Archives: 05/2006

Beinart on Being Wrong

Peter Beinart, among the loudest and most passionately pro-Iraq-war liberals, recently got a generous book deal to write about what Democrats should do about foreign policy.  Beinart has since recanted his support for the war, admitting (with a list of excuses) that it was a mistake. 

Kevin Drum interviews Beinart about his book at the TNR website (sub. req’d.) and asks this: 

KD: The obvious question, then, is with a track record like [yours] why should anyone listen to you now? 

PB: Anything one writes deserves to be judged by itself. The Democratic Party nominated someone in 2004 who had been flat wrong in his opposition to the Gulf War in 1991, I think most people would acknowledge that.* Many people who were very prominent figures in the Democratic foreign policy debate and the Democratic Party in general–most of the people who were there at that time in 1991 were wrong about that. The vast majority of the party was wrong, and yet it still seems to me that we have things to learn from people like Sam Nunn or John Kerry. If you were to go from the Gulf War through Kosovo and Iraq, you would find that a large number of people in every facet of the liberal Democratic universe were wrong, on at least one of those wars. Very, very few people were right about all three of them. The people who were–and I think Al Gore is in this category–deserve a significant amount of credit, but the truth of the matter is, if you were looking for an untainted record, you would find very few people. (emphasis added) 

Per Beinart, pundits’ predictions deserve to be judged by themselves.  So if someone has a consistent record of making wrong predictions and embracing dubious premises in support of a policy that turns out to be a catastrophe, when that person starts issuing declarations about similar issues, we shouldn’t pay any attention to his track record, apparently.   

That’s pretty convenient.  There were plenty of folks who got Iraq right.  Beinart got it wrong, and yet has hardly missed a beat in urging an interventionist foreign policy on his fellow liberals.  Something’s a bit odd there. 

*(I’d certainly quibble with Beinart’s belief that Gulf War I was a slam dunk success.  It put US troops in Saudi Arabia which served as a “principal recruiting device” for Osama bin Laden to rally support against the United States and laid the groundwork for the second war against Iraq.  But that’s a separate matter…) 

A Flood of Immigrants?

In the midst of the Senate debate on an immigration bill this month, the Heritage Foundation published a report claiming that legalization of undocumented workers already here and creation of a temporary-worker program would unleash a flood of more than 100 million new immigrants in the next 20 years. The headline-catching number turned heads on Capitol Hill, provided grist for talk radio, and hardened the opposition to immigration reform.

In hindsight, however, the number looks less and less plausible. Consider: If immigrants did come in such numbers, the average would be 5 million a year. That compares to an average immigration inflow, legal and illegal, of about 1.5 million during the past decade. The U.S. economy simply could not produce enough jobs each year during the next two decades to attract and employ that many immigrants. We also know from experience that previous attempts at legalization did not unleash a flood of so-called chain migration, in which newly legalized and naturalized workers sponsor spouses, children, parents and siblings. Check out an op-ed article posted today on the Cato web site that spells out in detail why the 103 million figure is a gross exaggeration. 

The Congressional Budget Office, in its own study [.pdf] released May 16, calculates that immigration reform along the lines of what the Senate passed last week would increase immigration over the next decade by less than 8 million. And an analysis by the President’s Council of Economic Advisers found numerous methodological faults with the Heritage study, including double counting and failure to account for emigration.

The Heritage study generated a lot of heat in an already over-heated immigration debate. Unfortunately, it failed to provide any real light.   

HSAs Grow Faster than Critics’ Understanding of HSAs

An article in today’s Detroit Free Press reports that health savings accounts (HSAs) are catching on, and showcases some of the less-valid criticisms HSAs.

In the article, Jason Furman of the Center on Budget and Policy Priorities argues that a family of four with an annual income of $30,000 and the usual expenses is unlikely to be able to save $5,000 per year in an HSA.

There are a number of problems with that argument.  For example, it doesn’t address the question, “Compared to what?”  The alternative to HSAs is usually comprehensive third-party health coverage, which carries much higher premiums than high-deductible health insurance.  If the family can’t afford to save, where are they supposed to get the money to pay those higher premiums?  Also, there’s nothing in the HSA law that says a family must have $5,000 of cost sharing.  The family’s cost sharing could be as low as $2,100.  (Less cost sharing means higher premiums, but shouldn’t the family be able to make that tradeoff for themselves?)

The article raises a number of other criticisms of HSAs, all of which I address in a study released today by the Cato Institute titled, “Health Savings Accounts: Do the Critics Have a Point?

Peruvian Elections and the Future of Latin American Populism

The upcoming Peruvian runoff elections for president may provide another sign that the wave of Hugo Chavez-style populism in Latin America has crested. The contest is between Alan Garcia–a former populist president who ruined the country during his term (1985-1990) with heterodox economic policies (Peru was set back 30 years in terms of per capita income; had 7,000 percent inflation in 1990; and much of the country was controlled by the Shining Path guerrillas)–and Ollanta Humala–an extreme nationalist and populist who, following the example of Chavez, led a brief but failed rebellion against the outgoing regime of President Alberto Fujimori in 2000. Humala´s popularity among the most disenfranchised of Peru´s poor, especially in the country´s interior, went virtually unnoticed among Peru´s elite and the press until last year. (Peruvian adjunct scholar Enrique Ghersi was alone in foreseeing this development in an op-ed in the Christian Science Monitor in 2003).
 
Garcia promises to run a responsible government that respects the constitution and the separation of powers, including the independence of the central bank. Humala promises nationalizations, a rejection of the free trade agreement with the United States pending in the congress, a constituent assembly to draft a new constitution, and the arrest of corrupt ex-presidents including Garcia himself. 

Polls give Garcia a lead in the June 4 elections, especially among voters in urban areas and along the coast. Peruvians don´t love Garcia; many who plan on voting for him even hate him but consider him a lesser of two evils who will stick to democracy and be constrained by a Peruvian economy that is much more open than it was during the 1980s. Humala´s authoritarianism promises to change the rules of the game in a way that scares most Peruvians.
 
I’m writing from Moyobamba, Peru.  In the rural areas surrounding this jungle town where the Andes turn into the Amazon rain forest, most villages have no sewerage or running water and electricity for some areas is recent. Rural Peruvians here will vote for Humala. But those votes are not necessarily ideological. Many will vote for Humala because they feel they have nothing to lose from rejecting the traditional political system that has served them poorly. Indeed, were the supposedly neo-liberal former president Fujimori (1990-2000) allowed to run again, the poor here would overwhelmingly give him their votes. The two most popular presidents in this part of the country are Fujimori–for pacifying the country by getting rid of leftist guerrillas who terrorized rural areas–and Fernando Belaunde, who in the 1960s built major roads connecting the region to the rest of the country. 
 
Garcia´s likely election will be a blow to Hugo Chavez. Chavez has explicitly endorsed Humala, leading to heated and continuing exchanges between Chavez and Garcia, who accuses the Venezuelan president of interfering in Peru´s internal affairs and of planning on using Humala as his puppet. Chavez may have an ally and a client in Bolivian President Evo Morales, but his Bolivarian dream of uniting Latin America under his leadership is being undermined by a Latin American reality: Latin America´s usually irresponsible governments more often than not, thankfully, do not get along. 
 
Thus Brazil and Bolivia are in a dispute over Bolivia´s nationalization of gas companies that belong to Brazil and provide that country with much energy; Mexican President Vicente Fox has clashed publicly with Chavez about Mexico´s relations with the United States; and the leftist governments of Argentina and Uruguay are in a heated dispute about a border issue. 
 
The election of Garcia will not be a victory for market liberals or a definitive defeat of populism. As a Peruvian economist recently described to me, Peru, with its long coast and Andean and jungle interior, is part Chile (modern and open) and part Bolivia (more backward and isolated).  A Garcia presidency will be mostly mediocre with a possibility of market reforms in some areas (agriculture and perhaps property titling, for example) and with Humala as a remaining, significant irritant. 
 
Such is the uneven pace of progress in Latin America these days. But it would be progress nonetheless. The next bit of major good news in the region may come from Mexico, where presidential elections in July may result in the rise to power of Felipe Calderon, a market liberal now leading in the polls, and the defeat of populist Andres Manuel Lopez Obrador, Chavez´s favored candidate.

Jump Ship!

Thursday’s New York Times Economic Scene article by Austan Goolsbee made the rounds late last week. Here’s Alex Tabarrok’s take. Be sure to read the comments. From the left, here’s Lindsay Beyerstein and commenters. Goolsbee presents research that shows that the state of the economy when you take your first job can have a long-lasting effect on future earnings:

Lost in the argument over whether young people today know how to work, however, is the mounting evidence produced by labor economists of just how important it is for current graduates to ignore the old-school advice of trying to get ahead by working one’s way up the ladder. Instead, it seems, graduates should try to do exactly the thing the older generation bemoans — aim for the top.

The recent evidence shows quite clearly that in today’s economy starting at the bottom is a recipe for being underpaid for a long time to come. Graduates’ first jobs have an inordinate impact on their career path and their “future income stream,” as economists refer to a person’s earnings over a lifetime.

The importance of that first job for future success also means that graduates remain highly dependent on the random fluctuations of the economy, which can play a crucial role in the quality of jobs available when they get out of school.

[…]

These data confirm that people essentially cannot close the wage gap by working their way up the company hierarchy. While they may work their way up, the people who started above them do, too. They don’t catch up. The recession graduates who actually do catch up tend to be the ones who forget about rising up the ladder and, instead, jump ship to other employers.

What’s really the advice here? Shoot for the top, or do a lot of switching? Goolsbee seems to be endorsing aiming for the top, but the last sentence above, about jumping ship, seems to support something else altogether.

In 1995, with my degree in Studio Art and the History and Philosophy of Art firmly in hand, I landed a plum “you want fries with that” gig at the Arby’s in the Iowa City mall. I guess I should be glad I didn’t try work my way up the Arby’s ladder!

Stanford’s Paul Oyer, whose study Goolsbee cites, says: “Try to get lucky. And also, think carefully about that first job because it can matter for the rest of your career.” Isn’t this is terrible advice?

First, Oyer assumes that maximizing lifetime income is our goal, which is absurd. I imagine you should try to get a job you will like. And it is lucky indeed to hit the career bullseye with the first throw. So you should simply assume that you won’t get lucky, won’t get the dream job out of the gate. Even if you do get the dream job, you’ll likely find that it’s not such good luck after all, and find yourself dreaming a different dream. It will take a while to find the right fit, so plan for that.

Still, even if your goal is lifetime income maximization, the article seems to indicate that you should bail from your first job just as soon as you can get one that pays more. Your earnings are path-dependent as long as you stay on the same path. So don’t. Switch paths. The days of 35 years, a gold watch, and a pension are long gone.

Anyway, why even try to get lucky with your first job? If I’m giving advice to undergrads, I’m going to tell them to study something they really enjoy—something they’ll get satisfaction from for their rest of their lives. I don’t use it on the labor market, but my art history major is and will continue to be a source of enjoyment to me. About the first job: don’t think ladder, think springboard. (However, if you’re studying something interesting but not very marketable, make sure you get some real work experience in another area, so you don’t find yourself in the dread category “educated but unskilled.”) As I mentioned before, people are afraid of volatility, but many would be happier if they took more risks. In a society like ours, a good diploma from any decent college, grad, or professional school is pretty much all the safety net you’ll ever need, especially when young and childless, so the risk of job-switching isn’t actually very risky at all.