Immigration Worries
The other day I was listening to Doug McIntyre on 790 KABC. He was filling in for Larry Elder and is often the case, Doug had his panties severly knotted over immigration. He was worried that if the U.S. became lax on its immigration policy (say a guest worker program like the one advocated by the Bush Administration, which incidentally seems to have fallen off the radar screen), then we'd basically be importing poverty and the U.S. would become a third world country.
To make his point Mr. McIntyre noted that the mean (I think it was the mean, I'm going by memory here) annual income in Liberia is $121. By coming to the U.S. and taking even a low end job at McDonalds that person's standard of living would increase at least 100 fold if not more. So everybody in Liberia would want to come to the U.S.
At the same time, Mr. McIntyre lamented that it easy to say to an unemployed person, "Go get new training, find a different job than the one you lost. But when you are an unemployed coal miner and have been for 40 years it isn't that easy. What are they going to do, become a movie director?" The idea here is that changing careers is difficult and hence with wide spread immigration people here in the U.S. are going to suffer tremendously.
There are a number of problems with the above two positions. I'll tackle the second paragraph first. Anybody who looks at employment data is probably aware of the fact that manufacturing jobs have been on the decline for about the last 25 years or so. There are already people losing jobs in one sector who have to move to another sector. This hasn't caused an economic catastrophe, and there is no reason to think it will.
One could argue that an immigration policy change could speed this up. However, such a claim is false. The Americans who would lose their jobs would be replaced by workers who are simply not American citizens (and many might become citizens in the future). If anything, the cheap labor might slow the trend. Another problem is that often times these are skilled jobs and a guy fresh from Liberia is unlikely to have those skills. The liberian immigrant may not even be able to effectively compete in that market.
Also, the idea of people like Mr. McIntyre is that these people will come here, take good paying jobs away from Americans and work for far less. Thus making it harder for Americans to get now good paying jobs. The problem is these predictions almost always tend to materialize. You could make the very same argument about automation. The addition of new machinery eleminates certain jobs that would otherwise be performed by a person. Now those people have to go out and find new jobs. If we followed the economic logic of people like Doug McIntyre we'd see a real wage rate that is decreasing as more and more jobs are replaced by automation. We don't. Why not?
Part of the reason I suspect is that automation frees up a resource that was used in one productive area and is now able to be used in doing something else productive. Instead of having people sitting and working on an assemply line, they now do something else. What do they do? Lots of things. The unemployment rate is only 5.6% (which despite what many say this is not bad). Some probably go to work in other areas of the manufacturing industry, others shift to other sectors.
Think of it this way. The shareholders who own a company that automate their plant want to invest in a new business. The problem was they couldn't find people to work in the new adult webcams business unless they hired them away from other jobs (i.e., paid them more). This made the investment unprofitable so they didn't do it. Now with automation they have the workers that they don't have to pay higher wages. Now the economy has the same level of production and all the new production from the new investment.
As for the first paragraph I think it is a bit misleading. Granted in terms of income there would be a 100 fold increase, but would there be a similar increase in standard of living? It is expensive to live in the U.S. A single room apartment in Los Angeles will likely cost you $650/month in a rather...ahhh...questionable neighborhood. Right there goes 65% of your gross monthly income. So you'll probably have to have a roommate to split that cost. Plus things like food and clothing are probably more expnesive here. After all the stores that sell them have a higher cost structure. An immigrant might find that living in the U.S. isn't the paradise he or she thought it was going to be. Even if you go without things like a phone, television, and curtail most if not all leisure expenditures there will still be little money left to send home. Sending money home? Yes, many immigrants try to do that. This has an effect much like a tax: it reduces one's consumption and reduces one's standard of living.
On top of all this are the costs of coming to the U.S. It isn't free and it isn't cheap. Suppose it costs $1,200 to come to the U.S. That, is ten times the annual income of your typical Liberian. Clearly not every Liberian is going to pick up and move to the U.S. Then there are the costs of leaving behind friends and family as well.
The whole problem can be simplified as follows. Currently there is an expected cost for coming to the U.S., and there is an expected benefit in coming to the U.S. Now, if the situation is such that given the existing immigration policy we have the expected benefits equal to the expected costs. If the policy changes so that the costs decrease we will have an increase in immigration, but only to the point where the expected costs equal the benefits. Is the change in policy going to lower the expected costs to such an extent that there will be a horde of immigrants flooding the U.S. destroying the middle class? I don't know, I personally doubt it, but the thing is neither do the opponents of this policy know either. The oppositions rhetoric is full of wild-eyed claims with little or no facts backing them up. I find it amusing, because on one issue these opponents to a change in immigration policy dismiss other scaremongers as being just that scaremongers. Then these same people turn around and engage in the same doom rhetoric with their pet cause. It is funny how often Conservatives and Liberals are very similar in that they are basically different sides of the same coin.
Common Good
What exactly is it? Is it rounding up all HIV+ people and dumping them in a large quarantine camp? After all, with nobody with HIV the disease can't spread. If you don't have it this is clearly a benefit to you. Or how about rounding up people who eat fatty foods and don't have insurance. We can force them to exercise so they'll be less likely to have weight related health problems and save the rest of us some money. That is what I start to wonder about when I read pabulum like this from Senator Clinton,
"Many of you are well enough off that ... the tax cuts may have helped you," Sen. Clinton said. "We're saying that for America to get back on track, we're probably going to cut that short and not give it to you. We're going to take things away from you on behalf of the common good."
The problem here is that this idea of the "Common Good" is totally open ended. Is taking 50% of people's incomes for the "Common Good" justified? Depends on what is meant by the "Common Good" doesn't it?
The "Common Good" isn't the same as Public Goods. Public Goods have a precise definition, that is a (pure) public good will satisfy the following criteria,
nonrivalrous,
nonexclusion.
That is, if I consume the public good it does not reduce the amount available for others to consume, also, people cannot be excluded from consuming the good. The problem is the non-exclusion means that a price cannot be charged and so private provision will tend to result is too little of the (pure) public good.
Theoretically speaking it is possible for the government to provide the (pure) public good and improve everybody's welfare. We could say that this is for the "Common Good".
The "Common Good" is not quite the same thing as externalities. An externality is where an individual, firms, basically and economic actor, does something (consumes, produces, etc.) that reduces the welfare of another economic actor. Again, theoretically the government can intervene and improve everybody's welfare. This too, could be seen as a case of government doing something for the "Common Good".1
The problem is that I know that Senator Clinton's views go beyond these two special cases of the "Common Good". How do I know this? HillaryCare--i.e., Senator Clinton's legislation that was introduced to Congress when she was still the First Lady and her husband was President. This dealt with the nationalization of pretty much the entire health care industry. Contrary to what many may want to believe health care is not a public good. Health care may have some issues with externalities, but it is far from clear that the solution is to nationalize one seventh of the U.S. economy.
Further, Senator Clinton supports transfer programs like Social Security and subsidy programs such as Medicare. These programs are not designed to address a public goods problem nor externalities. They are basically "gimme" programs from the working to one of the richest demographics in the country.2
So I am not thrilled when I hear invocations of the "Common Good". Nobody else should be either. In fact, they should, in my view, be asking exactly the same question I am. What exactly is the "Common Good"? I'm sure a great many of history's less savory characters have invoked "Common Good" as justification for their actions. I'm not saying Senator Clinton is among history's less savory characters, but I sure would like to know how far she'd go for the "Common Good".
Update: Via Kevin Drum, who also points to these post by Andrew Sullivan.
Notice of course the complete lack of concern in Kevin's post,
This is actually more revealing than his original jasmine live comment: he was annoyed because HC invoked the "common good." This is apparently all it takes to drive some conservatives nuts these days.
What a sad commentary. Of course the purpose of taxation is to provide for the common good and of course Hillary believes her agenda coincides with that common good. What else would she believe?
As I noted, I'm sure many of history's less savory characters argued they were doing things for the "Common Good", and some of them may have firmly believed it was indeed for the "Common Good". Such a justification for doing something collectively is, to me, hardly sufficient.
Update II: Steven Taylor at Poliblog has a good post on this. As does Prof. Bainbridge.
I should also point out that restricting "Commong Good" to externalities and public goods can be unpleasant as well. My initial example of gathering up and quarantining people who are HIV+ could be argued on the ground of addressing an externality.
Update III: That second update was a bit premature as I've found some more on this at the following sites,
I haven't found anybody so far, besides Kevin Drum, who wants to defend the statement.
Update IV: Ah-ha! Ted Barlow is defending the statement. Of course, he doesn't seem to understand the objection to the statement. Oh well.
Matthew Yglesias is also defending the comment without thought as well. His argument seems to boil down to: its a winning political strategy so therefore it is good. Yuck.
1In the real world, things aren't quite as nice as the theoretical world. In theory, the government has access to things like lump sum transfers, knows consumer preferences, etc. Since it the real world these policy instruments and information are not available to the government the improvements that were possible in theory can quite often fail to materialize. There types of problem are handled in the literature called the Theory of the Second Best.
2Granted there are undoubtedly elderly who depend very much on these programs, but in general the retired elderly are actually a rich demographic. Consider that a couple working from 18 to 65 and saving around 5% of their income with a 4% rate of return (and 3% annual raises) would retire with around $285,000. Throw in a house that is paid off and a car or two that are paid off and you could very easily get close to $350,000. Increase the rate of savings by half (7.5%) and the final retirement fund has $430,000 (excluding house and cars). The idea here is that with compounding interest even a modest rate of savings can result in a sizeable amount of money over a working lifetime.
One Reason to Prefer the Two Party System
Canadians elect a minority government.
An era of Liberal minority rule began with a promise from Prime Minister Paul Martin to steer a stable, activist government through Canada's patchwork Parliament
The breakdown is:
Liberal -- 135
Conservative -- 99
Bloc Quebequois -- 54
NDP -- 19
Independent -- 1
With 308 MPs, a total of 155 is needed to reach a majority. Presumably Paul Martin will be able to form a government, but at what cost? He'll either have to pander to the separatists of Bloc Quebequois, or suck-up to the NDP and the lone Independent.
That could give Chuck Cadman, Independent MP from Brisith Columbia, a heck of a lot of power. The Jim Jeffords of the North? (Not to cast aspersions on Mr. Cadman's character; I'm sure he's a nice person and not at all a power-hungry weasel. It's just that he's in a similar king-maker position.)
In a larger context, it demonstrates to me one of the problems with a multiparty parliamentary system. In order to form a government, the Prime Minister is going to have to adopt planks from the platforms of minority parties who received significantly lower public support.
I fully admit to some ignorance of Canadian politics. For instance, I don't know how easy it is to split individual MP's away from their party's positions, though I imagine that the vote to form a government follows party lines. According to Wikipedia, voting against your party is rare.
Anyway, my point is that it seems that the current Canadian parliament is doomed to a short life. The minority government won't be able to function well, will have difficulties passing laws, will suffer from gridlock.... wait, maybe it isn't such a bad idea afterall....
No, Not a Collective Action Problem
It is hypocrisy. Matthew, in responding to Daniel Drezner, tries to square a circle.
Now I'm a free trader, so I don't carry any particular water for these mercantilists, but I don't think that's a particularly irrational or unusual way to behave. I walk past beggars on the street every day, and I never give them any money. I'd be happy, however, to pay a bit more in taxes as part of a campaign to raise several million additional dollars to spend on the program, provided we could fine a well-designed program (I've read recently in The Atlantic that the Bush administration's point man on the issue is doing good, and unfortunately neglected, work in this area) to spend the money on. I'm willing, in other words, to sacrifice my share in order to really change things, but I'm not going to sacrifice to make a purely symbolic gesture.
Here is the problem: Matthew could pick one beggar and donate to that person every day. This could make more than just symbolic difference. How much does a cheap housing and food cost? $40 a day? What is that 2-3 hours of work for Matthew. So what is the problem? This would get this one beggar a place to live and food. Grab a friend who feels the same way and split the costs and it is even cheaper. So why not do it? Because I might decide not to do it out here on the Left coast?
Matthew is willing to "spend the money" when he knows he can spread the cost to the 138 million plus workers. This way Matthew wont have to spend $20-$40 a day to give this guy a roof and food (something I and the other 138 million work for) for "free". By forcing everybody else to kick in Matthew can reduce his costs to a miniscule fraction of what it would otherwise be (we are talking a few cents a day vs. $20 to $40 a day).
Matthew is generous not with his money, but with everybody elses money.
Matthew closes his post with this,
I suppose to the libertarian mind all this business of "I'll do x if and only if I can force everyone to do x" sounds rather dodgy and immoral, but fortunately enough we live in the real world, where people understand the vital role coercion has to play in building a better tomorrow.
That should scare most of the audience from www.jasminlive.mobi, but it probably wont. What this is is Matthew saying, "Okay fine, you disagree with me, but most people think this is swell so we are going to force you to do it. Enough discussion time to put up or we will do really bad things to you." And this isn't about a legitimate issue like a public good (which actually is a collective action problem, in that the way to get such goods tends to be through collective action1) that has a very serious problem with things like free riders. No, this is a transfer program that takes from those who work and are productive and gives it to those who are not.
It is a good thing we have a government that does stuff like this already. You know like taxing some of the poorest people in the country to give to some of the richest (a.k.a. Social Security and Medicare). It is jut a collective action problem you see.
Via Catallarchy where Jonathan also has a good post on this.
Are Austrian Economists About to Lose Their Cherished Position?
One of the big issues economists with the Austrian school take with the mainstream economists is the issue of equilibrium vs. market process (you can get some idea of what "market process" means here).
The problem seems to be that Austrians are banging on a horse that is either dead or is dying: general equilibrium models. As I noted in this post the Sonnenschein-Debreu-Mantel theorem basically did in general equilibrium models. Now the new hot area is game theory, and game theory has taken a couple of interesting turns of late. The first is the theory of learning in games. Much of the early literature in game theory focuses on the equilibrium--i.e., how the game is played. There was little research into, how did you get to that equilibrium. Now this research looks at precisely that quesiton, how do you get to an equilibrium. From the synopsis of the book (see the link above),
In this work the authors develop an alternative explanation that equilibrium arises as the long-run outcome of a process in which less than fully rational players grope for optimality over time. The models they explore provide a foundation for equilibrium theory and suggest useful ways for economists to evaluate and modify traditional equilibrium concepts.--emphasis added
You can read up on this stuff here in a paper by Dekel, Fudenberg and Levine. From the paper,
Our premise is that equilibrium in games arises as the result of learning, and that just what people will learn depends both on the true distribution of Nature's move and on what they observe when the game is played. One of our goals is to illuminate some of the issues involved in modeling players’ learning about opponents’ strategies when the distribution of Nature’s moves is also unknown.
The idea here is to get away from the standard justification for looking for a Nash Equilibrium. The standard justification can be accurately called hyper-rationality. For example, if you have a game with Bob and Jane, Bob would know about Jane's possible moves and payoffs. Jane would also know these things. Bob also knows that Jane knows, and Jane also knows that Bob knows these things. Bob also knows that Jane knows that Bob knows, and so on ad infinitum. It is almost silly.
The next new development is Evolutionary Game Theory which I mentioned here. Again one of the goals is to get away from the hyper-rational justification for looking for Nash equilibria. Using the machinery of evolutionary game theory, it turns out that a Nash equilibrium are also either evolutionary equilibrium or an evolutionary focal point, and that an evolutionary equilibrium or focal point is also a Nash equilibirum.1
Again the idea is to look at the process of how an equilibrium is achieved. The way this achieved in evolutionary game theory is through what is called the replicator dynamic. Under the replicator dynamic the frequency with which a strategy increases in the population depends on how much that strategy's payoff is above the average of all strategies.
Also, in standard game theory one of the main tools for finding a Nash equilibrium is the best response function. The best response function for any given player is a function of the opponents' strategies taking the player's strategy as given. This is brings in another objection of the Austrians: perfect knowledge. In constructing a best response function I have to know what the other guy is going to do (or might do) and respond accordingly. The replicator dynamic is not a best response function.
Finally, in looking at some of the Austrian literature on the market process it is notable that the Austrian's refer to the market process as an evolutionary process. But if you look for an Austrian response to game theory you wont find much (at least I haven't found much so far). By ignoring game theory and the recent advances that look at the process of arriving at an equilibrium, the Austrians risk having one of their very complaints voided (or reduced to arguments over methodology).
1I'm omitting alot of mathematics here, but don't read the above sentence as meaning that all Nash equilibiria are evolutionary equilibria and vice-a-versa. For example, the first part that states that a Nash equilibrium is also an evolutionary equilibirium or focal point is a tad bit misleading in that a Nash equilibrium is a fixed point (of the replicator dynamic). There are three types of fixed points asymptotically stable fixed points (evolutionary equilibria), neutrally stable fixed points (evolutionary focal points)--i.e., the system moves around in a given "area" and never leaves the area. And then there are unstable fixed points. So a Nash equilibrium could be one of the latter.
I'm Not A Lawyer, But...
...this settlement and law seems rather strange. Two police officers were shot and disabled by a criminal use used a Ruger 9mm. The officers sued the store (based on the name it sounds like a pawn shop) for making a "straw sale". According to the article a straw sale is when somebody with a clean criminal background buys guns and then turns them over to those who would not pass the background check.
Now I can understand why such sales should be illegal, but why go after the store? Unless the store knew before hand that the sale was a "straw sale" what can they do?
Segal said the settlement "shows gun retailers they have to be careful about who they sell their guns to and under what circumstances.
Okay, but how do we go about doing this? My guess is that this is really just a ploy by the anti-gun special interests. Barring that the store personel knew the sale was for purposes of buying a firearm for somebody who legally could not how have they done anything worng? The person who should be punished is the person who made the purchase. Of course, that person probably does not have a million dollars lying around.
Unless there is something I am missing (which is quite likely) this strikes me as an attempt to prevent the sale of guns. If a retailer cannot tell who is engaging in a legitimate sale and who is engaging in a "straw" sale, and there is a significant penalty for mistakenly engaging in a "straw" sale, then retailers will simply stop selling firearms. In other words, iut looks very much like Scott Segal is lying.