Back in 2010, the Tax Foundation released an estimate of the distributional effects of the Affordable Care Act in fiscal year 2016. The numbers are dated, as the post-cliff ATRA tax code and new estimates of the cost of subsidies, etc., will have moved things around. But it is a good guide to the rough magnitude of the impact of the ACA on income redistribution. The taxes embedded in the ACA, e.g., the unearned income Medicare contribution tax, are fairly narrowly-targeted to high-earners, and so redistribution away from the highest-earners is substantial. And the average value of subsidies for households at the 40th household income percentile and below is quite large. If the goal of the ACA were simply to reorient resources from the rich to the poor (and not to spend the money wisely, etc.), it is likely to be a success. Yet the ACA isn’t actually transferring cash to low-earners but rather an in-kind benefit. The providers of this in-kind benefit (insurers, medical providers) will capture a good amount of the value of this transfer of resources. Coalitions in favor of expanding in-kind benefits profit from having focused constituencies working on their behalf, while coalitions in favor of, for example, increasing wage subsidies or unconditional cash transfers can’t say the same. Increasing the purchasing power of low-income households will benefit the members of these households and the various businesses that cater to them, but this is a fairly diffuse and diverse group. One thing that can be said for increasing wage subsidies, however, is that like the cause of subsidizing medical care, it has a moralistic appeal. 

I tend to think that we’d be better off if more redistribution took place via conditional transfers like wage subsidies rather than in-kind transfers, like subsidies for medical coverage. In an ideal world, increasing the purchasing power of low-income households via wage subsidies would make low-income individuals more attractive customers for innovative, low-cost medical providers. But betting on this outcome entails betting that low-income individuals will make good decisions in guarding themselves against the risk of catastrophic expenditures. So the push for coverage expansion is motivated not just by humanitarian gut instinct or by the narrow interests of medical providers, but also by an implicit conviction that many people (if not most) are terrible at planning ahead, or that many (if not most) would prefer not to do so. Some argue that the chief virtue of Canada’s single-payer system and others like it is that they remove the maddening uncertainty and switching costs that arise in a more fragmented payment system like our own. 

Critics of the Affordable Care Act need to reckon with all of these issues: because the ACA is very much about redistribution, whether or not its advocates acknowledge that this is the case, is there another model of redistribution that we prefer? Are the frustrations that arise under a fragmnted system actually worth it? The ACA will still leave us with a fragmented system, but is there a different fragmented health system that will yield much better results that centralized systems? I think that the answer to the latter question is probably yes, but ACA opponents need to do a better job of explaining how and why. One of most convincing arguments I’ve heard against a more centralized U.S. health system is that American political culture is allergic to rationing, and so only by having private sector intermediaries governing decisions about how health dollars are deployed can we have any hope of imposing meaningful cost control. When a private insurer tells you that you can get an MRI at a deep discount if you do it at 4 AM, you might be grateful for the opportunity to take advantage of a deal. But if Medicare told you to do the same, you might be angry at Congress. Disintermediation thus has a pretty significant downside. 

According to Congressional Quarterly (in a paywalled article), members of the House immigration reform group have agreed in principle on a 15-year path to citizenship for unauthorized immigrants and, for now at least, to table the issue of creating a guest worker program. But Heidi Przbyla and Kathleen Hunter of Bloomberg report that the U.S. Chamber of Commerce is pressing for doubling the number of temporary work visas granted to less-skilled workers, and that some influential congressional Republicans want to go even further: 

In talks during the drafting of the Senate bill, labor unions secured caps on the number of foreign, low-skilled workers allowed in the U.S., particularly in the construction industry suffering high unemployment. That agreement reached with the Chamber is drawing criticism from House Republicans.

“The Senate bill is a nonstarter in the House,” said Texas Republican Representative John Carter, a member of the House’s immigration negotiating group. “I’m not going to accept what the Senate and the Chamber came up with.” Geoff Burr, vice president of federal affairs for Associated Builders and Contractors, a group lobbying for higher caps, blamed Democrats for the impasse.

“They do have an incentive not to agree because then the Senate would be the only game in town,” he said.

The matter may not be closed in the Senate either. Senator John Cornyn, a Texas Republican, said he would wait until the legislation reaches the Senate floor to make pro-business alterations to the temporary worker program — eliminating a 15,000-worker annual cap on construction-industry visas.

Keep in mind that only a fifth of Republicans believe that legal immigration levels should be increased while 41 percent believe that they should be decreased, according to the Pew Research Center. It seems likely that these numbers are somewhat different in Texas, but it is not at all clear that Carter and Cornyn are representative of conservative opinion in the electorate. Because I favor a substantial increase in skilled immigration and a reduction in less-skilled immigration, I see the decision to punt on a guest worker program as a good thing. One problem, however, is that the U.S. Chamber of Commerce might lose interest in a legislative proposal that does not increase less-skilled immigration. While technology and financial services firms are keenly interested in increasing skilled immigration, and would likely be content with legislation that did little more than that, firms in low-wage, labor-intensive services would be sorely disappointed. And it is these firms that are providing much of the muscle behind the immigration reform effort. Without them, it is somewhat more likely that conservative lawmakers — particularly conservative lawmakers who are skeptical about the wisdom of creating a path to citizenship for unauthorized immigrants — will defect from the legislative push. 

Mina Kimes profiles Doug Oberhelman, CEO of Caterpillar, one of the most successful U.S. manufacturing firms, in the new Bloomberg Businessweek, and in doing so she illustrates a number of important economic ideas. In the hands of a lesser journalist, one suspects that the article would become a tirade against corporate greed. And there is fodder in the article for readers eager to draw the conclusion that Caterpillar’s efforts to fight wage increases even as its profits have reached new heights are somehow sinister. Mina contrasts Oberhelman’s compensation with the hourly wages of production workers, and she conveys the anxieties and concerns of Caterpillar employees who fear that manufacturing employment will never give them the middle-class prosperity they badly want. But she also situates the Caterpillar story in the larger context of slack labor demand:

In 2005, long before recession loomed, Oberhelman oversaw the company’s plan to prepare for a steep financial downturn—a task that made him unpopular, he says, but proved invaluable. After laying off 30,000 people in 2009, Caterpillar made it through the crisis without losing money. Last year, Caterpillar made $45,000 per employee, up from $12,000 in 2007. “The argument they make is, at a time when we’re very profitable, we can’t afford to more equitably distribute the wealth, because there may come a time when we won’t be,” says Robert Bruno, a professor at the University of Illinois at Urbana-Champaign’s school of labor and employment relations. “So when is it appropriate to share the wealth?”

Caterpillar employees know that the answer to this question is up to Oberhelman. The dwindling number of manufacturing jobs combined with the decline of unions has weakened workers’ leverage. When Caterpillar offers jobs in nonunion Southern states that pay $12 an hour, applicants line up around the block. “You’re basically expendable,” says Emily Young, a welder who has worked at Caterpillar’s Decatur plant for eight years. “For every one person who doesn’t work, there’s five waiting in line.”

The root cause of Caterpillar’s unwillingness to make concessions to organized labor, as Young understands, is that Caterpillar has the option of shifting production to lower-cost locations. Caterpillar could raise compensation for its legacy workforce and in doing so reduce its profits, but this would lead to an investor revolt and it might also strengthen the relative position of Caterpillar’s competitors or encourage new firm entry. The only durable solution to the problem of stagnant manufacturing wages is, according to Oberhelman, a stronger economy and a tighter labor market:

If Caterpillar refused to pay its executives high salaries, they could probably find other jobs, whereas hourly workers have much less mobility. Oberhelman acknowledges this dynamic, though he tends to characterize Caterpillar’s role as a passive one, as though the company lacks the power to choose how it disburses its profits.

When will workers’ wages rise? Oberhelman exhales sharply. “The answer to that is: when we start to see economic growth through GDP,” he says. “Part of the reason we’re seeing no inflation is because there’s no growth. Inflation was driven by higher labor costs, not higher goods costs. Frankly, I’d love to see a little bit of that. Because I’d love to pay people more. I’d love to see rising wages for everybody.” [Emphasis added]

I found Oberhelman’s statement, which strikes me as correct, intriguing in its potential political implications. Stronger economic growth would presumably increase demand for Caterpillar’s products and those of its competitors, like Komatsu. It might even spur other firms to enter the market, thus putting pressure on Caterpillar’s profits and increasing demand for workers with the relevant set of specialized skills. One issue, of course, is that as manufacturing becomes more capital-intensive, it leads to a bifurcation of the workforce, with some job functions demanding higher skill levels and others demanding the same or lower skill levels. But stronger growth will tend to raise labor demand for workers of both types, albeit unevenly, and so firms like Caterpillar would have little choice but to raise compensation levels. So while it is tempting to demonize Caterpillar in a climate of slack labor demand, the real blame lies, I would argue, with policymakers who have failed to deliver the conditions for higher growth. 

Moreover, Oberhelman seems to be suggesting that he is not averse to somewhat higher inflation if it is part of a package with higher real GDP growth, a view that is not dissimilar to that of market monetarists like Scott Sumner. I’m reminded of hedge fund manager Daniel Loeb’s recent letter to senior Sony executives, as described by Andrew Ross Sorkin and Michael J. De La Merced earlier this week. Loeb offered fulsome praise for Japanese Prime Minister Shinzo Abe, claiming that Abe’s leadership might allow Japan to “regain its position as one of the world’s pre-eminent economic powerhouses and manufacturing engines”:

Mr. Loeb has recently expressed his interest in Japan. Referring to the changes by the Abe government, he called it “a huge game change” at an industry conference last week. “And there’s a lot more room to go,” he added.

Mr. Abe has called his revival effort a plan of “three arrows,” including aggressive monetary easing by the Bank of Japan and enormous stimulus spending by the government.

So far, that effort appears to have drawn investor plaudits. The yen weakened in value last week, to 100 to the dollar, a level unseen in four years, helping local companies like Sony and Toyota. And the Nikkei 225-stock index has risen 43 percent so far this year. At the same time two years ago, the Nikkei was down 5.7 percent.

This is particularly interesting because leading hedge fund managers have tended to be very critical of aggressive monetary easying, which has been the main arrow in Abe’s quiver. Might influential business leaders like Oberhelman and Loeb embrace the idea that hitting 2 percent inflation might prove an economic boon, and press their allies in Congress to respond accordingly? That is, will they embrace what we might call the Sumner-Pethokoukis thesis — that what the U.S. needs are free markets and NGDP targeting? I wouldn’t hold my breath, but the idea isn’t crazy. 

In The New York Review of Books, Anne Applebaum, author of the brilliant Iron Curtain, reviews Sheryl Sandberg’s Lean In, contrasting it against Hanna Rosin’s very different The End of Men. She concludes on a provocative note: could it be that having more women in senior leadership roles, the goal Sandberg identifies as being of transcendent importance, is not as important as some of the broader social and political goals that Sandberg largely ignores, like redressing the closely related problems caused by family breakdown and deterioration of the labor market position of less-skilled men. If greater representativeness doesn’t have a concrete impact on the lives of working women, perhaps it shouldn’t be our foremost concern. I’m really not doing the essay justice — you ought to read it. 

The casualties at Rana Plaza have prompted a far-reaching discussion of the economics and the ethics of the global garment manufacturing supply chain. Earlier this week, Keith Bradsher of the New York Times described the scramble among retailers to identify new low-cost garment manufacturing locations in the developing world, a scramble that has taken on new urgency as Bangladesh’s reputation has been tarnished. Indonesia, which has a GDP per capita (PPP) two-and-a-half times as high as that of Bangladesh and a government that has improved markedly in recent years, has been gaining momentum. Bradsher reports that many elite brands had harbored concerns about Bangladesh’s reliance on high-rise factories, a reflection of rising land values in prime manufacturing districts, which are in turn a reflection of transportation bottlenecks that threaten the reliability of shipments.

One of the sources Bradsher interviewed, Rubana Huq, managing director of the Mohammadi Group, published an op-ed in today’s Wall Street Journal detailing the challenges facing Bangladeshi garment manufacturing firms. In it, she describes the cost components of a shirt that is sold at the wholesale price of $6.75: $4.75 is spent purchasing fabric, $1 is spent purchasing labels and accessories specified by the retailer, and the last $1 is divided among “cutting and making” (includes wages), capital expenses, securing credit for future inventory, and profits. 

Imagine an order for 400,000 shirts is spread over a four-line (meaning four rows of sewing machines, each row with 50 workers) factory of 1,600 square meters. Those 400 workers produce 3,077 pieces per day. The wage cost works out to about 38 U.S. cents per shirt. Another 15 cents goes to sending the shirt for a fine washing spin. Rent and utilities for the factory floor works out to about 11 cents per shirt, and head-office and marketing costs for the factory are 11 cents.

As for the remaining 25 cents, that will just about cover repaying a 10-year bank loan at 18% interest, which the factory owner has used for set-up costs along with a home and car. All is at a delicate equilibrium, until the owner feels compelled to give in to a firmly worded request from the retailer for an additional discount, or a demand to air-freight, at the manufacturer’s expense, some boxes of shirts that suffered a two-week production delay and now won’t be accepted by the retailer if they are any later than they already are.

In light of these very narrow margins, Huq suggests that a substantial increase in the statutory minimum wage will prove problematic. The Bangladeshi government has actually proposed a retroactive increase in the minimum wage, which will prove extremely burdensome to garment manufacturing firms locked into supply contracts. If Bangladeshi garment manufacturing firms didn’t face competition from Indonesia and other low-cost locations, they’d presumably have enough pricing power to raise prices and to finance upgrades in safety standards and much else. Adam Davidson’s latest column for the New York Times Magazine argues that just such an outcome is possible, because there aren’t many good alternatives to Bangladesh as a hub for garment manufacturing:

Many in Bangladesh fear that if the country becomes too expensive a place to make clothes, countless sewing machines will be sent to new factories in Nigeria, Kenya or Ghana. But Vijaya Ramachandran, an economist at the Center for Global Development, who recently studied the industrial prospects of sub-Saharan nations, says this outcome is unlikely. African countries may have a steady supply of unskilled labor, but a higher cost of living should keep them from competing with Bangladesh.

Ramachandran and I tried to figure out what countries might inherit Bangladesh’s T-shirt phase. Other than Burma, a long shot, Ramachandran couldn’t think of any. For now, Bangladesh might be where this centuries-long T-shirt journey ends, which means that their race to the bottom may be rooted in a misunderstanding. The country’s manufacturers can afford to take a step or two up the value chain. Not only can they pay their workers more, treat them better and house them in safe and clean factories, but there is also a significant economic incentive to do so.

The problem with Ramachandran’s line of analysis, however, is that countries more affluent than Bangladesh, like Indonesia, can also pick up the slack, as many of these countries are unevenly developed, and so they still have scope, and an appetite, for an increase in labor-intensive manufacturing. India, which has a GDP per capita (PPP) twice as high as that of Bangladesh, has many regions that are just as poor, and which are desperate for labor-intensive manufacturing work. In Why Growth Matters, the economists Jagdish Bhagwati and Arvind Panagariya recommend (somewhat ironically post-Rana Plaza) that reform its labor laws to match recent progress made by Vietnam and Bangladesh:

With the wages in China reaching levels at which it is likely to be forced out of these sectors, India is well positioned to become the world’s manufacturing hub. But if the costs of employment remain as they are, that opportunity is likely to be seized by a large number of smaller countries, such as Vietnam and Bangladesh. These countries allow firms to hire and fire workers under reasonable conditions and maintain a balance between the rights of both workers and employers. As a result, large firms in sectors such as apparel can be found aplenty in both countries and both have also seen significantly faster growth of the sector and done extremely well on the export front.

It should go without saying that not everyone believes that Bangladesh has done a good job of balancing the rights of workers and employers, yet it is true that employment in garment manufacturing has been a driver of poverty alleviation in Vietnam and Bangladesh alike, and that the unevenness of India’s economic development — with growth concentrated in knowledge-intensive services and other sectors that are not very labor-intensive while most workers remain in a moribund agricultural sector — is a profound problem. Garment manufacturing could facilitate the transition from low-productivity agriculture to higher-productivity export-oriented manufacturing, and it’s hard to imagine that India will keep screwing up on this front forever. So I’m inclined to think Huq is closer to the truth about Bangladesh’s (vulnerable) competitive position than Davidson and Ramachandran. 

Alan Tonelson, an economic policy analyst who has long been critical of free trade, has an op-ed in Bloomberg View which makes the case that the best way forward for Bangladesh and other developing countries is a reimposition of the quotas established under the Multifibre Arrangement, which expired in 2005. His basic argument is that quotas took the pressure off of manufacturing firms in exporting countries, as they could be confident that they wouldn’t be undercut by foreign rivals:

[W]ithout quota-granted guaranteed market access, cost-cutting became all the more important for smaller exporting countries simply to preserve their new gains. As U.S. trade data demonstrate, most of the freed-up customers were won by the huge Asian producers that enjoyed big natural and government-created cost advantages. For example, China’s share of U.S. apparel imports rose to 33.44 percent from 26.07 percent during the first two years of quota-free trade (2005-07) alone. Indonesian and Vietnamese sales boomed, too.

Significantly, Bangladesh also excelled, and like China, Indonesia and especially Vietnam, its market share has continued to grow, reaching 5.25 percent last year, despite the sluggish U.S. economy.

Unfortunately, however, much of the surge in Bangladeshi exports can be attributed to that country’s reliance on rock-bottom wages and firetrap factories, with the tragic consequences we recently witnessed. Worse, the dynamics of today’s quotaless apparel trade practically guarantee that better, costlier work conditions in Bangladesh will simply drive much production and jobs elsewhere. That is what occurred in higher-cost garment exporters such as Turkey and South Africa, as well as smaller Western Hemisphere and African producers — most of whose U.S. exports have fallen in absolute terms since the quotas ended in 2005.

I’m extremely skeptical about the wisdom of this approach, which would, among other things, raise the cost of apparel in the consuming countries. I have no intrinsic problem with higher apparel costs, particularly if they reflect changing consumer tastes and preferences, but Tonelson is explicitly counseling the repoliticization of global trade in apparel, a process that can easily be gamed by, for example, domestic manufacturers seeking to raise prices. That said, Tonelson’s op-ed deserves praise for having introduced a broader historical perspective into the discussion.  

I recently had the great pleasure of seeing Noah Baumbach’s Frances Ha. Though I don’t to make a habit of making film recommendations in this space, I highly recommend watching if if you get a chance. A.O. Scott has written a nice review that gets at (part of) why I found it very affecting. Earlier today, after watching a conversation between Canadian Prime Minister Stephen Harper and former Treasury Secretary Robert Rubin, I had a brief conversation with a friend which reminded me of the various ways in which an era of stagnant growth — we are now seven years into what looks to be a lost decade — is infantilizing. Scott’s review observes that “27 is not as old as it used to be, as in decades past “members of the American middle class could be expected to reach that age in possession of a career, a spouse and at least one child.” This reflects changing cultural mores, obviously. Yet it also reflects economic constraints. The rigors of adult life are more easily met when housing is affordable, when labor markets are tight and jobs churn and plenty of people “fail upward,” and when young adults profit from a broader climate of optimism. Under stagnant growth, in contrast, there is a collective tendency to lower our sights, and to put off daunting decisions and commitments. Simpler, cheaper, more accessible pleasures take precedence. I’m reminded of cultural stories chronicling the lives of young Japanese during that country’s lost decade, who purchased expensive consumer goods while living with their parents in cramped quarters. In most of America, economic life is more expansive than all that, even now. But for those who aspire to knowledge-intensive work, and who are burdened by student debt (see Annie Lowrey’s recent article on the subject), the world really does feel cramped. Some manage to lead comfortable lives by relying of strong family networks, and in particular on transfers from parents, an issue that is glancingly explored in Frances Ha. Baby boomers who acquired hard assets before the Great Disinflation of the 1980s are in many cases well-positioned to aid their adult children. Suffice it to say, not every young adult can rely on this kind of parental largesse. And so children of the meritocracy raised to have the same cultural and economic aspirations find themselves divided, with those who grasshoppers for parents on one side of the line and those who had ants for parents on the other, with divorce and other forms of family disruption complicating the picture. 

Frances Ha is a smart, well-crafted look at this landscape. My guess is that Baumbach and Greta Gerwig, who co-wrote the film and who portrays the protagonist, didn’t really intend to make some kind of larger statement about the cultural consequences of economic stagnation. Rather, they just made a really smart character study that is genuinely au courant. I still can’t help but connect it to these larger themes. And before you assume the film is crazily dour, it’s actually crazily uplifting once you make it to the end. 

Congressional Republicans are debating what they ought to demand in exchange for raising the debt limit. I am sympathetic to the view that we should not have a statutory debt limit. But if we’re going to have a negotation, what should Republican lawmakers ask for? Lori Montgomery of the Washington Post recently described the debate among House Republicans:

With the budget deficit falling far faster than anyone expected, House leaders have backed off their insistence that any debt-limit increase be paired with budget cuts of equal value. Now, it seems, the sky’s the limit.

At the meeting, 39 lawmakers lined up at microphones to offer suggestions. They ranged from tax and entitlement reform to approval of the Keystone XL pipeline to passage of a bill that would require congressional approval for any federal regulation that would impose more than $100 million in new costs on business.

At least one person wanted to take on late-term abortion in the wake of the conviction of Philadelphia doctor Kermit Gosnell. Others suggested repeal or delay of Obama’s health-care initiative. But for the most part, lawmakers tried to be “realistic,” aides said, suggesting measures that could reasonably be expected to both improve the economy and pass the Democratic Senate.

Approval of the Keystone XL pipeline and requiring congressional approval for large-scale regulatory initiatives both strike me as excellent ideas, as they can plausibly be described as growth-enhancing. Jonathan Adler has written extensively about the potential implications of the House-passed REINS Act:

Over the past several decades, the scope, reach and cost of federal regulations have increased dramatically, prompting bipartisan calls for regulatory reform. One such proposed reform is the Regulations of the Executive in Need of Scrutiny Act (REINS Act). This proposal aims to restore political accountability to federal regulatory policy decisions by requiring both Houses of Congress to approve any proposed “major rule.” In effect, the REINS Act would limit the delegation of regulatory authority to federal agencies, and restore legislative control and accountability to Congress. This article seeks to assess the REINS Act and its likely effects on regulatory policy. It explains why constitutional objections to the proposal are unfounded and many policy objections overstate the REINS Act’s likely impact on the growth of federal regulation. The REINS Act is not likely to be the deregulatory blunderbuss feared by its opponents and longed for by some of its proponents. The REINS Act should be seen more as a measure to enhance accountability than to combat regulatory activity.

Kristina Costa of the Center for American Progress has outlined the various objections to the REINS Act from the left, among them that the rule-making the legislation proposes to “rein in” essentially represent a technocratic process of implementing laws that have already been passed, and so there should be no concerns about the democratic legitimacy of even the most sweeping rules. The deeper question, however, is whether this delegation of regulatory authority to federal administrative agencies is appropriate in the first place. Adler writes:

Delegation may be expedient, or even necessary, but it also has costs. When Congress delegates broad regulatory authority to executive or independent agencies, it inevitably loses some degree of control over how that authority is exercised. The resulting loss of political accountability for regulatory decisions has allowed regulatory agencies to adopt policies at odds with congressional intent or contemporary priorities. This is particularly so when Congress delegates broad authority to pursue generic—almost platitudinous goals—such as advancing the public welfare or protecting public health. For instance, if Congress instructs a federal agency to adopt measures that will address a given environmental problem as far as is practicable, the federal agency retains substantial discretion to determine what sorts of measures should be adopted and at what cost. And should the agency veer off course and adopt a measure of which Congress disapproves, it is not so easy to put the genie back in the bottle.

As Adler goes on to argue, it is unlikely that limiting the delegation of regulatory authority will lead to a larger rollback of regulation for the simple reason that many regulations are actually pretty popular. All the REINS Act does is force lawmakers to accept responsibility for approving expensive new regulations — and some will presumably be very happy to do so. One implication of Adler’s argument, alas, is that the REINS Act won’t necessarily be enormously growth-enhancing. But it seems like a good measure to press for all the same. 

Neerav Kingsland of New Schools for New Orleans is the leading proponent of the idea of “relinquishment” in public education, i.e., that centralized school districts should as a general rule cede control of the actual day-to-day operation of schools to educators, and that they should focus on monitoring quality and creating government-managed enrollment systems to ensure equity. The goal is that over time, innovative instructional models will emerge and the most successful will expand while the least successful will shrink out of existence. He’s recently written a summary of the basic ideas behind relinquishment that I highly recommend. Neerav has a knack for reconciling seemingly opposed views.

One of the greatest intellectual contributions the economists Lant Pritchett and Michael Clemens have made to the study of migration is the concept of “income per natural.” Rather than compare countries only by GDP per capita, Pritchett and Clemens, both of whom are advocates of freeing global labor mobility as a poverty alleviation strategy, they propose comparing the incomes of individuals born in a given society, or income per natural. So rather than divide all measured economic activity in Guyana by the number of people residing in Guyana, they propose measuring the mean annual income of persons born in Guyana, whether they live in Guyana or Canada or Brazil: 

If income per capita has any interpretation as a welfare measure, exclusive focus on the nationally resident population can lead to substantial errors of the income of the natural population for countries where emigration is an important path to greater welfare. The estimates differ substantially from traditional measures of GDP or GNI per resident, and not just for a handful of tiny countries. Almost 43 million people live in a group of countries whose income per natural collectively is 50 percent higher than GDP per resident. For 1.1 billion people the difference exceeds 10 percent. The authors also show that poverty estimates are different for national residents and naturals; for example, 26 percent of Haitian naturals who are not poor by the two-dollar-a-day standard live in the United States. These estimates are simply descriptive statistics and do not depend on any assumptions about how much of observed income differences across naturals is selection and how much is a pure location effect. Our conservative, if rough, estimate is that three quarters of this difference represents the effect of international migration on income per natural.

Recently, Matt Yglesias explored the implications of income per natural for the U.S. immigration debate:

The foreign-born population in the United States is poorer than the native-born population. If all those people evaporated tomorrow, the average income of the remaining people would fall but per capita income would rise due to compositional effects. We would also have “more equality” since a disproportionate share of the poorest people would have vanished, and the incomes of capital owners would fall more than the incomes of wage earners. But again, very few actual people would be made better off this way. The better way to get the poverty-reducing effects of eliminating the immigrants is to simply count income per natural instead. The average income of people born in Mexico is higher than the average income of people residing in Mexico, because many of the people born in Mexico now live in the United States. Conversely, the average income of people born in the United States is higher than the average income of people residing in the United States, because many of the people residing in the United States were born in Mexico. [Emphasis added]

One of the reasons we rely on GDP and GDP per capita, however, is that it helps define the fiscal capacity of the state. If the main vehicle for social insurance provision and human capital investment were diaspora networks of naturals rather than traditional nation-states, this line of analysis would make a great deal of sense. Guyanese migrants to Canada would rely on social services and blended learning programs financed by taxes on all Guyanese naturals, thus raising the quality of life for Guyanese naturals in Guyana and around the world. (There is a case that remittance flows can be understood along these lines, but the transfers tend to be one way.) Canadian naturals wouldn’t need to be concerned about the cost of raising incomes among Guyanese naturals to Canadian natural levels, as (somehow) parallel standards of what constitutes a decent social minimum would co-exist in the same geographical space. Standards of living among Guyanese naturals might be somewhat lower than among Canadian naturals, and perhaps Guyanese naturals would congregate in neighborhoods with building codes and public safety measures that are better attuned to prevailing income levels. The trouble, of course, is that arrangements of this kind have gone out of fashion since the era of the Ottoman millet system, and would likely prove difficult to sustain. I don’t doubt that technological and cultural change might eventually move us in this direction – Neal Stephenson imagined just such a world in his science fiction novel The Diamond Age. But as long as we live in a world in which the nation-state remains the dominant institutional form, I think a focus on policies that keep GDP per capita high makes a lot of sense. 

Brink Lindsey argues against using IQ scores as a metric of innate ability:

Though the tests are good measures of skills relevant to success in American society, the scores are only a good indicator of relative intellectual ability for people who have been exposed to equivalent opportunities for developing those skills – and who actually have the motivation to try hard on the test. IQ tests are good measures of innate intelligence–if all other factors are held steady. But if IQ tests are being used to compare individuals of wildly different backgrounds, then the variable of innate intelligence is not being tested in isolation. Instead, the scores will reflect some impossible-to-sort-out combination of ability and differences in opportunities and motivations. Let’s take a look at why that might be the case.

Comparisons of IQ scores across ethnic groups, cultures, countries, or time periods founder on this basic problem: The cognitive skills that IQ tests assess are not used or valued to the same extent in all times and places. Indeed, the widespread usefulness of these skills is emphatically not the norm in human history. After all, IQ tests put great stress on reading ability and vocabulary, yet writing was invented only about 6,000 years ago – rather late in the day given that anatomically modern humans have been around for over 100,000 years. And as recently as two hundred years ago, only about 15 percent of people could read or write at all.

More generally, IQ tests reward the possession of abstract theoretical knowledge and a facility for formal analytical rigor. But for most people throughout history, intelligence would have taken the form of concrete practical knowledge of the resources and dangers present in the local environment. To grasp how culturally contingent our current conception of intelligence is, just imagine how well you might do on an IQ test devised by Amazonian hunter-gatherers or medieval European peasants.

The mass development of highly abstract thinking skills represents a cultural adaptation to the mind-boggling complexity of modern technological society. But the complexity of contemporary life is not evenly distributed, and neither is the demand for written language fluency or analytical dexterity. Such skills are used more intensively in the most advanced economies than they are in the rest of the world. And within advanced societies, they are put to much greater use by the managers and professionals of the socioeconomic elite than by everybody else. As a result, American kids generally will have better opportunities to develop these skills than kids in, say, Mexico or Guatemala. And in America, the children of college-educated parents will have much better opportunities than working-class kids. [Emphasis added]

Brink’s analysis strikes me as entirely correct. Yet its implications for the immigration debate are not entirely clear. As a matter of distributive justice, discriminating against a given class of persons on grounds of inherited disadvantage seems profoundly unfair. And if we collectively decide that our immigration policy ought to be crafted with global distributive justice foremost in mind, admitting large numbers of less-skilled immigrants is obviously the right thing to do, given the size of the “place premium.” But if our goal is instead to recruit immigrants who are likely to flourish in an advanced economy, the case for assessing immigrants on the basis of whether or not they possess the highly abstract thinking skills associated with success seems much stronger. This would be the case whether or not a relative lack of the skills in question reflects some intrinsic quality (which, like Brink, I’m pretty sure is not the case) or contingent historical circumstances. 

Recently, Greg Clark, author of A Farewell to Alms, has been pursuing a crazily ambitious research agenda on social mobility over long historical periods. He has been drawing on surname analysis to gauge the extent to which descendants of the upper classes of the 17th, 18th, and 19th centuries predominate in the upper classes of the present. His initial results are, frankly, rather discomfiting, as they at least suggest that — to grossly oversimplify matters — having literate ancestors two hundred years ago, when, as Brink observes, only 15 percent of people were literate, is associated with doing well in the 21st century. Viewed through this lens, the really interesting thing about the contemporary U.S. economy is not the persistence of inequality across groups, some of which were disproportionately literate two centuries ago while others were decidedly not, but rather the extent of the progress we’ve made in redressing these inequalities. Back in 2011, the libertarian economist Jason Sorens compared inequality in the U.S. to other New World post-slavery societies:

The U.S. has the least inequality, by a fair margin, of these countries. Of course, the U.S. also has a smaller combined percentage of blacks and Amerindians than all of these other countries except Costa Rica, Chile, Argentina, and Uruguay. But that’s precisely the point – the overriding factor determining inequality in New World countries is the white or mestizo percentage of the population. When you control for that, the U.S. actually has very low inequality.

If the U.S. is exceptional at all, it is exceptional for its high GDP per capita and low income inequality, relative to similarly situated countries.

This suggests that if African Americans make substantial economic progress in the next three decades, or in other words if black men catch up with the extraordinary progress made by black women in educational attainment, wages, and occupational stature over the past three decades, the reduction in inequality and the gain in collective wealth would be enormous. I see this as cause for optimism rather than despair. The problem, however, is that achieving this kind of economic and social uplift will be a resource-intensive endeavor, whether those resources are drawn from the public sector or civil society. Recruiting immigrants who will find it difficult to navigate what Brink (correctly) describes as the mind-boggling complexity of modern technological society means making our inherited disadvantage challenge bigger rather than smaller. If we assume finite resources — a pretty reasonable assumption — we have to decide if we want to focus resources devoting to breaking the intergenerational transmission of poverty to long-settled U.S. historical communities that have endured a long history of discrimination or if we want to spread them across a larger population that includes people who have voluntarily chosen to settle in the U.S., yet who bear the legacy of other histories of exclusion and disadvantage. 

There is, to be sure, another view, which is that a history of exclusion and disadvantage has absolutely no consequences in the present day and that Clark et al. are entirely wrong. This would mean that the children of less-skilled immigrants won’t require more substantial taxpayer-funded human capital investments than the children of educated middle-income native-born Americans to fare well as adults. Though I’m sure that this is true of some of the children of less-skilled immigrants, I wouldn’t count on it being true for all of them. 

Keith Hennessey points out that two of the main drivers of the federal government’s improved fiscal position are the tax increases under the post-cliff ATRA legislation and, as Economics 21 recently noted, surging dividends from Fannie and Freddie, which reflect the effective nationalization of mortgage finance. Hennessey’s core contention, which is clearly correct, is that the new deficit news is far less promising than it looks, particularly if you prefer a lower tax burden and a truly private market for mortgage finance. Sen. Bob Corker (R-TN) has proposed legislation that would prevent the federal government from using revenue from Fannie and Freddie to subsidize other government functions on the grounds that turning the government-sponsored entities (GSEs) into cash cows will make reform all but politically impossible. But of course this kind of self-denial is never likely to be popular in Congress.

Once again, the new deficit projections are a reminder that focusing on the deficit alone has always been a fool’s errand. The country faces a number of interrelated challenges. Reforming entitlement programs, and in particular health entitlement programs, are among the most important of these challenges, but not just because they are a driver of future deficits. After all, we could raise taxes, including relatively efficient consumption taxes, to address fiscal imbalances. Rather, the deeper problem is that while some of our institutions work relatively well for most people — we live in one of the world’s most prosperous countries, and gains in the material standard of living have been pretty decent for Americans living above the bottom two-fifths of the household income distribution, even during periods of sluggish growth —  a lot of them work really badly for people in the bottom two-fifths. It’s not that K-12 education is substantially worse now than it was in the 1970s. It’s just that as family patterns have changed and the demand for skilled workers has increased while the demand for less-skilled workers has decreased, we need K-12 schools to do more for more people, and the strategies we’ve pursued to meet this need (e.g., reducing class sizes) has proven to be both very expensive and of limited efficacy, a miserable combination.

Something broadly similar is true of medical care. In The Cost Disease, the economist William Baumol observes that in 2005, U.S. health care spending per capita was $6,400 while all other spending per capita was $35,400. He projects that if growth in output continues at its historical average while growth in medical expenditures does the same over the next century, health care spending per capita in 2105 will be $213,000 while all other spending per capita will be $130,000. That is, health care spending will go from 15 percent of GDP to approximately 60 percent in the space of a century. Baumol’s eye-catching extrapolation has potentially enormous implications for how we ought to think about government. As of 2011, the federal government financed 28 percent of total U.S. health expenditures while state and local governments accounted for an additional 17 percent, with the rest divided between business (21 percent), households (28 percent), and other private revenues (7 percent). Medical expenditures by business and households and other private sources are subsidized in various ways by government at all levels, but we’ll leave that aside and say that government accounted for 45 percent of medical expenditures in 2011. This number will most likely increase as the Affordable Care Act is implemented, but let’s also leave that to the side and imagine that government will account for 45 percent of medical expenditures in 2105 — government spending on medical care alone with represent 27 percent of GDP. This is the best-case scenario. In this world, total government expenditures (federal, state, and local) might represent as much as 60 percent of GDP. Even if we achieve fiscal balance with government expenditures at 60 percent of GDP, the space for private enterprise, civil society, and voluntary cooperation writ large will be smaller than it is today, and it is not unreasonable to believe that this might have deleterious consequences on dynamism and initiative. 

This landscape creates opportunities for more ambitious thinking. In the realm of medicine, for example, James Pinkerton has called for what he calls a “cure-first” approach, which aims to reduce medical expenditures by curing seemingly intractable ailments, thus reducing the demand for medical care. Early experiments in online education and blended learning remain in many cases inferior to the best brick-and-mortar alternatives, but like all disruptive innovations, they have the advantage of being cheaper and thus more accessible to the non-consuming population and they have the potential to get better faster than brick-and-mortar education. These causes are fairly familiar on the pro-market right, and for good reason: they are paradigmatic. And though both are related to the cause of spending restraint, they are also related to the cause of delivering better services and a better quality-of-life. Focusing on the deficit, meanwhile, gives advocates of tax increases and status quo government the upper hand. 

Ross Douthat has some excellent thoughts on related themes. We’re in this, or we should be in this, for more than just paring down the debt.

Rebecca Strauss of the Council on Foreign Relations offers a sobering perspective on America’s demographic future:

1. While the U.S. has a higher birthrate than the affluent market democracies of Europe and East Asia, labor force participation among men has been drifting down in recent years. The labor force participation rate of American men in their late 30s, for example, is lower than in almost every European country.

2. As we’ve often discussed in this space, the rate of increase in labor force quality in the U.S. is stagnant.

3. And finally, American children tend to experience higher levels of family disruption than their counterparts in other wealthy societies, and this has lasting consequences for well-being. 

So America’s edge relative to peer societies in terms of demographic vitality is arguably outweighed by declining labor force participation, stagnation in educational attainment, and chaotic child-rearing patterns that damage the lives of future workers. The first two challenges are susceptible to well-designed policy interventions; the third is much less so, and it is arguably more consequential than the first two.

In a new report on the Pell Grant program, Stephen Burd of the New America Foundation’s Education Policy Program outlines how many U.S. colleges and universities design their policies to enroll as many affluent students as possible. Alex Holt of New America summarizes Burd’s findings:

Burd uses data, many of which are available through our Federal Education Budget Project database, on Pell Grant enrollment and net price for the lowest-income students at thousands of individual colleges. The analysis shows that hundreds of public and private non-profit colleges expect the neediest students to pay an annual amount that is equal to or even more than their families’ entire yearly earnings. As a result, these students are left with little choice but to take on heavy debt loads or to behave in ways that are demonstrated to reduce the likelihood of earning their degrees, such as working full-time while enrolled or dropping out until they can afford to return. Only a few dozen exclusive colleges meet the full financial need of the lowest-income students they enroll. Nearly two-thirds of the private institutions analyzed charge students from the lowest-income families, those making $30,000 or less annually, a net price of over $15,000 a year.

Many private colleges have small endowments, making it extremely difficult for them to provide adequate support to those students with the greatest need. According to the report, the poorest schools are often the ones that enroll the largest share of federal Pell Grant recipients, but they charge these students high net prices because of their own limited resources. At the same time, many of these institutions provide deep tuition discounts to wealthier students to attract those high-achieving students to the school.

A number of public universities are pursuing similar strategies — rather than focusing aid resources on students who might not otherwise afford to go to college, they use them to attract the strongest students, most of whom would attend college even at higher cost. Holt concludes on a discouraging note:

And worse yet, there is compelling evidence to suggest that many schools are engaged in an elaborate shell game: using Pell Grants, the primary source of federal aid for low-income students, to supplant institutional aid they would have provided to financially needy students otherwise, and then shifting these funds to help recruit wealthier students. This is one reason that, even after historic increases in Pell Grant funding, the college-going gap between low-income students and their wealthier counterparts remains as wide as ever.

Holt’s analysis raises the question of why so many Republican lawmakers are unwilling to subject colleges and universities that receive large amounts of federal funds to increase access to greater scrutiny. 

Aaron Renn argues that gentrification, which he defines as the gradual replacement of an urban neighborhood’s poor population with a more affluent population, has emerged as a popular strategy for urban revitalization because there are few other proven pathways. Immigrants have succeeded in revitalizing outlying urban neighborhoods, to be sure, but the decline of mid-skill manufacturing employment and the fiscal limits to expanding public sector employment limit the potential for an influx of middle-income households in urban neighborhoods. The problem with the gentrification model, in Renn’s view, is that it generates few benefits for households further down the economic ladder.

My sense is that gentrification is fully compatible with a broader strategy for the economic uplift of low- and middle-income city residents, provided the supply of housing increases as public safety and local quality-of-life improve. This will tend to mitigate increases in housing costs, thus limiting the geographical displacement of incumbents and creating mixed-income neighborhoods. Poverty concentration will decline, which will tend to reduce the economic isolation of low-income households. Renn laments the decline of mid-skill manufacturing employment, yet gentrification coupled with an increase in housing supply will create opportunities for relatively lucrative service work, provided less-skilled workers have the necessary complement of noncognitive skills. This is a big “if,” and it is a reason why immigrants often fare better in urban labor markets than the native-born poor.

Jim Manzi, author of Uncontrolled and a leading expert on the design of business experiments, offers observations on the Oregon Health Experiment. Among other things, he notes that of the 90,000 Oregon residents who applied for Medicaid coverage under the state’s lottery, 35,000 won the lottery — yet only 60 percent of the lottery winners took the next step of actually signing up for coverage. As Jim goes on to explain, this raises a number of hard-to-answer questions about the experiment itself, as it is premised on the notion that we can differentiate between those who secured coverage via the lottery and those who lost the lottery, despite the fact that there is a large population of lottery winners (approximately 14,000) who chose not to accept coverage. In an ideal world, we’d want to know more about the rationality and the conscientiousness of participants in the experiment, as these qualities are not necessarily evenly distributed across this population. It turns out, for example, that while fewer than 25 percent of Americans between 19 and 64 smoke cigarettes, the same is true of 48.4 percent of those who received free coverage smoke cigarettes. If granting smokers coverage makes them somewhat more likely to quit smoking, the health benefits would be substantial. But if it made them somewhat less likely to quit smoking, the health benefits would be far more modest. The experiment doesn’t settle this particular question. Jim observes that advocates of Medicaid expansion have pointed to some of the observed health benefits of coverage that don’t pass the test of statistical significance. The problem, however, is that there are also negative effects that don’t pass the test of statistical signifiance, and there is no principled way to embrace the former findings while dismissing the latter.

Jim concludes that if nothing else, the Oregon Health Experiment demonstrates the value of randomized controlled trials in informing public policy decisions. One promising area for policymakers to explore is how we might embed the capacity for experimentation and analysis into social service provision more broadly.

Over the past several months, a combination of higher-than-expected revenues and lower-than-expected spending levels has been shrinking the federal deficit at a healthy clip. James Pethokoukis of the American Enterprise Institute recently observed that if growth climbs above 4 percent by 2014, it is at least possible that there will be a surplus by the 2015 fiscal year. The news that the federal government generated a substantial surplus in April came as icing on the cake. Yet Red Jahncke, a Greenwich-based management consultant, suggests that what we’re really seeing is a last-ditch attempt to take advantage of the lower capital gains taxes of the Bush-era tax code as the post-cliff ATRA legislation goes into effect:

Much of the increase in 2013 receipts is due to final tax payments for 2012 deriving from a rush to realize long-term capital gains before the 15% “Bush” tax rate on such gains expired at the end of 2012—and before the new 23.8% rate on long-term capital gains for higher-income taxpayers took effect on Jan. 1. How do we know this? Because virtually the same tax change occurred during the Reagan years, when the long-term capital gains tax rate jumped eight points, to 28% in 1987, when the Tax Reform Act took effect, from 20% in 1986.

Jahncke acknowledges that we can’t be sure that the recent revenue surge reflects shrewd tax planning, at least not yet, but he makes a compelling case. One hopes that a stronger recovery is doing at least some of the work, and Jahncke’s scenario doesn’t preclude that possibility. But it ought to temper our enthusiasm.

Kelly Field of the Chronicle of Higher Education reports on the bipartisan Student Right to Know Before You Go Act of 2013, which aims to provide students and parents with reliable information on earnings by program of study and state of employment, cumulative debt levels, transfer rates, and graduation rates at U.S. coleges and universities. The higher education lobby has fought similar measures in the past on the grounds that a federal “unit record” system threatens the privacy of students, and so students and parents have no reliable way of knowing, for example, how many Pell Grant recipients at a given school actually graduate within five years. This data can be anonymized, and so the privacy concerns are almost entirely a canard. But the widespread availability of reliable data on student outcomes would, for obvious reasons, represent a grave threat to colleges and universities that offer a substandard education and that leave many students with heavy debt loads and little else. Opponents of the legislation are now turning to delaying tactics — some are calling for further study to determine the data students want on outcomes, as though we will somehow discover that students don’t really care about graduation rates and debt levels and earnings by program of study after all. It could be that students would prefer to know which colleges party the hardest. I doubt it, but it’s at least possible. Yet data on things like graduation rates and debt levels and earnings are presumably of great interest to parents and to taxpayers, which seems like reason enough to pass the Student Right to Know Before You Go Act, and indeed to go further in the direction of creating a unit record system.

One of the main ways Sen. Marco Rubio has tried to build support among conservatives for immigration reform is by establishing that immigrants receiving provisional status will not be eligible for subsidized health benefits under the Affordable Care Act. As Jed Graham of Investor’s Business Daily explains, however, this introduces a serious complication:

While the outlook for immigration reform is uncertain, the hurdle to passage could be significantly higher if the employer mandate remains unchanged. As IBD first reported, the interaction of the Gang of Eight’s immigration reform with ObamaCare would give some employers a $3,000 incentive (after taxes) to hire a newly legalized immigrant over an American citizen

This perverse outcome, which isn’t desired by anyone, and the growing realization — even among Democrats — that the employer mandate risks hurting working-class wage-earners whom ObamaCare is intended to help have created a window of opportunity.

And Los Angeles County is concerned about this provision as well, as Kitty Felde of Southern California Public Radio reports:

Tucked away in the 844-page Senate immigration bill is a provision that forbids undocumented immigrants from getting health insurance through the exchanges set up by the Affordable Care Act — until they complete their provisional status. L.A. County Supervisor Don Knabe says that’s 15 years of no federal dollars.

Knabe says the county currently gets about $600 million annually from the federal government to partially reimburse hospitals for treating the uninsured. Because the immigration bill also forbids any entitlement dollars from being spent on the undocumented, the county would lose the money.

“While we all we all may support immigration reform to a certain degree or a path to citizenship, ” says Knabe, “it can’t be at any cost. They have to be sensitive to the costs to local governments.”

I think it is far more likely that Los Angeles County and similarly-situated local governments will receive a carve-out of some kind, now or later, than that hospitals won’t be reimbursed by the federal government. And if the Gang of Eight immigration reform is passed in its current form, there is good reason to believe that W visa holders — less-skilled “temporary” workers who will be permitted to bring their spouses and children with them — will eventually join the ranks of the unauthorized immigrant population rather than return home to their native countries. This will create a new population of mixed-status households led by unauthorized immigrant parents, as some nontrivial number W visa holders will inevitably have children while living and working in the United States. Medical providers in metropolitan areas with large immigrant populations will have a strong incentive to advocate expanding federally-subsidized medical coverage to this population, the more comprehensive the better, as the federal government is in a better position to use debt finance to meet its obligations than state and local governments. All this is to say that the toughest provisions of the immigration reform bill will likely prove unsustainable.  

According to Eli Dourado, existing federal, state, and local privacy laws are more than enough to protect consumers, and so there is no need for new regulations to govern the commercial use of unmanned aerial vehicles. I am inclined to agree. 

Matt Yglesias finds conservative objections to less-skilled immigration puzzling:

Liberals care not just about the size of the economic pie, but also its distribution. And it’s perfectly appropriate to put greater weight on the economic needs of poor people than rich people. But in the low-skilled immigration calculus the poorest people—the immigrants—are the ones who receive the largest benefit. To the extent that you have more immigrants you have both a stronger moral case for redistribution to low-income natives (greater objective needs) and a stronger practical case for redistribution to low-income natives (greater fiscal capacity) but the idea of avoiding a small harm to poor people by inflicting a much-larger harm on substantially poorer people makes very little sense to me. That’s especially true when the pie could be further expanded and the distributional effect counteracted by allowing for more skilled migrants—not just computer programmers but doctors and other professionals.

The conservative view of this manages to be even more puzzling, since in all other contexts conservatives strongly favor policy measures that increase the marginal return to capital and vehemently reject consideration of the distributional implications of such measures. Class war is a great evil to be avoided at all cost except in a case where the interests of the American working class can be putatively advanced by punishing the third world poor.

I think this puzzle is pretty easily resolved if you believe a few things:

1. You could believe that membership in a given nation-state community is not best understood as morally arbitrary, but rather that the citizens, and perhaps all lawful residents, of a given country are better understood as the “heirs” of a series of historical achievements. A bus driver in Flatbush earns far more than a bus driver in Varanasi, India, despite the fact that if anything, the work of the bus driver in Varansasi is more stressful and strenuous. This reflects decades of “capital deepening” that greatly magnifies the value of an hour of work in Brooklyn, a cumulative process to which millions of anonymous individuals — not just great entrepreneurs, industrialists, and inventors — have contributed. We could understand the productive potential that has arisen in America’s cities as the common inheritance of humanity, or as the common inheritance of the set of people we understand as Americans. Suffice it to say, it is not surprising that people who are uncomfortable with the idea of the intergenerational transmission of wealth within families find the intergenerational transmission of wealth within nation-state communities uncomfortable as well, as kin-based networks are far more substantial and “real” than nation-state communities. 

2. Or you could believe that membership in a nation-state community is significant because it embeds one in “the coercive network of state governance,” as Michael Blake has suggested. That is, even under a globally impartial liberal theory, one might conclude that a concern with relative economic shares makes sense only when we are asked to live under the same system of laws. This absolutely doesn’t preclude worrying about the absolute deprivation of those who live under other regimes. But if we ask people to live under a set of private property rules and there is a class of persons that finds itself getting the short end of the stick, it’s not crazy to be concerned about how this class of persons fares in relative terms, particularly if we believe that we have an obligation to establish some moral justification for this set of private property rules. This obligation doesn’t apply, or rather it doesn’t apply in the same way, to individuals who don’t live under the laws established by the regime in question. And so advancing the interests of the U.S. working class — understood as working to increase its relative economic share — really ought to take precedence over the interests of foreigners.

I tend to think about this through a historical lens. Specifically, the United States has a long history of entrenched, multi-generational black poverty. Extreme relative deprivation among African Americans is a really serious problem, and I think that we ought to devote more resources to combating it. I see this as a legitimacy issue, i.e., the legitimacy of the U.S. political order would be greatly enhanced if we could achieve greater economic and social uplift among blacks. The reason is that historically, black Americans have been on the “business end” of coercion, from the enslavement era to the segregation era to, in complicated and very different ways, the era of mass incarceration. African Americans have made a great deal of social and economic progress over the last century, but much more can and ought to be done. Welcoming less-skilled immigrants who’ve also experiened entrenched, multi-generational poverty in their own countries introduces a complex set of challenges for U.S. policymakers and social service providers. Learning how to address the unique challenges posed by impoverished Wolof- or Bengali-speakers who have only a very limited experience of urban life in their own countries (if any) is actually really, really hard, as many New York city public school teachers will tell you. In light of what we might think of as our inherited poverty challenge, I think it makes a lot of sense to be somewhat cautious about taking on new poverty challenges. 

One complication with this coercion framework is that some countries have more power than others in the international system. It is undoubtedly true that the United States shapes the regimes of many other countries, whether through the direct application of military coercion or through the exercise of our economic weight in trade negotiations. So it could be that we’re not dealing with bright lines, but rather with a continuum. This intuition is captured in a number of ways: the U.S. was far more open to Hmong refugees in the years following the U.S. military effort in Vietnam than to, say, Bihari refugees from Bangladesh’s 1971 war of liberation, for the obvious reason that many Americans felt an obligation to “do right” by the Hmong and other ethnic communities that had allied themselves with the U.S. Similarly, one of the arguments for offering unauthorized immigrants a path to legalization is that failures of U.S. policy and U.S. demand for immigrant labor are at least partially responsible for the size of this population. 

3. And most fuzzily — but not least importantly — you could believe that culture matters. Matt illustrates an economistic frame of mind, which is fair enough (it’s his job):

If immigration policy can be structured to make the welfare state more sustainable, then it’s a huge win for everyone. If immigration policy is structured to make the welfare state less sustainable, then there’s potentially a problem. The great thing about immigration is that since it uncontroversially increases GDP, it’s clearly possible to structure immigration policy in a fiscally beneficial way.

Here’s the thing: does redistribution ever work this smoothly? Less-skilled immigrants enable skilled workers to work longer hours, as it makes it cheaper for skilled workers to outsource household production. But instead of working longer hours, at least some skilled workers might choose more leisure. This clearly benefits the skilled workers in question, yet it doesn’t yield revenue that can be devoted to transfer payments. Much depends on the mix of taxes we choose, the demographic composition of the population (a workforce of parents with mortgages might have a lower elasticity of income than a workforce of single adults who love to party), etc. And what form will redistribution take? To some degree, this questions rests on culture.

Some societies place a strong emphasis on the value of work, and so they are less inclined to back unconditional cash transfers and more inclined to back work supports and wage subsidies. Immigration shapes these cultural preferences. Edward Glaeser and Alberto Alesina have observed that ethnoracial heterogeneity is associated with lower support for redistribution, and Robert Putnam has found that neighborhood diversity appears to be associated with lower levels of social capital. Policymakers can’t anticipate with any certitude how immigration will shape political preferences, as much depends on the quirks of how different cultural encounters play out and how quickly newcomers embrace the values and sensibilities of the native-born population. It could be that newcomers have superior values, and that the native-born population ought to get with the program. But it is hardly surprising that the native-born population might be disinclined to embrace this view, and that it will prefer that newcomers assimilate. This implies that it’s not crazy for members of the native-born population to select immigrants who are more likely to assimilate and to intermarry. There is some reason to believe that immigrants who match or exceed the average native-born skill level are more likely to flourish along these dimensions. 

Though I can’t imagine I’ll persuade Matt of the correctness or wisdom, or even the moral decency, of this framework, I hope it clears things up. 

In Politicians Don’t Pander, the left-of-center political scientists Lawrence Jacobs and Robert Shapiro argued that the democratic responsiveness of the American political system was in decline:

Politicians respond to public opinion, then, but in two quite different ways. In one, politicians assemble information on public opinion to design government policy. This is usually equated with “pandering,” and this is most evident during the relatively short period when presidential elections are imminent. The use of public opinion research here, however, raises a troubling question: why has the derogatory term “pander” been pinned on politicians who respond to public opinion? The answer is revealing: the term is deliberately deployed by politicians, pundits, and other elites to belittle government responsiveness to public opinion and reflects a long-standing fear, uneasiness, and hostility among elites toward popular consent and influence over the affairs of government. 

It is surely odd in a democracy to consider responsiveness to public opinion as disreputable. We challenge the stigmatizing use of the term “pandering” and adopt the neutral concept of “political responsiveness.” We suggest that the public’s preferences offer both broad directions to policymakers (e.g., establish universal health insurance) and some specific instructions (e.g., rely on an employer mandate for financing reform). In general, policymakers should follow these preferences.

Politicians respond to public opinion in a second manner—they use research on public opinion to pinpoint the most alluring words, symbols, and arguments in an attempt to move public opinion to support their desired policies. Public opinion research is used by politicians to manipulate public opinion, that is, to move Americans to “hold opinions that they would not hold if aware of the best available information and analysis” (Zaller 1992, 313). Their objective is to simulate responsiveness. Their words and presentations are crafted to change public opinion and create the appearance of responsiveness as they pursue their desired policy goals. Intent on lowering the potential electoral costs of subordinating voters’ preferences to their policy goals, politicians use polls and focus groups not to move their positions closer to the public’s but just the opposite: to find the most effective means to move public opinion closer to their own desired policies.

Essentially, Jacobs and Shapiro argue that this second manner had gained ground over the first. Though I don’t agree with Jacobs and Shapiro on many policy questions, their work has informed my thinking about the divergence between Republican and Democratic policymaking elites and their voting constituencies. It has motivated me to think harder about the stated goals and ambitions of voters, and how we might use this information to inform policymaking in a substantive way. 

And the recent immigration debate strikes me as an excellent illustration of this broader phenomenon of “crafted talk.” Consider the fact that FWD.us, the coalition of technology leaders backing immigration reform, has sponsored two organizations — Americans for a Conservative Direction and the Council for American Job Growth — to appeal to conservatives and liberals respectively. The rather clever idea is that to build a real bipartisan coalition, it is necessary to advance separate, partisan messages emphasizing the core commitments of different ideological constituencies. And so Americans for a Conservative Direction insists that the Gang of Eight immigration reform bill is really, really tough, because conservatives like toughness. This is “crafted talk” at its best:

Politicians track public opinion not to make policy but rather to determine how to craft their public presentations and win public support for the policies they and their supporters favor. Politicians want the best of both worlds: to enact their preferred policies and to be reelected.

I was reminded of crafted talk as I read a new Pew survey on immigration reform, conducted earlier this month. Here are some of the findings:

The latest national survey by the Pew Research Center, conducted May 1-5 among 1,504 adults, finds that 73% say there should be a way for illegal immigrants already in the United States who meet certain requirements to stay here. But fewer than half (44%) favor allowing those here illegally to apply for U.S. citizenship, while 25% think permanent legal status is more appropriate.

That is, the position articulated by Boston College political scientist Peter Skerry, that we ought to grant unauthorized immigrants a path to permanent non-citizen resident status — is in fact more popular than granting them a path to citizenship, the position that has become politically unassailable.

When it comes to legal immigration, relatively few (31%) see current levels as satisfactory, but there is no consensus as to whether the level of legal immigration should be decreased (36%) or increased (25%).

I take this to mean that 75 percent of Americans believe that legal immigration levels should remain at or below current levels, yet it seems very likely that the Gang of Eight proposal will increase the size of the immigrant influx.

And there appears to be a significant gap between the views of Hispanic survey respondents and the views of immigration advocacy organizations:

Hispanics are divided in views of legal immigration: Approximately equal percentages say it should be decreased (32%), kept at its present level (29%) and increased (28%). A plurality of whites (39%) favor decreasing the level of legal immigration, while just 22% say it should be increased and 32% say it should be kept at its current level.

We’re left with an interesting question. Does anyone believe that these survey results will have a significant impact on the immigration reform debate? Pew notes that views on its broad immigration questions “are virtually unchanged from March,” and widespread skepticism about increasing the legal immigration flow doesn’t seem to have made much of a difference.

Josh Barro writes that his jury duty experience in Queens led him to believe that New York city’s most cosmopolitan borough is an attractive model for America’s ethnocultural future. Having grown up in neighboring Brooklyn, and having chosen to live in a fairly diverse stretch of Downtown, I am inclined to agree that dense, diverse neighborhoods can be very pleasant places to live. But Queens is not the only imaginable future. Heather Mac Donald’s account of California’s demographic revolution in City Journal reminds us that in some regions, less-skilled immigration has led to hypersegregation, economic isolation, and entrenched poverty. Moreover, not all Americans believe that density and diversity are ideal. I’m inclined to think that while density and diversity ought to be an option, which they very much are in the form of our big, highly-productive metropolitan areas, there is also much to be said for diversity across regions. In a democratic polity, the fact that large majorities oppose increasing legal immigration ought to at least inform the policy debate. So far, I don’t think this pretty significant fact has played much of a role, which, when you think about it, is both weird and telling. 

Gideon Lewis-Kraus has written a really excellent short essay on the forgotten lessons of David Riesman’s The Lonely Crowd, a book that is often characterized as a jeremiad against conformity, yet which is in fact better understand as “a discussion of the emotional life of information.” His distinction between inner-direction and other-direction — both ideal types — wasn’t mean to contrast nonconformists against conformists, but rather to contrast different modes of conformity:

It’s not that the inner-directed person consults some deep, subjective, romantically sui generis oracle. It’s that the inner-directed person consults the internalized voices of a mostly dead lineage, while her other-directed counterpart heeds the external voices of her living contemporaries. As Riesman put it, “the gyroscopic mechanism allows the inner-directed person to appear far more independent than he really is: he is no less a conformist to others than the other-directed person, but the voices to which he listens are more distant, of an older generation, their cues internalized in his childhood.” The inner-directed person is, simply, “somewhat less concerned than the other-directed person with continuously obtaining from contemporaries (or their stand-ins: the mass media) a flow of guidance, expectation, and approbation.” You can imagine how the Internet intensifies things.

Riesman drew no moral from the transition from a community of primarily inner-directed people to a community of the other-directed. Instead, he saw that each ideal type had different advantages and faced different problems. As Riesman understood it, the primary disciplining emotion under tradition direction is shame, the threat of ostracism and exile that enforces traditional action. Inner-directed people experience not shame but guilt, or the fear that one’s behavior won’t be commensurate with the imago within. And, finally, other-directed folks experience not guilt but a “contagious, highly diffuse” anxiety—the possibility that, now that authority itself is diffuse and ambiguous, we might be doing the wrong thing all the time.

And Riesman observed that other-direction had a number of positive aspects, e.g., greater openness and interest in the values, experiences, and opinions of others. Lewis-Kraus builds his mini-essay around a critique of Lee Siegel and an effort to capture what really sucks about Yelp, an online review site. Yet he also gives us reason to be optimistic about other aspects of contemporary culture.

Dylan Matthews reports that Jason Richwine, co-author of the recent Heritage report on the fiscal impact of less-skilled immigration (which AEI’s Andrew Biggs, an occasional co-author of Richwine, has addressed in a smart and measured way), wrote his doctoral dissertation on immigration and IQ. I find it odd that is proving to be such an explosive revelation, as Richwine has written on this subject on a number of occasions, e.g., in an article for The American on immigration and the “diversity dilemma” described by Harvard political scientist Robert Putnam. The gist of the article is captured in the passage below:

I intend to focus on one such important characteristic—how smart the immigrants are. Intuitively, it is not a stretch to believe that smarter people are better at organizing networks and understanding the long-term benefits of cooperation, and a burgeoning academic literature confirms that intuition. IQ, a construct that psychologists use to estimate general intelligence, has been separately linked to elements of social capital, such as sophisticated ethical thinking, altruism, planning for the future, political awareness, adherence to informal community standards of behavior, and cooperation for the greater good. Despite this research, the direct link between intelligence and social capital has been drawn only in a handful of technical articles. It is time to bring the IQ-social capital link out of the academic journals and into the policy debate. Doing so could help us deal realistically with the problems Putnam has identified.

Some might object to the notion that “smarter people are better at organizing networks and understanding the long-term benefits of cooperation,” but as Garett Jones observes in his paper on “National IQ and National Productivity,” this is a widely held view. The really controversial aspect of what Richwine writes relates to race. Dylan writes:

Richwine’s dissertation asserts that there are deep-set differentials in intelligence between races. While it’s clear he thinks it is partly due to genetics — “the totality of the evidence suggests a genetic component to group differences in IQ” — he argues the most important thing is that the differences in group IQs are persistent, for whatever reason. He writes, “No one knows whether Hispanics will ever reach IQ parity with whites, but the prediction that new Hispanic immigrants will have low-IQ children and grandchildren is difficult to argue against.”

Toward the end of the thesis, Richwine writes that though he believes racial differences in IQ to be real and persistent, one need not agree with that to accept his case for basing immigration on IQ. Rather than excluding what he judges to be low-IQ races, we can just test each individual’s IQ and exclude those with low scores. “I believe there is a strong case for IQ selection,” he writes, “since it is theoretically a win-win for the U.S. and potential immigrants.” He does caution against referring to it as IQ-based selection, saying that using the term “skill-based” would “blunt the negative reaction.”

A few thoughts immediately come to mind:

1. What troubles me about Dylan’s story is that I think it will be used to tarnish all individuals who believe in a skill-based immigration policy with a racialist brush, when in fact a skill-based immigration policy would yield an immigrant influx that is at least as racially diverse as the current immigrant influx. 

2. Here’s the thing. There is an enormous difference between race, as described by scholars like Armand Leroi, and historical ethnicity. And the groups that we use in the U.S. shouldn’t really count as either. Americans who identify as Hispanics come from a dizzying variety of racial and ethnic groups, and are in many cases the product of generations of ethnoracial admixture. To suggest that there is some genetic component (i.e., more than zero) to differences in IQ across individuals is not generally considered controversial, and that there would be differenes in IQ across groups defined somewhat arbitrarily — the people who come from countries within this broad circle, whether they are of Amerindian or African or East Asian or European origin, or some mixture of the above, as compared to people who come from countries within some other broad circle, which might have a similarly diverse population — seems reasonable enough. I wouldn’t be surprised if there were some difference in IQ between the residents of my apartment building and some apartment building down the street. But I think we’d all agree that job candidates should be evaluated on the basis of their own qualifications and skills rather than their address. This is why a points-based system that rewards immigrants for educational attainment and English language proficiency makes more sense than a system that heavily weighs national origin, or for that matter group membership. One might object that the system I have in mind privileges members of the college-educated “group” over the non-college-educated “group,” yet the distinction that is doing the work is not a racial distinction.

3. One of the core goals of egalitarians in recent years has been addressing deficits in cognitive and noncognitive skills created by deficient or disrupted home environments. This work is premised on a recognition that (a) there is such a thing as deficient home environments and (b) that deficient or disrupted home environments have an impact on cognitive and noncognitive skills. If this is true of households, and if concentrations of similarly situated households can give rise to problematic neighborhood effects — hence the case for reducing poverty concentrations — it is not unreasonable to suggest that intense poverty in a given society can mean that individuals raised in the society in question might suffer from serious deficits in cognitive and noncognitive skills. Consider, for example, the impact of enviromental health risks on IQ, as documented by Jones:

A study of excessive fluoride in Indian drinking water found a 13 IQ point-difference between children “residing in two [separate] village areas of India with similar educational and socioeconomic conditions” (Trivedi et al. 2007, 178). If even half of this relationship is genuinely causal, and if intelligence has some of the technological and political spillover effects discussed below, then public health matters are of first-order concern for economic development.

Arsenic and fluoride exposures are also associated with low IQ in the People’s Republic of China’s (PRC) Shanxi province (Wang et al. 2007, 664), even when comparing “groups [who] lived in rural areas with similar geographic and cultural conditions and a comparable level of socioeconomic development.” High arsenic exposure was associated with a 10-point IQ gap, and high fluoride exposure with a 4-point gap. In both cases, the “normal” group had an IQ of 105, 5 points above the US mean.

In the Visayas region of the Philippines, Solon et al. (2008) found evidence that lead levels reduced the IQ of children. In their study, one microgram of lead per liter of blood was associated with a 2.5 point reduction in the verbal IQ of older children, and a 3.3 point reduction in the IQ of young children. In their sample of children, the levels of lead in the blood averaged 7.1 micrograms per liter, so lead exposure could be costing the average child in this sample 15 IQ points even under conservative estimates.

In an experimental nutritional study in Pune City, India, 10 weeks of zinc supplementation caused a 15–25 percent increase in the number of correct answers on the Raven’s Progressive Matrices (Tupe and Chiplonkar 2009).

Is it impossible to imagine that some countries might have more exposure to these environmental health risks than others? If anything, I’d suggest that it is far more likely that poor people growing up in very poor countries will be exposed to these and other environmental health risks than nonpoor people growing up in affluent countries, which is why I, like many other people, favor humanitarian measures designed to mitigate these environmental health risks in the developing world. One could think of these measures as a kind of “human enhancement” technology. In a similar vein, welcoming less-skilled individuals from impoverished countries, many of whom will inevitably suffer from serious deficits in cognitive and noncognitive skills that flow from their deprived upbringings, will give their children a better shot at a successful life. But the cost of doing so will not be trivial.

One conceptual question for those of us with a humanitarian interest in bettering the lives of the global poor is this: should we try to rescue some trivial share of the global poor by allowing them to work and settle in the U.S., and accept that they will tend to cluster in the bottom fifth of the U.S. socioeconomic distribution while spending a significant sum of money to help them lead dignified lives in a high-cost country? Or should we devote this significant sum — or some much larger or even much smaller sum — to interventions that might benefit a much larger share of the global poor, e.g., by making investments in mitigating various environmental health risks? I can see the sentimental case for rescuing a trivial share of the global poor by allowing them to become U.S. service workers. It’s not clear, however, that this is the best strategy in terms of bang-for-the-buck, or that it best serves the interests of various domestic constituencies, the issue that I tend to focus on in this space. 

I was pleased to see David Brooks reference Richard Alba’s excellent book Blurring the Color Line, which I briefly discussed in a column The Daily back in 2011. Alba’s book offers a very smart framework for thinking about America’s ethnic future. Basically, periods of ethnic transition go more smoothly when there is robust economic growth, as growth creates the possibility of “non-zero-sum mobility,” in which members of the dominant group and members of minority groups can rise in tandem. Sluggish growth, in contrast, implies that members of the dominant group might resist progress by members of outgroups, as everyone is duking it out over the size of the slices of a slow-growing pie. Alba, and by extension David, are absolutely right that the retirement of the baby boomers creates opportunities for members of minority groups. One anxiety, however, is that the level of educational attainment among Latinos and African Americans is somewhat lower than it is among Asian Americans and non-Hispanic white Americans, and so as the demographic composition of the labor force shifts, there is a real danger that, for example, the college wage premium will increase, which in turn will exacerbate racial inequality.  I recently discussed this dynamic in a post on “The Undereducated American and U.S. Immigration Policy.” I would thus argue that raising the level of educational attainment among Latinos and African Americans is a higher priority that increasing the size of the less-skilled immigrant influx, as the former strategy will tend to mitigate interethnic economic divides while the latter strategy will tend to exacerbate them.

More broadly, I disagree with David about some fairly important issues, e.g.:

Some intelligent skeptics say that mobility is fine through the second generation but stalls by the third. It is indeed harder to rise in a more chaotic and fragmented society. But one of the country’s leading immigration researchers, Richard Alba of the City University of New York, calls the third generation stall “a statistical illusion.”

Much of the research that shows the effect compares today’s third-generation immigrants with today’s second-generation group. But the third-generation families originally came to the U.S. decades ago, at a time when segregation was prevalent, discrimination was high and immigrants were harshly treated. You’d expect those families to progress more slowly than families that came to more welcoming conditions a generation later.

It could be that segregation, discrimination, and harsh treatment are the main factors that held back less-skilled immigrants in earlier eras. But as David Autor and Melanie Wasserman document in “Wayward Sons,” their report for the center-left think tank Third Way on “emerging gender gap in labor markets and education,”

Figure 2 plots changes in real hourly wage levels by sex and education group between 1979 and 2010 for two age groups: ages 25-39 and 40-54.8 The first category corresponds to young prime-age workers, and the latter represents workers in their peak earnings years. This figure highlights two key facts about the evolution of U.S. earnings. First, real earnings growth for U.S. males has been remarkably weak. For males with less than a four-year college education, earnings fell in real terms, declining between 5% and 25%. The steepest falls are found among the least-educated and youngest males, in particular, males under age 40 with high school or lower education. Only among males with four or more years of college education do we see real earnings growth in this 30-year period.

Equally apparent from the figure is that the earnings trajectory of U.S. women has been far more propitious. Females have fared better than males in every educational category, and highly educated women have made especially sharp gains in earnings. While real earnings gains among women without any college education have been modest— especially for younger workers—the trends are at least weakly positive for seven of eight female demographics (the exception being young, high-school dropout females).

The report goes on to document declining male employment rates, which are concentrated among less-skilled workers. Note that Autor and Wasserman are writing about all U.S. workers. Even if we assume that segregation, discrimination, and harsh treatment have vanished entirely, less-skilled workers face an extremely challenging environment, even if we assume that Autor and Wasserman are overstating the case.  

David is lumping together all opponents of the Gang of Eight immigration reform bill as, among other things, opponents of assimilation, love, social mobility, skilled immigration, and ethnic diversity. This strikes me as an offbeat interpretation. The main reason I oppose the Gang of Eight immigration reform bill in its current form is that it increases the less-skilled influx beyond levels I consider wise or appropriate – at this point I accept that immigration reform will include a path to legalization for unauthorized immigrants who’ve resided in the U.S. for longer than X number of years. And as I’ve been writing in this space, the reasons I favor a bias towards skilled immigrants are legion, and they correspond neatly to David’s categories: skilled immigrants with a high level of English language proficiency have very low incarceration rates, high rates of labor force participation, high incomes, and they are more likely to assimilate and somewhat more likely intermarry. The children and grandchildren of the college-educated tend to experience more upward mobility (in absolute terms) than the children and grandchildren of the non-college-educated. Proponents of skilled immigration are pretty clear in favr of skills. And skilled immigrants come from a wide variety of ethnic backgrounds, e.g., large numbers of skilled immigrants to the U.S. hail from sub-Saharan Africa, a region that has been historically underrepresented in immigration flows to the U.S. 

So if we stick with David’s (defensible and reasonable) criteria for the things one ought to care about in an immigration reform proposal, one has pretty good reason to be concerned about the aspects of the legislation that will increase the size of the less-skilled influx — as less-skilled immigrants are less likely to assimilate and intermarry, their children are more likely to struggle in a knowledge-intensive economy and to remain in ethnic enclaves, etc. David is extremely sensitive to the importance of cultivating skills and networks, and doing it in a way that benefits the poorest and most vulnerable children. This is why he strongly supports early childhood interventions. My argument is simple: given the scale of the domestic multigenerational poverty challenge, does it really makes sense to make this challenge more difficult to solve by welcoming large numbers of non-college-educated workers to live and work in the U.S.? 

James Pethokoukis cites a new report from Potomac Research to suggest that there is at least a slim chance that the U.S. federal government will achieve a budget surplus by fiscal year 2015. Pethokoukis makes the most important political points — a surplus will make it difficult for the Obama administration to make the case for further tax increases, yet it will also undermine the case for entitlement reform. But to be cynical and political for a moment, a surplus would be even worse news for the Republican Party. Since the start of the Obama presidency, the GOP has put all of its eggs in the basket of short- to medium-term fiscal consolidation. During the presidential race, some argued that while the politics of deficit reduction were not of particularly great interest to states with high unemployment rates, it did have some resonance for middle-income and upper-middle-income voters in states like New Hampshire and Iowa. In the end, a Romney campaign that placed a fairly heavy emphasis on the importance of deficit reduction lost New Hampshire and Iowa. And questions about Romney’s commitment to the economic interests of middle-income voters contributed to the Republican defeat in states like Ohio, Florida, and Virginia, each one of which has more votes in the Electoral College than New Hampshire and Iowa combined. 

So imagine 2016 in the unlikely but not completely impossible event that a budget surplus does materialize. Republican elevation of the deficit issue will allow the Obama administration and its Democratic allies to declare “mission accomplished,” all without taking the blame for entitlement reform. The House-passed budget that promised a balanced budget within the ten-year budget window by making unrealistically deep cuts in Medicaid and domestic discretionary spending will continue to be hung around the necks of congressional Republicans. One hopes that one or several of the GOP presidential candidates will devise a more compelling economic message and reform agenda. But this will have to be done in a near-vacuum, as conservative lawmakers have been emphasizing deficit reduction above almost everything else. This is why it is extremely, extremely important that the GOP find 2014 candidates who are committed to advancing the economic interests of middle-income households, and who can address this subject in a compelling, plausible way. Ramesh Ponnuru has sketched out what this agenda might look like in National Review and Bloomberg View – the template is there, but actual candidates need to step up. Josh Kraushaar of National Journal has been writing about how gun-shy Republicans have been in key Senate races, which is not the most encouraging sign.    

To my disappointment, some advocates of less-skilled immigration are drawing on my column on ethnic attrition to suggest that concerns about less-skilled immigration are exaggerated. The theory, as I understand it, is that because ethnic attrition means that economic outcomes for the entire universe of individuals with at least (say) one Mexican-born grandparent are to some degree understated, we shouldn’t be concerned about allowing a continued large-scale influx of less-skilled immigrants. Let’s think through why this is wrongheaded:

1. We are conflating ethnicity and educational attainment, and this creates a misleading impression. When we are forced to rely on an ethnic category as a proxy for less-skilled immigration, as often happens in this discussion due to data limitations, we miss the fact that some number of Hispanic immigrants to the U.S. are skilled and some number of Asian and European and African immigrants to the U.S. are less-skilled. It is true that there is data indicating that economic progress between second- and third-generation Latinos seems to stall. Yet this data is far less valuable, in my view, than data concerning the second- and third-generation descendants of college-educated immigrants. Unfortunately, we don’t appear to have good data on the latter. Conceptually, we’d be better off placing all skilled immigrants — whether they’re from Latin America, Asia, Europe, or Africa — in one bucket and all less-skilled immigrants in another. The continued emphasis on ethnicity is, frankly, a major advantage for those who aim to increase the non-college-educated share of the future U.S. workforce, as it allows them to characterize those who believe that U.S. immigration policy should contribute to raising the average skill level of the U.S. workforce as motivated by fear or dislike of immigrants from a particular region. 

2. One of the core implications of ethnic attrition is that it appears that the second- and third-generation Americans who “defect” from identifying as Hispanic have higher levels of educational attainment than those who continue to identify as such. This could be a random coincidence. Or it could be that there are differences between Hispanics who intermarry as opposed to those who do not. For example, it could be that Hispanics with higher levels of educational attainment are more likely to intermarry, as they are more likely to have the same levels of educational attainment as native-born individuals. (Intermarriage rates might also decrease if educated members of a given ethnic group don’t have to marry outside of the group to find a partner with a comparable level of educational attainment.)

Consider the following from Matthjis Kalmijn of the University of Amsterdam: 

A common claim in the literature is that higher-educated persons are more likely to marry outside their ethnic/racial group than lower-educated persons. We re-examine this “educational gradient” with a multilevel analysis of 46 immigrant groups in the Current Population Survey. We find that there are positive effects not only of individual education on intermarriage but also of the educational level of a group. Moreover, the educational gradient declines when the aggregate level of education of an immigrant group is higher. The aggregate effect of education points to cultural explanations of the gradient that emphasize the role of interethnic attitudes. The interaction effect points to a structural explanation that explains the gradient in terms of opportunities of finding similarly educated spouses within the group.

We also have findings on people of Asian origin in the U.S. and Canada from Sharon M. Lee and Monica Boyd:

In both countries, those with less than a high school education are most likely to be in-married, a pattern that is similar for both men and women. As education increases, intermarriage also increases but the increase is not linear. The percentage inmarried increases for the two highest education categories in both the U.S. and Canada.

And then we have a report from the Pew Research Center released in February of last year:

However, these overall similarities mask sharp differences that emerge when the analysis looks in more detail at pairings by race and ethnicity. Some of these differences appear to reflect the overall characteristics of different groups in society at large, and some may be a result of a selection process. For example, white/Asian newlyweds of 2008 through 2010 have significantly higher median combined annual earnings ($70,952) than do any other pairing, including both white/white ($60,000) and Asian/Asian ($62,000). When it comes to educational characteristics, more than half of white newlyweds who marry Asians have a college degree, compared with roughly a third of white newlyweds who married whites. Among Hispanics and blacks, newlyweds who married whites tend to have higher educational attainment than do those who married within their own racial or ethnic group. [Emphasis added]

Later on, the report provides more detail on Hispanic intermarriage:

About one-in-five intermarried white/Hispanic couples who married in 2000 or later are college-educated. That is lower than white couples (26%) but higher than Hispanic couples (6%). A similar pattern exists among those couples who married in earlier years, but the shares are somewhat lower, especially for couples who married prior to 1980.

On the one hand, a 20 percent share isn’t extremely high. On the other hand, it is much, much higher than a 6 percent share. And one assumes that there are unobserved variables at work as well.

Taken together, we have at least suggestive evidence that intermarriage is more common among the more highly educated. If we believe that social networks are an important part of upward mobility, the fact that skilled immigrants are better-positioned to join more privileged social networks suggests that skilled immigrants and their descendants are more likely to achieve upward mobility. This in turn implies that they are less likely to rely heavily on means-tested benefits and more likely to build wealth. So the fact that attrition biases the results for third-generation Americans who identify as Hispanic is not actually a coincidence: rather, it applies that the difficulties facing immigrants who arrive with limited skills and limited English language proficiency have reverberations beyond the first generation.

3. The arguments I’ve been making about immigration are discomfiting for many. The reason, I would suggest, is that my arguments draw on recent social science findings — ably summarized by Scott Winship in National Review in 2011 — which reveal that upward mobility from the bottom of the income ladder is actually much lower than Americans have commonly assumed:

The EMP/Brookings analyses break the parent and child generations into fifths on the basis of each generation’s income distribution. If being raised in the bottom fifth were not a disadvantage and socioeconomic outcomes were random, we would expect to see 20 percent of Americans who started in the bottom fifth remain there as adults, while 20 percent would end up in each of the other fifths. Instead, about 40 percent are unable to escape the bottom fifth.[6] This trend holds true for other measures of mobility: About 40 percent of men will end up in low-skill work if their fathers had similar jobs, and about 40 percent will end up in the bottom fifth of family wealth (as opposed to income) if that’s where their parents were.

Is 40 percent a good or a bad number? On first reflection, it may seem impressive that 60 percent of those starting out in the bottom make it out. But most of them do not make it far out. Only a third make it to the top three fifths. Whether this is a level of upward mobility with which we should be satisfied is a question usefully approached by way of the following thought experiment: If you’re reading this essay, chances are pretty good that your household income puts you in one of the top two fifths, or that you can expect to be there at age 40. (We’re talking about roughly $90,000 for an entire household.) How would you feel about your child’s having only a 17 percent chance of achieving the equivalent status as an adult? That’s how many kids with parents in the bottom fifth around 1970 made it to the top two-fifths by the early 2000s.[8] In fact, if the last generation is any guide, your child growing up in the top two-fifths today will have a 60 percent chance of being in the top two fifths as an adult. That’s the impact of picking the right parents — increasing the chances of ending up middle- to upper-middle class by a factor of three or four.

Advocates of less-skilled immigration, meanwhile, often fall back on the Horatio Alger myth, and the notion that today’s less-skilled immigrants are in all relevant respects identical to the less-skilled immigrants of a century ago, the ancestors of many of today’s native-born Americans. This ignores the fact that the native-born skill level is much higher today than it had been a century ago, and that assimilation and economic upward mobility are more attainable goals for immigrants who match or exceed the native-born skill level. To put this differently, opponents of an increase in less-skilled immigration rely on a realistic appraisal of how good U.S. institutions are at mitigating hardcore multigenerational poverty — not very — rather than the romantic notion that all it takes to make your way in America today is a little bit of pluck and a little bit of determination. I would argue that we ought to craft an immigration policy that identifies individuals who are likely to flourish in the United States as it really is, not as we’d like it to be. 

I recently saw, via an acquaintance, the following quote from a Richard Epstein article on the Rana Plaza disaster in Bangladesh, in which over 800 garment workers (and counting) have died:

Ironically, that labor agitation was itself one of the contributing causes to the collapse at Rana Plaza.

I think the idea was that I was supposed to be shocked that Epstein, a libertarian legal scholar at NYU, would suggest that organized labor might have had anything to do with the disaster, as organized labor is an unalloyed force for good. That is, Epstein’s statement was truncated in such a way as to make him look like a heartless libertarian caricature, eager to blame organized labor for a profound human tragedy. Yet when seen in context, Epstein’s observation looks rather different:

The conditions in Bangladesh are ripe for labor agitation, which in fact occurred last year in the country as workers from hundreds of factories walked off their jobs in protest demanding yet another increase in the minimum wage. That action prompted a nasty retaliation by Bangladesh’s industrial police, who were charged with controlling labor unrest and resorted to using tear gas, rubber bullets, and water cannons.

Ironically, that labor agitation was itself one of the contributing causes to the collapse at Rana Plaza. Quite simply, the occurrence of such disruptions—and the threat of future ones—places enormous strains on the firms that have to deliver goods to foreign purchasers in order to remain in business. The threat of a repeat protest has led many firm bosses to step up the pace of work in the factories, which in turn means longer shifts, more workers, more extensive use of heavy equipment in order to make up for lost production, and stockpiling goods. That maneuver turned into a fatal insurance policy against future labor disruptions.

The threat of massive labor market turmoil strengthens the case for the effective public enforcement of state building codes. These codes are directed only toward safety issues, and do not touch the hot-button topics of wages and working conditions. Yet, if Bangladesh could only make good on this one public commitment, it would take the safety issue off the table, which would in turn remove from local unions the one key issue that makes their activist campaign so credible in the eyes of workers.

So let’s walk through Epstein’s statement carefully:

1. He acknowledges that the conditions in Bangladesh’s garment factories are in some cases so intolerable that labor agitation is an entirely predictable response, and that the state retaliation that followed was brutal and (implicitly) disproportionate.

2. Yet he also suggests that despite the fact that labor agitation may well have been justified, the occurrence and threat of disruption threatened to undermine the relative attractiveness of Bangladeshi garment manufacturing firms. This isn’t exactly an exotic claim. If I am purchasing garments and I am in a position to choose between two locations, one in which labor agitation is commonplace and another in which it is unheard of, all other things being equal, I will presumably be inclined to choose the location in which labor agitation is unheard of, as this will make it more likely that my orders will be delivered on time, etc. In order to remain competitive, Bangladeshi firms cut corners, in many cases in violation of the law, to increase production — hence Epstein’s reference to a “fatal insurance policy against future labor disruptions.” This hardly sounds like a robust defense of Bangladeshi industrialists.

To be sure, all other things aren’t generally equal. For example, it seems plausible that countries in which labor agitation are uncommon are also countries in which wages and productivity levels are higher, etc. Unfortunately, transitioning from one equilibrium (low productivity, low safety standards, low wages) to a more favorable equilibrium (high productivity, high safety standards, high wages) is not the kind of thing that happens instantaneously. Rather, it is usually the product of a long historical process. Labor agitation can be part of this process if, for example, it fosters a good public policy response, e.g., more investment in human capital. Another scenario, however, is that labor agitation yields a bifurcated economy, like the economy of South Africa, in which a high-wage unionized sector is cordoned off from a much larger informal economy. Ideally, labor agitation would be oriented towards system-wide change. Bangladesh is an interesting case study that is not very well understood, as it has made considerable progress on social indicators — where it tends to match or in some cases exceed India’s performance, despite a much lower GDP per capita (PPP) — despite having a very weak, corrupt state, a development that some attribute to the strength of its NGO networks, many of which are organized around the idea of female empowerment.* But if anything, Rana Plaza demonstrates that NGO networks alone aren’t enough to achieve progress, which is actually Epstein’s point.

3. And finally, Epstein states that it is the obligation of the public sector to step up its enforcement of building codes, as it would address one of the core legitimate demands of Bangladeshi labor campaigners. This is a reminder that Epstein’s libertarianism is rooted in the sense that while the domain of state authority ought to be limited, the state ought to be strong and effective within its domain. 

Epstein goes on to argue that stronger safety standards might necessitate somewhat lower wages, in light of the competitive nature of the global garment manufacturing industry and the cost structure of Bangladeshi firms. In effect, higher safety levels represent a form of compensation, and higher compensation in one domain will generally mean either lower compensation in another domain or lower profits. One challenge is that Bangladesh’s garment manufacturing sector is highly competitive, and so it is not clear that profits can go much lower before large numbers of firms go bust. That might not be such a bad thing: perhaps a smaller, better-capitalized Bangladeshi garment manufacturing sector that employs fewer workers who are on average more productive would be a good thing. But one can see why some humanitarians, who see how labor-intensive export-oriented manufacturing has alleviated poverty in select parts of the developing world, might object. 

Charles Kenny of the Center for Global Development and Bloomberg Businessweek offers a more optimistic take:

Improving worker safety doesn’t even need to be that expensive. The International Labor Organization and International Finance Corporation (the private-sector arm of the World Bank) has developed the Better Work program to help countries enforce labor laws while sustaining productivity growth. According to the Center for Global Development’s Kim Elliot, research in Cambodia and Vietnam suggests that the Better Work program and related efforts have improved not only working conditions but also industrial relations without reducing productivity .

The answer for companies like Disney, Wal-Mart, and PVH is to stay and do better, not run away. Caring consumers in the U.S. should be pushing for responsible sourcing but should continue buying products made in the developing world. It is one of the most powerful antipoverty techniques we know. That can improve lives—and save them—well beyond the factory floor.

Kenny leaves some questions unanswered. If improving worker safety doesn’t reduce productivity but rather keeps it constant while costing more than absolutely nothing, even that small amount will have to come from somewhere, whether it’s lower wages or higher prices. In an ideal world, improving worker safety would yield higher productivity, and perhaps this outcome will eventually come to pass. Regardless, Kenny surely agrees with Epstein on the fundamental question: while “corporate social responsibility” might yield some benefits for Bangladeshi workers, the real imperative is that the Bangladeshi state grow suficiently strong, or rather sufficiently competent, to enforce its own laws regarding public safety. 

* A friend writes in to note that human development indicators, e.g., female literacy, are also relatively strong in West Bengal, despite the fact that West Bengal has income levels slightly below the Indian average. West Bengal has been governed by the Communist Party of India (Marxist) for much of its existence, while political cleavages in Bangladesh tend to be more historical than ideological in nature. One possibility is that it’s not NGOs that are responsible for Bangladesh’s relatively good performance on human development, but rather that there is something about Bengali culture, on both sides of the border, that has yielded economic underperformance and social overperformance. 

Nancy DiTomaso of Rutgers argues that one of the sources of persistently high black unemployment is the fact that African Americans tend not to be part of the most privileged social networks. As most of us who have navigated a private sector job search understand, jobs are often only publicly-listed after a more informal search. Large firms will begin a search by evaluating internal candidates, and trusted employees will be asked to identify potential candidates from within their professional networks. Having well-situated relatives and friends is thus highly advantageous, as it gives you access to opportunities that you’d never know of otherwise. And so, according to DiTomaso, racial inequality is in a sense driven by inclusion (whether you belong to the right networks) rather than exclusion (an institutional determination to deny opportunities to members of a given group). But the upshot is the same. DiTomaso has just published a book, The American Non-Dilemma, on how “opportunity hoarding” among members of the most privileged racial groups can yield racial inequality in the absence of racism, which I look forward to reading.

But my tentative sense is that DiTomaso is more sanguine about racial preferences than she should be:

Seeing contemporary labor-market politics through the lens of favoritism, rather than discrimination alone, is revealing. It explains, for example, why even though the majority of all Americans, including whites, support civil rights in principle, there is widespread opposition on the part of many whites to affirmative action policies — despite complaints about “reverse discrimination,” my research demonstrated that the real complaint is that affirmative action undermines long-established patterns of favoritism.

The interviewees in my study who were most angry about affirmative action were those who had relatively fewer marketable skills — and were therefore most dependent on getting an inside edge for the best jobs. Whites who felt entitled to these positions believed that affirmative action was unfair because it blocked their own privileged access.

Another view is that the informal mechanisms we use to identify job candidates capture qualities that a narrower, by-the-numbers search would not. This matters more in some domains, like team-oriented service work, than in others, like highly autonomous work that is compensated on the basis of productivity (e.g., a salesman who works on commission). In Still the Promised City?, sociologist Roger Waldinger observed that during the early 1970s era of “white flight,” new immigrants, from the Caribbean rim and Central America, etc., tended to sort into private sector employment, like low-end manufacturing, while African Americans gravitated to the civil service. Yet because the private sector was more permeable to informal social networks — a valued immigrant employee would be encouraged to recommend friends, who tended to be coethnics — than the civil service, which hires via highly bureaucratic procedures, different patterns of the transmission of capital and skills emerged. Uplift for an individual African American climbing through the ranks of the civil service didn’t necessarily mean uplift for her wider network, while uplift for an immigrant in a position to recommend other members of her network was a more collective experience. Granted, it is also true that learning how to navigate the civil service hiring process is a skill that can be transmitted within a network, but the basic point is well taken. 

The strongest argument in favor of racial preferences is DiTomaso’s: that in its absence, entrenched networks of privilege will exclude outsiders. One of the stronger arguments against (I’d say the mismatch hypothesis is the strongest argument, in higher education at least, against large preferences) is that racial preferences represent “seeing like a state,” i.e., they are a crude tool that misses more nuanced aspects of the social landscape, like Pat Sharkey’s findings on multigenerational poverty or Matt Lawrence’s intriguing work on the value of having had a college-educated grandparent in addition to a college-educated parent. I assume that Sharkey and Lawrence are both supporters of preferences, yet their work suggests that looking at race in isolation — and not also taking neighborhood environment and family history into account — might give us too constrained a view.

So while I think the problem that DiTomaso identifies is real, we shouldn’t efface the value of informal networks — one of the reasons we rely so heavily on them, by the way, is that they raise the stakes of making a recommendation: I would be embarrassed if the person I recommended to you for a job turned out to be a bozo, and this social sanction is difficult to replicate through institutional means. Rather, we should work towards fostering more inclusive networks by, for example, reducing concentrations of poverty through more effective crime control, less restrictive zoning laws, and other measures that will yield other economic benefits as well. Firms, meanwhile, need to be attuned to the dangers of overlooking potential sources of talent. Year Up, a Boston-based social enterprise, connects urban young adults with large business enterprises to help foster the kind of relationships DiTomaso has in mind, and it seems to have met with great success.   

My latest column for Reuters Opinion argues that to understand the future of America’s Hispanic population, we need to take into account the phenomenon of “ethnic attrition“:

For example, while virtually all third-generation Mexican-Americans with three or four Mexican-born grandparents identify as being of Mexican descent, Duncan and Trejo observe that only 79 percent of those with two Mexican-born grandparents do the same. For those with only one Mexican-born grandparent, the share falls to 58 percent.

Only 17 percent of third-generation Mexican-Americans have three or four Mexican-born grandparents, so the ethnic attrition rate is quite high: 30 percent of Americans with at least one Mexican-born grandparent do not identify as being of Mexican descent. It appears, according to Duncan and Trejo, that the educational attainment of Mexican-Americans who don’t identify as Mexican is higher than for those who do.

This suggests that when we measure life outcomes for third-generation Mexican-Americans, we might be biasing the results by relying on self-identification and thus failing to include large numbers of individuals with at least one Mexican-born grandparent.

The column opens with a discussion of former New Mexico Gov. Bill Richardson’s recent suggestion that Sen. Ted Cruz shouldn’t be “defined as a Hispanic,” one of many examples of Cruz getting under the skin of a prominent liberal. Ramesh Ponnuru’s latest Bloomberg View column explores this larger theme of how liberal (and moderate) contempt for Cruz strengthens his position on the right.

David Leonhardt observes that the nonemployment rate among 25- to 34-year-olds was as of 2011 substantially higher (at 26.6 percent) than it was in France (22 percent), Britain (21.6), Japan (21), Germany (20.5), and Canada (20.2), a reversal from 2000, when the U.S. had the lowest nonemployment rate for this cohort (18.5) and Japan had the highest (23.9). One of the most striking aspects of these numbers is that the nonemployment rate in the U.S. has increased so dramatically, to a level higher than the highest nonemployment rate at the turn of the century. Leonhardt offers some thoughts as to what exactly happened over the intervening years, but he misses some of the more obvious possibilities. For example, he writes the following on higher education:

The United States, for example, has lost its once-large lead in producing college graduates, and education remains the most successful jobs strategy in a globalized, technology-heavy economy. It is no accident that the most educated places in the country, like Boston, Minneapolis, Washington and Austin, Tex., have high employment rates while the least educated, including many in the South and inland California, have low ones. The official unemployment rate for 25- to 34-year-old college graduates remains just 3.3 percent.

Leonhardt is correct: college completion rates in the U.S. are lackluster. But the nonemployment rate includes students enrolled in higher education, whether or not they are likely to complete a terminal degree. Consider the following from the National Center for Education Statistics:

Enrollment in degree-granting institutions increased by 11 percent between 1990 and 2000. Between 2000 and 2010, enrollment increased 37 percent, from 15.3 million to 21.0 million. Much of the growth between 2000 and 2010 was in full-time enrollment; the number of full-time students rose 45 percent, while the number of part-time students rose 26 percent. During the same time period, the number of females rose 39 percent, while the number of males rose 35 percent. Enrollment increases can be affected both by population growth and by rising rates of enrollment.

Between 2000 and 2010, the number of 18- to 24-year-olds increased from 27.3 million to 30.7 million, an increase of 12 percent, and the percentage of 18- to 24-year-olds enrolled in college rose from 35 percent in 2000 to 41 percent in 2010. In addition to enrollment in accredited 2-year colleges, 4-year colleges, and universities, about 539,000 students attended non-degree-granting, Title IV eligible, postsecondary institutions in fall 2009. These institutions are postsecondary institutions that do not award associate’s or higher degrees; they include, for example, institutions that offer only career and technical programs of less than 2 years’ duration.

In recent years, the percentage increase in the number of students age 25 and over has been larger than the percentage increase in the number of younger students, and this pattern is expected to continue. Between 2000 and 2010, the enrollment of students under age 25 increased by 34 percent. Enrollment of students 25 and over rose 42 percent during the same period. From 2010 to 2020, NCES projects a rise of 11 percent in enrollments of students under 25, and a rise of 20 percent in enrollments of students 25 and over. [Emphasis added]

One assumes that this increase in higher education enrollment only accounts for a fraction of the larger increase in nonemployment, particularly since we are talking about 25- to 34-year-olds. And more recently, there has been a dip in higher education enrollment, as Richard Vedder has observed. But it is curious that Leonhardt failed to mention this substantial increase in higher education enrollment between 2000 and 2011, as there is at least some reason to believe that it is a contributing factor. Moreover, while Leonhardt touts the virtues of higher education, Vedder notes a recent estimate which found that as many as 53 percent of recent college graduates are either unemployed or employed in low-wage, low-skilled jobs. This suggests that the marginal college student graduate isn’t necessarily benefiting from time spent in full-time higher education, let alone large numbers of college attendees. Yet the availability of higher education subsidies might make college enrollment a more attractive option than low-end employment, at least in the short-term. In this regard, we may well be seeing a parallel to rising disability rates, which in part reflect the deterioration of the labor market position of older less-skilled workers, among younger workers.