ideas Economic

10 for Development

July 2010 | Featured Idea

Social Entrepreneur Innovation
 10 Ideas for Economic Development
July 2010

National Director
Hilary Doe

National Network Coordinator

Tarsi Dunlop

Lead Strategist for Economic Development

Lucas Puente

Managing Editor
Gracye Cheng

Editor
Zachary De La Rosa

The Roosevelt Institute Campus Network

455 Massachusetts Ave NW
Suite 650
Washington, DC 20001
Copyright © 2010 by the Roosevelt Institute. All rights reserved.

The views and opinions expressed herein are those of the authors. They do not ex-
press the views or opinions of the Roosevelt Institute, its officers, or its directors.
 ideas
10 for

Economic
Development
 Congratulations to
Erika K. Solanki,
author of
The Social Entrepreneurship Solution

Nominee for
Policy of the Year
 Inside the Issue

P
Fueling Economic Development Via Education: 8
The Potential of Promise Programs
Katherine Kavaler et al

Northwest Passage: 10
Improving Rail Service between Boston & Portland, Maine
Zachary Agush and Christopher MacDonald

Capitalizing on California’s Cash Crop 12

Gonzalo Pizarro-Angulo

A Tax Revolution for California 14

Kunitaka Ueno

The Social Entrepreneurship Solution 16

Erika K. Solanki

Cost-Free CARS 18
Raul Tadle

A Clearinghouse System for Credit Default Swaps 20

Parintha Sastry

The Case for an International 22

Financial Services Regulatory Board
Matthew Eldridge

The Necessity of American Consumer Protection 24

Zachary De La Rosa

The Connection between the Chinese ‘Courting Market’ 26

and Housing Prices
Douglas Chenier et al

Roosevelt Review Preview: 29

Policy Options for United States Federal Government
Mitigation of Greenhouse Gas Emissions
Julia Sittig and Gillian Wener
p Letter from Washington
W e are pleased and proud to present the second edition of the 10 Ideas Series.
Comprised of six journals, these articles represent the best of our student policy work
across the country. Throughout the past year, our national policy strategists have sup-
ported hundreds of students chapters stretching from New England and Michigan to
California and Georgia. As a peer-to-peer network, our student strategy team is unlike
any other - they are both friends and mentors, strategists and promoters. Instead of
waiting for their ideas to be approved in Washington, our Washington team looks to the
field for our most innovative policies - and it is the student network that votes on the
best proposals of the year.

Within this volume, you will find a variety of ideas in motion. Some are new proposals
being spread for the first time; others have already gained traction in their local com-
munity, as our campus chapters work to enact their policies today. Some will rise to
higher prominence in the months ahead, gathering momentum as the idea is adopted
throughout our national network of 8000 members. A few will be adopted by state
legislatures and city councils; some make it all the way to Capitol Hill.

A year ago, one Colorado student published an idea about improving remote access to
health care via unused television waves; the state of California is now working with him
to make that idea a reality. A pair of students in Chicago postulated that their school
could start a revolving loan fund for energy efficient building and development; they
now help administer such a fund at Northwestern.

Whether intensely localized or built for the nation at large, these ideas all have the po-
tential to become realities. We look forward to what comes next for these authors - and
if you can be a part of that change, we hope you’ll join us.

Sincerely,

Tarsi Dunlop
National Network Coordinator
 Strategist’s Note P
O ur Center for Economic Development focuses on proposing and implementing
progressive policy solutions for the domestic and global economy. In the 10 Ideas for
Economic Development journal, some proposals have targeted hot bottom national is-
sues, such as the regulation of credit default swaps and the “Cash for Clunkers” rebate
program, though others focus on key local and state issues. Furthermore, we are also
publishing several pieces with an international focus, ranging from the importance of
consumer protection in trade agreements to taming the Chinese housing bubble.

These pieces and our work this year in general are reflective of our “Think Impact”
initiative. We expanded this program and helped Roosevelt students in chapters across
the country become even more involved in policy-making decisions in their own com-
munities. We have now had many exciting projects completed with this model, and I am
proud to say implementation of our policies remains a key objective. With a clear focus
on improving our success in such endeavors and a new National Implementation Strate-
gist, many of the students in the Center for Economic Development composed innova-
tive policies that are exceptionally attractive to policy makers. In this year’s journal, all
of our pieces stand out for their practical feasibility and applicability to the challenges
that policy makers are currently facing. Thus, I am proud to say that publication here is
simply one stage in the process of getting Roosevelt students’ ideas turned into actual
policy.

Overall, I am very proud of the work that the Center for Economic Development con-
ducted this academic year. The policies in this journal represent only a fraction of
our work. We completed several well-received projects, such as a preemptive analy-
sis on financial regulatory reform, and wrote a myriad of blog posts and other policy
briefs that expanded our reach while still upholding our traditional high quality. These
achievements come despite our students facing constant time scarcity. Their obliga-
tions include studying for exams, writing papers, and preparing for class- not to mention
extracurricular activities. Without a doubt, all of these factors contribute to an unpre-
dictable schedules and a level of commitment that makes external academic-oriented
undertakings quite difficult to undertake, much less maximize. Nevertheless, Roosevelt
students went above and beyond by consistently producing high-quality and influential
work, many times without direct academic or financial support or incentives. I hope you
will join me in saluting this work and appreciating the dedication of Roosevelt students
across the country.

Sincerely,

Lucas Puente
Lead Strategist, Economic Development
Fueling Economic Development Via Education:
The Potential of Promise Programs
Katherine Kavaler, Joseph Geylin, Andie Levien, Eric Jones, and Daniel Hornung
Yale University
Local municipalities should finance Promise Programs that guarantee a college edu-
cation to students who are academically qualified to attend.

Promise Programs provide sufficient funds for students who are academically capable
of attending college. These unique scholarships are based on where students live and
whether they graduate high school. These programs, which started in Kalamazoo, Michi-
gan, El Dorado, Arkansas, and Pittsburgh, Pennsylvania have already been proven to
foster local economic development. The programs provide students, starting at a young
age, with the knowledge that they will be able to attend college after high school.

Analysis
Promise Programs have the potential to
revive economically depressed areas and
insulate local economies from regional Key Facts
and national downturns. After the imple- • Kalamazoo house prices jumped be-
tween 8% and 10% over the next two
mentation of its Promise Program in 2005,
years, while the rest of the state expe-
Kalamazoo home prices jumped between rienced a decline.15
8% and 10% over the next two years, while • Cities with Promise Programs experi-
the rest of the state experienced a de- ence lower rates of unemployment.
cline.1 Retail home values in the greater • Promise Programs encourage popula-
Pittsburgh area also experienced an 8% tion increases, including an influx of
jump, despite the collapse of the broader teachers and middle class families.
United States and Pennsylvania housing
markets, which have fallen around 12%
and 3% respectively in the same time period.2

Since Promise was started in El Dorado in 2007, the median home price has risen from
about $80,000 to just over $120,000 while the rest of the state has stagnated;3 simi-
larly sized cities in southern Arkansas such as Magnolia and Crossett experienced no
significant rise in the median retail house values.4,5 The anecdotal evidence of a hous-
ing market boom from city officials and house builders – particularly in Kalamazoo – has
also been promising. Four hundred new families have moved to Kalamazoo since 2005.
Mark Reisterer, a real estate agent for Coldwell Banker in Kalamazoo told Roosevelt:

Demand is much higher. Because you have to live within the boundaries, we see
people moving in or investing in properties to rent to people. It’s been nothing but a
blessing. We truly got saved from the national housing problems.6

Though it is difficult to completely distinguish the housing market effects of Promise

Programs from general market trends, the data show a strong correlation between the
implementation of a Promise Program and a subsequent housing boom. The economic
benefits extend beyond the housing market. Kalamazoo, El Dorado, and Pittsburgh each
have shown increasing population rates after implementing Promise Programs. Pitts-

8
burgh’s population decline reversed. Four hundred families moved to Kalamazoo,7 and
200 families moved to El Dorado.8

The announcement of the Promise Programs coincided with a nationwide recession.

Since these programs have only existed for a short period of time, their corresponding
effects on local unemployment cannot yet be fully seen, although there are already
positive indicators. For example, in the midst of the worst recession since the Great
Depression, rates of unemployment in the Promise Program cities and surrounding ar-
eas generally have been lower than their respective state averages. Additionally, while
the number of families living below the poverty line in the United States grew by 0.4%
during this period, that number fell by 0.6% in Pittsburgh.9,10 Moreover, rates of unem-
ployment in the Promise Program cities and surrounding areas have been lower than
their respective state averages. Finally, the increase in expenditure because of the
influx of students did not outpace an increase in city revenue. Thus, Promise Programs
not only result in economic development, but also do not deter from the city’s fiscal
responsibilities.12,13

Although the Promise Program fuctions similarly in all three cities, each city has a dif-
ferent method of funding the program. Kalamazoo received a private donation from a
group of wealthy citizens. Pittsburgh University’s Medical Center is heading a coalition
of funders to finance Pittsburgh’s Promise Program. Although all three programs suc-
cessfully locate sufficient funding, the Pittsburgh model is most readily adaptable for
cities across the nation.14

Next Steps
Through the support of a central donor and other interested parties, cities including
New Haven, Connecticut should build both a supportive and diverse base to establish a
Promise Program. This program would foster economic development in cities like New
Haven, provide greater opportunities for children, and – with enough effort from local
government – remain fiscally sound.

Endnotes
1. “The Pittsburgh Promise: Case Study of Promises in Kalamazoo and Other Communities.” December 5, 2007. http://
pittsburghpromise.org/pdf/Pittsburgh_Promise_Case_Example.pdf (accessed October 2009).
2. “Series: PASTHPI, House Price Index for Pennsylvania.” November 24, 2009. http://alfred.stlouisfed.org/
series?seid=PASTHPI (accessed October 2009).
3. “El Dorado, AR Real Estate.” http://realestate.yahoo.com/Arkansas/El_Dorado (accessed October 2009).
4. “Crossett, Arkansas.” 2010. http://www.city-data.com/city/Crossett-Arkansas.html (accessed October 2009).
5. “Magnolia, Arkansas.” 2010. http://www.city-data.com/city/Magnolia-Arkansas.html (accessed October 2009).
6. Coldwell Banker, personal interview October 2009.
7. “The Pittsburgh Promise.” (accessed October 2009).
8. “El Dorado Celebrates Second Anniversary of Promise Scholarship Program.” January 18, 2009. http://www.eldorado-
promise.com/news/Story.aspx?storyID=4 (accessed October 2009).
9. “Pittsburgh, Pennsylvania Census and Community Profile.” 2010. http://www.americantowns.com/pa/pittsburgh-infor-
mation (accessed October 2009).
10. “Pittsburgh, Pennsylvania Poverty Rate Data.” 2010. http://www.city-data.com/poverty/poverty-Pittsburgh-Pennsylva-
nia.html (accessed October 2009).
11. “U.S. Bureau of Labor Statistics.” http://data.bls.gov/PDQ/servlet/SurveyOutputServlet (accessed October 2009).
12. Bennett, Jeff. “Kalamazoo’s Lesson: Educate and they will come.” The Wall Street Journal, July 28, 2008.
13. School District of Pittsburgh Popular Annual Fiscal Report, for the Fiscal Year. 2008.
14. Kurutz, Daveen. “Corporations help keep Pittsburgh Promise Scholarship program alive.” July 2, 2009. http://www.
pittsburghlive.com/x/pittsburghtrib/news/pittsburgh/s_631959.html (accessed October 2009).
“The Pittsburgh Promise.” (accessed October 2009).

9
Northeast Passage: Improving Rail Service
Between Boston and Portland, Maine
Zachary Agush and Christopher MacDonald, Wheaton College

The U.S. should invest in high-speed trains to stimulate economic development in

cities like Portland, Maine.

Since the 1950s, the United States has been challenged by the critical issue of trans-
portation. The major modes of transit have shifted dramatically from traveling by rail
to driving on highways. More automobiles and trucks continue to emerge annually. Be-
tween 1990 and 2006, this increase in vehicular travel has increased CO2 emissions
four-fold, while trains have produced 36% less CO2 emissions in that same period.
Moreover, highway congestion annually costs the American economy $78 billion, 2.9 bil-
lion gallons of wasted fuel, and 4.2 billion lost hours of productivity. High speed trains,
a mode of transportation even more reliable than air travel, could reduce travel time by
30% when passengers travel 100-500 miles from city to city.1

Many state governments incorrectly perceive Key Facts

that the ever-increasing demand for efficient
travel cannot ever be fully resolved. In order
to curtail this trend, the Federal Government
and individual states must place a greater em-
phasis on rail transport. Unless proactive steps
are taken towards improving our nation’s rail
network, other major industrial countries will
overtake the United States economically. After
all, rail lines create an environment conducive
to thriving industry and robust employment.
• By 2020, China will have invested
300 billion dollars in high speed
rail, while the United States has
only invested 8 billion dollars.8
• Out of 121.2 million commuting
Americans, 40.8 million travel
between suburbs for work.9
• Rails are most efficient when
traveling a distance of 100 to
400 miles – more efficient than
automobiles and air travel.10

By 2020, China will have invested $300 billion

in high speed rail, while currently the United States has only invested $8 billion.2 Ad-
ditionally, by 2020, China will have 16,000 miles of high-speed rail constructed, 8,000
miles of which will become operational by 2020.3 Meanwhile, the United States cur-
rently has only one overburdened high speed rail corridor between Boston and Wash-
ington D.C.

Analysis
The Downeaster is a 116-mile (187 km) Amtrak passenger train route managed by the
Northern New England Passenger Rail Authority (NNEPRA). The Downeaster connects
North Station in Boston to the Portland Amtrak Station. The Fiscal Year of 2006 was
Amtrak’s fastest-growing year in history, with ridership up 22.9%.4 In F.Y. 2007, rider-
ship increased nearly 8%. In F.Y. 2008, with the addition of a fifth round trip, ridership
increased by another 28% — 12% more than projected. F.Y. 2008 ticket revenue was
$6,076,517, an increase of 33% over F.Y. 2007 and 14% more than projected.5

Cities along rail lines show increases in property values, rents, and real estate prices.
The population in the northeast United States is predicted to be 58.1 million by 2025,

10
putting an even greater strain on already congested highways and airspace. America
2050, a transportation policy organization, predicts that rails are the most efficient form
of transportation for distances between 100 and 400 miles.6

Of the 121.2 million commuting Ameri-

cans, 40.8 million travel between suburbs Talking Points
for work.7 Aided by an accessible and af- • High speed trains help stimulate eco-
fordable mode of transportation, regions nomic development by making the
would see an escalation in property val- transportation system more efficient.
• High speed trains allow for the traffic
ues and more opportunities for new con-
of large metropolitan areas to become
sumers. For example, the economy of decongested.
Portland relies on small, independently
owned businesses that trade locally and
often take advantage of the area’s rail network. The popular “Keep Portland Indepen-
dent: Buy Local” movement has led to increased self-sufficiency and the prominence of
locally procured goods. One of Maine’s emerging industries – healthcare – has recently
produced a partnership between Maine Medical Center and Tufts University School
of Medicine. With an influx of professionals and skilled workers into Southern Maine’s
suburban areas, Portland and its surrounding communities will develop into a satellite
of Boston. Boston, the larger and more developed metropolitan area, boasts already
established industries, and the suburban population of Portland would reap many of
Boston’s economic benefits.

Next Steps
Investing in an underutilized mode of transportation would reap economic benefits and
curtail rising urban concerns. High-speed trains will help generate a rise in employment,
decongest metropolitan areas in Massachusetts, and stimulate the housing market in
Southern Maine. Commuting workers, the housing and construction markets, general fi-
nancial organizations, and the retail and service industries would benefit from improved
rail service. The reintroduction of the High-Speed Rail for America Act would provide
Federal appropriations for this program in a general form, by authorizing the creation
of an agency to provide oversight.

Endnotes
1. High Speed Rail for America Act, S.3700, 110th Congress, 2nd Session (2009).
2. NPR. “China Aims to Ride High Speed Rail into the Future.” January 3rd, 2010. http://www.npr.org/
templates/story/story.php?storyId=122179548 (January 15, 2010).
3. Freemark, Yonah. “High Speed Rail in China.” January 12th, 2009. http://www.thetransportpolitic.
com/2009/01/12/high-speed-rail-in-china/ (January 20, 2010).
4. “Amtrak Fact Sheet. FY2006. State of Maine.” 2007.
5. “FY08 Summary Report.” June 2008. Northern New England Passenger Rail Authority.
6. Hagler, Yoav and Todorovich, Petra. September 2009. “Where High Speed Rail Works Best.” America
2050.
7. IAC Transportation. About Your Commute. 2008. U.S. Commuting Statistics.
8. NPR. “China Aims to Ride High Speed Rail into the Future.” January 3, 2010. http://www.npr.org/tem-
plates/story/story.php?storyId=122179548 (January 15, 2010).
9. IAC Transportation. About Your Commute... 2008. U.S. Commuting Statistics.
10. Hagler, Yoav and Todorovich, Petra. September 2009. “Where High Speed Rail Works Best.” America
2050.

11
Capitalizing on California’s Cash Crop
Gonzalo Pizarro-Angulo, University of California at San Diego
Legalizing marijuana would save taxpayers millions of dollars by reducing rates of
incarceration and allow California to tax its number one cash crop.

California is currently experiencing a budget deficit of over $20 billion.1 With budget
cuts coming primarily from educational and social programs, we have chosen — either
for ideological or political reasons — to ignore marijuana legalization as a possible solu-
tion to the fiscal crisis. As the nation continues to face an economic recession, and the
state experiences severe budget shortfalls, we also continue to spend $35 billion every
year fighting drugs.2 The cost of incarceration alone accounts for about $20,000 to
$50,000 a year per inmate.3

Before analyzing the numerous benefits Key Facts

of taxing marijuana, it is crucial to put the • According to a Views on Legalizing
drug’s criminalization into perspective. Marijuana polls from ABC News/
Washington Post and Time/CNN,
The idea of a “drug-free society” serves
46% of Americans favor legalizing
as a mechanism that favors certain drugs marijuana for personal use.8
over others. For example, alcohol related • According to The Field Poll, 56% of
violence and crime is inarguably a major California voters support legalizing
challenge in our society; however, the soci- marijuana and taxing its sale.9
etal costs that Americans witnessed during • Marijuana enforcement, processing,
the Prohibition era prompted the federal and sentencing cost taxpayers $7.6
government and the states to take control billion per year.10
of this substance via legalization and regu- • Public policy analyst and former head
of the National Organization for the
lation. Likewise, the perceived dangers
Reform of Marijuana Laws, Jon Gett-
of marijuana spawn directly from specific man, conducted a study using govern-
social and historical conceptualizations of ment figures to estimate that the an-
the drug. As history reveals, prohibition- nual pot crop is worth $35 billion.11
ist policy actually intensifies crime and
violence because illegal markets tend to
breed violence by drawing violent individuals and giving members no rule of law to re-
solve disputes.4 Instead of emphasizing criminal justice methods, people should favor
programs that target the root causes of drug addiction.

Americans must change our perceptions of marijuana as we did with alcohol during the
Prohibition era. According to a recent study, the marijuana crop is worth more than our
nation’s annual production of corn and wheat combined.5 Furthermore, current poli-
cies guarantee that all of the proceeds from marijuana sales go to unregulated crimi-
nals. According to a study by Harvard professor Jeffrey Miron, a legalized but heavily
regulated and taxed marijuana regime would save $7.7 billion in enforcement costs and
yield up to $6.2 billion in revenue.6

Analysis
Between reductions of government expenditures on law enforcement and the poten-
tial for major tax revenues from a legal drug market, California would enjoy at least $10
billion per year if marijuana were taxed at the same level as alcohol or tobacco.7 Along

12
with creating a new multi-billion dollar industry in California, the decriminalization of
marijuana would allow the government to control this substance more effectively and
would allow police to allocate more resources to combating violent crimes.

Next Steps
Marijuana legalization should be implement-
ed at both the national and state levels. Just Talking Points
like every other drug, the federal government • Legalizing marijuana would save
would control specific factors, but each state money for taxpayers, alleviate over-
crowding in prisons, and allow police
would be responsible for enacting laws per-
to focus their resources on address-
taining to the production and distribution of ing violent crimes.
marijuana. • California is currently facing a $20
billion dollar budget deficit when
Some steps have been taken already to- they could be reaping economic
wards regulating marijuana. The Regulate, benefits by taxing marijuana.12
Control and Tax Cannabis Act of 2010 could • The Drug War costs taxpayers $35
be on the California’s 2010 ballot if enough billion per year.13
voter signatures are collected. Marijuana
legalization will be a gradual evolution with
many opportunities to rethink and reexamine policies – especially when they prove
counterproductive or simply too costly. The federal government must clear the way for
states to implement their own drug legalization policies. The next steps include: easier
availability of controlled drugs for medical purposes and creating funds for drug treat-
ment programs.

Endnotes
1. “The 2010-11 Budget: California’s Fiscal Outlook.” November 18, 2009. Legislative Analyst’s Office.
http://www.lao.ca.gov/2009/bud/fiscal_outlook/fiscal_outlook_111809.aspx#chapter1 (accessed April
30, 2010).
2. “Cato Handbook for Congress.” Cato Institute. http://www.cato.org/pubs/handbook/hb108/hb108-56.
pdf (accessed April 30, 2010).
3. Morrison Piehl, Anne. “Right-Sizing Justice: A Cost-Benefit Analysis of Imprisonment in Three States.”
September 1999. Civic Report. http://www.manhattan-institute.org/html/cr_8.htm (accessed April 30,
2010).
4. Nadelmann, Ethan. “Drug Prohibition in the United States: Costs, Consequences, and Alternatives”
American Association for the Advancement of Science. Science 245, no. 4921 (1989): 942.
5. Mirken, Bruce. “America’s #1 Cash Crop: Cannabis” Oaksterdam News Archive. Volume 3. Issue 1. http://
www.oaksterdamnews.net/content/view/269/10021/ (accessed April 30, 2010).
6. Miron, Jeffrey. “The Budgetary Implications of Marijuana Prohibition” June 2005. Harvard University.
http://www.prohibitioncosts.org/MironReport.pdf (accessed April 30, 2010).
7. Miron, Jeffrey (accessed April 30, 2010).
8. “ABC News/Washington Post Poll: Hot-Button Issues. Changing Views on Social Issues.” April 30, 2009.
ABC News & Washington Post. http://abcnews.go.com/images/PollingUnit/1089a6HotButtonIssues.
pdf (accessed April 30, 2010).
9. Whitcomb, Dan. “Marijuana Legalization will be on California Ballot.” March 25, 2010. Reuters. http://
www.reuters.com/article/idUSTRE62O08U20100325 (accessed April 30, 2010).
10. Miron, Jeffrey (accessed April 30, 2010).
11. Miron, Jeffrey (accessed April 30, 2010).
12. Legislative Analyst’s Office. California’s Nonpartisan Fiscal and Policy Advisor. http://www.laoca.
gov/2009/bud/fiscal_outlook/fiscal_outlook_111809.aspx#chapter1 (accessed April 30, 2010).
13. “Cato Handbook for Congress” (accessed April 30, 2010).

13
A Tax Revolution for California
Kunitaka Ueno, University of California at San Diego
Implementing a value-added tax and removing the corporate income tax would at-
tract business to California, help solve the state’s budget crisis, and generate sustain-
able economic growth.

High corporate income taxes and heavy regulations are causing a massive business
exodus from California. In every month of 2009, Nevada – a state with no corporate
income tax and little red tape – received over a hundred inquiries from companies in
California about plans to move to Las Vegas.1 The Milken Institute, a think-tank in Santa
Monica, reported that California is steadily losing its manufacturing industry to states
with lower taxes and fewer regulations, such as Arizona, North Carolina, Georgia and
Texas. This exodus of firms and capital has destabilized tax revenues and undercut
California’s economic performance.

Moreover, California’s heavy reliance

Key Facts
• Chief Executive has ranked California the
worst state to conduct business for the
past four years.3
• The Census Bureau indicates that Cali-
fornia has been witnessing a “tax flight”
phenomenon, with consistent emigration
of over 100,000 residents each year.4
• California’s income tax revenue fell 24%
during the dotcom bust, increased 23%
in the following recovery, and has fallen
more than 20% in the current recession.5
on personal and corporate income tax-
es is becoming the source of notorious
revenue volatility. The Tax Foundation
reported that, “California’s income tax
revenue fell 24% during the dotcom
bust, increased 23% in the following re-
covery, and has fallen more than 20%
in the current recession.”2 Collecting
taxes from sources that experience
pronounced fluctuations leaves the
state penniless in times of recession.

Analysis
By implementing a value-added tax (VAT), California could eliminate the corporate in-
come tax, attracting investment and securing a more stable tax base. Unlike existing
sales taxes on final purchased goods, a VAT is charged on goods and services at each
stage of production. Consequently, a VAT is embedded in the prices and made less
conspicuous to consumers.

Value-added taxes will expand the tax base. Unlike income and corporate taxes, the
sales tax has been a relatively stable source of revenue. Yet the current sales tax sys-
tem is outdated because it is only imposed on tangible goods. California is a predomi-
nantly service-based economy. The Tax Foundation estimated that even without the
8.25% sales tax, a 2.77% VAT can raise approximately $28 billion per year.6 By placing
most services under this tax base, Sacramento could end the recurrent fiscal crises.

Consequently, the VAT would make California more business-friendly and generate
sufficient revenue to remove corporate income taxes. Numerous studies illustrate the
economic benefits of low taxes and pro-business climate. The Fraser Institute, a Cana-
dian think-tank, reported that Colorado, Delaware, North Carolina, and Texas – states
with low taxes and business-friendly legal systems – had an annual growth rate that

14
was 20 percent higher than the national average from 1981 to 2005.7 In contrast, West
Virginia, Montana, North Dakota, and Rhode Island – states with higher taxes and more
intrusive regulations – experienced an annual growth that was 10 percent below the US
average.8

While the higher taxed California is suf- Talking Points

fering from a fiscal hole, Texas – a state
that levies no personal income tax – is
running a budget surplus. Texas is be-
coming a magnet of America’s biggest
corporations, hosting more Fortune
500 companies than any other US
state.9 With the steady inflow of invest-
ment and employment, Texas’s jobless
rate of 7.1% is three points below the
national average when California’s is
three points higher.10 This example illus-
trates that low taxes and a pro-business
climate lures both investment and job
opportunities.
• California needs to end its reliance on in-
come taxes to stop the business exodus
and revenue volatility.
• A value-added tax (VAT) would embrace
the stability of the existing sales tax while
generating the additional revenue neces-
sary to offset the elimination of corpo-
rate income tax.
• Records show that states with less busi-
ness taxes – North Carolina, Delaware,
and Texas – have attracted business in-
vestment and have maintained a budget
surplus in this recession.11

Next Steps
Governor Arnold Schwarzenegger has organized a bipartisan commission to remedy
California’s economic issues.12 The commission has already proposed some variants of
VAT on the table. The next steps would be to familiarize the voters with the merits
of VAT. This promotional process is crucial to gain the popular support necessary to
achieve a greater tax reform.

Endnotes
1. “Emigration from California: Go east or north, young man” August 27, 2009. Economist: 1-2 (accessed
January 14, 2010).
2. Cohen, Micah and Kiran Sheffrin. July 27, 2009. “Finding Stable Ground: California Reform Commission
Puts Tax Overhaul on Table” Tax Foundation http://www.taxfoundation.org/publications/show/24928.
html (accessed January 23, 2010).
3. “Emigration from California: Go east or north, young man” (accessed January 14, 2010).
4. “California v. Texas: America’s future.” July 12, 2009. Economist 1-2 (accessed January 14, 2010).
5. Cohen, Micah and Kiran Sheffrin.
6. Cohen, Micah and Kiran Sheffrin.
7. Dowd, Alan W. and Amela Karabegovic. August 7, 2008. “The Path to Prosperity” The Journal of the
American Enterprise Institute. http://www.american.com/archive/2008/july-07-08/the-path-to-pros-
perity (accessed January 20, 2010).
8. Dowd, Alan W. and Amela Karabegovic.
9. “California v. Texas: America’s future.” (accessed January 14, 2010).
10. “California v. Texas: America’s future.” (accessed January 14, 2010).
11. Dowd, Alan W. and Amela Karabegovic.
12. “California Tax Reform Proposal Would Put State Back on Stable Ground” Tax Foundation (July 28,
2009). http://www.taxfoundation.org/news/show/24933.html (accessed January 24, 2010).

15
The Social Entrepreneurship Solution
Erika K. Solanki, University of California, Los Angeles

Congress should institute a federal program that offers low interest loans and a pro-
fessional mentorship program to social entrepreneurs.

Social entrepreneurs fundamentally change society by identifying and developing sus-

tainable solutions to address society’s most complex social issues. Essentially, they
pioneer life-altering innovations and develop groundbreaking ideas that spur further
replication. Although social entrepreneurship is commonly associated with non-profit
organizations, that is not always the case.

Considering the current economic climate, it is critical for the government to stimulate
innovation and support entrepreneurial endeavors. In response to the current reces-
sion, the Federal Reserve, Department of the Treasury, and Congress have taken ex-
traordinary measures to improve economic conditions. Implementing a federal program
to provide low interest loans and a professional mentorship program for emerging so-
cial entrepreneurs would assist such strategies. Moreover, this program would be effec-
tive in reinforcing the civic fabric of American society.

Social entrepreneurs have been Key Facts

reshaping society for centuries. In • In 2007, the financial crisis triggered a credit
1980, Bill Drayton founded Ashoka crunch, resulting in a severe recession.
– an international organization that • According to Brookings Institution policy
awards fellowships to aspiring social researchers Martin Baily and Douglas Elliot,
entrepreneurs. The program helps restoring full employment in the U.S. will
launch social entrepreneur ventures require creating new jobs, instead of primar-
ily restoring old jobs, since most current job
by providing recipients with liv-
losses are permanent.3
ing stipends, a global peer support
• According to the U.S. Bureau of Labor Sta-
network, and guidance from profes- tistics, the unemployment rate was 9.9% in
sional consultants.1 Youth Venture is April 2010.4
Ashoka’s program for young change-
makers, providing passionate youth
with monetary resources and professional guidance to develop lasting ventures that
benefit their local communities. As a registered 501(c)(3) non-profit, Ashoka is funded
by individuals, foundations, and business entrepreneurs. In 1980, Ashoka’s annual bud-
get was $50,000; it has grown to over $30 million.2

Analysis
America has the global opportunity to pioneer social entrepreneurship. The proposed
program would increase employment opportunities, provide alternative sources of
funding for aspiring entrepreneurs, and promote innovative thinking. The socially con-
scious startups that develop through the program will spur economic activity, increase
new employment opportunities, and address social issues uniquely and effectively.
While fiscally conservative members of Congress may hesitate to approve another
federal stimulus program, this program would outlast the crisis and become a pillar of
American civic engagement without being a budgetary burden.

16
Ashoka should serve as a model for this government-sponsored low interest loan and
mentorship program for social entrepreneurs. The program would provide successful
applicants with low interest loans for modest living expenses, low interest loans for
launching ventures, and admission into a mentorship program with accomplished indus-
try professionals. The federal program would differ from Ashoka in that social entrepre-
neurs would be granted low interest loans that ultimately would be repaid to the gov-
ernment. This registered 501(c)(3) organization would be a federally funded non-profit
that would also receive funding from corporations, foundations, and individuals. As the
program gains momentum and publicity, participants should experience an increase
of investment from individuals and
small businesses, improving the Talking Points
rate of return to the government • Social entrepreneurship is a form of conscious
and ensuring the solvency of future capitalism that revolutionizes how social is-
loans. Similar to Ashoka, the fed- sues are addressed by blending the goals of
eral program would release a call society’s most proactive citizens with the
of applications and subject each strategies of business professionals.
venture application to a rigorous • The government should support this proposal
to encourage conscious capitalism, stimulate
interview process with voluntary
economic activity, and promote more humani-
industry professionals. tarian ideals.
• The two-fold federal program would offer be-
In an effort to promote this pro- low market rate loans for living and venture
gram, the federal government start up costs as well as a professional men-
would recruit citizens of all ages torship network for qualified social entrepre-
and make special presentations neurs. The application process would be rigor-
to disadvantaged communities ous and competitive to ensure the program’s
– especially those living in impov- sustainability.
erished regions that already need
economic assistance. This federal
program would assist communities by responding faster and more effectively to social
challenges unique to target communities. Additionally, more citizens – especially from
historically neglected or underserved communities – would have the financial support
and expert guidance to address the local social issues they understand so well.

Next Steps
The United States Small Business Association (SBA) should establish and manage the
low interest loan and mentorship program for social entrepreneurs. Ashoka, Youth Ven-
ture, Skoll Foundation, and other organizations that promote social entrepreneurship
would support this initiative and provide the federal government with guidance by sug-
gesting practices that would allow the program to be smoothly implemented.

Endnotes
1. Ashoka. Support Social Entrepreneurs. http://www.ashoka.org/support (accessed December 27, 2009).
2. Ashoka. Ashoka Facts. http://www.ashoka.org/facts (accessed December 27, 2009).
3. Initiative on Business and Public Policy at Brookings. June 2009. The US Financial and Economic Cri-
sis. http://www.brookings.edu/~/media/Files/rc/papers/2009/0615_economic_crisis_baily_elliott/0615_
economic_crisis_baily_elliott.pdf (accessed December 27, 2009).
4. Google. November 2009. Unemployment Rate. http://www.google.com/publicdata?ds=usunemploym
ent&met=unemployment_rate&tdim=true&q=united+states+unemployment+rate (accessed December
27, 2009).

17
Cost-Free CARS
Raul Tadle, University of California at San Diego
The U.S. should impose a five-cent per gallon gasoline tax to fund a lasting version of
the Car Allowance Rebate System.

The Car Allowance Rebate System (CARS), also known as “Cash for Clunkers,” has
helped bolster the American economy. However, despite having a $3 billion price tag
for American taxpayers, CARS has remained underfunded. Thus, many taxpayers have
viewed CARS as an additional expense to the federal government, which is already run-
ning on a budget deficit. Considering that the advantages of the legislation outweigh
the costs, a five-cent per gallon gasoline tax should be introduced to fund a lasting ver-
sion of CARS. The implementation of this plan could serve as a much needed economic
boost without generating further debts.

Enabling such an enduring edition of the “Cash

for Clunkers” bill would be beneficial to the
economy and may even help relieve the ongo-
ing unemployment crisis. According to CNN,
“auto sales contributed heavily to the econo-
my’s expansion in the third quarter (of 2009),
adding 1.7 percentage points to the nation’s
gross domestic product growth.”1 Undoubted-
ly, a new self-sufficient CARS bill would result
in augmented demand for new automobiles.
As a result, the car industry will have greater sales and there will be greater employ-
ment opportunities throughout the industry.
Key Facts
• One-cent per gallon of gasoline so
that $1 billion per year can be gen-
erated to fund $1000 rebates.4
• Sufficient revenues will be ac-
cumulated without harming the
market because the demand of
oil is inelastic.

Additionally, the consumers who benefit from the cost of buying fuel-efficient cars will
be able to spend their money on other products. Thus, the overall American economy
may benefit from the savings brought by CARS.

Analysis
Environmental concerns will be addressed as more drivers turn to purchasing fuel-effi-
cient cars. This was one of the major benefits of “Cash for Clunkers.”

The idea of taxing gasoline to fund a lasting version of CARS started from Robert Ra-
pier in his blog “A Better Alternative for Cash for Clunkers.” However, he has proposed
to tax only one-cent per gallon of gasoline so that $1 billion per year can be generated to
fund $1000 rebates.2 I recognized that by increasing the proposed tax, America would
be able to offer higher rebates for more people to purchase cars. Thus, subsidizing the
fuel-efficient cars with a tax on gasoline will boost the overall economy.

Furthermore, this idea differs from some of the other alternatives offered. The pro-
posed Efficient Vehicle Leadership Act would also offer rebates for exchanging older
cars into more fuel efficient ones. However, the government would charge a fee when a
person purchases a gas-guzzler. Although this proposal offers similar environmental ad-
vantages, its enactment would reduce the demand for vehicles that travel fewer miles

18
per gallon, since the buyer needs to pay more for
not meeting the miles-per-gallon requirements.3 Talking Points
Therefore, the proposal reduces demand of some • Fewer gas-guzzlers on the road
would provide for a more ef-
cars and is not as effective as CARS in promoting
ficient transportation system
the overall automobile industry. and a cleaner environment.
• The other viable environmen-
Next Steps tal alternatives do not examine
Passing another bill much similar to Cash for aggregate economic effects.
Clunkers would help resolve the ongoing eco- • The expansion of the markets
nomic downturn, lower the unemployment rate, would cause employment to
and reduce greenhouse gases emissions into the increase.
air. All of these advantages will be achieved by
taxing a few extra pennies on gasoline. This idea
is simply too advantageous and efficient to overlook.

Endnotes
1. Valdes-Dapena, Peter. “Clunkers: Taxpayers paid $24,000 per Car.” CNNmoney.com. October 29, 2009.
http://money.cnn.com/2009 /10/28/autos/clunkers_analysis/index.htm (January 31, 2010)
2. Rapier, Robert. “A Better Alternative for Cash for Clunkers.” R-Squared Energy. August 12, 2009. http://
i-r-squared.blogspot.com/2009/08/better-alternative-to-cash-for-clunkers.html (January 31, 2010)
3. DiPeso, Jim. “Why Feebates Would Work Better Than Cash for Clunkers.” Thedailygreen. August 12,
2009. http://www.thedailygreen.com/environmental-news/blogs/republican/cash-for-clunkers-fee-
bate-47081205 (January 31, 2010).
4. Rapier (January 31, 2010)

19
A Clearinghouse System
For Credit Default Swaps
Parinitha Sastry, Columbia University

The Securities and Exchange Commission should create and supervise a clearing-
house system to reduce systemic risk and promote greater transparency in the credit
default swaps market.

By the end of 2007, there was over $26.4 trillion in outstanding of credit default swaps
(CDSs) in the United States alone.3 Credit default swaps are bilateral, over-the-counter
contracts in which a firm or individual seeking protection agrees to pay a periodic fee or
an upfront payment in exchange for a payment from the insuring agent. Systemically im-
portant institutions like AIG and Fannie-Mae became vulnerable to devastating losses
when they took large, unhedged CDS positions. Moreover, firms that bought CDS from
such exposed entities did not properly question whether their counterparties could pay
out insurance. Consequently, the world’s largest financial firms continually purchased
insurance from AIG despite the fact that AIG had sold $440 billion in CDS contracts
– far more than it could afford to cover when collateral prices plunged.4 The failure of
large participants in the CDS market overwhelmed the financial system and forced all
counterparty firms to incur substantial losses. The prospect of other unknown “AIGs” –
sellers of CDS without the capital buffer to honor obligations – is very real.

Analysis
Credit default swaps were first created in the Key Facts
mid-1990s to provide protection against the • Credit default swaps make up an
default of firms, sovereign nations, mortgage estimated $60 trillion globally,
making them the most widespread,
payers, and other borrowers. By April 2009,
unregulated forms of credit deriv-
there was an estimated $28 trillion of notional atives on the market.1
CDS outstanding.5 Because of the enormous • Credit default swap losses are es-
size of the CDS market and the vulnerability timated at $150 billion worldwide.2
of CDS payoffs to economic conditions, large
credit default swap exposures increase sys-
temic risk – the risk of the collapse of an entire financial system. Credit default swaps
are currently arranged over-the-counter rather than on an exchange, meaning they are
negotiated privately between the two parties. With a clearinghouse system, buyers do
not negotiate directly with the sellers; rather, the clearinghouse mediates each trans-
action by acting as a seller of insurance for one party and the buyer of insurance of
the other. The counterparties are thus not exposed to each other’s default; instead,
both depend on the performance of the clearinghouse. The clearinghouse system can
also be thought of as a system of shared credit, in which every member takes on the
positions of deficit members until a final settlement is achieved.6 In effect, the clear-
inghouse stands between buyers and sellers to reduce each firm’s exposure to coun-
terparty risk, decreasing both system-wide risk and capital losses by its ability to net
payments and exposures.

20
Next Steps
After identifying existing large exchange fa- Talking Points
cilities, the SEC should limit the number of • Since CDSs are over-the-counter
approved clearinghouses, since the main ben- contracts privately negotiated
efit of clearinghouses arises from the ability of by two parties, there is no way to
multiple parties to net exposures in a single in- know how exposed a bank is.
stitution. One major threat to the success of a • Credit default swaps trade cred-
it risk with counterparty risk,
clearinghouse system stems from the possibility
and firms must be aware of large
of one large or several smaller firms defaulting. unhedged positions which com-
Since the success of the clearinghouse is con- pound counterparty risk.
nected to the idea that all sizeable debts owed
to the clearinghouse are paid, there must be a
system that allows solvent members to assume a portion of deficit members’ debt.
Such a system would make any debt to the clearinghouse a joint liability of all mem-
bers.7 Such risk management decreases the clearinghouses’ exposure to counterparty
and operational risk, thereby decreasing systemic risk as a whole. Additionally, these
clearinghouses should not be limited to credit default swaps, but should be open to
any over-the-counter derivatives since many major dealers also have positions in de-
rivatives other than credit default swaps. Because competition between numerous
clearinghouses could sacrifice quality, the SEC should ensure that clearinghouses have
sufficient collateral, appropriate capital requirements, and superior operational con-
trols with consistent monitoring and supervision.8

Endnotes
1. Squam Lake Working Group on Financial Regulation. “Credit Default Swaps, Clearinghouses, and Ex-
changes.” July 2009. Council on Foreign Relations.
2. Squam Lake Working Group on Financial Regulation. July 2009.
3. Squam Lake Working Group on Financial Regulation. July 2009.
4. European Central Bank. “Credit Default Swaps and Counterparty Risk.” August 2009. http://www.ecb.
int/pub/pdf/other/creditdefaultswapsandcounterpartyrisk2009en.pdf (accessed January 2010).
5. European Central Bank. (accessed January 2010).
6. Reuters. “Fed’s Kohn sees CDS clearinghouse risks, benefits.” January 2008. http://www.reuters.com/
article/idUSN1962224820080619 (accessed January 2010).
7. IMF. Global Financial Stability Report. April 2010.
8. Intercontinental Exchange. “ICE Trust to Begin Processing and Clearing Credit Default Swaps.” March
2009. http://ir.theice.com/releasedetail.cfm?ReleaseID=369373 (accessed January 2010).

21
The Case for an International
Financial Services Regulatory Board
Matthew Eldridge, The London School of Economics

The global community needs to create an international financial service regulator to

provide much needed standardization, transparency, and stability for the industry.

Conduct a Google search for “financial regulation” and you will receive over 21 mil-
lion results – many pages dated since 2008. Unfortunately, the interest in financial
regulation far outstrips regulation itself, the lack of which helped cause the greatest
economic slowdown since the Great Depression. Now, with the economy appearing
to turn the corner, the issue has mysteriously and dangerously begun to recede into
the background. But the need for proper international regulation and accountability
remains paramount.

The Financial Industry Regulatory Author- Key Facts

ity, Inc. (FINRA) is largely responsible for
providing standards and establishing the
regulatory framework for the U.S. financial
industry.4 Although FINRA needs to adopt
tougher regulatory standards, it still pro-
vides a beneficial function for the Ameri-
can economy as a whole.
However, although the financial industry
defies borders, FINRA is geographically
limited to the United States and thus fails
in its overall mission of providing tough
regulatory standards. Furthermore, the
profusion of differing standards, licensure
expectations, and regulatory oversight
make the global financial system confusing and difficult to navigate. Whenever barriers
like this occur, capital exchanges slow, costs to conduct business skyrocket, and fewer
opportunities exist for investors everywhere.
• In 2004, the global financial services
industry was valued at $6.7 trillion;
despite the hit from the recent crisis,
the industry is already beginning to
rebound strongly.1
• Although international regulatory
boards already exist for some sectors
such as accounting, the financial ser-
vices industry does not have an inter-
national regulatory board.2
• The Financial Industry Regulatory Au-
thority (FINRA) in the United States
serves as a basic model of many of
the regulatory/licensing capabilities
needed on the international level.3

In 2009, the Financial Stability Board (FSB) was created to address some of these con-
cerns, but its role is heavily advisory and its mandate is too broad.5 The FSB lacks
compelling means of enforcing compliance and its “12 Key Standards for Sound Finan-
cial Systems” do not focus enough on the responsibilities and obligations of individual
financial service providers.

Therefore, we should create an International Financial Services Accountability and

Regulatory Board (IFSARB) – potentially within the framework of the FSB – to combat
the dual problems of lack of regulation, accountability, and the existence of the exces-
sive variety of standards. IFSARB’s mandate would entitle it to be the principle global
authority regarding industry wide standards, licensing, and quality compliance.

22
Similar organizations to IFSARB already ex-
ist. For example, the International Account- Talking Points
ing Standards Board (IASB) sets accepted • The recent troubles in the credit
market have shown the need for ad-
standards in the accountings sector. The
equate financial regulation.
International Organization of Securities • This regulation needs to include cer-
Commissioners (IOSCO), a cooperative ef- tain mechanisms for licensing finan-
fort to regulate markets and establish stan- cial service providers such as increas-
dards for securities transactions, set the ing transparency and promoting a set
precedent of international cooperation on of clear and established standards.
financial service issues.6,7 • Such regulation would decrease the
risks for individual investors, financial
Unlike IOSCO, IFSARB would not operate service providers, member states and
the global community.
on the macro-level in terms of direct man-
agement of securities markets. Instead,
IFSARB would be concerned with the mi-
cro-level (i.e. financial service providers). First, IRSARB would be responsible for estab-
lishing standards and ensuring regulatory compliance. Second, IRSARB would combat
corruption and improper business practices by auditing corporations. Third, IRSARB
would provide accreditation for firms, individual traders and financial experts.

However, there are limitations: namely, the legitimacy of IRSARB. Although IFSARB par-
ticipation and membership would be voluntary, two forces would ultimately cause it to
become widespread: the benefits derived from membership and the negative stigmas
on the reputations of firms and countries not joining.

Next Steps
If the nations with the strongest financial industry sectors recognize the benefit of join-
ing and then join themselves, IRSARB gains credibility. IFSARB would have the oppor-
tunity to make important changes in the regulatory structure of global financial service
industries. Therefore, the United States should help create IRSARB and be a charter
member. A standardized, accountable, transparent and regulated financial service sec-
tor would accrue benefits not only for individual investors but also for firms and the
entire global economy. The credit crisis should not be allowed to become a missed
opportunity for this much needed and wide ranging global reform.

Endnotes
1. Asian Insurance Post. “Global financial services valued at $6.7 trillion, to triple by 2013.” http://www.
asiainsurancepost.com/news_write.asp?newsid=330&catgid=13&typ=G (accessed January 15, 2010).
2. FINRA. About the Financial Industry Regulatory Authority. http://finra.org/AboutFINRA/index.htm (ac-
cessed January 15, 2010).
3. FINRA (accessed January 15, 2010).
4. FINRA (accessed January 15, 2010).
5. FSB. FSB Mandate. http://www.financialstabilityboard.org/about/mandate.htm (accessed April 28,
2010)
6. IOSCO. General Information on IOSCO. IOSCO. http://www.iosco.org/about/ (accessed January 15,
2010).
7. Technical Committee of the International Organization of Securities Commissions. “Unregulated Finan-
cial Markets and Products.” IOSCO. September, 2009.

23
The Necessity of American Consumer Protection
Zachary De La Rosa, University of North Carolina at Chapel Hill

Reduce American tariffs, eliminate quotas, and cultivate emerging technological

markets to compete in this age of globalization.

Amid the worst recession since the Great Depression, the United States needs to alter
its current fiscal strategy to jumpstart the economy. The government should reduce tar-
iffs, begin phasing out quotas, and cultivate emerging technologically-oriented sectors.
Overall, these measures will benefit American consumers, workers, and businesses in
this economic recession and beyond.

Many Americans believe that the decline of the American manufacturing sector signals
the collapse of the American economy. However, this is far from the truth. The domi-
nance of American manufacturing has ended; the era of globalization has begun. Today,
consumption keeps our economy afloat. After all, consumption represented 70.8% of
the national GDP in 2009.1 Even stockbrokers analyze consumer confidence. Consump-
tion drives the American economy.

Every Economics 101 teacher introduces stu-

dents to the supply-demand concept. These
concepts explain that installing tariffs – taxes
– on consumer products necessarily entails
raising prices and lowering supplies. The latest
tariff on Chinese tires illustrates this property.
Last September’s 35% tariff on tires – an 18%
increase from the previous one – forced Good-
year to raise its prices by 6% to cover the higher
costs of raw materials.2 Meanwhile, China had
a solution to the tariff war: placing tariffs on
American poultry up to 105.4%.3 Ultimately,
consumers of both countries suffer with higher
prices and fewer products.
Key Facts
• Consumption contributes to
70.8% of the American Gross
Domestic Product.4
• The 35% tariff on Chinese tires
resulted in the Chinese impos-
ing its own tariff up to 105.4% on
American poultry.5
• The World Bank estimates that
the elimination of trade barriers
would result in an $830 billion
addition to global GDP by 2015.6

Analysis
The World Bank estimates that removing all trade barriers to goods would expand the
global economy by $830 billion by 2015.7 That is about a 2.5% increase in world-per-
capita income, or $136 per person. Everyone benefits – albeit not necessarily to the
same degree – and poorer countries would accumulate wealth, create their own middle
and working classes, and begin to relieve poverty levels.

When making this transition, the United States should assist the emerging technological
sector by strengthening programs that make people qualified for such occupations. As
the President of TechAmerica, Phillip J. Bond describes “the 2008 national data shows
the resilience of America’s tech sector compared to the rest of the private sector.”
Despite the economic downtown, 2008 was the fifth straight year of employment gains
in both software services – 82,000 net jobs – and engineering – 26,600 net jobs.8 Con-
versely, the manufacturing sector lost around 149,000 jobs in 2008.9 Framed within the
24
historical context, the United States has
lost six million manufacturing jobs since Talking Points
200010 - jobs that economists predict are • Lower tariffs and fewer quotas result in
lower prices, more products, fewer mo-
not returning. Therefore, the U.S. must
nopolies, and more variety of goods.
find innovative solutions to employ its • Free trade coupled with education
citizens, and the U.S. has the advantage strategies targeting former manufac-
of an efficient, skilled population. Across turing workers ultimately will benefit
differing sectors, American workers have American consumers, workers, urban-
been shown to be the most productive. ites, and the rural inhabitants alike.
In 2007, the American worker’s output
per hour was 4.1%, nearly doubling that
of its next rival, Canada, at 2.1%.11 Inevitably, some manufacturing jobs will stay in the
states because of such high productivity. However, most will probably not survive the
next decade. Policymakers need to find jobs for our productive population in emerging
industries that will employ them for the foreseeable future.

Additionally, this technological wave of new American jobs will alter the traditional di-
vide in economic opportunity between urban and rural America. As National Public
Radio (NPR) explains, the emerging high-tech jobs sometimes are outsourced to rural
America. While the internet age provides incentives for companies to outsource jobs
overseas, most high-tech companies require an educated workforce, so locations with
relatively cheap labor – rural America – would benefit more from the internet age. As
“Rural Sourcing” explained on NPR, “it may help some places adapt as local, national,
and global economies shift.”12 Fundamentally, technical-oriented occupations will help
diminish the great divide between urban and rural America.

Endnotes
1. Bureau of Economic Analysis. February 26, 2010. Gross Domestic Product: Fourth Quarter 2009. http://
www.bea.gov/newsreleases/national/gdp/2010/pdf/gdp4q09_2nd.pdf (accessed February 26, 2010).
2. “Tire Prices on the Rise After Tariff On China.” November 19, 2009. http://cbs5.com/consumer/tires.
china.prices.2.1323469.html. (accessed January 12, 2010).
3. Lewis, Catherine. “Feathers ruffled by tire tariffs.” February 8, 2010. http://shanghaiist.com/2010/02/08/_
yet_another_coal_has.php. (accessed February 8, 2010).
4. Bureau of Economic Analysis, p. 7 (accessed February 26, 2010).
5. “Tire Prices on the Rise After Tariff on China” (accessed January 12, 2010).
6. “WTO Proposal Would Eliminate Non-Ag Tariffs by 2015.” http://www.america.gov/st/washfile-eng-
lish/2002/November/20021126152611odessey@pd.state.gov0.773205.html. (accessed January 12,
2010).
7. “WTO Proposal Would Eliminate Non-Ag Tariffs by 2015” (accessed January 12, 2010).
8. “Cyberstates 2009 – Executive Summary.” http://www.techamerica.org/cyberstates-2009-summary.
(accessed January 12, 2010).
9. Goldman, David. “Worst year for jobs since ’45.” http://money.cnn.com/2009/01/09/news/economy/
jobs_december/. (accessed January 12, 2010).
10. Perry, Mark. “Manufacturing Employment Falls to Record Lows, but Productivity Soars to Record Lev-
els.” http://mjperry.blogspot.com/2009/12/manufacturing-employment-falls-to.html. (accessed Febru-
ary 8, 2010).
11. “The Great American Worker: Productivity Increases.” September 30, 2008. http://seekingalpha.com/
article/97931-the-great-american-worker-productivity-increases. (accessed February 8, 2010).
12. Berkes, Howard. “Outsourcing High-Tech Jobs to Rural America.” February 14, 2005. http://www.npr.
org/templates/story/story.php?storyId=4496502. (accessed January 12, 2010).

25
The Connection Between
The Chinese ‘Courting Market’ & Housing Prices
Douglas Chenier, Michelle Gregory, and Andrew Owens
University of North Carolina at Chapel Hill

Reduce Chinese Standard Housing Prices by implementing a housing/rent subsidy

for Chinese families with newborn females.

With both a limited supply of urban dwellings and a quickly growing housing market,
Chinese housing prices spiked, increasing 34.2% in December 2009.1 The increasing so-
cial pressures within the Chinese ‘courting market’ have assisted in creating this hous-
ing demand explosion. It is no secret that the Chinese culture prefers male babies.
Along with the “one-child policy,” China has created a gender gap which will prevent 32
million Chinese males from marrying. With the limited pool of potential wives, Chinese
men are pressured to become better suitors. Therefore, they typically buy – not rent –
homes, effectively driving up housing prices.

To combat the real-estate bubble, the Chinese government restricted commercial bank
lending and raised mortgage rates and property taxes. These broad-based practices do
not address the specific problems caused by gender imbalance. In order to restore the
natural gender balance and reduce the excess demand for urban housing, the Chinese
government should provide incentives for parents to keep their female children.

Prices of the Chinese urban housing mar-

ket have been increasing continuously. Key Facts
From 2005 to 2009, Beijing and Shanghai • In China, for every 100 live female
reported 23% and 35% growth in residen- births, there are approximately 120
tial capital value respectively. The 2005
2 live male births.5
census revealed that the average rural in- • China has 32 million more men than
women.6
habitant earned an annual income of $470 3
• In Beijing, the typical home costs 22
as compared to the urbanite’s annual salary times the median family income; in
of $1536.4 Consequently, rural inhabitants New York City, this ratio is 8.4.7
have accumulated drastically less wealth • In Beijing, the ratio of monthly mort-
for supporting their families. Chinese gage payments to income is 170.64%;
rural males have flocked to cities to seek in New York City, this ratio is 65.65%.8
employment opportunities, find wives, and
enjoy better lives than their parents. These
new urbanites flood the housing market in hope of attracting women impressed with
their suitors’ earning potential. Ultimately, prices skyrocketed when not enough afford-
able housing remained.

Analysis
While the traditional economic strategies of restricting bank lending and raising interest
rates may alleviate the overvaluation in the housing market, these monetary measures
do not address the underlying demographic problems – the gender imbalance. If the
marriage market became less competitive, fewer men would seek to buy homes above
their earning capacity, and more men would opt to rent or buy more affordable living

26
quarters. Consequently, the price of homes would fall, and more homeowners would
have access to affordable mortgages. Additionally, fewer homes would be financed on
credit, which would drastically reduce the risk of the Chinese housing bubble. There-
fore, the Chinese government should implement short-term policies that would pre-
vent the further widening of the gender gap in order to sustain long-term economic
stability.

Next Steps
We propose that the Chinese government
should subsidize mortgages or provide rent
vouchers for low-income, rural families with
female children – the demographic most like-
ly to abandon or abort girls. Consequently,
couples with a young daughter would be eli-
gible to receive a deduction to their monthly
housing payment until she reaches sixteen
years of age. Additionally, the system would
be structured progressively so that as a fami-
ly’s income decreases, the deduction rate in-
creases. A housing subsidy for families with
girls is simple to implement and difficult to
exploit, and more parents would keep their
daughters. This solution would tackle the
root problem of China’s gender imbalance,
allow potential suitors to obtain affordable
housing, and ultimately reduce the price of
standard homes in China.
Talking Points
• Solving the gender imbalance would
correct a serious distortion in Chi-
nese housing demand. Current
proposed solutions to the housing
price bubble, including the raising
of interest rates, do not target the
gender gap, and ultimately could
have negative effects across the
broader economy.
• The birth ratio imbalance has grown
over the past 20 years, so the peak
of a gender imbalance among the
marriage age population has yet to
occur. Immediate action is neces-
sary before the problem becomes
critical.

Endnotes
1. Han, Lingguo. January 15, 2010 2009 National Average Housing Prices Data. http://jn.focus.cn/
news/2010-01-15/840307.html (accessed Jan 16, 2010).
2. Global Property Guide. September 29,2009. Strong growth in Chinese housing market. http://www.
globalpropertyguide.com/Asia/China/Price-History# (accessed Jan 2, 2010).
3. Chinese Department of Labor. 2005. China’s 2005 census employment data. http://news.bbc.co.uk/
chinese/simp/hi/newsid_4910000/newsid_4911300/4911382.stm (accessed Dec 29, 2010).
4. Chinese Department of Labor. (accessed Dec 29, 2010).
5. Valerie M. Hudson, Andrea Den Boer. Spring 2002. A Surplus of Men, a Deficit of Peace: Security and
Sex Ratios in Asia’s Largest States. http://www.jstor.org/stable/3092100 (accessed Dec 22, 2010).
6. Valerie M. Hudson, Andrea Den Boer. (accessed Dec 22, 2010).
7. Numbeo. 2010. Property Investment Index for 2010. http://www.numbeo.com/property-investment/
rankings.jsp (accessed Jan 9, 2010).
8. Colliers International. April 2008. Office & Residential Market Overview. http://www.colliers.com/Con-
tent/Repositories/Base/Markets/China/English/Market_Report/PDFs/GC-Apr08.pdf (accessed Nov
29, 2010).

27
Roosevelt Review Preview:
Policy Options for U.S. Federal Government
Mitigation of Greenhouse Gas Emissions
Julia Sittig and Gillian Wener, University of Michigan

Abstract
The earlier mitigation action is taken, the less extreme the actions will need to be.
Therefore, the policies discussed are some that can be implemented swiftly because
they follow existing policies that have already been implemented using the suggested
laws. Mitigation policies are divided into six sectors: Energy, Transportation, Agricul-
ture, Waste Management, Forestry, and Urban Construction. The policies proposed are
creating a federal floor for energy production and distribution efficiency that begins at
50% and incrementally rises 5% each year, which will lead to the national construction
of a SmartGrid electricity system; a federal mandate that all public transit systems are
powered by renewable energy; exchanging certain agricultural subsidies for tax credits
for farmers’ mitigation behavior; mandating all recovery facilities for recyclables to be
accompanied by a composting facility, and for all food service businesses to compost
their organic waste; creating a market system for United States timber by giving trees
a sequestration value; and requiring all new commercial buildings to be constructed
in accordance with the International Green Construction Code standards. If imple-
mented, these policies will not only lessen the effects of global climate change, but
they will allow for better predictions of these effects, making adaptation planning more
accurate.

To read more, visit www.rooseveltinstitute.org for the full white paper,

part of the forthcoming Roosevelt Review.

29
www.rooseveltcampusnetwork.org