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.
Friday, December 7, 2007
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.
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