Today, we have proof that Krugman is losing it (and let me preface this by saying that I have the utmost respect for Krugman's economic work and revere him highly):
His column says we should "respect" those who "worry" about trade. I disagree, because most of the "worriers" do more than worry-- they also monger fear, distort facts, and advocate protection (like my old bud Lou Dobbs).
But here's his blog yesterday. He's saying that basically saying that the only reason that the housing snafu hasn't wrought recession and despair on the economy is... (drumroll).... TRADE!
So, we should respect people who worry about trade, but trade is the only good thing going for us? Is that anything like being on a sinking cruise ship and worrying about the safety of the life rafts?
-Bang!
Sunday, December 30, 2007
Interesting USITC Dispute
Just an interesting tidbit: A Korean company (Samsung) files a complaint with a US bureaucracy (the international trade commission) over unfair trade practices by a Japanese Rival (Sharp).
Saturday, December 29, 2007
Populism without Borders
I'm often dismayed at the "populist" opposition to openness to trade, migration and FDI flows. The Free Exchange Blog that I linked to in Thursday's post hits on the point of what exactly is populism. It defines populism as a ideological movement "of" or "for the 'people'." Usually "the people" represent some under-enfranchised group (the middle class or poor) whose interests are often framed to be in opposition to those of the "elite." It cites James Madison economist Barkley Rosser's charge that Lou Dobbs' brand of populism is, essentially, "economic nationalism for the poor." This is the point that I want to touch on, because it raises two important questions about the tide of protectionism that has ebbed in recent US politics.
First, who are "the people" of the populist thought? The Free Exchange authors note that in the origins of the populist movement, there was debate whether the populist movement would be inclusive of blacks, or if "the people" were exclusively white. Today the debate extends to immigrants, both legal and illegal, both present and future. Many "populists" today would like to slam the "Golden Door" of immigration shut, arguing out of concern for the working poor here. But, in effect, the working poor they are most concerned about are only the native citizens. Many economic free-traders are criticized from the left for pandering to US corporate interests to the demise of the American "middle class," or at the exploitation of the poor abroad. Yet, it is precisely out of concern for these two groups that free-traders are out there fighting the good fight.
This brings us to the second issue, which is one that I have discussed several times: Who gains from open-door policies. Abroad, the preponderance of the empirical studies suggest that trade and foreign investment benefit the poor, especially when a country's labor force is free to move internally. China has been criticized as a case where openness has failed to benefit the poor, but the primary reason it has not reached the rural poor in China has to do with how the Chinese government allocates spending on public education, where it authorized foreign investors to build production facilities, and its tight restrictions on the internal migration of labor. So, we free traders fight the free trade fight, in part, for the poor living in less-developed countries.
On this side of the border, the main groups that can be shown to be harmed by either free trade or by immigration are those without a high school education or its equivalent, not quite the lower two quintiles (40%) of the labor force. I would not suggest for a moment that we should not be concerned for these Americans. However, those truly in the "middle-class" quintile (40th-60th percentile) gain, as well as the upper and upper-middle class. In addition, the gains to these groups far outweigh the losses to the poor. Some have suggested that programs could be set up in cooperation with local community colleges to help these adversely-affected Americans acquire skills in export-oriented or non-traded sectors. They have even proposed that the programs could be entirely paid for from the gains accumulated by high value-added sectors and firms, with a wage replacement stipend toboot.
The main point I've tried to make the last couple of days is this: One can be both populist and in favor of borders that are open to trade in goods, sevices and factors. This is one point that has been made by Columbia economist Jagdish Bhagwati. In addition, even if we do oppose immigration, and especially illegal immigration, we have to come to terms with the plain fact that they are here, deserve to be treated with decency, and (along with the poor still living in the countries they come from) deserve to have some inclusion in our populist agenda.
First, who are "the people" of the populist thought? The Free Exchange authors note that in the origins of the populist movement, there was debate whether the populist movement would be inclusive of blacks, or if "the people" were exclusively white. Today the debate extends to immigrants, both legal and illegal, both present and future. Many "populists" today would like to slam the "Golden Door" of immigration shut, arguing out of concern for the working poor here. But, in effect, the working poor they are most concerned about are only the native citizens. Many economic free-traders are criticized from the left for pandering to US corporate interests to the demise of the American "middle class," or at the exploitation of the poor abroad. Yet, it is precisely out of concern for these two groups that free-traders are out there fighting the good fight.
This brings us to the second issue, which is one that I have discussed several times: Who gains from open-door policies. Abroad, the preponderance of the empirical studies suggest that trade and foreign investment benefit the poor, especially when a country's labor force is free to move internally. China has been criticized as a case where openness has failed to benefit the poor, but the primary reason it has not reached the rural poor in China has to do with how the Chinese government allocates spending on public education, where it authorized foreign investors to build production facilities, and its tight restrictions on the internal migration of labor. So, we free traders fight the free trade fight, in part, for the poor living in less-developed countries.
On this side of the border, the main groups that can be shown to be harmed by either free trade or by immigration are those without a high school education or its equivalent, not quite the lower two quintiles (40%) of the labor force. I would not suggest for a moment that we should not be concerned for these Americans. However, those truly in the "middle-class" quintile (40th-60th percentile) gain, as well as the upper and upper-middle class. In addition, the gains to these groups far outweigh the losses to the poor. Some have suggested that programs could be set up in cooperation with local community colleges to help these adversely-affected Americans acquire skills in export-oriented or non-traded sectors. They have even proposed that the programs could be entirely paid for from the gains accumulated by high value-added sectors and firms, with a wage replacement stipend toboot.
The main point I've tried to make the last couple of days is this: One can be both populist and in favor of borders that are open to trade in goods, sevices and factors. This is one point that has been made by Columbia economist Jagdish Bhagwati. In addition, even if we do oppose immigration, and especially illegal immigration, we have to come to terms with the plain fact that they are here, deserve to be treated with decency, and (along with the poor still living in the countries they come from) deserve to have some inclusion in our populist agenda.
Thursday, December 27, 2007
Populism at Home
I saw this on The Economist magazines's blog, Free Exchange. I think there are a couple of debates here: (1) What is the role of "populism" in a democratic free enterprise (market) economy? (2) Can one be "populist" (of the people) and still be pro-globalization.
First, about the tides of populism in America. LOU DOBBS DOES NOT OWN AMERICAN POPULISM. There is a rising tide of populist sentiment in the U.S., and not all of it has the nationalistic xenophobic venom that Mr. Dobbs spews out. Ironically, some of it is coming from the elite (which is odd since the most traditional forms of populism embrace the masses by rejecting the elite). In fact, there is rising tide of "plutonomy" among the elite and among traditionally conservative economic journalists, like George Will (see, for example, this column by Mr. Will). Instead of touting the role of the elite as savers, investors and engines of economic growth, these elites and economic conservatives tout the role of the wealthy in promoting charity and helping the poor. With a smilar irony, I will argue over the next couple of posts that "populism" or promoting the interests of the people CAN be (and often is) mutually compatible with markets, openness to trade, and pro-growth policies, with some caveats.
Now, what is the role of populism in a free market democracy? This is an interesting point because many of the neoclassical school of economic thought talk about the optimality free markets, ignore the politics of democracy (or any other system for that matter), and scorn populist ideas. These ecnomists are right to advocate free markets (most of the time), but their naivity to the political constraints makes them blind to the important questions of income distribution that affect the political feasibility of "optimal" pro-growth policies. (In fact, neoclassical models are fundamentally flawed in this regard because they focus on the "representative agent," or essentially the "average" citizen or mean. This is one reason why their models do so well emprically.) In addition, timing, sequencing, and distributional consequences, as it turn out, all matter. Quick example: from 2000-2006 the US promoted policies that neoclassical economists supported as pro-growth. Real aggregate output increased. Real per capita output increased. Shouldn't this have been good for the "growthies?" However the real median household income declined by 2.1 percent. The middle to lower half of the population sank as the rich took off. Populism thrived. Mr. Bush, meet Speaker Pelosi.
Next up: "Populism without Borders."
First, about the tides of populism in America. LOU DOBBS DOES NOT OWN AMERICAN POPULISM. There is a rising tide of populist sentiment in the U.S., and not all of it has the nationalistic xenophobic venom that Mr. Dobbs spews out. Ironically, some of it is coming from the elite (which is odd since the most traditional forms of populism embrace the masses by rejecting the elite). In fact, there is rising tide of "plutonomy" among the elite and among traditionally conservative economic journalists, like George Will (see, for example, this column by Mr. Will). Instead of touting the role of the elite as savers, investors and engines of economic growth, these elites and economic conservatives tout the role of the wealthy in promoting charity and helping the poor. With a smilar irony, I will argue over the next couple of posts that "populism" or promoting the interests of the people CAN be (and often is) mutually compatible with markets, openness to trade, and pro-growth policies, with some caveats.
Now, what is the role of populism in a free market democracy? This is an interesting point because many of the neoclassical school of economic thought talk about the optimality free markets, ignore the politics of democracy (or any other system for that matter), and scorn populist ideas. These ecnomists are right to advocate free markets (most of the time), but their naivity to the political constraints makes them blind to the important questions of income distribution that affect the political feasibility of "optimal" pro-growth policies. (In fact, neoclassical models are fundamentally flawed in this regard because they focus on the "representative agent," or essentially the "average" citizen or mean. This is one reason why their models do so well emprically.) In addition, timing, sequencing, and distributional consequences, as it turn out, all matter. Quick example: from 2000-2006 the US promoted policies that neoclassical economists supported as pro-growth. Real aggregate output increased. Real per capita output increased. Shouldn't this have been good for the "growthies?" However the real median household income declined by 2.1 percent. The middle to lower half of the population sank as the rich took off. Populism thrived. Mr. Bush, meet Speaker Pelosi.
Next up: "Populism without Borders."
Wednesday, December 26, 2007
Property Tax Pinch
Got this off the AP wire. On the one hand, I feel for people who have lived in a house their whole lives, and now are unable to afford property taxes. On the other hand, what about folks who wouldn't mind paying market value for it, and can afford the taxes? How about this for the solution? I've heard of child sweatshop labor, but I guess we've decided to turn that on its head! Discuss.
-Bang!
-Bang!
Friday, December 21, 2007
Climate Consensus Busted? - Dot Earth - Climate Change and Sustainability - New York Times Blog
Climate Consensus Busted? - Dot Earth - Climate Change and Sustainability - New York Times Blog
This is an interesting blog article from the NYTimes, dated yesterday. The interesting thing about the article is that it questions whether studies that "debunk" whether humans cause global warming may not, in fact, be anything more than normal dialog among scientists. Basically, such studies, such as those compiled on Senator James Inhofe's website on climate change, is nothing more than the usual dialog that takes place in the academic community on a subject that may not be fully vetted. By definition forecasts on climate change 30, 40, 50 years down the road cannot be fully vetted because by the time we discover the "truth" it may well be too late to do anything to "undo" whatever past mistakes might have been made. Basically, scientific fields propose new ideas (new ideas are good, by the way), test them as best they can, and if the methodology and conclusions are basically valid, it gets published. Then, others in the field (some of whom may even agree with the basic conclusions) pick at the edges of the theories, methodologies, and conclusions for the slightest inconsistencies, carving their own niche in the bigger picture. Still, the basic theory will remain in place until a better theory topples it. Furthermore, most of the picking fails to mount a replacement theory that unifies the known, valid empirical findings with an alternative explanation- the preponderence of the conflict is at the fringe of the debate: humans might not be a conclusive cause of the problem (empirical findings are seldom 100% conclusive), but no one has forged an alternative explanation that amounts to much more than conjecture.
Global warming is a problem. Left unchanged it will present huge costs on sustaining human life. The earth will continue to exist without us if circumstances become catastrophic. Curbing global warming is also costly. We can probably live with the consequences of spending resources on curbing climate change, even if they turn out to be unnecessary (making a "Type I" error). Can our children and grandchildren live with falsely assuming that we can continue on as we have been (makin a Type II error)?
This is an interesting blog article from the NYTimes, dated yesterday. The interesting thing about the article is that it questions whether studies that "debunk" whether humans cause global warming may not, in fact, be anything more than normal dialog among scientists. Basically, such studies, such as those compiled on Senator James Inhofe's website on climate change, is nothing more than the usual dialog that takes place in the academic community on a subject that may not be fully vetted. By definition forecasts on climate change 30, 40, 50 years down the road cannot be fully vetted because by the time we discover the "truth" it may well be too late to do anything to "undo" whatever past mistakes might have been made. Basically, scientific fields propose new ideas (new ideas are good, by the way), test them as best they can, and if the methodology and conclusions are basically valid, it gets published. Then, others in the field (some of whom may even agree with the basic conclusions) pick at the edges of the theories, methodologies, and conclusions for the slightest inconsistencies, carving their own niche in the bigger picture. Still, the basic theory will remain in place until a better theory topples it. Furthermore, most of the picking fails to mount a replacement theory that unifies the known, valid empirical findings with an alternative explanation- the preponderence of the conflict is at the fringe of the debate: humans might not be a conclusive cause of the problem (empirical findings are seldom 100% conclusive), but no one has forged an alternative explanation that amounts to much more than conjecture.
Global warming is a problem. Left unchanged it will present huge costs on sustaining human life. The earth will continue to exist without us if circumstances become catastrophic. Curbing global warming is also costly. We can probably live with the consequences of spending resources on curbing climate change, even if they turn out to be unnecessary (making a "Type I" error). Can our children and grandchildren live with falsely assuming that we can continue on as we have been (makin a Type II error)?
Friday, December 14, 2007
The Second Illegals
The second illegal immigrants most likely came during the period after 1875, after the Page Act was passed. The Page Act essentially forbade the involuntary importation of individuals (namely for the purposes of prostitution) or the involuntary importation of any individual from China, Japan, or elsewhere in Asia, illegal. This law was essentially a response to those pro-immigration representatives from the South who saw Chinese immigration as an opportunity to essentially enslave a new class of indentured servants. This law and the rhetorica around it eventually led to the Chinese Exclusion Acts in the 1882 (amended in 1884), 1892, and 1902. (The laws were 10-year exclusions with sunset triggers-- the third version passed in 1902 took out the sunset.)
Essentially, although numerical data are scarce, the second group of illegals were probably Chinese women smuggled here. I find this interesting because this raises an important about women and "sex trade" with respect to globalization that we struggle with today, but it also reminds us that these sins are not new ones. They are, in fact the oldest sins in The Book. Doing away with all trade or all commerce because some commerce is "sinful" would be to cut off your nose to spite your face.
-Bang!
Essentially, although numerical data are scarce, the second group of illegals were probably Chinese women smuggled here. I find this interesting because this raises an important about women and "sex trade" with respect to globalization that we struggle with today, but it also reminds us that these sins are not new ones. They are, in fact the oldest sins in The Book. Doing away with all trade or all commerce because some commerce is "sinful" would be to cut off your nose to spite your face.
-Bang!
Thursday, December 13, 2007
Immigration Quotation
Another quickie:
- George Washington, shortly after the Battle of Yorktown, addressing Irish immigrants
(Quoted in Roger Daniels, Guarding the Golden Door, 2004, p. 7)
The bosom of America is open to receive not only the opulent and respectable stranger, but the oppressed and persecuted of all nations and religions, whom we shall welcome to participate in all of our rights and privilegees, if by decency and propriety of conduct they appear to merit the enjoyment.
- George Washington, shortly after the Battle of Yorktown, addressing Irish immigrants
(Quoted in Roger Daniels, Guarding the Golden Door, 2004, p. 7)
Wednesday, December 12, 2007
The First "Illegal" Immigrants
Immigration Stat of the Month
I came across an interesting fact today: The first "illegal immigrants" came to the united states around 1809. The constitution allowed for the international trade of slaves for a period of 20 years, after which the only legal trade in slaves was for those who were born into slavery here. It is estimated that about 50,000 slaves arrived in this illegal slave trade after 1808. (See: Roger Daniels, "Guarding the Golden Door," 2004).
-Bang!
I came across an interesting fact today: The first "illegal immigrants" came to the united states around 1809. The constitution allowed for the international trade of slaves for a period of 20 years, after which the only legal trade in slaves was for those who were born into slavery here. It is estimated that about 50,000 slaves arrived in this illegal slave trade after 1808. (See: Roger Daniels, "Guarding the Golden Door," 2004).
-Bang!
Friday, December 7, 2007
Immigration Policy Priorities
I'm not really sure what our immigration policy priorities are, let alone what they should be. There is some viscious and biased information about how immigrants impact our economy and our society, and at times it makes me sick, as most of it is motivated by little more than prejudice and Nationalism (read: not simply "Patriotism"). But immigration is problematic: Although the free flow of migrant labor does generally help the "average" citizen certain pockets of the native workforce would be hurt. Furthermore, there is some argument to be made that policies should include some allowances to help those unfortunate souls who have been born into poverty around the world (so long as they can demonstrate some ability to be productive in our economy).
One of the most unfortunate facts about immigrants is that they tend to be less educated than US natives. There is no disputing this. Some would go so far as to say that they are "the stupidest of their own populations," as Benjamin Franklin did about German immigrants over 200 years ago. Some would go yet another step and advocate policies that ensure that those who are allowed to immigrate here are only those who are the most highly-educated and skilled. That may artificially increase our workforce education levels, but is it even desirable? Gains from trade primarily come from the fact that countries are different, and if immigration is a potential source of reaping these gains and we are a relatively skill-abundant workforce, the argument could be made that the greatest gains would come from allowing the entry of less-skilled immigrants, not more-skilled.
Another problem I have with pundits who cite these differences in education between natives and immigrants is that we have a long tradition for forming our immigration policies in a way that helps the least fortunate abroad, and we recognize that there are countries in which the poor and displaced have a much harder time of things than they would here. One fact that I could cite here is that refugees are consistently measured to be the least skilled of all legal immigrants to the US. Does that mean we should eliminate refugee status as a visa class preference? Few would argue for that.
So the problem is this: for immigration policy to work it should do let's say four things. First, it should do something to stem the tide of undocumented aliens who enter as a matter of national security. No amount of restriction and no practical amount of spending on enforcement will stop people from trying to enter. The question is more one of managing it optimally and minimizing the externalities of the undocumented entry (such as smuggling of drugs and weapons or the threat of terrorism) rather than trying to exclude anything beyond the arbitrarily-defined quota. Second, policy should be motivated by our national economic interests, and here I specifially mean aggregate welfare. Unskilled labor may contribute most to aggregate welfare on a per capita basis. However, it will have serious consequences for certain groups, and these do tend to be those with the most modest means in our society. So, the third and fourth parts of our policy (and the most complicated) is concern for those less fortunate, but would include: (1) natives, and; (2) those living in adverse conditions around the world. Poverty in our own country is a problem, and increases in immigration would have serious adverse impacts for natives who lack at least a high school education. However this "foreignization of poverty" is not something I worry much about because the "foreign poverty" that immigration brings represents immigrants who are moving from one form of poverty to a "better" level of poverty. Yet, two-thirds of the world is living in a "Less-Developed" Country, as defined by the World Bank. Many of these countries lack the institutional stability and transparency in governance that would allow entrepreneurial talent to flourish, or even allocate resources to those well-suited to use them profitably.
So these are my priorities. The only one of them that would not be well-served by having a more open border is number three, concern for the native poor. Since I don't want to trivialize this concern, I am open to suggestions for how the main objectives (namely numbers 1 and 2) could be achieved.
One of the most unfortunate facts about immigrants is that they tend to be less educated than US natives. There is no disputing this. Some would go so far as to say that they are "the stupidest of their own populations," as Benjamin Franklin did about German immigrants over 200 years ago. Some would go yet another step and advocate policies that ensure that those who are allowed to immigrate here are only those who are the most highly-educated and skilled. That may artificially increase our workforce education levels, but is it even desirable? Gains from trade primarily come from the fact that countries are different, and if immigration is a potential source of reaping these gains and we are a relatively skill-abundant workforce, the argument could be made that the greatest gains would come from allowing the entry of less-skilled immigrants, not more-skilled.
Another problem I have with pundits who cite these differences in education between natives and immigrants is that we have a long tradition for forming our immigration policies in a way that helps the least fortunate abroad, and we recognize that there are countries in which the poor and displaced have a much harder time of things than they would here. One fact that I could cite here is that refugees are consistently measured to be the least skilled of all legal immigrants to the US. Does that mean we should eliminate refugee status as a visa class preference? Few would argue for that.
So the problem is this: for immigration policy to work it should do let's say four things. First, it should do something to stem the tide of undocumented aliens who enter as a matter of national security. No amount of restriction and no practical amount of spending on enforcement will stop people from trying to enter. The question is more one of managing it optimally and minimizing the externalities of the undocumented entry (such as smuggling of drugs and weapons or the threat of terrorism) rather than trying to exclude anything beyond the arbitrarily-defined quota. Second, policy should be motivated by our national economic interests, and here I specifially mean aggregate welfare. Unskilled labor may contribute most to aggregate welfare on a per capita basis. However, it will have serious consequences for certain groups, and these do tend to be those with the most modest means in our society. So, the third and fourth parts of our policy (and the most complicated) is concern for those less fortunate, but would include: (1) natives, and; (2) those living in adverse conditions around the world. Poverty in our own country is a problem, and increases in immigration would have serious adverse impacts for natives who lack at least a high school education. However this "foreignization of poverty" is not something I worry much about because the "foreign poverty" that immigration brings represents immigrants who are moving from one form of poverty to a "better" level of poverty. Yet, two-thirds of the world is living in a "Less-Developed" Country, as defined by the World Bank. Many of these countries lack the institutional stability and transparency in governance that would allow entrepreneurial talent to flourish, or even allocate resources to those well-suited to use them profitably.
So these are my priorities. The only one of them that would not be well-served by having a more open border is number three, concern for the native poor. Since I don't want to trivialize this concern, I am open to suggestions for how the main objectives (namely numbers 1 and 2) could be achieved.
Tuesday, December 4, 2007
"Foreignization of Poverty" in the US
From leading immigration economist Professor George Borjas' blog (citing a Center for Immigration Studies study):
These data tell us almost nothing about the impact of immigration on natives, and less about what we should do about immigration. The only conclusions we can draw are ones that are motivated by our existing prejudices and biases before seeing this information. The study seems to promote that these statistics imply that there should be reduced immigration through stricter control (tightening quotes and enforcing them more stringently), and Borjas, though he attempts to keep his comments vague and intellectually detached, seems to agree.
(Aside: With regard to the last two above, I'm imagining a funny scene where an undocumented immigrant is arriving for his first day of work at some meat processing plant or something and begins to negotiate his contract to include health benefits. In my mind the negotiation takes place in esparanto. Guess what program those one in every three of immigrants who don't have health insurance are on!)
But what do these statistics really mean? OK, if you mix one sample with another and one sample and the sample you introduce has a higher (lower) mean, it will pull the pooled mean up(down). In our examle, if immigrants have higher rates of poverty, heck if MEXICO has higher poverty rates and you mix them randomly with the US population, there will be an apparent increase in poverty. But so what?
There's absolutely nothing here to suggest that immigrants are making natives more poor, less educated, less likely to have health insurance or more likely to be on welfare. It's possible that these things could be occurring, but there's nothing in the study to support it. It's equally possible, if not likely judging from the conclusions drawn by other noted labor economists, that natives may enjoy a small boost to their own incomes around the middle 20% of the income distribution and above. Furthermore, it is logical to conjecture that the immigrants themselves are better off, otherwise the pipeline (both legal and illegal) would stop. So, before going further, who's hurt by immigration and why should we invest scarce resources in preventing it?
Now let's dig deeper: Does the Center for Immigration Studies or Professor Borjas have a magic wand that makes the Fundamental Economic Problem of Scarcity disappear? If cutting off immigration is your objective, how should we do it and how much should we spend to keep people out? Immigration's net strain on the fiscal budget has been estimated at around $10 billion. That was a few years ago, so I'll be generous and double it, so say that today it's about $20 billion per year (heck, triple or quadruple it for all I care). Set every red cent of that aside into a fund for a "fight immigration task force" and do you know what would happen? We would still have countless numbers of undocumented immigrants streaming into our country, imposing a lesser but still a substantial amount of fiscal strain on the budget, and we would have diverted billions of dollars of productive resources away from the private economy to tilt at windmills. Bottom line: the cure is worse than the (alleged) disease.
1. The number of immigrants arriving in the past seven years (both legal and
illegal) is a historical high.
2. More than half of these recent arrivals
are illegal.
3. About a third of adult immigrants lack a high school
diploma.
4. One of every 3 persons lacking health insurance is foreign-born.
5. A third of immigrant households use at least one major welfare program;
as compared to only 19 percent of native households.
These data tell us almost nothing about the impact of immigration on natives, and less about what we should do about immigration. The only conclusions we can draw are ones that are motivated by our existing prejudices and biases before seeing this information. The study seems to promote that these statistics imply that there should be reduced immigration through stricter control (tightening quotes and enforcing them more stringently), and Borjas, though he attempts to keep his comments vague and intellectually detached, seems to agree.
(Aside: With regard to the last two above, I'm imagining a funny scene where an undocumented immigrant is arriving for his first day of work at some meat processing plant or something and begins to negotiate his contract to include health benefits. In my mind the negotiation takes place in esparanto. Guess what program those one in every three of immigrants who don't have health insurance are on!)
But what do these statistics really mean? OK, if you mix one sample with another and one sample and the sample you introduce has a higher (lower) mean, it will pull the pooled mean up(down). In our examle, if immigrants have higher rates of poverty, heck if MEXICO has higher poverty rates and you mix them randomly with the US population, there will be an apparent increase in poverty. But so what?
There's absolutely nothing here to suggest that immigrants are making natives more poor, less educated, less likely to have health insurance or more likely to be on welfare. It's possible that these things could be occurring, but there's nothing in the study to support it. It's equally possible, if not likely judging from the conclusions drawn by other noted labor economists, that natives may enjoy a small boost to their own incomes around the middle 20% of the income distribution and above. Furthermore, it is logical to conjecture that the immigrants themselves are better off, otherwise the pipeline (both legal and illegal) would stop. So, before going further, who's hurt by immigration and why should we invest scarce resources in preventing it?
Now let's dig deeper: Does the Center for Immigration Studies or Professor Borjas have a magic wand that makes the Fundamental Economic Problem of Scarcity disappear? If cutting off immigration is your objective, how should we do it and how much should we spend to keep people out? Immigration's net strain on the fiscal budget has been estimated at around $10 billion. That was a few years ago, so I'll be generous and double it, so say that today it's about $20 billion per year (heck, triple or quadruple it for all I care). Set every red cent of that aside into a fund for a "fight immigration task force" and do you know what would happen? We would still have countless numbers of undocumented immigrants streaming into our country, imposing a lesser but still a substantial amount of fiscal strain on the budget, and we would have diverted billions of dollars of productive resources away from the private economy to tilt at windmills. Bottom line: the cure is worse than the (alleged) disease.
Monday, December 3, 2007
Bioenergy Part Trois
Today, I want to close the loop on the topic I began with Thursday's post, and continued with Friday's post. To review, Juan Enriquez's claim that instability in oil prices may serve as a disincentive for investment in alternative energy may well be true, but his solution of price controls are the wrong policy response because they (1) don't work that well, and; (2) have serious consequences.
Suppose we want more stable prices. Energy prices are not a "simple matter of supply and demand." The "law" of supply and demand, or the basic Week Three Principles of Economics analysis which is all the CEOs corporations remember (or which they hope is all YOU remember), only applies for competitive markets. The concept of a "market supply curve" implies that the firm is a "price taker." A monopolist (or cartel) does not have a "supply curve" in the traditional because their own actions have a tangible influence on price.
Prices in competitive markets tend to be much more stable. So we must ask the question: Why is OPEC able to operate as a cartel? Part of it has to do with ownership. The public (government) ownership of oil production in most oil-exporting countries is a major hindrance to competition and serves as a significant barrier to entry. It ensures that only one firm will produce in each country and makes the coordination aspect of cartel decision-making much easier. So one true way stabilize the price of oil would be multiple private firms for oil production in each country.
Privatization is not feasible for a wide range of political and economic reasons, not the least of which being that the state, with its monopoly over the use of coercive force, will always have an incentive to nationalize oil production. We also do not have the right to dictate policy to other states (except the ones we decide to run over militarily), and besides, our politicians should focus their energies on the great job they do screwing up our OWN economy. Plus, this wouldn't necessarily provide incentives for research in energy alternatives, because a more competitive market would tend to dictate a consistently lower price (and yes, in this case I'm implying that is a bad thing because part of Dr. Enriquez's proposed Policy Objective Bundle was incentives for alternatives to petroleum).
So what are some other options? Well, in oil-importing countries, we do in fact have the opportunity to take some of the pricing power away from the cartel. Governments in oil-importing countries have a monopoly over the right to tax. By taxing the hell out of a foreign monopolist we can divert some of the monopoly power and rents (profits) from the foreign government to our own, all the while maintaining a more stable (albeit uniformly higher) price to offer "incentives" for research in alternative fuels.
The reason we do not tax crude is simple: politics in our own country. Politicians buy votes with their plans to "negotiate" or "encourage" low prices for gasoline and energy. Not one of them has the courage to say "yes, the price of oil is $100/barrel, but it must be taxed to take the power and profits away from foreign oil producers." The first to do this would be out of the race in no time. Instead, politicians console us with ill-gotten plans to subsidize our oil habit. This keeps the power of and profits in the hands of the unstable and corrupt governments.
-Bang
Suppose we want more stable prices. Energy prices are not a "simple matter of supply and demand." The "law" of supply and demand, or the basic Week Three Principles of Economics analysis which is all the CEOs corporations remember (or which they hope is all YOU remember), only applies for competitive markets. The concept of a "market supply curve" implies that the firm is a "price taker." A monopolist (or cartel) does not have a "supply curve" in the traditional because their own actions have a tangible influence on price.
Prices in competitive markets tend to be much more stable. So we must ask the question: Why is OPEC able to operate as a cartel? Part of it has to do with ownership. The public (government) ownership of oil production in most oil-exporting countries is a major hindrance to competition and serves as a significant barrier to entry. It ensures that only one firm will produce in each country and makes the coordination aspect of cartel decision-making much easier. So one true way stabilize the price of oil would be multiple private firms for oil production in each country.
Privatization is not feasible for a wide range of political and economic reasons, not the least of which being that the state, with its monopoly over the use of coercive force, will always have an incentive to nationalize oil production. We also do not have the right to dictate policy to other states (except the ones we decide to run over militarily), and besides, our politicians should focus their energies on the great job they do screwing up our OWN economy. Plus, this wouldn't necessarily provide incentives for research in energy alternatives, because a more competitive market would tend to dictate a consistently lower price (and yes, in this case I'm implying that is a bad thing because part of Dr. Enriquez's proposed Policy Objective Bundle was incentives for alternatives to petroleum).
So what are some other options? Well, in oil-importing countries, we do in fact have the opportunity to take some of the pricing power away from the cartel. Governments in oil-importing countries have a monopoly over the right to tax. By taxing the hell out of a foreign monopolist we can divert some of the monopoly power and rents (profits) from the foreign government to our own, all the while maintaining a more stable (albeit uniformly higher) price to offer "incentives" for research in alternative fuels.
The reason we do not tax crude is simple: politics in our own country. Politicians buy votes with their plans to "negotiate" or "encourage" low prices for gasoline and energy. Not one of them has the courage to say "yes, the price of oil is $100/barrel, but it must be taxed to take the power and profits away from foreign oil producers." The first to do this would be out of the race in no time. Instead, politicians console us with ill-gotten plans to subsidize our oil habit. This keeps the power of and profits in the hands of the unstable and corrupt governments.
-Bang
Friday, November 30, 2007
Bioenergy Part Deux (Pronounced "Duh")
Following up on last night's blog on the instability of oil prices, for all of the wonderful ideas and insights of Dr. Enrique's TED Talk on bioenergy I almost had to weep at the very end of his presentation. Energy price instability is more of a problem than the averages around which they currently fluctuate, and this may indeed lead to disincentives for entry to the "alternative energy" market. If he had ended his talk there, I would have stood up, applauded, and gotten to work thinking of options that would help resolve the issue.
But he didn't stop there. He called for a "stable price of oil." He said it should be $35, $40, whatever you want it to be (keep in mind the talk was given several months ago and the video was posted recently). In light of recent developments $80 or $90 might be more appropriate, but the number really does not matter much. But wait, there's more. In order to maintain that price, he proposed that a tax be levied when the price is below that arbitrary level and a(n) (implicit) subsidy be remitted when the price is above it. I can not think of a more destructive way to "manage" the problem than price controls-they simply do not work, and they have disastrous unintended consequences like black markets, disincentives for investment, and so on.
So, let's be deliberate and actually carefully outline Dr. Enrique's stated policy objectives: 1. A stable price of oil; 2. Reduced dependence on fuels whose extraction may be dangerous or otherwise unfriendly to the environment or mankind; 3. "Incentives" (read: subsidies) that allow for a predictable return for alternative energies, including biological hydrocarbons.
I'm going to be a jerk and drag it out... I have papers to grade. See you tomorrow.
But he didn't stop there. He called for a "stable price of oil." He said it should be $35, $40, whatever you want it to be (keep in mind the talk was given several months ago and the video was posted recently). In light of recent developments $80 or $90 might be more appropriate, but the number really does not matter much. But wait, there's more. In order to maintain that price, he proposed that a tax be levied when the price is below that arbitrary level and a(n) (implicit) subsidy be remitted when the price is above it. I can not think of a more destructive way to "manage" the problem than price controls-they simply do not work, and they have disastrous unintended consequences like black markets, disincentives for investment, and so on.
So, let's be deliberate and actually carefully outline Dr. Enrique's stated policy objectives: 1. A stable price of oil; 2. Reduced dependence on fuels whose extraction may be dangerous or otherwise unfriendly to the environment or mankind; 3. "Incentives" (read: subsidies) that allow for a predictable return for alternative energies, including biological hydrocarbons.
I'm going to be a jerk and drag it out... I have papers to grade. See you tomorrow.
Thursday, November 29, 2007
Bioenergy
Just a quick thought -- I watched November's release of this year's TED Talks Presentations. Juan Enriquez on Bioenergy. It's not just for ethanol anymore. The concept of bugs eating coal and tunring it into gaseous hydrocarbons or accelerating the farming of hydrocarbons from plants as "concentrated sunlight" seems a lot more appealing than gutting an entire mountain, but I'm not sold that it's the first best idea--somewhere the policy has to account for global warming, which won't happen when we use organic byproduct.
Dr. Enriquez makes one important economic point though: The instability of oil prices (not their levels) may prove to be a disincentive for innovation, which involves entry to the energy market and a threat to OPEC's profit. One day price is high and it's all well and good for investing in alternative energy (bugs eating coal and creating hydrocarbon gas) because you can make money at it, but suddenly, BAM! OPEC sees competition entering, and suddenly engages a limit pricing strategy to drive out the competition by producing more and allowing the price to plummet. Then, once the coast is clear of credible competitors, they jack the price up again. Since it's never clear which strategy is the best for OPEC in "pure" strategies (setting a high monopoly-like price or a lower, entry-deterring, "limit price"), OPEC oscillates between the two, depending on certain conditions for entry, essentially playing what game theorists call a "mixed strategy." On top of this unpredictability in the outcome in the cooperative side of the game, each country has an "incentive to deviate" or break the cartel agreement by over-producing, which also would tend to lower the price until the cartel re-organizes. Hence, inherent price instability.
More on this tomorrow. I just wanted to give a quick teaser on OPEC and their cartel price/limit price/deviate strategies and how they contribute to the wild fluctuations in energy prices.
Dr. Enriquez makes one important economic point though: The instability of oil prices (not their levels) may prove to be a disincentive for innovation, which involves entry to the energy market and a threat to OPEC's profit. One day price is high and it's all well and good for investing in alternative energy (bugs eating coal and creating hydrocarbon gas) because you can make money at it, but suddenly, BAM! OPEC sees competition entering, and suddenly engages a limit pricing strategy to drive out the competition by producing more and allowing the price to plummet. Then, once the coast is clear of credible competitors, they jack the price up again. Since it's never clear which strategy is the best for OPEC in "pure" strategies (setting a high monopoly-like price or a lower, entry-deterring, "limit price"), OPEC oscillates between the two, depending on certain conditions for entry, essentially playing what game theorists call a "mixed strategy." On top of this unpredictability in the outcome in the cooperative side of the game, each country has an "incentive to deviate" or break the cartel agreement by over-producing, which also would tend to lower the price until the cartel re-organizes. Hence, inherent price instability.
More on this tomorrow. I just wanted to give a quick teaser on OPEC and their cartel price/limit price/deviate strategies and how they contribute to the wild fluctuations in energy prices.
Monday, November 26, 2007
No more Monopolies for Apple
I've often wondered why Microsoft is so villified for their downstream so-called "monopoly" over their operating system/office suite software. Or, better still why is Apple so sactified by folks when they in fact excercise considerable monopoly power in their own segment of the market. (In fact, Apple's monopoly may in fact be more insidious to competition and consumers because their protected "trade secrets" extend not only to software, but also to hardware, which is proprietarily owned by Jobs' company. PC hardware is public-knowledge and mostly reproducable.)
The latest chapter in the saga is phones. The iPhone was supposed to be revolutionary, and Apple knew it had (for the time being) a tidy little monopoly, so they priced it at $599. Sorry, Steve-O, but I can get a laptop PC with Windows pre-installed for that! Now we can all thank Microsoft and that dirty greedy Bill Gates for offering competition. Initially, the Windows Mobile Phones are retailing at around $600 as well, but the Windows be offering a mobile operating system for phones and PDAs that will rival Apple's, and will also be compatible with a wider range of devices, which should ultimately lead to a lower price for the consumer. So all you suckers for the latest technology go buy yours now while I wait for competitive pricing to begin to take hold of the market.
The latest chapter in the saga is phones. The iPhone was supposed to be revolutionary, and Apple knew it had (for the time being) a tidy little monopoly, so they priced it at $599. Sorry, Steve-O, but I can get a laptop PC with Windows pre-installed for that! Now we can all thank Microsoft and that dirty greedy Bill Gates for offering competition. Initially, the Windows Mobile Phones are retailing at around $600 as well, but the Windows be offering a mobile operating system for phones and PDAs that will rival Apple's, and will also be compatible with a wider range of devices, which should ultimately lead to a lower price for the consumer. So all you suckers for the latest technology go buy yours now while I wait for competitive pricing to begin to take hold of the market.
Friday, November 16, 2007
Black-White Wage Gap
I can't say if this is a surprising result or not: The black-white wage gap in the US has grown in the last three decades, according to the Boston Globe, citing a study by Julia Isaacs of the Brookings Institution. I'm trying to think of how this might work in an age of affirmative action, etc. Is there an equilibrium outcome that includes affirmative action-type policies that also leads to this type of divergence, and what about the design of current policies is exacerbating the gap?
A similar study from 1998 showed that the education gap could almost fully be explained by test scores? If we designed policies similar to the ones my colleague, Ani Mitra, proposes in a recent paper (blind policies for hiring and promotion based only on the weak signal of test scores), would they be politically implementable? Please, folks, gimme some commentary...
A similar study from 1998 showed that the education gap could almost fully be explained by test scores? If we designed policies similar to the ones my colleague, Ani Mitra, proposes in a recent paper (blind policies for hiring and promotion based only on the weak signal of test scores), would they be politically implementable? Please, folks, gimme some commentary...
Friday, November 9, 2007
Driver's Licences
With all due deference to the esteemed Professor Borjas, I have to take some issue with him over his recent postings about driver's licenses for undocumented immigrants. On the surface the idea that "illegals" should not be enabled with the privilege of driving is seductive, but if we dig deeper, the idea that they should be denied may be worse. If we "punt" the debate over whether illegal immigration should be accepted, it still doesn't necessarily make sense to deny themthe right to apply for and receive a driver's license. If illegals aren't licensed, the likely alternative is not that they won't drive, or even that they won't cross the border, rather the alternative is 12 million unlicensed, unmonitored, unaccountable, and uninsured motorists on the road. In other words, we bear the burden of their added risk. A similar argument was applied to the "bad driver fees" several states added to certain types of traffice violations-- states like Michigan noticed that the fees led to a substantial increase in uninsured motorists driving on licenses that had been suspended because of a single arbitrary "bad driver" incident. If illegal immigration continues to grow, this risk can only seem likely to increase.
Thursday, November 8, 2007
The Immigrant Tax
The Nov 2 Wall Street Journal contained an article on page A12 about a proposed "Immigrant Visa Tax" by Senator Grassley to be applied to H1-B visas. I have no real problem with this proposal, but it seems like window dressing and does nothing to address any of the security or economic issues that have arisen with the illegal immigration debate.
First, the amendment will not address illegal immigration at all. The tax would apply only to H1-B visas, which are exclusively reserved for immigrants with a minimum of a Bachelors college degree.
Second, even among the skilled immigrants to whom it applies, it would have practically no impact on the total number of immigrants. Here's why: Since there is a quota, the number of immigrants who are allotted visas is already fixed. The recipients of those visas are already benefiting in the form of "economic rents" and would be willing to pay for the right to receive the benefits afforded them by owning one of the visas. Without a well-targeted tax on the visas, these immigrants essentially gives the immigrants and the private U.S. firms who employment a free lunch. The immigrant benefits from the added salary they earn and the firm benefits from the skilled labor that they can employ for the specialized fields that qualify these immigrants to receive consideration for an H1-B. The only thing the tax changes is that the immigrants and firms would be paying for lunch instead of Uncle Sam.
Ironically, practically nothing about the tax impacts the "economic efficiency" of the immigrant quota. What it does impact is the recipient of the "rent." With the tax, Uncle Sam scoops back the rent; without it, more is left for the private individuals and firms Republicans claim to love so much. In fact, an even more effective mechanism for scooping out the rents would be an auction, and use the revenues to do something like fight a war or give children health care. Senator Grassley is a............ Republican.
First, the amendment will not address illegal immigration at all. The tax would apply only to H1-B visas, which are exclusively reserved for immigrants with a minimum of a Bachelors college degree.
Second, even among the skilled immigrants to whom it applies, it would have practically no impact on the total number of immigrants. Here's why: Since there is a quota, the number of immigrants who are allotted visas is already fixed. The recipients of those visas are already benefiting in the form of "economic rents" and would be willing to pay for the right to receive the benefits afforded them by owning one of the visas. Without a well-targeted tax on the visas, these immigrants essentially gives the immigrants and the private U.S. firms who employment a free lunch. The immigrant benefits from the added salary they earn and the firm benefits from the skilled labor that they can employ for the specialized fields that qualify these immigrants to receive consideration for an H1-B. The only thing the tax changes is that the immigrants and firms would be paying for lunch instead of Uncle Sam.
Ironically, practically nothing about the tax impacts the "economic efficiency" of the immigrant quota. What it does impact is the recipient of the "rent." With the tax, Uncle Sam scoops back the rent; without it, more is left for the private individuals and firms Republicans claim to love so much. In fact, an even more effective mechanism for scooping out the rents would be an auction, and use the revenues to do something like fight a war or give children health care. Senator Grassley is a............ Republican.
Friday, October 26, 2007
Wealth or Health?
Check out this 20 minute presentation by a gentleman named Hans Rosling on "TED Talks." Dr. Rosling is a doctor does research in the medical profession on public health in the "Developing Wolrd" and maintains an analysis tool known as "Gapminder." One interesting contribution he makes is his ability to express trends in data in a very intuitive, visual way.
The econometrician inside of me has about a thousand "buts" for the presentation, but it represents a great start- it does the essential surface "strip mining" that helps us see what things need better testing, and which things can be used as controls. It reminds me of something I learned from Roger Koenker: "If you torture the data enough, it will confess." In Dr. Rosling's case, he sheds quite a lot of light on the nature of health and wealth with very little of the usual waterboarding that economists usually do.
The most intersting part of it is that growth does not seem to "trickle down" to aspects of welfare such as life expectancy, infant and child mortality, etc. on average. Conversely, it seems to be the case that things like public health, evolution in institutions and society, etc. act as a precursor to growth, something about which Daron Acemoglu has been on the economics profession's case for some time now. And, it shouldn't be surprising-- the industrial revolution in Britain followed a similar pattern, as I've mentioned here before.
Yet, Dr. Roslings conclusions are similar to those that economists, even the most neoclassically trained among us, would readily agree with. First, that things like trade and markets are helping a number of countries pull themselves out of despair and poverty; second, that political institutions and good government play a critical role in ensuring that the benefits of growth are distributed in a way that respects the median citizen; third, that these factors HAVE contributed to a considerable normalization and flattening in the distribution of world income over the last half-century.
The econometrician inside of me has about a thousand "buts" for the presentation, but it represents a great start- it does the essential surface "strip mining" that helps us see what things need better testing, and which things can be used as controls. It reminds me of something I learned from Roger Koenker: "If you torture the data enough, it will confess." In Dr. Rosling's case, he sheds quite a lot of light on the nature of health and wealth with very little of the usual waterboarding that economists usually do.
The most intersting part of it is that growth does not seem to "trickle down" to aspects of welfare such as life expectancy, infant and child mortality, etc. on average. Conversely, it seems to be the case that things like public health, evolution in institutions and society, etc. act as a precursor to growth, something about which Daron Acemoglu has been on the economics profession's case for some time now. And, it shouldn't be surprising-- the industrial revolution in Britain followed a similar pattern, as I've mentioned here before.
Yet, Dr. Roslings conclusions are similar to those that economists, even the most neoclassically trained among us, would readily agree with. First, that things like trade and markets are helping a number of countries pull themselves out of despair and poverty; second, that political institutions and good government play a critical role in ensuring that the benefits of growth are distributed in a way that respects the median citizen; third, that these factors HAVE contributed to a considerable normalization and flattening in the distribution of world income over the last half-century.
Monday, October 22, 2007
Negative Loss = Positive Gain?
Check out this article from Popular Science's Brilliant 10 for '07. Basically it's about some of the cognitive similarities between monkeys and humans, and whether we seem to "miscalcuate" expectation in the same way. First, let me say that my only experience with the brains of monkeys is in the first person-- i.e. my own relatively unevolved mind. But, the article is interesting because the monkeys are put in 2 scenarios: In scenario 1 they "pay" 1 token for 1 slices of apple, but are given 2 with probability 0.5; In scenario 2 they "pay" 1 token for 2 slices of apple, but are only given 1 with probability 0.5. In both scenarios they can expect 1.5 slices. It is unclear to what extent the monkeys understand the "rules" before hand, or what group is used as a control, but scenario 1 seemed to be much preferred by the monkeys, and it seems it is more preferred by the more evolved primates that have opposable thumbs. I would guess that playing the game many many times with the monkeys would converge to a more uniform reaction in terms of "monkey mood."
But, people are the same way, at times, especially when uncertainty is involved. I'm not sure what the appropriate economic explanation, but there seems to be some argument here for a more integrated role of psychology in explaining economic behavior, and may explain some of the puzzles in economics. Small deviations from "full rationality" at the micro level can easily perpetuate persistent deviations from the rational equilibria that are used in neoclassecal macro/finance mondels. Mostly, I'm looking for comments and/or discussion.
But, people are the same way, at times, especially when uncertainty is involved. I'm not sure what the appropriate economic explanation, but there seems to be some argument here for a more integrated role of psychology in explaining economic behavior, and may explain some of the puzzles in economics. Small deviations from "full rationality" at the micro level can easily perpetuate persistent deviations from the rational equilibria that are used in neoclassecal macro/finance mondels. Mostly, I'm looking for comments and/or discussion.
Tuesday, October 16, 2007
Choking on Growth, or Choking on Bad Government
In a recent NY Times Series, the issue of the environment and economic growth in China has come into question. Just the standard fallacy of blaming capitalism at work here. The only next-step fallacy is to blame open-market economics for the abhorrent degradation of the environment that is the current tragedy in China. What a shame. There is a clear political impetus for a change in environmental policy in China, but that movement has no voice in the political process because of the over-extended will of an oppressive state. The unfortunate part of the whole situation is that for this movement to gain critical mass and momentum, the only solution is to continue to grow economically. Historically, economic growth has been the primary engine for a change in social conscience. During the Industrial Revolution, even as conditions grew better and the average Englishman's lot improved, issues of poverty, education, child labor, and even the environment became more and more scrutinized, whereas in continental Europe, many of these conditions, while far worse in their relative magnitude to the same conditions in England, went ignored because the political systems were largely authoritarian or monarchic. In such cases it takes revolution and collapse to correct the system, which will probably be necessary in China today.
Friday, October 12, 2007
College Loans
I don't get it. Here I am, teaching business and economics thinking one of the biggest points of getting a college education (note: I don't use "degree") is to signal value to the labor market and win a job that pays a higher salary. Now, there's a proposal on the table to "forgive" federal college loans if students go into fields (jobs) that "serve the public good" in some sense for ten years. I really hope kids don't fall into this trap unless they get some personal satisfaction from the service they choose. Otherwise it just doesn't make sense to take a job in the public sector that puts your earnings potential 10-20,000 lower than what you might make in the private sector. The economical choice is to pay off the extra 10-15,000 that you have to take out in college loans over the normal maturity. Trading 10-15,000 over the 4 years prior to your working career for the 10-20,000 extra you can rake in working for private industry for those 10 years is seemingly a no-brainer, or is my calculator just broken?
Wednesday, September 26, 2007
Today my Head Wants to Explode
So, besides the subsiding sinus pressure of the traditional Back-to-School bug that tends to bite the faculties of America's colleges and universities, there are other things making my head want to explode. An article appeared today in the NY Times indicating that companies that rated the securites that were purchased with subprime mortgages as collateral were inappropriately inflating those securities' ratings to make them look better on paper. It's unclear whether Bear Stearns, et al. asked the ratings agencies to do this for them, but this is really bad.
I have a previous post on this that talks about moral hazard, but this story on the security rating agencies adds a completely new layer to the insanity. Basically, what comes out of it is two-sided moral hazard where both parties to a contract have an apparent incentive to deliberately engage in bade behavior. We're waaaaay past supply and demand here. What makes this stuff mind blowing is that the existence of a stable equilibrium is usually not very likely in general terms-- usually only for certain numerical examples with restrictive assumptions. Second, optimal contracts that can overcome the moral hazard problem tend to be characterized partially, and the contractual relationship has to be repeated in order for the contract to carry much weight. There's lots of really hard math involved in the theoretical excursions into this area, hence head explosion.
Bottom line-- the more layers of moral hazard you add to a problem the more chaotic and unpredictable the result, and the more likely it is that bad things happen. Bad things happened.
I have a previous post on this that talks about moral hazard, but this story on the security rating agencies adds a completely new layer to the insanity. Basically, what comes out of it is two-sided moral hazard where both parties to a contract have an apparent incentive to deliberately engage in bade behavior. We're waaaaay past supply and demand here. What makes this stuff mind blowing is that the existence of a stable equilibrium is usually not very likely in general terms-- usually only for certain numerical examples with restrictive assumptions. Second, optimal contracts that can overcome the moral hazard problem tend to be characterized partially, and the contractual relationship has to be repeated in order for the contract to carry much weight. There's lots of really hard math involved in the theoretical excursions into this area, hence head explosion.
Bottom line-- the more layers of moral hazard you add to a problem the more chaotic and unpredictable the result, and the more likely it is that bad things happen. Bad things happened.
Sunday, September 23, 2007
Stop China-bashing
So, it's not China that's secretly sabotaging our toys to kill our babies and take over our country. Apparently our own designers and managers in the US that are not doing their jobs. In a statement issued under cover of darkness (how's Friday afternoon/Saturday morning gonna grab Lou Dobbs' attention?), Mattell admitted what many of us suspected all along: the lead in the toys was the fault of management and design teams (KC Star).In a related story, recalled cribs made in China by Graco are also a result of faulty design-- by good ole American design workers. (Video: here, courtesy of YouTube.) It is interesting how the fact that the cribs were made in China takes the headline over the fact that the design flaw had nothing to do with China, offshoring, globalization, Lou Dobbs' War on the middle class, or the price of tea. Just a plain combination of sloppy or unscrupulous decisions by designers and managers. But, as they say, iiit runs downhill, and China (foreigners generally) are at the bottom of the social hill. I'll be tilting if someone will be my windmill.
Oh well I guess it doesn't sell newspapers to report that thousands of poor people in China did their jobs and your good ole American white-bred neighbor screwed up his and killed a few babies.
Oh well I guess it doesn't sell newspapers to report that thousands of poor people in China did their jobs and your good ole American white-bred neighbor screwed up his and killed a few babies.
Baby Crib Recall
China and TRADE HAVE NOTHING TO DO WITH THIS! It's a design flaw by US designers and managers!
Wednesday, September 12, 2007
Equal Time for Stupid Democrats
I just want to take a moment to call out the Democrats on Iraq, because they're not any smarter when it comes to making logical arguments about their positions on Iraq than those other guys. Every time a democrat argues that we should get out because we should have never gone in to begin with s/he is making the same fallacy in judgement as the Republicans who say we should stay there because we did decide to go. The decision to have gone in the first place is a foregone conclusion, and all of these twits need to learn from the past without re-arguing it. No decision about how best to proceed should be based on anything other than weighing the present and future gains to our National and global security against the marginal consequences and costs of those proposals.
Tuesday, September 11, 2007
Iraq and the Sunk-Cost Trap
Just a quickie today. I'm calling out Mike Huckabee and half of the Republican field for falling into what anyone with an undergraduate business degree knows to be a "sunk cost trap." Regardless of how you weigh the costs and benefits of various alternatives to how we should move forward in Iraq, it is a disservice to our troops to stay the course simply because we decided to go in the first place. To me, continuing a policy (whether that policy is good, bad or ugly) on the basis of events already behind us is a sad mistake in how to move forward in an optimal fashion.
The argument I'm calling out is the "honor" argument, which basically stakes the claim that changing course, redeploying, etc. is not an option because so many service men and women have already made the ultimate sacrifice. What bigger disservice could we do to their memory than to not learn from their sacrifice? Would it not be appropriate to allocate the lives of the men and women who carry the flag behind the fallen in a way that best serves our National Interest instead of squandering their service to a failed policy? In otherwords, the lives lost, are sadly and tragically already lost-- they are a "sunk cost" that can never be recovered. Let's ensure that any additional loss in life maximizes the benefit of security obtained from those future casualties.
The argument I'm calling out is the "honor" argument, which basically stakes the claim that changing course, redeploying, etc. is not an option because so many service men and women have already made the ultimate sacrifice. What bigger disservice could we do to their memory than to not learn from their sacrifice? Would it not be appropriate to allocate the lives of the men and women who carry the flag behind the fallen in a way that best serves our National Interest instead of squandering their service to a failed policy? In otherwords, the lives lost, are sadly and tragically already lost-- they are a "sunk cost" that can never be recovered. Let's ensure that any additional loss in life maximizes the benefit of security obtained from those future casualties.
Sunday, September 9, 2007
Poverty and Immigration
This week, Washington Post columnist Robert Samuelson set forth the claim that the United States is Importing Poverty. In it, he argues that immigration has increased poverty in the U.S. because the hispanics who disproportionately migrate here also happen to fall disproportionally below the poverty line. A number of critics could easily read this article to mean that we should cut off immigration, but that would just be another way to lie with statistics.
I would pose the question this way: What impact does immigration have on (1) The immigrants who come here; (2) Those currently at or near the poverty line in the U.S., and; (3) Those living in poverty in Mexico.
The first group are almost unambiguously better off. Otherwise, why give up the life you lead in Mexico, Guatemala, or elsewhere? Although immigrants often earn less and work harder than their native cohort in the U.S., they are glad to be "exploited" in this sense so that they can use some of their repatriated savings to purchase land or improve the lives of their families in their home country.
The third group is also usually better off. For the most part, the emigration of moderately-skilled hispanics to the United Statess, along with the FDI attracted by the relative abundance of unskilled labor, has tended to increase wages. And that's before accounting for the impact of repatriated wealth from emigrant family members.
The tricky middle is the second group. There is some evidence that immigration has worsened wages in the labor market for the least-skilled and least-experienced U.S. natives. But, at the same time immigration has tended to leave all other groups' welfare unchanged or improved.
To me, the argument comes down to how, not if we show concern for those who are poor. I would argue that if we are concerned with poverty, we should not just be concerned with the absolute headcount below some artificial poverty line, but also with the severity of the poverty that those folks live in. In addition, if our intentions are altruistic (and not just "us against them"), we should be concerned with those living in the most abject of poverty conditions, not just those living here, and the most poor folks out there are generally living outside our (increasingly gated) borders. I would only weigh those small losses to our own citizens against the huge gains to those who would come here and not treat them as One Fifth of One American.
I would pose the question this way: What impact does immigration have on (1) The immigrants who come here; (2) Those currently at or near the poverty line in the U.S., and; (3) Those living in poverty in Mexico.
The first group are almost unambiguously better off. Otherwise, why give up the life you lead in Mexico, Guatemala, or elsewhere? Although immigrants often earn less and work harder than their native cohort in the U.S., they are glad to be "exploited" in this sense so that they can use some of their repatriated savings to purchase land or improve the lives of their families in their home country.
The third group is also usually better off. For the most part, the emigration of moderately-skilled hispanics to the United Statess, along with the FDI attracted by the relative abundance of unskilled labor, has tended to increase wages. And that's before accounting for the impact of repatriated wealth from emigrant family members.
The tricky middle is the second group. There is some evidence that immigration has worsened wages in the labor market for the least-skilled and least-experienced U.S. natives. But, at the same time immigration has tended to leave all other groups' welfare unchanged or improved.
To me, the argument comes down to how, not if we show concern for those who are poor. I would argue that if we are concerned with poverty, we should not just be concerned with the absolute headcount below some artificial poverty line, but also with the severity of the poverty that those folks live in. In addition, if our intentions are altruistic (and not just "us against them"), we should be concerned with those living in the most abject of poverty conditions, not just those living here, and the most poor folks out there are generally living outside our (increasingly gated) borders. I would only weigh those small losses to our own citizens against the huge gains to those who would come here and not treat them as One Fifth of One American.
Friday, September 7, 2007
Lou Dobbs, Hater
Yesterday, my old nemesis Lou Dobbs was back on the anti-immigration warpath. His topic: H1-B visas and the support among presidential candidates for more of them at the expense of hard-working middle-class "Americans." I guess he's either hoping that you don't know what H1-B visas are, that you don't know who's most adversely affected by immigrants coming to the US, or that you don't know who the middle class is.
1. What is an H1-B visa? It is a visa for immigrants with a minimum of a bachelors degree, usually with some degree of specialization in some technical field. Do the visas uniformly get allocated to the most qualified or most in-demand? NO! But, I can only imagine how hot Lou would be at the administrative cost of our Citizenship and Immigration Services (formerly INS) if they tried to evaluate each of the hundreds of thousands of applications to try to evaluate which ones were the best-suited to help our economy grow.
2. Who's most adversely affected by immigration? Not the middle class! The only group that has been shown (in empirical studies of the economy by well qualified econometricians) to be adversely affected by immigration (legal or otherwise) is the lower-tail, i.e. those with low education (high school dropouts) and low experience (18-25 years old). I don't dispute that these, less fortunate groups should be looked after, but I do think that there are better ways to do it than by cutting off the flow of immigrants who help our economy be the leader in innovative technologies.
3. Who is the middle-class anyway? Well, the median household in the US earns about $55,000. Last time I checked, the gardener who does upkeep around my townhouse or the carpenter putting up new units accross the way isn't pulling down anything near that. So, are the immigrants we're most worked up about really killing the middle class? I don't think so-- I really don't think that they're competing in the same labor markets as the "middle" class.
1. What is an H1-B visa? It is a visa for immigrants with a minimum of a bachelors degree, usually with some degree of specialization in some technical field. Do the visas uniformly get allocated to the most qualified or most in-demand? NO! But, I can only imagine how hot Lou would be at the administrative cost of our Citizenship and Immigration Services (formerly INS) if they tried to evaluate each of the hundreds of thousands of applications to try to evaluate which ones were the best-suited to help our economy grow.
2. Who's most adversely affected by immigration? Not the middle class! The only group that has been shown (in empirical studies of the economy by well qualified econometricians) to be adversely affected by immigration (legal or otherwise) is the lower-tail, i.e. those with low education (high school dropouts) and low experience (18-25 years old). I don't dispute that these, less fortunate groups should be looked after, but I do think that there are better ways to do it than by cutting off the flow of immigrants who help our economy be the leader in innovative technologies.
3. Who is the middle-class anyway? Well, the median household in the US earns about $55,000. Last time I checked, the gardener who does upkeep around my townhouse or the carpenter putting up new units accross the way isn't pulling down anything near that. So, are the immigrants we're most worked up about really killing the middle class? I don't think so-- I really don't think that they're competing in the same labor markets as the "middle" class.
Tuesday, September 4, 2007
Presidential Energy Records, Part III
So, first of all, from reading the actual record it's apparent that the big issue is OIL. Also, there is a real dialectic between the parties on this topic: Republicans want to solve the energy issue by expanding production of oil and gas, whereas Democrats favor policies that curtail consomption. So by now you may be wondering, "As an 'expert' economist who do you think is right?" Well, I'm a two handed economist-- On the one hand they're both right, and on the other hand they're both wrong. Both stategies will help extend our ability to fuel our cars and heat and cool our homes in the short to medium run. Yet, both strategies are very costly, and neither strategy promises to be very effective in the long run.
Expanding production is problematic because many of the policies involve huge subsidies to corporations. Also, it is myopic because there oil reserves are relatively fixed, and sustaining current energy consumption may not be environmentally sustainable. Yes, Virginia, there is Global Warming.
Curtailing consumption is equally problematic because these policies also involve high costs, although the costs are somewhat more disguised. Regulations, like CAFE standards will serve to raise the prices of certain big-ticket goods, and may place undue burden on households and firms. Secondly, they may not serve their intended purpose, because markets are notoriously good at subverting rigid regulations governing quantity or price.
What is particularly frustrating looking at these positions is that there is an abysmally thin record on alternative energy- one vote here on biofuels and one on hydrogen cars there, and probably a bunch of blind "yeas" for ethanol to "support hard-workin' American farmers" and that's all. Realistically, since oil is what we actually use, finding ways to manage that resource is something we must do, but what will it take to start a real Political debate over energy alternatives that will be sustainable and compatible with a cleaner environment?
Expanding production is problematic because many of the policies involve huge subsidies to corporations. Also, it is myopic because there oil reserves are relatively fixed, and sustaining current energy consumption may not be environmentally sustainable. Yes, Virginia, there is Global Warming.
Curtailing consumption is equally problematic because these policies also involve high costs, although the costs are somewhat more disguised. Regulations, like CAFE standards will serve to raise the prices of certain big-ticket goods, and may place undue burden on households and firms. Secondly, they may not serve their intended purpose, because markets are notoriously good at subverting rigid regulations governing quantity or price.
What is particularly frustrating looking at these positions is that there is an abysmally thin record on alternative energy- one vote here on biofuels and one on hydrogen cars there, and probably a bunch of blind "yeas" for ethanol to "support hard-workin' American farmers" and that's all. Realistically, since oil is what we actually use, finding ways to manage that resource is something we must do, but what will it take to start a real Political debate over energy alternatives that will be sustainable and compatible with a cleaner environment?
Presidential Energy Records, Part II
Part II of Saturday's post: the republicans on energy and oil from http://www.ontheissues.org/.
Sam Brownback
Voted NO on disallowing an oil leasing program in Alaska's ANWR. (Nov 2005)
Voted NO on $3.1B for emergency oil assistance for hurricane-hit areas. (Oct 2005)
Voted NO on reducing oil usage by 40% by 2025 (instead of 5%). (Jun 2005)
Voted NO on banning drilling in the Arctic National Wildlife Refuge. (Mar 2005)
Voted YES on Bush Administration Energy Policy. (Jul 2003)
Voted YES on targeting 100,000 hydrogen-powered vehicles by 2010. (Jun 2003)
Voted NO on removing consideration of drilling ANWR from budget bill. (Mar 2003)
Voted YES on drilling ANWR on national security grounds. (Apr 2002)
Voted YES on terminating CAFE standards within 15 months. (Mar 2002)
Voted YES on preserving budget for ANWR oil drilling. (Apr 2000)
Rudy Guiliani
No formal record on energy, but formal statements include:
Accept global warming & work toward energy independence. (Jun 2007)
Signing Kyoto would just move CO2 emissions to China & India. (Mar 2007)
No new energy tax; focus on alternatives instead. (Mar 2007)
Nuclear power is dangerous, but nobody's died from it. (Mar 2007)
Develop energy-independent technology, but not wind power. (Mar 2007)
Open Strategic Petroleum Reserve to battle high oil prices. (Feb 2000)
Oil crisis is “compelling justification” to use Reserves. (Feb 2000)
Mike Huckabee
Kyoto was a mistake, but "Earth in the Balance" is not. (Jan 2007)
Shouldn't limit oil production while increasing consumption. (Jan 2007)
Explore ways to harness nuclear power. (Jan 2007)
Promote alternative fuel technology. (Nov 2002)
Voluntary partnerships reduce greenhouse gases economically. (Aug 2000)
Kyoto Treaty must include reductions by all countries. (Aug 2000)
More funding to develop domestic energy supplies. (Sep 2001)
Use federal funds for nuclear cleanup, with state input. (Sep 2001)
Share offshore oil development revenue with states. (Sep 2001)
Duncan Hunter
Voted NO on removing oil & gas exploration subsidies. (Jan 2007)
Voted NO on keeping moratorium on drilling for oil offshore. (Jun 2006)
Voted YES on scheduling permitting for new oil refinieries. (Jun 2006)
Voted YES on authorizing construction of new oil refineries. (Oct 2005)
Voted YES on passage of the Bush Administration national energy policy. (Jun 2004)
Voted YES on implementing Bush-Cheney national energy policy. (Nov 2003)
Voted NO on raising CAFE standards; incentives for alternative fuels. (Aug 2001)
Voted NO on prohibiting oil drilling & development in ANWR. (Aug 2001)
Voted NO on starting implementation of Kyoto Protocol. (Jun 2000)
John McCain
Voted YES on disallowing an oil leasing program in Alaska's ANWR. (Nov 2005)
Voted NO on $3.1B for emergency oil assistance for hurricane-hit areas. (Oct 2005)
Voted NO on reducing oil usage by 40% by 2025 (instead of 5%). (Jun 2005)
Voted YES on banning drilling in the Arctic National Wildlife Refuge. (Mar 2005)
Voted NO on Bush Administration Energy Policy. (Jul 2003)
Voted YES on targeting 100,000 hydrogen-powered vehicles by 2010. (Jun 2003)
Voted YES on removing consideration of drilling ANWR from budget bill. (Mar 2003)
Voted NO on drilling ANWR on national security grounds. (Apr 2002)
Voted NO on terminating CAFE standards within 15 months. (Mar 2002)
Voted YES on preserving budget for ANWR oil drilling. (Apr 2000)
Ron Paul
Voted NO on criminalizing oil cartels like OPEC. (May 2007)
Voted NO on removing oil & gas exploration subsidies. (Jan 2007)
Voted NO on keeping moratorium on drilling for oil offshore. (Jun 2006)
Voted YES on scheduling permitting for new oil refinieries. (Jun 2006)
Voted NO on passage of the Bush Administration national energy policy. (Jun 2004)
Voted NO on implementing Bush-Cheney national energy policy. (Nov 2003)
Voted NO on raising CAFE standards; incentives for alternative fuels. (Aug 2001)
Voted NO on prohibiting oil drilling & development in ANWR. (Aug 2001)
Voted NO on starting implementation of Kyoto Protocol. (Jun 2000)
Mitt Romney
No-regrets policy: biofuel, nuclear power, drill ANWR. (Jun 2007)
Big Oil should reinvest profits in oil refineries. (Jun 2007)
Develop alternative energy but also drill in ANWR. (Dec 2006)
Tom Tancredo
Voted NO on criminalizing oil cartels like OPEC. (May 2007)
Voted NO on removing oil & gas exploration subsidies. (Jan 2007)
Voted NO on keeping moratorium on drilling for oil offshore. (Jun 2006)
Voted YES on scheduling permitting for new oil refinieries. (Jun 2006)
Voted YES on authorizing construction of new oil refineries. (Oct 2005)
Voted YES on passage of the Bush Administration national energy policy. (Jun 2004)
Voted YES on implementing Bush-Cheney national energy policy. (Nov 2003)
Voted NO on raising CAFE standards; incentives for alternative fuels. (Aug 2001)
Voted NO on prohibiting oil drilling & development in ANWR. (Aug 2001)
Voted NO on starting implementation of Kyoto Protocol. (Jun 2000)
Fred Thompson
Voted YES on drilling ANWR on national security grounds. (Apr 2002)
Voted YES on terminating CAFE standards within 15 months. (Mar 2002)
Voted YES on preserving budget for ANWR oil drilling. (Apr 2000)
Sam Brownback
Voted NO on disallowing an oil leasing program in Alaska's ANWR. (Nov 2005)
Voted NO on $3.1B for emergency oil assistance for hurricane-hit areas. (Oct 2005)
Voted NO on reducing oil usage by 40% by 2025 (instead of 5%). (Jun 2005)
Voted NO on banning drilling in the Arctic National Wildlife Refuge. (Mar 2005)
Voted YES on Bush Administration Energy Policy. (Jul 2003)
Voted YES on targeting 100,000 hydrogen-powered vehicles by 2010. (Jun 2003)
Voted NO on removing consideration of drilling ANWR from budget bill. (Mar 2003)
Voted YES on drilling ANWR on national security grounds. (Apr 2002)
Voted YES on terminating CAFE standards within 15 months. (Mar 2002)
Voted YES on preserving budget for ANWR oil drilling. (Apr 2000)
Rudy Guiliani
No formal record on energy, but formal statements include:
Accept global warming & work toward energy independence. (Jun 2007)
Signing Kyoto would just move CO2 emissions to China & India. (Mar 2007)
No new energy tax; focus on alternatives instead. (Mar 2007)
Nuclear power is dangerous, but nobody's died from it. (Mar 2007)
Develop energy-independent technology, but not wind power. (Mar 2007)
Open Strategic Petroleum Reserve to battle high oil prices. (Feb 2000)
Oil crisis is “compelling justification” to use Reserves. (Feb 2000)
Mike Huckabee
Kyoto was a mistake, but "Earth in the Balance" is not. (Jan 2007)
Shouldn't limit oil production while increasing consumption. (Jan 2007)
Explore ways to harness nuclear power. (Jan 2007)
Promote alternative fuel technology. (Nov 2002)
Voluntary partnerships reduce greenhouse gases economically. (Aug 2000)
Kyoto Treaty must include reductions by all countries. (Aug 2000)
More funding to develop domestic energy supplies. (Sep 2001)
Use federal funds for nuclear cleanup, with state input. (Sep 2001)
Share offshore oil development revenue with states. (Sep 2001)
Duncan Hunter
Voted NO on removing oil & gas exploration subsidies. (Jan 2007)
Voted NO on keeping moratorium on drilling for oil offshore. (Jun 2006)
Voted YES on scheduling permitting for new oil refinieries. (Jun 2006)
Voted YES on authorizing construction of new oil refineries. (Oct 2005)
Voted YES on passage of the Bush Administration national energy policy. (Jun 2004)
Voted YES on implementing Bush-Cheney national energy policy. (Nov 2003)
Voted NO on raising CAFE standards; incentives for alternative fuels. (Aug 2001)
Voted NO on prohibiting oil drilling & development in ANWR. (Aug 2001)
Voted NO on starting implementation of Kyoto Protocol. (Jun 2000)
John McCain
Voted YES on disallowing an oil leasing program in Alaska's ANWR. (Nov 2005)
Voted NO on $3.1B for emergency oil assistance for hurricane-hit areas. (Oct 2005)
Voted NO on reducing oil usage by 40% by 2025 (instead of 5%). (Jun 2005)
Voted YES on banning drilling in the Arctic National Wildlife Refuge. (Mar 2005)
Voted NO on Bush Administration Energy Policy. (Jul 2003)
Voted YES on targeting 100,000 hydrogen-powered vehicles by 2010. (Jun 2003)
Voted YES on removing consideration of drilling ANWR from budget bill. (Mar 2003)
Voted NO on drilling ANWR on national security grounds. (Apr 2002)
Voted NO on terminating CAFE standards within 15 months. (Mar 2002)
Voted YES on preserving budget for ANWR oil drilling. (Apr 2000)
Ron Paul
Voted NO on criminalizing oil cartels like OPEC. (May 2007)
Voted NO on removing oil & gas exploration subsidies. (Jan 2007)
Voted NO on keeping moratorium on drilling for oil offshore. (Jun 2006)
Voted YES on scheduling permitting for new oil refinieries. (Jun 2006)
Voted NO on passage of the Bush Administration national energy policy. (Jun 2004)
Voted NO on implementing Bush-Cheney national energy policy. (Nov 2003)
Voted NO on raising CAFE standards; incentives for alternative fuels. (Aug 2001)
Voted NO on prohibiting oil drilling & development in ANWR. (Aug 2001)
Voted NO on starting implementation of Kyoto Protocol. (Jun 2000)
Mitt Romney
No-regrets policy: biofuel, nuclear power, drill ANWR. (Jun 2007)
Big Oil should reinvest profits in oil refineries. (Jun 2007)
Develop alternative energy but also drill in ANWR. (Dec 2006)
Tom Tancredo
Voted NO on criminalizing oil cartels like OPEC. (May 2007)
Voted NO on removing oil & gas exploration subsidies. (Jan 2007)
Voted NO on keeping moratorium on drilling for oil offshore. (Jun 2006)
Voted YES on scheduling permitting for new oil refinieries. (Jun 2006)
Voted YES on authorizing construction of new oil refineries. (Oct 2005)
Voted YES on passage of the Bush Administration national energy policy. (Jun 2004)
Voted YES on implementing Bush-Cheney national energy policy. (Nov 2003)
Voted NO on raising CAFE standards; incentives for alternative fuels. (Aug 2001)
Voted NO on prohibiting oil drilling & development in ANWR. (Aug 2001)
Voted NO on starting implementation of Kyoto Protocol. (Jun 2000)
Fred Thompson
Voted YES on drilling ANWR on national security grounds. (Apr 2002)
Voted YES on terminating CAFE standards within 15 months. (Mar 2002)
Voted YES on preserving budget for ANWR oil drilling. (Apr 2000)
Presidential Energy Records, Part III
So, first of all, from reading the actual record it's apparent that the big issue is OIL. Also, there is a real dialectic between the parties on this topic: Republicans want to solve the energy issue by expanding production of oil and gas, whereas Democrats favor policies that curtail consomption. So by now you may be wondering, "As an 'expert' economist who do you think is right?" Well, I'm a two handed economist-- On the one hand they're both right, and on the other hand they're both wrong. Both stategies will help extend our ability to fuel our cars and heat and cool our homes in the short to medium run. Yet, both strategies are very costly, and neither strategy promises to be very effective in the long run.
Expanding production is problematic because many of the policies involve huge subsidies to corporations. Also, it is myopic because there oil reserves are relatively fixed, and sustaining current energy consumption may not be environmentally sustainable. Yes, Virginia, there is Global Warming.
Curtailing consumption is equally problematic because these policies also involve high costs, although the costs are somewhat more disguised. Regulations, like CAFE standards will serve to raise the prices of certain big-ticket goods, and may place undue burden on households and firms. Secondly, they may not serve their intended purpose, because markets are notoriously good at subverting rigid regulations governing quantity or price.
What is particularly frustrating looking at these positions is that there is an abysmally thin record on alternative energy- one vote here on biofuels and one on hydrogen cars there, and probably a bunch of blind "yeas" for ethanol to "support hard-workin' American farmers" and that's all. Realistically, since oil is what we actually use, finding ways to manage that resource is something we must do, but what will it take to start a real Political debate over energy alternatives that will be sustainable and compatible with a cleaner environment?
Expanding production is problematic because many of the policies involve huge subsidies to corporations. Also, it is myopic because there oil reserves are relatively fixed, and sustaining current energy consumption may not be environmentally sustainable. Yes, Virginia, there is Global Warming.
Curtailing consumption is equally problematic because these policies also involve high costs, although the costs are somewhat more disguised. Regulations, like CAFE standards will serve to raise the prices of certain big-ticket goods, and may place undue burden on households and firms. Secondly, they may not serve their intended purpose, because markets are notoriously good at subverting rigid regulations governing quantity or price.
What is particularly frustrating looking at these positions is that there is an abysmally thin record on alternative energy- one vote here on biofuels and one on hydrogen cars there, and probably a bunch of blind "yeas" for ethanol to "support hard-workin' American farmers" and that's all. Realistically, since oil is what we actually use, finding ways to manage that resource is something we must do, but what will it take to start a real Political debate over energy alternatives that will be sustainable and compatible with a cleaner environment?
Saturday, September 1, 2007
Presidential Energy Records, Part I
I'm feeling a little lazy, so I'll just publish some records of presidential candidates on energy and oil (from: www.ontheissues.org). Part I: The Democratic Primary Candidates for President. For the most part the policies reflect a strong concern over the environment (especially for global warming), which may be the larger issue anyway. (As I've mentioned before, energy itself will be available to fuel our cars for the foreseeable future using what's in the sands of Northern Alberta once the embarrassingly cheap reserves in the Middle East dry up.) Like we would expect from the Left, they are generally opposed to corporate subsidies.
Joe Biden:
Voted YES on removing oil & gas exploration subsidies. (Jun 2007)
Voted YES on factoring global warming into federal project planning. (May 2007)
Voted YES on disallowing an oil leasing program in Alaska's ANWR. (Nov 2005)
Voted YES on $3.1B for emergency oil assistance for hurricane-hit areas. (Oct 2005)
Voted YES on reducing oil usage by 40% by 2025 (instead of 5%). (Jun 2005)
Voted YES on banning drilling in the Arctic National Wildlife Refuge. (Mar 2005)
Voted YES on Bush Administration Energy Policy. (Jul 2003)
Voted YES on targeting 100,000 hydrogen-powered vehicles by 2010. (Jun 2003)
Voted YES on removing consideration of drilling ANWR from budget bill. (Mar 2003)
Voted NO on drilling ANWR on national security grounds. (Apr 2002)
Voted NO on terminating CAFE standards within 15 months. (Mar 2002)
Hillary Clinton:
Voted YES on removing oil & gas exploration subsidies. (Jun 2007)
Voted YES on making oil-producing and exporting cartels illegal. (Jun 2007)
Voted YES on factoring global warming into federal project planning. (May 2007)
Voted YES on disallowing an oil leasing program in Alaska's ANWR. (Nov 2005)
Voted YES on $3.1B for emergency oil assistance for hurricane-hit areas. (Oct 2005)
Voted YES on reducing oil usage by 40% by 2025 (instead of 5%). (Jun 2005)
Voted YES on banning drilling in the Arctic National Wildlife Refuge. (Mar 2005)
Voted NO on Bush Administration Energy Policy. (Jul 2003)
Voted YES on targeting 100,000 hydrogen-powered vehicles by 2010. (Jun 2003)
Voted YES on removing consideration of drilling ANWR from budget bill. (Mar 2003)
Voted NO on drilling ANWR on national security grounds. (Apr 2002)
Voted NO on terminating CAFE standards within 15 months. (Mar 2002)
Chris Dodd:
Voted YES on removing oil & gas exploration subsidies. (Jun 2007)
Voted YES on factoring global warming into federal project planning. (May 2007)
Voted YES on disallowing an oil leasing program in Alaska's ANWR. (Nov 2005)
Voted YES on $3.1B for emergency oil assistance for hurricane-hit areas. (Oct 2005)
Voted YES on reducing oil usage by 40% by 2025 (instead of 5%). (Jun 2005)
Voted YES on banning drilling in the Arctic National Wildlife Refuge. (Mar 2005)
Voted YES on Bush Administration Energy Policy. (Jul 2003)
Voted YES on targeting 100,000 hydrogen-powered vehicles by 2010. (Jun 2003)
Voted YES on removing consideration of drilling ANWR from budget bill. (Mar 2003)
Voted NO on drilling ANWR on national security grounds. (Apr 2002)
Voted NO on terminating CAFE standards within 15 months. (Mar 2002)
John Edwards:
Voted YES on Bush Administration Energy Policy. (Jul 2003)
Voted YES on removing consideration of drilling ANWR from budget bill. (Mar 2003)
Voted NO on drilling ANWR on national security grounds. (Apr 2002)
Voted NO on terminating CAFE standards within 15 months. (Mar 2002)
Mike Gravel:
No recent record on energy. Strongly opposed to nuclear power because of waste issues. No strong record on energy alternatives per se. Focuses on Global Warming and waste issues.
Dennis Kucinich:
Voted YES on criminalizing oil cartels like OPEC. (May 2007)
Voted YES on removing oil & gas exploration subsidies. (Jan 2007)
Voted YES on keeping moratorium on drilling for oil offshore. (Jun 2006)
Voted NO on scheduling permitting for new oil refinieries. (Jun 2006)
Voted NO on authorizing construction of new oil refineries. (Oct 2005)
Voted NO on passage of the Bush Administration national energy policy. (Jun 2004)
Voted NO on implementing Bush-Cheney national energy policy. (Nov 2003)
Voted YES on raising CAFE standards; incentives for alternative fuels. (Aug 2001)
Voted YES on prohibiting oil drilling & development in ANWR. (Aug 2001)
Barack Obama:
Voted YES on removing oil & gas exploration subsidies. (Jun 2007)
Voted YES on making oil-producing and exporting cartels illegal. (Jun 2007)
Voted YES on factoring global warming into federal project planning. (May 2007)
Voted YES on disallowing an oil leasing program in Alaska's ANWR. (Nov 2005)
Voted YES on $3.1B for emergency oil assistance for hurricane-hit areas. (Oct 2005)
Voted YES on reducing oil usage by 40% by 2025 (instead of 5%). (Jun 2005)
Voted YES on banning drilling in the Arctic National Wildlife Refuge. (Mar 2005)
Joe Biden:
Voted YES on removing oil & gas exploration subsidies. (Jun 2007)
Voted YES on factoring global warming into federal project planning. (May 2007)
Voted YES on disallowing an oil leasing program in Alaska's ANWR. (Nov 2005)
Voted YES on $3.1B for emergency oil assistance for hurricane-hit areas. (Oct 2005)
Voted YES on reducing oil usage by 40% by 2025 (instead of 5%). (Jun 2005)
Voted YES on banning drilling in the Arctic National Wildlife Refuge. (Mar 2005)
Voted YES on Bush Administration Energy Policy. (Jul 2003)
Voted YES on targeting 100,000 hydrogen-powered vehicles by 2010. (Jun 2003)
Voted YES on removing consideration of drilling ANWR from budget bill. (Mar 2003)
Voted NO on drilling ANWR on national security grounds. (Apr 2002)
Voted NO on terminating CAFE standards within 15 months. (Mar 2002)
Hillary Clinton:
Voted YES on removing oil & gas exploration subsidies. (Jun 2007)
Voted YES on making oil-producing and exporting cartels illegal. (Jun 2007)
Voted YES on factoring global warming into federal project planning. (May 2007)
Voted YES on disallowing an oil leasing program in Alaska's ANWR. (Nov 2005)
Voted YES on $3.1B for emergency oil assistance for hurricane-hit areas. (Oct 2005)
Voted YES on reducing oil usage by 40% by 2025 (instead of 5%). (Jun 2005)
Voted YES on banning drilling in the Arctic National Wildlife Refuge. (Mar 2005)
Voted NO on Bush Administration Energy Policy. (Jul 2003)
Voted YES on targeting 100,000 hydrogen-powered vehicles by 2010. (Jun 2003)
Voted YES on removing consideration of drilling ANWR from budget bill. (Mar 2003)
Voted NO on drilling ANWR on national security grounds. (Apr 2002)
Voted NO on terminating CAFE standards within 15 months. (Mar 2002)
Chris Dodd:
Voted YES on removing oil & gas exploration subsidies. (Jun 2007)
Voted YES on factoring global warming into federal project planning. (May 2007)
Voted YES on disallowing an oil leasing program in Alaska's ANWR. (Nov 2005)
Voted YES on $3.1B for emergency oil assistance for hurricane-hit areas. (Oct 2005)
Voted YES on reducing oil usage by 40% by 2025 (instead of 5%). (Jun 2005)
Voted YES on banning drilling in the Arctic National Wildlife Refuge. (Mar 2005)
Voted YES on Bush Administration Energy Policy. (Jul 2003)
Voted YES on targeting 100,000 hydrogen-powered vehicles by 2010. (Jun 2003)
Voted YES on removing consideration of drilling ANWR from budget bill. (Mar 2003)
Voted NO on drilling ANWR on national security grounds. (Apr 2002)
Voted NO on terminating CAFE standards within 15 months. (Mar 2002)
John Edwards:
Voted YES on Bush Administration Energy Policy. (Jul 2003)
Voted YES on removing consideration of drilling ANWR from budget bill. (Mar 2003)
Voted NO on drilling ANWR on national security grounds. (Apr 2002)
Voted NO on terminating CAFE standards within 15 months. (Mar 2002)
Mike Gravel:
No recent record on energy. Strongly opposed to nuclear power because of waste issues. No strong record on energy alternatives per se. Focuses on Global Warming and waste issues.
Dennis Kucinich:
Voted YES on criminalizing oil cartels like OPEC. (May 2007)
Voted YES on removing oil & gas exploration subsidies. (Jan 2007)
Voted YES on keeping moratorium on drilling for oil offshore. (Jun 2006)
Voted NO on scheduling permitting for new oil refinieries. (Jun 2006)
Voted NO on authorizing construction of new oil refineries. (Oct 2005)
Voted NO on passage of the Bush Administration national energy policy. (Jun 2004)
Voted NO on implementing Bush-Cheney national energy policy. (Nov 2003)
Voted YES on raising CAFE standards; incentives for alternative fuels. (Aug 2001)
Voted YES on prohibiting oil drilling & development in ANWR. (Aug 2001)
Barack Obama:
Voted YES on removing oil & gas exploration subsidies. (Jun 2007)
Voted YES on making oil-producing and exporting cartels illegal. (Jun 2007)
Voted YES on factoring global warming into federal project planning. (May 2007)
Voted YES on disallowing an oil leasing program in Alaska's ANWR. (Nov 2005)
Voted YES on $3.1B for emergency oil assistance for hurricane-hit areas. (Oct 2005)
Voted YES on reducing oil usage by 40% by 2025 (instead of 5%). (Jun 2005)
Voted YES on banning drilling in the Arctic National Wildlife Refuge. (Mar 2005)
Thursday, August 30, 2007
Sub-Prime Lending
Quick comment on subprime lending. Today, the NYTimes ran a report describing the ruling in bankruptcy court that denied Bear Stearns (based in the Caymans) bankruptcy.
I've heard about every story on who's to blame-- some people say it's all Bear Stearns, others say it's the people who took out the loans in the first place, others still say it was the people who agreed to take the mortgages as collateral in securities transactions, borrowers began defaulting as interest rates rose, the securities bombed and the collateral was worthless. Which leads back to Bear Stearns. Then, somebody I know tried to goat the government for it because they tried to create more opportunities for lower-income families to take out loans. When in doubt blame Uncle Sam.
This whole mess is more or less on Bear Stearns. I have to hold them responsible for making risky loans to folks without the means to keep making payments once rates rise and monthly payments double. They knew what they were doing, if anyone did. The borrowers screwed up, but they weren't motivated by greed. And now the judge is making them pay their own debts. Good.
I've heard about every story on who's to blame-- some people say it's all Bear Stearns, others say it's the people who took out the loans in the first place, others still say it was the people who agreed to take the mortgages as collateral in securities transactions, borrowers began defaulting as interest rates rose, the securities bombed and the collateral was worthless. Which leads back to Bear Stearns. Then, somebody I know tried to goat the government for it because they tried to create more opportunities for lower-income families to take out loans. When in doubt blame Uncle Sam.
This whole mess is more or less on Bear Stearns. I have to hold them responsible for making risky loans to folks without the means to keep making payments once rates rise and monthly payments double. They knew what they were doing, if anyone did. The borrowers screwed up, but they weren't motivated by greed. And now the judge is making them pay their own debts. Good.
Tuesday, August 28, 2007
The Dirty Secret Behind "The Dirty Secret Behind America's Energy Future"
Jeff Godell's book, "Big Coal: The Dirty Secret Behind America's Energy Future," has gotten a resurgence of media attention in recent days because of the events that have transpired in the Utah mine tragedy and the more recent tragedy of a similar nature in China. One of the things Godell blasts the coal industry for is safety (hence the newfound media attention). Now, if you've read my other posts on energy, you'll know that I'm no blind defender of Big Coal. I am, however, a big fan of making sure that if I'm going to pour my outrage, and that I target it where it will do the most good.
Around the time of a BIG EVENT with LOTS OF MEDIA, nearly every politician has to make sure they are on the public record "saying the right thing," and showing the appropriate amounts of outrage over the incident, resolve to do more from now on, and contrition that nothing was done sooner that would have saved the lives of the noble citizens who met their ultimate demise. But do we mete out our attention, sympathy, outrage and action equally? Well, OF COURSE NOT. It's a "law of small numbers" thing (the principle comes from the properties of the Poisson Distribution of statistics and referenced in Thomas Pynchon's fictional novel, "Gravity's Rainbow"). Basically, the way I'm going to apply it is to say that because certain events are so unexpected generally, that when they do occur they tend to grab our attention and affect behavior disproportionately to their risk of occuring again. My point is, there are hundreds of on-the-job fatalities every year (over 1400 in manufacturing) and almost none of them make Headline News. Why? They're just too damn common to be newsworthy! Hence, there is almost no public outcry for the government to take action. It's kind of like flying versus driving-- people are terrified of planes even though it's widely known that driving is statistically much more risky. (Again, there are so many damn car wrecks there's no way the news is going to start sending crews to them...) Does the fact that a certain type of fatality is more "common" or "mundane" make it less tragic?
Back to mining... Have I mentioned that economists like to back stuff up with data? So, the Coal mining industry actually has a much LOWER incidence of on-the-job fatality than the general manufacturing sector (according to the Bureau of Labor Statistics, manufacturing had about 3 fatal incidents per 1,000 workers in 2006 whereas coal had about 0.8 per 1000 workers). So, even if, as Mr. Godell asserts, coal accidents increase drastically over the next several years, it is unclear that our regulatory efforts are best-placed in that sector. It is conceivable that many more lives would be saved by fortifying safety regulations in a more general way rather than targeting coal. Not only that, it seems to me that the dangers of mining coal underground are not unforseen, so miners who choose that line of work are making an informed choice-- and are compensated for the perceived risk. In fact, despite a lower incidence of fatalities, COAL miners out-earn their colleagues in the manufacturing sector by about $7 per hour.
So, with all of this in mind, where should we spend our regulatory dollars? In coal, where there were just 78 fatalities in 2006, and incidents were relatively rare, or in the manufacturing sector or in a more general way altogether, where there are far more fatalities (and lives that could potentially be saved), but far less media attention? Should the media's crocodile tears and misinformation dictate where our tax dollars are spent? Maybe I'm a jerk, but as my students know, I want to make sure that I get the most "Bang" for my buck.
Around the time of a BIG EVENT with LOTS OF MEDIA, nearly every politician has to make sure they are on the public record "saying the right thing," and showing the appropriate amounts of outrage over the incident, resolve to do more from now on, and contrition that nothing was done sooner that would have saved the lives of the noble citizens who met their ultimate demise. But do we mete out our attention, sympathy, outrage and action equally? Well, OF COURSE NOT. It's a "law of small numbers" thing (the principle comes from the properties of the Poisson Distribution of statistics and referenced in Thomas Pynchon's fictional novel, "Gravity's Rainbow"). Basically, the way I'm going to apply it is to say that because certain events are so unexpected generally, that when they do occur they tend to grab our attention and affect behavior disproportionately to their risk of occuring again. My point is, there are hundreds of on-the-job fatalities every year (over 1400 in manufacturing) and almost none of them make Headline News. Why? They're just too damn common to be newsworthy! Hence, there is almost no public outcry for the government to take action. It's kind of like flying versus driving-- people are terrified of planes even though it's widely known that driving is statistically much more risky. (Again, there are so many damn car wrecks there's no way the news is going to start sending crews to them...) Does the fact that a certain type of fatality is more "common" or "mundane" make it less tragic?
Back to mining... Have I mentioned that economists like to back stuff up with data? So, the Coal mining industry actually has a much LOWER incidence of on-the-job fatality than the general manufacturing sector (according to the Bureau of Labor Statistics, manufacturing had about 3 fatal incidents per 1,000 workers in 2006 whereas coal had about 0.8 per 1000 workers). So, even if, as Mr. Godell asserts, coal accidents increase drastically over the next several years, it is unclear that our regulatory efforts are best-placed in that sector. It is conceivable that many more lives would be saved by fortifying safety regulations in a more general way rather than targeting coal. Not only that, it seems to me that the dangers of mining coal underground are not unforseen, so miners who choose that line of work are making an informed choice-- and are compensated for the perceived risk. In fact, despite a lower incidence of fatalities, COAL miners out-earn their colleagues in the manufacturing sector by about $7 per hour.
So, with all of this in mind, where should we spend our regulatory dollars? In coal, where there were just 78 fatalities in 2006, and incidents were relatively rare, or in the manufacturing sector or in a more general way altogether, where there are far more fatalities (and lives that could potentially be saved), but far less media attention? Should the media's crocodile tears and misinformation dictate where our tax dollars are spent? Maybe I'm a jerk, but as my students know, I want to make sure that I get the most "Bang" for my buck.
Monday, August 27, 2007
All New Meaning to "Cost of Living"
Several days ago, I was on a rant about Lou Dobbs calling economists "idiots" and "jackasses." But, while we tend to know what we are talking about a good deal of the time (usually with data and ituition to back up our stories), we are also really big jerks. Case in point: most "normal" people would hear the phrase, "you can't put a price on a human life" and agree without a second thought. Eonomists hear this, and ask, "can you back that claim up with data?" In fact, human life does have a price put on it, and economists aren't to blame.
Economists have actually done calculations to try to infer the cost of dying using data that are readily available. Frank Ackerman has "priced" a number of things, including death, in his pamphlet, "Pricing the Priceless." So how much is a human life worth? On average, between 1 and 6 million, depending on certain characteristics. But here's the catch: Computations aren't entirely made on the basis of earnings, life expectance at birth, etc.-- They're made by observing and evaluating our own behavior. If you feel this cheapens your worth as a person, you have yourself to blame. Here's one approach that's been used. Take construction workers, and survey their hourly earnings. Now survey the compensating differential between working on the first floor and working on the thirtieth floor. Next, calculate the increase in the risk of dying on the job, and there you have it. The price these construction workers have voluntarily put on their own lives using this back-of-the-napkin approach is about 2 million dollars.
So, the next time you run a red light,. think about the 30 seconds it saves you, the risk of dying you assume by doing it, and the fact that somewhere an economists might be watching.
Tomorrow, I will focus on the information distortion we get from the media-- are we evaluating the risk of death or disaster appropriately when we weigh whether or not to fly vs. drive, or in measuring our level of outrage for government action for things like mining regulations, bird flu precautions, etc.
Economists have actually done calculations to try to infer the cost of dying using data that are readily available. Frank Ackerman has "priced" a number of things, including death, in his pamphlet, "Pricing the Priceless." So how much is a human life worth? On average, between 1 and 6 million, depending on certain characteristics. But here's the catch: Computations aren't entirely made on the basis of earnings, life expectance at birth, etc.-- They're made by observing and evaluating our own behavior. If you feel this cheapens your worth as a person, you have yourself to blame. Here's one approach that's been used. Take construction workers, and survey their hourly earnings. Now survey the compensating differential between working on the first floor and working on the thirtieth floor. Next, calculate the increase in the risk of dying on the job, and there you have it. The price these construction workers have voluntarily put on their own lives using this back-of-the-napkin approach is about 2 million dollars.
So, the next time you run a red light,. think about the 30 seconds it saves you, the risk of dying you assume by doing it, and the fact that somewhere an economists might be watching.
Tomorrow, I will focus on the information distortion we get from the media-- are we evaluating the risk of death or disaster appropriately when we weigh whether or not to fly vs. drive, or in measuring our level of outrage for government action for things like mining regulations, bird flu precautions, etc.
Wednesday, August 22, 2007
An Immigration Story (Part III)
Today's post arrives late, and tomorrow will probably pass without new information, but SAY-LAH-VEE as the French say. 8-hour department meetings to prepare to greet the new academic semester do not leave much time for me to go on my usual rail about economics on my blog.
In my last two episodes we learned something of how my family came to the United States as immigrants from Denmark. Two days ago we learned about an old spinning wheel that my great great grandfather used as a gerry-rigged bellows, and had become worn out from hard work (much like the immigrants themselves who come here). Yesterday we learned that my ancestors came to this country somewhat casually, and not necessarily in a fully formalized way by first entering Canada, then following what work was available along the St. Lawrence River and then Sault Ste. Marie, MI, eventually landing in Plano, IL. Not only that, but they didn't all speak English from day one! The nerve! Today we will hear the story of how they built their life and eventually became landowners in Nebraska, the eventual home to most of my extended family today.
Stories of homesteads and cheap land in Nebraska were the motivation necessary to bring them to this state in February, 1880. Grandpa and his family and John Andersen and his family plus three other Danes loaded everything they had on two railroad cars and then got aboard these cars themselves and travelled to the end of the line which at that time was Lowell, Nebraska.
Uncle J*** said that Grandpa used to recall that when he looked south from Lowell and saw nothing but sandhills he said that if they did not find anything better than that they would go back to Illinois. However, they travelled to a place seven miles south of where Minden [Nebraska, ed.] is now located and there made their home.
Although homesteads were still available, Grandpa decided to buy an “improved quarter” rather than hunt for a good homestead location. He paid $400 for this farm. However, the improvements included only a one-room, dirt floor dugout on the west side of a draw and dug well on the east side.
Because Minden had not been founded it was necessary to go to Gibbon [NE, ed.] or Kearney [NE, ed.] to sell produce and to buy needed provisions. This was a hard two-day trip with a team of horses, in that it was 29 miles to Gibbon and 27 miles to Kearney. When Grandpa made these trips it left Grandma alone with a young family. However, Uncle J*** said that Grandma did not worry about anything except the possibility of an animal or a herd of animals falling through the roof of the dugout which was ground level on one side. There were some wild cattle, wild horses, and some buffalo in the area at the time.
Crops were good in those early years, but one of the first winters caught Grandpa and Grandma without a fuel supply. Fuel was very hard to find in that there was little wood available, because every year for hundreds of years prairie fires had burned all trees except those in sheltered spots at a crook of a stream. When the early snow came it became necessary for Grandpa to take a shovel and a length of rope and go to the corn field to find fuel. He would uncover corn stalks, cut them off, lay them over the rope, and when he had gathered a large bundle he would tie them up and carry them home.
The good crops enabled them to make good progress. After two years in the dugout they built a sod house. By 1892 they had a frame house, they had outbuildings and a good orchard and garden. In 1904 a fine addition to the house was completed. Uncle J*** said that Grandpa was proud that his former employer from Illinois, J*** L****, and his wife came to visit them one year and spent a while month in their home.
To return once more to the spinning wheel. Uncle Jim said that spinning wheel was one of their best toys when he was a kid. He said they would run it by the hour, and that along with the fun it provided it was often the cause of a fight when a brother or sister would cause the belt to come off.
In my last two episodes we learned something of how my family came to the United States as immigrants from Denmark. Two days ago we learned about an old spinning wheel that my great great grandfather used as a gerry-rigged bellows, and had become worn out from hard work (much like the immigrants themselves who come here). Yesterday we learned that my ancestors came to this country somewhat casually, and not necessarily in a fully formalized way by first entering Canada, then following what work was available along the St. Lawrence River and then Sault Ste. Marie, MI, eventually landing in Plano, IL. Not only that, but they didn't all speak English from day one! The nerve! Today we will hear the story of how they built their life and eventually became landowners in Nebraska, the eventual home to most of my extended family today.
Stories of homesteads and cheap land in Nebraska were the motivation necessary to bring them to this state in February, 1880. Grandpa and his family and John Andersen and his family plus three other Danes loaded everything they had on two railroad cars and then got aboard these cars themselves and travelled to the end of the line which at that time was Lowell, Nebraska.
Uncle J*** said that Grandpa used to recall that when he looked south from Lowell and saw nothing but sandhills he said that if they did not find anything better than that they would go back to Illinois. However, they travelled to a place seven miles south of where Minden [Nebraska, ed.] is now located and there made their home.
Although homesteads were still available, Grandpa decided to buy an “improved quarter” rather than hunt for a good homestead location. He paid $400 for this farm. However, the improvements included only a one-room, dirt floor dugout on the west side of a draw and dug well on the east side.
Because Minden had not been founded it was necessary to go to Gibbon [NE, ed.] or Kearney [NE, ed.] to sell produce and to buy needed provisions. This was a hard two-day trip with a team of horses, in that it was 29 miles to Gibbon and 27 miles to Kearney. When Grandpa made these trips it left Grandma alone with a young family. However, Uncle J*** said that Grandma did not worry about anything except the possibility of an animal or a herd of animals falling through the roof of the dugout which was ground level on one side. There were some wild cattle, wild horses, and some buffalo in the area at the time.
Crops were good in those early years, but one of the first winters caught Grandpa and Grandma without a fuel supply. Fuel was very hard to find in that there was little wood available, because every year for hundreds of years prairie fires had burned all trees except those in sheltered spots at a crook of a stream. When the early snow came it became necessary for Grandpa to take a shovel and a length of rope and go to the corn field to find fuel. He would uncover corn stalks, cut them off, lay them over the rope, and when he had gathered a large bundle he would tie them up and carry them home.
The good crops enabled them to make good progress. After two years in the dugout they built a sod house. By 1892 they had a frame house, they had outbuildings and a good orchard and garden. In 1904 a fine addition to the house was completed. Uncle J*** said that Grandpa was proud that his former employer from Illinois, J*** L****, and his wife came to visit them one year and spent a while month in their home.
To return once more to the spinning wheel. Uncle Jim said that spinning wheel was one of their best toys when he was a kid. He said they would run it by the hour, and that along with the fun it provided it was often the cause of a fight when a brother or sister would cause the belt to come off.
Tuesday, August 21, 2007
An Immigration Story (Part II)
Today is Part II of a three-part series on the immigration experience of my own family from Denmark in the late 1860's to early 1870's, as written by my grandfather. In yesterday's excerpt, we learned of a spinning wheel that had been passed from my great-great grandfather to my great-great uncle, which was now worn out and broken. In a sense it represented both the struggles they went through to achieve something more, and the power of the American entrepreneurial spirit. Today, we get the story of how my family was able to arrive here.
To get back to the original story that thoughts of this old spinning wheel brought back to Uncle J***, I will start with Grandpa’s arrival in the United States. He was M**** B***, born in Denmark on October 5, 1849, and he landed in Canada in 1869. After arriving in the “New World” he got a job on a boat that worked the St. Lawrence River. From that boat he transferred to a boat that sailed the Great Lakes. His primary objective at this time was to travel until he found a place where he wanted to settle or where he could find a good job. When he got to Sault Ste. Marie, Michigan, he found a job at the “unheard of wage”, as Uncle J*** said, of four dollars a day. This job was in an open pit copper mine.
These good wages allowed him to save money rather rapidly and it was not long until he was able to send money to Denmark to bring his brother **** to the United States. **** also worked in the copper mine until the two of them heard of good jobs being offered at the Plano Binder Company in Plano, Illinois. (The Plano Binder was a hand tie forerunner of the McCormick Reaper.) The two of them went to Plano, but by the time they arrived all of the jobs had been filled, so Grandpa went to work for a farmer by the name of J**** L*****.
The story now goes back to Denmark and to my Grandma’s side of the family. Her brother J*** A**** had come to Plano to get his start and had saved enough money to bring his sister, my grandma, and his fiancee Tante M*** to the United States. The two of them were packed and arrived at the pier to board ship to come to the United States. However, at the last minute Tante Marianna lost her nerve and did not go, but Grandma made the trip by herself. She was sixteen years of age at that time. Tante M*** did come at a later date and did marry Uncle J*** A****.
Uncle J**** said that Grandma used to tell of the first sighting of the Statue of Liberty when all of the passengers went on deck and gave a great cheer for what was to become their adopted country.
Grandma was in a new strange country and could not speak the language. After the ordeal of going through customs she was trying to think of a way to order a meal in a restaurant when the waiter told her to talk Dane because he too was Dane. He not only helped her order a meal but he wrote notes for her to use in ordering future meals and making railroad transfers and the like. One side of the note was written in Dane, the other in English.
Grandma got to Plano and expected to meet her brother, but although he had waited for her for several days he had decided that he had to go back to work. Communications did not allow them to contact each other. However, they did get together and Grandma got a job working for a family by the name of A**** D****. My dad got his name from this employer, and I in turn have that name.
Grandpa and Grandma met in Plano and were married there on February 19, 1878. They rented a farm from J*** L**** and farmed in the Plano area for the next two years. Their oldest child **** was born May 21, 1879. (**** was my Uncle J***’s father.)
So, the history of how my great-great grandfather got here is somewhat vague. What is somewhat interesting here, is that he seems to have first come to Canada, then worked along the St. Lawrence river, and probably first arrived through Sault Ste. Marie, MI. Although there were no formal restrictions or quotas on immigration until 1924, the government was trying to document new immigrants, which is ultimately why Ellis Island was founded in 1892. So even though no law prohibited my ancestors' entry to the US, one could surely doubt whether their entry was documented or controlled in the ways immigration is now regulated. I imagine there are several thousand stories like this one in nearly every US citizen's background, and the hypocricy and prejudice that dominates the debate over immigration needs to be set aside in favor of reasonable arguments about National welfare (rather than the special interest welfare of certain interest groups).
To get back to the original story that thoughts of this old spinning wheel brought back to Uncle J***, I will start with Grandpa’s arrival in the United States. He was M**** B***, born in Denmark on October 5, 1849, and he landed in Canada in 1869. After arriving in the “New World” he got a job on a boat that worked the St. Lawrence River. From that boat he transferred to a boat that sailed the Great Lakes. His primary objective at this time was to travel until he found a place where he wanted to settle or where he could find a good job. When he got to Sault Ste. Marie, Michigan, he found a job at the “unheard of wage”, as Uncle J*** said, of four dollars a day. This job was in an open pit copper mine.
These good wages allowed him to save money rather rapidly and it was not long until he was able to send money to Denmark to bring his brother **** to the United States. **** also worked in the copper mine until the two of them heard of good jobs being offered at the Plano Binder Company in Plano, Illinois. (The Plano Binder was a hand tie forerunner of the McCormick Reaper.) The two of them went to Plano, but by the time they arrived all of the jobs had been filled, so Grandpa went to work for a farmer by the name of J**** L*****.
The story now goes back to Denmark and to my Grandma’s side of the family. Her brother J*** A**** had come to Plano to get his start and had saved enough money to bring his sister, my grandma, and his fiancee Tante M*** to the United States. The two of them were packed and arrived at the pier to board ship to come to the United States. However, at the last minute Tante Marianna lost her nerve and did not go, but Grandma made the trip by herself. She was sixteen years of age at that time. Tante M*** did come at a later date and did marry Uncle J*** A****.
Uncle J**** said that Grandma used to tell of the first sighting of the Statue of Liberty when all of the passengers went on deck and gave a great cheer for what was to become their adopted country.
Grandma was in a new strange country and could not speak the language. After the ordeal of going through customs she was trying to think of a way to order a meal in a restaurant when the waiter told her to talk Dane because he too was Dane. He not only helped her order a meal but he wrote notes for her to use in ordering future meals and making railroad transfers and the like. One side of the note was written in Dane, the other in English.
Grandma got to Plano and expected to meet her brother, but although he had waited for her for several days he had decided that he had to go back to work. Communications did not allow them to contact each other. However, they did get together and Grandma got a job working for a family by the name of A**** D****. My dad got his name from this employer, and I in turn have that name.
Grandpa and Grandma met in Plano and were married there on February 19, 1878. They rented a farm from J*** L**** and farmed in the Plano area for the next two years. Their oldest child **** was born May 21, 1879. (**** was my Uncle J***’s father.)
So, the history of how my great-great grandfather got here is somewhat vague. What is somewhat interesting here, is that he seems to have first come to Canada, then worked along the St. Lawrence river, and probably first arrived through Sault Ste. Marie, MI. Although there were no formal restrictions or quotas on immigration until 1924, the government was trying to document new immigrants, which is ultimately why Ellis Island was founded in 1892. So even though no law prohibited my ancestors' entry to the US, one could surely doubt whether their entry was documented or controlled in the ways immigration is now regulated. I imagine there are several thousand stories like this one in nearly every US citizen's background, and the hypocricy and prejudice that dominates the debate over immigration needs to be set aside in favor of reasonable arguments about National welfare (rather than the special interest welfare of certain interest groups).
Monday, August 20, 2007
An Immigration Story (Part I)
Dear All,
I often write posts on this site relating events in the news to abstract economic theories and technical empirical studies. This mountain of theory and evidence so often gets dismissed by skeptics of economic science as irrelevant to their own lives and families. Too often we struggle to see the human face of the opportunities free markets afford us. Jagdish Bhagwati also speaks of this need for a more human face for topics such as immigration, trade, and globalization.
The story begins in Nebraska in 1974 with an interview by my grandfather with his uncle, my great-great uncle.
Too often we neglect to keep account of family history until the source of such information is no longer available. For that reason I shall always be pleased that on Friday, February 15, 1974, I was fortunate enough to be able to have a visit about such things with my Uncle **** **** of Minden, Nebraska.
At that time Uncle **** was 88 years of age and had just returned home from the hospital. He had been hospitalized because of an ulcer and possible heart problems. However, on this date he was in good spirits and very able and willing to visit. He was best able to visit with one person at a time because his hearing was poor. He and I sat at the kitchen table while others present were in the living room.
This story of family history started when I asked Uncle **** if he remembered his mother’s spinning wheel. He said he sure did and wondered what had become of it. I told him that I had it and had started to restore it, that it was in pieces in a box, and that the wheel would need some repair parts which I planned to make. He told me to keep it as nearly like the original as possible and added that he would like to see it again. I assured him that I would bring it to Minden for him to see after I had completed the restoration job. He told me that the Danish name for a spinning wheel is “ruck.”
(This is not a part of our visit, but I believe should be of interest to those who might read this account. My dad, ******* ******, told me that when Uncle **** was a young man he used the wheel and pedal to drive the bellows on a forge that he built. The wheel could not stand the strain and broke up. Dad said he gathered up all of the parts and put them in a box which he placed on a shelf in the shop. Here they stayed until his parents **** and **** **** moved to town in 1917. At that time Dad asked his mother for the spinning wheel and she was pleased to give it to him. Dad always planned to restore it, but did not get it done.)
I will continue with the transcript tomorrow, and I will post it in 3 parts. It speaks to the history of my own family, but also to the history of this country as a Nation of Immigrants, in the words of President John F. Kennedy.
I often write posts on this site relating events in the news to abstract economic theories and technical empirical studies. This mountain of theory and evidence so often gets dismissed by skeptics of economic science as irrelevant to their own lives and families. Too often we struggle to see the human face of the opportunities free markets afford us. Jagdish Bhagwati also speaks of this need for a more human face for topics such as immigration, trade, and globalization.
The story begins in Nebraska in 1974 with an interview by my grandfather with his uncle, my great-great uncle.
Too often we neglect to keep account of family history until the source of such information is no longer available. For that reason I shall always be pleased that on Friday, February 15, 1974, I was fortunate enough to be able to have a visit about such things with my Uncle **** **** of Minden, Nebraska.
At that time Uncle **** was 88 years of age and had just returned home from the hospital. He had been hospitalized because of an ulcer and possible heart problems. However, on this date he was in good spirits and very able and willing to visit. He was best able to visit with one person at a time because his hearing was poor. He and I sat at the kitchen table while others present were in the living room.
This story of family history started when I asked Uncle **** if he remembered his mother’s spinning wheel. He said he sure did and wondered what had become of it. I told him that I had it and had started to restore it, that it was in pieces in a box, and that the wheel would need some repair parts which I planned to make. He told me to keep it as nearly like the original as possible and added that he would like to see it again. I assured him that I would bring it to Minden for him to see after I had completed the restoration job. He told me that the Danish name for a spinning wheel is “ruck.”
(This is not a part of our visit, but I believe should be of interest to those who might read this account. My dad, ******* ******, told me that when Uncle **** was a young man he used the wheel and pedal to drive the bellows on a forge that he built. The wheel could not stand the strain and broke up. Dad said he gathered up all of the parts and put them in a box which he placed on a shelf in the shop. Here they stayed until his parents **** and **** **** moved to town in 1917. At that time Dad asked his mother for the spinning wheel and she was pleased to give it to him. Dad always planned to restore it, but did not get it done.)
I will continue with the transcript tomorrow, and I will post it in 3 parts. It speaks to the history of my own family, but also to the history of this country as a Nation of Immigrants, in the words of President John F. Kennedy.
Friday, August 17, 2007
This Jackass's Thoughts
Economists typically get bombarded with criticism for being arrogant, dispassionate, unrealistic, wishy-washy, abstract, misguided, and a whole list of other things, some of which I cannot list here. But usually economists have a strong reputation for being pretty smart guys and gals. Now, journalist Lou Dobbs has called economists "idiots" and "jackasses." How does one argue with someone so steadfast in his convictions that he categorically dismisses an entire field of science? Let me try.
First, let me apologize for the stooge who likened labor migration to trading apples. Clearly human beings are not to be treated as objects, but this was not the point of the comparison. The point was that when Factors of Production (machinery, workers, or other "stuff" that's used to produce the "stuff" households consume) move, society gains in a way that is similar to the way society gains when we are able to trade goods freely (both within our own borders and with other countries). The comparison was in the nature of the gain to society, not the ways in which they should be treated in a political, social, or moral sense. Economists are rational to a fault, and often ineloquent.
Mr. Dobbs asks, "Are there any empiricists among these idiotic economists?" Yo. Right here. In fact, the vast majority of the policy recommendations are based on careful empirical research that gets scrutinized by the sharpest minds in economic theory and statistical methodology before they see print. Trade (and movement of labor and capital) has two impacts: Aggregate gains and distributional consequences. When there is a change that lifts the restrictions placed on Rational Individuals, markets tend to function better and on average countries experience net gains. The net gains from trade are generally pretty big. But, some argue, trade is bad for labor and can lead to a loss in jobs. Still, if we count up every job that would be lost in the sectors dessimated by import competition, the average cost of US trade restrictions was estimated to be around $50,000 per job saved in 2000. The gains from immigration inflows has been estimated to be quite a bit smaller at around 0.25% of GDP per capita, but they are gains nonetheless. That means the median household (middle class American) is better off by $125 per year because of immigrants already here. War on the middle class? Hardly.
However, some individuals and groups will lose in the short run, and their transition to greener pastures in the long run may be a rocky path. Economists are not ignorant of that. Take for example Jim Richardson at Syracuse. He actively advocates for stronger Trade Adjustment Assistance programs that would include wage repacement stipends in addition to education credits.
Speaking to immigration specifically, Dobbs argues that since we have the strongest and best-funcioning economy, suddenly every person from a poor country will flood through our borders. Now who's being arrogant?!? First of all, immigration is difficult and costly (financially and socially), and there are a lot of people living in poor countries who simply cannot afford to come here, even if they wanted to do so. Second of all, not everyone wants to live here! Not only that, but almost one million illegal immigrants leave every year voluntarily! So let's not make up a number like, "4.8 billion people" that would suddenly flood our border once the gates open.
Finally, immigrants who come here looking to work and toil for a better life make our country richer and greater. To enact legislation that is largely designed to protect certain US labor interests at the expense of immigrants who are even poorer than the working poor here (not to mention to the detriment of the majority of native-born US citizens) is nationalist bigotry. It feeds on our basest prejudices against "outsiders." But even more than that, it is poor public policy. It is a lazy man's solution to a complicated problem. Immigration, like trade can benefit us all. Unfortunately, change causes socio-economic displacements that cannot be ignored, are difficult to solve, but must be addressed head-on rather than haphazardly. The solution to an infected papercut is not to chop of the entier arm.
First, let me apologize for the stooge who likened labor migration to trading apples. Clearly human beings are not to be treated as objects, but this was not the point of the comparison. The point was that when Factors of Production (machinery, workers, or other "stuff" that's used to produce the "stuff" households consume) move, society gains in a way that is similar to the way society gains when we are able to trade goods freely (both within our own borders and with other countries). The comparison was in the nature of the gain to society, not the ways in which they should be treated in a political, social, or moral sense. Economists are rational to a fault, and often ineloquent.
Mr. Dobbs asks, "Are there any empiricists among these idiotic economists?" Yo. Right here. In fact, the vast majority of the policy recommendations are based on careful empirical research that gets scrutinized by the sharpest minds in economic theory and statistical methodology before they see print. Trade (and movement of labor and capital) has two impacts: Aggregate gains and distributional consequences. When there is a change that lifts the restrictions placed on Rational Individuals, markets tend to function better and on average countries experience net gains. The net gains from trade are generally pretty big. But, some argue, trade is bad for labor and can lead to a loss in jobs. Still, if we count up every job that would be lost in the sectors dessimated by import competition, the average cost of US trade restrictions was estimated to be around $50,000 per job saved in 2000. The gains from immigration inflows has been estimated to be quite a bit smaller at around 0.25% of GDP per capita, but they are gains nonetheless. That means the median household (middle class American) is better off by $125 per year because of immigrants already here. War on the middle class? Hardly.
However, some individuals and groups will lose in the short run, and their transition to greener pastures in the long run may be a rocky path. Economists are not ignorant of that. Take for example Jim Richardson at Syracuse. He actively advocates for stronger Trade Adjustment Assistance programs that would include wage repacement stipends in addition to education credits.
Speaking to immigration specifically, Dobbs argues that since we have the strongest and best-funcioning economy, suddenly every person from a poor country will flood through our borders. Now who's being arrogant?!? First of all, immigration is difficult and costly (financially and socially), and there are a lot of people living in poor countries who simply cannot afford to come here, even if they wanted to do so. Second of all, not everyone wants to live here! Not only that, but almost one million illegal immigrants leave every year voluntarily! So let's not make up a number like, "4.8 billion people" that would suddenly flood our border once the gates open.
Finally, immigrants who come here looking to work and toil for a better life make our country richer and greater. To enact legislation that is largely designed to protect certain US labor interests at the expense of immigrants who are even poorer than the working poor here (not to mention to the detriment of the majority of native-born US citizens) is nationalist bigotry. It feeds on our basest prejudices against "outsiders." But even more than that, it is poor public policy. It is a lazy man's solution to a complicated problem. Immigration, like trade can benefit us all. Unfortunately, change causes socio-economic displacements that cannot be ignored, are difficult to solve, but must be addressed head-on rather than haphazardly. The solution to an infected papercut is not to chop of the entier arm.
Thursday, August 16, 2007
Perverse Effects of Sanctions
It can be amusing how an idea that sounds so very sensible in the world of politics ends in precisely the opposite effect that may have been intended. A Reuters article appeared Monday in the Washington Post in which British officials called the embargo of the Palestinian authority in Gaza "counterproductive." An embargo does have a substantial negative impact on a country, especially if that country is small and lacks sufficient allies to make the threat of cooperative retaliation tangible and credible. But the punitive effect of the embargo is no "free lunch"-- countries that impose the sanctions will also experience a small loss in welfare.
These welfare effects for the sanction-imposing countries aside, do the punitive effects lead to the desired effect? In rare cases they may, but there is not much evidence that shows sanctions to have any effect than to lead the offending country to dig in its heels and become more belligerent. It seems that in the cases of most of the usual suspects (Iran, Iraq, North Korea, Libya, Cuba, the Palestinian Authority), the demagogues in charge of these areas managed to use the embargo to rally support around them.
This just seems to be another case where trade gets perversely tangled up where it has no business being drug in. My rules for public policy are simple: (1) achieve your goal; (2) minimize unintended consequences. In most cases trade-related solutions are second-best at best.
These welfare effects for the sanction-imposing countries aside, do the punitive effects lead to the desired effect? In rare cases they may, but there is not much evidence that shows sanctions to have any effect than to lead the offending country to dig in its heels and become more belligerent. It seems that in the cases of most of the usual suspects (Iran, Iraq, North Korea, Libya, Cuba, the Palestinian Authority), the demagogues in charge of these areas managed to use the embargo to rally support around them.
This just seems to be another case where trade gets perversely tangled up where it has no business being drug in. My rules for public policy are simple: (1) achieve your goal; (2) minimize unintended consequences. In most cases trade-related solutions are second-best at best.
Wednesday, August 15, 2007
Rule #1 of Public Finance
Here in Virginia, there has been much ado about so-called "bad-driver fees" that get added on to your normal fines if you commit certain types of driving offenses like wreckless driving, or if you are a repeat offender for normal offenses like speeding. The idea behind the law is to raise the approximately $65 million needed to help fund the repair and construction of roads and bridges in Virginia. Other states such as Michigan, New Jersey, and Texas have similar fees. The catch for Virginians is that out-of-state drivers are exempt from the fees.
Is it Constitutional? Challengers to the bill are claiming that this violates the equal protection clause and the 14th amendment of the US Constitution. The law has been alternately struck down and upheld by various appellate courts, and was most recently reported to be upheld in Tuesday's Washington Post (Tim Craig, Virginia Bad Driver Fees Upheld, Aug. 14, 2007 p. B-01).
Is it Safe? In the short run, it may make roads safer because it raises the cost of bad behaviour. In the long run, the impact on safety is less certain. According to Craig's article, "Michigan judges are calling for repeal of the program because they are seeing an influx of motorists cited for driving on suspended licenses." What it doesn't add is the fact that many of these unlicensed motorists are also likely to be uninsured.
Is it Fair? Taxing in-staters does seem to make sense on the basis of the benefits received principle--Virginians do tend to use Virginia's roads and highways more than out-of-staters. However, groups that advocate for low-income households are concerned about the impact it may have on the basis of the ability to pay principle. The Post article relates the story of an 81-year old lady getting an excessive fee slapped onto a wreckless driving citation.
Is it Politically Smart? Constitutional/unconstitutional? Safe/Unsafe? Fair/unfair? The bottom line here is that economically there are arguments that can be made on both sides, but the real reason this bill should never have been passed is that it is POLITICALLY STUPID. As a matter of politics and electoral competition, rule number one of public finance is: ALWAYS TAX THE OUTSIDER. Why? Because she doesn't vote in your district/state. This law disproportionately taxes the people that can legally vote in Virginia. Pack your bags, Virginia House.
On the other hand, Kansas City decided it would throw public dollars at the owners of the Chiefs to make a few hundred million in renovations to Arrowhead Stadium so they could host a Super Bowl. Let me say first that there is no worse public finance blunder than to throw money into a sports stadium. Check out Division of Labor for a series of good rants on this. But I absolutely love the way they decided to pay for it: They added a $4 fee to car rentals. It's beautiful. Locals almost never rent cars, and if they do, they can probably avoid the fee by renting from an office in the 'burbs (which is where most locals likely to rent cars live). Plus, there's no statutory bias in how or to whom the fee applies. An article by Rick Alm and David Helling in the Kansas City Star (July 18, 2006) cites a study by William Gale and Kim Reuben (2006) that says the fees are inefficient, that they disproportionately tax certain groups, etc, but least politically they got it right in KC. For AGES we've been taxing the outsider to gain revenue-- hotel taxes, higher sales taxes in touristy areas, etc. This is nothing new. At least POLITICALLY it makes sense, which is more than I can say for Virginia's bad driver fees.
Is it Constitutional? Challengers to the bill are claiming that this violates the equal protection clause and the 14th amendment of the US Constitution. The law has been alternately struck down and upheld by various appellate courts, and was most recently reported to be upheld in Tuesday's Washington Post (Tim Craig, Virginia Bad Driver Fees Upheld, Aug. 14, 2007 p. B-01).
Is it Safe? In the short run, it may make roads safer because it raises the cost of bad behaviour. In the long run, the impact on safety is less certain. According to Craig's article, "Michigan judges are calling for repeal of the program because they are seeing an influx of motorists cited for driving on suspended licenses." What it doesn't add is the fact that many of these unlicensed motorists are also likely to be uninsured.
Is it Fair? Taxing in-staters does seem to make sense on the basis of the benefits received principle--Virginians do tend to use Virginia's roads and highways more than out-of-staters. However, groups that advocate for low-income households are concerned about the impact it may have on the basis of the ability to pay principle. The Post article relates the story of an 81-year old lady getting an excessive fee slapped onto a wreckless driving citation.
Is it Politically Smart? Constitutional/unconstitutional? Safe/Unsafe? Fair/unfair? The bottom line here is that economically there are arguments that can be made on both sides, but the real reason this bill should never have been passed is that it is POLITICALLY STUPID. As a matter of politics and electoral competition, rule number one of public finance is: ALWAYS TAX THE OUTSIDER. Why? Because she doesn't vote in your district/state. This law disproportionately taxes the people that can legally vote in Virginia. Pack your bags, Virginia House.
On the other hand, Kansas City decided it would throw public dollars at the owners of the Chiefs to make a few hundred million in renovations to Arrowhead Stadium so they could host a Super Bowl. Let me say first that there is no worse public finance blunder than to throw money into a sports stadium. Check out Division of Labor for a series of good rants on this. But I absolutely love the way they decided to pay for it: They added a $4 fee to car rentals. It's beautiful. Locals almost never rent cars, and if they do, they can probably avoid the fee by renting from an office in the 'burbs (which is where most locals likely to rent cars live). Plus, there's no statutory bias in how or to whom the fee applies. An article by Rick Alm and David Helling in the Kansas City Star (July 18, 2006) cites a study by William Gale and Kim Reuben (2006) that says the fees are inefficient, that they disproportionately tax certain groups, etc, but least politically they got it right in KC. For AGES we've been taxing the outsider to gain revenue-- hotel taxes, higher sales taxes in touristy areas, etc. This is nothing new. At least POLITICALLY it makes sense, which is more than I can say for Virginia's bad driver fees.
Tuesday, August 14, 2007
Green Energy
Here's a continuation of yesterday's topic. So, if you read yesterday's post it may seem that I'm not too motivated for "alternative energy." Nothing could be further from the truth-- I just want to find the most appropriate alternative. First, I feel we need to make sure our resources are focused on alternatives best address the issues of sustainability and affordability but also minimize the negative consequences of our energy use, namely global climate change. An editorial appeared in the Saturday New York Times (Energy Surge, Staff Editorial, Aug 11, 2007) that I think accurately reflects the interdependence between energy policy and climate change, and the need for energy policy that has complementarities that help address both ills simultaneously.
On this basis I cannot bring myself around to the viewpoint that coal represents a worthwhile improvement. That makes me pretty unpopular in my neck of Virginia. Coal is currently plentiful in relation to its demand, but that is due in large part to the fact that about a century ago, technological change led us to an alternative that was both more abundant and cleaner-burning. At that time, Malthusian Chicken Littles cried that the sky was falling and that Coal was both too scarce and too harmful to our air. Then came petroleum, which was plentiful and clean (in comparison), and was compatible with the fabulous new internal-combustion automobiles running off Henry Ford's assembly lines. No matter how "clean" the coal industry claims their product to be, we cannot shake the reality that coal is entirely composed of carbon, which, when burned produces carbon gasses.
In the same regard, my love for alternatives such as natural gas and ethanol is equivocal at best. Ethanol and natural gas burn cleaner than some alternatives, and ethanol is good for short-run sustainability, but, as my father-in-law (a corn and soybean farmer) puts it, "it just stretches out" petroleum products-- we don't yet have technology for using ethanol as a stand-alone alternative. These options also suffer from a lack of sufficient nation-wide distribution network. Hydrogen, you say? I'm personally still a tad skittish about the possibility of this happening on my drive to work:
So, here's what's caught my eye in the alternative energy debate: nanotubes. These little guys can be used for a lot of applications and their capabilities and limitations are pretty unknown, but the early research is promising. One of their advantages is that they can be designed to work as transistors, ultracapacitors, can be designed to have photovalic, semiconducting, or superconducting (at low temperatures) properties, and I've heard that they even do the laundry and wash windows. According to Collins and Avouris (December 2000, Scientific American), certain nanotubes can carry electrical current 1,000 times denser than copper or silver. I'm no expert on these little suckers, but I'd count them among the innovations to keep an eye on for helping solve our energy policy, cure disease, and protect our troops.
On this basis I cannot bring myself around to the viewpoint that coal represents a worthwhile improvement. That makes me pretty unpopular in my neck of Virginia. Coal is currently plentiful in relation to its demand, but that is due in large part to the fact that about a century ago, technological change led us to an alternative that was both more abundant and cleaner-burning. At that time, Malthusian Chicken Littles cried that the sky was falling and that Coal was both too scarce and too harmful to our air. Then came petroleum, which was plentiful and clean (in comparison), and was compatible with the fabulous new internal-combustion automobiles running off Henry Ford's assembly lines. No matter how "clean" the coal industry claims their product to be, we cannot shake the reality that coal is entirely composed of carbon, which, when burned produces carbon gasses.
In the same regard, my love for alternatives such as natural gas and ethanol is equivocal at best. Ethanol and natural gas burn cleaner than some alternatives, and ethanol is good for short-run sustainability, but, as my father-in-law (a corn and soybean farmer) puts it, "it just stretches out" petroleum products-- we don't yet have technology for using ethanol as a stand-alone alternative. These options also suffer from a lack of sufficient nation-wide distribution network. Hydrogen, you say? I'm personally still a tad skittish about the possibility of this happening on my drive to work:
So, here's what's caught my eye in the alternative energy debate: nanotubes. These little guys can be used for a lot of applications and their capabilities and limitations are pretty unknown, but the early research is promising. One of their advantages is that they can be designed to work as transistors, ultracapacitors, can be designed to have photovalic, semiconducting, or superconducting (at low temperatures) properties, and I've heard that they even do the laundry and wash windows. According to Collins and Avouris (December 2000, Scientific American), certain nanotubes can carry electrical current 1,000 times denser than copper or silver. I'm no expert on these little suckers, but I'd count them among the innovations to keep an eye on for helping solve our energy policy, cure disease, and protect our troops.
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