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Noah Smith linked to the following recent paper in the AER, by Justin R Pierce and Peter K. Shott. :

Abstract: This paper links the sharp drop in US manufacturing employment after 2000 to a change in US trade policy that eliminated potential tariff increases on Chinese imports. Industries more exposed to the change experience greater employment loss, increased imports from China, and higher entry by US importers and foreign-owned Chinese exporters. At the plant level, shifts toward less labor-intensive production and exposure to the policy via input-output linkages also contribute to the decline in employment. Results are robust to other potential explanations of employment loss, and there is no similar reaction in the European Union, where policy did not change.
It's very possible that using cross sectional data, job loss in America is more closely linked to China trade than job loss in Europe. But that doesn't tell us anything about the macroeconomic factors driving the overall loss in jobs. In fact, Europe has lost jobs in manufacturing just as fast as America:

Screen Shot 2016-12-08 at 9.46.35 AM.png
It's a bit hard to see all the lines, but the decline in the US has been similar to the decline in Europe. Germany has seen the second sharpest decline (after the UK), while Italy has seen the smallest loss of manufacturing jobs. Interestingly, Germany and the UK have two of Europe's healthiest overall job markets, and Italy has by far the worst employment situation of the countries on this graph. Manufacturing jobs don't equate to a healthy job market.

It's true that the data only goes up to 2008, but this graph shows that Europe suffered a massive job loss in the Great Recession, just like the US (down roughly 12% in Europe, roughly 13% in the US).

Screen Shot 2016-12-08 at 9.54.08 AM.png
As I pointed out in my Chinese rust belt post, manufacturing jobs are declining almost everywhere; it's a global phenomenon that has little or nothing to do with trade deficits. Indeed Europe's current account surplus is well over $300 billion, larger than any other single country, including China. If even a massive trade surplus doesn't prevent US-style job losses in manufacturing, then Trump's plan has essentially zero chance of success.

I'll say it again, the argument that job loss in manufacturing is due to trade deficits rather than automation is simply innumeracy.

HT: Nathan Taylor




The Niskanen Center has been an engine of idea creation since its foundation in 2014.  I know many of its scholars well.  But I'm still trying to figure out Niskanen's fundamental goal.  Perhaps I'm obtuse, but I detect three distinct - and pretty incompatible - themes.

Theme #1: Open-mindedness.  Instead of rigidly appealing to the libertarian "party line," Niskanen scholars strive to be flexible and pluralist.  Scholars and policy analysts across the political spectrum have useful ideas; let's give everyone a hearing and pick the best.

Theme #2: Pragmatism. Instead of making the best the enemy of the good, Niskanen scholars remember that politics is "the art of the possible."  Achieving minor reforms by assembling diverse political coalitions is a lot better than writing irrefutable essays for the elect.

Theme #3: Liberaltarianism. Instead of sticking to the time-honored "fusionist" alliance between libertarians and conservatives, Niskanen scholars go full "liberaltarian."  They're not merely looking for common ground with liberals.  Instead, they're ready, willing, and eager to admit that on many issues - global warming, poverty, race - the left is largely correct. 

How do these themes conflict?  In every possible logical combination!

1. Open-mindedness vs. pragmatism.  Being flexible and pluralist can help achieve real-world results.  But so can polarization, demagoguery, and loyalty to your long-term political allies.

2. Open-mindedness vs. liberaltarianism.  If you really give everyone a fair hearing, you're not just going to acquire some liberal views.  You're also going to acquire some conservative views.  For example, you might discover that for all its evils, the U.S. criminal justice system isn't racist.  And if you acquire too many conservative views, the budding liberal-libertarian alliance falls apart.

3. Pragmatism vs. liberaltarianism.  Liberals and libertarians see eye-to-eye on many issues, starting with immigration and terrorism.  Sadly, these are also issues where both liberals and libertarians are out of step with mainstream America.   So what should they do?  Quixotically push their shared views - or focus on issues where the audience is more receptive?

Defenders of Niskanen could always appeal to consilience: While its three themes occasionally conflict, such conflict is rare.  If so, I say: Convince me.  Or better yet, bet me.




I am becoming increasingly frustrated by all the articles I'm reading about how trade is supposedly decimating jobs in US manufacturing. I went to the FRED data set, and they have manufacturing output (real) going back to the first quarter of 1987. So let's start there. Their series shows total manufacturing output rising from 69.789 in 1987 to 129.129 in the most recent quarter. That's an 85% gain.

At the same time, manufacturing employment has fallen, from 17.499 million to 12.275 million. This represents a decline from 17.3% of total employment to only 8.5% of total employment. That's the figure that has people so upset. But the cause is not trade; it's automation.

What people forget is that an increase in imports tend to cause an increase in exports. It's true that imports may currently exceed exports, but that gap is not caused by trade, it reflects saving/investment imbalances. But let's say I'm wrong. Let's say trade does cause the current account deficit. In that case, how many jobs have been lost to trade since 1987?

Zero.

Not because the CA deficit is zero; it's 2.26% of GDP in the most recent quarter. However in the first quarter of 1987 it was 3.19% of GDP. So the trade deficit has shrunk over that period. If you really believed that trade deficits caused unemployment (I don't) you'd be forced to conclude that, in net terms, trade has added jobs to US manufacturing since 1987. After all, the deficit has gotten smaller.

When people say they are upset about trade, I think that what really bothers them is that automation is allowing us to produce 85% more manufactured goods with far fewer workers. That transition has been painful for many workers, but it's not about trade---except in one respect.

Trade allows the US to concentrate in industries where we have a comparative advantage (aircraft, chemicals, agricultural products, high tech goods, movies, pharmaceuticals, coal, etc.) We then import cars, toys, sneakers, TVs, clothing, furniture and lots of other goods. It's likely that our productivity is higher in the industries where we export as compared to the industries where we import. So in that sense, trade may be speeding up the pace by which automation costs jobs. But probably only slightly; in previous posts I've shown that even within a given industry, such as steel, the job loss is overwhelmingly about automation, not trade.

Why do so may people blame trade? Cognitive illusions. It seems like imports would reduce aggregate demand, and that this would reduce employment. Those effects are highly visible. It's human nature to demonize foreigners. But even Paul Krugman rejects that argument, at least when we are not at the zero bound. The Fed would simply offset any reduction to AD due to trade. Even if you thought it was depressing output during the recent recession, the effect would have gone away once we exited the zero bound. But the jobs are still not there in manufacturing. The bottom line is that to the extent trade is a problem, it has nothing to do with aggregate demand. The real problem is frictional unemployment, the difficulty of transitioning from dying industries to growing industries.

Business Insider has an excellent article discussing a recent interview with Carrier (United Technologies) CEO Greg Hayes, by Jim Cramer:

The result of keeping the plant in Indiana open is a $16 million investment to drive down the cost of production, so as to reduce the cost gap with operating in Mexico.

What does that mean? Automation. What does that mean? Fewer jobs, Hayes acknowledged.

From the transcript (emphasis added):

GREG HAYES: Right. Well, and again, if you think about what we talked about last week, we're going to make a $16 million investment in that factory in Indianapolis to automate to drive the cost down so that we can continue to be competitive. Now is it as cheap as moving to Mexico with lower cost of labor? No. But we will make that plant competitive just because we'll make the capital investments there.

JIM CRAMER: Right.

GREG HAYES: But what that ultimately means is there will be fewer jobs.

The general theme here is something we've been writing about a lot at Business Insider. Yes, low-skilled jobs are being lost to other countries, but they're also being lost to technology.

Everyone from liberal, Nobel-winning economist Paul Krugman to Republican Sen. Ben Sasse has noted that technological developments are a bigger threat to American workers than trade. Viktor Shvets, a strategist at Macquarie, has called it the "third industrial revolution."


One by one we are repeating all the mistakes of the Great Depression. We are falling prey to fallacies that were adopted in the 1930s, but rejected by the 1990s. Now they are all coming back:

1. The belief that financial crisis caused the Great Depression (rather than vice versa).

2. The view that the Fed was out of ammo.

3. The view that interest rates measure the stance of monetary policy.

4. The view that exchange rate depreciation is a beggar-thy-neighbor policy.

5. The view that fiscal stimulus is needed in recessions.

6. The view that a higher minimum wage could boost the economy.

7. The view that mercantilist policies are justified.

I spent much of my life studying the intellectual climate during the 1930s, including reading all of the New York Times from 1929-38. I can't tell you how depressing it is to see today's intellectual climate reverting back to the vulgar Keynesianism of the 1930s. To see us making all of the same mistakes.

But opposition to free trade might be the worst of all, as it's based on pure innumeracy. That's why even Keynesians like Krugman don't buy the argument. Unfortunately, the innumerates are probably in the majority.

PS. About the title of the post. The US did not even have 20 million manufacturing jobs in 1987. So how could we lose that many? I derived this figure by first assuming that our current manufacturing output was produced with the same level of productivity as in 1987---in which case employment would have risen by 85%. That would have required an extra 15 million workers. Then I noted that actual manufacturing employment has fallen by 5 million. The gap is 20 million. Is that a ridiculous comparison? Of course it is. But so are all the estimates of jobs lost from trade.

So what's all this really about? Perhaps the "feminization" of America. When farm work was wiped out by automation, uneducated farmers generally found factory jobs in the city. Now factory workers are being asked to transition to service sector jobs that have been traditionally seen as "women's work". Even worse, the culture is pushing back against a lot of traditionally masculine character traits (especially on campuses). The alt-right is overtly anti-feminist, and Trump ran a consciously macho themed campaign. This all may seem to be about trade, but it's actually about automation and low-skilled men who feel emasculated.




Emily Skarbek  

Teaching the Minimum Wage

Emily Skarbek

When I teach the Principles of Economics, I often note the relationship between positive analysis and normative judgments. One of my favorite ways to teach this is when we cover the minimum wage. Using Thomas Leonard's article Eugenics and Economics in the Progressive Era, I explain how both proponents and opponents of the minimum wage agreed on the effects - that binding price controls would cause job losses and unemployment. There was no disagreement on the fundamental economic analysis. The difference of opinion between advocates and opponents of minimum wages was their normative assessment as to whether the resulting unemployment was socially beneficial (and normatively desirable) or socially costly (and undesirable).

The advocates for minimum wages - like Sydney and Beatrice Webb - argued that minimum wages were a good policy precisely because they identified the "unfit" and would disemploy members of that group. Alfred Marshall, Pigou, John Bates Clark and other neoclassical economists argued that minimum wages were a bad policy precisely because they cause unemployment and job loss.

Dierdre McCloskey taught me quotations are useful when you either want to give an angel her voice or the devil his due. So I take the opportunity in lecture to read some of the passages from the assigned article aloud, verbalizing the language used by advocates to describe the people unemployed by the policy and the implications. Here are two passages from the paper I usually include:

Sidney and Beatrice Webb (1897 [1920], p. 785) put it plainly: With regard to certain sections of the population [the "unemployable"], this unemployment is not a mark of social disease, but actually of social health." "[O]f all ways of dealing with these unfortunate parasites," Sidney Webb (1912, p. 992) said in the Journal of Political Economy, "the most ruinous to the community is to allow them to unrestrainedly compete as wage earners.
In his Principles of Economics, Frank Taussig (1921, pp. 332-333) asked rhetorically, "how to deal with the unemployable?" Taussig identified two classes of unemployable worker, distinguishing the aged, infirm and disabled from the "feebleminded . . . those saturated with alcohol or tainted with hereditary disease . . . [and] the irretrievable criminals and tramps. . . ." The latter class, Taussig proposed, "should simply be stamped out." "We have not reached the stage," Taussig allowed, "where we can proceed to chloroform them once and for all; but at least they can be segregated, shut up in refuges and asylums, and prevented from propagating their kind.

When I get to the words "parasites", I am aware that my tone of voice and demeanor are showing signs of disgust. They are disgusting sentiments, not easily read aloud to a classroom of students.

I think this is useful pedagogically for several reasons. First, it teaches students in political economy to carefully distinguish positive analysis from normative evaluation. By building this in early in the course, I find it easier to teach more difficult concepts like Coase and externalities. Second, it poses a striking challenge to students' priors that good intentions lead to good policy. I use the opportunity to emphasize that economists judge policies by their outcomes, not the intentions behind them. Third, the example demonstrates the value of knowing something about the history of ideas and economic thought. It enriches their knowledge of both of the historical and contemporary debates and they remember it (I think). Fourth, the discussion invites a consideration of what values, views, and policies are consistent with their own normative positions. And finally, it is a powerful illustration of how ideas have consequences.

Having done this for several years when I teach price controls, I was really excited to hear this point raised in this week's Econtalk. I look forward to reading the new book, Illiberal Reformers, over Christmas.




David R. Henderson  

How I Got Culture

David Henderson

Sarah Skwire recently wrote an article, "The Awesome Social Value of the Chiquita Banana Song," in which she actually made the Chiquita banana song fascinating. An excerpt sums up why she writes about such things:

I spend a lot of time thinking and talking about pop culture, and persuading people that it should be taken seriously as an art form and as an object of historical study. Talking to my dad this weekend reminded me that something as apparently trivial as the jingle for a banana commercial can open a window into history, economics, and culture.

Her piece reminded me of a short section I wrote in my book The Joy of Freedom: An Economist's Odyssey. In a chapter titled "The Joy of Capitalism," I ended with this section, subtitled "How I Got Culture:"
A stereotype that many intellectuals hold strongly is that television and radio are the enemies of culture. Yet, popular television and radio shows gave me my earliest experience of classical music. I, like most other Americans over age 45, first heard Rossini's "William Tell Overture" as the theme song to the radio program, and later the television show, "The Lone Ranger." When my brother Paul and I used to hear it on the radio, we would gallop around the house, hitting our own backsides with our hands to spur on our imaginary horses, which is one reason I will never forget the "William Tell Overture." Of course, it wasn't until I was in college that I bought the record and heard the whole overture, but I never would have been interested in it had it not been for the radio and TV programs.
Similarly, my interest in Rossini's "The Barber of Seville" was first piqued by a Bugs Bunny cartoon in which Bugs, to the tune of Rossini's opera, sings:
Let me cut your mop,
Let me save your crop,
Ooooh, you're next.
Yoouur'e so next.




A commenter named Captain Parker recently left this comment:

Ok, so, inflation is a monetary phenomenon and Burns should take the blame. This I believe. Yay Milton Friedman. But if you look at '72 through '76 you would conclude Burns was doing a pretty good job of creating a nice stable growth path for NGDP (exactly like a market monetarist would want) yet real GDP began falling in mid '73 and by '74 we were in recession. So, a casual observer would say NGDP path targeting doesn't work that time. I raised this issue once before and Dr. Sumner was kind enough to reply that wage and price controls were the problem. But, those controls were gone by early '74 and in any event what would have been the clue in '73 -'74 that the nice stable path of NGDP wasn't doing it's job? It can't be the jump in inflation because MMs have been arguing for higher inflation targets if that's what it takes to keep NGDP on the desired path. And it can't be the 'stance' of monetary policy as measured by interest rates. If MMs try to claim you can judge the stance of monetary policy based on interest rates they will get both barrels from Bob Murphy.
Comments:

1. Let me know when Bob Murphy finds an actual contradiction in my blogging.

2. It's not quite true that NGDP growth was stable during 1972-76:

Screen Shot 2016-12-06 at 9.10.51 PM.png
NGDP growth did slow in 1974. But out of respect for our nation's military, I'll concede to the Captain that the NGDP growth rate during this period (a bit over 8%) was high enough so that we really should not have had a severe recession in 1974. In this case, we do need to look beyond NGDP.

The musical chairs model suggests that it's the interaction of NGDP and wages that determines the business cycle. Normally, wage growth falls during recessions. Indeed it almost always falls, or at worst is relatively stable. But not in 1974---for some strange reason wage growth shot up during 1974, despite rising unemployment. Why? What's wrong with the model?

Screen Shot 2016-12-06 at 9.05.15 PM.png
Those who have read my book on the Great Depression (The Midas Paradox) know that I argued that five autonomous wage shocks slowed the recovery during the New Deal. In 1974, there was no explicit government program to boost wages, as there had been during the Depression. But there was a removal of the wage controls that Nixon had imposed in 1971.

Although these were called "wage and price controls", they were actually all about holding down wage growth. The price controls were the price they had to pay to get Big Labor to go along. Then the Fed juiced NGDP growth, and the combination of fast NGDP growth and slow wage growth created a boom, and Nixon's 49 state landslide victory in 1972.

But there was a price to be paid for this recklessness. The removal of the wage controls led to fast wage increases. At the same time the Fed was trying to slow inflation, which had shot up from a combination of fast NGDP growth, removal of price controls, and a major oil shock after the 1973 Arab-Israeli War. A perfect storm of bad policy and bad luck came together to produce a modest slowdown in NGDP growth and a sudden rise in wage growth---a toxic combination for the economy.

I do think NGDP by itself is a pretty good model of the business cycle. But it's not perfect. Recessions can also be caused by real shocks, especially policies that distort the labor market. The slow recovery after July 1933 was one example, and the steep 1974 recession was another.




illiberal reformers.jpgThis week's EconTalk may turn out to be one of our most widely listened-to episodes, and it's easy to see why. While deeply disturbing, it's nonetheless fascinating. Host Russ Roberts welcomes Princeton's Thomas Leonard to talk about his book, Illiberal Reformers: Race, Eugenics & American Economics in the Progressive Era. You may also recall Arnold Kling's review of Leonard's book from this spring. Kling's piece spent more time on the early days of the American Economic Association (AEA) and its influence on the profession. While Russ and Leonard spoke about this as well, particularly the notorious leadership of Richard Ely, there were plenty of other moments of interest. Woodrow Wilson, for example, comes under harsh criticism. Russ even takes a stab at defending the Progressives (sort of). He asks, quite rightly, why it's necessarily a problem that today's progressives have abhorrent ancestors. Leonard offers a lucid description of what parts of the progressives' early legacy remains. The specter of the administrative and regulatory state looms large.

Coincidentally, on the same day this week's episode was released, I came across this piece in the Chronicle of Higher Education, suggesting that the AEA should go back to its early, "radical," roots. The authors laud the early AEA's "rebellion against the economic orthodoxy of the Gilded Age," and heap praise on Ely, its "crusading founder and guiding light." As startling as this week's episode was, I confess this piece startled me more.

That said, it's important for advocates of individual liberty and free markets not to ignore the faults of capitalism, which most agree indeed exist. In his column this month, Pedro Schwartz argues exactly that. He offers an honest discussion of the role of slavery in the history of capitalism. Both the prohibition of slavery and capitalism itself, Schwartz argues, are tremendously dependent on "liberty-rights," and cannot be judged on their material consequences alone.

CATEGORIES: EconTalk , Economic History



In the history of American central banking, Arthur Burns (1970-78) and G. William Miller (1978-79) are often viewed as villains, largely responsible for the Great Inflation. (Although Martin (1951-70) was the one who got the ball rolling.)

A new paper by Thomas A. Lubik, Christian Matthes and Tim Sablik of the Richmond Fed suggest that Burns has gotten a bad rap, and that the anti-inflation policies of Paul Volcker actually began under Burns:

Economists often describe the Great Inflation of the 1970s as a failure of the monetary policy actions of the Federal Reserve under Chairman Arthur Burns. According to conventional wisdom, when Paul Volcker became chairman of the Fed in 1979, he implemented changes that ushered in a period of disinflation. This Economic Brief challenges this standard narrative in two ways. First, it argues that the "Volcker disinflation" had its roots in 1974. And second, Volcker's actions were the culmination of a gradual shift in policy that began under Burns rather than an abrupt shift.
I'm not buying this argument. Burns ran highly expansionary monetary policies during the 1970s, despite high and often rising inflation. The results were disastrous. There's simply no way to excuse the policy errors of the Fed.

Let's start with the stance of monetary policy. Back in 1999, Ben Bernanke pointed out that neither interest rates nor the money supply were good indicators of the stance of monetary policy. Instead, you needed to look at NGDP growth and inflation. I agree. But both NGDP growth and inflation were rising under the Burns regime, and both were far above reasonable levels. This called for tighter monetary policy, but the Fed refused to bite the bullet.

I do realize that not everyone accepts the view that interest rates and/or the money supply do not represent the stance of monetary policy. So let's look at those variables, starting with interest rates. The following graph shows the 3-month T-bill and the 12-month inflation rate during the period after 1974, when Burns was supposedly adopting an anti-inflation policy:

Screen Shot 2016-12-06 at 7.53.45 AM.png
Several things stand out in that graph. First, inflation is quite high during the entire period. Indeed the lowest inflation rate (roughly 5%) is still far too high. Thus the Fed should have been aggressively tightening policy throughout the entire period, to bring inflation down. In fact, they were often doing just the opposite. The Fed held interest rates below inflation throughout the entire period up to 1981, when Paul Volcker got serious about addressing inflation. In the period up to 1977, the Fed was actually reducing interest rates---what were they thinking?!?!? Even after 1977, real rates were pushed into negative territory, despite high and rising inflation rates. Again, this was utter madness.

Monetarists prefer to look at the money supply, not interest rates. But that tells the same sad story:

Screen Shot 2016-12-06 at 8.16.24 AM.png
Growth in the monetary base rose from near-zero in 1960, to about 8% during the worst of the Great Inflation. NGDP growth was even higher than 8% during this period, as rising inflation rates also tend to boost velocity. The public fled from a dollar that was rapidly losing value.

People like Robert Mundell might prefer looking at the forex value of the dollar, rather than either interest rates or inflation, but that told the same story---the dollar depreciated sharply in forex markets during Burn's tenure. Gold bugs prefer the price of gold, which soared dramatically higher during the Burns years. We did not have TIPS market yet, but long term nominal bond yields were rising to very high levels, suggesting that Burn's anti-inflation policy had absolutely zero credibility. This is especially damning.

The authors suggest that Burns was hurt by the fact that real time macro data often indicated more weakness than the revised figures, whereas Volcker actually benefited from the fact that inflation was slowing faster than the real time data suggested (due to later revisions.) That might explain a small part of the Burns fiasco, but can't really be used as an excuse. I lived through that period, and I can tell you that nobody expected inflation to return to 2% in one, two, three or even four years. The public was extremely pessimistic, and justifiably so. Even without TIPS spreads, the Fed had to know that inflation would run well above 2% under their policy regime.

I'm not against taking a fresh look at the past, and coming up with contrarian views. Elsewhere I've argued that Volcker's monetary policy during 1979-81 was actually highly expansionary, and it only become contractionary in the second half of 1981. But in this case I'm not buying. By any metric, Burns ran a highly expansionary monetary policy throughout his tenure (partly to help Nixon get re-elected), and the public expected that policy to produce high rates of inflation, and that policy did in fact produce high rates of inflation.

Sometimes when he walks like a dove and quacks like a dove, a Fed chair is a dove.

[Do doves quack?]

PS. Some people wrongly blame the 1970s inflation on supply-shocks. If that were true, then you'd expect NGDP growth to have been on target (at around 5%), with higher than usual inflation and lower real growth. In fact, NGDP growth from 1971-81 ran at about 11%. Since real growth was perfectly normal (at around 3%) we ended up with 8% inflation. That's exactly what you'd expect if the 1970s inflation were 100% demand driven.

HT: Karl Rhodes, Lorenzo from Oz




Hayek's conclusion about the importance of local knowledge can be extended far beyond markets into many parts of our lives. In this essay, I summarize Hayek's argument and then apply it to some good things that happened on September 11, 2001, and to two cases after 9/11--the case of the "shoe bomber" and that of the "underpants bomber"--when airline passengers acted together to save themselves from terrorists.
This is from David R. Henderson, "Extending Hayek's Insights about Local Knowledge," one of the two Econlib Feature Articles for December.

I thank my sometimes co-authors Jeff Hummel and Charley Hooper for valuable comments. Jeff found a huge problem with one of my applications of Hayek's insight, pointing out that I was right historically but wrong to use it in this context. Charley pointed out that a generalization I tried to make in a previous draft was a bridge too far.

Another excerpt:

Interestingly, noted Levin, after 9/11, FAA officials started to write a set of procedures for getting planes on the ground in case something like 9/11 happened again. But then they stopped. Levin quoted Frank Hatfield, the FAA's eastern region chief: "A lot of things were done intuitively, things that you can't write down in a textbook or you can't train somebody to do." Indeed. Hayek's insight strikes again.

P.S. Remember my talk tonight at San Jose State University.




Batman v. Superman: The Dawn of Justice isn't a great movie, but it does have one great teaching moment.  Batman is trying to get his hands on some Kryptonite.  Faithful butler Alfred wants to know why.  Batman's rationale:

Batman: He [Superman] has the power to wipe out the entire human race, and if we believe there's even a one percent chance that he is our enemy we have to take it as an absolute certainty... and we have to destroy him.

No one should be a utilitarian.  But from a utilitarian point of view, Batman's logic is superficially appealing: He can sacrifice one life to save 7 billion humans with 1% probability, for a net expectational gain of 69,999,999 lives.  Until, of course, you pause and reflect.  Consider the following utilitarian counter-arguments, in ascending order of quality.

1. Out-of-pocket cost.  Destroying Superman will burn immense resources, and utilitarians have to take these into account.  But if you do the math, this is a pretty weak objection: Even if it costs $7B - a hefty sum even for billionaire Bruce Wayne - standard value of life calculations say that's worth 1000 lives, leaving a net benefit of 69,998,999 lives.

2. Opportunity cost. Superman doesn't just have the power to destroy the world; he also has the power to save it.  If there's a 1.1% chance that Superman will one day save the world if Batman lets him live, that amply justifies living with a 1% risk that he'll one day destroy the the world.  And given the hazards of the DC Universe, the world is clearly safer with Superman than without him.

3. The self-fulfilling prophesy. Batman's colossal error, though, is to fail to ask the question, "What would ever lead a superhuman as nice as Superman to destroy mankind?"  And the most credible answer is: "If mankind tries to destroy Superman first."  Batman makes the classic hawk's error: Failing to consider the possibility that he's making enemies with his aggressive actions.  And when your putative enemy is Superman, that's an error of cosmic proportions.  The common-sense strategy, rather, is to bend over backward to keep Superman on humanity's side.

batman.jpg



Scott Sumner  

The Carrier scandal

Scott Sumner

Here's Larry Summers on the recent Carrier fiasco:

Market economies can operate anywhere along a continuum between two poles.

I have always thought of American capitalism as dominantly rule and law based. Courts enforce contracts and property rights in ways that are largely independent of just who it is who is before them. Taxes are calculable on the basis of an arithmetic algorithm. Companies and governments buy from the cheapest bidder. Regulation follows previously promulgated rules. In the economic arena, the state's monopoly on the use of force is used to enforce contract and property rights and to enforce previously promulgated laws.

Even though we know of instances of corruption, abuse of power, favoritism and selective enforcement, we take this rules-based system for granted. But looking around the world today or back through American history, this model is hardly a norm. Many market economies operate what might be called ad hoc or deals-based capitalism: Economic actors assume that they have to protect their property and do their own contract enforcement. Tax collectors use discretion in assessing taxes. Companies and governments buy from their friends rather than seek low-cost bids. Regulators abuse their power. The state's monopoly on the use of force is used to enrich and satisfy the desires of those who control the apparatus of the state.

This is the world of New York City under Tammany Hall, of Suharto's Indonesia, and of Putin's Russia.

Reliance on rules and law has enormous advantages. It greatly increases predictability and reduces uncertainty. It reduces expenditures on both guarding property and seeking to appropriate property. It promotes freedom because most of the people most of the time do not take political positions with a view to gaining commercial advantage. The advantages of the rule of law are so great that I would claim that there is no country more than 2/3 as rich as the United States that does not have a strong tradition of the rule of law-based capitalism.


And here is Kevin Williamson:

A tax cut and spending are different things, even if the budgetary effects are exactly the same.

But in the matter of industry-specific or firm-specific tax benefits of the sort extended to Carrier in Indiana, they do not have a leg to stand on. These are straight-up corporate welfare, ethically and fiscally indistinguishable from shipping containers full of $100 bills.

Those who take the opposite view work very hard to make a case that there is some kind of important ethical distinction between giving somebody something and declining to take something away from them. But relieving someone of an ordinary expense incurred in the normal course of affairs -- as opposed to changing general tax law -- is a gift. This is true both as a matter of law and of our ordinary experience. If I am, for example, a car dealer trying to win influence with a politician, and I sell him a new car at $50,000 under the price that I charge other customers, then I have paid him a $50,000 bribe. People go to jail for that. You'll recall that part of the Barack Obama-Tony Rezko scandal was the accusation that Rezko had arranged for the promising young politician to buy a house at $300,000 under its asking price. Rezko didn't give Obama $300,000 in this scenario -- he just saw to it that Obama didn't have to spend that $300,000. That is why bribery laws generally specify "any pecuniary benefit" rather than a duffel bag full of cash. . . .

Carrier . . . is a company that has competitors -- competitors who employ Americans and pay taxes, just as Carrier does. These firms and their employees are put at an economic disadvantage by the subsidies paid to Carrier thanks to Trump and Pence. That means that some of these companies probably will be less profitable, and that they will not hire people they otherwise would have hired. But you'll see no Trump press conference celebrating that. This is a case of Frédéric Bastiat's problem of the seen vs. the unseen. The benefits are easy to see, all those sympathetic workers in Indiana. The costs are born by sympathetic workers, too, around the country, and by their families and by their neighbors. But those are widely dispersed, so they are harder to see and do not hit with the same dramatic impact.


January 20, 2017, will be a momentous day for me. For the first time in my life, the US President will no longer be the de facto leader of the free world. (I suppose Angela Merkel will take over that role.)

PS. This caught my eye:

President-elect Donald Trump told Philippines President Rodrigo Duterte that he is going about his controversial fight against drugs "the right way," Duterte said.

Duterte says he was greatly pleased with the "rapport" he had with the newly elected U.S. president.

Duterte made the comments to reporters in Davao City on Saturday after a brief phone call last night with President-elect Donald Trump. Government officials earlier passed along snippets of their conversation.

"He was quite sensitive to our war on drugs and he wishes me well in my campaign and said that we are doing, as he so put it, 'the right way,' " the President said.


Duterte's "policy" is mass murder.

HT: David Levey

Screen Shot 2016-12-04 at 8.21.32 PM.png





Alberto Mingardi  

On the Italian referendum

Alberto Mingardi

Prime Minister Matteo Renzi announced his resignation after a major defeat. The constitutional referendum saw high participation (68.48% of Italians went to the ballot) and the "no" side achieved a clear victory, 59% versus 41% of the voters.

Just four quick considerations:

(1) The country can't go to early elections because it has two different electoral laws, one for the Senate one for the House, as a result of the new electoral law having been approved by Parliament just for the House in anticipation of the constitutional reform, making the Senate an indirectly elected organ. The President of the Republic will thus appoint a new prime minister, presumably within the ranks of Mr Renzi's own party (which is still the largest one in Parliament), to lead a cabinet charged with re-writing the electoral laws.

(2) A big problem now is that a "no" side just doesn't exist. The coalition against Mr Renzi basically included everybody else in Italian politics. Though he lost the referendum, the (soon to be former) prime minister had some 10 million Italians who clearly voted in his favour. The others do not share a leader nor a clear-cut agenda, besides kicking him out. Beppe Grillo, the former comedian who leads the Five Star Movements, wants to go to elections as soon as possible, as he senses he was the true winner of the referendum. Silvio Berlusconi would much rather sit down with Mr Renzi and work out some sort of collaboration for rewriting the electoral laws and navigating through a not unlikely Italian banking crisis.

(3) Anything may happen, but I won't bet on Italy exiting the euro. On the one hand, the euro without Italy is quite unthinkable. On the other, to quit the common currency would be a very complicated process, with serious downsides - particularly for a country of savers such as Italy is. The Five Stars Movement has some pretty anti-market ideas but, even if it was to gain power after elections, I think it would simply lack the expertise and willingness to manage such a transition.

(4) Many will argue that the referendum is the proof that it is impossible to reform Italy or that populism now is in the Zeitgeist and as such is simply an unstoppable historical force. Well, perhaps, but Mr Renzi's reform was hardly decisive for the country's economic performance. Mr Renzi gave a beautiful concession speech last night but he himself led a highly 'populistic' electoral campaign, which proved to be something rather difficult to do as head of government. Mr Renzi had a "generous" attitude towards public spending and he himself waved the flag of flexibility versus European austerity. He asked for a sort of national confidence vote on his government: Italians could not really see that their life improved because of any of its actions. This common perception contrasted strikingly with Renzi's triumphal rhetoric.

Keep in mind that Italians have been shopping in the electoral market for reformists for the last twenty years - and each time the leader of their choosing turned into a disappointment. Sometimes evoking the destiny of populism is just a shortcut not to avoid acknowledging the policy and rhetorical mistakes of the incumbents.

CATEGORIES: Eurozone crisis



Tomorrow, Monday, I will be speaking at San Jose State University, as part of SJSU's David S. Saurman Provocative Lecture Series.

Title of talk: Popular Misconceptions about Income Inequality
Time: 5:15 p.m.
Place: New Student Union Theater

My talk will be between 40 and 50 minutes long. (Still working on it, and so can't estimate exactly.) Q&A will go about 30 minutes or so.

"Free," that is, zero-price, pizza and beer afterward. I went to Phil Magness's talk in October and the pizza was the best I've had in years.




Now that Trump has decided to save America's rust belt, I thought it would be interesting to look at the issues facing China's rust belt. Here is the Financial Times:

North-eastern China is facing a demographic crisis as educated millennials abandon the industrial heartland, the country's worst-performing region.

Planning officials revealed this month that the economy of Liaoning, one of the three northeastern provinces, had shrunk 2.2 per cent in the first nine months of the year -- the largest regional contraction in China in seven years. , , ,

For younger workers, the slowdown is made worse by the region's extreme reliance on the state. Most new jobs in China are created in private companies but north-eastern China is home to the state-backed heavy industrial companies and state-owned farms that form the Communist party's traditional support base. In some cities, new jobs in government or state-owned enterprises only open when an older worker leaves, leading to a practice whereby parents or other family members will retire to create a slot for a younger relative.

In the 1990s, China's three north-eastern provinces saw net immigration of 360,000 people, but from 2000 to 2010, 2m left. . . .

China's 2010 census showed that the fertility rate of the north-east had dropped to only 0.75, too low to replace an ageing labour pool. More recent mid-cycle census data from 2015 has not yet been released, but is likely to show a further decline.


If that 0.75 fertility rate is accurate, it would be by far the world's lowest rate, for any large region.

Before fixing the problem, let's think about possible causes:

1. Trade: Many people claim America's rust belt has been devastated by imports. But China is the world's largest exporter of goods. It's also the world's largest exporter of steel. So trade does not seem to be the culprit.

2. Environmental regulations: But China has relative weak environmental controls, so that doesn't seem to be the problem either.

3. Neoliberalism: This region is the most state dominated in China, so neoliberalism doesn't seem to be the problem.

4. Declining output: China's steel output has soared in recent decades, rising to roughly 50% of global output:

Screen Shot 2016-12-04 at 9.35.35 AM.png
My conclusion? It seems like the "problem" is automation. China's manufacturing productivity is soaring, and that means that even producing 50% of the world's steel is no longer enough to keep a rust belt prosperous. In China, it is the free market, high tech cities like Shenzhen and Hangzhou that are booming.

How does this apply to the US? First, our steel output is down about 20% since 1970, even as consumption edged up slightly:

Screen Shot 2016-12-04 at 9.53.22 AM.png
So is that why steel employment has fallen? No, it's mostly productivity. Steel employment is not down 20%; it's down closer to 80%:

Screen Shot 2016-12-04 at 9.55.29 AM.png
Are there any lessons here for America? I think there are. People trying to save the rust belt are essentially Luddites. The only way to save those old industrial jobs is though restrictions on productivity growth. Sorry, but there is no other way.

You might think this is all common knowledge among economists. It's not. Every day I read economists talk about how trade has devastated America's rust belt. Nope, it's the productivity, stupid.




As I noted in yesterday's post, there's always an issue of the bias of the news network on which one appears, and one is right to be skeptical. The fact that RT is funded by the Russian government ought to make one, all else equal, even more skeptical.

But at least two things happened in that interview that moderated my skepticism. I lay them out below.

I don't go into such interviews planning to test whether the network is biased. I go in, rather, with the main points I want to make and always with the goal of communicating truthful and important things clearly.

So I didn't purposely plan two things that I want to highlight here that I said about Cuba and the Castros. They told me in advance that they wanted to talk about that, but the main thing I prepared for, given what I had written that they seemed to have read, was about the U.S. embargo on Cuba.

1. "My big hope, frankly, is that he'll [Raul Castro will] die and that he'll die soon." (15:40 point)
Although I didn't go on the show planning to say this, it came to me. Obviously RT kept it. Why do I find this interesting? Because for decades the Castro regime was an ally of the Soviets. So for RT to keep this line in which I call for the death of a Soviet ally is a good sign. Granted that the Soviet Union no longer exists. But Russia does. And Vladimir Putin runs the executive branch of the Russian government. Recall that Putin said that "the collapse of the Soviet Union was a major geopolitical disaster of the century." So it's encouraging that the RT producer thought she could keep this pretty negative comment on a previous Soviet ally.

2. "The one chance they [the sanctions] had was in the early nineties when Cuba started losing those major subsidies from Russia, from the Soviet Union." (16:40)
Notice how my eyes bug out when I say "Russia." It's because I had a good thought, started to say it, and then realized that OMG, I'm implicitly saying something negative about Russia. But they kept it. Not only did they keep it, but also Ameera David, the host, didn't challenge me or contradict me. She let it go. Had I been on Sean Hannity's show on Fox News Channel and said something negative about someone Sean liked, there's no way he wouldn't have challenged me. So RT looks good by contrast. Either they liked what I said, or they didn't like what I said but felt compelled to keep it, or they had no opinion but thought that they should be faithful to their guest. Whichever of those it was, it's a good sign.

Also, notice that Ameera David asked me about chances for freer markets in Cuba, as if the implicit premise is that free markets and economic freedom are good.

CATEGORIES: Media Watch



Alberto Mingardi  

The Italian referendum

Alberto Mingardi

Italy vote.jpg
Tomorrow, Italians will go to the ballot, for a referendum on a constitutional reform promoted by the government led by Mr Renzi. The referendum is widely supposed to be likely--were the anti-Renzi side to win--to trigger financial turbulence. A "no" vote is read by many as an event comparable to the British people going for Brexit. This is a bit curious: what is considered potentially devastating, this time, is a vote that would in fact secure the status quo.

To be fair, fear-mongers do have a point. Italy is widely (and rightly) perceived as a country that needs extensive reforms. If Italians vote for the status quo, the impression that the country is indeed irreformable--that is, that in Italy there is such an intricate nexus of corporate interests that it is impossible to disentangle it--may consolidate, ultimately driving investments away.

In actual fact, the constitutional reform we're going to vote on implies by no means a drastic change in our political governance. It changes the role and the composition of the Italian Senate, without sweeping it away; it re-centralizes powers from regional governments; it fine tunes the legislative process to fit the new context. It doesn't increase the powers of the prime minister, or give him the power to dissolve parliament. Mr Renzi claims the new reform will allow for faster and thus more productive law making, but it's hard to argue that Italy has a shortage of laws. 

The astonishing fact is that for reforms of the kind that only law scholars could feel passion about, one way or the other, Italians have engaged in basically five months of hectic electoral campaigning. 

This is because the referendum has by now little to do with the essence of the constitutional modifications approved by Parliament and now put to the voters: Italians will be voting for or against the Renzi government.

Mr Renzi became prime minister in 2014, after winning the leadership of his own party in an in-party contest open to all voters. Although he did not win an election running for head of government, after his appointment, his party scored an impressive 40% in the European election of May 2014, which gave him legitimacy. But the very fact that Mr Renzi wasn't anointed by a popular election may explain his eagerness to personalise the referendum vote, making it a "take-it-or-leave-it" vote on his government. This strategy also made sense in view of the nature of a constitutional reform: a foggy and obscure matter that voters find of little interest, whereas a referendum on Mr Renzi himself offers a much more exciting electoral battle.

Pools predict a victory for the "no" side, but you never know these days.

What I personally find more problematic is the sort of political equilibrium that would emerge after the referendum's result. Mr Renzi has approved, during his tenure, a new electoral law with a majority bonus system. However, this electoral law applies only to the House of Deputies, on the assumption that the Senate was changed by the constitutional reform into an indirectly elected organ, representing local governments.

If the "no" side wins the referendum, then Italy will have two very different electoral laws, an old one for the Senate and a new one for the House. Both the chambers are supposed to give the government a confidence vote. This is why, if the no wins, there would be no immediate elections before a new electoral law, applicable to both the chambers, is enacted.

If the no side wins, moreover, this will be widely considered a triumph of the populist Five Stars Movement, a heterogeneous political force that brings together an emphasis on transparency and the fight against corruption with a strong anti-business and anti-capitalism attitude.

Even Renzi's enemies will freak out at the perspective of the Five Stars Movement winning the next election. This is why it is very likely that the new electoral law that "establishment" parties are more likely to agree on is a pure proportional representation system.  Is that a brilliant idea? As the likelihood of any party winning a clear majority of the votes is astonishingly small, this would make Italy a country run by a permanent grand coalition between the right and the left, with the sole purpose of keeping the Five Stars at bay. In such a context, however, everybody tries to avoid the negatives for their own constituency, instead of forgoing vetoes and negotiating reforms. This would decrease and not increase the likelihood of reforms being approved, with perhaps the unintended consequence of strengthening the Five Stars Movement even further.

This said, I think the Economist nails it, when it writes that "Mr Renzi has already wasted nearly two years on constitutional tinkering" and argues for the no side. Writes the British newspaper:

the fact that the struggle to pass laws is not Italy's biggest problem. Important measures, such as the electoral reform, for example, can be voted through today. Indeed, Italy's legislature passes laws as much as those of other European countries do. If executive power were the answer, France would be thriving: it has a powerful presidential system, yet it, like Italy, is perennially resistant to reform.

Mr Renzi's economic reform record is not exciting so far, if you maintain that what Italy needs is supply side reforms to ease wealth creation.
The Wall Street Journal has been likewise critical of Mr Renzi, arguing that European partners should be afraid not so much of the referendum reform but of the fact that "after years of stagnation, the eurozone's third-largest economy can claim as its most promising reformer a politician whose main project is a constitutional reform of debatable value". The Financial Times ran an op-ed by Francesco Giavazzi of Bocconi University, one of Italy's most distinguished economist. Giavazzi takes Renzi's side ("Were Mr Renzi to resign, the dream of a generational change among Italian politicians would vanish. And with it, I fear, the chances of Italy remaining in the euro").

CATEGORIES: Eurozone crisis



I was on RT, the Russian-government-funded news network, earlier this week, talking about various issues. My segment begins around the 15:00 point and goes to about 22:30.

Some friends have questioned the wisdom of going on a network funded by the Russian government. I understand their concerns. Here's what I can say: In all the times I've been on, they've never edited the interviews to distort. Indeed, on average, they are better, at least to me, than other media, government-funded and otherwise, in the United States. One of the worst experiences I ever had with media distortion was with the Los Angeles Times, which isn't government funded. Another of the worst was with Warren Olney, on a radio station that might get some government funds.

CATEGORIES: International Trade



I recently participated on a panel in London, discussing options for monetary and fiscal policy. At one point I mentioned that if the Japanese didn't want such a large central bank balance sheet, then they ought to set a higher inflation target. (Of course I'd prefer an NGDP target, but it was easier to explain my point using their currently preferred target variable.)

Someone in the audience objected that higher inflation would hurt elderly Japanese on fixed income, and this might reduce aggregate demand. In contrast, I think it would boost consumer spending in Japan. Furthermore, I believe the audience member was reasoning from a price change, whereas I was not. Why?

The audience member made the mistake of thinking about the impact of inflation, without thinking about the cause. If the cause had been disruption to Japanese production from the 2011 tsunami, then his reasoning process would have been correct. (Although in that case the impact would have been too trivial to mention. Even the most massive natural disasters have only a tiny impact on macro variables in large diversified economies.) However, in my hypothetical the inflation was caused by monetary stimulus, not an adverse supply shock.

An increase in inflation caused by an expansionary monetary policy will first shift the AD curve to the right. In the short run output may increase, due to sticky nominal wages. Even if output does not rise, it will certainly not decline as a result of higher AD. It is inflation from adverse supply shocks that causes people to buy less stuff.

Japanese unemployment has recently fallen to 3%, so I would certainly not recommend monetary stimulus in Japan for the purpose of boosting employment. But I might recommend it for three other reasons:

1. Ease the burden of the national debt
2. Reduce the zero bound problem for monetary policy
3. Reduce the role of the BOJ in the Japanese economy.

In normal circumstances, it is not wise to inflate away the debt. It is unfair to lenders, and reduces policy credibility. In the case of Japan, however, previous deflation unfairly favored borrowers, and steeply increased the ratio of public debt to GDP. A modest amount of inflation is justified in that case---but nothing more than 3% in my view. In addition, when the interest rate is zero, the equilibrium rate is often below zero, which means that lenders to the Japanese government are earning an above equilibrium rate of return. A bit more inflation can prevent that.

2. If the Japanese shifted to NGDPLT and/or abandoned the short-term interest rate as a monetary instrument, then the zero bound problem would not be an issue. But as long as they use interest rates to target inflation, monetary policy becomes less effective at very low inflation rates. Thus if they refuse to adopt a sensible monetary policy, then a slightly higher inflation target might make sense as a way of keeping the policy rate above zero, a sort of "second best" policy.

3. The size of the BOJ balance sheet is inversely related to the trend NGDP growth rate. In recent years the balance sheet has become huge, with the BOJ even buying equities. I prefer less government involvement in the economy, and hence a smaller balance sheet. That means a slightly higher inflation target.

As I keep emphasizing to conservatives, it's socialism or inflation.




Shikha Dalmia and George Borjas' immigration debate in Reason manages to be intriguing and aggravating at the same time.  For me, the highlights are when Borjas leaves technical economics and lays his ideological cards on the table.  Borjas is in blockquotes, I'm not.

My research was never motivated or influenced by what I thought about individual liberty or the rights of people to live anywhere they want. My personal experience with Communist indoctrination when I was 10 and 11 years old left me very wary of thinking about anything in ideological terms.

Most victims of Communism, in my experience, take away lessons like, "Human rights matters," "Government should respect individual liberty," "The fact that government does something doesn't make it right," "Forbidding emigration is monstrous," or just "Socialism is evil."  Borjas, in contrast, takes away the lesson that "Ideology is bad."  Which is simply bizarre.  Castro ruined Borjas' native Cuba because his ideology was totalitarian.  If Castro's ideology had been pro-market and pro-freedom, Cuba would be a great place today - and Borjas might be at the University of Havana writing books to keep immigrants out of Cuba instead.

In any case, you can't not have an ideology.  Borjas finally reveals his in his closing sentence:
When push comes to shove, I will side with policies that improve the well-being of the American worker.
This is no less "ideological" than siding with policies with improve the well-being of whites, women, Germans, or the international proletariat.  And like all of these ideologies, Borjas' is subject to devastating counter-examples.  Like: Suppose enslaving the whole population of Cuba would improve the well-being of the American worker.  When "push comes to shove," would you favor that?

I'm confident that Borjas, a self-styled pragmatist, would reply, "Of course not.  Yes, #ForeignLivesMatter somewhat."  But this concession/hashtag has a life of its own.  Borjas has long claimed that existing immigration greatly helps foreigners with roughly zero net effect on Americans.  So if he grants that #ForeignLivesMatter, he should enthusiastically bless the immigration that's already occurred.  And while his pragmatism would restrain him from endorsing anything like open borders, Borjas has every reason to advocate gradual deregulation of migration until American workers seriously start hurting.




Many people worry that if Obamacare were replaced in one fell swoop, almost all the people who enrolled in Medicaid due to the law would lose their health insurance. This worry is understandable. Nevertheless, it turns out to be unjustified. Many of the people who were enrolled in Medicaid as a result of Obamacare would lose their insurance. But even a greater number would not. And the evidence for this comes from MIT economist Jonathan Gruber, one of the architects of Obamacare.

In an April 2016 NBER study that Gruber co-authored with Harvard's Molly Frean and Benjamin D. Sommers, "Premium Subsidies, the Mandate, and Medicaid Expansion," NBER Working Paper No. 22213," the authors show that 60 percent of the increase in coverage due to Obamacare was in Medicaid. That's a fact that's now well known and is behind many people's worry about the effects of repealing Obamacare. But, the authors show, 2/3 of that 60 percent were people who were already eligible for Medicaid before Obamacare began.

That's good news for those of us who want to repeal Obamacare because it means that this 2/3 would not lose their coverage even if Obamacare were repealed lock, stock, and barrel.

But why is this number of people who were previously eligible so high? Why weren't they already receiving Medicaid? We don't know, and the authors don't claim to know. But there are two possible explanations.

Probably the more-important one is the "woodwork effect." The idea is that the publicity around Obamacare and the Medicaid expansion brought people out of the woodwork who didn't know they were eligible or knew but hadn't got around to it.

The other explanation is the "mandate effect." It's possible that some people who were eligible for Medicaid knew they were eligible but didn't want to enroll. Why? It's still true that there are people in this country who regard Medicaid as welfare and don't want to go on welfare.

A personal story about my experience with Medicare in Canada: Medicare is the name for the federally mandated socialized health insurance program that is run by the provincial governments. In the 1970-71 academic year, while I was living in Manitoba and teaching myself economics by reading economics journals, I refused to sign up for Medicare. I was against the program on principle and didn't want to be part of it. But one day I got a phone call from a Manitoba government official who threatened me. He told me that if I persisted in not signing up for Medicare, the government would forcibly put me on welfare. Yuck! I don't know how they would have done that, but this 20-year-old believed them. So I signed up.

Similarly, some of the people who were, as noted above, previously eligible for Medicaid and signed up might have done so because they were forced to do so. So, for them, getting rid of Obamacare would be a blessing.

So we have 3 sets of people who were newly on Medicaid due to Obamacare:
1. The one third who were newly eligible. Most of them would be worse off with repeal. I say most, not all, because it's conceivable that some of them did not want Medicaid but signed up because of the government's threat of force for those who didn't.
2. The fraction of the two thirds--and we don't know what that fraction is, but it is likely to be over half of the two thirds--who were previously eligible for Medicaid but didn't get it, and want it. This is the woodwork effect. They would not be hurt by repeal because they could stay on Medicaid.
3. The fraction of the two thirds--and it's likely to be under half of the two thirds--who were previously eligible for Medicaid, didn't want it, and were forced to get it. Repeal of Obamacare would make them better off.




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