Next Year’s Momentous Supreme Court Decision: Reining in Public Sector Unions?

immediate image source (ultimate source is the Wall Street Journal)

immediate image source (ultimate source is the Wall Street Journal)

After its momentous decisions this year legalizing gay marriage throughout the US, saving Obamacare one more time, and preserving the option of nonpartisan redistricting, the Supreme Court of the United States said it will decide next year on whether public sector unions can legally force those who work for the government to pay union dues even if they disagree with what the union is doing. If the Supreme Court addresses this question squarely, this will be a momentous decision because public sector unions are where the action is in unionization. In the last three decades, unionization fell dramatically in the private sector, but rose dramatically in the public sector (see above). The most likely reason is that public sector unions can offer political foot-soldiers to garner votes for those of their bosses who behave themselves as well as labor peace, while private sector unions can only provide labor peace. Without the combination of a political weapon and a strike weapon, I don’t see how public sector unions could have been so much more successful than private unions. Thus, I think the challengers’ contention the public sector unions are inherently political is quite reasonable.

I am cheering for the challengers because I think a reduction in the power of public sector unions would be a big boon to the US economy. It is often very valuable to for the government to provide additional public goods. But it is not so great to pay a higher price for the same level of government-provided goods and services, simply because public sector unions have effectively brandished their two weapons: the political weapon and the strike weapon. Our concern for income distribution should always be focused on the lot of the very poorest.

So whenever workers who are already typically paid more than comparable workers in the private sector have their wages go up further, it pushes the income distribution in the wrong way. And raising the cost of government employees who help the poor can easily lead to lower levels of service provided to the poor. This can often happen not only from price effects, but also from overall government budget pressures, as when overly generous delayed pension payments from a corrupt bargain between public sector unions and politicians that were never subjected to voter approval come due. And of course, government unions can often obstruct innovations (particularly in education) as well as draining limited government funds with wage demands that go beyond comparable private sector wages.

(Of course, I myself am officially a government employee, since the University of Michigan is a state university, but my salary owes nothing to a union. And part of my salary comes ultimately from the federal government, in the form of research support; I earnestly try to produce enough valuable research to make that a good bargain.)

She’s a Hurricane: Evidence That Gender Bias Is Not All Fully Rational Statistical Discrimination

I have gotten much more interested in the issue of gender-bias since working with my (still anonymous) coauthor on our column “How Big is the Sexism Problem in Economics?”  It is often devilishly hard to tell whether discrimination is statistical discrimination that would be rational for an unbiased individual based on genuine differences between groups or evidence of actually being willing to pay a price to discriminate. Sometimes it is possible to identify directly the price someone is paying to discriminate by the higher profits or otherwise better deal to be had by dealing with disfavored groups. But there is another type of evidence for gender bias: situations in which everyone ought to know there is no genuine difference by gender in which people treat males differently than females. Such is the case with hurricanes. I was pointed to a report by Nicholas Kristof in the New York Times on the following research:

Researchers find that female-named hurricanes kill about twice as many people as similar male-named hurricanes because some people underestimate them. Americans expect male hurricanes to be violent and deadly, but they mistake female hurricanes as dainty or wimpish and don’t take adequate precautions.
The study, published in the Proceedings of the National Academy of Sciences, underscored how unconscious biases shape our behavior — even when we’re unaware of them.

The article should have completed the logic by stating that male and female names are in fact assigned to hurricanes in a way unrelated to severity, but I assume that is the case, since meteorologists on their own would not want to deal with the criticism from discriminatory naming of hurricanes. 

Update: Of course, everything I say above depends on the names of hurricanes being randomly assigned. One reader pointed out that all hurricanes used to have female names, so if they didn’t correct for that, the conclusion I make above is not warranted. But in that case, the data should be reanalyzed for the later time period when hurricane names were randomly assigned. 

Make sure to read the comments below, which cast doubt on the care of the analysis in the paper behind Nicholas Kristof’s article. In the light of the criticisms, I have to apologize for relying too much on Nicholas Kristof’s vetting of the empirical paper, just as I had to apologize for relying too much on Carmen Reinhart and Ken Rogoff in “An Economist’s Mea Culpa: I Relied on Reinhart and Rogoff.” 

Christopher Skehan: Everyone Needs a Vacation

Link to Christopher Skehan’s LinkedIn Home Page

I am pleased to host this guest post by Christopher Skehan on the importance of vacations—even as compared to other business concerns (obviously related to Dan Miller’s case for the importance of sleep). It is the fourth guest post this semester from students in my Monetary and Financial Theory class. You can see links to all of the other student guest posts here. Here is Chris:


It’s no secret that everybody loves time off from work to go on vacation. It seems pretty simple that people should work to live, and therefore use all of their vacation time. Yet, American business culture produces employees imagining industriousness that includes first-in and last-out workers, all nighters, and long work sessions for consecutive weeks. For many there is no room for vacation in this industrious image. “More than forty percent of American workers who received paid time off did not take all of their allotted time last year, according to “An Assessment of Paid Time Off in the U.S.” commissioned by the U.S. Travel Association, a trade group, and completed by Oxford Economics” (Forbes). The U.S., one of the few developed countries that doesn’t require companies to provide vacation time, needs to change because taking a vacation is good for production and in some cases can even prevent crime.

This productivity science seems like a justification for laziness in the workplace. However, several scientific observations have proved that taking small breaks during long study sessions not only dramatically improves your productivity but also your mental ability. The theory is simple, the brain is a muscle, and every muscle tires from repeated stress. “In the mid-1920s, an executive in Michigan studying the productivity of his factory workers realized that his employees’ efficiency was plummeting when they worked too many hours in a day or too many days in a week” (The Atlantic). So if this is true on a micro level then it must be true on a macro level.

So far it is clear that taking breaks and by extension vacation are essential for employees, but does it hurt the employer? Quite the contrary, it has several advantageous for employers according to Forbes. First, when one employee leaves it forces an additional employee to learn the functions of a new job. This system creates an unintentional education system, and prevents the risk of crisis when a key employee is lost. Secondly, it cuts cost through reductions in health insurance payments. “The American Psychological Association has documented several potentially stress-induced health threats, such as increased cardiovascular risks and aggravation of existing conditions” (WSJ). Reducing health issues from your employees in not only the moral thing to do, but can now be justified in your balance sheets as well. Thirdly, mandatory vacation prevents fraud and embezzlement. “In 2007, Jérôme Kerviel, a trader at Société Générale, lost over $7 billion of the bank’s money. He later admitted hadn’t take one single day of vacation that year because he did not want anyone else to look at his books” (Forbes). For situations like this the FDIC has mandatory two-week vacation for certain industries.

The FDIC has the right idea but it needs to be implemented to every industry. During my time in Italy this last summer everything closed from one to three in the afternoon for people to go home and eat lunch with their family. When I explained to my host family that Americans didn’t do this they thought it was insane and called us robots. Now I think they are right, and think it is essential to implement mandatory vacation time for all employees. It reduces the cost of health insurance, increases productivity, produces a more trained workforce, and stops fraud.

Quartz #58—>How Big is the Sexism Problem in Economics?

Link to the Column on Quartz

Here is the full text of my 58th Quartz column, “How big is the sexism problem in economics? This article’s co-author is anonymous because of it,” now brought home to supplysideliberal.com. It is coauthored with an anonymous female economist, with whom I have had many interesting discussions since the column was published as well as in the process of writing it.  It was first published on January 6, 2015. Links to all my other columns can be found here.

I regret that my coauthor still feels she needs to remain anonymous. But I understand that a bit better now, after seeing the heat of some of the discussion surrounding this column.

At this writing, this is my 6th most popular Quartz column ever. You can see a list of my most popular columns here.

We want these ideas to get out there. So if you want to mirror the content of this post on another site or make printouts, 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:

© January 6, 2015: Miles Kimball and Anonymous, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2017. All rights reserved.


The Economist’s recent list of the 25 most influential economists did not include a single woman. Many male former central bankers and regional Federal Reserve Bank governors were included on the list, but the Economist gave itself a special rule to exclude active central bankers, which meant that Janet Yellen—arguably the world’s most influential economist—didn’t make the list.

University of Michigan Professor and New York Times columnist Justin Wolfers responded with a tweeted list of influential women economists. You can read his whole tweetstorm on Twitter

Why are top-notch female economists not being taken seriously? Why are they having trouble being recognized for their contributions to the profession? Why do women still have a hard time in the economics profession in general? There is no shortage of potential explanations.

In their recent academic paper “Women in Academic Science: A Changing Landscape,” Stephen J. Ceci, Donna K. Ginther, Shulamit Kahn, and Wendy M. Williams document the gender gap in economics and discuss many possible hurdles at each stage of a female economist’s career. And in a recent Bloomberg View article, University of Michigan Economics PhD Noah Smith adds to this list of potential hurdles the climate created by many male economists who defend their sexist views as hard-nosed truth telling.

One indication of the career challenges women face in economics is the fact that one of us felt the need to remain anonymous. The co-author of this piece is a still-untenured female economist who has withheld her name because there unfortunately could be real professional risks in publicly discussing many of these issues.

Many male economists underestimate the headwinds women face in economics, but they exist at every stage of a woman’s career. Just as an annual economic growth rate of about .33% per year in the 18th century and 1% in the 19th century transformed the world in the First and Second Industrial Revolutions, women in economics face many forces both large and small that add up to a huge overall damper on the number of women who make it to the higher ranks of our profession.

And even when women do reach these higher levels—despite the difficulty of getting their work published in male-dominated journals and in getting promoted even when they do get their work published—their wages remain lower.

In a Jan. 3 New York Times article, “Racial Bias, Even When We Have Good Intentions,” Harvard economist Sendhil Mullainathan argues that discrimination often operates at an unconscious level:

Even if, in our slow thinking, we work to avoid discrimination, it can easily creep into our fast thinking. Our snap judgments rely on all the associations we have—from fictional television shows to news reports. They use stereotypes, both the accurate and the inaccurate, both those we would want to use and ones we find repulsive.

The same sort of unconscious biases operate against women at every stage.

Here are a few of the issues women in economics face that their male colleagues might not be aware of:

  • New female economics PhD’s have to worry about what to wear during the job market: skirt too short vs. too long, vs. just right.
  • Female economists endure the nasty misogyny of many threads on econjobrumors.com.
  • Students don’t give female professors the same respect as they do male professors. Compare ratings given to online teachers who represent themselves as female to one set of students and male to another, as in the experiment these instructors recently conducted.
  • Female assistant professors have to worry about whether they dare take advantage of tenure clock extensions to have a child, while male assistant professors have no worries about taking advantage of the tenure clock extensions they get when their wives have a child. For the men, it is a simple strategic choice; for the women, it is reminder to their colleagues that (with rare exceptions) they bear the heaviest burden of taking care of a young child—a burden that might take time away from their research.
  • Female professors are often inundated by students needing more “emotional” mentoring (a type of help many students assume they can’t get from male professors).
  • Women in economics often get mistaken at social events for an economist’s spouse instead of being recognized as economists themselves.
  • Female economists have to figure out how to deal with disrespectful comments or “jokes” made by their senior colleagues.

Fostering awareness of issues like these, and a hundred others of the same ilk, is one of the biggest things that can be done to improve women’s lot in economics.

Greater gender equality in economics could also be fostered by a better power balance among colleagues. What we mean is that female economists should be encouraged to assert their power, but male economists should find it hard or impossible to exert illegitimate, sexist power over their female colleagues. If this sounds obvious, it’s much harder than it seems.

Today, women in economics face a Catch-22, where speaking up can easily make them look like a shrew, while not speaking up robs them of legitimate power. There may be some loopholes in this Catch-22, but women starting out in economics need to be shown the ropes. And with so few senior female professors in economics, who can show a female graduate student how to promote herself gracefully, and break into predominantly male conversations without raising hackles? Somehow, that question needs to be answered. As more women push these boundaries, things will become easier. It may become possible to open up new ways of communicating and asserting power that allow women to be themselves and still have others listen to them carefully and respectfully.

If men are allowed to be jerks without suffering serious consequences, while women aren’t, then even well-behaved men have a threat-point that women are denied. One of the most primal reasons to treat someone nicely is the fear of a mistreated person’s anger or revenge. That doesn’t work well for women, because getting angry either makes them look like a harridan, or look overly emotional—both of which carry a big penalty in lost status.

It is easy to confirm that men are allowed to be jerks in ways that women aren’t—by flipping genders when someone does something out of line:

  • What would you think of a particular man’s bad behavior if a woman you know did it?
  • What would you think of a particular woman’s bad behavior if a man you know did it?

We don’t think the answer here is to change the culture so that women can be jerks, too, but to move toward holding everyone, both men and women, to account for bad behavior.  For many men, it will be a revelation to be called out on the ways in which they demean others. Some may not even realize all the ways they routinely put others down—especially those in vulnerable positions who dare not strike back. But if you talk to a few women who spend time in economics departments, you will hear the stories.

Equal pay for equal work

Besides the threat point of men behaving badly, there is another threat point that gives men an advantage over women—one that gets men more than equal pay for equal work. It is typical in academia that a tenured professor who receives a competing job offer and can credibly threaten to leave gets a big raise. By comparison, professors who seem unlikely to jump ship end up underpaid. But given gender inequality on the home front (and the male-female wage differential for spouses), it is a lot more credible that a male professor can convince his wife to move to another city than that a female professor can convince her husband to move. This difference in ability to threaten to leave because of a spouse’s willingness to move is just one of the many ways that different levels of career support from spouses affects women in academia. The only thoroughgoing remedy for this inequity will come from greater gender equality throughout society.

(The situation is different when both wife and husband are academics, especially when they are both in the same discipline. Joint hiring decisions come up so often and go down so many different ways that no one should read any particular case into what we say. In general, because the couple forms a bargaining unit, some of the advantages men have in academia accrue to the wife in the husband-wife power couple. Women hired only because of their spouses—when they should have been hired in their own right—make academic departments look less sexist on paper than they really are. And when a woman who shouldn’t have been hired in her own right is hired in order to attract her spouse, it can be demoralizing to other women trying to make their way in academia on their own. Unfortunately, we don’t see any easy solution for the issues created by joint hiring decisions. But at a minimum they shouldn’t be allowed to distract economists from deeper issues of gender inequality.)

One final step that would make economics less forbidding for women is for each economist to become open to a wider range of scientific approaches and topics. Statistically, men and women are not drawn to the same fields within economics. And even within a field, women are drawn to a different balance between immediate real-world relevance and theoretical elegance. It is natural for each economist (and for each academic in general) to construct a narrative for why his or her approach to economics is the best. But since men in senior ranks in economics are more numerous than women, the narratives that men construct for why their individual approaches to economics are better usually win out in hiring and promotion decisions over the narratives that women construct for why their individual approaches are better.

This imbalance disadvantages junior women, whose individual approaches will on average have fewer champions. Here, the solution, difficult as it is, is for economists to appreciate the boost to scientific progress from having many different approaches and topics well represented—and for the subjective opinions of those who don’t appreciate the value of a wide range of approaches to be discounted. In particular, putting a premium on balancing theory with real-world understanding and policy action will not only make economics a stronger force for good in the world, it will help women take their rightful place in economics.

American Wizards

In H. W. Brand’s excellent book American Colossus: The Triumph of Capitalism, 1865-1900he retells this story from Lee Chew, “The Life Story of a Chinaman” (in the collection The Life Stories of Undistinguished Americans, as Told by Themselves, pp. 178-179). The moral of the story is that technology matters, and differences in per capita income matter.   


Even more compelling than letters were the actions of emigrants who returned home. Lee Chew grew up on a farm near Canton during the 1860s. Some of the neighbors had left for California, but Lee Chew’s father wished to keep him home and so told him stories of what “foreign devils” the Americans were. They were powerful, with great fire-belching ships and a kind of sorcery that allowed them to light the darkest night and communicate over long distances, but they lacked anything that passed for civilization. Their language was barbaric, they practiced all manner of violence, and they disrespected their ancestors. No correct-thinking Chinese should wish to go to America. Lee Chew had little reason to doubt his father, and he resigned himself to life as a Chinese farmer–until new evidence surfaced.

I was about sixteen years of age when a man of our tribe came back from America and took ground as large as four city blocks and made paradise of it. He put a large stone wall around and led some streams through and built a palace and summer house and about twenty other structures, with beautiful bridges over the streams and walks and roads. Trees and flowers, singing birds, water fowl and curious animals were within the walls. … When his palace and grounds were completed he gave a dinner to all the people, who assembled to be his guests. One hundred pigs roasted whole were served on the tables, with chickens, ducks, geese and such an abundance of dainties that our villagers even now lick their fingers when they think of it. He had the best actors from Hong Kong performing, and every musician for miles around was playing and singing. At night the blaze of lanterns could be seen for miles.

The lesson was lost on no one there, least of all Chew.

The man had gone away from our village a poor boy. Now he returned with unlimited wealth, which he had obtained in the country of the American wizards. … The wealth of this man filled my mind with the idea that I, too, would like to go to the country of the wizards and gain some of their wealth.

Uwe Reinhardt: Does Occupational Licensing Deserve Our Approval? A Review of Work by Morris Kleiner

I was impressed with Uwe Reinhardt when I met him in person some years ago. And I like what he says in this abstract about occupational licensing. You can get Uwe’s full review at the link above. 

Abstract: The licensing of occupations—a very forceful intervention in markets—is pervasive and growing in modern economies. Yet the attention paid to it by economists and economics textbooks has been small. Highly welcome, therefore, has been the extensive and intensive work on this subject by Morris Kleiner. Kleiner’s latest book, titledStages of Occupational Regulation: Analysis of Case Studies(2013), explores the progression of occupational regulation, from mere registration to certification to outright licensing—three distinct stages. Kleiner carefully selects for his analysis a series of occupations representing the stages of regulation, devoting a chapter to each occupation. He uses a variety of statistical approaches to tease out, from numerous databases, what the impact of mild to heavy regulation on labor markets appears to be. Kleiner’s work leads him to call for a pervasive review of occupational regulation in the United States, with a view towards replacing occupational licensure, which introduces the most inefficiency and welfare loss, with mere certification of occupations. That recommendation gains plausibility in an age where cheap computation and data mining makes it possible to protect consumers from low-quality and possibly dangerous services by providing robust, user-friendly information on the quality of services delivered by competing occupations, such as doctors and nurse practitioners.

Shark Tank Markups

For an economist, one of the most educational and entertaining shows on TV these days is Shark Tankwhich lies squarely in the intersection between venture capital and reality TV. The judges, called "sharks” are shown as choosing whether or not to invest their own money in ventures on the spot as entrepreneurs make their pitch during the taping of the show. There are also some follow-up segments about how ventures one or more of the sharks invested in previously have been doing.  

It is well worth hearing the incisive questions and opinions given by the sharks. Among the inevitable questions are “How much do you sell it for?” and “How much does it cost to make and deliver?” or in the case of a service “How much does it cost you to do it?” The intriguing thing to me about that is being able to get a measure of the actual markup ratio

Actual Markup Ratio = Price/Marginal Cost

for a wide variety of goods and services. I think a great undergraduate economics thesis could be written by watching all of the episodes of Shark Tank, compiling all the data on price and marginal cost and then analyzing the determinants of the markup ratio (such as sector and how different the product is from competing products–something that could be coded up systematically from the televised discussion in the show).

Once price has had a chance to adjust optimally, the markup ratio should equal the target markup ratio

Target Markup Ratio = Price/Marginal Revenue = ε / (ε - 1)

where ε is the price elasticity of demand seen by the firm. The price elasticity of demand seen by a typical firm (or a typical firm’s target markup ratio) is a key parameter for macroeconomics as well as for industrial organization. For example, the value of ε tells how close things are to perfect competition. and ε is important for optimal monetary policy, as you can see in my discussion of Michael Woodford and Vasco Curdia’s paper at a conference at the Bank of Japan. Macroeconomists typically assume a value of 1.1 for the markup ratio, which implies ε = 11. To me, that seems too low a markup ratio and correspondingly, too high a firm-level price elasticity of demand. In any case, the value of typical markup ratios is a central issue that should be disputed in the light of as many different types of relevant information as we can get hold of.

Sometimes the sharks also ask about marketing costs. It is important to recognize that marketing costs (for example, “customer acquisition costs”) should not be included in marginal cost. They are a different animal. When price is above marginal cost, then there is a reward to marketing that pushes out the demand curve the firm faces. If a firm is optimizing, then it should be true that 

Marginal Cost to Make and Deliver + Marginal Marketing Cost of Raising Demand by 1 Unit at the Going Price = Price

So if one (in my view mistakenly) includes marginal marketing cost as part of “marginal cost” then the markup ratio should always look like 1 for an optimizing firm. This obscures the key forces arising from a markup of price over the marginal cost of making and delivering a product. 

Max Huppertz—The Decline in Labor Force Participation: Speed Bump, Hysteresis, or "I, Robot"?

Max Huppertz is a student in my “Monetary and Financial Theory” class and has his own Tumblr blog, Liberal Animation. Of all my current students, Max is the one whose writing reminds me most of Noah Smith’s style on Noahpinion. To get a full picture of Max’s sense of humor, you will have to go to his blog Liberal Animation, but the guest post below shows the depth of Max’s analysis. Max:


Evan Soltas had an interesting post about labor market tightness a couple of weeks ago. His main point is that, looking at the quits rate, you might think that labor markets are pretty tight right now. That might be a sign that, overall, there’s not a lot of unused economic capacity, or at least, not a lot of unused capacity that matters (more on that below). If you think that’s the case, you’d reach very different policy conclusions when it comes to monetary tightening than someone who thinks there’s still plenty of slack in the economy.

Quite a few people have given their 2 cents already. John Aziz makes a point about the potential benefits of overshooting: it might create jobs for some of the long-term unemployed.

Evan may have a good reason for disregarding the long-term unemployed. John’s proposal might be all we need. But if neither of the two is completely right, we may be in trouble.

Why does Evan think that the long-term unemployed don’t matter? He says that if they don’t compete with more active members of the labor force, they can’t hold back wage growth or interfere with employer/employee matching (because they won’t keep people from quitting a job they don’t like for one they enjoy). Which is a valid point.

But in the medium to long run, a drop in lower labor force participation seems like somewhat of an issue. And participation is down:

It seems to me that there are three possible reasons for this, and three scenarios how this could play out:

  1. The decrease in labor force participation is transitory. In that case Evan’s assessment is correct, although you could still argue that the possibility to overshoot is a risk worth taking, given its potential benefits.
  2. The decrease is more or less permanent, due to labor market hysteresis. In that case, overshooting alone might do the trick.
  3. The decrease is more or less permanent, and it’s a (labor!) demand trend. In that case, we might have a real issue on our hands.

1) Will it all be over soon?

Evan seems pretty convinced that the long-term unemployed “really can’t matter much in a macroeconomic sense”. I think that statement makes sense only if you assume that, in the long run, labor force participation will return to its pre-crisis level. Else, I would like to see an argument as to why we should ignore the fact that 3% of the total US labor force decided to take some time off. Changes of that magnitude are the ones that tend to matter little now, but a lot if they turn out to be persistent over several years’ time.

2) The UI forever (well, kinda…)

Just so we’re clear: economists have a somewhat peculiar interpretation of the word permanent. When I say that the drop in labor force participation might be permanent, I don’t really mean forever. I mean, “for around ten years or so”. Which is substantially longer than recovering from the recent crisis will take (hopefully, anyway), and thus covers a much longer time span than scenario one. So why might participation be depressed for a whole decade?

There are a few stories you could tell that might lead to scenario two. Maybe people lost a lot of human capital while they were unemployed, and have genuine trouble finding a job. Or maybe, employers regard long-term unemployment as a signal. Long-term unemployment might indicate that you’re not the kind of person people would want to employ. Granted, it might also mean you were just unlucky and got laid off at a time when it was really hard to find a new job. But so long as employers have plenty of ‘good’ applicants to choose from – people who aren’t sending out the long-term unemployment signal – they might be okay with rejecting you anyway.

I’m not sure how likely this scenario is, but if this is the one we’re in, definitely overshoot! Temporarily overheating the economy may raise inflation a little, but it would also mean more job openings and fewer people applying. Making job applicants scarce would provide an incentive for employers to take a closer look at the long-term unemployed, and to figure out whether what happened to them was just bad luck – or whether they’re actually bad apples.

3) Rise of the Robot Lords

What if the long run equilibrium level of employment is actually decreasing over time? Take a look at the bigger picture:

For a while now, there has been stagnation and quite a substantial drop in labor force participation, even before the dot-com bubble. If employers desperately needed these people, wouldn’t you expect them to raise wages and try to lure some of them back into the game?

I know this sounds a little like a sci-fi cliché, but if falling demand for labor due to increased mechanization were responsible for discouraging workers from even trying to find a job, overshooting will at best give a temporary boost to labor force participation. After that, we’re back to the downward trend.

The remedies for this kind of situation are very different from what we need to do in the other two cases. Increasing the general level of education would be a good idea (it generally is, but especially in this case).

Rethinking the social safety net would be another (this is probably worthy of a post of its own, but let me give you my intuition). Many of the labor-intensive industries of today might rethink their business model once robots become more cost-effective. What happens if mechanization puts us into a position where the vast majority of workers in classic manufacturing jobs (cars, steel) – and possibly also a fair few in the service sector (eventually, burger-flipping robots will be the norm) – are no longer needed? And when, at the same time, the new ‘employees’ – machines – won’t ever ask for pensions, or unemployment benefits? Well, it seems to me that indefinite unemployment insurance, or a guaranteed basic income, might not be so Utopian in this scenario.

Faced with this kind of affluence, society might well decide that the dangers of ‘paying people to be unemployed‘ are far outweighed by the benefits of getting much closer to what John Rawls would call a well-ordered society. And, especially in a highly educated society, I think we have reason to believe that people actually want to work, instead of being on the dole. As Jeffrey Smith nicely said (referring to Arno Duebel, a German who had been living off unemployment benefits for 36 years straight):

The actual mystery, though, is not the existence of someone like Arno, but rather, given the relative generosity of many European welfare states, their relative scarcity.

By the way, labor force participation isn’t just down for low-skill workers; this may be an issue that affects us all, even those with a college education (albeit to a lesser degree):

blog.supplysideliberal.com tumblr_inline_n48vd0Ne7I1r57lmx.png

Like I said, this deserves a post of its own.

Humans good, robots bad?

I think that the third scenario is the one we want to be in. Any kind of job that a robot (or machine in general) can do better then a human – why not let it do it?

But it’s also the most difficult one to come to terms with, politically and ideologically. The left would need to give up part of its struggle for the ‘working class’, at least in the classical meaning of the word – factory workers, hard manual labor, that kind of thing. The right, on the other hand, might need to concede that in this kind of environment, maybe having a basic income won’t annihilate the US economy.

Issues like these would have to be dealt with during the next few years and decades. Or, who knows, maybe we are in scenario one, and Evan is right, or two, and John is right. But if not – and there are good reasons to believe this – we might want to start thinking about the implications.

Mormon Hell Tweets

Yesterday I posted my favorite song from the musical “The Book of Mormon”: the very moving “Sal Tlay Ka Siti.” The title of the storified tweets linked from the title above is inspired by another, much campier, song from “The Book of Mormon”: “Spooky Mormon Hell Dreams.” The tweets themselves are about Noah Smith’s guest post “Mom in Hell.”

By the way, it is worth listening to the song “Sal Tlay Ka Siti” here and then reading “Mom in Hell” again with “Hell” replaced with “desperate poverty abroad” and “Heaven” replaced by “America.”

The Message of ‘Sal Tlay Ka Siti’

To folks in desperate poverty around the world, America is heaven on earth. Maybe we should let people into heaven.

I saw the musical “The Book of Mormon” in London with my family during the week I went to the Bank of England to talk about eliminating the zero lower bound (and wrote A Minimalist Implementation of Electronic Money  and How to Set the Exchange Rate Between Paper Currency and Electronic Money).

To me, the most moving and powerful song was the one above: “Sal Tlay Ka Siti.” Though Salt Lake City is a very nice city, the song is really about America and what America means to people in other countries much poorer than ours. I hope you take time to listen to the song and think about its message. Here is the link to the video above that has the lyrics and audio for the song Sal Tlay Ka Siti from the play. But you can watch it right here. (The music starts about 15 seconds in.)

Note: my column “The Hunger Games is Hardly Our Future: It’s Already Here” has the same message. I think you will like it. I also put out a couple of tweets about immigration on Monday morning while reading the Wall Street Journal article “Jeb Bush to Decide by Year-End Whether to Run for President”:

Quartz #45—>Actually, There Was Some Real Policy in Obama's Speech

blog.supplysideliberal.com tumblr_inline_n1vghxmSa41r57lmx (1).png

Link to the Column on Quartz

Here is the full text of my 45th Quartz column, “Actually, there was some real policy in Obama’s speech,” now brought home to supplysideliberal.com. It was first published on January 29, 2014. 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:

© January 29, 2014: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2015. All rights reserved.


In National Review Online, Ramesh Ponnuru described last night’s State of the Union speech as “… a laundry list of mostly dinky initiatives, and as such a return to Clinton’s style of State of the Union addresses.” I agree with the comparison to Bill Clinton’s appeal to the country’s political center, but Ponnuru’s dismissal of the new initiatives the president mentioned as “dinky” is short-sighted.

In the storm and fury of the political gridiron, the thing to watch is where the line of scrimmage is. And it is precisely initiatives that seem “dinky” because they might have bipartisan support that best show where the political and policy consensus is moving. Here are the hints I gleaned from the text of the State of the Union that policy and politics might be moving in a helpful direction.

  • The president invoked Michelle Obama’s campaign against childhood obesity as something uncontroversial. But this is actually part of what could be a big shift toward viewing obesity to an important degree as a social problem to be addressed as communities instead of solely as a personal problem.
  • The president pushed greater funding for basic research, saying: “Congress should undo the damage done by last year’s cuts to basic research so we can unleash the next great American discovery.” Although neither party has ever been against support for basic research, budget pressures often get in the way. And limits on the length of State of the Union addresses very often mean that science only gets mentioned when it touches on political bones of contention such as stem-cell research or global warming. So it matters that support for basic research got this level of prominence in the State of the Union address. In the long run, more funding for the basic research could have a much greater effect on economic growth than most of the other economicpolicies debated in Congress.
  • The president had kind words for natural gas and among “renewables” only mentions solar energy. This marks a shift toward a vision of coping with global warming that can actually work: Noah Smith’s vision of using natural gas while we phase out coal and improving solar power until solar power finally replaces most natural gas use as well. It is wishful thinking to think that other forms of renewable energy such as wind power will ever take care of a much bigger share of our energy needs than they do now, but solar power is a different matter entirely. Ramez Naam’s Scientific American blog post “Smaller, cheaper, faster: Does Moore’s law apply to solar cells“ says it all. (Don’t miss his most striking graph, the sixth one in the post.)
  • The president emphasized the economic benefits of immigration. I wish he would go even further, as I urged immediately after his reelection in my column, “Obama could really help the US economy by pushing for more legal immigration.” The key thing is to emphasize increasing legal immigration, in a way designed to maximally help our economy. If the rate of legal immigration is raised enough, then the issue of “amnesty” for undocumented immigrants doesn’t have to be raised: if the line is moving fast enough, it is more reasonable to ask those here against our laws to go to the back of the line. The other way to help politically detoxify many immigration issues is to reduce the short-run partisan impact of more legal immigration by agreeing that while it will be much easier to become a permanent legal resident,citizenship with its attendant voting rights and consequent responsibility to help steer our nation in the right direction is something that comes after many years of living in America and absorbing American values. Indeed, I think it would be perfectly reasonable to stipulate that it should take 18 years after getting a green card before becoming a citizen and getting the right to vote—just as it takes 18 years after being born in America to have the right to vote.
  • With his push for pre-kindergarten education at one end and expanded access to community colleges at the other end, Obama has recognized that we need to increase the quantity as well as the quality of education in America. This is all well and good, but these initiatives are focusing on the most costly ways of increasing the quantity of education. The truly cost-effective way of delivering more education is to expand the school day and school year. (I lay out how to do this within existing school budgets in “Magic Ingredient 1: More K-12 School.”)
  • Finally, the president promises to create new forms of retirement savings accounts (the one idea that Ramesh Ponnuru thought was promising in the State of the Union speech). Though this specific initiative is only a baby step, the idea that we should work toward making it easier from a paperwork point of view for people to start saving for retirement than to not start saving for retirement is an idea whose time has come. And it is much more important than people realize. In a way that takes some serious economic theory to explain, increasing the saving rate by making it administratively easier to start saving effects not only people’s financial security during retirement, but also aids American competitiveness internationally, by making it possible to invest out of American saving instead of having to invest out of China’s saving.

Put together, the things that Barack Obama thought were relatively uncontroversial to propose in his State of the Union speech give me hope that key aspects of US economic policy might be moving in a positive direction, even while other aspects of economic policy stay sadly mired in partisan brawls. I am an optimist about our nation’s future because I believe that, in fits and starts, good ideas that are not too strongly identified with one party or the other tend to make their way into policy eventually. Political combat is noisy, while political cooperation is quiet. But quiet progress counts for a lot. And glimmers of hope are better than having no hope at all.

Jeff Smith: Why I Won't Sign a Petition to Raise the Minimum Wage

Link to this post on Jeff’s blog

I want to thank my colleague, labor economist Jeff Smith, for permission to mirror his post here.

You can see what I have to say about the minimum wage on my Labor & Industrial Organization sub-blog. Here is what Jeff has to say:


This post is about why I will not be adding my name to the current petition of economists in favor of increasing the US minimum wage, which you can view (and add your name to, if you are a Ph.D. economist) here.

The current list features some heavy hitters (e.g. Larry Summers and Larry Katz), some usual suspects (e.g. Robert Reich) and some (to me anyway) surprises (e.g. Melissa Kearney and Angus Deaton).

Here is the petition’s survey of the state of play of the empirical research:

In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.

Oddly, for a petition from (mostly) academic economists, no citations to the literature are provided to support these claims.

Even more oddly, the research summary fails to distinguish between employment effects in the short-run, which can be estimated using compelling partial equilibrium identification strategies, and employment effects in the long-run, which generally cannot. Unfortunately, the compelling evidence we have about low short-run employment effects is largely irrelevant to policy, which should concern itself with long-run effects. My favorite minimum wage paper shows that small short-run effects are quite consistent with large long-run effects.

In addition to concerns that the short-run effects may differ substantially from the longer run effects due to delayed capital-labor substitution and other factors, I have three other concerns about the minimum wage:

1. It is poorly targeted relative to alternative policies such as the Earned Income Tax Credit (EITC). And, yes, I am familiar with the argument that the minimum wage and the EITC are complements; what is thin on the ground, so far as I am aware, is evidence of the empirical importance of this argument.

2. As pointed out recently by Greg Mankiw, it distributes the costs of the increased minimum wage in a less attractive way than alternative policies such as the EITC, which implicitly come out of general tax revenue.

3. Most importantly, raising the minimum wage fails to address the underlying issue, which is that many workers do not bring very much in the way of skills to the labor market. Rather than having a discussion about raising the minimum wage, we should be having a discussion about how to decrease the number of minimum wage workers by increasing skills at the low-skill end of the labor market. This would, of course, mean challenging important interest groups. It is also a bigger challenge more broadly because it is less obvious how to do it. But that is the discussion we should be having because that is the one that will really help the poor in the long run, in contrast to a policy that feels good in the short run but only speeds the pace of capital-labor substitution in the long run.

Quartz #40-->"The Hunger Games" Is Hardly Our Future--It's Already Here

Here is the full text of my 40th Quartz column, “The Hunger Games is hardly our future—it’s already here," now brought home to supplysideliberal.com. It was first published on December 8, 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:

© December 8, 2013: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2017. All rights reserved.

***********************************************************************

The Hunger Games paints an eerily apt picture of the world’s reality. The Capitol is the rich nations of the world: the US, Canada, Australia, Japan, Israel, New Zealand, some oil kingdoms, most European nations. The Districts are the poor nations of the world—Haiti, Nepal, Bangladesh, Cambodia, Laos, Papua New Guinea, many countries in central Asia and Africa, all of which have per capita incomes less than $10 per day.

The Capitol, with all of its abundance of food, advanced medical care, and gadgets, is surrounded by a giant high-tech, booby-trapped WALL. The point of the Games is to burrow through the WALL to get to the material paradise of the Capitol without getting killed or caught and sent back to the Districts to starve.

The most important difference between Suzanne Collins’s Hunger Games and my variant is that the poverty in the real world is unfathomably worse than the poverty depicted in the series. The only way I know to convey this to my students who have never left the United States is to read to them every word of Nicholas Kristof’s New York Times essay, “Where Sweatshops are a Dream.”

The other difference is that, in Suzanne Collins’s version, the evil the Capitol does with its Games has roots as deep as the nation itself, while in the United States, at least, we build a wall to keep immigrants out in contradiction to our own historical traditions and the example set by the founders of our nation. We do this not only heartlessly, for the sake of what are in all likelihood relatively small gains for a modest slice of our population, but also stupidly. The tight restrictions we impose on immigration come at great cost to our economy, to future government budgets and the future geopolitical power of the United States.

Are immigration restrictions necessary? There may be some limit to the speed at which we can take in newcomers. But there is good reason to think it is much higher than the current rate of immigration. In the decade from 1900 to 1910, immigration was over 1% of the US population per year. There were some strains, but things didn’t fall apart, and America is much stronger now because of those early 20th century immigrants and their descendants. For comparison, the number of permanent legal immigrants into the US now is only 0.33% of the US population per year and the entire stock of undocumented immigrants in the US, from many many years of migration, is only 3.7% of the US population—nothing close to the 1% immigration rate the US had in the first decade of the 20th century. And those immigrants would assimilate much more quickly into our communities if they didn’t have to hide in the shadows because of the laws that brand them as criminals.

The philosopher Michael Huemer gives a good discussion of the ethics of immigration restrictions here.  A key point is that many US citizens would love to host immigrants from other countries. Some Americans are preventing other Americans from welcoming immigrants as they would like to. And many people around the world would be delighted to come to the United States even if they were totally barred from receiving any public assistance whatsoever.

In the real world, exclusion is a form of cruelty that we take for granted. Keeping people out of a material paradise for no good reason turns utopia into dystopia. By keeping immigrants out, the United States—like the other rich nations of the world—plays the role of the Capitol in my twist on The Hunger Games. But all we need to do to change that is to honor once again the words on the Statue of Liberty: “Give me your tired, your poor, your huddled masses yearning to breath free …”

Recasting "The Hunger Games" as a Parable about Immigration Policy

When I drafted the column “Catching Ire: The Hunger Games is hardly our future—it’s already here,” I spelled out how the story could be modified into a parable about immigration policy in more detail than made it into the final version. 


The Capitol—with all of its abundance of food, advanced medical care, and gadgets—is surrounded by a giant high-tech WALL, well-stocked with booby-traps. The point of the Games is to burrow through the WALL to get to the material paradise of the Capitol without getting killed or caught and sent back to the Districts to starve. Here is the outline:

  • Book 1: Katniss and Peeta set off to try their luck against the WALL. By dint of wits, physical courage, and learning to trust each other, they make it through into the Capitol. Gale is left behind with the task of somehow trying to keep all of their families alive while Katniss and Peeta face the WALL.
  • Book 2: Katniss and Peeta go back to District 12 to show their families and friends how to get through the WALL. They win out and settle in the Capitol. There, they live in the shadows, are despised by many, but have enough to eat.
  • Book 3: Citizens of the Capitol who are disgusted with the inhumanity of the WALL work with Katniss, Peeta, Gale and others from the Districts to engineer a regime change.  At the end of the book, the WALL is torn down.

Enlightened Self-Interest vs. the Anti-Immigration Mob

Illustration of the Rock Springs Massacre from Harper’s Weekly

H. W. Brands, writing in The American Colossus: The Triumph of Capitalism 1865-1900 (p. 300):

The formal effect of the Chinese Exclusion Act was to bar most new immigration from China, but its informal effect was to declare open season on Chinese already in America. Within months of the act’s passage, what the Chinese called the “driving out” began. White hooligans waged racial war against Chinese across much of the West, killing twenty-eight in Rock Springs, Wyoming, thirty-one on the Snake River in eastern Washington, and smaller numbers elsewhere. Occasionally whites stuck up for their Chinese neighbors, if sometimes from selfish motives. A white gambler in Denver pulled six-guns on an anti-Chinese mob and told them to desist. “If you kill Wong, who in the hell will do my laundry?” he demanded. But in most places the mobs had their way. Rural communities of Chinese largely disappeared, their inhabitants driven off, their homes burned, their property seized by those doing the driving.

Andrew Carnegie on Cost-Cutting

Link to a New York Times review of American Colossus by reviewer John Steele Gordon

In his book American Colossus: The Triumph of Capitalism 1865-1900, H. W. Brands writes this, quoting from his earlier book Masters of Enterprise: Giants of American Business from John Jacob Astor and J.P. Morgan to Bill Gates and Oprah Winfrey(p. 59) and from Joseph Frazier Wall's Andrew Carnegie(p. 337):

Carnegie obsessed over cost because it was the one part of his business he could control. “Carnegie never wanted to know the profits,” an associate said. “He always wanted to know the cost.” Carnegie himself explained: “Show me your cost sheets. It is more interesting to know how well and how cheaply you have done this thing than how much money you have made, because the one is a temporary result, due possibly to special conditions of trade, but the other means a permanency that will go on with the works as long as they last.” (p. 93)

Janet Yellen is Hardly a Dove—She Knows the US Economy Needs Some Unemployment

Here is a link to my 34th column on Quartz: “Janet Yellen is hardly a dove–she knows the US economy needs some unemployment.”

October 18, 2013 Update: Given his 780,386 Twitter followers, a tweet from Ezra Klein is worth reporting. I like his modification to my tweet: 

No, she’s a human being RT @mileskimball: Don’t miss my column “Janet Yellen is hardly a dove” http://blog.supplysideliberal.com/post/63725670856/janet-yellen-efficiency-wages-and-monetary-policy

Notes:

Andy Harless’s Question: Where Does the Curvature Come From? Andy Harless asks why there is an asymmetry–in this case a curvature–that makes things different when unemployment goes up than when it goes down. The technical answer is in Carl Shapiro and Joseph Stiglitz’ paper “Unemployment as a Worker Discipline Device.” It is not easy to make this result fully intuitive. A key point is that unemployed folks find jobs again at a certain rate. This and the rate at which diligent workers leave their jobs for exogenous reasons dilute the motivation from trying to reduce one’s chances of leaving a job. The discount rate also dilutes any threats that get realized in the future. So the key equation is 

dollar cost of effort per unit time 

                    =  (wage - unemployment benefit) 

                                                          · detection rate

÷ [detection rate + rate at which diligent workers leave their jobs                              + rate at which the unemployed find jobs + r]  

That is, the extra pay people get from work only helps deter dereliction of duty according to the fraction of the sum of all the rates that comes from the detection probability. And the job finding rate depends on the reciprocal of the unemployment rate. So as unemployment gets low, the job finding rate seriously dilutes the effect of the detection probability times the extra that workers get paid.

(The derivation of the equation above uses the rules for dealing with fractions quite heavily, backing up the idea in the WSJ article I tweeted as follows.

The Dividing Line: Why Are Fractions Key to Future Math Success? http://on.wsj.com/15rlupS

Deeper intuition for the equation above would require developing a deeper and more solid intuition about fractions in general than I currently have.)

Solving for the extra pay needed to motivate workers yields this equation:

(wage - unemployment benefit) 

           = dollar cost of effort per unit time 

· [detection rate + rate at which diligent workers leave their jobs                              + rate at which the unemployed find jobs + r]  ÷

                                  detection rate

In labor market dynamics the rates are high, so a flow-in-flow-out steady state is reached fairly quickly, and we can find the rate at which the unemployed find jobs by the equation flow in = flow out, or since in equilibrium the firms keep all their workers motivated,  

rate at which diligent workers lose jobs * number employed

= rate at which the unemployed find jobs * number unemployed.

Solving for the rate of job finding:

rate at which the unemployed find jobs 

= rate at which diligent workers leave their jobs 

· number employed  ÷  number unemployed

Finally, it is worth noting that

rate at which diligent workers leave their jobs

+ rate at which the unemployed find jobs

= rate at which diligent workers leave their jobs 

· [number unemployed + number employed]/[number unemployed]

= rate at which diligent workers leave their jobs 

÷ unemployment rate

Morgan Warstler’s Reply: The original link in the column about Morgan Warstler’s plan was to a Modeled Behavior discussion of his plan. Here is a link to Morgan Warstler’s own post about his plan. Morgan’s reply in the comment thread is important enough I will copy it out here so you don’t miss it:

1. The plan is not Dickensian. It allows the poor to earn $280 per week for ANY job they can find someone to pay them $40 per week to do. And it gives them the online tools to market themselves.

Work with wood? Those custom made rabbit hatches you wish you could get the business of the ground on? Here ya go.

Painter, musician, rabbit farmer, mechanic - dream job time.

My plan is built to be politically WORKABLE. The Congressional Black Caucus, the Tea Party and the OWS crowd. They are beneficiaries here.

2. No one in economics notices the other key benefit - the cost of goods and services in poor zip codes goes down ;:So the $280 minimum GI check buys 30% more! (conservative by my napkin math) So real consumption goes up A LOT.

This is key, bc the effect is a steep drop in income inequality, and mobility.

That $20 gourmet hamburger in the ghetto costs $5, and it’s kicking McDonalds ass. And lots of hipsters are noticing that the best deals, on things OTHER THAN HOUSING are where the poor live.

Anyway, I wish amongst the better economists there was more mechanistic thinking about how thigns really work.

Quartz #28—>Benjamin Franklin's Strategy to Make the US a Superpower Worked Once, Why Not Try It Again?

Link to the Column on Quartz

Here is the full text of my 28th Quartz column, ”Benjamin Franklin’s strategy to make the US a superpower worked once, why not try it again?” now brought home to supplysideliberal.com. It was first published on August 12, 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:

© August 12, 2013: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2014. All rights reserved.


Ben Franklin was one of the greatest grand strategists in American history. He “had the vision of the Great Power of the New World” as refugees from the Old World poured in, writes Conrad Black in his page-turning, tour-de-force Flight of the Eagle: The Grand Strategies That Brought America from Colonial Dependence to World Leadership. Franklin then followed up that vision with brilliant diplomacy and sponsoring, along with George Washington, the constitutional efforts of Madison, Hamilton and Jay. 

The flow of immigrants to America was crucial not only in the initial rise of America as a credible power in the world, but also in dealing with the stain of slavery: the North would have been unable to defeat the South in the Civil War if the North had not had a three to one advantage in population because of its greater ability to attract immigrants.

Ratio of Per Capita GDP: China/US

In the rest of the 21st century, America faces another grand-strategic challenge: the challenge of China. Since Deng Xiaoping’s economic reforms were introduced in December of 1978, China’s economy has been growing at a ferocious pace. As former Treasury Secretary Larry Summers put it, at Chinese growth rates, “In a decade, an individual goes from walking to having a bicycle; in another decade to a motorcycle; in another decade or two to having an automobile.” Yichuan Wang explains in “How China’s poorest regions are going to save its growth rate,” the reason the Chinese economy can grow so fast is that it is in the midst of “catch-up growth”: that is, it can copy technologies that have already been researched and developed in other countries. As shown in the graph above, China went from a per capita GDP (income per person) less than 1/50 of the US level to a per capita GDP of roughly 1/6 the US level in the 30 years from 1980 to 2010. It will not be easy for China to get all the way to the US level of income per person, but with half-decent economic policies, it should have no problem getting to half the US level of income per person.

The reason China’s economic rise matters for US grand strategy is that China has a much larger population than the United States. Indeed, as the graph below shows, the US now has less than a quarter the population China has (the extreme measures China has taken to hold down its population growth since 1979 through its one-child policy have stabilized the ratio of US to Chinese population in recent years). Multiplying per capita GDP by population yields total GDP, so if China has ¼ the per capita GDP, but four times as many people, its total GDP will be the same size. More generally, if China gets to a larger fraction of US per capita GDP (see graph above) than the US population as a fraction of China’s population (see graph below), then China’s total GDP will be bigger. Although per capita GDP is what matters for people’s standard of living, total GDP is crucial for the ability of a country to wage war—or more importantly, to deter other countries from waging war against it. Power corrupts. So even though idealism has had some effect on US foreign policy (as Black details), it should surprise no one that the US has done some bad things as a superpower. Yet I am convinced that the combination of Chinese nationalism and “Communist” oligarchy—or the combination of Chinese nationalism with some tumultuous future political transition in China—would lead a dominant China to behave much worse than the US has.

Data source: Populstat and Census

Data source: Populstat and Census

What can be done to maintain US power relative to China? The worst answer would be to try to inhibit China’s economic growth. Berkeley economics professor and influential blogger Brad DeLong’s rhetorical question says it best:

Does it really improve the national security of the United States for schoolchildren in China to be taught that the United States sought to keep them as poor as possible for as long as possible?

An excellent answer is to do everything possible to foster long-run growth of per capita GDP in the US. At a minimum, this includes radical reform of our system of K-12 education, removing the barriers state governments put in the way of people getting jobs, and dramatically stepped-up support for scientific research. And it includes reform of both the US tax system and the balance in its government spending between (a) mailing people checks in direct government transfers and (b) investments in raising the productive capacity of the economy by, say, keeping roads and bridges in good repair. But when all is said and done, economic growth at the frontier of high living standards is simply harder than catch-up economic growth. So, short of some disaster for China that we should not wish on them, the ratio of China’s per capita GDP to US per capita GDP is bound to go up.

Fortunately, to add to the pro-growth policies listed above, there is another way to increase the size of the US economy that would be remarkably easy: expanding the United States economy—with all of its power to make people richer than they are in most other countries—to encompass a larger share of the world’s people. In the 19th century, many Americans felt a “manifest destiny” to expand the land that the US encompassed—westward, all the way to the Pacific. But in a modern economy, it is human beings and their skills (and the factories and machines their saving makes possible) that are the key to national wealth, not land.

So in the 21st century, we should view claiming more of the world’s people—not more of the world’s land—as the key to national wealth, and therefore, national power. And all we have to do to claim more of the world’s people for the US, is to open our doors to immigration, as the US did in the 18th and most of the 19th century. Ben Franklin knew that America would become a great nation because people from all over the world would eagerly move to America. The key to maintaining America’s preeminence in the world is to return to Ben Franklin’s visionary grand strategy of making many more of the world’s people into Americans.

Before the American Revolution, Franklin said that America “will in another century be more than the people of England, and the greatest number of Englishmen will be on this side of the water.” With a quarter-millennium of additional experience beyond what Franklin had seen, we know that America’s melting pot can make people from anywhere in the world (not just England) into Americans at heart within two generations. And we know that, together with all the other elements of this unbelievable American system, Franklin’s grand strategy for the rise of America worked once. It can work again to keep America on top.


Update: Steve Sailer has an interesting post pointing out the importance of birth rates, as well as the immigration rates I emphasize in the column. In order to keep an open mind, before reading Steve Sailer’s post, I recommend reading my post “John Stuart Mill’s Argument Against Political Correctness.” In his post Steve also points out that Ben Franklin favored English immigration over German immigration. 

Ezra and Evan’s Flag. I was very pleased to see Ezra Klein and Evan Soltas flag the column, and intrigued by the way they boiled it down:

KIMBALL: The Ben Franklin strategy to a U.S. renaissance. “The reason China’s economic rise matters for US grand strategy is that China has a much larger population than the United States…An excellent answer is to do everything possible to foster long-run growth of per capita GDP in the US. At a minimum, this includes radical reform of our system of K-12 education, removing the barriers state governments put in the way of people getting jobs, and dramatically stepped-up support for scientific research…The key to maintaining America’s preeminence in the world is to return to Ben Franklin’s visionary grand strategy of making many more of the world’s people into Americans.” Miles Kimball in Quartz.