Ultimately, the CBO report rips a layer of artifice from the immigration debate. Few critics of immigration reform really base their opposition on concerns about the deficit or the economy. Their real concern with immigration is cultural and sociological. But that’s dangerous political ground. It’s easier to frame opposition using the bloodless language of the budget than the combustible language of national character and composition.

That’s the real damage the CBO did to the anti-immigration caucus. It took the bloodless language of the budget away from them. It left them only with their real concerns — the ones they’d prefer not to emphasize. That will perhaps lead to a slightly more truthful debate about immigration reform, but one that is much more dangerous for the anti-reform side, and for the Republican Party.

I can't speak for all critics of immigration reform, or rather all critics of this particular legislative proposal (blurring the distinction is, for obvious reasons, useful to proponents of the Senate bill, but also highly misleading). But my view, as a conservative who is for the record less exercised about near-term deficits than most, is that the economic, the cultural, the sociological, and the political are interrelated. Ezra and Evan really mean to suggest, as far as I can tell, that opponents of this immigration reform bill are uncomfortable about the prospect of a U.S. population that is more Latin, Asian, and African. That may well be true. I tend to think that opponents of the bill really are concerned about the wisdom of allowing a large increase in less-skilled immigration, regardless of its source. 

For example, I consider it highly unlikely that given the extremely high poverty levels of the unauthorized immigrant population, and the fiscal burdens facing state and local governments, Congress won't take steps to expand eligibility for programs like SNAP, TANF, Medicaid, and the subsidies for the purchase of medical insurance established under the Affordable Care Act to include legalized immigrants. The U.S. contains many mixed-status households, and most legalized immigrants are not so socially and culturally isolated that the larger public will be indifferent to reports of hunger, a lack of access to medical insurance, and other maladies that means-tested transfers might help address. This reflects the cultural and political reality that while Americans are ideologically conservative, they are operationally liberal. That is, U.S. voters oppose "big government" in the abstract, but in practice they're often moved by compelling stories of hardship to back expansions of means-tested transfers. It could be that the fact that most of the legalized immigrant population will be drawn from minority groups will lead the median voter to oppose the expansion of programs aimed at hunger alleviation and subsidizing medical coverage. But determining the answer to this question requires that we draw on cultural, political, and sociological insights. 

So we find ourselves in this funny position: advocates of the comprehensive immigration reform bill, including many who like Hawaii Sen. Mazie Hirono believe that "the restrictions on federal safety-net programs make the pathway even more treacherous" for legalized immigrants, are delighted by the CBO's determination that it is deficit-improving, despite the fact that it may well be substantially less so if the restrictions on federal safety-net programs were removed.

My view is very basic: I both believe that we ought to be more selective about immigrants we allow to settle in the U.S. -- I'd suggest that we admit immigrants likely to pay very high lifetime net tax rates -- yet that we ought to be relatively generous to those who join our political community. The contrasting view, that we ought to be much less selective while also strictly limiting access to safety net programs, is embraced by libertarians, but my guess is that it is not terribly popular among liberals or conservatives or moderates, either because they favor a smaller immigrant influx or because they find the idea of a sharp increase in domestic poverty levels and self-reported hunger very unattractive. 

Moreover, it is worth recalling that the CBO's analysis looks to this decade and the next. A focus on lifetime net tax rates, in contrast, looks both to the taxes paid over a working life and public expenditures on retirement and health security programs and human capital investment, among other things. I don't fault the CBO for doing its job as well as it can given its limitations, including its statutory limitations. It is not clear to me, however, that the CBO's analysis has settled much of anything.

The Republican 2016 contest already has a rough shape: several would-be candidates are crowding the rightward end of the spectrum (let's say Ted Cruz, Bobby Jindal, Rick Santorum, Scott Walker), one or two are presenting themselves as problem-solving pragmatists with establishment support (Chris Christie and possibly Jeb Bush), and one or two are hovering in-between (this is where I suspect Marco Rubio and Paul Ryan would wind up, though I suspect Ryan is too wise to run). My gut sense is that Walker and Christie are the ones to watch. 

Since October 2007, the public debt has increased by $6.9 trillion. Most went to finance deficits, but about $650 billion went to expand the government’s investment portfolio, including a big jump in student loans. Before the financial crisis, Uncle Sam held less than $500 billion in cash, bonds, mortgages, and other financial instruments. Today, that portfolio has more than doubled, exceeding $1.1 trillion.

The U.S. Treasury has sold off many of its financial assets over the intervening years, yet it has greatly increased its holdings of student loan debt.

The federal government used to subsidize student borrowing not only by providing loans directly to students, but also by guaranteeing many private loans. In 2009, however, Congress eliminated private guarantees and dramatically expanded direct federal lending. The government’s portfolio of student loans has since increased from about $90 billion at the start of fiscal 2008 to more than $560 billion today.

As a result, the government’s financial investments now total about $1.1 trillion, essentially all of which was financed by borrowing. The debt supporting Uncle Sam’s investment portfolio thus accounts for almost 10 percent of the $11.9 trillion in public debt.

If you told me that Congress was planning to borrow heavily to finance a variety of large-scale public investments, I wouldn't necessarily balk. But I would want the country to have a proper conversation about the kind of investments we ought to make. That hasn't really happened. Back in 2011, Christopher Papagianis and Arpit Gupta argued that "private sector is fighting the government for control of capital markets, and the government is winning":

At first, government dominance of credit allocation is presented as a good thing, or as a choice between equally unpleasant outcomes. In the case of residential mortgages, government involvement is generally rationalized as a choice between government mortgages or no mortgages at all. Yet, the refusal to allow the market to find a price at which lenders are willing to assume the risks of consumer lending creates the real potential for much worse long-run outcomes.

While it’s already starting to happen, increasingly the levers that control the provision of credit for consumers will be set in accordance with the needs and wants of politicians and bureaucrats. As the risk of a Japan-like period of stagnation grows for the U.S., it’s worth bearing in mind the lessons of Anil Kashyap from the Chicago Booth School of Business, who has warned that politically-driven investment and capital decisions played a large role in the long Japanese recession.

We are now at a point where it is almost impossible to imagine a functioning capital market without an oversize role for government. The longer the government maintains a dominant role, the more the private sector’s capacity to fill in or take control atrophies. This dynamic needs to shift back in the direction of the private sector. In many ways, the most important battle the U.S. faces over the next few years is wrestling back control of its own capital markets. [Emphasis added]

On a related note, Jason Delisle of the New America Foundation has written extensively on the transformation of the student loan market and its implications, most recently in engaging with Sen. Elizabeth Warren (D-MA).

Unfortunately, international trade and technology will continue to eliminate middle-class jobs. Personally, I’m worried that our political system will not adequately ease the pain of this transition. However, this economic upheaval will increase the quality of human capital available to schools. 

What I appreciate about Neerav's analysis is that it recognizes that not all good things go together. One challenge K-12 schools face is that, as Josh Barro has observed, the combination of the improvement in the labor market position of female college graduates and the wage compression that been reinforced by unionization has made it more difficult to recruit and retain talented teachers. (Declining student-teacher ratios, which represent both a response to consumer demand and union imperatives, have also played a role in diluting the teacher talent pool.) The first development is clearly a good thing. The second is a good thing for teachers who would have a difficult time finding stimulating and remunerative work in other sectors while being a bad thing for those in a position to do so. The result of combinging this good thing with this somewhat bad thing is that average teacher quality has suffered while other sectors have benefited from talented workers who might have otherwise devoted themselves to educating the next generation. Neerav is suggesting that we might see a reversal of these trends. That is, if the labor market position of college graduates deteriorates as offshoring and increasingly intelligent machines substitute for skilled labor, and if blended learning and other technology-driven strategies allow K-12 schools to make do with fewer teachers, there will be more high-quality workers chasing fewer jobs, and this will prove a boon to average teacher quality and (presumably) educational outcomes. I am more optimistic than Neerav about mid-skill employment opportunities, and so I am more pessimistic about the future trajectory of the teacher talent pool, though probably not by much in either case.

We start by showing that the share of income accruing to labor has declined in the large majority of countries and industries. Larger labor share declines occurred in countries or industries with larger declines in their relative price of investment goods. Next, we use this cross-sectional variation to estimate the shape of the production function and conclude that the decline in the relative price of investment explains roughly half of the decline in the global labor share.

One noteworthy finding is that the deterioration of labor's share of GDP is actually less pronounced in the U.S. than it is in other major market democracies, like (in ascending order of the size of the decline) Japan, Canada, France, Italy, and Germany. In Germany, where unionization levels remain relatively high, organized labor has worked closely with large business enterprises to restrain compensation growth. This obviously does not preclude the possibility that deunionization has played a role in weakening the bargaining position of labor, but it does complicate the picture.

Labrador's tough line suffers from the same tunnel vision as the Senate immigration bill — at least as it stands now — which also would deny ObamaCare subsidies to immigrants for a decade or more.

Both approaches would give employers a big incentive to hire legalized immigrants in order to dodge ObamaCare's fines for failing to provide affordable, comprehensive health coverage to workers. That's because such fines may be levied based on the number of full-time employees who actually get subsidized coverage via ObamaCare’s exchanges.

For each subsidized worker, many employers will owe a $3,000 nondeductible fine, which equates to $5,000 in wages for a profit-making firm that pays a combined 40% federal and state tax rate. 

This is not to suggest that Labrador's concerns are entirely misplaced. The unauthorized immigrant population is extremely poor, and while offering unauthorized immigrants provisional legal status will tend to raise their incomes, it won't raise them enough to obviate the need for subsidized medical coverage. According to Nakamura and Somashekhar, congressional Democrats find the debate over subsidized medical coverage for legalized immigrants exasperating:

Frustrated Democrats argue that Republicans are picking a fight where one does not exist. In both chambers, Democrats say, they have agreed that illegal immigrants would not be eligible for public benefits — including health-care subsidies and Medicaid — as they embark on a path to permanent legal status, which would take at least 10 years under the Senate plan.

“We have said since Day One . . . that undocumented people will not have access to subsidies in the Affordable Care Act,” House Minority Leader Nancy Pelosi (D-Calif.) said last month. “Any thought that we want to do something different than that is simply not true. It is a bottom line. No need to even discuss it.”

Under current law, illegal immigrants and legal residents of fewer than five years are mostly barred from receiving benefits under Medicaid, the joint state-federal health insurance program for the poor. That restriction does not apply to poor immigrants who show up at hospital emergency rooms, however.

While writing the Affordable Care Act, Congress sidestepped the dicey issue of illegal immigration by excluding immigrants who are in the country illegally from its provisions. That means that those immigrants will not get government subsidies to help them buy private insurance plans, nor can they benefit from the law’s expansion of Medicaid.

At the same time, however, they are exempted from the mandate, taking effect next year, that every person must carry health insurance or face a tax penalty.

One reason congressional Democrats might believe that there is "no need to even discuss" this subject is that their current position is untenable. Los Angeles County is just one of many local governments which have raised the fact that denying legalized immigrants federal health subsidies will leave them with a crippling economic burden it can ill afford. Given that the House Minority Leader represents San Francisco, a jurisdiction that contains a nontrivial number of unauthorized immigrants who will be eligible for provisional legal status, one assumes that she understands that local taxpayers will resist fully taking on the cost of providing subsidized medical care for legalized immigrants, particularly in light of rising pension and benefits costs. So the game plan appears to be this: insist that subsidies are off the table for legalized immigrants ("no need to even discuss it"), pass the law with the support for conservatives and centrists in both parties who'd be reluctant to support it if subsidies were offered, and then extend subsidies once the law is passed by pointing to the burden that has been placed on state and local governments, and various news stories about the difficulties facing low-income legalized immigrants who don't have access to subsidized medical coverage. 

Nakamura and Somashekhar telegraph what this debate will look like in their final paragraphs:

Last week, Rubio announced he would co-sponsor an amendment with Sen. Orrin G. Hatch (R-Utah) to mandate that illegal immigrants cannot get access to public benefits until five years after they earn green cards signifying permanent legal status.

That would mean that, although such immigrants could be eligible for citizenship after 13 years, they would not be allowed to access the health subsidies for at least 15 years.

“The 13-year-long pathway to citizenship will be hard enough,” said Sen. Mazie Hirono (D-Hawaii). “The restrictions on federal safety-net programs make the pathway even more treacherous.”

Suffice it to say, medical providers and insurers will likely embrace Hirono's stance, as utilization of medical services will increase considerably among legalized low-income immigrants if they are granted subsidized medical coverage. 

Labrador's tough line suffers from the same tunnel vision as the Senate immigration bill — at least as it stands now — which also would deny ObamaCare subsidies to immigrants for a decade or more.

Both approaches would give employers a big incentive to hire legalized immigrants in order to dodge ObamaCare's fines for failing to provide affordable, comprehensive health coverage to workers. That's because such fines may be levied based on the number of full-time employees who actually get subsidized coverage via ObamaCare’s exchanges.

For each subsidized worker, many employers will owe a $3,000 nondeductible fine, which equates to $5,000 in wages for a profit-making firm that pays a combined 40% federal and state tax rate. 

This is not to suggest that Labrador's concerns are entirely misplaced. The unauthorized immigrant population is extremely poor, and while offering unauthorized immigrants provisional legal status will tend to raise their incomes, it won't raise them enough to obviate the need for subsidized medical coverage. According to Nakamura and Somashekhar, congressional Democrats find the debate over subsidized medical coverage for legalized immigrants exasperating:

Frustrated Democrats argue that Republicans are picking a fight where one does not exist. In both chambers, Democrats say, they have agreed that illegal immigrants would not be eligible for public benefits — including health-care subsidies and Medicaid — as they embark on a path to permanent legal status, which would take at least 10 years under the Senate plan.

“We have said since Day One . . . that undocumented people will not have access to subsidies in the Affordable Care Act,” House Minority Leader Nancy Pelosi (D-Calif.) said last month. “Any thought that we want to do something different than that is simply not true. It is a bottom line. No need to even discuss it.”

Under current law, illegal immigrants and legal residents of fewer than five years are mostly barred from receiving benefits under Medicaid, the joint state-federal health insurance program for the poor. That restriction does not apply to poor immigrants who show up at hospital emergency rooms, however.

While writing the Affordable Care Act, Congress sidestepped the dicey issue of illegal immigration by excluding immigrants who are in the country illegally from its provisions. That means that those immigrants will not get government subsidies to help them buy private insurance plans, nor can they benefit from the law’s expansion of Medicaid.

At the same time, however, they are exempted from the mandate, taking effect next year, that every person must carry health insurance or face a tax penalty.

One reason congressional Democrats might believe that there is "no need to even discuss" this subject is that their current position is untenable. Los Angeles County is just one of many local governments which have raised the fact that denying legalized immigrants federal health subsidies will leave them with a crippling economic burden it can ill afford. Given that the House Minority Leader represents San Francisco, a jurisdiction that contains a nontrivial number of unauthorized immigrants who will be eligible for provisional legal status, one assumes that she understands that local taxpayers will resist fully taking on the cost of providing subsidized medical care for legalized immigrants, particularly in light of rising pension and benefits costs. So the game plan appears to be this: insist that subsidies are off the table for legalized immigrants ("no need to even discuss it"), pass the law with the support for conservatives and centrists in both parties who'd be reluctant to support it if subsidies were offered, and then extend subsidies once the law is passed by pointing to the burden that has been placed on state and local governments, and various news stories about the difficulties facing low-income legalized immigrants who don't have access to subsidized medical coverage. 

World War II left industrialized societies with two main features: a lot of industrial capacity, and a lot of dead men. These combined to drive up wages for workers, and for cultural and pragmatic (high wages mean no need for dual income households; high fertility was encouraged to replenish the population) reasons workers were overwhelmingly men. The marginal unit of labor was thus very valuable and labor supply was restricted since the baby boom generation needed twenty or so years to grow up.

By the end of the 1960s the baby boomers were entering the workforce but industrial capacity had not grown at the same rate as the population. Thus, new entrants into labor markets -- which increasingly included women and minorities as well as young white men -- put downward pressure on wages. The marginal unit of labor was no longer very valuable. Median wages began to stagnate at the same time that over-crowding of cities was leading to social unrest. Governments did not do a good job of managing these duel pressures. The 1970s are a period of stagflation and urban decline.

The interesting part is what happens next. The increase in labor supply suppressed gains in compensation for most workers. But it created opportunites for those in a position to sell the product of their labor to a large, relatively affluent customer base, e.g., "the heads of major corporations, financiers, professional athletes," all of whom benefit from the rise of information technology and globalization. Winecoff suggests that the real contrast isn't capital-versus-labor, but rather between labor that occupies a central position in the economic network of late capitalism and labor that occupies the margins. It is an interesting thesis, and it complements Scott Winship's recent work. 

Perhaps one reason we haven’t seen a huge impact on productivity because of access to the Internet is because, once we find a job, we spend quite a lot of time surfing the Web at the office. (Some of that time is used to look for a different job, apparently.) Ninety percent of workers with a PC also say they surf recreational sites at work. Almost the same number say they send personal e-mails, and more than half report they cybershop. The reality may be worse: Tracking software suggests that 70 percent of employees visit retail sites, and more than one-third check out X-rated sites. Perhaps we’re using the Internet to do more in less time at work. Yet we’re using the extra hours to check out pictures of Kate Upton or cats playing the piano rather than producing more widgets for the boss.

More broadly, [Robert] Gordon argues that the big productivity wins from IT occurred long ago. He notes (PDF) that telephone operators disappeared in the 1960s as the first robots were arriving in factories. Reservations systems, electronic calculators, and barcode scanners spread in the 1970s and 1980s. Business-to-business electronic invoicing through electronic data interchange has been around since 1965—when Holland-America Steamship Lines started sending shipping manifests through telex messages that were automatically converted into computer data. Online retail shopping may be a comparatively recent phenomenon, but it isn’t a very important part of the overall productivity story.

The Internet has changed the economy and will continue to change it. Some industries—not least print media, booksellers, and broadcast TV—will continue to see dramatic upheaval. But the biggest impact of the technology has been as a more addictive form of entertainment than watching Friends reruns or talking to real friends in real life. If we’ve learned anything over the past 10 years, it’s that there’s no simple Web-based solution to an economy in the productivity doldrums.

Kenny is a skilled debunker, and his column is well worth reading. And he frankly sets up an easy target -- the Internet alone will not deliver "an unprecedented period of sustainable, rapid growth," as President Clinton's Council of Economic Advisors hoped it might in 2000, particularly if the market democracies pursue destructive monetary and fiscal policies. But there are a few points worth keeping in mind:

1. Clayton Christensen and Ashwin Parameswaran have both observed that recent years have seen a great deal of efficiency innovation relative to empowering innovation, or rather process innovation relative to product innovation. That is, firms are doing the same things more efficiently rather than launching new products and services that create new forms of consumption. The first kind of innovation allows us to use fewer resources to manufacture stagecoaches. The second kind gives us new products like the personal automobile, a device that dramatically increased mobility and that fostered the creation of a wide range of ancillary services. Efficiency innovations will tend to reduce employment levels in a given sector while empowering innovation will tend to increase employment levels as new sectors and new firms arise to meet new needs. Ashwin's work emphasizes the role of new firm entry in fostering product innovation. As we often discuss, however, the barriers to new firm entry (the debt bias in the tax code, the cost of regulatory compliance) are quite high in many sectors in mature market democracies like the U.S.

The Internet has the potential to reduce barriers to entry in some domains by facilitating disintermediation, etc. This is why some have seen the Internet as an economic panacea. Yet as long as regulatory and, more subtly, cultural barriers persist, this potential won't be realized. A perfect companion piece for Kenny's column is Brad Stone on "Why Redfin, Zillow, and Trulia Haven't Killed Off Real Estate Brokers," which explains why various real estate start-ups have failed to transform the real estate sector.

2. In 1989, Paul David's "The Dynamo and the Computer" observed that it took many years for investment in electrification to pay off, and that a similar dynamic might apply to the deployment of information technology in the modern workplace. Kenny implicitly addresses this argument by drawing on Robert Gordon's claim that we have largely exhausted the potential productivity gains from IT. These gains have been realized through investments in organizational capital. Firms in various sectors, ranging from knowledge-intensive services to retail, have restructured the ways in which they deploy human capital to better exploit information technology. Yet there are a number of sectors that have not gone through this restructuring, or rather that have not taken full advantage of this opportunity, e.g., the education, health, and construction sectors, among others.

3. And finally, it could be that the Industrial Internet will deliver where the Internet Internet did not, particularly if it emerges under a more favorable mix of macroeconomic policies. 

Investors would have to take the first 10 percent loss on mortgage securities in market that's currently $5 trillion in size, while the next 2.5 percent would be funded by guarantee fees. Overall that's a cushion around two-and-a-half times as large as Fannie and Freddie's losses from 2007 to 2011.

It's a shame Congress couldn't act sooner and more aggressively to slash government involvement and subsidies in the mortgage market. Now that Fannie and Freddie are again posting big profits, reformers have to be practical. If there's much more delay, even this modest reform proposal may fall by the wayside.

One gets the impression that the case of the GSEs is illustrative of a broader phenomenon: the post-crisis environment created an opportunity for sweeping reform across many domains, and the Obama administration took advantage of it by passing the fiscal stimulus law and sweeping overhauls of the health system, student loans, food safety laws, and financial regulation. This ambitious legislative agenda sparked a strong reaction, primarily but not exclusively on the political right, and now it seems that the appetite for sweeping reform has mostly evaporated, despite the fact that Congress hasn't tackled -- hasn't come close to tackling -- a wide range of serious structural problems, in the mortgage market, as Indiviglio makes clear, but also in areas that we've notionally addressed, like the broader financial system, the health system, and the higher education sector, among much else. By 2017, we will have a new president. Somehow she or he will have to foster a renewed sense of urgency, lest we remain mired in the "New Normal."