The Andrew Samwick Archives
In more than five years of blogging, I have noticed that posts on immigration generate some of the most heated exchanges in the comment section. Last week's short post on the new Arizona immigration law was no exception. Here are some more points I'd like to make.
First, what does the law mean? There have been different characterizations presented in the media, but what I had in mind was similar to this one presented by Roger Noriega:
The Arizona law requires the police to determine the immigration status of any person who is stopped for any "lawful" reason. Only if that person does not present valid, government-issued identification is there a "reasonable suspicion" that he or she is "unlawfully present in the United States," after which the officer must make reasonable attempts to verify the person's immigration status. State authorities are required to report the arrest or conviction of an illegal alien to federal immigration authorities. The law requires an illegal alien (or a lawful alien who is not carrying his green card) to pay fines and jail costs. The vast majority of the bill is dedicated to imposing stiff sanctions on those who employ or smuggle illegal aliens.
This is consistent with how I think we should begin addressing illegal immigration. (See my first post on immigration reform from March 2006.) If this is not the way the law is intended to work, then the law should be modified.
The latest from Gene, at his must-read "The Government We Deserve," is some advice on making the budget commission a success. My favorite:
Start developing your story line and displays now, not when you're about to issue a final report. One of the worst mistakes I see so many commissions and projects make is trying to develop a story line during the last few days when decisions are finally made. The story it tells the public should be accurate and fair, but it also needs to be well told to garner its support. And that requires a lot more work than an eleventh-hour all-nighter. As an example from tax reform in the mid-1980s, the distributional tables used before that time would have made it look like reform would hurt the poor (because people with huge incomes and huge tax shelters were being measured as "poor" when their shelters were netted against their other returns). As coordinator of that study, I set up a group to figure out how to change that display early on; there wouldn't have been time at the end.
Read the whole thing.
I think most of the negative reaction to the recently signed immigration law in Arizona has it exactly backwards. If you told me that by carrying personal identification and producing it when asked by state police, I could play some role in preventing one of my countrymen from meeting the same fate as Rob Krentz, I would happily do it. I would consider it a small price to pay, as I do each time I show identification at legal border crossings. The legal residents of Arizona, of whatever race or ethnicity, should be banding together to protect the other legal residents of their state, of whatever race or ethnicity, against harm that results from illegal crossings of their southern border. Failing to protect each other from violent crime -- not from a request for identification from state police -- is what "undermines basic notions of fairness that we cherish as Americans."
From time to time, I have mentioned a "Green Tax Swap" as an appropriate policy to raise the price of carbon emissions while protecting lower-income workers from the higher costs of the carbon-intensive goods and services that they consume. Gib Metcalf provides a good discussion of implementation and distributional consequences here. Some new research by Don Fullerton and Holly Monti suggests that it would be more difficult than is presently believed to make the swap distributionally neutral. Here's the abstract:
During the fourth quarter of 2008, economists Murillo Campello, John Graham, and Campbell Harvey conducted a survey of CFOs to understand their reactions to the financial crisis. What they found is presented in their new working paper and summarized in this digest article. One highlight:
Constrained firms, on average, said they plan to cut employment by 11 percent, technology spending by 22 percent, capital investment by 9 percent, marketing by 33 percent, and dividends by 14 percent in 2009. Also, 13 percent of such firms tapped their lines of credit in order to have cash to meet expected needs, and another 17 percent did the same in case their banks shut off their credit. Few unconstrained firms report plans for significant cuts or concerns about the availability of credit during the period.
The question has the standard answer -- the next political party willing to compete for his vote. The Tea Party movement is an attempt to get both of the main political parties to favor a small government agenda. It will likely get some explicit converts among the Republican Party or stand up its own candidates and make it more difficult for Republicans to get elected. In today's Washington Post, Philip Rucker reports from Raleigh on an analogous movement gaining traction in North Carolina:
A political rebellion is brewing inside an old funeral home near the state Capitol here. Frustrated liberals and labor organizers are taking aim at the Democratic Party, rushing to gather enough signatures to start a third party that they believe could help oust three Democratic congressmen.
Felix Salmon posts the latest idea in alleviating the burden of foreclosures through options for current owners to become renters:
What happens when you cross right-to-rent with mortgage principal reductions, and turn the whole thing into an entirely voluntary private-sector program with no government involvement whatsoever? It might look a little bit like American Homeowner Preservation, a for-profit company which has a very interesting idea for keeping people in their homes.
I was looking for something clever to post on Tax Day and found it courtesy of Diane Lim Rogers at EconomistMom:
For all the complaining you have done on your Senate campaign trail, and then your presidential campaign trail, and now even as President about how unaffordable and unfair and in general not very smart the Bush tax cuts were, why is it that the centerpiece of your–emphasis on your–tax policy thus far is the deficit-financed extension of the vast majority of these very same (not very smart) tax cuts?
I read the same Washington Post story on yesterday's release of the Monthly Treasury Statement as did Stan and Brad DeLong and thought it was one of the worst examples of journalism I've seen lately. No member of the Obama administration spoke on the record for the story. To report anonymous opinions as if they are news is to have The Washington Post lower, not raise, the quality of the discussion.
The proper report on the economic news is that the cumulative deficit since the start of the fiscal year is -- for the first time in the fiscal year -- lower than the corresponding number in the prior fiscal year. That this has finally happened in the sixth month of the fiscal year should indicate to all involved, whether David Cho as the author of the story or the anonymous administration officials, that this event cannot be claimed to be the start of a trend any more than it can be claimed to be another blip.
Zachary Goldfarb reports in today's Washington Post about the SEC's efforts to reform its enforcement image. There are plenty of examples given that illustrate how far the SEC has to go, and I am not going to argue that enforcement shouldn't be better and that securities fraud is okay.
But lax enforcement was not the SEC's main contribution to the financial crisis. The place where the SEC screwed up, and the revelation that should have shaken things up 18 months ago, was this event, reported by Stephen Labaton in The New York Times:
Hot off the virtual press is the Employment Report for March. The key numbers are:
- Total nonfarm employment was up 162,000, with 48,000 accounted for by the hiring of temporary workers for Census 2010.
- Nonfarm employment growth in the prior two months was revised upward by a combined 62,000 jobs.
- Manufacturing employment was up 17,000, with 45,000 jobs added over the past three months.
- Temporary help services added 40,000 jobs over the month and over 300,000 jobs since September.
- Total unemployment stayed at 9.7 percent, with net job gains in the household survey offset by increases in the labor force.
- The composition of the unemployed shifted toward those unemployed for longer than 26 weeks.
I say that this report is good enough for now because this is what the labor market looks like when it starts to bottom out and slowly recover -- overall job growth turns small and positive, cyclically sensitive sectors like temporary help services grow more rapidly than most, and it is tough to make progress against the unemployment rate because the number of job seekers may go up in tandem with total employment. I was at CEA in 2003-4 as the labor market went through the bottom of its last cycle, and I am having a little deja vu.
States and localities across the country are wrestling with large, unfunded pension liabilities. This is a problem that has been building for quite a while. The "problem" with defined benefit pension plans is that the temptation to make the promise and not fund it is too great for plan sponsors to ignore. In yet another realm, there is going to be a reckoning, when state taxpayers now balk at the size of the pension promises they will be asked to honor. It wouldn't surprise me to see some of the worst offending states clamor for federal assistance -- that would be a bailout -- when the bills come due.
So it was encouraging to read this article in my local newspaper this week. New Hampshire is, at the very least, removing some of the worst incentives embedded in the design of its public pension formula:
Eleven months ago, I wrote a post with the same name as this one reflecting on why the Political Right's fortunes were sagging in the wake of Tedisco's win in the NY special election and Specter's defection. With health care reform now passed, I thought it worthwhile to revisit the idea I raised in the post:
[T]he Political Right has a problem in addressing policy issues in which people are fundamentally connected to each other. Leaving aside the recent challenges of the financial crisis, the big issues in domestic public policy are health care, education, and the environment. In each one, the choices that one group of people make affect the opportunities available to other people in a fundamental way -- beyond simply changing relative prices as people interact in free markets. The connections come in different ways for each of the issues, but they are always related to basic notions of fairness.
In health care, the connection comes through the formation of the insurance pool. In our current setup, the pooling occurs largely around employment, which advantages some and not others and can in extreme cases leave out the sickest entirely.
What distresses me most about Bruce's post is not that David Frum needs to find a new home -- he's talented and will land somewhere. It is the juxtaposition of the AEI position on health care reform -- speak no non-evil -- with this bit from Patrick Ruffini, a rising star among Republican activists (h/t Andrew Sullivan):
When it comes to health care policy, conservatives have been seriously outgunned. And I say this in all fairness to the friends I have who work night and day on free market solutions to health care. On economics, you always know what the conservative answer is: tax cuts and generally hands-off regulatory policies to spur economic growth. No matter how good the Democrats' promises sound, we return to these simple, pro-growth touchtones that resonate with a majority of Americans who intuitively get that you can't micromanage your way to a better future.
On health care, I have no idea what our basic guiding principle is. Seriously, I don't.
We have tried ineffectively to stretch free market rhetoric to health care without appreciating that health care is already too far removed from a free market for the analogy to make sense. Real markets are sensitive to price. Health care isn't. The insurance companies hide the cost of actual care from the consumer.
What we have lacked in this debate is a simple clarion call to address an aching need -- bringing free market principles to bear to improve tangible health outcomes.
First, it is crazy to say that he's got no idea on "our basic guiding principle."
The big news story today seems to be that more than a dozen state attorney generals are putting together a legal challenge to the individual mandate in the recently passed health care reform. Here's what Bill McCollum of Florida said:
"It forces people to do something -- in the sense of buying a health care policy or paying a penalty, a tax or a fine -- that simply the constitution does not allow Congress to do," McCollum said at a news conference in Tallahassee.
McCollum, who is seeking the Republican nomination to run for Florida governor, said the healthcare reforms would add $1.6 billion to Florida's spending on the Medicaid health program for poor people.
I'm no legal scholar, but I cannot see how handling the mandate through the 1040 tax form is any less constitutional than, say, tax deductibility of IRA contributions. Start from a baseline where everyone is presumed to have contributed to the maximum amount to an IRA. The IRA deduction operates as:
I was distressed to read this post by Megan McArdle about "The Future after Health Care," particularly this part:
There seem to be three complaints here. The first is that the American people don't want health care reform, or at least this version of health care reform. I don't think anyone will hold up the bill that will pass as exemplary, but it does reflect elements of health care reform that Democrats campaigned on and won on in 2008. So I have a hard time seeing this as doing violence to the will of the people as it is typically expressed in our electoral system. Elections matter. This is how they matter.
Tensions between the US and Chinese governments flared up this week regarding the negative effect of the undervalued yuan on US exports. I don't think claims that the yuan is not undervalued hold much water -- China maintains a fixed exchange rate to the dollar, accumulates dollar-denominated assets, and runs a large trade surplus with the US. How exactly does that suggest that the yuan is anything but undervalued relative to what it would be if it floated? What to do about is more subtle.
Paul Krugman is correct when he calls this a drastic form of mercantilism, and he has a point when he argues for a tough stance against the low value of the yuan:
Look, I know that many economists have a visceral dislike for this kind of confrontational policy. But you have to bear in mind that the really outlandish actor here is China: never before in history has a nation followed this drastic a mercantilist policy. And for those who counsel patience, arguing that China can eventually be brought around: the acute damage from China’s currency policy is happening now, while the world is still in a liquidity trap. Getting China to rethink that policy years from now, when (one can hope) advanced economies have returned to more or less full employment, is worth very little.
These mercantilist games have historically been played by sovereigns who think only of their own imperial glory -- how much gold they have in the palace -- rather than the welfare of their citizens. The citizens are forced to work, to export, and to send the foreign exchange not to their own consumption but to their sovereign's coffers. Obviously, China's leaders have something in mind besides improving the near-term consumption levels of Chinese citizens. Their concern is continued employment growth.