Tyler Cowen's Blog, page 358

Assorted links

1. How to find out what a person really thinks.

2. “People are complicated.”

3. Reinhart and Rogoff write an open letter to Paul Krugman, and Krugman responds to one or two of the points.  James Hamilton comments.

4. “…or prove their intent to install one within 30 days of their wedding…”

5. How small opera companies are driving innovation.

Do low wages for unskilled workers weaken the case for more immigration?

Here is a point which I think the anti-immigration forces are getting wrong, mostly on the side of economics.  It can be pointed out that low-skilled (native) labor in the United States has not seen strong income gains for some time.  You might then wonder whether it makes sense to bring more unskilled labor into the country.

In my view the evidence (and here) suggests that the negative wage pressures on unskilled labor, to the extent they have international origins at all (as opposed to TGS or automation or political factors), come more from outsourcing and trade than from immigration.  So if you limit low-skilled immigration, outsourcing likely will go up, as it would be harder to find cheap labor in the United States.  The United States will lose the complementary jobs as well, such as the truck driver who brings cafeteria snacks to the call center.  Conversely, if you increase low-skilled immigration, you will also get more investment in the United States and more complementary jobs as well and possibly some increasing returns from clustering and maybe more net tax revenue too.  On top of that the individuals themselves have greater choice as to where to spend their lives and build their careers.

Here’s another way to put it.  Either factor price equalization will go on or not, noting that capital flows are the more active marginal lever here and there is no serious talk of banning capital outflow.  If FPE isn’t going to happen much, no big deal either way.  If FPE is going to happen, you still might want to have it happen with more of those jobs inside your country.

Again, you may wish to counterbalance this against any political costs from having more unskilled labor in your country, as I mentioned earlier.  But from an economic point of view, the case for accepting the immigration — including low-skilled immigration — still seems strong to me.

Some of the longer-run economic news is turning around

Here is my latest New York Times column.  I would stress that the observed good news is not much showing up in real wages, but at least the outlines of a potential positive narrative are falling into place.  For instance:

The nation’s high school graduation rate has risen — to 78 percent in 2010, the Education Department says in its most recent estimate. That’s obviously still not where it should be, but it’s the highest figure since 1974. (For a long time, the rate was under 70 percent. After decades of stagnation, the graduation rate started to turn up in 2000, and the growth has been robust for more than a decade.)

On average, these additional high school graduates — not to mention college degree recipients — will find better jobs and enjoy better health, long-lasting benefits that will be reaped for many decades.

And this:

The growth rate in health care costs has been slowing for the last four years. In some years, in fact, it’s been no higher than the growth rate of the economy as a whole. And much of the change appears driven by efficiencies, rather than by the recent recession. This is documented in a paper by David M. Cutler, an economics professor at Harvard, and Nikhil R. Sahni, a fellow at Harvard Business School; it appeared in the May 2013 issue of Health Affairs.

This cost deceleration isn’t guaranteed to stick, but the danger that sharply rising health care costs, compounding over time, will crash the entire economy is now somewhat reduced.

That’s hardly the Jetsons, but still education and health care have been major productivity drags on the economy in the past (not in terms of the measured number, but in terms of actual performance).  Coming from another direction, we even find that California suddenly has a budget surplus.  One other reason for optimism is this:

While the populations of countries like the United States are aging, the number of innovative young people worldwide has never been higher. Countries like China, India, Brazil and Russia, despite recent slowdowns in growth, still are making progress in improving their educational systems and scientific networks. That increases their ability to supply technological innovations — or scientists and entrepreneurs — to the United States. These gains can be reaped in coming decades.

For the cold water, do note that none of these other countries are currently major innovators in a way which benefits the United States.  Still, perhaps the dependency ratio should be defined in terms of potential ideal creators, rather than bodies and ages per se, and then it is more favorable looking forward.  Finally:

Note, too, that none of these trends can be reduced to breathless or utopian claims about the future of information technology, even though each is intertwined with tech progress in subtle ways. Further breakthroughs in technology, perhaps in the field of quantum computing, could add substantially to these positive trends.

The forthcoming clustering of human capital

A radical change is taking place in the German job market: Today’s immigrants to Germany are better trained and have a higher level of education than native Germans, according to a study carried out by labor market researcher Herbert Brücker on behalf of the Bertelsmann Stiftung, a private think tank based in Gütersloh. Today, 43 percent of newly arriving immigrants between the ages of 15 and 65 have graduated from a university, a technical school or a graduate program, compared to only 26 percent of Germans without an immigration background.

The German public still largely believes that immigrants come primarily from low-skilled segments of the population, according to research done by the Nuremberg-based Institute for Employment Research (IAB).

Here is a bit more.

Oops, and double oops…

Au pair programs are in danger of ending, a possible victim of legislation now moving through Congress…

At issue is a provision of the bill that would bar any labor contractor from charging a fee to foreign workers being brought into the country. Supporters say the measure is aimed at preventing the exploitation of foreign workers.

The roughly 13,000 au pairs who enter the U.S. each year are considered participants in an “exchange visitor program” run by the State Department. The Senate bill would change their status to “workers,” meaning the new bar on charging upfront fees would apply to them.

The story is here.  I predict they will find some semi-legal way around this stipulation, should the bill pass, but still this is a big mistake.  Au pairs should not be considered controversial immigrants.

The second oops is this, from the Detroit Institute of Arts:

Museum officials here said Friday they strongly opposed any forced art sales, after the powerful emergency manager of the city indicated that its prized holdings could be sold to pay off creditors in the event of a bankruptcy filing…legal experts say that in a municipal bankruptcy, it is possible for a city to sell assets, even cultural icons. James Spiotto, a bankruptcy attorney and author on municipal-finance issues based in Chicago, said that “in order to provide essential government services like public safety, roads and education, certain other programs are going to be curtailed or eliminated. So it’s not surprising that the sale of art is on the table.”

Putting that museum into private hands would not have been a bad idea.  You also can take this as an illustration of the more general point, which I am fond of stressing, that once you consider wealth, hardly anywhere is actually bankrupt or insolvent.  Debt problems are most of all problems of politics.

Assorted links

1. Economic Rewards to Motivate Blood Donations, important summary of the evidence in Science.

2. Words that cannot be spoken: raw milk.

3. Econometrics by simulation blog.

4. EU to ban olive oil in dishes? Way to upset the Greeks even more.

5. How does copyright law work in space?

Assorted links

1. “Wanting to be liked.”

2. Trifecta (good photos too).

3. Hobson, underconsumption, globalization, and the great stagnation, by Robert Skidelsky; uneven but interesting.  I’ve been waiting for this tradition to be rediscovered, I suppose Hilferding is next.

4. WSJ reviews the excellent Arnold Kling.

5. I am more pro-immigration than he is, but Ross Douthat is right now writing the best material on immigration reform.  It is odd for me how, in the midst of a major policy discussion of the issue, most of the people I read cover the topic but do not mention or much discuss five nights of riots in Sweden.  The economics of additional immigration work out fine in my view, and I am happy to count the well-being of foreigners without hesitation.  The real question is how much immigration a nation’s politics can handle.  Fortunately we are not at the “five nights of riots” margin in the United States, but Ross still raises the key question, namely “the kind of social solidarity that mass immigration often tends to undercut…” and the role of that solidarity in supporting a free society.  The key question is how many low-skilled immigrants a nation can take in and still keep a good politics.

6. Location-aware radio.

Prisoner unemployment is rising in California

Prison labor, once best known for making license plates, has grown to 57 factories doing such work as modular building construction, toner cartridge recycling, shoemaking and juice packaging, according to its latest annual report. Convicts supply closed-captioning for television and transcribe movies into Braille…

Yet even with workers paid 35 to 95 cents an hour, business is off. Sales are exclusively to state and local governments, almost all under budget pressure. The biggest customer, the Corrections Department, has 43,000 fewer inmates since 2006, many shifted to county jails to ease crowding. Revenue slipped 18 percent to $173 million in the fiscal year that ended in June, from almost $210 million five years earlier.

“We are statutorily required to be self-sufficient,” said Eric Reslock, a spokesman for the California Prison Industry Authority. Some work programs have been scaled back and all are being reviewed, he said.

That is from James Nash of Bloomberg.  Here is one specific report for Bakersfield.

You can see that the initial shock to this system is largely demand-side.  Yet there is still a relevant supply-side reason why many of these laid-off workers remain unemployed.

Painted into a corner?

According to the BoJ [Bank of Japan], a 100 basis-point increase in interest rates across all maturities would lead to mark-to-market losses equivalent to a fifth of tier one capital for regional banks, and 10 per cent for the major banks.

At the same time, rising interest rates could undermine the government’s attempts to improve its own finances, precipitating a fiscal crisis.

Here is further FT coverage.  The general point is that very often we — correctly or not — are more willing to live with the distributional consequences of lower inflation than of higher inflation.  (This topic should be the subject of dozens of public choice papers, although I don’t from my vantage point see the flow.)  The Japanese effort at “Abenomics” may already be faltering, but for political rather than economic reasons.  And the elderly defenders of gerontocratic deflation haven’t even spoken up yet, if only because Japanese prices have not yet started to rise.  Keep in mind that Japan has had a lot of political stagnation too, and that is not an accident which can easily disappear overnight.

Assorted links

1. Finland photos from World War II.

2. Good review of the new Star Trek (full of spoilers), hail George Lucas.

3. What if you ran a natural-field Dictator Game?

4. Will China become more of a free market economy?

5. The Nikkei since the 1980s, and Billy Joel update.

6. Pricing ACA in California (a piece of better news).

7. This clam lived 405 years (the story is from 2007).