Walter Russell Mead and Grapes of Wrath Episode II

Walter Russell Mead has a nice essay in Tablet on California. This excerpt struck me. You too were probably dragged through "Grapes of Wrath" at some point in school, or you've seen the movie. But what happens next? Mead's insight hadn't occurred to me. Spoiler: 

Ma Joad might have ended up as the “Little Old Lady From Pasadena,” leaving her garden of white gardenias to become the terror of Colorado Boulevard in her ruby-red Dodge. Rose of Sharon would be a Phyllis Schlafly-loving Reagan activist reunited with her husband, now owner of a small chain of franchise fast-food outlets. 

A longer excerpt:   

 John Steinbeck’s The Grapes of Wrath chronicled the suffering of a group of bankrupt former farmers fleeing the Dust Bowl in Oklahoma to arrive, desperate and penniless, in an unwelcoming California.

Time for Supply

At Project Syndicate essay, with Jon Hartley. It's not the first, and it won't be the last on the issue! 

Now that surging inflation has refocused everyone's attention on the long-ignored supply side of the economy, the question is how best to support broad-based growth, efficiency, and innovation. The answer is not necessarily deregulation, but the need for smarter regulation is increasingly apparent – even to progressives.

STANFORD – The return of inflation is an economic cold shower. Governments can no longer hope to solve problems by throwing money at them. Economic policy must now turn its attention to supply and its cousin, economic efficiency. 

The issue is deeper than delayed goods deliveries and a year’s worth of sharp price increases. From the end of World War II to 2000, US real (inflation-adjusted) GDP per capita grew 2.3% per year, from $14,171 to $44,177 (in 2012 dollars). Americans became healthier, lived longer, reduced poverty, and paid for a much cleaner environment and a vast array of social programs. But since 2000, that post-war growth rate has fallen almost by half, to 1.4% per year. And it’s worse in Canada and Europe, where many countries have not grown at all since 2010 on a per capita basis. 

Nothing matters more for human flourishing than long-term economic growth. So, no economic trend is more worrisome than growth falling by half, especially for the well-being of the less fortunate. 

The eruption of inflation settles a long debate. Sclerotic growth is not the result of demand-side “secular stagnation,” fixable only with massive fiscal and monetary stimulus. Sclerotic growth is a supply problem. We need policies to increase the economy’s productive capacity – either directly or by reducing costs. 

How? The simplest and most important thing governments can do is to get out of the way. Byzantine regulations and capricious regulatory authorities stymie business. We do not need thoughtless deregulation, but rather smarter regulation that is simple, effective, avoids disincentives and unintended consequences, and is not distorted to protect current business and prop up regulatory empires. That means adding sunset clauses to regulations, regularly re-evaluating existing measures, and instituting a right to external appeal. 

How much does climate change actually affect GDP? Part I: An illogical question.

How much does climate change* actually affect GDP? How much will currently-envisioned climate policies reduce that damage, and thereby raise GDP? As we prepare to spend trillions and trillions of dollars on climate change, this certainly seems like the important question that economists should have good answers for. I'm looking in to what anyone actually knows about these questions. The answer is surprisingly little, and it seems a ripe area for research. This post begins a series.  

I haven't gotten deep in this issue before, because of a set of overriding facts and logical problems. I don't see how these will change, but the question frames my investigation. 

An illogical question

The economic effects of climate change are dwarfed by growth. 

Take even worst-case estimates that climate change will lower GDP by 5-10% in the year 2100. Compared to growth, that's couch change. At our current tragically low 2% per year, without even compounding (or in logs), GDP in 2100 will be 160% greater than now. Climate change will make 2100 be as terrible as... 2095 would otherwise be.  If we could boost growth to 3% per year, GDP in 2100 will be 240% greater than now, an extra 80 percentage points.  8% in 80 years is one tenth of a percent per year growth. That's tiny.  

In the 72 years since 1947, US GDP per capita grew from $14,000 to $57,000 in real terms, a 400% increase, and real GDP itself grew from $2,027 T to $19,086 T, a 900% increase. Just returning to the 1945-2000 growth rate would dwarf the effects of climate change and the GDP-increasing effects of climate policy. 

Comparing the US and Europe, Europe is about 40% below the US in GDP Per Capita, and the the US is about 60% above Europe. So Europe's institutions do on the order of 5-10 times more damage to GDP than climate change.    

Residential zoning alone costs something like 10-20% of GDP, by keeping people away from high productivity jobs. Abandoning migration restrictions could as much as double world GDP (also here). 

It is often said that climate change will hit different countries differentially, and poor countries more, so it's an "equity" issue as much as a rich-country GDP issue. Yet just since 1990, China's GDP Per Capita has grown 1,100%, from $729 to $8405 (World bank). As the world got hotter. 1,100% is a lot more than 10%. We'll look at poor country GDP climate effects, but from what I've seen so far, reducing carbon doesn't get 1,100% gains. 

GoodFellows interview with Ayaan Hrsi Ali

I learned a lot. The book is very interesting. Direct link in case the following embeds don't work.

 

 

EconTalk

I did an EconTalk Podcast with Russ Roberts. The general subject is economic growth, the reasons it seems to be slipping away from us and policies (or non-policies) that might help.

As in other recent projects (growth essay, testimony) I'm trying to synthesize, and also to find policies and ways to talk about them that avoid the stale left-right debate, where people just shout base-pleasing spin ever louder. "You're a tax and spend socialist" "You just want tax cuts for your rich buddies" is getting about as far as "You always leave your socks on the floor" "Well, you spend the whole day on the phone to your mother."

We did this as an interview before a live audience, at a Chicago Booth alumni event held at Hoover, so it's a bit lighter than the usual EconTalk. This kind of thought helps the synthesis process a lot for me.  Russ' pointed questions make me think, as did the audience in follow up Q&A (not recorded). Plus, it was fun.

I always leave any interview full of regrets about things I could have said better or differently. The top of the regret pile here was leaving a short joke in response to Russ' question about what the government should spend more on. Russ was kindly teeing up the section of the growth essay "there is good spending" and perhaps "spend more to spend less" ideas in several other recent writings. It would have been a good idea to go there and spend a lot more time on the question.

Immigration, trade, and child care

Both Mr. Trump and Mrs. Clinton want to lower the cost and, presumably, increase the amount of child care. A quick economics quiz: What is the policy change that would have the greatest such effect?

Blueprint for America

"Blueprint for America" is a collection of essays, organized, edited and inspired by George P. Shultz. You can get an overview and chapter by chapter pdfs here. The hardcover will be available from Amazon or Hoover Press October 1.

Some of the inspiration for this project came from the remarkable 1980 memo (here) to President-elect Ronald Reagan from his Coordinating Committee on Economic Policy.

Like that memo, this is a book about governance, not politics.  It's not partisan -- copies are being sent to both campaigns. It's not about choosing or spinning policies to attract voters or win elections.

The book is about long-term policies and policy frameworks -- how policy is made, return to rule of law, is as important as what the policy is --  that can fix America's problems. It focuses on what we think are the important issues as well as policies to address those issues -- it does not address every passion of the latest two-week news cycle.

The book comprises the answers we would give to an incoming Administration of any party, or incoming Congress, if they asked us for a policy package that is best for the long-term welfare of the country.

The chapters, to whet your appetite:

Immigration sentiment

Above, a lovely graph from The Conversation. A common story says that opposition to immigration comes from people in high-immigrant communities, who suffer externalities from the presence of many immigrants. It is not true.

Brexit or Fixit

Many commenters compare Brexit to the American revolution. I think the constitutional convention is a better analogy for the moment and challenge ahead. A first attempt at union resulted in an unworkable Federal structure. Europe needs a constitutional convention to fix its union.

The EU's first attempt was basically aristocratic/technocratic. Brussels tells the peasants what to do. The EU  needs a hardy dose of accountability, representation, checks and balances -- all the beautiful structures of the US Constitution. What little thought the EU put in to these matters is clearly wanting.

America did not wait for a state to leave. But, though even the Pope admits the EU structure wasn't working, the EU needed this wake up call. Bring the UK to the convention, and bring them back. Fixit. (#Fixit?)

Bush v. Reagan on Immigration

Scott Summner posted this beautiful exchange between Ronald Reagan and George Bush Sr. on immigration. Direct link (youtube).

Scott titles the post "when the GOP still had some decency," which I think he should more accurately state as "when the two leading GOP presidential candidates still had some decency." There are many people in the party -- in Congress, governors, state legislators, losing Presidential candidates, in Republican think tanks and so forth --with quite sensible ideas on immigration, and with the kind of personal decency Scott notices in the video, and lacking of the presidential candidates today.  There are also many decent and sensible Democrats too.

In this era that the battles within parties are as important as those between them, we have to get out of the habit of tarring whole parties with the behaviors and attitudes of some people in them.

Scott also characterizes the debate as "Bush stakes out a very liberal position on immigration, and then Reagan responds from a position even further to the left.." That's not quite accurate either. While it's accurate that the "left" wants to allow "undocumented immigrants" access to schools and services,  they typically do not want to open labor markets. Both Bush and Reagan explicitly welcomed people to come and work. Letting people come and not letting them work is a recipe for disaster. These are now libertarian positions, not right vs. left.

But I'm quibbling. Thanks Scott for a great video.

Open Borders

Alex Tabarrok has a very nice and very short piece at the Atlantic, The Case for Getting Rid of Borders—Completely. (HT Marginal Revolution)

In the Soviet era, there were walls and guards with guns, and we deplored that people were not allowed to cross the border. Is it that different that the guards with guns are on the other side of the walls?

If you're a liberal, you should cheer the policy with the greatest chance of elevating the world's poor and reducing global inequality. If you're a conservative, believe in the rights of individuals and freedom, don't like minimum wages, unions, protectionism, and government control, it makes little sense to switch sides on this one issue.

Adam Davidson on Immigration

Illustration by Andrew Rae, source New York Times

Adam Davidson has a very nice New York Times Magazine article, "Debunking the Myth of the Job-Stealing Immigrant", in favor of "radically open borders."

Here's how a top professional journalist and writer puts together the central argument, so much more cleanly than I can do it:

So why don’t we open up?

The case for open borders

Alex Tabarrok has a splendid post "the case for open borders" on Marginal Revolution.

Along the way he points to "Economics and Immigration: Trillion Dollar Bills on the Sidewalk?" by Michael Clemens and forthcoming Journal of Economic Perspectives, "The Domestic Economic Impacts of Immigration" by David Roodman and "The case for Open Borders" by Dylan Matthews, a Bryan Caplan interview and story on vox. All are worth reading.

1) Women

Anecdotes and analogies are important for how we understand events, beyond equations and tables. Bryan makes this point, with a lovely "elevator pitch" metaphor. Bryan comes up with a good story as well, that I hadn't thought of:

How much has the entry of women to the labor force lowered men's jobs and wages? (I was tempted to write "access to jobs," but someone might take it seriously!)  Should the US government have prohibited women from entering the labor force, in order to shore up the wages of men?

The increase in women's labor force participation was huge -- from 32% to 60%, resulting in an increase in overall labor force participation from 59% to 67% of the population from 1960 to 2000. 8% of 320 million is 26 million, so we're talking about a lot of extra people working.

The answer to the first question is surely yes, but not a lot. 26 million men did not lose their jobs so women could work.  And the answer to the second question is surely no.

Immigration reading

Does Economics 101 Apply to Immigration? by Robert VerBruggen, a review of George Borjas' new book Immigration Economics.

The question is central to the immigration debate. If new people come in, do they depress the wages of competing workers here, and if so how much? "But it's 'suprisingly difficult' to demonstrate that this actually happens, according to the famed Harvard labor economist George Borjas. Very good review, need to read the book.

Of course, protectionism 101 still applies. If cheap Chinese sneakers come in, do they depress the profits of competing sneaker producers here? Yes. Does that mean we wall off trade? No, but neither ignore its distributional consequences.

Immigration and wages

Following up on my last immigration post, a thought occurred to me.

The most common objection is the claim that letting immigrants in will hurt American wages. Before, I've addressed this on its merits: If labor doesn't move, capital will. Your doctor's lower wages are your lower health costs. Immigrants come for wide open jobs, and to start new businesses. And so on.

What occurs to me this morning is the inconsistency that conservatives make this argument.

Suppose it were true. Would that mean the government should keep out migrants to keep American wages up?

Well, do you believe that the Federal government should mandate a large minimum wage, to raise American’s wages? Do you believe that the Federal Government should ban imports and subsidize exports, to raise American’s wages? Do you believe that the Federal Government should give more power to unions, to raise American’s wages? Do you believe that the Federal Government should pass even more stringent rules in its own contracts to pay higher wages? Do you believe that the government should pass more licensing restrictions, to lessen competition and raise American's wages? Should Illinois restrict people Indianans working in Illinois, to keep up Illinoisans' wages?

These are all the same sorts of steps. At least people who believe all these wrong things believe them together. It makes no sense whatsoever to oppose, correctly, all of these counterproductive economic interventions, but to support exactly the same intervention aimed at immigrants.

As usual in the immigration debate, incoherence is a sign that the real arguments are not the ones people are talking about.  On both sides. 

The optimal number of immigrants

Hoover's Peregrine asked me to write an essay with the title, "What is the optimal number of immigrants to the U.S?"  (Original version and prettier formatting here. Also a related podcast here.)

My answer:

Two billion, two million, fifty-two thousand and thirty-five (2,002,052,035). Seriously.

The United States is made up of three and a half million square miles, with 84 people per square mile. The United Kingdom has 650 people per square mile. If we let in two billion people, we’ll have no more population density than the UK.

Why the UK? Well, it seems really pretty country and none too crowded on “Masterpiece Theater.” The Netherlands is also attractive with 1,250 people per square mile, so maybe four billion. Okay, maybe more of the US is uninhabitable desert or tundra, so maybe only one billion. However you cut it, the US still looks severely underpopulated relative to many other pleasant advanced countries.

As you can see by my playful calculation, the title of this essay asks the wrong question.

Immigration

WSJ Op-Ed on immigration, with extra comments.  Original here.

Think Government Is Intrusive Now? Wait Until E-Verify Kicks In

Source: Wall Street Journal

Massive border security and E-Verify are central provisions of the Senate immigration bill, and they are supported by many in the House. Both provisions signal how wrong-headed much of the immigration-reform effort has become.

E-Verify is the real monster. If this part of the bill passes, all employers will be forced to use the government-run, Web-based system that checks potential employees' immigration status. That means, every American will have to obtain the federal government's prior approval in order to earn a living.

Immigration

I wrote a short essay on immigration for Hoover's "Advancing A Free Society" series. It's here, and reproduced below.  The whole set of essays in Hoover's Immigration Reform series is worth perusing.

Since writing it, and also reading Steve Chapman's good editorial on the subject (Chicago Tribune, Townhall) the e-verify system seems like an even bigger nightmare. Every employer in the country must check that every applicant has the Federal Government's permission to work before employing him or her.

Beyond the points raised in the essay below, it's an interesting coincidence that this e-verify is in the news at the same time as the IRS scandal. Congressional Republicans get the cognitive-dissonance award of the year for this one.