Professor Bainbridge...on law, politics, religion, culture & food

Corporate Green Investments Don’t Pay Off for Shareholders

A study by two Dartmouth economists reports that:

Researchers debate whether environmental investments reduce firm value or can actually improve financial performance. We provide some first evidence on shareholder wealth effects of voluntary corporate environmental initiatives. Companies announcing membership in Climate Leaders and Ceres - two voluntary environmental programs related to climate change - experience significantly negative abnormal stock returns. The price decline is smaller in carbon-intensive industries, where regulatory actions are more likely, and for high book-to-market firms, suggesting that “green” expenditures crowd out growth-related investments. We also document insignificant announcement returns for portfolios of industry rivals. Overall, the environmental investments appear to conflict with shareholder value-maximization. This has far reaching implications since the U.S. government relies on voluntary initiatives to reduce the emissions of greenhouse gases.

Twenty-odd years of studying corporate behavior tells me that “green” invstment decision by corporate executives are far more likely to be driven by home front considerations than shareholder value. Every nights the executives go home to face their kids, who bitch and moan about the environment. as the W$J explained a while back:

In households across the country, kids are going after their parents for environmental offenses, from using plastic cups to serving non-grass-fed beef at the dinner table. Many of these kids are getting more explicit messages about becoming eco-warriors at school and from popular books and movies.

This year’s global-warming documentary “Arctic Tale,” for instance, closes with a child actor telling kids, “If your mom and dad buy a hybrid car, you’ll make it easier for polar bears to get around.” Kids on field trips to the Garbage Museum in Stratford, Conn., are sent home with instructions to recycle cans, bottles, newspaper and junk mail. The museum hosted 388 schools visits last year, 42 more than the year before. At one California elementary school, kids are given environmental activities to do with their families—including one where parents have to yank out the refrigerator and clean the coils to make it more energy efficient. ...

The Natural Resources Defense Council, the New York nonprofit, has been trying to secure permission from various media companies to use a cartoon character to spread the word. “It is the really, really young kids who are going to change their parents’ behavior,” says Phil Gutis, the group’s spokesman, adding that the message to children ought to be straightforward: “I think it’d be as simple as, ‘Kids, tell your parents.’ ”

Jindal’s Out

Fox reports:

Louisiana Gov. Bobby Jindal said Wednesday he will not run for vice president on the GOP ticket, making him among a growing number of those pulling themselves out of the race.

Pity. As I noted yesterday, I think Jindal would be a great choice. OTOH, he’s very young (37) and this is a campaign that’s almost certain to lose. Why taint a promising career with a national defeat this early? Why not wait, chalk up some successes as governor and run in 2016 (or even as late as 2036, when he’d only be 65).

Obama Meet Petard

Constitutional law professor Steven G. Calabresi writes:

Barack Obama is too young to be president. Yes I know he is 46 and the Constitution sets the presidential age qualification at 35 or higher, but Obama has said that we ought not to interpret the Constitution woodenly and formalistically. Perhaps we should look deeper at the presidential age limit. If we do, we will find that Obama really is too young to be president.

Many on the legal left these days advocate purposive, pragmatic interpretation of the Constitution. The idea is you look behind the text to see what function it played for the framers and you then translate the text so it will play that same function for us today. What does this mean for the presidential age qualification?

In 1789, the average life expectancy of a newborn was about 40 years, compared with about 78 today. A lot of this was because of infant mortality, but in 1789, even the average life expectancy of every man who reached age 18 was only about 47. This suggests that at best a 35-year-old age limit in 1789 might have functioned then about the way a 55- or 60-year-old age qualification would function today. On this account Obama may be old enough to drive and buy a glass of white wine, but he has a way to go before he can run for president.

Others on the legal left, such as U.S. Supreme Court Justice Stephen Breyer, argue that in choosing between different interpretations of the Constitution, we should select the one that will produce the best consequences. This method too suggests that Obama should be understood to be constitutionally barred from serving as president by reason of his age. We have had three presidents out of 43 who were younger when they took office than Obama would be on Jan. 20, 2009: Bill Clinton, John F. Kennedy and Theodore Roosevelt. All of them committed serious rookie blunders because they were too young.

It’s a clever jab at left theories of constitutional interpretation. Go read the whole thing.

Obama is to Politics as Disco is to Music

Tom Smith:

The only other time I can remember feeling this way was during the ‘70’s and the disco craze.  Everybody really was crazy about disco dancing, the music, the scene etc.  I didn’t get it.  I hated the music, I thought the dancing was stupid and I couldn’t do it anyway (terrible dancer me), and I didn’t like the clothes either.  It was like, is everybody crazy or is it just me? 

Same with Obama.  I don’t get the appeal.  I can see that he is good looking, bright for a politician, I understand the historic black President thing, but overall it just seems so obvious that he is just the guy who started plotting in junior high how he was going to be the Governor of Boys’ State, or whatever.  Only now it’s on a global scale.  It’s very weird.  I had thought media and celebrity driven politics had bottomed out, but apparently not.

Is the Media Trying to Elect Obama?

Even Former Clinton spokeswoman Dee Dee Myers knows the answer is “yes”:

Obama is The One. In the first quarter of the general election, he has simply gotten more and better coverage than McCain. For those who need more evidence than the enormous press entourage that is treating Obama’s current trip not like the campaign swing of a presidential candidate, but like the international debut of the New American President, there are several new studies which help quantify the disparity.

The Project for Excellence in Journalism, which evaluates more than 300 newspaper, magazine, and television stories each week, found that from June 9 (after Obama had wrapped up the Democratic nomination) until July 13, Obama was more prominently covered every single week. During one particular week, July 7–13, McCain was a significant presence in 48 percent of the stories—but Obama met that mark in 77 percent of the pieces. Similarly, the Tyndall Report, a media monitoring group, found that Obama received substantially more media attention.

... Given all that, it’s not surprising that voters, particularly those of the Republican persuasion, think the media is more or less in Obama’s pocket. A recent survey by Rasmussen found that 49 percent of the likely voters they talked to believed that reporters would favor Obama in their coverage, while just 14 percent said the same about McCain. Seventy-eight percent of Republicans thought the press would try and help Obama win, while only 21 percent of Democrats thought journalists were in bed with McCain. Complaints about bias are only exacerbated when the New York Times (the bête noire of the right) rejects an opinion piece written by McCain comparing his position on Iraq to Obama’s—just days after the Times ran a similar piece by Obama.

From all of which she draws this conclusion:

But what seems indisputably true—to quote another dazzling young Democrat who received disproportionately favorable media attention, John Kennedy—is this: “Life is unfair.”

I think I’ll use that quote the next time one of my liberal friends mentions Bush v Gore. Or the next time one of them wants to revive the fairness doctrine to silence Rush Limbaugh. Because in elite US media and academic circles, life is only supposed to be unfair for Republicans.

On the need to educate future entrepreneurs about Obama

In an article on malaise among young conservatives, the WaPo mentions this factoid:

Seventy percent of high school students say they want to be entrepreneurs, according to a recent Gallup poll.

Somebody needs to educate these ambitious young people on the negative effects Barack Obama’s tax plan will have on entrepreneurship:

A high-income entrepreneur would see his or her federal marginal tax rate rise to 53 percent from 37.7 percent under Obama’s tax plan. He proposes a 4.6 percentage point hike in the personal income tax rate, a loss of some itemized deductions, and a 12.4 percentage point hike in the Social Security payroll tax. This would take a successful entrepreneur’s effective marginal tax rate higher than what it was under Jimmy Carter or Richard Nixon, when the maximum tax on an entrepreneur was 50 percent.

One of the lessons from the disastrous economics of the 1970s and the subsequent Reagan tax cuts is that everyone--particularly entrepreneurs--responds to incentives. If you take away 10 percent of a high earner’s after-tax income at the margin, he will cut his taxable income by at least 4 percent. At the margin, this taxpayer now takes home 62.3 percent of his earnings, a figure that will drop to 47 percent under the Obama plan. According to a widely accepted economics rule of thumb, the entrepreneur’s taxable profit would drop by 11.2 percent.

Now consider how the Obama plan would affect the taxes paid by such an entrepreneur with a taxable profit from his business of $500,000. Under current law, he would pay $27,148 in Social Security and Medicare taxes, plus $142,969 in personal income taxes, for a total of $170,117. If the taxpayer did not change his behavior at all, under the Obama plan, he would face a $31,000 Social Security tax hike and an $11,494 hike in his personal taxes--or a 25 percent tax hike. But if the taxpayer responds as the economic models predict, his taxable profit would drop to $444,000. His Social Security and Medicare tax bill would still soar to $51,580. But his income taxes, even with a higher tax rate, would drop to $132,882 for a total of $184,462. In other words, Senator Obama is planning on a combined series of tax hikes to produce $42,000 in tax revenue, but consensus economic modeling suggests the government’s net take would rise only $14,000.

We should also keep in mind that the economic well-being of the country is not measured by how much taxes the government can collect, or even the size of the deficit. Rather, it is measured by the country’s productive capacity. Our theoretical entrepreneur’s 11.2 percent decline in taxable income reflects both less effort on his part and a less efficient use of his income in order to avoid confiscatory tax rates. Or, to put it directly, Obama’s plan would reduce an entrepreneur’s after-tax profits by $70,000--$56,000 in lost profits and $14,000 more in taxes--just to produce a net revenue gain to the government of $14,000.

It is shocking to think that we have a presidential candidate who would make the private sector $5 poorer in order to make the government $1 richer. More likely, given the calculated political design of the proposal, no one in the Obama campaign told the candidate about the economic, ethical, or historical consequences of his suggestion.

Pick Jindal

James Joyner:

Bob Novak is reporting that John McCain is planning to announce his vice presidential choice this week, presumably in an attempt to grab the press spotlight back while Barack Obama is being feted overseas. He notes that “Mitt Romney has led the speculation recently.”

Meanwhile, Chris Cillizza says “McCain will huddle with vice presidential aspirant Bobby Jindal during a trip to New Orleans later this week” which suggests that Jindal “is under serious consideration.”

... Romney’s got significant executive experience, is reasonably charismatic, and shores McCain up nicely on the economic front. There is the ever present “Mormon question,” but that’s likely a much lesser problem for the number two spot. The biggest obstacle here is that the two men seem not to like each other very much and there are plenty of sound bytes from their campaign against each other that could be played in the Fall.

Jindal is, as Joseph Lawler puts it, “the Right’s version of Barack Obama: young, a minority, articulate, and appealing. Only, Obama doesn’t have Jindal’s long list of accomplishments.” He helped revamp Medicare as a 24-year-old and turned around Louisiana’s university system before he turned 30. On the other hand, his belief in things like exorcism might not play so well outside that state. Morever, as I’ve argued previously and Cillizza reiterates, Jindal’s “foreign policy resume is at least as thin as Obama’s,” undercutting McCain’s chief argument.

Romney would be the much more conventional choice while Jindal would be more exciting.

I have been following Jindal’s career with interest for some time. He’s a very smart, honest, forward thinking guy with a few quirks. He’s also a proven politico who would add some much needed diversity to the GOP ticket:

On October 20, 2007, Jindal was elected governor of Louisiana, winning a four-way race with 54% of the vote. At age 36, Jindal became the youngest current governor in the United States. He also became the first non-white to serve as governor of Louisiana since Reconstruction, the first elected Indian American governor in U.S. history, as well as the second Asian American governor to serve in the continental United States after Gary Locke of Washington. (Wikipedia)

From US News’ 10 things you didn;t know about Bobby Jindal:

1. The son of immigrants from India’s Punjab state, Jindal made history when he became the first U.S. governor with roots in India.

2. Born Piyush Jindal in Baton Rouge in 1971, he gave himself the nickname Bobby—after the youngest son on The Brady Bunch—when he was 4.

3. Raised a Hindu, Jindal converted to Catholicism as a teenager. As a young convert, he wrote of the emotional and intellectual struggles of his spiritual journey in several articles that were published in the New Oxford Review, a Catholic magazine.

4. Jindal graduated from Baton Rouge High School in 1987. He attended Brown University, graduating with honors in biology and public policy. He turned down admissions to medical and law schools at Harvard and Yale to attend Oxford University as a Rhodes scholar.

5. While attending Oxford, Jindal contemplated joining the priesthood. He ultimately decided that it was not for him.

6. In 2006, Jindal and his wife, Supriya, delivered their third child at home. Barely able to call 911 before the delivery, Jindal received a nurse’s coaching by phone. Just as he was completing the umbilical cord procedure with a shoestring, paramedics arrived. The Jindals have a daughter and two sons.

7. Before he turned 30, Jindal headed Louisiana’s Department of Health and Hospitals and became president of the University of Louisiana System. He served in the Department of Health and Human Services under President George W. Bush and was executive director of the National Bipartisan Commission on the Future of Medicare in the late ‘90s. Prior to public service, Jindal worked for the consulting firm McKinsey & Co.

8. In 2003, Gov. Mike Foster, who was finishing his second consecutive term and therefore could not run again, encouraged Jindal to run for governor. Defeated by Democrat Kathleen Babineaux Blanco, Jindal’s first bid for governor was unsuccessful.

9. In 2004, he sought the congressional seat from Louisiana’s First District. He won with a whopping 78 percent of the vote and was re-elected in 2006 with almost 90 percent.

10. In 2007, Jindal ran for governor again and won. The victory was largely attributed to old-fashioned politicking, which included Jindal “giving testimony” in Pentecostal and Baptist churches in rural and remote sections of Louisiana.

What to do about sovereign wealth funds

Worrying about sovereign wealth funds has become increasingly widespread. The IHT reports:

These secretive wealth funds - investment funds owned by national governments - have been increasingly investing in the West in the past year, often armed with cash from soaring oil prices and trade.

Several funds have participated in big investments in banks like Citigroup and UBS, which were reeling from thre credit crisis. ... But some people have become concerned about the funds’ growing clout, and this could spur protectionism, chilling the climate for foreign investment in the West even as the global economy slows, analysts say. ... The U.S. deputy Treasury secretary, Robert Kimmitt, this year described wealth funds as a force for good, but said that their rapid growth warranted a vigilant stance by the U.S. government to ensure they remain “a positive influence.”

Law professors Ron Gilson and Curtis Milhaupt propose a solution:

Sovereign wealth funds (SWFs) have increased dramatically in size as a result of increased commodity prices and the increase in the foreign currency reserves of Asian trading countries. SWF assets now roughly equal those in hedge and private equity funds combined. This growth, and the shift of SWF investment strategy toward equities and increasingly high profile investments like capital infusions into U.S. financial institutions following the subprime mortgage problem, have generated calls for domestic and international regulation. The U.S. and other western economies already regulate the foreign acquisition of control of domestic corporations. However, acquisitions of significant but non-controlling positions are not regulated. The danger is that new regulation will compromise the beneficial recycling of trade surpluses accomplished by SWF investments.

In this paper, we situate the controversy over SWF investments in the increasing global trend toward direct governmental involvement in corporate activity, a phenomenon we label the New Merchantilism. We explain why increased transparency of SWF investment portfolios and strategy, the most commonly advanced policy recommendation, does not respond to the chief concern that SWF investments have engendered. We offer a regulatory minimalist response to fears that SWFs will make portfolio investments for strategic rather than economic reasons. Under our proposal, voting rights of SWF equity investments in U.S. corporations would be suspended but reinstated on sale. Thus, SWFs would buy and sell fully voting [shares, while not themselves being able to exercise those votes] rights, thereby assuring that the incentives to make non-strategic investments would be unaffected, while the capacity to exercise influence for strategic motives would be constrained. The paper concludes by assessing the extent to which even a regulatory minimalist response remains both over and under inclusive; however, the limited imprecision does not undermine the effectiveness of the response.