Innovation Online

It is fascinating to use this superb interactive graphic to compare the burden of housing as a percentage of income over time and across the country. This is an outstanding example of how to display quantitative information on a website. Note that there has been a substantial decline in the Raleigh area since 1985, but most of it had occured by 1995. Suggestion: If you are visiting relatives as I am, compare their region--whoops! Santa-Cruz is the second least affordable region in the country...

Posted by Roland Stephen at 10:20 AM | Permalink | Comments (0)

When I went to grad school (oh so many years ago) I was interested in Japan's challenge to U.S. economic leadership, and in the implications of that challenge for the international political economy. There was a tremendous amount of overheated rhetoric on the subject--all gone now after a decade and a half of poor performance by the Japanese economy.

There is a lesson here, I think, when we hear about the "rise" of China or India. For example, this post from one of my favorite blogs discusses some fundamental problems in higher education in India.

Bloomberg columnist Andy Mukherjee warns that substandard higher education may thwart India's call-center dream:

To maintain its global share of 65 percent in information technology and 46 percent in business-process outsourcing, the country will need 2.3 million professionals by 2010. According to McKinsey's calculations, India may face a deficit of as many as 500,000 workers. As much as 70 percent of the shortage will crop up in call centers and other back-office businesses, where proficiency in English is the No. 1 prerequisite for landing a job.

People within the Indian outsourcing industry are aware of the problem: A number of executives cite high employee attrition and galloping wages as signs that the labor market for undergraduates in India is getting tighter.

It isn't obvious why that should be so. In a country where millions of educated young people are unemployed, why do call centers feel compelled to give pay raises of 10 percent to 15 percent a year? Why don't they boot out the highly paid workers and grab the eager aspirants? And why do they offer their employees free dance lessons on top of a $4,000 annual wage -- worth $36,000 when adjusted for purchasing power in the local currency -- when they can't pass on the increase in costs to the U.S. bank or the European insurance company that is paying for the call centers' services?

The answers may have a lot to do with India's education system... only about "10-15 percent of general college graduates are suitable for employment" in the outsourcing industry.... About 8 million students in India begin their undergraduate studies each year.... Mukherjee... discusses the well known problems of affilated colleges:

The globally renowned Indian Institutes of Technology and Indian Institutes of Management are islands of excellence; they produce India's technological and managerial elite. The foot soldiers of India's knowledge economy are produced in lesser institutions, the so-called affiliated colleges.... A typical Indian university has scores of -- sometimes several hundred -- related colleges. The university administers examinations and distributes degrees. Other than that, "the entire higher education in India takes place only in the ill-equipped, understaffed, affiliated colleges" that produce 89 percent of India's undergraduates, Kulandaiswamy wrote in May in India's Hindu newspaper.

Large, single-campus universities that have economies of scale must replace the affiliated colleges, most of which don't even have decent libraries.... [A]ll university students in India should be able to pick up the minimum English language skills required for call-center employment. That doesn't happen now.

Posted by Roland Stephen at 09:38 AM | Permalink | Comments (0)

Meso-conservatives are an odd bunch. We like to make waves not ride them. Like fashionistas strolling Deco Drive on a Saturday night, we find it hot unless its popular and then its most certainly not. However, memories are short and vintage is always in. So, it was with Clinton.

He was a popular fist term president and the pea in every meso’s mattress. But along came Monica, Ken and impeachment and low and behold he wasn’t so bad. Wasn’t it hip, we thought, that Goldwater rushed to Clinton ‘s side when his on party shied away. Nothing boils a meso’s blood more than an idea, policy, or politician done in by conventional wisdom.

Now it seems, Bush is having his turn on the catwalk of conservative style. After 9/11 he had an 81% approval rating and boy did it make us sick. The PATROIT act – tacky. A rising deficit – how passé. The war in Iraq? Quite frankly, it was hideous.

However, times are shifting and it seems that now Bush is out, he is so back in. Alito? Not that bad when paired with a nice Ben Bernake. Katrina reconstruction plays nicely off reductions in other discretionary spending and a new found humilty just makes the war in Iraq. And that leak scandal? It is simply to die for. Bringing down the neo-cons while leaving the rest of the Party intact. Wow, now that’s hot.

Posted by Karl Smith at 11:54 AM | Permalink | Comments (0)

A great map by the NYT that has quotes from people about their commutes during the strike. I love direct connections between people and place. I think I want to become a geographer one day.

Posted by Sara Lawrence at 12:08 PM | Permalink | Comments (1)

The evidence is accumulating that toll roads in North Carolina are very likely, very soon. Because the formula for calculating the gas tax is tied to the wholesale price, it is due to increase in the spring from 27.1 to 29.9 cents per gallon, according to a recent N&O article:

The increase comes just a few months after a legislative push by Republicans and small-business owners to get Gov. Mike Easley to temporarily cap the gas tax. This fall, some Republicans feared the tax increase would be 5 cents or more.

Gregg Thompson, state director for the National Federation of Independent Business, said the smaller increase still will hurt small-business owners, especially those who rely heavily on transportation. Entrepreneurs must pay more to have their products delivered, and many pass their costs on to consumers.

"The business community wants good roads in the state just like others, but we also don't want a higher tax," Thompson said. "We don't see a result of better roads in the state, necessarily."

This is consistent with the findings of the IEI/Elon poll on tax and finance, which revealed substantial opposition to raising the gas tax, even though it is used to build roads:

Allowing the Gas Tax to Expire: 42.7%
Allowing the Gas Tax to Expire, But Increasing Other Taxes: 30.8%
Allowing Gas Tax to Increase: 26.5%

It is interesting to note that many would prefer other sources of revenue. In that case, judging by other questions from the poll, user fees are as popular as any other means, while the income tax is universally reviled. And user fees, in the case of roads, means toll roads.

Posted by Roland Stephen at 10:27 AM | Permalink | Comments (0)

By Michelle Goryn

Kenneth Lee Boyd died by lethal injection at 2:15 a.m. on the morning of December 2, 2005, right here in Raleigh. Though hundreds of inmates on death row have been executed in the United States, Boyd’s death was particularly noteworthy. He became the 1000th execution since the death penalty was reinstated in the United States in 1977. This is a milestone indeed, both for our state and the nation. But, according to Boyd’s attorney, Thomas Maher, "If this 1,000th execution is a milestone, it's a milestone we should all be ashamed of."

I agree with Maher, though I’m not sure whether we should be more ashamed that we continue to be the only developed, western country that implements the death penalty (we’re currently in the company of notorious abusers of human rights like Iran, Saudi Arabia and China), or that we are spending excessive amounts of money on a practice that is neither 100% infallible, nor effective in reducing crime.

If there is a better way to punish convicted murderers that is not only morally and constitutionally sound, but also fiscally responsible, then it is our duty to explore this alternative.

North Carolina spends more per execution than it does on a non-death penalty case. One of the most comprehensive death penalty studies in the country found that the death penalty costs North Carolina $2.16 million more per execution than a non-death penalty murder case with a sentence of life imprisonment. (This study, conducted by The Terry Sanford Institute of Public Policy at Duke University, can be found at http://www-pps.aas.duke.edu/people/faculty/cook/comnc.pdf.)

Additionally, there is no hard and fast evidence supporting the notion that the death penalty reduces crime in the United States. In fact, there is evidence to the contrary. According to the FBI's Preliminary Uniform Crime Report for 2002, the murder rate in the southeastern United States increased by 2.1% while the murder rate in the northeastern United States decreased by almost 5%. The South accounts for 82% of all executions since 1977 while the Northeast accounts for less than 1%.

Kenneth Lee Boyd was not innocent. He readily admits to killing his estranged wife and her father in front of his own children. However, innocent people have been put to death in this country in the past. It does not occur every day, but it does occur. For this very reason, the practice of capital punishment is a breach in our justice system. In North Carolina, 39 people have been executed since reinstatement in 1977 and 784 executions occurred before that year.

Of all those executed in North Carolina, only 5 have been exonerated (according to the Death Penalty Information Center). But it is only in recent years that some cases have been reopened due to technological advances, such as DNA testing, which can provide concrete evidence to assure the conviction or to exonerate the defendant. This suggests that some undeserving people have died for crimes they did not commit.

In 2004, the North Carolina Senate passed legislation that would have temporarily halted executions while a death penalty study was conducted, but the measure failed to pass the House. A new House Select Study Committee on Capital Punishment is scheduled to meet for the first time on December 19 to begin studying issues related to the accuracy and fairness of North Carolina's death penalty. The panel's recommendations will be considered by the General Assembly when it reconvenes in May.

Here in our own state, 65% of North Carolinians favor a moratorium on the death penalty until questions about its accuracy and fairness can be studied, according to a recent Hart Research poll sponsored by the North Carolina Academy of Trial Lawyers. The poll found that even 43% of those considering themselves strong supporters of the death penalty would favor its suspension while more research is done. Further, 90% of those against capital punishment and 64% of those in favor of it would like to see proof that death row inmates have received access to competent legal counsel and evidence that might demonstrate their innocence, such as DNA. A majority of both Republicans and Democrats favor a temporary moratorium. The death penalty is no longer a partisan issue.

Fervent debate consistently surrounds the cost, effectiveness and morality of maintaining capital punishment. Critics claim that executions are inconsistent, but more crucially, that they violate the Eighth Amendment’s Cruel and Unusual Punishment clause, despite arguments that this clause was not intended to prohibit executions. But the most important point is that if there is even the smallest chance of error, a serious reexamination of the use of an ultimately irreversible sentence is certainly warranted. In addition, it could save us a significant amount of money.

Scott Turow, author of “Ultimate Punishment: A Lawyer’s Reflections on Dealing with the Death Penalty” (based on his experience as a member of Illinois Governor George Ryan’s Commission on Capital Punishment investigating the administration of the death penalty), suspects that capital punishment will one day be abolished in this country. With the increasing number of conservatives doubting its efficiency, at least a moratorium in North Carolina may be just on the horizon.

Michelle Goryn is a policy intern at the Institute for Emerging Issues

Posted by Roland Stephen at 03:14 PM | Permalink | Comments (0)

At some point in our lives, we’ve all heard someone say, or we’ve at least thought to ourselves, “there has to be a better way to do this.” Come on, admit it… Whether due to frustration, impatience, or maybe even a little laziness, many of us have found (or are hoping to find) ways to reduce the time spent on specific tasks, enhancing our daily productivity. This is innovation, perhaps in its most basic form. And our developing, knowledge-based economy depends on it; hence the business mantra, “Don’t work harder, work smarter.” The implication of the phrase is simple-- to advance, we must find new and better ways to perform tasks, in the workplace and in education.

We see what’s happening with innovation in the business world, but what about education, specifically K-12? In what ways are we innovating in our public schools? One response, as identified by Garance Burke, has been electronic learning-- the incorporation of technology into curriculum. On the surface, technology in the classroom seems a great idea. If our next generation is to be technologically innovative, they must first be knowledgeable of and engaged in the field. But of course, the application of E-learning reveals deeper core concerns. Simply stated, the benefits of E-learning are confined to those school districts capable of affording emerging technologies, exacerbating existing disparities among NC’s rural and metropolitan systems.

If E-learning is proving to be an effective tool for innovation, how do we as a state address the distributional aspects inherent in the provision of these technologies? Perhaps the most fundamental response is to improve our financial systems and the efficient, yet equitable allocation of resources. In that light, stay tuned to our progress on Financing the Future. In the meantime, use Burke’s article as food for thought.

Posted by Bryce Ball at 03:02 PM | Permalink | Comments (0)

The house came to the rescue of fifteen million American taxpayers yesterday by renewing a $58K exemption the Alternative Minimum Tax. This is all very well and good. After all, the AMT is beginning to affect the middle class and we can’t have that.

It was a great idea, a triumph of justice, and absolutely, positively, and unequivocally only fair to force the rich to pay their “fair” share. To ask the same of the middle class though, come on, now that’s plain just rude.

The majority of this nation’s unique benefits, its world class public universities; its astounding transportation and communications infrastructure; its path breaking drug research and food and drug safety standards are designed to benefit the middle class. The rich by and large don’t need public provision of these services and the poor often can’t afford to use them.

When poor old ladies can’t afford to buy their medication, what they largely can’t afford is the vast array of clinical trials that drop a suburban soccer mom’s risk of a side effect from one-in-a-thousand to one-in-a-million. When a single mom working the night shift at Waffle House finds it $5 more expensive to fill up her tank she can take solace in the knowledge that, that big new highway shaves 20 minutes off of a software engineer’s commute.

Simple, low, broad taxes are efficient. They promote economic growth and expand opportunities for all Americans. But, fair – fair is not a debate the American middle class wants to have.

Income Taxes by Quintile

Posted by Karl Smith at 10:46 AM | Permalink | Comments (1)

This article is about the best states in which to retire based on their tax systems. It gives a good overview of which states tax what. But beware-- if your state is not taxing you in some areas, they're probably making up for it some place else.

Posted by Michelle Goryn at 12:07 PM | Permalink | Comments (0)

When talk turns to tax reform conservatives almost invariably site the double, sometimes triple, taxation of investments as a source of major concern. Investment is the engine that drives economic growth and punishing investors does nothing but slow the economy down. Exhibit A is America’s abysmal savings rate and eye-popping current account deficit. The only people saving for America’s future are the Chinese and if things keep going this way it’s the Chinese who are going to control it.

Decrease taxes on dividends, capital gains, and corporate income we must. Increase savings we will. It was the mantra that got us the Bush tax cuts and as a result . . . the largest current account deficit in history.

Full disclosure is necessary at this point. I, like many of my fellow econ nerds, have been beating the drum of double taxation for years. It does decrease the return on investments. It does deter individual savings. However, “individual” is the key word.

You see taxes themselves are savings, national savings. An example might help to clarify. Suppose that government spending was zero. I know, I might as well suppose that skittles rained from the sky, but bear with me. Government spending is zero, but revenue is positive, say $2 trillion a year.

Where does that $2 trillion go? Well, if not spent then by definition it must be saved. In practice it would probably go towards buying the national debt of Europe and Japan. However, no matter where it goes, it’s savings. It’s not savings by individuals but savings by the government and hence the nation as a whole. It is the exact inverse of the national debt.

Now, back in the real world government spending isn’t zero, its more like $2.3 trillion, and we are stuck with a budget deficit of roughly $0.3 trillion. Yet, the logic is the same. For every dollar in revenue closer to $2.3 trillion we get, we reduce government borrowing by a dollar. That means that on net, national savings goes up by a dollar.

The effect isn’t perfectly pure because increases in taxes do change private decisions. Nonetheless, it shows us what must be true for dividend tax cuts to work: each dollar decrease in dividend taxes must induce more than a dollar increase in savings. Or to put it another way, on the savings side of the economy a tax cut on dividends must be self-financing.

Given the fact that the latest round in tax cuts reduced revenue by about $250 Billion per year and national savings is $100 Billion per year lower today than it was in 2000 despite economic growth I’d guess the tax cut has been less than self-financing.

The bottom line is that national savings is reduced not by taxes but by Government consumption spending. Unless we can get a handle on that, tax cuts will only worsen the situation.

Posted by Karl Smith at 11:50 AM | Permalink | Comments (3)

There has been discussion in our working groups of converting Medicaid (using a waiver) to a system based on vouchers. This could be, in fact, the basis for a system of basic national healthcare, as discussed on a favorite blog. Things will get a lot worse in healthcare in the U.S. before they get better, but a single-payer, voucher-based system is very likely, after all other expedients have been tried. Health insurance companies will be based on a new business model, in which they become expert managers, hired by individuals to help them navigate the clinical and financial complexities of any 21st. century health system.

Posted by Roland Stephen at 11:25 AM | Permalink | Comments (0)

By Karl Smith
They call it black gold, and that’s about what it costs these days. Gasoline, heating oil and diesel fuel costs are rising, and the consumer is getting squeezed. Goldman Sachs analysts have predicted that we could see oil prices north of $105 a barrel before 2007. That translates into gasoline prices of nearly four dollars per gallon in some places. Is this the end of life as we know it?

Probably not, but it is the end of oil – cheap oil to be more exact. With the exception of the OPEC induced crisis of the 1970s, the price of oil has been declining in real terms for nearly 100 years. That means that energy costs as a percentage of our paychecks have been falling. Like most things in a market economy, the price of oil is determined by supply and demand. We all know that demand for oil has been rising, so why was the cost falling, and why is it rising so sharply today?

Beneath the Surface
There is an enormous amount of oil underneath the earth’s surface. A few geological estimates suggest that we may have as many as one trillion barrels of oil buried underground. However, oil is only good to us if we can get it out of the ground. Thus, the supply of oil is determined not by how much is under our feet, but how much we can bring to the surface everyday. That last concept is known as extraction rate, and it follows a complex graph scientists call a double logarithmic. It looks like a giant mountain peak.

That means as time goes by the extraction rate accelerates, causing more and more oil to pour on to the world market, driving down the price in spite of increased demand. The extraction rate continues to accelerate until it reaches the peak, and then it comes crashing down. At that point, the declining extraction rate combines with rising demand to produce a relentless rise in prices.

Have we reached that peak? Not yet, but a lot of investors think we are coming close and so they are hording oil. It’s that hording which is driving up prices today. Old geological estimates suggested that the world would reach peak oil in 2000. However, East Asia faced a financial crisis in 1997. Fearing the downturn would hamper world demand, OPEC cut back on pumping until 2004. Newer estimates now predict peak oil sometime between 2007 and 2009.

What does that mean for consumers and businesses today? Most importantly, it means understanding that gas and heating prices may go down briefly, but they are likely to go up again and stay much higher than they have ever been. What is more, there is little our government can do about it.

Drop in the Bucket
The federal government has suggested tapping ANWR, the Artic National Wildlife Refuge. It’s a nice thought, but even the most wide-eyed estimates predict a maximum extraction rate of 1.5 million barrels per day (bpd). Currently, the world consumes 80.5 million bpd, making ANWR literally a drop in the bucket. Conversely, the government can try to reduce incentives for SUVs and big trucks. However, neither the state nor federal governments are politically prepared to institute policies that will sting SUV sales as badly as the coming four dollars per gallon gas price. We can promote conservation at all levels, but at the end of the day oil is a limited resource.

Saving Ourselves
What we can do is protect our businesses and ourselves as much as possible. Consider ways to use vehicle fleets more efficiently. Stay abreast of energy saving technologies and methods in your field. Higher energy prices are likely to bring a slew of new products to market. Some of them will be high quality products and some of them will be efforts to prey on businesses desperate to save money. Educating yourself now can help to avoid those traps tomorrow. If you are considering major capital investments, consider how increasing energy cost will affect your operating costs in the long run. A little insurance today might save a bundle tomorrow. Above all, prepare yourself and your executives mentally. The worst thing that could happen is to overreact when the gas and heating bills shoot up.

As consumers, we can do small things to ease our cost. More fuel-efficient cars, shorter commutes and better insulation will help. Retail costs also are likely to rise as the cost of trucking increases. Prepare your family by including higher estimates for inflation in your savings and retirement plans. Above all, remember that the end of oil is not the end of the world. We were a wood society, a coal society and an oil society—tomorrow it will be something else.

Karl Smith is an intern at the Institute for Emerging Issues and a Ph.D. candidate in economics at North Carolina State University.

Posted by Shellie Jennings at 02:55 PM | Permalink | Comments (0)

If Silicon Valley is the most expensive place in the world to do business, why is it still a world center for technology? This classic puzzle in economic development now has an answer fortified by data. Bottom line, there is so much job-hopping among a discreet pool of talent that the lost information and know-how from an employee that leaves is more than compensated by the availability of new employees with new information and new know-how, a standard spill-over argument.

Posted by Roland Stephen at 10:33 AM | Permalink | Comments (2)

Nice discussion on the Wall Street Jounal online on the subject of the President's tax reform commission, by two distinct but smart voices, left and right. For the implications for NC, see Roby Sawyer's discussion below.

Posted by Roland Stephen at 05:05 PM | Permalink | Comments (0)

The President’s National Strategy for Victory in Iraq is a must read. For better or worse the document outlines the kernel of White House thinking on the war in Iraq. For me, page six represented what might the beginning of a renewed acceptance if not faith in this White House’s ability to lead.

For the first time since September 11th, 2001 the White House publicly acknowledged that we face more than one enemy and that the goals of our foes are mutually exclusive. From the very beginning the government’s official statements blurred the line between Baathists and Al Qaeda implying that the objectives of one were the objectives of the other.

Whatever mistakes arose from that refusal to recognize these crucial distinctions are in the past. What is important is that from this point forward we understand that the two are separate and that victory over each will mean different things.

Posted by Karl Smith at 03:02 PM | Permalink | Comments (0)