Posts tagged laborio

Link to a review of Crossing Borders by Sergio Troncoso

For practical policy debates, the most important ethical principle is that the pain and suffering—and the joy—of each human being is of equal importance, without regard to who that person is.  Treating some human beings and their concerns as being of lesser importance is the root of much evil in the world.

For those who cannot manage to approach the well-being of all human beings on an equal footing (and of course, this includes almost all of us in our personal dealings), let me recommend this:

At least for public policy purposes, 

on the way to treating the concerns of all human beings as of equal value,

let us treat the concerns of those human beings we treat as least important

as being at least one-hundredth as important

as the concerns of those we treat as most  important.

All of that is an introduction for this link to a robust Twitter discussion on the ethics of immigration policy.

Update: I have added a Twitter discussion sparked by this post at the end of the storified tweets from earlier. In that discussion, I call the rule just above, treating foreigners as at least one-hundredth as important as citizens, the tin rule.  

Link to the Column on Quartz

Here is the full text of my 14th Quartz column, “Off the Rails: What the heck is happening to the US Economy? How to get the recovery back on track,” now brought home to supplysideliberal.com. It was first published on February 1, 2013. Links to all my other columns can be found here.

If you want to mirror the content of this post on another site, that is possible for a limited time if you read the legal notice at this link and include both a link to the original Quartz column and the following copyright notice:

© February 1, 2013: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2014. All rights reserved.

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GDP fell in the last quarter of 2012. It was only a fraction of a percent, but it means the recovery is on hiatus. Why? Negative inventory adjustments tend to be short-lived, so let me leave that aside, although it definitely made last quarter’s statistics look worse. Of the longer-lived forces, on the positive side,

• consumer spending rose,
• home-building rose, and
• business investment on buildings and equipment rose.

On the negative side,

• exports fell more than imports, and
• government purchases fell.

Net exports and government purchases are the big worries going forward as well.

How much the rest of the world buys from the US depends on how other economies are faring. And most of the rest of the world is hurting economically. The Japanese are so fed up with their economic situation that they are on their sixth prime minister in the six and a half years since Junichiro Koizumi left office in 2006.  The European debt crisis is in a lull right now, but could still resume full force at any time. In addition to all of its other problems, the United Kingdom is facing a mysterious decline in productivity, explained in Martin Wolf’s Financial Times article “Puzzle of Falling UK Labour Productivity” and the Bank of England analysis by Abigail Hughes and Jumana Saleheen.

The decline in US government spending comes from the struggle of state and local governments with their budgets and at the federal level from the ongoing struggle between the Democrats and Republicans about the long-run future of taxing and spending. Last quarter saw a remarkable decline in military spending that Josh Mitchell explains this way in today’s Wall Street Journal (paywall).

The biggest cuts came in military spending, which tumbled at a rate of 22.2%, the largest drop since 1972. …

Military analysts said the decline likely was a result of pressure on the Pentagon from a number of areas.

Among them: reductions in spending on the war in Afghanistan as it winds down, a downturn in planned military spending, a constraint placed on the Pentagon budget because the federal government is operating on short-term resolutions that limit spending growth, as well as concern that further cuts may be in the pipeline.

The problem is that, absent a big increase in economic growth, balancing the federal budget in the long run requires big increases in taxes or big reductions in spending. But, although opinions differ on which option is worse, tax increases and spending cuts themselves are enemies of economic growth. So the traditional options for balancing the federal budget in the long run all have the potential to make things much worse.

Our problems are so big they need new solutions. In our current situation, the fact that a proposal is “untried” is a plus, since none of the economic approaches we have tried lately have worked very well. In the last few months I have focused my Quartz columns on explaining how the US and the world can get out of the economic mess we are in with new solutions. A recap:

1. One of the new solutions is really an old one, that Congress and the President might be timidly tiptoeing toward too little of: dramatically more open immigration. Done right, this is guaranteed to add to long-run economic growth, as more workers make more goods, perform more services, and contribute to solving our long-run budget problems. And it isn’t just the US that would benefit from more open immigration. Ryan Avent has a must-read article in The Economist arguing that “Liberalising migration could deliver a huge boost to global output.”
2. The long-run budget can be balanced in a way that achieves both the core Republican goals of holding down the size of government and the burden of taxation and the core Democratic goal of taking care of the poor, sick and elderly. Here is how: by using the tax system to back up a program of public contributions to expand the non-profit sector instead of taxes and spending to expand government, or brutal cuts with no compensating way to take care of those in need.
3. For stimulating the economy, the one current approach that has been working at least halfway is “quantitative easing”: the Fed’s large purchases of long-term government bonds and mortgage-backed securities. But quantitative easing is hugely controversial and has an unfortunate side effect of making our long-run government debt problem worse than if we could stimulate the economy some other way. Establishing a US Sovereign Wealth Fund to do the purchasing of long-term and risky assets would give the Fed room to maneuver in monetary policy, and restrict its job to steering the economy rather than making controversial portfolio investment decisions. And a US Sovereign Wealth Fund could stand as a bulwark against wild swings in financial markets. (In addition to the column linked above, I spoke onCNBC’s Squawkbox about a US Sovereign Wealth Fund.)
4. Although valuable, a US Sovereign Wealth Fund is a poor second best toelectronic money. It is the fear of massive storage of paper currency that prevents the US Federal Reserve and other central banks from cutting short-term rates as far below zero as necessary to bring full recovery. (If electronic dollars, yen, euros and pounds are treated as “the real thing”—the yardsticks for prices and contracts—it is OK for people to continue using paper currency as they do now, as long as the value of paper money relative to electronic money goes down fast enough to keep people from storing large amounts of paper money as a way of circumventing negative interest rates on bank accounts.)  As I argued in “Could the UK be the first country to adopt electronic money,” the low interest rates that electronic money allows would stimulate not only business investment and home building, but exports as well—something that would lead to a virtuous domino effect as the adoption of an electronic money standard by one country led to its adoption by others to avoid trade deficits. If I were writing that column now, I would be asking if Japan could be the first country to adopt electronic money, since Japan’s new prime minister Shinzo Abe is calling for a new direction in monetary policy. For the Euro zone, I argue in “How the electronic deutsche mark can save Europe” that electronic money is not only the way to achieve full recovery, but the solution to its debt crisis as well.
5. Finally, if electronic money is too radical, the government can stimulate the economy without adding too much to the national debt by giving consumers extra borrowing-power with a government-issued credit card and a $2,000 credit limit to every taxpayer. These Federal Lines of Credit would stimulate the economy at a fraction of the cost of tax rebates. This is a big advantage for countries deep in debt, which includes most major economies. And Lines of Credit are an affordable way to stimulate the economies of European countries such as Spain and Italy that lack an independent monetary policy because they share the euro with many other European countries.

Franklin Roosevelt famously said:

The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something.

We are at such a moment again. The usual remedies have failed. It is time to try something new. Any one of these proposals could make a major difference. In combination, they would transform the world.

Adam Ozimek

The immigration reform debate should turn in earnest to Adam Ozimek’s proposal for regional visas, which you can see at this link. 

Here is a slightly tidied up version of what I had to say about his proposal when I appeared on Huffpost Live: 

The United States is like a college that has everyone wanting to get in. We ought to be able to do something with that. Let me give you just one idea. I love Adam Ozimek’s idea of region-based visas. If you let states and cities and towns apply for visas for people, then you require people to buy a house and get a job in that area, then we can let the different areas decide how many immigrants to bring in. Some places don’t think they can handle immigrants, and some places think they can. I’ll tell you what will happen: those places that let in lots of immigrants will have the dynamic local economies, and pretty soon people will see just how much immigrants bring to the economy. But you don’t have to believe me. Just allow these region-based visas, and then the states and localities that are willing to try it will show the way, and show how much immigrants add to our economy.   

Postscript: See my earlier post about that appearance on HuffPost Live, “Miles on Huffpost Live: The Wrong Debate and How to Change It” for the rest of what I said. In particular, I was able to make a pitch for electronic money.   Here is the video itself, including also commentary by Robert Kuttner, Dan Gross, Zach Carter and Stephanie Kelton. 

“The Wrong Debate”

Yesterday I was on HuffPost Live for the first time. I had a chance to make the case for electronic money and for Adam Ozimek’s idea of region-based visas. Here is the link again: “The Wrong Debate.” 

There were a couple of things I wanted to make sure to get in, so I wrote a couple of notes beforehand. Here are those two notes:

• We actually have two problems: the economic slump and the long-run debt problem. We need solutions to each problem that don’t make the other one worse. For that, we need new tools in the economic toolbox. The old tools won’t cut it. In my Quart column “What the heck is happening to the US Economy?” I propose some new tools. Just to tick off the names, to get to full economic recovery without making our debt problem worse, I propose in that column electronic money, Federal Lines of Credit, and US Sovereign Wealth Fund. To Solve our long-run debt problem in a way that achieves both the core Democratic and core Republican goals [and I should have added, does not throw the economy back into recession], I propose a Public Contribution Program. These are new ideas. 
• With two big exceptions, the Federal Reserve has actually steered the economy very well for the last few decades. Greenspan ignored the warnings of my colleague Ned Gramlich about the housing bubble and [the Fed as a whole] kept underestimating the problems [the housing bubble and its collapse] would cause. But that’s water under the bridge. The big problem now is that the Fed is afraid to lower short-term interest rates for fear of causing massive storage of paper currency. The Fed should be going to Congress today to ask for the authority it needs to deter massive storage of paper currency so it can cut short-term rates and bring the economy roaring back.  Because that involves making paper money subordinate to money in bank accounts, and making money in bank accounts “the real thing,” this is called “electronic money” in the blogosphere. But for most of the people, most of the time, it wouldn’t look any different from the way things are now.  

Of course, these lines mutated when I was actually on the spot, but I did get a change to say them in my first two at-bats.   

I knew the question about immigration policy (my third bit) was coming, so I didn’t need to mention it in the first instance. And I was confident I could say what I wanted to about that more extemporaneously, since I was just coming off of Immigration Tweet Day.  

Think of a Neoclassical model with inelastic labor supply (including inelastic retirement timing). I am going to focus on the effects that occur in the period of time before capital has had much chance to adjust. To keep the numbers simple, let’s imagine there are 100 million workers in the economy. Production is Cobb-Douglas (see my post “The Shape of Production: Charles Cobb’s and Paul Douglas’s Boon to Economics”), with the following shares:

• 25% share for capital;
• 50% share for skilled going to half the population
• 25% share for unskilled labor going to half the working population.

What are the economic effects of allowing 1 million new workers: enough additional immigration to increase the population by 1%?  

Case 1: All of the New Immigration is Unskilled. If all of the new immigration is unskilled, the amount of unskilled labor increases by 2% (from 50 million to 51 million). This increases output by .25 * 2% = .5 %. Unskilled labor gets 1/4 of this bigger pie. With a .5% bigger pie and 2% more people to share it among, unskilled workers get a 1.5% reduction in their wage.  The skilled workers get the same share of a bigger pie, with no dilution, so they each get a .5 % increase in their wage. Capital also gets .5% more. This helps people in saving for retirement.   

Case 2: All of the New Immigration is Skilled. Now the pie is .5 * 2% = 1% bigger (from 50 million to 51 million). With a 1% bigger pie and 2% more people to share it among, each skilled worker now gets 1% less. Unskilled workers get the same share of a bigger pie, with no dilution, so they each get a 1% increase in their wage. Capital also gets 1% more, which helps people in saving for retirement.  

Case 3: 60% of the New Immigration is Skilled, 40% Unskilled. In this case, the amount of skilled labor increases by 1.2% (from 50,000,000 to 50,600,000), while the amount of unskilled labor increases by .8% (from 50,000,000 to 50,400,000). This increases output by (.5 * 1.2%) + (.25 * .8%) = .6% + .2% = .8%. Capital gets .8% more, which helps people in saving for retirement. Since there are .8% more unskilled workers to divide their share of the pie among, the unskilled wage is unaffected. The effect on the skilled wage is .8% - 1.2% = -.4% in this simple model.

Everything left out of this bare bones model suggests that in a richer model, output will ultimately grow more. If the skilled workers are willing to bet that the combination of higher returns to capital and the effects of capital accumulation, extra technological progress, the benefits of increasing returns to scale and diversity, and the share of the national debt and of unfunded government liabilities that immigrants will shoulder would make up for the -.4% reduction in wages they see in the bare bones model, the unskilled workers have no reason to object (except perhaps for cultural reasons), since even in the bare bones model, their wage is unaffected, and all other factors then push in the direction of doing better economically.

I suspect that something like the bare bones model of immigration lurks in the back of many brains, and is encoded as saying that immigration is good for capitalists, but not for workers. Therefore, to successfully argue their case, advocates of immigration must confront this bare bones model head on, explain what is missing, and convincingly argue what the quantitative effects of those missing pieces are.  

Tweets here and below: 

• .@ModeledBehavior @Noahpinion and I hereby declare#ImmigrationTweetDay this Monday, February 4, 2013. Details in the next few tweets.
• On #ImmigrationTweetDay this Monday, all bloggers with posts on immigration policy are invited to tweet links to all their immigration posts
• Freedom of thought is a watchword of #ImmigrationTweetDay so all are encouraged to participate regardless of their views on immigration.
• On #ImmigrationTweetDay this Monday, everyone is encouraged to tweet links to posts on immigration not yet tweeted by their authors.
• On #ImmigrationTweetDay everyone is encouraged to make the best arguments for herhis position on immigration possible in 140 characters.
• On #ImmigrationTweetDay everyone participating is asked to make an effort to retweet all genuinely relevant tweets they see.
• I plan to storify the #ImmigrationTweetDay tweets, and link to that collection of tweets on my blog soon after#ImmigrationTweetDay is done.
• Between now and Monday, please spread the word about#ImmigrationTweetDay
• Look for #ImmigrationTweetDay this Monday, February 4, 2013