Thursday, July 19, 2018

Trump Tariffs Hit Largest US Aluminum Company, ALCOA

In the history of antitrust law, one of the most important rulings by the US Supreme Court came in 1945, when the Aluminum Company of America (ALCOA), long based in Pittsburgh with heavy Mellon family ownership, was ordered broken up for being a monopoly, following a ruling by Judge Learned Hand.  This was the famous "per se" ruling that said that simple domination of an industry by size was sufficient in the end to justify breaking it up.  However, with the entry of Reynolds and Kaiser into the industry, ALCOA was in the end able to fend off being actually broken up, and today it is still the largest aluminum company in the US and sixth in the world, with Century Aluminum second in the US and Kaiser third. While still with most activity in the US, ALCOA is a multinational company operating in many nations around the world.  Until 2016 it operated in all sectors of the industry, but then spun off some of its specialized processing for auto and aerospace inputs into the Arconic company.

Today stock of ALCOA fell over 4 percent on a report from the company of it expecting to see a , substantial decline in profits in the coming quarters due to the imposition of tariffs on aluminum by President Donald Trump.  So, his imposition of tariffs on aluminum, designed to aid US aluminum producers, will be causing a substantial decline in profits for the largest aluminum producing company in the US.  What is going on here?

It appears that the problem is that the US is increasingly a net importer of unprocessed aluminum that is the main input for companies that process aluminum, which is what ALCOA mostly does, even after spinning off Arconic.  The US has never been a major producer of bauxite, the original source of most aluminum, only producing about 1 percent of global supplies of it.  In term of producing unprocessed aluminum, the US reached a peak in 1980s, with this now only about a quarter of that level today. The US imports $23.4 billion of aluminum products, with nearly half of that, 46.8 percent to be precise, being unprocessed aluminum.  So ALCOA is importing a lot of the unprocessed aluminum it uses to produce aluminum products.  Unlike American steel companies, whose main inputs of iron ore and coal are domestically produced, ALCOA is more like an automobile company that is hurt by the tariffs on steel, which raise its costs.  Thus it is not surprising that the US aluminum industry more broadly has opposed the Trump tariffs, in contrast to American steel and coal companies supporting the steel tariffs.  I note that the US exports some finished aluminum products, but far less than it imports.

The top five nations from whom the US imports aluminum are Canada (36.3 percent), China (15.1 percent), Russia (7.0 percent),UAE (6.5 percent) and Mexico (4.3 percent).  When the tariffs were first announced, meanie Canada and Mexico were exempted due to ongoing NAFTA negotiations, but on May 31, they were included given the apparent breakdown of the NAFTA negotiations.  Back in 2006, ALCOA tried to take over Canada's Alcan, originally a started by ALCOA, but was blocked as Brazil's Rio Tinto took it over instead.  So ALCOA imports a lot from Canada, meaning tariffs on meanie Canada are hitting ALCOA especially hard.  As for meanie China, well, the yuan/rmb has hit a new low for the year against the rising US dollar, which will mean it will still be exporting to the US even as its economic growth rate declines somewhat to about 6.5 percent.  But obviously we have nothing to fear as our "Art of the Deal" president assures us that "trade wars are easy to win."  The meanies will be put in their place, and ALCOA will  just have to have a stiff upper lip and be patriotic along with all our soybean farmers.

Barkley Rosser


Saturday, July 14, 2018

Is Trump Bailing Out Soybean Farmers Or Not?

Chinese tariffs on US soybean exports have now kicked in, with China half the US soybean market, and exports much more important for soybeans than for corn, with the US producing half the world's corn, but exporting less of it than soybeans.  Upshot is that while soybean prices have fallen roughly 20% since Trump started his trade war, corn prices have fallen noticeably less.

Recognizing that soybeans are very important in some key pro-Trump states like Iowa, North Dakota, and Indiana, he has promised to provide aid for them, even as he has at times said that the victims of his trade war will be "patriotic" and continue to support him, even as they lose their jobs, farms, businesses.  Googling suggests that he has himself has not followed through on supporting his damaged soybean farmer supporters, but in fact the situation is unclear.

I have made my annual visit with my old friend who is an Indiana farmer, among other things.  He is glad that he planted more corn than soybeans this year, given that corn prices have fallen so much less than have those of soybeans.  But he tells me that even though the internet says Trump has done nothing to follow up on his promises to help out the soybean farmers, there is a new USDA program to  provide some sort of assistance to soybean farmers.  He has signed up for it, but so far has received no clear information of what is going to come out of it.

As near as I can tell what this might be is a resurrection by somebody at USDA inspired by Trump of the old Commodity Credit Corporation programs that date back to the Great Depression and are still on the books.  I do not know if this is the case or not, but it is hard to see what else it might be. As it is, my friend is curious and hoping to get some assistance, but whether any will actually be forthcoming, much less how much or to what degree Trump actually has anything to do with it specifically, remains up in the air, as does so much else about the Great New Trade War of Donald J. Trump.

Barkley Rosser

Monday, July 9, 2018

How Much Do the NATO Members Spend on National Defense?

Josh Marshall provides a nice discussion of the difference between how NATO is funded versus how much each of its members spends on national defense, which begins with:
As we move toward the NATO Summit and the Putin-Trump summit, I thought it made sense to review some of the details behind the President’s demands that NATO member countries pay up and stop doing what he regards as freeloading on the US taxpayer dime. Most people have a general sense that Trump doesn’t seem to grasp how an alliance works, that it’s not meant to function as a protection racket. But the actual details are both sillier and more significant than it may seem on the surface.
While I applaud his discussion, something is amiss here:
The vastly greater amount is the combined military budgets of all the member countries combined, which was $921 billion in 2017. The great majority of that is made up of the US military budget. In 2017 the US military budget was $610 billion. The coming fiscal year puts it at $700 billion. (That big run-up is significant and we’ll return to it.) Some of that difference is driven by the fact that the US economy is far larger than any individual NATO member state. But the US also spends much more on a per capita basis. Staying with the 2017 numbers, the US spends 3.61% of GDP on defense. The next major NATO member is the UK down at 2.36% while most other major NATO powers are significantly under 2%. (Examples: France, 1.79%; Germany, 1.2% Canada, 1.02%)
Actually, U.S. national defense spending was over $744 billion in 2017, which came to 3.8% according to this source. Call me a pacifist but maybe we should all be spending less on the ability to wage war.

Saturday, July 7, 2018

The Value of Life and the Metaphor of Choice

Perhaps no topic generates such bewilderment between economists and the general public as the monetary valuation of human life, or the value of a statistical life (VSL) to use the term preferred by professional economists.  Economists insist that longevity is a commodity bought and sold on markets like anything else, which means it has a price and an underlying schedule of willingness to pay just as we would find for any other good or service.  Most noneconomists regard this as madness: surely the value of a human life can’t be expressed as the equivalent of a certain number of pizzas, even a very large number of pizzas.  But, respond the economists, you do trade off longer life against pizzas, or at least the money that could be used to buy them, since there is a limit to how much you’ll spend to reduce a physical risk.  And then there is a reply to the reply: yes, but that has nothing to do with the value of being alive, which can’t be reduced to a monetary price.  And it goes back and forth from there, with neither side able to understand the other.

Elsewhere I have made substantive arguments for why we are better off without putting monetary values on our lives, but I won’t get into that here.  My interest at the moment is the incomprehension on all sides of the VSL debate.

Here’s what I think it comes down to: the metaphor of choice.  This metaphor is so deeply ingrained in economic analysis most economists can’t think beyond it, but the moment it is invoked the very notion of what it means to be alive rather than dead is rendered irrelevant.

No need to reinvent the wheel.  I discussed the metaphor of choice in my introductory micro text:
What about the metaphors used in economics?  First consider choice.  Much of what we do in the economy does involve choosing: we choose where to work, where to live, and paper or plastic in the check-out line.  No doubt many of the choices we make are unconscious, but it might not be too far off the mark to think about them as if they were conscious and “rational” as we will describe in the following section.  Nevertheless, the metaphor of choice can be misleading in some instances.  There are two reasons for this. 
First, many of the actions we undertake are governed by a process very different from conscious choice.... 
Second, many activities are not choices at all.  You can choose whether to buy white or red potatoes, but cooking the potatoes is an act of (household) production, not a choice.  Working, doing the actual tasks that make up a job, is not choosing; it is working.  Spending days or weeks searching for a new house is not making a choice; it’s doing a search.  Of course, subject to the qualification we made in the previous paragraph, all these activities lead up to or follow from a choice.  In other words, what the metaphor of choice is telling us is that what is deemed important about any economic activity is the element of choice connected to it.  This is a simplification of great power, because it enables us to make general statements that apply to the many aspects of life through their common element of choice, but it downplays the economic importance of the non-choice element.
This applies in flashing neon to the valuation of life.  To an economist, it is obvious that the salient moment, the one that determines everything else, is when you make a choice about something that increases or decreases the probability of an early death.  The tradeoffs you make in that moment, or that are implicit in it and could be teased out using statistical methods, are the very substance of value.  When a normal person—someone who hasn’t been trained to view existence as nothing more than a sequence of instantaneous choices—thinks about life, however, they think about living (and dying).  What’s the value of that?  It might have something to do with the attitude you felt when you were making a choice that changed your odds of survival, but that barely begins to cover it.  The value that matters is the value of being, to you and to those who know and care about you. 

What’s the lesson here?  It’s not that economists are “wrong” to reduce all of being and doing to choosing; there is great power in this simplification, and few insights of modern economics would be attainable without it.  But economists would do well to remember this crucial step and acknowledge it limits the scope and applicability of what they think they know.  Allowing that there are values to being alive that VSL doesn’t begin to address would be a useful place to start.

In Defense of the Francois-Baughman Analysis of the Trump Tariffs

Dr. Joseph Francois and Laura M. Baughman are being criticized for writing:
This policy brief examines the potential net impacts on U.S. jobs across all industries of the proposed steel and aluminum tariffs applied to targeted steel and aluminum imports from all countries. It does not take into account any potential retaliation against U.S. exports; only of the tariffs themselves. We find that the tariffs would indeed have positive impacts on U.S. steel and aluminum producers, but negative impacts on producers who use steel and aluminum, both imported and domestically-produced. Those impacts, both positive and negative, would ripple through the economy. We find: The tariffs would increase U.S. iron and steel employment and non-ferrous metals (primarily aluminum) employment by 33,464 jobs, but cost 179,334 jobs throughout the rest of the economy, for a net loss of nearly 146,000 jobs ..
How did they arrive at this alarming conclusion?
We base our analysis on the Global Trade Analysis Project (GTAP) database. The GTAP database covers international trade and economy-wide inter-industry relationships and national income accounts, as well as tariffs, some nontariff barriers and other taxes. This includes value-chain related linkages across industries and borders. These data are included in a computer-based model of production and trade known as a “computable general equilibrium” (CGE) model. This is the same model used by the Commerce Department to arrive at the tariff rates it argues will yield increases in U.S. steel production sufficient to bring the industry to 80 percent capacity utilization… In addition to economy-wide impacts, we focused on the impacts of imposing the tariffs on the U.S. workforce. For the analysis conducted here, we treat wages as “sticky,” meaning changes in demand for labor (positive or negative) are first reflected in changes in employment rather than changes in wages. This is appropriate for an examination of the immediate impacts of the tariffs on workers.
In other words, they concede that these are short-term impacts and their model has Keynesian features. For some reason, this offends Robert Scott of the Economic Policy Institute (EPI):
This EPI report explains why the actual economic impact of the tariffs will be quite minor, and why Francois and Baughman’s 2018 study should be treated as an odd outlier in studies of tariffs, and not as a study to guide policy decisions. Our key findings are: The Francois and Baughman (2018) results are driven overwhelmingly by a nonstandard modeling assumption: that growth in the U.S. economy is constrained by aggregate demand. This is not how the vast majority of trade modeling analyses are done. Even with the assumption of demand-constrained growth, the Francois and Baughman (2018) results are totally implausible. There is no credible evidence that these tariffs could drag on growth in demand anywhere near enough to generate employment losses as large as the authors report…While Francois and Baughman (2018) look at the effects of raising tariffs on steel and aluminum, the textbook case for arguing that lowering tariffs will boost economic efficiency relies on the assumption that the economy operates at full employment, meaning that overall economic growth is constrained only by growth in the economy’s productive capacity and not by spending decisions made by households, businesses, and government. This means that economic growth is not constrained by too-slow growth in aggregate demand. This full employment assumption lies behind the vast majority of analyses of trade policy and is a necessary condition for many of the findings that lower tariffs boost economic efficiency. Such full employment modeling would imply extremely modest economic losses from the steel and aluminum tariffs. The standard rule-of-thumb for converting tariff increases into economic losses is: [0.5*(t/(1+t))^2*m*e]. Here, t is the percentage tariff, m is the share of imports in the nation’s gross domestic product (GDP), and e is the elasticity of demand for imports with respect to price.
First of all it would have been nice had this EPI discussion given Paul Krugman credit of this “standard rule-of-thumb”. But since when has the EPI embraced the New Classical macroeconomics model? To be fair, I have made similar arguments that trade policy has no net aggregate demand effects. For example, my post on Navarro’s Nonsense on Net Exports dusted off the Mundell-Fleming IS-LM-BP model:
My concern was that Navarro was all Keynesian with no consideration of where output was relative to potential GDP or the impacts on potential GDP. Navarro proposed using some sort of trade protection to raise net exports by $500 billion per year. That might have a big aggregate demand impact under the assumptions of fixed exchange rates and fixed interest rates, which of course is the most basic Keynesian model that Navarro both mocks and uses. One can wonder whether the output gap now is really that large. Of course, I have suggested that perhaps the output gap may indeed be as much as 5 percent but other economists suggest it is smaller. Scott is noting, however, the Trump wants to increase defense spending and massively cut taxes which push aggregate demand so high that the Federal Reserve would have to raise interest rates. We should also note how various policy positions work in a standard Mundell-Fleming model.
One of the implications of this model is that any expenditure-switching policy such as reducing imports will so appreciate the currency that export demand falls as much imports rise. Of course the EPI has often dismissed this conclusion on the grounds that we do not live in an idealized world of freely floating exchange rates. Then again – even Keynesian economists would argue that a well designed monetary policy could offset any negative aggregate demand effects – providing we do not hit that liquidity trap again. So yea – I have argued for a full employment modeling in the past. But what worries me is that Trump’s follies may match or rival the macroeconomic mess we had during the early years of the reign of St. Reagan. To suggest that in such an environment that we should ignore aggregate demand effects is something I would have never expected from the EPI.

Tuesday, July 3, 2018

Pruitt's EPA Trashing Benefit-Cost Analysis Of Environmental Policy

Scott Pruitt increasingly looks the worst of the worst out of the appalling cabinet of President Trump, quite aside from his race to become the single most corrupt cabinet member in the entire history ofthe US.  The latter is trivial compared to his policy change after policy change that will increase pollution in the environment and end up killing people, to be blunt about it.  But now the Environmental Economics blog reports that since June 7 Pruitt's EPA has been planning to distort benefit-cost in a way to make it less likely to support environmental policy enforcement (sorry not able to make link to site work).

In particular they are planning to eliminate counting "co-benefits" of policies. Only what a policy is specifically directed at can be counted. So, if one looks at coal burning and wishes to limit particulate emissions, then one cannot count co-benefits such as reducing SO2 and mercury emission.  This is simply outrageous and makes no sense whatsoever. But indeed, Scott Pruitt may be the worst cabinet member in US history, and Trump seems to be in no hurry to remove him, indeed, defends him.

Barkley Rosser


Three-day Workweeks and Four-day Weekends

David Gelles interviewed Richard and Holly Branson for The New York Times Saturday
David Gelles (NYT): What do you think those in positions of power should do to address social problems like income inequality? 
Richard Branson: A basic income should be introduced in Europe and in America. It’s great to see countries like Finland experimenting with it in certain cities. It’s a disgrace to see people sleeping on the streets with this material wealth all around them. And I think with artificial intelligence coming along, there needs to be a basic income. 
David: Because of job displacement? 
Richard: I think A.I. will result in there being less hours in the day that people are going to need to work. You know, three-day workweeks and four-day weekends. Then we’re going to need companies trying to entertain people during those four days, and help people make sure that they’re paid a decent amount of money for much shorter work time. 
David: That’s a pretty rosy vision of what business can do. Is it really so simple? 
Holly Branson: If all businesses start doing the right thing for their communities and the world as a whole, all of the world’s problems could be solved.

Meanwhile, In The 'Not Too Distant Future'...

In the early days of the 1956 presidential campaign, U.S. Vice President Richard Nixon envisioned the achievement of a four-day, 32-hour workweek in the "not too distant future." Sixty years later, the average workweek in the U.S. for full-time workers was 42.5 hours. Seventy percent of all employed persons worked 40 hours a week or more.

Nixon was not the only seer to misjudge the future of working time. In the 1930s, John Maynard Keynes had famously speculated about a 15-hour workweek as an economic possibility for "our grandchildren." Towards the end of World War II, he offered a more modest, but more imminent opinion that a 35-hour workweek would be appropriate for the post-war U.S. economy.

In 1954, Fortune editor Daniel Seligman predicted a 32-hour workweek by 1980 – or sooner if workers chose to take a greater portion of their share of productivity gains in leisure rather than income. The First National City Bank of New York calculated in 1957 that it would take 31 years to achieve a 32-hour workweek, assuming the same mix of income and leisure as had prevailed from 1909 to 1941. Alternatively, a four-day workweek could be attained in eight years if productivity gains were applied exclusively to work time reduction. Four years later, economist Clyde Dankert suggested 1980 as the date by which "the thirty-hour workweek should be widely established and some progress made toward the twenty-five-hour week."

As it turned out, from 1954 to 1989, annual productivity gains averaged 2.1 percent a year. Assuming 40 percent of actual historical productivity gains, ten paid holidays, and four weeks annual vacation, a 32-hour workweek should have been realized by around 1990 – leaving aside the likelihood that progressive reductions of the hours of work could have accelerated productivity gains. Edward Denison estimated in the early 1960s that approximately ten percent of the productivity gains in the first half of the twentieth century could be attributed directly to the reduction of hours. So, adding in a ten percent productivity boost from work time reduction itself, a 32-hour workweek could have been achieved by 1984.

Why those reductions didn't materialize is a riddle that perhaps will never be completely solved. One element that must have contributed to that outcome, though, is the peculiarly ambivalent attitude of economists toward work time reduction. On the one hand, as the plethora of predictions suggests, economists were confident that reductions would occur virtually automatically. Many affirmed it would be a good thing, too. On the other hand, economists almost unanimously expressed misgivings or outright hostility to policy initiatives that would mandate shorter hours – whether through legislation or collective bargaining. Suspicion of shorter work time policy enjoyed a rare and unholy consensus among both interventionist liberals and laissez-faire conservatives.

Two significant facts are concealed by the economists' curious unanimity. First, that shorter working time is an unequivocally good thing for workers and second, that most employers tend to resist work time reductions like the plague, making the spontaneous reduction of working time highly unlikely and the imposition of shorter working time by policy an imperative for achieving reductions. These are not the opinions of radicals or crackpots but the conclusions of theory and empirical research conducted by economists of the first rank. 

In 1902, the report of the U.S. Industrial Commission concluded that "reduction of hours is the most substantial and permanent gain which labor can secure." It went on to explain that a wage increase "can readily be offset by secret agreements and evasions… but a reduction of hours is an open and visible gain and there can be no secret evasion." The report also observed that "strenuous objections and alarming predictions" have been the inevitable reactions to demands for shorter hours "but after a very brief period of trial these objections have disappeared." 

Thirty years later, John Hicks reiterated that historical experience offered "no ground for supposing that the reduction takes place at all easily." The reduction from the long hours worked during the industrial revolution had been achieved "mainly by State regulation and Trade Union Action" over the objections of employers, to most of whom it was inconceivable "that hours could be shortened and output maintained." 

By the 1930s, the case for shorter hours had been vindicated – at least among leading economists. Sydney Chapman's 1909 theory of the hours of labour was acknowledged as canonical by leading economists. It was no long necessary, assured Lionel Robbins in 1929, "to combat the naïve assumption that the connection between hours and output is one of direct variation, that it is necessarily true that a lengthening of the working day increases output and a curtailment diminishes it."

Up until 1957, labor economics textbooks concurred with Hicks's view that reductions in hours were gained by trade union pressure, either directly through collective bargaining or by legislation promoted by organized labor, as Stanford economist John Pencavel recently observed. Following publication in 1957 of an article by H. Gregg Lewis, "Hours of Work and Hours of Leisure," however, there was a "radical change in economists' thinking about working hours." Subsequent textbooks echoed Lewis's empirically-unsubstantiated hypothesis that workers freely choose their hours, based on their individual preferences for income or leisure.

On the final evening of the 1960 U.S. election, Nixon, then the Republican candidate for President was asked what his stand was on the 32-hour workweek. "Well," he replied, "the 32-hour workweek just isn't a possibility at the present time." Nixon continued:
I made a speech back in the 1956 campaign when I indicated that as we went into the period of automation, that it was inevitable that the workweek was going to be reduced, that we could look forward to the time in America when we might have a 4-day week, but we can't have it now. We can't have it now for the reason that we find, that as far as automation is concerned, both because of the practices of business and labor, we do not have the efficiency yet developed to the point that reducing the workweek would not result in a reduction of production
.There is a faint echo of 1930 Keynes in 1960 Nixon's "we can't have in now" deferral. A few paragraphs after making his prediction of a future 15-hour work week, the renowned economist cautioned:
But beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.
Nearly ninety years later, must we still pretend that "fair is foul and foul is fair"? Are avarice and usury truly leading us "out of the tunnel… into daylight" or are they dragging us ever deeper into an abyss of debt, inequality and degradation?

Sunday, July 1, 2018

"The theory that wages depend entirely on the efficiency of labor, or on the product of industry, is a new form of the old doctrine of the wages-fund."

Excerpts from "The Effect of an Eight Hours' Day on Wages and the Unemployed" by  Charles Beardsley, Jr. (The Quarterly Journal of Economics, Vol. 9, No. 4 (Jul., 1895), pp. 450-459):

The argument of workingmen that the general adoption of an eight hours' day would raise wages and absorb the unemployed is well known. A reduction in hours of work would be equivalent to the withdrawal from the ranks of men now employed of a certain number of laborers. The gap thus made would be filled by the unemployed. It is the competition of the fringe of unemployed or intermittently employed (comprising 10 per cent. of the working classes in England in normal years, according to Mr. Tom Mann) that keeps down the wages of the employed. If the number of the unemployed were lessened, wages might rise.

The reply which has been made to this argument by Mr. John Rae in his valuable and entertaining book, Eight hours for Work (1894), and by other writers, does not appear to be conclusive. It is said that the demand for work comes from the product of work, and that commodities constitute the demand for commodities. If the output of commodities falls off, the demand for them, and therefore for labor, must fall off also. So that (it is said), if a general reduction of hours resulted in a diminished national dividend, wages, instead of rising, would fall. In Mr. Rae's words,
The only way to increase the demand for labor all round is to increase the production of labor all round, and a general or serious diminution of production always causes a general or serious decrease in the demand for labor.… 
But, if all trades together were to restrict their output in the hope of distributing the work better, they would find they had merely less work to distribute; and, instead of making work for the unemployed, they would have unmade the work of a considerable portion of those now employed.… 
The effect of shorter hours on the general wages of labor depends entirely on their effect on production. If they lessen production generally, they will lower wages generally.
Mr. Rae's position seems perfectly clear, but it depends on a half-truth. Ceteris paribus, wages vary with the productiveness of industry, but only ceteris paribus. The theory that wages depend entirely on the efficiency of labor, or on the product of industry, is a new form of the old doctrine of the wages-fund. The characteristic feature of the classical doctrine was the assumption that the wages-fund was an inelastic quantum of the total circulating capital. The error of the theory that wages are measured by amount of product is in the implication that the proportion of wages to the total product of industry is at any given time rigidly fixed. According to the theory that wages are limited by capital, wages might rise if capital increased. According to the doctrine that wages depend on product, wages may rise if the product increases. Both theories ignore the fact that a change in the volume of the national dividend may be accompanied by a readjustment of the relative proportions of the shares in distribution which will neutralize, or more than neutralize, the effect of the change in the national dividend so far as any particular one of those shares is concerned. If the national dividend is diminished, the wages-fund will be diminished, profits will fall, interest and rent will be diminished, provided only that the relative magnitudes of wages, profits, interest, and rent remain unaltered. It does not follow that if shorter hours lessen, or tend to lessen, the national dividend, they will necessarily lessen the wages-fund. For the wages-fund is the product of two factors: it is the national dividend multiplied by a ratio.

Now, shorter hours of work would give to large numbers of laborers, at present unorganized or imperfectly organized, an opportunity which they are far from possessing. These workers are now under the tyranny of competition. They keep down their own wages by bidding against each other, or rather the casually employed keep down their own wages by bidding against each other, and the wages of the regularly employed by bidding against them, and standing ready to take their places at wages-current. To whatever degree, by a redistribution of work, this cutthroat competition could be mitigated, it would become possible to control the supply of labor, and to exact a monopoly price for it. In order to reduce the severity of this competition, or practically destroy it altogether, it would probably be good policy for the employed to divide even the present wages-fund with the unemployed. With the unemployed out of the way, effective united action on the part of laborers would be possible, and considerable advances in wages obtained, especially by the lower grades of unskilled workers.

But it has been said that, while a single trade may increase wages by regulating the supply of labor, all trades together cannot. This amounts to saying that a general rise in wages (relatively to the other shares in distribution) is impossible. It amounts, as I have already pointed out, to a doctrine of a rigid wages-fund. For, unless wages can be raised by checking competition among workingmen, they can hardly (relatively speaking) be raised at all in the present social order. There is no assurance that the constant growth of the national dividend, under a regime of unchecked competition, is accompanied by a corresponding increase in wages.

Immigrant Child Abuse Agency (ICAA)

In my Take Back ICE, I wrote:
I would hope the leaders of ICE would speak up and strongly object to what the Demagogue in Chief has done with their agency but to date they seem to be intimated from doing what is right.
Some good news:
The political backlash against U.S. Immigration and Customs Enforcement has turned so intense that leaders of the agency’s criminal investigative division sent a letter last week to Homeland Security Secretary Kirstjen Nielsen urging an organizational split…Though ICE is primarily known for immigration enforcement, the agency has two distinct divisions: Enforcement and Removal Operations (ERO), a branch that carries out immigration arrests and deportations, and HSI, the transnational investigative branch with a broad focus on counterterrorism, narcotics enforcement, human trafficking and other crimes. The letter signed by 19 special agents in charge urges Nielsen to split HSI from ICE, because anger at ERO immigration practices is harming the entire agency’s reputation and undermining other law enforcement agencies’ willingness to cooperate, the agents told Nielsen.
The letter can be found here. My mayor may be interested in this proposed split:
We should abolish ICE. We should create something better, something different. But in the way it’s developed, it has become a punitive, negative tool for division and it’s no longer acceptable.
Now if we transform ICE into HIS – what is to become of ERO? I’m sure Trump and Session will still want some agents to do their sick bidding. If so, I think we need a new name for this group. Truth in advertising could call this group ICAA. One side point – we are hearing a lot about how this abuse occurred even before Trump become President. Let’s be clear – abuse of immigrant rights is wrong. I’d hope former President Obama addresses this.

Saturday, June 30, 2018

Take Back ICE

U.S. Immigration and Customs Enforcement (ICE) was established 15 years ago:
ICE was granted a unique combination of civil and criminal authorities to better protect national security and public safety in answer to the tragic events on 9/11. Leveraging those authorities, ICE has become a powerful and sophisticated federal law enforcement agency.
My link was for a 2013 discussion of its laudable achievements during its first ten years. As a resident of New York City, I appreciated ICE. On this muggy day, several protesters are calling for something dear to my heart - Keep Families Together:
Hundreds of marches took place across the United States on Saturday as thousands of people demanded the Trump administration reunite families separated at the U.S.-Mexico border. The protests, marching under the banner "Families Belong Together," are hoping to push the Trump administration to reunite thousands of immigrant children separated from their families after crossing into the United States.
Let’s be clear – the Demagogue in Chief high jacked ICE to push his poisonous agenda with over 2000 children separated from their immigrant parents. Rather than blaming Trump, some of the left has called for abolishing ICE. What to play into the Demagogue’s hands!
"The Democrats are making a strong push to abolish ICE, one of the smartest, toughest and most spirited law enforcement groups of men and women that I have ever seen. I have watched ICE liberate towns from the grasp of MS-13 & clean out the toughest of situations. They are great!" Trump tweeted. In a follow-up tweet, Trump urged the men and women of ICE not to worry about the ongoing calls to abolish the department. "You are doing a fantastic job of keeping us safe by eradicating the worst criminal elements. So brave! The radical left Dems want you out. Next it will be all police. Zero chance, It will never happen!" he wrote.
I know this Demagogue routinely lies but ICE was doing a fantastic job a few years ago. But even ICE has limited resources which this Demagogue has diverted from their true purpose. As such Trump is not only abusing the rights of these families, he is also making us less safe. I would hope the leaders of ICE would speak up and strongly object to what the Demagogue in Chief has done with their agency but to date they seem to be intimated from doing what is right. I would hope that Congress would hold hearings into this abuse of ICE and diversion of scarce resources away from securing our safety but these hearings are not going to happen as long as Mitch McConnell and Paul Ryan are in charge. But for God’s sake – could we on the left stop losing our minds over the rightful anger at the Demagogue in Chief so we can put forth a coherent message that taking back ICE not only ends the abuse of these immigrant families but gets this agency back to securing us as opposing as to serving the sick agenda of the Demagogue in Chief?

Friday, June 29, 2018

For a Fiscal Neutrality Amendment

Against the dogmatic ignorance of a proposed amendment to the US constitution mandating a balanced budget, I propose an alternative, a fiscal neutrality amendment:
“No unit of government within the United States may establish voting or other decision procedures that embody a bias in favor of either higher or lower tax rates and revenues.  The federal government may not adopt voting or procedural restrictions that bias decision-making in favor of either larger or smaller fiscal deficits.  Fiscal policies should be assessed on their merits according to neutral procedures.”
Requirements for supermajorities to raise taxes but not lower them should be unconstitutional.  Restrictions on property tax rates or government revenues as a proportion of aggregate income or some other benchmark should be unconstitutional as well.  Nor should the federal government be encumbered in its choice of appropriate fiscal policy.  The historical record shows policy errors have been made in all directions; there is no reasonable basis for biasing policy away from one set of mistakes only to bias it toward another.

A parallel agreement to replace the EU’s (In)Stability and (De)Growth Pact would also be desirable.

Refurbishing The Trump Economics Team

Rumors are floating on the internet that NEC Chair Lawrence Kudlow is looking for new people to join the team advising President Trump on economics.  Of course, the obvious place to start would be with him, a non-economist, although he has played one on TV a lot, who also has one of the worst documented forecasting records around, poo-pooing both the housing bubble and the early signs of the Great Recession a decade ago, along with forecasting a hyper-inflation out of Obama fiscal policy, although one must grant that he later admitted he was wrong on that one.  He can also be credited with mocking Trump's proposed tariffs, until he was appointed to his current position, where he  now says all this will lead to improved trade deals.  We shall see.  Anyway, it might be worth reviewing the current troops, probably the sorriest collection of economic advisers any president has ever assembled.

We have Treasury Secretary Mnuchin.  Another non-economist, he can claim to be a billionaire and have a trophy wife, which certainly impresses Trump.  He has supported the Trump tax plan along with clearly flawed projections.  However, on trade, like Kudlow, he looks better than the three actually handling trade policies, and has had shouting matches in front of Chinese negotiators with

Peter Navarro, an actual PhD economist out of Harvard, long at UC-Irvine, who now is chief adviser on trade.  Some decades ago he wrote not-too bad articles and books on various topics, but has not had an academic article in over two decades, not that this is the end of the world.  What is closer to that is that he has since written books  not only calling for trade war with China, but even outright war.  This is what caught Trump's eye, and, of course, he has advocated harder lines than Mnuchin in those reported screaming matches.

I must note at this point my extreme annoyance that the media has completely dropped the ball on China openly bribing Trump with a half billion dollar payment to his organization in Jakarta three days before he announced that we must save jobs at certified national security threat Chinese company TZE.  I see references to our deal with them, but the press simply never mentions this massive payment to Trump, surely the largest presidential bribe in history, if not to any US government official ever, although maybe in real terms some of those payments in the Grant and Harding admins were larger. But they were not to the presidents, and they all came from domestic bribers, not involving national security threats.

Also on trade we have none-economist Wilbur Ross.  He comes from the steel industry, enjoying the first round of protection from Trump tariffs.

The we have non-economist Trade Representative, Attorney Robert Lighthizer.  Now he does have some experience, having been Deputy Trade Rep in 1983-85 when Reagan had his round of trade protectionism, mostly directed at Japan.  Lighthizer notes that when defending current policy, but his firm has also supported the steel industry in trade issues.  He has become entrenched in his full hawk position since leaving the Reagan admin.

We get a slightly brighter light if we look at powerless CEA Chair Kevin Hassett, another actual PhD economist formerly at the Heritage Foundation.  People tell me that he is actually a nice guy personally, and mostly not just batshit insane or incompetent.  OTOH, he was coauthor in 1999 with James Glassman of that insightful best selling book, _Dow,36000!_.  Yes, still waiting on that one.

One area where somehow Trump seems to have been more cautious is the Fed.  Of course he should have reappointed Janet Yellen as Chair, but she had to go as an Obama person, not to mention a short woman.  Jerome Powell is more central casting and a Republican.  While not an actual economist, he is like Hassett not too unreasonable, "Janet Yellen lite," and indeed probably better than some of the gold bugs and general loonies that some GOP Congresspeople were pushing.  Maybe that is his real estate background wanting someone who will not make interest rates go blooey all of a sudden.

I close by noting that among those Kudlow is reportedly mumbling about bringing on board as something or other, the only name I recognized was Stephen Moore, who has been at Heritage at times, not sure he is now.  Last I heard out of him his one suggestion of what needs to be done, and supposedly this is being seriously vetted by some on the current team as well as some in Congress, is more tax cuts for the rich.  Really.  Clearly at the top of our needs.

Oh, I suppose one could also list non-economist Mick Mulvaney, currently running both the budget shop while taking apart the consumer protection agency. But then he is rumored to be possibly about to become Chief of Staff replacing John Kelly.  Oh goody.  What a crew.

Barkley Rosser

Thursday, June 28, 2018

Immigration Politics In Europe Versus Immigration Politics In The US

Immigration politics in both places has gotten very ugly, but it strikes me that in Europe it may be worse than in the US.  We may be about to see the fall from power this weekend of Angela Merkel as Chancellor of Germany over the issue of immigration, with her having been for some time the leading political figure in Europe supporting more moderate policies towards immigrants, even as she has had to retreat more recently from her earlier opening to a million migrants from the war in Syria (and also some others in the region).  If so, this will follow the coming to power of anti-immigrant Sebastian Kurz in neighboring Austria, who is actively working with Merkel's anti-immigrant critics to overthrow her, not to mention the strong reelection of Victor Orban in Hungary and the assertion of anti-immigrant policy in Italy with newly installed Interior Minister, Matteo Salvini. All this follows anti-immigrant forces coming to power in Poland and some smaller other nations, as well as the anti-immigrant Brexit vote in UK two years ago.  Only in Spain have we seen the recent installation of a friendlier-to-migrants Socialist government in Spain, which is however preoccupied with the Catalonian separatism issue. 

Of course in the US we have seen Trump elected on a strong anti-immigrant wave, and he has just had a SCOTUS decision supporting his power to enact travel bans.  OTOH, his recent awful policies towards asylum seekers on the Mexican border have led to a backlash that has forced him to back off somewhat, although what his actual policy there is currently somewhat unclear.  He remains strongly anti-immigrant, but he did not win the popular vote, and he remains highly unpopular in the polls.  His base clearly loves this stuff, but it does not seem to be selling with fervor or effect that it is in quite a few European nations recently.

An important fact here is that in terms of surges of immigrants, whether legal or illegal, both places have had somewhat similar experiences. When Europe was facing the surge from Syria, the US was also facing a surge from Central America.  While there has been a slight recent uptick in the US, the surge in Europe is over.  Immigration rates have returned to the "normal" of before the Syrian war, but somehow the anti-immigrant fever seems if anything to be growing, with this further a bit of a mystery in that overall economic conditions are at least somewhat better as well than they were at the height of the immigrant surge.  The only similarity to that in the US is that much of the anti-immigrant Trump base continues to believe that the US is being overrun by Mexican immigrants, whereas in fact net immigration of Mexicans has been essentially zero for the past decade.  Those coming in now are from the troubled "Northern Triangle" of Guatemala, El Salvador, and Honduras mostly.

So it would seem that with roughly comparable conditions in terms of immigration numbers as well as economic conditions (although the US is arguably somewhat better off on that than many of the European nations), the anti-immigrant fervor in Europe seems stronger politically than it is in the US now.  Some of this may reflect broader anti-Trump sentiments in the US, with most of the anti-immigrant neo-authoritarians in Europe not as unpopular as he is (with some of them just freshly in power so not long enough to have engendered much hostility).  But I suspect that beyond all that there is the more basic difference that indeed the US is fundamentally a land of immigrants, even if for some "nativist" Trump type WASPs, those immigrant ancestors came some time ago. But we have long had people coming in from many different places with varying degrees of success at assimilating them. 

This has not been the general history in Europe, where most nations have their identities strongly identified with a single dominant ethnic group with its language and usually religion as well. Small minority groups have long existed in most of these nations, and many have sub-regions with different groups dominant.  But that is it, even in those sub-regions, there is usually a dominant group, and these groups simply have not had the experience Americans have had of more or less steady immigration and assimilation from a wide array of foreign nationals over a long time.  The US is simply better at it, if far from ideal, given our history.  And so, while strong anti-immigrant policies in places like Hungary may lead to strong reelections for those carrying them out, in the US the support for such policies is far weaker.

Barkley Rosser

Wednesday, June 27, 2018

Madison Reunion: Celebrating The Politics And Culture Of The 60s

During June 14-17 I was in Madison, Wisconsin for a conference and related carryings-on labeled as the title of this post.  It was organized by local jazz musician, Ben Sidran and his wife Judy, close friends of Mayor Paul Soglin, who was first elected to the city council a half century ago and is now in his third round as mayor, his first starting in 1973.  At age 74, I suspect this is his final term as mayor, and he is running for the Dem nomination for governor, hoping to be the "Bernie Sanders of Wisconsin," although with little chance to get the nomination. I think this conference is his last hurrah.  It was initially inspired by the 50th anniversary of the October, 1967 Dow demonstration, which turned violent when the police started clubbing and tear gassing students.  That led to massive student demonstrations.  Soglin first emerged as a political leader in those demonstrations, so this was obviously a time for a retrospective.

It covered a lot of ground, and in contrast to a similar conference back in 1989 when Soglin got back in as mayor for his second round, this one went beyond political and academic matters, with musical performances by people like Boz Scaggs, the Temptations, Tracy Neslon, and of course Sidran.  There were also sessions on things like "Why We Get High" where researchers now studying the use of psilocybin as an anti-depressant drug spoke.  Much of it was about politics though, with a lot of looking back to both the civil rights and anti-war movements of the 60s, especially in Madison.  For old Madison political academic types, there were sessions on three of the famous history professors of rhe day: Harvey Goldberg, George Mosse, and William Appleman Williams.  Among other things I learned that the charismatic and hyper-thin Goldberg once weighed 300 pounds before he got to Wisconsin.  At one point on the Union Terrace I was hanging out with some participants and there was a conversation that really went back several decades where people got into a heated discussion about a bunch of political groups that do not even exist anymore.  I mean, really, how important are all those splits between the various competing Trotskyist groups that used to go at each other so vigorously once upon a time?

The organizers managed to get a lot of prominent outside speakers.  A session on media had Jeff Greenfield and David Maraniss (originally from Madison).  There was a good session on films that had Jim Abrahams who made movies with the Zuckers, although the Oscar winning documentarian Errol Morris failed to show.  There were also some further alternative cultural activities, such as a Human Be-In on Picnic Point that commemorated the one on May 13, 1967 organized by Open Arts.

A curious observation is that this group really looked old to me, and I am no spring chicken.  I saw guys who were not only bald with white hair, but stooped over and doddering, a lot of that.  Yeah, last hurrah for sure.  But for all that this crowd was generally very sharp and and as intense as always, ready to rant on about this and brag about all their multitudinous past political activities.  Only one who seemed a bit off was longtime anti-war leader, Evan Stark, who seemed not on top of it.  Soglin himself seemed in good shape and looking younger than his age, however.  Who knows, maybe he will hang on for another term as mayor.

A major reason I went involved him and a matter I have posted on here previously, a matter of setting the historical record straight.  This had to do with the bombing of Sterling Hall in 1970, about which there was not a session, although it came up in some, especially one about the campus newspaper, the Daily Cardinal, two of whose reporters participate in the bombing: David Fine and the still-missing Leo Burt (still no word on him, but plenty of rumors).  I have previously noted that at the 1989 conference at a banquet, the lead bomber, Karl Armstrong, stood up and issued a full apology to everybody, including the anti-war movement.  Soglin was there and was later quoted as making confusing remarks about what happened there.  So, I had a conversation with him about the matter, and he now agrees with me about it. This was my main reason for attending, and I am satisfied with the outcome.

Barkley Rosser

Tuesday, June 26, 2018

The Mezzogiorno Problem Revisited

I have recently returned from participating in a conference in Naples, Italy on "The Economy as a Complex Spatial System" where there many papers and much discussion about the longstanding poverty problem in southern Italy, long labeled "the Mezzogiorno problem."  Mezzogiorno literally means midday or noon, but has long been applied to southern Italy because it is sunny, and middays are supposedly sunny.  Unfortunately the problem is deeply entrenched and now tied to broader disturbing events in Italy and the European Union.

The problem can be seen most acutely by considering Naples itself.  Founded by Greeks in the 7th century BCE as "Neapolis" ("new city"), with modern residents being "Neapolitans," it was the second largest city in Europe (after Paris) in 1494 when Lorenzo di Medici ("the Magnificent," from Florence) walked alone to its gates offering himself as a hostage to make the first Italy-wide peace in centuries on the peninsula, seen by many as a distant prelude to the later unification of Italy, with Garibaldi conquering Naples sealing the deal.  As late as 200 years ago, Naples was still the third largest city in Europe, with only London having joined Paris ahead of it. Today it is the third largest in Italy, with both Rome and Milan ahead of it, mired in corruption and dysfunction, if lots of faded glory from its eminent and influential past. 

More broadly throughout the Mezzogiorno, per capita income is 60% of the national average while the unemployment rate is twice the national average.  This is not an equilibrium situation, with a steady outflow of migrants from south to north failing to bring about an equalization of wages or income.  Many and long efforts have been made by national politicians to engage in educational and infrastructure investment in the region, but somehow it has all come to not much, with students coming out of the universities heading north for high paying jobs, and infrastructure falling apart as the Commora in Naples or Mafia in Sicily  corrupt the construction industry with shoddy production amid massive bribe taking.  It is not as bad as it was some years ago when I was there, but there are still piles of garbage in many places.  Nevertheless, Naples is a charming and fascinating place.

Furthermore, it is not that there have not been serious efforts to crack the corrupt local power structure.  There was a huge effort in the 1990s that brought down the longstanding national political parties, as especially the long-ruling Christian Democrats had top politicians exposed as being in freemasonic (P2) conspiracies with longstanding Commora and Mafia figures in the South, with quite a few of them getting arrested, with several heroic prosecutors and judges dying in this noble effort.  But despite all the shaking up and reshuffling long established patterns reasserted themselves, and not that much changed.  The Mezzogiorno remained the same old problem.

There is much debate about the ultimate sources of this, and most tend to invoke history and such matters as social capital, with Robert Putnam famously arguing that this latter is what is the key to understanding why northern Italy has done so much better than southern.  Putnam blamed long rule by outsiders, especially the absolutist and autocratic Spaniards, for this, in comparison to the vigorous republics one found in the North such as Venice and Florence (with the Papal States in the center being their own thing).  More than one paper at the conference ended up with some sort of social capital type explanation playing an important role.

Now it seems that the ongoing problem of the South, exacerbated by a long economic stagnation of all of Italy, has led to a new political upheaval, with the latest election putting together two ideologically opposed parties to rule, although they agree on some matters, such as being pro-Russia and skeptical about the euro and the EU, if not ready to pull out of either.  The previously ruling Democratic Party lost big and so did the center right party of Berluscoini, Forza Italia. The new rulers are the Five Star Movement, led by di Maiao, now Labor Secretary, and Matteo Salvini, Interior Secretary of the League, formerly the Northern League.  The prime minister, Conte, is basically a figurehead, although he supported Trump at the G7 meeting on readmitting Russia.  Supposedly 5 Star has the edge, but Salvini seems to be coming on strong, imitating strong man leaders elsewhere.

League changed its identity last year, dumping its earlier incarnation as a neo-fascist separatist party based in the North and opposing sending aid to the Mezzogiorno.  Rather he made it a national party and made an appeal to the South on the basis of an anti-immigrant platform.  Southern Italy is where the most immigrants have been landing from Africa, and resentment has risen.  The hard fact is that it was the South in the end that put the two parties over, voting especially strongly for the League.  The Mezzogiorno problem has now become the Italy problem.

Salvini has not only blocked immigrant boats from arriving, but he has also come out for rounding up the Roma (gypsies) and expelling them, as well as opposing vaccinations.  I am afraid that di Maio is a cipher, and we shall in the not-too-distant future see this Salvini, riding on support from the long aggrieved Mezzogiorno, come to lead Italy.

Barkley Rosser 

Sunday, June 24, 2018

Goebbels or Gompers Addendum

In my original post, I didn't say much about the overt racist expression in Gomper and the A. F. of L.'s  advocacy for Chinese exclusion. I guess that is because I read the stuff voluminously a couple of decades ago and it by now it just seemed to me it was common knowledge. Of course it isn't. I was astonished and appalled when I first read it. Not so much at the vileness as at the obsessive repetition of that vileness. The pamphlet, Some Reasons for Chinese Exclusion gives a representative sampling. In the introduction, the authors assure the reader that they "are not inspired by a scintilla of prejudice of any kind..."
Not a scintilla.

Friday, June 22, 2018

Goebbels or Gompers?: A Closer Look at Stephen Miller's Immigration Manifesto

Stephen Miller, architect of the Trump administration's immigration policy is getting a lot of bad press these days. Some wags (and even relatives?) juxtapose Miller's photo to one of Nazi propagandist Joseph Goebbels, insinuating likeness of facial expression is a predictor of ideological leaning and propaganda technique. The comparison is as unhelpful as it is unfair. A more apt comparison would be with Samuel Gompers, founding president of the American Federation of Labor. 

Miller doesn't look at all like Gompers but his rhetoric echoes Gompers's Chinese exclusion advocacy from the 1880s to the dawn of the twentieth century. It is only by discerning the similarities and differences between Miller's position and Gompers's that an effective rebuttal to Miller's policy prescriptions can be mounted.
Miller's 2015 anti-immigration manifesto, Immigration Handbook for the New Republican Majority, is an articulate, compelling strategy polemic. It also discretely avoided any overt expression of racism or white supremacism. The handbook stresses polling that concluded "an economically focused message [on immigration] resonates with voters of all economic backgrounds and all ethnic backgrounds." More specifically, it cites the result that "86% of black voters and 71% of Hispanic voters said companies should raise wages and improve working conditions instead of increasing immigration."

For those without either the time or stomach to wade through Mr. Miller's analysis and polemic, here is a synoptic collection of excerpts:
Simply put, we have more jobseekers than jobs. 
The principal economic dilemma of our time is the very large number of people who either are not working at all, or not earning a wage great enough to be financially independent. The surplus of available labor is compounded by the loss of manufacturing jobs due to global competition and reduced demand for workers due to automation. 
We have an obligation to those we lawfully admit not to admit such a large number that their own wages and job prospects are diminished. A sound immigration policy must serve the needs of those already living here. 
So whether comprehensive, piecemeal, step-by-step, incremental, or whatever other process one conceives, the question that must be asked is this: will the legislation make life easier or harder for American workers? 
Is there a single more reasonable proposition than to say that a nation’s immigration policy should consider first what is good for its own citizens? 
Republicans—who stood alone in Congress to save America from the President’s [Obama's] immigration bill and who alone have fought against his executive amnesty—must define themselves as the party of the American worker, the party of higher wages, and the one party that defends the American people from Democrats’ extreme agenda of open borders and economic stagnation. 
No issue more exposes the Democrats’ colossal hypocrisy than their support for an immigration agenda pushed by the world’s most powerful interest groups and businesses that clearly results in fewer jobs and lower wages for Americans. 
Paragon polled three sentences lawmakers should use that have been too absent in the immigration conversation:
  • The American people are right to be concerned about their jobs and wages, and elected officials should put the needs of American workers first.
  • The first goal of immigration policy needs to be getting unemployed Americans back to work—not importing more low-wage workers to replace them.
  • Immigration policy needs to serve the interests of the nation as a whole, not a few billionaire CEOs and immigration activists lobbying for open borders.
I especially like the part about Republicans defining themselves "as the party of the American worker, the party of higher wages." That is not to say they would have to be the party of workers and higher wages. But who could argue with that polling sentence about what the first goal of immigration policy needs to be?

Contrast Miller's arguments with the position offered by M/I.T. professor and former director of research for the I.M.F., Simon Johnson in a 2014 Guardian feature on the U.S. jobs crisis:
To reduce the persistently high unemployment rate in the United States, Congress should move to relax some of our current constraints on immigration. 
This is a controversial idea because many people are under the impression that allowing in more immigrants would push up unemployment. But that would only be the case if the number of jobs in the US were an unchanging constant. 
In fact, some categories of immigrants tend to create jobs, so letting them in would directly increase employment opportunities for people already in the United States.
Whose argument sounds more compelling? Miller's or Johnson's? For me, it's a no-brainer. They are both right and they are both wrong. Allowing in more immigrants doesn't necessarily push up unemployment. Nor does it necessarily create more jobs for people already in the United States, a claim that Johnson deftly sidesteps actually making by referring to some categories of immigrants.

Johnson's position represents the conventional wisdom among economists. In fact, as I mentioned in an earlier post, the same argument was reiterated in a direct response to Miller's manifesto by Walter Ewing of th American Immigration Council:
Employment is not a "zero sum" game in which workers compete for some fixed number of jobs. Immigrant workers spend their wages in U.S. businesses—buying food, clothes, appliances, cars, etc. Businesses respond to the presence of these new workers and consumers by investing in new restaurants, stores, and production facilities. And immigrants themselves are 30 percent more likely than the native-born to start their own business. The end result is more jobs for more workers. The economic contributions of unauthorized immigrants in particular would be amplified were they given a way to earn legal status.
Yes, employment is not a "zero sum." But no, labor supply does not "create its own demand." More importantly, however, simply repeating that platitude will not persuade underemployed or underpaid workers that immigration has made things better for them. The danger is that people who find Johnson's and Ewing's arguments unpersuasive will encounter no alternative to Miller's.

That is where Samuel Gompers parallel comes in. This is not to say that his advocacy of Chinese exclusion was correct or justified. But it was subordinate to a positive program for fighting unemployment and raising wages. That proposal can be summarized in a phrase Gompers cited in 1887, "That so long as there is one man who seeks employment and cannot obtain it, the hours of labor are too long."

Contrary to the claims of many mainstream economists, the job creating dynamic of shorter hours is not based on the assumption of "a fixed amount of work" that can be divided up in different ways to create fewer or more jobs. The shorter hours policy advocated by the American Federation of Labor in the 19th century was based on a dynamic theory of leisure, consumption and technological improvement that in many respects anticipated Keynes analysis more than fifty years later. Dorothy Douglas wrote about Ira Steward's Eight-Hour Theory in the 1930s and evaluated it positively.

By contrast, Miller's immigration manifesto offers no positive program for job creation. It is simply supposed that the jobs currently occupied by immigrants would have existed anyway and would have been filled by American-born workers had there been less immigration. This is an unjustified supposition. It is conceivable that without the immigration that has occurred there would have been even less new employment created for American-born workers.

The real danger of the Miller policy prescription is yet to come. Halting immigration will not create jobs. When the policy fails -- as it inevitably will -- it will become incumbent on the Republican administration to escalate the policy by driving out previously admitted, legal immigrants.

Wednesday, June 20, 2018

War is Peace, Freedom is Slavery, Ignorance is Strength

A piece of work is Professor Walter E. Williams of George Mason University. Back in February, I flagged a column by Williams in which the nimble prof performed the lump-of-labor fallacy shuck and jive. One of the venues for that rendition of Will Automation Kill Our Jobs was David ("Trump is 100% right") Horowitz's FrontPage Mag.

Little did I know at the time that just three weeks earlier, Williams had penned a defense of Trump's (Sessions's, Miller's) immigration policy, Immigration Lies and Hypocrisy also published at FrontPage Mag. One may admire the accuracy of article's heading as a label of its contents until one realizes it is not actually intended as a confession.

I wrote to Professor Williams about the bizarre discrepancy between his January 30th column and his February 20th claims. I don't really expect to hear back.

Dear Professor Williams,

I appreciate that you "can't respond to every query" but my question raises urgent questions of morality and intellectual integrity. In February of this year, you wrote an opinion piece decrying the so-called "lump-of-labor fallacy" that you claim lurks behind concerns that automation will "kill jobs." I noticed that one outlet that carried your syndicated column was David Horowitz's "FrontPage Mag."

Today, the Guardian featured an interview with Mr. Horowitz in which he asserted that Donald Trump's immigration policy is "100% right." Horowitz, the article notes, was a mentor to Stephen Miller, the Trump advisor who in 2015 authored Senator Sessions's "Immigration Handbook for the New Republican Majority." Here are a few excerpts from that document:

 The last four decades have witnessed the following: a period of record, uncontrolled immigration to the United States; a dramatic rise in the number of persons receiving welfare; and a steep erosion in middle class wages. But the only “immigration reforms” discussed in Washington are those pushed by interest groups who want to remove what few immigration controls are left in order to expand the record labor supply even further.
 ---------------------
No issue more exposes the Democrats’ colossal hypocrisy than their support for an immigration agenda pushed by the world’s most powerful interest groups and businesses that clearly results in fewer jobs and lower wages for Americans.
Here are the findings from a poll of likely U.S. voters commissioned by GOP pollster Kellyanne Conway:

  • 77% of respondents said jobs should go to current U.S.-born workers or legal immigrants already in the country—instead of bringing in new workers to fill those jobs
  • 88% of conservatives, 78% of moderates, 78% of independents, 71% of Democrats and 62% of liberals says current U.S. workers should get jobs preference
  •  80% of respondents said businesses should recruit the currently unemployed instead of expanding the labor supply with new workers from other countries

---------------------
How are any members of the Democrat caucus going to explain why they are determined to provide instant work permits to every illegal immigrant and visa overstay in the country? How are they going to explain why they want to double the number of guest workers when we don’t have enough jobs for the workers here right now? How are they going to explain why they voted for legislation that will surge the labor supply at a time when wages are down and a record number of Americans can’t find work?

As you will no doubt agree, these arguments conform with what you have denounced in your column as a lump of labor fallacy. In fact, at the time the handbook came out, Walter Ewing of the American Immigration Council countered the handbook's claims with one of the fallacy claim's stock surrogates -- the "not a zero sum game" rebuttal:

Employment is not a "zero sum" game in which workers compete for some fixed number of jobs. Immigrant workers spend their wages in U.S. businesses—buying food, clothes, appliances, cars, etc. Businesses respond to the presence of these new workers and consumers by investing in new restaurants, stores, and production facilities. And immigrants themselves are 30 percent more likely than the native-born to start their own business. The end result is more jobs for more workers. The economic contributions of unauthorized immigrants in particular would be amplified were they given a way to earn legal status.
So, what does Walter E. Williams think of this Trumpian lump-of-labor fallacy policy? Judging from your column published in January of this year, people who disagree with that policy are liars and hypocrites. Your automation column was published about three weeks after your immigration column. How do you reconcile the discrepancy?

Sincerely,

Tom Walker

What to Do about Conservative Rationality in Addressing Climate Change?

Two business-friendly conservatives, both former senators, Trent Lott and John Breaux, have an op-ed in today’s New York Times announcing the formation of new group, Americans for Carbon Dividends.  Now out of office, they recognize climate change as “one of the great challenges of our generation.”  To counteract it they propose a bipartisan coalition to institute a carbon tax, with all the revenues returned to the public on per capita basis.  The carbon price would cut emissions and spur the development of alternatives to fossil fuels; the rebates would redistribute income progressively and protect the incomes of the majority of the population.

What’s a progressive climate policy activist like myself to do?

Basically, I’d like to say, “Welcome to the party.  Let’s sit down and work out the details.”  While I believe resistance from capital is the underlying reason the last three decades of climate activism have been so dismal, I don’t see any purpose in drawing lines of ideological exclusion.  On the contrary, if the deepest problem is the role of wealth (at risk from rapid shifts in energy prices) and not divergent philosophies as such, we should be happy to form broader coalitions so long as they don’t require unacceptable compromises.

(I don’t subscribe to the Marxist base-superstructure formulation as a matter of theoretical commitment, but I think it applies pretty well to the problem of climate change.  There is no intrinsic conflict between political conservatism and climate action, except insofar as conservative ideology is a cover for the interests of owners of capital—which it typically is.)

I am in full agreement with the two fundamental principles laid down by Lott and Breaux, putting a price on carbon and rebating the revenues through equal dividends to all citizens.  Of course, I differ on other matters:

1. The first step, even before a carbon price or other measure is proposed, is for the government to announce a carbon budget, the total number of metric tonnes of carbon (equivalent) we intend to allow ourselves to emit between now and the end of the century.  Without a benchmark we have no way to evaluate how stringent policy should be or whether it’s working.  Also, it’s an initial act of global coordination, since it represents our “bid” for what we regard as our share of the world’s collective budget.

2. A system of auctioned permits is far preferable to one of taxes, provided it is comprehensive and allows for no loopholes, like offsets.  It shifts uncertainty from emissions (which taxes don’t pin down) to prices, which makes sense since the cost to humanity from getting emissions wrong is much, much greater.  It accommodates structural change in the economy better.  And it gives us a better framework for the many years of revisiting and tweaking targets and policies that lie ahead: we should have political debates about whether to raise or lower the amount of emissions we allow, not the taxes we put on them.

3. The op-ed suggests $40 a tonne as a starting price.  In carbon equivalent terms, this is about the same as a forty cent tax on gas at the pump—less than the normal year-to-year fluctuation in market prices that have nothing to do with carbon policy at all.  Here’s where the carbon budget comes in.  Once we announce it, the next step is to propose an emissions path that stays within it, and the starting carbon permit supply is the first year’s allocation on that path.  It’s the budget that tells us what the goal is and what’s good enough to get us there.  (I anticipate plenty of political conflict over the size of that budget, but policy can only give us a framework for politics; it can’t make it go away.)

4. I agree with Lott and Breaux that US leadership by example is the single biggest step we can take internationally, but we will need to do more if we want to address the legitimate concern of people in low income countries that overcoming poverty can’t take a back seat to curbing emissions.  Both fairness and realism require the US to greatly increase its support for social protection and economic development in return for cooperation on carbon.  A first step, which we could take unilaterally, would be to join the Leading Group on Innovative Financing for Development.  Of course, we should be doing this even if there were no climate crisis that required it.

5. Once the economy faces dramatically higher prices for carbon energy, there will be a big demand for government programs to speed up alternatives: subsidies for renewables and energy efficiency, mass transit and infrastructure, research and development on frontier technologies.  Here a coalition between left and right would probably break down.  But that doesn’t mean we shouldn’t forge one to get to that point.

I will spell out these ideas, and many others, in much greater detail in my book on climate change, which I hope will be out early next year.  In the meantime, I’m happy to welcome support from conservatives who sense the urgency of preventing a climate catastrophe.

The Lump That Begot Trump

I don't want to pretend that this explains everything. But it is "another brick in the wall," so to speak, if not the keystone. In January 2015, Senator Jeff Sessions produced an "Immigration Handbook for the New Republican Majority," written by his communications director, Stephen Miller.
Miller's analysis in the handbook is just the sort of thing that economists would denounce as a "lump-of-labor fallacy." Curiously enough, few did. They were much too busy snatching pensions from future old folks on the pretext that older people working longer wouldn't "steal jobs" from youth.

Here are a few representative arguments from the handbook:
The last four decades have witnessed the following: a period of record, uncontrolled immigration to the United States; a dramatic rise in the number of persons receiving welfare; and a steep erosion in middle class wages. But the only “immigration reforms” discussed in Washington are those pushed by interest groups who want to remove what few immigration controls are left in order to expand the record labor supply even further.
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No issue more exposes the Democrats’ colossal hypocrisy than their support for an immigration agenda pushed by the world’s most powerful interest groups and businesses that clearly results in fewer jobs and lower wages for Americans.
Here are the findings from a poll of likely U.S. voters commissioned by GOP pollster Kellyanne Conway:
  • 77% of respondents said jobs should go to current U.S.-born workers or legal immigrants already in the country—instead of bringing in new workers to fill those jobs
  • 88% of conservatives, 78% of moderates, 78% of independents, 71% of Democrats and 62% of liberals says current U.S. workers should get jobs preference
  • 80% of respondents said businesses should recruit the currently unemployed instead of expanding the labor supply with new workers from other countries
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How are any members of the Democrat caucus going to explain why they are determined to provide instant work permits to every illegal immigrant and visa overstay in the country? How are they going to explain why they want to double the number of guest workers when we don’t have enough jobs for the workers here right now? How are they going to explain why they voted for legislation that will surge the labor supply at a time when wages are down and a record number of Americans can’t find work?
As I mentioned above, these are precisely the kinds of arguments that economists routinely denounce as being based on a lump-of-labor fallacy. In fact, although he didn't use that phrase, Walter Ewing of the American Immigration Council countered the handbook's claims with one of the fallacy claim's stock surrogates -- the "not a zero sum game" rebuttal:
Employment is not a "zero sum" game in which workers compete for some fixed number of jobs. Immigrant workers spend their wages in U.S. businesses—buying food, clothes, appliances, cars, etc. Businesses respond to the presence of these new workers and consumers by investing in new restaurants, stores, and production facilities. And immigrants themselves are 30 percent more likely than the native-born to start their own business. The end result is more jobs for more workers. The economic contributions of unauthorized immigrants in particular would be amplified were they given a way to earn legal status.
This is all very well and good... except for one problem: Miller's and Sessions's handbook cited an actual "zero sum" of net employment growth for U.S.-born workers:
...according to the BLS, all net employment gains since the recession have gone to foreign workers while 1.5 million fewer U.S.-born Americans hold jobs today than did then—despite the total population of U.S.-born adults increasing by 11 million over that same time.
Well, as the economist says, that may be true in practice but is it true in theory?  There is indeed a gap between what the evidence shows and what it proves. There is no guarantee that if "foreign" workers didn't take those jobs, they would still be there for U.S.-born workers. Miller and Sessions fill that in with pure supposition. However...

However, in a contest between suppositions based on peoples' perceptions and suppositions contrary to those perceptions, who do you suppose wins? As I have pointed out repeatedly, the "no zero-sum game" rebuttal, the lump-of-labor fallacy is a red herring. Sometimes there are empirically zero sums and there doesn't have to be a "fixed amount of work" for the actual amount of work to be deficient. As tendentious as Miller's and Sessions's argument may be, Walter Ewing's rejoinder is no less tendentious -- and loaded down with hollow promises and empty platitudes to boot.

See also Sessions, Krugman, DACA and the Lump-of-Labor Fallacy

Sunday, June 17, 2018

Remembering George Leighton

George Leighton, a crusading civil rights lawyer and later a judge, died earlier this month at the ripe age of 105.  He was given an admiring obit in the New York Times.  As stirring as it is, the recap of his life left out one of his longstanding passions: chess.

Leighton was a fixture for many years in the Chicago chess scene.  He was rated an “A” player—not a high flyer like a master or grandmaster, but strong enough to beat the majority of amateurs who play in occasional tournaments.  I played him once in an open event.  To be honest, the game was rather one-sided.  Leighton defended the black side of a Stonewall formation, with black pawns on c6, d5, e6 and f5.  He never got much going on the kingside, and meanwhile I infiltrated on the queenside, took over the center and won in a walk.  I don’t have the score, but my memory is clear; the game was played back in my hippie days and I was a bit apprehensive playing a judge.

But I also remember Leighton himself, his calm demeanor and respectful treatment of the scruffy kid, a fraction of his age, sitting across the board.  And gravitas—I don’t think I’d every experienced gravitas like that before.  I thought to myself, if I ever find myself in front of a judge, I hope it’s someone like him.

This was almost 50 years ago.  I can list only a handful of the hundreds of players I encountered back then, but George Leighton is on that list.

"Deeply Disturbing"

It's not a crime if you brag about it on T.V. In fact, it's hardly worth mentioning.

What is this about?

“We don’t know the answer, but we hope the inspector general will find out.”

Does Greg Mankiw Know the History of U.S. Trade Policy?

Greg offers us a nice speech by Saint Reagan. While Ronald Reagan preached free trade, Jeffrey Frankel notes that his actual record was rather protectionist. The discussion is an excellent account of how Republicans have been protectionist since 1854. But the really weird thing in Reagan’s discussion was how he claimed the U.S. has been a free trade nation since 1776. Of course Congress passed the Tariff Act of 1789:
One of the major early actions of Congress was the passage of the Tariff Act of 1789, which was designed to: raise revenues for the new government by placing a tariff on the importation of foreign goods (averaging more than 8 percent); encourage domestic production in such industries as glass and pottery by taxing the importation of those products from foreign sources.
Someone at Harvard’s history department should visit Mankiw’s office.

Wednesday, June 13, 2018

The Singapore Deal

I have refused to forecast what two unpredictable leaders will do, and I shall continue that, other than to say I do not believe North Korea will denuclearize.  Otherwise, well, the written deal was mostly aspirations while there seem to be disagreements about the verbal deals.  DPRK says US has agreed to lift sanctions but US says no.  As it is, at least it happened and there will be more talk, according to the paper agreement. As some famous person said (forget who), "Jaw jaw is better than war war."

So, let me make people aware of a useful source, which has been putting out things either ahead of regular media or even in disagreement with it recently.  This is North Korean Economy Watch at https://www.nkeconwatch.com . Here are some tidbits.

They were the first to report that Chinese-DPRK trade began increasing after Kim Jong-in met with Moon Jae-in at the DMZ.  "Maximum pressure" has been over for some time already.

A further sign that max pressure off is that there were stable prices in DPRK in the month of May, no noticeable shortages.

A group that Kim Jong-in may be paying attention to is the elite in Pyongyang who now have higher incomes and access to western goods.  They would like more.  The rest of the population does not matter to him.

ROK companies are hot to get into DPRK.

ROK has a plan to engage in infrastructure investment in DPRK, much of this for transportation, focusing on three corridors, all of them going north-south: one in the west going to China, one in the center focusing on between the two Koreas, one in the east focusing on reaching Russia at Vladivostock (I have seen commentators unaware that DPRK and Russia have a common border, if just a small one).

Finally, all the talk of DPRK opening up and liberalizing looks overblown, at least in the near term. Just before the summit a major meeting there involved strong statements that there will be no opening up or moves to more marketization, probably to dampen down expectations of most of the population given how much foreigners are talking about it. The ROK companies may need to wait awhile.

Oh, and as a further point, in recent global hacking competitions, North  Korean teams have won.

Barkley Rosser

Is Strengthening Labor Good for Development?

Servaas Storm, who’s always worth reading, has posted on the INET website a summary of a new working paper he coauthored.  This issue goes way back with me—I first started looking into and writing about the labor rights/wage/trade/development nexus back in the 1980s.  Working on my own, I had a lot of false starts, and I’m happy to see others digging much more deeply today.

I won’t comment on the substance of this paper, but I think an important piece is missing: how dual economies articulate, and in particular the role of clientelism.

Countries in which formal sector jobs are highly valuable but scarce, in a sea of abundant but unremunerative informal employment, have to have some mechanism for allocating them.  Some classic economic models to the contrary, it never happens through lotteries.  My hypothesis, based on what I’ve seen and read, is that the predominant mechanism is clientelism.

A brief digression: Most of the literature on clientelism appears in political science, where it refers to the exchange of votes for personally targeted services or transfers by politicians.  I use the term to refer to a much broader phenomenon, the exchange of personally targeted benefits in return for the performance of loyalty between patrons and clients.  Patrons have access to resources from which they can supply benefits to clients, while the extent of client loyalty is a determinant (but not necessarily the only one) of how many resources a patron can command.  Conceptually, the client-patron relationship is a dyad, although clientelist systems are constellations of such exchange relations across whole populations: many dyads, multiple levels (patrons are clients of higher-level patrons), competing networks.

A large gap between formal and informal employment increases the tendency for clientelism to expand as an allocative system.  Clientelism is not all bad—it can moderate frictions that market or formal administrative processes generate—but to the extent it replaces these “modern” alternatives it reduces social efficiency.  For instance, allocating scarce formal sector jobs through client-patron exchanges is relatively harmless if the people getting the jobs are no less qualified than those left out of the system, stuck in the informal sector.  If clientelist networks override formal qualification (administrative) or competitive performance (market) criteria, however, they degrade outcomes.  It’s a matter of degree.

From this perspective, the most important point about labor regulation in a developing country is that it should not exacerbate imbalance, increasing the gap between the formal and informal sectors and loading more weight on clientelist mechanisms.  The best forms of regulation are either universal or written to apply at least as strongly at the bottom of the labor market as at the top.  I’ve written a bit about how that can be done in the realm of health and safety, and there’s no reason it can’t also guide policy in wage regulation, union rights and all other aspects of labor policy.

For instance, take minimum wages.  By definition, these apply only in the formal sector, and if the effect of raising them is to intensify the formal-informal gap, that can be a problem.  But there’s a way to avoid this: for every increase in the minimum wage, pair it with an increase in income transfers or similar social protection measures for those outside minimum wage coverage.  Hold the gap constant or reduce it.  It’s not impossible once you know what you’re aiming at.

My personal experience is that, once you’ve trained your eyes to see clientelism, you notice it everywhere.  It’s not confined to low income countries or economic goods.  It isn’t necessarily harmful, although, when it metastasises and displaces other social and economic arrangements, it can be deadly.  I suspect it is the main factor in differences in x-efficiency, and if true, this makes it one of the main determinants of the wealth of nations.  I find it incredible that organizations like the World Bank could dispense reams of development advice without considering how its proposals will pan out in a clientelist world.