UC Davis Econ in the News

(We need a new phrase that means the same thing as “in the news” but refers to links from high-profile blogs…)

Prof. Peri’s work is critiqued by his evil arch-nemesis George Borjas. (Hey, we have to make this fun some how…)

Borjas has doubts about Peri’s assumption that low-skill natives and low-skill immigrants are compliments. He goes on to say that employers must be big winners in the immigration game because they spend lots of money lobbying Congress to get pro-immigration legislation passed.

Commentator Sami B has this observation, “the mere fact that foreigners at the same skill levels are willing to work for lower wages suggests to me that the “native” labor at time t was merely accruing rents in the form of income beyond the marginal productivity of their labor.” The point: who’s exploiting who? If immigrants can come into the country and do the same jobs for less, then the natives who currently have the jobs are getting paid more than they’re worth.

Actually, this supports Peri’s “hey they’re compliments” theory. Before the immigrant comes, natives are doing two jobs in one. One requires skills (language or other technical skill) and is high paying. The other is manual labor and low paying. When the immigrants come, they take the manual labor job (at low pay) and the natives specialize in the high paid, high skill job.

Division of labor is loverly.

Silly antecedents

Dani Rodrik is a comedian:

Suppose you are a government that has some second-best policy instrument at your disposal (say tariffs) to correct a market failure which an industry is subject to. You recognize that the policy has some costs (rent-seeking, and so on), and you use your policies accordingly to maximize national welfare.

Hah! Hah!

Seriously. Why not just assume the distortion away by supposing firms and consumers have social welfare as their objectives? Do government buildings have magical selfishness-removing force fields surrounding them?

Immigration Bill

I’ve been chastised because I haven’t said anything about the Bill. Mostly I haven’t commented because it doesn’t seem very likely anything will come of it. The Republican Base is against it, Democrats are leaning protectionist/populist and its soon to be election season so nobody wants to piss off their voters.

But if parsing the proposed legislation is what you want, here’s a conservative’s point by point take on it. If you don’t trust that, do-it-yourself here.

My general sentiments are more close to this NY Times editorial. Immigration is a particularly American tradition that I’m proud of in the abstract. But more importantly, I’m particularly proud of my own family’s heritage as “new comers” to this country (Ambrosini’s have been here in Northern California from Switzerland for about 125 years).

Low skill immigrants compete with natives with low education, but not that much. Even to the extent Mexican immigrants (and this debate is about Mexican immigrants) compete with Americans, I’m not sure why we should be protecting low paying jobs. No one is entitled to a job and if we’re going to have creative destruction, why not have it on the low end of the skill distribution?

In my perfect world, the borders would be completely open. The Econ 101 theory tells us that immigration controls, like all restrictions on trade, are bad for society. The data basically say there is little cost to immigration, even if you think evaluating natives separate from the immigrants is an ethically ok thing to do (i.e. what’s the relevant moral community?). Mostly though the best argument for the free flow of people, especially from poor countries, is there’s a positive cultural externality to adding these people in our country. Immigrants are just cool people. They have gumption, they picked themselves up from where they were and moved far away from home. They’re hard working and they have good family values. (… I’m going to get shit for that one…)

Given there’s enough paleo-conservatives out there (e.g. 2/3rds of my family) that oppose immigration, while no doubt being sons and daughters of immigrants, open borders will never happen. So, my compromise would be guest worker program that moves people towards regular citizenship. My fear with this Bill is that we’d create second class citizens, breaking the tradition of the American melting pot.

That said, I believe in the rule of law. We have these silly laws and they should be followed until the law is changed.

More at Dani Rodrik’s blog and Tim Lee responds.

Irrationality as Pollution

There’s too much pollution because the cost of producing it isn’t born by the producer. Bryan Caplan thinks there’s too much voter irrationality for the same reason:

In a sense, then, there is a method to the average voter’s madness. Even when his views are completely wrong, he gets the psychological benefit of emotionally appealing political beliefs at a bargain price. No wonder he buys in bulk.

For example, our tribal ancestors’ brains evolved to distrust strangers. Today there remains emotional resonance to that distrust and as a result people are more likely to support limitations on immigration. Bryan argues people bare no cost for this belief as they benefit, if even slightly, from the primordial emotional feedback. The result is people vote for irrational things like immigration restrictions.

Bryan goes on to claim that voters have systematic biases such as this on many other subjects. In the end, democracy creates a lot of pollution.

…but can we trust anything from a people that loves David Hasselhoff?

Global warming, again. Now that we’ve completely wrapped up the science (its definitely happening, duh!), we turn the question of whether or not it will do harm.

There is an optimal global temperature. Is it the one we have now? Is it a few degrees cooler? Is it a few degrees warmer?

(h/t ./. BTW, has the commentary sucked on slashdot lately or is it just me? The most insightful comment was this one and it wasn’t really about the post.)

Texting the Fed

I think this is cool.

Prof. Cogley warned us against textual analysis a la Romer and Romer today in lecture. Figuring this is a plot to steer us away from interesting research topics (he wants to keep them for himself, of course), I dove right into the Fed meeting notes and did some textual analysis. Below are some results (using this tool):

More talk about velocity under Volker, but less talk about inflation and unemployment.

The next FED chairman… me

Ben Bernanke agrees with me when I said, “Let’s make trade free, but figure out ways to ease the transition to the new, better world.”

The better approach to mitigating the disruptive effects of trade is to adopt policies and programs aimed at easing the transition of displaced workers into new jobs and increasing the adaptability and skills of the labor force more generally.

(h/t macroblog)

Gains of trade

Sometime, long ago, I got the religion that free trade is good. It seems so obvious that freeing people to trade at will must make them better off. If it didn’t, they wouldn’t trade. Right?

I don’t know if I should be more bothered by the fact that I just *believe* this economic dogma without knowing precisely why its true or that some of the best economists can’t agree on why its true (or if its true at all).

It seems to me the argument is over how fast it takes economies to shift from one equilibrium to another*. Proponents of free trade are saying “in the long run and under ideal conditions, trade makes everyone better off” and opponents are saying “the day after trade is made free, some people are made worse off.” If this is a good characterization of the debate, then it seems the policy implication is pretty clear. Let’s make trade free, but figure out ways to ease the transition to the new, better world.

UPDATE: Tyler Cowen weighs in.

UPDATE 2: macroblog talks theory vs. reality.

*Saying factors are not mobile is equivalent to saying the transaction costs for moving factors are really high. A legal trade barrier doesn’t make it physically impossible to move factors, for example, it just means its really expensive to do so (because if you do so and are caught they call you a smuggler and you suffer punishment or, worse, opprobrium). Adjustment costs add interesting dynamics to models, but if they change the welfare implications of a model I don’t see why the policy isn’t to just remove the the adjustment costs. In other words, if Rodrik is right about Heckscher-Ohlin being a better model than Ricardo, why not remove the barriers that are making capital immobile (e.g. remove trade barriers, increase access to capital markets, etc)? If the observed dynamics can only be replicated by adding transaction costs to our models (e.g. immobile capital, CIA restrictions in money models, etc), shouldn’t the policy be to remove those frictions? Go ahead, start lecturing me about second best policies, but you have to explain why we’re in the second best world to begin with.