Wednesday, May 30, 2007

response to Roy Beck/NumbersUSA video

In response to a video by Roy Beck (of NumbersUSA) sent to me by a friend.
I thought I'd share my responses with you!

1925-1965 is selective and somewhat/quite misleading
-I'm pretty sure that immigration was quite a bit greater in the 20-30 years prior to that
-for his argument (labor market tightness), the numbers should be presented as % vs. #'s
-with increasing populations, one would expect the numbers to be higher over time

-an important but overlooked issue here: since 1965, we have moved toward allowing less productive/educated workers into the country
-a crucial but overlooked issue: there is a vital difference between immigrants who come here to work, etc. (a series of mutually beneficial trades)-- vs. receive welfare and other taxpayer-financed benefits; so the larger issue is the prevalence of govt-funded programs-- in the context of education, health, and poverty
-an exaggerated point: a second generation or at least a third generation immigrant is not an immigrant but an "us" (for example, I'm a sixth generation immigrant; if he had made the presentation in the mid-1800s, I would have been a red instead of a green!)
-his stuff on fertility is correct and important in a variety of policy contexts (note also that most other developed countries actually have below-replacement rates of fertility)
-there are legitimate concerns about preserving "social fabric", but it is difficult to quantify when that becomes a problem
-as he notes, there are regional/local differences on the impact of immigration that are important to consider
-as you noted, illegal is different from legal

Legal and especially illegal immigration are tough issues-- and not conducive to 30-second sound bite answers.

Tuesday, May 29, 2007

Guiliani vs. Paul and the two theories on Iraq

The most notable moment in the May 15th Republican presidential debate: the mini-debate between Ron Paul and Rudy Giuliani on 9/11 and the War in Iraq. Paul is the most credible anti-War candidate from either party; Giuliani is best known for his response to the 9/11 attacks on New York City. The brouhaha was good for both candidates, allowing Giuliani to focus on his strongest point and providing Paul much needed attention and publicity.

The mini-debate was instructive, but a full-blown debate on the merits of their positions would have been far better. Alas, that is rarely the shape of political discourse; typically, 30-60 second sound-bites carry the day.

There seem to be two competing theories on these matters. The first theory is that militant Moslems are responding to our foreign policy interventions (e.g., our support for Israel and our previous sanctions against Iraq). The second theory is that militant Moslems hate us and our freedoms (e.g., the products of our “degraded culture” and we don’t make women wear burkas). The first theory is political and secular; the second is personal and religious. The first theory says they hate us more for what we do; the second says they hate us more for who we are.

If the second theory is correct, then we need to prepare to defend ourselves against certain attacks and perhaps, take the battle to them. But to the extent that the first theory is correct, then we should soberly assess our government’s foreign interventions, worrying that our solutions may cause more trouble than they fix.

Surely, both theories have some explanatory power. Some Moslems hate us for each reason—or their hatred stems from some combination of these two stories. Instead of dismissing one theory out-of-hand, the more reasonable position would be to debate which theory is primary. If this is correct, then both Paul and Guiliani offered flawed positions during the debate. Guiliani tried to annihilate Paul’s explanation; Paul failed to fully acknowledge the competing explanation. (Given the time constraints of the debate, Paul’s omission is more excusable than Guiliani’s commission.)

As Paul noted, it is odd to see Republican politicians so eagerly support the War in Iraq. The Republican Party has a history of being non-interventionist (if not isolationist at times). Moreover, it is a common “conservative" critique of government activism to address unintended or secondary policy consequences—e.g., that subsidizing unemployment, poverty, and out-of-wedlock births will tend to yield more of that which is subsidized. In the context of foreign policy, the same critique is often called “blowback”—the idea that what we do will probably cause negative ripple-effects. Failure to acknowledge the potential for “blowback” runs counter to standard conservative arguments.

Paul’s position is also more clearly “constitutional”—in respecting the Founding Fathers’ desire to avoid “foreign entanglements”. In the debate, Paul cited the American government’s meddling in Iran in 1953—to continue BP’s 93% take on oil profits when President Mossadegh wanted them to be split 50/50. Eisenhower’s CIA arranged a coup and installed the Shah of Iran as leader, eventually leading to the famous events of 1979—the takeover of the U.S. Embassy and the taking of hostages in Tehran.

In trying to justify his attacks, Osama bin Laden has cited some of our foreign policy initiatives, including U.S. troops in Saudi Arabia, bombing and sanctions of Iraq, and U.S. support for Israel. We either dismiss this as a convenient rationalization for the true reason (he just hates us) or we acknowledge the potential connections between what our policymakers do and what others do to us in response.

Interestingly, before the War with Iraq began, conservative Pat Buchanan predicted this state of affairs: “America will not be defeated by an Arab pariah state with an obsolete air force, a dozen 400-mile missiles, a population a tenth of ours, an economy 1% of ours, and neither satellites nor smart bombs…But what comes after the celebratory gunfire when wicked Saddam is dead? Initially, the President and War Party will be seen as vindicated by victory…What is wrong with this vision? Only this. Just as Israel’s invasion of Lebanon ignited a guerrilla war that drove her bloodied army out after 18 years, a U.S. army in Baghdad will ignite calls for jihad from Morocco to Malaysia…To destroy Saddam’s weapons, to democratize, defend and hold Iraq together, U.S. troops will be tied down for decades…a militant Islam that holds in thrall scores of millions of true believers will never accept George Bush dictating the destiny of the Islamic world.”

It is naïve to dismiss either theory out-of-hand. We should prepare as if our enemies hate us irrationally. But we should also think about our interventions as if others will respond out of ignorance, pride, or perceived self-defense.

See: Jeff/New Albany Tribune for the print version:

Saturday, May 26, 2007

Hill/Sodrel IV (= Hill/Schansberg/Sodrel II?)

from this AM's Jeff/NA Tribune:

I've heard similar speculation, but this is the first I've seen in print.

Among other things, Davis reports that: Sodrel said he’s concerned the Republican Party has drifted from its traditions of promoting “smaller government, strong defense and American values,” contending it has allowed government to “get too big and spent too much money.”

I agree (except I'm not sure which "American values" he wants to promote). The perplexing and frustrating part is that Sodrel went along with this "drift" on "smaller government" when he was in Congress. If his voting record had matched the rhetoric (or if either candidate had spoken to the issues that most impact the working poor and middle class), I wouldn't have joined the race in 2006.

If he runs again, will Sodrel apologize and be repentant about his votes for big government (see also: his votes to send taxpayer monies to Planned Parenthood)-- or will he act as if it never happened?

Friday, May 25, 2007

which bus company should GCCS choose?

Is it a good decision for the GCCS to choose Illinois Central School Bus or Durham School Services—lower-cost providers of bus services from another state—rather than local providers?

There are two issues here: First, should the GCCS use the lowest-cost provider—in this case, saving about $200,000?

In choosing between companies with different costs and quality, there are four possible combinations. GCCS might choose service that is 1.) more expensive and lower quality; 2.) more expensive and higher quality; 3.) less expensive and lower quality; or 4.) less expensive and higher quality.

Governments are most famous for category #1—spending a lot of money and getting dubious results. For example, from $600 Pentagon hammers to pork-barrel spending, the Federal government is known for such inefficiencies.

Category #2 is also quite possible. Since bureaucrats and politicians are spending others’ money, it wouldn’t be surprising to see them spend “too much”, even if it is to purchase higher quality. The government is certainly accused of #3 quite often—that it doesn’t spend enough money and scrimps on quality. We’d all hope for #4, but how often does that happen?

So what will GCCS do? It’s difficult to know. In a competitive private-sector setting, the market usually takes care of this for us. Consumers divide themselves into #2 and #3—those who are willing to pay more money for higher quality (or not). Producers in category #1 are driven from the market and they have a tremendous financial incentive to pursue #4.

But in a monopolistic, public-sector situation, taxpayers and service recipients are left to take it on faith that their leaders are making the best choices.

Second, should the GCCS employ a company from outside of Southern Indiana (or the area or the state)? The primary argument here is to preserve jobs and economic activity in the area.

But if this is a good idea, it ought to be extended. No more electronics from Japan; no more furniture from North Carolina; and no more trips to Churchill Downs or Oxmoor Mall. If this is a good idea, then consumers in Southern Indiana should only be allowed to buy goods and services produced in Southern Indiana—to protect jobs and promote economic activity.

The term for this is “protectionism”. Nobody likes competition for that which they sell—whether education providers, bus drivers, sugar producers, or car manufacturers. So, it is quite common for producers to seek restrictions against their competition—and it is quite common for government officials to satisfy special interest groups. Such restrictions always benefit both of them at the expense of consumers or taxpayers.

Thus, one might easily expect the School Board to preserve the monopoly power of its bus drivers—whether it’s the optimal choice or not. (A bad sign: they have already re-opened the bidding process and then imposed a five-route limit—seemingly transparent efforts to stifle out-of-state competition.) But hopefully they will look beyond merely the narrow interests of the local providers to the interests of taxpayers and students and make the best choice on the merits of cost and quality.

This essay appeared in the Jeff/NA News-Tribune on Tuesday, May 29:

Hill on gas prices

in response to:

Gas prices are quite painful these days—made worse by largely Democratic efforts to restrict supply at the production and refinery levels. Although smooth moves politically, Rep. Hill’s new policy proposals are not an improvement ethically or practically.

First, temporarily dropping the federal gas tax would lower prices by $.18 per gallon. But higher prices are what encourage energy conservation and technological innovation—the two factors that will most help to alleviate our dependence on oil. In addition, the gas tax should not be just another revenue generator for the government or a political football for legislators. The revenues from the gas tax should be targeted to pay for the social costs of driving—pollution and road construction and maintenance.

Second, a subsidy for hybrids is mostly a tax break for the wealthy—who pay the vast majority of income taxes and are far more likely to purchase a hybrid car. Hill’s proposal also calls for tax breaks for car manufacturers—taking money from taxpayers to give to corporations. It seems odd that a Democratic legislator would want to transfer income in this manner.

High gas prices are bad, but poor public policy is worse.

Wednesday, May 23, 2007

Convention Hotel in Indy (Indy Star)

The Convention Hotel: Labor Policy Pro and Con

What should the Indianapolis City Council do in regard to the labor environment at the proposed convention hotel?

Before we start, there is the question of whether such a hotel should have been subsidized by taking money from taxpayers and giving it to a corporation. There are various ethical and practical arguments against such subsidies. First, in what cases is it appropriate to take money from Joe Six-Pack to give to another individual or to a company? Second, was the subsidy necessary to attract the business? If not, it's a complete waste of money; if so, why is Indy building something the market considers inefficient?

In any case, it's difficult for an economist, let alone a politician, to know for sure.

We do know that taxpayers are unlikely to protest this sort of subsidy. Why? The answer is that as is the case with most government interventions the costs are subtle and small per person. Meanwhile, the benefits are concentrated and obvious to the recipients. This is a recipe for income redistribution by politicians from the general public to interest groups — a recipe cooked up by every level of government thousands of times a day. In regard to our hotel, city officials are likely to enjoy the perceived economic development benefits and the almost certain political benefits for merely handing out largesse to interest groups.

Now to the question of the moment: Given a public subsidy (of $48 million or of 48 cents), can the members of City Council impose restrictions on the way in which the hotel is built and operated?

Sure. Strings can be attached within the context of a "private-public partnership." Presumably, the extent of the string should be correlated to the proportion of the subsidy. It would be absurd to argue for massive intervention in the face of a only modest subsidy. (But we're talking about government here; the absurd may be a standard of performance.)

Beyond the council members’ ability to impose restrictions on the way in which the hotel is built and operated, should they impose such restrictions?

The Council could do everything from mandating union membership for employees to setting a "living wage" policy — or a wide variety of other regulations (e.g., how Muslim maids are allowed to dress). There are a number of reasons, however, to avoid such interventions. In the context of this particular project, any regulation of this type would only increase costs and spur inefficiency.

For example, if the city promotes a union, then wages will be artificially higher (above and beyond the union dues that will be paid). This is what one expects from any cartel — an economically defined group of suppliers who restrict entry in order to profit from their monopoly power. OPEC is a cartel in a product market, resulting in artificially high prices. Unions are a cartel in labor markets, resulting in artificially high wages. Cartels are a good deal . . . if you're in the cartel.

Or what if the city establishes a "prevailing wage" during the construction of the hotel — or a "living wage" during the operation of the hotel? Again, wages will be increased above the competitive outcome.

Some might protest that workers will be exploited by the hotel owners. But the relevant labor markets are competitive, so workers must be paid an appropriate market wage. (Could the hotel get away with paying its secretaries, construction workers and managers only $6 per hour?) If its employees are not paid a competitive wage, they are free to choose to work elsewhere — and will do so.

Beyond this particular project, the City Council sets a bad precedent with subsidies and significant regulation. If it is willing to take money from taxpayers to give to corporations in this context, why not in other situations as well? If Indianapolis government interferes with the workings of this project, future entrepreneurs will know to expect more intervention and higher costs.

Neither approach is an effective strategy if the City Council intends to promote fiscal prudence, sound government or economic growth.

An edited/shortened version of this appeared in the Indy Star: