10ideasfor

Economic Development

July 2010 | Featured IdeaSocial Entrepreneur Innovation

10 Ideas for Economic DevelopmentJuly 2010

National DirectorHilary Doe

National Network CoordinatorTarsi Dunlop

Lead Strategist for Economic DevelopmentLucas Puente

Managing EditorGracye Cheng

EditorZachary De La Rosa

The Roosevelt Institute Campus Network455 Massachusetts Ave NW

Suite 650Washington, 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.

10 ideasfor

EconomicDevelopment

Congratulations to Erika K. Solanki,

author ofThe Social Entrepreneurship Solution

Nominee forPolicy 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 CropGonzalo Pizarro-Angulo

A Tax Revolution for CaliforniaKunitaka Ueno

The Social Entrepreneurship SolutionErika K. Solanki

Cost-Free CARSRaul Tadle

A Clearinghouse System for Credit Default SwapsParintha Sastry

The Case for an International Financial Services Regulatory Board

Matthew Eldridge

The Necessity of American Consumer ProtectionZachary 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

p Letter from Washington

We 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 DunlopNational Network Coordinator

Our 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 PuenteLead Strategist, Economic Development

Strategist’s Note P

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.

AnalysisPromise Programs have the potential to revive economically depressed areas and insulate local economies from regional and national downturns. After the imple-mentation 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 de-cline.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

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-

Fueling Economic Development Via Education:The Potential of Promise ProgramsKatherine Kavaler, Joseph Geylin, Andie Levien, Eric Jones, and Daniel Hornung Yale University

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Key Facts Kalamazoo house prices jumped be-•tween 8% and 10% over the next two years, while the rest of the state expe-rienced a decline.15Cities with Promise Programs experi-•ence lower rates of unemployment.Promise Programs encourage popula-•tion increases, including an influx of teachers and middle class families.

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 StepsThrough 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).

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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 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 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.

AnalysisThe 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,

Northeast Passage: Improving Rail ServiceBetween Boston and Portland, MaineZachary Agush and Christopher MacDonald, Wheaton College

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Key Facts By 2020, China will have invested •300 billion dollars in high speed rail, while the United States has only invested 8 billion dollars.8Out of 121.2 million commuting •Americans, 40.8 million travel between suburbs for work.9Rails are most efficient when •traveling a distance of 100 to 400 miles – more efficient than automobiles and air travel.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 for work.7 Aided by an accessible and af-fordable mode of transportation, regions would see an escalation in property val-ues and more opportunities for new con-sumers. For example, the economy of 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 StepsInvesting 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.

Endnotes1. 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.

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Talking Points High speed trains help stimulate eco-•nomic development by making the transportation system more efficient.High speed trains allow for the traffic •of large metropolitan areas to become decongested.

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 of taxing marijuana, it is crucial to put the drug’s criminalization into perspective. The idea of a “drug-free society” serves as a mechanism that favors certain drugs over others. For example, alcohol related violence and crime is inarguably a major challenge in our society; however, the soci-etal costs that Americans witnessed during the Prohibition era prompted the federal government and the states to take control of this substance via legalization and regu-lation. Likewise, the perceived dangers of marijuana spawn directly from specific social and historical conceptualizations of the drug. As history reveals, prohibition-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

AnalysisBetween 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

Capitalizing on California’s Cash CropGonzalo Pizarro-Angulo, University of California at San Diego

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Key Facts According to a Views on Legalizing •Marijuana polls from ABC News/Washington Post and Time/CNN, 46% of Americans favor legalizing marijuana for personal use.8According to The Field Poll, 56% of •California voters support legalizing marijuana and taxing its sale.9Marijuana enforcement, processing, •and sentencing cost taxpayers $7.6 billion per year.10Public policy analyst and former head •of the National Organization for the Reform of Marijuana Laws, Jon Gett-man, conducted a study using govern-ment figures to estimate that the an-nual pot crop is worth $35 billion.11

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 StepsMarijuana legalization should be implement-ed 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 per-taining to the production and distribution of marijuana.

Some steps have been taken already to-wards 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 treat-ment programs.

Endnotes1. “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).

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

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 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.

AnalysisBy 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

A Tax Revolution for CaliforniaKunitaka Ueno, University of California at San Diego

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Key Facts Chief Executive has ranked California the •worst state to conduct business for the past four years.3The 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

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-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.

Next StepsGovernor 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.

Endnotes1. “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).

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Talking Points 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

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 reshaping society for centuries. In 1980, Bill Drayton founded Ashoka – an international organization that awards fellowships to aspiring social entrepreneurs. The program helps launch social entrepreneur ventures by providing recipients with liv-ing stipends, a global peer support network, and guidance from profes-sional consultants.1 Youth Venture is 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

AnalysisAmerica 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.

The Social Entrepreneurship SolutionErika K. Solanki, University of California, Los Angeles

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Key Facts In 2007, the financial crisis triggered a credit •crunch, resulting in a severe recession. According to Brookings Institution policy •researchers Martin Baily and Douglas Elliot, restoring full employment in the U.S. will require creating new jobs, instead of primar-ily restoring old jobs, since most current job losses are permanent.3 According to the U.S. Bureau of Labor Sta-•tistics, the unemployment rate was 9.9% in April 2010.4

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 rate of return to the government and ensuring the solvency of future loans. Similar to Ashoka, the fed-eral program would release a call of applications and subject each venture application to a rigorous interview process with voluntary industry professionals.

In an effort to promote this pro-gram, the federal government would recruit citizens of all ages and make special presentations to disadvantaged communities – especially those living in impov-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.

Endnotes1. 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=usunemployment&met=unemployment_rate&tdim=true&q=united+states+unemployment+rate (accessed December 27, 2009).

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Talking Points Social entrepreneurship is a form of conscious •capitalism that revolutionizes how social is-sues are addressed by blending the goals of society’s most proactive citizens with the strategies of business professionals.The government should support this proposal •to encourage conscious capitalism, stimulate economic activity, and promote more humani-tarian ideals.The two-fold federal program would offer be-•low market rate loans for living and venture start up costs as well as a professional men-torship network for qualified social entrepre-neurs. The application process would be rigor-ous and competitive to ensure the program’s sustainability.

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.

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.

AnalysisEnvironmental 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

Cost-Free CARSRaul Tadle, University of California at San Diego

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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.

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 StepsPassing another bill much similar to Cash for Clunkers would help resolve the ongoing eco-nomic 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.

Endnotes1. 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)

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

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.

AnalysisCredit default swaps were first created in the mid-1990s to provide protection against the default of firms, sovereign nations, mortgage payers, and other borrowers. By April 2009, there was an estimated $28 trillion of notional CDS outstanding.5 Because of the enormous size of the CDS market and the vulnerability 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.

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Key Facts Credit default swaps make up an •estimated $60 trillion globally, making them the most widespread, unregulated forms of credit deriv-atives on the market.1Credit default swap losses are es-•timated at $150 billion worldwide.2

A Clearinghouse System For Credit Default SwapsParinitha Sastry, Columbia University

Next StepsAfter identifying existing large exchange fa-cilities, the SEC should limit the number of approved clearinghouses, since the main ben-efit of clearinghouses arises from the ability of multiple parties to net exposures in a single in-stitution. One major threat to the success of a clearinghouse system stems from the possibility of one large or several smaller firms defaulting. Since the success of the clearinghouse is con-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

Endnotes1. 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).

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Talking Points Since CDSs are over-the-counter •contracts privately negotiated by two parties, there is no way to know how exposed a bank is. Credit default swaps trade cred-•it risk with counterparty risk, and firms must be aware of large unhedged positions which com-pound counterparty risk.

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-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 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.

The Case for an InternationalFinancial Services Regulatory BoardMatthew Eldridge, The London School of Economics

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Key Facts 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.1Although 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

Similar organizations to IFSARB already ex-ist. For example, the International Account-ing Standards Board (IASB) sets accepted standards in the accountings sector. The International Organization of Securities Commissioners (IOSCO), a cooperative ef-fort to regulate markets and establish stan-dards 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 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 StepsIf 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.

Endnotes1. 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.

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Talking Points The recent troubles in the credit •market have shown the need for ad-equate financial regulation.This regulation needs to include cer-•tain mechanisms for licensing finan-cial service providers such as increas-ing 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.

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.

AnalysisThe 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

The Necessity of American Consumer ProtectionZachary De La Rosa, University of North Carolina at Chapel Hill

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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.5The World Bank estimates that •the elimination of trade barriers would result in an $830 billion addition to global GDP by 2015.6

historical context, the United States has lost six million manufacturing jobs since 200010 - jobs that economists predict are not returning. Therefore, the U.S. must find innovative solutions to employ its citizens, and the U.S. has the advantage of an efficient, skilled population. Across differing sectors, American workers have 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 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.

Endnotes1. 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).

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Talking Points Lower tariffs and fewer quotas result in •lower prices, more products, fewer mo-nopolies, and more variety of goods.Free trade coupled with education •strategies targeting former manufac-turing workers ultimately will benefit American consumers, workers, urban-ites, and the rural inhabitants alike.

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. From 2005 to 2009, Beijing and Shanghai reported 23% and 35% growth in residen-tial capital value respectively.2 The 2005 census revealed that the average rural in-habitant earned an annual income of $4703

as compared to the urbanite’s annual salary of $1536.4 Consequently, rural inhabitants have accumulated drastically less wealth for supporting their families. Chinese 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 afford-able housing remained.

AnalysisWhile 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

The Connection BetweenThe Chinese ‘Courting Market’ & Housing PricesDouglas Chenier, Michelle Gregory, and Andrew OwensUniversity of North Carolina at Chapel Hill

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Key Facts In China, for every 100 live female •births, there are approximately 120 live male births.5China has 32 million more men than •women.6In Beijing, the typical home costs 22 •times the median family income; in New York City, this ratio is 8.4.7In Beijing, the ratio of monthly mort-•gage payments to income is 170.64%; in New York City, this ratio is 65.65%.8

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 StepsWe 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.

Endnotes1. 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).

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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.

AbstractThe 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.

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Roosevelt Review Preview:Policy Options for U.S. Federal GovernmentMitigation of Greenhouse Gas EmissionsJulia Sittig and Gillian Wener, University of Michigan

www.rooseveltcampusnetwork.org