Yuval Levin recommends my book, among others.
It helps you unlearn what is untrue and then try to learn what is true. And it treats economics as a discipline—that is, not just a set of tools and facts but an ongoing project engaged in by real human beings with a purpose and a history and all manner of virtues and vices. It seems to me that we are living through something of a crisis in economic theory at the moment (not for the first time), and Kling can help us through it.
An increase in the supply of labor lowers wages only if nothing else changes. But when immigrants enter the workforce two very important other things change. First, immigrant workers spend or invest their earnings, both of which activities increase the demand for labor – thus putting upward pressure on wages. By focusing only on immigrants’ effect on the supply of labor, Mr. Burwell overlooks immigrants’ effect on the demand for labor.
A second change is one that was emphasized by Adam Smith: larger supplies of workers, as well as more consumers of the economy’s output, lead to greater specialization. Jobs change. As Smith explained, this greater specialization makes workers more productive. This increased productivity, in turn, causes wages to rise.
Peter Turchin would disagree. In Ages of Discord, he finds a strong historical correlation between periods of high rates of immigration and stagnant wages for ordinary workers. I have read through Turchin’s book once, and I mean to write a review. But I keep procrastinating. I am tempted to say that the book, while it appeared to be very interesting on a first pass, is un-rereadable. The data that lands in Turchin’s charts takes a very circuitous route to get there, and it hard for me to stay on top of the relationship between the underlying data and what Turchin says that they represent.
From a chapter of the 2017 Economic Report of the President.
Zimmerman (2014) compares students whose GPAs are either just above or just below the threshold for admission to Florida International University, a four-year school with the lowest admissions standards in the Florida State University System. This study finds that “marginal students” who are admitted to the school experience sizable earnings gains over those who just miss the cutoff and are thus unlikely to attend any four-year college, translating into meaningful returns net of costs and especially high returns for low-income students. Using a similar methodology, Ost, Pan, and Webber (2016) study the benefit of completing college among low-performing students whose GPAs are close to the cutoff for dismissal at 13 public universities in Ohio. They find substantial earnings benefits for those who just pass the cutoff and complete their degree.
My thoughts:
1. Usually, the economic report of the President comes out in early February. Since the Obama Administration will still be in office in January, I would have expected to see the report come out then. I guess having it come out now makes it easier for the Council members to clip back into academia the second semester, if that is what they want.
2. The second result may not really support the authors’ policy view. If the only difference between Alice and Bob is that Alice just barely got the sheepskin, then Alice did not learn more than Bob. That suggests that Alice’s earnings advantage was due solely to signaling.
3. Remember that regardless of economic theory, government policy tends toward subsidizing demand and restricting supply. Subsidizing demand and restricting supply raises price, not quantity. If you really want to produce a large increase in college attendance and completion, you have to do something to increase supply. The only supply-side policies discusses in the chapter are regulations intended to identify and punish low-quality institutions.
if the worst predictions about Trump turn out to be true, the negative consequences ought to show up in some of the world’s most fragile spots.
He suggests following an index of Baltic stocks, an index of Taiwan stocks, and the exchange value of the dollar. On the later, he writes,
Many emerging-economy companies are running up alarmingly high dollar-denominated debts, and a strong dollar increases that debt burden in real terms. More generally, the dollar remains the primary source of liquidity in the global economy, especially if the eurozone sees continuing troubles. A more expensive dollar implies a greater scarcity of liquidity, and there is increasing evidence this may herald or cause global financial and economic volatility.
What about domestic policy? I would suggest looking at an indicator of where the highest-income counties are located. For now, Terrence P. Jeffrey writes,
The four richest counties in the United States, when measured by median household income, are all suburbs of Washington, D.C., according to newly released data from the Census Bureau.
It would be nice to have incomes go up more in the rest of the country than in the DC area.
If you tax imports and subsidize exports, the nominal exchange rate adjusts so that those policies don’t end up improving the real exchange rate at all, and thus the trade balance will not improve.
Consider the macroeconomic accounting identity that governs the trade deficit:
Net private saving plus government surplus/deficit = trade surplus/deficit
If you do not change net private saving (household saving plus business saving minus investment) or the government budget, then you cannot change the trade surplus. In order for a tariff on, say, Chinese goods, to reduce the trade deficit, it has to do something to domestic saving. One can come up with channels by which this would happen, but those may or may not operate. If they do not operate, then what you get is a movement in the exchange rate that offsets the effect of the tariff. The design of the tariff might cause the composition of consumption and production, but the overall trade deficit will not be affected.
Which is fine, because there is not much reason to care about the trade deficit in the first place.
Self-recommending. A couple of excerpts from Henrich.
Humans really don’t think as individuals. We don’t innovate as individuals. We innovate as groups. Groups that, for whatever reason, are able to create more social interconnections produce fancier tools and technology, and they’re able to maintain larger bodies of know-how.
and
Much of behavioral economics, at least at the time, was based on running experiments on undergrads. It’s actually mostly American undergrads that are studied.
The point is that these studies may not replicate, because they are limited to people who are Western, Educated, Industrialized, Rich, and Democratic–WEIRD.
Recall that I based a lot of my essay on cultural intelligence on Henrich’s book.
The interview with Cowen is lively and interesting throughout.
Hundreds of federal safety specifications for factory equipment could be encompassed within one general principle: “Tools and equipment shall be reasonably suited for the use intended, in accordance with industry standards.” Is there room for disagreement? Yes, but only at the margins. Instead of wasting regulatory resources on foot faults that don’t matter, the safety agency could redeploy its resources to finding workplaces that are actually unsafe.
I think that principles-based regulation would have a few problems but many advantages. One problem is that there would be a zone of uncertainty about what constitutes compliance.
One advantage is that Congress could spell out the principles, because principles-based regulation would not require technocratic expertise. That would restore better Constitutional balance. Another advantage is that it would force whoever writes the regulations to think in broad terms about the aims of regulation. You would not be mindlessly piling on regulations with high costs and low benefits.
However, the main advantage is as Howard describes it. Most people want to do the right thing, especially if you respect their autonomy. If you spell out in broad terms what the “right thing” means, people will use their creativity to achieve that. Instead if you spell out do’s and don’ts in detail, they will use their creativity to achieve compliance with the letter but not with the spirit of the regulation.
causes for worry on this front are by no means limited to the presidential contenders. They are evident in our institutions, and not only those dominated by the Left. Indeed, the willful weakness of the Congress (which has been largely run by Republicans for two decades) and of the state governments (most of which are run by Republicans) may be the most significant problems our system confronts. Congress routinely delegates its power and abides executive overreach for policy or political ends. And while some state leaders have certainly pushed back against federal overreach at times, on the whole the states have accepted the bargain of “cooperative federalism”: From healthcare to education to transportation and beyond, federal dollars flow to the states in return for power flowing to Washington.
I am inclined to look at structural reasons for this. On states vs. the Federal government, I think that the big fact is that the Federal government can borrow to fund its operations. If we had not broken the balanced-budget norm that prevailed up until the Second World War, we might have a more balanced relationship between Washington and the states.
Congressional weakness comes from the imbalance between accountability and authority. Senators and Representatives hear from their constituents very day. They are lobbied by interest groups that hold the power of the campaign-finance purse over them. This makes our representatives in Congress feel very accountable. If they exercise authority, they fear the consequences.
For the executive branch, the situation is reversed. The agencies that issue regulations and administer programs have relatively more authority and relatively less accountability. The courts also have gained in authority with less accountability. That creates an incentive to exercise ever-increasing power.
Another factor is mass media. This concentrates the public’s attention on the President, who is much better able to gain popular support. In a mass media age, we have tended away from separation of powers and toward elected monarchy.
I am going to dial back the extent of this. I keep hoping that someone will contact me saying that they will take it on if we can find funding for it, but nobody has.
Tuesday’s paper included a front-page story about Planned Parenthood which begins
Planned Parenthood officials are scrambling to prepare for the likelihood that Congress next year will cut off more than a half-billion dollars in federal funding to the group, fulfilling the wishes of abortion foes who are planning an aggressive push to roll back abortion rights under President-elect Donald Trump.
The headline is “Planned Parenthood ready for abortion war.” That sounds like a fund-raising appeal for Planned Parenthood, and I am sure that the group was very happy to see the story on the front page. But it is not news.
The newspaper had the Russian hack story on the front page every day except Friday and Sunday, but with nothing new to report. This seems to be the story around which Democrats who want to re-litigate the election are coalescing. But I do not see where they are headed. Citizens who cast ballots for Trump are not raising their hands to say they want to change their votes. Congress cannot impeach Putin. Even if Trump were to be impeached and removed from office, all the people next in line are Republicans.
If the Russian hacking story does not pan out as another Watergate, what do you think that the Post will do? (a) eat humble pie; or (b) keep trying to promote other scandals, trying to find The Big One that brings Trump down?
Through Thursday, the paper continued to attack Trump’s cabinet picks in news stories, especially on page one. They are (gasp!) businessmen. They are too friendly to energy producers. And they got their world view from Ayn Rand. For the Post and its sympathetic readers, the incoming Administration is just one outrage after another. However, Friday there was nothing either on the Russian hacking story or the Trump cabinet. (There was a fair story on the appointment of an ambassador to Israel who has supported settlements.)
They Post continued to run op-eds (by E. J. Dionne, for example) asking the electoral college to reverse the election result. No one who favors this seems to want to talk about what the response might be from the other side, either in the short run or in the long run.
On Sunday, the attempt to overturn the election in the Electoral College received lead-story front-page coverage. The story jumps to page 18, where there is another analysis, by Aaron Blake, that finally speaks to what might happen if Trump were not chosen.
But the fact remains that the electoral college, if it were to deprive Trump of the presidency, would risk massive public backlash and a potential constitutional crisis. It would also be doing something even many non-Trump voters aren’t comfortable with.
My guess is that if it were Republicans trying to overturn an election this way, we would be hearing a lot more about the adverse consequences. In addition, we would be reading about the nuttiness of the people behind the attempt.
And if Hillary Clinton has expressed an opinion about whether she wants this effort to take place or not, I have not seen it. That seems odd.
Mr. Auerbach’s approach, embraced by the Brady proposal, will also face a hurdle at the World Trade Organization. Among its provisions is to allow American companies to deduct domestic wages from taxation, which makes it less costly to employ workers and helps them offset the higher price of imported goods. A wage deduction is not currently permitted under W.T.O. rules, and is likely to be seen as an unfair subsidy to American companies and a trade barrier.
Pointer from Greg Mankiw. As if domestic special interests were not enough of a hurdle.