-purpose opposition organization – presumably what Marion’s caller meant – has not yet popped up. Even Bob Plain over at RI Future, never shy about spending tax dollars, has expressed skepticism about the proposal.

In fact, it would be far quicker to list those who support the Paw Sox proposal. This list so far consists of the building trades unions – not a shock as the Paw Sox owners have promised that the proposed stadium would be built with union labor.

Enter Governor Raimondo, who spoke to NBC 10’s Bill Rappleye today.

“I also think this has the potential to create a lot of jobs – immediately construction jobs,” Raimondo said. “It brings people into the city and could catalyze other economic development in the area, which has been done in other cities. If we do it right, I think it could be a good piece of our economic puzzle.”

The Convention Center Authority, 38 Studios and others – the very last thing that state taxpayers can afford is yet another costly economic development loss leader. But by the Paw Sox owners own calculations, that’s exactly where we would be headed with a minor league baseball stadium in Providence. We would respectfully ask to see your numbers, Governor Raimondo. How exactly would a brand new $2+ million hole in the budget make a good contribution to the state’s “economic puzzle”?

The Corporatist Net Is Tightening

In keeping with a recurring theme, on this site, a statement from Governor Raimondo that appeared in a Providence Journal blurb last Wednesday raises a central, fundamental question that nobody is asking as part of the discussion about how to move Rhode Island forward (or at least stop its backwards trajectory).  The topic has to do with government job-training programs:

“We have to put employers at the center of the process to determine what they need to hire workers,” she said, “It has to be employer-driven and it has to move at the speed of business.”

Here’s the question:  Why is it a legitimate government activity to shape the population to fit the needs of corporations?

Seriously.  I’m a free-market champion, and improving the business environment is critical.  But (1) that can be done by loosening, rather than tightening, the government’s grip on the reins, and (2) people, not businesses, must be central.  If businesses are telling the government what sort of employees they need, and if government is using its coercive advantages in order to shape the people to fit the request, that isn’t free market.  It’s corporatist and certain to result in long-term stagnation and a dismantling of the bridge between the have-nots and haves.

Regulatory Humility as an Illustration for Civic Principles in RI and IN

Federal Trade Commissioner Maureen Ohlhausen believes in “regulatory humility,” and policy makers on the state level would be wise to hear her out. The concept is one that seems like common sense, but examples in government and politics more generally suggest that humility is less attractive in practice.

With reference to economic theories by the likes of Friedrich Hayek that are, she says, not exactly in dispute these days, Ohlhausen explained at a recent American Enterprise Institute event that regulators should be aware of their limits.  Especially in an era of technological lunges, regulators can’t know everything about the industries that they regulate–let alone other industries that innovation might bring into competition–while facing an unknowable future.

A skim of the legislation proposed in any state will likely show a less-than-humble approach to regulating (although some will be worse than others).

Continue reading on WatchDog.org.

Governor Wants to Remove “Privilege” from Tax

Behold the power of a parody song.  Governor Raimondo’s office sent a request to the House and Senate finance committees yesterday:

The Governor requests that several amendments be made to Article 11 entitled “Relating to Revenues”, including changes to sections 3, 8 and 15. The changes requested are listed and explained below.

The bulk of the changes (irrespective of the actual impact of each one) are geared toward removing the language that, as I first pointed out last month, makes the “Taylor Swift Tax” on valuable second homes a tax on the privilege of owning the property, rather than on the property itself.  As a matter of legal and political philosophy that’s a massive affront to property rights, because it implies that owning property is not a right, but a privilege granted by the state.

Of course, this only adjusts the outrage from being an assault on rights to being a first step toward imposing a new tax on Rhode Islanders, and a duplicate one, at that — even a triplicate or quadruplicate one.  Rhode Island cities and towns already have property taxes.  Indeed, fire and water districts also levy taxes on real estate holdings, as do (or will) waste-water districts, like the one that the General Assembly just imposed on the people of Tiverton.

Apparently, reading all of the reports that the General Assembly has commissioned to study our tax and business environment, government officials took the fact that we have high property taxes as an indication that it was a good place to stick a syringe.  Here’s the new language from Governor Raimondo:

Imposition of Tax. (a) The tax administrator of the state of Rhode Island is empowered to impose a tax on non-owner occupied residential property within the state during any tax year commencing with the tax year beginning July 1, 2015 and every tax year thereafter.

In other words, the only thing making this a tax on high-end properties is the “definition” section of the legislation.  This could easily be adjusted downward as budget shortfalls require.

Worse, now that the tax is on the property, not the “privilege” of owning it, rental properties with “five or less units” will definitely be caught up in it.  A landlord renting out five units valued at $200,000 each (not exactly luxury living, necessarily) will be caught.  And as property values climb (assuming they do, in Rhode Island) more and more properties will be captured, even without the General Assembly lifting a finger to tighten the screws.

In the not-too-distant future, a family owning a relatively modest vacation home or renting out property will face up to four different taxes on it.  As the song goes: “Ask any economist, he’ll tell you we’re insane/But you know we love taxpayers, like hungers love game.”

The Ongoing Welfare Argument in Rhode Island

The generosity of Rhode Island’s welfare system is a matter of recurring debate, with taxpayer advocates’ having a general sense that it’s too generous and welfare advocates’ giving the impression that they’re picking points to serve their script.  The latest iteration of the latter comes from Scott MacKay on RIPR.  His first salvo pretty well sets the tone:

Well, let’s start with the basic welfare program that helps the poorest folks in the Ocean State. That’s a program called  Temporary Aid to Needy Families, known by the acronym TANF. The vast majority of these families are single-parent families headed by a single woman. A typical family is a woman with two children. The monthly welfare benefit for such a family is $554 a month, a figure that has not been increased since the 1970s.

MacKay next compares this payment amount to those in other New England states, finding that Rhode Island’s payment is lower than every other state’s in New England except Maine.  First, for clarification, let’s note that it overstates things to say that “the vast majority” of TANF families are single-parent.  Sixty percent are, with another 33% being “zero-parent families” and 7% being two-parent families.  I haven’t found a good definition of “zero-parent families,” but they’re likely children in foster care and teens who, in both cases, have other sources of support.

The more important point, though, comes with MacKay’s comparison to other states.  I looked into this point back in May 2004 and noticed that Rhode Island is slower to reduce benefits for those with other income, which quickly improves Rhode Island’s comparative standing.

Another point I made back then was that it’s too narrow of an analysis to define “welfare” as only the simple cash payments; there are so many other ways that taxpayer dollars flow to social services.  To his credit, MacKay addresses this argument to some degree, giving comparisons for a few other programs, but then he undoes any reasonableness by getting on a high moral horse to spear some straw men, calling on us to “dial down faux rhetoric that demonizes the poor.”

MacKay should dial down the faux rhetoric that demonizes the taxpayer:

  • Who is generous in many ways, including healthcare, education, and more.
  • Who already has the second-highest state and local tax burden in the region.
  • Who has long been struggling to make ends meet in New England’s worst employment environment.
  • Who has a relatively low median income and a struggling middle class.
  • And who has reason to doubt the effectiveness of the state bureaucracy, considering that only 11% of participants in the TANF program are actually fulfilling the program’s theoretical requirement for work or work preparation.

MacKay goes so far as to complain that Governor Raimondo’s budget would remove the extra tax that businesses pay for electricity, but households do not.  That’s shortsighted, inasmuch as every dollar that a business doesn’t have to pay for taxes (or energy) is a dollar that can be spent directly on somebody’s paycheck, or indirectly on employment by growing.

UPDATED: Governor’ Raimondo’s $13.6 Million Refinance

Give this to our super smaht, financially savvy new governor: She knows how to pack a budget with things that require detailed review and analysis if the public is going to have any real sense of whether it’s a good or bad package, on the whole.

Jennifer Bogdan does the good work of digging into the big refinance part of Governor Raimondo’s proposal in today’s Providence Journal:

Roughly $64.5 million in Raimondo’s 2016 fiscal year budget would come from a refinancing effort. Another $20 million would flow in fiscal year 2017. The bonds in question have an average interest rate of 4.9 percent, but if refinanced the interest rate is expected to be lower than 2.34 percent. She calls the refinancing conservative and says it would be irresponsible not to consider a money-saving measure for the state.

By “money-saving,” what the governor means is that she’s using the restructuring to borrow around $84 million in the first two years.  In the third year, the state will actually have to pay about $10 million more in debt service, and the years will change between costing more and costing less over the refinancing period.  As shown in a table included with Bogdan’s article, when the state reaches the end, in 2032, it will have actually paid $13.6 million more in debt service.

That’s where the governor deploys an accounting trick to make the analysis a bit murkier.  In the words of Budget Officer Thomas Mullaney, “The key here is that we would not enter into this transaction if the state would not ultimately come out ahead.”

He’s referring to the fact that if you look at the present value of the changes in payments up and down over the sixteen years — in other words, adjust them for inflation to what they would be in today’s dollars — the real value of the changes is actually $225,238 less in debt service.

Like so many of the “bold and innovative” moves in the governor’s budget, that’s misleading.  For one thing, the assumed inflation rate is critical.  A rough spreadsheet suggests it’s 2.97%.  In that case, it would erase these so-called savings if inflation turns out to be 2.91%.  Below that, we’ll be well into negative territory.*

For another thing, the state isn’t going to treat the refinance like a restricted fund.  The state will spend the savings in the years that there are savings and will have to come up with the money in years that there are costs.  The money is going to have to come from somewhere to pay the extra debt service, and that somewhere will very probably have been worth more to the economy than simply inflation.  (Hey, maybe the governor should invest the savings along with the state pension fund, which the state assumes makes 7.5% profit every year.)

Simply refinancing from 4.9% to 2.34% interest for the same number of years would have saved a great deal of money that could have been left in the hands of Rhode Islanders.  Whatever the governor’s room full of smaht people do for economic development, they have to do better not only than the cost of the refinance, but also the economic activity of people acting without the government’s meddling.

UPDATE (03/27/15 8:37 p.m.): According to the governor’s office, the estimated rate of inflation is 2.44%, which my math leads me to believe would produce a $2 million cost to the refinancing, in current dollars.  I’ve asked for more insight into the governor’s math, but if anybody has an idea, I’d be interested to hear it.  There also must be something incorrect in the information out of the governor’s office.  They’re saying the refinancing is of $160 million of debt, but the Projo’s numbers have the state paying nearly that amount every year.

* Posting this of a Friday afternoon, I got my signs reversed.  I’ve fixed the relevant text.