Relevant and even prescient commentary on news, politics and the economy.

Resettling Refugees – A Thought Experiment

Consider a country with a vicious ongoing multi-sided Civil War which includes some amount of deliberate large scale civilian extermination.  You know the sort of thing: Syria today is just the most recent example, but there are other well-known examples from the last few decades.  To keep things generic, let us refer to the various sides in the Civil War as A, B, C, etc.

Militias from each group have been caught massacring civilians from the other group.  Or maybe the evidence points toward only one side being responsible for such atrocities.  Truth to tell, nobody in the US really has a firm and unbiased grasp of what is going on.  If this sounds like the vast majority of wars since 1945, it should.

Now, let us say that the US has a pre-existing immigrant population from Group A.  For whatever reason, they have mostly settled in  Lincoln, NE.  (I picked Lincoln completely at random.  I understand some Thai and Burmese refugees have settled in Lincoln, but I would say that for the most part, the city doesn’t have a strong connotation with refugees among the general public.).   Lincoln now has a neighborhood called “Little X” where “X” is the capital of the country with the ongoing Civil War.   

If the Civil War results in more people from Group A are admitted to the US as refugees, it is natural to relocate them or at least encourage them to live in Lincoln.  But what if refugees from Group B are also admitted in not-insignificant numbers?  Groups A and B have a long history of distrust, and are vicious enemies in the current Civil War.  And if there is one thing Americans have managed to figure out about the ongoing war that is accurate, it is that there are some horrific atrocities going on.

So…  should it be the policy of the US government to try to settle the new refugees from Group B in Lincoln, NE?  There would be scale economies due to similar language, culture, food, and possibly even religion.  Or should it be the policy of the US government to try to get the refugees to settle somewhere far away from Lincoln, NE to minimize the possibility of conflict and ill will?  And does your answer change if we manage to learn that both sides are not equally at fault?  For example, do we make the same decision vis a vis Lincoln, NE if Group B was responsible for all or most of the atrocities and committed them against A, or vice versa?  You can assume that all the refugees are properly vetted and that none of them are known to have been involved in committing the atrocities.  


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Dumbest Statement Coming Out of Congress Yet on Healthcare . . .

A partial of the Republican plan:

introduced by Rep. Mark Sanford (R-S.C.) and Sen. Rand Paul (R-Ky.), would end Medicaid expansion, decouple health insurance from employers, offer a tax credit of up to $5,000 to fund HSAs, and eliminate most regulations on what health plans must cover. Insurers would be able to sell policies across state lines; regulations that mandate birth-control coverage would be nixed.

Hmmmm, that’s nice . . .

This is about the dumbest statement I have read yet by Senator Rand Paul;

“What if 30 percent of the public had health savings accounts?” Paul asked. “What do you do when you use your own money? You call up doctors and ask the price. . . . If you create a real marketplace, you drive prices down.”

“What if” we were all billionaires, able to buy the best care, and negotiate with multi-billion dollar hospitals? Yea “what if” . . . “What if” all the Senators and Congressmen, and Judges had our very same healthcare plan? Yea “what if” . . . “What if” all of those people fighting against the PPACA had really put some effort into learning about it, put the effort into forcing Congress to move forward with making it better . . . where would we be today? Yea “What if” . . .

Still love kicking the one layer deep naysayers around as they too will get a douse of what this is all about if ESI disappears as well as birth-control. Healthcare policies across state lines will be similar to what bank chartering is like with a couple of states controlling all the policies and no real competition (just like interest rates and usury).

“What if . . . “

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Bad news: real non supervisory wages have actually declined over the last year

by New Deal democrat

Bad news: real nonsupervisory wages have actually DECLINED over the last year

This morning’s inflation news was even worse than I expected based on the increase in gas prices.

On a monthly basis prices rose +0.6%. Core prices rose +0.3%.

More importantly, YoY CPI was up +2.5%.  Core YoY CPI was up+2.3%:

This means real nonsupervisory wages are now actually *down* -0.1% YoY for the last year.

Here is the actual level of real nonsupervisory wages for the last 3 years:

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The End of the Japanese Miracle… and the American One

Scott Alexander at Slate Star Codex has a very good post on cost disease. It definitely betrays a strong libertarian or conservative bias, but is nevertheless, worth reading.

The piece that resonates with me is posted below. It has some good insights, one or two that are questionable (for anyone not firmly ensconced on the right), but overall it methodically works its way to one hell of a punch-in-the-gut truth in last sentence.

Imagine if tomorrow, the price of water dectupled. Suddenly people have to choose between drinking and washing dishes. Activists argue that taking a shower is a basic human right, and grumpy talk show hosts point out that in their day, parents taught their children not to waste water. A coalition promotes laws ensuring government-subsidized free water for poor families; a Fox News investigative report shows that some people receiving water on the government dime are taking long luxurious showers. Everyone gets really angry and there’s lots of talk about basic compassion and personal responsibility and whatever but all of this is secondary to why does water costs ten times what it used to?

I think this is the basic intuition behind so many people, even those who genuinely want to help the poor, are afraid of “tax and spend” policies. In the context of cost disease, these look like industries constantly doubling, tripling, or dectupling their price, and the government saying “Okay, fine,” and increasing taxes however much it costs to pay for whatever they’re demanding now.

If we give everyone free college education, that solves a big social problem. It also locks in a price which is ten times too high for no reason. This isn’t fair to the government, which has to pay ten times more than it should. It’s not fair to the poor people, who have to face the stigma of accepting handouts for something they could easily have afforded themselves if it was at its proper price. And it’s not fair to future generations if colleges take this opportunity to increase the cost by twenty times, and then our children have to subsidize that.

I’m not sure how many people currently opposed to paying for free health care, or free college, or whatever, would be happy to pay for health care that cost less, that was less wasteful and more efficient, and whose price we expected to go down rather than up with every passing year. I expect it would be a lot.

And if it isn’t, who cares? The people who want to help the poor have enough political capital to spend eg $500 billion on Medicaid; if that were to go ten times further, then everyone could get the health care they need without any more political action needed. If some government program found a way to give poor people good health insurance for a few hundred dollars a year, college tuition for about a thousand, and housing for only two-thirds what it costs now, that would be the greatest anti-poverty advance in history. That program is called “having things be as efficient as they were a few decades ago”.

I should note that the spending examples cited in the above paragraphs have numerical support earlier in Alexander’s post. But the problem with the post is the lack of a satisfactory answer to the question it raises: what caused the massive declines in efficiency we saw in many vital parts of the US economy?

And here I am pleased to say I can help. I actually provided an answer to that question in a post I wrote six years ago explaining why Japan grew so rapidly after WW2 and what policy changes led to the end of its rapid rise.

I encourage you to read my post, but it comes down to this: the Japanese Miracle ended when its fabled bureaucracy became far less of a test- and performance-based meritocracy.  This was done with the noble cause of broadening inclusion, which of course, was severely lacking in the old system.  But the baby was thrown out with the bathwater.  The new system ended up just as unfair as the old one, but in very different ways.  Unfortunately, it also became a lot less efficient.  Test scores turned out to be positively correlated with performance.   Highly correlated.  It didn’t take long for the public to notice the change.  The deference once afforded to entities like MITI dwindled and died.  Soon the ministries could no longer command the respect they needed to actually run the economy, much less the competence to do it well.  But the now enfeebled bureaucracy could still influence events.  It went on to buy into Reaganomics (tax cuts, smaller government, and a trade policy that was less export oriented). Put another way: Japan Inc. started hiring suckers, and predictably the suckers got suckered.

The parallels with the US are obvious. That isn’t to say  all is doom and gloom for either Japan or the US. Both countries remain rich, prosperous, and innovative. But Japan no longer inspires the world as it once did. The Japanese Miracle ended decades ago. And I have a real fear that America’s best moment may also in the past. Policies that elevate mediocrity achieve just that.  And they are awfully hard to reverse.

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Trump And The Fed

by Barkley Rosser originally published at Econospeak, “Trump and the Fed”

It may be way too soon to say anything sensible about what Trump thinks about the Fed or will do  about it, but as the first person to have publicly called for appointing Janet Yellen as Chair (back in 2009), I figure I am more situated to stick my neck out to say something, especially when it looks like what is coming is a big contradictory mess.For the moment the Fed seems to be laying low, having made almost no change in policy or projections as reported by the diligent …Tim Duy.  They remain open to maybe tightening after March if the employment report improves notably, but otherwise seem to be on a “steady as you goes” path for the moment, doing almost nothing.  This on top of a letter from Congressman McHenry demanding they stop cooperating with any international banking entities until Trump  makes appropriate appointments.  And Tim adds a comment on a recent column by former Fed gov Kevin Warsh, who indulged in criticizing the Fed by demanding that it follow policies it is already following.  In this latest post Duy suggests that perhaps Warsh is running for Fed Chair, which means one has to appear to criticize Fed policy, even if one is not really.  Which raises the question of what Trump will do.

Let us start with something that hardly anybody has noticed, but is just taken for granted: that Trump almost certainly will not reappoint Janet Yellen as Chair.  This just seems to follow from his general attitude that all incumbents are no good, and especially anybody appointed by Obama, except for FBI Director Comey.  Why she is no good is not immediately obvious, and in fact several times over the last two years he praised  her “low interest rate policies” noting that as an old real estate developer he has always been a fan of such policies.  However, in June of this past year when the Fed did not raise the fed funds target rate, he denounced her personally and the Fed more generally for not doing so, charging that their failure to do so was part of a plot to goose the economy in an effort to help elect Hillary Clinton. Given that rhetoric it seems unlikely that he would reappoint her, although it could still come to pass that if when her term comes up next year markets seem to like her as well as GOP commentators, he could change his mind.

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A thought for Sunday: No, Trump isn’t imploding — but the opposition is broad and intense

by New Deal democrat

A thought for Sunday: No, Trump isn’t imploding — but the opposition is broad and intense

My post from two weeks ago, “No, Trump isn’t Imploding” got picked up by a few other sites within the past few days, and I wanted to follow up because we have a fuller picture of public opinion now.

Basically, Trump still isn’t imploding. He is holding his base. In fact, there is a little economic evidence that they are putting their wallets where their mouths have been. BUT, on the other hand, the opposition to Trump is revealing itself as broad-based and intense, in a way that hasn’t been seen in America since at least the 1960s (if not the 1930s or 1860s).

Here’s Gallup’s Presidential approval polling through yesterday:

Three weeks after the start of his Presidency, Trump’s last approval rating was 41%, down from 45% on his Inauguration Day. He has been between 41% and 43% for the last two weeks.

That’s simply not an implosion.  And his GOP base stands behind his controversial Executive Decrees.  For example, here’s the breakdown on support for his Muslim exclusion decree:

While Democrats are almost universally opposed, the support by GOPers is similarly almost universal.

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Meanwhile, back in Ireland

We’ve gotten to another point where it’s hard for me to turn on the TV. I know this will have to change, but for now I’ll go back to one of my favorite topics, the fate of Ireland under austerity.

As I suggested might happen, Ireland in its 2015-2016 immigration statistical year (May-April) was finally able to end its net emigration. According to the Central Statistical Office’s August report, 3100 more people came to Ireland than left during 2015-2016. This was the first time since 2008-2009 that Ireland had net in-migration. Still, among the Irish themselves, net emigration continued in 2015-2016, with 10,700 more leaving than returning.

The unemployment rate declined again from Q3 2015 to Q3 2016, from from 9.3% to 8.0%. The monthly unemployment rate for January 2017 dropped to 7.1%. And yet…

While Q3 2016 employment increased by 57,500 to 2,040,500, this remains 5.6% below its Q1 2008 peak of 2,160,681. Things are finally getting better, but Ireland is still not all the way back.

By contrast, currency-devaluing, banker-jailing Iceland long ago passed its old employment peak (create your own table), which was 181,900 in August 2008. Employment reached a low point of 163,900 in February 2011, first surpassed the old peak in February 2015 (182,900), and in December 2016 stood at 194,400, or 6.9% above the pre-crisis peak.

Oh, and Iceland’s unemployment rate? A seasonally adjusted 2.9% in December 2016, and only 2.6% without seasonal adjustment.

Maybe one day we’ll talk about the Celtic Tiger again. But Ireland, hamstrung by its inability to devalue and by harsh austerity measures, shows lingering weakness, masked by emigration, to this day. Iceland, by contrast, is the one looking like a Nordic Tiger.

Cross-posted from  Middle Class Political Economist.

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The Scale Of Trump’s Yemen Botch

by Barkley Rosser                (originally published at Econospeak)

The Scale Of Trump’s Yemen Botch

It is  becoming clear that the scale of the botch by Donald Trump in Yemen in his first effort at a foreign military action is much greater than .first reported, as reported by Juan Cole.   Right from the start we heard that people in the military were complaining about poor vetting of intel and how there was more military resistance than expected, with one American dying and three getting injured.  There was the embarrassment of a bunch of civilians getting killed, with the latest estimate of those now as high possibly as 30. On top of this we had the absurdity of the whole thing being decided mostly over a dinner with Steve Bannon and Jared Kushner the main parties to it, although supposedly SecDef Mattis signed off on it, followed by the bizarre business of Trump not even going to the Situation Room for this his first military outing.  Maybe he thought that since there were so many pictures of Obama there, and even with Hillary, that this is not something he wanted to do.

Of course there was pushback from the Trumpisti over this, claiming that the whole thing had been planned by Obama, who had just not  quite had enough time (or maybe even guts) to finally sign off on it, and furthermore that some bad leaders of the target group, Al Qaeda in the Arabian Peninsula (AQAP), were killed.  The latter may be true, although as Juan Cole reports, the main target of the raid, AQAP leader Qassim al-Rimini, was not killed and has since put out an audio publicly mocking Trump.

But now Cole further reports (as have others) that Obama had apparently not decided to do the raid. It was long planned, but it was not just a matter of waiting for more intel.  They thought it was not a wise effort, and indeed it has not turned out well.

On top of that, now the Yemeni government led by Mansour Hadi that the US and Saudi Arabia support has just forbidden the US from engaging in any further ground military assaults.  Oh.  Cole suggests that aside from the matter of civilian casualties, there is the matter of Trump’s insulting Muslim immigration ban, which Cole reports has the leaders of this US-backed Yemeni government “disgusted.”  Oh.

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Four measures of wage growth: prospects for further meaningful wage growth are dimming

by New Deal democrat

Four measures of wage growth: prospects for further meaningful wage growth are dimming

In the last several years, I have written a number of posts documenting the stagnation in average and median wages, followed by their improvement due to the steep decline in gas prices, for example here and here.  Since bottoming a year ago, gas prices have turned positive YoY, most recently up about 25%. Q4 2016 data on wages has been released, giving us a chance to take an updated look.
We have a variety of economic data series to track both average and median wages:

Let’s start with nominal wages.  The first graph below shows the YoY% growth in each of the four measures:

While each is noisy, the overall trends are clear. First, in this cycle as in the last, wage growth declined coming out of recessions, then rose as the expansion continued.  Second, secularly there has been an undeniable slowdown in wage growth, which was 4-6% in the late 1990s peak, 3-4% at the 2000s peak, and so far in this expansion is no better than 2-3%.  I believe this is in part due to how weak the employment situation was for so long into this expansion, but also secularly due to shifts in bargaining power, as employers learn over time that employees can be retained with lower and lower annual increases in compensation.
Next, let’s zoom in on the last 5 years:

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