ideas Economic


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 express the views or opinions of the Roosevelt Institute, its officers, or its directors.



Economic Development

Congratulations to Erika K. Solanki, author of The Social Entrepreneurship Solution Nominee for Policy of the Year

Fueling Economic Development Via Education: The Potential of Promise Programs Katherine Kavaler et al Northwest Passage: Improving Rail Service between Boston & Portland, Maine Zachary Agush and Christopher MacDonald Capitalizing on California’s Cash Crop Gonzalo Pizarro-Angulo A Tax Revolution for California Kunitaka Ueno The Social Entrepreneurship Solution Erika K. Solanki Cost-Free CARS Raul Tadle A Clearinghouse System for Credit Default Swaps Parintha Sastry The Case for an International Financial Services Regulatory Board Matthew Eldridge The Necessity of American Consumer Protection Zachary De La Rosa The Connection between the Chinese ‘Courting Market’ and Housing Prices Douglas Chenier et al Roosevelt Review Preview: Policy Options for United States Federal Government Mitigation of Greenhouse Gas Emissions Julia Sittig and Gillian Wener

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Inside the Issue

p Letter from Washington
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 supported 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 community, 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 potential 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
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 issues, 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 communities. 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 Strategist, many of the students in the Center for Economic Development composed innovative 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 conducted 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 analysis 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 obligations 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 unpredictable 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 education 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, Michigan, 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 • and national downturns. After the implementation of its Promise Program in 2005, Kalamazoo home prices jumped between 8% and 10% over the next two years, while • the rest of the state experienced a decline.1 Retail home values in the greater • Pittsburgh area also experienced an 8% jump, despite the collapse of the broader United States and Pennsylvania housing markets, which have fallen around 12% and 3% respectively in the same time period.2

Kalamazoo house prices jumped between 8% and 10% over the next two years, while the rest of the state experienced a decline.15 Cities with Promise Programs experience lower rates of unemployment. Promise Programs encourage population increases, including an influx of teachers and middle class families.

Key Facts

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 similarly 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 housing 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. Pitts8

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 areas 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 unemployment 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 different 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 successfully 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.eldoradopromise.com/news/Story.aspx?storyID=4 (accessed October 2009). 9. “Pittsburgh, Pennsylvania Census and Community Profile.” 2010. http://www.americantowns.com/pa/pittsburgh-information (accessed October 2009). 10. “Pittsburgh, Pennsylvania Poverty Rate Data.” 2010. http://www.city-data.com/poverty/poverty-Pittsburgh-Pennsylvania.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).


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 transportation. The major modes of transit have shifted dramatically from traveling by rail to driving on highways. More automobiles and trucks continue to emerge annually. Between 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 billion 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 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 emphasis 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

Key Facts

By 2020, China will have invested $300 billion in high speed rail, while currently the United States has only invested $8 billion.2 Additionally, 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 currently has only one overburdened high speed rail corridor between Boston and Washington 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, ridership 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 AmeriTalking Points cans, 40.8 million travel between suburbs • High speed trains help stimulate ecofor work.7 Aided by an accessible and afnomic development by making the fordable mode of transportation, regions transportation system more efficient. would see an escalation in property val• High speed trains allow for the traffic ues and more opportunities for new conof 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 Independent: 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 financial 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/templates/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.


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 solution 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

Key Facts Before analyzing the numerous benefits • According to a Views on Legalizing of taxing marijuana, it is crucial to put the Marijuana polls from ABC News/ drug’s criminalization into perspective. 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 socimarijuana and taxing its sale.9 • Marijuana enforcement, processing, etal costs that Americans witnessed during and sentencing cost taxpayers $7.6 the Prohibition era prompted the federal billion per year.10 government and the states to take control • Public policy analyst and former head of this substance via legalization and reguof the National Organization for the lation. Likewise, the perceived dangers Reform of Marijuana Laws, Jon Gettof marijuana spawn directly from specific man, conducted a study using governsocial and historical conceptualizations of ment figures to estimate that the anthe drug. As history reveals, prohibitionnual 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 resolve 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 policies guarantee that all of the proceeds from marijuana sales go to unregulated criminals. 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 potential 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 implemented at both the national and state levels. Just like every other drug, the federal government would control specific factors, but each state would be responsible for enacting laws pertaining to the production and distribution of marijuana.

Some steps have been taken already towards regulating marijuana. The Regulate, Control and Tax Cannabis Act of 2010 could be on the California’s 2010 ballot if enough 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 treatment 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).

• Legalizing marijuana would save money for taxpayers, alleviate overcrowding in prisons, and allow police to focus their resources on addressing violent crimes. • California is currently facing a $20 billion dollar budget deficit when they could be reaping economic benefits by taxing marijuana.12 • The Drug War costs taxpayers $35 billion per year.13

Talking Points


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 attract business to California, help solve the state’s budget crisis, and generate sustainable 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.

• Chief Executive has ranked California the worst state to conduct business for the past four years.3 • The Census Bureau indicates that California 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

Key Facts

Moreover, California’s heavy reliance on personal and corporate income taxes 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 recovery, 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 income 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 system is outdated because it is only imposed on tangible goods. California is a predominantly 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 Canadian 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 suffering from a fiscal hole, Texas – a state that levies no personal income tax – is running a budget surplus. Texas is becoming a magnet of America’s biggest corporations, hosting more Fortune 500 companies than any other US state.9 With the steady inflow of investment 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 illustrates that low taxes and a pro-business climate lures both investment and job opportunities.
• California needs to end its reliance on income 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 necessary to offset the elimination of corporate income tax. • Records show that states with less business taxes – North Carolina, Delaware, and Texas – have attracted business investment and have maintained a budget surplus in this recession.11

Talking Points

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-prosperity (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).


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 professional mentorship program to social entrepreneurs. Social entrepreneurs fundamentally change society by identifying and developing sustainable 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 recession, the Federal Reserve, Department of the Treasury, and Congress have taken extraordinary measures to improve economic conditions. Implementing a federal program to provide low interest loans and a professional mentorship program for emerging social entrepreneurs would assist such strategies. Moreover, this program would be effective 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 researchers Martin Baily and Douglas Elliot, awards fellowships to aspiring social restoring full employment in the U.S. will entrepreneurs. The program helps require creating new jobs, instead of primarlaunch social entrepreneur ventures ily restoring old jobs, since most current job by providing recipients with livlosses are permanent.3 ing stipends, a global peer support • According to the U.S. Bureau of Labor Stanetwork, and guidance from profestistics, the unemployment rate was 9.9% in sional consultants.1 Youth Venture is April 2010.4 Ashoka’s program for young changemakers, 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 budget 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 conscious 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 industry professionals. The federal program would differ from Ashoka in that social entrepreneurs would be granted low interest loans that ultimately would be repaid to the government. 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 issues are addressed by blending the goals of loans. Similar to Ashoka, the fedsociety’s most proactive citizens with the eral program would release a call strategies of business professionals. of applications and subject each • The government should support this proposal venture application to a rigorous to encourage conscious capitalism, stimulate interview process with voluntary economic activity, and promote more humaniindustry professionals. tarian ideals. In an effort to promote this prolow market rate loans for living and venture gram, the federal government start up costs as well as a professional mentorship network for qualified social entreprewould recruit citizens of all ages neurs. The application process would be rigorand make special presentations ous and competitive to ensure the program’s to disadvantaged communities sustainability. – especially those living in impoverished 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 Venture, Skoll Foundation, and other organizations that promote social entrepreneurship would support this initiative and provide the federal government with guidance by suggesting 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 Crisis. 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).

• The two-fold federal program would offer be-


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 running 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 version 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 Key Facts for Clunkers” bill would be beneficial to the • One-cent per gallon of gasoline so economy and may even help relieve the ongothat $1 billion per year can be gening unemployment crisis. According to CNN, erated to fund $1000 rebates.4 “auto sales contributed heavily to the econo• Sufficient revenues will be acmy’s expansion in the third quarter (of 2009), cumulated without harming the adding 1.7 percentage points to the nation’s market because the demand of gross domestic product growth.”1 Undoubtedoil is inelastic. 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 employment opportunities throughout the industry. 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-efficient 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 Rapier 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 proposed 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 advantages, 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 Therefore, the proposal reduces demand of some cars and is not as effective as CARS in promoting the overall automobile industry. Next Steps Passing another bill much similar to Cash for Clunkers would help resolve the ongoing economic downturn, lower the unemployment rate, and reduce greenhouse gases emissions into the 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

• Fewer gas-guzzlers on the road would provide for a more efficient transportation system and a cleaner environment. • The other viable environmental alternatives do not examine aggregate economic effects. • The expansion of the markets would cause employment to increase.

Talking Points

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-feebate-47081205 (January 31, 2010). 4. Rapier (January 31, 2010)


A Clearinghouse System For Credit Default Swaps
Parinitha Sastry, Columbia University The Securities and Exchange Commission should create and supervise a clearinghouse 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 important 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 Key Facts Credit default swaps were first created in the • Credit default swaps make up an mid-1990s to provide protection against the estimated $60 trillion globally, default of firms, sovereign nations, mortgage making them the most widespread, payers, and other borrowers. By April 2009, unregulated forms of credit derivthere was an estimated $28 trillion of notional atives on the market.1 CDS outstanding.5 Because of the enormous • Credit default swap losses are essize 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 systemic 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 transaction 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 clearinghouse stands between buyers and sellers to reduce each firm’s exposure to counterparty risk, decreasing both system-wide risk and capital losses by its ability to net payments and exposures.


Next Steps After identifying existing large exchange faTalking Points cilities, the SEC should limit the number of • Since CDSs are over-the-counter contracts privately negotiated approved clearinghouses, since the main benby two parties, there is no way to efit of clearinghouses arises from the ability of know how exposed a bank is. multiple parties to net exposures in a single in• Credit default swaps trade credstitution. One major threat to the success of a 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 comSince the success of the clearinghouse is conpound 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 members.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 derivatives 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 controls with consistent monitoring and supervision.8 Endnotes
1. Squam Lake Working Group on Financial Regulation. “Credit Default Swaps, Clearinghouses, and Exchanges.” 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).


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 million 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 Authority, 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 provides a beneficial function for the American economy as a whole.
• 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 services industry does not have an international regulatory board.2 • The Financial Industry Regulatory Authority (FINRA) in the United States serves as a basic model of many of the regulatory/licensing capabilities needed on the international level.3

Key Facts

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 2009, the Financial Stability Board (FSB) was created to address some of these concerns, 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 Financial 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 excessive 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 exist. For example, the International Accounting Standards Board (IASB) sets accepted standards in the accountings sector. The International Organization of Securities Commissioners (IOSCO), a cooperative effort to regulate markets and establish standards for securities transactions, set the precedent of international cooperation on financial service issues.6,7

Unlike IOSCO, IFSARB would not operate on the macro-level in terms of direct management of securities markets. Instead, IFSARB would be concerned with the micro-level (i.e. financial service providers). First, IRSARB would be responsible for establishing 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 participation 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 joining and then join themselves, IRSARB gains credibility. IFSARB would have the opportunity 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 sector 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 (accessed 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 Financial Markets and Products.” IOSCO. September, 2009.

• The recent troubles in the credit market have shown the need for adequate financial regulation. • This regulation needs to include certain mechanisms for licensing financial service providers such as increasing transparency and promoting a set of clear and established standards. • Such regulation would decrease the risks for individual investors, financial service providers, member states and the global community.

Talking Points


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 tariffs, 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 dominance 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. Consumption drives the American economy. Every Economics 101 teacher introduces students 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 Goodyear 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.

• Consumption contributes to 70.8% of the American Gross Domestic Product.4 • The 35% tariff on Chinese tires resulted in the Chinese imposing 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

Key Facts

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-percapita 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 Conversely, the manufacturing sector lost around 149,000 jobs in 2008.9 Framed within the 24

historical context, the United States has Talking Points lost six million manufacturing jobs since • Lower tariffs and fewer quotas result in 200010 - jobs that economists predict are lower prices, more products, fewer monot 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 manufacof an efficient, skilled population. Across turing workers ultimately will benefit differing sectors, American workers have American consumers, workers, urbanites, and the rural inhabitants alike. been shown to be the most productive. 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 divide 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-english/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 Levels.” http://mjperry.blogspot.com/2009/12/manufacturing-employment-falls-to.html. (accessed February 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).


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 social pressures within the Chinese ‘courting market’ have assisted in creating this housing 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 market have been increasing continuously. Key Facts • In China, for every 100 live female From 2005 to 2009, Beijing and Shanghai births, there are approximately 120 reported 23% and 35% growth in residen2 live male births.5 tial capital value respectively. The 2005 • China has 32 million more men than census revealed that the average rural inwomen.6 3 habitant earned an annual income of $470 • 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 mortfor supporting their families. Chinese gage payments to income is 170.64%; in New York City, this ratio is 65.65%.8 rural males have flocked to cities to seek 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 affordable 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. Therefore, the Chinese government should implement short-term policies that would prevent 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 likely to abandon or abort girls. Consequently, couples with a young daughter would be eligible 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 family’s income decreases, the deduction rate increases. 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. Endnotes 1. Han, Lingguo.

• Solving the gender imbalance would correct a serious distortion in Chinese 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 necessary before the problem becomes critical.

Talking Points

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/Content/Repositories/Base/Markets/China/English/Market_Report/PDFs/GC-Apr08.pdf (accessed Nov 29, 2010).


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, Agriculture, 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 implemented, 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.



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