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Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts

Saturday, January 4, 2014

Not everything in life is muddled and befuddled

Ben Southwood left the following comment worth remarking upon in the thread on a previous post concerning feminism's War on Biology:
Mainly interesting and reasonably plausible, but the bit about female entry into the labour market and wages is almost certainly untrue, something I'd bet practically any economist could agree on. When a woman enters the labour force she adds to demand as well as supply. When this sort of argument comes from someone with other reasons they don't like women working, then it sounds very much like motivated reasoning.
Perhaps, though it seems nearly every economist professes to believe that immigration exerts no meaningful downward pressure on wages, too, and I'm unconvinced on that front as well!

In fact, I think there is a lot of overlap in the two fallacies. Adding wage earners will increase total consumer spending, but that's not what anyone outside of GMU cares about. The important issue is whether or not it raises per capita spending power. Annexing Mexico tomorrow would increase the United States' GDP by 8% in one fell swoop, but we'd be a poorer country as a consequence.

If the new wage earners earn more than the existing wage earners, then it is possible (though not necessarily the case) that income per wage earner will increase overall, but if the new wage earners earn less than the existing wage earners--as is overwhelming the case in the US with both women and immigrants--per capita wages are going to stagnate or even decline despite improvements in productivity. Additionally, a growing labor pool and the subsequent increase in competition among wage earners that larger labor pool brings with it, allows those who own the means of production to reap more benefit from productivity gains than those who work for them as employees do. That's been the story for decades now.

Women continue to earn less than men not because of irrational discrimination in the workplace--if that was the case, you or I could get rich tomorrow by starting a firm in an industry where such irrational discrimination is commonplace, overwhelmingly hire the qualified, underpaid women in the field who are getting snubbed, and watch the profits flow in... Okay, that's hyperbolic and oversimplified, and there is of course some level of irrationality in virtually all human affairs, but this sort of irrational discrimination is isolated and marginal in the contemporary scheme of things.

Instead, it is because they are less interested in and less devoted to their careers than men are for obvious biological and cultural reasons--reasons that the vast majority of people instinctively understand. Additionally, they aren't as adept men in industries that pay exceptionally well--primarily those requiring lots of high level math, like engineering and physics.

Parenthetically, immigrants in the US earn less than natives because they tend to be less educated, less intelligent, and less entrepreneurial than indigenous Americans are, and the gap doesn't close even after multiple generations of their descendants have been in the country.

Sunday, September 29, 2013

Cartels vs. Insider Trading

Steve Sailer writes:
I'm interested in the topic of cartels and price-fixing, in large part because nobody else seems to be interested in them, which reflects a massive change from as recently as the 1970s.
As an early millennial, I remember hearing a bit about the topics in a college macroeconomics class, but that was about it. I do recall a seemingly inordinate amount of focus on insider trading. The latter is a sexier subject because of the soap opera intrigue and bigger-they-are, harder-they-fall story lines it presents media types with, but in terms of inefficiencies and dead weight losses to the larger economy, the former must be more substantial by orders of magnitude.

Google's Ngram viewer, which tracks incidents of words, terms, and phrases in books over time, reveals:


Steve nails it (surprise, surprise).

Anecdotally but germanely, I've come across two separate stories today on Mark Cuban's alleged insider trading a decade ago that is said to have netted him $750,000, but this is the first I've heard of an auto-parts price rigging operation with a price tag at least 1,000 times as large.

Saturday, September 14, 2013

Randall Parker points to a CNBC article focused on unfunded pension liabilities at the state level that is packed with quite a bit of data on the financial condition of the fifty. I've been after something like this for several years.

There are multiple ways to view the numbers, but probably the most broadly informative involves adding together current state debt and unfunded pension liabilities going forward and then looking at these on a per capita basis. That is, determine the dollars each resident of a state is putatively on the hook for at present to pay what the state currently owes and will expect to additionally owe beyond its projected funds on hand. Of course, debt can be defaulted on and promises reneged--realistically, that, in tandem with some combination of currency devaluation, is my best guess for how this unsustainable situation eventually resolves itself, with varying levels of disruption at varying times in the future.

The following table shows per capita debt-plus-future-obligations ("debt" going forward), with the financially healthiest states at the top of the list and the least solvent states at the bottom:

StatePerCap$
1. South Dakota513
2. Tennessee847
3. Idaho969
4. Nebraska1,046
5. North Carolina1,138
6. Texas1,514
7. Wyoming1,982
8. Wisconsin1,982
9. Iowa2,296
10. Florida2,320
11. Missouri2,426
12. Georgia2,436
13. Vermont2,688
14. Arkansas2,695
15. Indiana2,707
16. North Dakota2,726
17. Maine2,756
18. Utah2,785
19. Arizona2,939
20. Washington2,961
21. Oklahoma3,237
22. Delaware3,265
23. South Carolina3,487
24. Michigan3,535
25. New York3,548
26. Minnesota3,606
27. Alabama3,746
28. New Hampshire3,762
29. Virginia4,035
30. Montana4,042
31. West Virginia4,223
32. Pennsylvania4,284
33. Kansas4,402
34. Oregon4,611
35. Nevada4,801
36. Maryland4,864
37. Colorado4,996
38. Louisiana5,205
39. California5,650
40. Mississippi5,882
41. Rhode Island5,901
42. New Mexico6,554
43. Ohio7,025
44. Kentucky7,322
45. Massachusetts7,455
46. New Jersey8,480
47. Illinois9,056
48. Hawaii9,878
49. Connecticut10,776
50. Alaska12,363

A visualization of the data with figures is available here, and is reproduced without interaction below:


No blatant trends jump out. Sparsely populated, mostly white flyover states in close proximity of Canada tend to be in the best shape, with the major exception of Alaska. Thank goodness for that petroleum dividend--suspend payouts for a decade or so and the problem is solved!

Illinois, the nation's most demographically representative state, similarly serves as one of the states that comes closest to serving as a microcosm for the nation as a whole, though even it comes up well short. While Illinois' residents are looking at a little north of $9,000 in debt peonage per, these state-level obligations pale in comparison to the debts and empty promises of the federal government, for which debt alone is currently running over $50,000 per person.

The article opens by attributing Detroit's municipal bankruptcy to "underfunded retirement promises to public sector workers". Tautologically so, but no doubt haters have made attributions of their own that are hatefully racist and racially hateful. The correlation between a state's Ice People (non-Hispanic white + Asian) population percentage and its debt is an inverse .21. It runs in the direction haters expect it to run in, though it's a tepid relationship.

How about something to Sean Hannity's taste? The correlation between debt and Obama's share of the 2012 presidential vote is a more robust .39. Blue states really do tend to be less fiscally responsible than red states even though blue states generally have more human capital to work with.

Speaking of human capital, the inverse correlation between debt and estimated state IQ is a statistically insignificant .06. The relationship between median age and debt is more feeble still, at .03. It might be nice to think that the states that have the most time to formulate viable solutions before the bills start coming due en masse are the ones who need that time the most, but alas it isn't so.

In addition to having, on average, modestly less intelligent populations than blue states, red states also tend to be fatter. In light (heh) of the above, then, it comes as little surprise that debt and obesity inversely correlate at .23. In this case, it looks like it's possible to have your cake and eat it, too--those public service health campaigns in Connecticut aren't doing the nutmeg state's bottom line any good!

Parenthetically, as a supporter of full Puerto Rican independence, I can now point to the fact that the island's per capita debt, at $12,487, is higher than that of any state in the union. While Puerto Ricans may not be as affluent as Americans, they're even better at spending money they don't have than we are. Really, what do they need us for?

Saturday, February 9, 2013

The service economy

I remember hearing in junior high and high school a fair amount about how the US had become a "service economy" and that the provision of services had replaced the provision of goods as the marker of a country's affluence; in college, I recall a handful of passing references being made; contemporaneously, I can't think of a time in the last five years that I've heard a reference to the service economy being made. From Google's Ngram viewer, the percentage of books published in the US that have contained the phrase, from 1960 through 2008:


I fear that professing to your neighbor's kids about Mexican feminism so that he'll do your taxes so you can use your refund to have your other neighbor adjust your lower spine so that you're comfortable when you sit down with your financial adviser to discuss your targeted retirement account isn't as surefire a way to national riches as we once assumed it was.

Friday, December 2, 2011

Locke Cole's proviso

NES and SNES era rpgs are close to my heart, an inseparable part of my childhood. Hey, we're talking about the early nineties here, so I could've been doing a lot worse. As I'm always happy to point out, these games are the reason why I knew, as a third grader, what the words "zenith", "troglodyte", and "mercurial" meant.

While I was going through high school and college, always working, playing sports, and maintaining multiple committed long-term relationships (not simultaneously--I'm not that alpha!), I went on an extended hiatus from gaming, but a few years ago as I settled into the same kind of lifestyle that sent Guile Frost off on a hunt for M. Bison's head, it was easier to make time to indulge myself again.

Still, as precocious as I like to fancy myself having been as a stripling, I missed a lot. Several months ago, I played through Final Fantasy VI on Game Cube using the GBA accessory. That Locke personifies a caricature of what Robert Nozick coined as the Lockean Proviso (I say as a caricature because he does not do so in an affirming way, as the things Locke seeks out are not in abundance and his gain is some other explorer's potential loss) is one of the many things that flew right over my head when I was younger. As defined in the Second Treatise on Government:
Nor was this appropriation of any parcel of land, by improving it, any prejudice to any other man, since there was still enough and as good left, and more than the yet unprovided could use. So that, in effect, there was never the less left for others because of his enclosure for himself. For he that leaves as much as another can make use of does as good as take nothing at all. Nobody could think himself injured by the drinking of another man, though he took a good draught, who had a whole river of the same water left him to quench his thirst. And the case of land and water, where there is enough of both, is perfectly the same.
The accusation, first stated indirectly by way of the fascistic Empire he is resisting through Terra, that Locke is a thief and his riposte that he is a treasure hunter is a recurring theme in the game. Occupationally, though, what Locke sets out to find lacks ownership (at least presently--some of the things are relics and other treasures lost to civilization), so it's not as though he is blatantly stealing property clearly and contractually owned by another entity--which is exactly why the proviso is relevant, since it presents a way of evaluating how private ownership should be determined. And the work of a treasure hunter who is motivated by gain does not satisfy the proviso, even when that gain is not of the vain material variety, but is instead Lazarusian in nature.

His work does, however, assist in the ultimate downfall of the Empire and eventually of Kefka. So while Locke is a humorous caricature of one of John Locke's central ideas on the moral distribution of property, he's still a sympathetic protagonist.

Taking it a step further and making editorial presumptions of Kitase and crew, one might assert that Locke serves as a vehicle for the argument that while the ambition for wealth is inherently selfish--and not the unadulterated force for the common good that is impervious to being impugned as the most stringent libertarians might argue that it is--it is, on net, a positive force for humanity (while the ambition for power, personified by Gestahl and to a more perverted extent, Kefka, is not).

Tuesday, October 25, 2011

A few years ago, I became frustrated when unable to find a table of national governmental expenditures as a percentage of GDP by country. So, using data from the invaluable CIA World Factbook, I created one.

It's gathered some dust, and an update is in line, especially since something or other having to do with the global economy occurred between then and 2010, from which the most recent data come. An inquiry from an author (who I won't name but who is certainly welcome to be made known in the comments if he so desires) searching for more recent numbers served as the impetus to actually get it done. Getting out in front of the inevitable objections, a disclaimer: These data do not include all government spending and state, local, and provincial government outlays of course differ from country to country. For consistency, all figures are in exchange rate terms:

Country
GE as GDP
1. Iraq
88.1%
2. Cuba
86.5%
3. Ireland
67.0%
4. Lesotho
65.5%
5. Denmark
58.4%
6. France
55.7%
7. Finland
53.6%
8. Sweden
53.4%
9. Belgium
53.0%
10. Austria
52.9%
11. Libya
52.2%
12. Netherlands
51.3%
13. Italy
51.2%
14. United Kingdom
50.9%
15. Portugal
50.6%
16. Iceland
50.1%
17. Bosnia and Herzegovina
49.8%
18. Hungary
49.3%
19. Greece
49.3%
20. Serbia
49.3%
21. Equatorial Guinea
47.3%
22. Cyprus
46.6%
23. Germany
46.5%
24. Norway
46.3%
25. Slovenia
46.3%
26. Belarus
45.1%
27. Spain
44.9%
28. New Zealand
44.4%
29. Cape Verde
43.9%
30. Canada
43.8%
31. Latvia
42.8%
32. Bolivia
42.5%
33. Botswana
42.5%
34. Croatia
42.4%
35. Malta
41.8%
36. Eritrea
41.8%
37. Brunei
41.7%
38. Lithuania
41.4%
39. Luxembourg
41.3%
40. Slovakia
41.0%
41. Moldova
40.8%
42. Japan
40.6%
43. Romania
39.3%
44. Swaziland
38.9%
45. Estonia
38.8%
46. Bulgaria
38.0%
47. Algeria
37.8%
48. Saudi Arabia
37.7%
49. Chad
37.3%
50. Oman
37.2%
51. Macedonia
36.4%
52. Czech Republic
35.8%
53. Australia
35.7%
54. South Africa
35.6%
55. Burundi
35.3%
56. Malawi
35.3%
57. Trinidad and Tobago
35.0%
58. Georgia
34.8%
59. Switzerland
34.7%
60. Angola
34.6%
61. Ukraine
34.3%
62. Vietnam
33.7%
63. Mongolia
33.1%
64. Nicaragua
32.9%
65. Kuwait
32.9%
66. Namibia
32.6%
67. Jamaica
32.6%
68. Israel
32.4%
69. Kyrgyzstan
32.3%
70. Uzbekistan
32.2%
71. Seychelles
31.9%
72. Ecuador
30.9%
73. Papua New Guinea
30.8%
74. Aruba
30.7%
75. Uruguay
30.5%
76. Mozambique
30.2%
77. Zimbabwe
30.1%
78. Egypt
29.8%
79. Guyana
29.7%
80. Albania
29.6%
81. Jordan
29.4%
82. Nepal
29.0%
83. Lebanon
28.8%
84. Belize
28.7%
85. Colombia
28.3%
86. Kenya
28.1%
87. Gabon
27.8%
88. Panama
27.6%
89. Burkina Faso
27.5%
90. British Virgin Islands
27.4%
91. Venezuela
27.4%
92. Brazil
27.4%
93. Senegal
27.3%
94. Yemen
27.2%
95. Bahrain
27.0%
96. Azerbaijan
26.9%
97. Armenia
26.5%
98. Malaysia
26.5%
99. Turkey
26.3%
100. Morocco
26.3%
101. Tunisia
26.3%
102. Rwanda
26.2%
103. Tajikistan
26.1%
104. Ghana
25.9%
105. Tanzania
25.5%
106. Mauritius
25.5%
107. Mexico
25.4%
108. Syria
25.2%
109. Iran
25.2%
110. Sierra Leone
24.5%
111. Qatar
24.4%
112. Kazakhstan
23.7%
113. United States
23.6%
114. Argentina
23.5%
115. Russia
23.3%
116. Zambia
23.2%
117. China
23.0%
118. Sri Lanka
22.8%
119. Chile
22.8%
120. Guinea
22.6%
121. El Salvador
22.5%
122. Honduras
22.2%
123. Togo
22.1%
124. South Korea
22.1%
125. Cote d'Ivoire
22.0%
126. Haiti
21.6%
127. Benin
21.3%
128. Afghanistan
21.1%
129. Laos
21.1%
130. United Arab Emirates
21.0%
131. Poland
20.9%
132. Republic of the Congo
20.6%
133. Pakistan
20.4%
134. Costa Rica
19.8%
135. Cameroon
19.7%
136. Sudan
19.5%
137. Thailand
19.5%
138. Peru
19.5%
139. Taiwan
19.0%
140. Gambia
18.8%
141. Indonesia
18.8%
142. Cambodia
18.6%
143. Philippines
17.9%
144. India
17.5%
145. Paraguay
17.4%
146. Hong Kong
17.3%
147. Bahamas
17.2%
148. Uganda
17.2%
149. Ethiopia
16.9%
150. Central African Republic
16.5%
151. Dominican Republic
16.5%
152. Madagascar
16.2%
153. Nigeria
15.5%
154. Bangladesh
15.1%
155. Singapore
14.5%
156. Guatemala
14.5%
157. Turkmenistan
9.3%

To view a visual representation, click here.

As the Iraq war finally draws to a close, at least we were able to transfer one tenet of contemporary Western democracies in a recognizable form to Baghdad. What's that? Isonomy? Respect for dissenting viewpoints? Individual liberty? No, no, no, Don Quixote. It's big government, of course!

Outside of a few paradises like Cuba, Western Europe dominates the top spots. The US figure, in comparison, is a bit of an apples-to-oranges one, as the table is, as mentioned previously, constructed on central (that is, federal) governmental expenditures and does not directly include the spending by local, state, or provincial governments. Around 40% of government spending in the US is doled out through state and local governments, a proportion higher than just about anywhere else in the world. Consequently, the US ratio appears deceptively small.

Still, if non-federal spending is included, the US is neck and neck with Japan, well below the bulk of the rest of the Western world. As ubiquitous as government seems to be stateside, its presence is relatively small compared to Europe.

Parenthetically, Switzerland (for which the CIA factbook includes cantonal and municipal spending in addition to federal spending) , a favorite of the American alternative right, stands apart from the rest of the Old Continent. In so many ways, this beautiful Alpine country instills in pessimistic conservatives a hope for what might yet be.

As a Radio Derb votary, I've long wondered why Turkmenistan is singled out as recipient of so much love on the weekly broadcast. To an ignorant yankee like myself, it's scarcely distinguishable from the rest of the crapistans. I need wonder no longer. The Derb may claim that the president's name is the source of affection, but the table above reveals the truth of the matter!

The relative paucity of government spending in affluent East Asian nations like Japan, South Korea, Singapore, and even officially communist China is to some extent a consequence of the absence of generous government-provided welfare systems in these places, with pensions, medical care, and the like mostly covered by employers rather than by the state, as tends to be the case in Western Europe.

There is a statistically significant but modestly positive correlation (.22, p = .01) between a country's per capita GDP and that country's amount of government spending as a share of its GDP. Correlation is not necessarily causation, of course, but with otherwise backwards countries that have enormous resource wealth (ie, Botswana and Saudi Arabia) tending towards the leviathan end of the governmental expenditures scale, to the extent that the causation arrow exists, it probably points from high GDP towards prodigious government spending rather than the other way around.

On its face, there doesn't appear to be much here that validates the libertarian view that minimizing the size of the federal government, and avoiding the consequent economic distortions its continued growth will otherwise cause, should be the exclusive goal of a society wanting economic prosperity and an overall improved quality of life. Ceteris paribus it's relevant, perhaps (I certainly think it is), but there are clearly a host of other demographic and cultural variables that are of greater importance. Who would rather operate a business--or live--in Nigeria instead of in Denmark?

Wednesday, June 1, 2011

Logistics of disaster

As Joplin is only a two hour drive south of Kansas City, the local media have been filled with solicitations for donations of food, water, and other basic necessities to be sent to the devastated town. As a Joplin native, they certainly hit home for me.

Yet when these calls for things to be gathered inevitably follow a natural disaster of this magnitude, I can't help but think of the enormous deadweight loss that results as a consequence of the donation process.

First, the typical scenario: Sydney comes home from school telling mom and dad that the elementary will be collecting relief items in the cafeteria to be sent to Joplin over the weekend. The family buys a couple cases of water and some pillows to contribute. Sydney, who normally rides the bus, is taken the following day by her mom so she is able to bring the stuff to school. The janitorial staff clears out space in the cafeteria for all the items that are gathered along with local volunteers who help coordinate the drive and load and unload the stuff, and a few parents with F150s offer to either drive the stuff directly to Joplin (depending on proximity), or to a location in their city to be loaded on semi-trucks that will freight them overland to the Red Cross on-site makeshift disaster relief distribution center.

Now, an alternative scenario: Sydney comes home from school telling mom and dad that the elementary will be collecting WalMart and CVS gift cards to send to the people of Joplin tomorrow via airmail (or, even less expensively and more quickly, via e-cards). The family goes to the front of said retailer or to their home computer in the den to purchase the gift cards. The school secretary collects them the following morning and sends them off with the USPS that afternoon to the same Red Cross center in Joplin.

The typical scenario is slower (the stuff has to be gathered first at homes then at the school and then at some central location in the sending city before finally hauled off to the ravaged city), more costly (WalMart trucks are moving the stuff to Kansas City for it to be moved by others to Joplin, instead of just moving it to Joplin in the first place) far more time-intensive for the givers (the family has to do the actual shopping for things they assume the ultimate recipients need, and then get that stuff to the school) and provides less utility for the victims (who may get four cases of water but no toothpaste, etc) than the alternative scenario. In short, WalMart's logistical operation is far more efficient than a haphazard group of well-intentioned students, parents, and teachers are.

Yes, the WalMart on Rangeline road was completely destroyed, but a town of 50,000 supports more than one Supercenter, the other being on 7th street on the north side of town, which was spared by the EF-5. And if a catastrophe wipes out a town's entire retail establishment, the situation becomes one of evacuation, not of recovery and rebuilding--one where former residents are immediately being moved to nearby towns (that have WalMarts) anyway.

People involved in charitable operations will tell you, to varying degrees, that giving is as much about the giver as it is about the recipient (and if you're a parent who has footed Santa Claus' bill before, you are already aware of this). Humans aren't entirely rational creatures, and there is certainly some truth to the objection that the typical scenario makes the givers feel like they're volunteering more than the alternative scenario does. And, in terms of the personal sacrifices made, it's true. But the benefits from the extra cost and effort accrue entirely to the givers, not to the victims.

There is also the practical question of how to persuade people to favor the alternative scenario. It's not politically feasible for WalMart to encourage people to buy their gift cards and send them to Joplin, as they'll be accused of trying to profit from the devastation. Of course, the givers are buying the same items at their local WalMarts as the victims would be buying from the WalMart on 7th street, so in reality it's a wash, but that's not how it will be interpreted. Parenethetically, WalMart and Home Depot have each pledged over $1 million in donations for relief efforts, but publicizing as much is perceived as being in poor taste.

In fact, from WalMart's perspective, there is no incentive (nor disincentive) for the giftcard method. It's organizations like the Red Cross (in addition to those who donate, although their generosity is reflexive--they are not involved in relief efforts frequently to really think about the process in a systematic way) that have the greatest incentive to receive money and money substitutes instead of the physical items that money would buy. Indeed, that is what such organizations tend to emphasize, though perhaps not as vociferously as they should.

Saturday, April 30, 2011

The OECD report that made it into news cycles earlier this week for having discovered that children in the US are more likely to live in single parent households than children in other developed countries grabbed my attention for illustrating why ignoring racial realities and instead relying only on culture (or 'propositionalism') has significantly obfuscatory policy implications. The AP story reads:
Experts point to a variety of factors to explain the high U.S. figure, including a cultural shift toward greater acceptance of single-parent child rearing. The U.S. also lacks policies to help support families, including childcare at work and national paid maternity leave, which are commonplace in other countries.
The logic of the second sentence seems backwards to me--shouldn't a lack of childcare and paid maternity leave discourage single people from having children more than it should discourage married people from doing so? In the latter's case, there is potentially already a stay at home option, with the on site childcare being a nice fringe benefit but not a necessity. In the case of the single person, it probably means private childcare, which makes low-end employment barely economically viable.

That aside, the point is to highlight the fallacy of identifying the US' single parent rate as higher than in other wealthy countries and then, in a robotic fashion, proceed on to suggestions that the US adopt the policies x, y, and z that distinguish these countries from the US. This almost always works to the detriment of those in the US who are opposed to the expansion of the welfare state, because our uniquely multiracial society means Americans as a whole consistently underperform residents of other Western countries on a slew of social indicators. Why? Because race matters. It matters more than the availability of paid paternity or maternity leave does.

Of the 27 European and European-descended countries (plus Japan and South Korea) listed, the percentage of children under the age of 18 living in single parent households has the dubious distinction of being the very worst. But if NAMs are removed from the equation*, the US jumps ahead of Sweden, Denmark, Great Britain, Estonia, Canada, New Zealand, and Ireland. Still near the back of the pack, but no longer sticking out like a sore thumb as the conspicuous worst.

Parenthetically, the data the OECD report draws from are copious but require a sea gate oracle to filter through. In getting to what I was after, a came across some other interesting figures, including the 2009 rates on female labor force participation and total fertility. Might there be an inverse relationship there, with more women running the rat race corresponding to fewer of them making babies?

Not really. The correlation is inverse, but it's weak (.18) and statistically insignificant (p = .26). Eyeballing the numbers, the high female participation rates and high TFRs of the island nations--Great Britain, Iceland, and New Zealand--stand out as especially bucking the weak trend. Removing them from the regression ups the inverse correlation to .28 (p = .10).

Another should make Walter Williams smile. The following table shows the percentage of impoverished married couples with children in which both spouses are working, by country:

Country
%
1. Norway
0.16
2. Denmark
0.57
3. Germany
0.61
4. Czech Republic
0.74
5. Australia
0.85
6. New Zealand
1.00
7. Great Britain
1.03
8. Finland
1.14
9. Sweden
1.41
10. Slovak Republic
1.83
11. The Netherlands
1.84
12. Ireland
1.85
13. Slovenia
2.06
14. Belgium
2.52
15. Italy
2.70
16. Austria
2.94
17. France
3.00
18. Hungary
3.09
19. Estonia
3.12
20. Israel
3.58
21. Greece
4.04
22. Canada
4.11
23. Iceland
4.13
24. Portugal
4.80
25. Spain
5.10
26. South Korea
5.30
26. Luxembourg
5.30
28. Poland
5.72
29. Chile
5.78
30. United States
6.55
31. Japan
9.54
32. Mexico
11.22
33. Russia
15.00
34. Turkey
20.21

The keys to staying out of poverty in the first world are to marry and hold down a job. If these two things are present, for more than 19 out of 20 parents in the developed world, poverty is not. This gets to the heart of Half Sigma's assertion that one of the best things public schools can do for children from working and underclass backgrounds is to try and instill middle class values in them. Easier said than done, of course, but more worthy than the pie in the sky aspirations of legislation like No Child Left Behind.

* The report does not break down national statistics by race, so I used data from the Annie E. Casey Foundation that does and applied it to the OECD figures. The foundation's numbers are a bit higher across the board as it includes the children of unmarried women who are cohabiting as being in single parent households, while the OECD does not (more usefully, in my view).

Sunday, April 17, 2011

Rationed by income

Maryland Congressman Chris Van Hollen on the Paul Ryan budget plan:
This Republican Plan simply rations health care and choice of doctor by income.
What bizarre rhetoric for a US politician in one of the country's major political parties to use. Everything we buy that is not subject to government price controls, directly or indirectly, is "rationed" by income. In the vernacular, this simply means the thing in question has a price to be paid by the person who wants to consume it, as everything must in a free market. The car, the house, the soap, and the sandwich you buy are all rationed by income, or more precisely, by money. It's basic supply and demand, the most rudimentary concept in economics.

I don't follow mainstream political punditry very closely, though I've not heard it being seized on by the popular right. Maybe the Rasmussen poll from a couple of years ago finding only a very slight majority of the public saying capitalism is a better economic system than socialism means it's rhetorically trickier than I'd imagine it to be, and maybe public sentiment is in favor of shielding health care costs entirely from the individual and collectivizing them in their entirety, but Van Hollen's statement reveals a socialistic mindset if ever one did--the idea that if an individual must pay the market rate for something, that thing is being "rationed", with all the negative connotations that go along with such a word choice in contemporary America.

Sunday, February 13, 2011

Calling BS on Timothy Geithner

A few weeks ago, Timothy Geithner was interviewed by NPR's Robert Siegel ahead of a "working dinner" between the US Treasury Secretary and the Chinese vice premier concerning currency policies and intellectual property. In response to a question from Siegel about how responsible the putative undervaluation of the yuan is for the ongoing US trade deficit with China, Geithner offered this response:
Well, the big reason we have a trade imbalance in China is because we're a very large economy. We're about three times as large as China. We're about six times richer than China. So for those reasons, we buy more goods from China than we export to China.
That should immediately set off your BS detector, as it did mine. Yes, our economy is larger than China's, but our economy is larger than any other nation's economy is as well. Relative to the rest of the world, China's economy is enormous.

If the size of the US' economy relative to the size of the economy of the country in question influenced whether or not the US ran a trade surplus or a trade deficit with said country in the way Geithner suggests, if we're running trade surpluses with anybody, it should be with China, the world's second largest economy as measured by GDP. Conversely, we should, using the same logic, be running deficits with--arbitrarily using the small countries beginning with "A"--Albania, Antigua and Barbuda, Armenia, and Aruba. In reality, we are running surpluses with all of them.

Including all countries with which the US did at least $50 million in trade during 2010, I ran a regression using US trade balances by country and national GDP. The correlation is a very robust inverse .83 (p = 0). That is, the US runs deficits all over the place with large (and generally, though not necessarily, advanced) economies while running surpluses with smaller (and again, generally less advanced) ones. The reality is exactly the opposite of what Geithner says.

What about Americans being more affluent than the Chinese are? Is Geithner correct in asserting that our relative wealth is a big reason for why we're running a perpetual trade deficit with China? Do we tend to run deficits with countries where the populations are poor and surpluses with countries where the populations are rich? No. Correlating US trade balances and purchasing power parity by country reveals no correlation at all between the two (r = .03). We run deficits with many poor countries like Sri Lanka and Ecuador and many wealthy countries like Germany and Japan. And we run surpluses with several poor (Peru, Ghana) and wealthy (the Netherlands, Australia) countries alike.

I'm certainly not an expert on trade balances nor their implications, in either an abstract economic sense or from the perspective of an American patriot, but it's depressingly humorous to me that a top government official who should be an expert on both accounts is able to get away with making assertions that are so blatantly fallacious.

Wednesday, November 24, 2010

In a recent Econ Talk podcast, host Russ Roberts and then later Don Boudreaux both explain how trade deficits are not worrisome, that globally there must be a net balance in trade surpluses and deficits, and that anyway, giving away paper to get stuff doesn't seem like such a bad deal. Boudreaux's take is more sober, as he specifies that when the paper exchanged for goods goes bad (the currency loses value, the debt is defaulted on, the market value of the company for which the equity represents plummets, etc), things really work out well for the one running the deficit, whereas the assets exchanged appreciating rapidly in value is not so rosy for the country running the deficit. Roberts, in contrast, seems stuck on pieces of paper for stuff is a great deal!

My method for thinking about economic issues is surely risible in the eyes of professional economists who understand economics infinitely better than I do, but as a simpleton, I'm stuck with my method. That method is to analogize whatever is in question to myself at the individual level. Attempting to stimulate the economy through massive spending after people have lost trillions in wealth therefore strikes me as absurd, just as going on a shopping binge after losing my job would be.

Similarly, applying for and maxing out every credit card I can get my hands on seems like a disastrously profligate idea. But like the US running a trade deficit with China, if all I have to do is swipe these pieces of plastic--don't even have to give away paper!--in return for food to eat, stuff at Home Depot to improve my house, and all kinds of other things to play with, joke is on the fools who are giving up valuable stuff for nothing but the opportunity to hold my credit card for a few seconds! Doubly so when I am unable (or refuse) to pay what they say I owe and declare bankruptcy to get them off my back.

I'm sure there is a trade-deficits-don't-matter answer ready for deployment in response to this, but I never hear it from economists like Roberts or Boudreaux. They might respond that the flip side of a trade deficit is a capital surplus, but that works in the credit card analogy as well--whatever I'm buying (or at least many of the things I buy) are capital goods, obvious cases being the purchase of a car or materials to build a fence on my property. Thus I'm enjoying my own capital surplus while I run up my trade deficit.

So is going into credit card debt as long as banks will keep issuing you credit a good idea? Is running a net trade deficit year after year a similarly good idea? If the answer in the case of the former is "no" but in the latter is "yes", why? Simpletons want to know.

Sunday, October 24, 2010

A few weeks ago, GMU's Ross Roberts hosted colleague Bryan Caplan on EconTalk to refute arguments against open borders. Roberts putatively played devil's advocate, challenging Caplan from a restrictionist's perspective, but both guys are clearly in favor of unfettered immigration into the US (Roberts demonstrates his lack of familiarity with restrictionist thought by being unable to recall the term "coyote" as one that refers to those who assist immigrants illegally entering the country). To the extent that population differences were acknowledged at all, it was only in reference to differences in levels of education and skills.

Population differences in intelligence and personality went unmentioned, referred to only indirectly by Roberts who frames the discussion as one in which arguments against open borders "that have intellectual standing... that are legitimate arguments" will be considered. Presumably those un-intellectual, illegitimate arguments made by HBDers will not be. With human biodiversity preemptively exiled, the hour-plus long discussion suffers from ignoring the elephant in the room, and consequently shouldn't be taken too seriously by realists.

I do not materially change the excerpts in any way, although I did try to clean them up a bit grammatically, as verbal exchanges never conform exactly to written standards. There are still a few instances where [sic] should probably be employed, but that would merely be distracting without adding any value to the post.

Caplan starts by employing a thought experiment:
Suppose that moved by the plight of Haitians after the earthquake, you decide to take a trip down there to engage in some relief work. You help out for a few weeks and you're about to go home, when you go up to the desk at the airport and the person behind the counter says, "I'm sorry, you're not authorized to return."

You think that's very strange, so you go and talk to the US representative and he says, "That's right, you can't come back."

You say, "I don't understand. Why not?"

And the representative says, "The United States government does not have to answer questions. We don't give reasons."
Caplan argues that the fact that most Americans would oppose the US government restricting reentry of citizens in this way shows that there is an inherit moral presumption against restricting the movement of all people into the US.

Caplan is acting as the ecumenical humanist here. He is taking for granted that citizenship confers no meaningful distinction from non-citizenship, moral or otherwise. A person, by virtue of being human, deserves the same consideration as any other human. Nationality doesn't matter, ancestry doesn't matter, individual capabilities don't matter, etc. Given this assumption, if the well being of any given individual not currently living in the US but wishing to is the only consideration made, then Caplan's argument makes sense. If the totality of consequences are considered, it's more complicated.

If the well-being of citizens of the US are granted primacy, Caplan's argument is absurd. Consider a similar thought experiment using Caplan's home instead of his home country as the desired destination. To think that he would refuse entry to his son after a day of working at a soup kitchen in downtown Washington DC is appalling. But is it similarly appalling to think he would refuse to let one of those soup kitchen 'clients' take up residency in his guest room? Assuming the place is commodious enough to accommodate more people living in it, why keep out someone who wants to live there and who will be better off in so doing?

The retort that Caplan's house is his private property and he is thus entitled to allow and restrict entry into it is similarly applicable at the national level as well, unless the idea of national sovereignty is deemed illegitimate.

Tweak the thought experiment again, using a business firm as the restricting entity. An employee is not allowed to return to work (ie, is fired). An explanation will be offered, not just for legal reasons, but for practical reasons as well. If the employee receives no explanation, the sentiment of most observers will be one of disapproval at the firm's actions. But if someone solicits employment with the firm and the firm turns him down because it is perceived that he will be a liability rather than an asset to the firm, most observers will understandably claim that there is nothing wrong with the firm acting in this manner, even if being employed by the firm would be a good thing for the aspiring employee.

Does Caplan take issue with this distinction as well? Competition at the individual and company levels are great, but competition at the national level is not? I’d wager that most Americans see their nation as being more analogous to a big family than to a competitive enterprise competing against other countries, but both are accurate to some extent.

Ten minutes in, Roberts has largely ditched his role as an opposing voice. His thought process in determining what constitutes net benefit to the country:
There are subtle differences in the immigration argument. There are some people who say it's okay to let in the "right kind"--which is Borjas' position--he's okay with letting in highly educated workers who supposedly contribute more than they take away, which I don't agree with. I mean, I think they do contribute, but I think [all immigrants] contribute.
So everyone contributes. Presumably he is referring to a net contribution, however exactly that is defined. If every immigrant goes on the asset side of the ledger, then what we need more than anything is simply more people. I say we just annex Mexico! Instantaneously we'll have another 112 million people contributing to this great nation of ours. That’s the ticket!

Caplan continues, making the following assertion:
Immigrants are typically better at what are called "non-language jobs", or jobs that don't require such great knowledge of English. Americans, of course, have an advantage in these kinds of jobs [that require English proficiency].
Uh huh. Moving on. Concerning the effects on real estate, says Caplan:
Immigrants require housing, and when they come here they raise the demand for housing which means that real estate prices increase. And while there are Americans who don't own real estate and don't benefit from it, on average, American real estate is generally owned by Americans.
Bringing as many warm bodies as possible to an area is a great idea. They'll need a place to live, which means the people who already own places to live will see those places appreciate in value. Having those new arrivals earn the money to rent and buy those places to live by building more houses and then taking out loans that'll pay for themselves when the places the loans are going for are lifted up in the rising tide of perennial real estate value appreciation will keep the cycle going, and as long as people keep coming, everyone who is already there will get ever-wealthier in the process. What could possibly go wrong?

If only property values would simply cooperate and increase forever due solely to an increase in population density! This being 2010 rather than 2007, that wish seems hopelessly quixotic, though. In March of last year, I found the correlation between a state's illegal immigrants per capita and its foreclosure rate to be a rigorous .72 (p=0). A state's estimated average IQ, by contrast, was far less related, correlating with the foreclosure rate at .32 (p=.02). If those who come to an area are unable or unwilling to support themselves there over an extended period of time, the temporary spike in property values they cause creates painful distortions (namely property owners believing themselves to be much wealthier than they actually are), as the economic environment of the last couple of years illustrates.

Roberts argues that unfettered unskilled immigration is beneficial because:
A humane policy would be to try to improve the productivity of those high school dropouts we're worried about. ... I don't think people would argue that because labor-saving devices are hard on people who have limited skills, who used to be employed as people who wash dishes or wash clothing, that therefore we shouldn't allow people to create new devices. The argument would be, "Let's encourage people to get those skills", which [increased unskilled immigration] would!
Because the guy who went into construction after high school could have earned a PhD in engineering and designed a device that would've made his efforts obsolete, but he chose not to because the earnings differential between what he makes as a construction worker and what he could've made as an inventor are not wide enough now. But increased illegal immigration will drive down his construction wages and thus send him packing from Missouri to MIT on the double, where every person’s inner genius is brought to light.

This line of reasoning appears to be the same one that leads some libertarians (Caplan among them) to argue that increasing the size of the unskilled, low IQ population is a good idea because in a more intelligent world, somebody still has to pick up trash and sweep parking lots.

In actuality, though, only the conclusions--that unskilled immigration is beneficial--are the same. Roberts argues that the presence of lowly skilled immigrants will push unskilled natives into college, which will give them the intelligence to invent things that will make these immigrants' modest skill sets obsolete. Caplan, in contrast, thinks that the unskilled are still able to create a situation of comparative advantage by specializing in things that people with low IQs are good at (whatever those are, since even in occupations like truck driving, higher intelligence tends to correspond with better, more reliable truckers).

To some extent, Caplan accepts IQ differences, while Roberts bases his assumptions on more education leading to greater intelligence. If the average street sweeper, with an extra eight years of college, has the potential to be a successful chemical engineer, Roberts argument might be convincing. Unfortunately, most people lack the aptitude required to be a chemical engineer. And even if it were true that education raises intelligence, it runs into real-life observations that restricting businesses access to cheap, unskilled labor creates incentives for them to mechanize away from needing that unskilled labor in the first place.

Agriculture is both a relevant and great example of the options businesses have with regards to labor. They may either pursue cheap labor or, if labor becomes prohibitively expensive, will instead try to find technologically-advanced alternatives to that labor. Giving them access to unskilled peasants who can be paid a pittance in cash makes the former option appear far more appealing than it does with a tighter, more demanding labor supply.

Humorously, Roberts and Caplan go on to talk about how immigration likely hurts natives in academia more than it hurts most other Americans. Caplan is for open borders for the common good even at great personal sacrifice, whereas restrictionists are just looking out for number one:
If there is any industry in the United States that currently does face open immigration and full competition from every worker in the world, it's academia. Right now, there is a loophole that basically makes it possible for universities to hire any professor from anywhere on earth, and right now Russ and I are competing with them. ... If foreign-born professors had never been allowed in, I think Russ and I would be at much more highly ranked schools and we would be earning much higher wages. Actually, we are people who are suffering more than almost anyone.
Uh, so logically extending the argument Roberts made previously about unskilled immigration prodding natives into pursuing more education, this means increasing immigration among the highly skilled will cause more natives to forego college and drop out of high school, as competition with foreigners at the high end will tend to lower wages, which is exactly the opposite of what Roberts and Caplan would like to see happen! Being aware of individual differences in intelligence and other work-related capabilities, this side of Roberts argument (that he doesn't actually make, but I'm so graciously making for him) is more important, since intelligent people are more likely to do less demanding work (and do it effectively) if they are compensated well for it than are unintelligent people to do cognitively demanding work because they are incapable of doing that work, irrespective of the potential compensation they would receive.

Roberts raises the issue of welfare parasitism. He makes no note of it, but immigrant welfare usage rates are considerably higher than are those of natives, among those of Mexican descent in particular. Caplan then anecdotally argues that immigrants work harder than natives do:
Look at any hard work being done in Los Angeles, it's almost always being done by people from Latin America.
Granted, Montana and South Dakota are on the brink of financial implosion, unlike the sound, sturdy state of California, but in those places Americans somehow manage to get by with Americans doing the jobs that Americans won't do.

Caplan then downplays concern over welfare usage by pointing out that more government spending goes to the elderly than to the poor:
One very common misconception about the welfare state that makes people think that immigrants are worse than they really are is that we imagine that the welfare state is mainly about helping the poor. We take a look and we say, “Hey, there are all these poor immigrants coming here so obviously they’re going to be a net drain.” This is actually just factually wrong. If you go and take a look at the numbers on the budget, while the poor do get a fair amount—maybe 10% of the federal budget—they are a very distant runner-up against the group that actually gets the most money from the welfare state, which is the elderly.
As someone who thinks the healthcare expenditures made on behalf of the elderly to keep them undead for a couple of months or years longer than they would otherwise be around is extremely wasteful, I'm sympathetic to concerns about Medicare and Social Security spending. But that's a deflection, not an argument that addresses restrictionist concerns. While it is factually incorrect to assert that the poor receive more in benefits than the elderly do, it is not factually incorrect to assert that illegal immigrants are a net drain on American society.

Caplan takes on the argument that immigration has adverse consequences on American culture:
If this argument were made in France, I'd at least kind of understand what they're talking about, saying we need to preserve French culture. But culture seems to be so low down on Americans' priorities that it's odd to me. Like, the immigrants are not going to know about Friends or they're not going to appreciate Seinfield? I'm baffled about what kind of culture Americans do know that immigrants don't know.
If culture is merely shorthand for popular culture, then these concerns have more to do with things like the Virginia Department of Health putting out comics (Mexicans don't read many books) in an effort to combat statutory rape against Latinas because of Latin American "cultural mores condoning May-December relationships."

When it comes to aspects of mid- and high-brow culture, the restrictionist argument tends to be that we're fighting an uphill battle as it is, and we should not make it any worse by allowing unfettered immigration of those who have an average educational attainment equivalent to 'graduation' from the eighth grade and who read fewer than two books per year.

The discussion moves on to politics. Characterizing the restrictionist argument that immigrants, on net, tend to vote for larger government and tighter restrictions on personal liberties, Caplan says:
The fact that you come from countries [that aren't free] probably means that you don't like freedom, and if you come here, you're going to turn our politics into your politics. ... But there is the question of how hell bent immigrants are on turning America into Mexico or Congo? It may be that there opinions are moderately less pro-freedom than those of the people who grew up here. But it seems unlikely that this is that big of a deal for them.
The GSS contains a few items are relevant to the issue. The following tables show how the foreign-born compare to natives, first on political orientation:

POLVIEWSLiberalModerateConservative
Natives25.3%38.3%36.4%
Foreign-born29.0%42.1%28.9%

Partisan affiliation:

PARTYIDDemocratIndependentRepublican
Natives33.3%37.0%29.6%
Foreign-born34.6%49.8%15.7%

"What is your opinion of the following statement? It is the responsibility of the government to reduce the differences in income between people with high incomes and those with low incomes" (those with no opinion are not included):

EQINCOMEAgreeDisagree
Natives30.8%46.5%
Foreign-born40.4%38.9%

Racists should be allowed to speak in public:

ALLOWRACYesNo
Natives60.8%39.2%
Foreign-born42.7%57.3%

Homosexuals should be allowed to speak in public:

SPKHOMOYesNo
Natives77.5%22.5%
Foreign-born73.1%26.9%

Atheists should be allowed to speak in public:

SPKATHYesNo
Native72.7%27.3%
Foreign-born66.1%33.9%

Caplan could be accused of minimizing the concerns that immigrants, on net, tend to be leftist, statist, and authoritarian in their political views relative to natives (keep in mind, too, that in all of these cases, "natives" includes blacks--if only whites are considered, the differences between natives and the foreign-born are wider on every item). He appears to be generally correct in noting that the differences are not uniformly enormous, however.

Roberts errantly argues that the children of immigrants actually tend to do better than their native peers do:
The studies I've seen show [no studies are cited] that not only do second-generation immigrants learn English, but that they thrive. They thrive relative to their parents, and very soon, of course, they're not immigrants anymore. They're like you and I, whose ancestors moved here at some point in the distant past, and how well they do in our society is not a function of what country they were born in [he's unknowingly on the money when it comes to the second-generation children of immigrants; it's more a function of the country their parents were born in!], it's a function of how much education they have, how hard they work, and luck. But education works, it's very powerful.

Immigrants who come here, uneducated, who can't speak English, give birth to children who end up speaking English, graduate from high school and go to college--or don't--but do better than their parents and eventually do as well as or better than native Americans.
Caplan, who is clearly more well versed in the issues surrounding immigration into the US than Roberts is, gently points out to Roberts that he is incorrect and that the second-generation does not perform as well as natives do. Parenthetically, he could have also pointed out that when it comes to Mexican immigrants and their progeny, even through the fourth generation they still fare far worse than natives do. Caplan brushes this aside, saying that even though the children of immigrants learn less and earn less than the children of natives do, they still contribute to the economy and "pull their own weight and more".

Directly after this, Caplan lets restrictionists know how he feels about them:
A lot of hostility to immigration is that every immigrant is reproached by every native-born American who didn't do more with his life. It's a little bit hard, but it's true.
Given that immigrants tend to do worse than natives do--especially white natives (who are more restrictionist than blacks are)--that's an interesting standard for what constitutes truth. Restrictionism wins out over support for open immigration across both the political and economic spectrums, so Caplan's characterization is untrue, but it does illustrate how being for unfettered immigration is a SWPL status marker worth multiple moral posturing points.

As he continued in that vein, I couldn't help but wonder if he would have so earnestly stated the following to a group of grassroots NAACP boosters:
Look, someone came here not speaking English, they worked their way up from the bottom, and now look at them. You were born here, you speak English as your
native language, you had an education paid for by American taxpayers for free, and these immigrants have done as well as you. How do you explain that? Why is it that we should be so worried about you when there are people like this in the world who have done so well with so little?
They touch briefly on crime, with Caplan noting that the foreign-born are less criminally prone than natives are at comparable ages. Statistics on immigration and crime are all inherently difficult to be certain about, especially when it comes to illegal immigrants, since they are by virtue of their illegality more shrouded in their activities than American citizens are and those they live around, who also tend to be illegal, are more apprehensive about reporting criminal activity than natives are. But even with underreported criminal activity among immigrants, Latin American migrants are, on the whole, more criminally prone than native whites are (see table 1).

If blacks are thrown into the mix, things change, of course. When it comes to comparisons of criminal activity, America's black population inevitably pulls the nation down. However, since bringing in Juan does not mean Julian disappears, that Mexican immigrants are less criminally prone than black Americans are is not on its own much of an argument for open borders.

Roberts suggests people living in Portland, where obstacles to new construction and perceived overcrowding keep out immigrants from other countries as well as from other states within the US, like their lives and the city they live in as is. He asks Caplan why they should open themselves up to more immigration. Caplan answers that even if denizens of Portland don't like the greater population density and cultural changes that will result if the city opens itself up, it would increase their property values and they would then be able to sell at a gain and move somewhere else in the US that is similar to how Portland had been before those changes (I'm not making that up). He then let's those in Portland what they're missing out on--being like Manhattan! Not Los Angeles or San Antonio, which would be more relevant comparisons, but Manhattan, a glorified, snazzy part of a much larger metropolitan area in the Northeast.

As they bring the discussion to a close, Caplan expresses how the personal relationships with immigrants influence his opinions on the subject:
When I really think about the immigrants that I know--and I know many immigrants--immigrants are my friends, my neighbors. My wife is an immigrant. These are all human beings who, if we all listened to the opponents of immigration, they wouldn't be here. They wouldn't be allowed to be here. We'd have erred on the side of caution and said "let's not let them in." And because we didn't error on the side of caution, we let them in, they're here enjoying their lives and these are people I care about.
Replace each instance of "immigrant" with "former fetus" or the like, and Caplan is pitching himself for a narration gig in a pro-life TV spot!

GSS variables used: BORN(1)(2), YEAR(2000-2008)*, POLVIEWS, PARTYID, EQINCOME, ALLOWRAC, SPKHOMO, SPKATH

* Only for the questions on political orientation and partisan affiliation, which are asked every year. For the other items, I included the entire timeframe over which the question was asked.

Saturday, May 1, 2010

In a recent EconTalk podcast, host Russ Roberts had Stanford's Paul Romer on to talk about the latter's ideas about what he calls "charter cities". Romer explains that Haitians are miserable because they live under terrible rules. He suggests letting them seek out 'charter cities'--something akin to Singapore with a suzerainty and guarantor of laws that doesn't interfere with internal affairs--and in the process allowing the rest of the world to learn from experimentation in the field. It's the "laboratory of the states idea" on steroids.

The glaring problem in the eyes of HBD realists, of course, is that it is more than just 'rules' that make Haiti Haiti--Haitians themselves play a big role. Relative performance of immigrant groups in the US is similar to the performance of the home countries those immigrants come from. Moving pockets of the underclass into middle class suburbia does not turn the hood rats into burghers--turns out you can take the underclass out of the hood, but you can't take the hood out of the underclass. Likewise, it's easy to get Mexicans out of Mexico, but taking Mexico out of Mexicans is not so simple.

Because it operates under the presumption that human populations are completely interchangeable, the hour long discussion is almost worthless intellectually. But the content isn't all forgettable flotsam. Worse that that, much of it is civilizationally masochistic (28:33):

I think it would be great if we let poor people come to the United States. As [Romer] say[s], their incomes usually jump manyfold. They're very productive. They make our lives better.
Yes, clearly importing poverty on a massive scale is the best way to increase the quality of life in the US! The only reason places like Zimbabwe and Somalia are such hellholes is because they have governments that are too heavy-handed and too feeble, respectively, for a Western standard of living to be realized. Since we have a poor track record when it comes to changing the governmental structures of other countries, a better way of fighting poverty is to take the world's impoverished and put them within the borders of the developed world. What could possibly go wrong?

Roberts goes on to agree with Romer that just allowing a few hundred thousand poor migrants into the US each year is merely a drop in the bucket, that there are one billion people who would benefit from coming here. Those we are unable to take in should be transported to these charter cities (presumably on the developed world's dime, although that's not fleshed out in the podcast). Because they become much wealthier upon taking up residency in the US, largescale immigration of impoverished third-worlders not only carries with it a putative economic benefit (because everyone knows that it is countries where labor costs are lowest are the same countries where standard of livings are the highest!), it also brings a humanitarian one.

The same logic can be applied to wealth redistribution at the individual level. If a bunch of indigents are free to take up residence on Bill Gates' Lake Washington property and use the facilities for their own well-being, it will markedly increase their quality of life. It won't even break Bill's bank. But it will bring down the value of his property, cause him to devote more of his energy to addressing the issues that arise as a result of having indigents living under his roof, decrease the trust existing within the household (Bill's not doing the same thing with his spare time as the indigents are), and disincentivize the behaviors that allowed him to acquire the property in the first place.

I suspect that in response Romer would point out that such indigents being allowed to take up residency on Bill's property is a violation of his personal property rights. But are property rights at the individual level principally different from the rights of a national sovereign to the territory that comprises it? If the majority of the Gates' household was in favor of allowing the indigents to move in, the political argument would be different. When it comes to illegal immigration in the US, however, it is clear that the majority of the Gates' are opposed to hosting the indigents. Forced against their will to accept their new housemates, the Gates' will be prone to move to sections of the house where the indigents don't frequent, such as the northeast quadrant of the property.

The American Southwest is approaching the Deep South in terms of poor scholastic performance, public indebtedness, unemployment, and criminal activity. White flight has been an element of California's existence for over a decade now, due in part to unskilled immigration from Mexico and Central America, most of it unregulated or based on family reunification rather than any measure of merit. The negative externalities listed previously (in addition to accentuated economic and social inequality) associated with largescale unskilled immigration is why laws like the one recently signed in Arizona are created--residents of the states on the front lines realize the transformation from first-world United States into third-world Mexico is not a desirable one.

That Northeastern professors existing in the most unrealistic setting imaginable--the university setting--see no meaningful difference between Ellis Island Jewish immigrants from Russia in the late 19th and early 20th centuries--before the modern welfare state came into being, when a couple percent of aspiring immigrants were actually turned away in fear they'd become public charges, and when the need for physical labor was rapidly rising--and the immigration patterns today is unsurprising.

While I generally enjoy EconTalk podcasts, Roberts regularly makes empirical assertions that are simply incorrect (although to be fair, he usually prefaces them with something along the lines of "I think, although I'm not familiar with the latest data..."). The one theoretical problem he sees with unfettered immigration--although his comments show he really only thinks it's a political, not a legitimate, problem--into the US is the potential for abuse of the welfare system. After asserting that immigrants in the US improve the lives of natives, he insinuates that welfare use among immigrants is not an actual problem (28:42):

As long as they didn't live off our welfare system, which is a big handicap--I don't think they want to live off our welfare system, but the fact that they could, means people aren't going to let them in. We don't have that luxury [the realization that current immigration patterns are beneficial for natives] right now, politically, I don't think.
A graph comparing usage rates of various welfare programs in the US from the Center for Immigration's impressive 2007 report profiling the US' foreign-born population demonstrates, however, that while it may not be the case in Fairfax, on the whole immigrants make considerably better use of welfare programs in the US than natives do:

Thursday, March 11, 2010

In a recent Econ Talk podcast, host Russ Roberts and guest Garett Jones discussed the relationship between an economy's health and worker productivity, pointing to the real business cycle theory introduced in the early eighties by Edward Prescott and Finn Kydland. RBC theory predicts that during economic slowdowns, productivity will drop because innovation is sparse (it is this real lack of innovation and of attractive investment opportunities that is said to be the cause of the recession, rather than monetary policy). In the last three major recessions, though, productivity has increased during recessions and dropped during booms. The latter pattern seems commonsensical to me, and I was unaware that in previous recessions the reverse had been observed. Jones goes about describing the putatively conventional explanation for why productivity (at least over the last couple of decades) goes up during downturns:

During a recession is when the boss comes and tells all the workers, "Hey, I'm going to make you work harder." ... There's certainly some of that going on, on some level--bosses do love to squeeze the last bit of blood out of a stone. ... There's this point that even Marx made about the army of the unemployed: The boss can point to all the people out on the street and say, "Hey, those people want your job, so you better work harder for less money."
He and Roberts also point to substantial reductions in R&D and marketing spending by companies during slow periods, while budgets for physical production tend to be reduced more modestly, as another reason for increased productivity. Since productivity is measured by dividing worker hours by actual production, the relative reduction of indirect support functions bolsters productivity numbers.

What the two George Mason economists didn't discuss, and I also did not hear mentioned last week when labor productivity figures were released, were any effects resulting from the culling of marginal employees. If the number of consulting slots stagnate and then begin to decline, either per capita workloads are reduced, or the number of employees is reduced. To the extent that anti-merit obstacles like tenure or demographic considerations can be circumvented, the latter provides an opportunity to increase productivity (either out of genuine necessity, or by providing cover for what needed to occur anyway).

I am not aware of any hard numbers on the various elements of productivity changes during the current recession--it may loom large in my eyes because I've experienced it on multiple occasions in the last two years (on the delivering end--my plate is still full, although it is a wrenching process to go through even when you are giving the boot), and because I'm not in the manufacturing sector, where an individual employee's performance is less determinative of his fate. Or it could be the strong strain of HBDism in my blood that is skeptical of the emphasis placed on the value of motivating and driving people to be better performers at the expense of focusing on finding the most capable people in the first place (that is, who you are is the most relevant question an employer should be seeking the answer to, not what ways to squeeze the most blood out of the stones they've already collected).
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