from AEI » Latest Content http://ift.tt/1Od18LS
10/30/15
On energy security, Obama should follow David Cameron’s example
Less than a decade ago U.S. energy security was in crisis. Domestic oil production had been declining steadily from a peak of 10 million barrels per day in 1970 to only half that amount in 2005. Our reliance on oil imports and OPEC had risen to an all-time high ten years ago. U.S. natural gas production had been flat for more than 30 years and was slipping behind growing domestic demand. We were on track to become a major natural gas importer, a future that energy experts the world over agreed was nearly inevitable.
Despite countless promises about breaking — or at least significantly reducing — our reliance on overseas energy sources, our energy security was going from bad to worse. Fortunately, innovation, “petropreneurship” and free market capitalism had other plans.
In the last decade, the U.S. has become the world’s largest oil and natural gas producer. America now stands poised to become a leading natural gas exporter and, should the outdated crude oil export ban finally fall, a considerable oil exporter as well. Refined petroleum products like gasoline and diesel fuel have already become the largest source of U.S. exports every year since 2011, according to the Bureau of Economic Analysis.
The shale revolution made all of this possible. Our unplanned and unexpected energy turnaround has become the envy of our allies and foes alike. Many nations blessed with their own energy-rich shale formations have watched their dependence on foreign energy grow in recent years. For them, recreating the American shale revolution has become a policy imperative.
In the United Kingdom, the Cameron government has stepped into local debates about shale development to ensure it proceeds. While Britain has proven shale resources, not a single well has been fully fracked there since 2011. Public opposition to fracking — driven largely by the same kind of misinformation and hysteria that stubbornly remains in the U.S, despite evidence to the contrary — has obstructed shale production in the U.K. But many more open-minded Brits see shale and fracking as both a tremendous economic opportunity for the U.K. and as a critical energy source to shore up the nation’s energy security.
Like much of Europe, the British fear their growing dependence on Russian natural gas and further petro-fueled bullying from Vladimir Putin. Russian imports already account for 15 percent of the U.K.’s natural gas and that reliance is projected to increase. Shale development provides an important and increasingly necessary alternative. The Cameron government, growing increasingly impatient with the permitting delays that local regulators are imposing on natural gas development, recently imposed a strict deadline of 16 weeks for regulators to review drilling permit applications. Foot dragging and delays will no longer be tolerated.
While the Cameron government is actively supporting its domestic shale industry, the Obama administration seems to be doing its best to obstruct further production, having apparently already reaped the rewards of surging shale oil and natural gas production. It’s a remarkable contrast.
It we weren’t discussing the Obama administration, this might seem too odd to be true. The shale revolution has arguably broken the back of OPEC, transformed the U.S. into an energy superpower, jumpstarted the economy following the Great Recession and even provided the cheap, clean natural gas that has driven carbon emissions from electric power plants to their lowest level in almost a quarter century.
The oil and gas industry’s “Thank You” from the president for the most remarkable energy success story in U.S. history? Try new regulations governing hydraulic fracturing on federal lands, newly proposed methane and ozone regulations, blocking the Keystone XL pipeline and the threat of a veto to block any legislation that would lift the crude export ban.
Has Team Obama lost its collective mind? If we care at all about preserving and hopefully further bolstering U.S. energy security in the future, America should be encouraging the shale revolution, not hampering it. It would be an unforgivable mistake to let the energy achievements of the past few years slip away. Perhaps President Obama needs a reminder from David Cameron about just how good he has it as president of a country that has entered a new era of energy abundance and security.
from AEI » Latest Content http://ift.tt/1P9MuDX
The family foundations of economic growth
It is often hard to understand exactly what drives economic growth. By definition, economic growth is the amalgamation of labor, capital and technological change. As individuals, we understand that we contribute to this process in our daily lives through our decisions to work, save, consume and invest. Yet it is often difficult to foresee how these choices yield the larger, macroeconomic process of economic development and growth. In his recent paper, economist Robert Gordon, documents the long history of U.S. economic growth, linking periods of slow and rapid growth to three industrial revolutions: steam and railroads; electricity and the internal combustion engine; and the recent advent of computers, the internet and mobile phones. He claims, however, that even if we continue to innovate rapidly, economic growth may be weak and lower than the average growth between 1860 and 2007. Technological change will not be enough to offset the pullback from the “headwinds” of rising income inequality, falling labor force participation rates, lack of widespread education and changing demographic structures. Therefore, looking deeper into socioeconomic factors rather than just the technological aspects of economic growth is critical. Exploring the family foundations and the role of changing family structures in influencing these headwinds is key to fostering sustainable growth.
The Link Between Family and Growth
Why do family structures matter for growth? In an earlier study, Bradford Wilcox and Robert Lerman showed that the decline in traditional two-parent married families is associated with rising income inequality, lower median incomes and lower labor force participation rates. Looking at data from 1980 to 2012, they found that among married parent families, the median family income rose 30 percent, while for unmarried parents, family incomes rose only 14 percent over the same period. In addition, their work also suggested that this retreat from marriage is correlated with lower labor force participation rates for men.
Since marriage seems to imply better economic outcomes for families, do states with a larger share of such traditional families fare better? In a new study, Bradford Wilcox, Joseph Price and Robert Lerman answer precisely this question. The authors study the role of families in influencing the economic development of a state. They find that the higher the proportion of married parents in a state, the better the economic outcomes. Higher levels of marriage are strongly correlated with more state GDP per capita, greater levels of upward economic mobility, lower levels of child poverty, and higher median family incomes. In comparing states in the top quintile of married parent families with those in the bottom quintile, they find that being in the top quintile is associated with a $1,451 higher per capita GDP, 10.5 percent greater upward income mobility for children from low income families and a 13.2 percent decline in the child poverty rate.
These results are not altogether surprising. Other research has shown that changing demographic structures, such as an increase in the share of single mother families, is associated with higher rates of poverty, particularly for children. Moreover, growing up with both parents is associated with a 15 percentage point lower probability of dropping out of high school. Raj Chetty and his colleagues show that family structure plays a large role in economic mobility, and communities with a larger share of single mothers are less upwardly mobile than those with a smaller share of single mother households.
Family stability can affect economic growth in other, not-so-obvious ways as well. In “Power of the Family,” economists Alberto Alesina and Paola Giuliano analyze the effect of strong family ties on economic outcomes using cross-country data. They find that with stronger family ties, the labor force participation of women is lower and there is more home production rather than reliance on the market. Moreover, women are less likely to go to college and are therefore less educated. These effects would, on average, reduce economic output and growth, since home production is not included in statistical calculations of GDP. Overall, however, the paper reports that families with stronger ties are likely to report higher levels of happiness and satisfaction with their lives, suggesting that income, may tell only part of the story.
These findings are corroborated by the Wilcox et al. study which shows that in the U.S., married mothers are less likely to be in the labor force than their counterparts. However, on average, it appears that the gains associated with married parenthood when it comes to men’s labor force participation, work hours and income exceed the losses in women’s labor force participation, work hours and income.
What Can Policy Achieve?
From a policy perspective, a question often asked is whether it is important to encourage marriages since married parent families clearly have better outcomes? Married parent families tend to have higher incomes than single parent families, which implies that they have access to better schools, better neighborhoods and better job opportunities. They are also more likely to commit more time and resources to raising their children. Therefore these advantages persist not only across the parents’ own lifetimes but are transferred across generations. Single parents, particularly single mothers, are more likely to live in poverty, less likely to be able to devote time and resources to their children, and therefore more likely to allow the persistence of poverty across generations.
It is unrealistic to expect that policy can “encourage” marriages if individuals in society in fact choose to not be married. However, it is important to remember that often single motherhood is not a choice. As Isabel Sawhill points out, more than 70 percent of single mothers under the age of 30 claim that their pregnancy was unwanted or mistimed. This is particularly true for low-income women. So perhaps instead of targeting marriage rates, policy could focus on reducing the number of unwanted pregnancies to unmarried, low-income mothers. Another likely successful intervention may be to expand the Earned Income Tax Credit to boost incomes for low-income households so that they have more resources to spend on their children. If these changes result in higher labor force participation rates, higher incomes, higher education investments and lower persistence of poverty across generations, we may come closer to sustaining high rates of economic growth, even if we fail to achieve what data suggests may be the ideal: the stable, two-parent family.
from AEI » Latest Content http://ift.tt/1HgD7fh
Bad IMF advice for China
In the context of China’s bid for its currency to be included in the IMF’s Special Drawing Right (SDR) basket, the International Monetary Fund (IMF) seems to be dispensing poor policy advice to China with respect to its exchange rate and external capital account management. By pushing the Chinese policymakers to further liberalize their country’s exchange rate and to open up their capital account at this delicate juncture for both the Chinese and the global economies, the IMF risks not only heightening China’s present economic difficulties, but also undermining the global economic outlook.
Amid mounting evidence that China’s economy is now slowing and that its outsized credit market bubble is bursting, Chinese residents have been exporting capital abroad at an alarming rate. According to the country’s official international reserve data, over the past year. China experienced capital outflows in excess of $500 billion. Much of that outflow occurred in the third quarter of 2015 in the immediate aftermath of China’s surprise August decision to allow its currency to depreciate by around 2 percent.
Last week, in an effort to stimulate China’s flagging economy, the People’s Bank of China cut interest rates for the sixth time over the past year. By so doing, it further reduced the incentive for Chinese savers to keep money at home, particularly at a time when the Federal Reserve is mulling an interest rate hike and when doubts have arisen as to the stability of the Chinese currency.
Full text of this article is available at TheHill.com.
from AEI » Latest Content http://ift.tt/1GB3JwH
China’s new Two-Child Policy and the fatal conceit
It is the latest twist in the most ambitious and ruthless social-engineering program ever undertaken by a modern state: Beijing announced Thursday that the Chinese Communist Party will officially abandon its one-child policy. Yet it has no plans to relinquish authority over its subjects’ birth patterns; rather, Beijing has simply changed the ration. Now two children per family will be permitted.
The first partial relaxation came two years ago, when Chinese authorities decreed that spouses who were both an only child would be allowed to have two children. This fine-tuning was expected to result in several million additional births—but only a fraction of that number of couples even applied for a second ration coupon. Now, after 3½ decades of attempted one-child enforcement, the government can no longer ignore that its policy of forcible population control has been a disaster. As the Communist Party prepares for its 13th five-year plan, it must survey what its quest to remold the Chinese family has wrought.
The one-child mandate is the single greatest social-policy error in human history. AfterMao Zedong’s death in 1976, his legatees were horrified to discover how little they had inherited. Despite almost three decades of “socialist construction,” China was still overwhelmingly rural and desperately poor. More than 97% of the country lived below the World Bank’s notional $1.25 a day threshold for absolute poverty, according to recent Chinese estimates. With a population still rapidly growing, China seemed on the brink of losing the race between mouths and food.
In their attempt to process these facts, Chinese leaders stumbled into an elementary neo-Malthusian misdiagnosis. Rather than focus solely on undoing the crushing inefficiencies of their Maoist economy, they blamed abysmal productivity on the childbearing patterns of their subjects. The outcome was involuntary birth control, promulgated through a vast scheme of quotas and an army of family-planning agents.
This was Socialist “scientism”—ideology masquerading as science—of the highest order. The broad outline was established on calculations by a Moscow-minted engineer in China’s nuclear program. These computations bore no relation to the actual ways in which Chinese men and women thought about family life. As soon as the policy was rolled out in 1980 and 1981, it collided with human realities.
First came alarming reports that female infanticide, an ancient practice, had once again erupted throughout the countryside. China’s 1982 census, released some years later, showed an unnatural imbalance in the sex ratio for birth-year 1981 on the order of hundreds of thousands of missing baby girls.
Infanticide was then replaced by mass sex-selective abortion, made possible in the late 1980s by increased rural access to ultrasound machines. China’s sex ratio climbed to nearly 120 baby boys for every 100 baby girls, where it plateaued around 2000. Although a war against baby girls is evident in other countries—India and Taiwan among them—leading Chinese demographers have suggested that half or more of China’s imbalance may directly result from the one-child policy.
The precise long-term effects have yet to be accurately estimated. Chinese authorities claim that the country has 400 million fewer people due to the one-child policy, because they have overseen that many abortions. But this misleading metric ignores the distinction between forced and voluntary abortions.
To the extent that the policy has achieved its objective, it magnified the demographic problems that Communist planners are apparently only now beginning to acknowledge. Fertility levels in urban China were already well below replacement by 1980. Today the country is on track to go gray at a shocking tempo. Two years ago, working-age manpower began to decline, according to Chinese authorities. The only close comparator is post-bubble Japan: not a cheering vision for what remains a relatively poor society.
And China’s cities are now producing a new family type utterly unfamiliar to Chinese history: only children begotten by only children. They have no siblings, cousins, uncles or aunts, only ancestors (and perhaps, one day, descendants). But in a low-trust society, extended social networks, known in Chinese as guanxi, play a vital economic role. They reduce uncertainty and transaction costs by providing the reassurance supplied elsewhere by rule of law and transparency. How will Chinese economic performance be affected by the atrophy of the extended family?
Beijing’s latest adjustments to population plans seem to have been prompted by economic concerns, yet these changes will have only modest demographic repercussions. Like other East Asian locales without forced population control, the average desired family size in China appears to be far below replacement. Beijing also can’t rely on immigration for demographic help. Even modest gains from the new policy will take decades to have an economic impact.
Contemporary China has a host of top-flight demographers and population economists—and so far as I can tell, almost all are critics of their country’s population program. Some are concerned with human-rights violations; most pragmatically regard the one-child policy as painfully, obviously counterproductive. A number of these experts wrote a letter to the State Council a decade ago urging “reconsideration” (translation: complete scrapping) of the one-child norm—to no effect.
Why has Beijing stubbornly ignored the advice of its own top talent? My baffled Chinese colleagues speculate on possible explanations: the difficulty of re-tasking the vast army of population-control bureaucrats; the value of the hefty fines exacted for out-of-quota births; the neo-Malthusian ideology to which China’s bosses still seem to be slave.
All of these are plausible, but they overlook a key piece: the Chinese government’s undying claim to totalitarian control over the most basic details of its subjects’ lives, revealed as well by the retrograde hukou system of residence permits that makes urban China’s migrant workers illegal aliens in their own country. For all the talk of “reforming”—and we have been hearing it overseas for almost two decades now—the Chinese government has been unwilling to dispense with these instruments of social control precisely because they are instruments of social control.
The “fatal conceit” (to borrow Friedrich Hayek’s term) of China’s population planners was that they could micro-calibrate the behavior of the men and women under their command. The new two-child policy suffers the same flaw. As long as Beijing deforms Chinese society with these misbegotten tools, the nation’s future will be compromised, poorer and sadder than it otherwise could be.
Mr. Eberstadt is a political economist at the American Enterprise Institute in Washington, D.C.
from AEI » Latest Content http://ift.tt/1MZjLx1
10/29/15
NAEP and political meaning
The 2015 reading and math results from the National Assessment of Educational Progress (NAEP) were released yesterday. The national news is unpleasant: only 35% of fourth graders and 33% of eighth graders scored at proficient or better in reading, and only 39% of fourth graders and 32% of eighth graders scored proficient or better in math.
Results for each subgroup are not great either: math and reading scores for white and black fourth- and eighth-graders remained the same or dropped since 2013; reading scores rose for Hispanic fourth graders but dropped in eighth grade; and eighth grade math and reading scores for Asian students, who are the top performers in the nation, dropped.
Although the changes are far from astronomical, it is the first time in 25 years that the NAEP math scores have decreased. What does this mean? It depends on perspective.
Public Domain. National Center for Education Statistics – National Center for Education Statistics.
Many scholars, lawmakers, journalists, and advocates have expressed well thought-out opinions about what the “Nation’s Report Card” says about the state of American education. Some national spokespersons blame lackluster NAEP scores on teachers or their unions. Others blame a school choice movement that has attracted some of the public schools’ best test takers. Select members of the anti-Common Core, PARCC or Smarter Balance camps are sporting “I told you so” grins. At the ground level, state chiefs and local superintendents are pointing to recent improvements in SAT or ACT scores for comfort, while subgroup advocates walk the line of poverty, race, class and financial inequities in search of an explanation.
At the end of the day, everyone has an opinion and, absent a clear answer for why NAEP scores have declined and what this means for American education, all are plausible.
But all of these opinions ultimately put too much stock in NAEP as a tool for evaluating academic rigor nationwide. NAEP is a political ritual, not a flashlight, and our narrative says more about bureaucratic symbolism than it does about academic vitality. This ritual plays out with the release of all standardized test scores, but especially with NAEP because of its national import and methodological rigor.
While a state education leader in Virginia and Florida, and during my time as a researcher in Wisconsin, I participated in the ritual. I waved the flag when news was good for my state or district(s) and cried foul when it was not. After huddling with our education department researchers and communication specialists, I released a press statement that highlighted our gains and massaged our drops. We fed our message to reporters, as did school boards and interest groups. After a week of coverage, winners and losers were determined by appearances above the newspaper fold or by hits on social media. We promised to do better the next time, then moved on to the next education issue.
This year, let us shift the discussion from political ritual to practical advice. Here are a few suggestions to bring some academic meaning to the discussion:
- When running for office, governors frequently promise to create jobs and boost the state economy, both of which require a qualified workforce. In light of the NAEP results, governors should explain to their constituents what NAEP is and, more importantly, what NAEP does and does not mean to the state and its economy.
- State education chiefs should host video or conference calls with current and former state teachers of the year, parent organizations, and employers. The goal should be to gather their insight about what the NAEP results mean to them. Understanding what these constituencies think about the results, and about our education system more broadly, is useful for two reasons: first, to help explain the findings to other teachers and to the public, and second, to hear ideas for improving education from outside the political bubble.
- Researchers should take advantage of the opportunity to study this new data set. My AEI colleague Nat Malkus highlights differences in public and private schools’ scores as a good example of a question from the NAEP data that begs to be analyzed. And, when sharing their findings, researchers should strive to reach the public, not just the ivory tower, by writing for a lay audience and in the popular press.
Despite NAEP scores taking an unprecedented tumble this year, one thing remains the same as in 2013: the results prompt a flurry of opinions and political maneuvering, but not much substantive discussion.
It’s time to replace political ritual with a practical exploration of how we got these NAEP scores and, most importantly, how the NAEP data can guide our math and reading education for the next group of 4th and 8th graders. To paraphrase a common saying, fool us once, shame on you; fool us twice, shame on us.
from AEI » Latest Content http://ift.tt/1KIDC1I
Another proposal for a hidden VAT
Following Senator Rand Paul’s lead, Senator Ted Cruz has released a tax reform plan that includes a substantial value added tax (VAT).
Cruz’s plan would abolish the payroll and self-employment tax, the corporate income tax, and the estate and gift tax, and would also slash individual income tax rates to a flat 10%. The plan would recoup part of the revenue loss by adopting a 16% VAT, slightly larger than Paul’s proposed 14.5% VAT.
Republican presidential candidate Senator Ted Cruz speaks at the North Texas Presidential Forum hosted by the Faith & Freedom Coalition and Prestonwood Baptist Church in Plano, Texas October 18, 2015. REUTERS/Mike Stone.
Like Senator Paul (and Herman Cain in 2011), Senator Cruz shies away from the V word. In his Wall Street Journal op-ed, he calls his VAT a “Business Flat Tax.” Rather than saying that each business would pay tax on its value added, he says that it would pay tax on its “gross receipts from sales of goods and services, less purchases from other businesses, including capital investment” – a precise, but not very transparent, definition of value added. As the Tax Foundation and a Cato Institute scholar point out, Cruz’s proposed tax, like Paul’s proposed tax, is a “subtraction-method value added tax.”
Scaling back the income tax system and instituting a VAT would have advantages and disadvantages. Thanks to their VAT revenue, the Paul and Cruz plans achieve deeper income tax cuts, with smaller revenue losses, than other Republican presidential candidates’ tax plans. A VAT is much more growth-friendly than the income tax because it does not penalize saving and investment. However, it places more of the tax burden on those who are less well off. And, giving the government another major revenue source might make it harder to restrain entitlement spending growth.
The concern about spending growth is heightened because Paul’s and Cruz’s proposed VATs would be hidden from public view – their plans do not include either of the two steps that can be taken to make VATs visible to the public.
A VAT can be split into a business cash flow tax and a wage tax, with the wage tax collected as an employee payroll tax that shows up on workers’ pay stubs. Or, the total VAT collected from businesses along the production chain can be listed as a separate line item on the final customer’s receipt, the way state and local retail sales taxes are listed. But, the Paul and Cruz plans would collect the VAT from businesses without listing it on customer receipts, ensuring that neither workers nor consumers would ever see the tax.
If the United States is to have a VAT, it should be adopted in the light of day, not snuck through as a “business tax.” And, once adopted, its tax burden should be made visible to the American people, who have a right to know the full cost that they’re paying for their government.
from AEI » Latest Content http://ift.tt/1Mldiff
Free stuff can turn out to be a bad buy
Free college! That’s what the Democratic candidates were offering in their presidential debate. And it’s likely that, if the subject had come up, they would have offered something like free home mortgages as well, to judge from Hillary Clinton’s statement that she had urged Wall Street to stop mortgage foreclosures. Sounds a lot like free houses!
Free stuff sounds good to many people, and it’s not just Democrats who promise it. Republican candidates have been talking about reducing college costs too, and George W. Bush was as passionate a supporter as Bill Clinton of encouraging home ownership for blacks and Hispanics.
Such policies are not necessarily examples of political demagoguery, though some are. They are based on observations of undisputed facts. College graduates over the years tend to make more money than non-graduates. Homeowners over the years tend to accumulate wealth and to build communities more than renters.
From these observations, policymakers have drawn the following conclusion. If we just get more people — especially minorities — into college, they will make more money. If we just get more people — especially minorities — to become homebuyers, they will accumulate more wealth. And what easier way to do that than to make these things free, or close to that?
This argument has special appeal to those oldsters born in the 1940s — Bernie Sanders, Bill and Hillary Clinton, George W. Bush, Donald Trump. Back then most Americans did not own homes and only a small minority graduated from college.
These politicians saw how public policies like the FHA and VA home loans and the G.I. Bill of Rights, together with unexpected postwar prosperity, changed that. By 1960, more than 60 percent of Americans were homeowners. By the 1970s most high school graduates were going on to some form of higher education. If old public policies could increase college attendance and homeownership, shouldn’t new public policies be able to increase them still more?
Over the last quarter-century we have had such policies, with some unhappy results. By 2007, 69 percent of American adults were homeowners. In 2009, 70 percent of young Americans went on to some form of higher education. But those numbers have slipped down since.
Government grants and subsidized loans have enabled many people to afford higher ed. But they haven’t guaranteed that recipients graduate or that graduates find satisfactorily remunerative work. The availability of government subsidy has prompted colleges and universities to raise tuitions far more rapidly than inflation, with much of the proceeds going into administrative bloat. That has left many borrowers with enormous debts which they cannot shed in bankruptcy.
Government policies, aided and abetted by Fannie Mae and Freddie Mac, promoted low- or no-down-payment mortgages for buyers previously considered uncreditworthy, many of them black or Hispanic. Policymakers, lenders and buyers all assumed that housing prices would always rise so that homeowners could always refinance any money problems away.
Oops. Housing prices fell sharply starting in 2006, and financial firms ended up with mortgage-backed securities which regulators classified as safe but for which they suddenly could find no buyers — and the economy crashed. Mortgage foreclosures soared, and by my estimate about one-third of those foreclosed on were Hispanics in California, Nevada, Arizona and Florida, whose recent low- or no-down-payment mortgages left them deep underwater when prices plummeted.
In response many politicians, mainly Democrats, are calling for iatrogenic policies: more of the medicine that caused the malady. Free college (actually, just free tuition) falls in this category, giving colleges and universities a more direct pipeline to government funds but not guaranteeing better results for students. Junior college is already largely free, but most enrollees don’t graduate.
And the Obama administration is seeking to reinstate Clinton and Bush administration policies providing low- and no-down-payment mortgages to those who do not meet traditional credit standards. What could go wrong?
Recent experience should tell us that college and homeownership are not for everyone. Many people lack the cognitive skills for higher education but have other abilities which can make them productive and successful adults. Many people, like those who move frequently, are better off renting than paying the transaction costs of buying a home.
Maybe policymakers got causation backwards. Increased college and homeownership, they thought, would upgrade people, and for a long while it did. But we seem to have reached the point of diminishing returns, when making things free will hurt the intended beneficiaries more than help.
from AEI » Latest Content http://ift.tt/1keHn9D
Jeb’s journey
A CBS News/New York Times national poll released earlier before last night’s CNBC-GOP debate provided strong hints of how people would react to Jeb Bush’s debate performance. No, I’m not talking about the question about the Republican field, in which Bush came in fourth among self-described Republican primary voters after Ben Carson’s presidential campaign, Donald Trump, and a little behind Marco Rubio. Nor am I talking about the question that asked these same Republicans who had the best chance of winning next November. In that question, Bush came in third, far behind Trump and a little ahead of Rubio. (In August, Bush was essentially tied with Trump for the top spot).
The question that caught my eye in the CBS/Times poll was the one that asked these Republicans about their enthusiasm for various candidates if they became the nominee. Forty-eight percent said they would enthusiastically support Ben Carson, and around 30 percent said they would feel that way about Rubio, Fiorina, and Trump. Twenty-six percent said they would strongly support Ted Cruz. But only 18 percent said they would support Jeb with such gusto. Perhaps even more devastating, 24 percent said they would support him only because he was the party’s nominee, and another 25 percent said they wouldn’t support him.
A one-on-one debate between Jeb Bush and Hillary Clinton would be a match of equals. Both are deeply substantive, and both would do their homework. Bush would be a worthy adversary in that situation. But he flails in the multicandidate encounters with people who have stronger personalities.
Particularly embarrassing in last night’s debate was his exchange with Marco Rubio, not because Rubio had a clear or compelling response to the question about his attendance record in the Senate, but because Bush just didn’t seem himself in delivering the punch. The attack seemed scripted by the campaign, but that doesn’t work if the candidate can’t pull it off.
Is Jeb’s journey at an end? The old cliché “time will tell” is all we can say at this point, but he is uniquely unsuited to the thrust and parry of multicandidate forums. And there are more of those to come. Even if the candidates can get some changes in the debate format, as some seemed eager to do after last night’s spectacle, it will still be an uphill climb for the candidate who was once the front runner.
from AEI » Latest Content http://ift.tt/1LEJxc4
Ecuador: Is there a future beyond Correa?
Key Points
- Elected president in 2007 as a maverick outsider, Rafael Correa has centralized economic and political power in his hands, outmaneuvered potential rivals, and bullied the independent media.
- Correa benefited from unsustainable social spending and artificial economic growth, buoyed by the oil and commodity boom, but internal opposition is growing as he is forced to reduce spending and raise taxes.
- As he considers an unprecedented fourth term, it remains to be seen whether Correa will resort to authoritarian tactics to manage the economic downturn and burgeoning opposition.
Since taking office as a maverick outsider nearly nine years ago, Ecuadorian President Rafael Correa has transformed the country by centralizing economic and political power under his authority and suppressing potential opponents in the private sector, media, and civil society. He has implemented a costly populist agenda, which has bolstered his popularity—initially tapping increased oil revenue but gradually becoming more dependent on Chinese loans and investments.[1] The steep decline in the price of oil and other commodities has forced Correa to cut spending and to propose tax increases. As a result, popular unrest has intensified in the last year, testing his popularity just as he decides whether to seek an unprecedented fourth term.
Mercurial and belligerent, Correa took power by railing against his country’s old political order—much like Hugo Chávez in Venezuela. Mimicking Chávez, Correa has waged a controversial battle with independent media and civil society, drawing increasing criticism from the international community for cracking down on freedom of expression; an editorial in the Washington Post in January 2012 branded him “Ecuador’s bully.”[2] Yet, in spite of his irascible behavior and numerous corruption scandals involving members of his family and political inner circle, Correa’s fragmented opposition has yet to coalesce around a significant rival.[3]
Recent polls show that Correa’s approval remains at more than 60 percent.[4] Analysts attribute his resilient popularity to the windfall from oil prices earlier in his term, significant growth in the public-sector payroll, and cash transfers to well over one million low-income Ecuadorians. A slowing economy and fiscal deficit will curtail Correa’s ability to shore up support through social spending, so only the depth of Ecuador’s economic crisis will determine his political fate.
The Economy
Throughout most of his time in office, Correa’s import substitution policies and high protective tariffs have benefited the country’s powerful private sector, and generous social programs have helped Ecuador’s poor. Economic growth was respectable until this year. However, in the face of declining petroleum and commodity prices, Correa imposed strict import and banking controls and proposed new capital gains and inheritance taxes, which alienated a growing segment of the private sector.
From 2009 to 2014, his administration has doubled public spending, reaching a record 44 percent of gross domestic product (GDP). Coupled with a poor record on debt repayment, his economic and fiscal policies have discouraged investment and private-sector growth and weakened the country’s international competitiveness significantly. Foreign direct investment in Ecuador made up just 0.6 percent of GDP in 2014, one of South America’s lowest rates.[5]
A recent report from Fitch Ratings found that “economic growth is heavily dependent on fiscal stimulus. Government intervention, real exchange appreciation, and a weak business environment weigh on private investment, economic diversification, and the development of oil reserves.” The dollarization of Ecuador’s economy 15 years ago has limited excessive government manipulation and has generally been a source of economic stability.[6] However, Correa has complained that dollarization limits his government’s ability to mitigate the effects of an economic crisis, and he may be tempted to scuttle this policy to stimulate growth.[7]
Until recently, substantial oil revenues and favorable trade and investment with China have sustained economic growth and mitigated the impact of Correa’s statist policies. Today, Ecuador is heavily dependent on the sale of oil and other commodities. Primary products made up 77 percent of Ecuador’s total exports in 2014, with oil alone representing 28 percent of public revenue.[8]
China’s large-scale construction projects and loans in Ecuador’s energy sector, including building dams and an oil refinery, have raised expectations for the state-dominated oil sector, but these Chinese investments are not without controversy. The Coca Codo Sinclair hydroelectric power plant provides a snapshot of the typical complaints that arise from such projects, including criticism about low wages, the project’s energy output, and unsafe work conditions. The latter was highlighted by a tragic flooding accident on the hydropower plant’s worksite in December 2014, which killed 14 workers.[9] Another complaint is that Ecuador is awarding contracts to China with overly favorable and unsustainable terms.
As with many oil-rich countries, Ecuador has been hit hard by the drop in commodity prices. The county’s oil revenue is expected to decline by as much as 48 percent in 2015, dramatically affecting the government’s budget and the broader economy. So far in 2015, Ecuador has announced cuts to public spending totaling $2.2 billion.[10] Ecuador’s annual growth rate—which averaged 5 percent from 2010 to 2014—also has decelerated significantly, with Fitch recently revising its growth forecast for 2015 to just 0.4 percent.[11] Financial analysts also have noted dropping consumer confidence, a 14.4 percent decline in cash deposits in the nation’s banks, and doubts about Correa’s ability to navigate the economic crisis.[12]
As a US-trained economist, Correa is certainly aware that he cannot sustain current spending and economic policies. In the wake of the commodity bust, he has realized he must embark on a new campaign to attract much-needed foreign direct investment. For example, the Correa administration imposed prohibitive taxes of 50 percent or more on the mining sector; the mining giant Kinross Gold Corporation abandoned a billion-dollar investment in Ecuador in 2013 after Ecuador demanded a 70 percent windfall tax. Now, Correa’s government hopes to entice $2 billion in mining investment over the next two years by offering access to gold and copper reserves.[13] However, given his past disregard for the interests of the private sector, investors may be wary that Correa will revert to his profligate spending and shortsighted policies once the economy recovers.
Perhaps nothing symbolizes Correa’s misguided public-sector investment strategy better than the hundreds of millions of dollars spent developing Yachay Tech University, located north of Quito, to replicate Silicon Valley in Ecuador. In 2015 the university’s rector, Fernando Albericio, resigned, charging widespread corruption, mismanagement, and political favoritism. Afterward, Albericio reported receiving death threats. To date, the university has produced no graduates and no new private investment, becoming a significant international embarrassment for Correa and his party.[14]
Correa never employed the kind of draconian economic measures that Chávez used to bring most of Venezuela’s private sector under state control. Until his proposed tax hikes, most of Ecuador’s private sector rarely felt threatened by Correa’s policies. In the end, however, Correa’s economic mismanagement and lack of fiscal discipline during the commodity and oil boom may make it harder for Ecuador to withstand and rebound from the ongoing downturn. He also squandered the opportunity to retool the economy to prepare for the challenges of the 21st century.
Notes
- Lily Kuo, “Ecuador’s Unhealthy Dependence on China Is about to Get $1.5 Billion Worse,” Quartz, August 27, 2014, http://ift.tt/1AW1BZj.
- Editorial Board, “Ahmedinejad Trip to Ecuador: A Meeting of International Pariahs,” Washington Post, January 11, 2012, http://ift.tt/1SbW359. The published version of this editorial was titled “Ecuador’s Bully.”
- “Rafael Correa demanda a los autores del libro ‘El Gran Hermano’” [Rafael Correa Sues Authors of the Book “The Big Brother”], El Universo, March 17, 2011, http://ift.tt/1MwobBb.
- “Gestión del presidente de Ecuador registra 63,4% de calificación positiva” [Approval Rating of President of Ecuador Registers at 63.4%], Agencia Pública de Noticias del Ecuador y Suramérica, October 12, 2015, http://ift.tt/1Ga3AzV.
- Economist Intelligence Unit, “Ecuador Economy: Quick View — Potential Payment to Occidental Highlights Fiscal Strains,” October 15, 2015.
- Fitch Ratings, “Fitch Affirms Ecuador at ‘B’; Outlook Stable,” October 2, 2015, http://ift.tt/1MwobBf.
- Steve Hanke, “Ecuador’s Ambassador Misses the Point: Dollarization,” Huffington Post, October 10, 2015, http://ift.tt/1ThnQFu.
- Fitch Ratings, “Ecuador: Full Ratings Report,” October 8, 2015.
- Clifford Kraus and Keith Bradsher, “China’s Global Ambitions, with Loans and Strings Attached,” New York Times, July 24, 2015, http://ift.tt/1KnWUMS.
- Fitch Ratings, “Fitch Affirms Ecuador at ‘B’; Outlook Stable.”
- International Monetary Fund, “IMF Executive Board Concludes 2015 Article IV Consultation with Ecuador,” October 21, 2015, http://ift.tt/1SbW5tS; and Fitch Ratings, “Fitch Affirms Ecuador at ‘B’; Outlook Stable.”
- Analytica Investments, “Weekly Report for October 5–October 9, 2015,” http://analytica.ec/.
- “Ecuador Seeks Foreign Investment for New Mining Areas,” Reuters, October 26, 2015, http://ift.tt/1MwobBl.
- Fernando Albericio, interview, “Las verdades del despedido rector de Yachay” [The Truth behind the Departure of the Rector of Yachay], La Historia, July 29, 2015, http://ift.tt/1SbW5tT.
from AEI » Latest Content http://ift.tt/1PWXMfj
Subscribe to:
Posts (Atom)