Wednesday, March 31, 2010

Immigration and the welfare state.

Milton Friedman famously remarked, “you can’t have free immigration and a welfare state.” There is a tipping point, even if the U.S. has yet to reach it.

Interesting analysis . . .

I tend to be less confident that the author about the causation, but liberty seems to compel an argument for free immigration. The discussion ending over on CATO debating liberty seems on point.

Tuesday, March 30, 2010

Libertarians and Foreign Policy

I was listening to Dennis Prager the other day and he said something that I have been thinking about since. He noted that libertarians, like the left, totally fail on foreign policy. They fail to fight evil. They are isolationists who simply ignore evil. I don't think Prager is correct. The libertarian would surely oppose coercion. Government should not forcibly make citizens fight wars. Government should not forcibly require other nations to do anything that would infringe on that public's private property rights.

However, could an argument be made for a country to invade another country? The libertarian argument would be that if our private property rights are threatened or under fire, then a defensive action would make sense. So, if it could be shown or argued that some regime is indeed ready to attack the U.S. or U.S. property, then would defensive action make sense? Would this apply to Saddam Hussein or Iran? How about Hitler or Stalin? Now, what would libertarians propose to do about genocide in Cambodia under Pol Pot, or in Darfur? Wouldn't the libertarian view be that if enough people voluntarily agreed to stop the bloodshed by hiring others to do so or doing it themselves, this would be all right? Since the aggressing party in such conflicts is violating basic human right of personal ownership, would it be invalid to argue that if individuals voluntarily agree to stop this violation it would not be libertarian? What do you think about this issue?

Monday, March 29, 2010

Taking Hope in the Long View

Odd that I would reference Brad deLong (I recently was flattered to join the long list people deLong called an idiot) but Project Syndicate is a great source for analysis and, deLong's contribution shows that, when he is not acting . . . out . . . he can add to a discussion.

He writes

If all goes well in China and India in the next generation – and if nothing goes catastrophically wrong in the rich, post-industrial, North Atlantic core of the global economy – the next generation will reach a real milestone. For the first time, more than half of the world will have enough food not to be hungry, enough shelter not to be wet, enough clothing not to be cold, and enough medical care not to be worried that they and most of their children will die prematurely of micro-parasites.

He offers a short answer to the question - How did this happen?

Nothing Outside the State: Part II

Nothing Outside the State: Part II

Vintage Bob Higgs, well worth a click.

Sunday, March 28, 2010

Trying to Tame the Unknowable

Greg Mankiw in today's NY Times. The key point:

Whatever we do, let’s not be overoptimistic about how successful improved oversight will be. The financial system is diverse and vastly complicated. Government regulators will always be outnumbered and underpaid compared with those whose interest it is to circumvent the regulations. Legislators will often be distracted by other priorities. To believe that the government will ever become a reliable watchdog would be a tragic mistake.

Saturday, March 27, 2010

The Knowledge Problem of New Paternalism

Our ASET book club read Nudge last year. The discussion was outstanding and both the thesis and the presentation have nagged at me. Mario Rizzo and his co-author have an outstanding analysis of the "New Paternalism" and it is well worth a read.

Thursday, March 25, 2010


I have gleaned the following from the ObamaCare package signed into law yesterday.

Most of the mandates, Medicare cuts and taxes will not take effect until 2014 or later. The gross cost of the bill $940 billion over ten years–but almost $40 billion of that comes in 2019.
$17 billion in the first four years, while the remaining $923 billion, or 98 percent, is spent in the next six years.

Total Cost:
Congressional Budget Office (CBO) says less than $1 trillion over 10 years. But when all spending and offsets are properly accounted for, the true cost skyrockets to over $2 trillion . The oft-quoted $940 billion number only pertains to the cost of expanding coverage —— but it does not include all other costs, such as the providing more Medicare prescription drug subsides, which costs about $38 billion.”

A family of four with the national average income of about $70,000 (at 317% of the poverty level of about $22,000) would have their spending capped at 9.5% of income, which would be about $6,650. Taxpayers would pick up the other half of the cost of the insurance. The Congressional Budget Office estimates that 18 million people would take advantage of the exchange to obtain subsidized health insurance. However, if employers that currently offer health insurance drop their coverage in order to save $8,700 per employee ($10,700 less the $2,000 penalty for employers with more than 50 employees that do not provide coverage) and shift that cost to the taxpayer, the number of people getting subsidized health insurance could surge well beyond the budgeted 18 million. After all, there are 127 million people with incomes between 150% and 400% of the federal poverty level.

Estimates of the costsof Obamacare are very, very low. When Medicare was instituted in 1965, it was estimated that the cost of Medicare Part A would be $9 billion by 1990. In actuality, it was seven times higher — $67 billion. Similarly, in 1987, Medicaid's special hospitals subsidy was projected to cost $100 million annually by 1992, just five years later; it actually cost $11 billion, more than 100 times as much. And in 1988, when Medicare's home-care benefit was established, the projected cost for 1993 was $4 billion, but the actual cost in 1993 was $10 billion.
States which have instituted ObamaCare-like programs in recent decades have seen their average insurance premiums skyrocket: In Kentucky, for example, average premiums shot up an astounding 36-165 percent after a 1994 government-managed reform measure was passed, Washington state residents saw a premium increase of up to 78 percent as a result of a similar program. State-managed care in Massachusetts has led to the most expensive average family plans in the nation.

Middle Class:
A 40 percent excise tax on insurance plans costing $10,200 for individuals and $27,500 for families.
The bill also imposes new taxes on drug makers, medical device manufacturers and health insurers that are likely to be passed on to consumers.
When you sell a home a 4% tax will be levied on your proceeds from the sale will go to cover Health Care costs.
If you frequent tanning salons, you will pay a 10% excise tax.
If you purchase a wheelchair or other medical devices, you will pay a 2.3% excise tax.
A 40% tax on health benefits happens in 2018 and applies to premiums exceeding $10,200 a year for individuals and $27,500 for families.
If you itemize your tax returns, the deductible for medical expenses will change. You will only be allowed to deduct medical expenses in excess of 10% of your adjusted gross income. Currently that number is 7.5%.

In 2013 Families with incomes greater than $250,000 will pay a higher (0.9 higher) Medicare Payroll Tax up to 2.35 percent,
There is a new 3.8 percent tax on interest and dividend income
Starting in 2018, "Cadillac" insurance plans will be taxed -- individual polices over $10,200 a year and family plans over $27,500. The way the tax is "indexed," in time it'll cover more and more Americans -- just as the Alternative Minimum Income Tax, first targeted at the super-rich, now hits millions in the middle class.

Younger Individuals:
Required to purchase insurance or pay a fine. Individuals who do not have insurance will be forced to pay a 2.5 percent “health insurance” tax penalty.
Younger consumers will bear the greatest burden, with premiums costing more than triple their current rates.
The incentives for younger and healthier individuals is to pay the cheaper mandate penalty rather than buy the more expensive government required health insurance, knowing that they could always sign up later under the guaranteed issue rule.
Can be covered under parents’ program until age 26.

The Medicare program will see $500 billion in cuts to its program along with the Medicare tax being raised.
Tax on medical devices.
Tax on dividends and interest.
Elimination of Medicare Advantage. The approximately 4 million Medicare beneficiaries who hit the so-called “doughnut hole” in the program’s drug plan will get a $250 rebate this year. Next year, their cost of drugs in the coverage gap will go down by 50 percent. Preventive care, such as some types of cancer screening, will be free of co-payments or deductibles starting in 2010.

An insurance mandate requiring all employers to provide health insurance or pay an 8 percent payroll tax penalty.
The penalty employers face for not offering coverage $750 a person.
If employers did offer coverage, but the employee-paid portion accounted for a larger percentage of a worker’s income than deemed acceptable by the bill, the worker would be eligible to drop out of employer-sponsored insurance and obtain a subsidy to buy insurance in the exchange instead.
The employer would pay a $3,000 fine for every worker that bought insurance in the exchange, capped at one-fourth of the workforce.
It may be more beneficial to not offer insurance at all, much to the detriment of employees who would not be eligible for subsidies in the exchange.

All the health bills before Congress depend on a massive Medicaid expansion. If Congress raises eligibility to 133% of the federal poverty level, 33 states would see their Medicaid populations increase by 30%, and 10 states would see their Medicaid populations jump by 50%
In many states, the Medicaid program only covers a portion of those living below the poverty level. For these states, the requirement to cover all those in poverty and then 50% more will cause enormous increases in taxes. In Arkansas and Louisiana, the cost could exceed $1 billion for each state each year.

The IRS will need to collect an additional 10 billion dollars in taxes over the next 10 years. Nearly half of all these new mandated taxes on individuals will be paid by Americans earning on average less than $66,150!
The IRS will need to hire 16,500 new employees to audit, investigate, and collect billions in new taxes.
These new IRS workers will have to verify that you have “acceptable” health care coverage. When audited the burden will be on you to prove that you have purchased the “minimum essential coverage”.
Under the enforcement process your bank accounts and tax returns will be used to pay the non-compliance fines. To enforce compliance the IRS will have the authority to fine you $2,250 or 2% of your income if that is a larger amount.

Health Care providers:
Doctors and hospitals will receive less compensation than they do now to control revenue streams.
Doc fix for medicare is likely not to be supported. If it is then bill costs $260 billion more over 10 years.

Thomas Sowell - Intellectuals and Society

Tuesday, March 23, 2010

Greg Mankiw on tradeoffs

Mankiw does a wonderful job of modeling civil discourse, fulfilling the role of the intellectual in society, a topic at the upcoming ASET book club.

He writes:

One thing I have been struck by in watching this debate is how strident it has been, among both proponents and opponents of the legislation. As a weak-willed eclectic, I can see arguments on both sides. Life is full of tradeoffs, and so most issues strike me as involving shades of grey rather than being black and white. As a result, I find it hard to envision the people I disagree with as demons.

Arthur Okun said the big tradeoff in economics is between equality and efficiency. The health reform bill offers more equality (expanded insurance, more redistribution) and less efficiency (higher marginal tax rates). Whether you think this is a good or bad choice to make, it should not be hard to see the other point of view.

Friday, March 19, 2010

Ratchet Effect

FIRST Truman went to war against Korea without Congress,
and I didn’t speak up because the communists had to be stopped.

THEN Clinton passed the Antiterrorism and Effective Death Penalty Act of 1996,
and I didn’t speak up because innocent people don’t need habeas corpus.

THEN Bush passed the USA PATRIOT ACT,
and I didn’t speak up because terrorists don’t deserve trials.

THEN Obama ridiculed the Supreme Court,
and I didn’t speak up because I don’t like corporations.

THEN Obama classified the Constitution as messy rules standing in the way of important ends,
and by that time no one could remember what a root principle is.

With apologies to Pastor Niemöller

Wednesday, March 17, 2010

Bring Back the Robber Barons

Great read - entrepreneurial spirit may be inherent to the human animal, but the institutional framework can incentive market (wealth creator) or political (wealth destroyer) entrepreneur. William Baumol's excellent book the The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism is a must read.

Sunday, March 14, 2010

Nice reply to Krugman

Not that corrections to Krugman deserve much attention, the following is excellent

Let me postulate the following theorem to Prof Krugman:

"Independent of how many fingerprints a forensic analyst can collect at any economic crime scene, invariably, there will be one set of fingerprints always present - that of the State"

And a corollary:

"These fingerprints will invariably lead an investigator to something with a word 'Social' or its derivative on it as a core entity partaking in the event".

The Krugman/deLong discourse is one that lacks integrity, civility and is intended to both deceive and to "pump up" their constituency.

This post reflects on my reading of Intellectuals and Society. Sowell really does a nice job of exploring the responsibility of intellectuals in society. Krugman illustrates the disservice to society of intellectuals engaged in a process of deception and sophistry. Given the platform that intellectuals use, it becomes essential that those of us who believe in liberty, choice and responsibility engage in civil discourse.

Saturday, March 13, 2010

Liberty Is Liberty

This is a wonderful reply to David Schmidtz's post over on the March CATO discussion. Tom Palmer challenges the underlying position by Schmidtz in a wonderfully engaging and thought provoking manner.

Liberty Is Liberty

Friday, March 12, 2010

Challenging blog post on Liberty over at CATO

Challenging blog post over on CATO on Liberty. David Schmidtz, the 2006 Keynote Speaker at the ASET conference is a wonderful scholar at the UofA, is a philosopher and administers Freedom Center at UofA.

Thursday, March 11, 2010

Speculators: The Devil You Know

Whenever something related to finances or money goes against what a group wants, it is speculators who are blamed. Consider the following recent statements: "Unprincipled speculators are making billions every day by betting on a Greek default," the Greek Prime Minister said Monday.
The economy is a mess, and there’s been a lot of finger pointing as to who caused the problem. Greed, lenders, speculators, the list goes on and on.

I received a note from U.S. Airways in my inbox today asking me to contact my Congressman to stop those evil speculators from causing oil prices to rise.
Dear U.S. Airways customer,
Several weeks ago, we wrote to you about skyrocketing oil prices and the impact that those prices are having on your quality of life. We urged you to get involved, learn more about the problem and to contact your members of Congress.

On Tuesday news arrived that the CFTC (a government agency that regulates commodity trading) is putting out a report blaming speculators for the big rise in gas prices that occurred a year ago, and the volatility in oil prices since.

Bill O'Reilly, who attacked speculators and `big oil' for playing a `rigged game' to rip off working Americans. O'Reilly endorsed proposals to virtually ban oil speculation (take that, free markets!), and Senator Joe Lieberman has proposed to ban futures trading by institutional investors. The "Stop Excessive Speculation Act," introduced by Democrats in Congress was designed to introduce various new restrictions on oil trading. And yesterday CFTC Chair Gary Gensler has called for new limits on speculative trading.

Why are speculators so reviled? What do they actually do? Consider the following two questions.
“How many of you are in favor of conservation?” and “How many of you are in favor of speculators?”
Most people see conservation as a noble activity that prevents people from squandering resources now to insure that adequate quantities will be available in the future. Most also see speculation as the greedy hoarding of valuable resources now in order to gouge those who will need those resources later. Is there a difference? Speculators are conservationists. Speculators decide that the price will be higher in the future and they attempt to profit on this potential movement by purchasing the item now so they can sell it back later at a higher price. This reduces the supply of the item now, thus raising the price now, so less is produced and consumed now. And, it increases supply in the future. What this does for the future is to increase the supplies in the future. This is Conservation.

\Whenever something related to finances or money goes against what a group wants, it is speculators who are blamed. Consider the following recent statements: "Unprincipled speculators are making billions every day by betting on a Greek default," the Greek Prime Minister said Monday.
The economy is a mess, and there’s been a lot of finger pointing as to who caused the problem. Greed, lenders, speculators, the list goes on and on.

But many people argue that Speculation is “Disruptive”? A simple Google search on speculation is bad yielded the following: “There are two ways in which speculators can create damage through speed, and through excess. Speculators will tend to move rapidly -- if someone gets in ahead of them, they will lose potential profit. However, the speed (or volatility) which speculators bring to the financial markets can make it difficult for policy makers and central banks to react. Speculation, therefore, may not give policy makers a fair chance to correct the fundamental problem that the speculators are exploiting.” What? Speculation is bad because it speeds the allocation of resources to where they are most highly valued and doesn’t enable policy makers a “fair” chance to intervene? This seems like a very silly argument.

Another silly argument is the following? Speculators may take things to excess. If a market moves in a clear direction (for fundamental reasons), speculators may seek to push the market beyond its fundamental fair value, with the aim of squeezing out a little more profit from the trade. This can create overshooting (either a bubble or a collapse) in asset prices. Overshooting? If speculators cause overshooting, then the speculators are losing money. Speculators make money only if they conserve wisely—buying resources (holding them off the market) when they are less valuable and selling them (making them available) when they are more valuable. If speculators don’t conserve enough, they pass up profitable opportunities to buy low and sell high, and if they conserve too much they lose money by buying high and selling low. The speculator who consistently makes mistakes is soon relieved of the money necessary to continue speculating.

For example, at the first indication that next year’s Brazilian coffee crop will be devastated by a frost, speculators will immediately purchase raw coffee beans to store them until next year. Consumers will still see plenty of ground coffee in the stores, but suddenly the prices will be higher. What consumers don’t see is that coffee prices will be lower next year than they otherwise would have been because they are higher today, and that their reduced consumption today will be more than compensated by their greater consumption later.

All right, so speculation on commodities may actually help the allocation of resources, but surely speculation on economies is bad. Suppose investors thought an economy like Iceland was weak (large current account deficit, high inflation and external debt). Then speculators would sell the currency, in anticipation of its fall. This speculation would cause the currency to fall. Is this bad? It is nothing more than speeding up the process of the currency decline. If Iceland had been trying to maintain its exchange rate with the pound or the dollar but its currency was overvalued, speculators would see a profit opportunity by shorting the Iceland currency. It is simply the market functioning.

The latest calamity to arise because of speculators is the Greece situation. Speculators are purchasing credit default swaps on the Greek bonds. Credit-default swaps function like insurance against a bond default. If a borrower defaults, the CDS holder is paid by the seller of the protection. A CDS is a contract under which one side pays an annual fee to buy protection against default, while the seller promises to cover losses in the event of a default. They are in effect an insurance policy against defaults of bonds and other debt. The buyer gets a payoff if the underlying bond goes into default.

Traders don't need to own the bonds to buy the protection. Instead, they can use the contracts to make "naked bets" on a bond's direction. So, as financial problems mounted for Greece and other euro-zone countries in recent months, prices of swaps insuring against debt default by those nations soared, drawing attention to the troubles and raising questions about whether speculation was worsening them.‪ The increased demand for CDS raises the price of the CDS and thus raises the cost to Greece or the other countries to borrow. The interest rate on Greek debt goes up. This is shown in the following illustration taken from the Wall Street Journal March 3, 2010, section A. In the top part of the illustration is the typical purchase of a CDS by an investor on a bond the investor holds. In the bottom part of the illustration is the “naked” transaction where the investor (read speculator) is purchasing a CDS but does not own a bond.

Greece's ailing state finances are increasingly attracting speculators. The hedge funds are operating very aggressively in the market. The funds have been dealing in the credit default swaps (CDS) on a large scale. In the case of Greece, the dealers in CDS are betting that the Greek government won't be able to repay its debts and that the price of CDS will therefore rise. This drives up the cost of Greek debt (raises their interest cost) and makes it more expensive for Greece to borrow to make cover its government deficit.

If Greece is bailed out it, the CDS won’t pay off. However, speculators are taking precautions against a bailout by purchasing Greek bonds in the futures market. Then if Greece is bailed out, the price of the bonds will rise as interest rates fall. Of course, if Greece is bailed out, there will be a domino effect in which other indebted states will also have to be bailed out. That will cost all euro countries - including the relatively stability-oriented ones such as Germany - a lot of money,"
Athens blames financial speculation for worsening the country’s problems and wants the G20 to discuss curbs. International momentum is building for stricter oversight of derivatives trading, as a top U.S. regulator recommended new limits on credit-default swaps and European leaders pushed for a ban on speculative bets against government debt following recent financial turmoil in Greece. In the U.S., Commodity Futures Trading Commission Chairman Gary Gensler in a speech Tuesday offered his most-specific criticisms yet of credit-default swaps. German Chancellor Angela Merkel said Tuesday that her government is backing an initiative to curb the credit-default swaps market, together with France, Greece and Luxembourg, and she suggested Europe would forge ahead on its own even if the U.S. didn't go along. José Manuel Barroso, president of the European Commission, the European Union's executive arm, said the commission would examine closely the possibility of banning outright "purely speculative" trading of the swaps.

Why would the governments want to ban the use of CDS? Because of the pressure the speculators put on Greece and the EU. There is no cheap solution so long as CDS can be purchased. The thinking is that should the CDS be banned, then Greece could be bailed out without as much fear of a domino effect on other economies. But CDS is not the only way the speculators can ensure resources are allocated to their highest valued uses. If CDS are banned, other financial instruments will arise to take their place.

The Current State of Liberty

The Current State of Liberty

Wednesday, March 10, 2010

The Wrong Person Wins The Great Economist.Com Finance Debate

The Economist has regular online debates - this one highlights what Thomas Sowell calls the Conflict in Visions. Lets hope that, if the unconstrained, anointed vision of Stiglitz et al prevails, that we are not on the Road to Perdition.

Healthcare: Inevitable or Impossible? - Business - The Atlantic

Interesting piece - the health care "debate" illustrates what Bob Higgs describes as the inevitable increase in both scale and scope of government. This trend which began to accelerate with Lincoln in the Civil War takes energy from war. So following the wars on poverty, drugs, discrimination does this debate signal a war on rights.

Megan writes:

They're both right! Where does that leave us? At a defining moment in American legislative history . . . the Mothra v. Godzilla, irresistable force v. immovable object, rock v. hard place of policymaking. It can't pass and it can't fail.

Yet it must do one or the other.

All I can say is, pass the popcorn.

Monday, March 8, 2010

Equality v inequality

Boyes asserts, correctly in my view, that economists can and do disagree. This post exemplifies the disagreement in economics over the fundamental trade off between efficiency and equity. I view this trade off as one between liberty and security. In any event, the feminist viewpoint is only one of many that comprise the unconstrained or anointed vision that I am currently considering in my reading of Intellectuals and Society.

This fundamental disagreement is one of many compelling reasons to consider what responsibility participants hold to engage in civil discourse. Dan Klein joins with Thomas Sowell in challenging those of us who advocate for liberty to engage in a debate over the fundamental disagreement over the trade off between liberty and security.

Sunday, March 7, 2010

Keynesian vs. Efficient Markets vs. Austrians

Do economists disagree? Absolutely. Forget the viewpoint that says, "economsts agree on 99 percent of everything; it is just some policy prescriptions on which they differ. No Way! I was in NYC last week doing some work on my principles textbook. I also gave a talk that followed one by Alan Blinder. Blinder sstated that he is Keynesian as is his textbook and "... given the last two years he certainly made the right call..." in being Keynesian. He essentially said the war is over, the efficient market hypothesis has been totally destroyed because it does not permit or explain bubbles and crashes. So from his viewpoint (and the viewpoint of other Keynesians) there are only two explanations of economic behavior, Keynesian and the strong form of the EMH.

What about Hayek and the Austrian perspective? It was really fascinating that Blinder did not even mention Hayek. I guess he believes that the battle begun in the 1930s that Keynes initially won has never been in doubt. To the Keynesians, Hayek is just a footnote in history.

Labor mobility is liberty

Recent discussion online focusing on entrepreneurship and labor mobility underscore the importance of adaptive efficiency to opportunity, choice and liberty.

A key thread in this discussion has been the entrepreneurial expression that responds to institutional incentives. Institutions that are adaptively efficient tend to incentivize market entrepreneurship which stimulates innovative, wealth creating activity. This is in contract to formal institutions that attempt to impose a set of rules upon society. This is illustrated well in the discussion of the labor market in the US, specifically in protection of jobs and limits to immigration.

Russ Roberts directs us to the NPR story - The Jobs Of Yesteryear: Obsolete Occupations. This multimedia presentation reflects the absurdity of a centralized, tops down imposition of workplace/occupational protection - the kind we see today in the US in the auto and textile industries.

The familiar limit on labor mobility is discussed over on The Coordination Problem.

The impact of institutional efforts to dominate free choice are seen above. I tend to find the blogger's reaction intriguing and convincing as an example of the constrained vision.

Ending minimum wage laws is one of four planks in Horwitz's Urban Renewal Program:

1. End minimum wage laws

2. Legalize drugs

3. End occupational licensure laws

4. School choice/competition

I think even more important to the discussion of opportunity, choice and liberty is the issue of immigration. A new NBER - The Effect of Immigration on Productivity: Evidence from US States by Giovanni Peri speaks to this issue and, I think, provides fruitful ground for a debate about the role of liberty and freedom when thinking about immigration.

Much like the atmosphere during the Great Depression when the populism of Coughlin and Long found a receptive audience, the atmosphere of the Great Recession brings Limbaugh, Beck, Olbermann replaying the totalitarian, fascist tune that is the heart of the intolerant opposition to freedom and responsibility. Benjamin Friedman points out the regularity of this intolerance in The Moral Consequences of Growth and I can't help but wonder, when this predictable and threatening 21st century cacophony of populist fear and intolerance which echoes Father Coughlin in the 20th century and the aptly named Know Nothings of the 19th century will inevitably fade away

Or am I being unreasonably sanquine in my expectation that, once our economy recovers, Friedman's analysis will hold, and a greater sense of tolerance resulting not from increased awareness, but from a perceived advancement of standard of living will dampen the populism.

Peri reports a number of distinct findings. First, immigrants do not crowd-out employment of (or hours worked by) natives; they add to total employment and reduce the share of highly educated workers, because of their larger share of islow-skilled relative to native workers. Second, immigrants increase total factor productivity. These productivity gains may arise because of the more efficient allocation of skills to tasks, as immigrants are allocated to manual-intensive jobs, promoting competition and pushing natives to perform communication-intensive tasks more efficiently. Indeed, a measure of task-specialization of native workers induced by immigrants explains half to two thirds of the positive effect on productivity.

Third, Peri finds that inflows of immigrants decrease capital intensity and the skill-bias of production technologies. The decrease in capital intensity comes from an increase in total factor productivity; the capital-to-labor ratio remains unchanged because investment rises coincident with the inflow of immigrants. The reduction in the skill-intensity of production occurs as immigrants influence the choice of production techniques toward those that more efficiently use less educated workers and are less capital intensive.

Finally, Peri finds that for less educated natives, higher immigration has very little effect on wages, while for highly educated natives, the wage effect of higher immigration is positive. In summary, he finds that a one percent increase in employment in a US state, attributable only to immigration, is associated with a 0.4 to 0.5 percent increase in income per worker in that state.

In a time of economic stagnation the emotional populism of totalitarians outweighs the traditional adaptive efficiency of a free and open society. Our history suggests that this destructive force ebbs and flows with the business cycle, perhaps we have suffered the apex of the populism reacting to the Great Recession. Pera suggests that it would be in the interest of society if we did.

Friday, March 5, 2010

Thursday, March 4, 2010

Annotated "Fear the Boom and Bust"

This source does a great job of annotating the video and a bonus, you can vote at the end of the rather long posting. As of this morning Hayek collected 1200 of the 1400 votes casts.

More - Keynes v Hayek

Stephen King (the Brit, not horror writer) makes the following comment in discussion UK v US economic performance.

It's worth going back to the 1930s debate between John Maynard Keynes and the Austrians. For Keynes, economies could settle at different levels of activity, from full employment through to the deficient demand associated with recessions and depressions. The losses associated with these periods of deficient demand could be corrected via government intervention designed to lift animal spirits, thereby bringing markets back to their senses and allowing full employment to be regained.

This story is central to those who believe that the world economy is on a sustained recovery path. Seen through Keynesian eyes, the recession was a failure of market forces associated with a collapse of animal spirits. All that's happened over the past 12 months is that, slowly but surely, those animal spirits have been revived.

For the Austrians, led by Friedrich Hayek, government (and central bank) intervention often made matters worse. Indeed, an Austrian take on the crisis would argue that the damage was done not during the crisis itself through a failure of animal spirits but during the earlier boom, a period during which central banks left interest rates too low, thereby distorting the cost of capital and promoting excessive investment in real estate. This "wasted" investment now means that the capital stock is less effective than it should be, lowering the economy's long-term growth rate on a permanent basis.

Tuesday, March 2, 2010

Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History

The conference below will focus on a discussion of an important book co authored by Douglass North.

Click here to go to

Members-only Conference

on the history of world economic development

Co-sponsored by



Dr. Douglass C. North

Nobel Laureate in Economics


Dr. John Wallis,

University of Maryland
National Bureau of Economic Research



Violence and Social Orders

A Conceptual Framework for Interpreting Recorded Human History


$200 Stipend

April 23 & 24, 2010, Omaha Nebraska

Lodging and meals provided by the FTE

Nights of April 23 & 24, double occupancy with another participant,

single room cost additional $130

  • Conference restricted to FTE Professional Teachers Association members

  • Acceptance by application only. Deadline: March 5, 2010. Space is limited.

  • Email notification of acceptance by March 10, 2010.


To view sample agenda click here


Ken Leonard,



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