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

Net Migration and Economic Growth Around the World – 1958 to the Present

In my last post, I used World Bank data to look at the effect of net migration on economic growth. Net migration is defined by the World Bank as the number of immigrants (coming into a country) less the number of emigrants (leaving the country). I showed that net migration as a share of the population in 2012 (the last year with for which this data has been reported so far) is negatively correlated with growth of PPP GDP per capita from 2012 to 2015. In other words, countries where the share of immigrants as a percent of the population was larger grew more slowly than countries with a smaller proportion of immigrants.

The natural question is… does this relationship hold over a longer period of time? In this post, I will show that the answer is yes.

As to data… I will use three series compiled by the World Bank: net migration, population, and PPP GDP per capita. Net migration data is reported every fifth year beginning in 1962, and it covers five years of activity. In other words, the net migration figure for 1962 is the sum total net migration for the years 1958 through 1962. Similarly, the net migration figure for 1967 is the total for the years from 1963 through 1967. Population is available annually going back to 1960. PPP GDP per capita is available annually, but only begins in 1990. To maximize the use of the available data, and still avoid situations where growth could be leading immigration, I looked at total migration from 1958 to 1992 as a share of the population in 1992, and compared it to growth in PPP GDP per capita from 1993 to 2015.

In other words, I took a look at (roughly) the percentage of the population that had migrated over 34 years, and compared that to the growth rate from the following year to 2015, which is a period of 22 years.

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Net Migration and Economic Growth Around the World

This post uses data from the World Bank to look at the effect of migration on countries around the world. I will begin by looking at all countries for which the World Bank has data, then drill down.

So to begin, the data used in this post:
1. Net migration, by country available here. The most recent data is from 2012. Net migration is defined as the “total number of immigrants less the annual number of emigrants, including both citizens and noncitizens. Data are five-year estimates.” As an example, the US reportedly had net migration of 5,007,887 (i.e., positive) in 2007 through 2012, while Bangladesh had a figure of -2,226,481 (i.e., negative) in the same years. That should fit with your intuition.

2. PPP GDP per capita. Data available here. The last year for which data is available is 2015.

3. Data on population through 2015.

I started by looking at immigration relative to the size of the population. I assumed that the net migration figure was the same in each of the five years. (I know – not correct, but reasonable.) I then divided the Net Migration from 2012 by Population from 2012. I then compared that to the annualized growth in PPP GDP per capita from 2012 to 2015. In other words, I looked at the Net Migration as a share of the Population in 2012 and the growth rate in the subsequent three years. I put both series up on a scatter plot.

Before I put up the graph, I would also note that I did leave some data out. It goes without saying that if a country did not report information, I did not include it. Additionally, countries reporting zero net migration were left out. After all, even North Korea has escapees, er, migrants, even if they won’t admit to it. Otherwise, everything went into the pot leaving a sample of 176 countries. Here’s what the relationship between Net Migration (from as a share of the Population in 2012 and the growth in PPP GDP per capita from 2012 to 2015 looks like for them:

Figure 1.  Net Migration div Pop 2012 v. Growth from 2012 to 2015, 176 Countries 20170112
Figure 1

The correlation is -0.32. That is, countries with higher Net Migration as a share of their Population tended to perform less well over the subsequent three years. In other words, it is better to give than to receive, at least when it comes to migrants.

Of course, if we want to understand the effect of Net Migration in the US and other Western Countries, perhaps it makes sense to narrow things down. The next graph uses only countries deemed to be “High Income” by the World Bank. I also restricted the sample to countries with populations exceeding 1 million people to avoid trying to learn life lessons based on recent happenings in Monaco or Andorra. Here’s what that looks like:

Figure 2.  Net Migration div Pop 2012 v. Growth from 2012 to 2015, 44 Countries 20170112
Figure 2

The population sample dropped from 176 countries to 44, and the correlation tightened up a bit to -0.48.

Frankly, I think the sample still needs cleaning up. Most of the points on the graph look bunched up because there are a few countries with very, very high Net Migration. For example, Oman is at 6.8%(!!!!), Qatar 3.6%, Kuwait 3.0% and Singapore 1.5%. These are mostly special cases, even for high income countries, and I would venture to say, provide very few lessons on immigration that are applicable to the US or most of the West. Limiting the sample to countries with Net Migrants to Population under 1.4%, the graph now looks like this:

Figure 3.  Net Migration div Pop 2012 v. Growth from 2012 to 2015, 40 Countries 20170112 - with corrected axis
Figure 3

This doesn’t change the outcome much, but it makes things easier to see. If desired, we can cut out one more outlier – this one on account of excessive economic growth. The point on the far right side of the graph is Ireland, bouncing back (in PPP GDP) from the monster collapse in 2007-8. Removing Ireland as well gives us this:

Figure 4.  Net Migration div Pop 2012 v. Growth from 2012 to 2015, 39 Countries 20170112 - with axis corrected
Figure 4

The absolute value of the correlation drops, but the fact remains: we are still left with a negative correlation between Net Migration as a percentage of the Population in 2012 and the growth in PPP GDP per capita between 2012 and 2015. We can do a bit more pruning, but frankly, the data simply refuses to support Holy Writ. Sure, these graphs don’t prove that immigration is bad for growth. However, they make it very, very hard to argue that immigration had a positive effect on growth during the past few years. Of course, that isn’t what we hear from our betters.

I will follow up this post with looks at other periods for which data is available from the World Bank. Meanwhile, I put together a spreadsheet that allows the user to make changes to the dates or downselect the data through income level, population, etc. It’s a bit large, but I will send it to anyone who contacts me for it within a month of the publication of this post.  I can be reached at mike and a dot and my last name (note – just one “m” in my last name) and the whole thing is at gmail.com.

 

Updated about fifteen minutes after original posting.  Figures 3 and 4 needed an additional significant digit on the Y-axis.

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Harvard surveyed their Alumni and guess what they found?

So some econ out of Harvard is shocked about what he found regarding our economy.  It’s a government problem.  The government is just not responding (read that: not doing anything).

Americans no longer trust their political leaders, and political polarization has increased dramatically. Americans are increasingly frustrated with the U.S. political system.

The political system is no longer delivering good results for the average American. Numerous indicators point to failure to compromise and deliver practical solutions to the nation’s problems. Political polarization has especially made it harder to build consensus on sensible economic policies that address key U.S. weaknesses.

The solution:  Cut the corporate tax and balance the fed budget.

The Eight-Point Plan consists of the following policy recommendations: simplify the corporate tax code with lower statutory rates and no loopholes; move to a territorial tax system like all other leading nations’; ease the immigration of highly-skilled individuals; aggressively address distortions and abuses in the international trading system; improve logistics, communications, and energy infrastructure; simplify and streamline regulation; create a sustainable federal budget, including reform to entitlements; and responsibly develop America’s unconventional energy advantage.

What did you expect from the conservative mind?  OK, they do want to do more than cut the corp rate:

Consensus corporate tax reforms include reducing the statutory rate by at least 10 percentage points, moving to a territorial tax regime, and limiting the tax-free treatment of pass-through entities for business income. The transition to a territorial regime should be complete, not half-hearted via the inclusion of an alternative minimum tax on foreign income.

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Seattle University Symposium on Inequality, Nick Hanauer

The following video was posted in Ed’s Post by Marko.  I thought it deserved a wider audience.

The symposium included a discussion regarding raising the minimum wage to $15.  Mr. Hanauer, being an honest to goodness real billionaire talked about what that would mean for his situation.  I like the way he put it.  He earns 1000 times the median wage and yet he still only needs 1 pillow when he sleeps at night, not 1000.

You might also know of him from his TED talk that was originally  refused for posting.  He has been talking for a while about the wrongness and dangers of income inequality.

Now, if only he would team up with one or 2 more billionaires and start fighting against the Koch et al’s money in the political arena.  Then we just might see some balance.

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Paul Krugman on verge of an illumination

Today Paul Krugman wrote a piece (and a blog post) about China’s high level of investment in the face of low domestic consumption. It is obvious to me that he is making headway in understanding the importance of low labor share of income.

Remember low labor share means high capital share. Capital income is dedicated to increasing the means of production, whereas labor income is primarily dedicated to purchasing the finished production. Paul Krugman refers to this directly…

“What immediately jumps out at you when you compare China with almost any other economy, aside from its rapid growth, is the lopsided balance between consumption and investment. All successful economies devote part of their current income to investment rather than consumption, so as to expand their future ability to consume. China, however, seems to invest only to expand its future ability to invest even more.”

“Wages are rising; finally, ordinary Chinese are starting to share in the fruits of growth. But it also means that the Chinese economy is suddenly faced with the need for drastic “rebalancing” — the jargon phrase of the moment. Investment is now running into sharply diminishing returns and is going to drop drastically no matter what the government does; consumer spending must rise dramatically to take its place.” (emphasis added)

For me, he is describing the growth model of effective demand, where an economy in its early stages puts more income into capital investment and then over time must shift income to labor to purchase the production of the earlier investment. The result is an increasing standard of living. Yet, he is also describing the problem with the US economy where labor share of income has backtracked to a lower level below previous normal levels. We too have created a lop-sided balance between consumption and investment in the form of labor and capital incomes.

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The rest of the dinner table deficit/debt discussion: Equity

I promise, there are numbers here, but lets have some fun first and write a screen play to set up the point. It is long, but…

 
“Dear, I’m getting nervous. We seem to keep adding to how much money we owe and our income hasn’t changed for the better. What can we do?”
 
At this point of the conversation, the conservative ideology (Republican and Democratic Parties) suggests and encourages you to believe that the answer is something like: “Well Honey, as I look over the horizon I see no possibility for improving our current position. The only thing we can do is cut back on our spending. We have to stop spending on anything we don’t need to live. If we are willing to sacrifice then eventually we’ll have savings that we can then use to invest such that we have more income.”
 
Now, for most Americans at this moment in the euphemistically labeled “business cycle” Honey’s response would be: “But I don’t know where else we can cut!” Of course to the conservative there is always something that money is being spent on that is in actuality an indulgence for which one should repent and thus cut from their spending if said spending is greater than one’s income. This is true because no righteous individual would ever let the devil of consumption tempt them from the path to wealth heaven. Redeem one’s self through the power of restraint of consumption urges.

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Red state tax "reform" and "economic growth"

by Linda Beale

Red state tax “reform” and “economic growth”

As most tax practitioners and academics know, Professor Paul Caron maintains a “tax prof blog” that provides timely links to most things tax in major papers, blogs, journals, conferences and the like, as well as announcements and releases from theIRS, Treasury and Congress related to tax.  Paul does not usually provide much analysis or opinion, but rather an excerpt or two and a title.

So a recent blog post was titled  “WSJ: States Embrace Tax Reform to Drive Economic Growth“.

This is not an atypical way of titling items on tax prof blog.  The observant reader will notice a slight bias in the title.  The Wall Street Journal article is actually titled “The State Tax Reformers: more governors look to repeal their income taxes” (Jan 29 2013 updated).  The article summarizes states that are lowering or eliminating their income tax (sometimes including their corporate income taxes) and sometimes replacing it with a broad sales tax–for example, in the Republican strongholds of Nebraska and Louisiana.  The Journal article then goes on to opine (and it is indeed opinion) that “this swap makes sense” because “income taxes generally do more economic harm because they are a direct penalty on saving, investment and labor that create new wealth” whereas “sales taxes … hit consumption, which is the result of that wealth creation.”  This is the typical “free market” pitch favoring capital income (and the rich) over labor income (and everybody else).

Of course, the Journal then proceeds to quote Art Laffer for the right-wing corporatist ALEC in an article claiming that a majority of new jobs are created in states without an income tax because of their lack of an income tax.
[Aside:  Laffer is (in)famous as the 'free market' economist who described his view of the maximum tax rate by drawing a bell curve on a napkin.  The Laffer Curve is more ideology than theory, as I explain in an earlier post:  CFP's Laffer Curve Video, ataxingmatter (Feb. 2008). ]

Not surprisingly, Caron’s title suggests that the “real” policy reason for the shift is a “real” desire to create jobs.

I have significant doubts.  Most of the anti-income tax proponents are pro-Big Business and pro-wealth.  A shift from an income tax to a consumption/sales tax is a move from a somewhat (often minimally) progressive tax system to an explicitly regressive tax system.  Such a move favors those with capital assets and mainly capital income.  Claims (like that made by the Civitas Institute cited in the Journal article) that shifting from income tax to sales tax will result in “average annual personal income growth” mean almost nothing since averaging income growth across a population doesn’t really tell you whether almost all of it goes to the wealthy or not–if that growth goes to those already in the wealthy distribution, then inequality increases and in fact most everybody else is worse off, in spite of the “average” growth.

The Journal acknowledges the regressive nature of a sales tax swap, but suggests that exemptions of necessities (e.g., food, medicine, utilities) and rebates for low-income families will suffice.  I also find that doubtful–the very low absolute benefit to the poor of the exemptions and/or rebates, while important, is substantially less than the very real high absolute benefit to the wealthy of the switch to a consumption rather than income tax.  Accordingly, the so-called “reform” will inevitably increase an already devastingly problematic inequality that has resulted in lower quality of life for most Americans on many different areas from literacy to access to health care to teenage pregnancy to death rates and all the many other factors in which Americans enjoy a lower level of quality of life than most other OECD nations.

Not, in other words, a good idea.  As noted in Nick Carnes (who teaches at Duke University), A Tax-Reform Plan that Rewards the Wealthy and Stalls the State, NewsObserver.com (Jan 24, 2013, modified Jan. 25, 2013), these proposals are being pushed by right-wing propaganda tanks, including a “wealthy conservative foundation [that] has paid [Arthur] Laffer to write another report and to fly to our state to  promote it.”  Id.

The goups behind these proposals have their one-size-fits-all state-level strategy down to a science, but they don’t have a handle on the actual science of state tax reform. It’s easy to see why their ideas are appealing. Who wouldn’t like to grow our economy and lower taxes without cutting vital services like schools and public safety?

However, independent economists in every state where the Laffer plan has been introduced – including North Carolina – have found serious problems with the evidence its proponents have used to back it up. No matter how low the tax rate is, businesses and wealthy people won’t relocate to a state where the schools are bad, the streets are unsafe and the infrastructure is crumbling – things that all tend to happen when taxes are cut to the levels that the Laffer plan outlines.  Id.

The Carnes article goes on to note that “Kansas, which earlier passed the Laffer bill, is now projecting $800 million annual budget deficits and has extended an emergency sales tax that should have expired years ago” while state agencies are facing a 10% across the board cut, with education expected to lose a billion dollars in state funding over the next five years.  Yet no businesses have flocked to Kansas because of the legislation.  Id.

And guess what.  It is the wealthy who would benefit if North Carolina were to carry through with enacting its own form of the “Laffer bill”.  Carnes notes that families earning $24,000 a year would pay $500 MORE in taxes under the Laffer plan, whereas wealthy families with incomes of more than $900,000 a year would pay $42,000 LESS in taxes.  Id. Shifting the tax burden from the wealthy who can easily bear it to the low-income who cannot, while at the same time cutting government support for essential public services that build a shared community is a disaster in the making.

The Wall Street Journal isn’t flummoxed by such facts (which it doesn’t even acknowledge).  The Journal article suggests that the idea (set forth in some Big Oil/Fracking states) of replacing income taxes with revenues from oil and gas extraction would be good (and maybe better than regressive sales taxes) because “it would make everyone a stakeholder” in increased drilling and fracking, thus “help[ing] to build a politicial constituency for more mining and drilling.”  Note the presupposition that supporting “more mining and more drilling” is inherently a public good! (One assumes that the Journal staff think this because Big Oil/Big Gas is Big Business, and the Journal is ALWAYS in favor of whatever Big Business wants.)

That idea strikes me as truly worrisome–we have a climate-change problem, and trying to “buy” votes to support environmental degradation at whatever cost through the swap of income taxes for some (probably minimal) increased royalties (probably also accompanied by less in the way of services, especially for the poor or for public goods like public education) is not a good idea.  Yes, probably those very people who are the poorest and most harmed by environmental degradation would tend to be able to be bought off by that swap–they would not realize that the wealthy are again getting the mountain of the share of the benefit, and they are bearing most of the burden in terms of the long-term costs of the environmental degradation as well as the long-term costs of lower public revenues spent on programs especially important to them because of their lack of a cushion of wealth (schools, public parks, fire/police, health care, etc.).

Interestingly, the Journal article notes that Alaska got rid of its income tax in the 1980s and suggests that’s been a good deal.  Of course, Alaska also gets more back from the Federal government than it gives in Federal taxes–ie, Alaskans have replaced their income tax revenues with federal handouts.

The Journal calls these plans for revamping state laws to provide substantial benefits to wealthy individuals and corporations a “rare bright spot in the current high-tax era.”  That is garbage from both sides.  We do not live in a “high-tax era.”  IN fact, we live in a low-tax era and we are already paying for that with the significant drop in state support for higher education, state support for parks and other public amenities (police and fire protection, protections for workers, fair and easy access to voting, etc.), and state support for K-12 education as well as the failure of the federal government to fund the kinds of infrastructure and education and basic research projects that could make the difference between a continuing great economy and the continuing muddle we are in after the Bush recession. 

All of those costs are borne more substantially by those in the lower-income brackets.  With the proposed “reforms”, the wealthy will be sailing through with even more wealth, able to shut out even more effectively any association with the “lower class” elements and giving even less to support schools, colleges, unemployment benefits, etc.  Meanwhile, the poor and near-poor will get much, much less (when they didn’t owe much in taxes anyway).  Not a bright spot at all.  More like class warfare.

The real reason behind these shifts is to benefit the major members of the Republican base–i.e., Big Business and the wealthy.  It has little to do with jobs…  That’s just a handy obfuscating claim to make about policy moves that substantially shift the benefits of the economic system to the rich and the burdens of the economic system to everyone else.  This is just another element of the class warfare that has been waged for the last few decades to allocate gains to the wealthy.

cross posted with ataxingmatter

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Fact check Ryan in the Debate

In the Vice Presidential debate Ryan said that the Kennedy tax cuts generated so much growth that tax receipts increased enough to offset the revenue losses.

When I look at the data it sure looks like this claim is another one of his Any Rand fantasies.  The economy did grow rapidly after the Kennedy tax cuts,  but the deficit remained high. throughout  the  JFK-LBJ administration.  Moreover, like Reagan, LBJ finally had to raise taxes to recover the lost revenues.

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Debt and Growth

Art at The New Arthurian Economics and I are looking at the relationship between debt and economic growth.  Art started with an observation of two FRED series, total credit market debt owed (TCMDO) and Gross Domestic Product (GDP,  nominal or GDPC1, inflation adjusted – take your pick.)

Graph 1, from FRED, shows these data series.  I’ve chosen nominal GDP and, for reference, also included the total Federal Debt.

 Graph 1 TCMDO, GDP and Total Federal Debt

In 1950, TCMDO was about 1.3 times GDP, but growing a bit more quickly.  By 1980, the ratio was 1.6, and by 1987 it was greater than 2.  Now that ratio is approaching 4.  Note that TCMDO is also close to 4 times greater than total public debt.  This is why Art and I agree that private, not public debt is the problem that needs to be addressed, but is largely ignored.

Linked here are Art’s posts with graphs of YoY growth in both factors, pre 1980 and post-1980.  Pre 1980, their moves are similar in magnitude, and pretty well coordinated. Post 1980 there is still some occasional similarity of motion, but the coordination breaks down and debt growth is generally quite a bit higher than GDP growth.  The 80′s in particular stand out as being starkly different from the previous period.

Graph 2 shows the entire data set, since 1952.

Graph 2 YoY % Growth in TCMDO and GDP

These observations led Art to the reasonable hypothesis that, “Output growth slowed when debt became excessive.”  This, in fact, might explain the great stagnation.

I suggested, and Art accepted two corollaries to his hypothesis.

1) There is a non-excessive amount of debt. Let’s call it “just right.”
2) Below the “just right” amount, there might also be “not enough.”

Actually, there is a lower level hypothesis, to which Art’s is corollary: That there is a functional relationship between debt and growth, in which growth is the dependent variable.

This is what I will explore in this post.

Graph 3 is a scatter plot of GDP vs TCMDO YoY % change for each, FRED quarterly data from Q4, 1952 through Q2, 2012, with a best fit straight line included.

Graph 3 GDP vs TCMDO, YoY % Change

The relationship is quite clearly positive.  The R^2 value at .39 is rather low, but not terrible.  There is quite a bit of scatter in the data.  Note the circle of data points around the left end of the line.  More on that later.

Next, I divided the data by decades, frex, 1961-1970.  This admittedly simplistic data parsing reveals that the slope and R^2 values are strongly variable over time.  Graph 4 shows the scatter plot along with the slope and R^2 values for each decade.  These data values are arranged in the chart in chronological order and color matched with the corresponding data points.

 Graph 4 GDP vs TCMDO, YoY % Change by Decade

I’ve added a brown line connecting the dots for the first decade of this century.  The chronology proceeds from a cluster near the center of the graph into a clockwise circular spiral.

Graph 5 shows how the slope and R^2 vary over time.

 Graph 5 Slope and R^2 Over Time for GDP vs TCMDO

After the 60′s, the slope plummets, and by the 80′s R^2 is a laughable 0.035.  Though the slope has remained low, R^2 has since recovered to 0.38, which is near the whole data set value of 0.39, and only slightly less than the 0.40 to 0.44 of the first three decades.

The slope changes can be interpreted as generally less GDP bang for the TCMDO buck, as the TCMDO/GDP ratio increases.  This is totally consistent with Art’s hypothesis.

I have more to say about the GDP -TCMDO relationship, but this post is getting long, so I’ll save it for a follow-up.

For now, I’ll close with a few questions.

1) Do you think we’re on to something?
2) What do you think of the methodology?
3) “Excessive debt” is suggestive, but non-specific.  How should this concept be quantized?
4) How should I go at exploring corollaries 1 and 2 mentioned after Graph 2?
5) Any thoughts on what was there about the 80′s that blew up the prior debt – GDP relationship?
6) Is there such a thing as productive vs non-productive debt, and how would they be characterized?

I look forward to your constructive comments.

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The Effect of Capital Gains Tax on Investment – Appendix

In comments to my previous post, Robert requested the unsmoothed data from Graph 3.  Here it is.   GPDI is plotted against the Capital Gains Tax Rate.

Since the Capital Gains Tax Rate (X-axis) is quantized, the result is columns of data.  Compared to the smoothed version, there is little change in either the slope or intercept of the best fit straight line.  R^2 is, of course, much lower.

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