Solow vs Mankiw on the One Percent

Readers of this blog will be familiar with my recent article Defending the One Percent.  In the new released issue of JEP, you can read a letter by Bob Solow commenting on the article as well as my response.

Sentence of the Day

From the Congressional Budget Office:

CBO estimates that the ACA [Affordable Care Act] will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive.

Implicit in this estimate are elasticities that measure how much people respond to incentives.  My sense is that CBO is typically conservative when it come to gauging these incentives effects.  So I would take their estimate of the impact on hours worked as a lower bound. The actual figure may be higher.


Addendum: Here is a column I wrote about these incentive effects five years ago.

Repopulating Doomsville: Detroit & US Migration

Followers of international migration know that there is a movement among traditional migrant-receiving nations, usually Anglophone countries Australia, Canada, New Zealand, and the United States, to steer migrants away from overcrowded gateways into less-populated areas short on labor. In other words, your chances of successfully petitioning for permanent residency are greater in, say, Toowoomba instead of Brisbane.

In the United States, something similar is happening as authorities are interested in managing demography. Instead of packing people off to [zzzzz] New York, Los Angeles or Chicago, why not send them where they are needed like, say, Detroit? To you and me it may be a terrible instance of urban decay that is in its death throes via depopulation and bankruptcy. For others, however, it is a prime example of the Land of Opportunity. The Arab American News has an interesting article along these lines as a Polish immigration lawyer says there is no better time than now to attain permanent residence in, er, Detroit:

Every year, millions of immigrants celebrate the New Year with their own traditions. For our family, it is a ham, kielbasa, horseradish, stuffed cabbage, sauerkraut and pierogis, which are a traditional Polish dishes. And each year, like billions of people around the world, we look forward to the new year with a list of hopes, dreams and resolutions.

If you are a legal permanent resident eligible for American citizenship, there is no better time than 2014 to resolve to become a citizen. As someone who has spent years working with Arab-American immigrants here in Detroit, my own resolution is to help as many of them as possible here in Detroit to take the necessary steps toward citizenship with the New Americans Campaign.

Your community is larger than you might think. Michigan is home to 130,000 lawful permanent residents who could become citizens.

The New Americas Foundation provides advice to those wishing to become naturalized US citizens. As a person championing the free flow of persons around the world in addition to goods, services and investment, I wish them well. However, they of course encounter strong political headwinds via assorted racist-protectionist forces that are unfortunately still prominent in this so-called melting pot. 

Still, I do not necessarily find the idea of steering immigrants towards certain communities objectionable. If you want to live the American Dream, you have to start somewhere--even if somewhere may be Detroit. Moreover, who am I to say that Arab Americans and others do not have what it takes to revive this once-great American town? Others have given up on Detroit, but some still persist since they do see something of value you and I cannot. There is no real downside to giving them an opportunity.

Econ Summer Camp

Grad students with an interest in the history of economic thought should click here.

Buying Thai Rice: PRC Now Cares About Corruption?

Yinglucks legacy is a colossal waste of food and money

China is famous for espousing a policy of non-interference in the internal affairs of other countries. This, of course, is in contrast to Western powers who usually demand "good governance" for aid or investment in terms of lessening corruption, promoting democracy and so on. Critics say that in doing so China undermines others' efforts to instill better governance. On the other hand, China says it does not meddle with others' business--especially other developing countries that have grown tired of Western paternalism.

It is thus interesting how China seems to be bowing to pressures regarding the purportedly corrupt practices of the Thai leadership. In previous posts, I have detailed the extravagant waste of money [1, 2] that is the rice-pledging scheme which subsidizes rice producers to the tune of 40-50% over market value. To reduce mountains of rice purchased at above-market rates which now go unused, the current leadership hit on the brilliant idea of selling part of its stockpile to China.

But surprise, surprise--even the Chinese are not honoring previous commitments due to the current investigations into corruption allegations stemming from the so-called rice-pledging scheme:

China has canceled a deal to buy 1.2 million tonnes of Thai rice after Thailand's anti-corruption agency launched investigations into a state rice-buying scheme, the Thai commerce minister said on Tuesday. The cancellation will add to the pressure on Thailand's government, which is struggling to secure funds for the rice scheme at a time when farmers who have not been paid are protesting in the provinces.

"China lacks confidence to do business with us after the National Anti-Corruption Commission started investigations into the transparency of rice deals between Thailand and China," Niwatthamrong Bunsongphaisan told reporters.

The deal between Thailand and Chinese state enterprise Beidahuang was signed on November 20, for delivery starting in December. The shipment was delayed, however, after Prime Minister Yingluck Shinawatra dissolved parliament in December.

If anything else, the Chinese snub is going to put further financial pressure on this money-losing vote-buying scheme to win the support of rural populations in the North who've voted for the Shinawatras:

The government is desperate to get funds for the scheme because some farmers who have sold grain to the state have been waiting for months for their money. The World Bank has estimated annual losses of 200 billion baht ($6 billion) since it was introduced in 2011. The government has struggled to sell the rice because of its high price at a time when global demand is thin. 

Opponents of the government are angry that taxpayers are footing the bill for a program they call tantamount to vote-buying.

The endgame for Yingluck Shinawatra is drawing even closer, with troubles being added by a most unexpected source--China of all parties suddenly becoming concerned with corruption. Weird. Meaningless elections aside, what will likely happen is court persecution of Yingluck Shinawatra over the rice-pledging scheme (tacitly supported by the military and royalty) leading to her ouster. Farmers complaining about not being paid will only undermine her support further, making her easy prey for her opponents. 

All the same, Thaksinite politics are hardly finished--especially if his sister is ousted through extra-electoral means. The real question is why big brother Thaksin did not dissuade her from embarking on this ruinous rice subsidizing path given his vastly broader political experience. In the ultimate hardball of Thai politics, amateurs like little sister Yingluck get smashed fairly quickly.

Did Harry Reid KO Obama's Asian, European FTAs?

Reid Floors Obama with Lethal 1-2 Combination

The traditional constituency of the United States' Democratic Party has always included organized labor. Despite union membership continuing to fall, organized labor remains crucial to the fortunes of many Democratic candidates come election time given their organizational strengths in mounting get-out-the-vote efforts. Tensions have always existed in the Democratic Party about the benefits of "modernizing" in the Reaganite, investor-friendly sense: fewer worker benefits, easier to hire and fire, etc.

Both Democratic presidents of recent memory, Bill Clinton and Barack Obama, have made it a standard ploy to court organized labor during election time and then ditch it after elections are won. However, it is not that easy for rank-and-file members in the legislature who do not have term limits to pull off this about-face. What's more, these can be quite powerful politicians.

A sign of Obama's lame duck status--he cannot have another term as president--is of Senate Majority Leader Harry Reid (D-NV) hitting Obama with massive blows on trade. A few days ago, the one-time boxer Reid reiterated that he will not grant Obama fast-track status for negotiated free trade agreements. At the moment, the major US initiatives are expanding the Trans-Pacific Partnership (TPP) in Asia and forming the Transatlantic Trade and Investment Partnership (TTIP) with the European Union. I've already mentioned how it will be quite challenging for either to be concluded unless significantly watered-down, but Harry Reid adds another complication. Without granting fast-track status to his president, Reid makes it possible for lawmakers to change the contents of the negotiated agreements with Asian or European counterparts instead of the legislature simply voting for or against these FTAs as hammered out during international negotiations:

Senate Majority Leader Harry Reid broke publicly with the White House Wednesday on trade policy, instantly imperiling two major international trade deals and punching a hole in one piece of the economic agenda the president outlined in his State of the Union address a day earlier. Mr. Reid told reporters he opposed legislation aimed at smoothing the passage of free-trade agreements, a vital component to negotiating any deal, and pointedly said supporters should back down.

"I'm against fast track," Mr. Reid (D., Nev.) said, using the shorthand term for legislation that prevents overseas trade agreements from being amended during the congressional approval process. "I think everyone would be well-advised just not to push this right now."

The move spells trouble for two sets of complicated talks, one with the European Union and the other with countries in the Asia-Pacific region. Both deals likely would have required such a "fast track" approval to clear the Congress. The U.S.'s negotiating partners wouldn't likely commit to a final agreement that could be unpopular back home without assurances that it couldn't be modified by U.S. lawmakers. 

And lest we forget, there's organized labor lurking...

Mr. Reid, whose state has a heavy union presence, has long opposed trade deals. He also represents a caucus with several vulnerable Democrats up for election in November who might have been forced to choose between Mr. Obama and the unions that help finance campaigns.

"I think there's a lot of dubiousness in our caucus to fast track, given that every time we sign a free-trade agreement it seems other countries violate the rules and we don't," said Sen. Chuck Schumer (D., N.Y.), a member of the Senate Democratic leadership.

So much for party discipline as Reid hits Obama immediately after his SOTU address. Reid is probably calculating that Obama's days are already numbered anyway, and that it's better to offend the president than traditional Democratic constituencies. Can the party afford to lose its majority in the Senate? Especially during sour economic times like the present, the Democrats' protectionist streak usually comes to the forefront. Republicans are usually more in favor of free trade and vote for such deals, but the current political situation may be inauspicious as Tea Party Republicans seemingly vote against Obama on anything--even expanding trade which is a traditional Republican advocacy.

Moreover, George W. Bush had fast track authority for most of his presidency but was unable to get any major FTAs completed, so its efficacy in concluding deals is very much dependent on first having successful negotiations at the international level.

Humility-based Libertarianism

On the suggestion of Bryan Caplan, I just read In Praise of Passivity by philosopher Michael Huemer. A lot in the article makes sense to me.  As a social scientist, I think there is much we don't know about how the world works, and that intellectual humility goes a long way to explaining my skepticism about many governmental interventions into private behavior.  In any event, I also recommend the article.