Errors of Enchantment

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New Mexico #19 for employment in June

08.16.2006

New Mexico came in as the 19th best state for employment in june with a 4.1% unemployment rate. But even with low unemployment and strong growth, New Mexico is still among the poorest states.
On a lighter note, The Economist writes about economist blogging. Apparently, you don’t have to go to an Ivy League university anymore, you can just read the blogs of the professors that teach there!

A Backlash AGAINST the Minimum Wage?

08.11.2006

The only thing we heard prior to Congress’s recent vote on a higher mandated wage was that Republicans were acting before the November elections in order to appear more friendly to low-wage workers.
Of course, we might never hear widespread talk of the backlash against Chicago’s recent minimum wage hike due to the fact that it will keep poor and low-income workers out of the work force where they can earn valuable skills that will allow them to move up the economic ladder. Perhaps minimum wage advocates really just want to keep these people on welfare and expand the size of government?

United States Bankruptcy

08.11.2006

We are quickly going broke according to economist Larry Kotlikoff. Kotlikoff

concludes that countries can go broke, that the United States is going
broke, that remaining open to foreign investment can help stave off bankruptcy, but that radical
reform of U.S. fiscal institutions is essential to secure the nation’s economic future. The paper
offers three policies to eliminate the nation’s enormous fiscal gap and avert bankruptcy: a retail
sales tax, personalized Social Security, and a globally budgeted universal healthcare system.

Neither major party has shown much interest in the radical reform of fiscal institutions that Kotlikoff recommends. Closer to home, Governor Richardson is counterproductively trying to exacerbate our long-term Medicaid budget problems.
I do wonder about Kotlikoff’s proposed retail sales tax rate of 33 percent. Combined with state sales tax rates the large (40 percent or more) tax wedge between buyer and seller would encourage tax avoidance. Maybe the proposal should be somewhat less vast. That is my feeling about Charles Murray’s recent welfare reform proposal too. But at least these reform ideas are on the right track.
BTW, I find our bankruptcy problem to be orders of magnitude more important than global warming. Yet global warming seems to be getting orders of magnitude more attention.
HT: NCPA

Buddy, Can you Spare an Emissions Credit?

08.08.2006

Under the pretense of trying “leading the way” on global warming, the Albuquerque Journal reported today (link available to subscribers) that because the state has failed to cut emissions adequately under its self-imposed effort to reduce greenhouse gas emissions, the state is going to spend 30 to 50 thousand taxpayer dollars to purchase emissions credits from some lucky source that will cash in on the state’s wasteful use of taxpayer money for meaningless credits.
Of course, this has very little to do with “global warming,” rather it is about Governor Richardson position himself as a national leader on the before the Democratic primaries two years from now. Of course, NM is the only state in the program so we are the only taxpayers being gouged for no reason at this point.
According to the story, New Mexico’s efforts supposedly removed a whopping 433 cars off the road. I’m sure that if global warming is caused by humans and their use of carbon-based fuels that we are well on our way to solving the problem now.
Oh well, it just goes to show that politicians will never run out of creative ways to waste our tax money.

Spending — the Richardson Record

08.06.2006

New Mexico has been on a spending spree over the last four fiscal years. The Richardson record is now clear: The general fund budget has increased by 31.2 percent. When adjusted for inflation and population growth, the budget has grown by 13 percent. That means New Mexico is spending 13 percent more in current dollars (FY2007) per person than it did four years ago.
The general fund budget in FY2003 was $3,873,944,000; and this year (FY2007) it is $5,084,063,000. If we could have held government growth to inflation plus population growth, then $659,771,000 would be available for the hard working taxpayers. That is enough money to have eliminated our personal income tax altogether. Or we could have lowered the statewide gross receipts tax rate from five percent to three percent.
Of particular concern is the growth of welfare. We seem to be very good at rewarding unproductive behavior while punishing work and saving. The budget for Medicaid has increased by over 40 percent in current, per capita dollars! The remainder of Health and Human Serivces has increased by over 22 percent. As a percentage of the general fund budget these welfare programs now consume 23.9 percent compared to 20.9 percent four years ago. Now we are being told to expect another major expansion of Medicaid while no one notices why what we have doesn’t work very well as they engage in more wishful thinking.
More detailed explanations of the budget data appear below the fold. Contact me if you have any questions.


General Fund Budget in FY03: $3,873,944,000
General Fund Budget in FY07: $5,084,063.000
Population Growth over the most recent four years: 5.2 percent
Total inflation over the most recent four years 13.0 percent
(source BEA and BLS)
Medicaid Budget in FY03: $395,790,000
Medicaid Budget in FY07: $629,400,000
Bottom LIne: Medicaid has grown by 7.1 percent annually in real, per capita dollars
Health and Human Services in FY03: $415,406,000
Health and Human Services in FY07: $583,542,000
Bottom Line: HHS has grown by 4.5 percent annually in real, per capita dollars
Public and Higher Education have grown at an annual rate of 1.6 percent in real, per capita dollars. Here are their budget numbers:
PUBLIC EDUCATION in FY03: $1,808,568,000
PUBLIC EDUCATION in FY07: $2,279,995,000
HIGHER EDUCATION in FY03: $601,715,000
HIGHER EDUCATION in FY07: $759,194,000

New Mexico’s Pigs

08.06.2006

Sadly, and typical of New Mexico politics, our Cong are at or near the bottom of the rankings in the fight against pork barrel spending. See the nationwide Club for Growth’s rankings here (a score of 19 is perfect, meaning that that particular Cong voted for 19 out of 19 anti-pork meaures). New Mexico’s scores from best to worst:
Tom Udall – 5
Steve Pearce – 1
Heather Wilson – a big fat ZERO
Update: Over half of the Cong nationwide had a score of ZERO. That is bad news for the prospect of budget discipline. Only 21 protectors of taxpayers had a perfect score of 19.

A Government Shopping List

08.05.2006

Out enjoying the gross receipts tax holiday this weekend, but confused about which items are exempt? Be sure to bring a shopping list–in this case, the state’s 7-page list of taxable and nontaxable items.
You’re going to need it…
Belts aren’t taxed, but the buckles are if sold separately. Bowling shirts aren’t taxed, but bowling shoes are. Sweat suiits and sweatpants are tax free, but forget about the sweatbands. Golf clothing isn’t taxed, and neither are most gloves, except for golf gloves which are still taxed. If you’re cold, ear muffs aren’t taxed but hand muffs are. Neckware such as ties and scarves are tax free, but you’ll pay taxes to tie a new bandana or handkerchief around your neck. Antique clothing will be taxed if you don’t wear it, but won’t be if you do. I could go on like this forever.
This would all be so much simpler if the tax holiday was applied across the board to all goods and services.

John Dendahl’s Misstep

08.05.2006

When you are running for governor against a powerful incumbent and you lack the financial resources to put your message out in a massive media blitz, the last thing you should be doing is unnecessarily attacking large voting blocks. Unfortunately, that is exactly what Republican gubernatorial nominee John Dendahl did recently in attacking teachers themselves for New Mexico’s abysmal education results.
Rather than attacking teachers themselves, Dendahl should have used the lousy results as an opportunity to speak out about a failing monopolitic model of education that discourges innovation and initiative while encouraging mediocrity. After all, in a free market system, parents would have the ability to choose whether sex-ed is tought in their children’s school or whether the focus is placed on the basics like reading, writing and arithmetic.
Governor Richardson does indeed deserve some blame for our failing schools, but he is only one of many governors in the nation — Republican or Democrat — that presides over a failing monopoly.

Mapping the Future of Education

08.01.2006

New Mexico always seems to stand out on a map. Sunday’s New York Times reports on projected changes in the number of high school graduates and its consequences for future college enrollment across the country. The article features this map based on the Interstate Commission for Higher Education’s projections for 2015:
Projected changes in the number of high school graduates
That bluish hue indicates that New Mexico should expect a smaller class of graduating seniors a decade from now. The Western Interstate Commission for Higher Education has further projections, up to 2017-18, that reiterate this expected trend.
Why is New Mexico’s population of high school graduates expected to fall, as every one of our neighboring states will see increases? One clue lies in the breakdown WICHE provides by race/ethnicity.
Let’s take a closer look…


While projected numbers for Hispanics and other “underrepresented” groups are quite stable, graduating seniors identified as “White, non-Hispanic” are on a steady downward trend from a peak in the 1999-2000 school year.
A child graduating high school in 2018 was born around the year 2000. As such, these projections are based on past demographic data, and we can work backwards to find the source of this trend. The steady decline in “White, non-Hispanic” high school graduates could potentially be explained by two related factors: 1) a decline in “White, non-Hispanic” birth rates in the 1980-90s, and 2) a decline in the state’s “White, non-Hispanic” population overall. Over time, of course, #1 causes #2. What’s been going on in New Mexico?
Digging into archival census data, it’s clear that #1 is the dominant factor. New Mexico’s “White, non-Hispanic” population grew nearly 18% from 1981 to 1999, slower than the other racial/ethnic groups, but growth nonetheless. But this is an aging population, not reproducing as rapidly as the other racial/ethnic groups.
In 1981, “White, non-Hispanic” children under 5 years old numbered 50,266, 41.6% of the states youngest children. These are the infants that would fuel the peak in “White, non-Hispanic” graduation 18 years later. At this peak in 1999, however, the next generation of “White, non-Hispanic” children under 5 numbered only 42,025, just 32% the state’s youngest cohort.
One other possibility comes to mind–the high degree of racial admixture in New Mexico. I’ve been unable to find any data on this point, but many so-called “non-Hispanic” parents have “Hispanic” children. Children under 5 identified as “White, Hispanic” numbered 68,054 in 1999, up from 53,359 in 1981, enough to make up for the difference. But this fails to explain the overall drop in projected high school graduates.
Whatever the cause, the relatively low replacement of those self-identified as “White, non-Hispanic” will have a dramatic impact on more than just the make-up of New Mexico’s high schools. Lower public school enrollment and fewer high school graduates imply a smaller pool of students for the state’s university system. A shrinking supply of young, educated, and skilled workers does not bode well for New Mexico’s economy in the 2010s and 2020s.
We can’t beat demographics–those students in the projections have already been born. However, we can still prove the predictions wrong. Improving the high graduation rate from our dismal 56.7% (free registration required) could add thousands of educated young workers to the labor pool, and is an obvious place to start. New Mexico’s universities could also make recruiting qualified out-of-state students a priority, a tactic employed successfully by the University of Oklahoma.
Finally, since we’ve already got unbeatable weather, nothing attracts the young, industrious entrepreneur better than free markets and personal liberty.

Finally, An Explanation for Corporate Compensation

08.01.2006

Anyone who reads this blog regularly won’t be surprised to find out that once again, it is government meddling that has created what many see as a problem. However, this one, like the price of oil, is being blamed on companies and few are discussing the real issue.
Tech Central Station has the first article I have come across that actually explains why corporate compensation is so high to begin with. Big corporations are using the heavy hand of government to prevent take-overs. And use of this government intervention (something we could make illegal and let the free market respond to prices as we used to) is what allows compensation to increase seemingly without limit.
“As a result of the takeover boom of the early 1980s the managements of some of the larger corporations started to look for permission, from both courts and politicians, to protect themselves with poison pill defenses in order to thwart takeover bids. These take a number of forms but the essential outcome is much the same: it makes the hostile takeover of a company by a corporate raider more expensive.”
How does preventing takeover allow CEO compensation to skyrocket?
“…back in the 1950s and 60s, when there was a fairly unregulated market for corporate control, managers could not pay themselves huge sums in this manner because someone could and would come along and buy the company and throw the bums out. Now that those poison pills form the corporate defenses they can’t, or at least only at vastly greater cost.”
So, if another corporation can’t come along and buy the company and toss out those who are leeching profits, companies – stockholders and workers – are left with little choice but to pay whatever the market rate is, and the market rate is as high as it is because nobody can buy these companies up and throw out the expensive and wasteful CEOs.
Once again, market rigidity is the cause of the non-competitive pricing.

Freedom as an Incentive

07.29.2006

If you caught Paul’s appearance on The Line last night, the discussion on government incentives to attract businesses to the state was especially useful. When a business is looking to locate in the Southwest, New Mexico is in competition with its neighbors. Two chief strategies come into play in this competition. States can either 1) create a business-friendly environment through low taxes, unobtrusive regulations, and protection of private property, or 2) use high taxes and an active government to bribe favored companies.
According to an index developed by the Pacific Research Institute, New Mexico ranks 37th in the nation for economic freedom, based on a number of indicators in the fiscal, regulatory, and judicial policy sectors as well as government size and state welfare spending. A color map is available, but New Mexico’s situation stands out most clearly in black and white:

That big dark blip in the middle of the Southwest, that’s us. Here’s how New Mexico compares to its immediate neighbors.

Rank State
2 Colorado
5 Utah
6 Oklahoma
11 Arizona
17 Texas
37 New Mexico

While its neighbors have generally proceeded with the first strategy, fostering economic development through economic freedom, New Mexico has stood out in its zeal for the tax-and-bribe approach.
Has this been a successful strategy for New Mexico? As Harry pointed out last week, New Mexico lags behind its neighbors in private sector generated income. Indeed, most economic comparisons with neighboring states are unfavorable.
With taxes from the oil and gas industry filling the state coffers, New Mexico is in a good position to create a climate more friendly to all business in the state, not just to a handful of bureaucratic favorites. Give home-grown businesses a better chance, and the entire state will be more attractive to outside investors and entrepreneurs.
In case you missed it, KNME will rebroadcast The Line Sunday at 6:30 am.

Per Capita Income in New Mexico 2005 — More Bad News

07.21.2006

When the Bureau of Economic Analysis released its per capita income data for 2005 it looked at first like there might be some good news. The release emphasizes changes in per capita income from 2004 to 2005. And, while New Mexico continues to be near the bottom of the income rankings, its growth was in the top 25 percent (12th out of 50). That seems like a good reason for celebration, right? Wrong!
The reason we should not celebrate is income growth was disproportionately for state and local government and welfare payments. In fact, New Mexico had the highest yearly growth of income for state and local government in the nation! Here is how NM government growth compares to states in the region:
StateLocalGovt.jpg
For yearly growth rate of welfare NM was 7th in the nation, and it would have been higher had we not been muscled out by the hurricane ravaged states. Here is how NM compares to states in the region:
Transfers.jpg
Netting our the disproportionate effect of government and welfare growth on per capita personal income from 2004 to 2005, we see that New Mexico is lagging behind other states in the growth of private sector generated income:
Private.jpg
So there you have it. Prosperity is generated by private sector growth and not by reliance on government — just the opposite of what the trend is in NM compared to other states.

Wrong Reason for Veto of Stem Cell Funding

07.19.2006

My view is that stem cell research has the potential to improve our lives significantly. Yet I hope the president follows through on his veto threat. My reason:

By its very nature, government politicizes everything it touches. Science is no exception. Stem cell research needs neither government money nor politics. It is better is to get the government out and let the private sector continue its good work. Those people calling for increased funding could take out their checkbooks and support it. Those who oppose embryonic stem cell research would not be forced to pay for it.
Michael Tanner

Of course the same thing could be said for just about everything the government forces you (the taxpayer) to fund. By the way, if popular support of stem cell research is mirrors congressional support for it then we should see a lot of voluntary contributions to it. My guess is that most stem cell research already qualifies for some government sponsorship because of tax deductibility to those private organizations conducting it.

Eminent Domain Curbed in Missouri

07.14.2006

Governor Matt Blunt (R) in Missouri has signed legislation restricting use of eminent domain. His bill is particularly good in that it bars the taking of private property solely to increase taxes or create jobs; It explicitly rejects the Supreme Court decision Kelo v. New London; and it increases the compensation for seized homes from market value to a premium level (since clearly the owners did not want to sell and value their homes above the market clearing level). It also provides additional tools for homeowners to fight with in court and a “Property Owner’s Bill of Rights” to educate those faced with a possible eminent domain seizure.
Good for Missouri. Now lets demand the same in New Mexico!

Basic Economics, Basic Morality

07.13.2006

Economic growth depends on division of labor. Division of labor depends on freedom of trade. Freedom of trade depends on, in the words of Adam Smith, “the obvious and simple system of natural liberty.”
So writes P.J. O’Rourke in a column for the Weekly Standard about Adam Smith’s lesser known book, The Theory of Moral Sentiments. If the economic system in America depends on liberty, should we not imagine that it is moral? But we don’t. And very few even understand why it works.
How could tax cuts actually lead to higher tax revenues? Taxes discourage productive work and move investment from the private to the public sector – reducing taxes leads to higher private sector growth, higher wages and higher profits – which, taxed at the lower rate, still bring in more tax revenue. It is so simple, but it means thinking about the economy over time, as a dynamic system, not as a static state. This is something that many economists forgot after Smith.
So, as some politicians preach morality in anti-market economics, saying that “we need to do right by hard-working Americans and raise the minimum wage,” rational thinking men should re-open their Adam Smith texts and remember the morality of markets. As other states push through higher minimum wages, New Mexico should steadfastly refuse to make the same mistake. The simplistic thinking of minimum wage advocates reveals itself in absurd hypocrisies – such as advocates of minimum wage hikes asking to be exempt because it would cause the same layoffs that they claim the minimum wage doesn’t cause!
Instead, New Mexico should lower taxes, encourage business and wage growth, and take pride in our moral and free market system.