Author Archive
Should the U.S. Restrict Immigration?
Recent debates about Arizona’s new immigration law have taken as self-evident that immigration restrictions are good policy, with the only question being which level of government should enforce the law, and how. Yet the case for immigration restrictions is far from convincing.
Advocates of these restrictions rely on four possible arguments. First, that immigration dilutes existing languages, religions, family values, cultural norms, and so on. Second, that immigrants flock to countries with generous social welfare programs, leading to urban slums and inundated social networks. Third, that immigration can harm the sending country if the departing immigrants are high-skilled labor. Fourth, that immigration lowers the income of native, low-skill workers.
All of these arguments are wrong, overstated, or misguided. Immigration may change cultural values or norms, but nothing suggests this is a negative. Many societies flourish because they have incorporated new businesses, cultures, foods, and so on. More important, immigrants normally assimilate to the pre-existing culture provided government policy does not segregate them from the rest of society. In the past rich countries have incorporated large immigration flows with modest adjustment costs. Many of these immigrants lived in difficult conditions at first, but within a generation they achieved middle class status or better.
The possibility that immigration puts pressure on the welfare state is a reasonable concern, although existing evidence does not suggest this is a major problem. In any case, the possibility that a generous social safety net might encourage immigration is a reason to moderate this safety net, rather than a reason to restrict immigration. Indeed, expanded immigration might create pressure to keep the welfare state modest.
The risk that immigration drains high-skilled labor from poor countries is real, but this kind of immigration has positive impacts on the sending country that mitigate against any negatives. The possibility of migration to a high-wage country generates an incentive to acquire education, and only some of those educated actually leave. The threat of a brain drain nudges poor countries away from bad policies-such as excessive tax rates-that generate the brain drain in the first place. Many immigrants send remittances to friends or relatives in their country of origin. Plus, if borders were really open, many immigrants would seek education abroad but return to their home country, knowing they could leave if economic factors so dictated. Similarly, with open borders many immigrants would pursue temporary stays in higher wage countries. Temporary migration is common in many countries now, and was common in the U.S. before the tightening of immigration rules in the 1910s and 1920s. Temporary migration raises fewer of the standard concerns than permanent migration, while still helping many people in low-wage countries.
Concern for the poor, assuming this includes the poor in other countries, argues for vastly expanded immigration since many potential immigrants are much poorer than the natives whose wages they might depress. Only a bizarre view of equity favors people earning the minimum wage in rich countries over people near starvation in developing countries.
The conclusion that open borders is the best immigration policy is all the stronger because attempts to restrict immigration have their own negatives. These include the direct costs of border controls, the creation of a violent black market for immigration, and incentives for corruption. Further, immigration may have beneficial effects on productivity by fostering competition and introducing new ideas, approaches, business models, products, and so on. At the same time, many people in receiving countries enjoy the influence of new cultures. Immigrants also work at jobs for which the native supply is small.
Reasonable people can argue that immigration should increase gradually to moderate the transition costs. But any reasonable balancing implies vastly expanded immigration relative to current levels. This would improve the welfare of poor people in other countries far more than foreign aid.
C/P at psychologytoday.com
Why Limits On Banker Bonuses Are Meaningless
The European parliament has just approved a measure that would limit bonus payments and other aspects of compensation for bankers. National finance ministers are expected to approve the measure next week, and it will take effect Jan. 1. The goal of the legislation is to limit banker incentives to take risk, since this was allegedly a major cause of the recent financial crisis.
The key question about compensation limits is why shareholders and creditors have not imposed these on bank executives already. If the possibility of large bonuses indeed generates excessive risk-taking, then bank stakeholders have ample incentive to adopt such limits without government coercion.
The answer is that bank risk-taking was not necessarily excessive from the perspective of the bank stakeholders, since banks were living in a world with private gains but public losses. Stakeholders stood to earn large returns when times were good, and they knew taxpayers would cushion the losses — via deposit insurance or accomodative monetary policy — when times went bad.
Since events of the past two years have done nothing but reinforce the view that major banks are too big to fail, the incentive to pile on risk is stronger than ever.
So limits on bank compensation are fighting an uphill battle, and bankers will find ways around them via creative accounting and clever compensation packages. The limits are therefore just political pandering to populist outrage over banker excesses. That outrage is understandable, but limiting compensation will not prevent the next blow up.
C/P at Forbes.com
Gun Control Advocates Should Applaud the Supreme Court
The Supreme Court ruled last week that state and city governments must respect the individual right to bear arms that is guaranteed by Second Amendment to the U.S. Constitution. This ruling does not necessarily invalidate all gun control laws, but it will likely mean the demise of outright bans and restrict significantly the ability of states and cities to impose other kinds of controls.
Advocates of gun control have decried the ruling because they believe guns cause crime and that gun control laws, by gun reducing gun availability, reduce crime. Regardless of the constitutional questions, however, both arguments for controls are flawed.
Many crimes do not require an armed perpetrator, and numerous weapons can substitute for guns (knives, baseball bats, fists, bombs, chains, shivs-the list is endless). Even if guns encourage or facilitate crime, guns potentially prevent crime by giving criminals reason to worry that victims might shoot back. In addition, gun controls cannot make guns disappear; they can only attempt to reduce availability via regulation, taxation, or prohibition. Those with illegitimate purposes, however, can circumvent such policies by borrowing or stealing a gun, or purchasing one on the black market.
Existing evidence indicates that the availability of guns plays a small role in causing crime and that gun control does little to reduce crime. Numerous countries have widespread gun ownership but low crime or violence rates; other countries have strict gun control laws but abundant guns and substantial violence. Police stations, army barracks, and rural households have high gun prevalence but little crime. Simply stating that guns automatically lead to high levels of crime is facile.
In addition, gun controls have costs, both for individuals and for society.
Many people derive a benefit from owning guns. Some enjoy collecting, others like hunting or target-shooting, and others want guns for self-defense. Controls raise the costs of gun ownership, thereby harming legitimate users. The costs of many of these controls are mild-a three-day waiting-period to buy a gun, for example, imposes small costs on those with legitimate reasons to own a gun. Yet such controls do little to deter illegitimate uses, so they also have minimal benefits.
The potentially significant cost of mild controls is that they evolve into strict controls. A century ago no country had substantial controls on gun ownership, yet most now have strict controls or virtual prohibition. If gun control becomes prohibition, the potential for adverse effects is large. Prohibition creates black markets, which means violent dispute resolution, corruption of judges and police, and disrespect for the law. Such outcomes are easily worse than any negatives of guns themselves.
The most significant negative of gun control is distracting attention from policies like drug prohibition that play a far larger role in generating crime. So long as policy generates a demand for crime, policy can do little to reduce crime.
Critics of the Supreme Court’s decision, therefore, have no cause for worry. If the ruling prevents many or most gun control laws, that will be good for everyone.
C/P at psychologytoday.com
A 10-Point, Libertarian, SOTU Address
1. Abandon Obamacare
2. Forget Cap and Trade
3. Reject the Card Check Bill
4. Withdraw from Iraq and Afghanistan
5. Legalize Drugs
6. Scrap the tax code and replace with a flat tax
7. Expand free trade and immigration
8. Stop the bailouts
9. Cut spending
10. Cut spending
BONUS - Cut spending
‘Letting the Sick Die on the Street’
Blogger Matt Yglesias has described my CNN op-ed on health care as follows:
Meanwhile, in Harvard economist and Cato Institute senior fellow Jeffrey Miron’s dystopia, if your parents wind up with no money through bad luck or poor decision-making and then you get sick you’ll just die on the street for lack of money.
Did I really say such an outrageous thing? Well, I did not use exactly those words (as Matt makes clear), but yes, that is the logical implication of my position.
And I stand by it. Here’s why.
First, my assessment is that even with no government health insurance, hardly anyone would die on the street for lack of health care. The poor would use their income transfers to buy some health care or insurance. The poor would receive private charity. And health care would be far less expensive due to elimination of the distortions caused by government health insurance.
Second, my position is that government provision of health insurance is enormously inefficient: it means worse health care for everyone, and it wastes resources that can be put to other uses. So the negative of having a few people suffer without government health insurance must be balanced against the good of having better medical care for all and against the good that can be accomplished with those saved resources.
That good might be lower taxes for everyone, or more government spending on education, or greater public health spending to combat HIV in poor countries. Whatever the alternate uses turn out to be, one cannot escape the fact that a tradeoff exists between protecting the poor and other goals.
The Fed and Policy Uncertainty
How and when should the Fed unwind the enormous monetary expansion it undertook in response to the financial crisis and recession? The WSJ reports [$]:
As the Federal Reserve’s next meeting approaches in early November, an internal debate is brewing about how and when to signal the possibility of interest-rate increases.
The Fed has said since March that it will keep rates very low for an “extended period.” Long before it raises rates, however, it will need to change that public signal to financial markets.
Because the recovery is so young and is expected to be so weak, many central bank officials are comfortable, for now, keeping rates very low. But they are beginning to strategize about how to walk away from the “extended period” language.
My suggestion is that the Fed announce a path of gradual increases in the federal funds rate, say beginning next year and lasting for two years, until the rate is at some “normal level.”
This approach is different than what the Fed is likely to undertake; it will probably want to maximize “discretion,” the ability to adjust on the fly as conditions unfold.
My approach maximizes predictability and reassurance: it commits the Fed to shrinking the money supply and heading off future inflation. This reassures markets and takes substantial uncertainty out of the picture.
The problem with my approach is the pre-commitment: everyone knows the Fed could abandon a pre-announced path.
But such an announcement might still give markets useful guidance, and the Fed would know that any deviation would itself upset markets, and this might encourage adherence to the pre-commitment.
Emergency Aid to Seniors? No Way
Social Security benefits are indexed for inflation, but because inflation has been roughly zero for the past year, the adjustment formula implies no increase in benefits this year. Nevertheless,
President Obama on Wednesday attempted to preempt the announcement that Social Security recipients will not get an increase in their benefit checks for the first time in three decades, encouraging Congress to provide a one-time payment of $250 to help seniors and disabled Americans weather the recession.
Obama endorsed the idea, which is expected to cost at least $13 billion, as the administration gropes for ways to sustain an apparent economic rebound without the kind of massive spending package that critics could label a second stimulus act.
This is outrageous on four levels:
1. If the president thinks the economy needs more stimulus, he should say that explicitly and have an honest debate.
2. This is the wrong kind of stimulus. Any further stimulus should consist of reductions in marginal tax rates, such as a cut in the corporate income tax (or better yet, repeal).
3. All Social Security recipients already have a moderate guaranteed income, and many have significant income beyond their Social Security benefits. This kind of transfer has no plausible justification as redistribution for the needy.
4. Sending checks to seniors is a blatant attempt to buy their support for Obamacare, which promises to cut Medicare spending substantially.
Perpetuating Bad Housing Policy
Perhaps the worst feature of the bailouts and the stimulus has been that, whatever their merits as short terms fixes, they have done nothing to improve economic policy over the long haul; indeed, they compound past mistakes.
Here is a good example:
For months, troubled homeowners seeking to lower their mortgage payments under a federal plan have complained about bureaucratic bungling, ceaseless frustration and confusion. On Thursday, the Obama administration declared that the $75 billion program is finally providing broad relief after it pressured mortgage companies to move faster to modify more loans.
Five hundred thousand troubled homeowners have had their loan payments lowered on a trial basis under the Making Home Affordable Program.
The crucial words in the story are “$75 billion” and “pressured.”
No one should object if a lender, without subsidy and without pressure, renegotiates a mortgage loan. That can make sense for both lender and borrower because the foreclosure process is costly.
But Treasury’s attempt to subsidize and coerce loan modifications is fundamentally misguided. It means many homeowners will stay in homes, for now, that they cannot really afford, merely postponing the day of reckoning.
Treasury’s policy is also misguided because it presumes that everyone who owned a house before the meltdown should remain a homeowner. Likewise, Treasury’s view assumes that all the housing construction over the past decade made good economic sense.
Both presumptions are wrong. U.S. policy exerted enormous pressure for increased mortgage lending in the years leading up to the crisis, thereby generating too much housing construction, too much home ownership and inflated housing prices.
The right policy for the U.S. economy is to stop preventing foreclosures, to stop subsidizing mortgages, and to let the housing market adjust on its own. Otherwise, we will soon see a repeat of the fall of 2008.
A Federal Ban on Texting While Driving?
In response to claims that texting-while-driving (TWD) causes traffic accidents, Congress is considering “a federal bill that would force states to ban texting while driving if they want to keep receiving federal highway money.”
This approach to forcing a particular policy on the states mimics the 1984 Federal Uniform Driving Age Act, which threatened to withhold federal highway funds unless states adopted a 21-year-old minimum legal drinking age. The justification for that law was reducing traffic fatalities among 18-20 year olds.
A federal ban on TWD is not compelling:
1. Federal imposition of the 21-year old minimum drinking age did not save lives.
2. A ban on texting might increase other distractions: adjusting the radio, putting on makeup, eating a sandwich, reading a map, and so on. Relatedly, the evidence that TWD causes accidents is far from convincing. Traffic fatalities per vehicle mile travelled have declined substantially over the past 15 years, despite the explosion in text messaging.
3. TWD has benefits, not just costs. Truckers, for example, claim that
Crisscrossing the country, hundreds of thousands of long-haul truckers use computers in their cabs to get directions and stay in close contact with dispatchers, saving precious minutes that might otherwise be spent at the side of the road.
4. If the benefits of banning TWD become clear, most states will ban on their own.
Thus laws that penalize TWD might make sense. But this is an issue for states, not the federal government.
Climate Change and Health Care: Free Lunches?
In the debate over health care reform, advocates of expanded government health insurance suggest we can pay for this by making Medicare and Medicaid more efficient.
In Paul Krugman’s most recent column, he makes a similar claim about reducing greenhouse gas emissions:
The evidence suggests that we’re wasting a lot of energy right now. That is, we’re burning large amounts of coal, oil and gas in ways that don’t actually enhance our standard of living — a phenomenon known in the research literature as the “energy-efficiency gap.” The existence of this gap suggests that policies promoting energy conservation could, up to a point, actually make consumers richer.
Both claims of a “free lunch” are heroic, at best.
In the case of health insurance, Medicare and Medicaid are inefficient, but to make them more efficient we have to reduce government subsidy for health insurance, not expand it.
In the case of energy efficiency, more energy-efficient practices exist (e.g., replacing incandescent light bulbs with CFLs), but they are expensive: if they actually made consumers richer, most would be using them already.
Now the fact that expanded government health insurance and increased energy efficiency would cost more, not less, does not prove they are bad ideas (that’s a separate discussion). But it means society must evaluate a tradeoff, not just assert we can have something for nothing.
Robbing Peter to Pay Paul
The FDIC’s insurance fund, which it uses to pay off despositors in failed banks, is getting low. One way it can bolster its reserves is to draw on a $100 billion line of credit from the Treasury. Instead, however,
Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks.
A brilliant scheme to avoid another taxpayer bailout? Not really.
The banks are willing to lend because the FDIC will pay them a good interest rate. Repayment is virtually guaranteed because the FDIC can always draw on its line of credit. Thus the banks are getting a better deal than they would in the marketplace (that’s why they are doing this), so the scheme is a backdoor way of further bailing out the banks.
Why go through this charade? Apparently, using the Treasury credit line
is said to be unpalatable to Sheila C. Bair, the agency chairwoman whose relations with the Treasury secretary, Timothy F. Geithner, have been strained.
“Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help,” said Camden R. Fine, president of the Independent Community Bankers. “She’d do just about anything before going there.”
Instead, the FDIC will con the taxpayers. The FDIC has no choice under existing policy, of course, but to pay off depositors of failing banks. They should just be honest about how who is paying for it.
Obama: ‘Nobody’ Considers Health Care Mandate a Tax Increase
President Obama argued on TV talk shows this weekend that his proposed mandate for everyone to buy health insurance – or face a large financial penalty – is not a tax increase:
In a testy exchange on ABC’s “This Week,” broadcast Sunday, Obama rejected the assertion that forcing people to obtain coverage would violate his campaign pledge against raising taxes on middle-class Americans.
“For us to say you have to take responsibility to get health insurance is absolutely not a tax increase,” Obama said in response to persistent questioning, later adding: “Nobody considers that a tax increase.”
Well, I consider it a tax increase, so I guess that makes me nobody.
The real question is whether this tax increase is a good idea. My answer is no. If others disagree, then fine, let’s have that debate. But denying plain truths suggests that advocates of Obamacare are trying to pass something that Americans would not endorse if it were structured and explained clearly.
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