A Response to Carl Schramm’s “By Forgetting Its Proud Economic History, Syracuse Loses Its Future” Three Years Later

For those seeking to read the article and similar articles by Dr. Schramm first please see the following link: http://www.forbes.com/sites/carlschramm/2013/02/26/by-forgetting-its-proud-economic-history-syracuse-loses-its-future/#439eba577525

Downtown Syracuse

Downtown Syracuse NY, taken from modern day Clinton Square where the Erie Canal once ran through.

Generally I tend to focus my writing on national or international economic conditions but as a native Syracusan, Syracuse University alum, and now PhD student, I felt I had to add to this debate no matter how old. University Professor Dr. Carl Schramm has written a number of articles regarding Syracuse and city economic plans in general to which I would like to respond.

Firstly, for those who believe I am writing merely to defend Syracuse and all of its nostalgia, you will be sadly mistaken. There are a number of parasitic problems, both economic and social, that are undeniable and which must be addressed. Much of the original backlash centered around counter arguments to Dr. Schramm’s assessment of the city’s social and economic status. On the contrary, I actually happen to agree with a number of his evaluations. I also happen to agree, from a high-level perspective, that these problems must be “self owned”, and that indigenous entrepreneurial activity serves an important role in the solution set.

That being said, the political economic direction suggested and public policy philosophy offered appear chained to a flawed economic ideology made popular some 35 years ago and which remains unproven until today.

In fact, while we agree on some aspects of the problems and solutions, my primary motive for writing this article is to offer a substantially different methodology to cultivate entrepreneurial activity, and economic and political philosophy to overcome the challenges the city is currently facing.

One element of Dr. Schramm’s investigation which cannot be ignored is that Syracuse and its economy do not operate in an isolated bubble from the rest of the World. We cannot hastily conclude that any downturn is the sole result of actions taken within the community. The reason similar situations can be noticed throughout the country is because of national and international economic effects which strongly helped to catalyze this trend. While past and present local leaders were in no doubt partly responsible and will be required to take the lead on revitalizing the area, it is both unfair and misleading to suggest that the responsibility of the economic decline lies solely upon their shoulders.

In the follow up article “Syracuse Can Rise Again, But Only If The Entrepreneurs Return”  Schramm claims that “… Because of the tax and regulatory environment — and no one can avert his or her eyes to the comparative disadvantage this presents — few migrating firms will find the city attractive.” This is a very broad assertion with little to no empirical backing. Different tax structures: corporate taxes, self employment taxes, payroll taxes, real estate taxes, income taxes, etc. are likely to all affect entrepreneurial activity differently. The same can be said of regulations: environmental, infrastructure, finance, human resource, business formation, etc. Many of these factors have not been fundamentally proven to have a correlation to entrepreneurial activity let alone  be proven to be the primary motivator. If the broad claim that any regulation and any tax had an all but certain substantial negative impact then Silicon Valley, one of the highest taxed and regulated parts of the country, would not be the entrepreneurial engine that it is today.

Later in the article it is stated that “Government’s most effective role is to encourage with economic signals such as reducing local regulatory burdens (licensing, zoning and inspections), lowering property taxes, providing grace periods from labor law that might not be applicable to start-up businesses, and providing only the infrastructure that emerging businesses, not imaginary “ideal” businesses, need. Simply, “backing off” is likely a more effective strategy than trying to force economic growth according to some expert’s playbook.” When discussing the government’s economic role, let us not forget that governments are burdened with a very broad set of responsibilities and tasks. Laws, regulations, and taxes are not in themselves bad concepts by any means. In fact, theoretically they should be put in place because they contribute to the overall public good. In some instances however, the strife with government actions is surely justified.  While the results of NY’s Buffalo Billion remain to be seen, taking into account all NYS incentives received and the revised job outlook provided by Solar City, the project is set to result in ~$1.4Million/job created. This is hardly what a rational individual would consider an efficient use of tax payer funds, but by no means is the project representative of all government actions or an indication that government is inherently obstructive or nefarious.

The notion that the best that government can do is to reduce regulations, cut taxes (an implicitly cut services) and then hope for the best, today remains an unfounded fallacy made famous primarily in the 1980’s. Many will of course object to this assertion and will undoubtedly rebut with poignancy by highlighting some particular time period or location as proof of this philosophy’s legitimacy. I would like to remind readers however that while pointing to a counterexample can be enough to disprove a claim, it is not in itself enough to prove a theory or in fact prove causality. To truly prove causality is all together a different animal as any academic or researcher will attest. This requires profound insight and necessitates substantial evidence linking economic conditions to the outcome they’ve produced. Simply citing their coexistence within the same society and time period is no more a proof of causality than is linking breast cancer to traffic accidents.

In a subsequent but related article “It’s Time For City Planners To Adapt A New Model” Dr. Schramm speaks of city planners not considering the most important metrics such as: poverty ratio, city population, or the costs of public services. I very much agree with him that cities cannot create an effective strategic plan without considering their main goals, objectives and governing philosophy and it would be rash to do so. That said, Dr. Schramm provides no true underlying philosophical goals for society in his confutation of city planning strategies other than to suggest a vague notion of prosperity, by no means a well-established and objective measure.

In contrast, I offer readers the Society Success Metrics outlined in my article “GDP vs. True Societal Success” where the goals and metrics extend beyond pure economic growth to more fundamental and intrinsic objectives. Taking these measures into account, one can begin to utilize peer reviewed research, as it was intended, to guide the decisions and proposals for government to enact thus providing a substantially increased likelihood of achieving those targets.

As an example of this philosophy in action, if one were to set goals for the city’s education system, they would be wise to consider the existing research and best practices available through education journals (such as AERA) or alternative educational systems such as the Finnish National Educational System. Clearly local governments are handicapped in their authority to make decisions on this subject, but the perspective for improvement is nevertheless valid however small the potential impact may be. Before anyone jumps to any conclusions on cost by the way, in 2012 according to the National Center for Education Statistics Finland spent $9,353/student and the US spent $11,732/student, while Finland’s students are both healthier and perform better in just about every measurable way.

In relation to entrepreneurship, one policy concept which has proven to have a definitive and positive correlation to entrepreneurial activity is education. Government can be supportive of entrepreneurial activity through  entrepreneurship coaching and education programs, R&D support systems, social capital (i.e. networks),  etc.  KCSourelink in partnership with the University of Missouri has offered a “resource rail” specifically laying out various trajectories and resources available to entrepreneurs through their local community. As I have no intention of turning what is already a lengthy article into a manifesto however, I’ll keep any further explicit suggestions of pragmatism for another day.

The key takeaway here is to recognize not solely the limitations of government but the power of government as well. More so, that impact does not necessarily have to be negative or obstructive. There are proven methods and best practices which can be taken from other regions, nations, and especially from research which can be implemented and tried in Syracuse as well. If we are in fact going to try and stimulate entrepreneurial activity, does it not then follow to have a bit of an entrepreneurial mindset with our creation and trial of policy? One can never claim to have a silver bullet to success by any measure, but utilizing reasoned and proven methods appears to me a far more effective strategy than going to the casino and rolling the dice.

References:

Schramm, Carl. “Syracuse Can Rise Again, But Only If The Entrepreneurs Return.” Forbes. Forbes Magazine, 4 Mar. 2013. Web

Schramm, Carl. “By Forgetting Its Proud Economic History, Syracuse Loses Its Future.” Forbes. Forbes Magazine, 26 Feb. 2013. Web.

Schramm, Carl. “It’s Time For City Planners To Adapt A New Model.”Forbes. Forbes Magazine, 14 May 2013. Web.

KCSOURCELINK RESOURCE RAIL. Digital image. KCSource. KCSource, n.d. Web.

Cope, Jason, and Luke Pittaway. “Entrepreneurship Education A Systematic Review of the Evidence.” International Small Business Journal 25 (2007): 479-510. Web.
American Educational Research Association. AERA, n.d. Web. 08 June 2016.
“Education System.” Oph.fi/. The Finnish National Board of Education, n.d. Web. 08 June 2016.
“Gross Domestic Product per Capita and Public and Private Education Expenditures per Full-time-equivalent (FTE) Student, by Level of Education and Country: Selected Years, 2005 through 2012.” National Center for Education Statistics. NCES.ed.gov, n.d. Web.

A Comment on IMF Article “Neoliberalism: Oversold?”

Jonathan D. Ostry, author of the article along with Prakash Loungani, and Davide Furceri, is a Deputy Director of the International Monetary Fund

Firstly, for those interested I sincerely recommend reading the IMF’s recent post on Neoliberalism policies. In brief summary, the article discusses two major topics of “neoliberal policies” since the 1980’s:

  1. Capital Liberalization or effectively the level of deregulation of international exchanges, particularly financial capital markets, opening them up to foreign competition.
  2. The size of the State based on a mix of privatization of services, and limits of budget deficits and debt accumulation.

By and large this appears to be an extended caption on the discussions taking place between some of the World’s most esteemed economists on striking the right balance of neoliberal policies, especially in today’s highly globalized world. Without over generalizing the authors’ comments, perhaps the greatest takeaway in my mind is perfectly summarized by the last sentence “Policymakers, and institutions like the IMF that advise them, must be guided not by faith, but by evidence of what has worked.”

Scattered throughout the article are various research accounts, though in full disclosure a number are by the authors themselves of colleagues, which in essence fly in the face of much of traditional neoliberal economic theory. “In addition to raising the odds of a crash, financial openness (in terms of increasing capital account liberalization) has distributional effects, appreciably raising inequality.” “Faced with a choice between living with the higher debt—allowing the debt ratio to decline organically through growth—or deliberately running budgetary surpluses to reduce the debt, governments with ample fiscal space will do better by living with the debt.­” “In sum, the benefits of some policies that are an important part of the neoliberal agenda appear to have been somewhat overplayed.”

These are both striking and extremely important indications of a shifting view that the best path for international economic regulation may be to try and strike a better balance rather than to go hog wild on the ideas of the late Friedrich Hayek or Milton Friedman. While current research about whether any upsides of highly neoliberal fiscal policies have been realized, the evidence appears to be slightly more conclusive about many negative side-effects namely wealth inequality and market volatility.

More so, the primary objective of such policies, as regularly stated in the article, is to increase economic growth. This of course begs the questions, why are we striving for economic growth when such a perpetual goal is clearly unsustainable from a global resources standpoint? Additionally, the notion that economic growth will inherently drive up incomes has not proven to be consistently true and has in fact increased inequality according the the evidence pointed to the in the article and by research from famed economist Thomas Piketty. Finally, even if all the chains in this train of thought were to hold absolutely, the link between increased income and increased overall happiness has high diminishing returns as I discussed in my previous article “GDP vs. True Societal Success”.

Perhaps it is time to begin shifting our focus on international economic policies but at the end of the day in our continuous strive of endless growth, let’s also keep in mind what the true economic objectives should be, a mix of global prosperity and happiness.

 

New York State Minimum Wage: What About Affordability?

Greenlar, Michael, and Mike McAndrew. Paid Family Leave for NY Workers in State Budget Deal, Cuomo Says. Digital image. Syracuse.com. Syracuse Media Group, 31 Mar. 2016. Web.

Greenlar, Michael, and Mike McAndrew. Paid Family Leave for NY Workers in State Budget Deal, Cuomo Says. Digital image. Syracuse.com. Syracuse Media Group, 31 Mar. 2016. Web.

Among the set of all economic discussion topics, the minimum wage increase certainly stands as one of the most polarizing. Slogans are chanted from “Fight for 15!” to “Fight for Zero!” with considerable controversy as to the true potential impacts of a minimum wage hike to $15/hour. Economists of course recognize the generality of such an argument. For one, a sweeping $15/hour policy inherently generates a massive disparity in purchase power parity (PPP) between different localities. In other words what $15 buys you in NYC may be drastically different than what it buys in Potsdam NY. This also ignores the implementation timing. The 2016-2017 New York State Budget includes the following proposals:

  • For workers in New York City employed by large businesses (those with at least 11 employees), the minimum wage would rise to $11 at the end of 2016, then another $2 each year after, reaching $15 on 12/31/2018.
  • For workers in New York City employed by small businesses (those with 10 employees or fewer), the minimum wage would rise to $10.50 by the end of 2016, then another $1.50 each year after, reaching $15 on 12/31/2019.
  • For workers in Nassau, Suffolk and Westchester Counties, the minimum wage would increase to $10 at the end of 2016, then $1 each year after, reaching $15 on 12/31/2021.
  • For workers in the rest of the state, the minimum wage would increase to $9.70 at the end of 2016, then another .70 each year after until reaching $12.50 on 12/31/2020 – after which will continue to increase to $15 on an indexed schedule to be set by the Director of the Division of Budget in consultation with the Department of Labor.

One would hope detailed research from respected economic scholars would help to stymie such controversy but as with most political discourse, it does so to no avail. The Institute for Research on Labor and Employment at the University of California, Berkeley released their policy brief just before the NYS Budget Deal was reached last month. The brief details their estimates on the state-wide economic impacts of the Governor’s then $15/hr minimum wage proposal.

For the sake of brevity I have left the link available for those who wish to read further into the details. The primary highlights of the brief are:

  • Our results indicate that a $15 statewide minimum wage would generate a 23.4 percent average wage increase for 3.16 million workers in the state. This improvement in living standards would greatly outweigh the small effect on employment. And the increase in wages would help reverse decades of wage declines for low-paid workers.
  • How can such a major improvement in living standards occur without adverse employment effects? While a higher minimum wage induces some automation, as well as increased worker productivity and higher prices, it simultaneously increases worker purchasing power. In the end, the costs of
    the minimum wage will be borne by turnover reductions, productivity increases and modest price increases.

In speaking with a friend and local business owner recently however, I began to ponder how would this affect her and her business specifically. One can conceive without much loss in generality that the average fast food franchise could absorb the added labor cost increase in their margins and maintain positive cash-flow. In other words, they have the freedom to play the higher price vs. hit to the bottom line game and have little worry about keeping the doors open. A local small business however is far less predictable and very often runs on much smaller margins. Small businesses cannot take advantage of the economies of scale a franchise can offer and without teams of highly skilled management, inevitably leave cash on the table in terms of operations inefficiencies. The question is, can one then conceive of a minimum wage increase “affordability index”?

It is my objective to obtain nameless and addressless payroll and business income tax records to make wage increase comparisons. For what percentage of businesses is the proposed increase in minimum wage easily absorbed by current cash-flows and for what percentage does this pose a larger problem? Can a metric therefore be created to gauge the “affordability” of a minimum wage hike for any given business?

While such a study may provide less insight or value to the discussion as the IRLE study, the concept of affordability for small businesses should not be negligible irrespective of the net effects to the economy. Food for thought!

-JS

World Economic Forum Recap & Review

Courtesy of the World Economic Forum Twitter account

The 2016 World Economic Forum (wef) Annual Meeting took place this year in Davos Switzerland where the overall theme this year was “Mastering the Fourth Industrial Revolution”. The fourth industrial revolution is one of “cyber-physical systems”, which is largely characterized by automation, driver-less cars, artificial intelligence, big data, etc. While these technological advances will have and are already beginning to have a profound impact on our society and economy, of major concern simply put is the pending labor economic shift like none we’ve ever seen before.

While there were many additional topics of discussion from Greece to China, to food and cancer, adding those to this article would create one far too broad and redundant for a single blog post. A few of the relevant panels concerning labor economics within the fourth industrial revolution included: “A World without work?“, “Creating 75 Million Entrepreneurs: Is this Possible?“, “The Future of Growth: Technology-Driven, Human-Centred“, and “Educating the Masters of the Fourth Industrial Revolution

Effectively what’s at stake is the future of jobs (i.e. labor) in the World economy. A collaborative study by Oxford University economics and computer scientist researchers predicts that “According to our estimates, about 47
percent of total US employment is at risk.” (Frey et. al 2013) Technological advancement in the past has made previous jobs obsolete and the economy was somewhat able to adapt with higher and lower skill service sector work. The fear is that the new wave of automation may bring about an environment where the scale of work obsolescence is so vast that high skill, high education, white collar jobs even in the service sector will also be at risk. We have seen computer replacement of jobs creep further and further into the workplace including professions such as journalism, financial services, psychiatry, law, driver-less vehicles, marketing, etc. and the uncertain future of how large this can extend is still being hotly debated.

From the mood in the room and various perspectives on the topic, we can see that this economic symposium  will not simply be one of pragmatic solutions but perhaps more similarly reflect the debate about Climate Change, taking different shapes in various regions of the World. Most leaders of developed European countries appear to at least be willing to discuss public solutions to the problem including thoughts on a guaranteed minimum income. In the United States, and much of the developing World including China and India, the discussion appears to be emerging more into one of denial, clinging to old and antiquated systems, and intense conflict between those who (in the short term) stand to benefit and those who do not. Many academics however, including very highly esteemed economists such as Economics Nobel Laureate Dr. Christopher Pissarides, have similarly gone the way of the European community while those who serve to benefit from increased wealth concentration at the top willing to accept the possibility of job loss, are more likely to summon the traditional pure capitalist solutions : innovation and entrepreneurship.

Much like Climate Change, a massive transformation to our economy is coming and it is up to this generation to decide how it looks. While this change will progress over many decades, the important thing is focus the debate on solutions rather than on denial. We must summon the courage to face this head on and decide on the best solutions, public, private, or other to act on.

References:

Autor, David H. “Why are there still so many jobs? the history and future of workplace automation.” The Journal of Economic Perspectives 29.3 (2015): 3-30.

Frey, Carl Benedikt, and Michael A. Osborne. “The future of employment: how susceptible are jobs to computerisation.” Retrieved September 7 (2013): 2013.