February 24, 2018A Simplistic Model of Public Policy
February 23, 2018Politics, complexity, and confusion in the social media sphere
February 23, 2018Will the Swiss adopt 100% reserve banking?
February 23, 2018Restricting Speech for Nationalist Reasons
February 22, 2018The Double Whammy of Uselessness
February 22, 2018You get what you pay for
Entries by author
Frequently Asked Questions
Join us on Facebook
Follow Bryan Caplan on Twitter
Follow Emily Skarbek on Twitter
Bryan Caplan, David Henderson, Alberto Mingardi, and Scott Sumner, with guest blogger Emily Skarbek, blog on issues and insights in economics.
FEBRUARY 24, 2018
by Pierre Lemieux
Philosophers have been debating moral values for two and a half millennia, and counting... I would argue that, at least when moral philosophy becomes political philosophy, consequences matter.
According to FBI statistics, 39% of all murders (counting only those where the murderer's age is known) are committed by young males aged 17 to 24. These murders impose great costs on the victims and, perhaps even more, on their parents, children, and other loved ones. The internment of all young males from their 17th birthday until they turn 25 would prevent these murders. Therefore, this public policy should be implemented.
Many people seem to believe that public policy should be based on this sort of reasoning, which can be expressed under the form of a syllogism:
Call this the simplistic public-policy syllogism. (I was reminded of this sort of public-policy model by a Facebook comment from independent researcher Daniel Kian Mc Kiernan, which he later developed into a blog post.)
As a preliminary consideration, we want to make sure that the minor premise (the second one) of the syllogism guarantees a net reduction of X (murders committed). Z (the preventive incarceration of all young men) would not eliminate the roughly 6,000 murders committed annually by young men, for some would be committed in their prison--especially with all these testosterone-laden young guys around. But it would reduce the occurrence of murders. It would save at least some lives (if not most). As public health activists are fond of saying, "If it could save only one life..."
Even if the two premises are correct, the syllogism is logically invalid. The conclusion does not logically follow because, as philosophers know, an "ought" cannot be derived from an "is." There is a jump between the positive and the normative. A normative conclusion requires the input of moral values (often called "value judgments" by economists).
Philosophers have been debating moral values for two and a half millennia, and counting. The deontological version of ethics is usually based on some conception of natural law. I would argue that, at least when moral philosophy becomes political philosophy, consequences matter. A deontological ethics that would render everybody on earth miserable would be indefensible. Consequences, however, must still be evaluated.
We need to evaluate the consequences of a public policy compared with its absence (or with its absence in the presence of a different public policy, but I ignore this complication here). Assume that we are only interested in individuals--as opposed to, say, what Gaia thinks or what "society" feels. All the costs and benefits of Z to all individuals must be factored in. The concept of opportunity cost is useful here (as everywhere): benefits foregone are costs, and costs avoided are benefits. Thus, maximizing benefits is the same as minimizing costs over the two alternatives Z and non-Z. And, needless to say, all psychic costs and benefits must be included.
The cost of Z would include the pleasure lost by the young men during their preventive incarceration. Foregone schooling would translate into reduced future earnings and enjoyment of life. The cost of Z also includes the benefits lost by other individuals as a result of the internment policy: parents deprived of their sons during seven years, young women deprived of young men, the loss to taxpayers who have to pay for the jails and guards, and so forth.
Standard welfare economics and its practical application, cost-benefit analysis, are not capable of eliminating the need for moral criteria in evaluating the consequences of public policy. Even if the total benefits of Z are greater than its total costs, some individuals will be harmed. The idea that the individuals benefited by Z could potentially compensate those harmed, even if they did not or could not actually do it, is not sufficient, for what allows government to favor some individuals over other individuals? This is a standard and well-taken critique of the New Welfare Economics that developed in the 1930s.
Economists have demonstrated that, if everybody is to count equally, it is impossible to aggregate all individual preferences into a sort of "social welfare function" representing a moral agreement about how some can be harmed in order to favor others. I present an introduction to these proofs in my Econlib article "The Vacuity of the Political We." Somebody--individual, group, or majority-- will typically impose his value judgments on all others in society.
Add to this a crucial fact: long-term consequences that must be factored in are impossible to predict. How many young males would have become hardened criminals when they are released from their prisons, and will they commit more murders than they would otherwise have? What would be the consequences of this assault on individual liberty in general? How will all this change the nature of society and the state? The character of the jailers? The relations between boys and their families? (Would parents start aborting their male foetuses as many Chinese did to their daughters-to-be because of another sort of public policy?) Marriage and the family? Conventional morals? And so on and so forth.
To summarize, the simplistic public-policy syllogism is useless and dangerous. It is not logically valid. The fact that X imposes great costs on some people is not a sufficient reason to implement Z, because all costs must be considered. Accepting a distribution of these costs and benefits among different people requires value judgments, even if the net benefit is positive. These value judgments will have to be imposed by a majority (at best) to the rest of society. Moreover, long-run costs and benefits are impossible to forecast.
There are ways to circumvent those problems and create a (narrow) space for public policy. We may invoke James Buchanan's social contract, Friedrich Hayek's free society principles and spontaneous rules, or perhaps even Anthony de Jasay's (modified) presumption of liberty. But none of these approaches justifies the simplistic public-policy syllogism.
FEBRUARY 23, 2018
Very few people have used the seemingly sensible argument that there is little use in arguing against public debt when borrowing is so cheap.
This is an aphorism of Nicolás Gómez-Dávila, a fascinating Colombian philosopher who may change your view (if you hold it) that aphorisms are best left to adolescence, as memorable but seldom meaningful little sentences. Here's a review-profile of Nicolás Gómez-Dávila in Modern Age.
I thought a great deal about this aphorism in the last few days, for Istituto Bruno Leoni has chosen to do something rather unusual, by think tank standards (or, at least, by our standards) for the upcoming Italian election.
Since 2010, we have been running on our website a 'debt-clock', which forecasts the monthly trends of Italian public debt. Italy didn't have a 'debt-clock' before and we placed it online, regularly updating with new data from the central bank, and making it available for any website that wants to use it.
As in this electoral campaign, the natural tendency of politicians to promise the moon to voters seems to be particularly pronounced. We chose, with a considerable effort (again, for our own standards), to put the 'debt-clock' as an ad on the maxi LED screens of the biggest train stations in Milan and Rome. It runs 855 times a day, in places where 900,000 people pass by every day.
We didn't use this ad to propose any "solution" (like privatisations) to the Italian humongous public debt: we only wanted to remind people that, well, there are no free lunches.
The reactions have been interesting. Quite a few people contacted us asking for information and clarification. On social media, we have found ourselves at the center of quite a storm: insulted and accused typically from groups on the extreme left (by which I mean: basically communists) and the extreme right (by which I mean: basically fascists).
A few of the accusations were weird but interesting. For example, we have been accused of "criminalising" common people, instead of politicians who are more directly responsible of the state of Italian public finance. Of course, we were trying to inform "common people", whose demands politicians should take into account. Very few people have used the seemingly sensible argument that there is little use in arguing against public debt when borrowing is so cheap. Most criticisms (and death threats and the like) came from people who subscribe to some kind of version of MMT, who believe that quitting the euro and renominating debt in good old liras will solve all problems, and who think that "democracies" should borrow at will, without being strangled by "markets" (by which they mean: creditors).
Here Gómez-Dávila comes in handy.
At first sight, these arguments do not look simple. They are actually constructed to seem elaborate. They are also fashionable because they have something of the mystery religion: if you buy into this, you're like admitted to share secrets that the rest of the world do not want you to access (the "mainstream"). They are elaborate, and by being elaborate they constitute a call to arms.
At the same time, these arguments are simplistic. They do not take into account complexity, let alone the complex interconnections of social events in a modern economy. They point to a deus ex machina (monetary sovereignty) which will solve all problems. They do still confuse money with wealth: a fallacy Adam Smith pointed out quite a few years ago. But that gains traction, because the opposite, sober, but uncomfortable viewpoint is presented as a contrivance of "the elites."
I think this mixture of being elaborate and being simplistic is what would go with Gómez-Dávila's "confused." This confusion is what substitutes for complexity.
Is this the secret of successful mobilisation in the contemporary social media sphere?
FEBRUARY 23, 2018
The answer is clearly no, because they are not being asked to adopt 100% reserve banking. However there is an upcoming referendum for creating a system of 100% reserve backed demand deposits in Swiss banks. I read the literature in support of this referendum, and I'm having trouble figuring out what problem this is supposed to solve:
3) What are the fundamental advantages of sovereign money? Sovereign money in a bank account is completely safe because it is central bank money. It does not disappear when a bank goes bankrupt. Finance bubbles will be avoided because the banks won't be able to create money any more. The state will be freed from being a hostage, because the banks won't need to be rescued with taxpayers' money to keep the whole money-transaction system afloat i.e. the "too big to fail" problem disappears. The financial industry will go back to serving the real economy and society. The money and banking systems will no longer be shrouded in complexity, but will be transparent and understandable.Unless I'm mistaken, this is simply false. Even under this proposed regime, the 100% reserve requirement would only apply to demand deposits. Banks could still lend out funds in saving deposits, and hence the same risks to the system would still exist. I don't know about Switzerland, but in America demand deposits are only a small share of bank liabilities. More importantly, if 100% reserve requirements were adopted they would become an even smaller share of liabilities. So no, this doesn't solve the fundamental problem of financial instability, which is mostly caused by government policies that create moral hazard, such as deposit insurance and "Too-Big-To-Fail". It would not prevent another "Lehman moment".
That doesn't mean this is a bad idea, just that some other justification is required. Right now, the US has a weird banking system. It looks private, but it was effectively socialized in 1934. You might think you are lending money to banks when you open a saving account. But what you are actually doing is lending money to the Treasury, which turns around and lends that same money to your bank. If the bank cannot repay the loan to the Treasury, it has no effect on your savings account--which is guaranteed by the Treasury. (FDIC is just a middleman.)
So how could the government's footprint on the financial system be reduced? One option would be for the government to stop re-lending demand deposits to commercial banks. Instead, the Fed would provide checking account services, rather than providing the reserves that back up commercial bank checking accounts. That's equivalent to 100% reserve banking (for demand deposits), except the Fed handles the paperwork instead of commercial banks handling the paperwork.
I have no opinion on which system is best, as I don't know enough about the Fed's ability to provide efficient transactions services to the public. If this form of socialized checking accounts is superior to our current system, then I suspect it's on standard "second best" grounds---it slightly reduces the moral hazard created by other government programs. At the same time, it takes us even further from my ideal, which is a completely unregulated financial system. The first best solution is to reduce moral hazard.
Moral hazard is extremely difficult to address for various political reasons. At a technical level, it's easy to get rid of deposit insurance. There is plenty of public debt around, so even saving accounts up to $250,000 could be made virtually 100% risk free. The real problem is political. Both the banking industry and people who borrow money from banks like the current set-up, where credit is subsidized by the Treasury. Moral hazard would be slightly easier to address under NGDPLT, however, as at least we'd no longer have to worry about bank failures causing nominal spending to decline. Crony capitalism would be the only concern.
PS. Here is the title page of my copy of 100% Money. The frontispiece is actually signed by Irving Fisher. I bought the book in Madison, Wisconsin, for $3.50. :)
FEBRUARY 23, 2018
by Pierre Lemieux
Statements invoking "the people" are generally no more than political demagoguery from those who claim to represent this magical and rousing entity.
I don't know to what extent Poles helped the Nazis carry out the Holocaust, but it is impossible that it involved 100% of the Poles. It is also inconceivable that it was 0%. Moreover, since I don't speak Polish, I haven't read the law that was just adopted in that country. Despite these caveats, I think there are still a couple of lessons to be safely drawn from the current controversy.
According to an interesting story in the Wall Street Journal of February 2, Polish president Andrzej Duda approved a libel law, which includes jail penalties, against "accusing the Polish people of assisting in the Holocaust." It would be important to know which exact expression the Polish President and others used. The Wall Street Journal reporter also writes "the Polish population" and "Polish society," not in quotation marks. Translation is a complex matter but the concept of "the people" has been around for a few centuries--not to mention more ambiguous concepts in antiquity, such as the Roman senatus populusque romanus ("the senate and the people of Rome"). But it wouldn't be surprising if Duda invoked "the people" as modern politicians, especially the populist ones, love to do.
The first lesson is that the expression "the people" is meaningless or fraudulent. It is fraudulent if it is meant to convey the idea that it regroups 100% of the Poles. A fundamental discovery of economics in the 20th century was that there is no way to aggregate the preferences of all individuals into a single set of non-contradictory preferences (as if "the people" were a super-individual comprised of all flesh-and-blood homunculi). More precisely, such an aggregation is impossible if we don't arbitrarily constrain individual preferences and ignore diversity among individuals. "The people" thus means a proportion of the population smaller than 100% - and, in practice, usually much smaller than 100%. "The people" refers to a portion of all the people, a portion typically made of those who impose their preferences or views on the others. This is the essence of Kenneth Arrow's Impossibility Theorem. I discussed it along with some related theories in my Econlib article "The Vacuity of the Political We."
Since "the people" is only part of the people, it is not surprising that some Poles--more than 0%--would have helped the occupying Nazis in their persecution and slaughtering of the Jews. The extent of this assistance, we are told, is a controversial issue among scholars. Unless one defines what one means by "the people"--which part of a society one is talking about--it makes no sense to say that the Polish people assisted or did not assist in the Holocaust. Statements invoking "the people" are generally no more than political demagoguery from those who claim to represent this magical and rousing entity.
Only once this understood, we may ask sensible questions, such as which parts of Polish society--which subsets of individuals--cooperated or did not cooperate in carrying out the Holocaust.
A second lesson, of course, relates to the importance of free speech. Duda's claim that nobody should be "accusing the Polish people of assisting in the Holocaust" is incompatible with free speech. "We have a right to our historical truth," he also declared, as if nobody is at liberty to challenge the truth he believes in. (The "our" of course does not change anything, as it refers to a vacuous political "we".)
We can never be sure that the opinion we are endeavoring to stifle is a false opinion ... Those who desire to suppress it, of course deny its truth; but they are not infallible. They have no authority to decide the question for all mankind, and exclude every other person from the means of judging. To refuse a hearing to an opinion, because they are sure that it is false, is to assume that their certainty is the same thing as absolute certainty. All silencing of discussion is an assumption of infallibility.
Mill saw that there is more to the topic than this philosophical argument. There is an economic argument: we cannot presume something to be true if it has not survived the test of competition. Mill explained:
There is the greatest difference between presuming an opinion to be true, because, with every opportunity for contesting it, it has not been refuted, and assuming its truth for the purpose of not permitting its refutation. Complete liberty of contradicting and disproving our opinion, is the very condition which justifies us in assuming its truth for purposes of action; and on no other terms can a being with human faculties have any rational assurance of being right.
Imagine what would happen after decades of repressing the hypothesis that many Poles assisted the Nazis, or (to take another example) that the Holocaust did not happen. There would be no reason to believe what would by then be conventional wisdom.
Another economic argument for free speech is that Leviathan will certainly use a partial prohibition to increase its power and further the interests of the courtiers and cronies whose support he needs. Leviathan acts this way because such are the incentives of many individuals in the ruling gang.
Besides the meaning (or lack thereof) of "the people" and besides the arguments for free speech, a third lesson relates to nationalism. "It is not about Jews," a Warsaw think-tanker is reported to have said, "it's about sovereignty." When announcing his approval of the new law, the Polish president was "standing before five Polish flags," notes the Wall Street Journal. The picture in the newspaper actually shows six flags, but the symbolism of flag proliferation, not their exact number, is what matters. The symbolism lies in the glorification of nationalism, which brings grist to the mill of state power. Rulers and rulers-to-be love nationalism and flags for a simple reason: they are means to increased power.
FEBRUARY 22, 2018
While promoting my new book, I've repeatedly argued that foreign language requirements in U.S. schools are absurd and should be abolished. For two distinct reasons.
Reason #1: Americans almost never use their knowledge of foreign languages (unless they speak it in the home).
Reason #2: Americans almost never learn to speak a foreign language very well in school, even though a two- or even three-year high school requirement is standard.
This double whammy is easily generalized. If studying X for years yields minimal knowledge, and you wouldn't use X even if you knew it, you could defend X as an elective. But how could anyone defend X as a requirement?
Yet plenty of people I've met can and do stand by such requirements. Indeed, they think I'm the crazy one.
FEBRUARY 22, 2018
This tweet caught my attention:
Jeff Bezos possesses $121.3 billion dollars. There are about 550,000 homeless people in America. If Jeff Bezos gave every homeless person in America $100,000, he would still have $66.3 Billion Dollars!
You get what you pay for.
Let that sink in...
PS. What if the money were spent lobbying for weaker zoning laws?
HT: Razib Khan
CATEGORIES: Income Distribution
FEBRUARY 21, 2018
I rarely find a balanced view of Trump. I gave one about a month ago. I've now found another.
Here's Richard Brookhiser on what William F. Buckley, Jr. thought of Trump:
Buckley wrote about Trump the politician once, in an article for Cigar Aficionado, which ran in the spring of 2000 after Trump's brief pursuit of the nomination of the Reform party, Ross Perot's then-rudderless vehicle. Buckley ID'd Trump as a demagogue, narcissist division. "When he looks at a glass," Buckley wrote, "he is mesmerized by its reflection. If Donald Trump were shaped a little differently, he would compete for Miss America." This was a political as well as a personal judgment: Trump sought office not to accomplish anything, but to advance and gratify himself. Candidate Trump had issues in 2000, and more in 2016, and beyond. But Bill knew his man. They had been fellow New Yorkers for decades. Bill did not regularly read Page Six, but his wife Pat did. Bill had observed every step of Trump's public career. He knew Trump was gilt all the way down.
Brookhiser, "WFB Today," National Review, February 16, 2018.
Brookhiser is a senior editor of National Review and a senior fellow at the National Review Institute. Indeed, he was my editor between early August and late January of 1986-87 when I was the economics editor for National Review. He's a good editor.
I quote the above because it expresses, better than most, my main problem with Donald Trump's character.
I quote it for another reason also: because it's from an article in which Brookhiser also explains why it's important not to give up on Donald Trump but, instead to work with him or at least bargain with him.
Admiring Trump is different from voting for him, or working with him. Politics is calculation; "to live," Whittaker Chambers told Buckley, who quoted it ever after, "is to maneuver." But to admire Trump is to trade your principles for his, which are that winning -- which means Trump winning -- is all.
CATEGORIES: Public Choice Theory
FEBRUARY 21, 2018
I am seeing a disturbing rise in "free lunch" thinking. One place this increasingly shows up is in the case of "deficits". People seem to have trouble grasping that deficit spending implies future austerity.
Let's start with an electric company. Suppose it plans on being in business forever. It decides to issue enough debt so that it's current stock of debt at any given point in time is equal to 1% of the GDP of the city it serves. If the city it serves is growing over time, the electric company can basically run "deficits" forever, or so it would appear.
In fact, the electric company still faces a budget constraint. It must still service that debt with money earned from customers. The net present value of future interest and principle payments is still equal to the value of the debt issued. The debt continues to be a liability, in any meaningful sense of the terms. Ratepayers should still be concerned about the electric company issuing too much debt, and saddling them with huge future liabilities.
The same reasoning applies to the Federal government. Some might argue that if the growth rate of the economy exceeds the interest on debt, then there is a free lunch. Governments can simply issue more debt to pay interest on existing debt. That may work for a brief period, but beyond some point additional debt will push up interest rates, and the marginal cost of the new debt will exceed the growth rate of the economy. Indeed this may well have happened in the US in recent months, as some people believe that rising fiscal deficits partly explain the recent increase in interest rates on Treasury debt. The marginal cost of borrowing exceeds the average cost, and at some point it exceeds the average growth rate of the economy.
Let's say $X represents the amount of newly issued debt that a government will issue over a period of N years. (Make X as a big a number as you'd like). In that case, the average annual deficit equals $X/N. A decision to borrow more money in any given year will lead to less borrowing (more austerity) in the other N-1 years. Fiscal policy cannot be continually expansionary, even if the government runs a budget deficit in every single year. That's because the expansionary impact (on AD) doesn't come from there being a budget deficit, but rather from the deficit being bigger than the year before.
In the very, very long run, there are no deficits at all. The net present value of taxes from now until the end of time should equal the net present value of government spending from now until the end of time. And the same is true of trade deficits. Other countries will not give us stuff for free, and hence we must eventually pay for all imports with exports. Even the outflow of US currency will eventually be reversed, when the world switches to electronic money.
Interestingly, there's a certain type of person who is so swayed by recent trends that they think both trade and budget deficits can go on forever. That's wrong. They also think that this is good news for the budget, but bad news for trade. That's also wrong. If we could run trade deficits forever, that would be really good news. The outside world would be a big Santa Claus for the USA.
PS. Measured trade deficits can go on forever, as they do not accurately measure actual trade deficits. Indeed they don't even come close. It's not at all clear that the US has run large actual trade deficits in recent decades, properly measured.
Budget deficits are also incorrectly measured, usually quoted in nominal terms rather than real terms. In real terms the US often ran budget surpluses during the 1960s and 1970s. The real budget deficit is the change in the real stock of public debt. If the nominal stock of debt rises more slowly than inflation, the real budget is in surplus.
This post is about actual budget and trade deficits, not measured deficits.
CATEGORIES: Fiscal Policy , International Macroeconomics: Exchange Rates, International Debt, etc. , International Trade , Macroeconomics
FEBRUARY 21, 2018
Way back in The Undercover Economist, Tim Harford taught us the wonder of "keyhole solutions" for social ills:
Keyhole surgery techniques allow surgeons to operate without making large incisions, minimizing the risk of complications and side effects. Economists often advocate a similar strategy when trying to fix a policy problem: target the problem as closely as possible rather than attempting something a little more drastic.
So far, it's advocates of open borders who most frequently invoke keyhole solutions. My forthcoming graphic novel with Zach Weinersmith has a whole chapter on the topic. The idea, though, is universal. Faced with any social problem, you can use a hand grenade... or a scalpel. So why not carefully define the problem, then craft carefully targeted remedies with minimal collateral damage?
Case in point:
Over the last year, resentment of unwanted job-related sexual attention (better known as "sexual harassment") has gone from high to extreme. It's easy to grasp why people would see such harassment as a problem. The standard remedy, though, is to punish virtually all job-related sexual attention, wanted or not. In practice, workplaces now discourage employees from dating each other - and heavily discourage mixed-status romance.
What explains the ubiquity of these broader policies? Simple: It's hard to know in advance if sexual attention is unwanted. (To quote Merlin in Excalibur, "Looking at the cake is like looking at the future, until you've
tasted it what do you really know? And then, of course, it's too late.") Especially if the person making an unwanted advance outranks you, you may be uncomfortable bluntly refusing. The surest way to abolish unwanted attention is to abolish attention itself.
Unfortunately, the abolition of attention causes massive collateral damage. People spend tons of time getting to know their co-workers. As a result, many promising matches are discovered on the job. Furthermore, humans find high status attractive. As a result, attention from higher-status co-workers is often appealing. Ban workplace romance, and you deprive many people of the partner of their dreams. I don't want my kids to live in a world where fear crushes love.
Thus, if Jack checks Sally and Jane, Tom checks Jane, Sally checks Tom, and Jane checks Jack, Jack and Jane are informed that they have a match. But Sally never finds out that Jack liked her - and Tom never finds out that Sally liked him. This doesn't just spare Jack and Sally the humiliation of being rejected. It also spares Sally and Tom the awkwardness of having to reject. Jack and Jane, in contrast, both get to enjoy each others' wanted attention.
So what's my keyhole solution for harassment? Firms should adopt the speed dating paradigm. Let everyone secretly record their feelings, if any, for their co-workers. If the feelings are unrequited, no one ever finds out. If the feelings are mutual, however, both parties receive official confirmation. And unless they edit their recorded preferences, they waive their right to complain about (or sue over) unwanted attention from whoever they explicitly approved.
How is this better than the status quo? Simple: It retains standard rules against unwanted attention, but gives people a safe way to take a chance on love. Indeed, my proposal even shields everyone from the knowledge that someone has unrequited feelings for them. Don't want to know how anyone feels about you? Then check zero boxes, and you're safe.
The most obvious objection is that people could change their minds. But I've already got that covered: If you decide you no longer welcome someone's attention, you edit your preferences - and they get a polite email informing them of your wishes. Worried that they won't listen? Then don't check them in the first place.
Couldn't an aggressive harasser pressure someone to consent? Of course. But that's also true in the current system. The key difference: Under my proposal, pressuring someone to consent would be unambiguous evidence of unwanted attention. The status quo, in contrast, affords everyone some plausible deniability.
The strongest objection, in my view, is that this keyhole solution for harassment would make adultery highly convenient. The simplest remedy is to rewrite the program so married employers can't check boxes. If that seems overly restrictive to my polyamorous friends, this rule could be overridden with spousal consent.
OK, so why should profit-seeking employers adopt my keyhole solution? Legally, it provides both clarity and protection. It draws a bright line between wanted and unwanted attention - and shields the former from legal liability. Practically, my proposal helps recruitment and retention by raising worker satisfaction. My proposal gives employees the best of both worlds: protection from unwanted attention combined with opportunities for wanted attention.
Do I seriously expect my proposal to catch on? Sadly, no. Most people are too emotional about harassment to even acknowledge the main trade-offs. No successful politician would currently be foolish enough to advocate even slight liberalization of existing laws. But I'd still like to hear your views on how well my idea would work if implemented. Why not?
FEBRUARY 21, 2018
I will be speaking on Thursday at 7:00 p.m. at Webber International University, Babson Park, Florida.
Topic: Economic Inequality: Popular Misunderstandings and Important Facts
Place: Yentes Conference Center
If you're an EconLog reader and you show up, please come up to say hi before or after the talk.
Here's Webber's announcement.
FEBRUARY 20, 2018
[L]et us consider two historical figures of twentieth-century American history. The first came to prominence in the late 1940s, when he invented a light one-man chainsaw, and sold more than 100,000 of them at a price that made him quite rich. That added slightly to wealth inequality. But although the wealth gap between this man, inventor Robert McCulloch, and his customers was higher than it was before, the customers got a product they valued that made their lives easier. In economists' terms, the wealth of these customers increased slightly. Is that increase in wealth inequality a problem? When I've asked college students this question, the vast majority says no--and I agree.
This is from by David R. Henderson, "Income Inequality Isn't the Problem," Defining Ideas, Tuesday, February 20, 2018.
Here are the final two paragraphs:
If the problem we care about is poverty, then the calls to tax the rich and reduce income inequality are misguided. Instead, we should be cheering for policies that lead to higher economic growth. One other important measure is increased immigration. Allowing more immigration into the United States would allow people to move from low-productivity jobs in poor countries to higher-productivity jobs in America. That would dramatically improve the plight of the poor while also improving, but by a smaller margin, the well-being of the rich. Piketty, for all his faults, put his finger on how to do so. He wrote: "A seemingly more peaceful form of redistribution and regulation of global wealth inequality is immigration. Rather than move capital, which poses all sorts of difficulties, it is sometimes simpler to allow labor to move to places where wages are higher."
Thanks to Emily Esfahani Smith for doing an excellent job of editing.
FEBRUARY 20, 2018
I've worked in several different types of organizations, and I've observed a growing tendency for managers to look for measurable metrics to assess productivity. Fortunately, I've generally been in a position where I didn't have to spend a lot of time on those reports, but others are not so fortunate. (That's not to say these management techniques are not useful or effective, I suspect at least some of them are valuable. Management is not my forte, to put it mildly.)
Consider someone working on monetary policy at a research institute. What might constitute a successful performance? One could envision a set of intermediate objectives, such as publishing research on NGDP targeting, or engaging with important people in academia, the media and government. Maybe writing an op ed for the NYT or WSJ. Then there are the ultimate goals, to influence Fed policy with the force of your brilliant ideas.
In the vast majority of cases, the intermediate objectives are positively correlated with the ultimate goal. The correlation may be really weak (my NYT editorial would be unlikely to influence the Fed), but the correlation will be at least slightly positive. There is one case, however, where I sort of wonder whether the correlation is negative. I'd like to get your thoughts on this as well.
One of my recent projects is to encourage the formation of the Hypermind NGDP market. We now have NGDP prediction markets for 2017:Q1 to 2018:Q1 NGDP growth, as well as another market for 2018:Q1 to 2019:Q1 NGDP growth. These two markets are currently showing an expectation of 4.7% and 4.4% NGDP growth. Has this project been successful? That turns out to be a quite interesting question.
The intermediate objectives of this project might include a high volume of trading, as well as productive academic research on the correlation between fluctuations in NGDP futures prices and other key macro variables. The ultimate goal of the project might be to get the Fed to stabilize NGDP growth at roughly 4%. And here's the weird part---these two goals might well be negatively correlated, indeed strongly negatively correlated.
First a bit of background. I started blogging in early 2009, mostly because NGDP had recently been extremely unstable, and I believed that this instability reflected very poor monetary policy and had huge negative effects on the economy. For whatever reason, the subsequent 9 years have seen (along with the 1990s) the most stable NGDP growth in all of American history. I'd like to believe those two events were connected in some way, but I doubt even our supremely self-confident President would be so bold as to make that sort of grandiose claim. No, more likely I just happened to start blogging at a point in time where monetary policy became much more stable.
The problem with stable monetary policy is that it makes monetary blogs much less interesting, especially monetary blogs whose sole raison d'être is to talk about the problems associated with unstable NGDP. Thus my MoneyIllusion blog has seen a steady deterioration in quality and readership. So how should I feel about that?
In a similar fashion, an NGDP futures market is not likely to attract much attention from traders, as long as it keeps chugging along, year after year, with predictions of roughly 4% NGDP growth. Nor will it attract much interest from academic researchers, or financial reporters. So how should I feel about that?
If my work for Mercatus and future Fed policy are truly 100% uncorrelated, then the answer to the preceding puzzle is clear---I should prefer the success of the Hypermind NGDP prediction market experiment. After, all the success or failure of that experiment will have no causal impact on NGDP or monetary policy more broadly. (Yes, it will still be correlated, but no causal impact will occur.)
But now suppose there is a tiny chance that the Hypermind NGDP futures market will attract enough attention to the need for stable NGDP growth expectations that it nudges monetary policy slightly toward a more stable NGDP growth path. Say a one in a million chance. Surprisingly, that changes everything. This market is so inexpensive, and the benefits of stable NGDP growth are so vast (think trillions of dollars), that even a tiny chance of it influencing policy is enough to make us root for its failure. That is, we want to root for the market continuing to show almost no volatility, which means there will be little interest in the project.
Digression for nerds: This is actually quite similar to Newcomb's Problem, as brilliantly explained by Eliezer Yudkowsky in this post. I'm not sure that Yudkowsky is correct, indeed I suspect that the way the problem is generally set up there is some missing information, so I don't know if there actually is a "correct" answer. In Newcomb's Problem there is an explicit statement of the problem that implies that choosing one box over the other has no causal implication. But since the person predicting which box you'll pick has amazing accuracy, we are led to suspect that the ground rules are somehow incomplete, that there is some sort of "spooky action at a distance" even though we are given ground rules that suggest no way for that to occur. So (Eliezer claims) we take the box with $1,000,000, not $1,001,000, as a way of insuring against the risk that we've overlooked something important. Or at least that's how I interpret his argument. It's well worth reading the post.
Back to my post: So let's say the Hypermind futures market has a tiny probability of influencing Fed policy. Then I might root for its failure. Or perhaps it's just a sort of "watched pot never boils" form of superstition on my part. I have a low opinion of my ability to undertake any successful project in life, so I sort of feel I'll fail at this too. I'll keep asking people run an expensive project year after year, which over and over again fails to produce any sort of interesting results.
But unlike all my other failed projects in life, this one has been cleverly set up to have a silver lining. Let's say the project does fail, again and again, for the rest of my life. What does that mean for my ultimate objective, a Fed policy that successfully keeps NGDP growing at roughly 4%/year?
Unless I'm missing something, it can only mean one thing:
First, foremost, fundamentally, above all else:
FEBRUARY 20, 2018
Suppose I define socialism as, "a system of totalitarian control over the economy, leading inevitably to mass poverty and death." As a detractor of socialism, this is superficially tempting. But it's sheer folly, for two distinct reasons.
First, this plainly isn't what most socialists mean by "socialism." When socialists call for socialism, they're rarely requesting totalitarianism, poverty, and death. And when non-socialists listen to socialists, that's rarely what they hear, either.
Second, if you buy this definition, there's no point studying actual socialist regimes to see if they in fact are "totalitarian" or "inevitably lead to mass poverty and death." Mere words tell you what you need to know.
What's the problem? The problem is that I've provided an argumentative definition of socialism. Instead of rigorously distinguishing between what we're talking about and what we're saying about it, an argumentative definition deliberately interweaves the two.
The hidden hope, presumably, is that if we control the way people use words, we'll also control what people think about the world. And it is plainly possible to trick the naive using these semantic tactics. But the epistemic cost is high: You preemptively end conversation with anyone who substantively disagrees with you - and cloud your own thinking in the process. It's far better to neutrally define socialism as, say, "Government ownership of most of the means of production," or maybe, "The view that each nation's wealth is justly owned collectively by its citizens." You can quibble with these definitions, but people can accept either definition regardless of their position on socialism itself.
Modern discussions are riddled with argumentative definitions, but the most prominent instance, lately, is feminism. Google "feminism," and what do you get? The top hit: "the advocacy of women's rights on the basis of the equality of the sexes." I've heard many variants on this: "the theory that men and women should be treated equally," or even "the radical notion that women are people."
What's argumentative about these definitions? Well, in this 2016 Washington Post/Kaiser Family Foundation survey, 40% of women and 67% of men did not consider themselves "feminists." But over 90% of both genders agreed that "men and women should be social, political, and economic equals." If Google's definition of feminism conformed to standard English usage, these patterns would make very little sense. Imagine a world where 90% of men say they're "bachelors," but only 40% say they're "unmarried."
What would a non-argumentative definition of feminism look like? Ideally, feminists, non-feminists, and anti-feminists could all endorse it. If that's asking too much, all these groups should at least be able to accept the proposed definition as a rough approximation of the position they affirm or deny. My preferred candidate:
feminism: the view that society generally treats men more fairly than womenWhat's good about my definition?
First, the definition doesn't include everyone who thinks that our society treats women unfairly to some degree. In the real world, of course, every member of every group experiences unfairness on occasion.
Second, a large majority of self-identified feminists hold the view I ascribe to them. Indeed, if someone said, "I'm a feminist, but I think society generally treats women more fairly than men," most listeners would simply be confused.
Third, a large majority of self-identified non-feminists disbelieve the view I ascribe to feminists. If you think, "Society treats both genders equally well," or "Society treats women more fairly than men," you're highly unlikely to see yourself as a feminist.
At this point, you could declare, "Given all the #MeToo revelations, it's obvious that society does treat men more fairly than women." Or, "Men are vastly more likely to be violently killed than women, so it's obvious that society treats women more fairly than men." Similarly, you could declare, "Since women earn x% less than men, society treats men more fairly than women" or "Since men are jailed nine times more often than women, society treats women more fairly than men." (In both cases, naturally, someone else could respond, "After basic statistical corrections, these gaps go away.")
And you know what? Despite their overconfidence and impatience, all of these statements are on point. They're real arguments, not semantic trickery. If you calmly collect and carefully quantify a few hundred such arguments, you won't just know whether feminism is true. You'll know how close the other side is to being right.
FEBRUARY 20, 2018
A government that doesn't do much is highly preferable than one that does harm.
Italian elections are fast approaching: they'll be held on March 4. I think there is so far an unnatural/uncanny sense of composure surrounding the ballot. I think many assume that, since France ultimately didn't vote for Marine Le Pen last year and stayed on the safe course with Emmanuel Macron, the same is going to happen in Italy: another big country (60 million people, the third largest economy in the Eurozone) whose stability is fundamental for the future of the European project.
I am far more doubtful. The latest polls (for the rest of the campaign polls cannot be made public) tend to confirm the scenario that international observers prefer: due to the intricacies of the electoral law, nobody wins and the 'moderates' of the right and of the left end up in another grand coalition government that certainly won't be able to profoundly reform the country, but neither will send it in the direction of Athens or Caracas.
I think the very fact everybody is talking about this scenario makes it less likely to happen. The 'moderates' of the left do not want their party to govern with the right, and vice versa. The mere possibility being on the table contributes to shifting votes into the hands of the 'extremists' of both coalitions. The general public may well be less wise than political commentators and analysts coming from big financial firms: but they understandably don't like the idea of the parties they're choosing being hijacked.
On the top of that, we know from polls that 30% of Italians haven't made their pick yet. This isn't big news: people tend to decide late who they're going vote for and a good chunk of them decide literally at the last minute. Another thing is sure: they decide among available options. And in Italy there is quite an interesting anomaly. The "populist" option, the so called Five Stars Movement, has at the same time an "extremist" platform and a "moderate" spokesman. Mr Di Maio, the party's frontman, is a young, well mannered, gentle politician, in sharp contrast with the perpetually grumbling leader of the nationalist right, Mr Salvini, and the bullying leader of the moderate left, Mr Renzi. Mr Di Maio's declared policies--which have at one time included leaving the euro (he seemed to have changed his mind more recently), and which include a savage nationalisation scheme, including the telephone network--may be wild, but his tones are relaxed. His party is credited with roughly speaking 1/3 of the suffrages. Is this its ceiling, or may it gain more among still undecided voters? This is the big "if" of the next election.
In the meantime, Mr Berlusconi has tried to campaign as the candidate of stability. I have no glowing/fond memories of the times when Mr Berlusconi was prime minister. As an allegedly free marketer, he was a continuous disappointment. Alas, I think this time he may be an appealing choice: precisely because we know he is never particularly adamant about keeping his own promises. A government that doesn't do much is highly preferable than one that does harm. This is why the background thinking of this article of mine in Politico on Mr Berlusconi as the "candidate of calm".
CATEGORIES: Eurozone crisis
FEBRUARY 19, 2018
I've heard many people on Facebook and elsewhere talk about how politicized the 2018 Olympics are. In this case, though, I think politics is in the eye of the beholder. Sure, I thought that Mike Pence had incredibly bad manners in standing only for the U.S. team at the opening ceremonies. And some of the mainstream media went gaga over the sister of North Korea's chief murderer. But if you choose to focus on that, that's your choice.
My wife and I have watched about 3 hours of Olympics every day--and have been loving it.
Interviews with Athletes
Absence of Award Ceremonies
I haven't said a thing about the awful cost of the Olympics and the fact that millions of South Koreans are on the hook for billions of dollars. I'm not indifferent to the injustice. But it's a sunk cost. Whether I watch the Olympics or not won't at all affect that cost.
FEBRUARY 19, 2018
We dodged one bullet. The Trump administration's proposal for a dramatic increase in regulation of the energy industry, support by Energy Secretary Rick Perry, has been rejected by the Federal Energy Regulatory Commission. Now there is danger of another bad regulation being enacted. But first a bit of background:
She came to the country legally with a spousal visa, or H-4, granted to the wives and husbands of those who have H-1B, or high-tech, visas. But H-4 visas didn't allow a person to work in the U.S. -- until 2015, when the Obama administration enacted a rule that opened the way for people with spousal visas to obtain permits known as employment authorization documents (EAD). . . .
But now this program is in danger:
The relief of H-4 visa holders hasn't lasted long, however. Bishen and spouses who received the work authorizations are now in limbo since the Trump administration indicated it plans to end the program this year. If that happens before they can get new work permits, spouses of H-1B holders in the Seattle area will have to decide whether to stop working in the United States or leave the country.Ending this program would create a negative supply shock, reducing GDP growth. Let's hope the proposal suffers the same fate as the ill-fated attempt to re-regulate energy.
Interestingly, this data from the Seattle Times suggests that the H-4 immigration program played a small role in the acceleration in economic growth during 2017:
PS. We also need to keep an eye on trade policy, where a proposed steel tariff is like a dagger aimed at the heart of American manufacturing. Imagine the plight of US automakers if steel prices here rise far above Canadian and Mexican levels. And then there is foreign investment, where new regulations are making it increasing difficult for foreign firms to invest in the US. Sometimes I feel like I'm playing whack-a-mole.
FEBRUARY 19, 2018
On Thursday, February 22, I'll be giving an evening talk at Webber International University in Babson Park, Florida.
Topic: Economic Inequality
If you're an EconLog reader and you show up, please come up to say hi before or after the talk.
FEBRUARY 19, 2018
It was great fun debating Eric Hanushek, truly a gentleman and a scholar. Here's my opening statement.
Is the education system really a waste of time and money, as my new book claims right on the cover? This is a strange topic to debate with Eric Hanushek. Why? Because if Hanushek had absolute power to fix the education system, education might actually be worth every penny. Hanushek is famous for focusing on what schools teach rather than what they spend - and documenting the vast disconnect between the two. If you haven't already read his dissection of "input-based education policies," you really ought to. Hanushek, more than any other economist, has taught us that measured literacy and numeracy are socially valuable - but just making kids spend long years in well-funded schools is not.Tragically, however, Hanushek is not our education czar. Instead, all levels of our education system are extremely wasteful and ineffective. After spending more than a decade in class and burning up over $100,000 in taxpayer money, most Americans know shockingly little. About a third of adults are barely literate or numerate. Average adult knowledge of the other standard academic requirements - history, social studies, science, foreign languages - is near-zero. The average adult with a B.A. has the knowledge base you'd intuitively expect of the average high school graduate. The average high school graduate has the knowledge base you'd intuitively expect of the average drop-out. This is the fruit of a trillion taxpayer dollars a year.
For economists, however, there's a powerful objection to this condemnation. If students really learn so little, why on earth is education so lucrative in the labor market? Why do high school grads outearn dropouts by 30%? Why do college grads outearn high school grads by 73%? Explain that! Employers want profit and they aren't dumb. They wouldn't pay exorbitant premia unless education dramatically improved worker productivity, right?
Wrong. There are TWO solid business reasons to pay extra for educated workers. One is that education teaches useful skills, transforming unskilled students into skilled workers. This is the standard "human capital" story. The other reason, though, is that education certifies useful skills, helping employers distinguish skilled workers from imposters. This is the "signaling" story. In the real world, naturally, it's a continuum. But since Hanushek is not the education czar, signaling explains most of education's financial reward.
How can we know this? We should start with the massive gap between learning and earning, combined with the fact that even the most irrelevant subjects and majors yield decent financial rewards. If human capital were the whole story, why on earth would employers care if about whether you've studied Shakespeare, Latin, or trigonometry? Think about all the classroom materials you haven't used since the final exam.
If that doesn't fully convince you, many other facts that every student knows cut in the same direction. Such as:
1. It's easy to unofficially attend college classes without enrolling or paying tuition, but almost no one bothers. Why not? Because after four years of guerilla education, there's one thing you won't have: a diploma. The central signal of our society.
2. Students' focus on grades over learning, best seen in their tireless search for "easy A's." Signaling has a simple explanation: If a professor gives you a high grade for minimal work, you get a nice seal of approval without suffering for it.
3. Students routinely cram for final exams, then calmly forget everything they learn. Signaling provides a clean explanation: Learning, then forgetting, sends a much better signal than failing.
In The Case Against Education, I also review multiple major bodies of academic research to help pin down the true human capital/signaling breakdown. In the end, my best estimate is that signaling explains 80% of the payoff. Key pieces of evidence:
1. Most of the payoff for school comes from graduation, not mere years of study. This is a doozy for human capital theory to explain; do schools withhold useful skills until senior year? But it makes perfect sense if graduation is a focal signal of conformity to social norms.
2. There has been massive credential inflation since 1940. The education you need to do a job hasn't changed much, but the education you need to get any given job has risen about three years. Hence, the fact that waiter, bartender, security guard, and cashier are all now common jobs for college grads.
3. Though every data set yields different estimates, the effect of national education on national income is much smaller than the effect of personal education on personal income. How is this possible? Signaling! Give everyone more useful skills, and you enrich the whole nation. Give everyone more stickers on their foreheads, and you fritter away valuable time and tax money.
If you've been wondering, "What does signaling have to do with wasteful education?," I hope you're starting to see the link. Sure, it's useful to rank workers. But once they're ranked, prolonging the ranking game is a socially destructive rat race. When education levels skyrocket, the main result isn't good jobs for every graduate, but credential inflation: The more education the average worker has, the more education the average worker needs to be employable. And while sending fancy signals is a great way for an individual to enrich himself, it's a terrible way to enrich society.
Given Hanushek's work, I'm optimistic that he'll agree with much of what I've said. It's our remedies that starkly diverge. My primary solution for these ills is cutting education spending. In a word, austerity. Austerity: It's word I love. It's a word I believe in. If Hanushek's bleak assessment of input-based education policies is right, austerity will save tons of time and money with little effect on worker skill.
Strangely, though, my opponent doesn't seem excited by this glorious free lunch. His primary solution for what ails us - correct me if I'm wrong - is to take the money we currently waste and use it to increase measured learning, especially in math and science.
I disagree on both strategic and fundamental grounds.
Strategically, spending less is easy and transparent. We totally know how to do it. Spending more effectively, in contrast, is hard and foggy. And to make it happen, we have to trust the very education system that's spent decades ripping off taxpayers and wasting students' time.
Fundamentally, while I agree that measured learning is much more socially valuable than mere years in school, Hanushek's enormous estimates of the benefits of higher test scores are just too good to be true. In his view, higher average math and science scores not only dramatically increase our wealth, but permanently raise the economy's rate of growth. It's practically a perpetual motion machine.
But how can this be true, when the typical worker uses little math and almost no science on the job? The simplest explanation for Hanushek's results is that national test scores are misleading proxies for a much more crucial - and far less malleable - cognitive skill: intelligence. If everyone were smarter, we would all do our jobs better. But if everyone knew more science, most of us would rarely encounter an opportunity to use our extra knowledge. I use my intelligence on the job every day; but whole months go by when I don't use biology, chemistry, or physics.
In sum, if I had to hand over a trillion dollars of taxpayer money to one stellar researcher, I'd be sorely tempted to hand it to Eric Hanushek. Few educational experiments would be more fun to watch. Nevertheless, I predict the results of the experiment would be very disappointing. Entrenched interests - and legions of touchy-feely parents - would block Czar Hanushek at every turn: "Test scores? That's so narrow and boring. Let's assign more poster projects!" And even if Czar Hanushek managed to sharply boost math and science scores, I'd only expect a modest social payoff. Once we admit the massive defects of the status quo, the only remedy we can really count on is austerity.
FEBRUARY 18, 2018
University of Chicago professor Eric Posner and Microsoft employee Glen Weyl wrote last week about their intriguing proposal for immigration. It's titled "Sponsor An Immigrant Yourself," Politico, February 13, 2018.
I like parts of it but I don't totally understand it.
Here's their reasoning for why the proposal makes sense to them:
The problem posed by migration is that the benefits are not evenly distributed. They flow to the migrants themselves and the corporations that hire them. Consumers do receive better products and lower prices, but ordinary people don't really perceive these benefits. And working-class people may suffer a decline in their wages (some or many of them, depending on which economist you ask, but most agree the decline is not large), or (certainly, in most cases) believe that immigration undercuts their wages and threatens their cultural values.
Notice that they go from some pretty good reasoning in the first paragraph above to a conclusion in the first sentence of the next paragraph that's a non sequitur. If they are making the point that "ordinary people" don't perceive these benefits, a point they do make in the first paragraph above, they may be right. But they jump from this alleged lack of perception of benefits to the conclusion that ordinary people don't get many benefits. They may be right even there, but they do nothing to establish that claim.
Here's the gist of their proposal:
This system should be wiped away and replaced with a system of citizenship sponsorship for immigrants that we call a Visas Between Individuals Program. Under this new system, all citizens would have the right to sponsor a migrant for economic purposes.
Wiping away a system in which corporations can hire immigrants is extreme. We would lose a lot of benefits from doing so: benefits that now are captured by corporations, their customers, the workers who complement these immigrants, and, of course, the immigrants themselves.
So I think it's better to (1) not wipe out the current system and (2) implement theirs too. It's good economically and it's good politically. Economically, for the reasons above, and politically so that corporations won't fight their proposal.
So how does this benefit the Mary Turners who hire immigrants? I had thought this was straightforward: gains from hiring cheap labor. But no, that's not the main way. Posner and Weyl write:
According to our calculations, a typical family of four could boost its income by $10,000 to 20,000 by hosting migrants. The reason is that migrants to the United States usually increase their wages many times, allowing them to pay as much as $6,000 to hosts for sponsorships (and our average family could sponsor up to four visas, one for each member).
Hold on. Where did this $6,000 come from? I agree with the authors that this could easily be a minimum estimate of the gains to the immigrants. But why would they voluntarily pay their hosts for sponsorships? Is their a price set by the government? Do the sponsors price it on their own? The authors have left out an important step that's more than a detail.
I could see immigrants coming here, figuring out they're in the wrong job, and then getting a better job. There's nothing wrong with that. The authors seem even to countenance that possibility. It would just be nice to see them spell out better the particular structure that they are proposing.
They also anticipate the following:
Others might try, in entrepreneurial fashion, to find foreign workers for American businesses--which would not be allowed to sponsor migrants under our proposal--taking a cut in the process. Google and Exxon would need to pay people like Mary to find migrants for their businesses.
Notice the completely unnecessary step they introduce because of their proposal to forbid corporations from hiring immigrants directly. They purposely advocate making the labor market less efficient.
Does this mean I oppose their proposal? Not necessarily. I would need to see the basis for their pricing of sponsorships and also how many people they would allow under their program. Allowing, say, 2 million people a year through this system rather than say the approximately 1 million people now would probably be an improvement. But if we get the same number of immigrants under their proposal that we get now, it's probably worse.
CATEGORIES: Labor Mobility, Immigration, Outsourcing
FEBRUARY 18, 2018
Here's the Financial Times:
Analysts have struggled to explain why the yen is rising when the gap between US and Japanese interest rates is widening further, with the US Federal Reserve tightening policy while the BoJ is pinning 10-year bond yields at zero.
That final suggestion is interesting, as massive US budget deficits are the standard explanation of the strong dollar of 1983-85.
When thinking about the relationship between any two macro variables, I always start with the extreme cases, much like physicists like to do experiments under extremes of heat and pressure. It exposes a lot of relationships that are more difficult to see under ordinary conditions. Let's start with recent trends in Argentine interest rates:
Of course this is one of those "never reason from a price change" cases. Yes, there really are cases where rising rates in the US are associated with a stronger dollar---the FT is not stupid. The actual correlation entirely depends on what causes rates to change in the US, and in Japan.
Notice that the FT article cites a "tightening" of monetary policy in the US. But they provide no data to support their claim that monetary policy has become tighter. I'll provide data for the opposite claim. NGDP prediction markets show 4.7% growth up through Q1, and 4.4% expected growth over the next 12 months. Those figures are a bit higher than recent trends, which suggests to me that the Fed has been easing monetary policy.
Is there any data suggesting that the Fed is tightening monetary policy? (And please, don't even go there . . . )
Their comments about expected Japanese tightening are plausible. It would be crazy for the BOJ to tighten right now, but weirder things have happened in central banking. It would probably help to look at the yen vs. the euro, and other exchange rates, to get a sense of whether this recent move in the exchange rate is more about the dollar or more about the yen.
Most Recent Entries