Business and Politics—Should They Be Linked?

By: Dr. Lynn Reaser

As issues such as race discussion and religious freedom have again surfaced, questions regarding the proper role of business in taking strong positions on social and political issues are relevant. How socially/politically active should a corporation be?

Some political activism, such as that leading to a better education system, can yield economic dividends. However, corporate activism may often primarily reflect the chief executive officer’s (CEO’s) political preferences. According to a study done by John C. Coates IV of Harvard Law School, companies that had created political action committees and engaged in other political activities showed an 8% worse performance than other firms after the 2008 recession. Activism can frequently distract a company from its strategic focus, according to the study, and lead to poor investment choices.

A company is accountable to its employees, its customers, and its shareholders. This does not mean that it should ignore its responsibilities to the community or its obligation to safeguard the environment. It does mean that considerable care must be taken to avoid pursuing paths that may not be in the best interests of its constituents.


Providing More Affordable Housing for Californians

By: Dr. Lynn Reaser

Assembly Speaker Toni Atkins has proposed legislation to help pay for more affordable housing in California. Her assembly bill would imaffordable-housing-crisispose a fee on property transfers to raise the state’s low-income housing tax credit by $300 million.

Housing affordability remains a major problem throughout California, especially for low-income households. In the City of San Diego, there are currently 50,000 on the waiting list for 15,000 vouchers for low-income housing. California has 12% of the nation’s population but 20% of its homeless. Many low-income workers cannot find housing near their place of work.

The proposed tax increase would exempt sales of residential and commercial properties. It would affect primarily refinancing and a multitude of smaller deed recordings, with fees capped at $225 per transaction. The funds raised would help offset the approximately $1 billion previously provided by redevelopment agencies that have now been eliminated.

More attention now needs to be directed to reducing the cost of housing, a significant part of which is due to the burden of regulation. Special attention should be given to cutting the long approval process often involved in the development phase.

Image Credit:

The Threat of a Long-Term Drought to San Diego

By: Dr. Lynn Reaser

As rainfall totals continue to lag behind normal, fears are mounting that we could face a prolonged period of drought in San Diego County. This could have deep and widespread repercussions for our economy.

Unless relief comes with more rainfall and water, changes will be necessary both on the supply and demand sides. San Diego needs to diversify its supply sources from its current dependence on water imported from northern California and the Colorado River. Those sources now account for three-fourths of our supply. Recycled water, currently at only 4% of our water portfolio, would appear to be particularly promising.

On the demand side, we have seen per capita water consumption fall from about 200 gallons per day to about 150 gallons over the last decade, but more needs to be done. Pricing needs to be rationalized to encourage more efficiency. Below market pricing has encouraged more consumption than is sustainable in agriculture, industry, recreation, and by households. Phasing in change over time can avoid massive economic disruptions, but change will be necessary.

Image Credit:

Economics and a New Charger Stadium

By: Dr. Lynn Reaser

The debate over the Chargers and a new stadium is again in the headlines. While we all love the Chargers, does a new stadium meet the business and economics test? It would appear that the answer is “no.”

If the economics argument was compelling, the Chargers organization or private investors would have already provided the necessary funds to build a new stadium. If public funds are necessary, the return on such an investment is still in question. This is especially true since the alternative use of taxpayer dollars in terms of roads, water systems, police protection, and other public projects and services must be considered. An economics analysis must also consider risk. Football could lose much of its allure if concussion concerns mount and the Chargers might still leave down the road, leaving San Diego with not a glistening stadium, but just a white elephant.

Bigger Raises—Is It Time?

By: Dr. Lynn Reaser

As job growth has picked up and the unemployment rate has fallen, the missing link in the labor market has involved wages. For the past five years, they have been rising about 2.0% per year. While the drop in oil prices has helped pull inflation down to about half that level, workers and the Federal Reserve have been frustrated that larger pay hikes have not yet appeared.

Over the next year, some pickup in wage growth should take place. As the jobless rate moves towards 5.0%, competition for key workers is likely to heat up. Technology firms are already seeing that pressure. On average, wages are likely to be up about 2.5% by year-end.

Each firm, however, will need to assess its own situation in terms of productivity gains, employee morale, and its ongoing financial stability. As a result, all employees might not see the gains they would like, but most should find themselves better off over the next two years.

Image Credit: Agence France-Presse/Getty Images

Sequestration—Ending a Bad Experiment

By: Dr. Lynn Reaser

When the congressional “super committee” could not agree to budget cuts in 2011, “sequestration,” requiring equal cuts in defense and other discretionary spending, were set in place. They were painful and implemented for only one year before Congress voted for a two-year respite.

Sequestration will now return on October 1 this year unless the President and Congress act. The White House has called for continued relief with a plan to close tax “loopholes,” improve the efficiency of government programs, and achieve faster economic growth. While this might be appealing at first glance, a deeper probe indicates that the President’s proposed methods are both unrealistic and unwise.

Slowing the growth of the debt over the next decade will require curbing the rise of social security, Medicare, and other health care programs. The problem cannot be solved by slashing defense and other discretionary spending or by further raising the taxes on the wealthy. The President’s budget assumes that a slowing of health care costs and faster economic growth caused by immigration reform will solve much of the problem. Both are questionable assumptions. Tax hikes, meanwhile, will curb the economy’s growth potential.

The good news is that sequestration might not return on October 1. The bad news is that we are likely to just defer addressing the debt’s growth until another day.

Employer Mandates—Telling Companies What They Should Do

By: Dr. Lynn Reaser

As unemployment falls and labor markets continue to heal, Government is again stepping up to the plate to try to help employees even more.  California now requires that all firms provide three days of sick time and President Obama has proposed that seven days be required.  In the City of San Diego, voters will be asked to weigh in on the issue of mandating five paid sick days per year in 2016

First the facts. More than three-fifths of private sector employees receive paid sick days, which typically number about eight per year. The proportion for full-time employees is about 75%. Most companies treat their employees well and fairly, recognizing that their people are their most valuable asset.

Compensation packages will move to the mix of wages and various benefits that is optimal and economically feasible. Governments should not be so arrogant to believe that they know better.

P.S. Employees should not abuse their sick day privileges by treating them as another vacation day. That is theft from both their employer and their associates